Reforming Tanzania Agricultural Sector: A Poverty Perspective The World Bank AgCLIR Conference USAID & World Bank Dar es Salaam - Tanzania Presented by: Waly Wane Senior Poverty Economist World Bank Poverty Reduction & Economic Management Feb. 1, 2010 Presented during:

The Cashew Sector  There are roughly 360,000 cashew growers in Tanzania (Ag. Census 2003)  Most of them are smallholders with an average acreage around 2.9  88% have less than 2 acres  Most of them are poor e.g. Ruvuma survey 2004 P0=63.3% and P0c=75.8%

Cashew Sector – Institutional Framework  The actors Producers: smallholders and few big farms Producers: smallholders and few big farms Primary Societies serve as the link between farmers and buyers Primary Societies serve as the link between farmers and buyers District Executive Officer District Executive Officer Buyers: Private traders or Cooperative Unions Buyers: Private traders or Cooperative Unions Processors and exporters: 20 to 30% national production Processors and exporters: 20 to 30% national production Regulators: Today is CBT Regulators: Today is CBT

Cashew Sector – Recent Reforms  The Warehouse Receipt System (2007) Buyers can use cashew production as collateral (WRS) Buyers can use cashew production as collateral (WRS) Reemergence of single marketing channel Reemergence of single marketing channel Introduction of auction Introduction of auction  The Tanzanian WRS is not “standard” practice WRS Warehouses played marginal role Warehouses played marginal role Financing Banks are at the heart of the system Financing Banks are at the heart of the system

How Did the Reform Work?  Farm gate price as % of export price  Farmers respond to incentives  If history is a guide: Area dedicated to cashew is likely to shrink under current system WRS

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

Coffee Sector – Institutional Framework  The actors Over 450,000 smallholders (75% have <2acres) and few large estates Over 450,000 smallholders (75% have <2acres) and few large estates Most of them poor 56% Ruvu; 40.4% Kili Most of them poor 56% Ruvu; 40.4% Kili Buyers: Farmers Assoc. or Coop. Unions Buyers: Farmers Assoc. or Coop. Unions Private traders barred to buy directly from growers Private traders barred to buy directly from growers Tanzania Coffee Association Tanzania Coffee Association Regulators: Today is TCB Regulators: Today is TCB The Moshi Auction The Moshi Auction

Coffee Sector – Institutional Framework  Regulatory Framework One license rule One license rule Multiple licensing requirement Multiple licensing requirement Village Veto Village Veto Local Taxation Local Taxation Weights and Measures Weights and Measures Contingent (on quality) contracting (creates information asymmetries) Contingent (on quality) contracting (creates information asymmetries)

Effect of Early Reforms  Producer price initially rose before falling substantially  Tanzania’s small coffee growers receive a very low price at the gate relative to others

Comparing Two Institutional Frameworks: Rakai (UG) vs. Kagera (TZ)  Kagera Coffee marketed through KCU (~124 PS) Coffee marketed through KCU (~124 PS) 75% farmers belong to KCU 75% farmers belong to KCU Farmers have to sell to KCU through PS Farmers have to sell to KCU through PS KCU uses contingent contracting KCU uses contingent contracting  Rakai Coffee farmers are independent, only 10% belong to an association (NUCAFE) Coffee farmers are independent, only 10% belong to an association (NUCAFE) NUCAFE does not buy coffee; gives TA NUCAFE does not buy coffee; gives TA Sell their crops to privately owned Sell their crops to privately owned

Comparing Two Institutional Frameworks: Rakai (UG) vs. Kagera (TZ) (Cont.)  Final Outcomes Low KCU prices Farmers incentivized to sell to private (unauthorized) even Uganda (Illegal) Kagera output seems to find its way to Rakai Switching patterns away from coffee are emerging (De Weerdt 2006)

Maize Sector – Institutional Framework  The actors Maize grown by 65% of crop growing households across the country Maize grown by 65% of crop growing households across the country Smallholders are again the large majority with few medium to large growers Smallholders are again the large majority with few medium to large growers Buyers: Buyers: Small village-based tradersSmall village-based traders Larger non village-based tradersLarger non village-based traders Large public sector and other buyersLarge public sector and other buyers No cooperatives since liberalization No cooperatives since liberalization

Maize Sector – Key Features  Number of traders depends on season Many traders during harvest season Many traders during harvest season Sharp reduction in traders during lean season because of high search costs Sharp reduction in traders during lean season because of high search costs  Distance to market matters a great deal

Marketing Costs in Maize  Transport charges make up 83% of marketing costs  Why are transportation costs so high?  Trucking industry is competitive

Marketing Costs in Maize  Why are transportation costs so high?  Non-tariffs measures such as bribery at roadblocks or weighbridges are high  Local cess often mentioned seems not to be prohibitive  Even the impact of the export ban seems ambigous

Reducing Transport Costs  Improve public investments Best to improve rural roads Best to improve rural roads In Tanzania rural roads have been neglected In Tanzania rural roads have been neglected

A Overarching Lessons  To increase productivity and help lift the smallholders out of poverty Restore competition Restore competition Prioritize infrastructure Prioritize infrastructure Government can be the answer But it is not Always the answer Government can be the answer But it is not Always the answer GoT should find right balanceGoT should find right balance Better design and target policiesBetter design and target policies

Switching Farmers  Farmers, especially smallholders can switch out of non profitable crop  They also adopt crop that can help them sustain their livelihood such as bananas  Incentives matter

Poorer households switched out of coffee