Fertilizer policy in Africa : lessons from development programs and adjustment lending, 1970-87

MADIA DISCUSSION PAPER 5 F 8323 _~~- _ _f _ MANAGING= DEVELOPMENTT IN f, 7mi4~- .1 U _ I N _ _ _ _ _ _ ___ AFRCA ___ ,r_f^~f r,,nsfY ,, f.-; ',3 i-w . . t. - s ..  FOREWORD The MADIA study and the papers comprising this MADIA Discussion Paper Series are important both for their content and the process of diagnosis and analysis that was used in the conduct of the study. The MADIA research project has been consultative, nonideological, and based on the collection and analysis of a substantial amount of concrete information on specific topics to draw policy lessons; it represents a unique blend of country-oriented analysis with a cross-country perspective. The conclusions of the studies emphasize the fundamental importance of a sound macroeconomic environment for ensuring the broad-based development of agriculture, and at the same time stress the need for achieving several difficult balances: among macroeconomic, sectoral, and location-specific factors that determine the growth of agricultural output; between the development of food and export crops; and between the immediate impact and long-run development of human and institutional capital. The papers also highlight the complementarity of and the need to maintain a balance between the private and public sectors; and further the need to recognize that both price and nonprice incentives are critical to achieving sustainable growth in output. The findings of the MADIA study presented in the papers were discussed at a symposium of senior African and donor policymakers and analysts funded by USAID in June 1989 at Annapolis, Maryland. The participants recommended that donors and African governments should move expeditiously to implement many of the study's valuable lessons. The symposium also concluded that the process used in carrying out the MADIA study must continue if a stronger, more effective consensus among donors and governments is to be achieved on the ways to proceed in resuming broad-based growth in African agriculture. The World Bank is committed to assisting African countries in developing long-term strategies of agricultural development and in translating the MADIA findings into the Bank's operational programs. Stanley Fischer Edward V. K. Jaycox Vice President Development Economics Vice President and Chief Economist Africa Reyional Office  MADIA DISCUSSION PAPER 5 FERTILIZER POLICY IN AFRICA LESSONS FROM DEVELOPMENT PROGRAMS AND ADJUSTMENT LENDING, 1970-87 UMA LELE ROBERT E. CHRISTIANSEN KUNDHAVI KADIRESAN THE WORLD BANK______ - WASHINGTON, D.C.-  Copyright ( 1989 All rights reserved The International Bank for Reconstruction Manufactured in the United States of America and Development/THE WORLD BANK First printing November 1989 1818 H Street, N.W. Washington, D.C. 20433, U.S.A. MADIA Discussion Papers are circulated to encourage discussion and ment. at the address shown in the copyright notice above. The World Bank comment and to communicate the results of the Bank's work quickly to the encourages dissemination of its work and will normally give permission development community: citation and the use of these papers should take promptly and, when the reproduction is for noncommercial purposes, with- account of their provisional character. Because of the informality and to out asking a fee. Permission to photocopy portions for classroom use is not present the results of research with the least possible delay, the manuscript required, though notification of such use having been made will be has not been prepared in accordance with the procedures appropriate to appreciated. formal printed texts, and the World Bank accepts no responsibility for The complete backlist of publications from the World Bank is shown in errors. The findings, interpretations, and conclusions expressed in this the annual Index of Publications, which contains an alphabetical title list and paper are entirely those of the author(s) and should not be attributed in any indexes of subjects, authors, and countries and regions. The latest edition is manner to the World Bank, to its affiliated organizations, or to members of available free of charge from the Publications Sales Unit. Department F, The its Board of Executive Directors or the countries they represent. World Bank, 1818 H Street, NW., Washington, D.C. 20433. U.S.A., or from The material in this publication is copyrighted. Requests for permission Publications, The World Bank, 66, avenue dlena, 75116 Paris, France. to reproduce portions of it should be sent to Director, Publications Depart- Uma Lele is the manager of Agricultural Policy in the Africa Technical Department at the World Bank. Robert E. Christiansen is an economist of Agricultural Policy in the Africa Technical Department at the World Bank. Kundhavi Kadiresan is a consultant of Agricultural Policy in the Africa Technical Department at the World Bank. Library of Congress Cataloging-in-Publication Data Lele, Uma J. Fertilizer policy in Africa: lessons from development programs and adjustment lending, 1970-87. (MADIA discussion paper; 5) Includes bibliographical references. 1. Agriculture-Economic aspects-Africa, Eastern. 2. Agriculture and state-Africa, Eastern. 3. Managing Agricultural Development in Africa (Organization) I. Title. II. Series. HD2126.L44 1989 338.1'8676 89-22728 ISBN 0-8213-1321-5  Contents Introduction .......................................... 5 Trends in Donor Policy Toward Fertilizer Use .......................... 7 Evolution of Donor Views Toward the Role of Fertilizer ...... ........... 7 Policy Assessment .......................................... 7 Fertilizer Use in the MADIA Countries ................................. 9 Overview ............................................ 9 IntraCountry Patterns of Fertilizer Use ............................... 11 Policy Regimes and Growth of Fertilizer Consumption .................. 19 Policy Reform in the Context of Past Performance ..................... 22 Kenya ............................................ 22 Tanzania ............. ............................. 24 Malawi ............................................ 25 Cameroon ............................................ 27 Senegal .......................................... 28 Nigeria .......................................... 30 Determinants of the Economic Benefits of Fertilizer Use ..... .......... 32 Fertilizer Price ........................................... 32 Producer Price and the Relative Cost of Fertilizer ..................... 33 Response Coefficients .......................................... 36 Benefit-Cost Ratios for Fertilizer Use ................................ 41 Summary, Conclusions, and Implications ............................. 47 Appendices .............. ............................ 50 Notes ....... : 66 Bibliography ....... 74 Acknowledgments This paper has benefited greatly from our interactions with individuals in USAID field offices in Kenya, Malawi, Cameroon, and Senegal who have provided valuable material on the adjustment experience and responded to many of our queries. In particular we would like to thank Messrs. A. Radi (Malawi), S. Sinding (Kenya), Tham Truong (Cameroon), and Wayne Nilsestuen (Senegal). We are grateful to M. Agarwal, R. All, V Bindlish, S. Carr, K. Cleaver, G. Desai, G. M. Higgins, S. Jammeh, R. Nolan, D. Pickering, A. Seth, R. Southworth, A. Spurling, D. Spurling, T. N. Srinivasan, D. Steeds, 1. Twyford, N. van de Walle, and M. Westlake for their valuable input into the paper. Kim Tran and Christina Dhanaraj provided secretarial support. We alone, however, are responsible for any deficiencies that remain.  Illustrations 4. Growth Rate of Export and Food Crop Production in the MADIA Countries, 1970-85 .................................... 53 Tables , 5. Table 1: Trend in the ratio of producer prices for export crops to I. Actual and projected per capita arable land in MADIA countries .... 5 food crops in the East African MADIA countries ....... . ........ 53 2. Role of export and food crops in the balance of payments in MADIA 5. Table 2: Trend in the ratio of producer prices for export crops to countries, 1981-85 ......................................... 6 food crops in the West African MADIA countries ................ 54 3. Food self-sufficiency ratios for MADIA countries ................. 6 6. Fertilizer Use by Crop in the MADIA Countries .54 4. Fertilizer use per hectare of arable land ........................ 6 7. Malawi's Smallholder Fertilizer Revolving Fund .55 5. Factors affecting fertilizer use in MADIA countries, 8. Producer Prices for Primary Nutrient Types Used in the MADIA 1970-87 ....................... 9 Countries, 1971/72-1987/88 .................................. 57 6. Average fertilizer use in MADIA countries ......... ............. 11 9. Table 1: Producer prices for maize in MADIA countries, 1971-87 .... 57 7. Maize deficit and surplus areas by province and district in Kenya, 9. Table 2: Producer prices for seed cotton in MADIA countries, extent of high and medium potential land, and crop response to 1970-87 ... 58 fertilizer .... ..................................,14 9. Table 3: Producer prices for coffee in Kenya and Cameroon, 8. Population, rainfall, arable land, and cropping pattern by region in 1971-87 .................................... 58 Senegal .............................................. 17 10. Analysis of Nutrient Price/Crop Price Ratios .................... 58 9. Rate of explicit fertilizer subsidy in MADIA countries, 1970-87 .19 10. Table 1: Nutrient price/crop price ratios for selected crops in MADIA 10. Budgetary cost of fertilizer subsidies and their share in total countries .60 government expenditure in West Africa MADIA countries, 1974-87 19 IL Notes and Sources for Crop Response Data .61 11. Budgetary cost of fertilizer subsidies and their share in total Il. Table 1: Fertilizer recommendations of IFDC and ISRA for millet in government expenditure in East Africa MADIA countries, 1978-87 ..20 Senegal .... 62 12. Fertilizer policy reforms in the MADIA countries ..... .......... 22 11. Table 2: Fertilizer recommendations of IFDC and ISRA for 13. Prices for principal fertilizers in MADIA countries, groundnuts in Senegal . 63 1971/72-87/88 ......... 32 12. Sources and Notes for Tables 23 and 24 ....................... 63 14. Actual cost of transport and as a share of marketing cost and ci.f. 13. Distance, Number of Outlets, and Areas Served by Retail Outlets in fertilizer cost in selected countries .. 34 the MADIA Countries ............... 65 15. Nutrient price/crop price ratios for selected crops in East Africa, 1980-88.34......brev...at...ons..and...Acronyms. 3 16. Nutrient price/crop price ratios for selected crops in West Africa Abbreviations and Acronyms 1980-87 ................................................ 36 ADP Agricultural Development Program 17. Response coefficients for selected crops in East Africa ........... 37 AF Amelioration Fonciere Agricultural Research Program 18. Response coefficients for selected crops in West Africa .... ...... 38 AISCO Agricultural and Industrial Supplies Company 19. Coefficient of variation in international fertilizer prices, 1975-85 .... 41 A/S Ammonium Sulfate 20. Estimated range of benefit-cost ratios due to changes in ASA Annual Survey of Agriculture international fertilizer prices ....... ......................... 42 BCCC Bank of Credit and Commerce-Cameroon 21. Coefficient of variation in commodity prices ........ ............ 42 CASUCO Cameroon Sugar Company 22. Estimated range of benefit-cost ratios due to changes in commodity CAN Calcium Ammonium Nitrate prices .. 43 DAP Di-Ammonium Phosphate 23. Benefit-cost ratios for fertilizer use in the East Africa MADIA EEC European Economic Community countries .. ...~ , , .......... ...... ...... ... , , 44FAO Food and Agricultural Organization 24. Benefit-cost ratios for fertilizer use in the West Africa MADIA GOK Government of Kenya countries.~~~~~~~~~~~ GDP Gross Domestic Product countries, ..... .,.,,,,,,,,,,,,,,,,,,,,,..5........................... 45 rs oesi rdc 25. Benefit-cost ratios with high analysis fertilizer in Malawi .......... 46 GNP Gross National Product 26. Benefit-cost ratios for harvest prices and estimated range of benefit- IAR Institute of Agricultural Research cost ratios due to intrayear crop price variations ........ ....... 47 IDA International Development Association IFDA International Fund for Agricultural Development Figures IFDC International Fertilizer Development Center I. Gross food imports for the MADIA countries, 1971-86 ............. 5 IFPRI International Food Policy Research Institute 2. Trends in fertilizer consumption in the MADIA countries, 1970-87... 10 ISRA Institut Senegalais de Recherches Agricoles 3. Fertilizer use by crop in the MADIA countries .................. 18 K Potash 4. Prices for primary nutrient types used in the MADIA countries .... 33 KTDA Kenya Tea Development Agency 5. Producer price of maize in the MADIA countries, KPCU Kenya Planters Co-operative Union 1971-87 .. , 35 MADIA Managing Agricultural Development in Africa 6. Producer price of cotton in the MADIA countries, N Nitrogen 1970/71 to 1986/87 .......... .. , 35 NRDP National Rural Development Program 7. Producer price of coffee in Cameroon and Kenya, ONCAD Office National de la Cooperation et d'Assistance pour 1971-87 .. , 36 le D6veloppement P Phosphorus S Sulphur Appendices SAED Societe dAmenagement et d'Exploitation des Terres viip ~ ~~~~~~~~~~~~~~~~~~~~du Delta du Fleuve Se6negal 1. Gross Food Imports (CerealsI in the MADIA Countries, SEMRY Societe d'Expansion et de Modernisation de la 1971-86 ........ , .............,,,,,,,,,, 50 Riziculture de Yagoua 2. Table 1: Ratios of producer prices to international prices for major SFRF Smallholder Fertilizer Revolving Fund smaliholder crops in East African countries, 1970-85 (using nominal SODECOTON Soci4te de Developpement du Coton du Cameroun exchange rate) ........................,,,.50 SODEFITEX Societe de Ddveloppement des Fibres Textiles 2. Table 2: Ratios of producer prices to international prices for major SONACOS Societe Nationale de Commercialisation des smaliholder crops in West African countries, 1970-85 (using nominal Oleagineux du S6negal exchange rate) ......... , .,,,., .......... 51 SOSUCAM Societe Sucriere du Cameroun 2. Table 3: Ratios of producer prices to international prices for major TANU Tanganyikan African National Union smalihoider crops in East African countries, 1970-85 (using TFA Tanzania Farmers Association purchasing power parity exchange rate) ........................ 51 TFC Tanzania Fertilizer Company 2. Table 4: Ratios of producer prices to international prices for major TRDB Tanzanian Rural Development Bank smaliholder crops in West African countries, 1970-85 (using TSP Triple Superphosphate purchasing power parity exchange rate) .52 UCCAO Union Centrale des Cooperatives Agricoles de l'Ouest 3. Volume of and Growth Rates for Fertilizer Consumption in the UNCA Union Nationale des Cooperatives Agricoles MADIA Countries .52 USAID United States Agency for International Development  Introduction In many parts of Africa over 80 percent of the value added Table 1 in smallholder agriculture comes from a production process Actual and projected per capita arable land in MADIA where the handhoe is frequently the only other major input countries besides labor. As a result, average labor productivity among Hectare per capita African smallholders is substantially lower than in Asia Hectare per capita forruralpopulation (Delgado and Ranade 1987). The problem of low labor Country 1985 2000 1985 2000 productivity is exacerbated by increasing population pres- sure on arable land.' Although Africa is commonly viewed Kenya 0.73 0.42 0.86 0.66 as a land-surplus continent, this view is no longer true of Malawi 0.73 0.45 0.84 0.60 many African countries where population pressure is Tanzania 2.30 1.44 2.59 1.68 causing a reduction in the traditional bush fallow system Nigeria 0.71 2409 5.23 4.86 and is increasing the movement of population to marginal Senegal 1.62 1.04 2.41 1.76 land (Eicher 1982; Lele and Stone 1989). This, in turn, has the potential to contribute to a decline in soil fertility and Source: Lele and Stone 1989. growing deforestation that have serious implications for the sustainability of African agriculture. Table I shows the actual and projected per capita arable land in the MADIA value of Senegal's exports for the 1981 to 1985 period. In countries.2 While the specific experiences of these coun- Nigeria's case, the once large share of agriculture in exports tries as regards the dynamics of population and land are had virtually vanished to be replaced by food and other explored in other MADIA papers (Lele and Stone 1989), the agricultural imports (i.e., cotton, edible oil) that constituted intensity of the growing population pressure is evident in one-fifth of the vastly expanded import bill (see Table 2). four of them (Kenya, Malawi, Nigeria, and Senegal). The impression of increasing dependence on imported At the macroeconomic level, the urgent need for rapid food is confirmed by the decline in self-sufficiency ratios growth in both food and export crop production is evident between the 1960s and 1980s in all the MADIA countries, from rising food imports and the inability of many countries except Malawi (see Table 31, where import dependence has to finance them because of stagnant export earnings. Figure increased since 1986 due to the growing refugee popula- I shows the growing food import dependence of the tion, together with declining per capita maize production.3 MADIA countries over the period of the 1970s and 1980s A crucial ingredient in the process of increasing agricul- (also see Appendix 11, and Table 2 shows the fundamental tural productivity is clearly the increased use of chemical importance of agriculture in employment, trade, and GDP in fertilizers, although it must be acknowledged that they these countries. Food imports constituted 43 percent of the alone cannot solve the complex problems of declining soil Figure 1 Gross food imports in the MADIA countries, 1971-86 East African countries West African countries Million tons of cereal Million tons of cereal 2.4 2.4 - 2.2 -2.2- 2 -2 - 1.8 -1.8 : 0" 1.6 -1.6 1.4 -1.4 - 1.2 -1.2- 1 1 /' 0.8 - 0.8 - 0.6 -/00. 0.4 - -0.4 - * 0.2 0 0.2- 1971 73 75 77 79 81 83 85 88 1971 73 75 77 79 81 83 85 86 . , .. Malawi Cameroon Kenya ............ Senegal - - - - Tanzania Nigeria Source: See Appendix 1. 5  Table 2 Role of export and food crops in the balance of payments in MADIA countries, 1981-85 Average share of Total Agricultural Gross food imports as Agriculture as a Export export export percentage of total share of Country crop earnings eamings imports exports employment GDP Percent East Africa Malawi Tobacco 50 56 15.5 14 83 38 Tea 20 23 Sugar 12 14 Kenya Coffee 24 42 8.5 14 81 31 Tea 16 28 Tanzania Coffee 34 32" 8.0 18 86 58 Cotton 12.5 15'* West Africa Senegal Groundnut 19 85 24.0 43 81 19 Cotton 2 15 Cameroon Cocoa 9.5 34 10.5 11 70 21 Coffee 10.5 37 Cotton 3 10 Nigeria Cocoa 2 4- 20.0 19 68 36 Notes: * Indicates an average for the years 1980-84. Indicates an average for 1981 and 1982. Indicates average for 1979-81. Source: Lele 1988; World Bank Database. Table 3 Table 4 Food self-suff iciency ratios for MADIA countries Fertilizer use per hectare of arable land 1960-69 1970-79 1980-86 Region 1970 1975 1980 1985 Kilograms of nutrient/hectare Cameroon Mean 0.94 0.89 0.87 Africa 10 13 18 20 Maximum 0.97 0.94 0.90 Latin America 20 29 44 41 Minimum 0.91 0.84 0.84 Oceanic 34 29 36 32 Coefficient of variation (percent) 2.05 3.10 2.30 Developing Countries 18 27 49 58 Senegal Asia 26 37 68 85 Mean 0.74 0.66 0.61 North America 70 87 99 85 Maximum 0.79 0.79 0.72 Western Europe 176 188 221 226 Minimum 0.69 0.57 0.49 World 49 63 80 87 Coefficient of variation (percent) 3.90 12.64 13.24 Source: FAO, Fertilizer Yearbook, 1986. Nigeria Mean 0.98 0.90 0.84 Maximum 0.99 0.96 0.89 Minimum 0.96 0.75 0.79 fertility and quality. A more complete solution requires that Coefficient of variation (percent) 1.02 8.48 4.63 chemical fertilizers be used in conjunction with a variety of Kenya policies that promote soil and farm management tech- Mean 1.03 1.02 0.91 niques.4 Given the potential for increased fertilizer use, it Maximum 1.14 1.07 1.01 is ironic that despite massive amounts of donor assistance Minimum 0.94 0.97 0.77 since the early 1970s,5 Africa's fertilizer use per hectare Coefficient of variation (percent) 6.51 2.87 9.03 remains the lowest in the world (see Table 41 and issues Tanzania related to protecting land quality have largely been Mean 0.95 0.93 0.92 ignored. Moreover, the share of the Sub-Saharan region in Maximum 0.99 1.02 0.94 the otherwise rapidly growing fertilizer consumption rate of Minimum 0.89 0.77 0.89 the developing world has declined since 1970-71 6 The Coefficient of variation (percent) 3.68 8.49 1.93 underutilization of fertilizer makes fertilizer pricing, sub- Malawi sidy, and distribution policy, together with the alleviation of Mean 1.02 0.99 1.03 other technological and institutional constraints one of the Maximum 1.07 1.02 1.14 most pressing issues in the modernization of African small- Minimum 0.98 0.90 0.96 holder agriculture. Coefficient of variation (percent) 2.80 3.58 5.99 Source: FAO database. 6  Trends in Donor Policy Toward Fertilizer Use Evolution of Donor Views lbward the Role Evidence of these offsetting benefits is, however, contro- of Fertilizers versial, especially in the case of food crops. Food prices in During the 1970s, donors generally used subsidies on many West African countries tend to be determined largely fertilizer in the development projects that they funded as by domestic market forces, and there is little government a means of encouraging rapid growth in its use. Among the intervention in food markets with the exception of controls justifications for subsidies were that they (I) encourage on external trade and rice prices (see, for instance, Gelb learning by doing, (2) reduce the risk of using fertilizer and 1988). Reflecting excess demand for food, internal food help overcome credit constraints, (3) help poor farmers, (4) prices in these countries have tended to be above world contribute to maintaining soil fertility, and (5) offset market prices throughout the 1970s and early 1980s, even disincentives caused by taxation of output (World Bank when considered at purchasing power parity exchange rates 1986a, p. 95). In addition, Srinivasan (1986) has observed (see Figure 5 and Appendix 9). At best only a fifth of total that when planning and implementing capacity is limited, production went through official channels. The primary governments of developing countries tend to increase benefit of internal liberalization of food markets has spending on fertilizers as a means of achieving quick therefore been the budgetary gain to governments that had results. This is in contrast to investments in other areas, e.g., subsidized grain marketing interventions. Although privat- agricultural research and irrigation, that require a much ization has reduced the risks and costs encountered by longer gestation period (Srinivasan 1986). Srinivasan ob- food producers in clandestine marketing (e.g., in Kenya and serves that " . . in principle an argument for intervention Tanzania), consumers have lost the protection that they can be made in almost all cases," because enjoyed because of the intra- and interyear price and the efficiency and optimality of non-intervention is supply stabilization achieved through government interven- based on... "a complete set of contingent commodity tion, e.g., in Malawi.9 markets" (in particular, the existence of markets fo. Even in the case of export crops (to which the argument markets". (npriua, th exstnc of marketsfor favoring price reform mainly applies), although there was insuring against all kinds of risk) and.. .in no econ- scope at the beginning of the structural adjustment process likmy to be m or dt e for increasing output prices through exchange rate adjust- likely to be met.... ments and removal of taxes, the limits of these increases He concludes, however, that "In practice ... the costs of have been reached in many countries. Indeed, after the intervention must be weighed against its benefits" (Srini- initial increases reflecting the world market prices, down- vasan 1986, p. 49). Due to many of these same arguments ward adjustments were necessary in many countries as fertilizer subsidies, public sector monopoly of imports, and international prices declined.'0 Further, many of the earlier active public sector promotion of fertilizer use played an benefits of price correction have been eroded by the important role in fueling the green revolution in Asia, even continued increased cost of imported inputs especially though far more dramatic new technologies were available since the withdrawal of input subsidies. In addition, access for rice and wheat in Asia with high and assured returns to institutional credit has declined in some countries and, from their adoption than is the case in rainfed African where liberalization of credit has occurred, the private agriculture (Ahmad 1988). In the Asian context fertilizer sector's response has been mixed. In most cases the subsidies were considered to be more efficient than process of liberalization has demonstrated the complex support of product prices (Barker and Hayami 1976), reality of the task of developing distribution networks in the although in Asia guaranteed minimum prices for rice and agricultural sector. wheat have also been provided by governments as an The outcome of these and related developments, which important element of an integrated policy toward agricul- this paper examines in detail, has been stagnation in tural intensification (Siamwallah 1981). fertilizer consumption in some countries and the continued During the 1980s, increased budget deficits and doubts slow growth in others. The lesson of this experience is that about the effectiveness of public sector interventions (e.g., drastic changes in pricing and distribution policies in favor concern that subsidies result in high cost public sector of increased private sector involvement at the expense of monopoly of importation and internal distribution, that they a public sector presence, in contrast to attempts to do not reach their intended beneficiaries, and that they introduce pluralism in institutional arrangements at a more cause wastage and misallocation of resources) have led deliberate speed, often hinder input use. The implications donors to conclude that the costs of fertilizer interventions of this phenomenon for future donor assistance in the areas outweigh their benefits.' Many donor-supported liberaliza- of fertilizers and other inputs are explored in this paper. tion programs have therefore tended to remove subsidies and promote the role of the private sector in fertilizer Policy Assessment importation and internal distribution.8 Donors have also It is clear that fertilizer policy and its reform must be argued that the benefits of improved internal terms of assessed from a perspective that includes not only the trade for agriculture, resulting from measures such as budgetary issues that gave rise to the initial impetus devaluation, reduction of export taxes, and liberalizatiOn of toward reform, but the entire range of factors affecting agricultural commodity markets, would more than offset the fertilizer use in the broader developmental context. This increased costs to farmers of higher fertilizer prices. perspective and the set of factors it embraces have been 7  well articulated by Desai in his analysis of fertilizer There are five main sections in the paper. The first, consumption in India: Fertilizer Use in the MADIA Countries, provides an overview The pace of growth in total fertilizer consumption... of fertilizer use and the effects of price and nonprice lisl also ... .governed by the processes that convert the constraints in the six countries under discussion. It also potential into actual farmers' demand. This would examines three issues concerning fertilizer use that have a include development of an adequate and efficient special bearing on the formulation of overall agricultural distribution system, efforts to promote fertilizer use policy: regional concentration, size of farming operations on different crops, and increased availability of (i.e., large-scale/estate, small-scale commercial, and sub- fertilizer through domestic production and imports. sistence), and use on food vs. export crops. The second Thus viewed, incomplete diffusion of fertilizer use on section, Policy Regimes and Growth of Fertilizer Consump- all land where its use is potentially profitable should tion, begins by focusing on the impact of subsidies, not be considered as resulting only frorn time lags in budgetary costs, and foreign exchange shortages on fertil- farmers' demand, caused by changes in agroeconomic izer consumption. In connection with the foreign exchange variables. It is equally important to determine factor, it also discusses the drawbacks of reliance on ad hoc, whether the time series of total fertilizer consumption short-term, tied aid; the consequent need for long-term ... lisi influenced by the ways in which fertilizer import support to address financial and institutional distribution, promotion, and supply systems ... larel constraints on fertilizer use; and finally the important role developing (Desai 1982, p. 55). played by development projects in addressing institutional By employing such a perspective, it is possible to identify constraints and promoting the diffusion of fertilizer. the constraints hindering increased fertilizer use, and The third section, Policy Reform in the Context of Past thereby enabling the adoption of more effective fertilizer Performance, examines each MADIA country in detail for policies. Toward this end, this paper analyzes the patterns the extent to which the fertilizer reform programs have of fertilizer use during the 1970 to 1987 period in the six addressed the constraints that prevent small farmers from MADIA countries-Kenya, Malawi, Tanzania, Nigeria, Camer- increasing fertilizer use. To assess the impact of subsidy oon, and Senegal-which collectively account for 40 percent removal and currency devaluation on the economic returns of the population of Sub-Saharan Africa and 50 percent of to fertilizer use, the succeeding section, Determinants of its gross product. These countries represent almost all of the Economic Benefits of Fertilizer Use, presents an the ecological zones and grow most of the major crops of extensive analysis of the benefit-cost ratios obtaining in the Africa. Further, despite differences in their production MADIA countries, linking the results to the special issues of possibilities, technological sophistication, policy regimes, regional concentration, types of farming operation, and and institutional arrangements, there are enough similari- types of crops. The final section summarizes the paper's ties among these countries to allow lessons to be drawn findings, draws conclusions, and enunciates the main from their comparative experience. implications for the formulation of future policy. 8  Fertilizer Use in the MADIA Counties Overview Kenya has been a marginal exporter or importer of maize" The fundamental role of fertilizers in overall development (Cleaver and Westlake 1987). (See Appendix 2 for ratios of strategy, and the way the lack of such an overall strategy producer prices to international prices for smallholder affects fertilizer use can only be appreciated by a compre- crops in the MADIA countries.) hensive analysis of the various macroeconomic, sectoral, With regard to nonprice constraints, Kenya has had a institutional, and technological factors affecting fertilizer strong tradition of agricultural research for smallholder use, which can be divided into price and nonprice varia- crops, especially those for expott, and a well-developed bles. A comparative overview of these factors as constraints institutional setup to service the smallholder sector. is presented in Table 5. This typology shows that fewer Reflecting these policies, Kenya has had the best agricul- constraints relating to price policy have operated in Kenya tural performance among the MADIA countries, showing a than in the other five countries. Kenya has avoided currency strong growth in the production of food and export crops, overvaluation, significant taxation of its export crops, and growth in which the share of smallholders has increased fertilizer subsidies. It has also, by and large, linked the over time. domestic producer price of maize to an average of export Although Kenya's overall agricultural policy framework has and import parity prices-a reasonable policy given that therefore been sound, it nonetheless faces complex pricing, Table 5 Factors affecting fertilizer use in MADIA countries, 1970-87 Kenya Malawi Tanzania Cameroon Nigeria Senegal Price factors' 1. Currency overvaluation2 N N Y N3 Y4 N3 2. Explicit fertilizer subsidy N Y ys y y y 3. Explicit output taxation N Y Y y Y6 y Nonprice Factors' 1. Budgetary restrictions N, y Y7 N y7 Y7 2. Foreign exchange restrictions Y N8 Y Na N8 Y 3. Institutional instability N N Y N Y Y 4. Credit availability N Y Y Y Y Y 5. Input import licensing restrictions Y N Y Y Y Y 6. Crop response to fertilizer N Y9 Y N Y9 Y 7. Domestic marketing systems for fertilizer Y Y Y Y Y Y ' A "Y" in a cell indicates that for most of the period under consideration the factor acted as a constraint on fertilizer use, whereas an "N" indicates that the factor was not, generally speaking, a constraint. 2 Recall that currency overvaluation results in an implicit taxation of exports and an implied subsidy on imports, which consist mainly of food crops. 3 The issue of currency overvaluation in Cameroon and Senegal is complicated by their participation in the CFA zone and the resulting link to the French franc and inability to devalue. A purchasing power comparison suggests that there is overvaluation of about 10-20 percent in each country, although the entire issue of the extent of overvaluation of the CFA zone is highly controversial. I The Nigerian currency was overvalued prior to 1986, when the establishment of the second-tier foreign exchange market ISFEM) led to the devaluation of the naira by 400 percent, i.e., the exchange rate changed from N = $1, to N 4 = $1. The naira has depreciated further since then, with the exchange rate in May 1989 being N 8 = $1. Therefore, since 1986 currency valuation has not been a constraint for export crop pricing. In the case of food crops that were above world market prices, the level of internal prices have obviously not constituted a constraint, although their seasonal and year-to-year variability has. 5 The present subsidy on fertilizer is the result of not adjusting local prices for the devaluations of the Tanzanian shilling, and due to the fact that grant aid fertilizer is not priced at its economic cost. Therefore, while the subsidy does not result in a direct payment by the government, there is an opportunity cost of revenue forgone. The combined impact of the devaluation on the c.i.f. price, and the general price increase on internal costs not being reflected in the prices the farmers pay, has resulted in a subsidy estimated to be between 60-66 percent (Rioseco 1989; Carr 1989). 8 Until about 1979, the producer prices paid by the Nigerian marketing/commodity boards for export crops included an explicit tax. Thereafter, however, a subsidy was provided in order to partly compensate producers for the overvalued exchange rate. The commodity boards were abolished in December 1986 under the structural adjustment reforms, and export crop marketing was privatized. Markets in Nigeria for food crops, which account for most of the fertilizer used, have always been dominated by private trade, although unpredictable imports and import restrictions have caused uncertainty. While the government has had a policy of providing minimum support prices for grains, it has largely been ineffective because market prices have usually been much higher than the support prices (see Lele, Oyejide, et al. 1989). 7 Budgetary pressure is relaxed as the subsidy is gradually removed in Cameroon. In Senegal, the government does not bear a subsidy as of 1986. In Nigeria, the budgetary constraints became important after 1981, with the softening of the oil market and the decline in government revenues. 8 In Malawi, the foreign exchange constraint has been addressed directly by an IFAD/IDA-funded agency (Smallholder Fertilizer Revolving Fund) which has guaranteed supplies of foreign exchange. Nigeria and Cameroon did not face foreign exchange shortages until 1981-82 owing to oil exports; recently they have begun to experience foreign exchange shortages. 9 For local varieties of maize, low response coefficients are a serious impediment to increased fertilizer use. For hybrid varieties, response coefficients are not a problem, but the hybrid varieties are not popular for household consumption for several reasons. See Kydd (11989) for an analysis of smaliholders' preference for flint maize varieties. In Nigeria, fertilizer responsiveness under mixed cropping circumstances is questionable. It is not known how well hybrids and composite varieties grown in mixtures respond to fertilizers, e.g., for sorghum and millets. 9  technological, and institutional challenges to ensure equi- Senegal, Nigeria, and Tanzania have all shown poor table and sustained growth in fertilizer use on smallholder growth performance, with exports stagnating at best and agriculture and indeed, growth of fertilizer use in the small- food crop production not keeping pace with the growth of holder sector is much less impressive than smallholder population. In each of these cases, this is a result of agricultural performance as we will show below.'2 A much inappropriate macroeconomic and sectoral policies. Inter- more complex set of problems faces the other countries estingly, while fertilizer consumption has stagnated in where policy distortions have taxed exports either explicitly Senegal and Tanzania, it has soared in Nigeria which has (i.e., in Malawi, Cameroon, and Senegal) or implicitly had the highest subsidy and rate of growth in fertilizer use. through overvaluation of the currency (i.e., in Nigeria and This growth of fertilizer use may have averted Nigerian per Tanzania). As a result, producer prices have moved in favor capita production from falling more rapidly. of food crops, relative to export crops, although subsidies Figure 2 (and Appendix 3) shows the trends in fertilizer have led to the increased use of fertilizer in some consumption in MADIA countries between 1970 and 1987.13 countries. Table 6 shows the changes in the average levels of fertilizer After Kenya, Cameroon has the next best record of use per hectare of arable land for the years 1970, 1975, 1980, agricultural performance, and one that is related to the and 1985. (In Tanzania's case, the higher average growth rate growth of fertilizer use on smallholder export and food suggested by the increased per hectare use of fertilizer is crops. This is in contrast to the relatively small role that in contrast to that derived from the estimates based on increased fertilizer use has played in the growth of small- government import/production data in Figure 2. It illus- holder production in Kenya. trates the data problems surrounding an analysis of Although Malawi's overall growth in export crop produc- fertilizer use. The higher trend suggested by Table 6 is in tion and fertilizer use was strong in the 1970s, the conse- all likelihood due to a change in the estimate or definition quences of estate strategy for income distribution have of arable land.) The large differences in growth rates been a source of concern, as have the prospects for between countries and the size of the year-to-year varia- maintaining past rates of growth of agricultural production, tions in use are noteworthy although we need to be with growing subsistence orientation of rural households cautious because some countries start from a small base, and their related inability to undertake risk. Historically, e.g., Nigeria.'4 Nigeria and Cameroon, which are identified production growth has come largely from the estate sector in Table 5 as having numerous problems affecting fertilizer while the smallholder sector has stagnated, and in per use, experienced the most rapid growth (18.0 percent and capita terms production of most food crops has declined 11.7 percent annually). Malawi, although the poorest country over the period covered. We will demonstrate how the in the sample, ranked third (7.7 percent). Kenya, with the increased use of fertilizer in the smallholder sector, while smallest number of apparent pricing policy related con- crucial for ensuring broad-based growth, is hindered by straints, ranked fourth (6.7 percent). Tanzania, on the other biases that favor the estate sector, despite Malawi's hand, had a growth rate of only 2.9 percent between 1974 excellent record of implementation of NRDP which is and 1987. Nevertheless, its growth rate for the 1978-87 targeted on smallholders. period was higher and comparable to that for Malawi. Over Figure 2 Trends in fertilizer consumption in the MADIA countries, 1970-87 East African countries West African countries Thousands of tons of nutrients Thousands of tons of nutrients _D 300 aW- _ 280 26o _ ~~~~~~~~~~~~~~~~~280_ M04 240 (18.0%/) Zw- ~~~~~~~~~~~~~~~~~~220 2DO. ~~~~~~~~~~~~~~~~~200 180- 180/ . 88o 160 140 140 / 12D- ~~~~~~~~~~~~~~~~~~120 108 80 6 (0.8%) *0 - (.Y)___>_ fiB-,0