“Causes and Consequences of the 2021/22 Fertilizer Price Spike on Sub-Saharan Africa” Report: Implications for Africa’s Agriculture and Food Security
A recent report titled “Causes and Consequences of the 2021/22 Fertilizer Price Spike on Sub-Saharan Africa” sheds light on the dramatic and prolonged surge in fertilizer prices in the region compared to global markets. The spike, which was initially caused by the COVID-19 pandemic and further exacerbated by the Russia-Ukraine war, has had a profound impact on Sub-Saharan Africa (SSA), particularly for smallholder farmers who rely on inorganic fertilizers for crop production.
According to the report, while global fertilizer prices began to fall by the end of 2023, prices in SSA remained high and have not fully returned to pre-crisis levels. This disparity, known as the “price wedge” between global and local prices, continues to burden millions of farmers in countries such as Kenya, Ghana, Malawi, Nigeria, Tanzania, and Zambia. The report highlights that factors such as government corruption, currency depreciation, and high diesel prices for transportation have played significant roles in prolonging the fertilizer price crisis in the region.
A Shock to African Agriculture
The spike in fertilizer prices was felt across the world, but SSA has faced more enduring consequences. Fertilizer prices in SSA rose in tandem with global prices in 2021 but decoupled from global trends shortly after. As of mid-2024, many SSA countries still face inflated prices, with severe implications for smallholder farmers. With around 60% of the region’s population dependent on agriculture, the price hike has threatened food security and agricultural productivity across the continent.
The surge in fertilizer prices led to increased costs of food production, making it difficult for farmers to afford essential inputs. The report emphasizes that maize, a staple food crop for millions, was particularly impacted, as the cost of fertilizer rose alongside maize prices. As a result, farmers were unable to maximize yields due to the inability to afford the fertilizer required, further exacerbating the region’s food insecurity.
The report, authored by experts from Purdue University, Michigan State University, the University of Ibadan, and other leading institutions, highlights several key factors that contributed to the persistent fertilizer price surge in SSA like higher levels of corruption in the public sector contributed to inflated urea prices, with more transparent governance leading to lower prices. Countries that made efforts to curb corruption saw a 3% decrease in fertilizer costs.
Real interest rates, GDP growth, and currency fluctuations significantly influenced fertilizer prices. For example, a 1% depreciation of local currencies relative to the U.S. dollar resulted in a 0.34% increase in urea prices. Countries with stronger economic performance managed to cushion some of the impacts of the price hike. The report found that a 10% increase in demand for urea imports in SSA resulted in a 0.3% increase in local prices. This was primarily driven by increased demand for fertilizers as farmers sought to maintain crop yields during a challenging period.
The cost of raw materials like natural gas, a key component in urea production, also had a direct impact on local fertilizer prices. The global price of urea was a strong determinant of the local price surge. In many SSA countries, high transportation costs, particularly diesel prices, were responsible for inflating the local price of fertilizers. Diesel is essential for transporting fertilizers across long distances, and price hikes in global energy markets significantly affected local supply chains.
The Role of Fertilizer Subsidies and Market Dynamics
The report also explores the role of fertilizer subsidies, which were implemented by various governments in SSA to alleviate the burden of high fertilizer prices on farmers. However, it was found that these subsidies often had mixed results. While they temporarily eased the pressure on farmers, they also distorted local markets and crowded out commercial fertilizer sales.
For instance, Kenya, once known for its dynamic private-sector-driven fertilizer market, faced setbacks when its government decided to handle fertilizer distribution directly. This decision excluded private agro-dealers, leading to reduced access for smallholder farmers who were not located near government depots.
Recommendations for the Future
The report makes several recommendations for SSA governments and international stakeholders to build resilience against future fertilizer price spikes such as governments must prioritize improving fertilizer use efficiency to make it profitable for farmers. Increasing productivity would make fertilizers more affordable, even during price hikes, as higher output from the same input would justify the cost. The report further agues that encouraging competition within the fertilizer market and fostering transparent procurement processes could help reduce prices in the long term. Farmers need access to proper training and extension services to better utilize fertilizers and other inputs effectively. Governments should invest in capacity building and soil health initiatives to enhance productivity. While some countries, like Nigeria, have invested in local fertilizer production, more needs to be done to ensure that locally produced fertilizers are accessible to smallholder farmers at affordable prices.
As Sub-Saharan Africa continues to recover from the global fertilizer price shock, this report offers critical insights for policymakers, donors, and agricultural stakeholders on the path forward. By addressing corruption, improving market dynamics, and investing in long-term solutions, SSA can build a more resilient agricultural sector capable of withstanding future crises.
