Africa’s fertilizer markets face significant constraints on both the supply and the demand side, including a lack of infrastructure, high costs to both produce and use, and low public-private investment. However, the challenges of climate change and population growth are now encouraging many governments to tackle much-needed market reforms.
These were some of the takeaway messages from last week’s virtual dialogue on fertilizer use in Africa, held on December 10. (Read a full summary of the dialogue.)
The dialogue addressed four questions:
- What is the market structure of Africa’s fertilizer market?
- What is the role of policy in Africa’s fertilizer market?
- What are the constraints that exist for fertilizer use in the region?
- What are the opportunities that exist for fertilizer use in the region?
Overall, Africa’s fertilizer production is not competitive on the international market. While the fertilizer industry in North Africa (Egypt, Morocco, Tunisia, Algeria and Libya) produces surplus natural gas and phosphoric acid for export to Europe, production in Africa south of the Sahara largely only meets domestic needs. In terms of final products, there are three main product categories produced in Africa: urea, nitrates, and DAP/MAP (phosphate-based fertilizers). Dr. Maximo Torero, Division Director of IFPRI’s Markets, Trade and Institutions Division, highlighted the highly concentrated nature of global fertilizer production; five countries control more than half of the world’s production capacity for urea, DAP/MAP, potash, and NPK.
In addition to battling low exports and low international competitiveness, Africa’s local fertilizer production also faces strong competition from international imports. Local fertilizer processing plants are small by international standards, their costs are high, their technology is obsolete, and they are not energy efficient in terms of converting raw materials to final products. In addition, the capacity to move raw materials and intermediate products regionally is seriously hampered by the absence of infrastructure such as ports and roads. Fertilizer imports represent nearly 95 percent of fertilizer consumption in Africa south of the Sahara (FAOSTAT), and it is likely that the region will continue to depend on fertilizer imports for the foreseeable future.
In terms of demand, high costs and poor infrastructure have also acted to keep use rates low. The primary uses for fertilizers in Africa are grain crops (maize and wheat); fertilizers are also commonly used on export crops such as sugar, tea, tobacco, flowers, and coffee, as well as for commercial vegetables. On average, farmers in Africa south of the Sahara 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 Africa south of the Sahara are low even by comparison with the average for developing countries, 94 kg/ha. In absolute terms, fertilizer use in Africa south of the Sahara 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 percent of the total for Africa south of the Sahara. If South Africa is excluded, the continent-wide average falls to 8.7 kg/ha.
Further complicating the market situation is the existence of various distribution channels. Commercial distributors and export crop companies supply commercial growers, while governments and NGOs supply smallholder producers. These dual channels often result in leakage of government-subsidized products into commercial channels; this reduces incentives for distributors of commercial fertilizer. Some experts suggest that the initial fixed set-up costs and underperforming infrastructure networks form a significant barrier to increased fertilizer supply, while a lack of trust makes public-private partnerships unlikely. Despite government support programs, fertilizers lack profit incentives and carry high production and market risk. Therefore, it should be clear that any system of subsidies or transfers is set up in a way that does not preclude market development and entry by the private sector.
In addition, many farmers have a hard time gaining access to fertilizers due to a lack of infrastructure in remote rural areas. Farmers also often lack knowledge regarding the prices of inputs, market information, and fertilizer and nutrient combination needs; this lack of information can result in incorrect and unprofitable use of fertilizers, making it even more likely that farmers will choose not to use fertilizers at all in the future. Information such as detailed soil maps and services to mitigate risk, such as affordable credit services and viable insurance, are severely lacking throughout the region. The overall lack of information and support for fertilizer use has led to low nutrient use efficiency, high fertilizer costs, soil and environmental degradation, and reduced confidence in the institutions providing fertilizer and advice.
Dialogue participants noted that policies must work to address all of these constraints in both the short and the long term. Regional policies need to be established to extend across borders to facilitate resource mobilization, production, and trade. On the demand side, government subsidies can set prices in such a way that will encourage optimum application rates based on soil type and quality, etc. Tariffs and taxes also need to be examined to evaluate their impacts on fertilizer trade; such policies can include border fees and import permits. Finally, subsidy programs themselves need to be designed to prevent leakages into the private sector and thus protect and encourage private sector investment. Participants noted that the optimum subsidy programs should be set up for a short period of time; this will promote fertilizer use and access but will prevent farmers from becoming reliant on government aid.
Finally, the dialogue turned to several reasons for optimism. The dearth of information regarding fertilizers means that communication campaigns can have high returns; this has already been observed in some projects in Malawi, Zambia, and Zimbabwe. For example, transmitting information to children in the classroom can help solve the problem of older farmers’ illiteracy, since children can communicate information to their parents.
As Africa’s population continues to grow, there will be increased demand for food and higher living standards; this will put even more pressure on governments to address market constraints to fertilizer use. Dr. Jones Govereh noted that recent liberalization of imports/distribution and loosening of price controls in Kenya could increase that country’s supply capacity and improve overall access to fertilizers. Similarly, Nigeria, Ghana, and Gabon have recently discovered new sources of oil and gas and other feedstock, which have enabled large-scale investments and increased export opportunities. Zambia, Mozambique, Malawi, and Zimbabwe are experimenting with smart subsidies that offer targeted social support to poor farmers to kick-start market development.
Finally, regional free trade areas like ECOWAS, EAC, SADC, COMESA, and the Tripartite Free Trade Area (TFTA) have the potential to improve regional operations and attract large, long-term investments by facilitating the commerce across borders.