Examining the Impact of Nitrogen Fertilizer Price Surge and Risk on Import Demand Allocation

This paper examines the impact of nitrogen fertilizer import prices and related price risks on South Korea’s allocation of import demand. Using a risk-augmented differential import allocation model, we analyze import demand behavior among four origins: China, Asia (excluding China), Europe, and the rest of the world (ROW). The empirical results indicate that importers show limited flexibility in adjusting sourcing from China and Asia, while the import demand for Europe and the ROW responds more sensitively to price changes. Moreover, the estimated substitution relationships suggest that importers reallocate import demand away from Chinese fertilizers toward alternative suppliers, particularly in Asia, Europe, and the ROW, in response to price shocks. Regarding price volatility, our findings show that increased uncertainty in Chinese fertilizer prices leads to higher precautionary imports from China, whereas increased price risk from other regions discourages imports from the ROW. Finally, simulation results reveal that anticipated price increases reduce import volumes across all regions, whereas rising price risk increases imports from China but reduces imports from the ROW.