Fertiliser subsidy killing private sector, report

Loaders carry fertilizer belonging to Yara East Africa Limited at the company depot along Mombasa Road in Nairobi. [File, Standard]

The State-led fertiliser subsidy programme that targets farmers directly has been criticised in a new report by a continental advocacy body which claims it disincentives the private sector.

The Alliance for a Green Revolution in Africa (AGRA) report opines that the government, using its systems to distribute fertiliser to farmers, made the private sector that deals in the same commodity scale down their investments.

This is even as the report dubbed Accelerating the Private Sector for Food Systems Transformation in Africa cites Kenya as among the countries on the continent which often report an increase in the usage of fertiliser.

It notes that from a demand perspective, African fertilizer use averages 32.4kg/ha, and consumption per unit area has increased by 8.5 per cent since the 2006 Abuja Declaration.

“Countries driving this growth include Ethiopia, Kenya, Nigeria, and Mali, which are among the major consumers of fertilizer that have experienced surges in demand over the past two decades,” reads the report released September 3, 2024.

Due to this surge, private sectors in these markets have invested in manufacturing and blending facilities to cater for the specific soil needs.

However, policy changes like what is being witnessed in Kenya, the report says, threaten this growth as they lock out the grassroots private sector players who are key in stimulating demands through their distribution channels.

AGRA says policy triggers can be an important factor that can hinder private sector-led growth and investment. It gives an example of Kenya, citing fertiliser consumption averaged 59 kg/ha of arable land between 2017 and 2021 according to World Bank with per capita consumption growing at 2.3 per cent per year on a per ha basis up to 2021.

Until 2020, the report says, Kenya’s consumption of fertiliser was growing peaking at 835,000 tons that year.

It adds that growing demand for fertilisers, particularly blends, saw an increase in local blending capacity from 22,100 tons per annum in 2004 to 73,000 tons per year by 2022.

Out of the 51,000 tons of additional capacity, 92 per cent came from medium and large-scale firms. These firms include Yara East Africa Limited, Timac Agro, Elgon Kenya Limited, and ETG Kenya Limited.

“However, a change in the Government’s delivery model of subsidized fertiliser under the second phase of the National Fertilizer Subsidy Programme (NFSP II) excluded last-mile micro, small, and medium-scale enterprises (MSMEs),” the report says.

“Instead, the government opted to use the distribution system under the state-owned National Cereals and Produce Board (NCPB), which lacks last-mile delivery actors.”

AGRA says not leveraging the existing private sector input distribution network crowded out fertiliser market actors, both small, medium, and large-scale agribusiness firms. It reveals that as a result, volumes handled by last-mile agro-dealers fell by between 77 per cent and 88 per cent in 2023.

“Consequently, fertiliser consumption declined by 20.5 per cent, from 835,000 tons in 2020 to 663,400 tons in 2022,” the report says.

The advocacy body claims some SME agro-dealers have ceased operations which has resulted in the fertilizer supply chain being dysfunctional, and, as a result, medium to large-scale blenders are likely to downscale operations while holding significant volumes of unsold stock.