IESE Business School-University of Navarra - 1

GROWING KENYA: EXPLORING INVESTMENT OPPORTUNITIES IN KENYA’S

FERTILIZER INDUSTRY

Ahmad Rahnema

Paola Giordano

Irene Otieno

IESE Business School – University of Navarra

Av. Pearson, 21 – 08034 Barcelona, Spain. Phone: (+34) 93 253 42 00 Fax: (+34) 93 253 43 43 Camino del Cerro del Águila, 3 (Ctra. de Castilla, km 5,180) – 28023 Madrid, Spain. Phone: (+34) 91 357 08 09 Fax: (+34) 91 357 29 13 Copyright © 2017 IESE Business School.

Working Paper

WP-1173-E

May 2017

IESE Business School-University of Navarra

GROWING KENYA: EXPLORING INVESTMENT OPPORTUNITIES IN

KENYA’S FERTILIZER INDUSTRY

Ahmad Rahnema1

Paola Giordano2

Irene Otieno3

Abstract

In Kenya a significant part of the population faces food insecurity. Since fertilizers are noted for

having positive impacts on agricultural productivity and on alleviating hunger, their use should

be encouraged. There are no manufacturing plants in the country, meaning Kenya relies heavily

on fertilizer imports, which has a negative impact on prices and availability. However, there are

opportunities for manufacturing in Kenya. This paper provides a general overview of the fertilizer

market in Kenya, briefly outlining the outlook for it and discussing some of the challenges

experienced. In particular, the paper analyzes fertilizer use trends in the Navaisha area,

identifying the types of fertilizer used and the factors affecting fertilizer choices. Finally, the

paper explores the business opportunities now available in the Kenyan fertilizer market.

Keywords: Fertilizers; Energy; Agriculture; Kenya; Africa; Renewables.

1 Professor, Financial Management, Fuel Freedom Chair for Energy and Social Development, IESE. ARahnema@iese.edu, IESE Business School, Spain. The authors would like to acknowledge the contribution of Kinga Tchorzewska, research assistant, to an early version of this report.

2 Research Assistant, IESE Business School, Spain. 3 Strathmore University, Nairobi, Kenya.

IESE Business School-University of Navarra

Table of Contents

Executive Summary 2

1. Introduction 3

2. The Fertilizer Market 4

3. Latest Developments. Growth Indicators and Challenges 6

4. Field Research in Nakuru County 8

4.1 Data Collection and Methodology 8

4.2 Interviewee Profile Analysis 9

4.3 The Model 10

4.4 Analysis 12

5. Business Opportunities 13

5.1 Local Fertilizer Manufacturing 13

5.1.1 Coal to Liquid 13

5.1.2 Natural Gas to Fertilizer 16

5.1.3 Waste to Energy 17

5.1.4 Seabed Minerals 18

5.2 Fertilizer Distribution 19

5.2.1 Free-Trade E-Wallet 19

6. Conclusions 20

Appendix A: NCPB Fertilizer Prices 22

Appendix B: Statistical Analysis of Data Collected in the Field Survey 24

B.1 Types of Fertilizer Used 24

B.2 Factors Affecting Types of Fertilizer Used 24

B.2.1 Consumer Preferences 25

B.2.2 Access and Costs 27

B.2.3 Fertilizer Procurement and Volumes 27

2 - IESE Business School-University of Navarra

GROWING KENYA: EXPLORING INVESTMENT OPPORTUNITIES IN

KENYA’S FERTILIZER INDUSTRY

Executive Summary

In Africa, it was estimated that about 40 million people faced hunger last year and that about

$4.5 billion was needed to alleviate the situation.1 In Kenya, it was much the same, with an

estimated 700,000 people in pastoral areas regarded as severely food insecure by the Food and

Agriculture Organization (FAO), a situation exacerbated by the lingering effects of adverse

weather. However, only 8% of Kenya’s land is used for agriculture, although it has been the

important economic activity for a long time. On the positive side, the rate of chemical fertilizer

usage in the country has slowly been on the rise, which hopefully will lead to greater agricultural

productivity.

Though chemical fertilizer usage is increasing, there are no manufacturing plants in the country,

meaning Kenya is heavily reliant on imports whose prices are adversely affected by exchange

rate fluctuations, oil prices, etc. The government has attempted to liberalize the fertilizer market

in the past, mostly without success. This lack of success is due largely to corruption and poor

policy implementation strategies. Furthermore, this research established that farmers’ choices of

chemical fertilizer are influenced by their daily income and the commodity’s availability. Since

chemical fertilizers are noted for having positive impacts on agricultural productivity, their use

in Kenya needs to be encouraged in order to deal with the food insecurity experienced by a

significant section of the population. It is therefore essential for government to create an

economic environment that is attractive to private investors, whose involvement in the past has

been seen to have significant positive impacts on the use and distribution of chemical fertilizers,

so that they will take advantage of the investment opportunities currently available in the market.

Such opportunities now exist due to the presence of heaps of organic waste around the country,

recent discoveries of coal and natural gas deposits that can be processed and the by-products of

fertilizer production. There are also opportunities in the extraction of seabed minerals that can

be converted into fertilizers. This makes a case for the exploration of local production options

1 Mungai, C. 2016. Africa’s 2016 crisis as 40 million battle hunger, and $4.5 billion needed urgently. Not all is hell

though. Mail & Guardian Africa. [Online]. 14 February. [Accessed 3 May 2017]. Available from

http://mgafrica.com/article/2016-02-12-africa-food-crisis-2016-the-scary-numbers

IESE Business School-University of Navarra - 3

that would make chemical fertilizers even more readily available throughout the country and at

costs that most if not all farmers could afford. Regardless of the benefits of having locally

produced chemical fertilizers, it is important to note the sensitivity of the environments where

the resources required for such production exist. With the extraction of coal and seabed minerals,

there could be potential negative environmental impacts if care is not taken, leading to damage

to plant and animal health and life.

Market trends as revealed by the research show that current chemical fertilizer use in Kenya is

unsustainable and that there is a need to find cheaper alternatives, such as local production, to

meet local demand. However, the manufacturing plants for producing fertilizers locally require

significant financial resources, in the order of Sh100 billion (almost $960 million).2 Entrepreneurs

willing to invest such an amount of money need to have investment guarantees of some kind,

some of which can be met by government, at least through the provision of a stable legal and

policy framework to govern the market.

1. Introduction

Agriculture is the backbone of the Kenyan economy3 and the main source of livelihood for the

vast majority of the population. The sector is an important contributor to Kenya’s gross domestic

product (GDP), representing about 26% of the total, and employs about 75% of the population.4

With only about 20% of Kenya’s land mass constituting agriculturally viable land, it is important

to consider ways to increase soil fertility and agricultural productivity throughout the country.

One way of achieving this objective is to use chemical fertilizers, which have been noted as

contributing greatly to increased crop yields and soil fertility in many parts of the world. Despite

this, only a slight increase in chemical fertilizer use has been recorded in many sub-Saharan

countries, with report noting that chemical fertilizer use in Africa was only 10% of the world’s

average and that Asia consumed 20 times more fertilizers.5 Despite these low usage statistics,

Kenya is one of the largest consumers of chemical fertilizers in sub-Saharan Africa.6 Coupled

with the fact that the market relies on supply from international markets7 (mainly the United

States, Europe, the Middle East, South Africa, China, India and Singapore),8 this makes it

necessary for Kenya to explore self-sustaining alternatives to meet its chemical fertilizer needs.

This need is further cemented by the fact that fertilizers are a world market commodity subject

to global supply and demand and market fluctuations, creating concern for import-reliant

countries such as Kenya.

2 As of February 6, 2017, 100 Kenyan shillings (Sh) were equivalent to about $0.96.

3 Salami, A., Kamara, A. B., and Brixiova, Z. Smallholder Agriculture in East Africa: Trends, Constraints and

Opportunities, working paper No. 105, April 2010, p. 11.

4 Ministry of Agriculture, Livestock and Fisheries, “Economic Review of Agriculture 2015.”

5 Africa Fertilizer Organization, “Training Manual on Fertilizer Statistics in Africa” (June 2012 – draft version).

6 Ariga, J., Jayne, T. S., and Nyoro, J., Factors Driving the Growth in Fertilizer Consumption in Kenya, 1990-2005:

Sustaining the Momentum in Kenya and Lessons for Broader Replicability in Sub-Saharan Africa Tegemeo working

paper 24/2006, p. 5.

7 International Fertilizer Development Center, “An Assessment of Fertilizer Prices in Kenya and Uganda: Domestic

Prices vis-à-vis International Market Prices,” 5. See also Lawrence O. Mose, “Factors Affecting the Distribution and

Use of Fertilizer in Kenya: Preliminary Assessment,” pp. 3-4.

8 Ibid.

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On the other hand, increased chemical fertilizer usage has resulted in concerns about their impact

on food security, the environment, health and a multiplicity of other factors in most African

countries.

While it is agreed that chemical fertilizer usage has had both positive and negative impacts, there

is still a strong need to research ways to optimize their use and deal with their potential negative

impacts, since the contribution of chemical fertilizers to food production is undisputed.9

The objective of this research is to determine the current situation in the fertilizer industry,

fertilizer use patterns and factors influencing fertilizer usage in Kenya. To achieve this aim, this

paper analyzes fertilizer use trends in the Naivasha area, identifying the types of fertilizer used

and the factors affecting fertilizer choices and comparing these with what the literature describes.

The paper then provides a general overview of the fertilizer market in Kenya, briefly outlining

the outlook for it and discussing some of the challenges experienced in the market. Finally, the

paper explores the business opportunities now available in the fertilizer market.

2. The Fertilizer Market

The vast majority of Kenyan households depend heavily on the produce of their farms for their

livelihoods. However, because of unpredictable weather and poor infrastructure, food availability

and access to food are not always certain. Food security and food access have always been the

reasons why the Kenyan government gets involved in the market for agricultural products,

including fertilizers, with different levels of participation and various types of policies at different

stages having contributed to shape the fertilizer market as it is today.

In the late 1960s, various state-supported agencies were created with the specific task of providing

credit and marketing agricultural inputs and outputs in order to keep prices under control and

also to provide small farmers with access to chemical fertilizers. However, the conflict of interest

between the interlinked state agencies led to corruption and to exacerbated costs for the

government and the subsidy policies failed to have the desired effect.

In the 1980s, the government monopoly was gradually relaxed, and private companies as well as

state agencies were allowed to market fertilizers. However, the controlled pricing structure kept

in place by the government with the aim of ensuring that small farmers also had access to

chemical fertilizers had the adverse effect of restricting chemical fertilizer availability in the most

remote areas of the country, as these areas were difficult to reach and therefore not very profitable

for private importers who could not pass on the extra cost of transportation to farmers. Further

provisions, such as trade licensing requirements and the allocation of scarce foreign currency to

importers, generated rent-seeking opportunities for public officials and helped create an

excessively heavy burden on public resources. By the end of the 1980s, this trend had become

unsustainable and caused a decline in budgetary support for the agricultural sector.

In the early 1990s, the government eventually decided to liberalize the fertilizer sector. Price

controls, licensing requirements and import quotas were eliminated, leading to a higher level of

participation by the private sector in the market. The intense competition in fertilizer importing

9 Roberts, T. L., 2009. The Role of Fertilizer in Growing the World’s Food In: “COVAPHOS 111: Phosphate Fundamentals,

Processes and Technologies in a Changing World, Marrakech, March 18-20, 2009 [Online]. Accessed 5 May 2017. Available

from https://www.ipni.net/ppiweb/bcrops.nsf/$webindex/0022BBC19C02604A852575C50062FBB7/$file/BC09-2p12.pdf.

IESE Business School-University of Navarra - 5

and wholesaling created pressure to cut costs, making chemical fertilizers more affordable for

farmers and leading to investment in innovation and logistics.10

Without the constraint of a controlled pricing structure, the private sector had a further incentive

to invest in a compact distribution network that took chemical fertilizers closer to rural areas,

allowing more and more smallholder farmers to start using them.

As can be seen in Figure 1, with private investment and liberalization, chemical fertilizer use

increased substantially between 1995 and 2006.

Figure 1

Chemical fertilizer consumption trends from 1995 to 2006 (metric tons)

Source: Trading Economics. 2017. Kenya-Fertilizer consumption (metric tons). [Online]. [Accessed 5 May 2017]. Available from: http://www.tradingeconomics.com/kenya/fertilizer-consumption-metric-tons-wb-data.html.

In 2008, postelection violence disrupted farm activities. In an attempt to boost agricultural

production, the government imported fertilizers but delivered them to farmers late, contributing

to the low production of maize that year. The resulting situation of widespread hunger added to

the pressure on the government to provide more subsidies. In 2007-08, the Kenyan government,

through its Ministry of Agriculture, launched the National Accelerated Agricultural Inputs Access

Program. The program aimed to “address low farm productivity” by offering targeted subsidies

in the form of technical inputs to resource-poor farmers. The intervention of the government was

meant to be a short-term measure, not significant enough to disrupt private investment, but

increased political pressure meant the intervention continued.

10 Olwande, J., Sikei, G., and Mathenge, M., “Agricultural Technology Adoption: A Panel Analysis of Smallholder

Farmers’ Fertiliser Use in Kenya,” paper presented at the 83rd Annual Conference of the Agricultural Economics

Society, Dublin (March/April 2009), CEGA working paper No. AfD-0908.

50.000

70.000

90.000

110.000

130.000

150.000

170.000

190.000

210.000

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

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3. Latest Developments. Growth Indicators and Challenges

As of 2014, the National Accelerated Agricultural Inputs Access Program had invested Sh4.2 billion

($40.5 million) in providing inputs to vulnerable farmers. Under the bulk procurement initiative,

the Ministry of Agriculture worked closely with the National Cereals and Produce Board (NCPB),

the Agricultural Development Corporation, and the Kenya Seed Company Ltd.11

In 2014, the government set up the Seed and Fertilizer Development Fund with an initial

investment of Sh3 billion ($29 million), which would rise gradually to Sh15 billion ($145 million)

over the following five years to support the fertilizer program.12

As World Bank data show, chemical fertilizer consumption continued to increase in more recent

years and in 2013 it reached 52.5 kilograms per hectare of arable land. (See Figure 2.)

Figure 2

Chemical fertilizer consumption from 2002 to 2013 (kilograms per hectare of arable land)

Source: The World Bank. 2017. Fertilizer consumption (kilograms per hectare of arable land). [Online]. [Accessed 5 May 2017]. Available from: http://data.worldbank.org/indicator/AG.CON.FERT.ZS?locations=KE.

In 2015, the E-Fertilizer Subsidy Management System was run as a pilot project in three counties

(Bungoma, Trans-Nzoia and Uasin Gishu). It is “an electronic vouching solution that enables

farmers to request, redeem and reconcile vouchers via their mobile phone” to make the

distribution of fertilizers more effective.13 Secondary sources stated that a new pilot study, to

include four more counties, was expected to be rolled out in February 2016 for the long rainy

11 Ministry of Agriculture, Livestock and Fisheries, “Economic Review of Agriculture 2015.”

12 PSCU, 2014. President Uhuru Kenyatta orders fertiliser prices lowered. Standard Digital. [Online].18 February 2014

[Accessed 5 May 2017]. Available from https://www.standardmedia.co.ke/article/2000104942/president-uhuru-

kenyatta-orders-fertiliser-prices-lowered

13 E-fertiliser Subsidy Management System, FSD Kenya. 12 August 2015. Available from

http://www.fsdkenya.org/retail-innovation/e-fertilizer-subsidy-management-system, accessed February 6, 2017.

0

10

20

30

40

50

60

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

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season. Subsidies were distributed through NCPB depots and, in some areas where the depots

were not in close proximity to farmers, by private agro dealers.

The Agricultural Market Development Trust (Agmark), a regional nonprofit organization that

implements agricultural development programs in Kenya, is investing in innovative seed

technologies, and providing starter packs, a credit voucher scheme, credit guarantees and

training. Researchers have noted that constant farmer education on emerging technology

and demonstrations about farm inputs positively affect the use of such technology.14

In 2013, Toyota Tsusho Fertilizer Africa Limited and the African Fertilizer and Agribusiness

Partnership signed the Agribusiness Partnership Contract to bring to fruition a $3 million fertilizer

blending plant in western Kenya with the capacity to produce 50 tons per hour and the aim of

producing 150,000 tons of fertilizer by the 2018 season. The target of this operation was

“500,000 small-scale farmers who will be able to access chemical fertilizers closer to their

locations.”15 In 2015, it was reported that MEA Ltd, the leading distributor of chemically

compounded fertilizers in east Africa, secured funding from the International Finance Corporation

to set up a blending plant in Nakuru. The Sh1.7 billion ($16 million) plant has been under

construction and was expected to start operations in May 2017.

In 2015, chemical fertilizer demand in Kenya was 598,045 metric tons, according to research by

the International Fertilizer Development Center.

Despite many growth indicators outlining a positive scenario in recent years, the fertilizer market

still shows a number of inefficiencies. Research conducted by USAID in late 2015 to find out why

chemical fertilizer use was low in Kenya established that:

Most farmers are poor, living on the equivalent of less than $1 a day, and their failure to

invest in chemical fertilizer is an affordability issue. Because Kenya relies heavily on

fertilizer imports, exchange rate fluctuations as well as internal aspects greatly affect

fertilizer prices.16

When fertilizers are imported into Kenya, the prices at the port differ from those in

other parts of the country. The same trend is evident with government-subsidized

fertilizer. See Appendix A for fertilizer prices in different regions of Kenya.

Price variance may be attributable to the cost of transportation from the port to other counties.

This trend may change as a result of the Mombasa-Nairobi Standard Gauge Railway project.

Developed by the Kenya Railways Corporation, this is the biggest infrastructure project in Kenya

since independence. Construction of the 609 km line began in 2013 and is set to be completed in

December 2017. The line will run through the counties of Mombasa, Kilifi, Kwale, Taita-Taveta,

14 Pender, J. L., Abdoulaye, T., Ndjeunga, J., Gerard, B.; and Kato, E. 2008. Impacts of inventory credit, input supply

shops, and fertilizer microdosing in the drylands of Niger [Online]. Washington: International Food Policy Research

Institute. [Accessed 3 May 2017]. Available from

http://ebrary.ifpri.org/utils/getfile/collection/p15738coll2/id/10214/filename/10215.pdf.

15 African Fertilizer and Agribusiness Partnership. 2017. AFAP and Toyota Tsusho partner to improve Kenyan

Fertilizer Markets [Online]. [Accessed 3 May 2017]. Available from: http://www.afap-partnership.org/what-we-

do/news/afap-and-toyota-tsusho-partner-to-improve-kenya-fertilizer-markets.aspx.

16 Mose, L. O., Factors Affecting the Distribution and Use of Fertilizer in Kenya: Preliminary Assessment. Kenya

Agricultural Research Institute. [Online]. [Accessed on 5 May 2017].Available from

http://fsg.afre.msu.edu/kenya/Dist_use_fert.pdf.

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Makueni, Kajiado, Machakos and Nairobi.17 The construction of the standard gauge railroad is

expected to lead to “a significant drop in the cost of consumer goods” in the region,18 with cargo

trains expected to make the journey from Mombasa to Nairobi in less than eight hours.

Fertilizers are not distributed effectively throughout the country and are often located far

from the farmers, resulting in unavailability.

Many farmers were not informed about the possibility of using chemical fertilizers to

increase their yields.19

4. Field Research in Nakuru County

To gain a better understanding of the key drivers that encourage farmers to adopt chemical

fertilizers, we conducted a survey in Nakuru County, which is located within the Great Rift Valley

and covers an area of 7,495.1 km2.20 This county is divided into nine subcounties and most of the

area studied (Naivasha Subcounty) is situated between 900 and 1,800 meters above sea level and

is characterized by mountain ranges and savannah vegetation. Rainfall of about 500 mm to

1,000 mm per year is concentrated between October and December (short rains) and between

March and May (long rains).21 Soil fertility ranges from moderate to high, characterized by well-

drained red volcanic soils suitable for growing wheat, maize, pyrethrum, sunflowers, finger millet,

potatoes, vegetables, and beans and peas such as pigeon peas.22

4.1 Data Collection and Methodology

To gather data for this study, field studies were conducted in four wards in Naivasha Subcounty

(Nakuru County) consisting of a total of 98 field interviews: in Biashara (25 respondents), Maiella

(25 respondents), Mai Mahiu (23 respondents) and Naivasha East (25 respondents). Using

structured questionnaires, data were collected regarding each respondent’s educational

background, income, household size, farm size, types of fertilizer used and how these were

transported, financed and stored. The respondents were given a series of statements describing

their fertilizer use and asked to state whether they agreed, strongly agreed, neither agreed nor

disagreed, disagreed or strongly disagreed with each statement. The analysis of the answers

collected (reported in Appendix B) gives an idea of what a typical resident of a rural area near

17 Mombasa-Nairobi Standard Gauge Railway Project, Kenya. Railway-technology.com [Online]. [Accessed 5 May 2017].

Available from http://www.railway-technology.com/projects/mombasa-nairobi-standard-gauge-railway-project.

18 Maundu, P., 2016. Mombasa-Nairobi section of the SGR to be complete by June next year. Daily Nation [Online].

[Accessed 5 May 2017]. Available from http://www.nation.co.ke/news/1056-3223516-6l3gf7z/index.html. See also

ESIA, 2016. Study Volume I – Main Report on the Proposed Standard Gauge Railway Project From Nairobi South

Railway Station-Naivasha Industrial Park-Enoosupukia, Narok, [Online]. [Accessed 5 May 2017]. Available from

http://www.nema.go.ke/images/Docs/EIA_1290-1299/ESIA_1296_KRC_SGR-

2A%20from%20Nairobi%20South%20to%20Naivasha.PDF.

19 USAID, “Increasing Fertilizer Adoption by Kenyan Farmers through an Innovative Pricing Scheme,” The

Massachusetts Institute of Technology and Innovations for Poverty Action | Kenya. See

https://www.usaid.gov/div/portfolio/increasing-fertilizer-adoption, accessed May 23, 2016.

20 Nakuru County, First County Integrated Development Plan (2013-2017), September 2013, p. 19.

21 Nakuru County, First County Integrated Development Plan (2013-2017), September 2013, pp. 21-22.

22 Ibid.

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the town of Naivasha takes into account when choosing a particular type of fertilizer, how he or

she buys it and how that person finances the purchase.

4.2 Interviewee Profile Analysis

To characterize the types of households in our sample, we asked a series of questions about the

income and the education level of the respondents, to gain a better understanding of their

socioeconomic status.As can be seen in Figure 3, according to the data collected, almost half of

the households (47%) had a daily income of less than $5, with another 34% having a salary

equivalent to between $6 and $21 per day. Only 7% reported having a salary worth more than

$51 a day. Given such low income levels, the data about household size look quite interesting,

with 34% of households having between six and eight family members. (See Figure 4.)

Considering the differences in daily income and family size, the study sought to determine how

these factors affected fertilizer use among the respondents.

Figure 3 Figure 4

Daily income Family size

Source: Prepared by the authors. Source: Prepared by the authors.

In addition, the data concerning the education level reveal that 60% of the heads of household

had completed no more than a primary education, with only 23% having completed secondary

school education. The percentage of people with a higher education falls to 11% for college

education and 4% for above that level. Further characterizing the respondents, the data about

farms’ distance from the nearest market reveal that more than 80% of the respondents’ farms are

located within 4 km of a market (Figure 5), with the most popular means of transportation for

farm supplies being bicycle, donkey, walking or rented truck (Figure 6). The bicycle appears to

be the most popular choice because it is ready available and relatively cheap compared with the

alternatives. A donkey or donkey cart has the advantage of allowing a greater load to be carried.

47%

34%

11%

3% 4%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

lessthan $5

$6 to$20

$21 to$50

$51 to$80

morethan$80

3%

59%

34%

2% 2%

0%

10%

20%

30%

40%

50%

60%

70%

lessthan 2

3 to 5 6 to 8 9 to 10 morethan 10

1 or 2 or

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Figure 5 Figure 6

Distance between farm and market Means of transport

Source: Prepared by the authors. Source: Prepared by the authors.

4.3 The Model

After analyzing the survey, we employed the econometric model of ordinary least squares (OLS)

to explore the variables that affect the switch from organic fertilizers produced by the farmers

themselves, such as animal dung and compost manures, to chemical fertilizers sold on the market.

The relationship can be stated as follows:

Alter_Dum = α0 + β1 Day_Inc + β2 Educ + β3 Size + β4 Distance + β5 Transp + β6 Avail (1)

where:

- Alter_Dum stands for a dummy, which is equal to 0 when a household uses organic

fertilizers of its own production and 1 when it buys chemical fertilizers on

the market

- Day_Inc stands for a daily income variable

- Educ stands for level of education (scale of 1 to 5, where 1 corresponds to none

and 5 to college graduate and above)

- Size stands for the size of the farm in acres

- Distance stands for the distance in kilometers to the nearest market center

- Transp stands for a dummy equal to 0 when a specific household uses types of

transportation not requiring a fuel purchase, and equal to 1 for motorcycle,

trucks and cars

- Avail stands for availability (scale of 1 to 5, where 1 is strongly disagree and 5

strongly agree)

33%

51%

8%7%

1%

34%

18%

11% 13% 13%

7%5%

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Equation (1) represents a model of switching from homemade fertilizers to the more advanced

chemical fertilizers purchased on the market and is based on a few assumptions. Firstly, we

assume that an increased daily income could potentially enable farmers to purchase chemical

fertilizers. Additionally, we assume that education and farm size are positively correlated with

the switch to chemical fertilizers, based on the assumption that the higher the level of education

the more informed the households are about the benefits of the use of chemical fertilizers and

additionally that the bigger the farm the more affordable chemical fertilizer should be if it is

being bought in large amounts. Distance and mechanized transportation are both expected to be

positively correlated with the switch to chemical fertilizers. Lastly, we assume that the greater the

availability of chemical fertilizers, the more common will be its usage by households.

Table 1

Estimation of household variables on the fertilizer dummy

(1) (2) (3) (4) (5) (6)

VARIABLES AlterDum AlterDum AlterDum AlterDum AlterDum AlterDum

DayInc 2.84e-05 3.89e-05** 5.21e-05** 4.92e-05** 3.82e-05* 2.60e-05

(2.30e-05) (1.94e-05) (2.09e-05) (2.04e-05) (2.19e-05) (2.13e-05)

Educ -0.0875* -0.0796 -0.0934* -0.100** -0.112**

(0.0489) (0.0507) (0.0498) (0.0496) (0.0464)

Size -0.0291* -0.0296* -0.0269* -0.0286*

(0.0160) (0.0149) (0.0150) (0.0146)

Distance 0.0312** 0.0258 0.0221

(0.0148) (0.0156) (0.0162)

Transp 0.165 0.207**

(0.104) (0.0941)

Avail 0.134***

(0.0491)

Constant 0.572*** 0.783*** 0.881*** 0.820*** 0.799*** 0.368*

(0.0651) (0.137) (0.146) (0.149) (0.152) (0.215)

Observations 97 96 96 96 96 96

R2 0.012 0.043 0.071 0.100 0.124 0.198

Robust standard errors in parentheses

*** p < 0.01, ** p < 0.05, * p < 0.1

Source: Prepared by the authors.

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4.4 Analysis

As seen in Table 1, based on our sample, daily income, availability and means of transportation

appear to be the three main areas that could affect purchases of chemical fertilizers, which

supports the research carried out so far23.

The coefficients of the transportation and availability variables are, as expected, positive and

statistically significant. This suggests that both access to mechanized means of transportation

and increased availability both increase the rate of switching from organic to chemical fertilizers.

As previous research has found, the increase in chemical fertilizer use is partially attributed to

the fact that more cooperatives are being set in the villages, allowing farmers to change farming

technology constantly and check the local availability of supplies and equipment. These studies

and our research are corroborated by the market information reporting that the number of

fertilizer wholesalers and retailers operating in Kenya has been rising steadily,24 with chemical

fertilizer consumption exhibiting a similar trend.

The distance variable loses statistical significance after additional variables have been included.

This suggests that a greater distance from the market and supplies is not a serious obstacle to

obtaining chemical fertilizers since, as the interviewees often pointed out, in the area where they

live they can rely on the fertilizers being supplied directly to their farm. Furthermore, mechanized

transportation makes fertilizer delivery more convenient and faster. These findings somewhat

disagreed with the literature, which found that, among other factors, the distance between the

farmer and the fertilizer market and agricultural potentials were statistically significant and

adversely influenced the probability of chemical fertilizers being used in Kenya.25

The coefficient of the education variable is negative and statistically significant. This suggests

that the more educated the households are, the less interested they are in purchasing chemical

fertilizers on the market rather than using animal dung and compost manure of their own

production. This finding conflicts with other studies that found that the probability of adopting

chemical fertilizer increased when farmers attained a higher level of education.26 Though

negatively correlated, the education level had a weak effect on switching from organic to

chemical fertilizers.

23 Ariga, J., Jayne, T. S., Kibaara, B., and Nyoro, J. K., 2008. Trends and Patterns in fertilizer Use by Smallholder

Farmers in Kenya. [Online]. Nairobi: Tegemeo Institute of Agricultural Policy and Development. [Accessed on 5 May

2017]. Available from http://ageconsearch.tind.io//bitstream/202615/2/Tegemeo-WP28-Trends-Patterns-Fertilizer-

Smallholder-Farmers-.pdf. See also IFDC, 2012. Kenya Fertilizer Assessment. [Online]. [Accessed on 5 May 2017].

Available from https://ifdc.org/country-fertilizer-market-assessments.

24 Ariga, J., and Jayne, T. S., 2009 “Private Sector Responses to Public Investments and Policy Reforms: The Case of

Fertilizer and Maize Market Development in Kenya” IFPRI discussion paper 00921.

25 Olwande, J., Sikei, G., and Mathenge, M., Agricultural Technology Adoption: A Panel Analysis of Smallholder

Farmers’ Fertiliser Use in Kenya, paper presented at the 83rd Annual Conference of the Agricultural Economics

Society, Dublin (March/April 2009), CEGA working paper No. AfD-0908.

26 See for example Waithaka, M. M., Thornton, P. K., Shepherd, K. D., and Ndiwa, N. N. 2007. Factors affecting the

use of fertilizers and manure by smallholders: the case of Vihiga, western Kenya, Nutrient Cycling in

Agroecosystems. Vol. 78, Issue 3, pp. 211-224.

IESE Business School-University of Navarra - 13

While landholding size, an important indicator of wealth in Kenya, has been found to have a

positive impact on chemical fertilizer use in Kenya,27 our research contradicted these findings.

The data showed that the size of a respondent’s farm negatively affected the switch from organic

to chemical fertilizers. This may be connected to the fact that the larger amount of land the farmer

possesses, the more expensive it is to purchase the quantity of fertilizer necessary for the entire

parcel used for agriculture. Clearly, while landholding is an indicator of wealth, it did not in this

case translate into liquidity and it did not improved the farmer’s fertilizer purchasing power.

Understandably, the low rate of chemical fertilizer use in the area being studied may be attributed

to the fact that most of the farmers had relatively small landholdings, ranging from 2 to 9 acres,

and they were diverse when it came to the style of farming (36% subsistence compared with 48%

commercial farming) and the types of crops produced – vegetables being the most popular (44%

of respondents). A secondary source has suggested that smallholder farmers practicing

subsistence farming consume less chemical fertilizer than large-scale commercial farmers.28

5. Business Opportunities

As Kenya relies heavily on imports, fluctuations in world demand and supply directly affect the

Kenyan market for fertilizers. Given the central role of agriculture in the Kenyan economy, the

need to explore alternative sources of chemical fertilizer, which would be less sensitive to external

factors, is crucial. As our analysis showed, price and the availability of fertilizers were the two

factors that most affected respondents’ choice and use of fertilizers. It is therefore important to

explore business opportunities that address these issues, and ultimately stimulate the use of

chemical fertilizer. Despite the numerous challenges in the fertilizer market in Kenya identified

by this research, there are a number of investment and business opportunities in Kenya. These

opportunities have the potential to address the current gaps in the market and could ultimately

lead to the creation of a self-sufficient fertilizer market in Kenya.

5.1 Local Fertilizer Manufacturing

5.1.1 Coal to Liquid

The coal-to-liquid (CTL) process refers to the gasification of coal combined with the Fischer-Tropsch

(F-T) synthesis to produce liquid fuels, where the coal gasification can be used to manufacture

fertilizers.29 This can be achieved via two processes: direct liquefaction and indirect liquefaction.

For the purposes of fertilizer production, the second method is of more interest since it involves

gasification, which results in a carbon monoxide and hydrogen gas mixture, with the hydrogen

portion being used in the manufacture of urea fertilizers. Gasification converts hydrocarbons such

as coal and biomass to a synthesis gas (syngas), which can be used subsequently in the production

27 Ariga, J., Jayne, T. S., Kibaara, B., and Nyoro, J. K. 2008. Trends and Patterns in Fertilizer Use by Smallholder

Farmers in Kenya. [Online]. Nairobi: Tegemeo Institute of Agricultural policy and Development [Accessed 5 May

2017]. Available from http://ageconsearch.tind.io//bitstream/202615/2/Tegemeo-WP28-Trends-Patterns-Fertilizer-

Smallholder-Farmers-.pdf.

28 IFDC, 2012. Kenya Fertilizer Assessment. [Online]. [Accessed on 5 May 2017]. Available from

https://ifdc.org/country-fertilizer-market-assessments.

29 IEA Coal Advisory Board, Coal-to-Liquids an Alternative Oil Supply? p. 3,

https://www.iea.org/ciab/papers/workshopreport_nov06.pdf.

14 - IESE Business School-University of Navarra

of fertilizers.30 This process works by breaking the chemical bonds of the hydrocarbon feedstock

inside a high-temperature pressurized reactor containing oxygen and steam to produce a syngas.31

Impurities (sulfur, mercury, and trace minerals) are removed from the resulting gas and then the

clean gas is used to make fertilizers, hydrogen, electricity, etc.32

This process has been deemed to be feasible for reducing the outflow of a country’s funds for

fertilizer imports.33 In 2004, chemical fertilizers accounted for 3.04% of the total goods imported

into Kenya.34 Refining crude costs less than the CTL process but the main incentive for using the

CTL process is the fact that the price of coal, the main feedstock, is relatively low.35 This

technology is welcome for Kenya due to the recent discoveries of 500 million metric tons of coal

in block B in the Mui Basin in Kitui County. Coal deposits has been confirmed in other blocks

within the basin, where eight wells have been drilled in each of the blocks.36

Attempts are being made to locate coal resources in Baringo, Garissa, Isiolo, Kilifi, Kitui, Kwale,

Makueni, Meru, Samburu, Tana River, Tharaka Nithi and Turkana counties.37 If these attempts are

successful, this could provide a large base for setting up fertilizer production plants. The

gasification could be done in two ways. The first would involve the extraction of the coal

resources from the ground, after which the coal would be fed into the gasification plant. The

second method would be in situ gasification of the coal resources, a method known as

underground coal gasification (UCG), currently used in South Africa, China and the United

Kingdom. The UCG method is suitable for coal deposits in areas where extraction is difficult or

for deposits located at great depths.38 The UCG process, though a game changer in coal utilization,

has been associated with negative effects such as contamination of groundwater with benzene

and other impurities, leading to numerous plants being shut down.39

A plant producing 50,000 barrels per day (bpd) is estimated to cost between $3.6 billion and

$6 billion,40 with about 70% of the plant’s cost being attributed to its syngas production portion.41

Between 1991 and 1995, China worked to set up a natural gas fertilizer (urea) plant with a

capacity of 520,000 tons per annum at a cost of 1,283 million yuan.42 At an approximate average

exchange rate of 6.703 yuan to the dollar between 1991 and 1995,43 the project cost an estimated

30 Gasification Technologies Council, Gasification Redefining Clean Energy 2008, p. 3.

31 Gasification Technologies Council, Gasification Redefining Clean Energy 2008, p. 1.

32 Ibid.

33 Ryunosuke Kikuchi, Yontcho G. Pelovski, Sandra M. Santos, Economic Consideration of Producing Fertilizer From

Coal-Fired Flue Gas: Application of Bulgarian Experience to Case Study of Portugal, Journal of Central European

Agriculture Vol. 6 (2005) No. 4.

34 Handbook on Importing and Exporting in Kenya, p. 9,

https://www.kenyaembassy.com/pdfs/handbookimportingexporting.pdf, accessed May 20, 2016.

35 IEA Coal Advisory Board, Coal-to-Liquids an Alternative Oil Supply? p. 3.

36 Republic of Kenya, Ministry of Energy and Petroleum, Strategic Plan 2013–2017, p. 1.

37 Ibid.

38 http://www.bgs.ac.uk/research/energy/UCG.html, accessed June 9, 2016.

39 http://www.greenpeace.org.uk/newsdesk/energy/analysis/is_UCG_low_carbon, accessed June 9, 2016.

40 http://www.groundtruthtrekking.org/Issues/AlaskaCoal/CoalToLiquids.html, accessed June 9, 2016.

41 http://www.iepm.com/wp-content/uploads/2012/09/CTL-final.pdf, accessed June 9, 2016.

42 Weihe Fertilizer Plant Construction Project Report, April 2002, p. 1,

http://www.jica.go.jp/english/our_work/evaluation/oda_loan/post/2002/pdf/019_full.pdf, accessed June 13, 2016.

43 http://fred.stlouisfed.org/series/EXCHUS, accessed February 8, 2017.

IESE Business School-University of Navarra - 15

$191.4 million at the time. The project’s overall rate of return (RoR) was 5%, short of the projected

7.8%, due to a drop in foreign exchange at the time of the project and an increase in oil prices.44

However, it is important to note that, by the fifth year of operation, the plant had exceeded its

target production capacity and had a production rate of 524,000 tons per year by 2000, and all

this despite a setback in the construction schedule and the failure of some gasification

equipment.45 The most notable impact of the plant, aside from increased food production and the

creation of employment opportunities, was a drastic drop in the levels of urea imports into the

country from 1995 up until 1998 when imports ceased completely.46 Though the amount of money

required may make investors reluctant to invest, it is crucial to note that all the by-products of

these systems can be put to economic use, thus creating multiple avenues for returns on

investment. The CTL process produces energy that can provide the power needed to run the

facility, thus making it self-sustaining.

The challenge with CTL plants is dealing with the substantial amounts of greenhouse gases (GHG)

that are emitted during the process.47 Researchers have suggested that, for the adverse effects of

climate change to be addressed, the construction of new coal plants must cease while all existing

plants must be phased out by the middle of the 21st century.48 Nevertheless, the positives to be

gained by the country through the adoption of CTL fertilizer facilities outweighs the potential for

GHG emissions as the emissions problem can be remedied through the adoption of carbon capture

and sequestration technologies.49 Carbon monoxide (CO) can be removed prior to combustion, a

process that is cheaper than removal of carbon dioxide (CO2) after gasification has taken place.50

This captures about 70% to 90% of the harmful gas.51

In Kenya, the extraction of minerals, especially in areas where communities have settled, presents

potential challenges for developers especially since negotiations with the communities may take

a long time, and the potential developers have to balance and be aware of the various interests.52

In the Mui Basin, where coal has been identified, various stakeholders have gone to court to stall

extraction of the coal due to unresolved interests.53 Other concerns that developers have to be

aware of are environmental and health concerns such as water pollution, gender concerns where

women are adversely affected by extraction activities – which many rights activists contend is

44 Weihe Fertilizer Plant Construction Project Report, April 2002, p. 2.

45 Weihe Fertilizer Plant Construction Project Report, April 2002, p. 3.

46 Weihe Fertilizer Plant Construction Project Report, April 2002, p. 6.

47 James T. Bartis, Frank Camm, David S. Ortiz, Producing Liquid Fuels from Coal: Prospects and Policy Issues, Rand

Corporation, Santa Monica, California, 2008, p. 31.

48 Climate Action Tracker, “The Coal Gap: Planned Coal-Fired Power Plants Inconsistent With 2 °C and Threaten

Achievement of INDCS,” December 1, 2015. Available at

http://climateactiontracker.org/assets/publications/briefing_papers/CAT_Coal_Gap_Briefing_COP21.pdf, accessed

June 15, 2016.

49 Hari C. Mantripragada and Edward S. Rubin, CO2 reduction potential of coal-to-liquids (CTL) process: Effect of

gasification technology, Energy Procedia 4 (2011). Vol. 1, Issue 1, February 2009, pp. 4,331-4,338.

50 Gasification Technologies Council, Gasification Redefining Clean Energy 2008, p. 6, p. 17.

51 Ibid.

52 http://www.standardmedia.co.ke/business/article/2000162482/anxiety-over-delayed-kitui-coal-project-even-as-

investor-reassures-locals, accessed June 15, 2016.

53 See Rapid assessment of the extractive industry sector in Kitui County: The case of coal exploration and mining in the

Mui Basin, Final Report, December 2014. See also In the Matter of the Mui Coal Basin Local Community [2015] eKLR.

16 - IESE Business School-University of Navarra

due to the fact that women are the ones who mostly use land for farming and so on, activities

that coal extraction will disrupt.54

Also associated with coal is methane gas, which can also be used in fertilizer production. The

volume of methane has been found to increase with the age and depth of the coal deposits. Hence

underground mining produces substantially greater levels of methane than surface mining.55

Technologies for extracting methane gas include coal bed methane (CBM) extraction, where the

gas is recovered from unmined coal seams, which can then be mined in the future. In coal mine

methane (CMM) extraction, the gas is recovered in the course of mining and this results in

substantial quantities of the gas. Finally, with abandoned mine methane (AMM) extraction,

remnants of methane gas are extracted from mines after mining operations have ended.56

5.1.2 Natural Gas to Fertilizer

Natural gas is another means by which fertilizers can be manufactured. The process produces

ammonia, which can also be used in the manufacture of nitrogen and phosphorus fertilizers.57 The

production of fertilizers from natural gas can be affected by fluctuations of natural gas prices.58

However, for countries where natural gas occurs, such as Kenya, the market prices for natural gas

would hardly affect investment in the technology, particularly if the production is carried out with

the aim of satisfying local fertilizer demand rather than for export.59 For ammonia producers, access

to cheap energy sources is of the utmost importance.60 In 2012, about 52 net meters of natural gas

were discovered off the Kenyan coast in Mbawa 1 block L8.61 The Ministry of Energy also reported

that Paipai-1 in the Anza Basin showed evidence of a natural gas presence.62

Using the Haber-Bosch process, nitrogen (from the air) and hydrogen (obtained from natural gas)

are reacted using an iron catalyst to produce ammonia.63 The hydrogen is produced by reacting

methane gas with water, preceded by a reaction of the natural gas and iron catalyst to remove

all sulfur traces from the gas to prevent poisoning of the catalyst.64 This is the first step in the

ammonia production process. Steam at high temperatures is reacted with methane with an iron

54 Omila, D. O. 2015. Gender dimensions and implications of coal mining in the Mui Basin of Kitui County, Kenya.

[Online]. Nairobi: Centre for Governance and Development [Accessed 3 May 2017]. Available from:

http://www.daogewe.org/index.php/publications/reports/23-mining-report-updated/file.

55 https://www.worldcoal.org/, accessed June 15, 2016.

56 https://www.worldcoal.org/, accessed June 15, 2016.

57 See Clark W. Gellings and Kelly E. Parmenter, Energy efficiency in fertilizer production and use,

http://www.eolss.net/ebooks/sample%20chapters/c08/e3-18-04-03.pdf, accessed June 15, 2016. See also

https://www.tfi.org/advocacy/energy/natural-gas-accesssupply, accessed June 15, 2016.

58 Khalid T. Alkusayer and Andrew Ollerhead, Ammonia Synthesis for Fertilizer Production, p. 13.

59 Sustainable Development Solutions Network, “Potential for Regional Use of East Africa’s Natural Gas,” briefing

paper, May 2014, 15-17. Available at http://energypolicy.columbia.edu/sites/default/files/energy/Potential-for-

Regional-Use-of-East-Africas-Natural-Gas-SEL-SDSN.pdf, accessed July 5, 2016.

60 Fertilizer Facts, September 2014. Available at http://www.trammo.com/sitecore/shell//-

/media/trammo/corporate/media%20items/ifa%20fertilizer%20facts/nitrogen-production.pdf?la=en, accessed June

15, 2016.

61 http://www.businessdailyafrica.com/Kenya-strikes-offshore-natural-gas-deposits/-/539546/1501324/-/ipg8pjz/-

/index.html, accessed June 15, 2016.

62 Republic of Kenya, Ministry of Energy and Petroleum, Strategic Plan 2013–2017, p. 2.

63 http://nzic.org.nz/ChemProcesses/production/1A.pdf, accessed June 15, 2016.

64 Ibid.

IESE Business School-University of Navarra - 17

catalyst to produce a synthesis gas (hydrogen, carbon dioxide and carbon monoxide).65 The next

step involves a reaction between the synthesis gas (from which water, carbon dioxide and carbon

monoxide have been removed) and oxygen, and the resulting gas mixture is cooled and fed into

an ammonia synthesis loop.66 Any ammonia present is then extracted and the hydrogen and

nitrogen gas mixture is heated to produce more ammonia.67

As of 2013, it was estimated that $10 billion worth of investment would go into the

implementation of new 12 million ton capacity fertilizer plants in Louisiana, Iowa, North Dakota,

Texas and Indiana.68 The process used is efficient as the reactants are recycled in the reactor until

about 97% is converted to ammonia.69 Another cost-saving mechanism is to have the plant

located near the natural gas reserves so as to reduce the cost of transporting the feedstock.70 Once

the plant is fully operational, the breakeven point is estimated at five years, and the plant is

expected to operate for about 15 years.71

The ammonia synthesis process has been associated with harmful gaseous emissions of sulfur

dioxide, carbon monoxide, and hydrogen sulfide, among other gases. Kenya’s draft national

energy policy of 2015 identified the challenges associated with natural gas in the country as

being the lack of a legal, regulatory and fiscal framework for natural gas development, production

and export options, a lack of infrastructure for handling natural gas (such as natural gas

liquefaction plants and pipelines), and a lack of facilities to exploit natural gas reserves (such as

petrochemical plants and fertilizer plants).72

In addition, sulfur dioxide (SO2), mainly emitted from thermal power plants and industrial plants that

burn fossil fuels such as coal, can also be transformed into nitrogen (N) fertilizer using processes such

as the GESSI wet process, Krup-Walther wet process, and regenerable sodium process. However, these

processes discharge wastewater, so a wastewater treatment unit must be installed.

5.1.3 Waste to Energy

Urbanization and increases in population create waste management challenges for many sub-

Saharan countries currently undergoing urban transition.73 The World Bank estimated in 2012

that the world was producing 4 billion tons of all types of waste74 and the amount was expected

to increase, thus posing a waste management challenge because the existing waste disposal

techniques were nonviable. For many sub-Saharan countries, their inability to deal with waste

management is characterized by a horrid state of sanitation in slum dwellings.75 This is where the

65 http://www.rsc.org/chemistryworld/2012/10/haber-bosch-ruthenium-catalyst-reduce-power, accessed June 15, 2016.

66 Khalid T. Alkusayer and Andrew Ollerhead, Ammonia Synthesis for Fertilizer Production.

67 http://www.bbc.co.uk/schools/gcsebitesize/science/ocr_gateway/chemical_resources/ammoniarev2.shtml, accessed

June 15, 2016.

68 http://www.scientificamerican.com/article/fertilizer-plants-grow-thanks-to-cheap-natural-gas/, accessed June 15, 2016.

69 Khalid T. Alkusayer and Andrew Ollerhead, Ammonia Synthesis for Fertilizer Production, p. 11.

70 Khalid T. Alkusayer and Andrew Ollerhead, Ammonia Synthesis for Fertilizer Production, p. 13.

71 See http://www.asx.com.au/asxpdf/20130417/pdf/42f9brx9b4xscx.pdf, accessed June 15, 2016.

72 Ministry of Energy and Petroleum, Draft national energy and petroleum policy, June 16, 2015, p. 40.

73 World Energy Council, World Energy Resources: Waste to Energy, 2013, 7b.2.

74 World Bank: What a Waste, March 2012.

75 UN Habitat, Note on Urbanisation Challenges, Waste Management, and Development, ACP-EC Joint Parliamentary

Assembly, February 12-14, 2014, Mauritius.

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private sector comes in to supplement waste management initiatives, which is primarily the role

of public authorities, by exploring alternatives and sustainable means of waste management. As

a result, several waste-to-energy projects have been developed in Kenya, most of which use

gasification techniques. Waste is burned to produce gas, which can then be converted into energy

and fertilizers.76 The resulting energy and fertilizer from this process are considered

environmentally friendly because they are produced mainly from organic components found in

the waste.77 One ton of solid waste can be used to produce up to 1,000 kilowatt-hours of

electricity.78 In Nairobi alone, it is estimated that 1,500 tons of waste is generated daily.79

AgriKomp International, a leading company in the biogas industry, has been operating a biogas

plant in Kilifi, “on the premises of the largest producer and exporter of processed food”80 in Kenya.

By using waste from the food processing and field waste, the plant was expected to produce more

than 21 million m3 of biogas per year. The waste produced by the plant is rich in nutrients and

is therefore sold to the market as a fertilizer.

The company Sanergy generates organic fertilizer by collecting, treating and converting human

waste. In the five years up to 2016, Sanergy has installed more than 700 toilets across nine slums

in Nairobi, treating more than 8,000 metric tons of waste and generating organic fertilizer that it

sells to local farmers81.

5.1.4 Seabed Minerals

The ocean floor is littered with numerous minerals, which can be extracted and put to commercial

use such as the manufacture of fertilizers.82 Phosphates, one such mineral occurring in the sea, is

an essential input in the manufacture of fertilizers.83 Phosphates are used to produce phosphoric

acid, which is then heated, and the resulting acid can then be mixed with ammonia.84 These

minerals can be extracted using either hydraulic suction pumps or bucket dredging systems.85

However, due to the location of the minerals and the sensitivity of the ecosystem, a lot of care

has to be taken in the extraction of the resources so as to avoid interfering with the organisms

inhabiting the area. If the marine environment is harmed, the projects run the risk of being shut

76 Trynos Gumbo, Towards a Green Energy Revolution in Africa: Reflections on Waste-to-Energy Projects, policy

brief, Africa Institute of South Africa, briefing No. 101, December 2013.

77 Trynos Gumbo, Towards a Green Energy Revolution in Africa: Reflections on Waste-to-Energy Projects, policy

brief, Africa Institute of South Africa, briefing No. 101, December 2013.

78 Gasification Technologies Council, Gasification: The Waste to Energy Solution 2011, p. 3.

79 http://www.unep.org/PDF/Kenya_waste_mngnt_sector/chapter3.pdf, accessed June 15, 2016.

80 Kothanikkel, J., Waste-to-Energy Project in Kenya, agriKomp, October 14, 2013,

https://www.giz.de/fachexpertise/downloads/2013-en-kothanikkel-waste-to-energy-in-kenya.pdf.

81 Ruiz-Grossman, S., “Company Brings Toilet to Kenya Slums, Turns Waste Into Fertilizer,” The Huffington Post, July 14,

2016, http://www.huffingtonpost.com/entry/sanergy-toilets-nairobi-kenya-slums-waste-

reuse_us_5786634ce4b08608d3327719.

82 See http://worldmaritimenews.com/archives/141003/exploring-the-oceans/, accessed July 5, 2016.

83 See http://www.saiia.org.za/policy-briefings/506-seabed-mining-lessons-from-the-namibian-experience/file,

accessed July 5, 2016.

84 See http://www.extension.umn.edu/agriculture/nutrient-management/phosphorus/understanding-phosphorus-

fertilizers/, accessed July 5, 2016.

85 http://www.nzpam.govt.nz/cms/iwi-communities/government-role/seabed-mining, accessed July 5, 2016.

IESE Business School-University of Navarra - 19

down.86 It has also been claimed that adverse effects are associated with deep sea mining,

including the death of some marine organisms and the smothering of organisms due to sediment

disturbance.87 It has been said that, for the extraction of minerals from the seabed to proceed

smoothly, there needs to be proper legislation to guide businesses in their activities involving the

seabed.88 The United Nations Convention on the Law of the Sea (UNCLOS) and the International

Seabed Authority provide a regulatory framework governing the sea. However, each country

needs to have national laws to govern corporates that wish to engage in activities in the sea

within the state’s jurisdiction that have the potential to affect the ecosystem.89

5.2 Fertilizer Distribution

5.2.1 Free-Trade E-Wallet

The adoption of information and communication technology (ICT) in agribusiness presents a

viable business opportunity for investment.90 A 2015 report by the Alliance for a Green Revolution

in Africa (AGRA) states that, by supporting the efficient use of resources (water, land and

fertilizer), these kinds of technology had the potential to raise farm productivity. The report

further stated that ICT helped farmers to “improve marketing logistics and reduce transportation

costs,” thus increasing profitability “by facilitating farmers’ capacity to organize themselves into

groups to achieve and leverage economies of scale.”

Kenyan farmers who turned up at the National Cereals and Produce Board (NCPB) depot in Eldoret

from as far as Nandi and Elgeyo Marakwet to buy government-subsidized fertilizers complained that

the procedures for obtaining the fertilizer were hectic and could delay planting. The farmers also

complained about the need to travel to Eldoret to obtain fertilizers even though there were NCPB

depots in their regions.91 The Economic Review of Agriculture report of 2013 noted that a major

contributing factor in the lack of success of the government subsidy initiative was the low allocation

of treasury funds for fertilizer procurement. This, coupled with theft and adulteration of already

purchased fertilizer, made a bad situation worse.92 The fund allocations are shown in Table 2.

86 See, for example, http://www.mining.com/seabed-mining-dreams-shattered-by-new-zealand-latest-decision-

13171/, accessed July 5, 2016.

87 See Greenpeace, Deep Seabed Mining: An Urgent Wake-Up Call to Protect Our Oceans, July 2013. Available at

http://www.greenpeace.org/international/Global/international/publications/oceans/2013/Deep-Seabed-Mining.pdf,

accessed July 5, 2016.

88 Nicholas N. Kimani, “Enacting National Seabed Mining Laws in Africa: Importance of a Practitioner’s Perspective,”

11/2 Law, Environment and Development Journal (2015). Available at http://www.lead-

journal.org/content/15090.pdf, accessed July 5, 2016.

89 See Alex Benkenstein, “Seabed Mining: Lessons from the Namibian Experience,” Governance of Africa’s Resources

Programme, policy briefing 87, April 2014.

90Alliance for a Green Revolution in Africa (AGRA), Africa Agriculture Status Report: Youth in Agriculture in Sub-

Saharan Africa. Nairobi, Kenya. Issue No. 3, (2015) p. 122.

91 http://www.standardmedia.co.ke/article/2000080711/farmers-face-hurdles-in-getting-cheaper-fertiliser/?pageNo=2,

accessed May 23, 2016.

92 http://www.standardmedia.co.ke/article/2000202395/government-suspends-22-ncpb-managers-over-theft-of-

subsidised-fertilizer, accessed May 23, 2016.

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Table 2

Treasury allocation for fertilizer procurement by government

Year Millions of shillings

2009/10 758

2010/11 2,995

2011/12 3,320

2012/13 3,150

2013/14 3,900

Total 14,123

Source: Ministry of Agriculture, Livestock and Fisheries. Economic Review of Agriculture [ERA] 2015, p. 40. Available from: http://www.kilimo.go.ke/wp-content/uploads/2015/10/Economic-Review-of-Agriculture_2015-6.pdf.

In light of the move to eliminate the NCPB monopoly over the distribution of subsidized

fertilizers, there are business opportunities in the adoption of ICT in these initiatives to alleviate

farmer complaints. The elimination of the NCPB monopoly will allow other fertilizer distributors

to supply the farm input to farmers throughout the country. This can be achieved by using a

system like Nigeria’s e-wallet program, where farmers registered in the scheme can obtain

vouchers (via their mobile phones) that provide a 50% subsidy for their input purchases.93 The

vouchers can be used at any fertilizer distribution point, where farmers can still enjoy subsidized

fertilizer rates. Because commercial distributors are more widespread throughout the country

compared with NCPB depots, this will allow access to chemical fertilizers at affordable rates, thus

increasing their usage.

6. Conclusions

The Kenyan fertilizer market has suffered various challenges over the years, from corrupt

practices that threatened to cripple the market to poor fertilizer policies that adversely affected

the market. Despite these and other challenges, the market has remained resilient, with fertilizer

demand still recording an increase over the years.

Both previous research94 and our analysis show that availability, access to mechanized means of

transportation and higher daily income are three main areas that could affect the purchase of

chemical fertilizers.

Our study has found that often fertilizers are not effectively distributed throughout the country

and are often located far from the farmers, resulting in a lack of availability. In this sense the

93 Alliance for a Green Revolution in Africa (AGRA), Africa Agriculture Status Report, p. 123.

94 Ariga, J., Jayne, T. S., Kibaara, B., and Nyoro, J. K., 2008. Trends and Patterns in fertilizer Use by Smallholder

Farmers in Kenya. [Online]. Nairobi: Tegemeo Institute of Agricultural Policy and Development. [Accessed on 5 May

2017]. Available from http://ageconsearch.tind.io//bitstream/202615/2/Tegemeo-WP28-Trends-Patterns-Fertilizer-

Smallholder-Farmers-.pdf. IFDC, 2012. Kenya Fertilizer Assessment. [Online]. [Accessed on 5 May 2017]. Available

from https://ifdc.org/country-fertilizer-market-assessments.

IESE Business School-University of Navarra - 21

private sector could be very beneficial by establishing a network of dealers and by reducing

fertilizer distribution costs.

In addition, our study established that many of the farmers, especially those with lower education

levels, were uninformed about the possibility of using chemical fertilizers to increase their yields.95

For chemical fertilizer use to have a greater impact in the country, there needs to be greater

awareness among target users and among the youth, who are potential future users of chemical

fertilizers. This awareness-raising could be achieved by incorporating basic studies on chemical

fertilizers in the school curriculum. Furthermore, the benefits of chemical fertilizers should be

emphasized more in agricultural shows and expos, which are usually held annually.

From the perspective of private investors, the opportunities in the Kenyan market are numerous

and mostly remain unexploited to their full potential. The recently discovered coal deposits in

Kitui County and natural gas deposits in Lamu County provide opportunities to explore

gasification technologies to manufacture fertilizers. These resources can be exploited to meet

Kenyan fertilizer demand.

95 USAID, “Increasing Fertilizer Adoption by Kenyan Farmers Through an Innovative Pricing Scheme.” The

Massachusetts Institute of Technology and Innovations for Poverty Action | Kenya. See

https://www.usaid.gov/div/portfolio/increasing-fertilizer-adoption, accessed May 23, 2016.

22 - IESE Business School-University of Navarra

Appendix A

NCPB Fertilizer Prices

NATIONAL CEREALS AND PRODUCE BOARD (NCPB)

OPEN AIR MARKET PRICES FOR FERTILIZER (JULY 15, 2016)

REGIONAL OFFICE

DEPOT/MARKET CENTER

CAN SHILLINGS PER 50 kg

UREA SHILLINGS PER 50 kg

DAP SHILLINGS PER 50 kg

North Rift Eldoret 2,500 2,600 3,200

Kitale 2,500 2,650 3,150

Kapenguria 2,500 3,100

Moi's Bridge 2,500 2,700 3,100

Lessos 2,500 2,700 3,000

Turbo 2,500 2,800 3,100

Ziwa 2,550 2,800 3,000

Miteitei 2,500 2,750 3,000

K/Salient 2,500 3,000

Mosoriot 2,550 2,700 3,000

Kipkabus 2,500 2,800 3,100

K/River 2,500 2,800 3,000

Lake/Western Butere 2,700 3,550

Lugari 2,700 3,200

Kapsokwony 2,200 3,500

Kakamega 2,700 3,200

Bungoma 2,650 3,000 3,650

Hamisi 2,500 3,500

Kisumu 2,600 2,800 3,450

Bondo 2,500 3,300

Kendu Bay 2,800 3,700

Homa Bay 2,450 2,500 3,350

Kisii 2,400 2,400 3,000

Nyansiongo 2,000 2,400 3,450

Yala 2,650 3,000 3,650

Ntimaru 2,000 3,500

Tamlega 2,800 2,800 3,650

South Rift Nakuru 2,800 3,200

Solai 2,600 3,200

Nyahururu 2,600 3,400

E/Ravine 2,500 3,800

Kabarnet 2,600 3,450

Marigat 2,200 3,350

Narok 2,300 3,320

Mulot 2,500 3,450

Bomet 2,600 3,400

Sotik 2,400 3,200

Ndanai 2,300 3,400

Kirindoni 2,600 3,300

IESE Business School-University of Navarra - 23

Appendix A (Continued)

South Rift Kilgoris 2,800 3,700

Enosaen 2,200

Kericho 2,400 3,500

Kipkelion 2,500 3,200

Elburgon 2,300 3,300

Maralal 2,500 3,500

Olenguruone 2,500 3,100

Nairobi/East. Machakos 2,300 2,400 3,400

Makueni 2,450 2,400 3,500

Kithimani 2,225 2,675 3,700

Tala 2,450 2,400 3,500

Emali 2,500 3,500

Kibwezi 2,400 3,000

Thika 2,390 2,675 3,700

Kajiado 2,400 3,500

Coast Mombasa 2,000 3,000 3,400

Kilifi 2,000 4,000

Mokowe 2,500 3,500

Northern Embu 2,450 3,300

Nanyuki 3,200 3,650

Meru 2,200 3,300

Maua 2,300 2,350 3,250

Isiolo 2,500 3,200 3,500

Kiganjo 2,400 3,200

Sagana 2,500 2,000 3,200

Kitui 2,400 3,300 3,400

Maragua 2,500 3,300

Mwea 2,500 3,800

Mwingi 2,800 3,700

Ishiara 3,250 3,750

NATIONAL AVERAGE 2,487 2,689 3,369

Source: National Cereals and Produce Board. 2005. [Online]. [Accessed 5 May 2017]. Available from: http://www.ncpb.co.ke/index.php?option=com_content&task=view&id=17&Itemid=81.

NATIONAL CEREALS AND PRODUCE BOARD (NCPB)

OPEN AIR MARKET PRICES FOR FERTILIZER (JULY 15, 2016)

REGIONAL OFFICE

DEPOT/MARKET CENTER

CAN SHILLINGS PER 50 kg

UREA SHILLINGS PER 50 kg

DAP SHILLINGS PER 50 kg

24 - IESE Business School-University of Navarra

Appendix B

Statistical Analysis of Data Collected in the Field Survey

B.1 Types of Fertilizer Used

Statistics from the International Fertilizer Development Center (IFDC) show that Nakuru County

is the second largest consumer of chemical fertilizer in Kenya, with chemical fertilizer applied on

69% of the 206,024 hectares of land under cultivation.96 As per the types of fertilizer used, these

statistics agree with the findings in our study that chemical fertilizers, animal dung and compost

manures of farmers’ own production are the only types of fertilizers used. As can be seen in

Figure 7, just over half of the respondents in our survey (51%) said they preferred animal dung

while only 40% indicated that they used chemical fertilizers.97 Interestingly, while a significant

number of the respondents said they used organic fertilizers, not a single household reported

buying organic fertilizers produced by a third party. This can be attributed to the fact that most

households keep cattle and would therefore have the input to produce their own natural fertilizers.

Figure 7

Types of fertilizer

Source: Prepared by the authors.

B.2 Factors Affecting Types of Fertilizer Used

The respondents were then asked a series of questions aimed at determining their preferences

between natural and chemical fertilizers. These results are detailed and discussed below.

96 Dienya, T., Oseko E., and Maina, M., 2015. Kenya Fertilizer Use by Crop. FUBC Report, October 2015, p. 9.

97 When it comes to the specific types of fertilizer used, we can assume that they were the same as those identified by

the IFDC study: DAP, CAN, NPK 23-23-0, urea, Mavuno-P, Yara Mila 23-10-5, MAP, Mavuno-TD, NPK 17-17-17,

DSP, calcium nitrate, TSP and NPK 20-20-20.

40%

51%

9%

0% 0%0%

10%

20%

30%

40%

50%

60%

Chemicals Animal Dung Compost - ownproduction

Organic - thirdparty production

OthersAnimal dung Compost – own

production

Organic – third-party

production

Chemicals Others

IESE Business School-University of Navarra - 25

Appendix B (Continued)

B.2.1 Consumer Preferences

As can be seen in Figure 8, of those who used natural fertilizers, 97% of the respondents agreed

that organic or homemade fertilizers were good for the environment while 94% agreed that natural

fertilizers were a cheaper alternative. These findings corroborate results from the Food and

Agriculture Organization of the United Nations, which observed that price affected fertilizer demand

in developing countries where there were smallholder farms and where subsistence farming was

practiced.98 It is interesting to note that 54% of the respondents reported using natural fertilizers

because their output was not affected by the lack of chemical fertilizers. However, this view

contradicts studies that have found that chemical fertilizers produce higher yields than organic

fertilizers.99 The lack of availability of chemical fertilizers does not seem to be a very important

factor influencing the choice of using natural fertilizers rather chemical fertilizers, with 73% of the

respondents agreeing that chemical fertilizers were available. The same could be said about the lack

of water, with 59% of the respondents agreeing that water was available.

Figure 8

Consumer preferences of natural fertilizer users

Total number of respondents: 75/98.

Source: Prepared by the authors.

98 Parthasarathy, N. S., 1994. Demand forecasting for fertilizer marketing. [Online] Rome: FAO. [Accessed 5 May

2017]. Available from http://www.fao.org/docrep/003/T4240E/T4240E04.htm#ch4.

99 Omidire, N. S., Shange, R., Khan, V., Bean, R., Bean, J. 2015. Assessing the Impacts of Inorganic and Organic

Fertilizer on Crop Performance Under a Microirrigation-Plastic Mulch Regime Professional Agricultural Workers

Journal Vol. 3: No. 1, p. 6.

80%

70%

60%

50%

40%

30%

20%

10%

0%

Strongly disagree Disagree AgreeNeither agree nor disagree Strongly agree

Cost less Increase output sufficiently

to offset costs relative to

homemade fertilizers

I have water to

irrigate my farm

Good for the

environment

Readily available in

my area

2% 2% 1% 2% 1%

27%24%

58%

36% 35%

19%17% 15%

52% 51%

69%

11% 11%

46%

6%4%

1% 1%0%

7%

26 - IESE Business School-University of Navarra

Appendix B (Continued)

Among the households who used chemical fertilizers, the choice between the different types was

affected mostly by their availability (87%) and by how their higher cost (compared with

homemade fertilizers) was offset by their effectiveness at increasing farm yields (70%). The two

factors that least affected the choice of chemical fertilizers instead of natural fertilizers were

prices (with 70% of respondents disagreeing) and the availability of water to irrigate their farms

(with 68% of the respondents disagreeing). (See Figure 9.)

Figure 9

Consumer preferences of chemical fertilizer users

Total number of respondents: 83-84/98.

Source: Prepared by the authors.

It has also been noted that less productive areas in Kenya show less demand for chemical fertilizer

than areas with higher agricultural potential. This phenomenon has been attributed to the fact

that these areas are perceived as being less likely to ensure that the investment in farm inputs

will be profitable.100

100 Ariga, J., Jayne, T. S., and Nyoro, J., Factors Driving the Growth in Fertilizer Consumption in Kenya, 1990-2005:

Sustaining the Momentum in Kenya and Lessons for Broader Replicability in Sub-Saharan Africa Tegemeo working

paper 24/2006,

80%

70%

60%

50%

40%

30%

20%

10%

0%Cost less Increase output sufficiently

to offset costs relative to

homemade fertilizers

I have water to irrigate my

farmReadily available in my area

Strongly disagree Disagree AgreeNeither agree nor disagree Strongly agree

9%

61%

17%

11%

1%7%

9%

19%15%

51%

11%

57%

76%

23%

5% 4% 4%

11%5%

4%

IESE Business School-University of Navarra - 27

Appendix B (Continued)

B.2.2 Access and Costs

The respondents were then asked a series of questions to determine the access to and cost of

fertilizers in their location. Data show that 83% of the respondents’ farms were within traveling

distance of the market and supplies for farming inputs. When asked about the means of

transporting their goods, 42% of the respondents said they leased a means of transport when

needed, 28% said they used cars and trucks, and 27% said they used farm animals to transport

produce to the market and farm supplies. (See Figure 10.)

Figure 10

Access to market

Total number of respondents: 96-98/98.

Source: Prepared by the authors.

B.2.3 Fertilizer Procurement and Volumes

To understand better the procurement dynamics in terms of volumes and financing, we separately

analyzed the group of farmers who purchased larger quantities of fertilizers (who, for simplicity,

will be called “bulk buyers”) and the group of those who purchased smaller quantities (who, for

simplicity, will be called “retail buyers”). For bulk buyers (Figure 11), 84% of the respondents

said they did not have standing credit with their suppliers while 93% stated that they did not

have any financing arrangement with their banks for their working capital. Some 88% of the

respondents noted that their suppliers did not pay them regular visits to recommend or

demonstrate products, and the same percentage reported that they did not have their farm inputs

and fertilizer delivered to their farms.

3%

12% 10%

4%5%

61%58%

54%

8%

0%3%

0%

70%

24%21%

25%

13%

3%7%

17%

0%

10%

20%

30%

40%

50%

60%

70%

80%

My farm is within readyaccess to market

I use farm animals totransport my goods

I use lorries or cars I lease my transport when Ineed it

Strongly disagree Disagree Neither agree nor disagree Agree Strongly agree

I use trucks or carsMy farm is readily

accessible to the market

28 - IESE Business School-University of Navarra

Appendix B (Continued)

Figure 11

Bulk buyers

Total number of respondents: 42-43/98.

Source: Prepared by the authors.

For retail buyers (Figure 12), 87% of the respondents disagreed or strongly disagreed that their

retailer provided them with instalment payment options while 54% disagreed or strongly

disagreed that their retailer held regular supplies of fertilizers and farm inputs.

Figure 12

Retail buyers

Total number of respondents: 67-71/98.

Source: Prepared by the authors.

21%17%

5%

12%14%

10%

63%

71%

31%

81%

74%

81%

7% 7% 7%5% 5% 5%

7%2%

45%

0%

7%2%2% 2%

12%

2%0%

2%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Standing credit withsupplier

Supplier regularlyvisits (product

introduction, farmdemonstrations)

Store my farm inputsor produce in my

warehouse

Banks finance myworking capital

Suppliers deliver myorders to my farm

Purchase from mysuppliers becausethey are the only

ones supplying mylocality

Strongly disagree Disagree Neither agree nor disagree Agree Strongly agree

6%

13%7%

23%19%18%

74%

47%

74% 76%

7%

0%6%

0% 0%

56%

9%

32%

3%0%

13%

4%7%

0%4%

0%

10%

20%

30%

40%

50%

60%

70%

80%

My retail supplier is inmy locality

Retailer extendsinstalment payments to

me

Retailer holds regularsupplies of my fertilizer

and farm inputs

Retailer delivers myorder to my farm

My retailer is the onlyone selling in my locality

Strongly disagree Disagree Neither agree nor disagree Agree Strongly agree