Brazilian president Luiz Inácio Lula da Silva told local media last week that a final proposal to create a national fertilizer company would reach the Brazilian legislature by the end of the month. The plan under consideration would create a national company with the suggested name Fertilizers of Brazil – Febrasa – and would be under the control of the agriculture ministry.
Whether the company is a wholly-owned state enterprise or a joint venture with the private sector is still up in the air. If there were private sector involvement, reports said, the government would keep controlling interest.
According to O Estado de Sao Paulo, regardless of the legal structure, a board of directors and a supervisory council would run the company. How the board and council would be named was not spelled out.
Discussions regarding setting up a national fertilizer company started more than a year ago when global fertilizer prices were skyrocketing. Political leaders complained that private fertilizer companies did not do enough to force down prices.
One of the targets of the complaints was mining giant Vale. The Lula government was critical of Vale for not being more aggressive in exploiting its potash and phos rock holdings.
In the past 18 months, Vale has increased its holdings in the fertilizer sector. Last month’s purchase of select assets of Bunge and the Mosaic and Yara shares of Fosfertil moved Vale into the forefront of fertilizer production and distribution in the country. It is already a major player in the extraction of raw materials such as potash and phosphate rock, but Vale has not stepped up production to levels that would satisfy government critics.
The government argues that by increasing domestic production, Brazil would be less vulnerable to the global shifts in price. The agriculture minister told Estado that 10-30 percent savings on the price of fertilizers could be passed on to the end users in the country by breaking up what he called a cartel of fertilizer companies. Brazil currently imports 91 percent of its potash needs.
Vale expanded its potash production capacity in the past year with purchases of reserves in Argentina and Saskatchewan, Canada. It has one potash mine operating in Brazil. The firm is looking at more operations in the country and in Argentina.
Besides depending on imports for its potash needs, Brazil imports 49 percent of its phosphate and 75 percent of nitrogen-based fertilizers. The goal of the proposed national fertilizer company would be to regulate the industry and review taxes and royalties for the fertilizer and mining industries. The documents Lula will present to the legislature will include a call to make Brazil self-sufficient in fertilizers by 2020.
Some industry experts are critical of both the idea of a national fertilizer company and the call for self-sufficiency. The criticism against the national company is based more on political tendencies. The proposal strikes members of the private sector as another move by Lula and his party’s candidate for the presidency to strengthen the public sector at the expense of the private.
Analysis in the Brazilian media has also focused on the tendency of the Lula government to propose more state control of vital areas of the economy. Lula’s choice for president, Dilma Rousseff, is often described as having an even stronger tendency toward nationalization to deal with economic issues than Lula.
As for the issue of self-sufficiency, few in the industry see the 2020 deadline as realistic. “If we import today 65 percent of our total consumption of 24.5 million mt,” one analyst said, “that means 10 years from now we will be needing something close to 40 million mt of NPK. Please tell me, how will we achieve self-sufficiency in 2020? This is completely unrealistic.” She added that to fulfill the demand to be self sufficient, the Amazon rainforest region would be affected. “Do you believe it’s possible to put away part of the Amazon in the name of potash?”
