Fertilizers Reaching Farmers’ Hands
Authors:
Brian Kiger (bkiger@ifdc.org); Ketline Adodo (kadodo@ifdc.org)
The International Fertilizer Development Center (IFDC) is a public international organization addressing critical issues such as international food security, the alleviation of global hunger and poverty, environmental protection and the promotion of economic development and self-sufficiency. IFDC focuses on increasing productivity across the agricultural value chain in developing countries. This is achieved by the creation and transfer of effective and environmentally sound crop nutrient technology and agribusiness expertise. IFDC is governed by an international board of directors with representation from developed and developing nations. The non-profit Center is supported by bilateral and multilateral aid agencies, private foundations and national governments. IFDC was established in 1974 in response to global food and energy crises. To date, IFDC has provided assistance in nearly 100 countries. Introduction Haladu Abdu, chairman of Jumar Kwari Kamfa Fadama Farmers Cooperative (Wudil, Kano), just paid for two 50-kg bags of mineral fertilizer upon presentation of a voucher coupon that was allotted to each member of his farmer group two weeks earlier in Kano State, Nigeria. ―The great advantage of the voucher program is that fertilizer is distributed almost on our doorsteps,‖ he says. ―Many of us had not seen fertilizers for a long time. Last year, with this program, we received three bags each, this year it’s two bags, but this is still good. Once, we were entitled to two bags for our entire community!‖ Mr. Abdu was one of a total of 300,000 farmers who were targeted in Bauchi, Kano, Kwara and Taraba states with an opportunity to purchase a select amount of government-subsidized fertilizers. This initiative fell under the 2010 Fertilizer Voucher Program, funded by the U.S. Agency for International Development
(USAID), in collaboration with all four state governments and implemented with the technical support of IFDC, which is an international center for soil fertility and agricultural development. Fertilizer was declared a strategic commodity by the African Summit on Fertilizer held in 2006 in Abuja, Nigeria. The 2006 Summit identified the need for the intensification of agricultural production through an increase in the use of fertilizers to restore the fertility of generally exhausted fields. The heads of state and government of the African Union committed themselves to increasing average fertilizer use to 50 kg per hectare from the current average of 8 kg per hectare (90 kg being the world mean). Since then, IFDC has partnered with Federal and State governments to increase farmers’ access to fertilizers in select states in Nigeria. Currently, farmers’ access to mineral fertilizer nationwide is limited. In fact, fertilizers are much more difficult to purchase than for example a bottle of Coca-Cola or a cell phone recharge card, which can be purchased in most rural villages in Nigeria. The Nigerian Experience Between 1977 and 1996, previous federal governments implemented an annual program for direct procurement and distribution of fertilizer to farmers. This system primarily benefitted the privileged while generally bypassing less-advantaged smallholder farmers. In 1997, the fertilizer market was liberalized without private sector fertilizer suppliers adequately being prepared to supply fertilizers to Nigerian farmers. This resulted in a sharp decline of fertilizer use, from 1.2 million tons used in 1992 to less than 57,000 tons in 1997. In 1999, the federal government introduced a subsidy of 25 percent to increase fertilizer use among farmers in an effort to strengthen Nigeria’s food security. However, studies done since then show that only 20 percent of the subsidized fertilizers reach smallholder farmers due to intermediaries’ manipulation and diversion of government-purchased fertilizer along the delivery channels and at distribution points. Moreover, products often arrive late in the season, can be adulterated in quality and quantity, and are sold at prices comparable with unsubsidized fertilizers in the local market. In the past, this was due to intermediaries and different levels of government agencies not being held accountable throughout the procurement and distribution of government-supported fertilizers. How do we make sure that subsidized fertilizers reach smallholder farmers in time and at a reduced cost? It is a challenge which Nigeria and many developing countries seek to solve. One answer is to utilize a voucher system to distribute inputs to targeted beneficiaries. IFDC’s Regional Agribusiness Program Leader, André de Jager, supports this, ―One of the voucher system’s strengths is that everyone gains: the distributor benefits from an assured market and a guaranteed margin; the government benefits from the assurance that subsidies are reaching a targeted audience – smallholder farmers; the farmer benefits from governmental assistance and is able to buy fertilizer near his/her home.‖ In 2008, capitalizing upon successful experiences in other countries such as Afghanistan, Albania, Malawi and Mozambique, IFDC, in collaboration with the National Program for Food Security (NPFS) of Nigeria,
piloted a Fertilizer Voucher Program (FVP) in Kano and Bauchi States. These pilot interventions, which targeted less than 5,000 farmers, demonstrated the feasibility and efficiency of a voucher system to administer targeted subsidies through which smallholder farmers could benefit directly from the private sector supply of subsidized fertilizers. The successes of the 2008 program led to the development of the 2009 model programs aiming to test the Fertilizer Voucher System on a greater scale. A larger program covering Kano and Taraba States was launched. These programs aimed to supply subsidized fertilizers to one-third of the smallholder farmer population in each State (134109 farmers in Kano and 60 468 farmers in Taraba) with financing from Nigeria’s Federal Government, the two states, USAID and the Alliance for a Green Revolution in Africa (AGRA). The objectives of the FVPs in Nigeria are three-fold: 1) to ensure that the subsidies reach the targeted farmers; 2) to develop a distribution channel managed by the private sector that is able to function with or without subsidies while providing fertilizer to meet market demand; and 3) to improve the administration of subsidies by the Federal and State Governments. Muhammad Umar Kura, Managing Director of the Kano State Agriculture and Rural Development Authority (KNARDA), praises the program as an immense success. ―We tested several options while starting with the direct distribution of fertilizers to farmers, but the government does not have the capacities of a business enterprise. Fertilizer is a political product. The shiner of shoes, the mechanic on the corner, everyone is interested in fertilizers since it is provided by the government. We needed a program which makes it possible to deliver quality inputs to targeted farmers. It is the transparency which is the strength of the FVP. The cost of the subsidy becomes more bearable for the government if it is sure that the money spent benefits real farmers.‖ How does the Voucher System Work? Vouchers that represent a 40 percent discount on the market price of select fertilizer are strategically placed directly into the hands of identified smallholder farmers by local extension agents (who are coordinated and supervised by IFDC/NPFS implementation teams). The vouchers are redeemable with selected fertilizer dealers at the voucher-reduced price. The voucher-holding farmers pay only for the remaining market cost (60 percent) of the fertilizer not covered by the subsidy. Professor Victor Chude, Head of Agricultural Production Enhancement for NPFS, illustrated the importance and the impact of the FVP in Nigeria. ―The program
has many advantages – eliminating intermediaries, improving the availability of and the access to fertilizers, increasing food production and improving food security.‖ Farmers’ names and photographs, unique voucher codes, indelible ink and barcodes are all utilized at several stages of the program as means of security. Each voucher has these security features and each is laminated (which tears the voucher if someone tries to remove the laminate) to limit manipulation throughout the six stages of the program: planning, farmer identification, stakeholder trainings, voucher distribution, fertilizer distribution and voucher redemption. Before voucher redemption can occur, the program identifies targeted farmers on the basis of specific criteria which are subsequently recorded into a database. Criteria in the Nigerian FVP include: farmer contact information, farm cultivation characteristics, affiliation with a farmer group and financial capacities. This information is gathered and processed by local extension agents coordinated and supervised by IFDC/NPFS survey teams; later, vouchers are distributed to targeted farmers based on selected criteria captured from the farmer survey. In 2010, the farmer criteria varied from state to state depending on their specific farming demographics and capacities. The majority of participants were smallholder farmers (including 20 percent of participants being women) who were affiliated with an organized farmer group and who could afford to pay 60 percent of the market price for a bag of fertilizer. While farmers receive training on fertilizer management, they are also trained on how the program works, including being informed of a place and date for both voucher and fertilizer distribution. Each transaction is conducted and closely monitored by trained teams consisting of agents of the Ministry of Agriculture and each respective state’s extension agency under supervision of and coordination by IFDC. Distribution teams are required to take a daily inventory of vouchers distributed and fertilizers sales under the supervision of program monitoring teams. With vouchers in hand, farmers can purchase a specific quantity and type of fertilizer from local privatesector fertilizer dealers participating in the program. Local fertilizer dealers then redeem the vouchers with their respective fertilizer supply companies, which in turn redeem vouchers with the government via project implementation teams. Typically, local fertilizer dealers pay fertilizer suppliers in full or receive credit from them, depending on the fertilizer supplier’s business policy. Once stakeholders agree on the validity of the redeemed vouchers, the government then pays the outstanding subsidized balance based on the number of redeemed vouchers.
Program Constraints Despite the program’s successes, there are numerous constraints to its sustainability. Different types of delays have been the major constraints affecting the program over the last two years. In 2009 and 2010, the governments delayed payment to program stakeholders – jeopardizing the program and its impact by pushing back the start of each state’s program. Therefore, the distribution of vouchers to identified farmers and farmer groups by the implementation team was delayed. Delays in government financing influence the supply of fertilizers to be delivered later in the season by: (1) delaying the supply of fertilizers; (2) reducing the availability of fertilizer when farmers need it most; and (3) reducing the impact
of the program on farmers’ crops. Such delays have confronted Nigeria’s complex fertilizer sector over several years – the FVP is not a panacea and faces similar challenges; however, the FVP facilitates an environment in which the public and private sector can work together more efficiently to overcome these constraints. Each agro-dealer’s capacity to effectively implement the FVP – financially and ability-wise – is another challenge that the program is working to overcome. In the past, fertilizers have been distributed via government channels, not through the private sector – developing a distorted market where the primary clients of fertilizer companies are federal and state governments, not farmers. This has resulted in a private sector with significant gaps in the supply channel from the producer to the local fertilizer dealer. Moreover, fertilizer companies, their regional distributors and local fertilizer dealers are challenged with limited access to the affordable credit that is needed to procure the fertilizer and distribute it via the program parameters to farmers. Stakeholders’ financial capacities directly influence the success of the program’s implementation. Equally challenging is the capacity of government employees (including extension agents) to implement the program, since the program is implemented by each state’s extension agency. As state and federal funding for the agricultural sector has dwindled, so has the qualification and capability of government agricultural agents working in rural areas (since qualified individuals have sought income elsewhere). Aiming to improve the capacities of local extension agents, the FVP provides a financial incentive for government extension agents to redevelop their relationships with their local farmers by paying the extension agents for their involvement in implementing the program. One of the main program constraints is the fact that there are no national identity cards in Nigeria. It is a challenge to identify farmers who do not possess any identification, to ensure that an identified farmer receives only one voucher and to remain accountable to all stakeholders ensuring that fraud is limited. Subsequently, more than 90 percent of the program’s resources are focused on ensuring the program’s transparency while preventing fraudulent activities. In the two years of the program’s statewide implementation, the program’s transparency is directly proportional to the capacity of the program’s resources. The more resources there are, the greater the program’s transparency will be. If the program is to be sustainable, it must be implemented by some of the same entities that were benefitting from the prior fertilizer system where fertilizers were being diverted from their intended beneficiaries. An overarching constraint is that not all participants at the state and federal levels support
this program — which probably influences the delay of payments to program stakeholders. There are deliberate actions taken to frustrate the widespread adoption of the program due to its transparency. For the same reasons that many laud the program, others see the program as a threat to their interests and seek to discredit and disrupt it. Much like any other initiative, the program’s success depends on a supportive government and stakeholders implementing the program taking ownership of it. The Fertilizer Voucher Program’s Impact in Nigeria In 2009, the Nigerian Fertilizer Voucher Program worked in two states distributing an aggregate of 29,800 tons of mineral fertilizer to 194,000 farmers; in 2010, the FVP was implemented in four states and distributed an aggregate of 16,397 tons of mineral fertilizer to 171,000 farmers. The program enabled the federal and participating state governments to provide a purchasing power support of $7.9 million in 2009 and $4.4 million in 2010 to selected farmers purchasing mineral fertilizers while aggregate private sector sales of fertilizers via the program were $18.7 million in 2009 and $10.6 million in 2010. Table 1.
The 2009 & 2010 Fertilizer Voucher Program in Nigeria Description # of States Participated
2009
2010
Number of Farmers Purchased Fertilizer via the FVP
2 4 194,000 171,000
Amount of Fertilizer sold via the FVP (MT)
29,800
16,397
Purchasing Power Support by participating governments ($ millions)
$7.90
$4.40
Aggregate amount of Fertilizer Sales ($ millions)
$18.70
$10.60
Although the FVP increased its regional scope into two additional states in 2010, the overall number of farmers reached and the quantities of fertilizer sold were reduced year over year. This is due to the constraints addressed above – specifically, governments’ financial capacities and their delays in paying stakeholders for the 2009 season that negatively impacted stakeholders’ commitment to the 2010 program. Subsequently, in 2010, participating governments delayed their financial commitments to the program, continuing the financial bottleneck constraining the implementation of the program. The FVP is more transparent (90 percent of FVP fertilizers reached targeted farmers in 2009 and 2010) and cost-efficient than previous Nigerian fertilizer distribution programs in which approximately 20 percent of distributed fertilizers were available at various market prices. Government costs to deliver subsidized product to targeted farmers are reduced by 60 percent (the amount FVP farmer participants pay of fertilizers’ market price), while the government provides the additional 40 percent purchasing support of remaining market price. Vouchers allow the profit incentives of a guaranteed market to encourage private sector agro-input suppliers to develop their supply channels more fully into rural areas. As the private sector is able to demonstrate to governments that they are capable of providing access to fertilizers in rural areas more
cost efficiently than governments, the government can reduce its spending on the annual distribution of fertilizers. By reducing the costs that the governments incur annually from the traditional fertilizer program, Nigerian governments can utilize these savings to improve rural infrastructure and education – which generate significant returns on investment. Take for example the fact that the transportation of fertilizer in-country results in a 30 percent transaction cost reflected in the product’s price mark-up in local markets. Improvement in Nigeria’s transportation infrastructure will reduce the costs of fertilizer in rural areas and improve farmers’ abilities to move their products to markets. Another example of the program’s impact can be found in Kano State. Its focus on the development of agriculture has resulted in the State becoming one of the largest grain producers in Sub-Saharan Africa. This has also encouraged Kano State to develop an effective voucher system. As a result of 2009’s successes, Kano State developed new voucher systems in 2010 based on the fertilizer voucher model to distribute seeds and plant health products to farmers statewide. This program was implemented in full by the state’s extension agency, targeting many of the same farmers that were targeted by the 2010 FVP. The challenges the program faces with commitment and delays are real and will not be overcome in one growing season; however, the FVP is improving the private sector’s ability to provide rural farmers in Nigeria with access to fertilizers in a more economically efficient method than have past Nigerian governments. The underlying lesson from the 2009 and 2010 FVPs is that Nigeria’s different levels of government need to fully support the program and its goals in their entirety or the program’s initial successes will become history and access to fertilizer will remain one of the constraining factors to the development of Nigeria’s agricultural sector. As IFDC Nigeria Country Representative Scott Wallace indicates, ―If you go into rural areas in Africa, you can find items such as cell phones, Coca-Cola and salt, but in many places you cannot find fertilizer,‖ Wallace says. ―This is why we are working on a system to improve that.‖