Improving Fertilizer Markets Through Competition
Fertilizer is a key piece of the puzzle when it comes to improving agricultural yields in developing countries. Despite widespread recognition of fertilizer's importance, however, many African farmers use substantially less fertilizer than their counterparts in Latin America and Asia. A new article in IFPRI's Insights Magazine examines why this is so, and how increasing competition in the global fertilizer market could help close the gap.
Globally, high fertilizer prices play a huge role in constraining small farmers' fertilizer use. Research by IFPRI Research Fellow Manuel Hernandez and Markets, Trade and Institutions Division Director Maximo Torero finds that one of the major structural causes behind high prices is a lack of competition in the fertilizer market. More than half of the world's supply of commonly used fertilizers is controlled by only five fertilizer-producing countries. This lack of competition means that fertilizer prices can be kept artificially high, even when other factors such as oil prices have fallen.
Regulation of fertilizer markets at the global level would clearly be a daunting task. So Hernandez and Torero have another suggestion: encourage investment in building more fertilizer plants in developing countries. This proposal would provide a two-pronged solution by both increasing competition in the industry and cutting transportation costs for local farmers. Such improvements could go a long way toward increasing the use of fertilizers in developing countries and improving global agricultural yields.