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Deconstructing fertilizer price spikes: Evidence from Chinese urea fertilizer market

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  • Hu, Zhepeng
  • Yan, Lei
  • Yuan, Jinghong
  • Etienne, Xiaoli

Abstract

Recent fertilizer price spikes in 2021–2022, coupled with government interventions by major exporting countries, have raised global concerns about food security. This study investigates the key drivers of urea prices in China—the world’s largest producer and a major exporter. First, we analyze price transmission between China’s domestic spot and export urea markets, finding no cointegration even prior to the export restrictions introduced in October 2021. Next, we employ a structural vector autoregression model to examine domestic urea price spikes, using a heteroskedasticity-based identification strategy that allows for smoothly transitioning covariances. We decompose urea prices into four structural shocks: supply shocks driven by energy price changes, demand shocks linked to crop price fluctuations, export demand shocks, and market-specific idiosyncratic shocks unrelated to the first three. The findings reveal that rising energy costs and idiosyncratic factors were the main drivers of urea prices in China from 2018 to 2023, while shocks to corn prices and export demand had a smaller impact. Overall, the results indicate that recent export restrictions have had limited influence on domestic urea prices, calling into question the effectiveness of China’s October 2021 export restrictions as a price stabilization measure.

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  • Hu, Zhepeng & Yan, Lei & Yuan, Jinghong & Etienne, Xiaoli, 2025. "Deconstructing fertilizer price spikes: Evidence from Chinese urea fertilizer market," Food Policy, Elsevier, vol. 133(C).
    • Handle: RePEc:eee:jfpoli:v:133:y:2025:i:c:s0306919225000338
    DOI: 10.1016/j.foodpol.2025.102829
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    JEL classification:

    • Q13 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Markets and Marketing; Cooperatives; Agribusiness
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q18 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Policy; Food Policy; Animal Welfare Policy
    • Q17 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agriculture in International Trade

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