Agro-industry investments, smallholders and workers: evidences on household income effects from Tanzania Raoul Herrmann 1, 2, Khamaldin Mutabazi 3, Ulrike Grote 2 1 German Development Institute, Germany 2 Leibniz University of Hannover, Germany 3 Sokoine University of Agriculture, Tanzania Annual World Bank Conference on Land and Poverty, 24 March 2014

Motivation & research question Large scale agricultural investments (LSAI) have risks and potential benefits Risks are well documented through numerous qualitative case studies Little information on actual benefits of such investments Can there be any direct positive effects from LSAI on household welfare? How do different institutional arrangements affect the welfare outcome?

Case study setting SAGCOT (Southern Agricultural Growth Corridor of Tanzania): – Promotion of agri-business clusters along southern road/rail/electricity network – Focus on inclusive business models – Concerns over land rights

Case study description Kilombero Sugar Ltd.Kilombero Plantation Ltd. Ownership of investment Illovo (British/South African) with government Agrica (British) with parastatal History Government scheme in 1960s, privatized end of 1990s Started in 2008 Investment More than 10,000 ha estate, 2 sugar mills, 1 distillery More than 5,000 ha estate Employment More than 5,000 mainly seasonal & casual workers Several hundred workers Smallholder integration Since privatization, strong growth of outgrower scheme: today more than 10,000 farmers (mostly operate farmers below 1 ha) ~ 2,800 farmers involved in PPP smallholder intensification project (SRI training, adoption HYV,, fertilizer, microcredit)

Methodology Household survey implemented in June 2013 of about 350 hhs Comparing two potential direct transmission channels with a control group Sugar cane outgrower farmer – Benefits of adopting a new crop, accessing high value markets Agro-industry wage labor – Benefits from off-farm income from casual & seasonal employment on estate & factory Non participants – Main economic activities: maize and rice farming, few additional cash crops – Large share of income from off farm employment Agricultural & total household income to measure welfare Descriptive statistics & propensity score matching

Descriptives (I): sugar cane gross margin analysis (preliminary) Sugar cane production (N=129) Rice production (N=262) Maize production (N=107) Gross revenue per acre (US$) 901 (863) 340 (273) 228 (170) Total costs per acre (US$) 296 (293) 102 (98) 30 (44) Net revenue per acre (US$) 603 (564) 228 (214) 189 (165) Total net revenue (US$) 1,788 (1,320) 425 (475) 219 (362) Note: mean values, standard deviation in brackets

Descriptives (II): agro-industry wage income (preliminary) Variables Sugar survey (median values) Rice survey (median values) Agro- industry (N=60) Local agric. labor (N=132) Agro- industry (N=60) Local agric. labor (N=74) Number of months per year10473 Number of person days per year Average income per day (US$) Annual wage income (US$)

Matching results: simulated effects of participation (preliminary) Agro-industry wage employment: Sugar cane outgrower scheme: ObsKernel matching% Agricultural income per capita (log) Unmatched-0.11 ATT % Household per capita income (log) Unmatched0.81 ATT ***93%*** Basic needs poverty Unmatched-0.44 ATT ***-37%*** ObsKernel matching % Agricultural income per capita (log) Unmatched1.18 ATT ***215%*** Household per capita income (log) Unmatched0.80 ATT ***128%*** Basic needs poverty Unmatched-0.42 ATT ***-40%***

Heterogeneity of simulated effects in outgrower schemes (preliminary) Sugar cane outgrower scheme Obs.ParticipationNot participation Participation effect Agricultural income per capita (log) Land poor (< 3 acre) *** Land rich (>3 acres) *** Asset poor *** Asset rich *** Household per capita income (log) Land poor (< 3 acre) *** Land rich (>3 acres) *** Asset poor *** Asset rich ***

Conclusions Indications of positive effects from participating in outgrower schemes & agro-industry wage labor market on household income – But: Heterogeneity of effects in outgrower model  benefits seem to be larger for wealthier farmers Participation effects in the agro-industry labor market seem to be influenced by specific conditions: – E.g. capital intensity (low/high labor demand), length of season,… Still preliminary results: – More robustness checks needed – Study of additional outcome variables (assets, food consumption…) Limitations of this study: – Cross-sectional data and small sample size – Study has focused on two good practice cases (no village land case)

Thank you!