Country FilesEast & HornETHIOPIA | The quest for fertile ground


Posted on Wednesday, 25 July 2018 09:44

ETHIOPIA | The quest for fertile ground

By Tom Gardner in Addis Ababa

Fertiliser use has shot up, and with it productivity -  Credits: Edwin Remsberg/Getty Images

In order to boost the livelihoods of Ethiopia’s smallholder farmers, the government is getting serious about launching the local production of fertiliser


One of Abiy Ahmed’s first moves as Ethiopia’s new prime minister was to put a fertiliser plant awarded to a military-industrial conglomerate on notice in late April. The state-owned Metals and Engineering Corporation (METEC) took on the $400m Yayu project six years ago, but it is still less than half complete.

The announcement signalled several things, not least the shortcomings of METEC, which is run by the Ethiopian army. It was also an indication of the high priority attached to fertiliser production by the new administration, and a reminder of the challenges facing a country that has one of Africa’s largest populations of smallholder farmers and an agricultural sector that accounts for almost 40% of national income. Ethiopia urgently needs to both consume and produce more fertiliser. The troubled history of the Yayu plant is merely the tip of the iceberg.

Many of the national headline agricultural statistics are encouraging. Cereal production tripled between 2000 and 2014. Productivity is rising too. Average yields for all crops are increasing, which in large part reflects more efficient fertiliser use – even more so since the introduction of a national soil map in 2014.

“Ethiopia has made tremendous improvements in terms of productivity,” says Aweke Mulualem Gelaw, director of soil health and fertility in the government’s Agricultural Transformation Agency (ATA), “and mainly because of fertiliser.” Improved seed quality and agricultural extension services are other significant priorities of the government’s agricultural programmes.

Ethiopia now vies with Nigeria as sub-Saharan Africa (excluding South Africa)’s largest fertiliser market, according to the International Fertiliser Association. Demand for fertiliser is growing at around 18% per year. In 2018, the country will import more than 1m tonnes, up from around 200,000tn in 2010. The government aims for all smallholder farmers to use fertiliser by 2025.

More Ethiopian farmers can afford to use the input because fertiliser prices are lower in Ethiopia than elsewhere in the region. According to a 2013 study by Shahidur Rashid, Nigussie Tefera, Nicholas Minot and Gezahegn Ayele, fertiliser in Ethiopia was 15% cheaper than in neighbouring Kenya. Revealingly, this has been achieved without resorting to the sort of direct subsidy programmes found in Kenya and many other African countries.

Import monopoly

The Ethiopian government instead runs a state-controlled and fantastically complex supply chain that includes a vast import monopoly and distribution via farmers’ cooperatives, whose profit margins are strictly limited. The government argues that the import monopoly drives down wholesale costs. It also says it is reducing costs with its ambitious road-building programme and the early 2018 launch of a new railway from Djibouti to Addis Ababa, the Ethiopian capital.

1m Ethiopia will import 1m tonnes of fertiliser in 2018, up from 200,000 in 2010 SOURCE: MINISTRY OF AGRICULTUREBut the fertiliser network is under strain. Despite the lack of direct subsidies, fertiliser promotion has involved implicit fiscal costs of around $40m per year since 2008, according to the 2013 study. Meanwhile, as demand rises, pressures are ratcheting up. The government this year spent nearly $600m procuring fertiliser from abroad, according to Seifu Assefa, head of the input marketing directorate in the agriculture ministry. This represents an increase of 26% year-on-year, mainly due to the rapid expansion of consumption.

At a time of acute foreign currency shortage, fertiliser is one of the country’s top imports. Ethiopia’s trade deficit quadrupled to $14bn in 2016 from $3.19bn a decade earlier. Two weeks into office, Prime Minister Abiy told local business leaders the foreign-currency crisis could last up to 20 years.

In 2008, with the country crippled by food and fuel price shocks, the government ran out of money to import fertiliser until it managed to secure a $250m loan from the World Bank. That cycle is recurring. Last year, the price of urea – the most popular fertiliser with Ethiopian farmers – was on average $257 per tonne; this year it reached $320, in large part due to a 15% devaluation of the Ethiopian birr in October 2017. The government scaled up the import monopoly in an effort to mitigate a spike in wholesale costs last year and since then it has been procuring fertiliser directly from manufacturers at a fixed price on a three-year contract.

The need to boost local production is becoming increasingly urgent. “It is time to produce instead of wasting money on these big transaction costs,” says Shahidur Rashid, a senior research fellow at the International Food Policy Research Institute (IFPRI). With the timeline of the Yayu plant uncertain, the government’s hopes are now pinned on a deal signed in 2016 with Morocco’s Office Chérifien des Phosphates (OCP), the world’s largest phosphate exporter, to build a $3.7bn plant near the eastern town of Dire Dawa.

The plant, which represents one of the largest ever investments in Ethiopia, is expected to produce 2.5m tonnes of fertiliser in its first phase by 2022. Construction has not yet started. A second phase could see a further $1.3bn invested to increase production to 3.8m tonnes three years later, making it one of the largest fertiliser facilities in the world. OCP is also among the companies that could be considered to take over the Yayu project, should Abiy’s administration decide to terminate the METEC contract.

Imports are not the only part of the supply chain in trouble. Many experts worry that the model of distribution via small, often fragile cooperatives is unsustainable. At the moment, profit margins are determined by regional agricultural bureaux, and some are kept dangerously low. Many cooperatives store fertiliser in ramshackle facilities that are little more than wooden huts, sometimes many kilometres away from farmers in the area. “They cannot continue this way, relying on primary co­operatives with very limited capacity,” says the IFPRI’s Shahidur. “That is not a sustainable model, especially as wages start to go up.”

Radical change

2.5m The future Dire Dawa plant to be built by Morocco’s OCP at a cost of $3.7bn is expected to produce 2.5m tonnes of fertiliser a year by 2022 SOURCE: OCPThe ATA is now tentatively rolling out a system of private-sector distribution, based on a model for introducing competition in seed distribution launched in 2015. The first trials of the system, called ‘direct input marketing’, are planned for July of this year. For the time being, this pilot project will coexist with cooperatives, and price markups will continue to be regulated.

Some are calling for more radical change. Mandefro Nigussie, director of the Ethiopian Institute for Agricultural Research, argues that distribution should be carried out by commercial agro-dealers, in line with those commonly found in much of Asia. “We would like fertiliser to be sold at the village level, along with soap and all other items,” he says. The current process, he argues, is too long and complex, adding unnecessary costs: “The more you simplify the process, the more farmers will be able to take up fertiliser.”

Ethiopia fertilizer monthly cumulative importsShahidur agrees, saying that the progressive expansion of state control over the fertiliser market since the original liberalisation of the early 1990s should be unwound. “If you look at the growth of the fertiliser market, they’ve done a good job. But the question is: when are they going to let the private sector participate in this?” 


Photo: Fertiliser use has shot up, and with it productivity -  Credits: Edwin Remsberg/Getty Images


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