Ghana Fertilizer Value Chain Optimization Study

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The following Fertilizer Value Chain Optimization Study was commissioned by the Government of Ghana (GoG), represented by the Ministry of Food and Agriculture (MoFA) under the GoG's Ghana Fertilizer Expansion Programme (GFEP). This study includes extensive data and a thorough analysis of cost buildups, blending, and subsidies for fertilizer in Ghana. It provides guidance on how these and other aspects of the fertilizer value chain could be optimized to greatly expand the availability and use of appropriate and affordable fertilizers across the country, particularly by smallholders for food crops, which is the purpose of the MoFA fertilizer subsidy program (FSP). However, it is important to understand the current international and regional fertilizer context to analyze and recommend proper changes to the Ghana fertilizer value chain. The first aspect to understand is that, in general, international free-on-board (FOB) prices were rising (+10-30% year-to-year increase for feedstock, +18% for NPK 15-15-15) at the time of data collection for this study in September 2018, and 2019 prices were affected. There has been a boon in developing manufacturing and blending capacity across sub-Saharan Africa (SSA), particularly in West Africa. An additional 4.7 million metric tons (mt) or more of (granular) urea will be available soon from Nigeria; the majority will be exported, primarily outside the continent. Ghana enjoys competitive open market prices but has the highest fertilizer subsidy rate (50%) in West Africa, which has created incentives for smuggling to neighbouring countries, where prices are generally higher and subsidy rates are lower. Regarding the Ghanaian market, 2017 apparent consumption was estimated at 440,000 mt, a record high. However, in 2017 real consumption was much lower at approximately 350,000- 380,000 mt. Official exports are minimal, but much anecdotal evidence supports claims of large-scale smuggling of subsidized fertilizer from Ghana to neighbouring countries, especially Burkina Faso, and substantial carryover stocks. Half of the imports are NPK fertilizers, mainly compounds, and 20% are urea and raw materials for blending. The GoG Planting for Food and Jobs (PFJ) Program/MoFA FSP and the Ghana Cocoa Board (COCOBOD) control 80% of the fertilizer market to serve smallholder farmers cultivating crops/vegetables and cocoa, respectively. The Ghanaian market is mainly served by ten most well-skilled and financially capable private importers who blend and distribute through a dense network of 3,500 small, licensed agro-dealers. Regarding fertilizer cost buildup and procurement processes in Ghana, almost all fertilizers are imported through the Port of Tema, where the main importers, largest warehouses, and most blending units are located. No duties or value-added taxes (VAT) are levied on fertilizers, except for a 5% duty on compounds. Urea arriving at the Port of Tema at a free-on-board (FOB) price of U.S. $280/mt reaches Greater Accra (GA) warehouses at U.S. $395/mt bagged, a port cost of U.S. $115/mt, or +41%. This is comparable to port costs at Dar es Salaam, Tanzania, and cheaper than those for Mombasa. Domestic distribution costs add 40-45% to free-on-truck (FOT) costs for imported and locally blended fertilizers. Financial costs are 38% on average and operational costs are 42%, accounting for 80% of the cost from Greater Accra storage to retail. Analysis shows that FOB price increases of raw materials increase the competitiveness of local blends over imported compounds. Investing in general (roads and railways) and dedicated infrastructure (priority berths and warehouses), and fast-tracking import procedures (permits, etc.) would ensure reduced in-country costs for fertilizers. In developing the fertilizer (blending) market, depending on which model is used, the total potential in the next five years ranges between 500,000 and 760,000 mt unless the sector is enhanced by major policy and technical improvements. Regardless, blends are expected to represent 50-60% of the total market. Ongoing GoG efforts, including accurate soil maps, trials, fertilizer formulations and recommendations validation, have yielded results that can lead to more suitable crop- and soil-specific blends. This is the first step toward fully balanced crop nutrition, which requires the inclusion of micronutrients. The 2019 PFJ introduced eight new blends for maize, rice, soybean, and cassava to be mostly blended locally. Six blending units, all located in Tema except one (GloFert), were expected to be in operation by the beginning of the 2019 planting season. All can blend new formulations in small or large batches. The installed capacity can easily serve Ghana's current, short-, and at least medium-term market requirements. If the market moves toward more balanced fertilization requiring more complex crop and soil-specific formulations, a couple of additional small blending units, requiring small investments, could have a comparative advantage if located closer to crop production belts (e.g., Brong-Ahafo and Northern regions). However, improvements in fertilizer recommendations and the increase in blended products will have little impact on smallholder farmers growing food crops unless there are major changes to improve the effectiveness of the PFJ/MoFA FSP. As noted above, its 50% subsidy is by far the highest among neighbouring countries, and indications are that many smallholder farmers are either unable to access or unable or unwilling to pay the remaining cost for subsidized fertilizer. Problems with the administration of the 2015-2018 FSPs included late solicitations, contracts, and payments to suppliers and deliveries to farmers, poor productivity/results from commodity standard formula fertilizers, smuggling, limited and inefficient/ineffective use of the private sector suppliers, difficult GoG requirements for accessing subsidized fertilizers, poor accounting/voucher/coupons systems, and fake coupons. Some of these problems were reduced in the 2019 FSP, but comprehensive changes are required if the next FSP is to be more successful. The following actions are recommended to optimize the fertilizer value chain in Ghana. Almost half the retail fertilizer prices are derived from high, in-country costs, primarily due to the lack of priority given to fertilizer imports and poor port and transportation infrastructure. Reasonable priorities and targeted investments in infrastructure important to fertilizer importation, blending, and local deliveries would lower retail prices. This could start with improving capacity at the ports for fertilizer berthing and unloading and improving roads or rail to warehouses and blending operations. Blending capacity in Ghana is already more than twice what is required, and current blending operations are operating at only 20- 25% of capacity. Therefore, the expansion of blending capacity is unnecessary. Doing so would inevitably drive local operations out of business, deterring other blenders and eliminating employment for hundreds of Ghanaian workers. The issues with the current MoFA FSP could be eliminated by modifying it to adhere to the validated Regional Fertilizer Subsidy Program Guide, which will soon be issued by the Economic Community of West African States (ECOWAS) as a directive. The Guide is built on 13 key principles, including inclusive participation, specialization, fair competition, efficiency, better targeting, transparency, timeliness, appropriate and quality products, incentives, complementary inputs, exit strategy, sustainability, and accountability, with 36 associated activities. Adhering to these principles and combining them with the associated activities would make the Ghana FSP a "smart" program that effectively accomplishes its purpose – improving the availability and use of fertilizers by smallholder farmers in Ghana to ensure greater productivity and food security.
Fertilizers, Value chains