An Iowa-based company has asked the U.S. Department of Commerce and the U.S. International Trade Commission to investigate the dumping of imported Chinese glyphosate herbicide onto the U.S. market, causing prices to collapse.
Albaugh Inc., a privately-held manufacturer of off-patent crop protection products filed the petition March 31. The firm, headquartered in Ankeny, asked the U.S. government to investigate the dumping after it was found that Chinese glyphosate is being sold in the U.S. for less than cost of production. Glyphosate is the world's largest selling herbicide.
In 2007 Chinese glyphosate producers increased the price of the weed killer by 400%. That price increase encouraged more production to be built which led to Chinese glyphosate producers having a production capacity of 650 million to 700 million gallons which is 150% of the global glyphosate market. In 2008, Chinese glyphosate producers started dumping the herbicide onto the U.S. market.
By law, dumping occurs when a foreign company sells a product in the U.S. at less than "normal value." A country that feels it is the victim of dumping can impose special tariffs on the affected products.
Exceptional price volatility caused by Chinese government policies
"We've filed the petition in response to the trade practices of Chinese manufacturers, who have dramatically and irrationally increased their glyphosate production capacity over the last three years, which has destabilized glyphosate markets in the U.S. and around the world," says Spencer Vance, president of Albaugh, Inc. "This has led to unprecedented volatility in pricing of glyphosate, affecting not only U.S. manufacturers like Albaugh, but U.S. farmers who depend on this herbicide."
Glyphosate production is energy and capital intensive, but not labor intensive. Thus, China has no competitive advantage in glyphosate production. There's no sizeable domestic demand for glyphosate in China as the Chinese market is relatively small. Chinese producers have been encouraged by China's government to expand their capacity to capture export markets around the globe, says Vance. Their government does this by granting export incentives such as tax rebates to glyphosate producers. Also, lack of wage and environmental standards in China and an undervalued Chinese currency all effectively subsidize unfair trade and pricing practices.
Glyphosate herbicide is an important input for American farmers
In 2006 Albaugh built a $40 million glyphosate manufacturing facility in St. Joseph, Mo. This investment provided U.S. farmers with security of additional supply at a time of rising demand and tripled the size of Albaugh's workforce. In response to the collapse of glyphosate prices, however, Albaugh was forced to cut its production and made substantial layoffs of its workers in mid-2009.
"Glyphosate has become a key input for farmers throughout the U.S.," says Dennis Albaugh, chairman and owner of Albaugh Inc. "Its efficiency and versatility as well as safety have made it an integral part of farmers' herbicide programs. It is imperative that the American farmer has a dependable supply of quality product and is insulated from the huge volatility in supply and pricing that we have recently experienced."
Key question: Do U.S. farmers want a domestic supply of glyphosate?
It is not in the interest of U.S. farmers to allow the Chinese to corner the glyphosate market, he adds. Similar conditions have led to the relocation of the fertilizer industry largely offshore. "American agriculture can't afford the loss of U.S.-based production of another key agricultural input," says Albaugh.
The anti-dumping petition seeks to do nothing more than restore a reasonable balance of glyphosate supply and demand, at least in the U.S. market. He believes the petition, if granted will make glyphosate pricing in the U.S. more stable and less volatile, and make the supply more secure and dependable for farmers here. The petition process is expected to take about a year to complete, so it isn't expected to impact the glyphosate market in the 2010 crop year.
A key issue in the trade battle is do U.S. farmers want a domestic supply of glyphosate? If the Chinese take over the glyphosate market, Albaugh says, farmers will be dependent on foreign sources and potentially face high prices.
Here's a copy of a letter from Dennis Albaugh concerning the situation:
TO THE FARMERS OF AMERICA:
On March 31 Albaugh, Inc., a U.S. manufacturer of glyphosate, the world's largest–selling herbicide, filed a petition to impose anti-dumping duties on glyphosate imported into the U.S. from China. I want to take this opportunity to explain to you the reasons for this action.
As a grower and a user of glyphosate-based herbicides, you are no doubt familiar with the dramatic volatility that the glyphosate markets have seen since late 2007. Faced with anticipated scarcity of the product, the Chinese producers increased glyphosate pricing by more than 400% between the fall of 2007 and the spring of 2008. Growers saw the cost of their glyphosate products skyrocket to as much as $30 a gallon.
The rising prices inspired Chinese producers to increase manufacturing capacity, fueled by Chinese government export incentives and without the constraints of environmental controls with which U.S. businesses must comply. However, this capacity expansion proved to be overheated, and as a result the Chinese producers have dumped their product on our shores at prices that are below their costs of production.
Albaugh is a privately-owned company based in Ankeny, Iowa which for years has formulated glyphosate products for farmers. In 2006 Albaugh opened its glyphosate manufacturing plant in St. Joseph, Mo., which has the ability to synthesize the glyphosate molecule and supply a substantial part of our country's needs. We are the only other U.S. manufacturer of glyphosate besides Monsanto. However, due to these unfair trading practices, our company was forced to shut down our plant in 2009, and as a consequence has let go a significant number of our workers.
Our U.S. glyphosate manufacturing base is endangered. Imagine an environment where U.S. farmers who have purchased glyphosate resistant seeds are totally dependent on Chinese producers for glyphosate supply. The Chinese producers have already demonstrated how they will increase pricing if we are reliant on them to supply the market. We have also seen the real and harmful risks that can be posed by relying on China, with its lax environmental and product quality standards, to supply our needs for such products as pet food, drywall and toys for our children. We cannot allow American agriculture to become as dependent on China for glyphosate as our country is dependent on foreign oil.
As an Iowa farmer and independent businessman, I ask all American farmers to support our anti-dumping petition so we can preserve our domestic glyphosate manufacturing base, restore jobs and economic growth in the heartland, and provide for the long-term security and stability of glyphosate supply for the American farmer.
Thank you for your support and for your business.