Fertilizer producer pricing in developing countries

This paper focusses on the setting of ex-factory prices for the producers of fertilizers in the developing world. Regardless of whether prices are determined by the free market or by an official agency, to be economically optimal they should perform several objectives: (1) the provision of stimulus to mobilize and allocate adequate resources for fertilizer capacity expansion; (2) encouragement of the optimal choice of process, effective control of feedstock and other operating costs; (3) satisfactory levels of capacity utilization; and (3) where necessary, closure of obsolete, high cost plants. Most developing countries set prices by: (1) reference to the estimated costs of domestic producers; or (2) reference to international market prices. The strengths and weaknesses of alternative approaches are evaluated and practical recommendations made on improving incentives for efficiency in the sector.