Fertilizer in Ethiopia: An Assessment of Policies, Value Chain, and Profitability

36 Pages Posted: 20 Feb 2014

See all articles by Shahidur Rashid

Shahidur Rashid

International Food Policy Research Institute (IFPRI)

Nigussie Tefera

Joint Research Center of the European Commission

Nicholas Minot

International Food Policy Research Institute (IFPRI)

Gezahengn Ayele

United States Agency for International Development (USAID), Addis Ababa

Date Written: December 2013

Abstract

Fertilizer use in Ethiopia has almost quintupled since the official elimination of input subsidy programs. Yet, application rates remain far below recommended level and, given limited scope for area expansion, fertilizer promotion continues to be the central focus for enhancing agricultural productivity. Unlike many other developing countries, Ethiopia has moved from partial liberalization in 1990s to government monopoly control over imports, with exclusive marketing through farmers’ organizations, since 2008. In 2010, the government embarked on a new policy initiative, the Growth and Transformation Program, which sets annual production targets for cereals by regions. In line with the objectives of this program, government increased fertilizer imports from 440 thousand tons in 2008 to about 890 thousand in 2012. However, fertilizer availability (import plus change in stocks) far exceeded total consumption resulting in large carryover stocks reaching almost half a million tons — worth roughly US$350 million — sitting in the cooperative warehouses throughout the country in 2012. This is the context in which the Ethiopian Agricultural Transformation Agency requested IFPRI to undertake a study analyzing policies, the value chain constraints, profitability of fertilizer, and opportunities for further expansion of fertilizer use.

The study involved interviewing a large number of stakeholders in fertilizer value chain, collection of data on costs and margins from the key actors in the value chain, as well as household survey data. In this paper, we present the key findings from that study. In particular, the paper presents estimates of detail costs and margins in the value chain, econometrically derived profitability and yield responses, and the costs of government’s fertilizer promotion policies. Based the estimates of the costs and margins in the fertilizer value chain, the study argues that the current value chain will not be sustainable unless the scale of operation, as well institutional capacity, of the primary cooperatives goes up. The estimates of profitability suggest that fertilizer use in major cereals is profitable, irrespective of the method of calculation/estimation, implying that recent challenge with carryover stock reflects the institutional and value chain constraints. With regards of program costs, this study finds that while there is no official subsidy program, fertilizer promotion has involved large fiscal costs — estimated at US$40 million per year since 2008. Finally, for further expansion of fertilizer use, the study makes two recommendations: (a) allowing private sector to participate in the domestic markets alongside cooperatives; and (b) paying more attention to other cereals — such as barley and sorghum — where fertilizer use is close to zero.

Keywords: fertilizers, value-chain analysis, yield response, profitability

Suggested Citation

Rashid, Shahidur and Tefera, Nigussie and Minot, Nicholas and Ayele, Gezahengn, Fertilizer in Ethiopia: An Assessment of Policies, Value Chain, and Profitability (December 2013). IFPRI Discussion Paper 01304, Available at SSRN: https://ssrn.com/abstract=2373214 or http://dx.doi.org/10.2139/ssrn.2373214

Shahidur Rashid (Contact Author)

International Food Policy Research Institute (IFPRI) ( email )

United States
202-862-6498 (Phone)
202-467-4439 (Fax)

HOME PAGE: http://www.ifpri.org/staffprofile/shahidur-rashid

Nigussie Tefera

Joint Research Center of the European Commission ( email )

Via E. Fermi 2749
1049
Belgium

Nicholas Minot

International Food Policy Research Institute (IFPRI) ( email )

1201 Eye St, NW,
Washington, DC 20005
United States
202 862-8199 (Phone)
202 467-4439 (Fax)

Gezahengn Ayele

United States Agency for International Development (USAID), Addis Ababa ( email )

1300 Pennsylvania Avenue NW
Washington, DC 20577
United States

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