Global Donor Platformfor Rural Development
WORKING PAPER
– TANZANIA ––––––––––––––––––––––
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The Global Donor Platform for Rural Development commissioned three comprehensive studies to capture Plat-form members’ knowledge on key issues affecting the delivery and impact of aid in ARD:
PKP 1 Policy coherence for agriculture and rural developmentPKP 2 Aid to agriculture, rural development and food security – Unpacking aid flows for enhanced
effectivenessPKP 3 The strategic role of the private sector in agriculture and rural development
The PKPs are the products of extensive surveys of Platform member head office and field staff, visits to countryoffices, workshops dedicated to sharing findings and refining messages, and successive rounds of comments ondrafts.
On the basis of each PKP, separate policy briefs will be published.
For more information on the PKPs visit donorplatform.org
This working paper is only available electronically and can be downloaded from the website of the Global Donor Platform for Rural Development at:www.donorplatform.org/resources/publications
Secretariat of the Global Donor Platform for Rural Development,Dahlmannstrasse 4, 53113 Bonn, GermanyEmail: [email protected]
The views expressed herein are those of the authors and do not necessarily represent those of individual Platform members.
All rights reserved. Reproduction and dissemination of material in this information product for educational or other non-commercial purposes isauthorised, without any prior written permission from the copyright holders, provided the source is fully acknowledged. Reproduction of material inthis information product for resale or other commercial purposes is prohibited without written permission of the copyright holders. Applications forsuch permission should be addressed to: Coordinator, Secretariat of the Global Donor Platform for Rural Development, Dahlmannstrasse 4, 53113Bonn, Germany, or via email to: [email protected].
© Global Donor Platform for Rural Development 2011
About thePlatform Knowledge Piece series
Prepared by:Platform Secretariat
Published by:Global Donor Platform for Rural Developmentc/o Federal Ministry for Economic Cooperation and Development (BMZ)Dahlmannstraße 4, 53113 Bonn, Germany
Study conducted by:Overseas Development Institute, London
Authors:Lídia CabralJohn HowellGeraldine Baudienville
Photo credits:www.istock.com/Günter Guni/skyhouse; www.fotolia.com/africa/Ivan Gulei/lulú;www,pixelio.de/hjördis Kozel/Rauner Sturm
August 2011
PKP2-COVER-RZ-INNEN-U2-U3_140911_PRINT:Layout 1 12.10.2011 10:54 Uhr Seite 1
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture
and rural development 1
Contents
Policies and Policy Instruments ............................................................................................................... 3
Before liberalization ........................................................................................................................ 3
Structural Adjustment ..................................................................................................................... 4
A slow transition towards a market economy ................................................................................. 5
Input markets .................................................................................................................................. 5
Marketing ........................................................................................................................................ 5
Credit .............................................................................................................................................. 8
Agricultural Policies......................................................................................................................... 9
Mainstreaming planning for agricultural development in other sectors ........................................ 10
Decentralization ............................................................................................................................ 11
Environment of Doing Business .................................................................................................... 11
The Private Sector Response ............................................................................................................... 14
Input supply ................................................................................................................................... 14
Trade and marketing ..................................................................................................................... 15
Credit ............................................................................................................................................ 15
Private investment ........................................................................................................................ 16
Environment of doing business ..................................................................................................... 17
The Role of donors ................................................................................................................................ 19
Overview of interventions ............................................................................................................. 19
Rice case study ..................................................................................................................................... 21
Changing role of the state in the value chain ............................................................................... 21
Encouraging private agents and farmer's organisations .............................................................. 23
Disposal of state assets .................................................................................................................... 23
Production ..................................................................................................................................... 24
Trade and processing ................................................................................................................... 26
Impact of Private Sector Response to Opportunities at a chain level .......................................... 26
Banana case study ................................................................................................................................ 28
The Banana Value Chain .............................................................................................................. 31
Production ..................................................................................................................................... 32
Trade ............................................................................................................................................. 32
Processing .................................................................................................................................... 32
Nodes in which the private sector is involved ............................................................................... 33
Impact of Private Sector Response .............................................................................................. 33
Coffee case study .................................................................................................................................. 36
Changing role of the State in the coffee Sector ............................................................................ 36
The removal of price determination .............................................................................................. 38
Deregulation .................................................................................................................................. 38
Encouraging private agents and farmers‘ organizations .............................................................. 39
Disposal of the State Assets ......................................................................................................... 40
Private Sector Response .............................................................................................................. 41
Value chain ................................................................................................................................... 42
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture
and rural development 2
Input supply ................................................................................................................................... 43
Production ..................................................................................................................................... 43
Processing .................................................................................................................................... 44
Trade ............................................................................................................................................. 44
Remaining constraints .................................................................................................................. 45
Conclusions ........................................................................................................................................... 47
References ............................................................................................................................................ 51
Endnotes................................................................................................................................................ 61
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture
and rural development 3
Policies and Policy Instruments
Before liberalization
Before independence, Tanganyika had been organized into an agricultural production centre aimed at
satisfying the needs for export crops of the colons. At independence in 1961, industrial activities
represented only 3.6% of the GDP and were mainly aimed at substituting consumer goods and at
processing of export cropsi.
The colonial agricultural productive organisation was based on a combination of Primary Cooperative
Societies, Regional Cooperative Unions and National Crop Marketing Boards. The economy operated
for a time under free market conditions with the support of the World Bank funded ―transformation
approach‖ to agricultural development as a component of the State‘s first five year plan. Yet, the
Government also introduced the Agriculture Products Board Act which introduced government
marketing boards for ―scheduled‖ crops (Wobst, 2001) and therefore market purchases, price and
storate regulation , transport and processing for maize, wheat, rice, cashews and oil seeds (Bryceson,
1993).
This system operated until 1967 when the State – through the Arusha Declaration (Nyerere, 1967)
adopted planned economy and started nationalizing private owned companies (Wobst, P., 2001). With
the endorsement of ―Ujamaaii‖ specialised crop cooperatives were transformed into multi-purpose
cooperative societies (multi-crops, multi-social responsibilities, etc.) especially – but not only – in the
villages created with the first period of villagization. The reason of this transformation is that
economically well performing cooperatives (40% of them) were considered as a vehicle for capitalism
and the poorly managed ones (the rest) were too expensive to maintain.
Results didn‘t follow as expected and in 1976, the Cooperative Unions were dissolved and the Crop
Marketing Boards were replaced by Crop Authorities – placed under the direct / centralised control of
the Government – with substantial powers such as regulation of production, marketing, fixation of pan-
territorial prices, etc.
The State (supported by most donors) seems to have trusted the parastatals more than the small
farmers to produce agricultural commodities or to have believed that farmers could produce efficiently
only within the strict framework of parastatal activities. In fact, from the Arusha declaration to the first
adjustment plans, private sector and private economic initiatives have been associated to ―capitalistic
deviations‖ and therefore discouraged (Havnevik, K., J. et al. 1988).
In this context, producers of export and commercial crops started to reserve their energy for their
subsistence activities (incomes and access to social services were stagnating) and therefore
agricultural surpluses started to stagnate, leading – together with disruption of petrol prices,
decreasing of prices of export crops on the international market, climatic crises (in 73-74 and in the
early 80s), counter-effects of the villagization on productivity, break-up of EAC (1977) and war with
Uganda (1978), etc. – to losses of foreign exchange, increasing budget deficits and decreased
capacity of reaction of the state (Havnevik, K., J. et al. 1988; Wobst, 2001).
By the end of the seventies, the state initiated a programme called ―Agriculture is a matter of life or
death‖ (Kilimo cha kufa na kupona) aimed at generating self-sufficiency in food and poverty reduction.
Plots of land were given to families and people were encouraged to grow vegetables. Although this
programme may have helped at encouraging spontaneous ―innovation‖ processes such as a shift
towards food crops, increasing use of parallel (and illegal) marketing channels and the engagement of
the rural populations into any money-making activities this policy was not pursued as it was only
aimed at resolving a temporary food shortage problem. Instead, when the shortage worsened, the
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture
and rural development 4
State launched an Economic Sabotage Act later replaced by the Economic and Organized Crimes
Control Act to control avenues for ―corruption‖ linked to the proliferating informal traders in new parallel
market. Expectations of drought in the late 1980s and early 1990s immediately triggered the
imposition of local administrative restrictions on private grain trade (Amani and Al. (1992).
Traders were also were accused of sabotage and of causing shortages of food through ―speculative‖
strategies (Havnevik, K. J. et al. 1988; Muganda, A., 2004; Wangwe, 1997). This attempt to control
these initiatives failed because the fundamental causes of shortages were not addressediii. In periods
of normal food supply the State tolerated these alternative circuits and operated limited restriction.
Before the beginning of liberalisation, Tanzania made a last attempt to put its economy back on tracks
with the National Economic Survival Programme (NESP) in 82. The latter were much less
corresponding to a desire or demand from within Tanzania than to a pressure applied from ―outside‖.
Liberalization meant ―breaking the links between the Government and the economic sector, let the
private sector (and capitalistic behaviours) gain more autonomy, … renunciation‖ and such a loss of
control capacity on the economy was not wanted and considered as excessive by the Government
and the Party (Wangwe, 1997). The document [preparing a first Structural Adjustment Programme that
ended up as the NESP] was diluted in a way that blunted the proposed policy reforms‖. The IFIs
refused the plan and other donors also withheld aid.
Structural Adjustment
In 1984 Tanzania received the support of IMF/World Bank for the implementation of Structural
Adjustment Plans aimed at reinstating the balance in government and external sector accounts,
reducing inflation, restoring output to pre-crisis levels, rehabilitating the economic infrastructure. The
Government adopted more flexible trade regimes (compared to the – still very rigid – Internal Trade
Policy from 1982) designed to regulate the marketing process (local food products) and to ease the
operation of private traders. An ―informal sector employment advisory committee‖ was created and
simultaneously the Government promulgated rules and regulations for resulted in insufficient
determination for the implementation of the policies required by the SAP and therefore, to its failure
(Havnevik, K., J. et al. 1988 and Wobst, P., 2001).
Although SAP (1984 – 1986) hadn‘t shown satisfactory results, the liberalization process had been
engaged, and in 1986, Tanzania launched a new policy named ―Economy Recovery Programme‖ with
four general objectives (1) increase the output of food and export crops by providing appropriate
incentives for production, improving market structures, and increasing the resources available to
agriculture; (2) rehabilitate the physical infrastructure in support of directly productive activities; (3)
increase capacity utilization in industry by allocating scarce foreign exchange to priority sectors and
firms and (4) restore internal and external balances by pursuing prudent fiscal, monetary, and trade
policies (URT, 1986)iv.
ERP was followed by the Economic and Social Action Program (ESAP / 1989 – 1992) that persisted in
the efforts aimed at achieving a general reduction of state controls and a promotion of private sector
activities launching for that purpose the rehabilitation of key infrastructure components to support
future economic development, especially transportation facilities like roads, railways, and ports.
Decreased political commitment led to a reduction of the support, a suspension of payments for
development projects and balance of payments assistance and refusal of any further assistance by
IMF, World Bank, and bilateral donors.
However, in 1996, the IMF accepted to support the new Economy Recovery Programme (1996 –
1999) with an Enhanced Structural Adjustment Facility (ESAF) through a US$ 161.6 million SDR
aiming at (i) building administrative capacity for improving development management, (ii) maintaining
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture
and rural development 5
a stable fiscal stance and using public resources more efficiently, (iii) promoting the private sector by
deregulating investment and divesting parastatals, (iv) providing greater support for primary education
and basic health care, (v) supporting the development of basic infrastructure, especially to give
impetus to rural agricultural development and (vi) restructuring the financial sector to respond to the
needs of the private sector.
Encouraging resultsv allowed Tanzania in 2001 to be granted by World Bank and IMF a support of
US$3 billion in Debt Service Relief under enhanced HIPC initiative (World Bank, 2002) in support of
the Tanzania‘s Poverty Reduction Strategy. Donors such as IDA, IMF, AfDB, EC/EU, IFAD, Nordic
Development Fund, Organization of Petrol Exporting Countries (OPEC), EADF, Arab Bank for
Economic Development in Africa (BADEA), bilateral and commercial creditors under the Paris Club
and other agreements (IMF, IDA, 2001).
the informal sector, released some activities previously controlled by the state for parallel private
operations, supported and guided women to incorporate their activities in the official infrastructure
(Havnevik, K. J. et al. 1988).
Moreover, the Government eliminated the consumer price subsidies (maize), encouraged an
increasing of real producer prices (+46 – 55%), removed subsidies for the supply of farming inputs
although without liberalizing totally the supply of these inputs. The Government tried to improve the
parastatals‘ efficiency and to limit their burden on budget and monetary system. In the context of
Tanzania in the early eighties, such a programme was at the total opposite of the beliefs of the political
leaders and it has been said that their scepticism.
A slow transition towards a market economy
Input markets
In a context of structural adjustments, the government had to stop subsidizing inputs imports and local
monopolistic production considering the cost of this policy on Government budgets.
In the late 1980s, the monopoly of Tanzania Fertilizer Company ended and private traders were
allowed to import and distribute fertilizers. In 1994, the government stopped fixing prices for seeds. At
that same time, the exclusive subsidy to TFC had been abandoned (World Bank, 2000) and private
traders started to get involved in imports of inputs. The State set up the Agricultural Inputs Trust Fund
(AGITF) to import and distribute agricultural inputs but with poor effectiveness and performance due to
inadequate funding, poor staffing level, inadequate utilisation of front liners and political interference
(TISCO, 2006 in Guyver, P., et Al., 2008).
Hammond (1999) reports that the liberalization of the sector resulted with a drastic increasing of the
prices (+412% from 1989 to 1992) that led to a diminution of the utilisation of inputs in particular in
food crops (see paragraph 0) although it also allowed the entry of private companies (13 by 1998).
Officially, the input supply had been handed over to the private actors but some politically influential
unions continued to supply inputs in competition with private actors.
Marketing
Referring to marketing, the structural adjustment plans also resulted with more flexible trade regimes,
eased operation of the private traders and improved regulation of these new modalities of marketing.
SAP also aimed at improving the infrastructures on which marketing depends (road, markets,
communication, ports, railways, etc.).
A period of ―de-facto‖ liberalization started during the quantity-restricted period that occurred from
1984 to 1987, when the Government allowed private traders to purchase and transport up to 500
kilograms of food crops at any one time alongside with the cooperatives that continued to be seen as
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture
and rural development 6
the main participant in food grain markets. The ERP launched in 1986 continued building on this
process. In 1987 – when quantity restrictions were lifted – traders were allowed to purchase from
primary societies or other official agencies. The liberalization of minor and non-traditional export crops
had been largely completed in 1987 with the dissolution of GAPEX (the General Agricultural Products
Export Company). By then, the list of items subjected to price controls had dropped from 400 to 2
(petroleum products and electricity). Yet, prices paid by official agencies did not reflect actual
economic costs and private traders could therefore purchase directly from farmers at parallel marked
prices.
By 1989, most domestic market (and transport) controls on food crops had been abolished and pan-
territorial producer prices for the main agricultural products had been abandoned. The government
reiterated its verbal support for private traders, but still maintained restrictive conditions (source of
purchase) and without any tangible support in areas such as market infrastructure and credits tailored
to private grain traders (Amani H.K.R. et Al., 1992). In 1990, under ESAP (1989 – 1992), even
individual farmers could sell to private traders who were concomitantly allowed to buy coffee, tobacco,
cashew nuts and cotton.
Although private traders initially managed to pay higher prices for maize, the medium – long term
trend of real producer prices of all crops had started to decline in 1990 compared to the 1980s in
particular for maize and rice. Short to medium term fluctuations became more frequent after
liberalization than beforevi (Bilame, 1996 in Skarstein, 2005). Prices were increasingly affected by
higher seasonal variations due to insufficient price stabilization measures able to balance volatility of
prices and stagnation of marketed outputsvii
. According to IFPRI (2000:53), the removal of pan-
territorial prices may have led to a decline in marketed production in three main maize-growing regions
(Mbeya, Ruvuma and Rukwa). For export crops, small farmers obtained higher prices (partly due to
the devaluation) except for tea and sisal. But at the same time, increased costs of imported goods
(including inputs) limited the positive impact on all farmers‘ net incomes.
In 1991, the Government decided to pass a Food Security Act (MAC, 1991). Under certain conditions,
food exports had to be avoided at any cost to protect food security (evaluated on the amount of food
resources available in the country). Although liberalization and expansion of private trade was going
on and was filling the gaps left by the Government, private trade still had (still has) the image of an
activity able to endanger "food security" by encouraging the farmers to sell ―to their last kilo of grain‖.
This choice generated debates that are still going on to date.
Around 1992 the traders were formally allowed to operate on the trade of food and cash crops but the
Government was still wondering whether a completely liberalized marketing system was suitable for
the satisfaction of some efficiency and equity objectives and how strongly it would have to intervene in
pricing and marketing to guarantee the fulfilment of these objectives in the trade of the food crops. For
food crops, this debate was somehow in vain as the application of the food security policy regularly
cancelled all the benefits of the other dimensions of the development of agriculture and related trade
and marketing from 1991 to date.The export bans caused regular distortions in the cereals market. It
encouraged short term strategies (from all actors of the chains) and prevented all actors to engage
into long-term investments. These caused failures have – very ironically – been pinpointed by the
―liberalization-sceptical‖ as evidence of the incapacity of the free market to generate growth and
development and used for disinformation campaigns against free market and to justify political
interventions, anti-economical food distribution and – accessorily – leave room for the apparition of
corruption schemes in the food distribution systems.
Producer prices have been liberalized in fiscal year 1993/94 and a multi-channel marketing system
emerged in which the principle State intervention was through purchases by the Strategic Grain
Reserve (SGR) for food security needs and as the ―last resort purchasing‖ solution of grainsviii
. The
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture
and rural development 7
National Milling Corporation (NMC) was given more autonomy in management but was forced to scale
back its operations and cover its costs. NMC ceased to buy crops in 1991/92. In 1996/97 the share of
crops channelled through official market institutions had fallen to 10 – 20% (compared to 36% in
1986/87). The scaling down of NMC and SGR activities may have resulted from the recommendations
related to liberalization (decreasing of parastatal‘s costs on State budgets and privatization of those
who were too expensive to maintain). But in the case of food crops, it resulted with the weakening of
the SGR who could not anymore play its role of price stabilization.
Concerning the export and traditional commercial crops, most Crop Authorities had already been
replaced by 1993 by Crop boards with mandates theoretically limited to market regulation, issuing of
trading licenses, ensuring of competition and quality control. Private traders had started to buy,
process and export (from 1994/95 for cotton and coffee and 95/96 for tobacco).
At the end of the nineties attempts to come back to a higher level of State intervention could be
observed with several political choices such as (i) the re-empowerment of export crop boards to tax
traders and exporters (and therefore farmers) and regulate markets in which they are active
commercial players, (ii) the increased control of local government authorities on farmers, through
taxation, (iii) the proliferation of sector policies and strategies that privilege the state as initiator rather
than facilitator at central and local levels, notably through the vehicle of foreign-aid-funded projects
and iv) the continued practice of government-guaranteed bank lending to certain co-operative unions
(Cooksey, 2003).
In fact, some of the crop boards were entitled to implement functions such as ( in the case of the
Tanzanian Coffee Board – ― […] perform of any commercial activity or hold interest in any undertaking,
enterprise or project associated with the coffee industry […]‖ (MAC, 2001) with the legislation drawing
no distinction between the boards‘ regulatory role and their right to enter the market as commercial
actors. The Coffee Board was given the exclusive responsibility of licensing the commercial actors of
the coffee sector. It can be questioned whether this responsibility has been utilised with discernment,
to strengthen the sector or to protect the structures inherited from the socialist periodix.
The Ministry of Industry, Trade and Marketing set up Export Processing Zones and Special Economic
Zones as part of a strategy to support producers and investors in terms of linkages with the external
markets (amendments to the EPZ Act in 2006).
Currently, trade is regulated by the National Trade Policy (MITM, 2003) that has been completed in
the Agricultural Marketing Policy (MITM, 2008)x. The objective of the latter is to ―facilitate strategic
marketing of agricultural products while ensuring fair returns to all stakeholders based o a competitive,
efficient and equitable marketing system‖xi as a way of realising the vision of having a competitive and
efficient marketing system for the agricultural commodities leading to a rapid and broad based
economic growth.
This policy reflects well the position of the Ministry of Industry, Trade and Marketing where several
officials consider that liberalization / privatisation is a possible approach for economic and social
development under the condition that it doesn‘t result with the removal of all regulation that often lead
to monopolistic positionsxii
. Their position was that the Government should not impose itself on the
Private Sector and should rather involve it in the definition of rules and regulations corresponding to
new markets or to problems identified with the actors (PPP framework) or support it with promotional
activities (7x7, 8x8, etc.). The MITM and TANTRADE are involved in the Development of Domestic
Trade aimed at addressing the issues linked to the marketing of food crops and are therefore working
on the improvement of the collection of data in real time and the regionalization of the trade as a way
to avoid the negative impact of export / commercialisation bans.
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture
and rural development 8
The MITM was also busy working on the harmonization of the mandates between MITM and MAFC to
make sure that MAFC will not cause any more distortions in the futurexiii
. The MITM proposal is that
production aspects are put under the responsibility of the MAFC and marketing aspects should be
under the responsibility of the MITM. MITM is willing to make sure that the market plays its role
effectively so that food shortage problems can be addressed by the market.
Whether this is realistic is another matter of debate as several Government Officials are currently still
showing their scepticism concerning the free market economy and justifying the return to more State
control by some elements of failure of the free market – without accepting that the State‘s failure to
provide the proper environment contributed to this failurexiv
. It is therefore not surprising that the
Ministry of Agriculture passed the Cereal and Other Produce Act, 2009 that led to the creation in 2010
of the Board of Cereal and Other Produce. This Policy is aimed at introducing in the sector of cereals
and other commodities an entity able to create a new momentum in the marketing of food crops in
Tanzania. It will buy and sell several food crops on commercial terms and – doing so – try to promote
a more equitable commercialisation system and introduce new developing standards in the
commercialisation system. The marketing through the mixed crop board will be regionally integrated
(with 7 agro-ecological zones).
The Board was given the authority to regulate the market for all grains, including maize and to carry
out nearly all the commercial activities that takes place in the grains subsector. The board will
undertake or control actors taking functions like buying, cleaning, storing, milling, transporting and
selling maize or other products from maize. For purpose of regulation, the Act also set the conditions
of the creation of a regulation authority of the activities of the Board. It is therefore not clear whether
the creation of the Board of Cereals and Other Produce by the Ministry of Agriculture (MAFC, 2009)
was aimed at filling gaps in the marketing system of cereals (and other produce) or if was a sign of the
presence of contradicting conceptions of the support to marketing. Many actors (including MITM
officials and donors) are worried about the launching of this new board that is perceived by some as
the return of an excessive regulation or of a ―parastatal-like‖ actor. On the other hand, the Mixed
Crops Board could also address the current major problem of lack of law enforcement through the
application of fair and transparent marketing practices in its operations and through their imposition on
reluctant actors.
Credit
Provision of credit has been insufficient partly due to IMF‘s demand for a tight monetary policy (under
SAP) that led the government to try to lower inflation and increase the domestic-savings rate by
raising interest rates. Available credit lines further shrunk because a large portion of domestic debt
was owed by and lost with government-owned parastatals, Cooperative Unions; Primary Societies and
Crop Boards.
Informal-sector interest rates rose as high as 100 percent. The high interest rates, coupled with the
revamping of the CRDB (Co-operative and Rural Development Bank limited with more conservative
lending policy) and the positioning of private (mostly foreign) banks to trade financing in Dar es
Salaam, avoiding domestic lending activities resulted with the virtual disappearing of credit for small-
scale agriculture (Hammond, 1999) and traders. The Government tried to fill the gap with saving and
credit cooperatives but this had a limited positive impact on farmers because these organizations had
to practice higher interest rates.
As a consequence, emerging small traders doing assembling, wholesaling and milling had to rely on
other sources of funds (e.g. informal money lenders) to constitute their working capital. Strong inter-
personal links between farmers and traders also helped initially. When levels of competition increased,
the situation tightened for local small traders and when the State eventually liberalized totally the
sector, large foreign companies benefited as they could acquire the facilities that were previously
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture
and rural development 9
belonging to the parastatals. In some markets (Tandale, Mabibo, Buguruni, Kibaigwa, etc.), wholesale
traders, middlemen and cargo porters begun to establish their own institutions so that they can serve
their interests better.
Under the ―Kilimo Kwanza‖ Initiative, the Government is in the process of setting up Tanzanian
Agricultural Development Bank to provide loans for agricultural investment projects. The objective is
that the bank is operational by 2015. In the meanwhile, the Tanzanian Investment Bank will manage
funds to help investments in the agricultural sector through loans with targeted interest rates of 5 to
10%. In the meanwhile, other banks have been asked to rise the part of their portfolio reserved for
agriculture from 5 to 10% (CRDB, NBC, NMB, etc.). Stanbick Bank set up an Agribusiness Unit that
has been supporting Contract Farming Schemes for production of sunflower in Dodoma region.
Agricultural Policies
Since the first SAP in 1984, international donors have supported the Government to increase the
resources available for agriculture including the infrastructures on which this sector depends. This
approach has been reaffirmed in the different SAP and debt relief measures.
The Government endorsed that project but it took until 1997 to adapt the Governments‘ agricultural
and livestock development strategies to the changes that occurred in the macro environment and to
take the opportunities emerging from these changes to re-establish the country‘s economic balances
(Agricultural and Livestock Policy, Ministry of Agriculture and Cooperatives, 1997)xv
. Through this
Policy the Ministry of Agriculture and Cooperatives was expected to endorse functions such as
research, training, extension, policy formulation, information services, sanitary regulations, quality
control, protection of environment, creation of optimal market conditions and promotion of agricultural
growth. The Ministry was also expected to prepare at a later stage the transfer of some of these
functions to the private sector (e.g. extension services for dairy, poultry and horticultural crops) and to
improve the financial sustainability of some (ex) parastatal through divesture and encouragement of
investmentsxvi
. It was encourage in that by TIC who was listing several sectors in which private
investments were expected / needed: farm input services, farm equipment and machinery services,
irrigation services, market research and information services, transport storage and logistic services,
agricultural research, agricultural finance and total agricultural system solution provider. In 2011, most
of the functions that the State was speaking about privatizing in the 1997 Law have not yet been
privatized and have been / still are poorly implemented.
The Agricultural Sector Development Strategy (ASDS) has been defined in 2001 as a component of
the on-going macroeconomic adjustments and structural reforms. It was conceived as a basis for
actions by Public and Private Sectors to stimulate agricultural growth and reduce rural poverty (URT,
2001). The ASDS introduced modifications to the existing agricultural development policies to permit
private agribusiness to expand investments in primary production directly or through partnerships with
smallholders, input distribution, marketing of the products and agro—processing. The role of the
Government was limited to policy formulation, the establishment of a regulatory framework and the
provision of public goods and safety nets for the most vulnerable. Wherever possible, the private
sector was expected to provide goods and services that the Government could not provide or that
should have been private anyway.
Innovative approaches have been introduced such as (i) private sector/public sector and
processor/grower partnerships and (ii) participatory implementation of the strategy through District
Agricultural Development Plans (DADPs).
Specific actions were proposed in five strategic areas for intervention:
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture
and rural development 10
Strengthen the Institutional Framework. Specifically, to strengthen the public sector organizations and
restructure the Commodity Boards, promote the farmers‘ organizations, overcome the constraints met
by the private sector and strengthen its capacities.
Create a favourable climate for commercial activitiesxvii
.
Clarify Public and Private roles in improving support services (research, extension, training, regulation,
information, technical services and finance
Pay attention to marketing input and output to improve net farm returns and commercializing
agriculture xviii
Mainstreaming planning for agricultural development in other sectors
Between 2001 and 2006, ASDP was first implemented through the Participatory Agricultural
Development Programme (PADEP) and from 2006 onwards through both PADEP and Agricultural
Sector Development Programme (ASDP) locally translated into fact through DADPs. ASDP / DADPs
became fully operational in 2008 and turned out to be the government‘s main instrument for
coordinating nation-wide agricultural reform, monitoring agricultural development and establishing
operational linkages between the Agricultural Sector Lead Ministries (ASLMs).
Due to the slow take-over of the programme, the private sector had not yet become an active player in
it in 2008. The interests of overall private sector growth in agriculture – and especially large scale
operations - had received only limited attention from the government. There has been no package to
promote private sector development and investment focused on agriculture. The public sector was
paying attention to concerns expressed by the private sector, but it was rather the result of a focused
lobbying programme from a specific commodity or particular industrial interest than of a group of
emerging private actors (farmers, traders, processors, etc.) - (Guyver, P. et Al., 2008).
In 2009, a thematic working group from the Agricultural Sector Development Programme (ASDP)
discussed and developed guidelines for the Marketing and Private Sector Development Component
(MPSD) of ASDPxix
with the objective of increasing the positive impact of ASDP on private sector
development (ACT, 2009). The areas of intervention that were then identified were: (i) the mobilization
of and support to the private sector, (ii) the set up of a Business Development Fund, (ii) the capacity
building of private marketing chains and agribusinesses, (iv) the strengthening of the delivery of
market information services, (v) the development and promotion of private sector market-led risk-
management schemes (WRS, etc.), (vi) the promotion of agricultural products, (vii) the promotion of
the development of strategic agricultural marketing centres, (viii) the review of marketing legislations,
(ix) the harmonization of regional agricultural input and output marketing policies, (x) the building of
capacity of public institutions to implement, monitor and evaluate agricultural marketing activities, (xi)
the review of the effectiveness of public sector interventions in marketing activities, (xii) the monitoring
and evaluation of input and output marketing performance, (xiii) the establishment of agricultural
marketing baseline information, (xiv) the facilitation of annual agricultural marketing policy dialogue
and (xv) the carrying out of annual review of the agricultural marketing sub-sector.
An evaluation of ASDP identified areas of weaknesses to be addressed (MAFC, 2011) (a) the
communication and advocacy, (b) the farmers‘ empowerment, (c) the strengthening of the extension
services, (d) the capacity building of the private sector, (e) the set up of stakeholders‘ consultations
and partnership, (f) the encouragement of entrepreneurship, (g) different areas of research and
partnerships, (h) the agricultural service reform strategy and (i) the improved coordination, integration
and management of the private sector initiatives.
In fact, although support to private sector was one of the areas in which ASDP was expected to
promote change, this programme is still in the initial stages of their involvement.
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture
and rural development 11
Decentralization
Government policy is to decentralize and devolve to the district level and implementation has been
underway for many years under the Local Government Reform Programme (LGRP Ministry of
Regional Administration and Local Government, 1998). However, many districts have limited
institutional capacity and lack the necessary human resources to shoulder the new responsibilities.
Increased funding to districts without ensuring increased capacity will not have a significant impact.
Currently, local government‘s activities in agriculture depend heavily on public funding and NGOs, and
still emphasize subsistence-level operations. There is limited – but growing – interest in profitable
commercial agriculture, though more in some districts than in others. There is also resistance in some
districts to the new role of the private sector and a reluctance to accept the change required by
national policy.
In some districts work has started to develop Public-Private Partnerships (PPP). Previous attempts to
establish District Business Councils has not been successful, and changing attitudes and increasing
skills and understanding will be a critical for successful district PPPs. New approaches include the
District Business Alliances for agriculture. This will lead to district Commodity Investment Plans (CIP)
which in turn would feed into the District Agricultural Development Plans (DADP). This work is being
undertaken by the Tanzania Agricultural Partnership (TAP), MS Tanzania and RUDI.
Environment of Doing Business
Tanzania introduced its first market-oriented Investment Code that applied to all private investments –
local and foreign –and formed the legislative backbone for the Investment Promotion Center (IPC) in
1990. The Investment Code was modernized in 1997, resulting with the Tanzania Investment Act
(1997) aimed at promoting private-sector investments (both foreign and domestic) in Tanzania. The
IPC was given a wider mandate and renamed into Tanzania Investment Centre (TIC), regulations for
company registration were eased, a set of investment priorities were identified, and incentives
packages and investors‘ rights were improved. Economy was divided in three sectors namely (i) the
―Lead Sectors‖ (mining, infrastructure and Export Processing Zones), (ii) the ―priority sectors‖
(including industries such as livestock, banking, tourism, human resource development to export-
oriented projects, commercial buildings and broadcasting) and (iii) non priority sectors (the remaining
ones). ―Random‖ (non-export) agricultural activities were – temporarily – left out…
The Government also set up the Parastatal Sector Reform Commission (PSRC) in 1993 to privatise
around 400 state owned enterprises. The process started with the small manufacturing companies
and progressively extended toward larger ones such as TANESCO, TAZARA, TTCL, etc. (NORAD,
2002).
Lead sectors and priority sectors benefited with softened taxation in connection with the Investment
Incentive Packages that were promoting tax holidays, simplification of the bureaucracy for
investments, ease of clearance processes for land lead and working permits (ESRF, 2009). But
recently, private sector operators in agriculture officially registered with the Tanzania Revenue
Authority still received a heavy burden of tax connected to six areas of taxation:
Tax estimations that are based on turnover rather than profits
Produce Cess Administration systems are unclear
Agricultural Corporate tax – currently at 30%
VAT on Agricultural Processed Products is very difficult to implement
Excise duty on fuel could be reduced to farmers
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture
and rural development 12
Import duty: on agricultural machinery and equipment is too high
Macroeconomic performance appeared satisfactory but microeconomic performances remained
insignificant (until 2007). FDIs‘ failure to contribute to poverty reduction efforts caused by poor
management of FDIs and weak regulatory mechanisms led to public outcry against the policy and to
appeals for more support to local investments (direct and through capacity building for their
absorption), combination of strategies on short term (Investment Incentive Packages) and long term
(improvement of the environment for doing business), improvement of law enforcement units,
establishment of a Development Fund and easing of money transfers towards Tanzania, set up of a
Fair Competition Commission.
Several of these areas had not been (sufficiently) translated into actions:
improvement of the environment for doing business (125th in 2010 and expectation of 128
th position in
2011xx
)
law enforcement that is still close to inexistent and constitutes a major weakness for private investors
Overall government policies are aimed at supporting private sector development. However,
implementation of policy has been slow due to several factors.
The public sector institutional framework is too fragmented which constrains cohesive public sector
support to private sector agricultural development. This lack of cohesion sometimes results with
conflicting visions of agricultural and commercial development as for instance, the regular maize
export bans with the politically driven, unstated but well known, of keeping the urban population fed.
Short view calculations cause losses of incomes to a majority of those Tanzanian farmers who obtain
a part of their incomes from maize.
The private sector is not yet fully consulted on major policy issues. Although, for example, there is
often a phrase in new policy and legislation indicating that there has been a process of ‗wide
consultation with all stakeholders‘ this is not always the case. Moreover – and maybe as a
consequence – the private sector sees problems with aspects of the legal framework for commercial
agricultural development. For example, 22 laws have recently been categorized as having ―major
problems‖ and another 38 as having ―problems‖ for private sector development.
A commercial court has been established in Dar es Salaam, but such facilities are not available in the
rest of country. Also, in 2002 the Commercial Court increased the minimum value of cases it deals
with to TSh 300 million (roughly US$ 300,000). This put its services way out of reach for most farmers
and agro-industry operators. Further constraints emerge as courts throughout the country are
understaffed and many of the officials are not well trained in modern commercial and economic affairs
(Guyver, P. et Al, 2008).
Inefficient bureaucracy and corruption are constraints to small and large scale farmersxxi
. Although
efforts are being made to tackle corruption, pervasive, low-level ‗rent taking‘ continues unabated. Such
corruption created a sense of lawlessness which hampered existing business, discouraged foreign
investment, and encouraged capital flight to offshore destinations that are believed to be more secure.
Complex process of registering new agro-chemical products with TPRI or seeds with TOSCI
discourage local registration and encourages smuggling from Kenya.
It is generally accepted that the Land Act and Village Land Acts, both of 1999, do not provide a
practical basis for security of land tenure. Reforms have been proposed, but not yet implemented.
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture
and rural development 13
The end of the State‘s support to Primary Societies, Cooperative Unions and Crop Boards through
endless public loans caused an increasing number of Cooperative Unions to be insolvent. These kinds
of structures didn‘t disappear though as the insolvent ones simply got replaced by new onesxxii
. The
message from the State was clear: farmers‘ organizations need to be maintained for the strategic
export crops (even at the cost of lost debts, support to non-economically sustainable activities,
degradation of the farmers‘ organization and of their level of implication in the operationsxxiii
, distortion
of private sector‘s dynamics and the encouragement of non-reimbursement of loans). This message
was well received by some cooperativesxxiv
which formed in 1994 the Tanzanian Federation of
Cooperatives to promote, serve and coordinate the development and prosperity of all cooperative
societies in mainland Tanzania.
In 2002, the Government defined a new Cooperative Development Policy considering the failure of
many cooperatives to prosper in the free market, the importance of community contribution in the
development process, e.g. the traders‘ failure to fill the gap left by cooperatives (and the belief that
cooperatives were the means to achieve this) and some weaknesses that had appeared. In 2011, the
cooperative structures that are more knowledgeable are the ones operating in the area of Rural and
Urban Finance, Marketing of Agricultural products and Production. Cooperative officers have been –
together with different projects and development agencies – supporting the different kinds of
cooperatives in order to help them to implement the activities chosen by their numbers. Well
performing cooperative societies operate alongside other ones that have been less successful, either
because the means utilised to support them were not adequate/sufficient or because the way to go
from the initial stakeholders understanding was too long to be done at once.
The Cereal and Other Produce Act of 2009 also gave the license to the Board to create forums in
seven agro-climatic areas of Tanzania and a National Forum. Their responsibility will be to monitor
and supervise the actions undertaken by the Board and to inform the regulatory entity that was
created together with the Board. This process has already resulted with the designation of seven zonal
forums and a national forum.
The Government initiated a Public Private Partnership policy (GoT, 2010) to promote private sector
participation in the provision of public services through public-private partnership projects focused on
investment capital, managerial skills and technology. In fact, public-private partnerships have been
slow to develop partly due to the low levels of trust between public and private sector (that refrained
both sides to try to collaborate with each other), to the incoherence within the framework to support
and encourage private sector development in agriculture and to the different conceptions of PPP
between Government officials (vision of service contracts) and private sector actors (expectation of
true joint venture where risk and resources are shared). Some successful examples can be
mentioned: The Tanzania Seed Trade Association (TASTA), the Tanzania Agriculture Partnership
(TAP) and the Agricultural Council of Tanzania (ACT).
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture
and rural development 14
The Private Sector Response On one hand, liberalization – with its shift of emphasis to a reliance on market allocation and to the
enhancement of private sector development – had some positive impacts. Liberalization partly solved
the bias of resource allocation, permitted some improvement of the supply in inputs and spare parts
and therefore, a diversification of the production. It resulted with an improvement of the levels of
outputs for some firms (trade/restoration/hotels, community and personnel services, manufacturing).
The set up of the Investment Promotion Agency that later became the Tanzanian Investment Centre
and the support to Foreign Direct Investments (FDI) through packages including Tax Holidays allowed
a growth of the FDI from US$ 150 million in 1995 to US$ 474.5 million in 2006 and a total amount of
the registered FDI projects from 2005 to 2007 of US$ 11.9 billion. Together with the creation of about
234,500 jobs, this initiative may have contributed to the decreasing of the percentage of the population
falling below the ―basic needs‖ poverty line from 40.8% in 1991/2 to 37.6% in 2007. However, in 2001
Tanzania was still considered as a ―pristine territory for foreign investments in absolute terms
(NORAD, 2001) as – even during its ―FDI boom‖ years – it received less FDI per capita than most of
other developing countries. This can be partly explained by the small size of Tanzania‘s economy that
limited the investment possibilities. The agricultural-linked activities that received important FDI was
sugar processing, cashew-nuts processing factories of TANITA 1, Newala I, Newala II, Likombe,
Masasi and Lindi.
However, if FDIs‘ managed a macro-economic impact, their effect at micro-economic level had been
much less noticeable. Management problems (e.g. over-extension of the tax holiday periods) and
weak regulatory mechanisms, e.g. to promote local employment, local sourcing of raw material have
been mentioned as two major reasons of this lack of micro-economic impact (ESRF, 2009).
Furthermore, indigenous entrepreneurs unfortunately received much less support.
Other – more specific – negative impacts can also be listed such as the increasing cost of the inputs
and equipments, the increased competition and reduced profit margins, the stagnation of inputs for
some industries (quarrying/mining, construction) and a double negative impact for small rural farmers
and artisans (e.g. leather industry) because of a decreasing of their outputs and an increasing cost of
their inputs. Furthermore, although the privatization has been based on clear procedures and criteria,
ability of the Tanzanians who took over these businesses was not sufficient to allow the success of
these initiatives. The size of the parastatals and the importance of the investments required to acquire
them practically excluded a majority of Tanzanians. Most of these parastatals have therefore been
sold to foreign investorsxxv
.
Three main parameters can explain the little / late development of MSMEs: the lack of support, lack of
trust between private and public sectors and a weak business culture on both sides.
Input supply
Liberalization was aimed at encouraging the taking over of supply by private companies. In 1998, 13
new private companies had started operating in Tanzania in that sector (Mfungahema, R., 1999 in
Kessy, F., 2006).
However, the increasing of prices (+412% over 3 years) caused the percentage of fertilisers used for
food crops to fall from 70% (in the early 90s‘) to 32% at the end of the decade with only 10.5% of the
agricultural holdings using fertilizers (Guyver, P., et Al., 2008) and from 200,000 tons in 1994 to
63,000 tons in 1998 as a result of the sharp decline in the profitability of smallholder cultivation of
maize in particular in areas where subsidies were abundantly utilised Skarstein (2005). The decline in
the ratio of producer maize prices to inputs prices (seed, fertilizer, pesticides) may have led to a
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture
and rural development 15
reduction of the real return per ‗man-day‘ of maize production from 2496 TShs at 1998/99 prices in
1992 to 501 TShs in 1998, in other words an 80 per cent reduction (Delgado et al. 1999, 95 in
Skarstein, 2005). Declining ratio of producer price to fertilizer price has not only been caused by rising
fertilizer price, but also by a relative stagnation in the producer prices for maize (as well as for other
food crops). Acute food shortages during that period are also attributed to the removal of subsidies on
fertilizers (Hammond, 1999).
Hence, poorly administered input subsidy programmes discouraged the further development of
market-driven alternatives as the expectation of a subsidy dampened the demand for free-market
inputs, delayed the application of all fertiliser, especially when there are delays in subsidised supplies.
The government started working with CNFA to develop more efficient subsidy delivery systems.
Trade and marketing
Major companies and well connected actors might have succeeded to operate within the constantly
improving State systems and to benefit from activities implemented by the Government or
development partners.
But – if the liberalization of the trade in the sector of food crops allowed the installation in each district
of hundreds of traders, millers, retailers – almost all the traders and a major part of the millers are
working informally with very poor statistics about their exact number volume or the volume of their
operations. Having – initially – been only tolerated in the best case and sometimes refrained from
operating, these actors have for many years mistrusted State agents and currently still fear the
restrictions that might come from them and especially the taxes to pay without expecting to get
support from the State agents. This attitude might be changing but this behaviour could still be the
common case. Most of them formulate mostly complains about the State interventions: no access to
loans, poor infrastructures (feeder roads, urban and rural bulk markets, etc.), excessive taxes, no
contract and law enforcement, corruption within most of the administrations they deal with, being
accused of squeezing the farmers and at the same time asked to avoid prices for urban consumers to
reach certain limits, no support to export and – when they manage to get connections on the export
market – having their connections spoiled by unpredictable export bans, changes in the environment
defined at political levels without consultation of the actors of the sectors, official choice in favour of
food security equivalent to an implicit ban on free trade, preference for para-public interventions
through Boards, focus on export crops rather than on crop for the internal or regional food markets,
etc. The list of grievances is too long to let the observer believe that the conditions have been created
for the private traders to operate in a fair environment.
Credit
During many years, the restriction imposed by the international financial institutions (IMF, IDA, WB,
etc.), the fear of letting more losses happen and the risk aversion of the international banks generated
a lack of resources for credit for agriculture, trade, processing and service provision. Some donors
(DANIDA, RFSP) tried to compensate this weakness through supports to SACCOS and other user-
based Micro-Finance institutions.
In 2005, the State sold 49 percent of government shares in the National Micro-Finance Bank to
Holland consortium led by Rabobank as a way to improve the performance of NMB. Recently, the
number of banks has started to increase although the conditions for provision of loans (interest rates,
collaterals required, re-insuring of the loans), the lack of track records (to allow the evaluation of the
investors‘ projects) and the – almost exclusively – urban location of the banks restricted the access of
the rural based actors to this new resource. For instance, there were 50,000 registered companies in
Dar es Salaam only , but only a few hundred of them were strong enough to qualify for credit in one of
the major banks.
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture
and rural development 16
The increasing creation of Saving and Credit Cooperatives by the actors of the chain can be read as a
reaction to the limited access to credit. The under-equipment and under-investment observed in most
of the strands of the agricultural sector (agriculture, trade, processing, etc.) is a visible consequence of
this limitation. The development of trader-managed (shark) loans – usually extremely harmful to
farmers – is another consequence.
Private investment
The global picture of investments in Tanzanian economy is rather positive. The approved investment
increased sixteen-fold from US$ 47 million in 1990 to US$ 768 million by 2000. The Foreign Private
Investments passed from US$ 2.6 billion in 1999 to US$ 5,78 billion in 2005 and the Foreign Direct
Investments increased from US$ 2.2 billion in 1999 to US$ 5.14 billion in 2005 (TIC, 2006).
Table 1: FDI stocks – Evolution 1999, 2005
Year Equity
Value (billion US$) %
1999 1.34 67%
2001 1.93 55.2%
2005. 3.71 64.2%
The stock of borrowing from all sources almost doubled from USD 0.7 billion by end 1998 to USD 1.1
billion by end 1999 with most of it contracted directly from affiliated companies abroad on a long term
basis.
But agriculture (together with forestry and hunting) accounted for a low share of the total FDI stock
(7% / US$ 151 million in 1999; 2.9% / US$ 149 million in 2005) in spite of its important role in the
economy, contributing to over 50 percent of GDP and foreign exchange earnings, as well as being the
largest employer. Investments in agriculture were however reserved (over 90%) to crops such as
tobacco, sugar (Mtibwa and Kilombero), tea (Rungwe District), cashew, rice, barley, sisal (Katani
Limited).
The dividends paid back by the agricultural sector were limited to US$ 0.6 million corresponding to
1.4% of the total in 1999 to < 1% in 2005. The Agriculture sector, which attracted the lowest share of
FDI during 2001- 2005, recorded not only the lowest but also negative return on equity in 2005 (-35.4
percent).
Institutional reforms such as the establishment of TIC, Parastatal Sector Reform Commission (RSRC)
and Tanzania Revenue Authority (TRA) have contributed to improvement of the general
macroeconomic environment in Tanzania, but these reforms were perceived by the private sector not
to have gone far enough in addressing the problems faced by investors. Harmonization of tax
incentives and measures between TIC and TRA delayed long. In addition, land, labour, and legal
reforms have lagged behind the other reforms, thereby undermining the impact of the already
implemented reforms. TIC also regularly stressed the fact that the Government has not provided a
conducive environment and complementary public investment to attract domestic and foreign
investments in agriculture. Lack of clear marketing and trade policies, poor infrastructure especially in
rural areas (including roads, water and irrigation, storage, etc.), high cost of utilities and transportation,
delays in the set up of a Land bank (first demanded in 2001 and being implemented in… 2010) and of
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture
and rural development 17
Export Processing Zones and Special Economic Zones, unfavourable land, labour and tax laws,
insufficient coverage of the banking system, absence of crop insurances, inexistence of price
stabilization systems, etc.
Overall impact of FDI on economy and poverty reduction are limited due to the fact that FDI
investments focused on activities where heavy investments could be done in a safe environment. In
agriculture these two parameters are reserved for large scale commercial crops or export crops whose
production is done on large areas and that require heavy investments for processing. Moreover, due
to the nature of the activity, guarantees are easy to obtain (land or certificates of incentive by TIC or
BoT). This isn‘t the case for small farmers who are mostly unorganized, deprived of ownership titles,
unable to contribute in heavy investments, not considered as credible by local banks and – for most of
them involved in crops that have the status of food crop (that exposes them to the State‘s
interventionism).
Tanzanian smallholder farmers have limited education and experience, are frequently exposed to
shock and have to deal with weak institutional arrangements for production (Msuya, 2007; TIC, 2001;
TIC, 2004 and TIC, 2006).
For all the crops, the farmers‘ efforts in the crop – to expand it – depend on the buyers‘ capacity to
offer (i) prices that compensate, (ii) technical advices, (iii) credit and (iv) inputs through arrangements
that allow the sustainability of the household. If these arrangements are insufficient, the farmers down-
size the activity to satisfy the needs of the household or – in the case of commercial crops – abandon
them (as it happened with a cyclic pattern with coffee and cotton). PADEP and DADPs improved
farmers‘ access to supports although the process has just started to gain momentum. However – due
to their conception – these projects have addressed (and will continue addressing) community needs
rather than individual (entrepreneurial) projects. Hence, there is still a gap to allow the emergence of
small entrepreneurship in rural areas.
Environment of doing business
The internal level of efforts seems high but the international ranking concerning the quality of the
environment for doing business (loss of 3 positions from 2010 to 2011 from 125th position to 128
th)
illustrates the problems met by entrepreneurs to develop their activities in most rural areas and sectors
(production, trade, processing, provision of services, etc.).
In 2001, NORAD (2002) was highlighting the following issues:
the business framework did not encourage formalisation. Companies with turnover of more than TZS
20 mn/year had to register for V.A.T. where tax collection was aggressive, etc. (hardly better in 2011);
there was a lack of skilled managerial capability outside the family (unchanged for SMEs); even within
collaterization of land is difficult, and restricts access to credit (unchanged in 2011);
production factors such as electricity, telecommunication, insurance, transport, etc. are expensive in
Tanzania. (unchanged or worse in 2011)
Fragmentation and dispersion or most stakeholders‘ organizations indicates the need of apex
representation structures to ease their participation in any private sector-led development process.
Several attempts have been done or are again being madexxvi
.
The Government initiative of 2010 to promote PPP comes as an attempt to keep in contact with this
endogenous structuring. This explains the success of the Agricultural Council of Tanzania and TAP
programme (Tanzanian Agricultural Partnership) who both came to fill an important gap between the
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture
and rural development 18
private and the public sectors but also to re-animate some – almost extinct – forms of PPP (TCCIA,
etc.) that had been set up by the Government along the years.
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture
and rural development 19
The Role of donors
Overview of interventions
In 2008, Guyver, P. et Al. reported that – for the funding of the ASDP basket fund – the donors‘ efforts
to construct a cohesive, single platform of support to agriculture in Tanzania had – by then – not been
successful Although a Joint Assistance Strategy was intended to provide a focal point for integration of
external support to agriculture, divergent interests and concerns had eroded this position and delayed
the delivery of focused support to widespread private sector development. In the agricultural sector,
Guyver, P., et Al. (2008) citing OECD, (2008) describes a diverse and somewhat dispersed portfolio of
about 140 different donor-supported activities targeting private sector development in agriculture
which cannot easily be mapped. Concerning the most coordinated action Guyver, P., et Al (2008)
report that there has been little overall impact on the implementation of policy supportive of private
sector-led agricultural growth; neither within nor outside the ASDP. Table 2 provides a categorisation
of specific donor activities broadly supportive of private sector growth
Although many activities – research, extension, irrigation, livestock trade, food security – have been
‗projectised‘ over many years) certain donor agencies (WB, EU, etc.) supported by the government,
are willing to move towards ‗sector-wide‘ approaches involving basket budgetary support (education,
health, roads). Their aim is (i) to remove inefficiencies of fragmented and parallel aid delivery systems
and to increase selectivity, coherence, and harmonization of donor resources. To achieve this, donors
are exhorted to integrate policies and strategies into agreed macroeconomic policies and budgetary
processes, including the Poverty Reduction Strategy, the Public Expenditure Review, and the
Medium-Term Expenditure Framework. ASDS / ASDP is the example of this in the agricultural sector.
However, the challenge for the Government and the donors is to enhance their prioritisation, co-
ordination, management and implementation capacities. Furthermore, some donors (WB, IFAD,
African Development Bank) ―double-talk‖ as they simultaneously continue to formulate and implement
projects, support state functions that could be supplied by the private sector or regrettably abandon
almost totally some others such as research and extension under the pretext that decades of
state/donor support for research and extension have failed to efficiently spread these public goods
(Cooksey, 2003).
Table 2 Donors and Private Sector Aid
Kind of support Donors
Support to building the capacity of farmers‘ groups
to participate more effectively in markets
Oxfam, Agriterra / Agricord, USAID,
WFP, FAO, Bill & Melinda Gates, SNV,
Support to new product development and
technology to exploit new market opportunities
USAID, FINTRAC, IFAD, SNV,
Gatsby, Kilimo Trust,
Support to market infrastructures including
information, financial services, certification
services, etc.
EU, AFD, IFAD, ASDP basket fund,
AGRA, RFSP, FSDT, Canadian
International Development Agency,
DANIDA, SIDA, Koninkrijk der
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture
and rural development 20
Nederlanden, DFID, Sweden, African
Development Bank, PRIDE, FAO,
FINTRAC, Aga Khan, Bill & Melinda
Gates Foundation, Swiss Agency for
Development and Cooperation, CEFA,
Morovian Church of Tanzania – TBO,
AWF, GORTA,
Support to pro-market regulatory reform and
government capacity to support private sector
services
World Bank (IFC, MIGA, investment
climate advisory services), UNCTAD,
WTO, IMF, Dutch Ministry of Foreign
Affairs, UK Department for
International Development (DFID) and
IC, multi-donors FIAS platform,
DANIDA, SIDA, DFDI, IDA, TradeMark
East Africa,
Support to agricultural enterprise development
through grants, concessionary loans
SAGCOT, USAID, Bill & Melinda
Gates, FAO, AfDB, IFAD, UNIDO,
UNDP, MMA, FAO, Gatsby, Africa
Middle Market Fund, AGRA, AECF,
DFID, Lemelson Foundation, Norfund,
Capricorn, DANIDA, Irish Aid, JICA,
EU, Kilimo Trust, Care, African
Enterprise Investment Fund,
Support to industry associations USAID, FINTRAC, FAIDA-BDS, The
Tanzania Gatsby Trust, SIDA, UNIDO,
EU,
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture
and rural development 21
Rice case study
Changing role of the state in the value chain
After independence, the State has been heavily investing in the rice sector. Large irrigation schemes
have been installed as well as huge milling capacity centrally manage by parastatal companies
(NAFCO). Together with this parastatal system, the production of rice at village level has also been
supported with –maybe – an objective of food security rather than marketing through the distribution of
inputs.
Strategic Grain Reserve (SGR) has for a time been in charge of the delivery of export permits for
anyone who desired to export paddy but this disposition has been removed. In 2003 many processing
parastatals had been privatized and the sector had become mostly private sector driven (production,
milling, transportation, marketing, etc.). The processing infrastructures have all been sold to private
investors and most of the production infrastructures previously managed by the Parastatal company
(NAFCO) have been privatised (although in this case, the process is still on-going).
The State remained with the research on rice through the Agricultural Research Institute (ARI),
KATRIN, SUA and the seed certification through TOSCI / ASA.
In the recent years, the government has been heavily investing in irrigation through ASDP with funds
earmarked within the District Agricultural Development Grant and also specific National (above TZS 5
million) and District Irrigation Development Funds (below TZS 5 million). These funds apply for both
small and large scale schemes.
Currently, the rice sector is – according to Mr. Hussein (Managing Director at Bakhresa) – very
lucrative and potentially able to export. It is a very competitive and dynamic sector that is dominated
for many years by SMEs (ECI, 2003). Bakhresa is the only big company that is operating as processor
of local paddy in the rice sector, although on an irregular basis (some years the company intervenes
and some years it doesn‘t) and for less than 2% of the volumes. Even the acquisition of some of the
NMC parastatal assets has not been a sufficient advantage to be able to stand the SMEs‘
performances. ETC, MEL & Fida Hussein are processing imported paddy.
A series of factors may explain why these SMEs could took the sector over from the large companies.
All along the privatization period, the Government has been elaborating and implementing policies
aimed at developing the rice sector, but there was still in 2010 a general lack of transparency,
enforcement of regulations, traceability and a conducive business environment. For instance, the
Weights and Measures regulation clearly stipulates packaging standards for rice, but these standards
are often abused or ignored (MMA, 2010). Customers are keen to pay higher prices for specific origins
but traders spoil these quality signs through blending and un-accurate branding. Small – partly
informal SMEs – can easier adapt to these regulations (and sometimes ignore them when they are not
adapted).
The liberalization of the rice sector by the Government didn‘t go without an intention of protecting it.
Indeed, there is an official import duty of 75% and VAT of 18% that should preserved the sector from
foreign competition. Such a taxation would turn it virtually impossible to import rice for mainstream
consumption. Officially, it is only during food shortage periods that the Government has been allowing
few ―carefully selected‖ companies to import rice. As it was the only opportunity that these companies
had to compete on the rice market, they have been taken advantage of these authorizations to import
bigger volumes than required for food security purpose in order to be able to continue selling rice over
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture
and rural development 22
a longer period.xxvii
. However, recent evidences (from port authorities) show that the real level of
taxation ranges between 6 and 15% and that well over 40,000 MT are imported annually.
Whether this ―fake‖ protection would have been well adapted to allow a real development of the sector
can be questioned. In fact, food security objectives often prevailed over commercial interests as in
situation of food shortage, the Government has regularly been banning exports and therefore
disturbing private sectors‘ investment dynamics to the point that neighbouring countries that are
regular net importers (Kenya, etc.) got used to get supply from other countries rather than from
Tanzania. These distortions made private actors hesitant to invest, caused opportunities to vanish and
locked sellers into a small and volatile market (MMA, 2010). With trade barriers that are put in place
unpredictably, it is risky for trading firms to invest in developing durable marketing networks across
regions (Jayne, T.S. et Al., 2010). Moreover, the utilization of export bans for food security purpose
decreased the actors‘ capacity to predict the price variations. The recent launching of a Board aimed
at ―structuring‖ the trade of cereals (in priority maize and rice) is another preoccupying sign for the
private actors.
Another reason why the past strategies can be criticized is that they failed at linking farmers to
markets because they insufficiently took into account how low crop productivity and inequality in
productive assets constrain most smallholders‘ ability to participate in markets (Jayne, T.S., et Al.,
2010). The levels of land and labour productivity of the Tanzanian rice farmers is sometimes so small
that the relatively high final market prices don‘t compensate and encourage them. Furthermore, the
poor chain governance limits the returns that the farmers get from the final market pricexxviii
who
consequently lack ability to integrate productive farm technologies in a sustainable manner (MMA,
2010).
If the direct price determination has been abandoned, the Government continued influencing the
prices indirectly with no concern for commercial interests. As a matter of fact, the objectives of food
security added another source of instability with frequent and un-predictable export bans and import
licenses. Moreover, the State started protecting the internal rice producers and processors by putting
import duties and VAT on imported rice (75% + 18% = 93%) and this partly explains the high
consumers‘ prices. Imports have been reserved for food security purposes.
However, this position has come to the edge of disappearing in the last years because of the
harmonizing of tariffs amongst the EAC countries (they are lower in Kenya and other countries where
production is not sufficient or not considered as strategic for local farmers).
Liberalization resulted with the emergence of high number of private actors in rice production, milling,
transportation and trade. This allowed to take the processing much closer to the farmers which is
economically sound (ECI, 2003) although the technologies available – lack of de-stoners, insufficient
previous drying and grading – are generating higher losses (milling dust, broken rice, etc.).
Trade of farming inputs has been liberalized in 1994 and this affected the availability of inputs.
Subsidies for inputs have been on and off which contributed to an irregular access to and use of the
inputs by farmers. After 2006, the provision of inputs to rice farmers has increasingly been taken over
by private actors such as stockists, seed multiplication companies, fertilizer companies, etc. (MMA,
2010). Deregulation also resulted with the development of ad-hoc rice brands based on geographical
origins.
The centrally defined prices had been limiting the rice production and with the end of this practice, the
production started to increase.
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture
and rural development 23
Encouraging private agents and farmer's organisations
Farmers‘ organizations have been encouraged to take over the management of the ex-parastatal
irrigation schemes but results haven‘t always kept up with the expectations. Mbarali 3200ha &
Kapunga 3000ha were sold to prvt investors, Madibira 3000ha is run by a farmers‘ coop with govt
support. All 3 are irrigated. Many irrigation schemes are utilized for only one cropping season per year
although they could be utilized for two. In fact, some functions such as the management of the water
in the irrigation schemes, of the mechanized ploughing and transportation services, etc. that were
previously in the hand of the Government have afterward been implemented less efficiently. This
might be the result of insufficient efforts done to empower existing (Tanzanian Farmers‘ Association)
or emerging (MVIWATA) farmers‘ organizations to ensure a smooth and efficient take over of the
functions that were previously controlled by the State. The total number of rice growers associations in
Tanzania does not appear to be known with the exception of two producers‘ apex organisations
working with RUDI in Mbarali – 7,000 members – and Kilombero – 3,600 members (Guyver, P., et Al.,
2008).
Trade, milling, transportation, retailing, etc. functions have been taken over very efficiently by the
private sector. But the function of chain governance has been abandoned (partially picked up by Dar
es Salaam-based middlemen and millers) and the farmers and consumers suffer from its absence.
Disposal of state assets
Most of the irrigation schemes that were managed by the government before liberalization through
NAFCO had been privatized during the years 2000.
The privatization process was aimed at making their irrigation assets available to small farmers (ECI,
2003) and most of the irrigation schemes are therefore occupied by small scale farmers although other
ones have been handed over to large companies (e.g. KPL in Kilombero). Attempts from big players
(Mohamed Enterprise and others) to buy some of these infrastructures have failed because the
Government stood on the side of the small farmers. In some cases it was justified: Kapunga scheme
that had been targeted by investors for the production of Jetropha for biofuel.
But the attitude of favouring small farmers can also explain why insufficient additional / further
investments have not been done, leaving some of the schemes incomplete and only partly functional.
Moreover, in the case of small farmers, the irrigation schemes remain – partially – under the control of
the Government (Guyver, P. et Al., 2008). Management units have been set up to help small farmers
run the irrigation schemes but little follow-up led to their failure.
As the privatization process continued over many years, some irrigation schemes that remained idle
over many years and got damaged due to insufficient maintenance.
The Government handed over the processing factories and previously managed by NMC (most of
them with a capacity of 50 tons per day). They have mostly been bought by large-scale entrepreneurs
who were able to lobby for that purpose and had the adequate capital.
This process has continued over a period of several years (Bakhresa bought its facility in 1998).
Currently, only the milling facility bought by Bakhresa is still operating (although only on temporary
basis and at only 2% of its capacity). All the other ones are idle (Mbeya, Shinyanga). In fact,
processing has been almost totally taken over by small and medium scale entrepreneurs and almost
all the State infrastructures lay idle.
Eventually, the village storage facilities previously belonging to the primary societies or unions
cooperatives have often been lost due to insufficient maintenance (new constructions are required) or
sale to actors whose objectives are don‘t fit with rice storage (storage of other crops, installation of
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture
and rural development 24
depots for goods and service, churches, etc.). Farmers therefore lost an important access to storage
services.
From that point of view, liberalization has not been successful (heavy investments under-productive,
laying idle or destroyed).
Production
The total production in Tanzania has increase from 530,000 MT (1998) to 899,000 MT in 2010 due to
an extension of production areas mainly and a small increase of the yields (1.6 to 1.8 MT of paddy per
hectare. Tanzanian yields are lower than most neighbouring countries and one of the lowest in the
world but due to the extended production area, Tanzania is the second rice producer in Southern-
Eastern Africa. Simplified gross marginsxxix
vary from negative returns to returns of about 70 %
depending on the yield levels and direct costs. Competitiveness of Tanzanian rice is undermined by
high production costs (low productivity), high prices, low yields and heterogeneous quality. However, it
is being improved with the promotion of semi aromatic varieties offering interesting yields and
preferred on the local market to the point that consumers are ready to pay differentiated prices.
Tanzanian Investment Centre through the Rufiji Basin Development Authority (RUBADA) is expected
to mobilize Foreign Direct Investments to valorise 622,000 ha with potential for irrigation purpose in
the Rufiji Basin that extends into Pwani, Morogoro, Iringa, Mbeya, Ruvuma, Singida and Lindi regions.
SAGCOT and KRCC rice project are two of the projects through which production will be increased.
Consumption of rice increased from 20.5 kg/person in 1998 to 25.4 kg/person in 2007 (5.4% per year)
which is more than the annual rate of population growth (2.88%) showing that rice is becoming a new
staple food crop. In mainland Tanzania, 92% of the consumption is covered by local production
whereas 8% is imported.
There are three main rice production systems in Tanzania: the lowland irrigated rice, the lowland rain-
fed rice and the highland rain-fed rice. The first system is potentially the most productive as all
parameters (especially water) are potentially controlled although it is currently not systematically the
case. Furthermore, this system allows producing twice per year if the water resources are sufficient.
Major part of rice farming is done by small scale farmers cultivating as little as a quarter of an acre to
up to 10 acres (with an average of 1.5 acres). However, there are as much as 214,000 ha registered
as ―utilised for irrigated crops‖ (Guyer, 2008). Irrigation schemes of as much as 3,000 ha are
operating. Some are owned and operated by individual farmers / private companies but some still
remain under the control of the regional authorities through the officers in charge of irrigation. The kind
of production system is the first parameter that influences yields and output.
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture
and rural development 25
Figure 1: Rice Value Chain Map (Source: MMA, 2008)
The second parameter is the use and availability of inputs (seeds, fertilizers, chemicals for the
treatment against pests and diseases) and equipments (oxen or tractors mainly for ploughing).
Amongst these, the seeds impact potentially more than other inputs: with non-improved seeds, even
fertilizers and optimal water resources will not provide the expected effect. The research stations have
identified some hybrids that combine high yields and aromatic properties.
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture
and rural development 26
The third parameter is the quality of the agronomical practices that can be summarized as the talents
to combine the inputs and the labour in order to produce an optimal effect.
The current rice farmers have different origins: some have been farming rice for several generations
either on the former parastatals or on their own plots (on lowlands or highlands). In several areas,
small farmers have been requesting to the Districts through DADPs the set-up of irrigation schemes
with improved water managements facilities. Wherever farmers are utilising the infrastructures
inherited from the former parastatals, the regional authorities tend to keep a strong involvement
especially in the water management. Investments are also being done by large scale companies (e.g.
KPL in Kilombero) or by projects (e.g. Korean Cooperation in Kilombero / Morogoro and Rufiji /
Pwani).
Farmers sell at farm-gate (at harvest), at household (after some storage), on rural bulk markets, at the
mill. Some of them integrate the storage and milling stages.
Trade and processing
The bulk of the trade is operated across the regions with production areas distant of the main
consumption centres of 400 km (Kilombero in Morogoro region) up to 1,000 km (Shinyanga). The case
of the production area of the North is almost an exception with the consumption centres located at less
than 200 km (Moshi, Arusha). Several actors intervene to take the crops from the producers to the
consumers. The local traders collect paddy from farmers and take it to millers. Some local traders can
continue their operation until they meet the wholesalers. When farmers are organized to store and
process collectively, they usually sell to larger scale traders.
An additional intermediary can exist between the farmer and the trader and/or between the trader and
the miller. In this case, paddy is bought by traders (often women) who supervise the milling and
distribute the rice within a network of retailers. An increasing number of millers is integrating the
purchasing of paddy from trader or farmers and the packaging and branding of the rice until the
wholesalers. If they do so, the millers also store enough paddy to be able to sustain their brand.
Therefore, it can be said that a part of the wholesale of rice is integrated by millers while another part
is done by specialized rice wholesalers. Retailers are the final actors who sell either in bulk, or in
packages (according to the level of packaging and branding integrated at the wholesale stage).
Most of the trade is done by small to medium scale actors. Initially, they were retrenches or farmers
but now their profile got much more diversified. Some large scale companies also operate at large
scale (Mohamed Entreprises, Export Trading, etc.). However, they have not yet reached the stage
where they tried to propose specific market linkages to farmers and they have almost no share in the
milling market. As a consequence, the small and mid-scale operators manage to compete with them.
Farmers are increasingly integrating the first stages of the trading cycle, through the management of
storage facilities (sometimes wharehouse receipt systems). The most successful ones have also
integrated the milling.
Control of processing has quickly shifted from the ex-parastatal units that have been privatized in the
early nineties to small and mid-scale operators who got equipped with equipments from China, India
and – for the lucky ones – Germany. Their initial investment capacity has usually been limited and
they thus had to increase the set of equipments little by little. This partly explains the late start in the
branding process and the current opacity that affects the differentiation of the origins.
Impact of Private Sector Response to Opportunities at a chain level
After the Parastatals in charge of production, processing and marketing stopped operating, the sector
got slowly but definitely taken over but private actors at all the levels of the value chain, expect for
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture
and rural development 27
research. This entry has been so strong and resilient that even companies like Bakhresa – who had
bought some of the NMC processing facilities – could not keep up.
Producers working on irrigation schemes have increasingly organized themselves to address
problems such as the access to loans, storage and processing through groups and cooperatives or
through collaborations with traders or millers. However, much still needs to be done and development
agencies (governmental or not) are working with farmers to help them in the production and
organization processes.
Where irrigation schemes exist, farmers also had increased possibilities of getting access to improved
agronomic skills through their own initiative (exchange visits) or based on the support from local
extension or research officers or project agents.
The process of vertical integration didn‘t happen initially although large scale companies could buy
some of the production and processing units. But it is going on with millers who are increasingly
collaborating with producers or producers who tend to incorporate processing (directly or through
agreements with existing millers).
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture
and rural development 28
Banana case study Production of banana is a long-time practiced crop. Inter-regional trade of banana exists since the
sixties, although it started developing in the seventies and really got more important in the second half
of the eighties. Banana became then a commercial crop in most parts of Tanzania: Mbeya (Rungwe
District / Tukuyu Ward), Kilimanjaro, Morogoro, Tanga and Bukoba Region.
The research programmes on Banana (National Research and Development Program – 1977 / EEC
funding) and then the National Agricultural Research Organisation (TARO) from 1978-1986 were
totally disbanded with the formation of the Department of Crop Development at the Ministry of
Agriculture. This department can be defined as a problem solving unit which periodically contracts the
assistance of experts in order to deal with agricultural issues in all of Tanzania.
However, research results have been achieved in the control of nematodes and banana weevil and in
the development new hybrid varieties using local germoplasm. There has also been some progress in
the generation of saplings using Tissue Culture (T.C.) technology. Some farmers in Tanzania have
benefitted from each of these advancements as infestations have been locally treated, new varieties
are being distributed and T.C. saplings are also being distributed in limited quantities.
However, several farmers complained that they got no direct support from the Government for the
production of banana. For instance, some farmers couldn‘t recall about any visit from a field office
since 1993 (when some of the plantations were installed) while others were confident that there had
been no visit to their farm in the three last years and that they don‘t even know the district extension
officer. Farmers in Itete and declare that they have never heard of the District Agricultural
Development Programmes. Farmers in Kiwira said that they heard about the programme but that they
have never benefited from it for their banana plantations. However DADPs is supposed to be a nation-
wide participatory programme for the development of the agricultural sector. The input subsidy
programme funded through TAP-EU initiative has been limited to the production of maize (that is not a
commercial crop for many farmers in Rungwe District) although banana crop would also require
fertilizers and inputs and pays better in any case.
Farmers met in Itete (Tukuyu Ward) declared that they don‘t know if there is a specific research centre
for banana. When they meet a problem with their crop, they consult each other and if the problem is
too serious, they cut the plantation.
Several SACCOS have been set up with the support from the District Cooperative Officer and farmers
sometimes managed to get loans. But these services are considered as too expensive (interest rates)
and insufficient compared to the needs of the production (need of inputs) and trade (working capital to
pay proper advances to the farmers). Other financial institutions put requirements that are too difficult
to fulfil for traders. The apparition of services such as M-PESA and ZAP-PESA has improved the
situation for traders because it eases money transfers. The network of ATM has also increased
although in Rungwe District it is still insufficient.
The road depending of the Mbeya region are sometimes repaired / maintained but the ones that are
under the District‘s responsibility are usually barely practicable. Traders organize the maintenance of
some of the District Roads themselves in order to be able to transport banana. Bad condition of the
roads is one of the factors that can cause severe losses for the traders (banana is a very perishable
crop). Poor condition of the trucks is another problem that the farmers and traders presented as a
major problem. Indeed, it is due to the poor condition of these trucks that accidents and breakdowns
happen more frequently and generate losses. Insufficient control of the trucks and obligation for the
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture
and rural development 29
truck owners to maintain them is also presented as a matter of problem. This situation leads to harsh
business behaviours because the traders have to get the highest possible profits out of the volumes
handled.
When the traders incur losses due to transportation, there is no insurance system to help them getting
back in business. Transportation costs are increasing whenever the price of petrol is increasing. The
Government should subsidize the price of petrol for the transportation of crops corresponding to basic
necessities.
Farmers or traders from the Tukuyu ward have not heard about price information system. They have
their own network through contacts in different market places (e.g. in Dar) but the information obtained
through these networks are not always reliable. Due to the lack of secure information system traders
are totally dependent of the middlemen who are the only ones to know the proper prices and the
volumes required and who take advantage of this information distortion to take the best out profits of
the business. In fact, the middlemen in the Dar es Salaam markets have taken an excessive
importance.
Although it gets very dirty during the raining season, the Mabibo market in Dar es Salaam is
considered as ―reasonably good‖ – this is – compared to the two previous market places where
bananas were sold previously. The Urafiki place was along the road and unloading of banana has
been causing several accidents. The Buguruni market was much too congested to be suitable for the
trade of banana.
The little level of services provided to the banana producers and traders is difficult to understand to the
latter as they contribute to the incomes of the Rungwe District and Ilala Municipality (~ 1 TZS/Kg and
0.3 TZS/Kg respectively for each place).
Initially, fruits and vegetables have been marketed on the Kariakoo market. In 1977, the banana
traders had to leave and were re-installed on the Tandale market whose infrastructure was completed
in 1978.
With growing volumes and increasing number of traders, the market became congested and traders
started (in 1990 – 1991) occupying – unofficially – a space in the Manzese market. The latter also
quickly became congested and – due to the construction of the road – unsuitable. The traders looked
for another place and managed an agreement with the ―Big Brother Company‖ to occupy an area from
1994 to 2002. Again, in 2002, they have to move and the ―Urafiki Textile Company‖ accepted to let
them occupy a space in Mabibo where the market still is in 2011. Along these years, the banana
traders created an association (here referred to as ―The market Company‖) to represent them and
help them dealing with their constraints (see below).
This permanent shifting of the market from a place to another illustrates the little concern of the
Municipality with respect of marketing of banana (and other crops). According to the traders, the
municipality had reserved areas for the marketing of food crops but the municipality let them be
occupied and/or sold illegally. Consequences are multiple and mostly negative. The agreement
between the market company and Urafiki Textiles is informal, without any contract. On one hand, it is
positive as the market company has no rent to pay but on the other hand, it is extremely constraining
as the traders have no visibility of the time during which they will be allowed to occupy the space. This,
in turn prevents the market company of feeling comfortable to invest in the improvement of the
infrastructures and being able to access loans (consequence of having nothing to mortgage).
For the State, shifting is normal when the space occupied is congested, if it is needed by other (more
powerful) actors, if the traders don‘t address their problems (hygiene, conflicts, impact on traffic, etc.).
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture
and rural development 30
As long as the trade itself is not prohibited, the States considers these interventions normal and
useful.
Even though the municipality didn‘t provide a space, it still collects taxes for about TZS 40,000,000
annually which decreases the capacity of the market company to pay bills (electricity, security,
cleaning) or to invest in the improvement of the infrastructures (construction of shades, channels for
evacuation of water, concrete slabs to prevent banana from touching the ground, etc.). The only
service that the municipality provides in return consists in the visits of the cooperative officers to the
SACCOS that the Market Company created.
Table 3: Interventions of the state in the Banana Sector
Positive Negative
Done Presence of cooperative and marketing officers in the Districts, Municipalities (even though they are not all efficient).
Collection of information about banana trade on the market
The Director of the Municipality invited three traders to take part to a Seminar on trade (in 2010).
Criminalize trade (Sabotage Act of 1984)
Concentrate all the efforts on Export and traditional commercial crops
Oblige the traders to shift from one place to another
The Municipality collects taxes (TZS 40 M) without return of any kind to the market.
Not done
Almost no interferences by the government in the traders’ activity that gives them a relative liberty to work
No implication of the traders in the collection of information
No strong decision to allocate one specific place for trade of banana
No facilitation of the traders access to loans to develop their activities
Banana sector has never been concerned by price determination by the State. Prices have always
been defined by the market rules.
With regard to the regulatory environment the banana subsector has in the past escaped significant
government intervention because of its low priority status. It was not seen as an exportable commodity
or a significant cash crop. The only regulation defined specifically for the banana sector is the one
concerning the criteria of banana (TBS). For the rest, the sector is somehow regulated by general
dispositions for trade, wholesale and retail. For instance, there was need for farmers to acquire
permits before they could market their produce.
Banana sector has always been driven by private agents. The State has not been at the origin of the
organizations that appears in the banana sector (e.g. organization of the middlemen in the Mabibo
market, farmers‘ or local traders (in)formal groups, etc.).
The State had not invested in specific infrastructures for banana production, processing or trade and
there has thus been no disposal process.
Research has been done in the control of nematodes and banana weevil, there has been the
development new hybrid varieties using local germoplasm and there has been some progress in the
generation of saplings using Tissue Culture (T.C.) technology. Farmers in Tanzania have benefitted
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture
and rural development 31
from each of these advancements as infestations have been treated, new varieties are being
distributed and T.C. saplings are also being distributed in limited quantities.
The Banana Value Chain
The figure 2 below represents the banana value chain as observed during the research. It includes
five main strands.
The first one is based on the local home-consumption and local sales directly from producers to
consumers. The second strand is based on the sales of bananas from farmers to local traders who
supply them to retailers mainly in secondary rural towns. Direct sales from local traders to consumers
are possible by less frequent than the sale through retailers. The third strand is based on the
association of local traders, urban wholesalers, urban retailers or hotels. The new dimension here is
the presence of urban wholesalers who play an important role of connection between the traders and
the retailers. They all operate in a central market place and this facilitates the traders‘ work although
they complain that such a place operates in a totally opaque way and causes huge losses to them.
The fifth strand based on industrial processing of bananas is much more limited in volumes and
geographically (Arusha). Traders (and some urban wholesalers) supply bananas to a factory who
produces beers. The factory (and probably wholesalers) distribute the beer to retailers who sell them
to consumers.
Figure 2: Banana Value-Chain Map (source: from the survey)
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture
and rural development 32
Production
Production of banana (all kinds) evolved between 1985 and 2009 from 155,000 MT to 3,219,000 MT
(times 20) due to a combined increasing of the areas planted (59,500 ha to 534,354 ha over the
period) and an increasing of the yields (2.6 MT/ha to 6.0 MT/ha over the period). Bananas are mostly
sold on the local market although some exports exist to neighbouring countries or even be airplanes to
Europe (with a maximum of 314 MT in 2004).
Competitiveness in the banana sector is undermined by the little support provided to farmers for the
improvement of the agricultural practices and the resolution of disease problems. Research
programmes exist but they fail to reach all the producers. Furthermore, infrastructures and logistic
solutions utilised for transport, packaging and marketing generate high risks of losses that usually end
up being paid by traders and farmers.
Production of banana is very basic in nature. Cultivation is achieved using local techniques and low
level technology. The banana farmers observed can be typically characterised as small scale, having
plots of not more than 10 acres. There are, however a few estate farms, with plots larger than 10
acres. Banana production is exclusively rain fed and the seasonality of the precipitation presents a
significant challenge. However, larger areas are being cultivated with banana and greater investments
are being made with respect to the purchasing of hybrid plants and inputs (organic/inorganic fertilizer).
Some households produce banana for their own consumption only but majority produces to sell at
least a part of their production. Bananas are sold locally to local traders and sometimes – when
production is more market oriented – farmers bring their banana to local or regional markets. Part of
the largest producers are also traders.
Trade
Interregional and cross border trade in banana has developed considerably with increased
urbanisation with large quantities being supplied to the large towns (Dar es Salaam, Morogoro,
Dodoma, Arusha, Moshi, etc.) and cities, and crossing the border to Kenya and Uganda.
According to the traders met in Mabibo market, Rungwe District / Tukuyu ward supplies close to 90%
(6,390 tons) of the cooking bananas that reach Dar es Salaam (~ 7,100 tons).
Inter regional trade for banana is affected by the variety as the banana preferences tend to change
from one region to the next. The most popular end market consumption of banana is in the cooked
form as a part of Tanzanian meals.
Processing
The major form of industrial banana processing found is the production of banana wine / beer.
Bananas are also processed into local brews and chips on smaller scale and with lower quality
standards.
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture
and rural development 33
Nodes in which the private sector is involved
Table 4: Nodes of private sector activity in the Banana Industry:
Actor Nodes/Activities Description
Small Holder Farmer Production & Trading Banana plots less than 5 acres in size, No mechanization, use hand hoes and machetes, Relies on rainfall for irrigation Sells at the market, to farmer groups, to traders and to Processors
Medium Scale Farmers Production & Trading Banana plots more than 5 acres in size, Some mechanization, some hired labour using hand hoes and machetes Relies on rainfall for irrigation Sells at the market, to farmer groups, to traders and to Processors
Small Holder Farmer Groups
Bulking and Trading
Collect from group and non-group members, Sell at the market, to traders or directly to processors, Serve as loci for technical/extension support services.
Traders Bulking and Trading
Buy bananas from SHF, SHFG, and at the markets. Sell at larger markets to local, regional and cross border wholesalers, Sell to processors-wine &crisps Sell to establishments-hotels and restaurants Sometimes receive capital support from larger clients.
Banana Crisp Producers (e.g. Golden)
Processing & Trading Micro to medium scale businesses Produce crisps daily Deliver the crisps themselves to shops and supermarkets within the area
Large Scale Wine Production Companies e.g.Banana Investment Limited (BIL) and Bhunu Mbundi Company
Processing Supply Commercially produced banana wine to at least 10 regions of Tanzania, Sell to distributors or directly to end market sales points- bars. Target primarily low income consumers Market expanding to include middle income customers
Local/Small Scale / Traditional Brewers
Processing & Trading Found mainly in rural locations Original producers of banana wine Sometimes produce illegal brews, Distribute to local pubs
Distributors/Dealers Wholesaling Distribute beverages of all kinds including banana wine, Supply urban and rural retail outlets.
Urban and rural pubs, bars and restaurants
Retailing
Retail outlets for banana wine.
Groceries and Shops Retailing Retail outlets for crisps and other banana products
Low and medium Income Consumers
Consumption
Target market for banana wine Target market for rural and small scale food outlets serving banana dishes.
Medium and high income Consumers
Consumption Target market for high-end hotels and restaurants serving banana dishes.
ii) In the Tanzanian banana industry the private sector has augmented its involvement at each node of
the value chain and has even created new products. The overall investment across the chain‘s entirety
has increased in response largely to the expanded volumes that now pass through this chain since
liberalization.
Impact of Private Sector Response
The effect of the private sector interventions on low income households has largely been in the area of
incomes with new possibilities of sale of bananas due to the growing market. Similarly, with a growing
demand, there has been job creation as new farmers are cultivate banana crops for the market on
larger fields, for larger harvests and larger incomes. Moreover, the expansion of the industry‘s support
services (logistics, etc.) has also created new jobs. Where new varieties and improved techniques
have been utilised, farmers have been able to improve their efficiency
The efficiency of the marketing and logistics aspects of the industry have also improved to a certain
extent (part of the roads is still un-practicable during several months in most of the production areas).
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture
and rural development 34
When this could be achieved, it resulted with better quality bananas reaching the processors and the
final market. Farmers are not limited to a single monopolistic and have other outlets. The introduction
of industrial banana wine has reduced health risks associated with indigenous sources. The
satisfaction of the end market also improved by introducing a totally new product - the crisps.
2011, close to 100% of the cooking bananas was transiting through the Mabibo market in Kinondoni,
Dar es Salaam. All over the year, an average of 5 to 10 trucks (3,5 tons) enter the market daily for an
annual total of 6,387 tons equivalent to TZS 4,5 billions at selling price. But the traders complain about
the excessive power handled by the these operators in Dar es Salaam and fact that they maintain the
opacity of both volumes demanded and prices offered by final prodces.
The banana traders got organized in 2005 in reaction of the challenges that they were meeting in
terms of negative or insufficient State interventions and also to help the established traders coping
with the progressive loss of reliability of the profession. The traders describe this loss of reliability as
caused by the increasing number of new entrants (young persons, persons who retired or were fired
from their position) and the related deterioration of the behaviour of some of the traders (due to the
increased competition). Instead of involving the police or the State, the traders decided to create their
organization to be known, accepted and recognized by the Government and the Municipality, by the
farmers and suppliers and by the Urafiki textile factory, etc.. Therefore, they requested the support of a
lawyer for the creation of their organization - today registered at the Ministry of Home affairs – that is
implementing the following functions:
Increase the traders‘ legality by getting a common business license in the name of the members of the
traders‘ organization. By doing so, the traders‘ organization allows its members to operate easier / with
less hassle and expenses.
Do trade if needed and tender for the supply of banana to institutional clients.
Managing the relation with the owner of the plot and – in the case they would have to move – looking
for a new location for the market. This gives the traders the guarantee that they will always have a
place where to operate even if they have to move out of their current situation (as it happened several
times in the past).
Making sure that the traders work in better conditions (cleanness, security, access to electricity, toilets,
water, construction of shades and improvement of the floor). These conditions and services are not
addressed by the State although the latter regularly obliges the traders to improve their standards
(hygiene for workers and of the products, etc.). Creation of a SACCOS accessible to the members and
non-members. In 2008 the middlemen‘s organization decided to create a SACCOS for its members
and for other citizens of the surroundings. It has reached 250 members (2011). For the aspects
related to traders, the SACCOS it aimed at helping them to increase their volume of activities or just to
maintain it in a context where farmers decreasingly accept to work on trust and increasingly request
cash transactions.
Co-optation of the traders working in the market area so that no thieves can remain amongst the them
and so that their suppliers feel confident and safe. This is important in a context where the number of
new entrants is increasing quickly with more and more people looking for auto-employment
opportunities and with little ethics and skill, meaning: with regular shortfalls of payments. As a
consequence, the traders‘ organization manages a register of all the middlemen operating on the
market. The new entrants are put under observation for 90 to 120 days before they are considered as
members of the organization. The faulty traders (new ones or others) are signalled to their pairs and
can be expelled from the market.
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture
and rural development 35
Advises to the traders for the resolution of conflicts with suppliers or clients so that trust is not affected
by possible problems. For example, sometimes a truck can delay to arrive on the market and cause
the products to lose their value and obliging the traders to reconsider their agreement with farmers.
Payment of the taxes to the municipality on behalf of the traders. This is the condition for them to be
allowed to operate without being hassled by the municipality for operating in a private place, with
limited standards (cleanness, etc.). This also implies that the market collects levies for any trader
entering the market and that the part of the money that is not paid back to the Municipality is used to
pay the services provided on the market.
The traders‘ organization has currently 380 members.
Even though they managed to set up their organization, the traders still suffer from the fact that they
have no legal occupation status for the place where they operate (no contract, no receipt for the
payment of the loan to the owner of the area, etc.). This prevents their organization to get loans for the
improvement of the equipments and infrastructures, for the strengthening of the SACCOS and for the
loans to the traders.
The whole chain has followed the growth of the consumption in the urban centres: production,
quantities traded; the number of persons involved in the trading function and to a certain extent the
level of investment. In a context with very limited support, the chain has reached a good level of
efficiency aimed at limiting to the maximum the overall opportunity costs.
However, farmers don‘t systematically fetch improved prices for farmers. All the risks are usually
shifted to them, either those linked to poor transportation conditions, un-reliability of the actors and
lack of coordination of the level of supply with the importance of the demand.
The development of a commercial-grade banana wine factory representing significant investment of
resources by an entrepreneur has generated a significant growth occurrence. It has provided a
lucrative alternative for farmers to sell their produce, provided employment for more than 100
members of the community and provided a quality, low-cost product for the low income class of 10
regions in Tanzania.
The trends observed can be attributed to many agents, the first of which is liberalization that allowed
for freedom in the sector and the opportunity for the private sector to intervene and influence its
development. Free from government restriction, entrepreneurs have been able to develop new market,
new opportunities, new systems of operation that have in turn resulted in higher volumes demanded,
being produced and being pushed through the chain. The only government involvement was in the
form of -TFDA & TBS for the regulation of the hygiene conditions in the processing units and for the
control of the quality of the final products respectively.
Increased urbanisation has also provided some fuel for the trends observed. As the cities grow there
is more need for commodities to move from the rural to urban areas. This has provided many new
opportunities for logistically oriented businesspersons, as well as support services such mechanics,
parts supply, tyres, petrol supply, hotels, restaurants and many more.
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture
and rural development 36
Coffee case study
Changing role of the State in the coffee Sector
In 1984, coffee farmers had to commercialise their coffee through primary cooperative societies and
the Tanzania Coffee Marketing Board created in 1984 by the Tanzanian Parliament (Coffee Marketing
Board Act of 1984) in replacement of the Coffee Authority of Tanzania. The marketing board had a
legal monopoly in selling coffee and providing inputs for coffee production as well as regulatory
functions. Farmers were getting paid the balance of the price fetched on the auctions and the
deductions operated by the auctions, the Board, the primary societies for their running costs and for
the inputs and services provided to the farmers.
The 1993 amendment divested from the Board all commercial oriented functions and empowered it to
regulate and monitor the activities of the domestic coffee industry and also to exercise promotional
functions (ESAANet, 2007 and TraceTraker, 2009). As a result of the 1993 amendment, private
traders were allowed to purchase coffee directly from growers and process it in their factory (Baffes,
2003). They effectively started operating from 1994/95.
However, several factors the production started decreasing due to a conjunction of factors: climatic (El
Niño and La Niña), economic (fluctuations of the international prices), organizational (worsening of the
farmers‘ access to credits, inputs, collapse of some primary societies and cooperative unions due to
mismanagement, poor and misleading statistics, excessive power of the Ministry and Board, etc.),
commercial (loss of quality, fiscal (excessive taxation), legal (licensing procedures, monopoly of the
coffee auctions, ), etc (Baffes, 2003).
In 2001 the need to enhance competition, control coffee quality and involve stakeholders in the
management of the Board, resulted in passing the Coffee Industry Act, No. 23 of 2001 (EBBANet,
2007). This new legislation obliged commercial operators to chose between local operations
(theoretically only purchase of parchment coffee) and export activities (purchase in the auctions and
later through special market arrangements for specialty coffees). Production and quality continued to
stagnate although the situation on the international market was improving therefore the Government
introduced in 2009 the ―Amendment of the crop board Act‖ that gave the Board the responsibility of
identifying the causes of the stagnation of the sector, coordinating PPP forums to tacled the shared
functions and supervising the elaboration of a New Industry Development Strategy 2011‐16 with the
objective of take the production from 50,000 tons / 35% of premium coffee (2009-2010) to 200,000
tons and 75% of premium coffee (2020).
Together with many supports, the TCB / Government are also criticized for generating constraints for
the private actors in the coffee sector. The TCB is supposed to regulate the sector. Although this
function can be considered as fulfilled in terms of definition of the policies the enforcement of the
regulations is very much criticized by most of the actors. For instance, quality criteria exist but their
application is poor and lots of coffee reach the auctions with grades that don‘t correspond to the
effective content of the lots. Unfortunately, the lots are anonymous in the auctions and buyers have to
use different strategies to know the price to pay for the lots. Many other examples of weak law
enforcement exist:
it is common that the district or village authorities don‘t know the content of the regulations, lack the
time, authority, resources and skills to implement them
corruption at all levels decrease the quality of law enforcement,
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture
and rural development 37
piling up of different levels of taxation constitute an important cost that the farmers eventually incur
without considering that the return provided by the State justifies the amount taken (and they don‘t
know the total amount charged),
some regulations are missing; as for example the definition of supervision principles of the farmers‘
business groups (FBGs) operating in the villages under the Company Act while the village or district
authorities have no responsibility / authority to deal with this kind of structure,
According to the law – the farmers are only allowed to sell parchment coffee but authorizations were
given in 2001-02 to some companies to buy cherry coffee at a time when the farmers‘ processing
capacity was insufficient and when the coffee sector was moribund. These companies invested in
CPUs through loans guaranteed by the Tanzanian Investment Centre. When they were suddenly
denied – by one District only and not the Board – the right to buy cherry coffee it generated heavy
financial losses, misunderstanding and mistrust.
More generally, the changes in the regulations (or the irregular application of some of them) have
been qualified as ―frequent‖ by some private actors and these changes maintain a big level of
uncertainty about the mid and long-term evolutions of the sector.
Eventually, the responsibilities of the regulatory entity – the Tanzanian Coffee Board – are not without
contradictions. The TCB is at the same time regulator and player as it also has shares in curing plants
that are buying coffee in the villages. It is therefore expected to compete fairly with actors at the same
time that it regulates their activities.
With liberalization, extension services worsened because the advices previously provided by primary
societies and cooperative unions – in complement of the extension officers – disappeared. Farmers
noted that in Isanza there is still only one extension officer for about three thousand farmersxxx
.
Furthermore, the extension officers only have an advisory role and have practically no authority on
whoever in the sector.
The Government supports TACRI / Arusha but this research centre has too little branches that are not
reaching all coffee farmers (1% of the farmers who really get access according to Lima).
The crop suffocates because it doesn‘t get the proper environment. For each lot of coffee sold on the
auctions, a fee that is supposed to be used for the crop development is collected ; however some
actors complain that it is not used for this purpose. The District cess collected on the trade of coffee
constitutes 75% of the local incomes of the Mbozi District but most of these resources are not used
for the development of the crop.
DADPs is potentially the main source of support to provide support to farmers and amongst them, to
coffee producers. Indeed DADPs funds have been utilised to:
repair roads and build bridges,
build water reserves for irrigation (Mbozi District),
finance sensitization and training on farming practices and processing
finance research institutes such as ARI Uyole and TACRI (Arusha)
payment of soil analysis to ensure the adequateness of the fertilizers utilised
build CPUs (e.g. 4 in Mbozi District) and water reserves (6 in Mbozi District)
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture
and rural development 38
But farmers consider that it is not sufficient compared to the needs. This complaint makes sense in a
context where private buyers of cherry coffee have been chased away denying farmers the possibility
to process it properly.
The removal of price determination
The control of prices has been relatively smooth as soon as coffee auctions have been implemented
as they introduced a principle of market-based prices that could not be controlled. The only restriction
of prices for producers was linked to the part of the part that the Marketing Board and primary
societies were retaining on the selling price and to the price at which the inputs and services were
accounted for.
Currently, the TCB provides (with a SMS system) indicative prices to some Farmers‘ Business Groups
to create awareness about the condition and evolutions of the market. There are rumours about the
TCB‘s intention to set minimum prices although this system has shown its inefficiency and dangers in
many situations.
Deregulation
Until 1991 -92 the government – through the primary societies – was providing subsidized inputs and
sometimes also premium on the price of coffee. With the progressive weakening / disappearing of the
primary societies the Government implemented from 1996 to 1999 a new subsidy scheme based on a
collaboration with the coffee buyers. The latter were requested to supply inputs to farmers against
vouchers delivered by the Government. The buyers were being reimbursed by the bank against the
presentation of the vouchers. Unfortunately, insufficient supervision and control by the authorities,
limited collaboration between the coffee buyers, the central and local authorities as well as un-
prepared farmersxxxi
allowed some persons to take advantage of the systemxxxii
and to hinder its
efficiency. As a consequence, the impact on production has been minimum.
As they are still missing a proper distribution network for inputs, the farmers expect the big input
companies to set up selling points in the rural areas so that the quality and availability of the inputs is
guaranteed. This system could allow avoiding the excessive numbers of middlemen who cause the
price to increase and sometimes corrupt the quality of the inputs.
The coffee farmers expect the government to subsidize the coffee inputs in the same way than for
maize to avoid that farmers utilise the inputs for maize on coffee (with poor results).
In 1993-94, with the increasing failure of the primary societies and cooperative unions, private buyers
have been authorized to operate in the coffee sector. It first had a very positive impact on the prices
(burst from 280 – 400 TZS/kg to 1,000 TZS/kg) but on the other hand, many primary societies and
cooperative unions who had insufficient capital and credibility could not compete and disappeared. By
2001 Tanzania ha largely liberalized domestic trade and processing (Ponte, 2001).
Unfortunately, the licenses were given without discrimination to companies with or without experience
in the purchasing of cherry or parchment coffee. Initially, any buyer could get access to the farmers
coffee. The buyers whose experience was on exportation had to buy coffee through cooperatives or
other local agents.
Although this high level of competition pulled the prices up, it also had a bad consequence in terms of
quality as any coffee was bought even when it was not of the required quality (unripe, cooked, rot,
etc.). As a consequence, the prices decreased again from 1997. With low prices, farmers took less
care of the remaining plantations, utilized less inputs (more expensive and less available), processed
the coffee less carefully and therefore, the quality / price dropped even further. During this period,
many coffee plantations have been abandoned (in the Mbeya Region).
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture
and rural development 39
In 2001-02, the Government introduced of single-level operating licenses that obliged the buyers to
chose between operating in the villages or as exporter in an attempt to restrict international
conglomerates‘ activity, increase opportunities for the involvement of local private actors, improve the
efficiency of each actor at each level and enhance the quality.
The companies that had more experience / connection on the export market withdrew from the local
market and got positioned on the coffee auctions. This was the opportunity for new companies –
sometimes invited by the Government – to enter the local market of cherry and parchment coffee. In
2011, two of the companies invited then had become major buyers of cherry coffee: City Coffee and
Lima Coffee (both are registered in Tanzania).
Another notable change is the issuing by the Tanzanian Coffee Board (TCB) of export licenses to
individuals (e.g. producers of parchment coffee and the private sector) to export directly their coffee
under the condition that the TCB would be informed about the prices and volumes of the exports and
that the quality had reached a certain level. TCB established for this purpose a classification that
defines the different qualities of coffee (classes), listed the ones that can be exported (class 5 and
below), and introduced the concept of ―specialty coffee‖ equivalent to specific production or processing
processes, specific origins, specific contract arrangements (fair-trade, organic, etc.), etc. A part of the
high quality coffee could therefore be selected for direct export.
This system is considered to have:
Limited the quantity of high quality coffee sold on the auctions and increased the average price of the
remaining volumes of high quality coffee sent to the auctions
Contributed to an increasing of this – more scarce – product on the auctions
Allowed to re-conquer some markets (Japan) that had been lost in the past due to the deterioration of
quality
Created opportunities for the actors dealing with these products to improve their profitability. The
quality premium allowed some farmers to get increased incomes in a period when prices of average
and low qualities were extremely low.
Yet, this quality approach is not shared by all the actors and some were keen to take advantage of the
situation and get big volumes at low prices.
Encouraging private agents and farmers’ organizations
However, from 1985 onwards, the primary societies and the cooperative unions had been less and
less efficient as they were missing capital for the supply of inputs. In some cases, they were also
missing the farmers‘ trust to sell their coffee and without proper commercial capital, delayed payments,
limited prices, they failed to pools sufficient volumes.
With the extinction of many Primary Societies and Cooperative Unions, the farmers started missing
some services. The creation of farmers‘ groups and umbrella organizations has therefore been
encouraged and supported either by the State or by projects to bridge missing functions such as the
transmission of know-how to the farmers, the management of inputs, the management of financial
services, processing, etc.
The farmers‘ involvement into processing was achieved mainly through the construction of Coffee
Processing Units (CPUs) by the Local Authorities (Districts) and projects (International Coffee
Partnership, TechnoServe and others). Yet, only 20% of the coffee is processed in the central CPUs
(run by farmers or Private Companies) while the rest is still processed through local techniques by the
producers. Processing is very labour-intensive and farmers‘ capacity is hindered by the technologies
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture
and rural development 40
utilised. An increasing of the part processed by the CPUs would increase the farmers‘ capacity to
achieve higher quality for the coffee processes on the farm. Though, CPUs run by farmers‘
organizations have often met management problems and several of them were idle some years after
their installation or lease out by private buyers.
As a matter of fact, the emergence of new farmers‘ group often happened without sufficient support
and follow-up to guarantee that these groups are really operational and aimed at working for farmers‘
interests. According to Lima Coffee, on a total of 140 groups that emerged over the last decade, only
10 to 20 are genuine and functional whereas the rest of them are organized by petty traders who use
them for their own interest.
Limited trust between farmers slows down the development of these groups and umbrella
organizations. Due to past experiences (primary societies and cooperative unions), farmers fear that
groups are used by leaders to spoil them from the fruit of their efforts or that por management
decreased their incomes.
Conditions put by Financial Institutions to provide loans limits the groups‘ capacity to help the farmers
for the supply of inputs or the provision of advances and therefore to compete with private buyers.
Hence, these groups may fail to pool sufficient quantities / quality to be able to negotiate
advantageously or to get access to direct export.
In some case, the organization process has been tremendously successful. Kili-Café is a private
company resulting of an initiative (TechnoServe) to help Farmers Business Groups. It tackles the
weaknesses of thes FBGs:
Insufficient volumes: Most of the FBGs produce 10 or 20 tons at a time and these quantities are
difficult/impossible to sell on the auctions. Kili-Café helps them by pooling increased quantities of
coffee that can be sold as lots.
Access to loans for inputs and advance payments: Small farmers groups don‘t usually manage to get
access to loans due to the lack of collaterals. Kili-café can help the FBGs to get access to loans. Kili-
café also provides advances to the FBGs for the payment of cherry deliveries and for the supply of
agro-chemicals and the groups‘ debts are cut at the moment of the payment.
Central management: Kili-café charges a levy on the coffee sold on behalf of the farmers to cover the
over-head running costs
Source of skilled leaders for the coffee sector: Kili-café has functioned as a training centre for coffee
specialist who are often occupying official functions in the Coffee Board or in the Government. The
actual General Director of TCB is the former manager of Kili-Café.
The initial successes have been tempered by some failures when Kili-café failed to transfer to the
farmers premiums that had been achieved on some coffee lots originated from FBGs.
Disposal of the State Assets
With the 1994 privatization individual farmers received some of the plots that were previously under
the control of the primary societies. Individual farmers had always been managing some private coffee
plots and by 1994, private coffee farming had started to become the common case. Together with the
coffee plots, the processing equipments were also handed over to the private farmers (hand pulpers,
sprayers, etc.) although they were not sufficient for all of them.
Banks (e.g. CRDB and NMB) are increasingly trying to collaborate with farmers through rural micro-
finance institutions (SACCOS and AMCOS) to initiate WRS activities. For this purpose they receive
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture
and rural development 41
support . Some of these banks spread information on prices NGOs such as TechnoServe (2002) and
the International Coffee Partners (2006) started helping farmers
to get organized (Farmers Business Groups), Farmers were supported in becoming organised and
developing enhanced managerial capacities. TechnoServe took some of the farmers‘ organization a
step further by facilitating the creation by the farmers‘ groups of an umbrella organization (Kili-Café)
that markets their coffee on their behalf.
to get knowledge about the coffee value chain (from production to marketing),
to access credit (as formally registered entities, the FBGs could access loans to buy agro-inputs)
to access training on improved and sustainable quality production, processing, book-keeping and
marketing practices. TechnoServe turned the quality of the coffee into a matter of shared responsibility
and helped the farmers to understand the consequences of any wrong practice on the final quality. To
achieve this, sample processing has been done weekly and farmers have been trained to taste the
coffee.
to identify technical solutions (e.g. irrigation of the coffee plots to improve the production) and to
implement them (e.g. loans for equipments, financing of CPUs;
to support farmers for an improved sensitization of the District concerning the farmers‘ needs that led
to the financing of water reserves and road by the DADPs. a systems of primes and fines was
introduced to encourage the good practices.
TechnoServe helps the farmers with processing equipmentsxxxiii
TechnoServe cooperates with other coffee stakeholders (Government, Regions, Districts, Villages,
TCB, TACRI). The NGO provided inputs during the preparation of the coffee strategy, collaborated for
the elaboration of a soil map (to adapt the use of fertilizers to the needs), bought small roasting units
to help the farmers to get early feedbacks about the quality of the coffee.
The different evolutions of the TCB created opportunities for the Government to receive suggestions
from development actors. For instance, the Tanzanian Coffee Board accepted to authorize FBGs or
actors not registered as exporters to export coffee at the condition that they export ―Specialty coffee‖.
When the Government put a ban on purchase of cherry coffee by private companies, it was a result of
an advocacy by some NGOs (TechnoServe) so that farmers are encouraged to sell parchment
coffeexxxiv
.
Private Sector Response
Many new businesses have sprung up around the industry‘s buying, transporting, trading and milling
activities, and these new ventures have created new employment opportunities.
These activities mentioned above have also served as points of significant investment. Of those
mentioned, milling has been the venture in which there has been notable infrastructural investment
and growth with a move from dry to wet milling which assists in the maintenance of the quality of the
coffee beans.
Farmers and farmer groups have also benefitted from the industry‘s liberalized activities. One of the
major impacts of the private coffee buyers has been to create competition for the primary societies
and coops. Firstly the buyers are offering immediate payment to the farmers as opposed to the
deferred payment given made by the coops. This has been attractive to farmers with immediate needs
to be satisfied. The private buyers are also attempting to offer prices just above those offered by the
primary societies and coops.
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture
and rural development 42
These competitive activities however have reduced the dependency by farmers on societies and
cooperatives and have brought about the closure of many of these agencies and the loss of work for
their staff.
Private buyers also helped farmer groups to enter into agreements with international coffee buyers.
Private entrepreneurs have assisted farmers (individually or in groups) in areas such as harvesting,
collection, bulking, transport/logistics and marketing, and allowed the farmers to bypass profit
consuming activities, making their work more viable.
Although the activity of the private sector has been intense locally, is has not been capable to affect
the prevailing market prices for the coffee industry. On the other hand, the presence of the private
actors had a positive effect on the prices of services such as, for example, milling and logistics.
The development of the industry, with respect to private sector involvement, has seen employment
increases in certain areas. There has been some level of job creation with the creation of new
functions, processes, companies, operations and services, but the closure of the unions and coops
had adverse effect.
The response of the private sector to the opportunities created by the liberalization process has had a
mixed effect on the livelihood of low income households.
From the position of the SHF prices earned in some cases have improved as some non-profitable
functions have been weeded out. In other cases the new level of competition among buyers has
resulted in lower prices being offered by profit-seeking buyers. On the larger scale however, the
average spending power of the average coffee farmer has not improved considerably with the
changing market.
Value chain
At present the coffee sub-sector value chain can be described as follows:
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture
and rural development 43
Figure 1: Coffee Value Chain Map in Tanzania. Source PROMAR, 2011 and Tsujimura, 2009
Input supply
At the input supply level, farmers obtain inputs such as fertilizers from private agricultural goods
suppliers and improved seed varieties from TACHRI.
Production
Tanzanian coffee production passed from 45,808 MT in 1985 to 68,577 MT in 2009 (with a minimum
of 32,500 MT in 2004. During the same period, the areas planted evolved from 110,000 ha (in 1985) to
150,000 ha (in 2009) with a minimum of 92,000 ha in 2002. Yields have been varying from 0.42 MT/ha
(1985) to 0.46 MT/ha in 2009 with a minimum of 0.27 MT/ha in 2004. This data illustrates the
consequences of the 2001 international coffee crisis on production, showing that it translated into a
reduction of the areas planted (2002), of the cares to the coffee crop and of the harvest of the coffee
present on the trees that translated into a minimum production in 2004. It is also important to note that
the level of production reached in 2009 corresponds to an important increasing compared to 2008 and
that the production was– until the 2009 ―outburst‖ – rather stagnant (43,100 MT in 2008).
During the same period, the prices of coffee evolved (from 1985 to 2008) from US$ 2,656 per MT to
US$ 2,205 per MT with a minimum of US$ 964.5 per MT in 2002 that explains the reason why
production got depressed during that year.
Competitiveness in the coffee sector depends on the producers, processors‘ and traders‘ strategies
that can be very quickly summarized in two categories: increasing of the yields and enhancement of
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture
and rural development 44
the quality with a recent increasing of the different quality attributes utilised for that purpose (fair trade,
organic, socially responsible, environmentally friendly, aromatic, specialty, geographically localized
production, etc.). With limited yields due to poor agronomic practices and insufficient use of farming
inputs and improved planting material the quantitative strategy leads to poor competitiveness whereas
the competitiveness of the ―quality strategy‖ depends on the type of quality, its consistency and the
kind of marketing channels utilised.
The majority of production in the sub-sector is derived from small-holder farmers (SHF) who usually
cultivate coffee plots less than 5 acres, with a minority of medium to large scale farmers who have
plots in excess of 5 acres. The farmers are also responsible for the production of parchment coffee,
which involves the de-pulping, fermenting and drying of the collected cherries, and separation of the
seeds. Some estates are operating in most of the coffee production areas (e.g. Burma Coffee Estate
near to Arusha).
Processing
Due to the limited number of CPUs left by the disappeared Primary Societies and Cooperative Unions
the farmers had a too limited processing capacity and this was affecting the outputs and the quality.
Moreover, the equipments available to the farmers to de-pulp their coffee required excessive labour
compared to the farmers‘ capacity. Other buyers had not been sufficiently investing in processing.
Trade
The next step in the chain is dependent on the farmer‘s affiliation.
i. Primary societies / Cooperative unions Farmers belonging to primary societies or cooperatives
sell the parchment coffee to these organisations. Some of the existing cooperatives in the
Kilimanjaro-Arusha regions are affiliated with KNCU and the parchment coffee collected by these
groups is sold to KNCU. KNCU then takes the coffee through the processing and procedures that are
required for the coffee to be sold on the coffee auction or through the Fair Trade markets.
ii. Independent primary societies Other primary societies/farmer groups have obtained TCB
licenses and sell the coffee collected directly to the auction,
iii. Groups There are other groups still who have obtained licenses for export, and market the
coffee themselves to international customers,
iv. Individual sales to private buyers Farmers may sell to Private Coffee buyers who may then in
turn sell to cooperatives and other actors having the capability to sell on the auction or to export.
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture
and rural development 45
Table 2: Nodes of private sector activity in the Coffee Industry
Actor Activities / functions Description
SHF Production
Coffee plots less than 5 acres Use traditional technology - Hand hoes and machetes, Largely have rain-serviced plots.
Medium-Large Scale Farmers Production
Coffee plots larger than 5 acres.
Tanzania Coffee Board Policy Setting
Sub-sector‘s governing body Formulates and enforces policies governing the sub-sector Set rules and regulations-conduct, quality, licensing, and taxes Manages the activities of the Moshi Coffee Auction (liquoring, grading, distribution of samples,
Farmer groups/Primary Societies
Bulking and Trading
Collect/Buy parchment coffee from individual SHF, Sells to the cooperatives, to the auction or to international buyers, Makes arrangements for curing of parchment coffee, grading, liquoring and regrading Provide a nexus for farmer support such as finance, extension and other services
Cooperatives-e.g. KNCU Bulking and Trading Collect/Buy parchment coffee from individual SHF, Sells to the cooperatives, to the auction or to international buyers, Makes arrangements for curing of parchment coffee, grading, liquoring and regrading Provide a nexus for farmer support such as finance, extension and other services
Local Coffee Export Companies (Tchibo, Sherif Dewji)
Export/Trading Purchase the coffee at the auction Ship the coffee to international coffee markets
International Coffee Companies Export/Trading Purchase the coffee at the auction Ship the coffee to international coffee markets
Roasters Processing Account for a large part of the profit in the industry
Kilimanjaro Commercial Bank Credit Services Makes credit facilities available to farmers Established first WRS for coffee
Tanzania Coffee Research Institute
Research and Development
Conducts research assignments Crop Improvement Develop improved varieties
Some traders decided to improve the quality of the coffee and started installing Coffee Pulping Units
with the support from the Ministry of Agriculture and of the Tanzanian Investment Centre.
Remaining constraints
Farmers are poorly informed, poorly educated and are easy targets for the schemes of other actors in
the chain. Farmers are unaware of the price movements in the international coffee market and how
this should affect their income. They are unaware of the proper methodologies for operation of the
societies and coops and their rights as members, they do not reap the full benefit of their subscription.
Farmers are largely ―price-takers‖ and generally settle for what is offered to them, whether it is from
the private buyers, primary societies or cooperatives. There is therefore still a lot of exploitation.
In many of the programs set up for the benefit of the SHF, these farmers are not properly informed of
the nature and benefits of the programs and therefore do not benefit as they are supposed to. Many
farmers who sell their coffee to Fair Trade have no idea that they are doing so or what this signifies for
them.
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture
and rural development 46
In addition, the industry‘s weak policy structure, inactive Board, the virtual collapse of the government
extension service system, land use restrictions and the growing competition of other, more lucrative
agricultural crops have all worked towards the de-motivation of coffee farmers.
Multinationals and local entrepreneurs have once again found ways to subvert the new TCB laws
restricting multi-level license ownership. These businesses have simply set up sister companies at the
different levels and each applies independently for licenses at their level. However the net effect is the
same as if a single company owned al the licenses. This has already begun to erode the competitive
nature of the local pricing for the coffee industry in Tanzania.
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture
and rural development 47
Conclusions The overall private sector responses to the policy trends have been very diverse.
The private sector actors are primarily affected by the level of investment required and the
corresponding risks incurred by the actors. The producers‘ investments to produce, improve
productivity and upscale their activity is globally very high compared to the incomes originated from
their activities and considering the risks (agronomic, commercial, climatic).
With the exception of some subsidized inputs, the producers pay all their costs cash and full price but
they are never sure of their yields and they can only rarely predict the price that they will get for their
crop. Therefore – and except when the factors mentioned above are being eased – producers‘
dynamism and responsiveness to the State‘s attempts to develop them have frequently been amongst
the lowest.
Traders‘ levels of investments and risks are limited compared to those of producers. Even for
perishable products (e.g. banana), at least a part of the risk (in case of road accident) is shared by the
producers. Traders can start operating with limited capital provided they manage a fast turn-over (e.g.
local traders who buy rice and sell it on the same day to regional traders or millers). They have
therefore been less affected by policy trends than the latter. On the other hand, a negative image
originated from the times when private trade was considered as economic sabotage continues to stick
to trader and limits the supports that they manage to access and the traders‘ readiness to collaborate
with public institutions (rice traders are considered as smugglers and with no fixed assets they fail to
assess to loans). Trade therefore might be the activity that will be more difficult to monitor.
Processing is in an intermediary situation between production and trade. Processors‘ activity is
dependent on their capacity of investing. Paddy milling is being done by a big number of small millers
who could start operating with a limited initial investment (USD 10 to 20,000) and some large units.
These small units could emerge even with very limited support (supply of equipments, access to loans,
etc.). The largest ones are often the result of the endogenous growth of small units. In the banana
sector, there is only one large scale processor producing banana beer. Most of the other activities are
micro or small enterprises producing crisps or local brews. This is due to the fact that banana sector
received almost no attention from the public sector and / or projects. From the point of view of the
risks, the processors are less sensitive than producers because their assets are easy to sell and are
not ―perishable‖ and because stocks of products to be processed can be sold quickly if necessary.
Input supply is a risky venture for traders because the State interventions can be very distortive. The
continuation of subsidy programmes encourage farmers in not integrating the full cost of the inputs in
the production costs and investments plans for production. Therefore, the farmers‘ use of inputs is
very much influenced by State policies and it becomes difficult for input suppliers to plan the
development of their business.
This first distinction parameter is directly connected to the second one which is the category to which
the crops belong: ―lead‖ and ―priority‖ sectors and ―non-priority‖ sectors. ―Lead‖ and ―priority‖ crops
received much more attention than the other ones and therefore, the support received by the different
actors has also changed according to the category to which the crop belongs. For instance in the
coffee sector, the Government heavily supported investments processing (e.g. by selling parastatals
or handing them over to cooperative unions or by guaranteeing through TIC the loans of actors who
were investing in processing). Furthermore, the government also tried to develop and set a level
ground for the coffee trade through the coffee auctions and other regulations.
We already mentioned that in the case of secondary crops, the examples of support to the value
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture
and rural development 48
chains are much more rare. For instance, in the banana sector the survey didn‘t come across any
direct State investment except– although in a limited way – into infrastructures that are also important
for other crops and that might not have been built without donor‘s support (roads, market
infrastructures).
The private sector‘s response also depended on the attitude that the State had towards the different
kinds of actors. This attitude can have been positive (when the actors play the role that the State has
given to them e.g. for the large corporate investors) or negative when the actors take over some
functions that were formally implemented by the State such as trade, processing and input supply with
a necessity of economic viability that doesn‘t allow them to integrate the subsidy or regulation function
in the same way than the State should have; but that the State isn‘t though implementing consistently
and efficiently (input subsidy programmes that have been implemented in way that affected the
availability, the equity in the distribution, the quality of the inputs, the timing of their availability and
sometimes even their price).
The change of the State‘s conception of the role of the rural traders and investors has been (very)
slow. To the point that a gap materialized between the official message that is clearly ―pro-private
sector‖ and the fact on the ground where traders still carry a name that reflects the idea that they
―squeeze and press‖ farmers. Such attitude towards traders might have a concrete base when the
latter operate without control or restriction but it is also an heritage of the late ujamaa years during
which private trade was considered as ―economic sabotage‖. In many cases, there is limited proximity
and collaboration between traders and district agents, taxation of the traders‘ activities is done without
consideration to the economic realities causing their costs to increase which affects… those farmers
who were supposed to be protected. It is common, especially in the ―non-priority‖ sectors that traders
receive no support and that District agents promote cooperatives to try to replace traders (convinced
that they will assume the commercial functions better). In the cotton and tobacco sectors, efficient out-
growing schemes have been criticized and endangered under the pretext that they were affecting
farmers‘ incomes. The substitution solutions are primary societies, cooperatives that have shown in
the past their incapacity to handle the services successfully provided by the buyers (inputs, extension,
research, marketing, logistics, quality control, etc.).
The limited efficiency of many value chains (especially those of non-priority crops) is a reality but it is
also a consequence of the limited attention that has been given to the trade and is a cause of the
stagnation of the farmers‘ situation (banana, rice, cassava, etc.).
There is also a pressure to prefer the rural cooperative entrepreneurship to the individual one although
cooperatives and collective producers‘ actions have failed and are still extremely fragile. For instance,
in the villages, there is nobody representing the State in charge of private companies so the latter
evolve without restriction but also without support. The preference for cooperatives and farmers‘
commercial organizations can lead to situations where efficient and profitable investments are
endangered: In the coffee sector, some private buyers and processors (Lima Coffee) were allowed to
buy cherry coffee and process it on behalf of the farmers in a attempt to improve farmers‘ market
outlets, prices and quality. But later (2010), these same traders were denied to buy cherry coffee. The
reason advanced were of two kind: the fact that farmers were losing a part of the added value and the
fact that laws were clear about the sales procedures. Through the (re)application of this law, farmers
lost more than they gained because they didn‘t have the capacity to process the coffee and therefore
some of their production got lost and the quality decreased. The companies who were suddenly
denied to buy cherry coffee lost millions and could not reimburse their loans. This could generate a
loss not only for the company but also for the Government as the loans have been guaranteed by the
Tanzanian Investment Centre; meaning that if the company fails to reimburse, the Government will
pay the company‘s debt to the bank).
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture
and rural development 49
Collective processing and sales didn‘t happen because farmers were not ready. This illustrates the
fact that the State still acts on ideological basis rather than on economically justified basis. Similar
examples exist for other commodities. For instance, in the rice, liberalization mostly applied to the sale
of the processing facilities and to the privatization of the irrigation schemes. Lately, the emphasis on
research, extension and construction of new irrigation schemes increased. But the State‘s intervention
on processing and trade of rice has been almost inexistent (or even distortive with export bans,
double-based import duties, etc.) and yet, the local value chains have been built up. However, due to
some imperfections the State recently decided to set up a Board of Cereals and Other produce that
will be habilitated to intervene in the trade of rice in order to impose level-ground functioning. A sledge
hammer aimed at killing a fly… Instead of improving law enforcement along the chain – that is at the
origin of the damageable behavior of some actors – and collaborating with the existing actors to help
them improving their activities the State chose the action that is potentially most distortive and that
fails to acknowledge the efforts of the private sector during 27 years of liberalization.
Most of the necessary policies have been created although some of them came late. For instance, the
Land Policy was reviewed in 1999 and eventually reshaped in 2007 to take into account some of the
recommendations that the Tanzania Investment Centre had been repeating since 2001 as a way to
ease investments for both Tanzanians and foreigners. The process of attribution of land titles for
farmers could only start with this last version of the law although it has prevented many farmers to
access credit and to think about investing in their land for many years.
Some policies are overlapping and contradicting as for example the Food security Act and the Trade
and Marketing Policy. The first is aimed at guaranteeing food security and entitles the Government to
ban marketing of some crops to foreign countries when food reserves pass under a certain level. The
second one is aimed at developing trade and marketing and therefore to provide a safe environment
for these activities. They are contradicting and usually, trade and marketing is the looser. One of the
pillars of agricultural development is weakened. While the Government guarantees that it is letting the
private sector develop, marketing boards (generally strongly controlled by the Government) are given
ambiguous attributions such as the simultaneous roles of regulation and intervention in the sector as
actor.
Some policies are well designed but poorly (not) implemented mostly due to lack of law enforcement
that can be explained by – but not only – (i) some hesitations (amongst the civil servants) about the
legitimacy of mainstream liberalization as an answer to Tanzanian problems in the local specific
context, together with (ii) a certain fear / lack of willingness of the political actors to hand over their
prerogatives, (iii) structural weaknesses of the State either due to the number or the qualification of the
State‘s agents, (iv) corruption, too often, that favours private interests against general ones, (v) limited
budgets, (vi) insufficient communication and awareness about the existing laws, (vii) sensation that
some laws don‘t apply under certain circumstances and for certain categories of persons and (viii)
many other factors.
Evolving from a planned economy to a situation of free market is a big challenge that many –even
amongst those who believe it to be feasible and potentially positive for the country – accept under the
condition that the State continues controlling most of the steps of the process. For that reason, at the
same time that liberalization is being implemented, elites or civil servants are striving to maintain
control over many traditional areas of responsibility and – by doing so – are obstructing the smooth
implementation of the operations. Similarly, the explanations for the failure of market liberalisation in
agriculture frequently failed to take into account the impact of the resistance opposed by some elites
or civil servants against the supposed threat posed by the ‗private sector. The circle is closed when
market failure becomes the official explanation for bringing the state back in although it has not yet
proven its capacity to regulate effectively, to resist the temptation to be a major market player and to
refrain its leaders to capitalize on their position within the chains.
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture
and rural development 50
Sufficient proximity could not be built with the emerging entrepreneurs, and any appropriate support
actions – meaning, sectoral or value-chain embedded support actions – In a context marked by past
ostracization of private traders and where liberalisation should have resulted with the welcoming of
any genuine and feasible private sector initiative. On the contrary, the policies have been lagging
behind, trying to keep the control of processes that had started and were unstoppable but that were
not understood and sometimes not accepted (Cooksey, 2003). This sign of a continued reluctance to
open the economy to private ownership and market forces manifests itself in complex and
unpredictable regulatory regimes for investment, property, taxes and employment. (World Bank, 2000:
21).
The implementation of the development policies has also frequently been contradicted by local
political interferences in technical aspects (input supply, choice of crops, utilization of extension agents
and budgets for non technical matters, etc.).
Some part of the limited answer of the private sector to liberalization might also be linked to the limited
understanding of the actors of the private sector and of the environment in which they operate.
Concepts such as value chains, clusters, agrarian systems were becoming famous since the late
seventies but have not been mobilized to understand the environment required to allow a good
development of the private sector and the actions needed to build this environment. At macro-level,
the application of the value chain approach by Government officials is still to be expected, whereas at
district level, there doesn‘t seem to be many field officers able to understand the agrarian system that
they are supposed to develop. The only clear leitmotiv has been ―develop production‖ or ―create
market opportunities‖ but it is only lately that both have been combined in a same message: ―develop
the value chains‖.
Small traders that had been criminalized (early eighties) have never been welcomed to work in a
supportive and structuring environment. They still mostly operate on informal basis. Farmers and their
dynamics, problems and potentials are not understood and there seems to be some anger against
them as if they were hold as responsible of the failure of the Ujamaa project.
In this context, private entrepreneurs have constantly been adapting to the changing environment,
new opportunities and threats, occupying new spaces and getting themselves squeezed out of others.
Opportunities, threats and capacity of reaction have not been the same for all. Large companies were
believed to be much more efficient that small or very small entrepreneurs. The first category had
access to funds (FDI, local loans or loans provided by the partner companies), capacity of lobbying
due to the level of employment and contribution to the contribution to the balance of external trade,
capacity of mobilizing new technologies and adequate skills, etc. Although they got all these kinds of
support, they have not shown a level of performance similar to what can be observed in neighbouring
countries (e.g. Kenya).
The second category – the small and very small entrepreneurs – has initially been rejected (phase of
criminalization of trade in the early 80s‘), then ignored or tolerated and then insufficiently and/or
inadequately supported (even by donors and projects) when not squeezed by local (District cess) or
national tax policies (TRA). However, they managed to resist and build up businesses that – when put
together – sustain value chains and whole sectors of the economy using their ingenuity, capacity of
resilience, resourcefulness, and determination, together with solidarity and strength of extended
brotherhood. Performances and coordination might not be optimal, unfairness might exist, but these
actors are eager to progress and expand commercial activities although many are sceptical about the
role of the government in helping their business – be they small or large scale (Guyver, P. et Al.,
2008).
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture
and rural development 51
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and rural development 56
Endnotes
i. Tanzania fought for independence in reaction to the class stratification that was favouring colons and
Asians, giving Africans (especially peasants) limited access to education, social services, investment facilities, employment and entrepreneurial activities (Havnevik, K., J. et al. 1988)
ii. Swahili word that can be translated into “family”, “brotherhood”, “relationship”, “living together” and here, “Tanzanian socialistic planned economy”.
iii. The 1983 policy of the Ministry of Agriculture was for example still giving priority to extension of communal and village block farms (together with parastatal enterprises) for production of food crops and marketing through cooperatives.
iv. The ERP’s medium-term objectives were (i) a positive growth rate in per capita income, (ii) a GDP target growth rate of 4.5 percent, (iii) an inflation rate below 10 percent in 1989/90, (iv) a fiscal government deficit below 13 percent of GDP, (v) an adjustment of the exchange rate toward an “equilibrium” exchange rate in mid-1988, (vi) positive real interest rates by mid-1988, (vii) an increase of between 30 and 80 percent in nominal producer prices for cash crops and (viii) decontrol of domestic prices over a period of three years (Wobst, 2001).
v. I. Governance (mainly control of corruption in tax administration, national tender system, judiciary, works), II. Government Financial Management, III. Tax Reform (introduction and application of VAT, rationalisation of import duties, harmonization of investment incentives, reduction of scope of exemptions and number of excise taxes, etc.), IV. Improvement of the Business Environment, V. Improvement of utility performance, VI. Improvement of the Poverty Database and monitoring capacity, VII. Adoption of a METF and provision of allocations in the budget, VIII. Education, IX Health
vi. The short – to medium – term fluctuations of producer prices in a deregulated market are most probably at least as important as the long-term trend in depressing the marketed production. The market demand for staple grains (maize) is highly inelastic, with an (absolute) value of price elasticity considerably lower than unity (Skarstein, 2005). As a consequence, without intervention in the market, rather modest changes in supply lead to quite large price changes.
vii. This is the consequence of the behaviours of producers (forced to sell), traders (when they practice speculation) and consumers (speculation of the rich and rush of the poor).
viii. Through NMC shortly and from 1990 under the direct supervision of the Direction of Food Security of the Ministry of Agriculture.
ix. In Kagera, trading companies who had received the favours of farmers suddenly got their trading licences withdrawn by the TCB. The Kagera Co-operative Union KCU was re-awarded a monopoly buying. As KCU had insufficient capital, prices got depressed and farmers chose to leave their coffee untended or to sell it to smugglers (towards Uganda) rather than accepting the promissory notes used by KCU. This is not very surprising in a context where members of the boards have (still partly are) been designated by the responsible ministries causing the stakeholders’ control over the Boards to be limited. State power has been used to prevent the break-up of some Cooperative Unions (e.g. KCU). Reports exist of a re-election of the cooperative committee (accused of heavy corruption and mismanagement) due to the mobilisation of the regional Field Force Unit (Cooksey, 2003).
x. These policies are tightly inter-acting with other earlier ones such as: the Sustainable Industries Development Policy (MIT, 1996), the Small And Medium Enterprise Development Policy (MIT, 2002), the Trade Policy for a Competitive Economy and Export-led Growth (MITM, 2003) and a set of other documents.
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xi. More specifically, this Policy also aims at (i) stimulating diversification and value addition in agricultural products in response to increasing and changing market demand, (ii) promote adherence to quality, standards and grade in agricultural products to meet domestic, regional and international market requirements, (iii) reform the legal and regulatory framework that guide the agricultural marketing system to take advantage of the opportunities available in the multilateral trading system and regional trading arrangements, (iv) empower, promote and support the formation and development of agricultural marketing institutions, (v) promote investments in agricultural marketing infrastructures and agro-business, (vi) stimulate and facilitate the development of efficient and effective agricultural marketing information, research and intelligence systems for the development of existing and new agricultural markets, (vii) promote development, adoption and use of risk management strategies in agricultural marketing, (viii) enhance access to agricultural marketing finance, (ix) identify and promote niche markets as way of addressing agricultural commodity markets facing matural global markets and (x) mainstream cross cutting issues.
xii. These officials had apparently a clear understanding of the necessity to avoid market distortions caused e.g. by un-even access to information that limit the gains for the different actors or for some specific actors.
xiii. Discussions are going on around the methodology for the calculation of the level of food security (level of needs compared to level of availability) and about the distinction between food security and food sufficiency. The MAFC is not clear about the methodology utilised to calculate the levels reached at a specific time.
xiv. This is illustrated by the intentional substitution in kiswahili of the terms corresponding to free market and disastrous market (soko huria / soko olela – from “ole” – pity, disaster)
xv. It was also aimed at merging and consolidating into one document the agricultural and livestock policies of 1983.
xvi. Farms that were under state-ownership include Dakawa rice farm, Kapunga rice farms, Mbozi maize farms, Bagamoyo farms, Ruvu rice farms, Mbarali rice farms, Namtumbo maize farms, Msiba seed farm, Dabaga seed farm, Arusha seed farm, Mwele seed farm, and Kilangali seed farm (TIC, 2004).
xvii. Ranches that were under state ownership: Kongwa Ranch - Dodoma Region (Area: 37,682 hectares), Kalambo Ranch - Rukwa Region (Area 64,560 hectares), Kitengule Ranch - Kagera Region (Stocking rate 6.7 acres per annum), Mzeri Ranch - Tanga Region (Area: 41,296 hectares), West Kilimanjaro Ranch - Kilimanjaro Region (Area: 36,350 hectares), Mkata Ranch - Morogoro Region (Area: 74,295 hectares), (Area: 17,951 hectares), Uvinza Ranch - Kigoma Region (Area: 56,170 hectares Misenyi Ranch - Kagera Region (Area: 40,857 hectares), Dakawa Ranch - Morogoro Region (Area: 53,600 hectares), Manyara Ranch - Arusha Region)
xviii. The following elements are considered as part of a more favourable climate for commercial activities: monitored lending rates, rationalized taxation regime, adapted investment incentives, reviewed energy tariffs and oil prices, improved legislation of the agricultural sector and related ones, increased possibility for stakeholders to control Commodity Boards, legalized and promoted cross-border trade, improved food security policy, eased access to land, demarked and surveyed land in agricultural investment zones.
xix. Creation of a private agribusiness sector support unit, promoting agro-processing and rural industrialisation, increasing access to inputs in rural areas, strengthening marketing information collection and dissemination, improving rural marketing infrastructures, promoting partnership between smallholder farmers and agribusinesses and implementing incentive mechanisms.
xx. The team was comprised of the Ministry of Industries, Trade and Marketing, Ministry of Agriculture, Food Security and Cooperatives, Ministry of Livestock Development and fisheries, Prime Ministers Office – Regional Administration and Local Government and the private sector. (ACT and MVIWATA ) were representing the Private Sector.
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xxi. According to http://www.doingbusiness.org/data/exploreeconomies/tanzania/ visited on 9/6/2011
xxii. Tanzania was ranked no. 82 of 91 countries on Transparency Inter-national’s Corruption Perception Index (CPI) for 2001 – (NORAD, 2002).
xxiii. Between 1988 and 1998, the number of Cooperative Unions passed from 22 to 47.
xxiv. For tobacco, many Cooperative Unions ended up operating as agents or collecting points for private buyers who provide advance payments plus a commission for the crops (Chambo and Cooksey, 2000, quoting Swedish Cooperative Centre, 1999: 26).
xxv. Two national cooperative apex organisations for cotton and tobacco; two specialised cooperative organisations – Tanzania Industrial Cooperative Union ltd and Saving and Credit Cooperative Union League of Tanzania; and 4 cooperative unions.
xxvi. Interviews with Mr. Mapunda and Mrs. Pallangyo of the MITM on 05/04/2011 and 07/06/2011.
xxvii. (i) Agricultural Council of
xxviii. increased Tanzania (ACT)
xxix. ACT aims to become the leading national private sector apex organization of agriculture, livestock and agri-business. Its potential members include companies, associations and networks of farmers and livestock keepers, input suppliers, transporters, stockists, processors and traders. The Council works to support and improve the economic and organisational environment for the agriculture. Membership levels, for the moment, remain low.
xxx. ACT’s Vision is to have a modern, commercial agricultural sector in Tanzania by the year 2025. This would include higher productivity, production, increased investment, high returns and an improved standard of living of the agricultural community. The ACT Mission is to unite all members of the agricultural community, to promote, coordinate and protect agricultural interests, to have a dialogue with stakeholders on agricultural issues, to assist and advise on the formulation of policies, strategies and to strengthen agricultural associations.
xxxi. working Amongst its current activities, ACT coordinates the Tanzania Agriculture Partnership (TAP), a Public-Private Partnership (PPP) to develop efficient and profitable agricultural value chains through private sector development and support, and to improve the effectiveness of public sector support and service delivery to farmers. Membership remains low and ACT is still developing its capacity.
xxxii. (ii) Tanzania Chamber of Commerce, Industry and Agriculture (TCCIA)
xxxiii. Established in 1988, the TCCIA is the pioneer private sector membership-based advocacy institution in Tanzania. It aims to represent the interests of commerce, industry and agriculture, facilitate, protect and promote business and pursue smart partnership with government. TCCIA has autonomous branches in 20 regions on the mainland and 67 districts. It has full-time staff in 15 districts.
xxxiv. (iii) Tanganyika Farmers Association (TFA) has been in existence for a long time, but although it has some outlets in principal farming areas no longer plays a major role as either a focus for private sector activity or as a supplier of agricultural inputs and market outlet.
xxxv. (iv) The Confederation of Tanzania Industries (CTI)
xxxvi. CTI is one of the strongest private sector associations in the country. Traditionally, it had large enterprises as members, but has now established a SME department to take care of the interests of smaller operators. However, it does not yet currently have any specific links with rural SMEs or agribusiness.
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xxxvii. CTI is driving a “Buy Tanzania” campaign to improve the image of local products and develop market linkages to competitive markets.
xxxviii. (v) Tanzania Private Sector Foundation (TPSF)
xxxix. In 2000, the Tanzania Private Sector Foundation was established as an apex organizations for private sector and employer organizations to participate in consultation with government. The Foundation aims to become the coordinating body for private sector associations. It has 79 active members. TPSF has spearheaded the formation of a National Business Council (NBC) which brings together private sector and government under the chairmanship of the Head of State for dialogue. The Council is made of 20 top civil servants, 20 private sector representatives and the President of Tanzania.
xl. (vi) The Agricultural Non-State Actors Forum (ANSAF) was revived in 2006 as an independent
xli. information and advocacy group for agriculture. The aims are:
• Advocating for a pro poor and conducive agriculture policy and business environment where Civil Society Organisations and the private sector effectively engage with and influence agriculture sector policies and practices.
• Effective analysis of existing agriculture policies and providing alternative views/directions.
• Providing a platform for learning, sharing, networking and coalition building around best practices and key issues in the agriculture sector.
xlii. Current members include ACT, MVIWATA, Concern Worldwide, PELUM Tanzania, VECO Tanzania, Oxfam GB, MS Tanzania, Oxfam Ireland, Tanzania Organic Agriculture Movement, SNV Tanzania, Farmland Consultants, Katani Ltd., and Action Aid.
xliii. 1 Anyway, foreign rice isn’t a preferred product. Local aromatic rice is from far preferred by many
consumers and traders use the reputation of some areas that have traditionally been producing aromatic rice to “brand” products from many origins. The imported food security rice can only be sold on the open market if blended with local varieties.
xliv. 1 The market margins vary from 143 to 275% meaning that the costs along the chain (after the farmers
sold) represent from 143 to 275% of the price that the farmers get. The highest the market margin, the less efficient the chain.
xlv. 1 Simplified Gross Profit divided by the total income
xlvi. 1 This is the common case all over Tanzania for most of the crops. During many years, the State hasn’t
employed extension or research agents or at least not enough to provide proper advices to the coffee farmers. Working conditions for extension agents are not up to the expectations of the new recruits and when the Government recruits some and trains them, some deny the positions that they are given.
xlvii. 1 The farmers had to contribute to the cost of the inputs through some deductions on the sales of their
coffee while previously, they had been used to get the inputs when their coffee was on the auctions without knowing their exact price and therefore, without having the impression that they had to spend money on inputs. In the new system, the farmers had the impression that they had to pay for something that they had been considering as a due from the government.
xlviii. 1 These persons have apparently been buying the vouchers from the farmers or persons in charge of
their distribution at limited price and after collection of the inputs, they sold the inputs to these same farmers (or other ones) at higher prices.
xlix. 1 . But the equipments are not directly given to the farmers. They have to mobilise their group so that
it gets a loan from a bank to buy the machine. TechnoServe advises the bank about the viability of the
Prepared by: Platform Secretariat Published by: Global Donor Platform for Rural Development Godesberger Allee 119, 53175, Bonn, Germany Study conducted by: Overseas Development Institute, London Authors: Frédéric Kilcher, John Howell and Michael Windsor with support from Benett Portage Photo credits: www.123rf.com/haak Date of publication: December 2011
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