Fertiliser subsidy: A double-edged sword driving firms out of business

When President William Ruto came into power three years ago, he announced a raft of measures aimed at reducing the cost of living across the country.

A key intervention aimed at boosting agricultural productivity involved subsidising the price of fertiliser from Sh7,000 to an average of Sh2,500, reducing input costs for smallholder farmers and increasing crop yields.

The programme began with a national farmer registration exercise and the introduction of a transparent e-voucher system for managing the distribution process.

Stakeholders in the fertiliser value chain, including agro-dealers, private businesses and suppliers, lauded the e-voucher system as ‘highly effective’, describing it as one of the most successful tools for enhancing transparency and efficiency in the distribution of fertiliser.

Fertiliser Association of Kenya chief executive Lilian Wanjiru said the e-voucher model actively involves the private sector in fertiliser distribution. Under this system, farmers receive an e-voucher, which they use to purchase fertiliser from local agro-dealers.

The government then reimburses a portion of the cost directly to the dealer. “This model has several advantages. First, farmers can choose the type of fertiliser and inputs best suited to their specific needs. The fertiliser is also available closer to them, ensuring timely application,” Dr Wanjiru explained.

She noted that the e-voucher system also drives innovation and extension services, empowers farmer choice, and builds trust between farmers and agro-dealers. “It also ensures accountability, as farmers will only return to an agro-dealer if the fertiliser proves effective,” she said.

However, the current model, where farmers collect fertilisers at the National Cereals and Produce Board (NCPB), has led to market fragmentation, underutilised agronomic services and reduced farmer empowerment.

Cropnuts Managing Director Jeremy Cordingley said the current subsidy model has severely disrupted the fertiliser market. “By narrowly focusing on a few pre-selected fertiliser blends, the programme has excluded nearly 90 per cent of private sector players whose products don’t meet the subsidy specifications,” he explains.

As a result, Cordingley explained that only a small number of companies benefit, while the rest struggle to stay in business. This is leading to an unbalanced market and threatens the diversity and competitiveness of the fertiliser industry.

He warned that if current trends continue, there’s a real risk that only two or three dominant players will remain. “This monopolisation would limit farmer choice and likely drive up fertiliser prices due to reduced competition,” he said. Regen Organics Kenya Managing Director Michael Lwoyelo explained that while the subsidy programme has led to the price of fertiliser to drop, now available at Sh2,500 per bag, actual usage among farmers hasn’t increased.

It may have decreased due to accessibility challenges. “Subsidy fertilisers are being distributed through NCPB depots, which are often 10km (kilometre) to 30km away from farms.

Yet, agro-dealers who are typically located within 6km or less are excluded from the distribution network. From a logistical perspective, farmers end up spending more on transport, nullifying the subsidy’s benefits,” Lwoyelo explained.

He said agro-dealers traditionally offer agronomic support, advising most farmers on what inputs to buy and how to use them.

“The NCPB depots, due to the sheer volume of customers, simply can’t offer this personalised guidance. As a result, knowledge dissemination has declined, leading to reduced fertiliser application and inefficiencies in production,” noted Lwoyelo.

He explained that currently, organic fertilisers and lime, which are critical to improving soil health, are not part of the subsidy programme. To him, this is a major oversight.

“You cannot move from 12 bags per acre to 40 bags per acre with mineral fertiliser alone. You must treat the soil. Lime is essential for correcting soil pH, and organic fertilisers improve soil structure and biological activity. These inputs must be used together, moved together, and subsidised together,” he observed.

Dr Timothy Njagi from the Africa Network of Agricultural Policy Research Institute explained that the subsidy programme offers limited choice for farmers. Farmers have no say in the type of fertiliser provided. For example, while many prefer DAP (diamonium phosphate), the current programme often supplies NPK  (Nitrogen, Phosphorus, and Potassium) blends without proper orientation.

He said it also excludes private retailers. “By bypassing agro-dealers, the model disrupts local businesses and undermines job creation. Untargeted and untimely subsidies result in inefficient public spending and long-term fiscal strain,” he explained.

Due to reduced incentives, Dr Njagi said that without predictable demand and fair competition, private companies are discouraged from investing in supply chains and innovations.

He explained that the new fertiliser types, such as NPK blends, are introduced without sufficient farmer training and education, thereby limiting adoption and effectiveness. This reduces demand for private-sector offerings. This subsidy programme raises integrity concerns, especially under public procurement systems, where accountability is weaker.

“Unlike agro-dealers, who rely on trust and repeat business, public suppliers face minimal consequences for distributing low-quality or inappropriate products,” he stated. Dr Njagi has raised concerns following revelations from an audit report that exposed major irregularities in President Ruto’s Sh31.5 billion fertiliser subsidy programme.

The report highlighted issues including fake suppliers, unsafe fertiliser products and missing stock. According to Auditor General Nancy Gathungu’s report for the financial year ending June 30, 2024, the NCPB engaged a non-existent company and distributed fertiliser that failed safety tests. These findings have raised serious concerns over procurement integrity, transparency, and value for public money.

One of the key findings showed that NCPB paid Sh240.4 million to Fifty-One Capital African Diatomite Industries to supply organic fertiliser. However, the Kenya Bureau of Standards (Kebs) later found the fertiliser unsafe for use and suspended the company’s permit.

“It was not clear how the NCPB board entered into an agency contract with Fifty-One Capital African Diatomite Industries. The value for money of the Sh240 million and the integrity of the entire procurement process could not be confirmed. This also borders on fraudulent activities,” said Gathungu.

Junnie Wangari, an organic fertiliser producer and chairperson of the Organic Fertiliser and Input Manufacturers Association of Kenya, expressed concern over government policy that heavily subsidises inorganic fertilisers, making them significantly cheaper than organic alternatives.

“It’s a real uphill battle for us,” she lamented, citing the uneven playing field this creates for organic producers.She, however, praised the technological advancements in organic fertiliser production. She said many people still associate organic fertiliser with raw manure and are unaware that it can now be packaged professionally in 25kg and 50kg bags.

“Traditionally, organic meant animal manure. But with today’s technologies, we can now process, package, and transport organic fertilisers efficiently. We can also inoculate them and enhance their nutrient content, making them far more effective in the soil. This means you no longer need the typical 10 tonnes per hectare as with raw manure-you can now use just four to five bags per acre,” Junnie explained.

She explained that they have engaged in several discussions and collaborations with government entities to advocate for the inclusion of organic fertilisers in subsidy programmes.

“We’re grateful for platforms like the Africa Soil Health Summit in 2024, which helped highlight the importance of soil health and the need to integrate organic inputs alongside inorganic ones,” Junnie noted.

She is optimistic that the government will include organic inputs in its subsidy initiatives. Encouragingly, some member products have already begun to be listed with the NCPB under agency contracts. “Prices for organic fertilisers or soil conditioners range between Sh2,500 and Sh3,800 per 50kg bag. If subsidised, they could become even more affordable than inorganic fertilisers,” she noted.

The stakeholders said subsidies also indirectly impact services like soil testing.

Since subsidised fertilisers are significantly cheaper, many farmers bypass soil testing and simply use whatever subsidised blend is available-even if it doesn’t suit their soil needs.

This undermines the push toward soil health and precision agriculture, which are essential for sustainable and efficient farming. They revealed, the current model has already had ripple effects. Local mineral fertiliser producers like Baraka Fertiliser have shut down.

Return to e-voucher

It’s against this backdrop that private players in fertiliser want the government to reconsider returning to the e-voucher.  

“This model allows farmers to receive subsidy support via vouchers, which they can redeem at agro-dealer shops of their choice. This approach gives farmers the freedom to select from a variety of fertiliser options, encouraging suppliers to compete on quality and effectiveness rather than price alone,” said Dr Wanjiru.

Dr Njagi explained that the government must shift away from centralised, top-down subsidy programmes that exclude the private sector.

A collaborative, market-based approach-anchored in the e-voucher model-can unlock value across the agriculture ecosystem. He warned: “Without reform, the current system risks undermining decades of investment and progress in building a robust private fertiliser industry.”

Private stakeholders say Kenya currently can produce 1.2 million tonnes of blended fertiliser, yet only 15–20 per cent is being utilised. This underuse is partly attributed to the NCPB distribution model.