Policy Framework for Increase and Effective Use of Fertilizer in Ethiopia: Evidence from Recent Experiences and Debating the Problems

1. Background The Ethiopian government has worked hard to reverse the country’s terrible history associated with a series of famines that ashamed of Ethiopians periodically since the 1970s.

Hunger, however, has once again re-visited Ethiopia this year, threatened the live of millions of Ethiopians and become the major news headline across the globe. Why Ethiopia unable to feed its population and thus continuing to depend on foreign donations of food to sustain millions of its citizens? Why a minor shocks as the 2008 failure of belg rain brought a significant impact on national food availability and hunger.

Despite some recent rapid growth of higher-value export crops such as coffee, livestock, and horticulture products, agricultural growth in Ethiopia remains unsatisfactory especially measured in terms of improving productivity in the cereal sector. The poor performance of the agricultural sector is unparalleled with its old history of institutionalized agricultural research and extension system in Africa. The formal beginnings of public agricultural research and extension in Ethiopia can be traced to the establishment of agricultural education establishments in the late 1940s and 1950s. The Institute of Agricultural Research (IAR) was established in 1966 with the formal mandate to formulate national agricultural research policy guidelines and undertake crops and livestock research. A major agricultural extension work began with the initiation of several package projects in the late 1960s and 1970s. It was thought that concentrating resources on the most promising regions would yield better results than spreading resources thinly over a larger area. The package consisted of mainly improved seeds, fertilizer and chemicals (Mulat, 1999). Since then, with the support of a variety of international institutions and donors a variety of agricultural development policies were experimented and several agricultural development programs and countless projects were implemented.

Most of recent agricultural development strategies and programs in Ethiopia are centred on fertilizer promotion, along with the provision of improved seeds, credit and farm management practices. Does these fertilizer-centred strategies worked? What is Ethiopia’s recent experience and challenges for increased and effective use of fertilizers? This paper will try to highlight some critical issues and debates the problems the country faced in its effort of enhancing the use of fertilizer in the smallholder sector.

2. Ethiopia’s recent experience with its fertilizer promotion strategy

Some 62 percent of the Ethiopian population is estimated to live in the moisture-reliant highlands . A core goal of the Ethiopian government agricultural strategy (ADLI) in recent years (since mid 1990s) was to raise cereal yields especially in moisture-reliant areas through a centralized and aggressive extension-based push focusing on technological packages that combined credit, fertilizers, improved seeds and better management practices. Following this strategy, fertilizer use has increased significantly (Byerlee et al, 2007).

Along with the new strategy, with support from the World Bank, the Ethiopian government formed a project to support for fertilizer market development in Ethiopia (Ethiopia National Fertilizer Project, ENFP) in 1992/93 with the aim of increasing agricultural production and productivity with an emphasis on fertilizer demand and supply, soil fertility management, and fertilizer policy reform. Since then, national fertilizer consumption increased almost three-times.

National fertilizer consumption at the beginning of the 1970s (when it was first introduced) and 1980s was about 950 and 43,200 tons, respectively (Tenkir et al, 2002). It increased to 250,000 tons (21 kg/ha) in 1995 and then to 323,000 tons (32 kg/ha) of product in 2004/05 . This growth of total fertilizer consumption was more rapid (i.e. it has been positive) than the average for Sub-Saharan Africa (SSA) over the same period, and the average use of fertilizer per hectare was almost double the average for Sub-Saharan Africa (Crawford, Jayne, and Kelly 2006, see Byerlee et al, 2007) . This rapid improvement is partly due to the decision of the Ethiopian government allowing farmers to buy fertilizer with 100 percent credit in 19995 (Alemenh, 2003).

Although the strong push for intensification has resulted in higher use of fertilizer, the figures for Ethiopia are still low when compared to those in other countries that have successfully intensified cereal production in the past, particularly in Asia. On average, fertilizer application rate was 110 and 101 Kilogram per hectare of arable and permanent cropland in South Asia in 1999 and 2002, respectively; and 251 kg/ha and 257 kg/ha in China and only 16 kg/ha and 14 kg/ha in Ethiopia during the same years (Byerlee et al, 2007).This leads to low level of land productivity. Despite the availability of proven technologies , a recent study reported that cereal yields in Ethiopia are less than a quarter of the yields achieved in Asia during the green revolution (MoFED and UNDP, 2007).

The state-led policy formulated to push seed-fertilizer technologies has helped to improve fertilizer use per hectare . Fertilizer consumption per hectare, albeit encouraging growth in recent years associated partly to the extremely low use in base year and partly to improved policy support, however, has increased only marginally and remains much below the level recommended by agricultural researchers or to the international standard especially to those Asian countries that have successfully experienced the green revolution.

Given the precarious food situation and acute land scarcity in the country, fertilizer, modern seed and improved water and farm management, are critically important for intensifying grain production and boosting food production in Ethiopia. Based on extensive data collected from millions of demonstrations carried out through PADETES (3.6 million in 1999 alone), Howard et al. (2003) indicated that the adoption of seed-fertilizer technologies could more than double cereal yields and would be profitable to farmers in moisture-reliant areas.

A study by Mulat et al (1997) also indicates that one ton of fertilizer can yield 3-7 tons of additional grain in high potential areas. In general, the role of fertilizer in improving the declining nutritional status and productivity of Ethiopia’s soil is widely recognized. Then what are the challenges to strengthen smallholder access to fertilizer in general and its wide, effective, profitable and sustainable use in particular. Why the massive, state-led policy and program formulated to boost the use of fertilizer (seed-fertilizer) has only brought a marginal improvement in its use (especially in terms of use per hectare of farm land) and unnoticed impact in terms of improving cereal productivity and food security.

A number of factors seem to account for the low level use of fertilizer, low technical efficiency in fertilizer use and poor performance of agricultural productivity in the face of significant efforts at intensification and use of modern inputs. A lot of studies (e.g. Byerlee et al, 2007, Habtemariam, 2004, Mulat, 1999) have identified a number of contributing factors. Below is a major points emerged from review of these studies.

2.1 Technical factors

One major factor appears to be low technical efficiency in the use of the principle modern input, fertilizer. A recent analysis indicated that farmers are only achieving on average 60 percent of their potential production, given current levels of input use (World Bank 2006a, see Byerlee et al, 2007). As a result, fertilizer use may be yielding negative returns to many farmers, thereby resulting in stagnation of further intensification and significant rates of dis-adoption. This may be associated to farmers’ suboptimal use of fertilizer and lack of complementary inputs. Farmers don’t often go along with the recommended practices (100 kg DAPS and 100 kg Urea for most crops except for teff and Urea which requires 50 kg of DAP and 200 kg of Urea) but follows practices they can afford (often half the recommended rate). As a highly specialized input, the efficient use of fertilizer generally requires complementary inputs (e.g. improved varieties), as well as higher levels of management. Farmers might not optimally mix the required ingredients.

As soil erosion and land degradation are major causes for low productivity and vulnerability of smallholders, chemical fertilizer should be augmented with soil conservation practices and use of organic fertilizers. This is especially important in view of increasing fertilizer price and need for foreign currency the country needs to import it (Ethiopia imports all of its fertilizer). It is widely recognized among experts and policy makers that the increasing application of fertilizer at the current price will not be affordable to many farmers and possibly the Government (Ethiopia struggles to get the foreign exchange required to import fertilizer), extension and research should accord a high priority to find an economically viable option that uses fertilizer in combination with other local available organic sources (Alemenh, 2003).

2.2 Policy related factors

Distortions in the land market, lack of effective policy on population and low level of non-farm employment

Sub-economic holdings operated by poverty-stricken farmers are not favorable for widespread dissemination of new agricultural technology. Apart from the population pressure, the land policy has significantly contributed to subeconomic holdings and tenure insecurity. The average farm size in Ethiopia has declined to just one ha due to the rapidly growing population. Over one-third (46%) of the rural holdings are less than 0.5 ha. Given the low level of productivity, nearly all produce is devoted to home consumption for households with smaller plots. There is little surplus for investment and for input purchase. Empirical studies have also shown that the probability of adopting fertilizer and improved seeds decreases with decline in farm size (Croppenstedt, et al., 1998; Mulat et al., 1998; Wolday, 1998, see Mulat, 1999).

Since the 1975 land reform which made all rural land public property, the possession of land plots has been conditional upon residence in the village. The transfer of land through long-term lease or sales as well as the possibility to use land as collateral that will help to generate money for investment on land has been forbidden. This coupled with lack of effective policy on population and low level of non-farm employment has overcrowded the rural sector. Increasing population in the rural areas was thus absorbed in agriculture through leveling down of holdings, rather than through alternative forms of employment.

Fertilizer trade – government policy, undeveloped market and lack of private sector participation

According Byerlee et al (2007), Ethiopian fertilizer market lacks the participation of the private sector especially in recent years. When fertilizer market was liberalized in early 1990s, the initial response of the private sector to market liberalization was rapid. By 1996, several private firms were importing fertilizer, and 67 private wholesalers and 2,300 retailers made up a significant share of the domestic market. However, since 1999 the private sector that had initially responded to the reforms has largely exited the fertilizer market. In the case of imports, the share of private firms operating in the market went from 33 percent in 1995 to zero in 1999.

The decline of the private sector in the retail market was more dramatic. While private sector retailers held a majority share of the market in the early 1990s, the public sector and cooperatives have become almost the sole distributors of fertilizer since early 2000. As of 2004, the public sector accounted for over 70 percent of distribution, with private dealers accounting for only 7 percent of sales nationwide (DSA, 2006, EEA/EEPRI 2006, see Byerlee et al, 2007). The public sector supply channels have also changed; whereas extension agents initially managed distribution, the responsibility was shifted to local input supply offices in more recent years.

Byerlee et al (2007) indicates that the current government policy is to target at least 80 percent of fertilizer sales through cooperatives, which are eventually intended to replace the public sector involvement in retail distribution of fertilizers. This process, as with the importation process, tends to favor those firms or organizations with access to capital markets and experience in navigating the regulatory and administrative systems at both the federal and regional levels.

Despite some positive effect of the public-cooperative monopoly in the fertilizer trade especially from short-term perspective; in sum, the current system in Ethiopia is inefficient and unsustainable in the long run, and that it severely hinders the development of sound input markets and financial institutions in rural areas. Byerlee et al (2007) assess the overall performance of the current system in terms of price competitiveness, services provided, and fiscal and other costs to the public sector.

Price competitiveness

At first glance, fertilizer prices in Ethiopia are competitive. The margin between domestic and international prices is higher in Ethiopia than in Asian and Latin American countries, but comparable to the margin in other African countries, including South Africa. A comparison of the price build-up of fertilizer from port to farm gate indicates that marketing margins in Ethiopia are somewhat lower than those in comparable African countries, and that costs may have decreased over time with improvements in transportation.

Another way to measure this is to compare prices in Ethiopia with prices in comparable countries that are deemed to have a relatively dynamic fertilizer industry. By this measure, prices in Ethiopia do not seem to be out of line, and are in fact often lower than those in Kenya, a country where fertilizer use by smallholders is growing rapidly (Ariga, Jayne, and Nyoro 2006, Heisey and Norton 2006, see Byerlee et al, 2007). In reality, however, these apparently low prices reflect the peculiarities of the Ethiopian fertilizer markets. For example, a part of the cost-build up in fertilizer delivery does not show up in retail prices because the bottom end of the supply chain is essentially subsidized, with extension agents and cooperatives assuming the retailing functions.

Despite sustainability and effectiveness of the public/cooperative dominance in fertilizer market, a reasonably high price associated to private sector might not hinder improved use of fertilizer. A review of the situation in Kenya where fertilizer use by smallholders growing much rapidly, for instance, reveals that a dynamic private sector can promote smallholder use of fertilizer even when prices are relatively high (Ariga, Jayne, and Nyoro 2006). Moreover, there are no solid evidence on the competitiveness of fertilizer price between the public and private sector in Ethiopia .

Quality and dependability of services

Fertilizer prices represent only one dimension of market performance. The ability to provide the right type of input of good quality to farmers in a timely manner is equally important. Based on a study by Byerlee et al, 2007, some problems that might affect the use of fertilizer or its profitability in Ethiopia are listed below.

• Unlike neighboring countries, Ethiopia does not offer fertilizer in smaller packages or different formulations needed for non-cereal crops. The distribution system in Ethiopia is inflexible, providing only two types of fertilizer, both in 50 kg bags.
• Moreover, numerous farmers in recent years (as many as half in some regions) have consistently reported late delivery of fertilizer. About 12 to 46 percent of farmers received fertilizer late, depending on the region. Many farmers also complained that bags were underweight, and 30 percent of farmers in two regions registered a negative response on quality.

  A study conducted in 2004 (Bonger et al, 2004) also reinforced these findings, reporting that half of farmers noted that the fertilizer arrived after planting, 32 percent reported underweight bags, 25 percent indicated poor quality, and almost 40 percent reported that their planting was delayed by fertilizer problems. Most recently, fertilizer quality problems had been reduced but delays in delivery were still common—25 percent or more of farmers complained of late delivery. Timely availability of fertilizer is critical in rainfed agriculture; fertilizer applied late causes it to be unprofitable, while delayed planting can incur even higher costs.

• Beyond fiscal costs, there are also considerable but non-quantifiable implicit costs in the system, many of which are borne by the government through its input supply parastatal and administrative offices. These include the costs resulting from the “central planning” system of estimation of demand by extension agents at the local level and then aggregation at the national level as the basis for allocation import permits. This understandably results in substantial inefficiencies due to the lack of a market clearing mechanism. The indirect costs also include the storage costs and quality deterioration incurred because closing stocks have comprised 50 percent or more of total consumption in most years except in 2004 and 2005. Kenya, which has a fully private sector supply, has an inter-annual carryover average of less than 10 percent. Finally, the implicit costs include those resulting from damage done to extension-farmer relationships when and if extension agents participated to ensure fertilizer loan repayment.
• Furthermore, fertilizer is tied to credit programs and fed by government targets for fertilizer consumption at the local, regional and national levels.
  • This may result in the promotion of fertilizer where it is not profitable, and could explain the negative returns to fertilizer noted above. It may also tend to create moral hazards among farmers with respect to careful use of credit, and may discourage the development of their skills in independent financial management.
  • In addition, input distribution tied to credit tends to limit the space available for the emergence of private sector retailers. Thus, those farmers with sufficient resources to purchase fertilizer for cash, often on more favorable terms than on credit, are unable to do so since there are very few private traders. This problem is compounded by the exit of private firms and the rise of party-affiliated companies and cooperatives—a situation that is widely perceived as reflecting the lack of a level playing field in the agricultural input sector.
  • Similarly, the guaranteed loan program with below-market interest rates creates an un-level playing field in the rural finance sector by undermining efforts to set up alternative institutions such as MFIs, branches of commercial banks, or independent financial cooperatives.
  • There are also high fiscal costs and fiscal risks associated with the guaranteed loan program. The write-off to loan guarantees amounted to Ethiopian birr (ETB) 84 million in 2001, but by 2005 liabilities had again accumulated to ETB 183 million (DSA 2006). Also in 2005, the Oromiya Region was obliged to pay out approximately ETB 84 million to the Commercial Bank of Ethiopia to honor its guarantees for the previous three-year time period. The guarantee thus becomes a subsidy that is not accounted for in government budgeting.

2.3 Institutional factors

The aforementioned problems that could hinder the extensive and efficient of fertilizer might be reflection of institutional weakness. Institutions working to improve the use and profitability of fertilizer use might face various problems like lack required financial and manpower resources. Weakness of these institutions in their internal administration and coordination among various institutions (extension, research and government) might also contribute. Following is a variety of problems related to institutional weaknesses that have hindered wide and more effective use of modern inputs in general and fertilizer in particular in the Ethiopian smallholder sector.

• Adoption of conventional, top-down approach in agricultural extension that established a bureaucratic structure for the regular transmission of pre-determined technical messages from subject matter specialists to farmers. The hierarchical “culture” underlying the extension system does little to encourage and exploit the inherent resourcefulness of those who work closely with farmers and rural communities. Farming communities do not participate in extension planning, and the extension agents remain largely conveyors of technical messages, rather than active facilitators of community capacity building and providers of relevant information.
• Low and unbalanced public investment between agricultural research and extension. Unlike many other developing countries, Ethiopia continues to invest heavily in its public sector-led agricultural extension system in order to implement the recent intensification program. But it drains resources that could be used else where more productively. Byerlee et al, 2007, for instance, reported that the public investment to the recent extension program, excluding the much larger expenditure on food security programs, amounted to over $50 million dollars annually or almost 2 percent of agricultural GDP in recent years. This was four to five times the investment in agricultural research.
• Frequent restructuring of MoA – Since mid 1970s, MoA has undergone through at least ten major restructuring processes. It is worth mentioning here that evidences are difficult to find that would indicate that such restructuring measures were made based on commissioned studies evaluating previous organizational structures nor are there any measurable performance indicators suggested to monitor that the new structures would perform better. One could say that the organization of extension kept on changing because of leaders own intuitions, and not based on evaluation and assessment. This negatively affects continuity of programs and increases instability of staff which, in turn, affects the provision and sustainable use of modern inputs like fertilizer (Habtemariam, 2004).

In addition to institutional instability, weak financial and administrative capacity that lead to poor extension planning and monitoring system might have weaken the effectiveness of the extension system and indirectly, extensive, effective and sustainable use of fertilizer and other modern inputs among the small farmers (Habtemariam, 2004).

Conclusion

There is widely held view that poverty reduction in Ethiopia is impossible without significant growth in crop yields for major staples. Recent developments , however, depicts the enormous challenge the agricultural sector faced to satisfy national food requirement and help in reducing poverty. A recent study by Diao and Pratt (2007) shows that significant poverty reductions in Ethiopia could be achieved by prioritizing investment in improving cereals and other food staples productivity relative to both traditional and non-traditional export crops (see Byerlee et al, 2007).

The recent rapid growth of higher-value export crops especially cut flower (but to lesser degree other crops like coffee, livestock, and horticulture products) indicate the central role of government policy to improve agricultural production and productivity. Cheap and guaranteed access to farm land, financial resources and other incentives including duty free import of agricultural technologies and tax-holiday for investors help for rapid growth of the horticulture sector. To boost cereal production among other through extensive, effective and sustainable use of fertilizer, improved seeds and farm management practices, Ethiopian policy makers to reconsider their policy. The food sector needs a comparable but different kind of policy attention.

Any intervention to improve sustainable and effective use of fertilizer and other modern technologies should be holistic; systematic that could address a range factors discussed earlier. At the final analysis, productivity is a technical/technological problem but the intervention required to improve smallholders’ access to farm technologies and their efficient and sustainable use should not necessarily be implementing a technology-led extension program. If that is the case, Ethiopia’s over 4 decades experience should have made Ethiopian smallholders’ major users of modern farm technologies and alleviate the widespread structural food deficits and a chronic dependence on food aid.

Of course, technology required for enhancing productivity could be internationally available or generate domestically. Government policy and donors financial assistance to widely diffuse existing or new technologies (e.g. fertilizers and improved seeds) to areas with low productivity is only one aspect of the problem in a complex institutional, social and political environment. The exclusive concentration given to technology as a determinant of productivity in theory and the effectiveness of such a concentration in increasing productivity in practice in countries such as Ethiopia should be revisited. While technology is important, the whole social structure of the growth process needs to be considered to effect durable productivity enhancement and sustainable use of modern farm technologies like fertilizers and improved seeds.

It would be better, therefore, for Ethiopian policy makers and donors, to change their approach in dealing with the problem the country faced in promoting the use of fertilizer and its effective and sustainable use. Among others, they should refrain from making any specific recommendation (to improve farmers access to modern inputs such as fertilizer (e.g. subsidy)) before identifying and studying the whole gamut of factors that affect decisions by farmers, including the incentive structure, institutional configuration, governance and risk behaviour patterns.

References

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Samuel Gebreselassie, Researcher
Ethiopian Economic Policy Research Institute (EEPRI)
sgebreselassie@eeaecon.org