WORKSHOP ON PROSPECTS FOR AGRICULTURAL GROWTH IN A CHANGING WORLD FEBRUARY 24-25, 2009 DAR ES SALAAM HANS P. BINSWANGER-MKHIZE AND MADHUR GAUTAM A Vision for an Internationally Competitive Tanzanian Agriculture

Based on a review of old and new literature Many of the excellent recent studies were sponsored and published by government Much of what I will be saying is therefore not going to be new to you

Tanzania, the Blessed Sleeping Giant Land Rainfall Water resources Comparative advantage for almost everything Located on the coast Growing markets in six neigbors

Strategies and approaches have improved Macro-economic stability, and a competitive exchange rate since 2001 ASDS 2001 Decentralization via Devolution Community-Driven Development in TASAF and other programs ASDP 2006 Programs for mechanization, irrigation, PASS, and many more Kilimo Kwanza, 2009

Sharply improved international conditions Growing incomes in the neighborhood  presenting great opportunities for exports Rising rate of growth in world trade in agriculture  from 4.2% in the 1980s to 7.2% in the 1990s Rising international food prices Lower barriers to international agricultural trade

The end of the secular decline in agricultural prices

After the spike, international food prices have settled at higher levels

Are higher prices here to stay? Rising populations, especially in Africa and Asia Rising incomes and demand for food in Asia and in Africa Slow growth of output in the developed world Rising demand for bio-fuels

But these factors may be overtaken by Global total factor productivity growth has accelerated From 0.87 between the 1970s and 1980s To 1.56 from 1990 to 2006 High prices, biotechnology, and information technology may lead to further acceleration The long run supply elasticity for agriculture is very high  via the strong investment response to farm profits Therefore in a decade or two, a rising trend could be replaced again by a declining trend Tanzania must catch the boat before it escapes

Agricultural prices are expected to increase

A lot of countries have already moved Competitors have moved ahead, even in areas of Tanzania’s traditional strengths Time for Tanzania to join this club

Incentives regimes across the World have become more level Developed countriesAfrica

Incentives improved less in Africa than in the rest of the developing world NRA RRA

And least of all in Tanzania It now ranks among the bottom three countries in the world

Export crops remain highly taxed

How can that be? State trading and export taxes have long been abolished Industrial tariffs have been slashed The exchange rate is market determined Local taxation has been streamlined

Since 2004 incentives have improved at a snails pace Local taxation has improved and may be abolished The reform of the Crop Boards has progressed very slowly since government decisions of 2005 Recent study documents high NTBs all across the EAC  Including via illegal extractions on road and at borders There remains widespread distrust and ignorance of private sector and its potential contributions  Therefore remedies are still sought via interventions  An ominous bill has been signed creating a state trading food grain board  There are still export bans on food grains There has been very little improvement in transactions time at ports, airports and border crossings Monopolies in transport persist

To improve agricultural incentives Increase private sector roles in all areas of agriculture,  while at the same time combating anti-competitive behaviour. Speedily complete the reforms of the crop boards  And refrain from implementing the Grain Board Eliminate export restrictions on food grains Massively accelerate infrastructure development, and reform processes and management in ports, airports and border posts Sharply reduce non trade barriers for agricultural commodities, including those stemming from illegal extractions

Lack of profits has led to a completely decapitalized agriculture and poverty PloughHoe Livestock (not poultry) Sewing machine Tanz ania Main land No increase in productive wealth in decades

Poor long term agricultural performance

Slight recent acceleration probably in response to higher prices

Poor long term performance of agricultural export

The structure of agriculture has been frozen Area sharesValue shares Crop group Maize*24.2%31.3%34.6%32.1% Non-maize staples40.3%36.3%32.8%31.8% Traditional Export crops10.8%7.4%5.8%5.5% Other crops24.7%25.0%26.7%30.5%

Time for a radical change In outlook on regional and international trade In all policies and barriers that affect agricultural incentives

Will rising prices this not hurt consumers? Yes, it will do so in the short run  Both in urban areas and for net buyers of food in rural areas

However, farmers will invest their rising profits… …into land improvements, animals, trees, implements, machines, and fertilizer This will lead to rising farm output And to spillovers to the rural nonfarm sector and the urban economy  Via forward, backward and consumer demand linkages Employment and wages in the economy will rise Prices of those foods that are not traded will fall Welfare will improve across the economy But will it be enough to offset the initial losses?

An analysis of the recent food price spike International Price Changes between 2006 and 2008

Welfare changes in the short and long run

Impacts of food and fertilizer price rises alone

Consequences of productivity growth depend on trade environment Export crops Food cropsOther agricultur e Sector output growth Sector price changes Sector employme nt Per capita consumpti on Unless Tanzanian Agriculture becomes outward looking, success with Kilimo Kwanza will hurt producers

Accelerating reform and implementation It took five years to translate ASDS into ASDP And two more years to start its implementation A number of the needed reforms and investments to become competitive have also been very slow in coming Much of the past decade of rapid agricultural trade growth was therefore lost for Tanzania

Summary of messages The international agricultural environment has become much more favorable It is time for Tanzania to seize these growing opportunities in regional and international markets It must rely more on the private sector than on state intervention But Tanzania’s agricltural incentives remain among the worst in the world Improvements in Tanzania performance are still far too modest, and virtually absent in the export sector The slow pace of reform and implementation must change

Fifty years of very slow progress is too much KILIMO KWANZA NOW!