PReFER PRIVATIZATION OF RWANDA’S FERTILIZER IMPORT AND DISTRIBUTION SYSTEM
ROAD MAP FOR THE FERTILIZER PRIVATIZATION STRATEGY
June 21, 2012 This publication was produced for review by the United States Agency for International Development. It was prepared by IFDC.
PReFER – ROAD MAP FOR A PUBLIC-PRIVATE PARTNERSHIP:
MOVING TOWARD A COMPETITIVE FERTILIZER MARKET IN RWANDA
or more than five years, the Ministry of Agriculture and Animal Resources (MINAGRI) has managed fertilizer procurement and subsidy programs in Rwanda. MINAGRI programs have increased agricultural productivity and have led to significant growth in the amount of fertilizer imported to the country. Now Rwanda is preparing to transfer fertilizer procurement and importing responsibilities from the government to the private sector. For this shift to occur, a professional network of private sector importers, distributors and agro-dealers must be created or strengthened. A sustainable fertilizer supply and distribution system also must be in place. Moving toward a market-friendly fertilizer procurement and distribution system complements the Rwandan government’s private sector development strategy. To support these endeavors, the U.S. Agency for International Development (USAID) through the International Fertilizer Development Center (IFDC) is providing technical and business assistance to MINAGRI with the Privatization of Rwanda’s Fertilizer Import and Distribution System (PReFER) project. PReFER training programs are helping to develop and professionalize the agribusiness sector throughout Rwanda. PReFER is also supporting MINAGRI’s efforts to create a fair environment to attract new private sector investors. Joint MINAGRI/PReFER efforts are expected to stimulate fertilizer demand, create sustainable markets and support the national objective to achieve sustainable agricultural intensification and to develop markets. In order to achieve project objectives, PReFER has developed a comprehensive roadmap – approved by MINAGRI – for achieving a stable, timely and affordable fertilizer supply system in Rwanda.
THE EXISTING SITUATION
Rwanda is a land-locked country that pays high transportation costs for imported goods. In addition, few farmers have the purchasing power needed to buy agro-inputs. However, Rwanda’s growing population requires the country to improve food security. This can be achieved by increasing agricultural production through the use of agro-inputs including fertilizers. While progress has been made, efforts to increase fertilizer use have been hampered by poor fertilizer distribution systems, supply delays, underdeveloped output markets, not enough trained and knowledgeable agro-dealers and limited access to credit for the agricultural sector (and low rates of loan repayment by some in the sector). As part of its examination of the fertilizer sector in Rwanda, PReFER collected and analyzed information from farmers,
Figure 1. Smallholder farmers are at the bottom of the fertilizer supply chain pyramid in Rwanda.
MINAGRI Distributors Agro-Dealers Smallholder Farmers
agro-dealers, distributors, bankers, development partners and policymakers. PReFER staff also made field visits to provinces and many districts and sectors. A committee representing each stakeholder group was created to examine and discuss challenges and strategies. KEY FINDINGS
The examination and analysis of the information led to two main conclusions. First, capacity building and human capital development take time. Therefore, a gradual approach to change is recommended over sudden, system-wide alterations. Making gradual changes at each level of the fertilizer value chain will ensure that each change can be sustained before the next change is implemented. Second, it is best to start by strengthening smallholder farmers – the base of Rwanda’s fertilizer pyramid. In Rwanda, smallholder farmers generally have very small plots of land to farm, often less than one hectare. After starting with farmers, change can slowly move up the pyramid.
THE ROAD MAP After undertaking a thorough examination of the situation and consulting with MINAGRI, PReFER staff members have developed a roadmap arranged in phases. Each phase of the roadmap strengthens and stabilizes key stakeholders before moving to the next phase. In keeping with the gradual approach and starting with smallholder farmers, the roadmap outlines Rwanda’s path to a resilient and productive agricultural sector and a food-secure future for its people. The timeline for the roadmap is flexible and the faster the stakeholders achieve fixed targets, the faster change proceeds. The successful implementation of the roadmap depends on whether MINAGRI requires the cost of fertilizers to be fully recovered at each stage along the fertilizer supply chain.
PHASE I. IMPROVE ACCOUNTABILITY AND RESPONSIBILITY IN 2012 AND 2013
• Improve loan recovery at the farm level in the 2013A and 2014A seasons: –– Change farmers’ mindsets, informing them the government will pay 50 percent of the cost of fertilizers and the farmers must pay the balance of the cost. –– Enforce loan recovery at the local level, by allowing farmers to pay with cash or in-kind goods/services. –– Explore the possibility of linking payments with public works and rural road programs. • Improve the timeliness of voucher distribution by printing all vouchers in Kigali starting in the 2013A season. • Make distributors pay full price for fertilizers up front or require bank guarantees by the 2014A season. • Arrange redemption of vouchers at designated banks by the 2014A season. • Improve access to credit for farmers and agro-dealers by working through financial institutions, inventory credit systems and guarantee funds. • Strengthen skills and links between distributors and agro-dealer networks. • Develop quality control systems at the retail levels • Develop a registration system for distributors and agro-dealers. • Develop output markets, market information systems and district-level storage and access to credit systems. • Develop post-harvest services. • Establish a platform for public/ private dialog.
PHASE II. INTRODUCE DECENTRALIZATION AND COMPETITION IN THE FERTILIZER MARKET IN 2014 AND 2015
• Educate the private sector about the new system from March to June 2014. • Stop auctions and declare fixed prices in Kigali, Musanze, Kayonza and Nyamagabe by June 2014 (the 2015A growing season). • Allow for market-based prices at the district and sector levels. • Allow distributors to purchase fertilizers at fixed prices for their areas and establish a pay-and-pick system. • Relax regional quotas and allow distributors to compete for market shares but maintain incentives to ensure an adequate supply in remote areas for the 2016A season. • Monitor the impact of the new program in all districts with a special emphasis on remote areas. • Establish and operate market information and transparency systems at district and sector levels. • Develop and strengthen distributor and agro-dealer associations.
PHASE III: LIBERALIZE IMPORTS IN 2016 AND 2017
• Remove transport subsidies by June 2016 (the 2017A season). • Explore inviting regional suppliers to supply in bulk from Kigali and regional centers in 2016. • Allow the private sector to import fertilizers in groups to benefit from economies of scale in 2016. • Arrange risk-sharing and capital support for importers. PHASE IV: PUBLIC-PRIVATE PARTNERSHIP IN 2018 AND 2019
• Gradually reduce farm level subsidies starting July 2017 (the 2018A Season). • Monitor the impact of the subsidy removal program. • Assist the public sector as it focuses on quality control, extension support, soil testing, fertilizer recommendations and general policy guidance. • Allow the private sector to take on the responsibility of importing and marketing fertilizers.
• Improve rural infrastructure.
IFDC is responsible for implementing the PReFER project. IFDC is a public international organization, governed by a board of directors with representation from developed and developing countries. IFDC focuses on increasing and sustaining food security and agricultural productivity in developing countries through the development of effective and environmentally sound crop nutrient technology and agribusiness expertise.
IFDC Rwanda 730, Kimihurura II – Gasabo District P.O. Box 6758, Kigali, Rwanda Tel. +250 2551 042 11 Email email@example.com
U.S. Agency for International Development 1300 Pennsylvania Avenue, NW Washington, DC 20523 Tel: (202) 712-0000 Fax: (202) 216-3524 www.usaid.gov