Understanding total factor productivity changes of Chinese N-fertilizer firms during raw material supply disruptions: a capacity utilization perspective

Abstract

ABSTRACT Limiting fossil fuel usage is seen as essential to combat climate change; however, nitrogen fertilizers (or N-fertilizers) heavily rely on fossil fuels. Disruptions in fossil fuel supply are likely to negatively impact N-fertilizer production, worsening food crises and poverty in underdeveloped regions. In this study, we revisit the Coal Resource Consolidation Campaign (CRCC), an industrial reform campaign that aimed at increasing the mechanization and recovery rates to enhance the Chinese coal industry’s competitiveness but resulted in a shortage of anthracite lump coal supply, the primary feedstock for Chinese N-fertilizer firms at that time. We examine CRCC’s impact on the total factor productivity (TFP) of Chinese coal-based N-fertilizer firms during 2008–2013 using a difference-in-differences model. TFP is decomposed into capacity utilization (CU) and pure TFP. Our findings indicate a significant 33.4–34.2% decline in TFP due to CRCC. Further analysis reveals that a 6.3% decline in CU, not pure TFP, was the primary driver of the TFP loss from 2011 to 2013. We recommend that policymakers should assess the impact of climate change policies comprehensively, and the government should support the adaptation and innovation of feedstock in the N-fertilizer industry to avoid feedstock supply disruptions.