TERMS OF REFERENCES TO DEVELOP A REGIONAL FERTILIZER STRATEGY FOR REGIONAL ECONOMIC COMMUNITIES IN AFRICA

1. Rationale

NEPAD is convening a new initiative as a first step towards rapidly increasing fertilizer use by millions of smallholder farmers in Africa, the Africa Fertilizer Summit. The goal of the Summit is to build consensus around the key issues constraining increased fertilizer use in Africa and to agree on a future strategy for accelerating the access of millions of poor farmers to fertilizer and other complementary inputs, in order to help them raise farm production and achieve improved food security.

The objectives of the Summit include:

·        Affirm the critical importance of fertilizer in contributing to rapid and sustainable pro-poor agricultural productivity growth in Africa;

·        Review evidence on use of fertilizer in Africa’s agriculture and identify the primary policy, institutional, financing, and infrastructural and market constraints that limit the access of fertilizers by poor farmers;

·        Learn about successful innovative approaches that have been used to build rural input market infrastructure to supply agricultural inputs to the rural poor; and

·        Agree on a strategy for developing an African Fertilizer Action Plan to accelerate the access of millions of poor farmers to chemical fertilizers and other complementary inputs.

The expected outputs include national fertilizer strategies and strategies for the regional integration of fertilizer markets.  The objective of the national fertilizer strategies is to identify actionable programs which represent the critical first steps for establishing private-sector led fertilizer markets to meet the supply and use requirements needed to attain the CAADP target of 6% annual growth in agricultural production. The regional fertilizer strategies will be developed to advance and sustain this objective.

The concept of a regional fertilizer market envisions a situation where importers and dealers are able to operate across national borders, testing and delivering fertilizers based on agroecological zones and market demand, without regard to political boundaries.  Therefore, the creation of an environment that promotes the free movement of fertilizers throughout the region (except for modest duties and reasonable quality controls) can support development of the regional fertilizer market.             

This terms of reference provides a blueprint for the development of a regional fertilizer strategy by the regional economic communities (RECs) in Africa.   It outlines the expected tasks of an assigned team of agricultural marketing experts in each REC supported by consultants, whose goal is to study and propose a bold actions which will advance the development of regional fertilizer markets.  The thesis is that while developing regional markets requires a long-term, sustainable approach, there are deliberate actions that can be taken in the short-term (within the next 3 years) that will boost the RECS and irrevocably place them on the path towards regional integration of their fertilizer markets.

Therefore, the purpose of the regional fertilizer strategies will be as follows. First, make recommendations for harmonization of fertilizer legislation and regulatory systems, and trade policies and for the development of regional market information databases to provide accurate, timely information to traders and farmers using different languages and types of media. Second, the regional fertilizer strategies will identify regional initiatives that have been successful in advancing the development of regional fertilizer markets and that may serve as a roadmap for the other RECs.  The regional fertilizer strategies will also identify opportunities for and obstacles to increased trade in fertilizers between the RECs.

2. Why A Summit?

NEPAD places emphasis on agriculture as the lead productive sector that provides the main source of livelihoods and income for Africa’s rural population. With 70% of the poor living in rural areas agriculture development is the key to achieving the Millenium Development Goals.  Therefore, NEPAD members endorsed a Comprehensive Africa Agriculture Development Plan (CAADP) that set targets to 2015 of 7% per year average growth in GDP and 6% per year average growth in agricultural production.  However, average agricultural growth rates over the past decades have averaged 3.28%. The poor performance  of the agricultural sectors within sub-Saharan Africa is due to the low use of external inputs like fertilizers, and the long-standing reliance on traditional agricultural practices and extensification by small-scale farmers seeking to improve yields. If the REC countries are to develop sustainable agriculture capable of meeting the CAADP targets without destroying the soils, substantial increases in fertilizer use are required. There has been little or no growth in fertilizer use for the past decade leading to nutrient mining and declining soil fertility.  According to FAO, average fertilizer nutrient application rates in SSA need to increase from 9 to 23 kg/ha within the next decade in order to prevent continuous mining of plant nutrients and low productivity.  Input supply chains are needed that provide access to fertilizers in a timely manner and at affordable prices. These input supply chains must be complemented by output markets that provide the incentive to use fertilizers.

Since liberalization, countries in sub-Saharan Africa have made considerable progress towards privatizing and deregulating their input markets. Nevertheless, the national fertilizer markets are thin, fragmented, and have often been developed on the basis of linkages to commercial crop production. The constraints to fertilizer market development include: lack of political will; high f.o.b. prices and transport costs; poor transport, information and communication infrastructure; small market size; lack of business skills and organizational capacity; weak and/or restrictive legal and regulatory frameworks; and restrictive trade policies. Consequently, transaction costs are high resulting in prices that often place fertilizers beyond the reach of the majority of farmers within the region and with insufficient incentive for profitable use. While many of these constraints require attention at the national level, some can be most effectively addressed only by developing regional markets. Specifically:

Constraint 1: Because national markets are small fertilizer companies in REC countries tend to import relatively small consignments at high f.o.b prices and high transport costs. F.o.b. prices are significantly lower for high volume shipments of 15,000 tons to 30,000 tons at a time for a single product. 

Regional Solution: Regional importation, the establishment of regional procurement centers, and regional production centers via joint ventures or public-private partnerships can overcome the small market size barrier and associated high costs by enabling economies of scale in purchases, storage and shipment.

Constraint 2: Agro-trade policies such as tariffs and taxes (VAT) on fertilizers and other agricultural inputs, road and rail taxes for inter-country transportation, and fertilizer quality and quantity barriers increase transaction costs.

Regional Solution: Policy reform to remove or reduce trade barriers and regional harmonization of these policies can reduce transaction costs and facilitate imports and intra-regional trade

Constraint 3: Laws and regulations that govern the fertilizer industry include: registration procedures; packaging and labeling requirements; quality control measures including pre-shipment inspection; and their enforcement. They are often inharmonious restricting cross-border trade.

Regional Solution: Harmonization of legislation can facilitate intra-regional trade, expand business opportunities and reduce transaction costs.

Constraint 4: Farmers and traders need accurate and timely information about input and output prices, business opportunities, product availability, and product quality in order to make smart business decisions.  However, although many REC member countries have established national market information systems, and there are regional level initiatives in place to improve the flow of market information between member countries, not all countries have market information systems and the regional databases do not always include data on fertilizers.

Regional Solution: With market information on fertilizers, demand and supply situations, trends, prices and market intelligence traders can move fertilizers across borders based on supply and demand conditions that develop over a season and hence reduce costs. This will promote market transparency and market integration.

Therefore, the development of regional markets for fertilizers requires changes in the rules and regulations to allow fertilizer companies to move fertilizer products from one country to another with a minimum of regulatory controls and trade restrictions.  This will facilitate importation of fertilizers for more than one country in the region at one time thus enabling importers to take advantage of economies of scale. It will also allow the free flow of information and fertilizers across borders thus enabling input dealers to move fertilizers according to supply and demand conditions. These changes include governments accepting:

·        all fertilizer compounds or compositions in the region;

·        the same packaging;

·        waiving or revising regulations about pre-shipment inspection to allow shipments coming into the main ports such as Tema in Ghana or Beira in Mozambique to be approved for sale throughout the region. 

·        reduction or removal of trade barriers (taxes, tariffs, and duties) to facilitate ease of importation into the region and redistribution within the region.

·        strengthening and developing existing national MIS systems and establishing a regional database which makes prices, market conditions, market intelligence and other useful information accessible in different languages to clients throughout the region via various types of media

3. Goal and Objectives

The goal of this terms of reference is to develop a regional market integration and trade strategy which will reduce transaction costs and improve market transparency and competitiveness.  The objective is to conduct an assessment of the fertilizer sector in the REC countries from a regional perspective in order to develop a regional consensus on fertilizer legislation, regulatory system implementation strategies, trade polices, market information systems, and transport infrastructure improvements that, when adopted, will: (1) Create open borders for free trade and movement of fertilizers among member countries; (2) Protect the fertilizer consumers while not restricting their ability to procure a range of appropriate fertilizer products; (3) Encourage the private sector to provide an appropriate range of fertilizer products; (4) Promote market transparency and competition.

Moreover, trade  between RECs could be just as important as trade within the RECs. For example, many members of the UMA are fertilizer producers.  Therefore, attention should be given to examining the options for increasing fertilizer exports from the UMA countries to the other RECs. Secondly, the RECs have different strengths and weaknesses and are at different levels of development. Some RECs have regional fertilizer markets that are more developed than those of others while some RECs are more advanced in the area of research and technology. During this self-assessment exercise, each REC should identify its strengths and on this basis state what assistance (technical and financial) it can provide to others. Similarly, each REC should identify the key constraints blocking the development of a regional fertilizer market, and propose the pivotal interventions that would put it firmly on the path to regional market integration.

4. Tasks to Develop a Regional Fertilizer Strategy

Task 1: Detail and assess the various regulations and trade policies in each REC country that impact fertilizer trade within and between countries;

Task 2: Propose formulations of/amendments to national fertilizer policies of each REC country that would be compatible with the legal system of each country while at the same time be harmonized between member countries;

Task 3: Propose revisions in the trade policies of each REC country that would be conducive to unrestricted trade of fertilizers between member countries.

Task 4: Propose development/strengthening of market information systems that will promote market transparency and market integration

Task 5:  Assess the current level of trade with other RECs and identify opportunities for and obstacles to increasing this trade.

Task 6: Describe existing initiatives in the areas of policy harmonization, intra-regional trade, and regional market information systems in the REC which have been successful and can be replicated by or scaled-up in the other RECs.

Task 7: Describe the type of assistance (technical and financial) the REC could provide to other RECs.

Task 8:  Describe the options that exist for export of fertilizers to other RECS/importation of fertilizers from other RECs instead of from the current suppliers.

Task 9: Describe options for the establishment of regional fertilizer procurement centers.

Task 10: Propose a strategy for developing a regional fertilizer market that will promote market integration and trade, improve market efficiency and transparency, and also promote linkages between the RECs,

5. Organization of work

This activity will entail conducting an assessment of the legal and regulatory frameworks, trade polices and market information systems that impact the fertilizer industry in the REC countries.  It will also entail some self-assessment with regards to the types of assistance the REC can provide to other RECs, both by sharing its successful initiatives in the area of regional market integration, and through the provision of technical and financial assistance.  Opportunities for fertilizer trade with other RECs should also be identified.

This work should be carried out by 2 agricultural marketing specialists retained by the RECs with experience in the use and commercialization of fertilizers in the region.  In addition, consultants will be engaged by the IFDC and NEPAD Secretariats to assist the RECs in developing their regional strategies. The consultants will be engaged for a total of 1 month each between January 2006 and April 2006.  During this period the consultants will travel to the REC’s member countries to assist the RECs in data collection  and analysis, and the preparation of the regional strategy documents.

6. Timeline

The strategy will be developed between December 2005 and April 2006. The first draft will be submitted to the IFDC/NEPAD Secretariat by March 15^th, 2006. The final draft will be submitted to NEPAD/IFDC by April 30^th, 2006.

7. Expected Output

There will be a 30 page report outlining a strategy for developing a regional fertilizer market.  The report will include an operational plan to reorganize and develop the regional fertilizer market over the next 3 years. The report should describe the specific activities and resources involved and where possible the proposed activities should have a timeline and performance indicators. Specifically, this report will contain the following:

Intra-REC analysis

1. A review and critique of the legislation and regulations governing fertilizer markets in each REC country and recommendations for revisions that would  harmonize these policies;

2. An assessment of the various policies on tariffs, taxes, transportation, etc., in each REC country that impact fertilizer trade within and between countries, and recommendations for changes in these policies that would improve fertilizer trade within and between countries.

3. An assessment of the availability of market information on fertilizers in each REC country and details of requirements to develop a regional database to promote the regional flow of fertilizer market information.

4. An assessment of the possibilities for establishing a regional fertilizer procurement facility.

Inter-REC analysis

5. An assessment of the current level of trade with other RECs and identification of opportunities for and obstacles to increasing this trade.

6. A description of the successful initiatives in the areas of policy harmonization, intra-regional trade, and regional market information systems  in the REC which can be cited as “success stories” and  provide lessons for the other RECs.

7. A description of the type of assistance (technical and financial) the REC could provide to other RECs.

8.  In the case of a REC whose members are fertilizer producers: a description of the opportunities for export of fertilizers to other RECs. In the case of a REC whose members are fertilizer importers: an analysis of the competitiveness of importing fertilizers from another REC instead of from current overseas suppliers.