Policy think-tank, MwaPATA Institute says improving infrastructure investment and incentivising domestic fertiliser production is key to minimising Malawi’s vulnerability to future fertiliser price volatility in the longer-run.
In its recent policy brief titled The Inorganic Fertiliser Price Surge in 2021: Key Drivers and Policy Options, the institute argues that while infrastructure is expensive, the payoffs are long-lasting.
Reads the policy brief in part: “Major investments are also feasible. For example, the budgeted cost of Affordable Inputs Programme [AIP] is over K100 billion for 2021, a decline from 2020. For less than the cost of four years of AIP at this rate, the same spending could rather add between 1 000 and 2 500km of all-weather roads [compared to the current national network of fewer than 7 000 km].
“Lastly, given the high margin between global and Malawian fertiliser prices which is not unusual for a landlocked country it may be sensible to incentivise domestic fertiliser production. That said, fertiliser production also requires inputs that may need to be imported phosphates and natural gas, for example. Also, converting atmospheric nitrogen into a form usable as fertiliser requires a great deal of energy, which is also relatively expensive in Malawi.”
MwaPATA figures show that in Malawi, the main drivers of domestic fertiliser price increases come from the global market with 90 percent of the increases in domestic fertiliser prices attributed to increases in global prices for fertiliser and fuel as well as the weakening of the Malawi kwacha.
Domestic margin increases explain the remaining 10 percent though this is also driven by higher transport costs associated with higher global prices for oil and fuel.
Compared to the previous year, Malawi’s fertiliser retail price has increased by 74 percent to K38 318 from K22 042.
As of August 2021, while transport costs rose by 36 percent from $264 per metric tonnes in 2020 to $358 in 2021, the exchange rate rose from K731 to K802 against the US dollar.
Domestic margin has increased by 37 percent from K4 571 to K6 258.
Meanwhile, fuel prices rose by an average of 22 percent on Sunday due to a continued rise of global prices.
In an interview, energy expert Kandi Padambo observed that the soaring fuel prices are not projecting a good outlook, which is not conducive to good performance of imports dependent economies such as Malawi