Home | EthioNL English pages | EthioNL Dutch pages | Back to documents index |

The Sad State of Fertilizer Import, Distribution

The most exciting news in Ethiopia today is that farmers will be blessed with yet another bumper harvest, thanks to good weather for the third consecutive year. The sad part is those who are in charge of helping these farmers take full advantage of nature's bounty are failing them miserably. The import and distribution of fertilizer, a crucial input to realize record high agricultural productivity, is in a deep hole, if we go by the latest series of events in the management of public tenders.

Ethiopia is a largely agrarian country with almost half of its 70 billion dollars in Gross Domestic Product (GDP) consisting of agricultural production. Close to 80pc of the country's exports come from this sector, while 85pc of the population depends on it for their livelihood.

The timely importation and distribution of fertilizer and selected seeds is crucial should the country realize its plans to produce over 150 million quintals of grain during this fiscal year. It is imperative to attain better food security, a signature policy of the Revolutionary Democrats. If successful, this will be a year for a record high agricultural productivity, observed to have grown continuously over the past three years.

But no one seems to be confident enough to guarantee that this fertilizer will reach the farmers on time. Hardly anyone among the traditional importers is enthusiastic to import this commodity, claiming that the international price is too high.

On the surface, attributing the problem to increasing prices makes a lot more sense. The global market for DAP and Urea has shown close to a 100pc increase over the past five years, to almost 400 dollars per tonne in 2006. Urea has reached a price of 388.70 dollars per tonne, a significant increase from an average of 310 dollars last year. This figure is 40 dollars more than what the Ministry of Agriculture and Rural Development (MoARD) had projected earlier in the year.

Higher transport cost, rising prices of natural gas - a major element in the manufacturing of fertilizer - and an increase in the global demand are the major culprits; in five years since 2001, world demand for fertilizer reached 20 million tonnes, increasing by 13pc on average. This much is true.

But for someone who has been following the imports and distribution of fertilizer in Ethiopia over the decades, there are underlying issues other than simply a price increase in the global market.

Fertilizer was first introduced to Ethiopia in 1967. Consumption by peasant farmers rose from 14,000tns in 1974/1975 to 200,000tns in 1993/1994. Over 80pc of the fertilizer used in Ethiopia is applied to cereals, including wheat, barley, maize, sorghum, and teff. A decade later, agricultural experts are estimating the country's fertilizer need to jump to 650,000tns this year: 350,000tns is Urea and 250,000tns is DAP.

However, only 150,000tns is currently available domestically; the balance must be imported soon. Disappointingly for the government, this demand is not being met due to the glaring absence of importers in the tenders offered as of late. Of the seven tenders put out so far this Ethiopian fiscal year, very few bidders came forward, creating a great deal of concern on the timely availability of the commodity to farmers.

Many point their fingers at the ruling party that seems to be more concerned about controlling the supply chain than responsibly ensuring that the process is efficient. It is a deserving criticism, to say the least.

There was a period in the past decade when private companies were strong and active in the fertilizer business. In fact, Ethiopia Amalgamated was one of the pioneers until such time that it was pushed out of the market a couple years ago. Another was Fertiline, a private company that had become dominant since the partial opening of the economy in the early 1990s.

These were companies that had once made the market highly competitive; consequently it was characterized by low prices and supply matching demand. The actors have dramatically changed in the late 1990s with the emergence of party affiliated companies such as Ambassel, Guna, Dinsho and Wondo, in competition with the private companies. As a result, there were a series of allegations that competition went far beyond efficiency in supply and competitiveness in prices.

Gebreyes Begna, major shareholder and general manager of Ethiopia Amalgamated in particular, was on the forefront, alleging that his company was subjected to extrajudicial pressures from the political establishment, forcing him to give way to the emerging "endowments".

All of them were, however, in competition with Agricultural Inputs Supplies Enterprise (AISE), a state-owned enterprise established in 1985 as the lone national supplier of agricultural inputs. It was restructured to have 22.4 million Br in capital and the oversight role was given to the MoARD. Today, it has the largest network, with 215 outlets scattered across the country.

All of these companies are required to enter into a bid issued by a national committee under the Ministry; the latter took this role from the National Bank of Ethiopia only two years ago. They need to have an international supplier before the national committee awards any batch of these bids, in order to access the foreign exchange available to the sector. This year alone, the federal government is planning to spend close to 200 million dollars, 80 million dollars higher than last year.

The "endowment companies" did not dominate the market for too long, though. A couple of years ago, the government encouraged farmers' cooperatives and unions to participate in these bids, with states in their respective regions providing the cash they need to be in business. To the displeasure of authorities, such an unwise practice was found to have brought huge stress on the budget of the regional states, and threatened to dole them into deficit.

Ironically, both the "endowment companies" and the cooperatives have been hampered by the rising international prices of fertilizer and do not have the efficiency of management, profit motives, and flexibility that private firms possess to navigate such turbulent times. A private company is not constrained to the strict committee decisions and rules that a party affiliated or cooperative, for that matter, is.

In essence, private companies have the ability and organization to predict and react quickly to fluctuating markets, while public enterprises and "endowment companies" as well as cooperatives are at the whim of the political climate and uncertain state budgets.

The current arrangement in Ethiopia, however, gives way to the strong criticism that the ruling party uses the importation and distribution of fertilizer as a strategic political tool to keep farmers in line.

Chris Albin-Lackey, Sandler Fellow at Human Rights Watch, is one of these critics.

"Control over fertilizer and agricultural inputs have given Meles's government a remarkably effective tool for quashing dissent in rural Ethiopia," he wrote in one of his reports.

Looking at how inefficiently the fertilizer business is being managed, and in the utter absence of the private sector, critics of Prime Minister Meles Zenawi's administration have a point in their argument. The production capabilities of the agricultural sector is now threatened because his administration has made the conscious choice that retaining power is more important than raising the productivity of farmers and granting them the opportunity to lift themselves out of poverty.

Currently, local governments provide the expensive fertilizer to the farmers on credit. Farmers are subjected to harsh treatment by local officials if they fail to make debt payments. One farmer interviewed by Human Rights Watch said, "The men they send to take us to prison have also not paid for their fertilizer."

It is time for the government to reflect on the distorted policies it follows and treat fertilizer as a commodity like any other. The government should see the value private companies would bring to the market with their dynamism that is purely driven by the motive to make profit. The current system, open only for state owned companies, cooperatives and "endowment companies", does not meet agricultural demands as they are restricted by their long drawn out decision making process, incapable management, and inefficient way of running their businesses.

If current policies continue, fertilizer will be unavailable and the harvest will suffer, leading to food insecurity, drought, and famine. The government has the responsibility to ensure that this does not occur. There are plenty of options open to it that do not include supply chain control. With all the rhetoric delivered by the government concerning the market economy, especially related to World Trade Organization (WTO) accession efforts, one would expect that the most important sector of the economy, agriculture, would reflect such a philosophy.

If the government truly desires to help farmers and not control them, there are numerous policy instruments available that do not create such large market distortions and inefficiencies. Becoming market-friendly and indiscriminately (regardless of political affiliation) enforcing policy will give private companies the opportunity to show their worth. Entering into the fertilizer business requires huge amounts of capital. Encouraging some of the reputable private firms to enter into the market with a policy decision to let them use the fertilizer they import as collateral is the first step to create a viable industry.

The fertilizer market should be opened for competition as it once was to allow for efficiency and flexibility.The initiative must be taken by the ruling party to change its fertilizer policy from one of political control to one that embraces a market based approach; otherwise it is the already poor who will suffer more.

Click HERE to go to the source of this article.