Fertilizer Toolkit: Promoting Efficient and Sustainable Fertilizer Use in Africa

Analyzing Fertilizer Procurement Costs

It is difficult to make good policy and business decisions about reducing fertilizer
procurement costs if one does not have the complete picture of the cost build up
from point of initial purchase through final delivery to the farmer. We present three
illustrations of procurement cost analysis conducted by IFDC in Africa.
Table 1 compares costs across five countries (the US, Nigeria, Malawi, Zambia, and
Angola). The format used and information presented assists the reader to pinpoint
various places in the supply chain where costs are much higher for some countries
than for others. The format used in this table can be used as a model for collecting
and analyzing cost data in other countries.
Table 2 presents a recent cost analysis done for Kenya, where concrete
recommendations are made for interventions that could reduce the costs. Kenyan
fertilizer products are imported through Mombasa port but are used mostly in
Western Kenya. The transportation cost of supplying fertilizers to Western Kenya
ranges from $45 to $50/ton. Most of the fertilizers are transported through trucks.
While Kenya has railway lines reaching out to different parts of the country, due to
delays and risks in transporting goods through rail, few distributors use railways. The
shortage of covered wagons also discourages the use of railways. If railway capacity
is streamlined and strengthened to transport fertilizer products, the cost of
transporting fertilizers could be reduced by 20%-30%.
In addition to transportation costs, excessive port charges and inefficiencies also add
to high transaction cost. While c.i.f. cost of urea was $299/ton at Mombasa, port
charges, import declaration fee (IDF), bagging, storage, and other related costs add
another $65/ton. Rationalization of port services and related charges could reduce
fertilizer prices by $35/ton. Improvements in transportation arrangements (moving
from road to rail) could further reduce transaction cost.
The third example is from West Africa. IFDCs project MIR (Marketing Inputs
Regionally) analyzed ways to lower the costs of fertilizer in Mali. At the time of the
study, the price of 1 Mt of urea increased from $265 in the Ukraine to $570 by the
time it reached cotton farmers in landlocked Mali. We do not show the entire cost
build-up, but the IFDC analysis showed that total costs could be reduced by 19-27%,
i.e. to $415-460 per ton by the following interventions:

Abandoning the tender system and changing to direct negotiation with

suppliers, using freely available market information on urea, can reduce the
FOB price by 10-20%. Savings: $23.00 to $46.00.
Purchasing urea in Euros instead of FCFA reduces the cost of money by half.
Savings: $14.40.
Reducing the 15% tax in Mali and other West African countries. 30-50% can
be saved on taxes through lobbying ECOWAS and WAEMU as was recently
done during the Africa Fertilizer Summit. Savings: $10.35 to $13.35.
Collaboration with transport companies so fertilizer trucks return loaded with
cotton. More than 70% of the trucks that haul fertilizer to Mali return empty.
From 30% to 50% of the transport cost can be saved: $23.40 to $39.00.
Lobbying with ECOWAS and UEMOA for a policy environment that minimizes
road harassment (such as bribes to customs, police and army) by 50%.
Savings: $3.25.

Fertilizer Toolkit: Promoting Efficient and Sustainable Fertilizer Use in Africa

Reducing retail margins, which are high because the tender system breeds
local corruption along the chain.
Abandoning the tender system and addressing corruption can save 80% of
the retailers gross margin. Savings: $35.28

Source: IFDC MIR project documents.

Fertilizer Toolkit: Promoting Efficient and Sustainable Fertilizer Use in Africa

Table 1. Comparison of fertilizer procurement and distribution and marketing costs, 2003 (US$/ton)
USA
US$/t

Nigeria
%

US$/t

Malawi
%

US$/t

Zambia
%

US$/t

Angola
%

US$/t

Costs items & margins

FOB cost
Ocean freight
Insurance

135.00

135.00

143.00

145.00

226.00

25.00

160.00

30.00

165.00

25.00

170.00

25.00

170.00

95.00

321.00

0.08

160.08

0.10

165.10

0.10

170.10

0.10

170.10

2.00

323.00

160.0
8

CIF cost

165.1
0

70.64

170.1
0

49.12

170.1
0

52.94

51.03

39.00

LC cost

0.80

160.88

1.65

166.75

1.70

171.80

1.70

171.80

3.23

326.23

Port costs, transfer inland

4.00

164.88

21.70

188.45

7.82

179.62

17.50

189.30

98.00

424.23

Duties

0.00

164.88

12.04

200.49

1.63

181.25

1.63

190.93

48.00

472.23

Losses

1.65

166.53

3.77

204.26

1.80

183.05

1.89

192.83

0.00

472.23

Bags & bagging

0.00

166.53

15.69

219.95

0.00

183.05

0.00

192.83

0.00

472.23

166.53

2.85

219.95

16.32

183.05

4.03

192.83

6.82

472.23

18.02

10.00

176.53

4.41

50.00

269.95

14.87

60.00

243.05

18.67

72.00

264.83

21.60

5.00

477.23

0.60

477.73

Free on barge/truck
Barge/truck transport
Barge/truck unloading
Storage & loading
Interest

4.00

180.53

0.50

270.45

0.50

243.55

0.50

265.33

0.50

10.00

190.53

1.00

271.45

7.29

250.84

1.50

266.83

3.00

480.73

2.22

192.75

16.97

288.41

12.54

263.38

13.00

279.83

30.05

510.78

Wholesale cost
Importer margin

192.75
3.8

Wholesale price

Dealer cost & margin

30.00

Farmer price

226.6
1

288.41

196.61

2.00

196.6
1

86.76

226.61

15.26

31.73

16.01

263.38

320.14

11.00

320.1
4

95.24

336.15

5.00

336.1
5

39.51

18.44

279.83

302.89

15.00

302.8
9

94.26

321.33

6.09

321.3
3

28.84

24.69

510.78

308.67

10.31

308.6
7

92.59

333.36

8.00

333.3
6

97.50

220.00

608.28

19.09

608.2
8

73.44

828.28

36.17

828.2
8

Wholesale : CIF ratio

1.20

1.75

1.55

1.65

1.58

Retail : CIF ratio

1.42

2.02

1.89

1.96

2.56

Source: Gregory, D.I., and B.L. Bumb. 2006. Factors Affecting Supply of Sub-Saharan Fertilizer in Africa. Agriculture and Rural Development Discussion Paper 24.
World Bank, Washington, DC.

Fertilizer Toolkit: Promoting Efficient and Sustainable Fertilizer Use in Africa

Table 2. Kenya Fertilizer Costs

Existing
Cost Element
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25

f.o.b. bulk
Ocean freight
c. & f.
Marine Insurance 1%
IDF 2.75% of cif
Finance cost 70% c. & f. at 16% p.a.
for 3 months
LC commission/other bank charges 2%
c. & f.
KBS/Radiation levy Sh 40/mt
Port charges (KPA)
Stevedoring (KPA)
WPP Bag with liner
Bagging and other
Inspection and tally
Spillage and losses 0.5% c. & f.
Clearing and forwarding
KSh 40/mt
Transport to warehouse in Mombasa Sh
200/mt
Handling at warehouse Sh 300/mt
VAT 16% shore handling 9 to 17
(except 14)
Landed cost warehouse Mombasa
Loading at warehouse Sh 150/mt
Road freight to Nairobi Sh 2,000/mt
Handling at warehouse Sh 300/mt
VAT 16% on 20-22
Landed cost Nairobi
Landed cost in Kitale

DAP ex-Tampa
US $/ton
235.00
62.00
297.00
2.97
8.25
8.32

KSh/50-kg bag
881.25
232.50
1,113.75
11.14
30.94
31.20

Proposed
Urea ex- Arab Gulf

US $/ton
274.00
25
299.00
2.99
8.30
8.37

KSh/50-kg bag
1,027.50
93.75
1,121.25
11.21
31.12
31.39

DAP ex-Tampa
US $/ton
235.00
62.00
297.00
2.97
8.32

KSh/50-kg bag
881.25
232.50
1,113.75
11.14
31.20

Urea ex-Arab Gulf

US $/ton
274.00
25
299.00
2.99
8.37

KSh/50-kg bag
1,027.50
93.75
1,121.25
11.21
31.39

5.94

22.27

5.98

22.42

5.94

22.27

5.98

22.42

0.53
5.00
8.00
6.20
4.00
2.00
1.48
0.53

1.99
18.75
30.00
23.25
15.00
7.50
5.55
1.99

0.53
5.00
8.00
6.20
4.00
2.00
1.49
0.53

1.99
18.75
30.00
23.25
15.00
7.50
5.59
1.99

0.53
6.20
4.00
2.00
1.48
0.53

1.99
23.25
15.00
7.50
5.55
1.99

0.53
6.20
4.00
2.00
1.49
0.53

1.99
23.25
15.00
7.50
5.59
1.99

2.66

9.97

2.66

9.97

2.66

9.97

2.66

9.97

4.00
5.18

15.00
19.42

4.00
5.18

15.00
19.42

4.00
-

15.00
-

4.00
-

15.00
-

362.06
2.00
26.67
4.00
5.23
399.96
426.63

1,357.72
7.50
100.00
15.00
19.61
1,499.83
1,599.83

364.23
2.00
26.67
4.00
5.23
402.13
428.80

1,365.85
7.50
100.00
15.00
19.61
1,507.95
1,607.96

335.63
2.00
26.67
4.00
368.30
394.97

1,258.61
7.50
100.00
15.00
19.61
1,381.11
1,481.11

337.75
2.00
26.67
4.00
370.42
397.09

1,266.56
7.50
100.00
15.00
19.61
1,389.06
1,489.06

Source: IFDC, 2005. An Action Plan for Developing Agricultural Input Markets in Kenya, Main Report.