AAMP Training Materials
Module 1.2: Fertilizer Supply Chain in Africa
B. L. Bumb (IFDC)
bbumb@ifdc.org
Module Outline
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Objectives
Key Themes and Components
Exercises
Conclusions
References
Objectives
• Describe the links in the fertilizer supply chain
– The role of fertilizer producers, importers, & agro dealers
• Understand determinants of farm-gate fertilizer cost
– Cost build-up analysis.
• Identify measures needed to improve fertilizer supply in
Sub-Saharan Africa
– Goal: Reduce supply cost and improve accessibility for farmers
• Discuss impact of policy options on fertilizer price using
cost build-up analysis
Key Themes and Components
• Fertilizer value chain analysis
– Key links in the value chain
– Stakeholder functions
– Conduct & performance
• Fertilizer cost build up exercises
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Procurement cost
Shipping, port handling, and inspection
Bagging, storage and transportation
Finance and Letter of Credit
Marketing- wholesale and retail
The Fertilizer Supply Chain: Stakeholders
• Global Market
– Manufacturers and traders (supply fertilizers); shipping
companies (responsible for shipping products), inspection
agencies (ensures truth in labeling) & banks (provide finance
and letter of credit)
• Domestic Market
– Importers, manufacturers, transporters & banks
– Port authorities, policymakers, regulators (enforce quality
standards)
– Wholesalers- sell fertilizer in large quantities to retailers or large
farmers
– Retailers & stockists- sell fertilizer to small and medium farmers
– Farmers- use fertilizer on different crops
Stakeholder Functions
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Procurement, shipping, financing & inspection
Domestic production, blending and bagging
Local financing
Transportation
Domestic marketing
– Wholesale
– Retail
• Farming
The Fertilizer Supply Chain: Conduct & Performance
1
Conduct
(Coordination)
Performance
(Profitability)
FLOW OF FERTILIZER
FUNCTIONS
TRANSACTION COSTS
Procurement from
overseas fertilizer
manufacturers
Procurement by
tender or negotiation
FOB cost
+
International
shipping
Ocean freight
Freight costs
+
Arrival at African
port
Unloading, bagging,
inspection, customs,
and taxes
Port charges and
taxes
The Fertilizer Supply Chain: Conduct & Performance
2
Conduct
(Coordination)
Performance
(Profitability)
FLOW OF FERTILIZER
FUNCTIONS
TRANSACTION COSTS
Warehousing at port
Local transport,
unloading, storage,
inventory finance
costs & rent
Warehousing costs
Inland transport by
road or rail
Transport costs
Inland transportation
+
+
Inland warehouse
Inland storage
Warehousing costs
The Fertilizer Supply Chain: Conduct & Performance
3
Conduct
(Coordination)
Performance
(Profitability)
FLOW OF FERTILIZER
FUNCTIONS
TRANSACTION COSTS
Local transportation
Local transport by
truck or public
vehicles
Transport costs
Agro dealer
Farmer
Retail sales to
farmer (direct sales
or distribution)
+
Operating costs:
storage, re-bagging,
overhead, finance &
margins
Product Portfolio
• Internationally traded products
– Urea, DAP, MOP, NPKs
• Regionally traded products
– Compound D, Cotton Formula
• Local / Specialty Products
– NPK 12-24-12, 23-21-0-5S
Role of Product in Cost Build-up
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Internationally traded products
Specialty products
Size of shipment- Quantity shipped
Location of country: Landlocked and Coastal
Fertilizer Price Formation
Cost Components: Malawi & Angola, 2003
Cost Item
Malawi
Angola
Ratio of Angola
to Malawi Cost
FOB
145
226
1.56
Shipping
25
95
3.8
Port Handling
8
98
12.25
Duties
2
48
24
Inland Transport
60
15
0.08
Dealer Cost/Margin
18
220
12.22
Other Costs
63
126
2.16
Retail Price
321
828
2.58
Constraints to Fertilizer Supply Systems
• Non-conducive policy environment – distortions
introduced by government intervention in pricing and
marketing of products
• Ineffective regulation – poor enforcement of quality
control standards at the point of sale – limited capacity
with Agricultural Ministries for enforcement
• Limited access to finance – high interest rates and
stringent collateral requirements
• Inadequate human capital – limited skilled manpower for
imports and marketing
Constraints to Fertilizer Supply Systems
• Restricted multi-country trade – tariff and not-tariff
restrictions on multi-country trade
• Inadequate market transparency & business linkages
• Poor infrastructure
– Inefficient port handling facilities
– Underdeveloped road and rail systems
•
Source: See Gregory and Bumb (2005) and IFDC (2003) for details
Measures Needed to Improve Fertilizer
Supply Systems
• Create an enabling policy environment- remove pricing
and marketing distortions
• Strengthen human capital base- improve skill-base of
importers and agro-dealers
• Improve access to finance- by reducing interest rate and
collateral requirements through risk-management tools
• Create market transparency- strengthen market
information systems and business linkages
Measures Needed to Improve Fertilizer
Supply Systems
• Enforce effective regulatory frameworks- Build capacity
of enforcing quality control standards/truth-in-labeling at
the point of sale
• Integrate multi-country markets by removing tariff and
non-tariff restrictions and strengthening linkages among
importers and exporters across borders
•
Source: See Gregory and Bumb (2005) for details
Exercises
• Open Excel worksheet [Fertilizer Cost Components]
• Make changes to reflect the following scenarios
1. What is the new retail price of Urea in Malawi if the
global price changes to $810.00/ton?
2. What is the price of a 50kg bag of Urea in Malawi
Kwacha if the exchange rate is MKW 140/US$?
3. What is the price of a 50kg bag of Urea if the exchange
rate increases to MWK 200/US$?
Exercises
4. What is the impact on retail price of a 50kg bag of Urea
if the government introduces a 70% subsidy on the
retail price and total subsidy bill if consumption of urea
is 150,000 tons?
5. With funding support from the World Bank, USAID, and
EU, the Government of Mozambique and the
Government of Malawi construct a super fast railway
between Beira Port and Lilongwe; it reduces the
transport cost from $86.91 to $26.11 per ton. What
happens to retail price per ton (in US$) and per 50-kag
bag (if exchange rate is MKW 140=US$)
Conclusions
• Changes are needed in both supply system
arrangements and cost components.
• Improvements in policy, human capital, regulation,
access to finance, and market transparency are
essential.
• Economies of scale in procurement and internationally
traded products can save costs.
• Improvements in port handling and transportation
arrangements are also essential for reducing prices at
the farm gate.
References
• Chemonics and IFDC: Fertilizer Supply and Costs in
Africa. Chemonics International, Washington DC 2007
• Gregory, D. I. and Bumb, B. L.: Factors affecting Supply
of fertilizer in Sub-saharan Africa, World Bank ARD
Paper 24, Washington DC, 2005
• IFDC: Input Subsidies and Agricultural Development:
Issues and Options for Developing and Transitional
Economies. IFDC Special Paper P-29, Muscle Shoals
Alabama, 2003