Developing Competitive Fertilizer Markets in Sub-Saharan Africa:
Policy and Non-Policy Solutions
A Background Paper on Fertilizer
Policy Experts Meeting on
“Technical Convening on Seed and Fertilizer Policy in Africa”
Addis Ababa, Ethiopia, December 5-7, 2013, Sheraton Hotel
by
P.O. Box 2040
Muscle Shoals, Alabama 35662, USA
www.ifdc.org
i
Acknowledgment
This summary report is extracted from the Country Fertilizer Assessment Studies of 12 Sub-
Saharan Africa (SSA) Feed the Future (FTF) countries commissioned by the United States
Agency for International Development (USAID) and implemented by IFDC in support of the
African Fertilizer and Agribusiness Partnership (AFAP). These studies (1) estimated the
quantities of fertilizer required to meet the agricultural production targets laid out in each
country’s agricultural strategic plans under the CAADP Compact signed by these countries and
(2) identified policy and non-policy challenges in the fertilizer value chains that might impede
the attainment of these fertilizer targets. Individual country reports have been finalized for
Tanzania, Mozambique, Malawi, Zambia, Kenya, Rwanda, Uganda, Ethiopia and Ghana while
work on Liberia, Senegal and Mali is ongoing.
We acknowledge the authors of these country reports, Joshua Ariga, Porfirio Fuentes and Peter
Heffernan, from IFDC’s Office of Programs. The authors received invaluable assistance from
IFDC field offices for the East and Southern Africa Division (ESAFD) and the North and West
Africa Division (NWAFD) under Rob Groot and André de Jager. This background paper has
been put together by Joshua Ariga and Peter Heffernan with useful comments and technical input
from Balu Bumb. IFDC acknowledges and appreciates the support from USAID, ministries of
agriculture in SSA, fertilizer importers and farmer organizations who supplied data and other
relevant information for the FTF Country Fertilizer Assessments, without holding them
responsible for the contents of this paper.
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TableofContents
Executive Summary ........................................................................................................................ v
1.0 Introduction to the Problem ................................................................................................... 1
2.0 Key Challenges for Sub-Saharan Agriculture ....................................................................... 2
2.1 High Soil Nutrient Depletion Rates .............................................................................. 4
2.2 Low Agricultural Productivity ...................................................................................... 5
2.3 Declining Land Per Capita and Increasing Population ................................................. 7
2.4 Effect on Demand for Food from Changing Diets and Biofuels .................................. 8
3.0 Agricultural Transformation: The Role of Fertilizers ............................................................ 9
4.0 Key Policy and Non-Policy Constraints Facing SSA Agriculture ...................................... 13
4.1 Policy Constraints ....................................................................................................... 14
4.1.1 Legal and Regulatory Fertilizer Framework .................................................... 14
4.1.2 Fertilizer Price Controls ................................................................................... 15
4.1.3 State Interventions That Create Barriers to Market Entry ................................ 17
4.1.4 Tariff and Non-Tariff Barriers to Agricultural Trade ...................................... 18
4.2 Non-Policy Constraints ............................................................................................... 20
4.2.1 Size of the SSA Fertilizer Market: Implications on Demand, Cost and Manufacture...................................................................................................... 20
4.2.2 Inadequate Port and Transport Infrastructure ................................................... 22
4.2.3 Finance Constraints .......................................................................................... 24
4.2.4 Fertilizer Recommendations: Maintaining Soil Health, Training and Extension .......................................................................................................... 25
4.2.5 Distance to Purchase Location and Information Constraints ........................... 26
5.0 Recommendations, Conclusions and Way Forward from Lessons Learned on Key Issues .................................................................................................................................... 26
References ..................................................................................................................................... 29
iii
ListofTables
Table 1. Status of Abuja Resolution to Raise Average Fertilizer Use in SSA to 50 kg/ha by 2015 ............................................................................................................................... 10
Table 2. Yield Potential with Fertilizer Use in Africa .................................................................. 11
Table 3. Summary of Key Policy and Non-Policy Challenges in SSA ........................................ 14
Table 4. Status and Enforcement of Regulatory Policies for Some SSA Countries ..................... 15
Table 5. Fertilizer Pricing Strategies for Some Countries in SSA ................................................ 16
Table 6. A Summary of State Interventions That Create Barriers to Market Entry ..................... 17
Table 7. Tariff and Non-Tariff Barriers to Trade ......................................................................... 19
Table 8. The Size of Fertilizer Markets for Some FTF SSA Countries ........................................ 21
Table 9. Port and Inland Haulage Constraints .............................................................................. 22
Table 10. The Way Forward: Recommendations ......................................................................... 27
ListofFigures
Figure 1. Global DAP and MOP Prices (2006-2013) ..................................................................... 3
Figure 2. Trend in Undernourished for Africa Compared to All Developing Countries ................ 4
Figure 3. Average Annual Nitrogen Balance (lb/acre) ................................................................... 5
Figure 4. Cereal Yields per Hectare in Africa (1961-2009) ........................................................... 6
Figure 5. Kilograms per Hectare Fertilizer Use by Regions (2010/11) .......................................... 7
Figure 6. Intensification vs. Area Expansion (Asia and SSA) ........................................................ 8
Figure 7. Changing Diets and Demand for Food ............................................................................ 9
Figure 8. Cereal Production and Fertilizer Consumption in SSA (1980-2011) ............................ 12
Figure 9. Average Vessel Dwell Time at Various Ports ............................................................... 23
Figure 10. Cost Buildup for DAP Fertilizer to Kampala, Uganda (US $/mt) (2013) ................... 23
Figure 11. Comparing Post-CIF Costs Mombasa-Kampala for DAP........................................... 24
iv
Acronyms
AFAP African Fertilizer and Agribusiness Partnership
AU African Union
CAADP Comprehensive Africa Agriculture Development Program
CIF Cost, Insurance and Freight
CIP Crop Intensification Program (in Rwanda)
COMESA Common Market for Eastern and Southern Africa
DAP Diammonium Phosphate
EAC East African Community
ECOWAS Economic Community of West African States
ESAFD East and Southern Africa Division (IFDC)
FAO Food and Agriculture Organization of the United Nations
FOB Free on Board
FTF Feed the Future
GDP Gross Domestic Product
ha hectare
IFA International Fertilizer Industry Association
IFDC International Fertilizer Development Center
ISFM Integrated Soil Fertility Management
kg kilogram
km kilometers
REC Regional Economic Community
MDG Millennium Development Goal
MIS Market Information Services
MOP Muriate of Potash
mt metric ton
NEPAD New Partnership for Africa’s Development
NGO Non-Governmental Organization
NTB Non-Tariff Barriers
NWAFD North and West Africa Division (IFDC)
SADC Southern African Development Community
SSA Sub-Saharan Africa
WFS World Food Summit
v
ExecutiveSummary
TheProblem
There is general agreement that the challenges facing the agriculture sector in Sub-Saharan
Africa (SSA) have been researched, analyzed and discussed substantially in various fora over the
years. In the past few years, agriculture has gained increased prominence on the African policy
agenda, garnering inter-country support in the form of broad agreements aimed at transforming
the agriculture sector through the Comprehensive Africa Agriculture Development Program
(CAADP) and other platforms aimed at catalyzing growth by encouraging investments and
adoption of improved technologies. Though some progress has been made toward the goal of
cutting hunger and malnutrition, there remains a number of hurdles that will require individual
and concerted efforts to achieve significant change. A majority of smallholder farmers are still
confronted by increasingly nutrient-depleted soils, low agricultural productivity and declining
land per capita, coupled with increasing populations putting pressure on natural resources and
threatening the environment. Fertilizer use can alleviate these challenges, but its consumption is
still below the milestones set forth in the Abuja Declaration (2006).
ResearchFindings
The output from the nine-country fertilizer assessment studies provided interesting findings,
some cross-cutting and others specific to individual country conditions. Estimates of the
quantities of fertilizer required to achieve the national agricultural strategic objectives of
increasing production under the CAADP compact show an approximate doubling of current
consumption levels. To reach these higher fertilizer consumption levels will require easing the
policy and non-policy constraints that have made the existing fertilizer value chains inefficient,
culminating in higher farm-gate prices.
Country-specific and regional priority issues requiring individual or joint efforts in order to
improve the efficiency of fertilizer markets, raise agricultural production and reduce food
insecurity are identified. A number of these countries have legal and regulatory fertilizer
frameworks that hinder approval of new products, restrictions on entry to import or distribute
fertilizers and restrictive tariff and non-tariff barriers to trade and price controls. These priority
vi
areas require country or regional coordination and collaboration to reform, implement and build
policy capacity to encourage increased competition and investments in markets. Other obstacles
include high port and road-rail costs, finance, small individual country fertilizer markets that lack
economies of scale and outdated fertilizer recommendations constraining the demand for
fertilizers.
Recommendations
To deal with these challenges, it is therefore important to find consensus on results from diverse
research findings and experiences in order to garner support from key players, particularly
policymakers. Most of these constraints may require solutions that follow a step-by-step
approach, chipping away at blocks until the whole structure is fixed. This approach has the
potential of accelerating the process while minimizing potential pushback from stakeholders who
may lose from anticipated reforms or changes. Identifying key players and areas of common
support, getting a buy-in to legitimize the process and lobbying and negotiating to allay fears of
potential losers from changes or reforms are all important parts of this process.
The table below provides a matrix of key constraints with suggested actions and a possible
timeline to implement these actions. This list is not exhaustive but is intended to contribute
toward discussions by interest groups on workable and non-workable solutions. Note that
solutions must have broad appeal across various groups and the political backing in order to have
a chance of succeeding.
Issue Suggested Action Through
Country or Regional Efforts Short-, Medium-
or Long-Term 1-2 3-5 >5
Regulatory Architecture
Develop, update and enact Fertilizer Law by country and also harmonize regionally among and between RECs (simultaneously) with the help of national and international experts
X (national)
X (regional)
Build enforcement capacity: Human X : Analytical labs X
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Issue Suggested Action Through
Country or Regional Efforts Short-, Medium-
or Long-Term
Market Interventions and Price controls
Remove restrictions on import participation X No import tenders X No restricted entry to sub-country markets X Transition to private sector imports X Remove pan-provincial pricing and price controls
X
Fiscal issues –tax and tariffs
Remove withholding, VAT, etc. X Zero tariff for RECs external trade X
Access to finance Legalize land property rights/long-term leases X Mitigate risks (credit guarantees/risk-sharing, contracts, group lending); PPPs framework
X X
Outdated fertilizer recommendations
Soil testing and fertilizer trials X X X Regional/mobile labs X Blending services (to meet nutrients) X X Regional information networks X X Knowledge (agro-dealer training, farmer extension)
X X
Port Replace, repairs X 24-hour service X X One-stop window X X
Inland haulage (rail, road)
Repair, build X Agree on axle load charges X X X Reduce road stops and weighbridges X X Reduce border barriers (delays) X X
A number of these priority actions are better enacted at regional level: harmonization of policies
and regulatory architecture, with help from the international and national experts; removal of
trade tariffs and NTBs, including taxes on external regional economic community (REC) trade;
axle load limits for haulage trucks within regions; and regional market information systems
(MIS, such as africafertilizer.org and the Agricultural Input Market Information and
Transparency System for Africa [AMITSA]). Easing these impediments will contribute to
incentives for the private sector to invest in manufacturing and/or procuring for regional (as
opposed to country) markets. It might be efficient to design a regional, rather than country-
specific, regulatory architecture to which all members in RECs will adhere.
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Developing Competitive Fertilizer Markets in Sub-Saharan Africa:
Policy and Non-Policy Solutions
1.0 IntroductiontotheProblem
It is generally agreed that challenges facing agriculture in Sub-Saharan Africa (SSA) have been
researched, analyzed and discussed to a level that by now should be reflected as significant
improvements on the ground in terms of increased adoption of improved technologies,
management practices and reduced food insecurity. While this may be the case in some
instances, the overall impact across various countries has not achieved the expected results for
most stakeholders. A majority of smallholder farmers still face food and nutrition insecurity, and
policy reforms and investments in agriculture have not reached a threshold to turn the trajectory
toward more efficient markets and increased productivity and incomes. In the past few years,
agriculture has regained some prominence on the African policy agenda, garnering inter-country
support in the form of broad agreements aimed at transforming the agricultural sector. There
have been efforts made by states to catalyze adoption of improved technologies; at the continent
level, the Comprehensive Africa Agriculture Development Program (CAADP) is focusing efforts
on encouraging nations to raise agricultural investments in order to eliminate hunger and reduce
poverty and food insecurity. On the other hand, the roles and the interaction between public and
private sectors in agriculture is still a work in progress and the business environment requires
some improvement.
The bigger challenge lies in communicating the best lessons learned to decision makers from
research and practical experiences on SSA agriculture. This begins with researchers and experts
having a consensus on key policy and non-policy issues and then navigating a path to garner
support from a wider stakeholder constituency particularly policymakers.
This paper begins with an overview of key challenges facing the agriculture sector in SSA,
followed by a summary of the potential contribution from the use of fertilizer and
complementary inputs towards achieving national strategic goals, particularly food security. This
2
is followed by a discussion of major policy and non-policy constraints within and across
countries. The paper then concludes with a matrix of priority areas that may need short-term,
medium-term and long-term attention and actions from individual countries, regional economic
communities (RECs) and development partners to eliminate the constraints to develop
competitive markets, reduce farm-gate fertilizer prices and raise incomes for smallholder
farmers.
2.0 KeyChallengesforSub‐SaharanAgriculture
The agricultural sector in SSA accounts for about a third of gross domestic product (GDP) and
for many countries 60 to 90 percent of employment, which implies relatively low productivity.
Smallholder, low-income farmers account for most of the staple food production on the
continent, and most of the poor live in rural areas, where they depend, directly or indirectly, on
agriculture for their livelihoods. Therefore, accelerating growth in agriculture is one of the main
avenues for reducing poverty and hunger. There are also important linkages with the rest of the
economy, implying a potentially high multiplier effect from agricultural growth.
Apart from the influence of domestic factors, the status of agricultural performance and food
security in SSA is sometimes affected by global events like the 2007-08 sharp rise in prices,
which contributed to increased food insecurity and malnutrition in some developing countries
(Figure 1).
3
Figure 1. Global DAP and MOP Prices (2006-2013) Estimates from the United Nations Food and Agriculture Organization (FAO, 2013) indicate that
the number of malnourished people in the world continues to decrease but not sufficiently
enough to meet the World Food Summit (WFS) and Millenium Development Goals (MDG)
targets for 2015. However, for Africa the story is different, as these numbers are going up and
the proportion of undernourished is increasing (Figure 2).
4
Source: FAO (2013).
Figure 2. Trend in Undernourished for Africa Compared to All Developing Countries While most of the malnourished are located in Asia, the highest proportion of malnourished people
(relative to total populations in these regions) is in SSA countries.
Some of the key challenges facing the agriculture sector in SSA are discussed below: soil
nutrient depletion, low agricultural productivity, declining arable land per capita, population
growth and effects of changes in global demand for food and biofuels. This is then followed by a
summary of policy and non-policy constraints in dealing with these challenges.
2.1 HighSoilNutrientDepletionRates
While average nutrient application rates in SSA are barely 9 kilograms per hectare (kg/ha)
(Figure 5), soil nutrient depletion for some countries is higher than 50 kg/ha per annum, leading
to soil degradation through leaching and erosion (Henao and Baanante, 1999). Hoekstra and
Corbett (1995) relate decreased agricultural production to continued cropping without use of
external inputs. The depletion of soil fertility (Figure 3) coupled with low application rates
All Developing Countries Africa
5
(Figure 5) lead to low per capita food production (Sanchez, 2002). The low productivity and
extensive agriculture can result in nutrient mining and eventual degradation of arable land. The
map (Figure 3) shows that a significant area of SSA is subject to intense soil nutrient depletion
every year.
Source: Paul C. West, Institute on the Environment, University of Minnesota. Zero means the crop used exactly the amount of nutrients applied and grey shows little or no cropland
Figure 3. Average Annual Nitrogen Balance (lb/acre) 2.2 LowAgriculturalProductivity
Yields for cereal crops in SSA are a small fraction of those in Asia or developed countries and
far less than their potential. Furthermore, these yields have not shown any significant increase
over time. Even when comparing regions within Africa, SSA yields are lower and stagnant than
those of North and South Africa (non-SSA) as shown below (Figure 4).
6
Source: IFDC, using data from FAO. Non-SSA indicates countries within Africa but outside SSA. (SSA in this case excludes South Africa, North Africa countries.)
Figure 4. Cereal Yields per Hectare in Africa (1961-2009) Fertilizer application rates per hectare in SSA are the lowest in the world at 9 kg/ha, which is
equivalent to 3 percent of Asia’s and 9 percent of North America’s application rates (Figure 5).
The average application rate in North Africa is 118 kg/ha, which is the highest in the African
region.
0
500
1,000
1,500
2,000
2,500
3,000
3,500
1961 1964 1967 1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009
Gra
in Y
ield
(kg
/ha)
Sub-Saharan Africa
Non-Sub-Saharan Africa
7
Source: Derived from FAO data.
Figure 5. Kilograms per Hectare Fertilizer Use by Regions (2010/11) The current low rates of fertilizer application and the corresponding poor yields for SSA act as a
depressing force for future investments due to the insufficient returns to labor and land. The
decline in SSA agricultural growth can partly be explained by the poor soil conditions due to
nutrient depletion accompanied by low returns, which then discourage optimal investments in
appropriate science and technology, exacerbating the decline.
2.3 DecliningLandPerCapitaandIncreasingPopulation
In the past, increased agricultural production in SSA has partly been a result of expansion in
cultivation of available arable land as opposed to increased yield (as has happened in Asia,
Figure 6).
8
Figure 6. Intensification vs. Area Expansion (Asia and SSA)
But over time this is becoming difficult as farm sizes become smaller and arable land is limited
coupled with increasing population. This implies that the focus should be on land-augmenting
technologies like improved seeds and fertilizers, i.e., intensification coupled with best
management practices. There is limited land for expansion unless the less productive land areas
are enhanced through soil improvement measures and irrigation infrastructure. High population
growth accompanied by declining cultivated area per capita implies that productivity per unit of
land must increase in order to alleviate food insecurity in developing countries.
2.4 EffectonDemandforFoodfromChangingDietsandBiofuels
There is a general diversification of diets to include foods like beef, poultry and fish due to
growing a middle class in emerging and developed economies earning higher incomes. The
production of these foods require more inputs per pound in the form of animal feed crops (Figure
7). In addition, the increased competition for natural resources (e.g., land and water) from food
crops and biofuels is also creating pressure on food available for humans. This is exacerbated by
huge subsidies to the biofuels industry in developed countries creating incentives for farmers to
9
produce less food. This implies that there is less food available globally, which can lead to higher
food prices, affecting the poor in developing nations.
Source: United Nations Estimates.
Figure 7. Changing Diets and Demand for Food In an interconnected world, this leads to competition for cereals, the major staple consumed by the
poor in developing countries, exacerbating food insecurity.
3.0 AgriculturalTransformation:TheRoleofFertilizers
Historical evidence reveals that sustainable agriculture is often accompanied by adoption and
intensification of relevant technology and fertilizer innovations that optimize production,
improve nutritional quality and minimize resource degradation, all of which lead to reduced
poverty and improved food security. Fertilizer was as important as seed in the Green Revolution,
contributing more than 30 percent of the yield growth in Asia (Hopper, 1993). Apart from raising
land productivity, use of fertilizers can contribute to increased labor productivity, farm food
production and smallholder incomes, which provide an opportunity to participate and earn off-
farm income.
It is clear that yields for SSA have not only been increasing at a much lower rate than the rest of
the world, but they are also the lowest in the world (Figure 4). This was part of the reason the
10
Abuja Declaration of 2006 resolved that African countries should aim to raise fertilizer
application rates to at least 50 kg/ha by the year 2015. Though there has been some increase in
fertilizer use since 2006, no SSA country has met this milestone as of 2010 when a progress
report was undertaken on behalf of the New Partnership for Africa’s Development (NEPAD)
(Wanzala, 2011). For SSA, it been shown that crop response to fertilizer depends significantly on
availability of water and the condition of soils, declining or rising depending on the level of these
factors (Marenya and Barrett, 2009).
Table 1. Status of Abuja Resolution to Raise Average Fertilizer Use in SSA to 50 kg/ha by 2015
kg/ha of Nutrient Number of Countries (2008)
< 15 19 >15-40 11
>40 5 Sources: Adapted from Wanzala (2010). These results are based on countries that participated in the survey. Countries applying more than 40 kg/ha are North African countries and South Africa.
This focus on fertilizer is based on challenges that face the sector as articulated in previous
sections of this paper. Nutrient loss, declining yields and production coupled with increased
population and decline in cultivable land, has ramifications on poverty and food security for
many developing nations (Tittonell and Giller, 2012).
The following table illustrates the potential yields associated with fertilizer use on major food
crops in various agro-ecological regions of Africa.
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Table 2. Yield Potential with Fertilizer Use in Africa
Region Crop
Yields (kg/ha) Farm
(without fertilizer) Farm
(with fertilizer)Experimental Station
(with fertilizer)
West Africa
Irrigated rice 3,000 6,000 8,000 Upland rice 1,000 2,500 4,000 Lowland rice 1,500 3,000 5,000 Cassava 8,000 35,000 47,000 Maize 800 3,500 6,000 Sorghum 600 1,800 3,000 Cowpea 300 1,000 2,000
South Africa Maize 1,500 4,000 8,000 Soybean 500 2,000 3,000
East Africa Maize 1,500 7,000 8,000 Source: Bationo and Egulu (2010). The following figures show a positive relationship between total cereal production and fertilizer
consumption for SSA; fertilizer is not the only contributor to this growth since there are other
factors that play a role, including improved seed, area expansion and management practices that
are not controlled for in this graph. When narrowing the comparison to countries within Africa,
cereal output growth rates have been higher for countries outside of SSA that have much higher
fertilizer application rates (Figure 5).
12
Source: Adapted from FAOSTAT.
Figure 8. Cereal Production and Fertilizer Consumption in SSA (1980-2011) The environmental benefits from intensification and efficient use of fertilizer include the saving
on land and hence reduction on extensive land use techniques that can possibly encroach on
forest or more fragile land areas as a result of population pressure and declining arable land. By
raising productivity (yields) per hectare, the need for more land is diminished, thus sustaining
land resources for future generations. In addition, any efficiency gains in fertilizer use imply that
less fertilizer is available for leaching or runoff, which reduces environmental degradation.
Environmental concerns and increasing fertilizer costs are drivers toward improved global
fertilizer use efficiency.
The transformation of agricultural systems that has taken place in developed countries and most
of Asia has not occurred in SSA due to a number of policy and non-policy constraints (discussed
below). These include policy environments that impede the development of competitive market
systems, low adoption of improved technologies and management practices, poor infrastructure
leading to high costs, underdeveloped credit markets, low knowledge base and human capacity.
0
20
40
60
80
100
120
140
0.0
0.3
0.6
0.9
1.2
1.5
1.8
2.1
1980 1985 1990 1995 2000 2005 2010
To
tal Cereal P
rod
uctio
n (m
illion
mt )
NP
K C
on
sum
pti
on
(m
illio
n m
t p
er y
ear)
Cereal
NPK
13
4.0 KeyPolicyandNon‐PolicyConstraintsFacingSSAAgriculture
This section summarizes some challenges constraining fertilizer use in SSA from the FTF
fertilizer assessment studies conducted by IFDC in addition to findings from related studies by
other researchers and institutions. A comparison of similarities and differences among these
countries is made in order to provide a basis for possible scalable approaches for dealing with
such problems.
The table below gives a summary of the policy and non-policy constraints and the subsequent
sections provide additional analysis and explanations of specific elements. A number of
countries have price controls and support policies benefiting particular groups, market
restrictions that impede private sector market participation, trade policies that raise cost of
business and regulatory processes that constrain business within and across borders. On the non-
policy side, high transport and transactions costs, limited access to finances and outdated
fertilizer recommendations are some of the key issues leading to high prices and low productivity
at the farm.
14
Table 3. Summary of Key Policy and Non-Policy Challenges in SSA
Policy Constraints Legal and Regulatory Framework Inadequate enforcement of quality
standards Limited physical and human capacity for
enforcement Outdated regulatory legislation
Market Restrictions/Interventions Barriers to entry
o Restrictions on imports o Restrictions on domestic marketing
Allocation of market shares to enterprises at district/province level
State importation and distribution
Trade Policy Tariff (tax, duties on imports) Non-tariff (quantity, weighbridges,
permits, delays at borders) Different standards for fertilizer within
region (EAC, COMESA, SADC)
Price Controls Pan-regional pricing Price supports
Non-Policy Constraints Small size of the market Inadequate port handling facilities – delays and costs Transportation bottlenecks-weighbridges, police checks, axle loads: in-transit costs Limited access to finance: interest rates, collateral; may act as barrier to entry Outdated fertilizer recommendation Distance traveled to purchase fertilizers
4.1 PolicyConstraints
4.1.1 LegalandRegulatoryFertilizerFramework
A number of countries in SSA are relying on fertilizer regulatory policies that are outdated
(enacted in the 1970s and 1980s) or are not specific to fertilizers but cover a wide range of inputs
and foodstuffs under the same law or have had some updating but not signed into law. The
problem with this state of regulations is their effect on businesses: (1) it delays the validation and
registration of new improved fertilizer products imported into some countries due to rigidities in
existing regulations; (2) it constricts inter-country trade as neighboring countries have different
quality standards that have not been harmonized; and therefore (3) this limits the set of products
available and also the extent of the market, which leads to higher fertilizer prices resulting from a
smaller costly markets.
15
For a stable business environment, it is necessary to have a fertilizer law with clear procedures
for licensing dealers, registering products and enforcing quality standards. The RECs recognize
this problem, and efforts are in various stages to deal with harmonization issues; ECOWAS
recently completed the harmonization of quality regulations for its members. The presence of
fertilizer dealer associations at national and regional levels can play a significant role in
maintaining quality standards through self-regulation by members.
Table 4. Status and Enforcement of Regulatory Policies for Some SSA Countries
Current Status Implementation Issues Outdated or no formal system in place, requiring amendment or overhaul
Kenya, Rwanda, Zambia, Malawi
Inadequate enforcement
Mozambique, Uganda, Zambia, Malawi, Tanzania
Under draft (but not signed)
Mozambique, Uganda
Limited physical and human capacity for quality control
Most of the countries except Kenya
Final Law Tanzania, Ghana, ECOWAS*
Source: By authors from information collected from studies.
Note: ECOWAS recently ratified harmonized fertilizer quality regulations in 2012. Enforcement in some of these countries is constrained due to inadequate capacity in human,
vehicle and laboratory equipment for testing and enforcement throughout the country.
Sometimes material for testing can take a while to be processed and results shared with importers
which adds additional costs to businesses and hinders entry into markets and thus competition.
4.1.2 FertilizerPriceControls
Price controls can be imposed on outputs, inputs or both. The focus for this paper is on the role
of the state in supporting or setting fertilizer prices either by being the major market leader or
influencing retail prices through various subsidy programs. Price support takes the form of
subsidies on fertilizer products that are sold to farmers at less than market prices. These subsidies
can either be for (1) farmers growing certain crops (or any crop), the so called universal/blanket
16
subsidy or (2) targeted at pre-selected group of farmers growing certain crops (or any crop), the
so called “smart” subsidy approach.
Table 5. Fertilizer Pricing Strategies for Some Countries in SSA
Nature of Intervention Country Pan-province Rwanda, Ghana Price support: All except Uganda, Mozambique
Universal Kenya, Rwanda, Ghana Targeted Tanzania, Kenya, Rwanda, Ghana,
Malawi, Zambia Note: Rwanda and Ghana have two subsidies (implemented universally on international transport costs for all fertilizers and the other targeted on retail prices of certain products for some farmers). The countries of Rwanda and Ghana have similar fertilizer distribution systems where the private
sector is allowed to import,1 and each distributor (aligned to an importer) is allocated a provincial
market within the country. Provincial distribution costs are negotiated between the state and the
private sector and the estimated transport and other costs incurred in moving the products to
those regions is paid to importers by the state. There are therefore two subsidies in these
countries, the universal subsidy represented by the refundable transport and handling costs for
international costs (international to country) on all fertilizers into the country, followed by a
targeted subsidy on fertilizers specifically directed at farmers growing crops under Rwanda’s
crop intensification program (CIP) (maize, wheat, rice, Irish potato, beans and cassava) who
receive a 50 percent subsidy. This latter subsidy is not extended to farmers growing commercial
crops like tea, coffee and sugarcane.
Kenya has two parallel subsidy programs, targeted and universal. The targeted subsidy is
implemented through the private sector while the universal subsidy is implemented by a state
agency using its distribution networks. Mozambique and Uganda have the lowest percentage of
farmers using fertilizer (at less than 5 percent), with minimal activities by donor or non-
governmental organization (NGO)-supported community projects offering small quantities of
fertilizers for demonstration plots aimed at showing the benefits from using fertilizers. There are
1 The private sector recently replaced the Rwanda government in fertilizer importation. Previously, the state imported and then allowed private distributors to bid for provincial distribution.
17
no significant subsidies, although Mozambique had a small voucher program funded by FAO for
food crops.
4.1.3 StateInterventionsThatCreateBarrierstoMarketEntry
A number of state actions restrict market participation or entry by the private sector (Table 6).
State interventions intensified after the 2007-08 global fertilizer crisis, which led to tight food
supply and declining fertilizer use in developing countries. Since then, the Kenya government
has participated in occasional imports and distribution of fertilizers parallel to the targeted
subsidy program implemented through the private sector. The Rwanda government has recently
replaced a system where the government imported fertilizers and then let distributors bid for
delivery to various regions with a new system in which three private traders are allowed to
import fertilizers and distribute. This is clearly an important step towards competitive
importation but stops short by preventing other potential players from entering the market.
Ghana and Rwanda allocate provincial markets to private importers (distributors), guaranteeing
no competition in distribution. In Rwanda, the importers/distributors and the government
negotiate and fix transport and handling costs to these regions, which constrains distributors from
serving remote regions where they may not recover their costs; this has the potential of confining
their operations to large cities or towns within the allocated regions.
In Ethiopia, only AISE (a state agency), does importation and distributes to producer
organizations or cooperatives throughout the country.
Table 6. A Summary of State Interventions That Create Barriers to Market Entry
Barriers to Entry Country Restrict imports, delayed import permits Rwanda, Ethiopia, Uganda, Ghana Bids or tenders to import fertilizers Malawi, Rwanda Allocating provincial markets to importers within the country
Ghana, Rwanda
Regular/ad hoc state imports and distribution Ethiopia, Kenya Regular state distribution (vouchers) Malawi
18
For some countries, imports permits can take a while to be processed, which creates uncertainty
in the system, and in countries like Malawi (and Rwanda before the recent reform process),
importers have to bid for tenders to import fertilizer, which restricts entry since bids will be
whittled down to only a few winners. In Malawi, though the importation is by the private sector
through bidding, the distribution is done by state-related agencies and organizations, a process
that locks out the private sector.
4.1.4 TariffandNon‐TariffBarrierstoAgriculturalTrade
There are no direct taxes or import duties on fertilizers for the countries under study. This is due
to a deliberate strategy by these countries to encourage fertilizer use in line with the 2006 Abuja
Declaration milestones that African Union (AU) member countries agreed to implement towards
reducing farm-gate fertilizer prices. However, some countries have taxes levied on services,
materials and incomes that might impact indirectly on fertilizer costs and hence prices. Kenya
levies a refundable value-added tax (VAT) on services and materials used in relation to handling
of fertilizers during importation (Table 7); however, the problem is the time taken to refund this
tax which leads to additional finance costs to importers. For Uganda, importers are charged
withholding tax which can be deducted (or not deducted) from taxes when importers eventually
do their tax returns and find that they were over (or under)charged.
These two taxes may impact farm-gate prices since they are implemented at the point of
importation and take time to get refunded, incurring costs in the process. Zambia has a policy
that requires all trade be conducted in Kwachas, the local currency, implying all international
currency be converted to Kwacha. This has implications on hedging and, hence, costs that
international traders have to bear resulting from limits imposed on their risk mitigating set.
19
Table 7. Tariff and Non-Tariff Barriers to Trade
Nature of Intervention Country Tariff, levies and taxes Mozambique, Kenya (refundable VAT),
Ghana, Mali (shipper and council levies), Uganda (withholding Tax), Others?
Non-tariff restrictionsa (documentation requirements, border delays, currency restrictions, etc.)
Kenya, Uganda, Zambia, Tanzania, Malawi
Differential quality standards a. The presidents of Rwanda, Uganda and Kenya have met in the last three months to discuss ways to accelerate the flow of cargo from the port of Mombasa through (1) a one-stop window for documentation and payment, (2) reducing road stops and weighbridges and (3) reducing delays at inland borders.
On the other hand there are non-tariff barriers whose impact on fertilizer use is difficult to
estimate. There are many inspections or road stops for checks by police or customs officials
along the transport route from ports to hinterland destinations (for oceanfront as well as for
landlocked countries). This is in addition to a number of weighbridges that are meant to
implement axle-load regulations and weights. However, these checks have created a logjam that
adds to delays in moving fertilizer cargo from ports to their destinations. These limitations have
significant impact in the number of additional days trucks take on the road to deliver their cargo.
There has been a number of meetings by three East African Community (EAC) presidents in
recent months to deal with this issue.2 The number of road checks have been reduced
substantially, and there is an agreement to have only one weighbridge within Kenya and there are
efforts to have an online one-stop window for filing of import documentations and making
payments. These activities will contribute to reducing travel times and costs significantly. One
other area of concern for EAC members is the axle-load limits for trucks. Kenya has a lower
limit than what the landlocked countries prefer and this has caused complaints by businesses on
costs associated with the lower limits while Kenya is worried about road maintenance costs.
2 The Kenyan, Ugandan and Rwandan presidents have met three times in the last three months to find ways of accelerating port handling and transport constraints from the port of Mombasa, https://www.standardmedia.co.ke /mobile/?articleID=2000096450&story_title=kenya-lauded-by-presidents-for-efficiency-at-the-port-of-mombasa.
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While the issue of fertilizer quality standards is not directly tied to trade policy, it is an important
part in regional trade. The problem of each country having its own standards that do not match
with the neighbors’ does not augur well for efficient trading as this causes a lot of waiting at the
borders to check for conformity. Harmonizing these regulations will contribute to enhancing
trade in these RECs. ECOWAS has already ratified a document that harmonizes quality
standards for its members.
4.2 Non‐PolicyConstraints
The key non-policy constraints include the following: (1) the small size of the market in SSA
which has implications on prices and the potential for local manufacture; (2) inadequate port
handling facilities leading to delays and the accompanying costs; (3) transportation bottlenecks
involving weighbridges and police road stops raising in-transit costs; (4) limited access to
finance and high interest rates and tough collateral conditions which may act as barrier to entry;
(5) outdated fertilizer recommendations which lead to low productivity and waste of resources;
and (6) the distance traveled to purchase fertilizers.
4.2.1 SizeoftheSSAFertilizerMarket:ImplicationsonDemand,CostandManufacture
The size of the SSA fertilizer market is relatively low compared to the potential demand to meet
country agricultural goals. These low quantities highlight the need to raise the demand above the
current levels through policy reforms and investments in relevant infrastructure, increased
awareness or knowledge by farmers and easing of other value chain constraints to increase
agricultural production and reduce food insecurity in SSA.
21
Table 8. The Size of Fertilizer Markets for Some FTF SSA Countries
Quantity (product tons) Current Consumption
Projected Consumption Based on Country Goals
<200,000 Mozambique, Uganda, Rwanda, Liberia,† Senegal,† Mali†
200,001-400,000 Zambia, Malawi, Tanzania, Ghana Mozambique, Uganda, Rwanda, Ghana
400,001-800,000 Ethiopia, Kenya Zambia, Malawi, Tanzania >800,000 Nigeria* Ethiopia, Kenya, Nigeria*
Note: Projected estimates are based on growth targets in country strategic plans.
† Reports on these countries are ongoing. *Nigeria is added for comparison though it is not included in the FTF studies. The easing of regulations and trade policies by RECs can enable trading in large quantities,
which will benefit from economies of scale and reduce costs. Based on these market estimates, to
install the smallest plant for nitrogen fertilizer production will require a wider market than a
single country’s demand, so efforts at regional integration and encouraging demand at farm level
will contribute to the potential for domestic or regional manufacture. Uganda has oil and
phosphate resources that can potentially be harnessed to produce fertilizers locally. Other
countries like Kenya, Tanzania, Mozambique and Nigeria are known to have oil and gas deposits
that can be developed.
Inland transport from ports is a large part of the farm-gate fertilizer price, and domestic
manufacture may lower such costs (Figures 9 and 10). But an important aspect that requires
detailed analysis is the economics of the demand for potential products. As indicated above, a
small plant will produce more fertilizer than required by the existing market in each country,
which will necessitate exploration of wider markets. Other factors to look at include: the policy
environment and how conducive it is to private investment; the status of current infrastructure
(road, rail, waterways) and its effect on transport and transaction costs; and availability and cost
of support services and human capital required.
22
4.2.2 InadequatePortandTransportInfrastructure
Ports of entry for some of the countries studied include; Mozambique (Nacala, Beira), Kenya
(Mombasa), Tanzania (Dar), Ghana (Tema), Port of Djibouti (important for Ethiopia imports).
These ports face a number of challenges listed below (but not necessarily applicable to all ports).
Table 9. Port and Inland Haulage Constraints
Ports
Small, shallow, congested
Poor equipment
Slow discharge of cargo
Inadequate storage
All these add to costs
Inland Haulage
Poor rail and road networks
Inadequate rail loading equipment
Many road inspection stops and
weighbridges
Inland border delays (NTBs)
Rail transport is cheaper but unreliable and has poor equipment for loading unloading cargo
containers and derails are frequent. Therefore there is a preference for road haulage which is
costly due to poor conditions and frequent stops for checks. Border clearance delays (non-tariff
barriers [NTBs]) involve numerous documentation requirements (import permit, quality
certificate, etc.).
Transportation, from the time the ship docks until the goods reach Nairobi or other locations in
East Africa, can require more than 30 days. Figure 9 compares average times spent by vessels
offloading their cargo and leaving port. A vessel through Mombasa requires an average of 23
days from its arrival to leaving port.
23
Source: The Research on the Cross-Border Transport Infrastructure: Phase 3, JICA (2009).
Figure 9. Average Vessel Dwell Time at Various Ports
Transport is the major post-port cost and is relatively more for landlocked countries. The
following graph shows the cost buildup for DAP fertilizer to Kampala, Uganda, through the port
of Mombasa in Kenya.
Figure 10. Cost Buildup for DAP Fertilizer to Kampala, Uganda (US $/mt) (2013)
The following graph does not include international costs (which cannot be influenced by SSA
countries), but compares costs from the port of Mombasa to Kampala in Uganda. Clearly
transport costs are a significant proportion of all costs incurred in domestic markets followed by
0
5
10
15
20
25
Los Angeles Europe Hong Kong & Singapore
Mombasa
0 100 200 300 400 500 600 700 800 900 1000
FOB Freight Port Bagging Transport Warehouse Finance Margins
FOB Transport
24
port charges. This is similar for all countries whether landlocked or not; what changes is the
absolute number but not the relative role of transport costs. Though product costs take the largest
share of farm-gate prices (50 percent for Uganda), the other costs reflect the costs of doing
business in these countries and depend on the policy, regulatory and institutional impediments
that participants face in the market.
Figure 11. Comparing Post-CIF Costs Mombasa-Kampala for DAP
Possible solutions to the above constraints can be classified into those that can be implemented
in the short-term, medium-term and long-term; these options are further detailed further in the
recommendations section. Expansion of port capacity is a medium to long term proposition,
however, efficiency may be increased by provision of 24-hour services and one-stop window for
documentation and making of payments.
4.2.3 FinanceConstraints
A key constraint for both traders and farmers is the difficulty of accessing funds to make
investments either in improved technology (farmers) or import, distribution and blending
activities (traders). For importers, getting letters of credit and other documentation hinges on
showing a good credit history from their financial institution. Fertilizer imports require huge
investments, which create a barrier to entry allowing only firms with substantial capacity or links
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
Port / Bagging /Warehousing
Transport Finance Margins
25
to cheaper foreign sources of funds to participate. To import 20,000 metric tons (mt) requires
more than $12 million which will be tied up for more than six months in a year excluding the
cost of capital. This is a barrier to entry for small businesses. Investment in blending and storage
facilities can be costly as well creating a hurdle for small investors.
For smallholder farmers the challenge is the high interest rates (>20 percent), underdeveloped
property rights regime or no clear legal land system in place, lack of title deeds to their land,
collateral requirements, relatively higher risks in agriculture compared to industry/services (due
to weather, prices and politics) and no credit bureaus to identify those that are creditworthy.
Potential solutions range from group lending, credit guarantee funds (requires private-public
partnerships), and agribusiness partnership contracts (the African Fertilizer and Agribusiness
Partnership [AFAP] is doing this).
4.2.4 FertilizerRecommendations:MaintainingSoilHealth,TrainingandExtension
Though Africa’s average soil quality is relatively poor, with nitrogen and phosphorus
deficiencies a widespread problem, soil conditions are not uniform but are heterogeneous across
the continent (Poulton et al., 2006). Therefore, approaches to improving soil quality will differ
from one area to another. Fertilizer use is one way to enhance these soils and increase
productivity and food security. Fertilizer use efficiency under such conditions can be improved
by access to affordable soil-testing facilities leading to area, farm or crop-specific fertilizer
recommendations. Using the right fertilizer technologies that account for deficient nutrients in
those areas and using an integrated soil fertility management (ISFM) approach that incorporates
crop varieties or seeds that complement fertilizers is needed.
The application of the same limited fertilizer products every season (no soil tests, no crop-
specificity) can lead to lower productivity, misallocation of resources, dis-adoption of
technology due to poor performance and soil nutrient depletion. In addition this narrows the
product set available to farmers, reducing market size. A dynamic site and crop-specific fertilizer
recommendation system is an important ingredient in raising fertilizer demand in SSA.
26
In the short term, blending and soil testing services given at a fee can provide reprieve; some
importers are providing blending and soil testing services in some countries. If farmers do not
have information on what nutrients are deficient on their plots and specific nutrient requirements
for each crop, it is difficult for them to choose the right fertilizer and quantities to be applied per
hectare. Therefore, in addition to soil testing, it is important that the public and private sectors
invest in extension services, including agro-dealer training to build dealers’ capacity to interact
and pass useful information on agronomic and best management practices to farmers.
4.2.5 DistancetoPurchaseLocationandInformationConstraints
Distance from farm to selling points has been noted as an important factor in fertilizer adoption
by farmers (Ariga and Jayne, 2009; Abuja Declaration, 2006). This is dependent on the status of
infrastructure especially roads, business environment that encourages private sector to invest
whenever there are good returns, poor knowledge of fertilizer benefits (no demand and hence no
supply) and fertilizer price controls/pan-provincial pricing which discourage venturing to remote
areas. Distance varies from country to country, averaging less than 5 kilometers (km) in Kenya
and greater than 42 km in Ghana. Making significant rural investment in feeder roads while
engendering a good business environment can contribute to easing farmers’ access to fertilizers.
This was a key reason for the surge in fertilizer consumption in Kenya during the early and mid-
2000s.
5.0 Recommendations,ConclusionsandWayForward
fromLessonsLearnedonKeyIssues
To deal with these challenges, it is therefore important to find consensus on results from diverse
research findings and experiences in order to garner support from key players, particularly
policymakers. Most of these constraints may require solutions that follow a step-by-step
approach, chipping away at blocks until the whole structure is fixed. This approach has the
potential of accelerating the process while minimizing potential pushback from stakeholders who
may lose from anticipated reforms or changes. Identifying key players and areas of common
27
support, getting a buy-in to legitimize the process and lobbying and negotiating to allay fears of
potential losers from changes or reforms are all important parts of this process.
The table below provides a matrix of key constraints with suggested actions and a possible
timeline to implement these actions. This list is not exhaustive but is intended to contribute
toward discussions by interest groups on workable and non-workable solutions. Note that
solutions must have broad appeal across various groups and the political backing in order to have
a chance of succeeding.
Table 10. The Way Forward: Recommendations
Issue Suggested Action Through
Country or Regional Efforts Short-, Medium-
or Long-Term 1-2 3-5 >5
Regulatory Architecture
Develop, update and enact Fertilizer Law by country and also harmonize regionally among and between RECs (simultaneously) with the help of national and international experts
X (national)
X (regional)
Build enforcement capacity: Human X : Analytical labs X
Market Interventions and Price Controls
Remove restrictions on import participation X No import tenders X No restricted entry to sub-country markets X Transition to private sector imports X Remove pan-provincial pricing and price controls
X
Fiscal issues –tax and tariffs
Remove withholding, VAT, etc. X Zero tariff for RECs external trade X
Access to finance Legalize land property rights/long-term leases X Mitigate risks (credit guarantees/risk-sharing, contracts, group lending); PPPs framework
X X
Outdated fertilizer recommendations
Soil testing and fertilizer trials X X X Regional/mobile labs X Blending services (to meet nutrients) X X Regional information networks X X Knowledge (agro-dealer training, farmer extension)
X X
Port Replace, repairs X 24-hour service X X One-stop window X X
28
Issue Suggested Action Through
Country or Regional Efforts Short-, Medium-
or Long-Term
Inland haulage (rail, road)
Repair, build X Agree on axle load charges X X X Reduce road stops and weighbridges X X Reduce border barriers (delays) X X
A number of these priority actions are better enacted at regional level: harmonization of policies
and regulatory architecture, with help from the international and national experts; removal of
trade tariffs and NTBs, including taxes on external REC trade; axle load limits for haulage trucks
within regions; and regional market information systems (MIS, such as africafertilizer.org and
the Agricultural Input Market Information and Transparency System for Africa [AMITSA]).
Easing these impediments will contribute to incentives for the private sector to invest in
manufacturing and/or procuring for regional (as opposed to country) markets. It might be
efficient to design a regional, rather than country-specific, regulatory architecture to which all
members in RECs will adhere.
29
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