followed trends in Asia and chose to subsidize fertilizer sales up until the mid-1980s or even later, when fiscal crises curtailed or ended them (Heisey and Norton 2007). Extensive subsidies were fiscally unsustainable, and coupled with a parastatal input marketing system led to highly inefficient and inequitable fertilizer distribution.

Liberalization of fertilizer markets has been implemented to varying degrees across countries and with very mixed success. The liberalization of Kenya‘s fertilizer markets is considered to have been most successful (detailed in Ariga and Jayne 2010). After the elimination of fertilizer price and import controls in the early 1990s, national fertilizer consumption doubled by 2007. Survey data collected from 1997 to 2007 by Tegemeo Institute indicate that smallholder fertilizer use per hectare of maize cultivated grew by 34 percent. The distance traveled by farmers to the nearest fertilizer retailer declined dramatically, reflecting increased investment in fertilizer retailing by private dealers. Inflation-adjusted fertilizer marketing margins between Mombasa and inland markets have narrowed, and nutrient-to-grain price ratios at the farm gate have become more favorable. Despite these gains, there is considerable potential for further efficiency gains through improving soil and moisture management to enhance yield response to fertilizer on the demand side, and reducing distribution costs through investments in eroded rail, road, and port infrastructure on the supply side.

In contrast to Kenya, Ethiopia continues the state-led, package-based approach today. The Government of Ethiopia liberalized the fertilizer sector after the end of the Derg and by 1996 several private firms were importing fertilizer, and 67 private wholesalers and 2300 retailers had taken over a significant share of the domestic market (Spielman et al., 2010). However, the private sector rapidly exited within a few years of its entry, and was at first replaced by ―private‖ holding companies with strong ties to the ruling party and then by cooperative unions. The parastatal, Agricultural Input Supply Enterprise, continues to be a major importer and distributor of fertilizer. In addition, since 1994, about 90 percent of fertilizer has been delivered on credit at below-market interest rates and guaranteed by regional governments, displacing sales from the private sector, including a substantial share sold on a cash basis.

Fertilizer consumption per ha has increased only marginally over the past decade, and there is evidence that many farmers have dis-adopted seed-fertilizer technology packages over time. A study of Ethiopian smallholders found that half of farmers surveyed reported that fertilizer arrived after planting, and one-third reported underweight bags (Bonger et al., 2004). Loan recovery, using extension agents and local officials, was generally successful until the collapse of maize prices in 2002 forced rescheduling that incurred significant fiscal costs. Spielman et al. (2010) conclude that although state-led policies have generated some positive impacts in Ethiopia, they also reduce the quality and timeliness of inputs services, limit farmers‘ options, incur hidden costs, and entail the risk of large fiscal outlays.

Xu et al.‘s (2009) study in Zambia illustrates that, in the more remote areas, where farmers faced nitrogen-maize price ratios that were 20 percent higher than elsewhere, fertilizer use was profitable only for a minority of farmers. At the same time, fertilizer use was profitable for farmers in the more accessible areas only when its delivery was timely. Subsidized fertilizer under government programs in Zambia has often been distributed late. The authors report that government programs have also caused private traders to wait and see where subsidized fertilizer is being distributed before deciding where to distribute commercial fertilizer, exacerbating the problem of late delivery even for commercial fertilizer.

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