allAfrica.com: Kenya: The Choking Knot of Fast Rising Commodity Prices (Page 1 of 2)

The complaints locally and protests in other regions against biting inflation may have hit a crescendo, but consumers and market economists were yet to see and meet the worst.

Amid skyrocketing prices of food triggered by heightening costs of farm production, many may have hoped for quick intervention especially on the prices of fertiliser but latest developments in which the input is fast turning into the new "black gold" after oil is disturbing.

For close to a year now, Kenya and other nations have witnessed spiralling inflation thanks to a relentless climb in the cost of fertiliser and diesel to drive farm machinery.

In Kenya, three years ago, a 50 kilogramme bag of planting fertiliser , Diammonium Phosphate (DAP), was retailing at Sh900 before moving up to retail at Sh1,800 in September last year and now goes for Sh4,400 per bag. Similar rallies have been seen in the price of crude oil that hit all-time high of $118 per barrel this week.

Interestingly, the two commodities are highly interlinked: fertiliser is a by-product of oil and any sways on petroleum industry front shapes proceedings in the markets. Analysts, however, say apart from the 'normal sways' triggered by rising prices of crude, consumers face a new challenge on buying fertiliser following a steady demand for it in key markets contrary to earlier projections.

The Food and Agriculture Organisation (FAO) had last year predicted that world fertiliser supply between 2007 and 2012 is likely to outstrip demand balances.

"It is anticipated that world fertiliser supply and demand will increase by 3.1 per cent and 1.9 per cent respectively between 2007/08 and 2011/12.

World surplus is consequently expected to increase annually by 21.2 per cent over the same period to reach about 11 per cent of total demand in 2011/12," it said in a report titled Current World Fertiliser Trends and Outlook to 2012.

This forecast is, however, increasingly being challenged by unfolding scenarios world over where the appetite for the commodity seems to be growing at neck-break speed.

"There is an overall increase in demand for fertiliser worldwide as many nations seek to increase their farm production to cater for new ventures such as biofuels and we expect prices to keep rising," Agriculture Permanent Secretary, Romano Kiome told Business Daily.

With the clean fuel craze coupled with depleting fossil fuel reserves taking centre stage, many are now using fertilisers to grow biofuel crops to support the new ventures, causing the high pressure on global stocks of the input. Only last month, giant multinational firm, Royal Dutch Shell Plc, plunged into the biofuel craze when it announced a joint venture with Virent Energy Systems, Inc., (Virent (TM)) of Madison, Wisconsin USA, in research and development effort to convert plant sugars directly to gasoline and gasoline blend components, rather than ethanol.

The collaboration could herald the availability of new biofuels that can be used at high blend rates in standard gasoline engines. This could potentially eliminate the need for specialised infrastructure, new engine designs and blending equipment.

Virent's BioForming (TM) platform technology uses catalysts to convert plant sugars into hydrocarbon molecules like those produced at a petroleum refinery. Traditionally, sugars have been fermented into ethanol and distilled.

In the USA, some 55 new ethanol plants are currently being constructed, a development that could further strain fertiliser reserves in trying to produce raw material for the plants. According to the International Centre for Soil Fertility and Agricultural Development (IFDC), craze towards biofuels in the US has partly been triggered by a decision by the government to subsidise ethanol by 51 cents a gallon (3.8 litres) prompting large companies to contract corn from farmers who apply more fertiliser to maximise production.

IFDC said the emphasis on huge application of fertiliser to produce biofuel crops in the US is explained by the fact that even if all the current US corn production were converted to ethanol, it would supply only 27 per cent of the nation's current transportation fuel demand.

The tenacity of this sharp rise in demand for fertiliser to support new ventures on biofuels is duly captured by the massive scramble for market slot by leading producers of the commodity such as China, Canada and several states in the Middle-East region. Importantly, a large proportion of Kenya's fertiliser imports come from the Middle East, Romania, Ukraine, the USA, Europe and South Africa while its new sources of special fertilisers for horticulture are from India, China and Singapore.

A recent study by a leading Doha-based consultancy, showed that the United Arab Emirates (UAE) and other Gulf States including Saudi Arabia, Kuwait, Bahrain, Qatar and Oman are expected to invest billions of dollars to expand into their current fertiliser production ventures within the next few years to capitalise on the global demand.

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