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The case for a free fertilizer market

The farmers who are the intended beneficiaries always end up waiting, never to see the subsidised fertilizer, up to the end of the season. They…

The farmers who are the intended beneficiaries always end up waiting, never to see the subsidised fertilizer, up to the end of the season. They end up losing substantial amount of produce and incomes by placing all their hopes and expectations that adequate fertilizer would be made available and at subsidised prices. This perpetual lack of access to the subsidised fertilizer and consequent loss in yields by most Nigerian farmers can only be confronted permanently through a lasting solution, because subsidy administration/implementation has proved to be defective and a complete failure over the years. The so- called subsidized fertilizer mostly find their way back to the market where it is sold at much higher prices or smuggled out to neighbouring countries. The removal of subsidy and the complete deregulation of the fertilizer market remains the only all-encompassing panacea to the perennial inadequate supply of fertilizer to farmers (especially the small scale farmers) in Nigeria. The reasons for this submission are not far-fetched.

Two forms of subsidy – the old direct state purchase/distribution through public sector channels and the new voucher system, an indirect distribution method introduced and implemented by the government are the ones currently in use. Though the voucher system, a new and revised method of distributing subsidised fertilizer by the government may be attractive in content and outlook, its costs and effectiveness might not stand the test of time. Nigeria is a large country with a farm population of over 100 million. The cost of implementing a voucher scheme nationwide will be quite astromical. It is noteworthy that the voucher system is just being introduced (in two states in 2009 and expanded to two additional states in 2010). This makes the system of implementation to be very slow as 89% of the states in Nigeria are yet to feel its impact. Some farmers (where it was tried in 2009) are already complaining about the inaccessibility of the voucher/fertilizer and the upward trend in the price of the government subsidised fertilizer. What the farmers pay per 50kg bag was higher than what they were paying in the old system. It is pertinent to note that Ghana that has tried the voucher for over three years has this year decided to drop it because of its high administrative costs.

It is a fact that the fertilizer industry is a very large and complicated one and it will be impossible for government to coordinate and control the market efficiently. About 70% of the population (about 105million people) are engaged in small, medium or large-scale farming or other agro related business. Agriculture contributes 41% of Nigeria’s GDP currently. However, the total output from farms in Nigeria is not enough to feed the Nigerian populace because of insufficient supply/availability/accessibility of inputs by farmers. Fertilizer is one of the major inputs for any successful farm business.

The success of deregulation in other sectors of the economy will present a good illustration and case examples here. Before the deregulation of the telecommunications industry, only one out of every 1,000 Nigerians had access to telephone. Though the government claimed to subsidize telecommunication services to cater for poor Nigerians before the deregulation, ordinary Nigerians who form the bulk of the population had no access to telephone services. This situation changed drastically when competition was allowed in the industry and this resulted in the provision of better technical, marketing and consumer services by the new operators. In fact, more than 80million Nigerians have access to portable telephone services in this post deregulation era and telecommunication is now the most vibrant sector in the Nigerian economy.

The same effect was observed in the deregulation of the cement, sugar, salt and rice industries following the scraping of the Essential Commodities Board and the government price control agency. The consumers of these products now have better access to them and the healthy rivalry among competing companies have stabilised prices and pushed up the available quantities and quality of the products and services.

The current drive by the federal government to discontinue fuel subsidy is also a good example. The government has observed that the so-called benefits of subsidy are being reaped by a small cabal of middlemen   and the major marketers.  Petroleum products can only be made accessible and affordable for Nigerians if the downstream sector is deregulated. Similar deregulation is required in the fertilizer sector.

In accordance with recognised economic principles and the aftermath of previous deregulation programs, the force of demand and supply will ultimately bring down the price of fertilizer if the fertilizer companies are allowed to function without government’s intervention in the market. This will make fertilizer to be affordable by peasant and low income farmers in the long run. It will compel the companies to produce/supply quality fertilizer to meet farmer’s needs. It will remove corruption and fraud involved in the administration/implementation of subsidy. Removal of subsidy and deregulation of the fertilizer industry will boost local food production. If the funds committed to fertilizer subsidy could be ploughed to other farmer support services such as strengthening research, extension and training, rural infrastructure (roads, water, electricity, etc.) and credit provision for farmers to buy inputs on time; then our agriculture will develop and thrive buoyantly in a very short period of time. This will spur overall economic growth which we have been yearning for a long time.

The Fertilizer Suppliers Association of Nigeria (FEPSAN) is a strong proponent of deregulating the fertilizer market.  The association believes that if fertilizers are available in the right quantities and time, Nigerian farmers can get over 30% increases in crop production. This means that substantial parts of foreign exchange spent on food importation will be saved which could be utilized for the provision of rural infrastructure and other services. This will also translate to an increase in farmers’ revenue as the low income of farmers has been attributed to poor harvest caused by low and or none application of fertilizer, poor adoption of improved fertilizer use and improved farming technologies. This will also provide a veritable business venture and employment opportunities especially for restive youths who might be interested in taking up farming as a business or engaged in the fertilizer industry.

Kwa writes from the Fertilizer Suppliers Association of Nigeria (FEPSAN), 2nd Floor, NIDB Building, 18, Muhammadu Buhari Way, Kaduna. [email protected]

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