Tuesday, April 23, 2024
BusinessScarcity of fertilizer supply forces diplomacy

Scarcity of fertilizer supply forces diplomacy

Russia becomes last resort for Ethiopia’s acute need for Urea

Government revises farm-gate prices

The Government of Ethiopia is forced to deploy diplomacy as prices of fertilizer in the international market more than doubles, threatening Ethiopia’s foreign currency reserve. After repetitive international bids failed to fetch potential fertilizer suppliers, Ethiopian embassy in Russia is exerting efforts to directly access urea at factory prices, The Reporter has learnt.

The first round of international bids floated by the Ministry of Agriculture (MoA) and the Ethiopian Agricultural Business Corporation (EABC) failed, mainly because the fertilizer in the international market was much higher than Ethiopia’s USD600 million initial budget to import 20 million quintal/tons of urea and NPS.

Direct invitation for 14 international suppliers during the second round also could not bear fruit, as they failed to meet technical requirements and price validations.

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The third time around, the Ministry has invited international suppliers to negotiate directly with the Corporation and the Ministry. Again fourteen firms were interested but only two managed to pass this time.

Out of the two, only one was awarded the contract, while the other is not engaging currently. OCP, a Moroccan fertilizer company, was given the contract to supply NPS, which replaced the former, DAP.

NPS, due to its types and demand, is expensive, and constitutes half of Ethiopia’s total fertilizer demand, and the rest is urea. The NPS is already being loaded right now, while the packs have already arrived at Djibouti port. The fertilizer and its packaging materials are imported from different countries, while the packaging is done at Djibouti port.

However, the MoA and the corporation did not find a supplier for the urea, forcing another round of bid to be floated.

“Currently, we are vesting our hope in Russia. Our embassy is communicating with Russia. Russia is a natural gas producer, hence, fertilizer producer. If the effort with Russia fails, we have no choice but to buy from the market, with the highly inflated price,” said Kifle Woldemariam, CEO of EABC, which processes the import, supply and price stabilization of agricultural inputs.

Globally, countries are not willing to export urea, since COVID-19 took hold. This is because price of natural gas is highly inflated in these countries. As economies producing natural gas and urea recover from the pandemic, their own demand for these commodities surged, hence, the unwillingness to sell to other countries.

A committee formed at the MoA is trying to find the right urea supplier, for the fourth time. Price of Urea in the international market is over USD900 per metric ton now, almost three times higher than previous purchasing prices.

“We are trying to find urea manufacturers. If we could eliminate the brokers in the middle, we can find urea for lower price, directly from manufactures,” said Kifle.

The Agriculture Ministry also requested for an additional foreign currency allocation from the central bank to compensate the price hikes, according to Sofia Kassa(PhD), its State Minister.

Currently, the ministry and corporation are revising farm-gate prices of fertilizer to compensate the additional cost of fertilizer in the international market by channeling part of it to the farmers.

Last year, government subsidized 4.3 billion birr for farmers. Government subsidizes around 330 birr per quintal, so that close to 14 million smallscale farmers in the country can afford the input. In the past, farm-gate price of NPS was around 2,000 birr per quintal, while urea was around 3,000 birr per quintal.

“New farm-gate price will be introduced this year. Shipment has already started and we will disclose the new price soon, considering the paying capacity of our farmers,” said Sofia.

The government is also re-assessing the fertilizer demand, with the possibilities of downsizing the volume.

“Initial demand was 20 million quintal/tons. But currently, we do not know the exact need on the ground, especially in the northern part of Ethiopia, due to the war. The demand for fertilizer in Wollo, Mehoni and surrounding areas is high. But we have no update on how much stock rolled down from last year,” added Kifle.

According to the National Bank of Ethiopia (NBE) report, the government has been subsidizing up to 324 birr per quintal, and Ethiopia’sfertilizer import costs in birr has already doubled in the past five years, jumping from 8.6 billion birr in 2014/15 to 16.8 billion birr in 2019/20.

According to the report, the volume increased only from 13.8 million metric tons to 24.1 million metric tons.

Basically, NBE allocates the foreign currency and regional states pay the equivalent in birr. The money covers fertilizer procurement, shipment, loading-unloading, packing and other expenses.

Once the fertilizer is transported from Djibouti port, it is distributed to farmers through cooperatives.Import and distribution of fertilizer is reserved to the government, fearing the private sector would inflate farm-gate prices beyond farmers purchasing capacity.

If the government increases farm-gate price substantially, it can inflate agricultural outputs by next year, fueling inflation, warned experts.

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