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May 27, 2008

Fertilizer industry development necessary for Africa to benefit from soaring global food prices

Rising food prices could mean higher profits for Africa’s smallholder farmers—but only if their access to fertilizer and other agricultural inputs increases significantly. And as fuel costs climb, experts say Africa’s historical dependence on expensive imported fertilizer will likely cancel out farmers’ profits.

With public spending on agriculture declining, African leaders and agricultural advocates alike are looking to the private sector to fill the gaps, hopeful that entrepreneurial investment will sow the seeds for a much-needed African fertilizer industry.

“Africa is using the least amount of fertilizer in the world,” said John Pender, a senior research fellow at the International Food Policy Research Institute.

African farmers are locked in cycles of poverty. A lack of fertilizer means low yields, and low yields mean low profits, keeping fertilizer economically out of reach.

With much of the continent lacking the infrastructure and funding needed to build chemical plants, “Africa is totally reliant on imports of fertilizer, [diminishing] the productivity level in the agriculture sector,” said Aslam Chaudhry, Chief of the Water and Natural Resources branch of the UN’s Division for Sustainable Development.

Bringing down the cost of fertilizer is essential to increasing access. “You need to somehow provide some economic incentives to the farmers so that they can use more and more fertilizer,” Chaudhry said. Government subsidies on agricultural inputs have had mixed results, often quashing emerging private enterprises and ending without establishing long-term supply chains.

“You come in with cheap fertilizer—people are just starting to develop a fertilizer market, traders are going into business, sellers, and then a big load of subsidized fertilizer comes in and it completely undermines that market development,” Pender said.

Africa’s lack of a domestic fertilizer industry sets it apart from other areas of the developing world. While the Green Revolution of the 1960s and 70s largely passed Africa by, it brought agricultural reforms and increased spending that led to gradual increases in fertilizer use in South Asia, which in turn encouraged local input production. “It generated a lot of investment in the private sector in those countries to install fertilizer factories, fertilizer plants, and these people started to produce fertilizer,” Chaudhry said.

That kind of sector growth takes time, and a vibrant fertilizer industry in Africa is probably years away. But the interest is there, said Joe De Vries, director of the seed program of the Nairobi-based Alliance for a Green Revolution in Africa (AGRA).

Most of Africa’s agricultural suppliers were privatized little more than a decade ago, De Vries said. “It’s taken some time for private investment to pick up, but gradually that has now taken hold, especially here in East and Southern Africa. But as we’ve seen in Nigeria as well, there’s more private investment coming on line.”

Much of that investment is from South Asia, De Vries said, and it comes with experience, bringing in Asian entrepreneurs who have contributed to their own countries’ agricultural growth.

While the funds are largely foreign, the motivation for this development is primarily African. “A lot of the leadership for these investments and sponsorship is coming from within Africa,” De Vries said. “There are a number of ministers of agriculture who are pushing strongly for these deals to be made, and their influence cannot be underestimated. Some former heads of state have even gotten involved.”

Africa’s mineral resources have long been one of the continent’s main sources of wealth. From gold and diamonds to petroleum and uranium, Africa’s natural resources have been exported to other parts of the world for hundreds of years. But scientists and industry experts say that Africa’s abundant mineral assets could be used locally to help improve crops and stimulate domestic economies.

“Many opportunities [exist] throughout different parts of Africa to develop phosphate deposits and improve the efficiency of the current fertilizer factories,” said Steve Twomlow, an agro-ecosystems expert at the International Crops Research Institute for the Semi-Arid Tropics (ICRISAT). “Deposits of coal, oil and natural gas are available that can be used as raw materials and sources of energy to produce nitrogenous based fertilizers.”

Determining where those resources are and how to use them will take considerable international investment, De Vries said. “There’s an opportunity for people who are in the public sector or the international civil service to get involved here and do this detailed prospecting for deposits and analysis of the quality of the product. That’s a fairly minor investment,” he said. “But still, if it’s not made, then the major investment may never be made.”

As Africa’s fertilizer industry develops, a balance of public and private funding is essential to ensure that the pursuit of profit doesn’t eclipse the continent’s need to feed itself. “When the green revolution took place it was either publicly-funded research and extension or research which was funded by philanthropic organizations,” said Jomo Kwame Sundaram, United Nations Assistant Secretary-General for Economic Development.

“Now we have a very different situation where private firms are basically the main suppliers of all the necessary inputs.” Companies are increasingly engineering seeds that are unable to reproduce and require their own brand of fertilizer and pesticide, Sundaram said, making farmers “far more vulnerable and dependent on agricultural inputs as well as agricultural marketing chains. If they do not plug into that, their existence becomes very marginal and very difficult.”

And while access to fertilizer is crucial to increasing Africa’s agricultural productivity, more fertilizer must be accompanied by better access to improved seed varieties and more sustainable water and land management systems.

Better seeds allow other inputs to take full effect, De Vries said, which helps convince cash-strapped farmers to continue investing in fertilizer. “Wherever farmers get access to improved seed, which is bred to respond to improved soil facility, they tend to increase their applications of fertilizer. So, improved seed is kind of a precursor to increased use of fertilizer.”

The well-timed use of small quantities of fertilizer applied to specific areas, a process called “micro-dosing,” can also yield substantial benefits at far lower costs, said Ramadjita Tabo, Deputy Director of ICRISAT and Regional Coordinator for West and Central Africa. “Because this technology increases nutrient use efficiency and reduces costs, demand and supply of fertilizers will increase while the costs of production will decrease,” he said.

But in the short term, the leaders of world’s hungriest continent must create or increase subsidies on fertilizers and other agricultural inputs imported from Europe, Asia and the United States. Subsidies on foreign products may not be good for emerging local markets, but in the current climate of massive food shortages, “one cannot stand on principle when we have hungry mouths to feed,” De Vries said.

“Smart subsidies, which make use of local delivery [and] which don’t squash the local private sector are a very strategic investment for African governments to make,” he said. “And if the international community can assist with that, I think it is a very timely area to look at.”

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