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Global Donor Platform for Rural Development
About the Platform Knowledge Piece series
The Global Donor Platform for Rural Development commissioned three comprehensive studies to capture Platform members’ knowledge on key issues affecting the delivery and impact of aid in ARD: PKP 1 PKP 2 PKP 3 Policy coherence for agriculture and rural development Aid to agriculture, rural development and food security – Unpacking aid flows for enhanced effectiveness The strategic role of the private sector in agriculture and rural development
The PKPs are the products of extensive surveys of Platform member head office and field staff, visits to country offices, workshops dedicated to sharing findings and refining messages, and successive rounds of comments on drafts. On the basis of each PKP, separate policy briefs will be published. For more information on the PKPs visit donorplatform.org
This working paper is only available electronically and can be downloaded from the website of the Global Donor Platform for Rural Development at: www.donorplatform.org/resources/publications Secretariat of the Global Donor Platform for Rural Development, Dahlmannstrasse 4, 53113 Bonn, Germany Email: email@example.com The views expressed herein are those of the authors and do not necessarily represent those of individual Platform members. All rights reserved. Reproduction and dissemination of material in this information product for educational or other non-commercial purposes is authorised, without any prior written permission from the copyright holders, provided the source is fully acknowledged. Reproduction of material in this information product for resale or other commercial purposes is prohibited without written permission of the copyright holders. Applications for such permission should be addressed to: Coordinator, Secretariat of the Global Donor Platform for Rural Development, Dahlmannstrasse 4, 53113 Bonn, Germany, or via email to: firstname.lastname@example.org. © Global Donor Platform for Rural Development 2011
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture and rural development
Policies and Policy Instruments ............................................................................................................... 3 Before liberalization ........................................................................................................................ 3 Structural Adjustment ..................................................................................................................... 4 A slow transition towards a market economy ................................................................................. 5 Input markets .................................................................................................................................. 5 Marketing ........................................................................................................................................ 5 Credit .............................................................................................................................................. 8 Agricultural Policies......................................................................................................................... 9 Mainstreaming planning for agricultural development in other sectors ........................................ 10 Decentralization ............................................................................................................................ 11 Environment of Doing Business .................................................................................................... 11 The Private Sector Response ............................................................................................................... 14 Input supply................................................................................................................................... 14 Trade and marketing ..................................................................................................................... 15 Credit ............................................................................................................................................ 15 Private investment ........................................................................................................................ 16 Environment of doing business..................................................................................................... 17 The Role of donors ................................................................................................................................ 19 Overview of interventions ............................................................................................................. 19 Rice case study ..................................................................................................................................... 21 Changing role of the state in the value chain ............................................................................... 21 Encouraging private agents and farmer's organisations .............................................................. 23 Disposal of state assets .................................................................................................................... 23 Production ..................................................................................................................................... 24 Trade and processing ................................................................................................................... 26 Impact of Private Sector Response to Opportunities at a chain level .......................................... 26 Banana case study ................................................................................................................................ 28 The Banana Value Chain .............................................................................................................. 31 Production ..................................................................................................................................... 32 Trade ............................................................................................................................................. 32 Processing .................................................................................................................................... 32 Nodes in which the private sector is involved ............................................................................... 33 Impact of Private Sector Response .............................................................................................. 33 Coffee case study .................................................................................................................................. 36 Changing role of the State in the coffee Sector ............................................................................ 36 The removal of price determination .............................................................................................. 38 Deregulation.................................................................................................................................. 38 Encouraging private agents and farmers‘ organizations .............................................................. 39 Disposal of the State Assets ......................................................................................................... 40 Private Sector Response .............................................................................................................. 41 Value chain ................................................................................................................................... 42
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture and rural development
Input supply................................................................................................................................... 43 Production ..................................................................................................................................... 43 Processing .................................................................................................................................... 44 Trade ............................................................................................................................................. 44 Remaining constraints .................................................................................................................. 45 Conclusions ........................................................................................................................................... 47 References ............................................................................................................................................ 51 Endnotes................................................................................................................................................ 61
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture and rural development
Policies and Policy Instruments
Before independence, Tanganyika had been organized into an agricultural production centre aimed at satisfying the needs for export crops of the colons. At independence in 1961, industrial activities represented only 3.6% of the GDP and were mainly aimed at substituting consumer goods and at i processing of export crops . The colonial agricultural productive organisation was based on a combination of Primary Cooperative Societies, Regional Cooperative Unions and National Crop Marketing Boards. The economy operated for a time under free market conditions with the support of the World Bank funded ―transformation approach‖ to agricultural development as a component of the State‘s first five year plan. Yet, the Government also introduced the Agriculture Products Board Act which introduced government marketing boards for ―scheduled‖ crops (Wobst, 2001) and therefore market purchases, price and storate regulation , transport and processing for maize, wheat, rice, cashews and oil seeds (Bryceson, 1993). This system operated until 1967 when the State – through the Arusha Declaration (Nyerere, 1967) adopted planned economy and started nationalizing private owned companies (Wobst, P., 2001). With ii the endorsement of ―Ujamaa ‖ specialised crop cooperatives were transformed into multi-purpose cooperative societies (multi-crops, multi-social responsibilities, etc.) especially – but not only – in the villages created with the first period of villagization. The reason of this transformation is that economically well performing cooperatives (40% of them) were considered as a vehicle for capitalism and the poorly managed ones (the rest) were too expensive to maintain. Results didn‘t follow as expected and in 1976, the Cooperative Unions were dissolved and the Crop Marketing Boards were replaced by Crop Authorities – placed under the direct / centralised control of the Government – with substantial powers such as regulation of production, marketing, fixation of panterritorial prices, etc. The State (supported by most donors) seems to have trusted the parastatals more than the small farmers to produce agricultural commodities or to have believed that farmers could produce efficiently only within the strict framework of parastatal activities. In fact, from the Arusha declaration to the first adjustment plans, private sector and private economic initiatives have been associated to ―capitalistic deviations‖ and therefore discouraged (Havnevik, K., J. et al. 1988). In this context, producers of export and commercial crops started to reserve their energy for their subsistence activities (incomes and access to social services were stagnating) and therefore agricultural surpluses started to stagnate, leading – together with disruption of petrol prices, decreasing of prices of export crops on the international market, climatic crises (in 73-74 and in the early 80s), counter-effects of the villagization on productivity, break-up of EAC (1977) and war with Uganda (1978), etc. – to losses of foreign exchange, increasing budget deficits and decreased capacity of reaction of the state (Havnevik, K., J. et al. 1988; Wobst, 2001). By the end of the seventies, the state initiated a programme called ―Agriculture is a matter of life or death‖ (Kilimo cha kufa na kupona) aimed at generating self-sufficiency in food and poverty reduction. Plots of land were given to families and people were encouraged to grow vegetables. Although this programme may have helped at encouraging spontaneous ―innovation‖ processes such as a shift towards food crops, increasing use of parallel (and illegal) marketing channels and the engagement of the rural populations into any money-making activities this policy was not pursued as it was only aimed at resolving a temporary food shortage problem. Instead, when the shortage worsened, the
State launched an Economic Sabotage Act later replaced by the Economic and Organized Crimes Control Act to control avenues for ―corruption‖ linked to the proliferating informal traders in new parallel market. Expectations of drought in the late 1980s and early 1990s immediately triggered the imposition of local administrative restrictions on private grain trade (Amani and Al. (1992). Traders were also were accused of sabotage and of causing shortages of food through ―speculative‖ strategies (Havnevik, K. J. et al. 1988; Muganda, A., 2004; Wangwe, 1997). This attempt to control iii these initiatives failed because the fundamental causes of shortages were not addressed . In periods of normal food supply the State tolerated these alternative circuits and operated limited restriction. Before the beginning of liberalisation, Tanzania made a last attempt to put its economy back on tracks with the National Economic Survival Programme (NESP) in 82. The latter were much less corresponding to a desire or demand from within Tanzania than to a pressure applied from ―outside‖. Liberalization meant ―breaking the links between the Government and the economic sector, let the private sector (and capitalistic behaviours) gain more autonomy, … renunciation‖ and such a loss of control capacity on the economy was not wanted and considered as excessive by the Government and the Party (Wangwe, 1997). The document [preparing a first Structural Adjustment Programme that ended up as the NESP] was diluted in a way that blunted the proposed policy reforms‖. The IFIs refused the plan and other donors also withheld aid.
In 1984 Tanzania received the support of IMF/World Bank for the implementation of Structural Adjustment Plans aimed at reinstating the balance in government and external sector accounts, reducing inflation, restoring output to pre-crisis levels, rehabilitating the economic infrastructure. The Government adopted more flexible trade regimes (compared to the – still very rigid – Internal Trade Policy from 1982) designed to regulate the marketing process (local food products) and to ease the operation of private traders. An ―informal sector employment advisory committee‖ was created and simultaneously the Government promulgated rules and regulations for resulted in insufficient determination for the implementation of the policies required by the SAP and therefore, to its failure (Havnevik, K., J. et al. 1988 and Wobst, P., 2001). Although SAP (1984 – 1986) hadn‘t shown satisfactory results, the liberalization process had been engaged, and in 1986, Tanzania launched a new policy named ―Economy Recovery Programme‖ with four general objectives (1) increase the output of food and export crops by providing appropriate incentives for production, improving market structures, and increasing the resources available to agriculture; (2) rehabilitate the physical infrastructure in support of directly productive activities; (3) increase capacity utilization in industry by allocating scarce foreign exchange to priority sectors and firms and (4) restore internal and external balances by pursuing prudent fiscal, monetary, and trade iv policies (URT, 1986) . ERP was followed by the Economic and Social Action Program (ESAP / 1989 – 1992) that persisted in the efforts aimed at achieving a general reduction of state controls and a promotion of private sector activities launching for that purpose the rehabilitation of key infrastructure components to support future economic development, especially transportation facilities like roads, railways, and ports. Decreased political commitment led to a reduction of the support, a suspension of payments for development projects and balance of payments assistance and refusal of any further assistance by IMF, World Bank, and bilateral donors. However, in 1996, the IMF accepted to support the new Economy Recovery Programme (1996 – 1999) with an Enhanced Structural Adjustment Facility (ESAF) through a US$ 161.6 million SDR aiming at (i) building administrative capacity for improving development management, (ii) maintaining
a stable fiscal stance and using public resources more efficiently, (iii) promoting the private sector by deregulating investment and divesting parastatals, (iv) providing greater support for primary education and basic health care, (v) supporting the development of basic infrastructure, especially to give impetus to rural agricultural development and (vi) restructuring the financial sector to respond to the needs of the private sector. Encouraging results allowed Tanzania in 2001 to be granted by World Bank and IMF a support of US$3 billion in Debt Service Relief under enhanced HIPC initiative (World Bank, 2002) in support of the Tanzania‘s Poverty Reduction Strategy. Donors such as IDA, IMF, AfDB, EC/EU, IFAD, Nordic Development Fund, Organization of Petrol Exporting Countries (OPEC), EADF, Arab Bank for Economic Development in Africa (BADEA), bilateral and commercial creditors under the Paris Club and other agreements (IMF, IDA, 2001). the informal sector, released some activities previously controlled by the state for parallel private operations, supported and guided women to incorporate their activities in the official infrastructure (Havnevik, K. J. et al. 1988). Moreover, the Government eliminated the consumer price subsidies (maize), encouraged an increasing of real producer prices (+46 – 55%), removed subsidies for the supply of farming inputs although without liberalizing totally the supply of these inputs. The Government tried to improve the parastatals‘ efficiency and to limit their burden on budget and monetary system. In the context of Tanzania in the early eighties, such a programme was at the total opposite of the beliefs of the political leaders and it has been said that their scepticism.
A slow transition towards a market economy Input markets
In a context of structural adjustments, the government had to stop subsidizing inputs imports and local monopolistic production considering the cost of this policy on Government budgets. In the late 1980s, the monopoly of Tanzania Fertilizer Company ended and private traders were allowed to import and distribute fertilizers. In 1994, the government stopped fixing prices for seeds. At that same time, the exclusive subsidy to TFC had been abandoned (World Bank, 2000) and private traders started to get involved in imports of inputs. The State set up the Agricultural Inputs Trust Fund (AGITF) to import and distribute agricultural inputs but with poor effectiveness and performance due to inadequate funding, poor staffing level, inadequate utilisation of front liners and political interference (TISCO, 2006 in Guyver, P., et Al., 2008). Hammond (1999) reports that the liberalization of the sector resulted with a drastic increasing of the prices (+412% from 1989 to 1992) that led to a diminution of the utilisation of inputs in particular in food crops (see paragraph 0) although it also allowed the entry of private companies (13 by 1998). Officially, the input supply had been handed over to the private actors but some politically influential unions continued to supply inputs in competition with private actors.
Referring to marketing, the structural adjustment plans also resulted with more flexible trade regimes, eased operation of the private traders and improved regulation of these new modalities of marketing. SAP also aimed at improving the infrastructures on which marketing depends (road, markets, communication, ports, railways, etc.). A period of ―de-facto‖ liberalization started during the quantity-restricted period that occurred from 1984 to 1987, when the Government allowed private traders to purchase and transport up to 500 kilograms of food crops at any one time alongside with the cooperatives that continued to be seen as
the main participant in food grain markets. The ERP launched in 1986 continued building on this process. In 1987 – when quantity restrictions were lifted – traders were allowed to purchase from primary societies or other official agencies. The liberalization of minor and non-traditional export crops had been largely completed in 1987 with the dissolution of GAPEX (the General Agricultural Products Export Company). By then, the list of items subjected to price controls had dropped from 400 to 2 (petroleum products and electricity). Yet, prices paid by official agencies did not reflect actual economic costs and private traders could therefore purchase directly from farmers at parallel marked prices. By 1989, most domestic market (and transport) controls on food crops had been abolished and panterritorial producer prices for the main agricultural products had been abandoned. The government reiterated its verbal support for private traders, but still maintained restrictive conditions (source of purchase) and without any tangible support in areas such as market infrastructure and credits tailored to private grain traders (Amani H.K.R. et Al., 1992). In 1990, under ESAP (1989 – 1992), even individual farmers could sell to private traders who were concomitantly allowed to buy coffee, tobacco, cashew nuts and cotton. Although private traders initially managed to pay higher prices for maize, the medium – long term trend of real producer prices of all crops had started to decline in 1990 compared to the 1980s in particular for maize and rice. Short to medium term fluctuations became more frequent after vi liberalization than before (Bilame, 1996 in Skarstein, 2005). Prices were increasingly affected by higher seasonal variations due to insufficient price stabilization measures able to balance volatility of vii prices and stagnation of marketed outputs . According to IFPRI (2000:53), the removal of panterritorial prices may have led to a decline in marketed production in three main maize-growing regions (Mbeya, Ruvuma and Rukwa). For export crops, small farmers obtained higher prices (partly due to the devaluation) except for tea and sisal. But at the same time, increased costs of imported goods (including inputs) limited the positive impact on all farmers‘ net incomes. In 1991, the Government decided to pass a Food Security Act (MAC, 1991). Under certain conditions, food exports had to be avoided at any cost to protect food security (evaluated on the amount of food resources available in the country). Although liberalization and expansion of private trade was going on and was filling the gaps left by the Government, private trade still had (still has) the image of an activity able to endanger "food security" by encouraging the farmers to sell ―to their last kilo of grain‖. This choice generated debates that are still going on to date. Around 1992 the traders were formally allowed to operate on the trade of food and cash crops but the Government was still wondering whether a completely liberalized marketing system was suitable for the satisfaction of some efficiency and equity objectives and how strongly it would have to intervene in pricing and marketing to guarantee the fulfilment of these objectives in the trade of the food crops. For food crops, this debate was somehow in vain as the application of the food security policy regularly cancelled all the benefits of the other dimensions of the development of agriculture and related trade and marketing from 1991 to date.The export bans caused regular distortions in the cereals market. It encouraged short term strategies (from all actors of the chains) and prevented all actors to engage into long-term investments. These caused failures have – very ironically – been pinpointed by the ―liberalization-sceptical‖ as evidence of the incapacity of the free market to generate growth and development and used for disinformation campaigns against free market and to justify political interventions, anti-economical food distribution and – accessorily – leave room for the apparition of corruption schemes in the food distribution systems. Producer prices have been liberalized in fiscal year 1993/94 and a multi-channel marketing system emerged in which the principle State intervention was through purchases by the Strategic Grain viii Reserve (SGR) for food security needs and as the ―last resort purchasing‖ solution of grains . The
National Milling Corporation (NMC) was given more autonomy in management but was forced to scale back its operations and cover its costs. NMC ceased to buy crops in 1991/92. In 1996/97 the share of crops channelled through official market institutions had fallen to 10 – 20% (compared to 36% in 1986/87). The scaling down of NMC and SGR activities may have resulted from the recommendations related to liberalization (decreasing of parastatal‘s costs on State budgets and privatization of those who were too expensive to maintain). But in the case of food crops, it resulted with the weakening of the SGR who could not anymore play its role of price stabilization. Concerning the export and traditional commercial crops, most Crop Authorities had already been replaced by 1993 by Crop boards with mandates theoretically limited to market regulation, issuing of trading licenses, ensuring of competition and quality control. Private traders had started to buy, process and export (from 1994/95 for cotton and coffee and 95/96 for tobacco). At the end of the nineties attempts to come back to a higher level of State intervention could be observed with several political choices such as (i) the re-empowerment of export crop boards to tax traders and exporters (and therefore farmers) and regulate markets in which they are active commercial players, (ii) the increased control of local government authorities on farmers, through taxation, (iii) the proliferation of sector policies and strategies that privilege the state as initiator rather than facilitator at central and local levels, notably through the vehicle of foreign-aid-funded projects and iv) the continued practice of government-guaranteed bank lending to certain co-operative unions (Cooksey, 2003). In fact, some of the crop boards were entitled to implement functions such as ( in the case of the Tanzanian Coffee Board – ― […] perform of any commercial activity or hold interest in any undertaking, enterprise or project associated with the coffee industry […]‖ (MAC, 2001) with the legislation drawing no distinction between the boards‘ regulatory role and their right to enter the market as commercial actors. The Coffee Board was given the exclusive responsibility of licensing the commercial actors of the coffee sector. It can be questioned whether this responsibility has been utilised with discernment, ix to strengthen the sector or to protect the structures inherited from the socialist period . The Ministry of Industry, Trade and Marketing set up Export Processing Zones and Special Economic Zones as part of a strategy to support producers and investors in terms of linkages with the external markets (amendments to the EPZ Act in 2006). Currently, trade is regulated by the National Trade Policy (MITM, 2003) that has been completed in x the Agricultural Marketing Policy (MITM, 2008) . The objective of the latter is to ―facilitate strategic marketing of agricultural products while ensuring fair returns to all stakeholders based o a competitive, xi efficient and equitable marketing system‖ as a way of realising the vision of having a competitive and efficient marketing system for the agricultural commodities leading to a rapid and broad based economic growth. This policy reflects well the position of the Ministry of Industry, Trade and Marketing where several officials consider that liberalization / privatisation is a possible approach for economic and social development under the condition that it doesn‘t result with the removal of all regulation that often lead xii to monopolistic positions . Their position was that the Government should not impose itself on the Private Sector and should rather involve it in the definition of rules and regulations corresponding to new markets or to problems identified with the actors (PPP framework) or support it with promotional activities (7x7, 8x8, etc.). The MITM and TANTRADE are involved in the Development of Domestic Trade aimed at addressing the issues linked to the marketing of food crops and are therefore working on the improvement of the collection of data in real time and the regionalization of the trade as a way to avoid the negative impact of export / commercialisation bans.
The MITM was also busy working on the harmonization of the mandates between MITM and MAFC to xiii make sure that MAFC will not cause any more distortions in the future . The MITM proposal is that production aspects are put under the responsibility of the MAFC and marketing aspects should be under the responsibility of the MITM. MITM is willing to make sure that the market plays its role effectively so that food shortage problems can be addressed by the market. Whether this is realistic is another matter of debate as several Government Officials are currently still showing their scepticism concerning the free market economy and justifying the return to more State control by some elements of failure of the free market – without accepting that the State‘s failure to xiv provide the proper environment contributed to this failure . It is therefore not surprising that the Ministry of Agriculture passed the Cereal and Other Produce Act, 2009 that led to the creation in 2010 of the Board of Cereal and Other Produce. This Policy is aimed at introducing in the sector of cereals and other commodities an entity able to create a new momentum in the marketing of food crops in Tanzania. It will buy and sell several food crops on commercial terms and – doing so – try to promote a more equitable commercialisation system and introduce new developing standards in the commercialisation system. The marketing through the mixed crop board will be regionally integrated (with 7 agro-ecological zones). The Board was given the authority to regulate the market for all grains, including maize and to carry out nearly all the commercial activities that takes place in the grains subsector. The board will undertake or control actors taking functions like buying, cleaning, storing, milling, transporting and selling maize or other products from maize. For purpose of regulation, the Act also set the conditions of the creation of a regulation authority of the activities of the Board. It is therefore not clear whether the creation of the Board of Cereals and Other Produce by the Ministry of Agriculture (MAFC, 2009) was aimed at filling gaps in the marketing system of cereals (and other produce) or if was a sign of the presence of contradicting conceptions of the support to marketing. Many actors (including MITM officials and donors) are worried about the launching of this new board that is perceived by some as the return of an excessive regulation or of a ―parastatal-like‖ actor. On the other hand, the Mixed Crops Board could also address the current major problem of lack of law enforcement through the application of fair and transparent marketing practices in its operations and through their imposition on reluctant actors.
Provision of credit has been insufficient partly due to IMF‘s demand for a tight monetary policy (under SAP) that led the government to try to lower inflation and increase the domestic-savings rate by raising interest rates. Available credit lines further shrunk because a large portion of domestic debt was owed by and lost with government-owned parastatals, Cooperative Unions; Primary Societies and Crop Boards. Informal-sector interest rates rose as high as 100 percent. The high interest rates, coupled with the revamping of the CRDB (Co-operative and Rural Development Bank limited with more conservative lending policy) and the positioning of private (mostly foreign) banks to trade financing in Dar es Salaam, avoiding domestic lending activities resulted with the virtual disappearing of credit for smallscale agriculture (Hammond, 1999) and traders. The Government tried to fill the gap with saving and credit cooperatives but this had a limited positive impact on farmers because these organizations had to practice higher interest rates. As a consequence, emerging small traders doing assembling, wholesaling and milling had to rely on other sources of funds (e.g. informal money lenders) to constitute their working capital. Strong interpersonal links between farmers and traders also helped initially. When levels of competition increased, the situation tightened for local small traders and when the State eventually liberalized totally the sector, large foreign companies benefited as they could acquire the facilities that were previously
belonging to the parastatals. In some markets (Tandale, Mabibo, Buguruni, Kibaigwa, etc.), wholesale traders, middlemen and cargo porters begun to establish their own institutions so that they can serve their interests better. Under the ―Kilimo Kwanza‖ Initiative, the Government is in the process of setting up Tanzanian Agricultural Development Bank to provide loans for agricultural investment projects. The objective is that the bank is operational by 2015. In the meanwhile, the Tanzanian Investment Bank will manage funds to help investments in the agricultural sector through loans with targeted interest rates of 5 to 10%. In the meanwhile, other banks have been asked to rise the part of their portfolio reserved for agriculture from 5 to 10% (CRDB, NBC, NMB, etc.). Stanbick Bank set up an Agribusiness Unit that has been supporting Contract Farming Schemes for production of sunflower in Dodoma region.
Since the first SAP in 1984, international donors have supported the Government to increase the resources available for agriculture including the infrastructures on which this sector depends. This approach has been reaffirmed in the different SAP and debt relief measures. The Government endorsed that project but it took until 1997 to adapt the Governments‘ agricultural and livestock development strategies to the changes that occurred in the macro environment and to take the opportunities emerging from these changes to re-establish the country‘s economic balances xv (Agricultural and Livestock Policy, Ministry of Agriculture and Cooperatives, 1997) . Through this Policy the Ministry of Agriculture and Cooperatives was expected to endorse functions such as research, training, extension, policy formulation, information services, sanitary regulations, quality control, protection of environment, creation of optimal market conditions and promotion of agricultural growth. The Ministry was also expected to prepare at a later stage the transfer of some of these functions to the private sector (e.g. extension services for dairy, poultry and horticultural crops) and to improve the financial sustainability of some (ex) parastatal through divesture and encouragement of xvi investments . It was encourage in that by TIC who was listing several sectors in which private investments were expected / needed: farm input services, farm equipment and machinery services, irrigation services, market research and information services, transport storage and logistic services, agricultural research, agricultural finance and total agricultural system solution provider. In 2011, most of the functions that the State was speaking about privatizing in the 1997 Law have not yet been privatized and have been / still are poorly implemented. The Agricultural Sector Development Strategy (ASDS) has been defined in 2001 as a component of the on-going macroeconomic adjustments and structural reforms. It was conceived as a basis for actions by Public and Private Sectors to stimulate agricultural growth and reduce rural poverty (URT, 2001). The ASDS introduced modifications to the existing agricultural development policies to permit private agribusiness to expand investments in primary production directly or through partnerships with smallholders, input distribution, marketing of the products and agro—processing. The role of the Government was limited to policy formulation, the establishment of a regulatory framework and the provision of public goods and safety nets for the most vulnerable. Wherever possible, the private sector was expected to provide goods and services that the Government could not provide or that should have been private anyway. Innovative approaches have been introduced such as (i) private sector/public sector and processor/grower partnerships and (ii) participatory implementation of the strategy through District Agricultural Development Plans (DADPs). Specific actions were proposed in five strategic areas for intervention:
Strengthen the Institutional Framework. Specifically, to strengthen the public sector organizations and restructure the Commodity Boards, promote the farmers‘ organizations, overcome the constraints met by the private sector and strengthen its capacities. Create a favourable climate for commercial activities . Clarify Public and Private roles in improving support services (research, extension, training, regulation, information, technical services and finance Pay attention to marketing input and output to improve net farm returns and commercializing xviii agriculture
Mainstreaming planning for agricultural development in other sectors
Between 2001 and 2006, ASDP was first implemented through the Participatory Agricultural Development Programme (PADEP) and from 2006 onwards through both PADEP and Agricultural Sector Development Programme (ASDP) locally translated into fact through DADPs. ASDP / DADPs became fully operational in 2008 and turned out to be the government‘s main instrument for coordinating nation-wide agricultural reform, monitoring agricultural development and establishing operational linkages between the Agricultural Sector Lead Ministries (ASLMs). Due to the slow take-over of the programme, the private sector had not yet become an active player in it in 2008. The interests of overall private sector growth in agriculture – and especially large scale operations - had received only limited attention from the government. There has been no package to promote private sector development and investment focused on agriculture. The public sector was paying attention to concerns expressed by the private sector, but it was rather the result of a focused lobbying programme from a specific commodity or particular industrial interest than of a group of emerging private actors (farmers, traders, processors, etc.) - (Guyver, P. et Al., 2008). In 2009, a thematic working group from the Agricultural Sector Development Programme (ASDP) discussed and developed guidelines for the Marketing and Private Sector Development Component xix (MPSD) of ASDP with the objective of increasing the positive impact of ASDP on private sector development (ACT, 2009). The areas of intervention that were then identified were: (i) the mobilization of and support to the private sector, (ii) the set up of a Business Development Fund, (ii) the capacity building of private marketing chains and agribusinesses, (iv) the strengthening of the delivery of market information services, (v) the development and promotion of private sector market-led riskmanagement schemes (WRS, etc.), (vi) the promotion of agricultural products, (vii) the promotion of the development of strategic agricultural marketing centres, (viii) the review of marketing legislations, (ix) the harmonization of regional agricultural input and output marketing policies, (x) the building of capacity of public institutions to implement, monitor and evaluate agricultural marketing activities, (xi) the review of the effectiveness of public sector interventions in marketing activities, (xii) the monitoring and evaluation of input and output marketing performance, (xiii) the establishment of agricultural marketing baseline information, (xiv) the facilitation of annual agricultural marketing policy dialogue and (xv) the carrying out of annual review of the agricultural marketing sub-sector. An evaluation of ASDP identified areas of weaknesses to be addressed (MAFC, 2011) (a) the communication and advocacy, (b) the farmers‘ empowerment, (c) the strengthening of the extension services, (d) the capacity building of the private sector, (e) the set up of stakeholders‘ consultations and partnership, (f) the encouragement of entrepreneurship, (g) different areas of research and partnerships, (h) the agricultural service reform strategy and (i) the improved coordination, integration and management of the private sector initiatives. In fact, although support to private sector was one of the areas in which ASDP was expected to promote change, this programme is still in the initial stages of their involvement.
Government policy is to decentralize and devolve to the district level and implementation has been underway for many years under the Local Government Reform Programme (LGRP Ministry of Regional Administration and Local Government, 1998). However, many districts have limited institutional capacity and lack the necessary human resources to shoulder the new responsibilities. Increased funding to districts without ensuring increased capacity will not have a significant impact. Currently, local government‘s activities in agriculture depend heavily on public funding and NGOs, and still emphasize subsistence-level operations. There is limited – but growing – interest in profitable commercial agriculture, though more in some districts than in others. There is also resistance in some districts to the new role of the private sector and a reluctance to accept the change required by national policy. In some districts work has started to develop Public-Private Partnerships (PPP). Previous attempts to establish District Business Councils has not been successful, and changing attitudes and increasing skills and understanding will be a critical for successful district PPPs. New approaches include the District Business Alliances for agriculture. This will lead to district Commodity Investment Plans (CIP) which in turn would feed into the District Agricultural Development Plans (DADP). This work is being undertaken by the Tanzania Agricultural Partnership (TAP), MS Tanzania and RUDI.
Environment of Doing Business
Tanzania introduced its first market-oriented Investment Code that applied to all private investments – local and foreign –and formed the legislative backbone for the Investment Promotion Center (IPC) in 1990. The Investment Code was modernized in 1997, resulting with the Tanzania Investment Act (1997) aimed at promoting private-sector investments (both foreign and domestic) in Tanzania. The IPC was given a wider mandate and renamed into Tanzania Investment Centre (TIC), regulations for company registration were eased, a set of investment priorities were identified, and incentives packages and investors‘ rights were improved. Economy was divided in three sectors namely (i) the ―Lead Sectors‖ (mining, infrastructure and Export Processing Zones), (ii) the ―priority sectors‖ (including industries such as livestock, banking, tourism, human resource development to exportoriented projects, commercial buildings and broadcasting) and (iii) non priority sectors (the remaining ones). ―Random‖ (non-export) agricultural activities were – temporarily – left out… The Government also set up the Parastatal Sector Reform Commission (PSRC) in 1993 to privatise around 400 state owned enterprises. The process started with the small manufacturing companies and progressively extended toward larger ones such as TANESCO, TAZARA, TTCL, etc. (NORAD, 2002). Lead sectors and priority sectors benefited with softened taxation in connection with the Investment Incentive Packages that were promoting tax holidays, simplification of the bureaucracy for investments, ease of clearance processes for land lead and working permits (ESRF, 2009). But recently, private sector operators in agriculture officially registered with the Tanzania Revenue Authority still received a heavy burden of tax connected to six areas of taxation: Tax estimations that are based on turnover rather than profits Produce Cess Administration systems are unclear Agricultural Corporate tax – currently at 30% VAT on Agricultural Processed Products is very difficult to implement Excise duty on fuel could be reduced to farmers
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture and rural development Import duty: on agricultural machinery and equipment is too high Macroeconomic performance appeared satisfactory but microeconomic performances remained insignificant (until 2007). FDIs‘ failure to contribute to poverty reduction efforts caused by poor management of FDIs and weak regulatory mechanisms led to public outcry against the policy and to appeals for more support to local investments (direct and through capacity building for their absorption), combination of strategies on short term (Investment Incentive Packages) and long term (improvement of the environment for doing business), improvement of law enforcement units, establishment of a Development Fund and easing of money transfers towards Tanzania, set up of a Fair Competition Commission. Several of these areas had not been (sufficiently) translated into actions: improvement of the environment for doing business (125 in 2010 and expectation of 128 position in xx 2011 ) law enforcement that is still close to inexistent and constitutes a major weakness for private investors Overall government policies are aimed at supporting private sector development. However, implementation of policy has been slow due to several factors. The public sector institutional framework is too fragmented which constrains cohesive public sector support to private sector agricultural development. This lack of cohesion sometimes results with conflicting visions of agricultural and commercial development as for instance, the regular maize export bans with the politically driven, unstated but well known, of keeping the urban population fed. Short view calculations cause losses of incomes to a majority of those Tanzanian farmers who obtain a part of their incomes from maize. The private sector is not yet fully consulted on major policy issues. Although, for example, there is often a phrase in new policy and legislation indicating that there has been a process of ‗wide consultation with all stakeholders‘ this is not always the case. Moreover – and maybe as a consequence – the private sector sees problems with aspects of the legal framework for commercial agricultural development. For example, 22 laws have recently been categorized as having ―major problems‖ and another 38 as having ―problems‖ for private sector development. A commercial court has been established in Dar es Salaam, but such facilities are not available in the rest of country. Also, in 2002 the Commercial Court increased the minimum value of cases it deals with to TSh 300 million (roughly US$ 300,000). This put its services way out of reach for most farmers and agro-industry operators. Further constraints emerge as courts throughout the country are understaffed and many of the officials are not well trained in modern commercial and economic affairs (Guyver, P. et Al, 2008). Inefficient bureaucracy and corruption are constraints to small and large scale farmers . Although efforts are being made to tackle corruption, pervasive, low-level ‗rent taking‘ continues unabated. Such corruption created a sense of lawlessness which hampered existing business, discouraged foreign investment, and encouraged capital flight to offshore destinations that are believed to be more secure. Complex process of registering new agro-chemical products with TPRI or seeds with TOSCI discourage local registration and encourages smuggling from Kenya. It is generally accepted that the Land Act and Village Land Acts, both of 1999, do not provide a practical basis for security of land tenure. Reforms have been proposed, but not yet implemented.
xxi th th
The end of the State‘s support to Primary Societies, Cooperative Unions and Crop Boards through endless public loans caused an increasing number of Cooperative Unions to be insolvent. These kinds xxii of structures didn‘t disappear though as the insolvent ones simply got replaced by new ones . The message from the State was clear: farmers‘ organizations need to be maintained for the strategic export crops (even at the cost of lost debts, support to non-economically sustainable activities, xxiii degradation of the farmers‘ organization and of their level of implication in the operations , distortion of private sector‘s dynamics and the encouragement of non-reimbursement of loans). This message xxiv was well received by some cooperatives which formed in 1994 the Tanzanian Federation of Cooperatives to promote, serve and coordinate the development and prosperity of all cooperative societies in mainland Tanzania. In 2002, the Government defined a new Cooperative Development Policy considering the failure of many cooperatives to prosper in the free market, the importance of community contribution in the development process, e.g. the traders‘ failure to fill the gap left by cooperatives (and the belief that cooperatives were the means to achieve this) and some weaknesses that had appeared. In 2011, the cooperative structures that are more knowledgeable are the ones operating in the area of Rural and Urban Finance, Marketing of Agricultural products and Production. Cooperative officers have been – together with different projects and development agencies – supporting the different kinds of cooperatives in order to help them to implement the activities chosen by their numbers. Well performing cooperative societies operate alongside other ones that have been less successful, either because the means utilised to support them were not adequate/sufficient or because the way to go from the initial stakeholders understanding was too long to be done at once. The Cereal and Other Produce Act of 2009 also gave the license to the Board to create forums in seven agro-climatic areas of Tanzania and a National Forum. Their responsibility will be to monitor and supervise the actions undertaken by the Board and to inform the regulatory entity that was created together with the Board. This process has already resulted with the designation of seven zonal forums and a national forum. The Government initiated a Public Private Partnership policy (GoT, 2010) to promote private sector participation in the provision of public services through public-private partnership projects focused on investment capital, managerial skills and technology. In fact, public-private partnerships have been slow to develop partly due to the low levels of trust between public and private sector (that refrained both sides to try to collaborate with each other), to the incoherence within the framework to support and encourage private sector development in agriculture and to the different conceptions of PPP between Government officials (vision of service contracts) and private sector actors (expectation of true joint venture where risk and resources are shared). Some successful examples can be mentioned: The Tanzania Seed Trade Association (TASTA), the Tanzania Agriculture Partnership (TAP) and the Agricultural Council of Tanzania (ACT).
The Private Sector Response
On one hand, liberalization – with its shift of emphasis to a reliance on market allocation and to the enhancement of private sector development – had some positive impacts. Liberalization partly solved the bias of resource allocation, permitted some improvement of the supply in inputs and spare parts and therefore, a diversification of the production. It resulted with an improvement of the levels of outputs for some firms (trade/restoration/hotels, community and personnel services, manufacturing). The set up of the Investment Promotion Agency that later became the Tanzanian Investment Centre and the support to Foreign Direct Investments (FDI) through packages including Tax Holidays allowed a growth of the FDI from US$ 150 million in 1995 to US$ 474.5 million in 2006 and a total amount of the registered FDI projects from 2005 to 2007 of US$ 11.9 billion. Together with the creation of about 234,500 jobs, this initiative may have contributed to the decreasing of the percentage of the population falling below the ―basic needs‖ poverty line from 40.8% in 1991/2 to 37.6% in 2007. However, in 2001 Tanzania was still considered as a ―pristine territory for foreign investments in absolute terms (NORAD, 2001) as – even during its ―FDI boom‖ years – it received less FDI per capita than most of other developing countries. This can be partly explained by the small size of Tanzania‘s economy that limited the investment possibilities. The agricultural-linked activities that received important FDI was sugar processing, cashew-nuts processing factories of TANITA 1, Newala I, Newala II, Likombe, Masasi and Lindi. However, if FDIs‘ managed a macro-economic impact, their effect at micro-economic level had been much less noticeable. Management problems (e.g. over-extension of the tax holiday periods) and weak regulatory mechanisms, e.g. to promote local employment, local sourcing of raw material have been mentioned as two major reasons of this lack of micro-economic impact (ESRF, 2009). Furthermore, indigenous entrepreneurs unfortunately received much less support. Other – more specific – negative impacts can also be listed such as the increasing cost of the inputs and equipments, the increased competition and reduced profit margins, the stagnation of inputs for some industries (quarrying/mining, construction) and a double negative impact for small rural farmers and artisans (e.g. leather industry) because of a decreasing of their outputs and an increasing cost of their inputs. Furthermore, although the privatization has been based on clear procedures and criteria, ability of the Tanzanians who took over these businesses was not sufficient to allow the success of these initiatives. The size of the parastatals and the importance of the investments required to acquire them practically excluded a majority of Tanzanians. Most of these parastatals have therefore been xxv sold to foreign investors . Three main parameters can explain the little / late development of MSMEs: the lack of support, lack of trust between private and public sectors and a weak business culture on both sides.
Liberalization was aimed at encouraging the taking over of supply by private companies. In 1998, 13 new private companies had started operating in Tanzania in that sector (Mfungahema, R., 1999 in Kessy, F., 2006). However, the increasing of prices (+412% over 3 years) caused the percentage of fertilisers used for food crops to fall from 70% (in the early 90s‘) to 32% at the end of the decade with only 10.5% of the agricultural holdings using fertilizers (Guyver, P., et Al., 2008) and from 200,000 tons in 1994 to 63,000 tons in 1998 as a result of the sharp decline in the profitability of smallholder cultivation of maize in particular in areas where subsidies were abundantly utilised Skarstein (2005). The decline in the ratio of producer maize prices to inputs prices (seed, fertilizer, pesticides) may have led to a
reduction of the real return per ‗man-day‘ of maize production from 2496 TShs at 1998/99 prices in 1992 to 501 TShs in 1998, in other words an 80 per cent reduction (Delgado et al. 1999, 95 in Skarstein, 2005). Declining ratio of producer price to fertilizer price has not only been caused by rising fertilizer price, but also by a relative stagnation in the producer prices for maize (as well as for other food crops). Acute food shortages during that period are also attributed to the removal of subsidies on fertilizers (Hammond, 1999). Hence, poorly administered input subsidy programmes discouraged the further development of market-driven alternatives as the expectation of a subsidy dampened the demand for free-market inputs, delayed the application of all fertiliser, especially when there are delays in subsidised supplies. The government started working with CNFA to develop more efficient subsidy delivery systems.
Trade and marketing
Major companies and well connected actors might have succeeded to operate within the constantly improving State systems and to benefit from activities implemented by the Government or development partners. But – if the liberalization of the trade in the sector of food crops allowed the installation in each district of hundreds of traders, millers, retailers – almost all the traders and a major part of the millers are working informally with very poor statistics about their exact number volume or the volume of their operations. Having – initially – been only tolerated in the best case and sometimes refrained from operating, these actors have for many years mistrusted State agents and currently still fear the restrictions that might come from them and especially the taxes to pay without expecting to get support from the State agents. This attitude might be changing but this behaviour could still be the common case. Most of them formulate mostly complains about the State interventions: no access to loans, poor infrastructures (feeder roads, urban and rural bulk markets, etc.), excessive taxes, no contract and law enforcement, corruption within most of the administrations they deal with, being accused of squeezing the farmers and at the same time asked to avoid prices for urban consumers to reach certain limits, no support to export and – when they manage to get connections on the export market – having their connections spoiled by unpredictable export bans, changes in the environment defined at political levels without consultation of the actors of the sectors, official choice in favour of food security equivalent to an implicit ban on free trade, preference for para-public interventions through Boards, focus on export crops rather than on crop for the internal or regional food markets, etc. The list of grievances is too long to let the observer believe that the conditions have been created for the private traders to operate in a fair environment.
During many years, the restriction imposed by the international financial institutions (IMF, IDA, WB, etc.), the fear of letting more losses happen and the risk aversion of the international banks generated a lack of resources for credit for agriculture, trade, processing and service provision. Some donors (DANIDA, RFSP) tried to compensate this weakness through supports to SACCOS and other userbased Micro-Finance institutions. In 2005, the State sold 49 percent of government shares in the National Micro-Finance Bank to Holland consortium led by Rabobank as a way to improve the performance of NMB. Recently, the number of banks has started to increase although the conditions for provision of loans (interest rates, collaterals required, re-insuring of the loans), the lack of track records (to allow the evaluation of the investors‘ projects) and the – almost exclusively – urban location of the banks restricted the access of the rural based actors to this new resource. For instance, there were 50,000 registered companies in Dar es Salaam only , but only a few hundred of them were strong enough to qualify for credit in one of the major banks.
The increasing creation of Saving and Credit Cooperatives by the actors of the chain can be read as a reaction to the limited access to credit. The under-equipment and under-investment observed in most of the strands of the agricultural sector (agriculture, trade, processing, etc.) is a visible consequence of this limitation. The development of trader-managed (shark) loans – usually extremely harmful to farmers – is another consequence.
The global picture of investments in Tanzanian economy is rather positive. The approved investment increased sixteen-fold from US$ 47 million in 1990 to US$ 768 million by 2000. The Foreign Private Investments passed from US$ 2.6 billion in 1999 to US$ 5,78 billion in 2005 and the Foreign Direct Investments increased from US$ 2.2 billion in 1999 to US$ 5.14 billion in 2005 (TIC, 2006).
Table 1: FDI stocks – Evolution 1999, 2005
Equity Value (billion US$) % 67% 55.2% 64.2%
1999 2001 2005.
1.34 1.93 3.71
The stock of borrowing from all sources almost doubled from USD 0.7 billion by end 1998 to USD 1.1 billion by end 1999 with most of it contracted directly from affiliated companies abroad on a long term basis. But agriculture (together with forestry and hunting) accounted for a low share of the total FDI stock (7% / US$ 151 million in 1999; 2.9% / US$ 149 million in 2005) in spite of its important role in the economy, contributing to over 50 percent of GDP and foreign exchange earnings, as well as being the largest employer. Investments in agriculture were however reserved (over 90%) to crops such as tobacco, sugar (Mtibwa and Kilombero), tea (Rungwe District), cashew, rice, barley, sisal (Katani Limited). The dividends paid back by the agricultural sector were limited to US$ 0.6 million corresponding to 1.4% of the total in 1999 to < 1% in 2005. The Agriculture sector, which attracted the lowest share of FDI during 2001- 2005, recorded not only the lowest but also negative return on equity in 2005 (-35.4 percent). Institutional reforms such as the establishment of TIC, Parastatal Sector Reform Commission (RSRC) and Tanzania Revenue Authority (TRA) have contributed to improvement of the general macroeconomic environment in Tanzania, but these reforms were perceived by the private sector not to have gone far enough in addressing the problems faced by investors. Harmonization of tax incentives and measures between TIC and TRA delayed long. In addition, land, labour, and legal reforms have lagged behind the other reforms, thereby undermining the impact of the already implemented reforms. TIC also regularly stressed the fact that the Government has not provided a conducive environment and complementary public investment to attract domestic and foreign investments in agriculture. Lack of clear marketing and trade policies, poor infrastructure especially in rural areas (including roads, water and irrigation, storage, etc.), high cost of utilities and transportation, delays in the set up of a Land bank (first demanded in 2001 and being implemented in… 2010) and of
Export Processing Zones and Special Economic Zones, unfavourable land, labour and tax laws, insufficient coverage of the banking system, absence of crop insurances, inexistence of price stabilization systems, etc. Overall impact of FDI on economy and poverty reduction are limited due to the fact that FDI investments focused on activities where heavy investments could be done in a safe environment. In agriculture these two parameters are reserved for large scale commercial crops or export crops whose production is done on large areas and that require heavy investments for processing. Moreover, due to the nature of the activity, guarantees are easy to obtain (land or certificates of incentive by TIC or BoT). This isn‘t the case for small farmers who are mostly unorganized, deprived of ownership titles, unable to contribute in heavy investments, not considered as credible by local banks and – for most of them involved in crops that have the status of food crop (that exposes them to the State‘s interventionism). Tanzanian smallholder farmers have limited education and experience, are frequently exposed to shock and have to deal with weak institutional arrangements for production (Msuya, 2007; TIC, 2001; TIC, 2004 and TIC, 2006). For all the crops, the farmers‘ efforts in the crop – to expand it – depend on the buyers‘ capacity to offer (i) prices that compensate, (ii) technical advices, (iii) credit and (iv) inputs through arrangements that allow the sustainability of the household. If these arrangements are insufficient, the farmers downsize the activity to satisfy the needs of the household or – in the case of commercial crops – abandon them (as it happened with a cyclic pattern with coffee and cotton). PADEP and DADPs improved farmers‘ access to supports although the process has just started to gain momentum. However – due to their conception – these projects have addressed (and will continue addressing) community needs rather than individual (entrepreneurial) projects. Hence, there is still a gap to allow the emergence of small entrepreneurship in rural areas.
Environment of doing business
The internal level of efforts seems high but the international ranking concerning the quality of the th th environment for doing business (loss of 3 positions from 2010 to 2011 from 125 position to 128 ) illustrates the problems met by entrepreneurs to develop their activities in most rural areas and sectors (production, trade, processing, provision of services, etc.). In 2001, NORAD (2002) was highlighting the following issues: the business framework did not encourage formalisation. Companies with turnover of more than TZS 20 mn/year had to register for V.A.T. where tax collection was aggressive, etc. (hardly better in 2011); there was a lack of skilled managerial capability outside the family (unchanged for SMEs); even within collaterization of land is difficult, and restricts access to credit (unchanged in 2011); production factors such as electricity, telecommunication, insurance, transport, etc. are expensive in Tanzania. (unchanged or worse in 2011) Fragmentation and dispersion or most stakeholders‘ organizations indicates the need of apex representation structures to ease their participation in any private sector-led development process. xxvi Several attempts have been done or are again being made . The Government initiative of 2010 to promote PPP comes as an attempt to keep in contact with this endogenous structuring. This explains the success of the Agricultural Council of Tanzania and TAP programme (Tanzanian Agricultural Partnership) who both came to fill an important gap between the
private and the public sectors but also to re-animate some – almost extinct – forms of PPP (TCCIA, etc.) that had been set up by the Government along the years.
The Role of donors
Overview of interventions
In 2008, Guyver, P. et Al. reported that – for the funding of the ASDP basket fund – the donors‘ efforts to construct a cohesive, single platform of support to agriculture in Tanzania had – by then – not been successful Although a Joint Assistance Strategy was intended to provide a focal point for integration of external support to agriculture, divergent interests and concerns had eroded this position and delayed the delivery of focused support to widespread private sector development. In the agricultural sector, Guyver, P., et Al. (2008) citing OECD, (2008) describes a diverse and somewhat dispersed portfolio of about 140 different donor-supported activities targeting private sector development in agriculture which cannot easily be mapped. Concerning the most coordinated action Guyver, P., et Al (2008) report that there has been little overall impact on the implementation of policy supportive of private sector-led agricultural growth; neither within nor outside the ASDP. Table 2 provides a categorisation of specific donor activities broadly supportive of private sector growth Although many activities – research, extension, irrigation, livestock trade, food security – have been ‗projectised‘ over many years) certain donor agencies (WB, EU, etc.) supported by the government, are willing to move towards ‗sector-wide‘ approaches involving basket budgetary support (education, health, roads). Their aim is (i) to remove inefficiencies of fragmented and parallel aid delivery systems and to increase selectivity, coherence, and harmonization of donor resources. To achieve this, donors are exhorted to integrate policies and strategies into agreed macroeconomic policies and budgetary processes, including the Poverty Reduction Strategy, the Public Expenditure Review, and the Medium-Term Expenditure Framework. ASDS / ASDP is the example of this in the agricultural sector. However, the challenge for the Government and the donors is to enhance their prioritisation, coordination, management and implementation capacities. Furthermore, some donors (WB, IFAD, African Development Bank) ―double-talk‖ as they simultaneously continue to formulate and implement projects, support state functions that could be supplied by the private sector or regrettably abandon almost totally some others such as research and extension under the pretext that decades of state/donor support for research and extension have failed to efficiently spread these public goods (Cooksey, 2003).
Table 2 Donors and Private Sector Aid Kind of support Support to building the capacity of farmers‘ groups to participate more effectively in markets Support to new product development and technology to exploit new market opportunities Donors Oxfam, Agriterra / Agricord, USAID, WFP, FAO, Bill & Melinda Gates, SNV, USAID, FINTRAC, Gatsby, Kilimo Trust, IFAD, SNV,
Support to information, services, etc.
market infrastructures including financial services, certification
EU, AFD, IFAD, ASDP basket fund, AGRA, RFSP, FSDT, Canadian International Development Agency, DANIDA, SIDA, Koninkrijk der
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture and rural development Nederlanden, DFID, Sweden, African
Development Bank, PRIDE, FAO, FINTRAC, Aga Khan, Bill & Melinda Gates Foundation, Swiss Agency for Development and Cooperation, CEFA, Morovian Church of Tanzania – TBO, AWF, GORTA,
Support to pro-market regulatory reform and government capacity to support private sector services
World Bank (IFC, MIGA, investment climate advisory services), UNCTAD, WTO, IMF, Dutch Ministry of Foreign Affairs, UK Department for International Development (DFID) and IC, multi-donors FIAS platform, DANIDA, SIDA, DFDI, IDA, TradeMark East Africa,
Support to agricultural enterprise development through grants, concessionary loans
SAGCOT, USAID, Bill & Melinda Gates, FAO, AfDB, IFAD, UNIDO, UNDP, MMA, FAO, Gatsby, Africa Middle Market Fund, AGRA, AECF, DFID, Lemelson Foundation, Norfund, Capricorn, DANIDA, Irish Aid, JICA, EU, Kilimo Trust, Care, African Enterprise Investment Fund, USAID, FINTRAC, FAIDA-BDS, The Tanzania Gatsby Trust, SIDA, UNIDO, EU,
Support to industry associations
Rice case study
Changing role of the state in the value chain
After independence, the State has been heavily investing in the rice sector. Large irrigation schemes have been installed as well as huge milling capacity centrally manage by parastatal companies (NAFCO). Together with this parastatal system, the production of rice at village level has also been supported with –maybe – an objective of food security rather than marketing through the distribution of inputs. Strategic Grain Reserve (SGR) has for a time been in charge of the delivery of export permits for anyone who desired to export paddy but this disposition has been removed. In 2003 many processing parastatals had been privatized and the sector had become mostly private sector driven (production, milling, transportation, marketing, etc.). The processing infrastructures have all been sold to private investors and most of the production infrastructures previously managed by the Parastatal company (NAFCO) have been privatised (although in this case, the process is still on-going). The State remained with the research on rice through the Agricultural Research Institute (ARI), KATRIN, SUA and the seed certification through TOSCI / ASA. In the recent years, the government has been heavily investing in irrigation through ASDP with funds earmarked within the District Agricultural Development Grant and also specific National (above TZS 5 million) and District Irrigation Development Funds (below TZS 5 million). These funds apply for both small and large scale schemes. Currently, the rice sector is – according to Mr. Hussein (Managing Director at Bakhresa) – very lucrative and potentially able to export. It is a very competitive and dynamic sector that is dominated for many years by SMEs (ECI, 2003). Bakhresa is the only big company that is operating as processor of local paddy in the rice sector, although on an irregular basis (some years the company intervenes and some years it doesn‘t) and for less than 2% of the volumes. Even the acquisition of some of the NMC parastatal assets has not been a sufficient advantage to be able to stand the SMEs‘ performances. ETC, MEL & Fida Hussein are processing imported paddy. A series of factors may explain why these SMEs could took the sector over from the large companies. All along the privatization period, the Government has been elaborating and implementing policies aimed at developing the rice sector, but there was still in 2010 a general lack of transparency, enforcement of regulations, traceability and a conducive business environment. For instance, the Weights and Measures regulation clearly stipulates packaging standards for rice, but these standards are often abused or ignored (MMA, 2010). Customers are keen to pay higher prices for specific origins but traders spoil these quality signs through blending and un-accurate branding. Small – partly informal SMEs – can easier adapt to these regulations (and sometimes ignore them when they are not adapted). The liberalization of the rice sector by the Government didn‘t go without an intention of protecting it. Indeed, there is an official import duty of 75% and VAT of 18% that should preserved the sector from foreign competition. Such a taxation would turn it virtually impossible to import rice for mainstream consumption. Officially, it is only during food shortage periods that the Government has been allowing few ―carefully selected‖ companies to import rice. As it was the only opportunity that these companies had to compete on the rice market, they have been taken advantage of these authorizations to import bigger volumes than required for food security purpose in order to be able to continue selling rice over
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture and rural development
a longer period. . However, recent evidences (from port authorities) show that the real level of taxation ranges between 6 and 15% and that well over 40,000 MT are imported annually. Whether this ―fake‖ protection would have been well adapted to allow a real development of the sector can be questioned. In fact, food security objectives often prevailed over commercial interests as in situation of food shortage, the Government has regularly been banning exports and therefore disturbing private sectors‘ investment dynamics to the point that neighbouring countries that are regular net importers (Kenya, etc.) got used to get supply from other countries rather than from Tanzania. These distortions made private actors hesitant to invest, caused opportunities to vanish and locked sellers into a small and volatile market (MMA, 2010). With trade barriers that are put in place unpredictably, it is risky for trading firms to invest in developing durable marketing networks across regions (Jayne, T.S. et Al., 2010). Moreover, the utilization of export bans for food security purpose decreased the actors‘ capacity to predict the price variations. The recent launching of a Board aimed at ―structuring‖ the trade of cereals (in priority maize and rice) is another preoccupying sign for the private actors. Another reason why the past strategies can be criticized is that they failed at linking farmers to markets because they insufficiently took into account how low crop productivity and inequality in productive assets constrain most smallholders‘ ability to participate in markets (Jayne, T.S., et Al., 2010). The levels of land and labour productivity of the Tanzanian rice farmers is sometimes so small that the relatively high final market prices don‘t compensate and encourage them. Furthermore, the xxviii poor chain governance limits the returns that the farmers get from the final market price who consequently lack ability to integrate productive farm technologies in a sustainable manner (MMA, 2010). If the direct price determination has been abandoned, the Government continued influencing the prices indirectly with no concern for commercial interests. As a matter of fact, the objectives of food security added another source of instability with frequent and un-predictable export bans and import licenses. Moreover, the State started protecting the internal rice producers and processors by putting import duties and VAT on imported rice (75% + 18% = 93%) and this partly explains the high consumers‘ prices. Imports have been reserved for food security purposes. However, this position has come to the edge of disappearing in the last years because of the harmonizing of tariffs amongst the EAC countries (they are lower in Kenya and other countries where production is not sufficient or not considered as strategic for local farmers). Liberalization resulted with the emergence of high number of private actors in rice production, milling, transportation and trade. This allowed to take the processing much closer to the farmers which is economically sound (ECI, 2003) although the technologies available – lack of de-stoners, insufficient previous drying and grading – are generating higher losses (milling dust, broken rice, etc.). Trade of farming inputs has been liberalized in 1994 and this affected the availability of inputs. Subsidies for inputs have been on and off which contributed to an irregular access to and use of the inputs by farmers. After 2006, the provision of inputs to rice farmers has increasingly been taken over by private actors such as stockists, seed multiplication companies, fertilizer companies, etc. (MMA, 2010). Deregulation also resulted with the development of ad-hoc rice brands based on geographical origins. The centrally defined prices had been limiting the rice production and with the end of this practice, the production started to increase.
Encouraging private agents and farmer's organisations
Farmers‘ organizations have been encouraged to take over the management of the ex-parastatal irrigation schemes but results haven‘t always kept up with the expectations. Mbarali 3200ha & Kapunga 3000ha were sold to prvt investors, Madibira 3000ha is run by a farmers‘ coop with govt support. All 3 are irrigated. Many irrigation schemes are utilized for only one cropping season per year although they could be utilized for two. In fact, some functions such as the management of the water in the irrigation schemes, of the mechanized ploughing and transportation services, etc. that were previously in the hand of the Government have afterward been implemented less efficiently. This might be the result of insufficient efforts done to empower existing (Tanzanian Farmers‘ Association) or emerging (MVIWATA) farmers‘ organizations to ensure a smooth and efficient take over of the functions that were previously controlled by the State. The total number of rice growers associations in Tanzania does not appear to be known with the exception of two producers‘ apex organisations working with RUDI in Mbarali – 7,000 members – and Kilombero – 3,600 members (Guyver, P., et Al., 2008). Trade, milling, transportation, retailing, etc. functions have been taken over very efficiently by the private sector. But the function of chain governance has been abandoned (partially picked up by Dar es Salaam-based middlemen and millers) and the farmers and consumers suffer from its absence.
Disposal of state assets
Most of the irrigation schemes that were managed by the government before liberalization through NAFCO had been privatized during the years 2000. The privatization process was aimed at making their irrigation assets available to small farmers (ECI, 2003) and most of the irrigation schemes are therefore occupied by small scale farmers although other ones have been handed over to large companies (e.g. KPL in Kilombero). Attempts from big players (Mohamed Enterprise and others) to buy some of these infrastructures have failed because the Government stood on the side of the small farmers. In some cases it was justified: Kapunga scheme that had been targeted by investors for the production of Jetropha for biofuel. But the attitude of favouring small farmers can also explain why insufficient additional / further investments have not been done, leaving some of the schemes incomplete and only partly functional. Moreover, in the case of small farmers, the irrigation schemes remain – partially – under the control of the Government (Guyver, P. et Al., 2008). Management units have been set up to help small farmers run the irrigation schemes but little follow-up led to their failure. As the privatization process continued over many years, some irrigation schemes that remained idle over many years and got damaged due to insufficient maintenance. The Government handed over the processing factories and previously managed by NMC (most of them with a capacity of 50 tons per day). They have mostly been bought by large-scale entrepreneurs who were able to lobby for that purpose and had the adequate capital. This process has continued over a period of several years (Bakhresa bought its facility in 1998). Currently, only the milling facility bought by Bakhresa is still operating (although only on temporary basis and at only 2% of its capacity). All the other ones are idle (Mbeya, Shinyanga). In fact, processing has been almost totally taken over by small and medium scale entrepreneurs and almost all the State infrastructures lay idle. Eventually, the village storage facilities previously belonging to the primary societies or unions cooperatives have often been lost due to insufficient maintenance (new constructions are required) or sale to actors whose objectives are don‘t fit with rice storage (storage of other crops, installation of
depots for goods and service, churches, etc.). Farmers therefore lost an important access to storage services. From that point of view, liberalization has not been successful (heavy investments under-productive, laying idle or destroyed).
The total production in Tanzania has increase from 530,000 MT (1998) to 899,000 MT in 2010 due to an extension of production areas mainly and a small increase of the yields (1.6 to 1.8 MT of paddy per hectare. Tanzanian yields are lower than most neighbouring countries and one of the lowest in the world but due to the extended production area, Tanzania is the second rice producer in Southernxxix Eastern Africa. Simplified gross margins vary from negative returns to returns of about 70 % depending on the yield levels and direct costs. Competitiveness of Tanzanian rice is undermined by high production costs (low productivity), high prices, low yields and heterogeneous quality. However, it is being improved with the promotion of semi aromatic varieties offering interesting yields and preferred on the local market to the point that consumers are ready to pay differentiated prices. Tanzanian Investment Centre through the Rufiji Basin Development Authority (RUBADA) is expected to mobilize Foreign Direct Investments to valorise 622,000 ha with potential for irrigation purpose in the Rufiji Basin that extends into Pwani, Morogoro, Iringa, Mbeya, Ruvuma, Singida and Lindi regions. SAGCOT and KRCC rice project are two of the projects through which production will be increased. Consumption of rice increased from 20.5 kg/person in 1998 to 25.4 kg/person in 2007 (5.4% per year) which is more than the annual rate of population growth (2.88%) showing that rice is becoming a new staple food crop. In mainland Tanzania, 92% of the consumption is covered by local production whereas 8% is imported. There are three main rice production systems in Tanzania: the lowland irrigated rice, the lowland rainfed rice and the highland rain-fed rice. The first system is potentially the most productive as all parameters (especially water) are potentially controlled although it is currently not systematically the case. Furthermore, this system allows producing twice per year if the water resources are sufficient. Major part of rice farming is done by small scale farmers cultivating as little as a quarter of an acre to up to 10 acres (with an average of 1.5 acres). However, there are as much as 214,000 ha registered as ―utilised for irrigated crops‖ (Guyer, 2008). Irrigation schemes of as much as 3,000 ha are operating. Some are owned and operated by individual farmers / private companies but some still remain under the control of the regional authorities through the officers in charge of irrigation. The kind of production system is the first parameter that influences yields and output.
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture and rural development Figure 1: Rice Value Chain Map (Source: MMA, 2008)
The second parameter is the use and availability of inputs (seeds, fertilizers, chemicals for the treatment against pests and diseases) and equipments (oxen or tractors mainly for ploughing). Amongst these, the seeds impact potentially more than other inputs: with non-improved seeds, even fertilizers and optimal water resources will not provide the expected effect. The research stations have identified some hybrids that combine high yields and aromatic properties.
The third parameter is the quality of the agronomical practices that can be summarized as the talents to combine the inputs and the labour in order to produce an optimal effect. The current rice farmers have different origins: some have been farming rice for several generations either on the former parastatals or on their own plots (on lowlands or highlands). In several areas, small farmers have been requesting to the Districts through DADPs the set-up of irrigation schemes with improved water managements facilities. Wherever farmers are utilising the infrastructures inherited from the former parastatals, the regional authorities tend to keep a strong involvement especially in the water management. Investments are also being done by large scale companies (e.g. KPL in Kilombero) or by projects (e.g. Korean Cooperation in Kilombero / Morogoro and Rufiji / Pwani). Farmers sell at farm-gate (at harvest), at household (after some storage), on rural bulk markets, at the mill. Some of them integrate the storage and milling stages.
Trade and processing
The bulk of the trade is operated across the regions with production areas distant of the main consumption centres of 400 km (Kilombero in Morogoro region) up to 1,000 km (Shinyanga). The case of the production area of the North is almost an exception with the consumption centres located at less than 200 km (Moshi, Arusha). Several actors intervene to take the crops from the producers to the consumers. The local traders collect paddy from farmers and take it to millers. Some local traders can continue their operation until they meet the wholesalers. When farmers are organized to store and process collectively, they usually sell to larger scale traders. An additional intermediary can exist between the farmer and the trader and/or between the trader and the miller. In this case, paddy is bought by traders (often women) who supervise the milling and distribute the rice within a network of retailers. An increasing number of millers is integrating the purchasing of paddy from trader or farmers and the packaging and branding of the rice until the wholesalers. If they do so, the millers also store enough paddy to be able to sustain their brand. Therefore, it can be said that a part of the wholesale of rice is integrated by millers while another part is done by specialized rice wholesalers. Retailers are the final actors who sell either in bulk, or in packages (according to the level of packaging and branding integrated at the wholesale stage). Most of the trade is done by small to medium scale actors. Initially, they were retrenches or farmers but now their profile got much more diversified. Some large scale companies also operate at large scale (Mohamed Entreprises, Export Trading, etc.). However, they have not yet reached the stage where they tried to propose specific market linkages to farmers and they have almost no share in the milling market. As a consequence, the small and mid-scale operators manage to compete with them. Farmers are increasingly integrating the first stages of the trading cycle, through the management of storage facilities (sometimes wharehouse receipt systems). The most successful ones have also integrated the milling. Control of processing has quickly shifted from the ex-parastatal units that have been privatized in the early nineties to small and mid-scale operators who got equipped with equipments from China, India and – for the lucky ones – Germany. Their initial investment capacity has usually been limited and they thus had to increase the set of equipments little by little. This partly explains the late start in the branding process and the current opacity that affects the differentiation of the origins.
Impact of Private Sector Response to Opportunities at a chain level
After the Parastatals in charge of production, processing and marketing stopped operating, the sector got slowly but definitely taken over but private actors at all the levels of the value chain, expect for
research. This entry has been so strong and resilient that even companies like Bakhresa – who had bought some of the NMC processing facilities – could not keep up. Producers working on irrigation schemes have increasingly organized themselves to address problems such as the access to loans, storage and processing through groups and cooperatives or through collaborations with traders or millers. However, much still needs to be done and development agencies (governmental or not) are working with farmers to help them in the production and organization processes. Where irrigation schemes exist, farmers also had increased possibilities of getting access to improved agronomic skills through their own initiative (exchange visits) or based on the support from local extension or research officers or project agents. The process of vertical integration didn‘t happen initially although large scale companies could buy some of the production and processing units. But it is going on with millers who are increasingly collaborating with producers or producers who tend to incorporate processing (directly or through agreements with existing millers).
Banana case study
Production of banana is a long-time practiced crop. Inter-regional trade of banana exists since the sixties, although it started developing in the seventies and really got more important in the second half of the eighties. Banana became then a commercial crop in most parts of Tanzania: Mbeya (Rungwe District / Tukuyu Ward), Kilimanjaro, Morogoro, Tanga and Bukoba Region. The research programmes on Banana (National Research and Development Program – 1977 / EEC funding) and then the National Agricultural Research Organisation (TARO) from 1978-1986 were totally disbanded with the formation of the Department of Crop Development at the Ministry of Agriculture. This department can be defined as a problem solving unit which periodically contracts the assistance of experts in order to deal with agricultural issues in all of Tanzania. However, research results have been achieved in the control of nematodes and banana weevil and in the development new hybrid varieties using local germoplasm. There has also been some progress in the generation of saplings using Tissue Culture (T.C.) technology. Some farmers in Tanzania have benefitted from each of these advancements as infestations have been locally treated, new varieties are being distributed and T.C. saplings are also being distributed in limited quantities. However, several farmers complained that they got no direct support from the Government for the production of banana. For instance, some farmers couldn‘t recall about any visit from a field office since 1993 (when some of the plantations were installed) while others were confident that there had been no visit to their farm in the three last years and that they don‘t even know the district extension officer. Farmers in Itete and declare that they have never heard of the District Agricultural Development Programmes. Farmers in Kiwira said that they heard about the programme but that they have never benefited from it for their banana plantations. However DADPs is supposed to be a nationwide participatory programme for the development of the agricultural sector. The input subsidy programme funded through TAP-EU initiative has been limited to the production of maize (that is not a commercial crop for many farmers in Rungwe District) although banana crop would also require fertilizers and inputs and pays better in any case. Farmers met in Itete (Tukuyu Ward) declared that they don‘t know if there is a specific research centre for banana. When they meet a problem with their crop, they consult each other and if the problem is too serious, they cut the plantation. Several SACCOS have been set up with the support from the District Cooperative Officer and farmers sometimes managed to get loans. But these services are considered as too expensive (interest rates) and insufficient compared to the needs of the production (need of inputs) and trade (working capital to pay proper advances to the farmers). Other financial institutions put requirements that are too difficult to fulfil for traders. The apparition of services such as M-PESA and ZAP-PESA has improved the situation for traders because it eases money transfers. The network of ATM has also increased although in Rungwe District it is still insufficient. The road depending of the Mbeya region are sometimes repaired / maintained but the ones that are under the District‘s responsibility are usually barely practicable. Traders organize the maintenance of some of the District Roads themselves in order to be able to transport banana. Bad condition of the roads is one of the factors that can cause severe losses for the traders (banana is a very perishable crop). Poor condition of the trucks is another problem that the farmers and traders presented as a major problem. Indeed, it is due to the poor condition of these trucks that accidents and breakdowns happen more frequently and generate losses. Insufficient control of the trucks and obligation for the
truck owners to maintain them is also presented as a matter of problem. This situation leads to harsh business behaviours because the traders have to get the highest possible profits out of the volumes handled. When the traders incur losses due to transportation, there is no insurance system to help them getting back in business. Transportation costs are increasing whenever the price of petrol is increasing. The Government should subsidize the price of petrol for the transportation of crops corresponding to basic necessities. Farmers or traders from the Tukuyu ward have not heard about price information system. They have their own network through contacts in different market places (e.g. in Dar) but the information obtained through these networks are not always reliable. Due to the lack of secure information system traders are totally dependent of the middlemen who are the only ones to know the proper prices and the volumes required and who take advantage of this information distortion to take the best out profits of the business. In fact, the middlemen in the Dar es Salaam markets have taken an excessive importance. Although it gets very dirty during the raining season, the Mabibo market in Dar es Salaam is considered as ―reasonably good‖ – this is – compared to the two previous market places where bananas were sold previously. The Urafiki place was along the road and unloading of banana has been causing several accidents. The Buguruni market was much too congested to be suitable for the trade of banana. The little level of services provided to the banana producers and traders is difficult to understand to the latter as they contribute to the incomes of the Rungwe District and Ilala Municipality (~ 1 TZS/Kg and 0.3 TZS/Kg respectively for each place). Initially, fruits and vegetables have been marketed on the Kariakoo market. In 1977, the banana traders had to leave and were re-installed on the Tandale market whose infrastructure was completed in 1978. With growing volumes and increasing number of traders, the market became congested and traders started (in 1990 – 1991) occupying – unofficially – a space in the Manzese market. The latter also quickly became congested and – due to the construction of the road – unsuitable. The traders looked for another place and managed an agreement with the ―Big Brother Company‖ to occupy an area from 1994 to 2002. Again, in 2002, they have to move and the ―Urafiki Textile Company‖ accepted to let them occupy a space in Mabibo where the market still is in 2011. Along these years, the banana traders created an association (here referred to as ―The market Company‖) to represent them and help them dealing with their constraints (see below). This permanent shifting of the market from a place to another illustrates the little concern of the Municipality with respect of marketing of banana (and other crops). According to the traders, the municipality had reserved areas for the marketing of food crops but the municipality let them be occupied and/or sold illegally. Consequences are multiple and mostly negative. The agreement between the market company and Urafiki Textiles is informal, without any contract. On one hand, it is positive as the market company has no rent to pay but on the other hand, it is extremely constraining as the traders have no visibility of the time during which they will be allowed to occupy the space. This, in turn prevents the market company of feeling comfortable to invest in the improvement of the infrastructures and being able to access loans (consequence of having nothing to mortgage). For the State, shifting is normal when the space occupied is congested, if it is needed by other (more powerful) actors, if the traders don‘t address their problems (hygiene, conflicts, impact on traffic, etc.).
As long as the trade itself is not prohibited, the States considers these interventions normal and useful. Even though the municipality didn‘t provide a space, it still collects taxes for about TZS 40,000,000 annually which decreases the capacity of the market company to pay bills (electricity, security, cleaning) or to invest in the improvement of the infrastructures (construction of shades, channels for evacuation of water, concrete slabs to prevent banana from touching the ground, etc.). The only service that the municipality provides in return consists in the visits of the cooperative officers to the SACCOS that the Market Company created.
Table 3: Interventions of the state in the Banana Sector Positive Done Presence of cooperative and marketing officers in the Districts, Municipalities (even though they are not all efficient). Collection of information about banana trade on the market The Director of the Municipality invited three traders to take part to a Seminar on trade (in 2010). Not done Almost no interferences by the government in the traders’ activity that gives them a relative liberty to work Negative Criminalize trade (Sabotage Act of 1984) Concentrate all the efforts on Export and traditional commercial crops Oblige the traders to shift from one place to another The Municipality collects taxes (TZS 40 M) without return of any kind to the market. No implication of the traders in the collection of information No strong decision to allocate one specific place for trade of banana No facilitation of the traders access to loans to develop their activities
Banana sector has never been concerned by price determination by the State. Prices have always been defined by the market rules. With regard to the regulatory environment the banana subsector has in the past escaped significant government intervention because of its low priority status. It was not seen as an exportable commodity or a significant cash crop. The only regulation defined specifically for the banana sector is the one concerning the criteria of banana (TBS). For the rest, the sector is somehow regulated by general dispositions for trade, wholesale and retail. For instance, there was need for farmers to acquire permits before they could market their produce. Banana sector has always been driven by private agents. The State has not been at the origin of the organizations that appears in the banana sector (e.g. organization of the middlemen in the Mabibo market, farmers‘ or local traders (in)formal groups, etc.). The State had not invested in specific infrastructures for banana production, processing or trade and there has thus been no disposal process. Research has been done in the control of nematodes and banana weevil, there has been the development new hybrid varieties using local germoplasm and there has been some progress in the generation of saplings using Tissue Culture (T.C.) technology. Farmers in Tanzania have benefitted
from each of these advancements as infestations have been treated, new varieties are being distributed and T.C. saplings are also being distributed in limited quantities.
The Banana Value Chain
The figure 2 below represents the banana value chain as observed during the research. It includes five main strands. The first one is based on the local home-consumption and local sales directly from producers to consumers. The second strand is based on the sales of bananas from farmers to local traders who supply them to retailers mainly in secondary rural towns. Direct sales from local traders to consumers are possible by less frequent than the sale through retailers. The third strand is based on the association of local traders, urban wholesalers, urban retailers or hotels. The new dimension here is the presence of urban wholesalers who play an important role of connection between the traders and the retailers. They all operate in a central market place and this facilitates the traders‘ work although they complain that such a place operates in a totally opaque way and causes huge losses to them. The fifth strand based on industrial processing of bananas is much more limited in volumes and geographically (Arusha). Traders (and some urban wholesalers) supply bananas to a factory who produces beers. The factory (and probably wholesalers) distribute the beer to retailers who sell them to consumers.
Figure 2: Banana Value-Chain Map (source: from the survey)
Production of banana (all kinds) evolved between 1985 and 2009 from 155,000 MT to 3,219,000 MT (times 20) due to a combined increasing of the areas planted (59,500 ha to 534,354 ha over the period) and an increasing of the yields (2.6 MT/ha to 6.0 MT/ha over the period). Bananas are mostly sold on the local market although some exports exist to neighbouring countries or even be airplanes to Europe (with a maximum of 314 MT in 2004). Competitiveness in the banana sector is undermined by the little support provided to farmers for the improvement of the agricultural practices and the resolution of disease problems. Research programmes exist but they fail to reach all the producers. Furthermore, infrastructures and logistic solutions utilised for transport, packaging and marketing generate high risks of losses that usually end up being paid by traders and farmers. Production of banana is very basic in nature. Cultivation is achieved using local techniques and low level technology. The banana farmers observed can be typically characterised as small scale, having plots of not more than 10 acres. There are, however a few estate farms, with plots larger than 10 acres. Banana production is exclusively rain fed and the seasonality of the precipitation presents a significant challenge. However, larger areas are being cultivated with banana and greater investments are being made with respect to the purchasing of hybrid plants and inputs (organic/inorganic fertilizer). Some households produce banana for their own consumption only but majority produces to sell at least a part of their production. Bananas are sold locally to local traders and sometimes – when production is more market oriented – farmers bring their banana to local or regional markets. Part of the largest producers are also traders.
Interregional and cross border trade in banana has developed considerably with increased urbanisation with large quantities being supplied to the large towns (Dar es Salaam, Morogoro, Dodoma, Arusha, Moshi, etc.) and cities, and crossing the border to Kenya and Uganda. According to the traders met in Mabibo market, Rungwe District / Tukuyu ward supplies close to 90% (6,390 tons) of the cooking bananas that reach Dar es Salaam (~ 7,100 tons). Inter regional trade for banana is affected by the variety as the banana preferences tend to change from one region to the next. The most popular end market consumption of banana is in the cooked form as a part of Tanzanian meals.
The major form of industrial banana processing found is the production of banana wine / beer. Bananas are also processed into local brews and chips on smaller scale and with lower quality standards.
Nodes in which the private sector is involved
Table 4: Nodes of private sector activity in the Banana Industry:
Actor Small Holder Farmer Nodes/Activities Production & Trading Description Banana plots less than 5 acres in size, No mechanization, use hand hoes and machetes, Relies on rainfall for irrigation Sells at the market, to farmer groups, to traders and to Processors Banana plots more than 5 acres in size, Some mechanization, some hired labour using hand hoes and machetes Relies on rainfall for irrigation Sells at the market, to farmer groups, to traders and to Processors Collect from group and non-group members, Sell at the market, to traders or directly to processors, Serve as loci for technical/extension support services. Buy bananas from SHF, SHFG, and at the markets. Sell at larger markets to local, regional and cross border wholesalers, Sell to processors-wine &crisps Sell to establishments-hotels and restaurants Sometimes receive capital support from larger clients. Micro to medium scale businesses Produce crisps daily Deliver the crisps themselves to shops and supermarkets within the area Supply Commercially produced banana wine to at least 10 regions of Tanzania, Sell to distributors or directly to end market sales pointsbars. Target primarily low income consumers Market expanding to include middle income customers Found mainly in rural locations Original producers of banana wine Sometimes produce illegal brews, Distribute to local pubs Distribute beverages of all kinds including banana wine, Supply urban and rural retail outlets. Retail outlets for banana wine.
Medium Scale Farmers
Production & Trading
Small Holder Farmer Groups Traders
Bulking and Trading
Bulking and Trading
Banana Crisp Producers (e.g. Golden) Large Scale Wine Production Companies e.g.Banana Investment Limited (BIL) and Bhunu Mbundi Company Local/Small Scale / Traditional Brewers
Processing & Trading
Processing & Trading
Distributors/Dealers Urban and rural pubs, bars and restaurants Groceries and Shops Low and medium Income Consumers Medium and high income Consumers
Retail outlets for crisps and other banana products Target market for banana wine Target market for rural and small scale food outlets serving banana dishes. Target market for high-end hotels and restaurants serving banana dishes.
ii) In the Tanzanian banana industry the private sector has augmented its involvement at each node of the value chain and has even created new products. The overall investment across the chain‘s entirety has increased in response largely to the expanded volumes that now pass through this chain since liberalization.
Impact of Private Sector Response
The effect of the private sector interventions on low income households has largely been in the area of incomes with new possibilities of sale of bananas due to the growing market. Similarly, with a growing demand, there has been job creation as new farmers are cultivate banana crops for the market on larger fields, for larger harvests and larger incomes. Moreover, the expansion of the industry‘s support services (logistics, etc.) has also created new jobs. Where new varieties and improved techniques have been utilised, farmers have been able to improve their efficiency The efficiency of the marketing and logistics aspects of the industry have also improved to a certain extent (part of the roads is still un-practicable during several months in most of the production areas).
When this could be achieved, it resulted with better quality bananas reaching the processors and the final market. Farmers are not limited to a single monopolistic and have other outlets. The introduction of industrial banana wine has reduced health risks associated with indigenous sources. The satisfaction of the end market also improved by introducing a totally new product - the crisps. 2011, close to 100% of the cooking bananas was transiting through the Mabibo market in Kinondoni, Dar es Salaam. All over the year, an average of 5 to 10 trucks (3,5 tons) enter the market daily for an annual total of 6,387 tons equivalent to TZS 4,5 billions at selling price. But the traders complain about the excessive power handled by the these operators in Dar es Salaam and fact that they maintain the opacity of both volumes demanded and prices offered by final prodces. The banana traders got organized in 2005 in reaction of the challenges that they were meeting in terms of negative or insufficient State interventions and also to help the established traders coping with the progressive loss of reliability of the profession. The traders describe this loss of reliability as caused by the increasing number of new entrants (young persons, persons who retired or were fired from their position) and the related deterioration of the behaviour of some of the traders (due to the increased competition). Instead of involving the police or the State, the traders decided to create their organization to be known, accepted and recognized by the Government and the Municipality, by the farmers and suppliers and by the Urafiki textile factory, etc.. Therefore, they requested the support of a lawyer for the creation of their organization - today registered at the Ministry of Home affairs – that is implementing the following functions: Increase the traders‘ legality by getting a common business license in the name of the members of the traders‘ organization. By doing so, the traders‘ organization allows its members to operate easier / with less hassle and expenses. Do trade if needed and tender for the supply of banana to institutional clients. Managing the relation with the owner of the plot and – in the case they would have to move – looking for a new location for the market. This gives the traders the guarantee that they will always have a place where to operate even if they have to move out of their current situation (as it happened several times in the past). Making sure that the traders work in better conditions (cleanness, security, access to electricity, toilets, water, construction of shades and improvement of the floor). These conditions and services are not addressed by the State although the latter regularly obliges the traders to improve their standards (hygiene for workers and of the products, etc.). Creation of a SACCOS accessible to the members and non-members. In 2008 the middlemen‘s organization decided to create a SACCOS for its members and for other citizens of the surroundings. It has reached 250 members (2011). For the aspects related to traders, the SACCOS it aimed at helping them to increase their volume of activities or just to maintain it in a context where farmers decreasingly accept to work on trust and increasingly request cash transactions. Co-optation of the traders working in the market area so that no thieves can remain amongst the them and so that their suppliers feel confident and safe. This is important in a context where the number of new entrants is increasing quickly with more and more people looking for auto-employment opportunities and with little ethics and skill, meaning: with regular shortfalls of payments. As a consequence, the traders‘ organization manages a register of all the middlemen operating on the market. The new entrants are put under observation for 90 to 120 days before they are considered as members of the organization. The faulty traders (new ones or others) are signalled to their pairs and can be expelled from the market.
Advises to the traders for the resolution of conflicts with suppliers or clients so that trust is not affected by possible problems. For example, sometimes a truck can delay to arrive on the market and cause the products to lose their value and obliging the traders to reconsider their agreement with farmers. Payment of the taxes to the municipality on behalf of the traders. This is the condition for them to be allowed to operate without being hassled by the municipality for operating in a private place, with limited standards (cleanness, etc.). This also implies that the market collects levies for any trader entering the market and that the part of the money that is not paid back to the Municipality is used to pay the services provided on the market. The traders‘ organization has currently 380 members. Even though they managed to set up their organization, the traders still suffer from the fact that they have no legal occupation status for the place where they operate (no contract, no receipt for the payment of the loan to the owner of the area, etc.). This prevents their organization to get loans for the improvement of the equipments and infrastructures, for the strengthening of the SACCOS and for the loans to the traders. The whole chain has followed the growth of the consumption in the urban centres: production, quantities traded; the number of persons involved in the trading function and to a certain extent the level of investment. In a context with very limited support, the chain has reached a good level of efficiency aimed at limiting to the maximum the overall opportunity costs. However, farmers don‘t systematically fetch improved prices for farmers. All the risks are usually shifted to them, either those linked to poor transportation conditions, un-reliability of the actors and lack of coordination of the level of supply with the importance of the demand. The development of a commercial-grade banana wine factory representing significant investment of resources by an entrepreneur has generated a significant growth occurrence. It has provided a lucrative alternative for farmers to sell their produce, provided employment for more than 100 members of the community and provided a quality, low-cost product for the low income class of 10 regions in Tanzania. The trends observed can be attributed to many agents, the first of which is liberalization that allowed for freedom in the sector and the opportunity for the private sector to intervene and influence its development. Free from government restriction, entrepreneurs have been able to develop new market, new opportunities, new systems of operation that have in turn resulted in higher volumes demanded, being produced and being pushed through the chain. The only government involvement was in the form of -TFDA & TBS for the regulation of the hygiene conditions in the processing units and for the control of the quality of the final products respectively. Increased urbanisation has also provided some fuel for the trends observed. As the cities grow there is more need for commodities to move from the rural to urban areas. This has provided many new opportunities for logistically oriented businesspersons, as well as support services such mechanics, parts supply, tyres, petrol supply, hotels, restaurants and many more.
Coffee case study
Changing role of the State in the coffee Sector
In 1984, coffee farmers had to commercialise their coffee through primary cooperative societies and the Tanzania Coffee Marketing Board created in 1984 by the Tanzanian Parliament (Coffee Marketing Board Act of 1984) in replacement of the Coffee Authority of Tanzania. The marketing board had a legal monopoly in selling coffee and providing inputs for coffee production as well as regulatory functions. Farmers were getting paid the balance of the price fetched on the auctions and the deductions operated by the auctions, the Board, the primary societies for their running costs and for the inputs and services provided to the farmers. The 1993 amendment divested from the Board all commercial oriented functions and empowered it to regulate and monitor the activities of the domestic coffee industry and also to exercise promotional functions (ESAANet, 2007 and TraceTraker, 2009). As a result of the 1993 amendment, private traders were allowed to purchase coffee directly from growers and process it in their factory (Baffes, 2003). They effectively started operating from 1994/95. However, several factors the production started decreasing due to a conjunction of factors: climatic (El Niño and La Niña), economic (fluctuations of the international prices), organizational (worsening of the farmers‘ access to credits, inputs, collapse of some primary societies and cooperative unions due to mismanagement, poor and misleading statistics, excessive power of the Ministry and Board, etc.), commercial (loss of quality, fiscal (excessive taxation), legal (licensing procedures, monopoly of the coffee auctions, ), etc (Baffes, 2003). In 2001 the need to enhance competition, control coffee quality and involve stakeholders in the management of the Board, resulted in passing the Coffee Industry Act, No. 23 of 2001 (EBBANet, 2007). This new legislation obliged commercial operators to chose between local operations (theoretically only purchase of parchment coffee) and export activities (purchase in the auctions and later through special market arrangements for specialty coffees). Production and quality continued to stagnate although the situation on the international market was improving therefore the Government introduced in 2009 the ―Amendment of the crop board Act‖ that gave the Board the responsibility of identifying the causes of the stagnation of the sector, coordinating PPP forums to tacled the shared functions and supervising the elaboration of a New Industry Development Strategy 2011‐16 with the objective of take the production from 50,000 tons / 35% of premium coffee (2009-2010) to 200,000 tons and 75% of premium coffee (2020). Together with many supports, the TCB / Government are also criticized for generating constraints for the private actors in the coffee sector. The TCB is supposed to regulate the sector. Although this function can be considered as fulfilled in terms of definition of the policies the enforcement of the regulations is very much criticized by most of the actors. For instance, quality criteria exist but their application is poor and lots of coffee reach the auctions with grades that don‘t correspond to the effective content of the lots. Unfortunately, the lots are anonymous in the auctions and buyers have to use different strategies to know the price to pay for the lots. Many other examples of weak law enforcement exist: it is common that the district or village authorities don‘t know the content of the regulations, lack the time, authority, resources and skills to implement them corruption at all levels decrease the quality of law enforcement,
piling up of different levels of taxation constitute an important cost that the farmers eventually incur without considering that the return provided by the State justifies the amount taken (and they don‘t know the total amount charged), some regulations are missing; as for example the definition of supervision principles of the farmers‘ business groups (FBGs) operating in the villages under the Company Act while the village or district authorities have no responsibility / authority to deal with this kind of structure, According to the law – the farmers are only allowed to sell parchment coffee but authorizations were given in 2001-02 to some companies to buy cherry coffee at a time when the farmers‘ processing capacity was insufficient and when the coffee sector was moribund. These companies invested in CPUs through loans guaranteed by the Tanzanian Investment Centre. When they were suddenly denied – by one District only and not the Board – the right to buy cherry coffee it generated heavy financial losses, misunderstanding and mistrust. More generally, the changes in the regulations (or the irregular application of some of them) have been qualified as ―frequent‖ by some private actors and these changes maintain a big level of uncertainty about the mid and long-term evolutions of the sector. Eventually, the responsibilities of the regulatory entity – the Tanzanian Coffee Board – are not without contradictions. The TCB is at the same time regulator and player as it also has shares in curing plants that are buying coffee in the villages. It is therefore expected to compete fairly with actors at the same time that it regulates their activities. With liberalization, extension services worsened because the advices previously provided by primary societies and cooperative unions – in complement of the extension officers – disappeared. Farmers xxx noted that in Isanza there is still only one extension officer for about three thousand farmers . Furthermore, the extension officers only have an advisory role and have practically no authority on whoever in the sector. The Government supports TACRI / Arusha but this research centre has too little branches that are not reaching all coffee farmers (1% of the farmers who really get access according to Lima). The crop suffocates because it doesn‘t get the proper environment. For each lot of coffee sold on the auctions, a fee that is supposed to be used for the crop development is collected ; however some actors complain that it is not used for this purpose. The District cess collected on the trade of coffee constitutes 75% of the local incomes of the Mbozi District but most of these resources are not used for the development of the crop. DADPs is potentially the main source of support to provide support to farmers and amongst them, to coffee producers. Indeed DADPs funds have been utilised to: repair roads and build bridges, build water reserves for irrigation (Mbozi District), finance sensitization and training on farming practices and processing finance research institutes such as ARI Uyole and TACRI (Arusha) payment of soil analysis to ensure the adequateness of the fertilizers utilised build CPUs (e.g. 4 in Mbozi District) and water reserves (6 in Mbozi District)
But farmers consider that it is not sufficient compared to the needs. This complaint makes sense in a context where private buyers of cherry coffee have been chased away denying farmers the possibility to process it properly.
The removal of price determination
The control of prices has been relatively smooth as soon as coffee auctions have been implemented as they introduced a principle of market-based prices that could not be controlled. The only restriction of prices for producers was linked to the part of the part that the Marketing Board and primary societies were retaining on the selling price and to the price at which the inputs and services were accounted for. Currently, the TCB provides (with a SMS system) indicative prices to some Farmers‘ Business Groups to create awareness about the condition and evolutions of the market. There are rumours about the TCB‘s intention to set minimum prices although this system has shown its inefficiency and dangers in many situations.
Until 1991 -92 the government – through the primary societies – was providing subsidized inputs and sometimes also premium on the price of coffee. With the progressive weakening / disappearing of the primary societies the Government implemented from 1996 to 1999 a new subsidy scheme based on a collaboration with the coffee buyers. The latter were requested to supply inputs to farmers against vouchers delivered by the Government. The buyers were being reimbursed by the bank against the presentation of the vouchers. Unfortunately, insufficient supervision and control by the authorities, limited collaboration between the coffee buyers, the central and local authorities as well as unxxxi xxxii prepared farmers allowed some persons to take advantage of the system and to hinder its efficiency. As a consequence, the impact on production has been minimum. As they are still missing a proper distribution network for inputs, the farmers expect the big input companies to set up selling points in the rural areas so that the quality and availability of the inputs is guaranteed. This system could allow avoiding the excessive numbers of middlemen who cause the price to increase and sometimes corrupt the quality of the inputs. The coffee farmers expect the government to subsidize the coffee inputs in the same way than for maize to avoid that farmers utilise the inputs for maize on coffee (with poor results). In 1993-94, with the increasing failure of the primary societies and cooperative unions, private buyers have been authorized to operate in the coffee sector. It first had a very positive impact on the prices (burst from 280 – 400 TZS/kg to 1,000 TZS/kg) but on the other hand, many primary societies and cooperative unions who had insufficient capital and credibility could not compete and disappeared. By 2001 Tanzania ha largely liberalized domestic trade and processing (Ponte, 2001). Unfortunately, the licenses were given without discrimination to companies with or without experience in the purchasing of cherry or parchment coffee. Initially, any buyer could get access to the farmers coffee. The buyers whose experience was on exportation had to buy coffee through cooperatives or other local agents. Although this high level of competition pulled the prices up, it also had a bad consequence in terms of quality as any coffee was bought even when it was not of the required quality (unripe, cooked, rot, etc.). As a consequence, the prices decreased again from 1997. With low prices, farmers took less care of the remaining plantations, utilized less inputs (more expensive and less available), processed the coffee less carefully and therefore, the quality / price dropped even further. During this period, many coffee plantations have been abandoned (in the Mbeya Region).
In 2001-02, the Government introduced of single-level operating licenses that obliged the buyers to chose between operating in the villages or as exporter in an attempt to restrict international conglomerates‘ activity, increase opportunities for the involvement of local private actors, improve the efficiency of each actor at each level and enhance the quality. The companies that had more experience / connection on the export market withdrew from the local market and got positioned on the coffee auctions. This was the opportunity for new companies – sometimes invited by the Government – to enter the local market of cherry and parchment coffee. In 2011, two of the companies invited then had become major buyers of cherry coffee: City Coffee and Lima Coffee (both are registered in Tanzania). Another notable change is the issuing by the Tanzanian Coffee Board (TCB) of export licenses to individuals (e.g. producers of parchment coffee and the private sector) to export directly their coffee under the condition that the TCB would be informed about the prices and volumes of the exports and that the quality had reached a certain level. TCB established for this purpose a classification that defines the different qualities of coffee (classes), listed the ones that can be exported (class 5 and below), and introduced the concept of ―specialty coffee‖ equivalent to specific production or processing processes, specific origins, specific contract arrangements (fair-trade, organic, etc.), etc. A part of the high quality coffee could therefore be selected for direct export. This system is considered to have: Limited the quantity of high quality coffee sold on the auctions and increased the average price of the remaining volumes of high quality coffee sent to the auctions Contributed to an increasing of this – more scarce – product on the auctions Allowed to re-conquer some markets (Japan) that had been lost in the past due to the deterioration of quality Created opportunities for the actors dealing with these products to improve their profitability. The quality premium allowed some farmers to get increased incomes in a period when prices of average and low qualities were extremely low. Yet, this quality approach is not shared by all the actors and some were keen to take advantage of the situation and get big volumes at low prices.
Encouraging private agents and farmers’ organizations
However, from 1985 onwards, the primary societies and the cooperative unions had been less and less efficient as they were missing capital for the supply of inputs. In some cases, they were also missing the farmers‘ trust to sell their coffee and without proper commercial capital, delayed payments, limited prices, they failed to pools sufficient volumes. With the extinction of many Primary Societies and Cooperative Unions, the farmers started missing some services. The creation of farmers‘ groups and umbrella organizations has therefore been encouraged and supported either by the State or by projects to bridge missing functions such as the transmission of know-how to the farmers, the management of inputs, the management of financial services, processing, etc. The farmers‘ involvement into processing was achieved mainly through the construction of Coffee Processing Units (CPUs) by the Local Authorities (Districts) and projects (International Coffee Partnership, TechnoServe and others). Yet, only 20% of the coffee is processed in the central CPUs (run by farmers or Private Companies) while the rest is still processed through local techniques by the producers. Processing is very labour-intensive and farmers‘ capacity is hindered by the technologies
utilised. An increasing of the part processed by the CPUs would increase the farmers‘ capacity to achieve higher quality for the coffee processes on the farm. Though, CPUs run by farmers‘ organizations have often met management problems and several of them were idle some years after their installation or lease out by private buyers. As a matter of fact, the emergence of new farmers‘ group often happened without sufficient support and follow-up to guarantee that these groups are really operational and aimed at working for farmers‘ interests. According to Lima Coffee, on a total of 140 groups that emerged over the last decade, only 10 to 20 are genuine and functional whereas the rest of them are organized by petty traders who use them for their own interest. Limited trust between farmers slows down the development of these groups and umbrella organizations. Due to past experiences (primary societies and cooperative unions), farmers fear that groups are used by leaders to spoil them from the fruit of their efforts or that por management decreased their incomes. Conditions put by Financial Institutions to provide loans limits the groups‘ capacity to help the farmers for the supply of inputs or the provision of advances and therefore to compete with private buyers. Hence, these groups may fail to pool sufficient quantities / quality to be able to negotiate advantageously or to get access to direct export. In some case, the organization process has been tremendously successful. Kili-Café is a private company resulting of an initiative (TechnoServe) to help Farmers Business Groups. It tackles the weaknesses of thes FBGs: Insufficient volumes: Most of the FBGs produce 10 or 20 tons at a time and these quantities are difficult/impossible to sell on the auctions. Kili-Café helps them by pooling increased quantities of coffee that can be sold as lots. Access to loans for inputs and advance payments: Small farmers groups don‘t usually manage to get access to loans due to the lack of collaterals. Kili-café can help the FBGs to get access to loans. Kilicafé also provides advances to the FBGs for the payment of cherry deliveries and for the supply of agro-chemicals and the groups‘ debts are cut at the moment of the payment. Central management: Kili-café charges a levy on the coffee sold on behalf of the farmers to cover the over-head running costs Source of skilled leaders for the coffee sector: Kili-café has functioned as a training centre for coffee specialist who are often occupying official functions in the Coffee Board or in the Government. The actual General Director of TCB is the former manager of Kili-Café. The initial successes have been tempered by some failures when Kili-café failed to transfer to the farmers premiums that had been achieved on some coffee lots originated from FBGs.
Disposal of the State Assets
With the 1994 privatization individual farmers received some of the plots that were previously under the control of the primary societies. Individual farmers had always been managing some private coffee plots and by 1994, private coffee farming had started to become the common case. Together with the coffee plots, the processing equipments were also handed over to the private farmers (hand pulpers, sprayers, etc.) although they were not sufficient for all of them. Banks (e.g. CRDB and NMB) are increasingly trying to collaborate with farmers through rural microfinance institutions (SACCOS and AMCOS) to initiate WRS activities. For this purpose they receive
support . Some of these banks spread information on prices NGOs such as TechnoServe (2002) and the International Coffee Partners (2006) started helping farmers to get organized (Farmers Business Groups), Farmers were supported in becoming organised and developing enhanced managerial capacities. TechnoServe took some of the farmers‘ organization a step further by facilitating the creation by the farmers‘ groups of an umbrella organization (Kili-Café) that markets their coffee on their behalf. to get knowledge about the coffee value chain (from production to marketing), to access credit (as formally registered entities, the FBGs could access loans to buy agro-inputs) to access training on improved and sustainable quality production, processing, book-keeping and marketing practices. TechnoServe turned the quality of the coffee into a matter of shared responsibility and helped the farmers to understand the consequences of any wrong practice on the final quality. To achieve this, sample processing has been done weekly and farmers have been trained to taste the coffee. to identify technical solutions (e.g. irrigation of the coffee plots to improve the production) and to implement them (e.g. loans for equipments, financing of CPUs; to support farmers for an improved sensitization of the District concerning the farmers‘ needs that led to the financing of water reserves and road by the DADPs. a systems of primes and fines was introduced to encourage the good practices. TechnoServe helps the farmers with processing equipments
TechnoServe cooperates with other coffee stakeholders (Government, Regions, Districts, Villages, TCB, TACRI). The NGO provided inputs during the preparation of the coffee strategy, collaborated for the elaboration of a soil map (to adapt the use of fertilizers to the needs), bought small roasting units to help the farmers to get early feedbacks about the quality of the coffee. The different evolutions of the TCB created opportunities for the Government to receive suggestions from development actors. For instance, the Tanzanian Coffee Board accepted to authorize FBGs or actors not registered as exporters to export coffee at the condition that they export ―Specialty coffee‖. When the Government put a ban on purchase of cherry coffee by private companies, it was a result of an advocacy by some NGOs (TechnoServe) so that farmers are encouraged to sell parchment xxxiv coffee .
Private Sector Response
Many new businesses have sprung up around the industry‘s buying, transporting, trading and milling activities, and these new ventures have created new employment opportunities. These activities mentioned above have also served as points of significant investment. Of those mentioned, milling has been the venture in which there has been notable infrastructural investment and growth with a move from dry to wet milling which assists in the maintenance of the quality of the coffee beans. Farmers and farmer groups have also benefitted from the industry‘s liberalized activities. One of the major impacts of the private coffee buyers has been to create competition for the primary societies and coops. Firstly the buyers are offering immediate payment to the farmers as opposed to the deferred payment given made by the coops. This has been attractive to farmers with immediate needs to be satisfied. The private buyers are also attempting to offer prices just above those offered by the primary societies and coops.
These competitive activities however have reduced the dependency by farmers on societies and cooperatives and have brought about the closure of many of these agencies and the loss of work for their staff. Private buyers also helped farmer groups to enter into agreements with international coffee buyers. Private entrepreneurs have assisted farmers (individually or in groups) in areas such as harvesting, collection, bulking, transport/logistics and marketing, and allowed the farmers to bypass profit consuming activities, making their work more viable. Although the activity of the private sector has been intense locally, is has not been capable to affect the prevailing market prices for the coffee industry. On the other hand, the presence of the private actors had a positive effect on the prices of services such as, for example, milling and logistics. The development of the industry, with respect to private sector involvement, has seen employment increases in certain areas. There has been some level of job creation with the creation of new functions, processes, companies, operations and services, but the closure of the unions and coops had adverse effect. The response of the private sector to the opportunities created by the liberalization process has had a mixed effect on the livelihood of low income households. From the position of the SHF prices earned in some cases have improved as some non-profitable functions have been weeded out. In other cases the new level of competition among buyers has resulted in lower prices being offered by profit-seeking buyers. On the larger scale however, the average spending power of the average coffee farmer has not improved considerably with the changing market.
At present the coffee sub-sector value chain can be described as follows:
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture and rural development Figure 1: Coffee Value Chain Map in Tanzania. Source PROMAR, 2011 and Tsujimura, 2009
At the input supply level, farmers obtain inputs such as fertilizers from private agricultural goods suppliers and improved seed varieties from TACHRI.
Tanzanian coffee production passed from 45,808 MT in 1985 to 68,577 MT in 2009 (with a minimum of 32,500 MT in 2004. During the same period, the areas planted evolved from 110,000 ha (in 1985) to 150,000 ha (in 2009) with a minimum of 92,000 ha in 2002. Yields have been varying from 0.42 MT/ha (1985) to 0.46 MT/ha in 2009 with a minimum of 0.27 MT/ha in 2004. This data illustrates the consequences of the 2001 international coffee crisis on production, showing that it translated into a reduction of the areas planted (2002), of the cares to the coffee crop and of the harvest of the coffee present on the trees that translated into a minimum production in 2004. It is also important to note that the level of production reached in 2009 corresponds to an important increasing compared to 2008 and that the production was– until the 2009 ―outburst‖ – rather stagnant (43,100 MT in 2008). During the same period, the prices of coffee evolved (from 1985 to 2008) from US$ 2,656 per MT to US$ 2,205 per MT with a minimum of US$ 964.5 per MT in 2002 that explains the reason why production got depressed during that year. Competitiveness in the coffee sector depends on the producers, processors‘ and traders‘ strategies that can be very quickly summarized in two categories: increasing of the yields and enhancement of
the quality with a recent increasing of the different quality attributes utilised for that purpose (fair trade, organic, socially responsible, environmentally friendly, aromatic, specialty, geographically localized production, etc.). With limited yields due to poor agronomic practices and insufficient use of farming inputs and improved planting material the quantitative strategy leads to poor competitiveness whereas the competitiveness of the ―quality strategy‖ depends on the type of quality, its consistency and the kind of marketing channels utilised. The majority of production in the sub-sector is derived from small-holder farmers (SHF) who usually cultivate coffee plots less than 5 acres, with a minority of medium to large scale farmers who have plots in excess of 5 acres. The farmers are also responsible for the production of parchment coffee, which involves the de-pulping, fermenting and drying of the collected cherries, and separation of the seeds. Some estates are operating in most of the coffee production areas (e.g. Burma Coffee Estate near to Arusha).
Due to the limited number of CPUs left by the disappeared Primary Societies and Cooperative Unions the farmers had a too limited processing capacity and this was affecting the outputs and the quality. Moreover, the equipments available to the farmers to de-pulp their coffee required excessive labour compared to the farmers‘ capacity. Other buyers had not been sufficiently investing in processing.
The next step in the chain is dependent on the farmer‘s affiliation. i. Primary societies / Cooperative unions Farmers belonging to primary societies or cooperatives sell the parchment coffee to these organisations. Some of the existing cooperatives in the Kilimanjaro-Arusha regions are affiliated with KNCU and the parchment coffee collected by these groups is sold to KNCU. KNCU then takes the coffee through the processing and procedures that are required for the coffee to be sold on the coffee auction or through the Fair Trade markets. ii. Independent primary societies Other primary societies/farmer groups have obtained TCB licenses and sell the coffee collected directly to the auction, iii. Groups There are other groups still who have obtained licenses for export, and market the coffee themselves to international customers, iv. Individual sales to private buyers Farmers may sell to Private Coffee buyers who may then in turn sell to cooperatives and other actors having the capability to sell on the auction or to export.
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture and rural development Table 2: Nodes of private sector activity in the Coffee Industry
Actor SHF Activities / functions Production Description Coffee plots less than 5 acres Use traditional technology - Hand hoes and machetes, Largely have rain-serviced plots. Coffee plots larger than 5 acres.
Medium-Large Scale Farmers
Tanzania Coffee Board
Farmer groups/Primary Societies
Bulking and Trading
Bulking and Trading
Local Coffee Export Companies (Tchibo, Sherif Dewji) International Coffee Companies Roasters Kilimanjaro Commercial Bank Tanzania Coffee Research Institute
Export/Trading Export/Trading Processing Credit Services Research and Development
Sub-sector‘s governing body Formulates and enforces policies governing the sub-sector Set rules and regulations-conduct, quality, licensing, and taxes Manages the activities of the Moshi Coffee Auction (liquoring, grading, distribution of samples, Collect/Buy parchment coffee from individual SHF, Sells to the cooperatives, to the auction or to international buyers, Makes arrangements for curing of parchment coffee, grading, liquoring and regrading Provide a nexus for farmer support such as finance, extension and other services Collect/Buy parchment coffee from individual SHF, Sells to the cooperatives, to the auction or to international buyers, Makes arrangements for curing of parchment coffee, grading, liquoring and regrading Provide a nexus for farmer support such as finance, extension and other services Purchase the coffee at the auction Ship the coffee to international coffee markets Purchase the coffee at the auction Ship the coffee to international coffee markets Account for a large part of the profit in the industry Makes credit facilities available to farmers Established first WRS for coffee Conducts research assignments Crop Improvement Develop improved varieties
Some traders decided to improve the quality of the coffee and started installing Coffee Pulping Units with the support from the Ministry of Agriculture and of the Tanzanian Investment Centre.
Farmers are poorly informed, poorly educated and are easy targets for the schemes of other actors in the chain. Farmers are unaware of the price movements in the international coffee market and how this should affect their income. They are unaware of the proper methodologies for operation of the societies and coops and their rights as members, they do not reap the full benefit of their subscription. Farmers are largely ―price-takers‖ and generally settle for what is offered to them, whether it is from the private buyers, primary societies or cooperatives. There is therefore still a lot of exploitation. In many of the programs set up for the benefit of the SHF, these farmers are not properly informed of the nature and benefits of the programs and therefore do not benefit as they are supposed to. Many farmers who sell their coffee to Fair Trade have no idea that they are doing so or what this signifies for them.
In addition, the industry‘s weak policy structure, inactive Board, the virtual collapse of the government extension service system, land use restrictions and the growing competition of other, more lucrative agricultural crops have all worked towards the de-motivation of coffee farmers. Multinationals and local entrepreneurs have once again found ways to subvert the new TCB laws restricting multi-level license ownership. These businesses have simply set up sister companies at the different levels and each applies independently for licenses at their level. However the net effect is the same as if a single company owned al the licenses. This has already begun to erode the competitive nature of the local pricing for the coffee industry in Tanzania.
The overall private sector responses to the policy trends have been very diverse. The private sector actors are primarily affected by the level of investment required and the corresponding risks incurred by the actors. The producers‘ investments to produce, improve productivity and upscale their activity is globally very high compared to the incomes originated from their activities and considering the risks (agronomic, commercial, climatic). With the exception of some subsidized inputs, the producers pay all their costs cash and full price but they are never sure of their yields and they can only rarely predict the price that they will get for their crop. Therefore – and except when the factors mentioned above are being eased – producers‘ dynamism and responsiveness to the State‘s attempts to develop them have frequently been amongst the lowest. Traders‘ levels of investments and risks are limited compared to those of producers. Even for perishable products (e.g. banana), at least a part of the risk (in case of road accident) is shared by the producers. Traders can start operating with limited capital provided they manage a fast turn-over (e.g. local traders who buy rice and sell it on the same day to regional traders or millers). They have therefore been less affected by policy trends than the latter. On the other hand, a negative image originated from the times when private trade was considered as economic sabotage continues to stick to trader and limits the supports that they manage to access and the traders‘ readiness to collaborate with public institutions (rice traders are considered as smugglers and with no fixed assets they fail to assess to loans). Trade therefore might be the activity that will be more difficult to monitor. Processing is in an intermediary situation between production and trade. Processors‘ activity is dependent on their capacity of investing. Paddy milling is being done by a big number of small millers who could start operating with a limited initial investment (USD 10 to 20,000) and some large units. These small units could emerge even with very limited support (supply of equipments, access to loans, etc.). The largest ones are often the result of the endogenous growth of small units. In the banana sector, there is only one large scale processor producing banana beer. Most of the other activities are micro or small enterprises producing crisps or local brews. This is due to the fact that banana sector received almost no attention from the public sector and / or projects. From the point of view of the risks, the processors are less sensitive than producers because their assets are easy to sell and are not ―perishable‖ and because stocks of products to be processed can be sold quickly if necessary. Input supply is a risky venture for traders because the State interventions can be very distortive. The continuation of subsidy programmes encourage farmers in not integrating the full cost of the inputs in the production costs and investments plans for production. Therefore, the farmers‘ use of inputs is very much influenced by State policies and it becomes difficult for input suppliers to plan the development of their business. This first distinction parameter is directly connected to the second one which is the category to which the crops belong: ―lead‖ and ―priority‖ sectors and ―non-priority‖ sectors. ―Lead‖ and ―priority‖ crops received much more attention than the other ones and therefore, the support received by the different actors has also changed according to the category to which the crop belongs. For instance in the coffee sector, the Government heavily supported investments processing (e.g. by selling parastatals or handing them over to cooperative unions or by guaranteeing through TIC the loans of actors who were investing in processing). Furthermore, the government also tried to develop and set a level ground for the coffee trade through the coffee auctions and other regulations. We already mentioned that in the case of secondary crops, the examples of support to the value
chains are much more rare. For instance, in the banana sector the survey didn‘t come across any direct State investment except– although in a limited way – into infrastructures that are also important for other crops and that might not have been built without donor‘s support (roads, market infrastructures). The private sector‘s response also depended on the attitude that the State had towards the different kinds of actors. This attitude can have been positive (when the actors play the role that the State has given to them e.g. for the large corporate investors) or negative when the actors take over some functions that were formally implemented by the State such as trade, processing and input supply with a necessity of economic viability that doesn‘t allow them to integrate the subsidy or regulation function in the same way than the State should have; but that the State isn‘t though implementing consistently and efficiently (input subsidy programmes that have been implemented in way that affected the availability, the equity in the distribution, the quality of the inputs, the timing of their availability and sometimes even their price). The change of the State‘s conception of the role of the rural traders and investors has been (very) slow. To the point that a gap materialized between the official message that is clearly ―pro-private sector‖ and the fact on the ground where traders still carry a name that reflects the idea that they ―squeeze and press‖ farmers. Such attitude towards traders might have a concrete base when the latter operate without control or restriction but it is also an heritage of the late ujamaa years during which private trade was considered as ―economic sabotage‖. In many cases, there is limited proximity and collaboration between traders and district agents, taxation of the traders‘ activities is done without consideration to the economic realities causing their costs to increase which affects… those farmers who were supposed to be protected. It is common, especially in the ―non-priority‖ sectors that traders receive no support and that District agents promote cooperatives to try to replace traders (convinced that they will assume the commercial functions better). In the cotton and tobacco sectors, efficient outgrowing schemes have been criticized and endangered under the pretext that they were affecting farmers‘ incomes. The substitution solutions are primary societies, cooperatives that have shown in the past their incapacity to handle the services successfully provided by the buyers (inputs, extension, research, marketing, logistics, quality control, etc.). The limited efficiency of many value chains (especially those of non-priority crops) is a reality but it is also a consequence of the limited attention that has been given to the trade and is a cause of the stagnation of the farmers‘ situation (banana, rice, cassava, etc.). There is also a pressure to prefer the rural cooperative entrepreneurship to the individual one although cooperatives and collective producers‘ actions have failed and are still extremely fragile. For instance, in the villages, there is nobody representing the State in charge of private companies so the latter evolve without restriction but also without support. The preference for cooperatives and farmers‘ commercial organizations can lead to situations where efficient and profitable investments are endangered: In the coffee sector, some private buyers and processors (Lima Coffee) were allowed to buy cherry coffee and process it on behalf of the farmers in a attempt to improve farmers‘ market outlets, prices and quality. But later (2010), these same traders were denied to buy cherry coffee. The reason advanced were of two kind: the fact that farmers were losing a part of the added value and the fact that laws were clear about the sales procedures. Through the (re)application of this law, farmers lost more than they gained because they didn‘t have the capacity to process the coffee and therefore some of their production got lost and the quality decreased. The companies who were suddenly denied to buy cherry coffee lost millions and could not reimburse their loans. This could generate a loss not only for the company but also for the Government as the loans have been guaranteed by the Tanzanian Investment Centre; meaning that if the company fails to reimburse, the Government will pay the company‘s debt to the bank).
Collective processing and sales didn‘t happen because farmers were not ready. This illustrates the fact that the State still acts on ideological basis rather than on economically justified basis. Similar examples exist for other commodities. For instance, in the rice, liberalization mostly applied to the sale of the processing facilities and to the privatization of the irrigation schemes. Lately, the emphasis on research, extension and construction of new irrigation schemes increased. But the State‘s intervention on processing and trade of rice has been almost inexistent (or even distortive with export bans, double-based import duties, etc.) and yet, the local value chains have been built up. However, due to some imperfections the State recently decided to set up a Board of Cereals and Other produce that will be habilitated to intervene in the trade of rice in order to impose level-ground functioning. A sledge hammer aimed at killing a fly… Instead of improving law enforcement along the chain – that is at the origin of the damageable behavior of some actors – and collaborating with the existing actors to help them improving their activities the State chose the action that is potentially most distortive and that fails to acknowledge the efforts of the private sector during 27 years of liberalization. Most of the necessary policies have been created although some of them came late. For instance, the Land Policy was reviewed in 1999 and eventually reshaped in 2007 to take into account some of the recommendations that the Tanzania Investment Centre had been repeating since 2001 as a way to ease investments for both Tanzanians and foreigners. The process of attribution of land titles for farmers could only start with this last version of the law although it has prevented many farmers to access credit and to think about investing in their land for many years. Some policies are overlapping and contradicting as for example the Food security Act and the Trade and Marketing Policy. The first is aimed at guaranteeing food security and entitles the Government to ban marketing of some crops to foreign countries when food reserves pass under a certain level. The second one is aimed at developing trade and marketing and therefore to provide a safe environment for these activities. They are contradicting and usually, trade and marketing is the looser. One of the pillars of agricultural development is weakened. While the Government guarantees that it is letting the private sector develop, marketing boards (generally strongly controlled by the Government) are given ambiguous attributions such as the simultaneous roles of regulation and intervention in the sector as actor. Some policies are well designed but poorly (not) implemented mostly due to lack of law enforcement that can be explained by – but not only – (i) some hesitations (amongst the civil servants) about the legitimacy of mainstream liberalization as an answer to Tanzanian problems in the local specific context, together with (ii) a certain fear / lack of willingness of the political actors to hand over their prerogatives, (iii) structural weaknesses of the State either due to the number or the qualification of the State‘s agents, (iv) corruption, too often, that favours private interests against general ones, (v) limited budgets, (vi) insufficient communication and awareness about the existing laws, (vii) sensation that some laws don‘t apply under certain circumstances and for certain categories of persons and (viii) many other factors. Evolving from a planned economy to a situation of free market is a big challenge that many –even amongst those who believe it to be feasible and potentially positive for the country – accept under the condition that the State continues controlling most of the steps of the process. For that reason, at the same time that liberalization is being implemented, elites or civil servants are striving to maintain control over many traditional areas of responsibility and – by doing so – are obstructing the smooth implementation of the operations. Similarly, the explanations for the failure of market liberalisation in agriculture frequently failed to take into account the impact of the resistance opposed by some elites or civil servants against the supposed threat posed by the ‗private sector. The circle is closed when market failure becomes the official explanation for bringing the state back in although it has not yet proven its capacity to regulate effectively, to resist the temptation to be a major market player and to refrain its leaders to capitalize on their position within the chains.
Sufficient proximity could not be built with the emerging entrepreneurs, and any appropriate support actions – meaning, sectoral or value-chain embedded support actions – In a context marked by past ostracization of private traders and where liberalisation should have resulted with the welcoming of any genuine and feasible private sector initiative. On the contrary, the policies have been lagging behind, trying to keep the control of processes that had started and were unstoppable but that were not understood and sometimes not accepted (Cooksey, 2003). This sign of a continued reluctance to open the economy to private ownership and market forces manifests itself in complex and unpredictable regulatory regimes for investment, property, taxes and employment. (World Bank, 2000: 21). The implementation of the development policies has also frequently been contradicted by local political interferences in technical aspects (input supply, choice of crops, utilization of extension agents and budgets for non technical matters, etc.). Some part of the limited answer of the private sector to liberalization might also be linked to the limited understanding of the actors of the private sector and of the environment in which they operate. Concepts such as value chains, clusters, agrarian systems were becoming famous since the late seventies but have not been mobilized to understand the environment required to allow a good development of the private sector and the actions needed to build this environment. At macro-level, the application of the value chain approach by Government officials is still to be expected, whereas at district level, there doesn‘t seem to be many field officers able to understand the agrarian system that they are supposed to develop. The only clear leitmotiv has been ―develop production‖ or ―create market opportunities‖ but it is only lately that both have been combined in a same message: ―develop the value chains‖. Small traders that had been criminalized (early eighties) have never been welcomed to work in a supportive and structuring environment. They still mostly operate on informal basis. Farmers and their dynamics, problems and potentials are not understood and there seems to be some anger against them as if they were hold as responsible of the failure of the Ujamaa project.
In this context, private entrepreneurs have constantly been adapting to the changing environment, new opportunities and threats, occupying new spaces and getting themselves squeezed out of others. Opportunities, threats and capacity of reaction have not been the same for all. Large companies were believed to be much more efficient that small or very small entrepreneurs. The first category had access to funds (FDI, local loans or loans provided by the partner companies), capacity of lobbying due to the level of employment and contribution to the contribution to the balance of external trade, capacity of mobilizing new technologies and adequate skills, etc. Although they got all these kinds of support, they have not shown a level of performance similar to what can be observed in neighbouring countries (e.g. Kenya). The second category – the small and very small entrepreneurs – has initially been rejected (phase of criminalization of trade in the early 80s‘), then ignored or tolerated and then insufficiently and/or inadequately supported (even by donors and projects) when not squeezed by local (District cess) or national tax policies (TRA). However, they managed to resist and build up businesses that – when put together – sustain value chains and whole sectors of the economy using their ingenuity, capacity of resilience, resourcefulness, and determination, together with solidarity and strength of extended brotherhood. Performances and coordination might not be optimal, unfairness might exist, but these actors are eager to progress and expand commercial activities although many are sceptical about the role of the government in helping their business – be they small or large scale (Guyver, P. et Al., 2008).
ACT, 2009. Formulation of Guidelines for the Marketing and Private Sector Development Component of ASDP by the Thematic Working Group on the Marketing and Private Sector Development Component (MPSD) of the Agricultural Sector Development Programme (ASDP). Dar es Salaam, Tanzania. 2 p. Amani, H.K.R., Brink (van der), R., Maro, W.E., (1992). Tolerating the private sector: Grain trade in Tanzania after adjustment. Cornel Food and Nutrition Policy Program (CFNPP) Publications Department. Washington DC, USA. 45 p. ISBN 1-56401-132-1 Baffes, J. 2002. Tanzania‘s Cotton Sector : Constraints and Challenges in a Global Environment. Africa Region Working Paper Series No. 42, December 2002. The World Bank. Washington, USA. Baffes, John, 2003. Tanzania‘s Coffee Sector: Constraints and Challenges in a Global Environment. In Africa Region Working Paper Series No. 56 June 2003. World Bank. Washington. 62 p. Bryceson, Deborah, Fahy, 1993. Liberalizing Tanzania‘s food trade: public and private faces of urban marketing policy, 1939-1988. United Nations Research Institute for Social Development, James Currey Publishers. 306 pages. ISBN 0852551347, 9780852551349 Cooksey, Brian, 2003. Marketing Reform? The Rise and Fall of Agricultural Liberalisation in Tanzania. DPR 21 (1), January 2003, pp. 67-91. Overseas Development Institute, UK. DANIDA, 2008. Business Sector Programme Support – Phase III / BSPS III 2008 – 2013. Component C: Development of Micro, Small and Medium Enterprises (MSMEs). Appendix C: Component Description Document. DANIDA, The United Republic of Tanzania. Copenhagen, Denmark. 122 p. ECI, 2003. Rice Sub-Sector Study. Development Alternatives Inc. Private Enterprise Support Activities Project Tanzania. Prepared under USAID Contract No. PCE-I-00-99-00002-00; FINAL REPORT - April 2003. Ebony Consulting International (Pty) Ltd. Woodmeat, USA. 53 p. Economic and Social Research Foundation (ESRF), 2009. Incentive Package for Foreign Direct Investment (FDI) In Tanzania. Views Synthesized by Festo Maro. TAKNET Policy Brief Series No. 03/2009. ECONOMIC AND SOCIAL RESEARCH FOUNDATION. Dar es Salaam, Tanzania. 4 p. Government of Tanzania, 2001. The Cotton Industry Act, 2001. Arrangement of Sections. United Republic of Tanzania. Dar es Salaam, Tanzania. Government of Tanzania, 2004. The National Economic Empowerment Act, 2004. Arrangement of Sections. United Republic of Tanzania. Dar es Salaam, Tanzania. Government of Tanzania, 2009. The Cereals and Other Produce Act, 2009. Arrangement of Sections. United Republic of Tanzania. Dar es Salaam, Tanzania. Government of Tanzania, 21st January 2005. The National Economic Empowerment Act, 2004. Acts supplements, arrangement of sections. United Republic of Tanzania. Dar es Salaam, Tanzania. Government of Tanzania, 6th August 2010. The Public Private Partnership Act (2010). Act supplements: Arrangement of sections, preliminary provisions. United Republic of Tanzania. Dar es Salaam, Tanzania.
Guyver, P., Lewis, J., Massawe, W., Mwinyechi, U., Strauss, J., 2008. Agricultural Sector Development Programme (ASDP) - Private Sector Development Mapping. Draft Main Report. United Republic of Tanzania with the support of World Bank/FAO Cooperative Programme. Dar es Salaam, Tanzania. 70 p. Hammond, R., 1999. The impact of IMF structural adjustment policies on Tanzanian agriculture. The Development Gap, Friends of the Earth in collaboration with The Evangelical Lutheran Church, Tanzania. 24 p. Havnevik, Kjell, J., Kjaerby, Finn, Meena Ruth, Skarstein Rune, Vuorela Ulla. 1988. Tanzania, country study and Norwegian Aid Review. University of Bergen, Centre for Development Studies. Bergen, Norway. 366 pages ICP, 2011. http://www.coffee-partners.org/icp-projects-reader/items/tanzania-mbozi.html IMF, 1998. Tanzania—Enhanced Structural Adjustment Facility. Policy Framework Paper for 1998/99– 2000/01. IMF, Dar es Salaam, Tanzania. Consulted online: http://www.imf.org/external/np/pfp/1999/tanzania/taztab.htm IMF, IDA, 2001. Completion point document for the Enhanced Heavily Indebted Poor Countries (HIPC) Initiative. November 8, 2001. IMF, IDA. Washington, USA. 41 p. Jayne, T.S., et Al., 2010. Patterns and Trends in Food Staples Markets in Eastern and Southern Africa: Toward the Identification of Priority Investments and Strategies for Developing Markets and Promoting Smallholder Productivity Growth. MSU International Development Working Paper No. 104 2010. Department of Agricultural, Food, and Resource Economics; Department of Economics; Michigan State University, East Lansing, Michigan, USA. 150 p. Kessy, Flora, 2006. Local Seed Systems and external influences: a Case Study from the United Republic of Tanzania. LinKS project; gender, biodiversity and local knowledge systems for food security. Report no 52, February 2006. Economic and Social Research Foundation / FAO-LinKSSwaziland. 27 p. Mfungahema, R. 1999. Impact of policy and world markets on the Tanzania agricultural sector since 1985. Washington DC, International Food Policy Research Institute (IFPRI). Ministry of Agriculture and Cooperatives, 1991. The Food Security Act, 1991. Acts Supplements, Arrangement of Sections. The United Republic of Tanzania. Dar es Salaam, Tanzania. 6 p. Ministry of Agriculture and Cooperatives, 1997. Cooperative Development Policy, 1997. The United Republic of Tanzania. Dar es Salaam, Tanzania. 21 p. Ministry of Agriculture and Cooperatives, 2001. The Coffee Industry Act, 2001. United Republic of Tanzania. Dar es Salaam, Tanzania. Ministry of Agriculture and Cooperatives, 2002. The Coffee Industry Act, 2001. Acts Supplement. st Arrangement of Sections, 1 February. United Republic of Tanzania. Dar es Salaam, Tanzania. Ministry of Agriculture, Food Security and Cooperatives, 2005. The Warehouse Receipts Act, N° 10 of 2005. The United Republic of Tanzania. Dar es Salaam, Tanzania. 38 p. Ministry of Agriculture, Food Security and Cooperatives, 2011. Evaluation of the performance and achievements of the agricultural sector development programme (ASDP). Draft Report. Submitted to Director of Planning and Policy, Dar es Salaam, Tanzania.
Ministry of Health, 1992. The Food and Nutrition Policy for Tanzania. The United Republic of Tanzania, Dar es Salaam, Tanzania. 59 p. Ministry of Industry and Trade (MIT), 2002. Small And Medium Enterprise Development Policy. The United Republic of Tanzania, Dar es Salaam, Tanzania. 42 p. Ministry of Industry and Trade (MIT), 2003. National Trade Policy. Trade Policy for a Competitive Economy and Export-led Growth. The United Republic of Tanzania, Dar es Salaam, Tanzania. 91 p. Ministry of Industry, Trade and Marketing. December 2008. Agricultural Marketing Policy. The United Republic of Tanzania. Dar es Salaam, Tanzania. 31 p. Ministry of Agriculture and Cooperatives, 1997. Agriculture and Livestock Policy, 1997. The United Republic of Tanzania. Dar es Salaam, Tanzania. 161 p. Ministry of Regional Administration and Local Government. October 1998. Local Government Reform Programme. Policy Paper on Local Government Reform. The United Republic of Tanzania. Dar es Salaam, Tanzania. Ministry of Water and Irrigation, 2009. The National Irrigation Policy – Draft, March 2009. The United Republic of Tanzania. Dar es Salaam, Tanzania. 70 p. MITM, 2003. Trade Policy for a Competitive Economy and Export-led Growth – February 2003. National Trade Policy Background Papers. Dar es Salaam, Tanzania. MMA, 2010. Value Chain Analysis of rice and Maize in selected districts in Tanzania. Volume ii: rice sub sector & value chain analysis; Final report November 2010. Study commissioned by ACT – Tanzania Agricultural Partnership funded by EU-CE Food Facility Grant no. 2009/213-569. Dar es Salaam, Tanzania. 111 p. Mnenwa, R. (2009). Cassava chain in Tanzania. Sustainable livelihood analysis and chain analysis. Mkuranga District. VECO Tanzania, Dar es Salaam, Tanzania. 78 p. Msuya, Elibariki, 2007. The Impact of Foreign Direct Investment on Agricultural Productivity and Poverty Reduction in Tanzania. Munich Personal RePEc Archive (MPRA) Paper No. 3671, posted 07. November 2007 / 03:23. Available online at http://mpra.ub.uni-muenchen.de/3671/ Kyoto University. 15 p. Mutabazi K.D., Mdoe N.S.Y. and Nickson P., 2009. Unlocking market opportunities for small scale cassava farmers in Tanzania (ODI STUDY NO. R0334). Cassava Value Chain Analysis, Draft Report. Sokoine University of Agriculture, Faculty of Agriculture. Morogoro, Tanzania. 36 p. NORAD, 2002. Study on Private Sector Development in Tanzania – Final Report. Norwegian Agency for Development Cooperation. Oslo, Norway. 71 p. Nyerere, J., 1967. Arusha declaration and subsequent Rural Development Policy papers. Tanganyika African National Union. Document accessed online on 05/06/2011 on http://www.marxists.org/subject/africa/nyerere/1967/arusha-declaration.htm. Olomi, D.R. (Dr), 2008). Unleashing Entrepreneurial Potentials of the Poor in Tanzania: Prospects, Challenges and Way Forward. In ―Making the Law Work for Everyone‖ by the Commission on the Legal Empowerment of the Poor and United Nations Development Programme, 2008. University of Dar es Salaam Entrepreneurship Centre (UDEC), Dar es Salaam, Tanzania. 376 p.
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture and rural development
Prime Minister‘s Office, 2001. Rural Development Strategy; Main Report, Final; 19 December 2001. The United Republic of Tanzania. Dar es Salaam, Tanzania. 88 p. Prime Minister‘s Office, February 2004. The National Economic Empowerment Policy. Dar es Salaam, Tanzania. Ponte, Stephano, 2001. Coffee Markets in East Africa: Local Responses to Global Challenges or Global Responses to Local Challenges? Working Paper Sub-series on Globalisation and Economic Restructuring in Africa no. xv. Centre for Development Research. Copenhagen, Denmark. ISSN 09044701 / ISSN 1399-3402. 48 p. Promar, 2011. High value agriculture study: The African coffee industry and Japan‘s trade and aid; Supporting the tanzanian and ethiopian coffee industries and their export promotion. Fact-finding Survey for the Support of Aid to Developing Countries (Fiscal Year 2010 Research Project) Supported by the Ministry of Agriculture, Forestry and Fisheries. PROMAR Consulting. Tokyo, Japan. 178 p. Rweyemamu, D., 2003. Understanding Economic and Political Reforms in Tanzania. A Proposal Submitted to GDN in response to the Call for Proposals under the ―Understanding Reform Project‖. ESRF, Dar es Salaam, Tanzania. 17 p. Skarstein, Rune, 2005. Economic Liberalization and Smallholder Productivity in Tanzania. From Promised Success to Real Failure, 1985–1998. Journal of Agrarian Change, Vol. 5 No. 3, July 2005, pp 334–362. Tanzanian Federation of Cooperatives (TFC), 2006. A Simplified Guide to the Cooperative Development Policy and the Cooperative Societies Act of Tanzania Mainland. Tanzanian Federation of Cooperatives (TFC) and Cooperative Development Department. Dar es Salaam, Tanzania. 24 p. TCB, TACRI, 2010. Tanzania Coffee Industry Development Strategy 2011‐ 2016. Tanzania Coffee Board and TACRI. Moshi, Tanzania. 35 p. The East and Southern African Agribusiness Network. http://ntwk.esaanet.com/index.php?option=com_content&view=article&id=225:the-coffee-industrylegislation&catid=52:regulations&directory=128 / Page visited on 4th of June 2011. TISCO, 2006.: The Impact Assessment of the Operations of the Agricultural Inputs Trust Fund. Report to MAFSC. Dar es Salaam, Tanzania. Tanzania Investment Centre, 2001. Tanzania Investment Report: Report on the Study of Foreign Private Capital Flows in Mainland Tanzania. National Bureau of Statistics; Bank of Tanzania; Tanzania Investment Centre. Dar es Salaam, Tanzania. 131 p. Tanzania Investment Centre, 2004. Benchmarking Tanzania‘s Foreign Direct Investment. TIC, Dar es Salaam, Tanzania. 101 p. Tanzania Investment Centre, 2006. Tanzania Investment Report. TIC. Dar es Salaam, Tanzania. 116 p. TraceTracker, 2009. Case study: Tracing coffee from the bush to the cup. TraceTracker, Tanzanian Coffee Board, TraceSoft. www.tracetracker.com United Republic of Tanzania, 2001. Agricultural Sector Development Strategy. URT, Dar es Salaam, Tanzania. 73 p.
Wangwe, S. M., 1997. Economic Reforms and Poverty Alleviation in Tanzania. ESRF Discussion Paper Series No. 016. Economic and Social Research Foundation, Dar es Salaam, Tanzania. 85 pages. ISBN: 9987 610 13 7 Wobst, Peter, 2001. Structural adjustment and intersectoral shifts in Tanzania: A computable general equilibrium analysis. Issue 117 of IFPRI Research Report. IFPRI. 193 pages. ISBN 08962911200, 9780896291201 World Bank, 2000. Agriculture in Tanzania since 1986: follower or leader of growth? A World Bank country study. World Bank Publication. 167 pages. ISBN 0821347799, 9780821347799.
i. Tanzania fought for independence in reaction to the class stratification that was favouring colons and Asians, giving Africans (especially peasants) limited access to education, social services, investment facilities, employment and entrepreneurial activities (Havnevik, K., J. et al. 1988) Swahili word that can be translated into “family”, “brotherhood”, “relationship”, “living together” and here, “Tanzanian socialistic planned economy”. The 1983 policy of the Ministry of Agriculture was for example still giving priority to extension of communal and village block farms (together with parastatal enterprises) for production of food crops and marketing through cooperatives. The ERP’s medium-term objectives were (i) a positive growth rate in per capita income, (ii) a GDP target growth rate of 4.5 percent, (iii) an inflation rate below 10 percent in 1989/90, (iv) a fiscal government deficit below 13 percent of GDP, (v) an adjustment of the exchange rate toward an “equilibrium” exchange rate in mid-1988, (vi) positive real interest rates by mid-1988, (vii) an increase of between 30 and 80 percent in nominal producer prices for cash crops and (viii) decontrol of domestic prices over a period of three years (Wobst, 2001). I. Governance (mainly control of corruption in tax administration, national tender system, judiciary, works), II. Government Financial Management, III. Tax Reform (introduction and application of VAT, rationalisation of import duties, harmonization of investment incentives, reduction of scope of exemptions and number of excise taxes, etc.), IV. Improvement of the Business Environment, V. Improvement of utility performance, VI. Improvement of the Poverty Database and monitoring capacity, VII. Adoption of a METF and provision of allocations in the budget, VIII. Education, IX Health The short – to medium – term fluctuations of producer prices in a deregulated market are most probably at least as important as the long-term trend in depressing the marketed production. The market demand for staple grains (maize) is highly inelastic, with an (absolute) value of price elasticity considerably lower than unity (Skarstein, 2005). As a consequence, without intervention in the market, rather modest changes in supply lead to quite large price changes. This is the consequence of the behaviours of producers (forced to sell), traders (when they practice speculation) and consumers (speculation of the rich and rush of the poor). Through NMC shortly and from 1990 under the direct supervision of the Direction of Food Security of the Ministry of Agriculture. In Kagera, trading companies who had received the favours of farmers suddenly got their trading licences withdrawn by the TCB. The Kagera Co-operative Union KCU was re-awarded a monopoly buying. As KCU had insufficient capital, prices got depressed and farmers chose to leave their coffee untended or to sell it to smugglers (towards Uganda) rather than accepting the promissory notes used by KCU. This is not very surprising in a context where members of the boards have (still partly are) been designated by the responsible ministries causing the stakeholders’ control over the Boards to be limited. State power has been used to prevent the break-up of some Cooperative Unions (e.g. KCU). Reports exist of a re-election of the cooperative committee (accused of heavy corruption and mismanagement) due to the mobilisation of the regional Field Force Unit (Cooksey, 2003). These policies are tightly inter-acting with other earlier ones such as: the Sustainable Industries Development Policy (MIT, 1996), the Small And Medium Enterprise Development Policy (MIT, 2002), the Trade Policy for a Competitive Economy and Export-led Growth (MITM, 2003) and a set of other documents.
vii. viii. ix.
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture and rural development xi.
More specifically, this Policy also aims at (i) stimulating diversification and value addition in agricultural products in response to increasing and changing market demand, (ii) promote adherence to quality, standards and grade in agricultural products to meet domestic, regional and international market requirements, (iii) reform the legal and regulatory framework that guide the agricultural marketing system to take advantage of the opportunities available in the multilateral trading system and regional trading arrangements, (iv) empower, promote and support the formation and development of agricultural marketing institutions, (v) promote investments in agricultural marketing infrastructures and agro-business, (vi) stimulate and facilitate the development of efficient and effective agricultural marketing information, research and intelligence systems for the development of existing and new agricultural markets, (vii) promote development, adoption and use of risk management strategies in agricultural marketing, (viii) enhance access to agricultural marketing finance, (ix) identify and promote niche markets as way of addressing agricultural commodity markets facing matural global markets and (x) mainstream cross cutting issues. These officials had apparently a clear understanding of the necessity to avoid market distortions caused e.g. by un-even access to information that limit the gains for the different actors or for some specific actors. Discussions are going on around the methodology for the calculation of the level of food security (level of needs compared to level of availability) and about the distinction between food security and food sufficiency. The MAFC is not clear about the methodology utilised to calculate the levels reached at a specific time. This is illustrated by the intentional substitution in kiswahili of the terms corresponding to free market and disastrous market (soko huria / soko olela – from “ole” – pity, disaster) It was also aimed at merging and consolidating into one document the agricultural and livestock policies of 1983. Farms that were under state-ownership include Dakawa rice farm, Kapunga rice farms, Mbozi maize farms, Bagamoyo farms, Ruvu rice farms, Mbarali rice farms, Namtumbo maize farms, Msiba seed farm, Dabaga seed farm, Arusha seed farm, Mwele seed farm, and Kilangali seed farm (TIC, 2004). Ranches that were under state ownership: Kongwa Ranch - Dodoma Region (Area: 37,682 hectares), Kalambo Ranch - Rukwa Region (Area 64,560 hectares), Kitengule Ranch - Kagera Region (Stocking rate 6.7 acres per annum), Mzeri Ranch - Tanga Region (Area: 41,296 hectares), West Kilimanjaro Ranch - Kilimanjaro Region (Area: 36,350 hectares), Mkata Ranch - Morogoro Region (Area: 74,295 hectares), (Area: 17,951 hectares), Uvinza Ranch - Kigoma Region (Area: 56,170 hectares Misenyi Ranch - Kagera Region (Area: 40,857 hectares), Dakawa Ranch - Morogoro Region (Area: 53,600 hectares), Manyara Ranch - Arusha Region) The following elements are considered as part of a more favourable climate for commercial activities: monitored lending rates, rationalized taxation regime, adapted investment incentives, reviewed energy tariffs and oil prices, improved legislation of the agricultural sector and related ones, increased possibility for stakeholders to control Commodity Boards, legalized and promoted cross-border trade, improved food security policy, eased access to land, demarked and surveyed land in agricultural investment zones. Creation of a private agribusiness sector support unit, promoting agro-processing and rural industrialisation, increasing access to inputs in rural areas, strengthening marketing information collection and dissemination, improving rural marketing infrastructures, promoting partnership between smallholder farmers and agribusinesses and implementing incentive mechanisms. The team was comprised of the Ministry of Industries, Trade and Marketing, Ministry of Agriculture, Food Security and Cooperatives, Ministry of Livestock Development and fisheries, Prime Ministers Office – Regional Administration and Local Government and the private sector. (ACT and MVIWATA ) were representing the Private Sector.
xiv. xv. xvi.
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture and rural development xxi. xxii. xxiii. xxiv.
According to http://www.doingbusiness.org/data/exploreeconomies/tanzania/ visited on 9/6/2011 Tanzania was ranked no. 82 of 91 countries on Transparency Inter-national’s Corruption Perception Index (CPI) for 2001 – (NORAD, 2002). Between 1988 and 1998, the number of Cooperative Unions passed from 22 to 47. For tobacco, many Cooperative Unions ended up operating as agents or collecting points for private buyers who provide advance payments plus a commission for the crops (Chambo and Cooksey, 2000, quoting Swedish Cooperative Centre, 1999: 26). Two national cooperative apex organisations for cotton and tobacco; two specialised cooperative organisations – Tanzania Industrial Cooperative Union ltd and Saving and Credit Cooperative Union League of Tanzania; and 4 cooperative unions. Interviews with Mr. Mapunda and Mrs. Pallangyo of the MITM on 05/04/2011 and 07/06/2011. (i) Agricultural Council of increased Tanzania (ACT) ACT aims to become the leading national private sector apex organization of agriculture, livestock and agri-business. Its potential members include companies, associations and networks of farmers and livestock keepers, input suppliers, transporters, stockists, processors and traders. The Council works to support and improve the economic and organisational environment for the agriculture. Membership levels, for the moment, remain low. ACT’s Vision is to have a modern, commercial agricultural sector in Tanzania by the year 2025. This would include higher productivity, production, increased investment, high returns and an improved standard of living of the agricultural community. The ACT Mission is to unite all members of the agricultural community, to promote, coordinate and protect agricultural interests, to have a dialogue with stakeholders on agricultural issues, to assist and advise on the formulation of policies, strategies and to strengthen agricultural associations. working Amongst its current activities, ACT coordinates the Tanzania Agriculture Partnership (TAP), a Public-Private Partnership (PPP) to develop efficient and profitable agricultural value chains through private sector development and support, and to improve the effectiveness of public sector support and service delivery to farmers. Membership remains low and ACT is still developing its capacity. (ii) Tanzania Chamber of Commerce, Industry and Agriculture (TCCIA) Established in 1988, the TCCIA is the pioneer private sector membership-based advocacy institution in Tanzania. It aims to represent the interests of commerce, industry and agriculture, facilitate, protect and promote business and pursue smart partnership with government. TCCIA has autonomous branches in 20 regions on the mainland and 67 districts. It has full-time staff in 15 districts. (iii) Tanganyika Farmers Association (TFA) has been in existence for a long time, but although it has some outlets in principal farming areas no longer plays a major role as either a focus for private sector activity or as a supplier of agricultural inputs and market outlet. (iv) The Confederation of Tanzania Industries (CTI) CTI is one of the strongest private sector associations in the country. Traditionally, it had large enterprises as members, but has now established a SME department to take care of the interests of smaller operators. However, it does not yet currently have any specific links with rural SMEs or agribusiness.
xxvi. xxvii. xxviii. xxix.
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture and rural development xxxvii. xxxviii. xxxix.
CTI is driving a “Buy Tanzania” campaign to improve the image of local products and develop market linkages to competitive markets. (v) Tanzania Private Sector Foundation (TPSF) In 2000, the Tanzania Private Sector Foundation was established as an apex organizations for private sector and employer organizations to participate in consultation with government. The Foundation aims to become the coordinating body for private sector associations. It has 79 active members. TPSF has spearheaded the formation of a National Business Council (NBC) which brings together private sector and government under the chairmanship of the Head of State for dialogue. The Council is made of 20 top civil servants, 20 private sector representatives and the President of Tanzania. (vi) The Agricultural Non-State Actors Forum (ANSAF) was revived in 2006 as an independent information and advocacy group for agriculture. The aims are: • Advocating for a pro poor and conducive agriculture policy and business environment where Civil Society Organisations and the private sector effectively engage with and influence agriculture sector policies and practices. Effective analysis of existing agriculture policies and providing alternative views/directions. Providing a platform for learning, sharing, networking and coalition building around best practices and key issues in the agriculture sector.
• • xlii.
Current members include ACT, MVIWATA, Concern Worldwide, PELUM Tanzania, VECO Tanzania, Oxfam GB, MS Tanzania, Oxfam Ireland, Tanzania Organic Agriculture Movement, SNV Tanzania, Farmland Consultants, Katani Ltd., and Action Aid.
Anyway, foreign rice isn’t a preferred product. Local aromatic rice is from far preferred by many consumers and traders use the reputation of some areas that have traditionally been producing aromatic rice to “brand” products from many origins. The imported food security rice can only be sold on the open market if blended with local varieties. The market margins vary from 143 to 275% meaning that the costs along the chain (after the farmers sold) represent from 143 to 275% of the price that the farmers get. The highest the market margin, the less efficient the chain. Simplified Gross Profit divided by the total income
This is the common case all over Tanzania for most of the crops. During many years, the State hasn’t employed extension or research agents or at least not enough to provide proper advices to the coffee farmers. Working conditions for extension agents are not up to the expectations of the new recruits and when the Government recruits some and trains them, some deny the positions that they are given. The farmers had to contribute to the cost of the inputs through some deductions on the sales of their coffee while previously, they had been used to get the inputs when their coffee was on the auctions without knowing their exact price and therefore, without having the impression that they had to spend money on inputs. In the new system, the farmers had the impression that they had to pay for something that they had been considering as a due from the government. These persons have apparently been buying the vouchers from the farmers or persons in charge of their distribution at limited price and after collection of the inputs, they sold the inputs to these same farmers (or other ones) at higher prices. . But the equipments are not directly given to the farmers. They have to mobilise their group so that it gets a loan from a bank to buy the machine. TechnoServe advises the bank about the viability of the
Prepared by: Platform Secretariat Published by: Global Donor Platform for Rural Development Godesberger Allee 119, 53175, Bonn, Germany Study conducted by: Overseas Development Institute, London Authors: Frédéric Kilcher, John Howell and Michael Windsor with support from Benett Portage Photo credits: www.123rf.com/haak Date of publication: December 2011
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