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ECAPAPA EASTERN AND CENTRAL AFRICA PROGRAMME FOR AGRICULTURAL

VIEWS: 17 PAGES: 46

									                          ECAPAPA
EASTERN AND CENTRAL AFRICA PROGRAMME FOR
          AGRICULTURAL POLICY ANALYSIS



   Study on rationalization and harmonization of policies,
regulations, procedures, grades and standards in the fertilizer
                 sub-sector in Eastern Africa


                         Kenya Report




                               By




                       Kennedy T K Gitonga
                     National Resource Person
                                                                        ii


TABLE OF CONTENTS

ABBREVIATION AND ACRONYMS                                         iii
LIST OF FIGURES                                                   iv
LIST OF TABLES                                                    iv
LIST OF ANNEXES                                                   iv
EXECUTIVE SUMMARY                                                 v
1.0    INTRODUCTION                                               1
2.0    PROBLEM STATEMENT                                          3
       2.1 Objectives of the study                                3
3.0    METHODOLOGY                                                4
       3.1 Data sources                                           4
       3.2 Data analysis                                          4
4.0    STATUS OF THE FERTLIZER SUBSECTOR                          5
       4.1 Fertilizer market organization                         5
       4.2 Stakeholders                                           8
       4.3 Fertilizer supply                                      9
       4.4 Fertilizer demand and consumption                      10
       4.5 Fertilizer pricing                                     14
5.0    POLICIES AFFECTING FERTILIZER SUBSECTOR                    17
6.0    LEGISTLATION                                               18
7.0    FACTORS INFLUENCING FERTILIZER DEVELOPMENT                 21
8.0    GRADES, STANDARDS AND QUALITY                              22
       8.1 Grades                                                 23
       8.2 Standards                                              24
       8.3 Quality control                                        24
9.0    STAKEHOLDERS INVLOVEMENT                                   26
10.0   CHALLENGES                                                 27
11.0   NATIONAL ISSUES                                            28
12.0   REGIONAL ISSUES                                            29
13.0   SUMMARY AND CONCLUSION                                     29


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14.0   REFERENCES                                                           31
15.0   ANNEXES                                                              33


ABBREVIATIONS AND ACRONYMS
ATIA             Africa Trade Insurance Agency
Btu              British thermal unit
COMESA           Common Market for Eastern and Central Africa
CIF              Cost insurance and Freight
CAN              Calcium Ammonium Nitrate
DAP              Diammonium Nitrate
EAC              East African Community
EU               European Union
GDP              Gross Domestic Product
FOT              Free on Truck
GDP              Gross Domestic Product
GOK              Government of Kenya
GTZ              German Technical Co-operation
IDF              Import Declaration Form
ISO              International Standards Organization
KARI             Kenya Agricultural Research Institute
KS               Kenya Standard
KEBS             Kenya Bureau of Standards
KEPHIS           Kenya Plant Health Inspection Services
KRII             Kennedy Round II
KTDA             Kenya Tea Development Agency
MAP              Mono-Ammonium Nitrate
MOA              Ministry of Agriculture
MOP              Muriate of Potash
MKP              Mono-potassium Phosphate
NFA              National Fertilizer Association
NCPB             National Cereals and Produce Board

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NGO                   Non-Governmental Organization
SAPs                  Structural Adjustment Programmes
TSP                   Triple Super Phosphate
USAID                 United States Agency for International Development
USD                   United States Dollar
VAT                   Value Added Tax
WTO                   World Trade Organization


LIST OF FIGURES

Fig 1: World fertilizer consumption – Average, 1998-2001
Fig 2: Organization of fertilizer market in Kenya
Fig 3: Fertilizer imports and consumption in Kenya (1992-2002)
Fig 4: DAP price (FOB US Gulf) development (Nov-2002 to Oct-2003)


LIST OF TABLES
Table 1: Overall fertilizer imports and consumption in Kenya
Table 2: Estimated annual fertilizer consumption by selected crops (1993-1998)
Table 3: Cost build-up for DAP from Mombasa to selected destinations
Table 4: Fertilizer grades in the Kenyan Market


LIST OF ANNEXES
Annex 1: Kenya Fertilizer Imports (Quantity) –3 main categories
Annex 2: Kenya Fertilizer Consumption (Quantity) –3 main categories
Annex 3: Distribution of Soil Nutrient Deficiencies in Kenya
Annex 4: Kenya Fertilizer Standards
Annex 5: Geographical Map of Kenya
Annex 6: Proposed issues for rationalization and harmonization




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EXECUTIVE SUMMARY

Introduction
This study was commissioned by the Eastern and Central Africa Programme for
Agricultural Policy Analysis (ECAPAPA), a programme of the Association for
Strengthening Agricultural Research in Central and Eastern Africa (ASARECA).

The objectives of the study were to identify key constraints challenges and opportunities
of the fertilizer sub-sector in countries in the eastern Africa region. This would facilitate
and informed public and private sector dialogue towards rationalisation and
harmonisation of policies, laws, regulations and procedures in the sub-sector. Ultimately,
improve efficiency within respective countries as well as spur fertilizer trade and use at
regional level

2.0: Fertilizer subsector in Kenya
Kenya liberalized her fertilizer sub-sector in 1992. Currently the private sector handles
over 95% of all fertilizer imported into the country. Apart from the import trade, with
only about 10 active participants, competition is alive in all the other levels of the supply
chain. Current estimates indicate that there are over 500 wholesalers and about 5,000
stockists/retailers.

The fertilizer market in the country has evolved into several channels. The main ones
include: the private traders who import and sell directly to the players downstream
(wholesalers, stockists etc). Secondly, farmers’ organizations involved in interlocked
market-output arrangements, and third, large-scale farming companies, mainly in
horticulture, coffee and tea that import their fertilizers directly.

There is also a thriving intra-industry trade with some of the distributors and local
reformulators sourcing small orders from other companies within the country.

A few non-governmental organizations (NGOs), mainly those in food security
programmes also buy fertilizers internally for their projects.


3.0 Stakeholders in the fertilizer sector
Numerous organizations/institutions both public and private have an interest in the in
development of the sector. The key governmental stakeholders include the Ministry of
Agriculture (MOA), Ministry of Trade and Industry, Ministry of Finance, Ministry of
Transport and Communication and various agencies under them. Other key players
include: individual farmers, farmers’ organizations, bilateral and multi-lateral donors,
Non-governmental Organizations, Finance institutions, Fertilizer importer, wholesalers,
distributors and retailers.

4.0 Fertilizer Supply
The fertilizer used in Kenya comprises of commercial imports, locally reformulated,
occasional grant-in-aid imports and private imports.

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In 2002, fertilizer imports stood at around 326,000 metric tonnes up from about 245,000
tonnes in early 1990s. Of these about 230,000 were commercial imports, the bulk of
which is brought in by one major company with the rest shared amongst other smaller
players.

The government also occasionally brings in, about 20,000 tonnes of fertilizers under
budget- support financing arrangements. The Kenya Tea Development Agency (KTDA)
also import directly close to 70,000 tonnes annually for use in the smallholder tea sector.

The fertilizer-manufacturing base in Kenya is not strong. Kel chemicals based in Thika,
and the Athi River Mining Company (ARM) are about the only two companies
manufacturing fertilizers, with the former manufacturing single super phosphate and the
latter manufacturing limed NPK fertilizer. Both companies are also in partnership with
with the Kenya Maize Development Programme (KMDP) in promotion of fertilize use in
maize production.

There is however a substantial local re-formulation of foliar and specialty fertilizers
spurred by the growth of the horticulture sector over the last decade.

The entry of the National Cereals and Produce Board (NCPB), with the support of
government, to participate in the importation of fertilizers in 2003 had unsettling effect
on the fertilizer sector as most industry players were not sure whether the government
was reneging on its liberalisation policy.

5.0 Fertilizer demand and consumption
Over the last one decade fertilizer consumption has grown by over 50% from about
230,000 tonnes to about 330,00 tonnes respectively, with DAP commanding the highest
share followed by 25:5:5+5s. Potential consumption is estimated at over 1 million tonnes
implying that only about 30%, on average of this potential has been realised.

6.0 Fertilizer pricing
The local retail price of fertilizers is determined by world prices, exchange rate and
internal transaction costs. International prices of fertilizer are further influenced by the
price of natural gas and do fluctuate immensely within short periods of time.

Internally nominal fertilizer prices have been on the increase. However, in real terms,
prices of most fertilizers declined.

Retail prices have escalated over in the last year owing to several factors. These include
higher international prices, depreciation of the Kenya shilling against the dollar, higher,
higher shipping costs, higher distribution costs and uncertainty created by the directive by
government for NCPB to commence importation of fertilizers in 2003.

A significant proportion of internal transaction costs is attributed to multiplicity of levies,
spillage and pilferage in transit, and high cost of inland transportation.

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Traders involved in the fertilizer re-export to neighbouring countries, incur additional
costs of up 4% of CIF price (Mombasa) due documentation and re-inspection.


7.0 Policies affecting fertilizer sub sector
At the macro level key the liberalization of the foreign exchange regime in 1992, resulted
in the convergence of what were then the official and the parallel market exchange rates,
and effectively removed implicit taxation on fertilizers amongst other imports.
Moreover, import controls and foreign exchange rationing were abolished.

At a sectoral level, Kenya liberalized the fertilizer sub-sector in 1993 to encourage the
participation of the private sector in the importation, distribution and retailing of
fertilizers and other inputs. Fertilizers were also exempted from duty and value added tax.
However, facilitative services e.g. transportation, are still liable to VAT currently at 16%.

While availability of fertilizers has been enhanced, these measures appear not to have had
the desired impact of lowering retail prices.

8.0 Legislation
The fertilizer industry in Kenya is regulated through several statutes. These include:
Fertilizer and Animal Foodstuffs Act (Cap 345), Weights and Measures Act (Cap 513),
the Standards Act (Cap 496), and the Finance Act. Various government ministries and
agencies enforce these laws. Industry players would want to see the up dating and
consolidation of regulations and clearer vesting of the enforcement function.

9.0 Factors influencing fertilizer Development
Numerous factors have influenced the development of the fertilizer sector in Kenya.
These include: the poor performance of the agricultural sector, the underperformance of
the extension services in the last decade, the collapse of agricultural credit schemes run
by government and farmer organizations and the over-reliance on rain-fed agriculture.
Others include: the poor state of transport infrastructure leading to high direct costs and
delayed deliveries to upcountry locations and high capital outlay due high-volumes and
seasonality of fertilizer demand.

10.0 Grades, standards and quality control
Kenya has a diversified crop agriculture, which supports the importation of a wide range
of both field and technical fertilizer grades. Technical fertilizer grades are mainly used
for reformulation and in green house agriculture. A majority of the field grade fertilizers,
on the other hand, are sold directly to farmers.

All fertilizer consignments being imported into Kenya are usually subjected to pre-
shipment inspection by government-contracted firms e.g. Cotecna. Besides ascertaining
the value of import, these firms also ensure that the consignments meet specifications and
Kenya standards.



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Internally, the Kenya Bureau of Standards (KEBS) has the overall responsibility over
fertilizers standards. So far KEBS has formulated and/or revised 9 fertilizer standards.
The Bureau has also adopted from the International Standards Organization (ISO)
standards relating to fertilizer classification and definitions of terminologies. However no
standards for specialty and foliar fertilizer have been formulated.

The evaluation for suitability and generation of use recommendations, registration and
monitoring of the quality are however the responsibilities of agencies under the Ministry
of Agriculture. Quality control and monitoring has however been weak and as
consequence there has been a proliferation of counterfeit and adulterated fertilizers.

11.0 Stakeholders involvement
Up to 1992, due to virtue public sector monopoly in the fertilizer industry in Kenya, the
involvement of the stakeholders in various aspects of the sub-sector was minimal.

After liberalisation players in the sub-sector, mainly the importers attempted a common
strategy in order to engage the government more effectively. This led to formation of the
National Fertilizer Association (NFA) in 1996. Due to lack of a long-term objectives and
a non-inclusive membership, NFA is currently inactive. Industry players have however
expressed a desire to reactivate the association as well as expand its mandate and
membership.

As far as the formulation of standards is concerned, the Kenya Bureau of standards
involved key stakeholders in the technical committee charged with the last revision of
standards between 1998 and 2000. Stakeholders would however want this engagement be
institutionalised and be extended to all other organizations handling fertilizer matters.

12.0 Challenges
The growth of a private sector-led fertilizer sub-sector has been rapid. The fertilizer
subsector has also to contend with the dynamics of regionalization of trade. Several
policy challenges have come to the fore. The challenges include the emergence of a near
monopoly situation in the importation of fertilizers despite an apparently successful
liberalization of the fertilizer sub-sector, lack of capacity to monitor and enforce
standards, and regulations in the marketing and trade in fertilizers, high internal
marketing and transaction costs, poor performance of the crop sub-sectors, inadequate
research and extension support especially to small scale farmers, lack of institutionalised
engagement of the private sector on fertilizer matters, lack of credit support for small-
scale farmers, lengthy and repetitive registration processes for new fertilizer formulations
and high cross-border trade risks

13.0 National issues
Several interventions need to be considered in order to improve efficiency of the fertilizer
subsector within the country. These include: measures to co-ordinate port clearing with
inland transportation, streamlining documentation and handling operations, elimination of
spillage and pilferage at port, re-assessment of levies charged at the port, increased
investment in transportation infrastructure especially the railway system, upgrading and

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consolidation of laws governing the fertilizer sub-sector, formulation of more
comprehensive standards, revitalization of the National Fertilizer Association,
exploration of mechanisms for bulk purchase of fertilizer by farmers to reduce on
overheads and prices and reinvigorate crop extension services to enhance proper use of
fertilizers regulation.



14.0 Regional issues
The following issues need to be looked into in order to enhance regional trade in
fertilizers. These include: elimination of re-inspection requirements for fertilizers exports
from country within the region, implementation of a common evaluation and registration
policy, adoption of common tax policies on fertilizers, formulation of common fertilizer
standards and a shared enforcement policy and the creation of a private-public sector
regional forum for exchange of information on fertilizer issues.

15.0 Conclusion
The development of the fertilizer sub-sector in Kenya over the last decade is a testimony
of the capacity of the private sector to respond to opportunities. On the other end it
demonstrates the negative impact of inefficient facilitative services on transaction costs
and eventually on prices.

There is need to remove those constraints that reduce competitiveness, and reduce
opportunities at the domestic front. Moreover, improve competitiveness in order for sub-
sector players to exploit the wider regional market.

The regional perspective of fertilizer trade also calls for harmonization of policy and
rules governing trade in fertilizers. Besides, private sector networks and associations will
also be required to take the centre stage in handling national and regional issues on
fertilizers. Moreover, harmonization of fertilizer policies and regulations among the
countries of the region will also help establish a common regional market viable enough
to attract more investment in the sub-sector.




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1.0 Introduction
1.1 Background
Like most other economies in the sub-saharan Africa, Kenya’s economy is primarily
agricultural with about 80% of the population in rural areas engaged directly in
agriculture related activities. Agriculture accounts for approximately one-quarter of the
GDP. The sector employs more than 2/3 of the labour force and accounts for nearly 70%
of the total export revenue. Besides, the sector produces almost all of the country’s food
requirement and provides raw materials for use in industries (GOK, 2003)


Agricultural growth is therefore important for stimulation of overall economic growth
and development, and alleviation of poverty. However, to achieve this goal, the
smallholder agriculture requires transformation out of its current semi-subsistence, low
input, and low productivity faming systems.


One of the avenues for increasing agricultural productivity growth is through
intensification of agricultural input use, mainly fertilizers and high yielding, high quality
seeds and other planting materials.


Compared to the rest of the Sub-Sahara Africa, Kenya ranks as one of the countries with
relatively high fertilizer use rates. Fertilizer use is estimated at 35.3kg per ha of arable
land against an average of 12.74 kg for Sub-Saharan region, 5.6kg in Tanzania, 0.95kg in
Uganda and 15.7kg in Ethiopia, (World Bank, 2001).


The scenario however, compares unfavourably with Latin America at 54 kg per hectare,
South Asia at 80 kg per hectare and South East Asia at 87 kg per hectare. Indeed,
compared to the rest of the world, the Africa region lags in the use of fertilizers (Fig 1).


The foregoing scenario is against a background of widespread depletion of soil nutrients
in most farmlands in the country (KARI, 1994; Nandwa, 1991). Virtually all parts of the
country experience some nutrient deficiency of one kind or another (Annex 3). This has



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partly been attributed to continuous tillage of land and poor fertilizer use practices,
especially in smallholder agricultural production systems.


Success in raising levels of fertilizer use will require identifying the underlying causes of
weak access to fertilizer by farmers, high relative fertilizer prices to that of the output,
high transaction costs, and other factors constraining fertilizer marketing. Moreover, by
mitigating the high risks in input, credit and output markets.


Promotion of fertilizer use will also require a facilitative policy environment geared
towards improved fertilizer availability and access in a sustainable manner and at
reasonable prices. It is particularly important to recognize that demand influencing
policies, should take the center stage in developing the fertilizer market in the region.
This should be complimented by removal of constraints that hinder the development of a
vibrant private sector driven fertilizer industry in the region. Moreover, well-facilitated
fertilizer trade within the region is likely to result in reduced distribution costs and
ultimately spur growth in fertilizer demand.


Figure 1: World fertilizer consumption-Average 1998-2001



                            Latin America            East Asia
                                  9%                    6%             West Europe
                  Others
                                                                          12%
                   9%

  Cent. Europe
       5%


                                                                                 North America
                                                                                      16%


                    China
                                                                  South Asia
                     28%
                                                                     15%



Source: International Fertilizer Industry Association



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2.0 Problem statement
Countries within the Eastern and Central Africa region have pursued different policies for
their fertilizer sectors. For instance, while in some of the countries the sector is relatively
liberalized, in others the hand of government is still very evident.


Moreover, in spite of the their inherent interdependence, countries have also prescribed
fertilizer standards, laws and trade procedures with minimal, if any, reference, to
practices in other countries within the region.


The overall result of the disharmonious policies, standards, laws and procedures is the
emergence of disparate fertilizer markets within countries in the region. This has not only
impeded regional trade in fertilizers but also negates the aspirations of the existing trade
agreements and protocols e.g. the Common Market for Eastern and Southern Africa
(COMESA) and the East African Community (EAC). Moreover, they weaken the case
for a common strategy in view of challenges of globalization under the aegis of the
World Trade Organization (WTO).


A regional perspective in fertilizer marketing and trade is therefore necessary for the
region to carve out a more viable fertilizer market. This will enhance the realization of
economies of scale and the attendant efficiency gains to all the stakeholders.


2.1 Objectives of the study
The goal of the study is to bring to the fore key constraints, challenges and opportunities
of the fertilizer sector at both the national and regional levels. These insights will form
the basis on which fertilizer policies, laws, standards and trade procedures can be
rationalized within individual countries and harmonized across the region. This, it is
expected, will lead to a more efficient and viable fertilizer sub-sector, enhanced regional
trade, increased fertilizer consumption and ultimately, enhanced productivity and
competitiveness of the agricultural systems in the region.


The specific objectives of the study are therefore are to:


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(a) Assess supply, demand, prices and fertilizer utilization levels by smallholders and
   factors influencing supply, demand and supply
(b) Identify the structure and functioning of fertilizer markets to identify key
   organizations in the marketing chains and their roles
(c) Identify national and regional opportunities and constraints in fertilizer marketing
(d) Identify fertilizer grades standards and other quality control measures and policies,
   procedures, regulation, rules for setting, standards and grades for each country
(e) Identify policy options for improving fertilizer use in the region including developing
   a regional strategy to improve availability, accessibility and use of fertilizer in
   Eastern and Central Africa region.


The Kenya component of the study compliments results of similar studies in Ethiopia,
Tanzania and Uganda.



3.0 Methodology
This section discusses the methods adopted in data collation and collection, analysis and
reporting.

3.1 Data sources
The study relied mainly on published data and interviews with key stakeholders. A
review of literature on policies, rules, regulation, access and availability of fertilizers was
also undertaken. Amongst the documents reviewed were write-ups such as sub-sectors
reviews, government policy documents, policy research documents, economic reviews,
statistical abstracts and relevant legislation (Acts of parliament and subsidiary legislation)


Stakeholders interviewed were selected purposely to cover all key functions across the
fertilizer marketing chain. Moreover, players in regulatory and other facilitative functions
were also interviewed.


3.2 Data Analysis
Descriptive methods e.g. tabulation, graphs, flow charts were used to present the results.
A cost build-up or the financial cost structure technique was also used to track transaction
costs and margins at various stages of the fertilizer supply chain (FOB to retail).

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Diammonium Phosphate (DAP), the most widely used fertilizer, was used as a surrogate
in the price and cost build-up analysis.


4.0 Status of the fertilizer sub sector
This section discusses the status of the subsector in Kenya in relation to market
organization, supply demand and pricing.


4.1 Fertilizer market organization
In concert with market reforms that were being undertaken in the economy under the
auspices of Structural Adjustment Programmes (SAPs), the government of Kenya
liberalized the marketing of fertilizer in 1993. This entailed price decontrol and abolition
of import quotas and increased private sector participation in importation and trade in
fertilizers.


Prior to this and despite the stoppage of fertilizer subsidies in way back in 1978, the
government was heavily involved in fertilizer importation and distribution through the
Kenya Farmers’ Association. Apart from direct imports, some fertilizer used to come into
the country in form of grant-in-aid, and the resultant sale revenues were used for
budgetary support. Essentially, there existed a near public-sector monopoly in the
importation and trade in fertilizers.


The response to liberalization by the private sector was phenomenal. Kenya has now
quite a significant private sector based capacity to import, distribute and retail fertilizers.
Currently it is estimated that there are over 10 active importers of fertilizer, over 500
wholesalers and about 5,000 stockists/retailers of fertilizers throughout the country.
Industry sources indicate that over 70% of these players entered the scene after the
liberalization. Over the last few years the private sector has been handling to over 95% of
all fertilizer imports traded in the country with the remaining 5%1 coming through the



1
  This component is sold to private traders through an open tender system for distribution and sale to
farmers.

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government in form of grants from donors mainly under the Kennedy Round II (KRII)
programme financed by the government of Japan.


Four categories of fertilizer marketing arrangements can be discerned (fig 2). First are
private traders who import and sell directly to the players downstream (wholesalers,
stockists etc). Second are farmers’ organizations that are involved in interlocked2 market-
output arrangements. A good example under this category is the Kenya Tea Development
Agency (KTDA), which imports virtually all fertilizers for smallholder tea sector,
distributes for use and recovers the cost from tea proceeds. Third, are the large-scale
farming companies, mainly in the cash crop sectors e.g. tea, coffee and horticulture that
import their fertilizers directly.        Fourth, though diminishing in importance, is grant
fertilizer, procured through the government and subsequently sold to private traders for
on-ward distribution.


There is also a thriving trade-within-the-trade. Indeed, the flow of fertilizer is both
horizontal and vertical. For instance, some of the importer/distributors source their small
orders from companies within the country rather than do direct importation. Some of the
firms that do local reformulation also get some of their raw materials from the
importers/distributors.


A few non-governmental organizations (NGOs), mainly those in food security
programmes are also occasionally involved in buying of fertilizers on behalf of farmers’
groups. However, their participation in most instances lasts the period of the particular
project or programme and does not include any importation.


The deterioration of the railways transportation in the last decade had the effect of
diverting fertilizer cargo to the roads. Indeed, most traders interviewed indicated their
preference for road transport.



2
 Interlocking refers to an arrangement where inputs are advanced to farmers and recovered from proceeds
arising from sale of output. Works best where the supplying agency also controls marketing of the output.

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Figure 2: Organization of the fertilizer market in Kenya

                                Overseas suppliers

                                                                            25%
                                                 5%
5%


                                                       Donor agencies
                         70%                           through GOK




          Importers                                   Local manufacturers
            (≈10)                                     and formulators



         Distributors/
         Wholesalers
          (≈500)




           Stockists                                   Farmers organizations
           (≈5,000)                                    and NGOs e.g. KTDA




             Large-scale farmers                            Smallscale farmers



                Indicates overlap of functions


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While this has cut down on direct costs and haulage time for importers, the indirect costs
to the economy in terms of damage to roads could be enormous.

4.2 Stakeholders
The fertilizer sector in Kenya is important in many ways. It is a major spender of foreign
exchange (estimated at about Ksh 6 billion or USD 80m annually) and a major facilitator
of agricultural production. The fertilizer industry is also a major user of services (namely,
transport, banking, ports, ad warehouses). Numerous institutions and organizations, both
public and private, have therefore a stake or interest in the on-goings in the sector. Some
of the key stakeholders in include:
     o Ministry of Agriculture (MOA): In-charge of crop production, and therefore
         interested in matters affecting availability, access and use of fertilizers. Indeed
         the MOA has a farm inputs section that monitors among other things fertilizer
         trade and use parameters. Moreover, the ministry is responsible for agencies that
         are engaged in evaluation3, registration and monitoring of fertilizers
     o Ministry of trade and industry: Mainly interested in matters relating to the
         manufacture and trade in fertilizers. Kenya Bureau of Standards (KEBS), which
         formulates manufacture and trade standards also falls under this ministry
     o Ministry of finance: Mainly enforces tax measures and is also a major player in
         the administration of any fertilizer financing facility from various development
         partners. Also regulates facilitating institutions e.g. Banks and insurance
         companies. Moreover, the ministry is responsible for the macro-economic
         policies.
     o Ministry of transport and communication and its agencies: Responsible for ports,
         other points of entry and general transport regulations.
     o Individual farmers and their organizations: These are at the downstream of the
         chain and are mainly the end users of fertilizers. These are sensitive to the
         availability, quality and affordability of fertilizers in the market.




3
  Refers to the process of field trials to generate recommendations specific to crops, farming systems and
regions.

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    o Development partners: These include agencies, both bilateral and multi-lateral
        with interests in the promotion of agricultural development and trade in the
        country. These include bodies such as the World Bank, EU, USAID, and GTZ
    o Non-governmental organizations. These are mainly not-for profit organizations
        that operate food security programmes in the country e.g. Care international
    o Finance institutions: Involved in the financing of fertilizer trade. Also includes
        companies, both local and international, that underwrite business risks
    o Private Sector: These are players directly involved in various functions of
        fertilizers marketing. These functions include manufacturing/formulation,
        importation, distribution, transportation and retailing. This category is
        particularly sensitive to the stability of the macro-economic environment, the
        state of the infrastructure and fair enforcement of rules and regulations.

4.3 Fertilizer supply
Fertilizer supplied in Kenya arises from four main sources. These include commercial
imports, local manufacture, grant-aid imports and private imports.


The main sources of fertilizers imports into Kenya are Europe, South Africa, Egypt,
South Arabia and Qatar. Current estimates put fertilizer        imports at around 326,000
metric tonnes up from about 245,000 tonnes in early 1990s (Table 2 &Fig 1). Of these
about 230,000 are commercial imports. Between 70-80% of the commercial imports are
brought in by Norsk Hydro, one of the leading fertilizer firms in the world. The rest is
shared amongst other smaller players including Mea Ltd, Devji Meghji, Shah Kanji Lalji,
Metro plastics Ltd, United Millers, and Supper Expo Ltd.


Besides, the government of Kenya has occasionally been bringing in about 20,000 tonnes
of fertilizers under budget support financing arrangements. The Kenya Tea Development
Agency also imports directly close to 70,000 tonnes for use in the smallholder tea sector.


Kenya does not have a strong fertilizer-manufacturing base. Kel chemicals based in
Thika, has however been manufacturing small quantities of single super phosphates on


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one-off basis. Athi River Mining Company (ARM) – a company whose core business
interests are in the cement industry, has also recently commenced the manufacture of
limed NPK fertilizers. Both companies, with the support of the Kenya Maize
Development Program (KMDP)4 have also innovated packaging into small packs (1kg,
2kg, 5kg). This innovation is a response to consumption trends amongst the small-scale
farmers. Stockists indicate that fertilizer packaged in small packs is popular with small-
scale farmers and the popularity is attributed to the collapse of the co-operative input
schemes, reduced farm holdings and low purchasing power amongst farmers.


Local formulation of foliar and specialty fertilizers is also a growth industry. The growth
has especially been spurred by the expansion of the horticulture sector in the last decade.
The market leader in this category is Amiran (a local representative of Haifa chemicals of
Israel). Others, on a smaller scale, include Elgon chemicals, Bayer East Africa, Avechem,
Murphy, Orion and Farmchem.


The fertilizer sub-sector in Kenya is still reeling from policy uncertainty created in the
year 2003 by a government directive for the National Cereals and Produce Board
(NCPB)5 to enter fertilizer import business. The move, targeting some 40,000t of DAP,
was ostensibly to stabilise prices. The possibility of price subsidised NCPB fertilizer in
the market was a source of apprehension amongst the private sector importers (Daily
Nation, 9 March 2004). NCPB has this year called for tender for supply of fertilizers
implying that, at least in the short term, it will be a player in this business.


4.4 Fertilizer demand and consumption
Overall fertilizer demand and consumption are largely a function of adoption rates
amongst farmers, availability, and accessibility.




4
  Kenya Maize Development Programme is a USAID funded program aimed at increasing rural household
incomes through interventions along the maize value chain to improve efficiency in production and
marketing
5
  NCBP is a parastatal that has traditionally been involved in the marketing of cereals

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A recent study (Wanzala et al) revealed a general widespread use of fertilizers across the
agro-ecological zones. Over 70% of farmers were found to use mineral fertilizers with
highest adoption reported in the high-potential maize zones, the western and the central
highlands. Use of fertilizer was also high in the western transitional and eastern lowlands.


Overall national fertilizers consumption has increased steadily. According to MOA
statistics, between 1993 and 2003 fertilizer consumption grew by 45% from about
230,000 tonnes to about 335,00 tonnes respectively (Table2 &Fig 2). From table 1, it is
also clear that in 7 out the 10 years tabulated fertilizer consumption exceeded imports.
While stocks carried over from the previous years may partly explain the consumption –
import gap, unrecorded cross-border trade between Kenya and Tanzania (with net inflows
into Kenya) is also suspected to be a contributory factor.




YEAR                       Imports              Consumption                    Annual Gap
1993                        258.2                      232.9                          25.3

1994                        309.7                       286.5                            23.2
1995                         276.7                      281.2                         (4.5)
1996                        271.7                       295.6                        (23.9)
1997                         303.7                      254.0                          49.7
1998                         199.0                      255.0                        (56.0)
1999                         210.9                      265.0                        (54.1)
2000                         345.9                      358.6                        (12.7)
2001                         351.0                      337.4                          13.6
2002                         325.8                      328.9                         (3.1)
2003                         312.3                      335.0                        (22.7)
Source: MOA




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Table 1: Overall fertilizer imports and consumption in Kenya (‘000 mt)



                      Fig 3: Fertilizer imports and consumption in Kenya (1992-2002)
                                     400
                                     350
            Meric Tonnes ('000 Mt)



                                     300
                                                                                         Consumption
                                     250
                                                                                         Imports
                                     200
                                     150
                                     100
                                      50
                                       0
                                         93

                                         94

                                         95

                                         96

                                         97

                                         98

                                         99

                                         00

                                         01

                                         02

                                         03
                                      19

                                      19

                                      19

                                      19

                                      19

                                      19

                                      19

                                      20

                                      20

                                      20

                                      20
                                                         Year




Table 2: Estimated average annual of main fertilizers consumption (1998 to 2002)

Crop/fertilizer type                       Amount (Mt)               % Share

DAP                                        90,963                    28.2
MAP                                        19,465                     6.0
25:5:5s                                    64,745                    20.0
NPK(23:23:0)                               17,536                     5.4
CAN                                        46,816                    14.5
UREA                                       25,369                     7.9
Speciality                                 13,918                     4.3
Others                                     44,187                    13.7

All fertilizers                            322,532                   100

Source: MOA and Author computation


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Growth in uptake of fertilizers by sector in the post-liberalization period has been
reported in tea, wheat and horticultural sub-sectors, with a decline in the maize and coffee
sub-sectors (Wanzala et al, 2003, Karanja, 2002).


In terms of average annual consumption of individual fertilizer types between 1998 and
2003, DAP – a fertilizer primarily used for planting commands the highest share at nearly
28% followed by 25:5:5+5s used in tea at 20% and CAN at 15% (Table 2). Past studies
have also indicated that on average smallscale farmers use 35-40% of the fertilizers, with
the rest being used by mainly the large estates in the cashcrop sub-sectors.(Allgood
&Kilungu, 1996)


Kenya has a huge potential for fertlizer use. In 1995, the Worldbank estimated the
potential consumption at about 1,041,000 metric tonnes. This estimate assumed that
commercial crops (wheat, sugarcane, coffee and tea) were fertilized at 100% and the
subsistence crops at 50% of the recommended fertilizer rates. Using this estimate and
with an average fertilizer consumption of about 323,000 metric tonnes (Table 2), it is
instructive that only 31% of the consumption potential has been realised.


4.5 Fertilizer pricing
The local retail price of fertilizers is determined by world prices, exchange rate and
internal transaction costs. International prices of fertilizer have been very volatile and on
the upsurge (IFA, 2003). This has been mainly attributed to the volatility in the price of
natural gas6 in the world market from USD 2.0/MMBtu in early 1990s to nearly USD
10/MMBtu in 2003. International prices for DAP have for instance have increased by
over 50% between November of 2002 and October 2004 (Fig 4)




6
 Natural gas is used as a feedstock in the production of anhydrous ammonia, which is the starting point for
production of fertilizers containing Nitrogen

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Fig4: Trend in DAP Price (FOB US Gulf)

                250
                                                                                                                                                    235
                                                                                                                   220            225

                200                                    192
                                                                      173               170
    FOB Price




                150            152



                100


                50


                 0
                      Nov-02




                                                                      Jul-03




                                                                                        Nov-03




                                                                                                                                  Jul-04
                                     Jan-03




                                                             May-03




                                                                               Sep-03




                                                                                                 Jan-04




                                                                                                                         May-04




                                                                                                                                           Sep-04
                                              Mar-03




                                                                                                          Mar-04
                                                                                   Period

Source: Fertilizer Market Review


Locally, a study by Wanzala in 2001 indicated increases in nominal fertilizer prices
during the post-liberalization period (1992 on –wards). However, in real terms, prices of
most fertilizers declined. Besides the upsurge in the world prices, the increase in nominal
terms is attributed to the depreciation of the Kenya shilling against the US dollar. Indeed
in the last one year the shilling has depreciated by 8% from about Ksh 75 to Ksh 81


The rise in nominal prices does not imply unfavourable returns to use of fertilizers in
farming. Past studies have reported profitable returns to land and labour in maize farming
so long as fertilizer application is complimented by use of high yielding varieties and
good crop husbandry (Karanja et al., 1998; Nyambane, 2001; Awour, 2001).




To appreciate the impact of internal transactions costs at various points, the cost build-up
for DAP, one of the most used fertilizer in Kenya is computed (Table 2). Internal



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transaction costs include expenses related to stevedoring, port handling, bagging,
clearing, and transportation to warehouses and to customers up-country.


Most of the fertilizer is imported in bulk (in un-bagged sand form) through the port of
Mombasa. Importers indicated that this is more cost effective because of the local
availability of cheaper labour compared to the costs of mechanical bagging in Europe.
However, occasionally there are small bagged imports of small orders (less than 5,000
tonnes) from nearby regions e.g. Middle East (UREA); South Africa (NPK, DAP, TSP
etc)




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Table 3: Cost build-up for DAP fertilizer from Port of import to selected locations
in Kenya
                                         Thika    Nakuru Kitale        Kisumu Meru/Nyeri
FOB US Gulf (June 2004)                     225.00 225.00 225.00 225.00             225.00
Freight Charges                              60.00 60.00        60.00    60.00       60.00
Insurance(1%)                                2.85      2.85      2.85      2.85       2.85

CIF-Mombasa                              287.85 287.85      287.85     287.85    287.85
IDF Levy (2.75% of CIF)                   7.92    7.92        7.92       7.92      7.92
Letter of Credit (2%)                     5.76    5.76        5.76       5.76      5.76
KEBS Levy(0.2%)                           0.58    0.58        0.58       0.58      0.58
Stevedoring                               8.00    8.00        8.00       8.00      8.00
Bagging                                   6.00    6.00        6.00       6.00      6.00
Storage & handling at Port                11.51 11.51        11.51      11.51     11.51
Losses (Pilferage+spillage)               8.64    8.64        8.64       8.64      8.64



Total transaction costs                   48.40    48.40     48.40     48.40      48.40
             As a % CIF                   16.81    16.81     16.81     16.81      16.81
          As a % retail price             12.49    12.10     11.39     11.39      12.10

FOT, ex port                             336.25 336.25      336.25     336.25    336.25
Transport to Nairobi                      30.00 30.00        30.00      30.00     30.00
Wholesale Nairobi                        375.00 375.00      375.00     375.00    375.00
Net margin for importer/wholesaler        8.75    8.75        8.75       8.75      8.75
             As % of CIF                   3.04   3.04        3.04       3.04      3.04
         As a % retail price               2.26   2.19        2.06       2.06      2.19
Transport to Countryside locations            -  20.00       20.00      25.00     20.00

Retail price                             387.50 400.00      425.00     425.00    400.00

Retailer's Margin                         12.50     5.00     30.00     25.00       5.00

Source: Author’s computation


In April, 2004 prices had soared to over USD 500 per tonne due to local shortages.
Current have over the last few months stabilized at between USD 380 and USD 425 per
tonne in most. Despite relatively low transportation on per distance basis, high demand
for fertilizer in Kitale makes it one of the more expensive location. The high price in
Kisumu however attributed attributed to relatively higher transportation costs due to
lower volumes moved.


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Smallscale farmers however are however paying as much a Ksh 40 per kg, after the
fertilizer is debagged and repackaged at retail level. This translates to about USD 500 per
tonne, about 17% higher than the most expensively priced importer-bagged DAP
fertilizer.


Total internal transaction costs range from about USD 78 to USD 103 per tonne. Most of
these costs are beyond the direct control of the industry players. However, most importers
are particularly concerned about costs relating to inefficiencies at the port, especially
spillage and pilferage, estimated at 3%. One item that contributes significantly to the
transaction cost is inland transportation, which account for 45-60% of the total internal
transaction costs. A 50% reduction in transport cost will for instance lead to reduction in
retail price by about 10-15%, assuming the benefits of the reduction will be passed on to
the consumers.


Some of the traders are also involved in the fertilizer re-export to Tanzania, Uganda and
Rwanda. The traders indicated incurring additional costs of up 4% (about USD 7) of CIF
(Mombasa) arising from documentation and re-inspection.


5.0 Policies affecting fertilizer sub sector
Macro policies
Fertilizer trade is highly dependent on a stable macro-economic environment. This
implies that key macro prices (exchange rate, interest rate) must be predicable for smooth
operations of this sub-sector.


Since 1993, Kenya has maintained a liberalized foreign exchange regime. The policy
shift resulted in the convergence of what were then the official and the parallel market
exchange rates, effectively removing any implicit taxation on imports.          Moreover,
importers could henceforth process their orders without recourse to the Central Bank for
approvals.



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Sector Policies
At the sectoral level several policy measures have been undertaken. These include:
    o The liberalization of fertilizer sub-sector in 1993 to encourage the participation of
         the private sector in the importation, distribution and retailing of fertilizers and
         other inputs. This entailed cessation of price controls and abolition of import
         licensing and quotas.
    o Exemption of customs duty7 and value added tax (VAT) for fertilizers imported
         and traded in the country. This policy has been maintained since 1994, ostensibly
         to affect prices and promote use of fertilizers, improve agricultural productivity
         and ultimately enhance incomes and food security. Facilitative services e.g.
         transportation, are however still liable to VAT currently pegged at 16%.


The residue role of the government was to facilitate the growth of the sector through the
provision of an enabling and stable macro-economic environment8, maintenance of an
efficient transport and communication infrastructure and enforcement of standards and
regulations. However, the government occasionally brings in small quantities of
fertilizers (currently estimated at 5%) through donor-funded budget support programmes.


6.0 Legislation
The fertilizer sub-sector in Kenya is not regulated under one comprehensive/specific
legislation. Instead responsibilities for various aspects relating to fertilizer manufacture,
marketing and trade are vested in several statutes. These pieces of legislation include:




         1) The fertilizers and Animal Foodstuffs Act (Cap 345 of the Laws of
              Kenya)

7
  Duty is zero rated on the agricultural inputs under the Common External Tarrif rules that came into effect
in January 2005
8
  It is not yet clear whether the recent entry of NCPB in the importation of fertilizers is a policy reversal on
the part of the government or is a temporary response to some market exigencies

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               This Act came into force in 1967 with the objective of
                ”regulating the importation, manufacture and sale of agricultural
               fertilizers and animal food stuffs and substances of animal origin intended
               for the manufacture of such fertilizers and food stuffs, and to provide for
               matters incidental to and connected with the foregoing”

           Besides the Act, several detailed rules (subsidiary legislation) have been
           prescribed and published as legal notices. The rules that are relevant to fertilizers
           include:
               i)       Approved fertilizers rules: Gives a schedule of approved fertilizers and
                        their implied definitions
               ii)      Packaging of approved fertilizers rules: Gives guidelines on the
                        packing, branding and labelling, including disclosure of weight, the
                        minimum percentage of chemical contents.
               iii)     Sampling rules: Gives elaborate guidelines on the sampling
                        methodology for purposes of further analytical work.
               iv)      Analysis rules: Guides on the analysis and reporting protocols for
                        fertilizers and animal feedstuffs.
               v)       Declaration and Warranty rules: Prescribes in detail information that
                        shall be contained in written declaration and warranty that every
                        vendor of any approved fertilizer shall provide a purchaser with in
                        respect of any sale involving 500kg or more of any approved fertilizer
               vi)      Records and Returns Rules: Makes it mandatory for all fertilizer
                        vendors to keep records in respect of every transaction they make in
                        fertilizers
       2) Weights and measures Act (Cap 513)
            This is a general legislation on all products produced and traded in Kenya. The
            law falls under the primary jurisdiction of the ministry of trade and industry and
            safeguards consumers against under-weighting of packaged products including
            fertilizers. Due inadequate personnel, non-prioritisation, and poor co-ordination
            this legislation has however not been sufficiently enforced9.


9
    Players in the industry complain of increased incidences of repackaging, under-weighting and adulteration

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    3) The standards Act (Cap 496)
         This law is administered by the Kenya Bureau of Standards (KEBS) and relates
         to specification for various grades of fertilizers manufactured and traded in
         Kenya. It sets procedures for testing, issuance of certification and standard marks
         for fertilizers in the country. It is under the standards Act for instance that the
         chemical industry committee, which oversees fertilizer standards committee, is
         constituted.


    4) The Finance Act.
         This law contains taxation measures that are effective in any given financial year
         and once enacted affects various levies, taxes and tariffs applicable to imports and
         trade under various other legislations e.g. the Customs and Excise Act.


The fertilizers and Animal Foodstuffs Act (Cap 345 of the Laws of Kenya), the law that
currently has direct reference to fertilizers is outdated and inadequate for regulation of the
sector


Enacted in 1963 and revised in 1977, the Act vests authority on fertilizers in the office of
Director of Veterinary Services. Moreover, the Act was enacted with a bias towards
public health issues than a desire to promote and regulate trade in and use of fertilizers


A previous initiative by industry stakeholders to have the Act repealed and a
comprehensive legislation on fertilizers put in place stalled after draft legislation had
already been prepared and forwarded to the Ministry of Agriculture for processing.


Currently the MOA is in the processes of reviewing all laws regulating the agriculture
sector and it is an opportune time for the industry stakeholders to lobby for a
comprehensive legislation that will among others


    •    Consolidate all fertilizer regulatory functions

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    •      Bring under regulation all types of fertilizers
    •      Provide for proper monitoring of fertilize along the marketing chain
    •      Vest enforcement authority in a more appropriate body e.g. Kephis


7.0 Factors influencing fertilizer Development
Several factors influence the development of the fertilizer sector in Kenya. Some of these
include:
   o Growth of the agricultural sector: Demand for fertilizer is what would be referred
        to as derived demand. This implies that the decision on what types or quantities of
        fertilizers to use is dependent on the performance of various crops sub-sectors.
        For instance demand for specialties hinges highly on the performance of the
        horticultural sector, while that of say 25:5:5+5s is influenced by the performance
        of the tea sub-sector. The poor performance of some sectors e.g. coffee, over the
        last 5 years has particularly adversely affected the growth of types of fertilizers
        use.
   o Research and extension support: The vibrancy of research and extension services
        is also considered a critical factor in the support of the fertilizer sub sector.
        Industry players interviewed believe that the underperformance of the extension
        services in the last decade has not only constrained the growth in the use of
        fertilizers but also in contributed in their misuse.
   o Credit support amongst farmers: Agriculture in Kenya is predominantly small
        scale.    Due to the collapse of agricultural credit schemes previously run by
        government agencies (e.g. AFC) and farmer organizations (mainly the co-ops),
        most of the farmers cannot access fertilizers, amongst other inputs.
   o Weather: Agriculture in Kenya is predominantly rain-fed. Consequently, most
        demand for fertilizers is influenced by the weather patterns and yield expectations
        amongst farmers.
   o Infrastructure: Efficient port and transport is essential for the development of the
        sub sector. Besides the direct cost, industry players complain of delays in clearing
        fertilizer consignments at the port of Mombasa. Indeed past studies have reported,
        delays and resultant demurrage charges due to temporarily unavailability of

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         stevedoring crews at the port (Jayne T S et al, 2003). Sometimes the berths at the
         port are inoperable due to non-repair of key equipment (Beig, 2001). At
         transportation stage, contrary to expectations, that for bulky commodities like
         fertilizer, railway transport would be cheaper than road transport, charges from
         Mombasa to Nairobi are the same on both the railway and by road at about USD
         20 (1600) per tonne10. However importers complain of unavailability of wagons
         and the lengthy haul-time by railway (3-4 days) compared to only 24 hours by
         road.
     o Financing: Cost-effective fertilizers trade is invariably achieved on high-volumes
         and therefore requires heavy capital outlay. Stock movement in the chain is
         season dependent and therefore calls for order-placing that is highly time bound.
         Moreover, traders involved in the export trade, face cross-country risks emanating
         particularly from exchange rate volatility and changing political environments.
         Trade in fertilizers therefore requires strong working capital and risk underwriting
         support.


         Currently the fertilizer trade is sufficiently supported by local banks and insurance
         companies. Moreover the liberalization of the foreign exchange markets has eased
         the availability of hard currency. However, importers sill consider the financing
         costs, currently estimated at a minimum of 5% of the CIF high.


         The entry of Africa Trade Insurance Agency (ATIA) under the framework of the
         common market for Eastern and Central Africa (COMESA) is considered a timely
         initiative for cross-country trade risk underwriting.


8.0 Grades, standards and quality control
8.1 Grades
Due to relatively diversified crop agriculture, virtually all grades of fertilizers are found
in Kenya. There are two broad grades of fertilizers imported into the country, field grade

10
  There are externalities arising out of use of roads in transport of fertilizer that impose a cost on the
general economy

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and technical grades. The technical grades are normally used for the formulation of
specialty 11 fertilizers and foliar feeds


Technical fertilizer grades are usually non-pelletised and highly soluble. Examples
include MKP and MAP. A majority of the field grade fertilizers, on the other hand, are
sold directly to farmers. Various types of field grade fertilizers are available in the
Kenyan market

Table 5: Types of fertilizers available in the Kenya market
Type                           Description                 Examples
Compounds                      More than one major NPK, 20:10:10, 20:20:0,
                               nutrient,                   23:23:0, 17:17:17, 25:5:5s
                               Main nutrient-not less than etc
                               40% , Pelletized

Straight                           One major nutrient                 Potassium        Sulphite,
                                   Main nutrient-as specified         Potassium Nitrate, DAP,
                                   Pelletized or liquid               Urea, CAN, ASN, MAP etc

Foliar                             Micro-nutrients                    Farmphoska,     Bayfolan,
                                   Main nutrient –above 10%           Borax, Omex, Murphy et
                                   Mainly liquid

Soil conditioners                  Dust form                          Dolomite, Gypsum, Lime
                                   Soil ph correcting



8.2 Standards:
The Kenya Bureau of Standards (KEBS) is the sole body empowered under the Standards
Act (Cap 496) to formulate standards for various items in Kenya. Currently there are 11
standards for various types of fertilizers (mainly field grade), Annex 4


Each of the standard specifies the following requirements:
Physical condition: Describes how the fertilizer should feel and look. DAP for example
should be free flowing, granular and free from any organic matter.


11
  Speciality fertilizers are also called hydroponics, are highly soluble and are mainly used in
fertigation systems in horticulture.

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Chemical content: Specifies minimum for main nutrients (e.g. nitrogen and available
phosphates).


Heavy metal contamination: Environmental aspects associated with fertilizers are
addressed with specific limits for heavy metals (eg, mercury and lead).


Particle size: The % of and dimensions of the particle sizes is given.
Packaging: Specifies that fertilizer shall be packaged in suitable materials in capacities of
100kg, 100kg, 50kg, 25kg, 10kg, 5kg and 2kg


Markings: Prescribes that markings on packaged fertilizer shall include: Name and
address of manufacturer/packer, name of the fertilizer, Guaranteed percentages of main
nutrient elements, net weight of the material in the package, handling instructions


Moreover, the standards prescribe that a certificate of analysis must accompany each
consignment. Guidelines on sampling and analytical methods are also given.


So far, there are no Kenya standards for specialty and foliar fertilizers formulations.
These products are usually formulated to meet highly specific needs of customers and are
adjudged by the specifications on the labels.


8.3 Quality control
Before a consignment of fertilizer is imported into the country, international inspection
firms e.g. Cotecna etc. - contracted by the government, undertake verification processes
in the country of origin. Besides ascertaining the value of import, these firms have to
ensure that the consignments meet specifications and Kenya standards.


Internally the Kenya Bureau of Standards (KEBS), under the ministry of trade and
industry has the overall responsibility over fertilizers standards. However, evaluation for
suitability in various crops and regions, registration and monitoring of the quality of
fertilizers in the market are the responsibilities of the Ministry of Agriculture. The

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ministry of Agriculture has in turn delegated some of the responsibilities to research
institutions and other agencies. For instance, before fertilizers are registered for use in
any crop they must be subjected to suitability research trials for a minimum of 3 years.
The results of these trials are also useful in formulating use recommendations for farmers.
Research institutions carrying out this role include Coffee Research Foundation (coffee),
Tea Research Foundation (Tea), Sugar Research Foundation (Sugarcane), Kenya
Agricultural Research Institute (All other crops).


The Kenya Plant Health Inspection Services (KEPHIS), a recently constituted agency
under the ministry of agriculture is responsible for monitoring and inspection of
fertilizers in the market. This has the impact of reducing mislabeling and adulteration.
The capacity of KEPHIS to undertake these functions is however constrained by unclear
laws and limited resources.


Stakeholders interviewed raised several concerns relating to standards
    o Kephis was particularly concerned about the inadequacy of the current legal
        framework; further compounded by lack of coordination amongst the various
        agencies
    o Kephis was also concerned about the proliferation of non-traditional type of
        fertilizers e.g. foliar feeds, and biologicals whose quality and suitability cannot
        be ascertained and are not covered by the existing standards and legislation
    o Importers were concerned by costs relating to re-inspection of fertilizer
        consignment destined for the Eastern Africa region
    o Local formulators expressed concerns over the lengthy and repetitive evaluation
        and registration processes for new products. They would prefer a situation where
        automatic registration is granted is a formulation has undergone the due process
        in any of the country in the region.
    o Virtually all stakeholders in the sector were concerned about the escalation of
        cases of counterfeiting and adulteration. This takes may forms including mixing
        fertilizers with non-fertilizer materials, labeling non-fertilizer material as



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            fertilizer, mixing cheaper fertilizers with the more expensive one and presenting
            and selling cheaper as the more expensive one.




9.0 Stakeholders involvement
Up to 1993, a virtue public sector monopoly in the fertilizer industry obtained in Kenya.
The few private sector players were therefore crowded out by the public sector. Their
involvement in the various aspects of the sector was therefore non-existent.


After, liberalization in 1992, the entry of many more players into the industry brought
with it issues that needed common strategy. For instance the industry players were fearful
that the government would renege on the liberalisation process.


Towards ensuring more effective engagement with the government, an importers forum,
the National Fertilizer Association (NFA) was formed with a corporate membership of
15,12. NFA was instrumental in high-level private sector -government consultations in
the first two years of its existence.


Though still registered, NFA is not active and during the interviews industry players
expressed the desire to reactivate the association under an expanded mandate and
membership. Some members felt that it should go regional, in the spirit of existing trade
co-operation protocols. It is also possible that such an association can provide a self-
regulating framework for the fertilizer sub-sector. Moreover, engage governments on
policy and technical issues


Besides, engaging government at policy level, stakeholders have also been involved in
the Kenya Bureau of standards technical committee that revised of the 9 of the 11


12
     Norsk Hydro, the biggest importer is not a member

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fertilizer standards13. Shakeholders participating in this committee included University of
Nairiobi (Crop Science departmet), Kenya Agriculural Research Institute, Consumer
Information Network, Mea Limited, Kel limited, Kenya Farmers Assocaition, Chemagro
Limited, Kenya Revenue Authority, Kenya Tea Development Authority, and Ministry of
Agriculture.


10.0 Challenges
The growth of the private sector-led fertilizer sub-sector, coupled by the dynamics of
regionalization of trade within the eastern and central Africa region brings with it several
policy challenges.
     o The emergence of a near monopoly situation in the importation of fertilizers
        despite an apparently successful liberalization of the fertilizer sub-sector
     o The lack of capacity to monitor and enforce standards, and regulations in the
        marketing and trade in fertilizers.
     o The high internal marketing and transaction costs especially those attributable to
        transportation and handling
     o The overall poor performance of the crop sub-sectors in particular and hence the
        need for complimenting fertilizer sub-sector policies with policies that enhance
        out-put markets.
     o Inadequate research and extension support especially to small scale farmers
        leading to low usage and misuse of fertilizers
     o Lack of institutionalised engagement of the private sector more on fertilizer
        matters
     o Low purchasing power and lack of credit support amongst small-scale farmers
     o Lengthy and repetitive registration processes for new fertilizer formulations.
     o High cross-border fertilizer trade risks


11.0 National issues



13
  A Kenya Bureau of Standards technical committee on revision of test methods started convening in
September, 2004

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The following interventions are proposed in order to improve efficiency of the fertilizer
sub sector within the country.
   o Put measures to co-ordinate port clearing with inland transportation, streamline
       documentation and handling operations, eliminate spillage and pilferage.
   o Re-assess levies charged at the port as they are ultimately passed on to the end
       users, the farmers.
   o Increased investment in transportation infrastructure especially the railway
       system. This will help in reducing haulage time and cut on costs.
   o Speed up the review, consolidation and enforcement vesting of laws governing
       the fertilizer sub-sector
   o Formulation of more comprehensive standards
   o Revitalization of the National Fertilizer Association. This will enhance dialogue
       between stakeholders and the government as well as providing the platform for
       self regulation
   o Explore mechanisms for bulk purchase of fertilizer by farmers to reduce on
       overheads and prices e.g. through farmers groups.
   o Reinvigorate crop extension services to enhance proper use of fertilizers
       regulation.


12.0 Regional issues
In order to enhance regional trade in fertilizers the following issues need to be looked at
    o Eliminate re-inspection requirements for fertilizers exports from country within
        the region
    o Implement a common evaluation and registration policy, such that if a fertilizer
        formulation has been evaluated for suitability and registered in any one country
        for a particular crop, the certificate issued should be valid throughout the region.
    o Adoption of common tax policies on fertilizers in the region to enhance usage
        and ease trade.
    o Formulation of common fertilizer standards for the region and a shared
        enforcement policy



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    o Creation of a private-public sector regional forum for exchange of information on
          fertilizer issues and spearhead consultation with the governments.


13.0 Summary and Conclusion
The development of the fertilizer sector in Kenya is a clear demonstration of what private
sector resources can achieve if harnessed and promoted. It also demonstrates how the
impact can be constrained by inefficient facilitative services leading to high transaction
costs and prices.


There is need to remove those constraints that reduce competitiveness, and opportunities
at the domestic front. Moreover, facilitate the sub-sector players to exploit the wider
regional market.


Besides, recent developments in the sub-sector, and the resultant price distortions, call for
more consistency, predictability and clarity in government policy.




The regional perspective of fertilizer trade also calls for harmonization of policy and
rules governing trade in fertilizers.


Besides, stakeholder networks and associations will also be required to take the centre
stage in handling national and regional issues on fertilizers. Moreover, harmonization of
fertilizer policies and regulations among the countries of the region will also help
establish a common regional market viable enough to attract more investment in the sub-
sector.




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14.0 References
1. Allgood J.H. and Kilungu J (1996). An appraisal of the fertilizer market in Kenya and
   recommendations for improving fertilizer use practices by smallholder farmers.
   USAID, Nairobi, Kenya
2. Awour, T 2001. Competitiveness of Maize from Eastern Uganda and Western Kenya
   in Kisumu Town of Kenya. MSc Thesis, Michigan State University.
3. Daily Nation, 9 March 2004: Ministry in Sh 3 billion fertilizer wrangle
4. Dembele (1996): Implications for market reform for fertilizer technology and
   implementation
5. Nyoro J K et al. (2002) A framework for analyzing fertilizer development strategies:
   Implications for policy analysis in Eastern and Central Africa
6. Maria Wanzala et all (2001): Fertilizer marketing and agricultural Production
   Incentives: Insights from Kenya
7. IFDC (2001). An assessment of Fertilizer Prices in Kenya and Uganda. Domestic vs.
   international prices
8. Jayne T. S. et al, (2001): Fertilizer Sub-sector Development: A comparative Analysis
   of Ethiopia, Kenya and Zambia – Forthcoming in Food Policy 2003
9. Beig F (2002): Logistical planning for procurement and distribution of fertilizer:
   Africa Center for Fertilizer Dev
10. Govereh J et al (2002): Development in fertilizer marketing in Zambia WP: Food
   security project
11. Karanja, D., T.S. Jayne & P. Stasberg (1999). Determinants of input use and maize
   productivity in Kenya: Implications of Cereal Market Reform. In Kenya Agricultural
   Monitoring and Policy Analysis, Conference Proceedings ed. T.S. Jayne, W. Nguyo
   and    J.   Keel   Nairobi:    Tegemeo     Institute   of   Agricultural   Policy    and
   Development/Egerton University.
12. Kenya Bureau of Standards (2002): Kenya Standards Catalogue
13. KARI (1998). Soil fertility research priorities in Kenya. KARI-Soil Fertility and Plant
   Nutrition Programme, KARI, Nairobi



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14. KARI    (1994).   Fertilizer   use   recommendations   Vol   1-22.   Fertilizer   Use
   recommendations, Nairobi, Kenya
15. NFIA (2001): Report on NFIA on the performance of Ethiopia’s fertilizer sub sector
16. IFDC/IDEA/SC2000: An action plan for developing agricultural inputs markets in
   Uganda
17. Omamo S.W, 2002: Fertilizer Trade under market liberalization: Evidence from
   Kenya:
18. Omamo S.W 2002: Fertilizer Trade and Pricing in Uganda
19. Stepanek J, 1999: Lessons from Ethiopia’s High input Technology Promotion
   Program.
20. World Bank (1995). Kenya: A strategy for agricultural growth. The World Bank,
   Washington DC.




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15.0 Annexes

Annex 1: Kenya fertilizer imports - Quantity (Mt)-3 main categories
                  NITROGENOUS                    PHOSPHATE                POTASH
YEAR
                       FERTILIZER                 FERTILIZER           FERTILIZER
1991                         52,400                     54,100               6,200
1992                         47,800                     45,800               8,300
1993                         42,100                     52,100               5,800
1994                         52,000                     71,000               8,000
1995                         33,000                     40,000               5,400
1996                         63,000                     75,800              22,000
1997                         51,000                     69,400              14,000
1998                         53,000                     57,100              17,000
1999                         55,200                     84,900               9,000
2000                         71,213                     76,259               5,405
2001                         75,938                     62,106               7,274
MEAN                         54,241                     62,597               9,853
Source: FAOSTAT

Annex 2: Fertilizer consumption in Kenya (Mt )- 3 main categories
                    NITROGENOUS                PHOSPHATE                  POTASH
YEAR
                      FERTILIZERS              FERTILIZER              FERTLIZER
1991                          52,400                   54,100                6,200
1992                          47,800                   45,800                8,300
1993                          42,100                   52,100                5,800
1994                          50,800                   71,000                8,000
1995                          33,000                   40,000                5,400
1996                          63,000                   75,800               22,000
1997                          51,000                   69,400               14,000
1998                          53,000                   57,100               17,000
1999                          54,200                   84,900                9,000
2000                          69,911                   71,245                4,549
2001                          75,295                   61,562                7,785
MEAN                          53,864                   62,092                9,821
Source: FAOSTAT




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Annex 3: Distribution of soil nutrient deficiencies in Kenya
District/Region                               Deficient Nutrients
Uashin Gishu, Keiyo Marakwet, Nyeri,          Nitrogen, Phosphorous, Calcium and
Embu                                          Magnessim

Kisii, Nandi, Kericho, Nakuru, Nyandarua,     Phosphorous
Narok, Kiambu

Shores of Lake Victoria, Coastal Strip,       Nitrogen, Sulphur
parts of Siaya, Bungoma and Machakos

KerUgoya, Embu                                Nitrogen, Phosphorous and Potassium

All the other parts of the country            Nitrogen and phosphorous


Source: KARI, 1994


Annex 4: Kenya Fertlizer Standards
                                                                        Year of
Standard                             Description                    formulation /last
                                                                        revision
KS 03-157         Specification for MAP and DAP fertilizers;              1998
                  Prescribes the requirements and test methods
                  for MAP and DAP

KS 46             Specification for granulated super-phosphate            2000
                  fertilizers; Specifies requirements, sampling
                  and       test  methods      for    granulated
                  superphosphate fertilizers

KS 47             Specification for Calcium Ammonium Nitrate              1999
                  fertilizer
                  Specifies requirements and test methods for
                  CAN

KS 51             Specification for Ammonium Sulphate Nitrate             1999
                  (ASN)
                  Specifies requirements, sampling and test
                  methods for ASN

KS 158            Specification for solid compound fertilizers            1999
                  Specifies the requirements, methods of
                  sampling and test for compound fertilizers


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KS 287         Specification    for   ammonium         sulphate          1999
               (Sulphate of ammonia) fertilizer grade.
               Prescribes the requirements and test methods
               for ammonium sulphate, fertilizer grade

KS 288         Specification for urea fertilizer; Prescribes the         1999
               requirements and methods of sampling and test
               for Urea, fertilizer grade

KS 350         Specification for Potassium Chloride (Muriate             1999
               of Potash). Fertilizer grade; Prescribes the
               requirements and test methods for MOP
               fertilizer grade


KS 351         Specification for Potassium Sulphate (Sulphate            1999
               of Potash) fertilizer grade.
               Prescribes requirements and test methods for
               Sulphate of Potash fertilizer grade

KS ISO 7851    Fertilizers    and     soil   conditioners      –         1983
               Classification
               Establishes classification system for fertilizers
               and soil conditioners

KS ISO 8157    Fertilizers and Soil conditioners – Vocabulary            1984
               Defines terms in English and French relationg
               to fertilizer and soil conditioners

Source: Kenya Bureau of Standards




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Annex 5: Geographical map of Kenya




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ANNEX 6: Proposed issues for rationalization and harmonization

ISSUES FOR RATIONALIZATION
GENERIC           SPECIFIC                         DESCRIPTION                  HOW & WHY                     BENEFITS
LEGAL &           -Repeal CAP 345 –                -A previous initiative to    -Lobby the Ministry of        -Consolidation      of
INSTITUTIONAL     Fertilizer & Foodstuffs Act      repeal the Act stalled       Agriculture for fast
                                                                                                              fertilizer regulation
FRAMEWORK         -Enact a comprehensive           MOA currently                tracking of the fertilizer
                  fertilizer industry law          reviewing all agriculture    legislation                   -Appropriate
                                                   related laws                                               vesting of powers
REPRESENTATION         -Revitalize the National    An importers forum, the      -Expand Membership            -Improved self
IN POLICY              Fertilizer Association      National Fertilizer          -Create a secretariat         regulation
PROCESSES                                          Association (NFA)            -Draw a code of conduct       -Framework for
                                                   formed in 1996 but                                         public-private
                                                   currently inactive                                         engagement

DOCUMENTATION          -Reduce clearance           -Clearance process at        -Lobby for fast tracking of   -Reduced storage
& CLEARANCE AT         documentation at Port       port lengthy and             reforms at the port of        charges at port
THE PORT               -Avail documents            bureaucratic                 Mombassa
                       electronically              -Port reforms underway



LEVIES/CHARGES         -Reduce port handling       -IDF, KEBS, VAT,             Consolidate some of the       -Lower handling
AT PORT OF             charges                     STEVEDORING,                 charges at the port           costs
MOMBASA                                            STORAGE,                                                   -Lower retail prices
                                                   HANDLING, etc
                                                   (Account for
                                                   approximately 17% of
                                                   CIF)




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ISSUES FOR HARMONIZATION
GENERIC          SPECIFIC                             DESCRIPTION                    HOW & WHY                     BENEFITS
FERTILIZER       -Adopt common                        -Different evaluation          -Through EAC/COMESA           -Lower market
EVALUATION &     evaluation/test methodologies        methodologies &                Frameworks                    entry costs
REGISTRATION     -Regional recognition of             registration policies                                        -Faster access by
POLICIES         registration issued in any of        -Requirement for re-                                         farmers to new
                 the countries                        registration in each country                                 fertilizer products

TAXATION             -Adopt common tax rates on       -Different VAT rates           -Lobby for EAC secretariat    -Improved market
                     fertilizers                      applicable in the region       for a common VAT rate         access to the
                                                      -Customs duty zero rated       and full implementation of    regional market
                                                      under the Custom union         CET regulations on            -Reduced tax
                                                      regulations                    fertilizers                   induced price
                                                                                                                   distortions



STANDARDS &          -Adopt international standards   -Varies across country and     -Through the EAC              -Improves access to
GRADES               fertilizer standards for the     fertilizer types               COMESA frameworks             regional market
                     region                           -Non-existent in some
                                                      countries and for some
                                                      products
REGIONAL PUBLIC-     Establishment of a regional      -No forum for exchange of      -Private sector spearheaded   -Improved
PRIVATE SECTOR       fertilizer forum                 information and lobbying       -Voluntary membership         information
FORUM                                                  -Minimal private sector                                     exchange
                                                      input in policy formulation                                  -Improved lobbying
                                                                                                                   capacity




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