Reforming Tanzania Reforming Tanzania Agricultural Sector:Agricultural Sector:A Poverty PerspectiveA Poverty Perspective

The World Bank

AgCLIR ConferenceAgCLIR ConferenceUSAID & World BankUSAID & World BankDar es Salaam - TanzaniaDar es Salaam - Tanzania

Presented by:Presented by:

Waly WaneSenior Poverty EconomistWorld BankPoverty Reduction & Economic Management

Feb. 1, 2010Feb. 1, 2010

Presented during:Presented during:

The Cashew SectorThe Cashew Sector

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

Most of them are smallholders with an Most of them are smallholders with an average acreage around 2.9average acreage around 2.9

88% have less than 2 acres88% have less than 2 acres Most of them are poor e.g. Ruvuma survey Most of them are poor e.g. Ruvuma survey

2004 P0=63.3% and P0c=75.8%2004 P0=63.3% and P0c=75.8%

Cashew Sector – Institutional FrameworkCashew Sector – Institutional Framework The actorsThe actors

Producers: smallholders and few big farmsProducers: smallholders and few big farms Primary Societies serve as the link between Primary Societies serve as the link between

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

productionproduction Regulators: Today is CBTRegulators: Today is CBT

Cashew Sector – Recent ReformsCashew Sector – Recent Reforms The Warehouse Receipt System (2007)The Warehouse Receipt System (2007)

Buyers can use cashew production as Buyers can use cashew production as collateral (WRS)collateral (WRS)

Reemergence of single marketing channelReemergence of single marketing channel Introduction of auctionIntroduction of auction

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

systemsystem

How Did the Reform Work?How Did the Reform Work?

Farm gate price as % Farm gate price as % of export price of export price

Farmers respond to Farmers respond to incentivesincentives

If history is a guide: If history is a guide: Area dedicated to Area dedicated to cashew is likely to cashew is likely to shrink under current shrink under current systemsystem

WRS

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

Coffee Sector – Institutional FrameworkCoffee Sector – Institutional Framework The actorsThe actors

Over 450,000 smallholders (75% have Over 450,000 smallholders (75% have <2acres) and few large estates<2acres) and few large estates

Most of them poor 56% Ruvu; 40.4% Kili Most of them poor 56% Ruvu; 40.4% Kili Buyers: Farmers Assoc. or Coop. UnionsBuyers: Farmers Assoc. or Coop. Unions Private traders barred to buy directly from Private traders barred to buy directly from

growersgrowers Tanzania Coffee AssociationTanzania Coffee Association Regulators: Today is TCBRegulators: Today is TCB The Moshi AuctionThe Moshi Auction

Coffee Sector – Institutional FrameworkCoffee Sector – Institutional Framework Regulatory FrameworkRegulatory Framework

One license ruleOne license rule Multiple licensing requirementMultiple licensing requirement Village VetoVillage Veto Local Taxation Local Taxation Weights and MeasuresWeights and Measures Contingent (on quality) contracting (creates Contingent (on quality) contracting (creates

information asymmetries) information asymmetries)

Effect of Early ReformsEffect of Early Reforms

Producer price Producer price initially rose before initially rose before falling substantiallyfalling substantially

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

Comparing Two Institutional Comparing Two Institutional Frameworks:Frameworks:Rakai (UG) vs. Kagera (TZ)Rakai (UG) vs. Kagera (TZ)

Kagera Kagera Coffee marketed through KCU (~124 PS)Coffee marketed through KCU (~124 PS) 75% farmers belong to KCU75% farmers belong to KCU Farmers have to sell to KCU through PSFarmers have to sell to KCU through PS KCU uses contingent contractingKCU uses contingent contracting

RakaiRakai Coffee farmers are independent, only 10% Coffee farmers are independent, only 10%

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

Comparing Two Institutional Frameworks:Comparing Two Institutional Frameworks:Rakai (UG) vs. Kagera (TZ) (Cont.)Rakai (UG) vs. Kagera (TZ) (Cont.)

Final OutcomesFinal Outcomes Low KCU prices Low KCU prices Farmers incentivized to sell to Farmers incentivized to sell to

private (unauthorized) even private (unauthorized) even Uganda (Illegal)Uganda (Illegal)

Kagera output seems to find Kagera output seems to find its way to Rakaiits way to Rakai

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

Harvest Year KCU Regal Crop ASU/AFFI

2007/2008 550 600 600

2008/2009 780 830 820

2009/2010 450 550 550

Maize Sector – Institutional FrameworkMaize Sector – Institutional Framework The actorsThe actors

Maize grown by 65% of crop growing Maize grown by 65% of crop growing households across the countryhouseholds across the country

Smallholders are again the large majority with Smallholders are again the large majority with few medium to large growersfew medium to large growers

Buyers: Buyers: • Small village-based tradersSmall village-based traders• Larger non village-based tradersLarger non village-based traders• Large public sector and other buyersLarge public sector and other buyers

No cooperatives since liberalizationNo cooperatives since liberalization

Maize Sector – Key FeaturesMaize Sector – Key Features Number of traders depends on seasonNumber of traders depends on season

Many traders during harvest seasonMany traders during harvest season Sharp reduction in traders during lean season Sharp reduction in traders during lean season

because of high search costsbecause of high search costs Distance to market matters a great dealDistance to market matters a great deal

Marketing Costs in MaizeMarketing Costs in Maize

Transport charges Transport charges make up 83% of make up 83% of marketing costsmarketing costs

Why are Why are transportation transportation costs so high?costs so high?

Trucking industry is Trucking industry is competitivecompetitive

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

Marketing Costs in MaizeMarketing Costs in Maize

Why are Why are transportation costs transportation costs so high?so high?

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

Local cess often mentioned Local cess often mentioned seems not to be prohibitiveseems not to be prohibitive

Even the impact of the Even the impact of the export ban seems ambigousexport ban seems ambigous

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

Reducing Transport CostsReducing Transport Costs Improve public investmentsImprove public investments

Best to improve rural roadsBest to improve rural roads In Tanzania rural roads have been neglectedIn Tanzania rural roads have been neglected

A Overarching LessonsA Overarching Lessons

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

Always the answerAlways the answer• GoT should find right balanceGoT should find right balance• Better design and target policiesBetter design and target policies

Switching FarmersSwitching Farmers

Farmers, especially Farmers, especially smallholders can smallholders can switch out of non switch out of non profitable cropprofitable crop

They also adopt crop They also adopt crop that can help them that can help them sustain their livelihood sustain their livelihood such as bananassuch as bananas

Incentives matterIncentives matter100

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50

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100

150

200

250

1960 1970 1980 1990 2000 2010Year

Coffee Cashew Maize

Source: FAO Stats

Total Area Harvested by Crop ('000 Acres)

01

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02

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00

05

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0M

aiz

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150

1960 1970 1980 1990 2000 2010Year

Coffee Cashew Maize

Source: FAO Stats

Total Production by Crop ('000 Tonnes)

Poorer households switched out of coffeePoorer households switched out of coffee

Uprooted over 1/2 coffee trees Other coffee producersCoffee trees 3 yrs ago 453 495max yrs education (men) 5.7 6.8**max yrs education (women) 5.3 6.0*female headed households 0.15 0.1value dwelling ('000 TSH) 3000 4990*

remittances important source of income 0.13 0.16bus service 0.31 0.44**km to tarmac road 14 17*

annual consumption/ae ('000 TSH) 243 268value consumer durables ('000 TSH) 153 247**

# households 11,531 100,318