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.

ii 

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

vii 

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.

1 

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.

11 

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

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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.

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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.

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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.

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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

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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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