While fertilizer use throughout Africa south of the Sahara remains low, Kenya has seen significant steady growth in fertilizer use in recent years. According to a paper published by Michigan State University, USAID, and the International Fertilizer Development Center (IFDC), between the early 1990s and 2010, national fertilizer use doubled in Kenya. Importantly, this increase stemmed from smallholder farmers purchasing fertilizers at commercial prices rather than through input subsidy programs. In addition, maize yields rose by over 18 percent during the same period. This experience can provide some important lessons for the rest of the region, the authors claim, namely the importance of an enabling environment that promotes private sector competition and investment.
In the early 1990s, Kenya’s fertilizer industry underwent a series of reforms. Prior to this time, the country’s fertilizer markets were controlled by state or “quasi-state” entities; these entities set prices at state-run retail locations, set maximum selling prices for private retailers, and limited which firms received licenses to sell fertilizers. These policies negatively impacted farmers’ access to fertilizers, however, particularly in remote rural areas.
To address these constraints, in the early 1990s, the government of Kenya eliminated import quotas, controls on fertilizer prices, and preferential access to foreign exchange. Following these reforms, new private sector firms entered the market and the distribution of commercial fertilizers to farmers across the country increased significantly.
The study uses five waves of panel data from nationally representative rural household surveys from 1990-2013. The authors found two main results stemming from the reforms: 1) a decline in fertilizer marketing margins between the Port of Mombasa and upland retail markets and 2) an increase in the number of rural retailers who carried fertilizer in their stores. According to the paper, the DAP marketing margin declined by 45 percent between 1997 and 2000, 60 percent of which change can be attributed to changes in the domestic marketing margins between Mombasa and farmers’ point of purchase. During the same period, the number of rural fertilizer retailers rose from an estimated 5,000 in 1996 to an estimated 8,000 by 2000. In addition, nationwide farm survey data shows that the distance farmers had to travel to reach the nearest fertilizer seller declined by more than half between 1997 and 2007. These changes significantly reduced the cost of fertilizers for farmers.
The authors then estimated the effect of these changes (lower fertilizer prices and shorter distance to the nearest fertilizer retailer) on smallholders’ use of fertilizer and maize production. Their estimation found that the reform-driven decline in nitrogen fertilizer prices between 1997 and 2010 led to a 36 percent increase in nitrogen use by smallholder maize producers; this increased nitrogen use is estimated to have directly resulted in a 9 percent increase in national maize production (both intensified productivity and expanded land planted to maize). It is important to note, however, that during the study period, the authors found that total maize production increased by 58 percent. This suggests that while input reforms played a role in increasing maize production (the 9 percent increase mentioned), there is considerable room left for other factors to explain the increased production.
The paper concludes that policy reforms such as those instituted by Kenya in the early 1990s may provide a more effective, less costly way to promote increased fertilizer use than input subsidy programs. Improving the national enabling environment can encourage more private firms to invest in the fertilizer sector, making fertilizers more accessible and affordable for farmers throughout the country.
By: Sara Gustafson, IFPRI