A team of expers from Denmark and Germany will supervise the construction of the plant, the president saidat a ceremy in his Chato native residential place.
Last month the government imported 52,000 tonnes of fertilizers to be distributed in remote areas to overcome the potential scarcity of the commodity.
The distributed fertiliser was 20,000 tonnes of Urea and 32,000 tonnes of diammonium phosphate (DAP), officials said.
The government moved to increase the supply of fertilisers to overcome increased pressure in demand of fertilisers in various regions.
World Bank data indicates that Tanzania is among countries with the lowest fertilizer consumption where farmers use an average of 3.7 kilogrammes per hectare of land.
One of the main reasons is high prices of the product, thus becoming unaffordable to farmers.
Officating at a ceremony to open a CRDB branch in Chato, President Magufuli said the fertiliser plant will be located in Kilwa, in Lindi region.
Producing more fertiliser would reduce pressure in the demand of the input and enable prices to decline, he said.
The plant will be powered by gas and is expected to provide jobs to about 4,000 Tanzanians, he further noted.
He appealed to the Danish ambassador to Tanzania to work to finalise procedural arrangements so that work on the plant starts soon.
He said the product will be sold in the East African Community and the Southern Africa Development Community (SADC) markets.
The government will save large amount of foreign exchange it incurs in importing fertilisers, including transportation costs.
The Minister for Agriculture Dr Charles Tizeba said in a telephone interview that by having the facility in the country, it will assure farmers of fertilisers, unlike the case now.
The government will import fertilisers in bulk procurements to reduce unnecessary costs to farmers. Once the facility start operations, it will cut the price of fertilisers, he emphasized.
Actual demand for fertilisers stands at 450,000 tonnes per annum.
“It is our hope that the costs will be favourable to enable our farmers to buy and use it," he said, noting that the ministry was expecting to raise the matter of waiving a number of taxes to the manufacturers for the benefit of the majority, who are peasants.
Tanzania Fertilizer Company (TFC) General Manager Salum Mkumba said tht agents were required to sell fertilizer at 26,000/- and up to 30,000/- per bag of 50 kg each.
Some unfaithful agents had been selling subsidy fertilisers at high prices, and that is why they decided to label the fertiliser for better control, he elaborated.
Each bag will be sold at 26,000/- in all TFC stations, although due to transport cost in some areas it can be sold at 30,000/-,he stated.