Determination of Fertilizer Cost Components and Their Effect on Fertilizer Prices and the Fertilizer Value Chain in Ghana
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Date
2020-12
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Abstract
Fertilizer is a major input for crop production, especially in nutrient-depleted soils. In Ghana, consumption of fertilizers has been relatively low due to high prices, which has prompted the introduction of fertilizer subsidy programs to induce consumption and increase agricultural productivity. However, the externality effect of the subsidy program is eroding the profitability of the fertilizer sector downstream, especially the commercial fertilizer market, as margins are insufficient to encourage the expansion of retail distribution networks to remote agrarian communities. These externalities could compromise the gains made by the Planting for Food and Jobs (PFJ) program of the Government of Ghana (GoG). This study establishes margins and profitability of value chain actors in the wake of the PFJ. A total of 394 respondents, comprising 153 agro-dealers (106 retailers, 42 distributors, and five importers) and 241 farmers, were interviewed through the aid of a questionnaire. Cointegration analyses were used to investigate price transmission within markets, while a vector auto regression (VAR) model was used to determine the relationship between subsidized and commercial fertilizers (NPK 15:15:15 and urea) for the period 2012-2019. The results revealed weak market efficiency within the fertilizer markets investigated in Ghana while also establishing that prevailing prices of subsidized fertilizers influence the subsequent prices of commercial fertilizers for the period investigated. Furthermore, value chain cost and margin breakdown revealed fertilizer importers had a net positive margin (6.24%) when all costs were factored in, while distributors and retailers had net margins of -17.19% and -15.13%, respectively, for commercial urea. Farmers had the highest transportation cost (3 GH₵ per 50-kg bag) associated with the purchase of fertilizers, as a result of the poor fertilizer distribution network in Ghana. The report concludes with several recommendations, such as an inclusive subsidy negotiation and more research and development to address the identified externalities
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Keywords
Value chains, Fertilizers
Citation
Odionye N., Saa D., Laamari A., Adzawla W., Koffi I., Afimia E., Atakora W.K., Jemo M., Bindraban P.S., 2020. Determination of fertilizer cost components and their effect on fertilizer prices and the fertilizer value chain in Ghana. IFDC FERARI Research Report No. 4.