Reforming Tanzania Agricultural
Sector:
A Poverty Perspective
Presented by:
Presented during:
AgCLIR Conference
USAID & World Bank
Dar es Salaam - Tanzania
Waly Wane
Senior Poverty Economist
World Bank
Poverty Reduction & Economic Management
Feb. 1, 2010
The World Bank
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 acres
 Most of them are poor e.g. Ruvuma survey
2004 P0=63.3% and P0c=75.8%
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
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
How Did the Reform Work?
WRS
 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
Who Did the Reforms Work For?
A tale of 3 Districts
Cashew Marketing Prices in Three Districts in Mtwara 2007/08 and 2008/09
Indicative
Price
Bonus
FarmGate
price
FoB
price
Gross
Margin:
Auction
price less
Indicative
price
Budgeted
expenses
including
bonus paid
1035
1035
1035
1598
1598
1598
425
425
425
307
307
307
980
980
980
1536
1536
1536
305
305
305
249
249
249
Auction
price
2007/08
Tandahiba –
Huruma
Masasi
Nanyumbu
Weighted Average
610
610
610
100
0
100
67
710
610
710
677
2008/09
Tandahiba
Masasi
Nanyumbu
Weighted Average
675
675
675
0
0
0
0
675
675
675
675
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 barred to buy directly from
growers
Tanzania Coffee Association
Regulators: Today is TCB
The Moshi Auction
Coffee Sector – Institutional Framework
 Regulatory






Framework
One license rule
Multiple licensing requirement
Village Veto
Local Taxation
Weights and Measures
Contingent (on quality) contracting (creates
information asymmetries)
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
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

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
Maize Sector – Key Features
 Number


of traders depends on season
Many traders during harvest season
Sharp reduction in traders during lean season
because of high search costs
 Distance
to market matters a great deal
Marketing Costs in Maize
Transport charges
Loading and unloading
Cess
Storage
Drying tents
Total costs
Market segment
Farm-gate-primary
market
Primary-secondary
market
Secondary-wholesale
market/miller
US$ per ton
74.80
9.92
3.20
2.11
0.50
90.53
Cost element
Storage/rental fee
Transportation charges
Hired labor loading/unloading
Council cess
Roadblocks and weighbridges
Drying tent/empty bags
TOTAL SEGMENT 1
Storage/rental fee
Transportation charges
Hired labor loading/unloading
Council cess
Drying tent/empty bags
TOTAL SEGMENT 2
Storage/rental fee
Transportation charges
Hired labor loading/unloading
Council cess
TOTAL SEGMENT 3
TOTAL COSTS
In % to total costs
82.6
11.0
3.5
2.3
0.6
100.0
US$ per ton
0.80
6.40
1.92
1.60
10.72
1.20
27.00
4.00
1.60
0.5
34.30
0.11
41.40
4.00
0.0
45.51
90.53
 Transport
charges
make up 83% of
marketing costs
 Why are
transportation
costs so high?
 Trucking industry is
competitive
Marketing Costs in Maize
Transport costs breakdown in Tanzania (US$ per km)
Costs
Variable Costs
Fuel and lubricants
Tires
Maintenance
Batteries
Non-tariff measures
Total variable costs
Fixed Costs
Staff
Financing costs
Depreciation
Administration costs
Total fixed costs
Total Transport Costs
US$ per km
In % to total costs
0.72
0.09
0.06
0.002
0.09
0.962
58.6
7.3
4.9
0.2
7.3
78.3
0.080
0.080
0.105
0.001
0.266
1.228
6.5
6.5
8.6
0.1
21.7
100.0
 Why
are
transportation
costs so high?

Source: World Bank survey carried out in November-December 2008
Distances and transportation prices at various segments of the supply chains
Category of market
Farm-gate to first primary
Primary to secondary
Secondary to wholesale/miller
Mode of
Average Transport
transportation distance,
prices,
km
US$/ton-km
Lorry 5MT
16
0.40
Lorry 10MT
100
0.27
Lorry 10MT
345
0.12
Source: World Bank survey carried out in November-December 2008.

Transport
prices,
US$/ton
6.40
27.00
41.40 
Non-tariffs measures such
as bribery at roadblocks or
weighbridges are high
Local cess often
mentioned seems not to be
prohibitive
Even the impact of the
export ban seems
ambigous
Reducing Transport Costs
 Improve


public investments
Best to improve rural roads
In Tanzania rural roads have been neglected
A 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
0
0
50
Maize
100
150
Total Production by Crop ('000 Tonnes)
1000 2000 3000 4000 5000
Switching Farmers
1960
1970
1980
1990
2000
2010
Year
Coffee
Cashew
Maize
50
100
Maize
150
200
250
Total Area Harvested by Crop ('000 Acres)
1960
1970
1980
1990
2000
Year
Coffee
Source: FAO Stats
Cashew
Maize
2010
1000 1500 2000 2500 3000 3500
Source: FAO Stats

Farmers, especially
smallholders can
switch out of non
profitable crop
 They also adopt crop
that can help them
sustain their livelihood
such as bananas
 Incentives matter
Poorer households switched out of coffee
Uprooted over 1/2 coffee trees
453
5.7
5.3
0.15
3000
Other coffee producers
495
6.8**
6.0*
0.1
4990*
remittances important source of income
bus service
km to tarmac road
0.13
0.31
14
0.16
0.44**
17*
annual consumption/ae ('000 TSH)
value consumer durables ('000 TSH)
243
153
268
247**
11,531
100,318
Coffee trees 3 yrs ago
max yrs education (men)
max yrs education (women)
female headed households
value dwelling ('000 TSH)
# households