By Blessings Chinsinga
June 2008

Political and media attention has rightly been focused on recent increases in food and energy prices and their impacts on consumers and national economies, particularly poor consumers and poor economies but much greater increases in fertiliser prices have received much less attention in industrialised economies.

The impacts of these fertiliser price increases on many countries in Africa, however, are potentially very damaging in their effects on food security, poverty, and long term economic growth. In the many African countries that are heavily dependent on agriculture the impacts of high fertiliser prices and scarcity will extend beyond farmers to affect consumers, export earnings from cash crops, exchange rates, and the whole economy.

Fertiliser price increases

Fertiliser prices have risen dramatically in the last two years, more than oil and staple and cash crop prices (see figure 1). The scale and significance of these price increases is even more dramatic when fertiliser price changes are compared with changes in the prices of the crops they are used to produce. Table 1 shows that the real price of DAP, a major phosphate fertiliser, has increased by 320% over the last two years, and the real price of urea, a major nitrogenous fertiliser, has increased by 160%. Increases in real prices of major food crops were much smaller, though still substantial (increases in rice prices were roughly the same as increases in urea prices). Prices of oil and of export crops, for example cotton, were much more static. Much of the fertiliser price increases have occurred in the last 12 months, and while DAP and crop prices appear to have flattened in the last month or so, urea prices have continued to rise.

Causes

There are a number of reasons for these dramatic increases in fertiliser prices. Demand has increased as a result of higher food prices and increased use in biofuel production. Supply has been affected by increasing energy costs (which are particularly important in producing nitrogenous fertilisers), the introduction of export tariffs on some fertilisers (for example by China in April 2008), and capacity limits in expanding production to meet rising demand – particularly for phosphate rock. These influences have to be seen in the context of large shifts of funds into commodities, particularly into commodity index funds. These shifts have been encouraged by the fall in the value of the US dollar and low US interest rates, with the development of new commodity index investment instruments and funds (Masters, 2008).{jathumbnail off}{jcomments off}