Albaugh Inc., a privately held manufacturer of off-patent crop protection products headquartered in Ankeny, Iowa, announced it has filed an anti-dumping petition with the U.S. Department of Commerce and the U.S. International Trade Commission against imports from China of glyphosate, the world's largest selling herbicide.

By law, dumping occurs when a foreign company sells a product in the United States at less than "normal value." Albaugh filed its petition in response to the trade practices of Chinese glyphosate manufacturers, who have dramatically and irrationally increased their glyphosate production capacity over the course of the last three years, which has destabilized glyphosate markets in the U.S. and around the world. This has led to unprecedented volatility in the pricing of glyphosate, affecting not only U.S. manufacturers like Albaugh, but U.S. farmers who depend on this key agricultural input.

Glyphosate production is energy- and capital-intensive, but it is not labor-intensive. China therefore has no competitive advantage in glyphosate production. Furthermore, there is no sizeable domestic demand for glyphosate in China, the Chinese market being relatively small. Nevertheless, Chinese producers have been encouraged by the Chinese government to expand their capacity to capture export markets around the globe. The government does this by granting export incentives such as VAT rebates to producers. In addition, the lack of wage and environmental standards in China and an undervalued Chinese currency all effectively subsidize unfair trade and pricing practices.

Glyphosate demand skyrocketed in 2007. Glyphosate customers accelerated purchases to assure uninterrupted supplies of the product. In response, China increased prices of glyphosate by more than 400 percent, costs that were passed on to U.S. farmers. Although it was not immediately apparent, Chinese manufacturers were simultaneously expanding production to capitalize on the opportunity.

By 2009 it was apparent that the Chinese had grossly overbuilt production in an unsustainable way. Even Chinese market observers have characterized the expansion of China's glyphosate industry as "irrational," as China's production capacity alone is now estimated at more than 150 percent of total global demand for the product.

In response to this massive overproduction, global glyphosate prices collapsed beginning in 2008 and continuing throughout 2009. Chinese producers continued to flood the U.S. market with inventory and drove prices to levels well below their own cost of production, simply to dump excess inventory. Prices have fallen by as much as 75 percent since mid-2008 and are now well below cost of production cost for even the most efficient producers.

In 2006, Albaugh completed a $40 million glyphosate manufacturing facility in St. Joseph, Mo. This investment provided U.S. farmers with security of additional domestic supply at a time of increasing 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 workforce in mid-2009 for the first time in the company's history.

The Chinese industry, not the U.S. industry, created the conditions of oversupply that have led to the volatility in glyphosate pricing. The Chinese industry, therefore, must be the one to cut manufacturing excesses to bring supply back into alignment with demand. Unfortunately, rather than take the required action to address the problem, the Chinese government instead elected to increase the subsidies it pays on glyphosate exports so that Chinese producers would be able to lower their export prices even further and continue to dump the product on foreign markets, including the U.S.

"Glyphosate has become a key input for farmers throughout the U.S.," said Dennis Albaugh, chairman and owner of Albaugh Inc. "Its efficacy and versatility, as well as its low toxicity, 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."

It is not in the interest of U.S. farmers to allow the Chinese to corner the glyphosate market. Similar conditions have led to the relocation of the fertilizer industry largely offshore.

"American agriculture cannot afford the loss of U.S.-based production of another key agricultural input," said Albaugh.

Albaugh's anti-dumping petition is meant to do nothing more than restore a reasonable balance of glyphosate supply and demand, at least in the U.S. market. Albaugh believes its petition, if granted, will both preserve America's domestic manufacturing base and U.S. jobs, and in addition will make glyphosate pricing in the U.S. more stable and less volatile, and hence rendering the supply of this key agricultural input more secure and dependable for U.S. farmers.

The petition process is expected to take about a year to complete. The petition therefore is not expected to impact the glyphosate market in the 2010 crop year.

SOURCE: Albaugh Inc.