Why Increased Pump Prices Could Push Fertilizer Costs Upwards in the Long Run

September 15, 2022 0

The increase in price of fuel, including diesel, petrol and kerosene (all components of oil and natural gas) as proposed by Energy and Petroleum Regulatory Authority (EPRA) has triggered jitters among Kenyans and the consequence will likely keep agricultural inputs at higher levels. The new pump prices will retail higher by Ksh.20.18 for super petrol, Ksh.25. for diesel and Ksh.20 for kerosene, respectively. The changes currently being witnessed in the way energy moves will not help our energy prices in the short term, obviously, and this will be compounded by the ongoing tensions between Russia and Ukraine which will add pressure to agricultural input prices.

The new price changes by EPRA come a day after President William Ruto declared that a 50kg fertilizer bag will retail at Ksh.3,500 down from the current Ksh.6,500 beginning the week of 19th September 2022. However, the price of fertilizers like nitrogen, diammonium phosphate (DAP) and potash are typically influenced by energy markets. Fertilizer is very energy intensive and for nitrogen, the main input in natural gas, it will definitely soar. So, if the price of oil goes up and natural gas goes up, that tends to put an upward pressure on fertilizer prices. Despite the new anticipated subsidized fertilizer costs, the new proposed energy prices will most likely keep the cost of fertilizer upward in the long run.

READ: Global Fertilizer Markets Respond to Surging Energy Prices

Since the beginning of 2022, the price of fertilizer has continued to rise with nearly 50% following the previous year’s surge. The soaring prices are driven by a combination of factors, including surging input costs, supply disruptions caused by the market volatility.

The record-high input costs have not only been witnessed in Kenya, but also globally. In places like Europe, the rising natural gas prices has led to widespread production cutbacks in ammonia which is an important input for nitrogen-based fertilizers.  Similarly, the increasing prices of coal, the main feedstock for ammonia production in China production at some point forced fertilizer factories to reduce production, which contributed to the increase in urea prices. The higher prices of ammonia and sulfur resulted to the rise in phosphate fertilizer prices as well.

The situation as it presents itself can however be a double-edged sword for large-scale Kenyan grain farmers because it would likely cause an increase in both input and grain prices.

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