COTE d’IVOIRE

Cote d’Ivoire - PESTEL Analysis

Political Economic Social Environment Legal

• Mr Ouattara re-elected in 2015 for a second five-year term.

• Tensions over the 2020 political succession and post-conflict reconciliation will dominate politics. Government.

• periodic mutinies in the army and strikes continue to stoke some volatility.

• GDP growth of 7 to 7.5% expected to continue

• recorded a trade deficit of 15.23 CFA Franc Million in June of 2018 but is expected to move back to positive picture in Q4 2018 through Q3 2019

• The financial sector remains vulnerable to government influence. The State owns or holds shares in several domestic financial institutions.

• economy is highly sensitive to fluctuations in international prices of agricultural and mining products, climate conditions.

• human development indicators have been slow to improve, and economic inclusion is limited.

• Outside the capital Abidjan, medical facilities are limited

• It remains one of the countries with the world’s highest gender inequality rates

• Côte d’Ivoire is home to some spectacular forests, but deforestation is substantial and widespread.

• Dense primary forest has been largely replaced by a patchwork of secondary forests, cash-crop plantations, timber plantations, food crops, and fallows.

• The country is also weak on Transparency, Accountability and corruption in the public sector

Key Takeaways: • There is still some political uncertainty as we approach the 2020 elections which will determine who succeeds president Ouatara.• The key social challenge will be to reduce social inequalities significantly by keeping the country's economy on a strong growth path• The country has good infrastructure and will be boosted further by the rehabilitation of the railway system

• Fairly well-developed road network

• A fall in railway traffic has increased the burden on the road network

• Railway rehabilitation project launched in 2015 will refurbish Abidjan-Ouagadougou line.

• CI is West Africa’s third largest Internet market after Nigeria and Ghana.

• It also has a mobile phone penetration rate of 70% - one of the highest in sub-Saharan Africa.

Technical

Agricultural Dynamics - Overview

• Côte d’Ivoire has built its economic foundation on agriculture development. It is the world’s largest exporter of cocoa.

• Côte d’Ivoire has become the largest exporter of raw cashew nuts in the world and remains the largest exporter of rubber, oil palm, bananas, pineapples and copra in Africa. The country is self-sufficient in a variety of staple foods – maize, sorghum, millet, yam, cassava, plantain banana – with some small exports to the sub-region

• The agricultural sector currently accounts for 22% of GDP, over three-quarters of non-oil exports, and provides employment and income to two-thirds of all households. In addition, much of the manufacturing and transport sectors also depends on agriculture.

• Côte d’Ivoire is the world’s top producer of cocoa. Cocoa is produced by about 500,000 producers and the sub-sector remains the central pillar of the rural economy.

• Cotton has long been the foundation of the economy in northern Côte d’Ivoire. The sector experienced a remarkable recovery with production rising to a peak of 196,128 tons in 2014. It has declined slightly since then but is on the rise again with 2018/19 production estimated at 157,992 tons.

Source: www.fao.org/nigeria/fao-in-nigeriahttps://www.indexmundi.com/cote_d_ivoire/gdp_composition_by_sector.html

17%

29%

54%

Sector Share of GDP

agriculture:

industry:

services:

Agricultural Dynamics– Cereal Yield

1,300

1,500

1,700

1,900

2,100

2,300

2,500

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

COTE D’IVOIRE CEREAL YIELD Kg/Ha

Cereal yield in kg per hectare

REGION 1961 2016

Cote D’Ivoire 624.2 2133.9

World Average 1422 3967

Middle East & North Africa 813 2582

Latin America & Caribbean 1272 4172

European Union 1978 5173

East Asia & Pacific 1416 5075

• Cereal yields in Cote d’Ivoire are still low and are about half of the world average.• Rubber and Oil Palm production have grown significantly over the recent years. The

two value chains are well structured around a mix of industrial and small/medium-scale plantations which now account for 60% of total production.

• The cashew sector witnessed an impressive development over the past decade, with production reaching 420,000 tons in 2012, propelling the country to the world second largest producer and top exporter of raw cashew nuts.

Crop Yield For Various Crops

CROPArea harvested

(ha)Yield (t/ha)

Production (t)

Yam 993,453 6.0 5,952,685

Rice, Paddy 703,413 2.5 1,768,121

Cassava 505,876 6.3 3,210,614

Maize 344,126 2.0 680,800

Plantains and others 420,950 3.8 1,589,643

worldbank.org

http://www.yieldgap.org/cote-d-ivoire

Cocoa 2016/17 est. Kg/Ha 435 1,900,800

Oil Palm 2016 268,342 MT/Ha 6.32 1,696,078

Cashew 2016 crop 1,562,640 Kg/Ha 388.6 607,300

Agricultural Dynamics– Cocoa Yield

Cote d'Ivoire - Hectares Planted With Cocoa (ha) & Yields (kg/ha.)

www.fitchsolutions.com

• The yields are improving due to the introduction of new varieties. However this may not resolve the log-term structural issues facing the industry

• Improved output in 2017 is mainly the result of good weather conditions in 2016, and an excellent main crop harvest. In addition to this, production seems to be responding to distribution of the hybrid cocoa seed known as the 'Mercedes', developed by the Centre National de Recherche Agronomique de Cote d'Ivoire.

• 'Mercedes' trees become productive in 18 months (versus 3-5 years for other forastero varieties) and yield 2-3 tonnes per harvest, up to six times as much as the ageing trees that farmers currently cultivate.

• Better farm-gate prices in 2015/2016 (FCFA 1,100 per kg) encouraged farmers to use inputs, leading to a boost in production. These trends are slowing the decline in yields that prevailed up to 2014. Yield Increases Needed To Boost Production

Agricultural Dynamics– Cocoa

Cocoa Production

https://www.bizvibe.com/blog/top-10-cocoa-producing-countries-world-2018/

The Fertilizer Market – Consumption

worldbank.org

0.000

10.000

20.000

30.000

40.000

50.000

60.000

Cote D’Ivoire - Fertillizer Consumption Kg/Ha of Arable LandFertilizer Consumption Kg/Ha of Arable Land

REGION 2002 2015

Cote D’Ivoire 31.02 50.24

World Average 106.4 137.6

Middle East & North Africa 88.6 105.3

Latin America & Caribbean 89.5 122.7

European Union 166.6 157.2

East Asia & Pacific 246.1 327.9

• Cote d’Ivoire has one of the higher unit consumption rates in sub-Saharan Africa but it is still far below the world average.• The high consumption rate is driven mainly by the large plantations that have the financial ability and the knowledge to buy and apply fertilizer according the crop they plant.• The small holder farmer still finds fertilizer expensive and even when they use it they do not respect the recommended dose rate• However Cote d’Ivoire has a very organised agricultural sector with almost every major crop having an organised forum to which both the small holder farmer and the

plantations belong. This makes it easier for new entrant to the value chain to access farmers easily.• There are also larger agricultural fora that span many west African countries

The Fertilizer Market – Key Crops

Cotton Cotton is the principle crop of the Savanes region and uses the most fertilizer in Cote d’Ivoire. It is primarily a market of tenders. The Areas planted increase from one year to another with improved Good Agricultural Practices due to the management of cotton companies (Ivoire Coton, COIC, CIDT, SECO)

Despite the improvements in good farming practices, the dosage I not respected due to:

• The subsidised fertilizer is diverted towards food crops

• The area declared by the farmers is erroneous

The fertilizer given to producers is financed by the state of Côte d'Ivoire. The subsidy varies according to the area planted per year. From 2008 to 2013, the level of subsidy increased from 19.21% to 50%.

The quantity of subsidized Fertilizer to Cotton between 2012 and 2014 (MT)

Type 2012/13 2013/14 2014/15

NPK 56,805 76,237 88,927

Urea 13,200 18,400 20,898

Level of fertilizer use in plantations from 0

to 3 years

Level of fertilizer use in plantation Production

Region Yes No Yes No

East (Abengourou) 3.08% 96.92% 6.30% 93.70%

South (Abidjan) 7.08% 92.92% 10.70 89.30%

West Central (Daloa) 5.60% 94.40% 18.90 81.10%

West (Man) 6.06% 93.94% 30.60 69.40%

Central (Yakro-Toumodi) 0% 100% 20% 80%

Total 5.31% 94.69% 15.40% 84.60%

Cocoa The level of mineral fertilizer use for cocoa production remains low at the national level.

Growers are increasingly using organic fertilizer from the recovery of plant residues or animal waste and also liquid fertilizers.

In general, the mineral fertilizer is not used efficiently by the producers (under dosage, non-respect of application frequencies and period of application, non-compliance with good agricultural practices, etc.) and the organic fertilizer used is often bad quality.

COCOA

The Fertilizer Market – Key Crops

Oil Palm

The oil palm is managed by industrial companies (PALMCI, PALMAFRIQUE, SIPEFCI ....) And individual farmers grouped together in a cooperative known as FENACOPACI (FederationNationale Des Cooperatives Des Planteurs De palmier a Huile De Cote D’Ivoire) (FENACOPAH-CI), both the industrial companies and the farmers are member of AIPH (Association Interprofessionnelle Palmier à huile)

Industrial farms have technical and financial means. They belong to large agro-industrial groups who adopt a fertilizer plan based on the results of soil and leaf analyses. The average yield is 10 mt.

Individual or village farms have smaller means and represent about 70% of the total area (259,649 hectares in 2013) of the Ivoirian palm grove. Fertilizer inputs are not respected. The average yield is of the order of 5 mt.

Palm yield according to the type of plantation (MT/Ha)

Type of farm 2010 2011 2012 2013

Industrial Plantation 10.76 11.40 12.06 10.86

Village Farms 5.21 5.67 6.18 5.14

RubberThe sector has been expanding rapidly in recent years with the increase in cultivated area (434328 hectares in 2013, 40% in operation compared with 180000 hectares in 2010 with around 80% in operation) (APROMAC, 2013).

There are two types of exploitation, industrial plantations belonging to large private enterprises and village plantations. The average yields of dry rubber obtained on all plantations are around 1.6 mt / ha for village plantations and 1.8 mt / ha for industrial plantations against 2 to 2.5 mt / ha obtained at planting stations. research.

Data provided by APROMAC shows that yields in the village plantations were close to those of industrial plantations but are now diverging.

The application of fertilizer does not translate to significant yield increases.

Dry rubber yield according to the type of plantation (MT/Ha)

Type of farm 2010 2011 2012 2013

Industrial Plantation 1.659 1.811 1.797 1.916

Village Farms 1.600 1.605 1.529 1.628

The Fertilizer Market – Key Crops

BananaThe dessert banana plantations are managed by four groups of producers: the SCAB group (SAKJ, ELIMA, SBMK, ROUCHARD), the BATIA-SPD & Cie group; the EGLIN group and the CSB-CDBCI group.

Banana plantations are fertilized at about 90%. The sector is supported by a European fund, the MAB (Banana Accompanying Measures), which finances among other things the acquisition of inputs.

PineapplePineapple is less cultivated because of strong competition from other producing countries. It represents only less than 1000 hectares in the national territory.

MangoThe country produces 150000 to 180000 tons of Mango per year but only 10 – 15% are exported to the European markets.

The deficit of the units of transformation and the attack of the white flies lead to big losses in the production. Mango plantations are almost not fertilized.

Sugar CaneThe sector is mainly run by two agribusinesses, SUCAF (a subsidiary of the French group Castel) and SUCRIVOIRE, of the Mauritian-Ivorian consortium Sifca/Harel freres Ltd. It is supported by the European Union as part of a study on the optimization of fertilization. This study should lead in 2017 to the fertility map.

Food Crops Food crops are grown by small, unstructured farmers and receive technical and financial support from cotton companies as part of their management programs and from state structures (ONDR - Office Nationale de Développement de la Riziculture) and (PPAAO/WAAPP - Le Programme de Productivité Agricole en Afrique de l’Ouest) as part of the national and regional agricultural policy for food and health security.

Supervision by cotton companiesAs part of its policy of supervising producers, cotton companies in the northern zone finance inputs at the level of one bag of NPK for one hectare of food. The fertilizer dispensed has the same nutrient composition as the fertilizer used on the cotton.

Acreage of major food crops in cotton-based cropping systems

Crop 2012/13 2013/14 2014/15

Rice 111,850 123,161 130,542

Maize 163,068 191,432 209,170

Other food crops (peanuts, sorghum, yam)

99,861 110,300 135,909

Total food Crop (Ha) 374,779 424,893 475,621

Area under Cotton (Ha) 345,616 261,081 414,000

Source: Cotton and Cashew Council

The Fertilizer Market – Key Crops

Take away

• Agriculture in Cote D’Ivoire is well organised under the management of various key crops

• Despite this organised structure small holder farmers still have a very low utilization of fertilizer

• Some of the crop sectors try to help the small holder farmers with fertilizer for food crops e,g. the cotton sector

• Although most of the production is done by small holder farmers, there seems to be a good mix private commercial plantations based around the key cash crops. These plantations seem to play a key role in the management of the various crop sectors.

• Although farmers have been exposed to good agronomic practices, fertilizer utilization is still very low due their inability to afford it.

The Fertilizer Market – Types of Fertilizer

Fertilizer recommendations for the key crops

Crop FormulationDose

(Kg/Ha)Formulation

Dose (Kg/Ha)

Source

Cotton NPK 15 15 15 6S 1B 200 Urea 50 Private

Cocoa (Western Region) NPK 0 23 19 + 10CaO+ 5Mgo+6.5S+0.7Zn 500 Nitrabor 250 Private

Cocoa (East & Central Region) NPK 0 23 19 +10Ca0+ 5Mg0+6.5S+0.7Zn 400 Nitrabor 250 Private

Rubber NPK 14 10 18 +1.7S+ 2.1MgO+12CaO 200 Private

Oil Palm NPK 15 15 15+4MgO+$0.7B 0.9 NK 10.5 30 1- 1.2 Private

Calcium Phosphate 0.8 – 1.6 Private

KCL 1 – 2.6 Private

Banana NPK 12.5 4 28 240 Dolomite 1000 Private

Banana NPK 25 4 23 200 Private

Pineapple NPK 10.5 5 27(s)+5Mgo 200Potassium Sulphate 300 CNRA

The Fertilizer Market – Fertilizer Supply

Fertilizer recommendations for the key crops

Essential/Maintenance Fertilizer Essential/Maintenance Fertilizer

Crop FormulationDose

(Kg/Ha)Formulation

Dose (Kg/Ha)

Source

Sugar Cane (Zuenoula) NPK 18 9 24 2.2S+4CaO 700 Calcium Phosphate 2350 SUCRIER

Sugar Cane (Borotou) NPK 18.5 9 24 2.5S+2MgO 700 Calcium Phosphate 1000 SUCRIER

Sugar Cane (Ferke) NPK 16 8.5 23+5s+4MgO 600 Urea 200 CNRA

Rice (Rainfed) NPK 12 24 18+4S+3Mgo 200 Urea 100 CNRA

Rice (Irrigated) NPK 12 24 18+4S+3Mgo 250 Urea 100 CNRA

Maize NPK 12 22 22 200 Urea 100 PAYSAN

Maize NPK 15 15 15+6S+1B 150 Urea 100 CNRA

Vegetables NPK 10 18 18 250 Urea 200 CNRA

Food Crops NPK 12 22 22 200 Urea 100 CNRA

This list is not exhaustive, specific mix fertilizers meeting the needs of the plants on the basis of analyses of leaves and / or soil are also produced by the formulators at the request of agro-industry.

The Fertilizer Market – Supply

IMPORTED FERTILIZER 2010 – 2014 (TONS)

Crop 2010 2011 2012 2013 2014

MOP 77,743 36,820 47,433 65,910 88,449

Urea 39,868 51,582 61,675 52,436 74,202

DAP 39,270 9,982 23,024 47,320 40,198

Ammonium Sulphate 24,561 13,871 15,394 36,742 38,816

TSP 16,901 10,246 8,563 25,475 29,317

NPK 3,080 2,023 16,434 60,004 23,741

SOP 458 480 1,048 855 473

PK compounds 0 529 2,074 1,008

Other K Fertilizers 5,594 687 10,489 12,309 692

Others 9,466 11,146 12,126 17,804 27,101

Total 216,940 136,837 196,514 320,929 323,997

Importers of fertilizer

There are 9 key importers of fertilizer into Cote d’Ivoire.

Blenders of fertilizer

There are 5 key blenders of fertilizer into Cote d’Ivoire

Source: CountrySTAT GTT-fertilizer

EXPORTED FERTILIZER 2010 – 2014 (TONS)

Crop 2010 2011 2012 2013 2014

NPK 21,469 617 9,433 53,972 49,597

MOP 504 960 7,972 1,303 10,458

DAP 63 100 102 6,739

Urea 2,325 9,534 6,377 7,870 5,752

Other 1,300 1,029 2,516 2,029 1,064

Total 25,660 12,240 26,298 65,276 73,635

Average Urea Retail Prices (Oct ‘17) in selected countries

401

412406551

486

521

525

540

550

590604

654

614

914

US$/MT

World 240

Nigeria 401

Ghana 406

Tanzania 412

Kenya 486

Mali 521

Burkina Faso 525

Zambia 540

Malawi 550

Cote d'Ivoire 551

Uganda 590

Senegal 604

Rwanda 614

Mozambique 654

Burundi 914

Ratio to World Price

1.5 - 1.74

1.75 - 1.99

2.00 - 2.24

2.25 - 2.49

2.50 - 2.74

> 2.74

• Urea price in Cote d’Ivoire is one of the highest in the region.

• This may be driven by the large number of plantations that are able to afford to pay for the product.

• The road network is fairly good and serves the neighbouring countries.

• The railway is unreliable but is to be refurbished. When finished it should make it easy to transport goods up north.

Crop Prices: History and In-Country Ranges

Observations & Comments:• The range of prices within country is large.

• This indicates that profitability may also vary greatly by geography.• The price range does appear to have narrowed over time. Narrowing would be expected if

transport infrastructure had improved, thus better linking the various marketplaces.

Average Crop Prices versus World Urea Price

Observations & Comments:• Maize prices appear to have de-linked from urea prices starting in 2013.• Rice price correlation with urea has been positive and more consistent that maize over the

period.

Average Crop Prices in international markets

Observations & Comments:• Maize and Rice prices were trending downwards since 2014 • 2017 appeared to have bucked the trend• Though there was a year’s lag on maize, both maize and rice prices

in CIV appeared to have followed international markets.

0

100

200

300

400

500

600

700

800

900

1000

Jul-

98

May

-99

Mar

-00

Jan

-01

No

v-0

1

Sep

-02

Jul-

03

May

-04

Mar

-05

Jan

-06

No

v-0

6

Sep

-07

Jul-

08

May

-09

Mar

-10

Jan

-11

No

v-1

1

Sep

-12

Jul-

13

May

-14

Mar

-15

Jan

-16

No

v-1

6

Sep

-17

Rice (US$/mt)

0

50

100

150

200

250

300

350

Jul-

98

May

-99

Mar

-00

Jan

-01

No

v-0

1

Sep

-02

Jul-

03

May

-04

Mar

-05

Jan

-06

No

v-0

6

Sep

-07

Jul-

08

May

-09

Mar

-10

Jan

-11

No

v-1

1

Sep

-12

Jul-

13

May

-14

Mar

-15

Jan

-16

No

v-1

6

Sep

-17

Maize (US$/mt)

Finance:Agricultural Economy Overview

Economic Overview: Major Points

• The agricultural economy is an important contributor to employment and GDP.

• The agricultural workforce is, on average, poorer than the national average.• This has significant implications relating to the ability to

finance ag-sector activities.

Economic Overview

The agricultural economy is a significant part of the overall economy.

• About one half of the workforce is employed in the agricultural sector.• The ag sector generates about one fifth of national GDP.

Economic Overview

The size of the ag workforce is larger than its proportional contribution to GDP. This means that asmaller amount of GDP accrues to a larger number of workers.

Economy Overview : Implications

Implications:• On average, the ag workforce is “poorer” than average (below national

parity).• The ability of the ag workforce to build wealth (equity) is lower than average

leading to:• Lower ability to self-finance their activities• Lower credit capacity

• This lack of financing has been confirmed in numerous surveys and studies.• Lack of equity capital is severe and the most problematic financing issue to

overcome.• In the absence of new sources and/or structures to provide financing to the

ag sector, it should be expected to grow at a sub-par rate.

Finance:Commercial Banking Sector

Commercial Banking Sector: Major Points

• Commercial bank lending into the agricultural sector is extremely low given the size and importance of the ag economy.

• There are legitimate business reasons for this lack of lending.• Financing the inventories of input dealers would be best achieved

via trade finance.• Financing the farmer, at the scale needed, is a problem that had

yet to be solved.

Commercial Banking Sector

Comments and Observations:• Loans to the agricultural sector are a very small part (

Commercial Banking Sector

Comments and Observations (continued):• Bank lending to the ag sector is so small due to the nature of capital financing. Capital comes in two basic

types, equity and debt.• Equity is the risk bearing capital. It participates in the gains/losses of the enterprise.• Debt’s return is fixed, it does not participate in the gains/losses of the enterprise. Thus it is not risk

bearing. Debt is mean to be additive to, or leverage, equity capital. It is not a substitute for equity.• Legitimate business reasons can explain why ag lending is so small. Two major factors are:

1. Ag sector participants do not have adequate risk capital (equity) to support debt. Banks cannot be expected to provide debt financing when there is a lack of risk bearing (equity) capital.

2. Even ignoring risk, small sized and short maturity loans are not profitable for banks. Many financing needs in the ag sector have these attributes.

Financing for Increased Fertilizer Usage

• The unfulfilled demand for financing becomes more acute as you go down the distribution chain.

• Lack of creditworthiness and loan profitability make commercial bank lending less viable as you go down the distribution chain.

• The economic attributes of financing fertilizer distribution down to the local agro-dealer level are very different from those of financing the end-user farmer.

Financing for Increased Fertilizer Usage

• Farmer financing, especially smallholder farmers, is the most difficult part.

• Some fertilizer demand goes unfulfilled due to lack of physical product where and when it’s needed (effective demand). This needs to be addressed with inventory financing that allows supplies to position inventories when and where they are demanded.

• Even if the inventory financing issues are eliminated, much demand will go unfulfilled due to lack of financing at the end-user farmer level (latent demand).

• Increased usage of fertilizers requires profitability and ability to purchase at the end-user farmer level.

Financing for Increased Fertilizer Usage: Possible Solutions

• Distribution Chain (Inventory) Financing• Trade credit offers the most promising route to provide inventory financing down the

distribution chain. This is due to its attributes of:• Building business trust relationships between supplier and customer.• Control of physical flows allows for more efficient management and monitoring of credit

risk.• Financing improves turnover and thus profitability, allowing financing costs to be balanced

against product margins.• Farmer Financing

• This is the large problem that has yet to be solved. Several mechanisms have shown promise such as:

• Outgrower programs• Aggregator programs

• The scalability of the above programs is an issue due to the amount of management capacity and monitoring required to keep losses in check.

• New sources of funding and new credit delivery mechanisms need to be created. Some type of equity (risk bearing) financing needs to part of the solution.

Finance:Fertilizer Profitability

Fertilizer Profitability: Major Points

• Fertilizer profitability has a direct and important influence on demand.• Demand is the key element that shapes the structure of the supply side.• Realized demand depends on potential buyers to be both willing and able to

purchase.• Fertilizer profitability is impacted by large number of complex and ever

changing factors. This makes it difficult to analyze.• For the crops analyzed in Cote d’Ivoire, our analysis shows mixed

profitability. While rice profitability is strong, maize profitability is marginal. Thus the overall demand picture for fertilizers is mixed and will be further impacted by buyers’ ability to purchase.

Fertilizer Profitability & Demand

• The statistics showing that fertilizer usage in Africa has consistently lagged behind world averages have been well publicized for many years. This fact has driven many efforts across the continent with goal to reduce or eliminate this gap in an effort to increase farm yields.

• In the final analysis, end-user demand will be the driving force that shapes fertilizer distribution systems and the volume that they need to deliver.

• When approaching the demand environment, it is critical to understand the two major types of demand and how they impact current and potential usage of fertilizers:

• Effective demand – This is the volume of demand where the end-user farmer is both willing and able to purchase the products. Effective demand is determined by many factors such as cost/benefit, available supply and ability to purchase. While there exist gaps in certain markets where supply does not meet effective demand, these gaps are usually filled by profit seeking sellers and do not exist for long periods of time. Inefficiencies imposed on the supply chain could however artificially maintain the gaps

Fertilizer Profitability & Demand

• Latent Demand – This is the volume of demand where the end-user farmer would be a willing buyer, but lacks a necessary element in order to become an able and willing purchaser. Common factors that determine latent demand can be product knowledge, unknown cost/benefit and lack of funds.

• Consensus is that latent demand far outstrips gaps in meeting effective demand. There have been numerous programs focused on turning latent demand into effective demand, a few examples are:• Farmer training and demonstrations• Subsidy programs• Input loan programs

• Not withstanding these efforts, the “fertilizer usage gap” still remains.• Understanding the factors behind latent demand is needed in order to:

• Identify effective ways to address those factors, and • Forecast the volume of potential demand in the market. This is critical for private sector

investors who are making investment decisions.

Fertilizer Profitability

• We look to analyze fertilizer profitability because it has an important, but not exclusive, role in the determination of product demand.

• Although total profitability of farming is a function of many factors, it is safe to say that the economic return to the farmer from fertilizer usage defines some important limits. If economic returns are low to negative, issues of supply, education and others become moot. Conversely, high economic returns imply high potential demand. Either case will have significant impacts on investment decisions along the distribution chain.

• Returning back to the well known statistics on fertilizer usage in Africa, before one states that Africa should eliminate the usage “gap”, one needs to first demonstrate that doing so will not cause economic harm to the farmer.

Fertilizer Profitability Analysis

• There is no single figure that represents the profitability of fertilizer usage. Profitability is a “local not global” concept that is influenced by:

• Specific geography• Crop• Method of usage/application• Other agronomic factors such as seed and CPPs• Ever changing market prices (input and crop)• Weather• Soil conditions• Timing of input purchase and sale of crops

… and these are just to name a few!• Compounding the above issues are difficulty in getting accurate and consistent data with

respect to costs, price and yield responses.

• Thus, we must preface this analysis with the caveat that our results are not definitive but indicative.

Fertilizer Profitability Analysis

• We have limited the analysis to two staple crops, maize and rice.• Specific sites were chosen that were central market locations.• The most recent growing season was chosen where reliable data was available.• We used fertilizer prices in effect at the planting season and crop prices at harvest season.

While this may represent a “worse case” (for example crop prices can be at seasonal lows during harvest) we felt that it best represented the reality of the smallholder farmer.

• We used suggested fertilizer application rates and only considered “basic” products (DAP, Urea, NPK) and not any blended products.

• The analysis assumes that fertilizer application is the only variable. In practice, combining improved fertilizer usage with improved seed and other inputs and practices can maximize overall yield gains.

• Valid yield response data allows for direct computation of profitability given knowledge of fertilizer prices, application rates and crop prices. However, getting such yield response data is the greatest challenge.

• Because of the difficulty in locating valid yield response data, we calculated a range of yield responses that would be needed to achieve a range of returns on investment (ROI).

• There is no scientific/objective level of a minimum acceptable ROI, but a practical rule of thumb is that a two time return (200% ROI) is needed.

Fertilizer Profitability Analysis: Maize

• In order to reach an acceptable profitability of 200% ROI a yield response of 0.9 mt/ha is required. Some field studies have shown that an expected yield response of about 0.8 mt/ha is achievable.

• The conclusion is that the benefits of fertilizer usage are at a level that is marginal with respect to supporting increased demand.

• The remaining issue would be the ability of farmers to finance the purchase.

Fertilizer Profitability Analysis: Rice

• In order to reach an acceptable profitability of 200% ROI a yield response of 0.76 mt/ha is required. Some field studies have shown that an expected yield response of >2 mt/ha is achievable.

• The conclusion is that the benefits of fertilizer usage are at a level that should strongly support increased demand.

• As with maize, the remaining issue would be the ability of farmers to finance the purchase.

Fertilizer Profitability: Summary

• The analyses indicate that profitability should be a positive factor for increasing fertilizer demand with respect to rice in Cote d’Ivoire. Profitability for maize is marginal and thus may not support strong increased demand.

• Use of debt to finance fertilizer purchases introduces another cost that must be overcome. Obviously, the higher the cost of such financing, the lower the profitability thus reducing potential demand.

• Geographic location and infrastructure can have substantial impacts on profitability. Farms that are distant from centers of end-user demand and are served with poor transport infrastructure get “squeezed” from two directions. The cost of transportation lowers farm gate crop prices and increases input costs.

• Profitability is a necessary, but not sufficient element for supporting increased demand. Funds availability and product knowledge are examples of additional factors that shape final realized demand.

Cote d’Ivoire Highlights

• Trade corridor to 2 land-locked countries• Road infrastructure relatively good• Possible election tension in 2020• Top exporter of cocoa, cashew and oil palm and self sufficient in staples• Plantation farming has created access to small holder farmers• Small holder farmer yields are however still low and their fertilizer

consumption poor• Fertilizer prices are well above the regional average• Farmer profitability analysis suggests a strong fertilizer adoption need for

rice but marginal demand for maize