1 MINISTRY OF AGRICULTURE FOOD SECURITY AND COOPERATIVES General Budget Support (GBS) Annual Review, November 2008 Dar es Salaam Accelerating Agricultural Transformation as a Key Instrument for Reducing Rural Poverty and Enhancing Food Security

Introduction Agriculture contributes significantly to the overall economy in Tanzania but it had limited impact on reducing poverty most of which resides in rural areas. Agricultural contribution to the GDP in the past 10 years was about 48% and 25% in mainland and Zanzibar respectively Level of poverty reduced by a mere 3.4% between 1991 and 2007; 37.4% of people in rural areas in mainland Tanzania still live in poverty compared to a national average of 33.3% ; 2007 NBS (NA) – 26.5% of GDP

Agricultural Growth Challenges:  High Transaction costs  Under-investment in productive enhancing technologies;  Limited access to technology demand and delivery channels (with 60 – 75% of households having no contact with research and extension services;  Limited access to finance for uptake of technologies;  Un-managed risks with significant exposure to weather variability;

Agricultural Growth Challenges cont….  Weak formulation of local investment plans.  Depressed demand for primary commodities in global markets;  Low level of utilization of available land;  Limited support to improved seeds, fertilizer and agrochemicals;  Limited agro-processing industries for value addition and market access.

Agricultural Sector Development Programme (ASDP) In order to improve agricultural growth and reduce poverty, the Government formulated an Agricultural Sector Development Programme which is implemented using A Sector Wide Approach. ASDP has two components: Component 1: Local Level Support (75% of programme resources) i) Agricultural Investment – priority irrigation infrastructure; ii) Agricultural Services; iii) Agricultural capacity building and reforms

Agricultural Sector Development Programme (ASDP) Component 2: National Level Support (25% of programme resources)  Agricultural Services  Irrigation Development (medium/large scale)  Marketing and Private Sector Development  Food Security  Coordination Monitoring and Evaluation Progress on implementation of ASDP as per ASDP Joint Implementation Review (AJIR) done in October 2008, indicated that the programme implementation is on track despite several challenges, which have been encountered.

Government Expenditure Analysis Despite priority on agricultural growth as a driver for economic growth and poverty reduction public spending has remained relatively low. Approved budget as share of total government budget for 2008/09 is estimated at 3.96 percent lower than 4.17 percent in 2007/08; The agriculture spending as share of GDP was 1.15 (2006/07), 1.11 (2007/08) and 1.12 (2008/09). Expenditure for core public goods (research, extension, training, policy and planning, institutional and regulatory agencies) remains critically low and sometimes decreased.

Investment in Agriculture Private Sector investment  Role of private sector in value chains is critical. The government has important facilitative role for this to materialize in cooperation with private sector;  BEST programme aims at addressing in general investment issues however, private sector faces additional constraints peculiar to the agricultural sector;  Additional actions are required to create a special enabling environment through public goods specific to the sector to improve incentives to invest in the sector. (e.g. investment in supporting infrastructure such as irrigation, rural roads, electrification, communication, agro processing, marketing and surveying, titling and mapping of agricultural land).

Investment in Agriculture cont ….  Challenges faced by private investors more broadly in the economy are also faced by private sector in agriculture. Specific areas that needs attention within the sector include: Increasing investment in agriculture Improving ASDP implementation at local level; Legal and regulatory environment for business  Agricultural marketing and pricing  Local taxes (cess) regimes and levies

Investment in Agriculture cont ….  Public Sector Investment: Need for increased public investment in public goods such as research and Development (R&D), Extension Services, Sanitary and Phyto-sanitary Services (SPS) and control of Outbreak Pests and Diseases

Agricultural Finance  Low level of public investment in agricultural public goods makes agriculture less attractive to private investors in Tanzania;  Sector’s vulnerability to natural calamities has ingrained the perception that agriculture and agro-industries is high risk.

Agricultural Finance Issues for Consideration  Possibility of PPP that could see financial concessionary rates to SACCOS that could then be passed on to farmers;  SACCOS are not officially recognized as financial institutions, hence not regulated. Possibilities and modalities for some regulation could be assessed;  Collateral has always stalked the agricultural sector and agro-based industries and enterprises. Implementation of the land administration reform through BEST can be on track.

Agricultural Finance Issues for Consideration  Credit guarantee schemes established to facilitate access to credit for small enterprises are limited. Efforts are needed to strengthen and scale up PPP’s such as AGRA/CNFA USAID/ADB/CRDB and PASS.  High prices of agricultural inputs always prevent use of improved seeds, fertilizers and agro chemicals resulting low production and productivity. More support in smart targeted input subsidy programme is required.

Improving ASDP Implementation  ASDP Review shows moderate progress in implementation. The review made the following recommendations: Capacity for local planning and implementation is still weak – strengthen training on key planning elements; Low level of funding for irrigation development- increase resources for irrigation development, proper planning to build capacity to ensure effective support for irrigation users, modalities for PPP could be reviewed; Explore and promote opportunities for PPP in research and extension services; Limited awareness at regional and LGA level for integration of private sector in ASDP implementation – capacity of private sector need to be improved.

Legal and Regulatory Environment for business Local taxes (cess) regimes and levies. The existing excessive taxation, both direct and indirect taxes is a disincentive to the growth of agricultural markets;  Despite commendable efforts by Government through introduction of new tax reforms in 2004, the following need attention: LGA’s charge farmers the upper tax limit above 5%; Traders pass the cess to farmers during prices setting resulting to very low farm gate prices; Cess is charged on turn over (gross revenue) not on profits Tendency of charging cess when the same produce enters a new district or region.

Multiple Charges on Produce  The VAT system of pre-payment and refund is a disincentive to agriculture. Despite VAT exemptions some sub-sectors such as agricultural spares, trailers, agricultural services are still subject to such payments.  There is need to look at ways to relax such charges for the sector

Agricultural Markets  Tanzania has opted for a market driven economy increasing the role of private sector in the agricultural economy especially in factor and product markets;  This is the driver for involvement of private sector in ASDP. For this to be realized attention is needed in: Addressing key obstacles (phyto-sanitary, quality, standards, grading, pricing and licensing) Close coordination among MDA’s (MAFC, MITM, PMO-RALG, MLDF) as well as LGA’s responsible for related infrastructure; Policy predictability – appropriate incentives to invest in productivity enhancing technologies, which require efficient and well performing markets to provide competitive and remunerative prices to farmers.

WAY FORWARD  Agricultural Finance and Credit Finalize and adopt the rural finance strategy; Strengthen and up-scale current PPP’s for credit guarantee scheme; Strengthen and scale up the rural agro-dealers input networks; Explore new and innovative modalities to increase credit access for farmers and agro SME’s; Finalize legal framework on contract farming.

WAY FORWARD  Improving ASDP Implementation i) Improve LGA capacity for planning and implementation; ii) Increased budget allocation for community irrigation projects; iii) Complete and initiate implementation of irrigation capacity development plan and explore mechanisms for appropriate PPP; iv) Finalize and initiate implementation of the national irrigation policy and strategy; v) Capacity of private sector in the districts need to be improved.

WAY FORWARD  Legal and Regulatory Environment for Business i) Review and rationalize local taxes (cess, levies and VAT); ii) Review regulatory framework for agriculture to ease the cost of doing business and transaction costs in agriculture; iii) Strengthen institutional capacity of regulatory agencies (TBS, TFDA and TPRI); iv) Operationalization of the agricultural marketing policy.

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