INTERNATIONAL AGRICULTURAL TRADE
AND DEVELOPMENT CENTER
ARE THERE PUBLIC BENEFITS TO PRIVATE
USE OF FERTILIZER IN AFRICA?
Christina H. Gladwin, Abraham Goldman, Alan Randall
Andrew Schmitz and G. Edward Schuh
IW97-15 October 1997
INTERNATIONAL WORKING PAPER SERIES
UNIVERSITY OF FLORIDA
Institute of Food and Agricultural Sciences Food and Resource Economics Department Gainesville, FL 32611
1 41SSION AND OBJECTIVE OF THE
INTERNATIONAL AGRICULTURAL TRADE AND DEVELOPMENT CENTER
To enhance understanding of the vital role that international agricultural trade plays in the economic development of Florida, and to provide an institutional base for interaction on agricultural trade issues and problems.
The Center's objective is to initiate and enhance teaching, research, and extension programs focused on international agricultural trade and development issues. It does so by:
I Serving as a focal point and resource base for research on international
agricultural trade, related development, and policy issues.
2. Coordinating and facilitating formal and informal educational opportunities
for students, faculty, and Floridians in general, on agricultural trade issues
and their implications.
3. Facilitating the dissemination of agricultural trade-related research results and
4. Encouraging interaction between the University community and business and
industry groups, state and federal agencies and policy makers, and other trade centers in the examination and discussion of agricultural trade policy
Are There Public Benefits to Private Use of Fertilizer in Africa?
Christina H. Gladwin, Abraham Goldman, Alan Randall, Andrew Schmitz, and G. Edward Schuh*
Key words: African development, fertilizer, public good, soil fertility.
The consensus of opinion about the development prospects of sub-Saharan Africa is that it is the only region in the world where poverty and political violence are likely to increase in the opening years of the next century. The "doom and gloom" scenarios are in part based on concerns about Africa's ability to feed itself, because per capita food production growth rates have steadily decreased at 2 percent per year since 1960. Africa needs to intensify land use and to do so, sustained fertilizer use is essential. But fertilizer consumption in Africa is the lowest in the world at 13 kg/ha, and it is decreasing due to current adverse price ratios of fertilizer to food crops. Pedro Sanchez and colleagues at the International Center for Research on Agroforestry (ICRAF) claim that the nutrient capital of African countries is being mined, just like mineral deposits of metals or fossil fuels; and soil fertility depletion on smallholder farms is the fundamental biophysical root cause of declining per-capita food production in Africa. To replenish Africa's soils, global and national institutions as well as local farmers must invest in soil fertility as a form of natural capital, because there are public benefits to private use of fertilizer in Africa. To discuss the unique idea of fertilizer as a public good, three fellows of the American Association of Agricultural Economists (AAEA) were asked for their reactions at the 1997 AAEA meetings in Toronto, Canada. Their reactions are presented here.
Are There Public Benefits to Private Use of Fertilizer in Africa?
Christina H. Gladwin, Abraham Goldman, Alan Randall, Andrew Schmitz, and G. Edward Schuh*
Christina H. Gladwin and Abraham Goldman,
University of Florida
The consensus of opinion about the development prospects of sub-Saharan Africa is that it "is the only region in the world where poverty and political violence are likely to increase in the opening years of the next century" (Chege 1997: 552). Immersed in what Chege calls "the paradigm of doom," Africa is presently inundated by gloomy reports about its civil wars, famines, high HIV infection rates, geographical isolation, chronic mismanagement, and negative or minimal growth rates (Kennedy 1983, Leonard 1991, Goldberg 1997, Sachs 1997). These "doom and gloom" scenarios are in part based on concerns about Africa's ability to feed itself. Will China Eat Africa's Lunch?
Africa's per capita food production growth rates have steadily decreased at 2 percent per year since 1960. In contrast, food production growth rates in China have recently soared, in spite of--and perhaps due to--famines endured there in the late 1950s. As a result, most reports detailing the difference between China's and Africa's food production end up focusing on African failures. Aggregate data for the early 1 990s for all developing regions show that China leads the developing world in per capita food production indices; while sub-Saharan Africa trails all developing regions (figure 1). Cereal yields follow the same trend: China's 1992-94 averages at 4482 kg/ha are the highest of the developing world; Africa's are the lowest (1023 kg/ha) (figure 2). In contrast, sub-Saharan Africa's population growth rates 1990-1995 are the highest
Per Capita Food Production Index
S Asia 120
SE Asia 125
Trop Latin Amer 106
Sub-Sahara Afr 9o
0 100 200
Index (1979-81 = 100) SOURCE: Data from World Resources, '96-'97
Cereal Yields (1992-94 Avg)
S Asia I; .. .. '2104
SE Asia 2947
Trop Latin Amer 2346
Sub-Sahara Afr ~p 1023
0 1000 2000 3000 4000 5000
SOURCE: Data from FAO & World Resources, 1996-97
in the world at 3 percent per annum, while China's are now a low 1.4 percent per annum (figure 3). (ABE: exact references?)
These indicators show that Africa's per capita food production cannot keep up with its population growth rates. It is a continent of farmers which enigmatically imports one-third of its food grains; nine of its ten largest countries are net importers of food. Yet most African economies are agriculturally-based, with 75 to 80 percent of the labor force still employed in agriculture and most of the GDP still generated by the agricultural sector (Tomich et al. 1995).
What are some of the causes of its low agricultural productivity? Among the factors mentioned besides high population growth rates are 25 years of mostly poor weather; too few roads, vehicles, and telephones; predatory governments and officials; public policies which lurch among the extemes; and devastating regional and ethnic conflicts (ABE: REFS?).
In addition, there is a factor some of us call the invisible factor. Women are the food producers in sub-Saharan Africa, in contrast to smallholders in Latin America and Asia; and the constraints facing women farmers are proving to be greater stumbling blocks to agricultural development than those faced by male smallholders during the 1960s and 1970s when Latin America and Asia had their "Green Revolutions." These include women's lack of access to: land (women beg for land rather than own it), capital or credit or cash (women don't usually raise cash crops which are in the male domain), fertilizer or manure, technological training and extension services, the political arena, and the nonfarm labor markets (women lack education) (Gladwin 1996, 1997).
This is called "the invisible factor" because the gender-related constraints that lower women's productivity are almost never mentioned as explanations of Africa's food security
Population Growth Rates
South Amer 1.7
Sub Sahar Afr 3
0 1 2 3 4
Annual Growth Rate (%)
problems (Eicher 1982, 1995; Smale 1995). They are mentioned in the women in development (WID) literature, but delinked from the food security literature.
Most agricultural experts conclude that Africa needs to intensify land use or increase yield/land area; and for intensification, sustained fertilizer use is essential. But fertilizer consumption in Africa is the lowest in the world at 13 kg/ha, again compared to China (figure 4). Per capita fertilizer use is also the lowest; and more distressing, a comparison of 1995 to 1985 data shows it decreased in Africa but increased in China and Latin America during the same time period (figure 5). Moreover, this decrease can be seen in most African countries, although some (e.g., Nigeria) use more fertilizer than others (figure 6). Why the Decrease in Fertilizer Use?
Due to structural adjustment programs, fertilizer prices increased slowly in the late 1 980s and then more rapidly in the 1990s. Bumb et al. (1996) of the International Fertilizer Development Center (IFDC) claim that in Ghana, this is due more to recurrent devaluations of the Cedi in the 1990s than to the lagged effect of Ghana's fertilizer subsidy removal in 1990 (figure 7). In Malawi, the same process -- the final removal of all fertilizer subsidies in 1995/96 coupled with a 100% devaluation of the kwacha in 1994 -- resulted in 200% to 300% increases in the price of fertilizer without corresponding increases in maize prices in 1995/96 and 1996/97 (figure 8).
Is Chemical Fertilizer Profitable Now in Africa?
The current adverse price ratio of fertilizer to food crops raises the inevitable "bottomline" question posed above, and the answer is too often no in sub-Saharan Africa, although it depends on the country and crop. In Western Kenya, for example, ICRAF scientists say
Fertilizer Use Intensity
per cultivated hectare, 1995
S Asia 83.8
SE Asia 82.2
Trop Latin Amer 77.2
Sub-Sahara Afr 12.8
0 100 200 300 400
Total Fertilizer Nutrients (kg/ha) SOURCE: Data from FAO & World Resources, 1996-97
Per Capita Fertilizer Use 1986 & 1995
SE Asia* Trop Latin Amer Sub-Sahara Afr
0 10 20 30
Fertilizer nutrients (kg) SOURCE: World Bank & FAQ data
Fertilizer Use Trends
Select African Countries
LL 200 Ethiopia
1984 1986 1988 1990 1992 1994 1996
Figure 2- Ghana: Fertilizer Price and Fertilizer Use, 1980-95
< 25000 -n
* 20000 N
o8000.0 15000 cn
a 6000.0 100
o 10000 o
0 4 'Z" CD CO 0 N 'l 00 CC c OD Co C 7) ) 0) a) 0) ) 0) 0 ) m ) 0
Figure 3: Nitrogen: maize price-ratio --nitrogen as urea, ADMARC producer maize price; 1987 -1997.
16 _ _ _ _
14 + nitrogen (MK/kg)
-i-- maize (MK/kg)
12 N: maize price ratio---------------------------2 -- - - - - - - - -
87/88 88/89 89/90 90/91 91/92 92/93 93/94 94/95 95/96 96/97
Source: MoALD Inputs Section.
fertilizers, organic and inorganic, are not now profitable on maize, but are on tomatoes (Jama, personal communication 1997). In Ghana, Bumb et al. (1996) claim fertilizer on maize not profitable. In Mali, however, Sanders (1997) shows fertilizer was profitable on maize in 1996, after maize prices relative to fertilizer increased over 70% after a 100% devaluation in the CFA countries in 1994.
In Malawi, data analyzed from nitrogen (N) fertilizer response functions estimated nationally by Benson (1996) with data from 1600 on-farm trials on hybrid maize show the answer partly depends on whether one assumes farmers are perfect profit maximizers or merely satisficers. Perfect profit-maximizers who exactly equate the value of the marginal product (VMP) to marginal cost (MC) find some fertilizer use profitable; satisficers who use the rule of 2 (i.e., VMP has to be at least twice the MC) either don't find fertilizer profitable at all or only in very small amounts. The answer also depends on whether one uses consumer or producer prices in the calculation, as consumer prices are often 1 1/2 times that of producer prices. Benson in Malawi thus finds 69 kg N profitable for hybrid maize consumed at home, but only 35 kg N is profitable for hybrid maize produced for sale.'
What's the problem? Gender-division-of-labor rules in Malawi dictate that women usually grow the maize for home consumption, and their lack of cash and credit block their use of fertilizer so they end up planting unfertilized local maize while men with greater access to cash and credit plant hybrid maize as a cash crop (Gladwin 1992). As a result, with the recent increases in fertilizer prices, men decreased the area planted to hybrid maize (a cash crop for them) from 24% of the total maize area in 1992 to 7% in 1996, same as that of 15 years ago (Carr 1997). This was contrary to Smale's (1995) optimistic prediction that it would increase to
40% of the total maize area with "Malawi's delayed Green Revolution." Carr (1997) claims, "the outcome has not been a Green Revolution but the collapse of the government strategy of intensification of maize production."
What are some possible solutions to this almost-impossible problem? Policies tried in Africa's recent past include: free fertilizer grants and subsidies, an increase in food prices, microcredit, targeting of women farmers, and treating Africa's soil fertility as a public good. A brief review of arguments pro and con each of these policy solutions is in order, in order to understand why there might be public benefits to fertilizer, normally considered a private good. Free Fertilizer Grants and Subsidies
Arguments pro subsidies have been simple: Is the absence of fertilizer subsidies and grants preferable to the absence of fertilizers in Africa? Eicher (1995), for example, complains that donors have not presented the case for fertilizer subsidies in a balanced way to African policy makers. He notes that the Green Revolution in Asia was -- and in some cases still is -- highly dependent on fertilizer subsidies.'
Arguments con grants and subsidies are often just as simple: free grants of fertilizer in the 1990s were as unpopular with USAID and other donors as fertilizer subsidies were in the 1980S3 African countries depend on donors for balance of payments support, which can amount to 40 percent of the government's total budget.
Let Food Prices Increase
Arguments pro increased food prices include the classic arguments against "cheap food, cheap labor" policies, namely that urban-biased development results because food producers suffer
from a lack of production incentives with cheap food policies (deJanvry 1981). Food prices are one of the important macro prices that an economy needs to "get right" in order for price signals to guide resource allocation in an undistorted manner (Timmer et al. 1983).
Arguments con increased food prices are that "chronic food insecurity does not often manifest itself in terms of price rises, because the most common cause is lack of resources translatable into food purchasing power" (Thomson and Metz 1997). Increases in prices after liberalization of food commodity markets often end up hurting the people they were intended to help, namely low-income rural producers. In Malawi, for example, 70 to 80 percent of rural producers are net purchasers of maize for three to five months of the year (Peters and Herrara 1989).
The "hot" solution in development circles today, the microcredit solution is based on the experience of the Grameen Bank in Bangladesh which provides loans to the poorest of the poor, primarily rural women (Khandker, Khalily, and Kahn 1995). Programs such as Grameen Bank and Ahon Sa Hirap in the Philippines have also inspired respected donors such as the UNDP to start their own MicroStart Programs and test the feasibility and replicability of microcredit programs targeted at the poorest of the poor in Africa.
Adams and VonPischke (1995), however, claim that microcredit programs with the aim of alleviating poverty too often lead to unsustainable financial institutions which soon collapse. Financial intermediaries and institutions have enough to do to provide a developing country with efficient capital markets, without also being burdened with the additional responsibility of alleviating poverty.
Targeting Women Farmers
The argument for targeting African women farmers is straitforward: If government's aim is to increase food production, then it should target the food producers who in Africa happen to be women (Gladwin 1996, 1997). This can be done in any number of ways: by policies that encourage cash cropping by women farmers on a small part of their land normally devoted to the subsistence crop (e.g., by giving women credit for fertilizer for both cash and food crops which can be repaid with the harvested cash crop); or by programs that supervise women's use of fertilizer vouchers on food crops; or by "fertilizer safety nets" or "fertilizer-for-work" programs that use gender and poverty as self-targeting mechanisms and allow the poorest female headed households access to fertilizer.
The problems with directly targeting women are both political and economic. Men object to programs directly targeting women, claim the donors (Katrine Saito, WID office of the World Bank, personal communication). Food insecurity is primarily income insecurity, claim the economists (Thomson and Metz 1997); and the food security analyst's aim should be to alleviate the poverty of the food insecure in the long run and provide safety nets in the meantime. In this case, considerations of class may be as important as gender (Peters, personal communication), although there is much confounding of gender and poverty in rural Africa.' Treating Africa's Soil Fertility as a Public Good In this paper, we explore the last policy option in depth because traditionally, fertilizer has been treated by economists as a private, not public, good. The genesis of this new way of looking at fertilizer and soil fertility in Africa did not come from economists, however, but from soil scientist Pedro Sanchez and researchers associated with the International Center for Research
on Agroforestry (ICRAF) who claim that ICRAF's agroforestry innovations should be adopted by African farmers as an inexpensive way to replenish their depleted soils. "Replenishing soil fertility" is important because it is the number-one natural resource in Africa that is being depleted (Sanchez et al. 1997): the nutrient capital of African countries is being mined, just like mineral deposits of metals or fossil fuels.' Soil fertility depletion on smallholder farms is the fundamental biophysical root cause of declining per-capita food production in Africa, and society as well as farmers must invest in soil fertility as a form of natural capital.
The costs of soil fertility depletion in Africa are both private, on-farm costs (like decreased crop production and more runoff and erosion) and public, national and global costs. The latter costs (termed externalities in Table 1 by Sanchez et al., even thou Alan Randall may tell us externalities are out) include decreased national food security, exacerbated rural poverty and the resulting increased migration to urban areas, increased urban unemployment and social unrest, as well as increased stream sedimentation and decreased water quality due to on-farm erosion, loss of soil carbon to the atmosphere, and loss of adjacent forests and decreased biodiversity (as land extensification occurs).
Replenishing Africa's soils is possible, however, on the high phosphorous fixing soils of Africa, an estimated 530 million hectares where phosphorus-fixation is now considered as an asset, and not a liability as previously thought. Inorganic fertilizers, however, are absolutely necessary to overcome phosphorus (P) depletion on these soils. Large applications of P fertilizer can become P capital as sorbed or fixed P, almost like a savings account, because most P sorbed is slowly desorbed back into the soil solution during 5-10 years. The larger the application rate, the longer the residual effect. If P is applied as a one time application of phosphate rock, it can
Box 1-1. Summary of on-farm and off-farm consequences of soil fertility depletion in Africa.
On-farm effects: Externalities:
" Decreased crop production Decreased food security
" Less fuetwood to cook with Exacerbated rural poverty
*Less crop-residues returned to the 9 More acute effects of droughts
soil 9 Increased stream sedimentation
*Less soil permeability Decreased water quality
*More runoff and erosion 9 Loss of soil carbon to the
*Less fodder for livestock atmosphere
*Decreased milk and meat *Encroachment of adjacent forests
production *Decreased biodiversity
*Less manure from livestock *Increased migration to urban areas
*Less nutrients recycled *Increased urban unemployment
*Reduced cropping options and social unrest
High Phosphorous Fixing Soils of Africa
be helped to desorb by the decomposition of organic inputs which produce organic acids which help acidify the phosphate rock, e.g., the organic acids in Tithonia diversifolia, a common shrub in W. Kenya.
To reverse nutrient depletion of Nitrogen (N), however, Africa needs a combination of inorganic fertilizer, biological nitrogen fixation (BNF) technologies, biomass transfers of organic matter into the field, animal manure/compost, and/or trees whose deep roots capture nutrients from subsoil depths beyond the reach of crop roots. The nutrients are transferred to the topsoil via decomposition of tree litter. Subsoil nitrate accumulation is not significant in all soil types, but are in Nitisols and similar soils which comprise 260 million ha in Africa.
Can N demands be met biologically? Yes, to produce mid-range level yields of 4 tons/ha, but not at 6 tons/ha, where combinations of organic and inorganic fertilizers are needed. (Recovery by crop of N from leaves of leguminous plants is lower (10-30%) than recovery from N fertilizers (20-40%).)
ICRAF's solution to soil fertility depletion is thus to replace P lost over the last 20 years on these Nitisols, by importing Minjingu phosphate rock from Tanzania, and replacing N lost over last 20 years with N from agroforestry innovations (such as hedgerow intercropping with Leucaena, biomass transfer with Tithonia, manures improved with Calliandra, and improved fallow systems using N2-fixing shrubs like Sesbania sesban.) How to pay for this one-time application of phosphate rock? Since there are national and global benefits to farmers' use of fertilizer in Africa, national and global institutions should also share the costs.
Is Cost-Sharing Just Another Word for Subsidizing? But is "cost-sharing" just another word for fertilizer subsidy? Is ICRAF's unique way of
viewing soil fertility replenishment just a clever way to get around donors' avowed aversions to input subsidies? What do economists have to say about this issue of the public benefits to private fertilizer use? To find out, we asked three fellows of the American Association of Agricultural Economists (AAEA) for their reactions at the 1997 AAEA meetings in Toronto, Canada. Here are their reactions.
Comments by Alan Randall,
Ohio State University
Why am I here? I have not had a secret career as an Africanist, but I think I know why I'm here. And that is because of a sneaking suspicion that anybody who would be comfortable with the notion of passive use values for environmental amenities might be able to stretch far enough to find the public good in this problem as well. I guess that's probably it.
When you think about public goods, a couple of things come in: the notion of preferences, i.e., something has to be preferred by at least somebody or some group of people, and the notion of an isolation paradox, i.e., that there is something produced which is of some value to lots of folks, but not enough value that anybody in particular can afford to pay the cost of it. But if a way was found to break the isolation and bring them all together, to develop a cost share... .and as such generate benefits for each one that exceeded their own costs, that is, a private benefit that exceeds cost share individual by individual, then you clearly have an isolation paradox that is loosely called a public good.
What are some of the sort of things that might or might not be public goods? Here I think we have relatively little to guide us. The notion that extensification of land use for farming that would diminish biodiversity in Africa or elsewhere might represent a public bad and there
might be a public good for doing something about that. Soil as natural capital? Maybe, maybe not in the ordinary sense of the word. But at least we can keep that open. Is poverty itself a public bad? Certainly lots of people prefer to live in a society where others are doing reasonably well. I, however am a bit nervous about that -- tell you why in a minute. What about social stability? Gladwin didn't tell a story about that, but I imagine she might have told a story about people leaving the land, congregating around the edge of the cities and creating all kinds of nuisances and disruptions to the supply of services, additional demands, etc. I don't know if that happens in Africa. It certainly happens in some other continents and so that there might be a public good in keeping people productive and in place where they are, rather than set these streams of willy nilly migration going. So maybe; but it's risky. Poverty and Social Instability as Public Bads
Now the reasons why. They've got to be formulated very carefully. The notion of defining other people as public goods -- the idea that poverty in the Caribbean is a public good to those tourists who enjoy observing it on a two-week vacation and therefore it ought to be maintained at public expense is a little bit scary. Yet it could follow from treating people as goods. So I think we ought to recoil from that one. Yet some of the impacts of loss of soil fertility in Africa -- demands on services, losses of biodiversity, etc. -- can be thought of as potential public goods and I think that's a useful way to go.
The question arises next to my mind is this. Let us assume that Gladwin is right and something ought to be done about replenishing Africa's soil fertility and everybody is in this room today because they know that something ought to be done. The questions arises: why do we have to dress this up as some kind of extended micro economics? It perhaps might be
sufficient to say in fact that it's a good thing to go ahead and do it and that ought to be enough. Why? Spending the last fifteen years interacting with biodiversity people has been a big help to me. It's taught me that very few people see the world in quite the same way as welfare economists do, as utilitarian consequentialists. We impose that sort of framework on everything we do; and it's not economics unless it fits into that framework.
But there are lots of other folks out there who do see the world that way: champions of various kinds and libertarians and contractarians and people who invent what seem to me to be very far fetched stories starting in the notion of natural rights and whatever else. And there's two ways, I guess, to think about the sort of pleuralism that emerges from that. One is is that there is a stand-off between people who are consistently consequentionalists about everything or Kantian about everything. There's certainly a literature; Bernard Williams is somebody writing eloquently at the moment for that notion of pluralism. But there's another view as well, that is, that we are all ourselves pluralist in some kinds of ways, and we draw upon different traditions to answer different questions. I guess I go back to thinking about my childhood when I was raised by rules. It was a revelation to me when I encountered a genuinely utilitarian teacher in the tenth grade who said it's okay to wonder if the rules made sense. That was a big surprise to me, because we weren't raised that way. So, there's a conversion process that turns us into consequentialists -- economists -- and makes us want to put everything in that framework. But the rest of the world doesn't necessarily do it and there is room, I think, for arguments that something needs to be done to allow reasonably productive and prosperous farming in Africa at the expense of people beyond that sector. That doesn't necessarily need a contrived economic argument to justify it. I'm taking a raincheck on the degree of contrivance, but the public good
argument doesn't seem to hold water. Some of it is scary, I think, for reasons that have to do with how we think about other people.
Finally, why does it seem important to make a welfare and efficiency argument for taking care of what seems to be a serious problem? In about 1976 there was a series of revolutionary laws enacted to deal with the management of America's national parks. They simply said that we as a country would manage our forests by implementing efficiency-based rational planning, textbook style. We would use the world's biggest mixed integer linear programming model and we would optimize these forests, etc; and we would run this thing as a rationally planned benefit maximization enterprise. By 1982, committees were in place to redefine benefits as a result of this. And what happened? Very bad economics was done, officially in the name of the forest service, to redefine benefits. The reason for that was that the commitment to maximization of benefits was simply premature. The support for that really wasn't there. People started looking at the outcomes from that and said, "This isn't right -- this isn't what we want. But since we're committed to benefit maximization, we'd better go to work redefining benefits in such a way that we'll get outcomes that are handleable."
A little bit of that is going on here, where we've got donor agencies that are committed to imposing world prices right down to the local level of people who are substantially distanced from world markets. And in some ways, we might pragmatically be forced to contrive an efficiency-type argument to do something which very likely should be done for quite different and thoroughly honorable reasons.
Comments by Andrew Schmitz,
Ben Hill Griffen Chair,
University of Florida
When I was asked to talk about fertilizer, I thought what I'd do is not talk about Africa as much as talk about my own experiences with farming and fertilizer as well as my experience on the board of the Potash Corporation of Saskatchewan, the largest potash producers in the world. Recently we had a conference in Lucia, Saskatchewan. We have that every year and it's called, "Farming for Profit." In one symposium was Grant Devine, who was on the board of directors of a large fertilizer producer. His session had to do with competition in the fertilizer industry, and his argument was that this industry was totally competitive and there had been no money in the fertilizer business for years so that people went out of business. But I thought: we have learned something about predatory pricing. Some firms exit the industry because other firms drive them out and then they drive the prices right back up. What happens as a result? The last day I was on the Potash board, not very long ago, after they had privatized the Potash Corporation of Saskatchewan, potash shares were selling somewhere in the neighborhood of seventeen dollars a share. This morning, these same potash shares are trading somewhere in in the range of a hundred and twenty dollars a share. Now that is an amazing increase in the price of a share of the Potash Corporation, from eighteen dollars to a hundred and some in the course of three to four years.
Second thing is, if you take a look at the total demand for fertilizer worldwide, the large growth in demand is obviously from India and China. And the largest growth by far is from China; I think they have something like fifty percent of the import market now in terms of
Third, with respect to fertilizer applications and prices, I still am totally confused about the use of fertilizer, whether it be in Africa or Saskatchewan or Montana or wherever. Here I'm thinking about our own farming experience in Saskatchewan, and more importantly, about the work that Chuck Moss is doing with our son Troy Schmitz on precision farming. They're trying to find out whether there's any benefits to precision farming with very specific applications of fertilizer to different subplots of a field. They take a random sampling of a field and do an average fertilizer response function, and then ask whether that is much worse than trying to do fertilizer tests on each subdivision of each plot -- and then do fertilizer applications specific to those subplots.
I guess I conclude the following: we don't have the foggiest clue what fertilizer response functions are in any area of the world, never mind Africa.. The reason is that my family farms on three farms in three different areas of Saskatchewan with three different soil groups. This year, on some of the best land in Saskatchewan, we tried three different fertilizer rigs. We tried fifty pounds, we tried a hundred pounds, and we tried a hundred and fifty pounds. If you people came out there, I'll guarantee you that you could not see any difference in those fields. You could see it from fifty to a hundred, but you can't see it from a hundred to a hundred and fifty. You might see the difference at harvest time, but you can't see it visually in the field.
If we had applied some of the neighbor's rates of two hundred pounds, we would have gone bankrupt this year, because we have two other farms which have been extremely dry. Fertilizer there would have made crop yields worse, so that we would have been throwing our money away on fertilizer use there; because even if we know how fertilizer responds when we
know the rainfall, we don't know how it would respond when we don't know the rainfall. These production functions, in my opinion, just vary all over the map.
The thing that's even more disturbing is what I learned as a kid fanning, that yields have actually gone down in a large part of the world, even with heavy applications of fertilizer. Now people think that's a startling fact, but it's supported by our farming experience. When I was a kid, we could easily grow crops continuously and get somewhere between thirty-five and forty bushels an acre with no fertilizer. Currently, if you put on heavy fertilizer in the same fields, you may get thirty-five bushels. And also at one time, if you left the land idle for a year, land called "surnmer-fall land," you didn't need to use any fertilizer at all to get good crops. Now we're applying heavy fertilizer use, even on summer-fall land. That's the part of the story that's scary to me; the uncertainty of fertilizer use is due not only to the impacts of variations in amounts of fertilizer applied, but also to the impacts of soil degradation and soil fertility loss with continuous cropping. As a result, we're going to have to add more and more fertilizer just to keep yields constant. That's an amazing fact, given that this land was only broken up in the 1900's. So what does this mean to Africa? It appears those soils have been cultivated for hundreds of years. How can you maintain the quality of those soils? We've got a serious, serious problem of soil degradation.
On this whole topic, until we solve these problems I question the applicability of Economics 101. We say we know how fertilizer use changes relevant prices. But do we even have a clue about the production function that we're talking about? From my experience in this business, from a farming standpoint, from what I have seen worldwide, I really question this whole issue about whether we really know much about how soils respond to fertilizer. But I'm
sure at Purdue or Indiana it's a whole different ballgame, that these people are much more sophisticated and know much more about fertilizer responses than we do in the wheat lands of Montana or Saskatchewan or maize fields of Africa.
Two more points. We recently did a book on Bulgaria on the topic of privatization in Eastern Europe. And there, what really scared me was -- and I don't know what Africa's like, but Ed Schuh's going to talk about that -- how could the Bulgarian farmers fertilize at the world market price of fertilizer, when government capped the price of wheat at $2.00 a bushel? What government policy was doing was charging farmers essentially the full price of fertilizer at the international market price and then placing a cap on what they could export and at what price. On the one hand government charged them the border price on fertilizer, and on the other hand didn't allow the market price of wheat to adjust to the international market price. It essentially squeezed them right out of the fertilizer market, because at $2.00 wheat, we all know you can't use any fertilizer. With respect to fertilizer use in Africa, this means one also has to know the pricing policy of the main commodities to get a feel for whether fertilizer can be applied at M profitable price.
Finally, under these conditions, I can prove to you that you can subsidize fertilizer because all I have to do is refer to our arguments for "the second best" spelled out in Chapter 6 of Just and Schmitz's Applied Welfare Economics. I can prove to you that if you're in a world of "second best," which in Africa it seems that you are, you can easily justify an international cost sharing or subsidy of fertilizers.
Comments by G. Edward Schuh,
Orville and Jane Freeman Professor International Trade and Investment Policy, University of Minnesota
Let me give you just a little bit of background of my involvement in Africa. Most people tend to think of me as focused on Latin America and Brazil; but I've been working with the Sasakawa Global 2000 project (SG 2000) in Africa now for about six or seven years, a project that combines the agronomic genius of Nobel Peace Prize laureate Norman Borlaug with the political skills of Jimmy Carter with the committment to African development of the late Ryoshi Sasakawa and his son. Carter really has an open door in Africa, because he's the only American president who's ever set foot in Africa. In the 1980s, these three started what's basically a technology transfer project that's now operating in twelve African countries. But they soon realized they needed some policy advice and so they created a group that has a rather pretentious title, Agriculture Council of Experts (ACE), and I've been chairing that since its beginning. Part of our mandate is to put together policy papers, because among members of the SG 2000 board, staff, and country directors, there's a thirst for information on what to do and why they should do it. The first policy paper we put together was called, "Fertilizer Policy in Africa: Recurring Issues and Recommendations" (Ndayisenga and Schuh 1997). It's fairly short, but it describes policy recommendations that increase fertilizer use.
Our main theme is that if you want to increase fertilizer use, you must address the issue of fertilizer profitability and a whole set of what we call barriers or constraints to increased fertilizer use. A set of recommendations follow from that. I'm going to go through these without a lot of elaborations, except for a couple of cases, mainly so we get a view of the broader
issues. The puzzlement about fertilizer use is that the low level of use is due to a large number of factors; and implementation of any fertilizer policy requires tradeoffs between some of these factors. I'll finish my discussion by dealing with some of these tradeoffs concerning the larger issue of fertilizer subsidy.
First, let me start with the barriers to increased fertilizer use. First, the lack of profitability in using fertilizer is due to unprofitable and unstable ratios between the prices of fertilizers and product prices. That's been mentioned here a couple of times. If you look at any of the current price ratios (of nitrogen fertilizer to maize, for example), you can sure see why farmers don't use any fertilizer. And then if you look at the instability in the price range, you can see why they don't spend a lot of time trying to learn how to use it, unless it's highly subsidized.
Second, past dependence on heavy government intervention in the economy has led to unstable supplies, inappropriate fertilizer mixes, and lack of timeliness in supplies for profitable use. On the lack of relevance of fertilizer mixes, a lot of the fertilizer supplies have been the byproduct of aid programs. That doesn't necessarily mean that the market really isn't useful, it's that some companies are trying to get rid of unwanted fertilizer blends and sell them to the agencies at lower prices. The United States is not the only country that's guilty of doing that.
Third, there is uncertainty about the responses to fertilizer due to unstable weather patterns, lack of irrigation, and more importantly, unstable public policies. Andy touched on the consequences of this uncertainty for farmers in his remarks. Africa doesn't have irrigation systems, but has very little amount of irrigation and very unstable weather, even more so than Saskatchewan.
Fourth, there is lack of knowledge on the part of farmers about the use of fertilizers. African farmers implement all kinds of complex systems of multiple cropping and rotations of numerous crops, staggering when thay plant the crop and that sort of thing. When they get down to decisions about how much fertilizer to use, where to apply it, how to apply it, it really becomes a very complicated issue.
The fifth barrier to increased fertilizer use is lack of sufficient distribution systems for modem fertilizers that would facilitate delivery of input supplies to the farmers in a timely manner. The sixth barrier is lack of appropriate fertilizer mixes for local conditions. The seventh is lack of credit for both the small fanner and the wholesaler and retailer in the entire fertilizer distribution system. The eighth barrier is lack of foreign exchange for importers to acquire adequate and appropriate supplies; while the ninth barrier is lack of adequate research and extension systems to generate knowledge about fertilizer use and to diffuse that knowledge to the farm population.
The tenth and final barrier is an inadequate world transportation and communication infrastructure to reach distant areas and to insure timely delivery. It's interesting how neglected this issue is. People go to Africa and assume that there is a physical infrastructure there similar to what there is in other parts of the world, and it's just not there. Subsequently, when we start to look at the costs of getting fertilizer to the farms and getting the product back out, we're talking about horrendous problems and escalating costs. Ultimately, the question boils down to whether government wants to use fertilizer subsidies to offset some of those kinds of costs. Policy Recommendations
We suggest eleven policy recommendations for reducing and eliminating these ten barriers.
I'm going to start with one that shouldn't surprise most of you: trade and exchange rate policies are still very badly out of whack in most African countries, even though they had structural adjustment reforms and programs in the 1980s. But if you start to look at fertilizer price, relative to product price at the port, they're still very unprofitable -- even at the port. So that tells you that something is wrong -- out of whack -- with exchange rate policies and trade policies. Exchange rates, when you get down to it, are the most important price of the economy. If government doesn't get those right, it's not going to be able to do much about the profitability of fertilizer.
In addition, Africa still has rather large export taxes. Africa sort of specialized in export taxes -- complications, if you will -- which limited their own farmers' access to international markets. And of course that's what drives the internal prices -- the domestic prices -- down to a very low level. Until you begin to get some of those policies right, you're not going to go very far in terms of other things that you might do. If you try to offset all of that with subsidies, which is really the way some of the subsidies are rationalized, it becomes a very costly process, and right away the questions are raised about obtainability. How long can we continue to provide those kinds of subsidies?
Second policy recommendation. Present trends towards the privatization of the economy should be continued. It is imperative that a private distribution sector for fertilizer should be developed and that government withdraw from this activity. So much of the fertilizer industry has been in the public sector and is filled with people who have no sense of what agriculture's like, or what farming is like, or even what the fertilizer market is like. And then the public sector is dull and slow and unresponsive.
Third. Little can be done about the weather in the short run, but a great deal can be done about unstable policy. Out of unstable monetary policy and fiscal policy one gets unstable exchange rates. Out of that is created all this price uncertainty. Some of you have heard me say that whenever I hear any economists talking about the weather, I always want to say they've gone as far as they can go. They don't know what else to talk about. They ought to look at all of the sources of the instability of the pricing; and it's not always the weather. On the Need for Location- Specific Research/Extension
Fourth, we have a specialized recommendation on research that follows up on Andy's point about precision farming. Expanded research efforts are needed to better understand sub-arid soils and to solve the very specific problems caused by lack of knowledge of local responses to the application of fertilizer. Similarly, expansion of extension efforts are needed in most sub-arid African countries, to help farmers learn new production practices and more economic use of their resources. There was a time when production economics first became very popular in the US, and there were a lot of fertilizer trials done. A lot of fertilizer experiments were done so that you could get at these production relationships. Quite a number of years ago, Glen Johnson did a study where he tried to see what sense you could make out of these production relationships that people were estimating. And it turns out you could make very little sense out of it. It accounted for very little of the variance, and didn't have very much reliability. As near as I can tell, that situation hasn't changed very much. The farmers in the Midwest know how to use fertilizer, largely by trial and error, and learning how to figure out what works on their own fields.
The international agricultural research centers (IARCs) I've worked with are dominated by agronomists and physical scientists, but research on soils often ends up being way down on
the list of priorities. And the truth of the matter is, we know very little about soils in most places in the world. That is the case of the US also, we know very little here. A cubic foot of soil is a very complicated piece of material. I've done a lot of work within the last six years in Bolivia, and we know very little about these soils. We go out and talk a lot about what to fertilize and how to increase fertilizer use, and we talk about which, when, where and how much; but we don't know very much about it. Mainly because we don't understand very much about the underlying soil. I don't know how many of you followed the case of development in the Cerrado in northwest Brazil. It has huge areas of sub-arid soils; and what in the past they always felt was a drought problem, a lack of water. But about five years ago, they discovered that there's a problem in the soil that has to do with magnesium and the release of phosphorous that's been tied up in the soil. And now, they can just make the desert bloom -- literally -- by adding fertilizer and some lime and changing the acidity of the soil. You see my point. We tend to think that increased agriculture output comes from the introduction of improved varieties; but the case of northwest Brazil -- and this is very applicable to large areas of Africa as well -- shows that underdevelopment can be caused by a soil problem, and the solution can be a technological innovation produced by soil scientists who know the local soils.
Fifth recommendation: An efficient distribution system for fertilizer will emerge only if the government withdraws from the sector and the use of fertilizer becomes profitable. Thus, government parastatals that occupy space in the fertilizer distribution system should be phased out quickly and macro-economics should be in line to make agricultural production profitable. There's a whole set of issues involved here about trying to educate people in the private distribution sector. We make a case where you can justify a strong extension program among
fertilizer distributors so that they know something about fertilizer values. In the process we can teach them something about the risk and uncertainty that's involved in farming.
Sixth recommendation: we're reluctant to generalize about proper fertilizer mixes. That's what people always want to know but it really varies so much from country to country and from commodity to commodity. About the only sort of thing that we're willing to recommend is that in general, preference should be given to high concentration materials, partly because of the high transportation costs of fertilizer. Government can lower the transportation costs with high concentration materials. But we also make the point that the fertilizer mixes have to reflect their local nutrition deficiencies and their commodities.
The seventh recommendation has to do with credit systems. Imperfectly performing credit markets are really a big issue in Africa and other parts of the developing world. There's hardly any place in Africa where they have efficient financial intermediaries. Instead, government banks take money appropriated by the government and channel it into the financial system; and most of you know who gets that credit when it goes out that way. What are needed are major reforms in the banking system that create financial intermediaries and institutions that mobilize the savings and make it available to farmers. Even the World Bank, where I was director of agriculture for three years, never learned how to create financial intermediaries. They'd preach a lot about it, but actually knowing how to go out and do it is something else. About the best institutions we have are the cooperatives and credit unions that mobilize savings from the local farmers and then provide a mechanism for reinvesting it back. To do something similar to that for the fertilizer distribution sector is more complicated. Again we need to examine the barriers and constraints that the fertilizer distributors have. They can't get access to credit either. So again, there is
another whole set of institutional innovations badly needed.
We make a point about how to get more realistic exchange rates for our eighth recommendation. And you all know what those are. Government needs to get trade policy right, first. It needs to get monetary, fiscal policy at least stabilized, so that they become neutral. And then with a flexible exchange rate, that's probably about as good as it can be. Government is not going to eliminate all of the instability generated from the foreign exchange markets, but if it neutralizes fiscal and monetary policy and gets trade policy at least uniform across sectors, it can do a lot to eliminate exchange rate distortions -- and at the same time, to stabilize this most important macro price.
Our ninth recommendation concerns lack of infrastructure in Africa. I think one of the tragedies of the developing countries is that when the bank got heavily into stabilizing macro prices and policy reform, it turned away from longer term investments in physical infrastructure. Consequently, the highway systems in Africa are really non-existent; railroad systems are nonexistent; communication sectors are non-existent except for a few cellular units. It's hard to imagine that Africa is going to go very far until it gets a halfway decent physical infrastructure. And it's got a long ways to go. Tenth, we recommend more long-term investment in agricultural research and extension systems. I think this recommendation is obvious, because the stock of location-specific knowledge about agriculture in African countries is very, very limited.
Finally, we talk specifically about the subsidy issue because you can hardly talk about fertilizer or fertilizer policy in Africa without talking about subsidies and the enormous pressure on African governments to have subsidies. Norman Borlaug thinks I'm just as crazy as I can be for being cautious about fertilizer subsidies. He feels if he's going to diffuse his varietal
improvements, Africa has to have fertilizer use and the only way to get fertilizer use is to subsidize it. It's a little bit like what Alan Randall said; "If you think that's what you need to do, just do it." Part of the problem, however, has been that fertilizer subsidies in the past have not been supplemented by government investments in infrastructure, institutions, and policies that reduce transportation transaction costs and increase efficiency in the input and output markets systems, thus permanently reducing farm level fertilizer prices. I conclude that it's both more equitable and efficient to use scarce development resources to reduce or eliminate these barriers or constraints to the wider use of fertilizer. Fertilizer subsidies should be conditioned on investments that reduce the structural impediments to increased fertilizer use in the future.
At the same time, I must confess to a certain degree of ambivalence on the whole subsidy issue. There's all kinds of reasons why you might need subsidies. Eventually, however, the question comes up, what are the tradeoffs? If government uses its scarce development resources to subsidize fertilizer in the short run, it has to be at the expense of longer term investments that eventually would take care of it by lowering fertilizer costs in the long run. I don't find the answer to that question at all easy. And the thing that I would add to Alan's comment is what we as economists can contribute to this debate is to look carefully at the tradeoffs and estimate just how much long-terin physical infrastructure versus how much of the domestic fertilizer industry can and should government subsidize. How much agricultural research can government provide if it's also subsidizing short-term fertilizer benefits that nobody would pay for privately? I leave you with that question.
'It is still cheaper, even at current price ratios, for a maize farmer whose own labor is costless to her to buy fertilizer and produce her own maize for home consumption than it is to buy it from a private or public trader (Hildebrand, personal communication).
2Indonesia's implicit subsidy on fertilizer is still 35 percent and on irrigation 75 percent. Eicher concludes that "a fertilizer subsidy can be justified for farmers who are unfamiliar with it, to offset risk, and to substitute for a weak or nonexistent credit program, especially for resource-poor farmers" (Eicher 1995:813).
3An example of free grants of fertilizer is provided by the DRIP and SIP inputs programs in Malawi in which 32,000 tons in 1994/95 and 23,000 tons in 1995/96 were given to farmers following the catastrophic drought in 1993/94 and the collapse of the credit system in 1992/93.
4Unfortunately, for reasons we explore elsewhere, in some African countries such as Malawi, safety net programs will be needed for 40 percent of the rural population for the next 30 to 60 years (Gladwin and Thomson 1997). For a very poor country, this is no small feat!
5Smaling (1993) has estimated the depletion rates of soil nutients as 22 kg/ha/yr for nitrogen (N), 2.5 kg/ha/yr for phosphorus (P), and 15 kg/ha/yr for potassium (K).
Adams, Dale W., and J.D. VonPischke. 1995. Microenterprise credit programs: deja vu. World Development 20(10): pp. 1463-70.
Benson, Todd. 1997. The 1995/96 fertilizer verification trial Malawi. Report by Action Group I, Maize Productivity Task Force, Ministry of Agriculture and Livestock Development, Government of Malawi, Lilongwe, Malawi.
Bumb, B.L., J.F. Teboh, J.K. Atta, and W.K. Asenso-Okeyre. 1996. Policy environment and
fertilizer sector development in Ghana. Paper presented at the National Workshop on Soil Fertility Management Action Plan for Ghana, 2-5 July. Efficient soil resources management: A challenge for the 21st century, Cape Coast, Ghana. Mexico City: Sasakawa Africa Association. Chege, Michael. 1997. Paradigms of doom and the development management crisis in Kenya. Journal of Development Studies 33 (4): 552-567. Either, Carl K. 1982. Facing up to Africa's food crisis. Foreign Affairs 61(1): 151-174. Eicher, Carl K. 1995. Zimbabwe's Maize-Based Green Revolution: Preconditions for Replication. World Development 23(5): 805-818.
Gladwin, Christina H. 1992. Gendered Impacts of Fertilizer Subsidy Removal Programs in Malawi and Cameroon. Agricultural Economics 7: 141-153. Gladwin, Christina H. 1996. Gender in Research Design: Old Debates and New Issues. Achieving Greater Impact from Research Investments in Africa. Steven Breth, ed. Mexico City: Sasakawa Africa Association.
Gladwin, Christina H. 1997. "Targeting women farmers to increase food production in Africa. Women, Agricultural Instensification, and Household Food Security, S. Breth, ed., pp. 61-81. Mexico City: Sasakawa Africa Association.
Goldberg, Jeffrey. 1997. Their Africa problem and ours. New York Times Magazine, Section 8, March 2: 34-77.
deJanvry, Alain. 1981. The Agrarian Question. Baltimore: Johns Hopkins University Press. Just, Richard, and Andrew Schmitz. 19 Applied Welfare Economics. ?? Khandker, Shahidur R., Baqui Khalily, and Zahed Khan. 1995. Grameen Bank: Performance and Sustainability. Washington, D.C.: The World Bank. Kennedy, Paul M. 1983. Preparing for the twentieth century: winners and losers. New York:
Leonard, David. 1991. African successes: four public managers in Kenya's rural development. Berkeley, CA: University of California Press.
Ndayisenga, Fidele, and G. Edward Schuh. 1997. Fertilizer Policy in sub-Saharan Africa: Recurring Issues and Recommendations. ACE Agricultural Policy Series 1. Minneapolis: Humphrey Institute of Public Affairs.
Peters, Pauline, and M.Guillermo Herrara. 1989. Tobacco Cultivation, Food Production, and Nutrition among Smallholders in Malawi. Agricultural Commercialization, Economic Development, and Nutrition, eds. Joachim VonBraun and Eileen Kennedy, pp. 309-327. Baltimore: Johns Hopkins University Press.
Sachs, Jeffrey. 1997. The limits of convergence. The Economist, June 14: 19-22.
Sanchez, Pedro, A.M. Izac, R. Buresh, K. Shepard, M. Soule, U. Mokwunye, C. Palm, P. Woomer, and C. Nderitu. 1997. Soil fertility replenishment in Africa as an investment in natural resource capital. Replenishing Soil Fertility in Africa, R. Buresh, ed. Indianapolis: Special Publication of the American Society of Agronomy.
Sanders, John. 1997. Developing technology for agriculture in sub-Saharan Africa: evolution of ideas, some critical questions, and future research. Paper presented at the International Food Policy Research Institute, Washington, DC, June 5.
Smale, Melinda. 1995. Maize is life: Malawi's delayed Green Revolution. World Development 23:819-831.
Smaling, Eric. 1993. An agroecological framework for integrating nutrient management, with special reference to Kenya. PhD Thesis, Agricultural University, Wageningen, Netherlands.
Thomson, Anne, and Manfred Metz. 1997. Implications of Economic Policy for Food Security. Rome: Food and Agriculture Organization.
Timmer, C. Peter, Walter P. Falcon, and Scott Pearson. 1983. Food Policy Analysis. Baltimore, MD: Johns Hopkins Press.
Tomich, Thomas P., Peter Kilby and Bruce F. Johnston. 1995. Transforming Agrarian Economies. Ithaca, N.Y.: Cornell University Press.