1. Reforming Tanzania Agricultural Sector: A Poverty Perspective The World Bank Prospects for Agricultural Growth in a Changing World World Bank & USAID Dar es Salaam - Tanzania Presented by: Waly Wane Senior Poverty Economist World Bank Poverty Reduction & Economic Management Feb. 25, 2010 Presented during: 1

2. 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% 2

3. 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

4. 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

5. 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

6. Who Did the Reforms Work For? A tale of 3 Districts 6

7. 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

8. 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

9. 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

10. 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

11. 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

12. 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

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

14. 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

15. Main Issue in Maize: Marketing Costs Transport charges make up 83% of marketing costs Why are transportation costs so high? Trucking industry is competitive

16. 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

17. 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

18. 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

19. Marketing Costs – A Regional Perspective (2) 19

20. Marketing Costs – A Regional Perspective (3) 20

21. 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

22. 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

23. Overarching Lessons (2) 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 23