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close this bookCERES No. 096 - November - December 1983 (FAO Ceres, 1983, 50 p.)
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View the documentPrices of fertilizers vary enormously at farm-gate level

Prices of fertilizers vary enormously at farm-gate level

Increased application of fertilizers has been credited with achieving about 55 per cent of the total increase in yields in developing countries between 1965 and 1976. In those more optimistic days of the green revolution, annual growth rates in fertilizer consumption in the developing world exceeded 10 per cent, more than double the rate of growth in the industrialized world. The momentum has faltered in more recent years as a result of the balance-of-payments difficulties faced by many developing countries and the weakening of many currencies against the dollar, in which international fertilizer prices are normally calculated. Thus a lower dollar price does not necessarily convert to a lower price in terms of the domestic currency of the importing country. Beyond this, at the level of the ultimate consumer, the farmer, it is evident that government pricing policies, subsidies and marketing costs and margins can significantly alter the cost of a ton of fertilizer and thereby become incentives or disincentives for increased fertilizer use.

To cite an extreme example: The ax-factory price of a ton of urea in the Philippines in 1982 was $187, which was $27 a ton less than the cost of a ton of urea in neighbouring Malaysia. Total marketing costs and margins in the Philippines were also less, $97 a ton as compared with $113 a ton in Malaysia. Thus the retail price of urea to a Philippines farmer was $284 a ton. Ostensibly, his counterpart in Malaysia would be paying $327 a ton, or almost 15 percent more. However, farmers in Malaysia with holdings of less than 2.4 hectares receive a 100 percent subsidy for fertilizer they purchase, and so, in effect, receive the fertilizer gratis.

It might be tempting to relate this piece of information to the fact that use of all fertilizers in Malaysia, at an average rate of 92.3 kg per hectare of arable land, is not only above the Asian average of 68.5 kg/ha but also above the world average of 78.5 kg/ha and almost triple that of the Philippines at 32.4 kg/ha. However, judging from data developing in recent surveys conducted by FAO in Asia and Africa none of the relationships is likely to be so tidy. Three FAO marketing specialists, H. J. Mittendorf and H. Trupke, of the Rome headquarters, and C. Y. Lee, of the Regional Office in Bangkok, recently compiled a progress report on the results of ongoing surveys which reveal dramatic differences in marketing costs and margins as well as in government subsidies in a group of 15 selected Asian and African countries.

According to the 1982 data, three groups of countries can be differentiated according to the level of marketing costs. The group with the lowest cost (US$5-50) includes Bangladesh, Burma, the Gambia, India, Indonesia, and Pakistan. In the medium group ($50-100) are Republic of Korea, Philippines, Tanzania, Thailand, and Sri Lanka. The highest costs ($100170) are registered for Malaysia, Nepal, Nigeria, and the Sudan. The share of the total marketing cost in per cent of the total cost of fertilizers at farm level (unsubsidized) ranged in Asia from 12 per cent (India) to 47 percent (Sri Lanka) and in Africa from 22 per cent (the Gambia) to 45 per cent (Nigeria). In the majority of the countries the share of the marketing costs of the farmers' price ranged from 20 to 30 per cent. The major cost items are illustrated in the accompanying graph.

Transport is a major cost item in most countries, amounting to about 20 to 40 percent of the total marketing costs, or between $12 and $25 per ton. Thailand reports relatively low transport costs of only $5 per ton, which may be due to efficient transport arrangements, such as utilization of return loads and water transport.

In the Gambia transport costs also are relatively low because of close integration of produce and input marketing and the extensive use of river transport. Nigeria and Sudan show the highest transport costs of ail countries surveyed. This is obviously partly due to their vast size, but there are also indications that infrastructural limitations and lack of return loads contribute considerably to these high costs.

The exceptionally high transport costs recorded for Nepal, as compared with other countries in the region, are mainly due to the transport costs from Calcutta to the Nepalese border and the high cost of clearing agents.

Interest on capital tied up in stocks is another major cost item ranging from 20 to 50 percent of the total marketing costs (from $2 to $38 per ton), suggesting that financing of stocks should be carefully reviewed. For instance, Bangladesh and Nigeria do not report any interest on operational capital. As the case of Korea shows, the inclusion of this important item in 1982 more than doubled the marketing costs, as compared with 1981 when it was omitted. More efficient stock management, e.g., faster turnover, timely subsidy payment by the governments, and easier access to institutional credit could help in bringing down capital costs.

The aggregate margins of fertilizer marketing enterprises (importers, wholesalers, retailers) were estimated by deducting the identified cost of transport, storage, bagging, handling, losses, taxes/levies, interest, and others from the total marketing costs. These net margins of dealers amounted in Asia to between $3 and $30 per ton or between 1 and 12 percent of the retail price. An exceptionally high margin of $50 was reported from Sri Lanka. In Africa margins between $9 and $64 were registered.

The surveys also provided information on the subsidies that governments grant to stimulate fertilizer application. Aside from the cases of Malaysia and the Philippines already mentioned, subsidy in most Asian countries amounted to 20 to 40 percent of the real cost of the fertilizer or about 4 to $70 per ton. In Africa, only the Sudan does not provide any subsidy, while in the Gambia the subsidy is more than 62 percent and Nigeria 75 percent. No accurate cost details are available for Tanzania, but the given subsidy of 46 percent seems to be partly required support the local fertilizer industry.

The FAO specialists have also pointed out that further more detailed studies will be needed to clarify each national situation and to identify possible measures for improvement. For instance, the exceptionally high cost of bagging and handling in Malaysia be due to the extensive use 20-kg bags instead of the usual 50-kg bags. Malaysia also shows the highest taxes/levies component in the whole region. It appears that high duties are charged to protect the local industry. Alternative ways, however, may be found for the benefit of the small farmer. Similarly, no ready explanation can be found for the high dealer margins in Sri Lanka and Sudan, or the high interest rates in Korea and the Philippines.

While regional or inter-regional comparisons are difficult, the data suggest that marketing costs and margins are generally higher in Africa than in Asia, the only exception being the Gambia. There are a number of explanations for this. African infrastructure in general is less developed. Transport facilities are less reliable. Many government organizations that handle fertilizer distribution lack the proper cost accountancy procedures that would permit valid analyses of efficiency in marketing. A further obstacle is the lack of coordination between the marketing of fertilizers and the marketing of agricultural commodities. Considerable cost reductions could be achieved if the two functions could be integrated.

FAO is presently organizing a seminar on Fertilizer Marketing Policies for Eastern and Southern African Countries tentatively set for Zimbabwe in February 1984. It has also been proposed to convene an expert consultation in Bangkok to discuss a regionally standardized survey methodology and the appropriate intervals at which data should be collected and analysed.