Abstract

Wanjiku Nekesa and Tumusiime Brendah

In June 2006, African Heads of State declared support for increase in quantity of fertilizers used by farmers from about 8 to about 50 kg ha-1 . Following realization of the structural weaknesses in African fertilizer industry, regional joint procurement capable of reducing fertilizer farm gate price and increase demand has been noted as a potential route to attain this goal. Structural changes in fertilizer procurement in Africa can reduce farm gate price by 11 - 18%. This study compares the effect of fertilizer market structural changes on demand and farm income for 11 countries with base situation under three price elasticity of demand scenarios (-0.38, -1.43, and -2.24). Data analysis combined simulation techniques with regional farm enterprise analysis based on ex-ante information to assess the impact on farm income of alternative fertilizer pricing policies. Result showed that structural change in fertilizer procurement (reducing price by 15%) led to 6% additional income (US$125 million) under low elasticity (-0.38), 22% (US$472 million) under medium elasticity (-1.43), and 34% (US$730 million) under high elasticity ( -2.24) compared with base. Switching from one scenario to another indicated the potential for 20 – 32% further increase in farm income. The paper concluded with a recommendation for increased support for structural interventions that reduce farm gate price of inputs because they increase production, productivity, and total income, leading to improved livelihoods.