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Monday, 17 December 2012 18:56

 FERTILIZER SUPPLY AND DISTRIBUTION IN NIGERIA:

A CASE FOR PUBLIC – PRIVATE SECTOR PARTNERSHIP*

 

BY 

 

AHMED RABIU KWA

 

EXECUTIVE SECRETARY, FERTILIZER SUPPLIERS ASSOCIATION OF NIGERIA (FEPSAN)

 

Introduction

 

Nigeria has great potentials for fertilizer consumption and use.  A study conducted by the Agricultural Projects Monitoring and Evaluation Unit (APMEU) in 1990 put the agronomic potential at 7 million metric tons.  With increased release of higher yielding and fertilizer consuming crop varieties, this potential is now much higher than the 7 million metrics tons.  It is now generally estimated to be around 12 million metric tons per annum.  Despite this high potential, supply and consumption, which peaked at average of 1 million metric tons per annum from 1984 – 1996, has now dropped significantly to an average of 500,000 metric tons per annum since the deregulation of the industry in 1997.

 

Nigeria also has great potential to produce substantial quantities of its fertilizer requirements.  The abundant natural gas most of which is now being flared can be harnessed to produce large quantities of nitrogenous fertilizers.  Commercial quantities of rock phosphate deposits abound in Sokoto, Niger, Kwara, Oyo, Ogun axis that can be used for the production of phosphate fertilizers. The only raw material that is not yet found in substantial qualities in Nigeria is the potassium deposits.  Even this can  be sourced from our North African neighbors.

 

The two fertilizer manufacturing companies – the Federal Super phosphate Fertilizer Company (FSFC) set up in 1976 and the National Fertilizer Company of Nigeria (NAFCON) set up in 1988 have both been grounded by poor public sector management. They have been out of serious production for nearly 10 years now.  The two plans have an installed capacity of over 1 million metric tons per annum.  All attempts to turn them around have failed.  This made the Federal government, under its privatization policy to sell them out to private entrepreneurs.  It is expected that they will be back on stream as private enterprises in the very near future.

 

A number of blending plants emerged after the establishment of NAFCON, that provided cheap urea, the main input for blending.  From 1986 to date more than 25 such plants were established.  Most of them were established by the State Governments (about 20) while the private sector holds the remaining (about 5).  They together had an installed capacity of about 1.8 million metric tons per annum.  With the closure of NAFCON, most of these plants especially those owned by State

Governments were forced to shut down as they could no longer source cheap urea for blending.  The few that are operating are mostly those owned by the private sector and 2 or 3 State Government owned, which are operating at less than 30% capacity. In addition there are 4 or 5 plants producing crushed rock phosphate, agricultural lime, granulated limestone and kaolin for blending, and one for micro nutrient fertilizer production. These are also producing very limited quantities.

 

Due to the lack of local production most of the fertilizer used in Nigeria now is imported.  The consequences of relying on imported fertilizer include drain on foreign reserve, insufficient supply due to high capital requirements for importation and consequent high retail prices for the farmers, which renders the input unaffordable.

 

These developments and actions which to a large extent were uncoordinated have caused the quantities of fertilizers available to farmers to remain abysmally low and very expensive.  Government blames private sector for failure to capitalize on its liberalization policy.  On the other hand, the private sector remains apprehensive in its commitments of more resources in the business because of the uncertainties in the present dual system in which a sudden shift in Government policy could cause financial disaster to the private investors.

 

This situation presents it self for critical examination by the stakeholders to consider the need for a workable public – private sector partnerships so that the fertilizer industry can serve the purpose and objectives of supporting agricultural development efforts of the country. This is the object of this paper.

 

Fertilizer Supply and Distribution Scenario

 

Supply Situation

Local manufacture of fertilizers in Nigeria is almost zero in the last 10 years.  All fertilizers consumed in the country are imported. Combined with inconsistent government policies, supplies in the last ten years have been erratic and insufficient with consequent high retail prices, which make the commodity highly inaccessible and unaffordable.

Despite this deplorable situation, there is still hope for the revitalization of local manufacture of fertilizers in Nigeria.  The factors that favor this aspiration include-

a)          Large demand potential – Agronomic – 12 million metric tons – Economic at least 3.5 million metric tons.

b)          Large expense of arable land and varied ecologies that is conducive for the cultivation of variety of crops.

a)          Government’s economic recovery policy of putting the private sector in the driver’s seat for under taking economic activities.

b)          Withdrawal of Federal Government from direct production and importation of fertilizers – especially with the privatization of its two main production plants.

c)          The existence of democratic governance and freer market economy.

d)         The efforts being made by State governments to commercialize/privatize their fertilizer blending plants.

e)          The coming together of the fertilizer suppliers under one body to address the fertilizer supply and distribution issues.

f)           Availability of local raw materials – natural gas and phosphate rock.

 

In addition, substantial investment was made for fertilizer supply in Nigeria in the following areas-

 

  • Manufacturing – NAFCON now NOTORE Chemical Industries Limited with a    Combined installed capacity of 1 million metric tons for Urea, Ammonia and NPK and Federal Super phosphate Fertilizer Company (FSFC) with installed capacity for 100,000mt of single super phosphate are the 2 major manufacturing companies in Nigeria. In addition there are 4 companies that produce small quantities of crushed rock phosphate (Crystallizer), agricultural lime (Quest Two), granulated limestone (West African Fertilizer Company) and micro nutrient fertilizers (Cybernetics).

 

  • Blending – There are about 25 bulk blending plants in the country, most of them are owned by State Governments.  About 5 of them are owned by private entrepreneurs.  They have all together an installed capacity of about 1.8 million metric tons.

 

The locations and capacities of the manufacturing and blending plants are given in table 1 below:

 

FERTILIZER PRODUCTION UNITS, PRODUCT RANGE, CAPACITY AND LOCATIONS

S/N

FERTILIZER PROD. UNIT

 

PRODUCT RANGE

INSTALLED CAPACITY

 

LOCATION

 

 1.

Federal Super phosphate Fertilizer Company (FSFC)**

SSP

100,000

Kaduna

  2.

National Fertilizer Company of Nigeria (NAFCON) **

Ammonia

Urea

NPK

200,000

550,000

250,000

Onne,

Port-Harcourt

 3.

Fertilizers & Chemicals Co

NPK Grades

200,000

Kaduna

 4.

Morris Nigeria Ltd.

NPK Grades

200,000

Minna

 5.

Agro-Nutrients & Chemicals Co. Ltd.

 

NPK

 

300,000

Kano

 6.

Kano Agricultural Supply Company (KASCO)

NPK

100,000

Kano

 7.

Golden Fertilizer Company Ltd.

NPK

200,000

Lagos

 8.

Zungeru Fertilizer Company*

NA

20,000

Niger State

 9.

Funtua Fertilizer Company*

-do-

100,000

Katsina

10.

Bauchi Fertilizer Company*

NPK

121,000

Bauchi

11.

Gombe Fertilizer Company*

NPK

96,000

Gombe

12.

Borno Fertilizer company*

NA

120,000

Borno

13.

Edo Blending Plant*

NA

40,000

Edo

14.

Zamfara Blending Plant*

NPK

84,000

Gusau

15.

Samrock Blending Plant*

NA

30,000

Sokoto

16.

Kebbi Blending Plant*

-

NA

Kebbi

17.

Adamawa Blending Plant*

-do-

-do-

Yola

18.

Crystal Fertilizer Blending Plan*

-do-

100,00

Kagara

19.

Scentum Al fertilizers*

NA

NA

Enugu

20.

Gaskiya Fertilizer Co*

NPK

54,000

Kano

21.

Sasisa Fertilizer Co*

-do-

20,000

Kano

22.

Morgan Int. Ltd.

-do-

60,000

Lagos

23.

Jimco Nig. Ltd.

-do-

 

Lagos

24.

Yobe  Fertilizer Co.

 

 

Damaturu

25.

Pacesetter Organic Fertilizer  Co. Ltd.

Organic Fertilizer

NA

Ibadan

26.

Cybernetics Nig. Ltd.

Micro Nutrients

 

Kaduna

27.

Albarka Agro Allied & Chemical  Nig. Ltd.

 

 

Kano

28.

Aweba  (Nassarawa) Fertilizer Co.

 

 

Nasarrawa

29.

Plateau Fertilizer & chemicals Co.

 

 

Jos/ Bokkos

30.

Ebonyi State Fertilizer & Chemicals Co.

 

 

Abakaliki

31.

West African Fertilizer Co.

 

 

Okpella

32.

Bauchi Kaolin Industry

 

 

Bauchi

 

TOTAL

2,945,000

 

 

Source: Various FFD and IFDC Reports

             *     Details are not available

             **   Manufacturing plants, currently not in production.

·         Importation – There are between 7 – 12 major companies that import fertilizers into the country on annual basis. They have made investments in discharge and bagging facilities     as well as substantial warehousing at the ports.

The average annual importation in the last 5 years is around 560,000 metric tons.  The 10 year trend is presented in table 2 below.

If these facilities are to be used to the fullest, then over 3 million metric tons of fertilizers can be made available every year to the end – users.  Besides, there are plans to expand some of these facilities; and new investments in the industry, which will ultimately improve the quantity of fertilizer supply in the country.

                                    Table 2.  Fertilizer Imports by Private Sector (1997 – 2006).

S/N

YEAR

TOTAL

1.

1997

56,708

2.

1998

239,916

3.

1999

252,861

4.

2000

437,320

5.

2001

615,000

6.

2002

340,746

7.

2003

511,841

8.

2004

560,150

9.

2005

597,000

10.

2006

697,000

                         

                    Source: Nigeria Fertilizer Strategy Report, IFDC and MARKETS reports.

 

Distribution Scenario

Fertilizer distribution is the critical link between the suppliers and the end users.  The distribution system is an uninterrupted supply chain that insures that farmers have access to fertilizer at the right time.  The objectives of an effective fertilizers distribution system include:-

 

  • To ensure that the right quality fertilizers are delivered to farmers in the right quantity at the right time.
  • To ensure that farmers have access to fertilizers within the closet proximity of their farm gates.

 

Before the liberalization of the industry in 1997, fertilizer distribution was solely in the public domain.  Various approaches were tried with limited success.  It is not intended to go over them here because they are well known and documented. In the two years following the liberalization up to year 2000, the private sector made frantic efforts to fill the vacuum created by the withdrawal of government.  A number of companies joined the fertilizer business and many of them opened distribution outlets/warehouses in key agricultural zones.  Import figures began to rise and the market started to take shape.  However, with the advent of democracy in 1999, sustained political pressure to redeem campaign promises forced the Federal government to restore fertilizer subsidy at 25% level in 2001.

 

Following this decision by the Federal Government, the State Governments also followed suit, some giving additional subsidies. A study by FEPSAN for USAID – MARKETS Project found that subsidy on fertilizer varied between 21 – 69% depending on the State.  While many States increased the subsidy on top of the 25% by the Federal Government, some others do not provide any additional subsidy.  In fact, some States charge handling costs there by reducing the 25%. FGN subsidy – thus in those States the subsidy is less than 25%.

 

Since the reintroduction of the stabilization program by the Federal Government in 2001, the private sector fertilizer distribution has suffered set backs, because private entrepreneurs could not compete under a dual market system.  Many of the fertilizer suppliers withdrew, while those that remained were mainly targeting government orders.  The free market therefore could not develop as expected.

 

Public Sector Distribution Strategies

 

Under the public sector distribution, various models were applied, and different prices were charged due to the variation in subsidy levels.  This promotes diversion and recycling of fertilizers as well as promotes self seeking and corrupt practices.  Even though Federal Government provided guidelines for implementing the stabilization program, various models were applied at the state levels, they include:-

 

a)      Distribution solely by Ministry of Agriculture, though the Local Governments.

b)      Distribution by a Task Force or Special Committee appointed by the Ministry of Agriculture.

c)      Distribution through the Agric Input Supply Company of the State.

d)     Distribution through the Agric Development Project (ADP) of the State.

e)      Distribution through hybrid arrangements of 2 or more of the above systems.

The experience of the new public sector stabilization program is that it has not adequately satisfied the objective it was meant to serve because:-

 

a)      It has no universal application.  Subsidy is only on the quantities procured by governments.

b)      Procurement process is delayed leading to late deliveries.

c)      Amount of subsidy varies widely among the states thus encouraging recycling and diversion.

d)     It is generally reported that the subsidy does not reach the intended beneficiaries, and

e)       The system encourages self-seeking and corrupt practices.

 

Private Sector Distribution

Following the liberalization in 1997 many private sector entrepreneurs entered the fertilizer market.  Many set up distribution networks, and were using their outlets/depots to sell to their dealers in the major agricultural areas who subsequently sell to village retailers at various selling points.  Liberalization saw the rapid development of fertilizer selling points in the country.  In 1990 before the liberalization the estimated fertilizer selling points which were all public sector controlled stood at 1426.  An assessment conducted by FFD in 2002 gave the following selling points:

            Public Sector               -             827

            Private Sector              -           2616

                        Total                =          3443

This shows great shift from public to private fertilizer retail outlets.

The USAID – IFDC DAIMINA Project has also greatly influenced the development of private sector Agric Input retail outlets. Between 2001 and 2004 DAIMINA Project was able to establish over 500 agro dealers in 4 states (Kano, Bauchi, Oyo and FCT).

However due to increased public sector intervention in the market, the private fertilizer outlets are now reducing as private retailers can not source and sell fertilizer at competitive prices due to existence of subsidized market. In addition, the major suppliers now prefer to make their sales ex-factory/blending plants or ex-port of importation.  This is a welcome development and is in line with the need to develop the market chain where networks of distributors, whole sellers, dealers and retailers will emerge.

 

Unfortunately, except for one or two companies, the private suppliers are not making efforts towards development of the market chain.  Most suppliers rely mainly on government orders, which they readily deliver on credit basis, but they insist on full payment for orders by private distributors.  While government takes delivery on credit, private distributors are required to operate on cash – and – carry basis.  However, this may be connected with the experiences of the suppliers about financial fraud, which is rampant in Nigeria.

 

A market assessment by FFD in 2002 put the average market contribution by segment as follows:-

 

                        Sales to Government               -           60%

                        Sales to Private traders           -           40%

 

A baseline survey by USAID – MARKETS in 2006 showed that there was no movement in the above scenario 4 years later.  The baseline survey put the market share as follows:-

 

                        State Governments                 -           30.80%

                        Federal Government               -           29.10%

                        Private Traders                        -           40.10%

 

The Challenge

As can be seen from the above scenarios, a lot is needed to be done to put in place a workable and free fertilizer market chain before farmers can access fertilizers in a timely manner.  It was against this background that the USAID – IFDC DAIMINA Project in 2004 convened a meeting of the fertilizer suppliers, and at that meeting it was decided to set – up a private sector Association for the fertilizer industry in Nigeria.  Consequently the Fertilizer Suppliers Association of Nigeria with the acronym FEPSAN was formed and registered with the Corporate Affairs Commission.  The objectives of FEPSAN include:-

a)   To improve the production and regular supply of quality fertilizers through  linkages in the               sourcing of raw materials, finished products and market outlets for members. 

b)        To liaise and collaborate with other related associations and stakeholders for advocacy on agricultural policies, and in particular fertilizer policy reforms in Nigeria.

c)         To provide for the development of its members through training, education and enlightenment.

d)        To serve as a reference point for data and information on the fertilizer industry in Nigeria.

e)         To promote balanced and judicious use of fertilizer in the country.

f)         To collaborate with Government to develop and implement quality control standards and specifications of fertilizer products.

g)        To develop and improve the fertilizer market chain in Nigeria.

 

Since establishment, FEPSAN has been gaining recognition by the day and has collaborated and participated in a number of events and activities with the Federal Ministry of Agriculture (FFD mainly) IFDC, USAID, some development projects such as DAIMINA, MISTOWA, MARKETS, PROPCOM

and some national level associations like AFAN, RIFAN, SEEDAN, Crop Life, etc.  The Association holds strong potential to become the mouth piece of the industry given full recognition and support by the stakeholders.  Such Associations play great role in ensuring adequate supply and distribution of fertilizers in the developed and emerging economies of the world. Nigeria should not linger behind.

 

Some Key issues and Constraints to Fertilizer Supply and Distribution

 

There are so many constraints, and bottlenecks that restrict smooth fertilizer supply and distribution system in Nigeria.  These are very well known and documented in large number of reports from research Institutes, Universities, Conferences, Seminars and Workshops over the past decades.  What is required is political will and commitment to ameliorate them.  In summary, they include-

 

a)                      Weak legal and regulatory frame work resulting in the flooding of the market with dubious quality products.

b)                      Instability of microeconomic variables (interest rates, foreign exchange, tariffs, subsidy and farmer protection regimes, etc.).

c)                      Inadequate financial services and high cost of credit.

d)                     Lack of market information on prices, availability, supply sources, etc.

e)                      Poorly developed transport infrastructure leading to high transportation costs.

f)                       Inadequate and obsolete port facilities.

g)                      Inefficiencies in the customs clearing bureaucracy.

h)                      Low demand arising from weak purchasing power of the farmers.

i)                        Low technical knowledge on efficient fertilizer use by farmers.

j)                        Inconsistent government policies especially on subsidies and market stabilization programs. 

 

A new emerging dimension is “The Agricultural Inputs (provision of subsidy) Act which provided a 50% subsidy on all Agric inputs for the next 15 years. The Act provides as follows:-

 

a)            All agricultural inputs as specified in the schedule (appendix I) to the Act shall be subsidized by a minimum of 50% for a period of not less than 15 years.

b)            The 50% subsidy shall be provided in the first year of the application of the Act.

c)            There shall be provided a fund of not less than thirty billion Naira at the commencement of the Act.

d)           There shall be an annual increase by 10% for not less than 15 years to off-set inflation in the economy.

a)            The contribution shall be charged to the consolidated Revenue Fund of the Federal Government.

b)            The Federal Ministry of Agriculture shall be responsible for the purchase and distribution of the agricultural inputs.

c)            The delivery of the agricultural inputs shall be handled by the Federal Government through the establishment of an equitable mechanism at the Federal, State and Local Government Areas and the FCT.

 

Need for Public – Private Sector Partnerships

 

This presentation in basic terms is an attempt to show the complexity of the fertilizer supply and distribution system in the years following liberalization of the fertilizer industry in 1997.  It depicts an uncoordinated market structure that requires reorientation and redirection.  It provides a good case for public – private sector partnership arrangement that is needed to be put in place to ensure that farmers can access quality fertilizers in a timely and affordable manner.  To achieve this, the following recommendations are hereby proffered:-

 

1.        There is need for clear demarcation of roles, which emphasizes closer interaction between the public and private sector players.  For example public sector should concentrate on policy guidelines and regulatory control; provision of basic infrastructure (port, road, rail and inland waterways and inland container terminals); conduct of research, extension and demonstration of proven technologies; quality control; guarantee for investment loans; and sector performance monitoring and documentation.  The private sector should concentrate on supply and distribution; development of the fertilizer market chain; provision of market information; contribute to research, extension and demonstration activities.

2.        A more market friendly alternative for the administration of subsidy is required to ensure that the subsidy reaches the targeted beneficiaries, especially in pursuance to the Agric Inputs Subsidy Act.  A suggestion in this regard is to consider using a voucher/discount coupon rather than direct procurement and distribution by the public sector.  Another is to consider output subsidy – minimum guaranteed prices for agric outputs, even though the new Act did not consider this.

There is need to have an effective industry association The Fertilizer Suppliers Association of Nigeria (FEPSAN) that has already made some inroads in this direction can be strengthened and mandated to fill this role,  to serve as the critical link between

1.        the public and private sectors and be the depository for market information regarding the industry.  It should be developed to attain the status attained by similar Associations, such as the Fertilizer Association of India (FAI); Malaysian Fertilizer Association (MFA) or even the American Fertilizer Institute (AFI).  It can also play greater role in quality assurance, for example, its logo could be stamped on fertilizer bags of suppliers that met the quality standards. Similarly, investors, loan applicants and contractors supplying fertilizers to government, should be required to obtain the endorsement of their applications by FEPSAN before been considered, just as is being done to applicants under the N50 Billion Agric Credit Scheme who are required to get the endorsement of AFAN before their applications are considered.

 

Conclusion

 

            Fertilizer Supply and distribution in Nigeria since the liberalization of the fertilizer industry in 1997 has gone through various degrees of test.  Some successes have been achieved because of the liberalization. Many private entrepreneurs have come into the market.  However, so many constraints limit full privatization of the system especially the inconsistency in government policies; subsidy administration through public sector agencies; inadequate infrastructure; high costs of funds, etc.  These issues can be overcome through an effective public – private sector partnerships.  To achieve this, it is strongly recommended that the roles to be played by both public and private sectors should be reviewed and spelt out while emphasizing closer ties.  A more market friendly alternative for subsidy administration is needed to ensure viability of the fertilizer market, and to ensure that the subsidy reaches the targeted beneficiaries.  Finally is it recommended that the stakeholders establish an effective industry Association to serve as the vital link in the partnership, as well as the repository for all information relating to fertilizer industry in Nigeria – the Fertilizer Suppliers Association of Nigeria (FEPSAN) that has already made significant in roads can be strengthened to play that role.

 

 

 

REFERENCES

 

1.         IFDC – Proceedings of a National Workshop – “Agricultural Inputs Policies and Nigerian             Development” FMARD - August 2003.

 

2.         IFDC – “Input Subsidies and Agricultural Development – Issues and Options for Developing      and Transitional Economies”

 

3.         IFDC – Agricultural Input Markets in Nigeria; An Assessment and A strategy for Development.

 

4.         USAID – MARKETS Project – Baseline Survey on “Nigerian Fertilizer Production,          Importation and Marketing” December 2006.

 

5.         Alhaji Sani Dangote - “The Potentials and Constraints of Fertilizer Importation and Distribution   by Private Sector and a suggested market friendly alternative to subsidy delivery in Nigeria” Paper presented at an Agric-Input Stakeholders Workshop, Kano State Ministry of Agriculture            August 2004.

 

6.         Ahmed Rabiu Kwa “Fertilizer Demand and Supply in Nigerian Agriculture” paper presented at    the National Workshop on “Meeting Fertilizer Needs and Standards Under the Liberalization             Policy” FPDD – June 1999.

 

7.         “Towards a Fertilizer Regulatory Policy for Nigeria; An Inventorization of the Fertilizer    Sector”   FFD - 2002.

 

8.         Nigeria Fertilizer Strategy Report – Africa Fertilizer Summit - June 2006.

 

9.    Chukwuemeka U. Okoye “Draft report: Analysis of Agricultural Inputs Subsidy Policies in   Nigeria” for the World Bank - June 2003.

 



Author:-

FERTILIZER SUPPLY AND DISTRIBUTION IN NIGERIA:

A CASE FOR “PUBLIC – PRIVATE SECTOR PARTNERSHIP”

 

 

 

BY

 

 

AHMED RABIU KWA

EXECUTIVE SECRETARY, FERTILIZER SUPPLIERS ASSOCIATION OF NIGERIA (FEPSAN)

 

 

 

 

A PAPER PRESENTED AT

 

 

 

 

A MEETING OF STAKEHOLDERS IN THE FERTILIZER SUB SECTOR

ORGANIZED BY FEDERAL MINISTRY OF AGRICULTURE (FFD) AND IFDC – NIGERIA

 

 

 

 

HELD AT

 

 

 

 

PROTEA HOTEL, PORT HARCOURT, RIVERS STATE

27TH – 28TH FEBRUARY 2007


 

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