1. STRATEGIC AREA C: VALUE CHAIN DEVELOPMENT AND FINANCIAL SERVICES
ABRAHAM SARFO
CONFERENCE OF MINISTERS OF AGRICULTURE OF WEST
AND CENTRAL AFRICA
CAADP PILLAR II LEAD INSTITUTION
CMA/AOC - Conférence des Ministres de
l'Agriculture de l'Afrique de l'Ouest et du
Centre
Lead institution for CAADP-Pilar II
Tel: (221) 33 869 11 90

2. Strategic Area C: Value Chain Development and
access to Financial services
• A set of Early Actions has been proposed under each strategic area identified by an
Expert Reference Group, under the direction of CMA/WCA, to kick-start the
implementation of Pillar II in the short, medium and long term. For Area C they
could be presented as follows:
– Multi stakeholders platforms to remove the
regulatory technical and financial constraints to
enterprises creation and growth
– Platforms to support the integrations of Smallholder
farmers into Developing Value Chains
– Agribusiness joint ventures and Investment fairs
– Fertilizers and Seeds Value Chain development
tool
6/21/2012

3. INTRODUCTION
• It is a cruel irony that a farmer in Sub-Saharan Africa –
where half the population survives, somehow, on less than
$1.25 a day – must pay two to four times the average world
price for fertilizer.
• This is mainly due to geography and poor infrastructure.
• Transporting fertilizers from an African seaport to a farm
100 km inland costs more than to ship those same
fertilizers from North America to Africa.
• Also, the current low demand for fertilizer in Africa reduces
potential economies of scale in procurement.
• Government policies, including those affecting tariffs and
trade, often contribute to high prices. Corruption is another
factor
• Source: IFDC
6/21/2012

4. FOCUSING ON AGRO INPUT SUPPLIES :
FERTILIZERS AND FORMAL SEEDS MARKET.
• Within the context of African Green Revolution, emphasis
has been put on the non organic fertilizer and High Yields
Varieties (HYV) seeds as the main ingredient to significantly
and quickly increase production.
• Abuja declaration on Fertilizers focused on increasing the use
of non organic fertilizers to bring it from its actual level of 8kg
per hectare to 50kg by 2015.
• Use of inputs (incl. mechanization, water, etc. ) is also
considered under pillar III of the CAADP Process
• NB: we use fertilizer here for non organic fertilizers and seeds
for HYV seeds
6/21/2012

5. Fertilizer supply chains are weak and
imports oriented
• African farmers apply only five to ten percent of the
fertilizer amounts used in other developing
regions, such as Asia.
• More than 90% of fertilizers are imported.
– Some mixing and bagging can be done within Africa when
products are imported in bulk
– There is a production potential in Africa but capital and
lack of critical mass market are among the major breaks
for domestic production development.
6/21/2012

6. THE ISSUE OF FERTILIZER
SUBSIDIES
POLITICAL, ECONOMICS AND
SUSTAINABILITY
6/21/2012

7. Three Economic Rationales For
Fertilizer Subsidies
1. Efficiency
• Fertilizer use by farmers may be sub-
optimal because of
– Lack of information
– Lack of liquidity
– Risk aversion
• In this case, subsidy could raise fertilizer
use to optimal level
• If so, value of additional crop production
could exceed cost of subsidy
6/21/2012

8. Three Economic Rationales For
Fertilizer Subsidies
2. Equity
• Farm income is below average, so fertilizer
subsidies represent transfer to the poor
• To justify, need to show that fertilizer subsidies
are better targeted than alternative anti-
poverty programs e.g. school feeding, primary
health care, & conditional cash transfer
• However, value of transfer proportional to
amount of fertilizer used, larger farmers
benefit more than small farmers
• Thus, fertilizer subsidies unlikely to be pro-
poor unless targeted or rationed
6/21/2012

9. Three Economic Rationales For
Fertilizer Subsidies
3. Externalities
• Fertilizer subsidies could be justified if
fertilizer use generates benefits to others
beside the farmers
• Example: fertilizer increases plant growth
 reduces soil erosion and run-off 
benefits others downstream
• But generally fertilizer subsidies have not
been justified for externality reasons
6/21/2012

10. Effect Of Fertilizer Subsidy Removal: Africa-wide
16.0
Period of
14.0 most active
subsidy
(kg of nutrents per hectare of arable land & permanent crops)
removal
12.0
10.0
Fertilizer application rate
8.0
Sub-Saharan Africa (old, 49
countries)
6.0
Sub-Saharan Africa (new, 27
countries)
4.0
2.0
0.0
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006
Source: FAO, 2009.
6/21/2012

11. Effect Of Fertilizer Subsidy Removal: Specific
Countries
• Nine countries had distinct periods of phasing out subsidies
• Compare five-year average before and after subsidy elimination
• Result
– Fertilizer use declined ~40% in two countries: Nigeria & Ghana
– Fertilizer use declined 25-29% in three: Cameroon, Senegal, &
Tanzania
– Fertilizer use increased 14-500% in Benin, Togo, Mali, & Madagascar
• Explanation
– Subsidy only one factor in determining price
– Price only one factor in determining fertilizer use
6/21/2012

12. Problems of input and service provision to farmers
Weak effective (paying) demand
• Cash income / cash flow of smallholders too low to pay for inputs
• Short-term credit for input not available or perceived as too risky
• Farmers know little about potential benefit of services and inputs
• No trust in quality of services and inputs on offer
Coordination problem in input markets
• Small size of fertilizer markets discourages investment
• Unpredictable, contradictory political and donor interference in input
markets crowding out private offers
• Grades and standards are absent or not enforced
Public (knowledge) services are not driven by demand
• Service provision is not linked to payment for service (service gap)
• Public services largely supply-driven
Low quality service offers, supply gaps
• Undeveloped private services
• Lacking offers

13. The mineral fertilizer value chain
Fertilizer
market
Specific Food Agricultural
Final Con-
Technology Farmers Industry / Retailers product
sumers
Suppliers Traders markets
Retail Import and delivery of fertilizers is a value
Input Dealers
chain in itself, with farmers being the end
market
Wholesale The fertilizer market depends on the
Wholesalers
economics of the agricultural value chains to
which farmers (= buyers of fertilizers) belong.
Import
mixing
bagging Importers
Manu- Chemical
facturing Companies

14. The Mineral Fertilizer Value Chain: Market Failure
Farmers (demand side):
Fertilizer Low profitability of fertilizer use due to
market unfavourable relation agric./ input prices
and lacking complementary inputs
Farmers Lack of cash income
No access to finance
No technical know-how on application
No trust in fertilizer products
Risk (perception) of agriculture
Input dealers (supply side):
Retail Low profitability of fertilizer trade due to
Input Dealers
reduced and dispersed demand, small scale
High marketing cost
Lack of information - Few traders know the business
Wholesale Fraud: Lacking standards & quality control
Wholesalers
Regulatory Framework
Unreliable import policy & licensing
Import High cost of doing business
mixing
bagging Importers
Manu- Chemical Chemical Companies:
facturing Companies Low profitability of market entry

15. Challenge: Too little use of mineral fertilizers
The Challenge
Most African farmers use less mineral fertilizer than would be econo-mically
profitable - and advisable from an agronomic point of view.
The Abuja declaration calls for increasing the use of non-organic fertilizer from
currently 10 kg/ha (Africa overall) to 50 kg/ha
Underlying problems
Demand side: high priced fertilizers, low cash income, financing
problems, complementary inputs missing, lacking know-how, little trust
Supply side: no incentive for traders in a small market, high cost of
handling, storing and marketing
Market chain: Unpredictable, contradictory political and donor interference in
input markets crowding out private offers;
Grades and standards are absent or not enforced.
The basic issue is coordination failure

16. Building fertilizer value chains
Access to inputs: Fertilizer value chain development
• Enhance smallholder purchasing capacity by linking farmers to markets and
by organizing collective orders
• Fertilizer market regulation (e.g. grades and standards)
• Support commercial suppliers of inputs
Access to services: Create embedded service arrangement
• Integration of services into commercial business linkages
• Support service provision by cooperatives
Public service delivery: Reform of public service funding
• Competitive technology and extension funds
• Voucher schemes

17. Building a fertilizer value chain
Buyers Demand side interventions
Farmers Of produce
Awareness and information around fertilizers
Embed input supply in contract farming
Collective purchases by cooperatives
Fertilizer Increase profitability of fertilizer use
Farmer
Coops market Provide targeted subsidies in a voucher scheme
Enhance access to agricultural finance
Fertilizer market
regulation
Input Dealers Supply side interventions Licensing of dealers
Offer of smaller packages Increase competition
Training agro-input dealers Introduce voucher scheme
Wholesalers Product grades & standards
Create professional association
Improve infrastructure (storage) Product certification
Quality control
Importers

18. How to build & strengthen a fertilizer VC
Cooperation for regular commercial fertilizer supply
Offtakers / buyers • Embed input supply in contract farming
• Prefinance production
Farmer co-operatives • Contracting with buyers and suppliers
Fertilizer dealers • Make appropriate offer of fertilizer supply
(packaging and pricing)
• Guarantee regular supply
Government • Provide research support, technical solutions
Fertilizer VC platform • Identify opportunities for regular fertilizer sale
• Coordinate stakeholders
Development partners • Support individual stakeholders in their tasks
• Facilitate collaboration

19. AU/NEPAD Africa Fertilizer Summit In Abuja:
Declaration On Fertilizers For A African Green
Revolution
• At regional level:
– Harmonisation of legislation and trade policies
– Regional fertilizers procurement
• Regional warehouses
– Promotion of transitioning to local blending and produciton and intra-regional trade
• Based on local phosphate and oil /gas
• At country level
– Formal regulatory framework
• Removal of price controls, importer license requirements, restricted list of products
allowed
• Taxes reduction (import taxes and VAT)
– Fertilizer inspections for quality control at the point of sale
– Capacity building for private sector and farmer associations
– Farmer access to quality seeds, CPPs, irrigation facilities, extension services, and market
information systems
6/21/2012

20. Set Political Priorities And Objectives
Per Target Groups
What is your principal policy goal?
Welfare goals include objectives such as poverty reduction and
improved food security for those living below the poverty line;
success in meeting these goals is usually measured in terms of
decreases in the incidence of poverty or food insecurity.
Economic growth goals aim to increase aggregate crop yields and
farm incomes; success in meeting these goals is usually measured in
terms of growth in agricultural value added per unit of land or per
agricultural worker.
6/21/2012

21. Input Vouchers: Malawi
• Many government, NGO, and donor
interventions in input supply are guided by
the need to help resource-poor farmers who
suffer from transitory or chronic food
insecurity.
• The twin objectives of poverty alleviation and
market development can be achieved if the
support programs are implemented by
transferring the purchasing power to the
needy farmers
6/21/2012

22. • Input vouchers permit voucher holders to
purchase specific quantities and types of farm
inputs from qualified distributors who have
agreed to accept vouchers as payment.
• The distributors in turn redeem the vouchers
for cash payment from the program organizers

23. Input Vouchers: Used To Promote Fertilizer Use?
Use of vouchers as part of a – Vouchers can be used to
"demand-pull" strategy to target specific groups of
promote increased fertilizer use farmers
has several potential • producers of certain crops,
advantages: • producers located in specific
regions
• or production environments,
• or producers who fall into a
particular social stratum or
income class.
– IFDC program in Malawi
used input vouchers as
payment for work by poor
farmers on rural road
projects.
6/21/2012

24. – Vouchers can build additional demand for
fertilizer and thus accelerate fertilizer market
development if the targeted farmers are not
already using fertilizer.
– Voucher programs can be designed to run for
a number of years, during which time
fertilizer subsidies are gradually removed so
that farmers and distributors can make the
transition to an economically sustainable
cash market.

25. Input Vouchers: Used To Promote Fertilizer Use?
Use of voucher programs •Voucher programs can be
costly to design and
has some potential
disadvantages as well:
– implement, particularly if
subsidies are involved that
entail special measures to
control corruption and rent
seeking.
• Voucher programs can fail
to achieve their objectives if
convertible vouchers are
purchased by intermediaries
and a secondary market
emerges for their resale and
6/21/2012 use

26. Impact CNFA:
• Impact,:
– Value chain level
• 4,300 Agro dealers in Kenya, Tanzania, Mali and Malawi engaged in facilitating access to
inputs and technologies;
• 1.8 million farmers accessing inputs;
• 84 Agribusiness companies in Input Supply chains engaged;
– Documented Impact at Farmer Level
• 86% of Farmers in Malawi used Hybrid Maize seed in 2007/08 compared to 20% in
2003/04;
• 92% of farmers in targeted areas used fertilizer at a higher rate of 76% compared to
non-targeted areas in western Kenya;
• Mean productivity in western Kenya targeted areas increased by 115% between 2004
and 2007.
6/21/2012

27. 6/21/2012

28. 6/21/2012

29. 6/21/2012