Working paper 1 - Fertilizer Trade under Market Liberalization: Preliminary Evidence from Kenya

Abstract

Introduction

Soil nutrient depletion is widespread in Kenya (de Jager et al. 1998; KARI 1998). Inorganic fertilizers hold considerable potential for nutrient replenishment but typically are applied at rates well below recommended levels or not at all (Tegemeo 1998). Fundamental to wider adoption and more intensive use of fertilizers is a well-functioning fertilizer distribution system (Goletti and Alfano 1995).

Indeed, low adoption and application rates for fertilizer in Kenya appear to be due in part to the lingering effects of the disarray in the country’s fertilizer sector up until 1990 (Argwings-Kodhek 1997). Prior to this, the Kenya Grain Growers Cooperative Union (KGGCU) & a parastatal agricultural commodity and input trading organization now known as the Kenya Farmers Association (KFA) & had a virtual monopoly over international procurement and domestic distribution of fertilizer.

Under this system of control, access to fertilizer was poor, particularly in smallholder farming regions. The dominant position of the KFA caused several private importers and distributors to cease to operate, to fall under receivership, or to close branches countrywide (Argwings-Kodhek et al. 1991). In 1990, faced with a deepening crisis in this key agricultural sub-sector, the Kenya government liberalized international and domestic trade in fertilizer by abolishing import quotas and licenses and decontrolling prices.

Following liberalization, numerous private traders&ranging from specialized large-scale importer-distributors sited in major urban areas to diversified small-scale retailers in relatively isolated rural trading centres & have entered the fertilizer trade, displacing the KFA in most parts of the country (Argwings-Kodhek 1997; Omamo 1996). But despite this evidence of a vigorous response to market liberalization by the private sector, little is known about the factors that influence traders’ willingness and abilities to supply fertilizer.

Moreover, it is far from clear if and how an increased private sector presence in fertilizer distribution in Kenya overrides or eliminates enduring demand-side constraints on expanded use of inorganic fertilizers by farmers.

This paper reports results of a countrywide survey of fertilizer traders undertaken in late September 1997 with the aim of identifying broad supply-side and demand-side factors influencing trade in inorganic fertilizers in Kenya. The next two sections describe the sampling and econometric procedures followed. Regression results are then reported. Implications of the results for policy and research round-out the analysis.