Africa’s fertilizer market features three main segments:
The operating features of these markets include extraction, production, importation and distribution of raw materials, intermediates and final fertilizer products. Raw materials are used in the production of intermediates and the latter are used in the manufacture of final products.
While raw materials have been discovered in a number of countries, only those countries with commercially extractable deposits are actively extracting and manufacturing intermediate products. Numerous mineral deposits are small and cannot sustain large scale “greenfield” production enterprises by the private sector.
Natural gas: Countries active in extraction for more than three decades are in the North (Egypt, Algeria and Libya) and in the last decade in the West (Nigeria, Gabon, Equatorial Guinea. Most recently countries in the South (Angola, Mozambique, Madagascar) begun extraction of natural gas.
Phosphates: Commercial extraction is actively being pursued in the North (Morocco, Tunisia and Egypt), in the West (Senegal, Togo) and in the South (South Africa, Tanzania and Zimbabwe).
Potash: Potash salts are the least present in the continent and commercial deposits have been identified in DRC, Ethiopia and Nigeria. However no commercial extraction is taking place for the manufacture of muriate of potash.
The extraction of raw materials and production of intermediates go hand in hand in most producing countries. Ownership and operation of these extractive plants has all along been dominated by the state but the private sector has entered into joint ventures with governments in the most recent past.
Another common feature is that these operations are being conducted at a single plant within each country in order to leverage economies of scale. A large scale operation is key in lowering cost of production and maintaining international competitiveness.
The industries in the north produce surplus natural gas and phosphoric acid for export to Europe but industries in Sub-Sahara Africa are producing largely to meet domestic needs. There is potential for SSA to produce for export in the future. South Africa is a net importer of natural gas. The continent is importing MOP for all its needs.
There are three main product categories produced in Africa: Urea; Nitrates and DAP/MAP. Urea is being produced in Nigeria, Egypt and most recently in Gabon. Nitrates are being manufactured in South Africa, Zimbabwe and Zambia. DAP and MAP are manufactured in the North (Morocco, Tunisia and Algeria), in the West (Senegal, Ivory Coast and Togo) and in the South (South Africa, Tanzania, Zimbabwe and Zambia).
Production in SSA is only regionally competitive but internationally it is not competitive. Imports of final products outcompete local products because local plants are small by international standards. Local plants rely on high cost feedstock and the technology is obsolete and not energy efficient. The conversion rate of raw materials to final products is poor rendering these operations less competitive globally. The capacity to move raw materials and intermediates regionally is seriously hampered by the absence of infrastructure (ports and transport).
There is virtually no competition in-country and matters of economic efficiency, market power and high prices of products are a concern going forward. The involvement of the state in fertilizer production is driven by food security rather than business principles.
African fertilizer industries in the north remain internationally competitive but industries in SSA are only regionally competitive. SSA will for the foreseeable future meet her product needs from imports of final products and intermediates. Although South Africa is internationally competitive, its reliance on imported final products is increasing and imports have provided more than half of its consumption needs in the last ten years.
North Africa is a net exporter of final fertilizer products but SSA and South Africa are and will remain net importers for the foreseeable future. Importation of final products is being conducted in small lots by numerous entities. Due to lack of cooperation in sourcing imports, procurement by individual countries and entities within countries continues at high unit cost.
Given the limited scale of operation and direct state involvement in production and importation, single channels of distribution are common. However the differentiation of the final users has given rise to multiple supply channels in most countries.
The primary users of fertilizer products are large scale farmers, estate or plantations and smallholder farmers. Grain crops (maize and wheat) have the highest share of total demand but use intensity is average. Export crops such as sugar, tea, tobacco, flowers and coffee have a lower share but above average use intensity. Commercial vegetables also have high use intensity.
Different users access fertilizer from different channels. Commercial distributors and export crop companies supply commercial growers while government and NGOs supply smallholder producers. The active presence of parallel government distribution channels has seen leakage of subsidized product into commercial growers causing disincentives for distributors of commercial fertilizer.
SSA has a large trade deficit as nearly 95% of consumption is being met by global imports. Leading importers include Kenya, Ethiopia, Nigeria, Ivory Coast and Zambia. Kenya imports from Russia, Finland and USA. Ethiopia imports from Lithuania, Middle East and Russia. Nigeria is importing from Belgium and Ukraine. Ivory Coast imports from Russia and Belarus. Only Zambia, Malawi and Zimbabwe imports a large share from South Africa.
Fertiliser distributors establishing in SSA are part of existing global value chains such as YARA. These markets have overtime closely integrated with the global players. As a result, shocks in the global markets are being transmitted to African markets much quicker than before. Therefore the SSA industry is now vulnerable to global price volatility and spill-over effects. Given the inability of local consumers to withstand shocks of large magnitude, the viability of domestic grain production in SSA could be vulnerable to intermittent risks.
The global fertilizer industries are highly concentrated. Given the absence of regional anti-trust force commissions in SSA, the global industries have the inclination to abuse their market dominance and collude. The market power these global industries exert has given rise to calls for closer scrutiny of market power effects of these global suppliers.
Africa is highly dependent on imports of fertilizers, so if we are talking of market structure of the supply of fertilizers it is highly dependent on the world market structure. Mora than 90% of the fertilizers are imported.
Even more if we look at production of Nitrogen, Phosphate and Potash, SSA plays a minor role.
As a result if we look at the market structure of the fertilizer production at the world level we also find a highly concentrated (few suppliers). A look at the Worldwide Fertilizer Capacity Listings by Plant, published by the International Fertilizer Development Center (IFD), reveals that the industry is highly concentrated among a few countries, which control most of the production capacity for the main nitrogen, phosphate, and potash fertilizers. As shown in the figure below, the top five countries control more than half of the world’s production capacity of urea (a nitrogen-based fertilizer), DAP/MAP (phosphate-based fertilizers), potash and NPK (complex fertilizers). In the case of potash, this concentration ratio was above 77 percent in 2008/09, with Canada and Russia explaining more than half of the global capacity. In the case of urea and DAP/MAP, basically the same countries (China, United States, India and Russia) control the majority of their production capacity. This geographical pattern of fertilizer production is largely determined by the availability of raw material across the globe.
This is extremely problematic because on average, farmers in sub-Saharan Africa farmers use about 14 kg of fertilizer nutrients per hectare of arable land compared to 92 kg/ha in Latin America and the Caribbean, 104 kg/ha in South Asia, and about 230 kg/ha in Southeast Asia. The application rates in sub-Saharan Africa are low even by comparison with the average for developing countries, 94 kg/ha. In absolute terms, fertilizer use in sub-Saharan Africa is about 2.3 million tons, compared to the global figure of 141 million tons. It should be noted that these figures include South Africa, which accounts for about 41% of the total for sub-Saharan Africa. If we exclude South Africa, the continent-wide average falls to 8.7 kg/ha. As a result there is an important need to increase the competition in the supply side and reduce the import dependency to be able to have access to affordable prices of fertilizers for the region to increase the needed fertilizer nutrients application per hectare.
As outlined, SSA is greatly affected by the global fertilizer market. Over the years price of fertilizer has increased a lot leading to farmers failing to purchase the commodity and leading to most governments subsidising the commodity. In future SSA should research into the possibility of producing organic fertilizer as the prices of chemical fertilizers are too high and in most cases are exargerated.
At least now more than ever before, we have the most exhaustive data available in the fertilizer market in SSA, it's much easier to devise palliative strategies. Regional approaches in the supply of quality fertilizer development initiatives must encompass major outreach and communication components for sake of sustainability... Senegal' importer profile is no different from landlocked countries like Mali and remote underserved rural confines, making fertilizer cost a non option.
Organic fertilisers have a role in the product mix possibly as part of complementary land husbandry practices but on their own they cannot provide the nutrients being supplied by and replace inorganic fertilizers.
One important issue is why local production of fertilizers does not increase in SSA. There has been several initiatives but little progress. What are the constraints for this to happen?
Remember the lost decades of development in the Seventies?.. It was not due to lack of finance, but instead, deficits of coordinated approaches across strategies, various institutions operating in silos with conflictual agenda...
Can we say that such will never happen again? absolutely not!
It takes basic prerequisites, organizational ones mainly, to ensure proper engagement of stakeholders of different backgrounds and more importantly, we need to work on those lines to expect and see the outcome we want to face take place...
Given the highly localised availability of raw materials, those countries extracting raw materials prefer to export final rather than raw materials. Local value addition is critical in boosting local economic growth. As is the case in China, export taxes are in place to discourage export of raw materials. SSA, therefore, will access raw materials at high cost and this makes local production less attractive.
Clearly there are countries in SSA than can supply those raw materials and develop final products at competitive prices. Why this is not happening?
We did some simulations of the effect of bringing one more company based in SSA and the impacts in terms of prices are important because of the reduction of the market structure and also it will improve access and welfare.
Is the initial investment needed a barrier? if so why we don't try to identify mechanisms for funding through the different multilateral banks.
Right there, a straightforward way to put it... To be honest, lack of trust in shared partnership outcomes in those many actors between and across countries in SSA remains the underpinning answer to your first and foremost question.
As far as cost reduction strategies in bringing a key player in the game, needless to say that such would help minimize most of the overhead cost related to transactions per aggregate to end users, but then remains the challenge of incentivizing existing distributors shift to adoption of newly devised supply mechanisms.
Last but not least, the initial investment may be a challenge depending on timeframes in mind in getting this whole "gradual" process started...already undertaken field investigations in Senegal and Konakry Guinea, showed tantamount excitement in working towards a start up concept with key private sector partners, at least towards feasibility study undertaking and first operational set up, the drive is there, the commitment is real and there's no better time to dive into... all this with a steady outreach and communication plan aimed at determining roles and responsibilities across various stakeholders, which can make or break the whole dynamic.
Maximo, good questions. Perhaps need further research to understand the various challenges that are hindering. Take care
Agree with most comments on this topic. Just wanted to re-iterate that SSA is a price taker on fertilizers (and that SSA has no leeway to influence the world price due to the small overall market in SSA). But SSA has the means to make it easier for businesses to procure and distribute fertilizers. Harmonizing policies across borders, cutting on customs regulations and charges, road blocks and weighbridges are the "easier" measures compared to developing infrastructure (roads, rails, storage etc) which is a medium-to-longer term prospect. Some research findings indicate that local manufacture for some fertilizer products in SSA is not competitive with imports from Middle East and other regions, and so it is important to allow for increased competition in importation to protect farmers from high prices. We , however, have to be careful that government regulations/controls do not end up discouraging private investment which is crucial for sustainable markets.
One could not concur more, domestic resource mobilization is the way forward in a sector at its infancy as the fertilizer sector in Africa. The takeaway on that note should encompass strong communication and outreach in conveying the most appropriate messages to relevant stakeholders at stake: importers, distributors and middlemen (women, now for gender conscious matters...)
As in any other innovation in the whole apparatus of Agricultural development rationale, existing actors need to be "unlocked" out of the narrow sighted approach of undifferentiated consumption of fertilizer, a bit of an outreach and education as well could make a big difference in adoption of new standards and attitudes towards this shift...
Completely agree with your comment. In addition SSA really needs to leapfrog in policies by using inputs in the most cost-effective way and also increasing incentives for investment in the countries of Africa were natural resources are present and will allow to increase the competition of the fertilizer markets.
Agricultural markets deficits and unpredictedness can all find their root causes on lack of robust fertilizer development strategies... Existing suppliers remain dependent on unchecked imports in an area of fast paced innovation where fertilizers used are causing more harm to productivity than enhancing it. Through AGRIFERT, a start up small business fertilizer blending company, with a diverse team of achieved experts, we're trying to rollout a comprehensive development approach sought to placing partnerships at the core of its implementation strategy... It's safe to contend that sometimes institutional partnership agreement remains the challenge to overcome, besides clear institutional mandates guiding, or should I say that should be guiding ones actions in the decision making process... A lot of biases one needs to address beforehand...
Trying to respond to Maximo Torero's question on why local production is not increasing. From discussions with industry experts, some reasons for low production within SSA is related to the market size (too small to justify huge investments in manufacture), poor infrastructure, and poor information on fertilizer benefits and use (leading to low adoption of fertilizers and small overall market size). It requires approx $1billion investment for medium fertilizer plant and recouping this investment will be tough under these circumstances coupled with very competitive production costs in some regions of the world where input costs are very low (for instance natural gas prices are very low in some regions of the world, and plants are located next to major sources of key inputs).And also the business environment has to be considered. But these are issues that can be dealt with. Thanks
I also wonder to what extent are legal frameworks could be adjusted to make it attractive for companies to produce fertilizer.
Just a quick note that blending facilities are increasingly being installed in Africa as a response to the challenges faced with manufacturing / production and also to allow farmers get fertilizer products that conform to the soil and crops in the location (as opposed to blanket recommendations irrespective of soil conditions or crop types). Blending has its own challenges, but countries are looking at all available options to increase fertilizer use.
A number of institutions are working with national and regional stakeholders to reform policies and update legal frameworks to conform to changing business and global trends. But this takes time. However, there is increasing awareness by governmenbts on the need for change.
How much south south learning can help on this? What will be the major contribution the portal can do for this?
Put another way, regional development equilibrium in Africa is known for strong disparities...Across and within countries, between rural (where most production activities take place) and urban dwellings (with consumption centers).
As you can see, this delineation leaves aside transformation, processing as would coin it my english speaking counterparts... But indeed that's how it is happening in reality: there is a hiatus between our production and consumption models which, specific to this dialogue, a third element is trying to fit in, sought to bringing value added to both sides of the aisles...
This to say that it's time to think, operate, design and talk (Outreach-Communication) Value Chain and come up with an agreed model, a principle, a standard operating procedure with specific guiding rules in regards to compliance and oversight.
The above would have the ability to align all development practitioners in same format ready for "marketing" as a community of practices easily assimilable through well-devised outreach and communication schemes... Private public partnerships is no more than the above pursuit of an agreed development agenda whereby all actors are winners directly or indirectly and the outcome reiterated at every step of the way, to remind, reinstate and readapt the vision, the worth!