How cartels have pushed up fertiliser prices, making food costly

Saturday April 27 2019

fertiliser

D.A.P fertiliser bags stored at the National Cereals and Produce Board's Eldoret depot on March 7, 2018. The fertiliser industry has always been a cash cow for cartels. PHOTO | FILE | NATION MEDIA GROUP 

JOHN KAMAU
By JOHN KAMAU
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Kenyan farmers could be paying more for fertiliser than any other country in the world, in a scandalous distortion of the market and stranglehold by cartels that has made our farm produce so expensive that it cannot compete with imports, the Saturday Nation reveals.

In a classic tale of corporate capture, the cartels have manipulated rules, created a monopoly, and left poor farmers at the mercy of global fertiliser titans.

That explains why local maize farmers, for instance, will never compete with imports as the cost of production continues to exceed the market prices.

As a result, the country has been left at the mercy of multibillion-shilling maize import cartels, both local and international, who make a killing year-in, year-out while frustrated farmers opt for other crops, or are left hoarding their produce in stores awaiting better prices that never come.

FERTILISER

At best, the farmers sell their produce at prices lower than the production costs, and at worst they abandon maize farming, which ironically gives the cartels a chance to continue doing business.

While a Kenyan farmer pays as high as Sh3,800 for a 50kg bag of DAP fertiliser, which is used for planting, his counterpart in the UK and Scotland pays Sh2,400 for a similar 50-kilo bag.

In India, they pay Sh2,045, while this year, Pakistan purchased a consignment of DAP for its farmers at Sh2,150 per bag.

Across the border in Tanzania, DAP is retailing at Sh2,400, a price set by the Tanzania Fertiliser Regulatory Authority (TFRA) for 2018/2019; while in Ethiopia, the country has ordered DAP from a Moroccan factory and is now retailing at Sh2,000.

While the global prices for DAP have been falling for the past five years, after China abolished a seasonal export duty in 2015, and thus flooding the international market with additional volumes.

Kenya does not seem to have enjoyed the benefits of this drop like other countries — thanks to established cartels.

MARKET

Records from the World Bank Index of Fertiliser Prices indicate a decline in fertiliser prices ever since the collapse of the leading cartel, the 40-year-old Phosphate Chemicals Export Association (PhosChem) — which then controlled the $30 billion global phosphate market.

In the US alone, PhosChem was handling most of the fertiliser exports on behalf of the Minnesota-based Mosaic, which supplied 93 per cent of all PhosChem’s export volume.

The balance of the crop nutrient was supplied by Potash Corp of Saskatchewan, Canada.

The collapse of PhosChem followed the July 2013 end of the Russian cartel network, which included two fertiliser giants: Uralkali OAO and Belarusian Potash Company (BPC), which are now looking for business in Kenya — and in Africa — through diplomatic manoeuvres.

So lucrative is the Kenyan market, at the moment, that on December 1, 2018 Russian billionaire Dmitry Mazepin — who is the Deputy Board Chairman of Uralkali — flew to Nairobi for a meeting with President Uhuru Kenyatta at State House Nairobi in a bid to strike some commercial deal with the government over the supply of fertiliser.

Mr Mazepin is the primary shareholder in this Russian chemical conglomerate and has been eyeing Zambia, Zimbabwe and Angola for growth.

COMPETITION

According to Reuters, Mr Mazepin told Interfax during his Nairobi tour that the reason he was redirecting sales to Africa from China and India was due to low prices in Asian countries.

He also said in Zimbabwe that he could offer mineral fertilisers at $300 per tonne — meaning a 50kg bag would cost Sh1,500 on arrival in Mombasa.

Another dominant player, which has been selling fertiliser in Ethiopia at Sh2,000 per 50kg bag, is the Moroccan Office Chérifien des Phosphates (OCP), a government-owned monopoly on phosphate mining, and whose entry into the Ethiopian and Tanzanian markets led to drastic reduction of DAP prices.

But in Kenya, where it had started to penetrate the market, OCP has been blocked from supplying fertiliser after its products were detained in Mombasa.

Investigators claimed that OCP’s fertiliser contained “mercury” and charged Kenya Bureau of Standards officials with “murder”.

While the matter is currently in court, OCP lawyers have insisted that the “mercury” claim is part of global fertiliser wars for the domination of the markets.

PRICES

Whereas the High Court has ordered for independent tests on the fertiliser, the Director of Public Prosecutions has been resisting the court efforts and OCP lawyers have been pushing for contempt of court proceedings against Kenya Bureau of Standards.

With OCP out of the market, farmers have been left with only a single choice — phosphates from Saudi Arabia’s Ma’aden factory.

Initially, Kenya had hoped that the building of a fertiliser blending plant by Toyota Tsusho in Uasin Gishu would help reduce the prices and turn around farmers’ fortunes.

But when the plant opened in 2016, farmers complained that the pricing was still beyond their reach at Sh3,200 — which was still way above the global average.

The other problem is that the government decided to procure subsidised fertiliser through a trading company Export Trading Group (ETG), which is not a producer of fertiliser.

More so, the fertiliser prices are set at Kilimo House, which gives instructions to the bank to open letters of credit.

With that, the role of the National Cereals and Produce Board is only to store and distribute the subsidised fertiliser, but not to guarantee farmers a fair price.

MONOPOLY

Insiders say that the battle for the Kenyan fertiliser market is openly being fought between Mosaic, the world’s largest producer of finished phosphate products and OCP of Morocco, the second-largest rock phosphate producer.

Mosaic has formed a phosphate joint venture with Saudi Arabian mining and metals company Ma’aden, which supplies the bulk of Kenya’s supplies — and all the subsidised fertiliser. Why Kenya has given Ma’aden a monopoly is not clear.

At the moment, there are two main sources of Phosphates — Morocco (77 per cent) and Saudi Arabia with 20 per cent.

But Kenya has cleverly blocked Morocco and Tunisia and left the market to Saudi Arabia through a technicality, thus reducing the level of competition that could impact on prices for farmers.

The government is now buying DAP fertiliser at Sh3,600 per 50kg bag — Sh1,000 above the global average.

Recently, North Rift Farmers Union signed an MoU with the Export Trading Group (ETG) to provide DAP fertiliser at a cost of Sh3,000 per bag, which is still higher than the prices in Ethiopia and Tanzania.

GRAFT

With the local market distorted, and the big players keeping off the field, this has turned out to be a chance to embezzle billions of shillings through the cereals board, giving unscrupulous dealers a chance to repack the subsidised fertiliser and sell it to the farmers at a higher price.

When Auditor General Edward Ouko examined the subsidised fertiliser distribution last year, he found that Sh4.2 billion remained unpaid — meaning that over one million bags of fertiliser had either been given away for free or that the money was simply swindled.

Whether this is part of the global fertiliser wars is not clear, but in Europe a similar war was waged and concluded last year.

In the European Union, the debate centred on how much cadmium — an element which is found in phosphates used to produce fertilisers — should be allowed in the soils, and it was argued that new rules on low levels of cadmium would be tantamount to giving preferential access to Russia.

POLICY

It was also seen as an attempt by Russians to use the debate to push out competition, according to a Financial Times report.

“Switching to Russia could undermine North African countries whose economies are heavily reliant on phosphates — hardly an attractive proposition for European policymakers preoccupied by terrorism and refugees,” wrote Politico magazine.

It was Russia’s biggest phosphate-based fertiliser manufacturer, Phosagro, which, to control the market, had pushed the European Commission to adopt the 20mg/kg limit — a move aimed at pushing out both Morocco and Tunisia.

An investigation by New York Times found a trade group, Safer Phosphates, which has been campaigning for tighter regulations on cadmium levels in the world, was not led by environmentalists but bankrolled by a Russian fertiliser giant with ties in the Kremlin and whose aim was to “push aside rivals and give it greater influence over food supply”.