Fertiliser price hikes in Egypt

Mona El-Fiqi , Wednesday 1 Aug 2018

Mona El-Fiqi reports on the reasons behind the recent hikes in fertiliser prices

File Photo: A farmer spreads fertiliser on his field (Reuters)

The rise of fuel prices in June has added to the burdens shouldered by farmers as it has led to a further hike in the prices of fertilisers.

Ahmed Mohareb, a farmer in the Beheira governorate, said that a 50 kilogram bag of urea, a kind of nitrogen fertiliser, had now reached LE285 compared to LE230 earlier. Urea is the most common nitrogen fertiliser used in Egypt and around the globe.

According to Mohareb, his costs have recently increased due to hikes in fertiliser prices as well as land-rental costs which have surged from LE6,000 to an average of LE12,000 to LE15,000 per feddan in his village in the Beheira governorate.

While producers and traders have attributed the increase to hikes in fuel prices including of the natural gas used in the production of fertilisers, experts believe that the problem is also related to the marketing and distribution of fertilisers.

Adel Fadel, deputy chairman of the Egyptian Fertiliser Traders and Distributors Association, told Al-Ahram Weekly that a black market can develop when a subsidy system is in operation, and that one of the present problems is that benefits can go to traders instead of farmers.

Under Egypt’s fertiliser subsidy system the state-owned Principal Bank for Development and Agricultural Credit (PBDAC) and agricultural cooperatives provide subsidised fertilisers to farmers.

There are eight public-sector companies making fertilisers, among them Abu Kir, Delta, and Helwan Al-Masriya, in addition to five private-sector companies that provide 55 per cent of their production to the government to sell to farmers at subsidised prices through the PBDAC and agricultural cooperatives.

The rest of the companies’ production is sold on the free market or exported.

“The market price has reached LE5,200 per ton while subsidised fertilisers are sold at LE3,200 per ton. The difference between the two prices encourages speculators who do not cultivate the land themselves,” Fadel said.

Instead of selling fertilisers at subsidised prices, they may divert them to the black market in search of profits. Fertilisers may also be sold to local farmers at prices close to the international price.

Fadel warned that any increases in the costs of agricultural production would inevitably lead to retail price rises, causing consumers to pay more for rice, sugar, wheat and other food products.

Another factor contributing to price increases has been the small quantity of subsidised fertilisers the government gives to farmers. A feddan of tomatoes may need eight bags of fertiliser, while the government may only provide three, for example.

Demand for fertilisers is usually highest in the summer season because summer crops need more fertilisers than those grown in winter.

According to ministry of agriculture figures, 2.5 million tons of fertilisers representing 40 per cent of summer’s total needs have already been delivered to farmers.

Moreover, the increase in the amount of land farmed illegally and therefore not eligible for subsidised fertilisers has increased, leading to higher demand for fertilisers on the free market and higher prices.

Fertiliser prices have also been affected by illegal exports despite contracts signed by the government and fertiliser producers giving the local market priority.

 Nasr Al-Qazaz, a professor of agriculture at Al-Azhar University in Cairo, said that high international prices encouraged companies to export more than the government permits in order to make more profit.

This can lead to a shortage of fertilisers on the local market and hence an increase in prices. The price of exported fertilisers is over LE5,000 per ton while the subsidised price is LE3,200 per ton.

The government imposes a fine of LE50 per ton exported without permission, but this is too low to deter the companies.

Al-Qazaz said the fertiliser market required further supervision in order to maintain a sufficient level of production. Greater transparency on subsidies, production, exports and local market needs was also necessary, Fadel said.

In October 2017, the cabinet decided to increase the subsidised price of urea fertilisers from LE3,000 to LE3,200 per ton in response to requests from fertiliser companies after last year’s increase in fuel prices.

Egypt’s total annual production of fertilisers is estimated at 15 million tons.

*A version of this article appears in print in the 2 August 2018 edition of Al-Ahram Weekly under the headline: Fertiliser price hikes

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