CS concludes study in the fertilizers sector

“The study revealed that the fertilizers market in El Salvador is concentrated, mainly in the supply from two economic agents, which are present in all Central American countries. Likewise, to promote more competition in the sector, it is necessary to promote competition not only at a national level, but also at a regional level in order to increase economic efficiency and consumer welfare”, said Celina Escolan Suay, President of the BD of the CS.

Press Release C.19-09

El Salvador, April 29th, 2009

Competition Advocacy: Studies

CS concludes study in the fertilizers sector

The Competition Superintendence (CS) concluded a study on the competition conditions in the country´s fertilizers sector.

The CS finalized a study on the competition conditions of the fertilizers sector, from which the Board of Directors (BD) of the CS issued recommendations to improve the sector´s performance.

The fertilizers market in El Salvador is mainly concentrated in the supply, which comes from two economic agents. The international market functions in the same manner. Competition advocacy programs must be carried out, as well as national and regional monitoring in order to improve the sector´s performance, which will increase the economic efficiency and the consumers´ welfare.

Public policies, applicable legislation, evolution of the principal variables that describe the sector´s supply and demand such as: production, the different offered products in the market, prices, and market shares.

The relevant markets to be considered in the fertilizers sector are:

The global nitrogen, phosphate, and potassium fertilizers have an international geographic dimension, due to the fact that the producers are located in various countries.

The import market, fertilizers fractioning, formulation, bottling, and wholesale distribution have a national geographic range, just like the fertilizers trade and retail distribution.

Product Market Geographic Market1. Nitrogen, phosphate, and potassium fertilizers International2. Fertilizers imports, fractioning, formulation, bottling, and wholesale distribution National3. Fertilizers trade y retail distribution National

Study´s Main FindingsA. Due to the characteristics of the agricultural sector in El Salvador, the small agricultural producers are the

most unprotected producers who demand fertilizers. Said segment of the demand has important information asymmetries with respect to fertilizers supply diversification, types of adequate fertilizers of each soil and crop, and prices. These small agricultural producers generally buy individually in agro-services.

Edificio Madreselva, Primer Nivel, Calzada El Almendro y 1ª Avenida El Espino, Urbanización Madreselva.Antiguo Cuscatlán, El Salvador.

Conmutador (503) 2523-6600, Fax (503) 2523-6625 Comunicaciones (503) 2523-6616

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B. The governmental sector has an important volume of public purchases. Said purchases, although limited to ammonium sulphate, have achieved an important consumption volume at prices lower than those of the market. This type of programs directly protect the most vulnerable segment of agricultural producers since the product is delivered without cost to said sector.

C. The development of the fertilizers market in El Salvador, based on a diversification of the product supply, presents an improvement margin. The aforementioned is demonstrated by the fact that 50% of fertilizers sales in El Salvador are composed by ammonium sulphate and urea which are homogeneous and basic products that the economic agents import and bottle. Nevertheless, the different types of soils and crops in El Salvador require a product diversification that generates effective results.

At this point, even though in recent years the main economic agents have developed specialized formulas, but these are still in an expansion phase.

D. The principal fertilizers suppliers in El Salvador (FERTICA y DISAGRO) carry out their economic activity at a regional scale and are currently present in all the Central American countries. The size of the market at a regional level is very important in the entry decisions of potential new competitors.

E. Legal barriers to agents and products have not been observed, notwithstanding the fact that the absence of a regional legislation that organizes regional trade of fertilizers (and agrochemicals), in labeling regulations, could become an obstacle for the entry of competitive imports.

Public Policy Recommendation

1. Carry out investigation programs and develop new fertilizers or improvements to the existing ones, in order to diversify product supply with more effective results for each type of soil and crop;

2. Evaluate the development of technical assistance programs with the counsel and information for the small agricultural producers that include carrying out soil studies, in order to determine the more adequate fertilizers and recommend the types of products to be adequately grown according to these soils characteristics;

3. Evaluate the promotion of associativity of the small rural producers for the purchase of fertilizers and agricultural inputs that allow them improve their negotiation power and, thus, obtain better commercial conditions;

4. Evaluate the enlargement of the purchases of fertilizers with other products besides ammonium sulphate, so that this type of support programs can carried out focused on the soil and crop characteristics;

5. Monitor the different market indicators at local and regional levels, such as prices, production, and imports; and,

6. Promote the harmonization of labeling regulations at the Central American level, respecting the principles of inclusion, competition, transparency, and no discrimination.

Background

October 2008 The Cs initiated the fertilizers sector study.

April 28th, 2009 The BD of the CS issued public policy recommendations for the sector.



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ANNEXES

Annex 1. Market Characterization

1. Concept of Fertilizer: All substance or mixture of substances that are added to the soil or to plants in any form, in order to stimulate the increase in productivity of the soil and the growth or development of crops. The fertility of the soil is related with its productivity that depends on the availability of the main nutrients of the same, which are nitrogen (N), phosphorus (P), and potassium (k), and in the case of El Salvador, sulfur.

2. Consumption: The main fertilizers, considered in their consumption level in El Salvador, are the following: Ammonium sulphate: 21% N, Urea: 46% N, Formula 15-15-15, Formula 16-20-0, Formula 18-46-0, and Formula 0-0-60.

3. Prices:

USD 50

USD 250

USD 450

USD 650

USD 850

USD 1,050

USD 1,250

USD 1,450

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Urea perlada (FOB Yuzhny) Urea perlada (FOB Báltico) DAP (FOB USA Tampa) MOP granular (FOB Vancouver)

PRECIOS INTERNACIONALES EN FERTILIZANTESFuente: Fertilizer Week. Sitio de Internet: www. fertilizerweek.com - Actualizado al 10/julio/2008

Abreviaciones: DAP - Di Ammonium Phosphate - Fosfato de Amonio Doble; MOP - Muriate Of Potash - Muriato de Potasio - Cloruro de Potasio

Source: Fertilizer Week

b. The FAO projections indicated that the tendency to the raise would be reverted near the end of the last trimester of the year 2008 and during 2009. The available information to March 2009 confirmed these projections, since both FERTICA and DISAGRO have decreased their prices.

Prices of ammonium sulphate and urea in agro-services (US$) (January 2006 – December 2008)

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90.0SULFATO AMONIO 21% N ( 100 Kgs )

UREA 46% N( 150 lbs )

Source: Ministry of Agriculture and Cattle Breeding (in Spanish, Ministerio de Agricultura y Ganadería)



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c. As may be observed in the graph, the 100kg bag of ammonium sulphate varied from US$24.00, in January 2006, to US$56.00, in December 2008 (133%). The price of 150 pounds of urea in agro-services almost tripled: increasing from US$29.00, in January 2006, to nearly US$84.00, in October 2008, and decreasing to US$81.61 in December.

a. Since 2006, the international prices of the basic fertilizers began to increase, as shown in the graph. The prices to the final consumer (retailers) in agro-services in El Salvador have followed the international market tendency to the raise.

El Salvador is a fertilizers net importer and the domestic market is primarily determined by supply and demand conditions that influence international markets.

As an important pro competitive element, the retail distribution network (agro-services) is independent from the main economic agents (FERTICA and DISAGRO).

Annex 2 Legal Framework Applicable to the Fertilizers Sector

1. Law on Control of Pesticides, Fertilizers, and Products for Agricultural Use (in Spanish, Ley sobre el Control de Pesticidas, Fertilizantes y Productos para Uso Agropecuario), issued in May 4th, 1973, regulates the sector. The Ministry of Agriculture and Cattle Breeding (in Spanish, Ministerio de Agricultura y Ganadería) is the authority responsible for its enforcement.

2. The Central American Duty System approved by the Resolution No. 180-2006, issued by the Council of Economic Integration Ministers, on November 9th, 2006, (in Spanish, Sistema Arancelario Centroamericano), includes fertilizers import taxes and a specific one of 5% to NPK fertilizers imports (formulas composed of nitrogen, phosphorus, and potassium) and another 5% tax for superphosphate.

3. Protocol to the Central American General Economic Integration Treaty, (in Spanish, Protocolo al Tratado General de Integración Económica Centroamericana), published in the Official Gazette No. 112, Volume 323, dated June 16th, 1994.

4. Technical Obligatory Norms (TON) (in Spanish, Normas técnicas obligatorias “NSO”), on urea, ammonium nitrate, potassium chloride, ammonium sulphate, potassium, and magnesium are legally binding in the national market and include quality and labeling standards. The same were issued on July 30 th, 1998, yet they have not been regionally harmonized.

Public Policies

“Program for the Improvement of the Productivity of Basic Grains and Pastures”, (in Spanish, “Programa de Mejoramiento de la Productividad de Granos Básicos y Pastos”), initiated in 2007 and executed by the National Center of Agricultural and Forest Technology, ( in Spanish, Centro Nacional de Tecnología Agropecuaria y Forestal, “CENTA”).



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Business

CS concludes study in the fertilizers sector