Reforming Tanzania Agricultural Reforming Tanzania Agricultural Sector:Sector:

A Poverty PerspectiveA Poverty Perspective

The World Bank

Prospects for Agricultural Growth in a Changing Prospects for Agricultural Growth in a Changing WorldWorldWorld Bank & USAID World Bank & USAID Dar es Salaam - TanzaniaDar es Salaam - Tanzania

Presented by:Presented by:

Waly WaneSenior Poverty EconomistWorld BankPoverty Reduction & Economic Management

Feb. 25, 2010Feb. 25, 2010

Presented during:Presented during:

1

The Cashew Sector

There are roughly 360,000 cashew growers in Tanzania (Ag. Census 2003)

Most of them are smallholders with an average acreage around 2.9

88% have less than 2 acresMost of them are poor e.g. Ruvuma survey

2004 P0=63.3% and P0c=75.8%

2

Cashew Sector – Institutional Framework

The actors Producers: smallholders and few big farms Primary Societies serve as the link between farmers

and buyers District Executive Officer Buyers: Private traders or Cooperative Unions Processors and exporters: 20 to 30% national

production Regulators: Today is CBT

3

Cashew Sector – Recent Reforms

The Warehouse Receipt System (2007) Buyers can use cashew production as collateral

(WRS) Reemergence of single marketing channel Introduction of auction

The Tanzanian WRS is not “standard” practice WRS Warehouses played marginal role Financing Banks are at the heart of the system

4

How Did the Reform Work?

Farm gate price as % of export price

Farmers respond to incentives

If history is a guide: Area dedicated to cashew is likely to shrink under current system and lead to another collapse of the sector

WRS

Who Did the Reforms Work For? A tale of 3 Districts

Cashew Marketing Prices in Three Districts in Mtwara 2007/ 08 and 2008/ 09

2008/ 09

Tandahiba 675 0 675 980 1536 305 249 Masasi 675 0 675 980 1536 305 249 Nanyumbu 675 0 675 980 1536 305 249 Weighted Average 0 675

Indicative Price Bonus

Farm-Gate price

Auction price

FoB price

Gross Margin: Auction price less Indicative

price

Budgeted expenses including

bonus paid

2007/ 08 Tandahiba – Huruma 610 100 710 1035 1598 425 307 Masasi 610 0 610 1035 1598 425 307 Nanyumbu 610 100 710 1035 1598 425 307 Weighted Average 67 677

6

Coffee Sector – Institutional Framework

The actors Over 450,000 smallholders (75% have <2acres) and

few large estates Most of them poor 56% Ruvu; 40.4% Kili Buyers: Farmers Assoc. or Coop. Unions Private traders Tanzania Coffee Association Regulators: Today is TCB The Moshi Auction

7

Coffee Sector – Institutional Framework

Regulatory Framework … Up to 2005 One license rule Multiple licensing requirement Village Veto Heavy central & Local Taxation Compulsory Moshi Auction Private traders barred to buy directly from growers Restriction on Contingent (on quality) contracting

for private buyers

8

Coffee Sector – Institutional Framework

Looks like a number of reforms have been implemented since 2005 …

Regulatory Framework … After 2005 One license rule … Still in place Multiple licensing requirement … Rationalized Village Veto … Seem to have disappeared Central & Local Taxation … Only cess remains Compulsory Moshi Auction…Not anymore Restriction on Contingent (on quality) contracting

for private buyers … Non-existent? Appearance of Independent Farmers’Groups Multiplication of marketing channels

9

Effect of Early Reforms

Producer price initially rose before falling substantially

Tanzania’s small coffee growers receive a very low price at the gate relative to others

Effect of Recent Reforms

Tanzania’s small growers start to receive a higher price for their produce

However, production response is still not visible

Farmers’ non-response to price incentives is worrisome

Are reforms reaching farmers?

Need to understand implementation of reforms at farm gate level

05

01

00

150

20

0

1980 1990 2000 2010Year

Colombia Kenya Tanzania

Note: Source ICO data Downloaded Feb. 10, 2010

(US Cents per lb.)Mild Arabica Coffee Growers' Price

Comparing Two Institutional Frameworks:

Rakai (UG) vs. Kagera (TZ)

Kagera Coffee marketed through KCU (~124 PS) 75% farmers belong to KCU Farmers have to sell to KCU through PS KCU uses contingent contracting

Rakai Coffee farmers are independent, only 10%

belong to an association (NUCAFE) NUCAFE does not buy coffee; gives TA Sell their crops to privately owned

12

Comparing Two Institutional Frameworks:

Rakai (UG) vs. Kagera (TZ) (Cont.)

Harvest Year KCU Regal Crop ASU/AFFI

2007/2008 550 600 600

2008/2009 780 830 820

2009/2010 450 550 550

Final Outcomes Low KCU prices Farmers incentivized to sell

to private (unauthorized) even Uganda (Illegal)

Kagera output seems to find its way to Rakai

Switching patterns away from coffee are emerging (De Weerdt 2006)

Maize Sector – Institutional Framework

The actors Maize grown by 65% of crop growing households

across the country Smallholders are again the large majority with few

medium to large growers Buyers:

Small village-based traders Larger non village-based traders Large public sector and other buyers

No cooperatives since liberalization

14

Main Issue in Maize: Marketing Costs

Transport charges make up 83% of marketing costs

Why are transportation costs so high?

Trucking industry is competitive

US$ per ton In % to total costs Transport charges 74.80 82.6 Loading and unloading 9.92 11.0 Cess 3.20 3.5 Storage 2.11 2.3 Drying tents 0.50 0.6 Total costs 90.53 100.0

Market segment Cost element US$ per ton Farm-gate-primary market

Storage/rental fee 0.80 Transportation charges 6.40 Hired labor loading/unloading 1.92 Council cess 1.60 Roadblocks and weighbridges Drying tent/empty bags TOTAL SEGMENT 1 10.72

Primary-secondary market

Storage/rental fee 1.20 Transportation charges 27.00 Hired labor loading/unloading 4.00 Council cess 1.60 Drying tent/empty bags 0.5 TOTAL SEGMENT 2 34.30

Secondary-wholesale market/miller

Storage/rental fee 0.11 Transportation charges 41.40 Hired labor loading/unloading 4.00 Council cess 0.0 TOTAL SEGMENT 3 45.51

TOTAL COSTS 90.53

Main Issue in Maize: Marketing Costs (2)

Why are transportation costs so high?

Non-tariffs measures such as bribery at roadblocks or weighbridges are high

Local cess often mentioned seems not to be prohibitive

Distances and transportation prices at various segments of the supply chains

Category of market Mode of

transportation Average distance,

km

Transport prices,

US$/ton-km

Transport prices,

US$/ton Farm-gate to first primary Lorry 5MT 16 0.40 6.40 Primary to secondary Lorry 10MT 100 0.27 27.00 Secondary to wholesale/miller Lorry 10MT 345 0.12 41.40

Source: World Bank survey carried out in November-December 2008.

Transport costs breakdown in Tanzania (US$ per km) Costs US$ per km In % to total costs Variable Costs Fuel and lubricants 0.72 58.6 Tires 0.09 7.3 Maintenance 0.06 4.9 Batteries 0.002 0.2 Non-tariff measures 0.09 7.3 Total variable costs 0.962 78.3 Fixed Costs Staff 0.080 6.5 Financing costs 0.080 6.5 Depreciation 0.105 8.6 Administration costs 0.001 0.1 Total fixed costs 0.266 21.7 Total Transport Costs 1.228 100.0

Source: World Bank survey carried out in November-December 2008

Maize Sector – Distance to Markets

Distance to market matters a great deal no matter the season

This reinforces the importance of transport costs in particular rural roads

17

Marketing Costs – A Regional Perspective

18

Domestic costs of trade - transport, local taxes, storage costs:

Farm-gate to primary market Primary to secondary market Secondary to wholesale urban market

Domestic supply chains studied:

Kenya: Northern Rift – Eldoret – Nairobi Tanzania: Iringa – Kibagwa - Dar es Salaam Uganda: Iganga – Jinja - Kampala

Cross-border costs of trade (Kenya-Uganda)

Survey carried out by EAGC (Nairobi), Nov.-Dec. 2008

Marketing Costs – A Regional Perspective (2)

19

Marketing Costs – A Regional Perspective (3)

20

Reducing Transport Costs

Improve public investments Trade off between rural or trunk roads Best to improve rural roads In Tanzania rural roads appear to have

been neglected in the past

21

Overarching Lessons

To increase productivity and help lift the smallholders out of poverty Restore competition Prioritize infrastructure Government can be the answer But it is not Always

the answer GoT should find right balance Better design and target policies

Reforms that diversify marketing channels and increase competition seem to work (coffee sector)

22

Overarching Lessons (2)

100

01

50

02

00

02

50

03

00

03

50

0M

aiz

e

50

100

150

200

250

1960 1970 1980 1990 2000 2010Year

Coffee Cashew Maize

Source: FAO Stats

Total Area Harvested by Crop ('000 Acres)

Farmers do respond to incentives

Farmers, especially smallholders can switch out of non profitable crop

... For new crops that can sustain their livelihood such as bananas

Some sectors may be at risk

01

00

02

00

03

00

04

00

05

00

0M

aiz

e

05

01

00

150

1960 1970 1980 1990 2000 2010Year

Coffee Cashew Maize

Source: FAO Stats

Total Production by Crop ('000 Tonnes)23