Chapter 7
Economics of fertilizer use

Table 19 shows the trend in ratios of crop prices to fertilizer prices based on the prices of compound fertilizers for maize, cotton, wheat and soybeans and of AN for maize and wheat.

Until 2000, the free market determined the prices of grain crops (maize, wheat and sorghum), and there was an active agricultural commodity market, the Zimbabwe Agricultural Commodity Exchange (ZIMACE). However, in July 2001, the Government imposed price controls on maize and wheat and their products, with the GMB as the sole buyer and seller of maize and wheat. The situation became difficult for farmers because of the high transaction costs caused by poor roads, lack of transport and delays at the marketing points, especially at the GMB depots. These costs, coupled with suboptimal prices, especially of maize and cotton, made fertilizer use unprofitable for many farmers.

The prices of the inputs were market-determined until 2002. In 2003, the Government imposed price controls on agricultural inputs, including fertilizers, through the Ministry of Commerce and International Trade. Table 20 shows the controlled prices of a selection of fertilizer types in 2004.

The impact of price controls, together with the fall in fertilizer production (Chapter 4), reduced the supply of fertilizers and other inputs on the open market. The shortage of supply in relation to demand led to a black market emerging where farmers paid prices that were well above the stipulated controlled prices. For example, in January 2005, a 50-kg bag of Compound D was selling at ZWD120 000 while the official retail price was ZWD91 557. While the official retail price of AN was ZWD68 482 per 50-kg bag, it was selling at ZWD200 000-250 000 per 50-kg bag on the black market. Farmers had to travel to Harare in an attempt to purchase the fertilizer.

TABLE 19
Trends in crop:fertilizer price ratios of major crops

Source: Commercial Farmers' Union, 2000; AREX, 2000-04.

TABLE 20
Controlled prices of selected fertilizers in 2004

¹ Exchange rate: US$1 = ZWD5 200 (as at September-December 2004) Source: Ministry of Commerce and International Trade, 2004.

Other factors determining the profitability of fertilizer use varied with the farming subsector. In the large-scale farming subsector, the main determinant was the ability of farmers to procure fertilizer early in the year, around June/July, prior to the fertilizer price adjustment for the following season. The farmers reduced transaction costs through bulk buying and using their own transport. The large-scale farmers had appropriate equipment for precise and timely fertilizer application. The rates applied were based on individual soil analyses. The shortages and price increases had a negative impact on fertilizer use in the smallholder subsector, which tends to buy fertilizer as the need arises.

Studies on the economics of fertilizer use in the smallholder subsector have given variable results but generally show suboptimal returns owing to suboptimal application rates. This is attributed partly to farmers not applying recommended rates owing to their inability to purchase the full quantity of the required fertilizers. However, even where farmers applied fertilizer according to the general recommended rates, they were often underapplying them owing to a lack of information on their specific requirements.

The Annex to this report summarizes a number of studies on the economics of fertilizer use and on factors determining the economics and use of fertilizers in smallholder farming.