Food Security Int a Nazi a 2

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FOODSECURITYINTANZANIA:ENABLINGENVIRONMENT,OPPORTUNITIES&CONSTRAINTSAbstract:Tanzaniafacesprofoundchallengesensuringitsfoodsecurity.Thegovernmentwillneedsound

policiesforallpeopletohavephysicalandeconomicaccesstosufficientfoodtomeettheirdietaryneeds

for aproductive and healthy life. Thispaper reviews the government of Tanzanias currentpolicies

affectingitsfoodsecurityandmakesrecommendations.

ThisSpringSemester,2010,CapstoneWorkshopatColumbiaUniversity/SIPA,issponsoredbyBoozAllenHamilton.

Itisintendedtoprovidestudentstheopportunitytoproduceoriginalconceptpapersexaminingtheimplicationsof

regionalanddomestictradepoliciesonhouseholdfoodsecurityinTanzania,aswellastheconditionsthatfoster

thedevelopmentofthesepolicies.Inthiscontext,foodsecurityimpliestheabilityofhouseholdsinagivenareato

accessandutilizesufficientquantityandqualityoffood tosupportahealthyandactive lifestyle.Theseconcept

paperswillprovideBoozAllenHamiltonanditsclient,theUSAgencyforInternationalDevelopment,withinsights

intofurtherdevelopingtheAgCLIRprogram(AgribusinessClimateLegalandInstitutionalReform),aUSAIDfunded

projectimplementedbyBoozAllenHamilton.


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Table of Contents

1 Overview of Tanzanias Regional, Bilateral and International Trade Agreements: ................................ 22 Land and Natural Resources ................................................................................................................... 4

2.1 Land Ownership: .............................................................................................................................. 42.2 Land Use for Agriculture: ................................................................................................................. 52.3 Water and Irrigation: ....................................................................................................................... 6

3 Impact of prices and investment policy on food security: ..................................................................... 7 3.1 Food Prices: ..................................................................................................................................... 73.2 Investment: ...................................................................................................................................... 7

4 Crop Sector Value Chain: ........................................................................................................................ 84.1 Farm to wholesale: .......................................................................................................................... 94.2 Wholesale to retail: ....................................................................................................................... 11

5 Non-Agricultural sectors/ Natural Resources: ...................................................................................... 135.1 Pastoralism .................................................................................................................................... 135.2 Forests ........................................................................................................................................... 135.3 Fisheries ......................................................................................................................................... 14

6 Recommendations ................................................................................................................................ 15Appendix: .................................................................................................................................................... 16ENDNOTES................................................................................................................................................... 18


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Introduction

In 2006, the World Food Summit defined food security as: All people at all times have access to

sufficient, safe, nutritious food to maintain a healthy and active life. The lack of food security has an

impact on civil and national security. Therefore long-term solutions are required to address it.

Broadly, the concept of food security is built on three pillars: i) Food availability: sufficient quantities of

food are available to people on a consistent basis; ii) Food access: people have sufficient resources to

obtain appropriate foods for a nutritious diet; iii) Food utilization: people have sufficient knowledge of

nutrition and care practices and access to adequate water and sanitation to derive sustenance food.

There is a direct and cyclical relationship between poverty and food insecurity, whereby poverty

contributes to food insecurity, which contributes to poor nutrition, health, and cognitive development,

which in turn contribute to poverty.

In Tanzania, achieving food security presents a profound challenge to the government to implement

social and economic policies to meet households dietary requirements. Currently, 22% of children are

underweight at the age of 5, and 30% of Tanzanians live below the poverty line.1 Therefore, the aim of

this paper is to review the government of Tanzanias policies towards food security, suggest indicators

for measuring the impacts of these policies and make recommendations to improve the enabling policy

environment. Accordingly, the paper is divided into five broad areas that directly or indirectly impact

food security. This list is by no means exhaustive. Many of these areas are interlinked, and contribute to

amplifying the effects on food security.

The first section evaluates the effectiveness of Tanzanias regional and international trade agreements in

improving availability of food. It also explores the potential for trade to improve access to food through

cheaper imports and identifies key constraints to realizing the benefits of greater trade liberalization.

The second section examines access to natural resources required for agricultural production. This

section explores patterns of land ownership, land use for agriculture and access to water and irrigation,

which affect all the pillars of food security.

The third section evaluates the impact of food prices on different sections of the population, examines

Tanzanias investment policies and identifies constraints to greater investments and improved price

realization. The pricing and investment environment is significant as it has ramifications on access and

availability of food in the country.

Section four looks at the value-chain surrounding food, from farm to market and beyond. Gaps in the

crop sector value chain can severely constrain access to, availability of, as well as the use of food.

Section five evaluates the impact of the non-crop sectors particularly pastoralism, forestry and

fisheries on the three pillars of food security and examines the major constraints, opportunities, and

food security implications of these sectors in Tanzania.

The concluding section makes recommendations on improving the policy environment in each of the

aforementioned five sections.


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1 Overview of Tanzanias Regional, Bilateral and International TradeAgreements:

Tanzanias trade agreements have potential interlinks with all three pillars of food security as they can

directly increase food production, thus improving food availability. Exports improve the incomes ofTanzanian producers, in turn enabling greater food access and food use. This section aims to evaluate

the impact of these agreements, identifies constraints to the full realization of trade benefits, and

suggests indicators that can be used to measure these impacts.

Policy framework of Tanzanias trade agreements:

Tanzanias trade policies are influenced by a set of partly interlinked forces. At the primary level,

Tanzania is a member of a number of trade regimes.2 It participates in two major regional integration

schemes - the East African Community (EAC), which consists of Kenya, Uganda, Tanzania, Burundi and

Rwanda; and the Southern African Development Community (SADC), 3 which consists of Angola,

Botswana, DRC, Lesotho, Madagascar, Malawi, Mauritius, Mozambique, Namibia, Seychelles, SouthAfrica, Swaziland, Tanzania, Zambia and Zimbabwe. Since 2005, the EAC has been a customs union and

thus has a common external tariff framework. Due to its membership, Tanzania is also part of a free

trade area within SADC. Further, the country receives non-reciprocal trade preferences from the

European Union (EU) through an Economic Partnership Agreement (EPA). Tanzania is also a signatory to

about a dozen bilateral trade agreements, which are mainly in the form of Joint Commissions.

These agreements have spurred activity in many sectors of the Tanzanian economy. They have helped

integrate Tanzania more deeply into the global economy to the extent that the EU is now its largest

export market. However, Tanzania does not seem to have experienced large benefits from concessions

offered by SADC and EAC. For instance, Kenya has consistently maintained a large trade surplus withTanzania.4 Moreover, Tanzania has the smallest fraction of intra-EAC trade at 22.8%, the bulk of which is

imports.1 Except for the EU, where it ran a positive trade balance, Tanzania imported more than it

exported to other SADC and EAC nations. As the import demand relative to the export demand

increases, the prices of imports is bid up, signifying deteriorating terms of trade. Tanzanias bilateral

agreements have also become largely redundant (except in the case of technical assistance) as the WTO

discourages bilateral preferences.5

Given the constrained impact of these trade agreements, it is therefore important to understand the

various countervailing factors that have been offsetting the advantages that trade liberalization can

potentially herald in the context of food security and access.

Countervailing factors:

1) Poor infrastructure: The first significant constraint to achieving food security through trade ispoor infrastructure within Tanzania. Insufficient investment in the road network has resulted in

1Tanzanian trade grew by 37.4% in 2006 but this was because imports grew by almost 50% while exports grew 15

%, leading to a deepening trade deficit (see Figure 1).


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just 4,000 kilometers of Tanzanias 85,000 km road network being paved.6 Most of these

unpaved roads are feeder roads in rural areas, and many routes become impassable after heavy

rains. Trucks transporting agricultural goods are subject to weight restrictions and can only be

filled to half their capacity, increasing transport costs for farmers and traders. The countrys two

railway systems are also unreliable, with dilapidated infrastructure and outdated rolling stock.

Further, capacity constraints at the Dar es Salaam port result in an average clearing time of 11

days for consignments the highest amongst any East African port. 7 All of these factors make

Tanzanian goods more expensive, impacting the countrys competitiveness.

Poor transportation infrastructure also impacts food security within Tanzania as it restricts the

flow of food from surplus to deficit areas. On the critical central railway line connecting Dar es

Salaam with Dodoma, the Tanzania Railways Corporation operated seven trains per week prior

to 2008; since then, service between these cities has been discontinued. The road network

connecting central to western Tanzania is also largely unpaved. Thus while Tanzania could feed

itself though domestic production, this food cannot be efficiently distributed, making it

inaccessible or unavailable in some areas.

2) Lack of coordination: Coordination of international trade agreements in Tanzania is not highlycentralized, limiting effective focus. While the Ministry of Industry, Trade and Marketing (MITM)

has the lead in trade policy-making, the Ministry of Finance (which was earlier the lead policy-

maker), the Customs Department and the EAC Secretariat continue to exert substantial

influence in policy-making. This limits coordination.

3) Protectionism: Despite the liberalizing strides made through these agreements, there continueto be a large number of products (859 in total) that are classified as sensitive and tend to

receive substantial protection from competition.8 More generally, protection levels in Tanzania

continue to remain comparatively higher than other EAC states as of 2008, only 13.4% of tariff

lines were actually bound, 9 implying considerable potential for backtracking and changing tariff

regimes.

4) Lack of analytical frameworks: Thegovernments implementation of policies, taxes and tariffswithout employing an analytical framework ex-ante often leads to problems that threaten the

countrys food security. For instance, the current trade regime prohibits the export of fish in

order to encourage more value-added processing within Tanzania.10 This policy is biased against

the lowest and poorest actor in the value chain, the fisherman, as it results in lower prices due

to reduced demand for fish.

In a similar vein, skewed domestic policies have also severely distorted the production of other

items, like milk. Under earlier rules, all milk produced in a certain area had to be sold

mandatorily to the local processor in that region, which created monopolies and limited the

price that milk producers received, eventually leading to a drastic fall in milk supply. While this

policy no longer exists, it has nevertheless rendered milk processing domestically unviable due

to the supply constraints it has induced. Thus, much of Tanzanias milk is exported to

neighboring Nairobi for processing, from where it is re-imported for Tanzanian use.11


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5) Smuggling/Illegal trade: The implementation of ill-conceived taxes coupled with lack of localmarkets results in problems like illegal trade. For instance, fish smuggling from Tanzania to

Kenya has become rampant due to the export tax and the absence of fish markets.12

6) Corruption: Corruption is a huge impediment that prevents realization of benefits from trade. In2007, USAID noted that inefficiency in clearing goods at borders was the main cause ofcorruption among EAC states.13 From the 223 Clearing and Forwarding Agents (CFAs) in the

region they interviewed, 52% felt that corruption was on the decrease everywhere, except

Tanzania. The highest average clearing time among these countries was reported in Tanzania at

5 days. Their study reported that almost 60% of Tanzanian consignments attracted a bribe and

that for every 100 consignments; CFAs paid a total of $ 1,920 as bribes, the highest in any EAC

country.

Indicators:

The Tanzanian economy has responded to and benefited from many of its trade agreements. However,

in the context of food security, it is imperative to put in place credible monitoring and evaluation

indicators to measure these impacts, coincident with more integrated, strategic and coherent national

trade policy concepts. Examples of M&E metrics, in time series, would include but not be limited to:

a) Tariff Levels: From the point of view of trade, average tariff levels (particularly for agriculturalproducts) are important indicators that have a direct bearing on food security. Tanzanias Trade

Tariff Restrictiveness Index declined from 12% in 2000 to 9% in 2006 due to its trade

liberalization measures.14 However, due to nontariff barriers, the Overall Trade Restrictiveness

Index (OTRI) at 54% is much higher than other Sub-Saharan African (SSA) countries (20%).

b) Growth/Composition of Trade: A measure for the impact of these agreements is to evaluate thegrowth or composition of trade (exports/imports). Tanzanias export basket in 2005 includedagricultural products (41.6%), manufactures (11.9%), and fuels and mining products, including

gold (11.5%) (see Figure 2). Trade balance for specific agricultural commodities over time is

another indicator within this category.

c) Relative price levels: Price level, both internal and with relation to other countries is a relevantfood security indicator. For instance, wholesale prices of maize in different parts of Tanzania

varied significantly during January 2010.15 In the northern region of Arusha, prices averaged

around Tsh 44,000 per 100 kg, whereas in the central Dodoma area, prices averaged Tsh 55,000

per 100 kg. Such regional price variations can have considerable impact on food security as they

affect production and consumption incentives. Relative commodity prices with respect to other

countries are also important indicators as they affect income earning potential for Tanzaniascash crop producers.

2 Land and Natural Resources2.1 Land Ownership:


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Land ownership and land policy are potentially interlinked with all three pillars of food security because

a) land policy and credit constraints limit food availability, and b) the low amount of Foreign Direct

Investment (FDI) in Tanzanian agriculture limits potential food access. Existing land policies prevent

smallholders from owning and cultivating more land. The lack of access to credit prevents farmers from

maximizing production since they cannot afford to invest in technology and agricultural inputs. The

insufficient amount of FDI in agriculture prevents farmers from maximizing food production since

smallholders do not benefit from economies of scale, year-round irrigation, access to improved

technology, or access to credit.

Prior to 1995, a land tenure system called the Right of Occupancy, classified lands as granted rights

(statutory) or as deemed rights (customary). People granted land title under the Right of Occupancy land

tenure system have rights to own that land as long as they occupy it, but new land laws approved in

2001 have made land title and access more equitable across society, at least in theory. While land is

categorized as general, village, or reserve land; Tanzanias president is the land trustee on behalf of all

citizens, and the Commissioner of Lands presides over all land administration. However, power is

somewhat decentralized as municipal and village councils have more power to manage local land titles

and usages (see Figure 3).

The Land Act No. 4 and Village Land Act No. 5 made land ownership laws more equitable for previously

marginalized groups, but in practice, land ownership has not become more accessible due to credit

constraints, and land policies restrict the transfer of land ownership without the presidents approval.

Unfortunately, ownership of village land is not easily transferable, making it difficult for farmers to move

farms or to acquire the additional land necessary for farm expansion. Banks are hesitant to lend money

to village landowners since repossessing land is problematic. Food security would improve if

smallholders benefitted from easier transfer of land ownership, and had access to credit that would not

bankrupt them in unforeseeable circumstances, such as a season of bad weather.

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2.2 Land Use for Agriculture:Improving smallholder productivity is crucial for Tanzania to become more food secure (see Figure 4).

Smallholder farmers dominate agricultural activity and have average farm sizes of 0.9 to 3.0 hectares.

Inefficient technology causes falling land and labor productivity, in addition to dependence on irregular

weather patterns, which adversely affect crop and livestock management. Hand hoes cultivate 70% of

Tanzanias crop areas, oxen ploughs cultivate 20%, and tractors cultivate 10%. Of Tanzanias 15.1 million

hectares of arable land, only a third is cultivated. Only 0.1 million hectares are cultivated by medium and

large-scale farmers. Small-scale subsistence farming is a cause and an effect of rural poverty since the

hand hoe is less efficient at cultivating than oxen or tractors. Medium and large-scale farming benefit

from economies of scale, the ability to irrigate year-round, access to modern technology, and the ability

of farm owners to attract finance.17

2.2.1 FDI in Agriculture:

FDI has had a positive impact on Tanzanias agricultural sector as it has helped improve farmer

technology and connected smallholder farmers with out-grower schemes. FDI in agriculture fosters


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economic growth, and thereby reduces poverty and improves food security for the average Tanzanian.

Increasing FDI in agriculture would improve agricultural productivity, and consequently increase farmer

incomes. However, at present only 2.1% of total FDI inflow in Tanzania is directed toward agriculture

even though agriculture accounts for over 47% of total GDP, and for 45% of total exports. Agriculture

employs 89% of the total population. Therefore, increasing FDI for smallholder farmers would benefit

households.18

The lack of adequate FDI in agriculture is largely a product of supply side limitations rather than the

absence of international trade agreements. Poor infrastructure makes Tanzanias commodities relatively

expensive compared to the commodities produced by more efficient suppliers who benefit from a

competitive advantage. The majority of smallholders lack institutional support, so crop productivity is

vulnerable to shocks. In fact, of the meager 2.1% of FDI directed toward agriculture in the country, 90%

goes toward smallholders involved with integrated out-grower schemes that link investors in processing

operations directly to the agricultural producers themselves. Specific industries such as milk, sisal, tea

and sugarcane have benefitted from out-grower schemes that are governed by managing firms.19

2.3 Water and Irrigation:Irrigation has a direct bearing on improving agricultural output, therefore improving availability of food

in Tanzania.

At present, most irrigation areas correspond to surface irrigation and are used mainly by smallholders.

Moreover, only by a small amount of large-scale farmers use sprinkler irrigation; while less than 1% of

the total number of irrigated areas use groundwater; and few cases use drip water. Methods of

irrigation are predominantly rudimentary. Modern irrigation accounts for 35.8 thousand ha; traditional

irrigation is spread across 122.6 thousand ha, improved traditional irrigation is used on 25.5 thousand

ha, while the potential of rain water harvesting has not been estimated. The lack of modern irrigationsystems can be attributed largely to the absence of data for planning and the lack of funding, trained

personnel, and national coordination.

The National Irrigation Development Plan (See Figure 5), to be completed by 2014, calls for Removing

Sectoral Constraints and Implementation of Irrigation Infrastructure. However, progress has been slow

due to poor institutional development and funding. It is therefore necessary to tackle the severe lack of

collateral and decrease transaction costs in order to enable widespread modern irrigation, enhance food

production, and improve food security for Tanzanians.

Indicators:

The Tanzanian government has taken measures to improve land policy laws, but in practice, the transfer

of land ownership remains limited. Smallholder agricultural output, especially for food crops, would

improve with easier transfer of land ownership, improved access to credit, and increased FDI in

agriculture.


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a) FDI in Agriculture: FDI has the potential to positively impact food security. Indicators ofincreased FDI in agriculture are: i) The number of land parcels available at the land bank; and ii)

the average size of registered land parcels.

b) Smallholder Access to Technology and Credit: Smallholder productivity is constrained byinefficient technology and anti-credit land policies that make farmers unable to benefit from

gaining economies of scale. Indicators include: i) Percentage of cultivation by tractors; and ii)

percentage of smallholders with access to loans from the formal banking sector.

c) Water and Irrigation: i) Depletion of ground water tables; ii) percentage of the population withaccess to water resources and; iii) percentage of sprinkler and drip irrigation systems.

3 Impact of prices and investment policy on food security:Food prices and investment policies have direct and indirect influences on the three pillars of food

security. Food prices have direct influence on food access. Higher food prices are associated with more

limited food access for the poor. Therefore, proper investment policies will help not only increase farm

productivity, which could raise food availability while easing food prices; but also to increase awarenessand education of the public to increase food access.

3.1 Food Prices:High food prices not only increase the income for producers, but also increase the cost of purchasing

food for consumers. At present, the influence of high global food prices and estimated low food

production in Tanzania is likely to put an upward pressure on food prices in the country.

In the short-run, since Tanzania is a net-importer of foods, it is likely to experience deteriorating terms

of trade and to pay a larger food import bill. This has a direct and negative impact on the countrys trade

balance, affecting the strength of the Tshilling. The groups of population most likely to be negativelyaffected are net food buyers that comprise urban residents, small farmers, fishing communities, and

pastoralists. High food prices are also likely to adversely impact those producers who are net buyers in

value terms, because they sell at low prices at harvest time to finance essential needs, and buy back at

high prices later in the marketing season.

In the long-run, higher food prices may stimulate the agricultural sector through greater investment in

production and research. However, this would occur only if constraints facing smallholders like lack of

technology and financing are effectively addressed.

3.2 Investment:Tanzania has an open-door policy towards foreign investors. The current government has brought in

several pro-investment legislations and incentives. The Tanzania Investment Centre (TIC) was

established under the Tanzania Investment Act (1997) as a one-stop-shop for investor facilitation. The

Act also provides both fiscal and non-fiscal incentives for investors. Fiscal incentives include exemption

of import duty and VAT on project/capital goods. Non-fiscal incentives include features such as

automatic immigration quotas to Tanzanian investors (of up to 5 persons) and guaranteed unconditional


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transferability of: (i) net profits or dividends of the investment, (ii) payments in respect of foreign loans,

(iii) remittance of proceeds net of all taxes and other obligations, (iv) royalty fees and emoluments, and

(v) benefits to foreign personnel.


1) Capacity: TIC currently lacks the capacity to address the complicated and non-transparentinvestment clearance processes, to collect comprehensive and timely data for the research

needed to facilitate both policy making and investment decision-making.

2) Bureaucracy: Bureaucratic intransigence continues to pose a severe obstacle to doing businessin Tanzania as in the rest of East Africa. Investors looking to start up businesses in Tanzania

often complain about the level of red tape associated with issues such as the issuance of

business licenses, company registration, building permits, land certificates and taxation.20

3) Corruption: Corruption is an endemic problem in Tanzania and is often cited as one of thebiggest hindrances to doing business. The World Bank 2006 Enterprise Survey indicates that49.5% of the surveyed companies report that they expect to make informal payments to achieve

specific goals.21 According to the 2006 IFC-World Bank Enterprise Survey, 20% of the companies

surveyed expect to give gifts or make informal payments to get an operating license, and 32% to

get a construction permit.22

4) Seasonality: More than 75% of Tanzanian enterprises are heavily affected by seasonality,23whereby farmers sell their produce when prices are lowest and buy inputs for the next cropping

season when prices are highest.

5) Access to finance: Most enterprises in the rural areas are small scale and engage in or rely onagriculture. Bearing the above constraint, these small enterprises have a comparatively highrisk, high transaction costs and low volumes, limiting access to capital.

Indicators:

The indicators listed below will be helpful in assessing the price and investment policys impact on food

security, especially in facilitating future research and policy decision making:

a) Annual Share of Expenditure on Food per household: The share of expenditure on food fordifferent households (categorized by income) could reflect the influence of food prices on food

access and utilization.

b) Inflation: Consumer Price Index helps indicate the status of food security in the country. Theannual CPI has increased from 5.1% in the year of 2001 to 12.1% in the year of 2009, indicating

worsening food access for the average Tanzanian.

c) Agricultural investment: Level of Domestic Investment/FDI in agriculture can be a usefulindicator to gauge when policies to boost domestic or foreign investment may be necessary.

4 Crop Sector Value Chain:


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4.1 Farm to wholesale:Agriculture generates 45% of Tanzanias GDP, much higher than the average for Sub-Saharan Africa

which is 15.3%. According to a 2009 World Bank survey, domestic agriculture also provides more than

95% of Tanzania's annual domestic food requirement.24 However, agricultural productivity is extremely

low by world standards, and by one estimate, a Tanzanian farmer produces only enough food to feed 2

people, when compared with an EU farmer who can feed 130 people.25 This is both an immediate threat

to securing access to food, as well as an opportunity for growth where some specific policy changes can

yield substantial improvements in productivity, which will have positive downstream effects on health,

incomes and exports.

This sub-section examines policies relating to inputs into agricultural production, and the procurement

and pricing of agricultural outputs and finds that concentrations of market power and thin financial

markets are an important constraint on growth. This is largely a result of piecemeal and uncoordinated

reforms in agriculture since Tanzania attained independence in 1961. In 2009, President Kikwetes

administration, in collaboration with the Tanzania National Business Council, launched the KilimoKwanza or Agriculture First policy, which focuses on improving agricultural productivity. A World Bank

funded project has been providing targeted seed and fertilizer vouchers in a phased manner since 2008.

The project aims to provide these direct subsidies to 3 million farmers by the end of 2010; however, an

impact evaluation is pending and the effectiveness of the project is unclear at this time.

4.1.1 Inputs:

Fertilizers & Pesticides: On average Tanzanian farmers used 4.8 kg/ha of fertilizers annually during

1996-2002. Although this was an increase of 47% over the 1990-95 period; it compares poorly to

neighboring Kenya, which averaged an annual 31.8kg/ha.26 Most smallholder farmers do not use farm

inputs like fertilizers/pesticides because of high prices. Since Tanzania progressively stopped fertilizersubsidies between the 1980s and 1990s, fertilizer to crop-price ratios doubled in this period, effectively

reducing fertilizer use and productivity. This has adversely affected access to these inputs for

smallholder farmers. Tanzania also has high rates of soil nutrient loss; from 2002 to 2004 there was an

average loss of 61kg/ha. This may be attributed to the inability of farmers to maintain improvements in

soil fertility needed to stimulate productivity growth, improve food security and raise rural incomes all

of which require substantial increases in fertilizer use. Staples like rice and maize have the highest per

hectare use of fertilizers, which makes stable and low-cost access to fertilizers a pre-requisite for food

security. This makes the price of and access to fertilizers important indicators of food security.27

Seeds: The two main issues related to seed inputs are seed recycling and the use of GM-seeds.Approximately 93% of the seeds used each planting season are recycled from the previous crop.28 This

does afford a cheap way for farmers especially smallholders to access inputs; however, it also means

a lower use of higher yielding varieties of crops. Part of the reason for low use of improved seeds is

inadequate supply.

The Gates Foundation, Monsanto, and the Kenyan Agriculture Research Institute are developing drought

resistant GM Maize, which would specifically address the agro-climatic conditions of East Africa.


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However, GM crops are banned across most of East Africa. In Tanzania, they were banned by Parliament

in 2003.29, 30 Although GM seeds can secure significant improvements in agricultural output, the nature

of patent protection and suspicions about seed companys motives are an impediment to widespread

adoption.31

The ban on GM seeds is not only perceived as a regulatory bottleneck that is preventing investments inagriculture, but also the result of regulations that the EU (which is Tanzanias largest trading partner)

imposes on GM crop imports. These EU regulations are currently under adjudication at the WTO, and

any policy changes in Tanzania or East Africa are unlikely before that dispute is resolved.

4.1.2 Pricing, Procurement and Marketing:

Commodity Parastatals and Cooperatives: In the post independence era, parastatal agencies including

the cash crop commodity boards, and cooperatives had the dual and conflicting role of monopsonistic

buyers on the one hand, and regulators and input providers on the other. Since the 1980s the state

monopsonies have been dismantled and the markets have been liberalized.32 However, cash crop and

export parastatals still provide most of the inputs to farmers for their respective crops and have

monopsonistic control over exports. Parastatals are also the primary channel through which government

delivers subsidies to farmers.33 Although farmers can purchase inputs directly on the open market, this

is rare especially for smallholder farmers.

The domestic procurement system has been progressively taken over by the private sector, which now

accounts for 95% of the procurement and marketing. The private sector in turn is dominated by few key

players like Mohammed Enterprises, which are big enough to stave off competition from new local

firms, and may influence regulators to protect their markets from domestic and foreign competition.

Futures Markets: Developing an agricultural futures market may contribute to reduce price fluctuations

and set better expectations for farmers. This can be particularly helpful for smallholder farmers who rely

on intermediaries to gather information about future demand and force them into a cobweb response

model. Although Tanzania does not have a commodities futures market of its own, Bourse Africa, a

Botswana based company, is in talks with Tanzanian regulators to establish a market. It is not clear

whether Bourse Africa intends to provide access to smallholder farmers directly or be conduits for large

holders and traders. However, the development of an accessible and effective futures market in

Tanzania or Africa could reduce risks, provide more stable returns, and attract more private capital to

the agriculture sector. Moreover, the capital markets are very thin in Tanzania, with only one stock

exchange, which currently has only 15 listed companies. In the absence of deep financial markets, it is

conceivable that a Futures Market might in fact encourage speculative price fluctuations or, as in the

Ethiopian experience, it might have no substantial effect on price stabilization. 34

Indicators:

Seeds and fertilizers are essential inputs, to the agricultural production process that affect the

productivity. The economic structure of the market for outputs, including the monopsonistic practices of

procurement agencies and output price uncertainty, feedback into the ability of farmers to invest in


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inputs and therefore productivity. Listed below are select indicators, which will help concisely

understand the progress in this section of the agricultural value chain in Tanzania.

a) Agricultural Productivity: Average per hectare yields, and the response of yields to theapplication of fertilizers and improved seeds tabulated by farm sizes, to capture the impact of

economies of scale and better target policies to small-holder farmers who are likely to havelower yields, addressing food security issues especially for subsistence farmers.

b) Monopoly/Monopsony index: Such an index for the market for inputs and procurement will behelpful in understanding the effect of agricultural market reforms including encouraging

competition, and establishing a futures market on food security.

c) Price Fluctuations: An index of price fluctuations especially relating to farm gate and marketprices would be helpful in understanding the effect of a futures market on agriculture

productivity and food security.

4.2 Wholesale to retail:The government of Tanzania has three categories of domestic policies to improve food availability and

access: consumption policies, production policies, and trade policies. It has commonly employed

consumer price controls, producer taxation and subsidies, and export bans. This section proposes

frameworks for analyzing these policies and indicators and applies them to Tanzania and the region.

Consumer Price Controls:

Price controls endanger food availability, access and utilization. Their enforcement results in shortages

and resource misallocation. Their disregard results in black markets and high transaction cost. The rise in

agricultural commodity prices due to scarcity tempts governments to set price ceilings or subsidize

consumption. Producers exit the market at these low prices, decreasing food availability. Poor

governments cannot finance such subsidies over time and return to high prices. Disaggregating subsidies

per economic class eases the financial burden.

Tanzania set price ceilings on four hundred commodities with the Regulation of Prices Act of 1973. This

resulted in perpetual shortages of most price-controlled items.35 An IMF-sponsored recovery program

realigned the prices of controlled commodities with market prices in 1986.

Producer Taxes and Subsidies:

Taxing producers decreases food access and availability, while subsidizing producers enhances this. As

the majority of their citizens are involved in agriculture, poor governments tax agricultural producers to

raise revenue. Taxes incentivize producers to decrease output, promoting subsistence agriculture. Yet,

subsidies incentivize increased agricultural production and lower food prices. Poor governments

typically cannot reliably finance subsidies without foreign support. Disaggregating subsidies by farm size

reduces this burden and improves production. Subsidizing agriculture limits its exposure to price

fluctuations.


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12

Tanzanias government structure complicates its agricultural taxation. The Local Government Act of

1999 devolved revenue, which raised power to 114 local government authorities (LGAs) from the central

government. LGAs place a 1-5% ad-valorem tax on exports and food crops but provide few services in

return.36 This results in an uneven tax structure and increases regional disparities in food security.

Tanzania introduced a producer subsidy in five provinces in 2003. Farmers received vouchers for 100 kgof fertilizer or seeds redeemable at private input retailers. This raised agricultural production and gained

votes in the 2005 election. The vouchers reached the poor, yet fertilizer and seeds prices increased. The

subsidy expanded in 2008, comprising 28% of the government budget.37

Export Bans and Taxes:

Export bans and taxes hinder food access as they lower prices in the domestic market,38 reducing

incentives for producers to cultivate more. This results in greater dependence on imports for food

security. Taxes also cause greater disruptions in the production and consumption of non-staple

agricultural commodities, since their price elasticity is higher. Tanzanias National Trade Policy of 2003

opposes export bans. It promotes non-traditional exports, value-addition to agricultural exports,

simplifying export procedures, and international marketing. In practice, Tanzania does institute export

bans. It banned raw cashew nut exports in 2009, despite opposition from farmers.

Ban on maize exports: In 2008, the Tanzanian government imposed a ban on maize exports and

imported 300,000 tons of maize to improve food availability after eight regions faced shortages. 39

Tanzanian farmers responded by smuggling maize into Kenya, where prices were about 30% higher than

in Tanzania. Farmers unable to smuggle their crop reduced production and used cheaper, less effective

inputs. Given that maize accounts for 30% of Tanzanias agricultural GDP,40 the impact of lowered prices

on production levels of this crop has potentially large ramifications on food security.


1) Ethnic Grievances and Domestic Policies: Ethnic differences can affect domestic policyoutcomes for food access, availability and utilization. Tanzania has two flashpoints for ethnic

cleavages and food security: Zanzibar and restrictions on in country grain flows. Ruling and

opposition parties have clashed over autonomy and ethnic issues on the islands of Zanzibar.

These clashes threaten food security, as Zanzibar relies on food shipped from the mainland.

Tanzania restricts citizens from transporting over 0.5 tons of grain outside the region of its

production. This results in regional and ethnic inequalities that could produce future conflict.

The potential for ethnic grievances to impact food security should not be underestimated. This

occurred during the 2008 election violence in Kenya.

Indicators:

Several indicators measure the influence of government policies on food security in Tanzania. The most

important to consider are the level of price controls and subsidies, the percentage of export tax on food

staples and the existence of import bans.


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13

a) Price controls: Control on prices (yes/no; $/unit). FEWS NETs Markets Guide advises monitoringprice controls. In 1986, Tanzania removed price controls and staple prices increased by 140%.41

b) Input subsidy: Subsidies ($/unit) and tax rates. FEWS NETs Markets Guide suggests that asthese levels increase, subsidies will increase production and availability, and lower prices.

c) Export taxes: Taxes on export of staple commodities and export bans (%). An increase in thisindicator will demonstrate reduced market outlets, increase stocks and lower returns.42

d) Import ban in neighboring country: An increase in this indicator will reduce marketopportunities, lower returns and reduce incomes. It will also result in more local supplies, and

an increase in food availability.43

5 Non-Agricultural sectors/ Natural Resources:The depletion of natural resources by human activities and climate change decreases the food supply

and the amount of nutrients people is able to consume. Therefore, natural resources availability affects

food security and utilization. In Tanzania, activities that depend on natural resources availability such aspastoralism, fisheries, forestry, and agriculture constitute the main sources of income for rural

populations. However, the natural resource endowment is on a steady decline.44

5.1 PastoralismTotal livestock land is 350,000 square km; represents 39.6% of the total land area, and 87.3% of the total

agricultural land area; and comprised 5.9% of GDP in 2006.45 The Masai are the largest group of

pastoralists, but this activity involves 4.9 million households in the country, from which 36% raise

livestock (1% being purely pastoralists and 35% agro-pastoralists).

Pastoral activities are undertaken in three major ways: a) Commercial ranching practiced mainly by theNational Ranching Company; b) Pastoralism as a substitute to crop production; c) Agro-pastoralism,

which is combined herding and farming.

Tanzanias national strategy targets a 9% growth in livestock in 2010 to reduce poverty and guarantee

food security. However, this goal is challenging, as livestock average annual growth in the last decade

was 2.7% due to climate change, population growth, and lack of water.46 These factors and the lack of

recognition of livestock in national policies are pushing pastoralists into agricultural activities in order to

diversify risk, and to allow their cattle to graze on cropland.

In the dry season, grazing opportunities are limited, and livestock quality can decline, thus reducing

prices and pastoralists' potential income. This condition usually coincides with a fall in cereal supply that

raises cereal prices, forcing livestock sales at low prices. Sometimes, high mortality rates in livestock

push down their supply thus increasing the relative livestock to cereal price ratio. In these cases, higher

livestock prices do not necessarily mean an improvement in pastoralists living conditions.

5.2 ForestsIn Tanzania, forests occupy around 50% of total land area,47 and support the livelihoods of 87% of poor


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15

reflects the purchasing power of pastoralists who buy staple food and sell livestock. However,

this ratio can increase for many reasons,2 and to avoid misinterpretations it can be useful to

consider the number of livestock in the market.

b) Forests: i) Rate of deforestation. It reflects the loss of productivity of forests. In Tanzania, theannual change in the rate of deforestation between 2000 and 2005 was -1.1%.

c) Fisheries: i) Terms of trade for fish products (price of exports/price of imports) in local currencyterms; ii) Percentage of fish stocks that are overexploited; iii) Change in the annual number of

fishing vessels committing a severe violation.3

6 RecommendationsOn Trade Agreements:

As an immediate measure, the government of Tanzania would benefit by employing a Regulatory Impact

Analysis (RIA) approach to understand the implications of various commercial policies. RIA entails a

structured examination of the objectives and impacts of the area to be regulated. It would requirecareful examination of the data, assumptions made, definitions of affected population and expectations

about market dynamics. RIA would also provide a systemized way through which officials can compute

all relevant costs and benefits of regulation, even if they are not easily quantifiable. Such a system can

be easily implemented with appropriate technical guidance and support by donor agencies.

In the long run, the government should also seek to use more sophisticated and accurate techniques like

Computable General Equilibrium (CGE) models to simulate the impact of different tariffs or agreements

on domestic prices, level of exports and imports, production and structural adjustments. These models

could be a focus of capacity building and integration into decision-making as the skill-set and expertise

of officials develops.

On Land Policy:Tanzania needs to formally register land parcels into a property registration system so

citizens can benefit from legally recorded land ownership. Farmers will struggle to receive access to

credit without having legal documentation of their land ownership. Banks would also be more likely to

lend to farmers if repossessing land became easier. With a population of 40 million people, and one land

parcel per every 4.9 people, there are over 8 million land parcels to register. Improved land access for

poor and vulnerable people is inadequately addressed in The National Land Policy, and the programs

designed to implement land laws are inadequately funded. For example, in 2008 the approved allocation

for the rural land title certification program represented only 5.3% of the expected cost. 55

FDI in agriculture would increase if an outgrower scheme were developed that connected smallholder

production through all phases, and provided smallholders with knowledge on a continual basis at a low

cost. Integrated outgrower schemes involving specific industries would benefit Tanzania by linking

investors to agricultural producers, which would increase FDI and improve food security.56

2The livestock to cereal terms of trade can increase: if the quality of livestock increases (consequently the price of

livestock increases), if livestock demand is high, if livestock supply is low; holding the price of cereals constant.3

For example: fishing without a proper license, without adequate fishing equipment, or in a restricted zone, etc.


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16

On Investments: Cooperatives could lower the cost of food production through collective purchasing

power, greater productivity and technology use, which would help smallholders reap the benefits of

economies of scale.

On Crop Sector Value Chain:The key determinant of future growth in the agriculture sector is the

development of a deep and competitive market in inputs, production, and procurement as well as in the

financial sector. The small number of powerful private players may be able to provide more efficient

economic outcomes in the short run, but increasing the number, scale and quality of the firms operating

in these sectors through purposive policy actions is imperative. Small and medium scale Tanzanian

entrepreneurs need to be provided a secure environment where they can domestically add value to raw

agricultural output and be protected from predatory activities of larger established players.

To enhance its food security, the government of Tanzania should also avoid consumer price controls,

producer taxes, and export bans and taxes. Producer subsidies are the most efficient way to increase

agricultural production and income. The government of Malawis subsidy for smallholder inputs

demonstrates this. The government of Tanzania should also address government policies that causeinequality to avoid political instability affecting food security.

On Natural Resources: Pastoralism can contribute to biodiversity conservation and fire prevention.

Given its importance in the economy, it is imperative that adequate measures be put into place to

safeguard pastoralist livelihoods.57 There is also a need to empower environmental committees to be

fully operational bodies at the village level, addressing their own natural resource problems.

There is great potential to develop Tanzanias fisheries, particularly the processed fish industry. The FAO

has recommended canning the local Dagaa sardines from Lake Tanganyika, and the Silver cyprinid from

Lake Victoria. Another opportunity for canned products are pelagic fishes like tuna, mackerel and

swordfish which predominate in the Exclusive Economic Zone (EEZ).

Appendix:

Figure 1: Tanzanian Trade (1999-2004)

Source: USAID, "Tanzania's Agenda for Action," 2008


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17

Figure 2: Tanzanias Principal Exports (2005)

Principal Exports $USM

Gold 615

Cotton 122

Coffee 82Cashews 54

Tea 30

Source: USAID, "Tanzania's Agenda for Action," 2008

Figure 3: Basic Population and Land Data on Tanzania

Area Type Size

Land area 881,289 km2

Water area 61,495 km2

Total Population 33,584,607 (2002 Census)

Population Density 38 people per km2

Population Growth p.a. 1988-2002 2.90%

Average household size 4.9

Source: Kironde58

Figure 4: Types of Land Use in Tanzania

Type of Land Area (millions of hectares)

Small holder cultivators 4.1

Large-scale agriculture 1.1

Grazing land 35

Forests and Woodland 44

Other Land 4.4

Arable Land 3.6

Source: Kironde59

Figure 5: Irrigation development plan until 2017

Type of Water Management Existing 2002

(ha)

New Development

until 2017 (ha)

Total in 2017

(ha)

Traditional & improved traditional 148,141 126,524 274,665

New (modern) smallholder schemes 35,847 26,734 62,581

Water harvesting 7,934 60,24168,175Total 191,922 213,499 405,421

Source: FAO


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18

ENDNOTES

1UNDP Human Development Reports, 2009,

2

World Bank, Tanzania: Trade Brief, 2008.3Southern African Development Community, 2010


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19

37Kjaer, Anne Mette, and Ole Therkildsen. Do ethnicity and elections affect policy outcome in Tanzania and Uganda? ECPR

General Conference. September 10-12, 2009. Potsdam.38

Josling, Tim and Siddhartha Mitra. IPC Position Paper: Agricultural and Rural Development Policy Series. International Food

& Agricultural Trade Policy Council. January 2009.39

http://www.africanews.com/site/Tanzania_bans_maize_export_to_curb_famine/list_messages/1674440

Food, Agriculture and Natural Resources Policy Analysis Network (FANRPAN), USAID Tanzania: Agricultural sectorassessment, 2006.41

Bonnard, Patricia and Megan Sheahan. Markets, Food Security and Early Warning Reporting. FEWS NET MarketGuidance,

No. 6. October 2009.42





Speech of his Excellency Benjamin William Mkapa. President of the United Republic of Tanzania. World Food Summit. 1996

45

Njombe, A. and Msanga, Y. Livestock and Diary Industry Development in Tanzania. Department of Livestock Production and

Marketing Infrastructure Development, Ministry of Livestock Development 2010

46

Nori, M., et al. Browsing on fences: Pastoral land rights, livelihoods and adaptation to climate change . International LandCoalition. 2008. , also: Kironde, Lusugga. Property and Urban Development:

Protecting the land rights of vulnerable groups IV: Pastoralists and hunters and gatherers. Daily News July 2, 2008

47

Missano, H. et al. Dependency on forest and trees for food security, FAO Corporate Document Repository, Forest Department

48

Thomas, P. and Packham, J. Ecology of Woodlands and Forests: Description, Dynamics and Diversity, Cambridge University

Press, 2007, 4.49

Robinson, E. and Kajembe, G. Changing Access to Forest Resources in Tanzania, Environment for Development, Discussion

paper series, EfD DP 095-10, April 2009.50

Dembner, S.A. Forest-dependent livelihoods: links between forestry and food security, FAO Foresty Department, Corporate

Document Repository 51

Ministry of Natural Resources and Tourism, et al. Insights into forestry, governance and national development: Illegal Logging

in Southern Tanzania, Policy Brief.52

FAO, National Aquaculture Sector Overview: United Republic of Tanzania , Fisheries and Aquaculture Department53

FAO. National Fishery Sector Overview, The United Republic of Tanzania. 2007

54

FAO. National Fishery Sector Overview, The United Republic of Tanzania. 2007

55

Mukandala I.M. (2008), An Evaluation of the Effectiveness of Rural Land Title Certification Programme in Tanzania: The Case

of Mbozi District, Mbeya Region, MSc (Real Estate) Dissertation, Ardhi University.56

Elibariki Msuya, The Impact of Foreign Direct Investment on Agricultural Productivity and Poverty Reduction in Tanzania

http://mpra.ub.uni-muenchen.de/3671/10-12.57

Hkan, S. and Shabani, L. Traditional Pastoral Communities Securing Green Pastures Through Participatory Forest

Management: A case Study from Kiteto District, United Republic of Tanzania. 2002.58

J.M. Lusagga Kironde, Improving Land Sector Governance in Africa: The Case of Tanzania

http://siteresources.worldbank.org/INTIE/Resources/L_Kironde.doc5-6.

59 J.M. Lusagga Kironde, Improving Land Sector Governance in Africa: The Case of Tanzaniahttp://siteresources.worldbank.org/INTIE/Resources/L_Kironde.doc6.
http://mpra.ub.uni-muenchen.de/3671/http://siteresources.worldbank.org/INTIE/Resources/L_Kironde.dochttp://siteresources.worldbank.org/INTIE/Resources/L_Kironde.dochttp://siteresources.worldbank.org/INTIE/Resources/L_Kironde.dochttp://siteresources.worldbank.org/INTIE/Resources/L_Kironde.dochttp://mpra.ub.uni-muenchen.de/3671/


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This Policy Brief was prepared for Booz Allen Hamilton

TANZANIA Commodity Policy BriefCashew May 2010

AbstractCashewsareanimportantcashcropinsoutherncoastalTanzaniaandakeycomponenttothecountrys

foodsecurity.Cashewproductionprovides laboropportunities,anopportunityforcapital investment,

andhouseholdincome.Thecashewvaluechainstartswithinputsuppliersandendswiththeexportof

crops to buyers for processing and reexport. The inefficacy of the Cashew Board, a decline in crop

quality,andalackoflocalprocessing,constrainTanzaniascashewsector.Thegovernmentcanimprove

thissituationbyreplantingcashewtreesandbydevelopingadomesticprocessingindustry.

Keyconstraints1. InefficacyofTanzaniasCashewBoard,includingconflictsofinterest.2. Declineincropqualityoverthepastdecade.3. LackoflocalprocessingcapacityforcashewsinTanzania.Opportunities

1. Replantcashewtrees.2. Developadomesticprocessingindustry.

0

50

100

150

2000

2001

2002

2003

2004

2005

2006

2007

2009

Thousand

Tons

CashewProductioninTanzania

CashewProduction

by Columbia Universitys School of International and Public Affairsthrough the Capstone Workshop sponsored by Booz Allen Hamilton. The views expressed in this Policy Brief do notnecessary reflect the views of Columbia University or Booz Allen Hamilton. For more information, please contact SuzanneHollman at [email protected].


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TANZANIA Commodity Policy Brief: Cashew

OverviewCashewsareanimportantcashcropinsoutherncoastalTanzaniaandakeycomponenttothecountrys

exportearningsandfoodsecurity.Theyprovidelaboropportunities,anopportunityforcapital

investment,andhouseholdincome.Householdsrelyonthisincomeforessentialfoodpurchasesfrom

JanuarythroughJunewhenothercropsareharvestedi.Cashewsaccountedfor15%ofTanzanias

exportsbyvaluein2009(99,300tonsworth$72M).iiMostcashewsareexportedforprocessing.

CashewsarewellsuitedtoTanzania.Cashewtreesaregrownfortheirkernelswhichareaningredientin

dailyfooddishesanddesserts.Thecountryranksinthetoptenlargestproducersworldwide.Thelargest

producersareIndia,BrazilandVietnam.However,Tanzaniascrophasdeclinedsincethe1970sduetoa

constraintslistedbelowaswellasalackofinputsandagingcashewtrees.Whiletheareaharvestedhas

increasedfrom90,000Hain2000to94,000Hain2008,theproductionhasfallenfrom121,200tonsto

99,100tons,andtheyieldhasfallenfrom12,466Hg/Hato10,542Hg/Haduringthesameperiod.iii

CashewsaretheprimarycashcropforsmallholderfarmersinsoutherncoastalTanzania.Over280,000

householdsgrowcashewson400,000hectaresinmonoormixedcropproductionsystems.ivThe

averagecashewfarmeroccupiesonetotwohectaresoftreesandintercropsthemwithcassava,grain

staplesandlegumes.Smallholdersareorganizedintocooperativestoaggregateservicesandfunds.

Large,privateplantationsoccupy2,000hectaresonaverage.

Cashewtreesresistdroughtandhavemodestsoilqualityrequirements.Theythriveindeep,friable,

welldrainedloamsoilswithouthardpan,andcanadapttostonyandsandysoilswithoutimpairing

productivity.Thetreerequiresweedingforitsfirstthreeyearsofgrowth,preferablyhoeing.vItthen

producesflowersandnuts,andcanbeharvested.

IntheregionsofMtwaraandLindi,incomefromcashewproductiondeterminessmallholders

householdincomeandconsequentlytheirpurchasingpowerforfooditems.Thisincometypicallylasts

fromthemarketingperiod,startinginJanuary,throughthecereal(maize,sorghumandrice)harvestinJune.Someareasalsogrowcoconuts,groundnuts,cassava,andsesame.Farmerssubsistonthese

harvestsuntilthecashewharvestbeginsinNovember.

TheinefficacyoftheCashewBoard,adeclineincropquality,andalackoflocalprocessing,constrain

Tanzaniascashewsector.Thegovernmentcanimprovethissituationbyinstitutingaprogramtoplant

newtreesandbyfosteringadomesticprocessingindustry.Cashewsareimportanttofoodsecurityin

Tanzania.Cashewproductionrequireslimitedskillsandcapitalinvestment,makingitidealfor

smallholderfarmers. Itisconsideredapoorpersonscropforpoorsoils.vi

ValueChainDescriptionThevaluechainforcashewsinTanzaniabeginswithinputandseedsupplierstosmallholderfarmersand

continueswithlaborintensiveharvestsandthemarketingofcropstolocaltraders.Itendswiththe

exportoftherawcroptobuyers,primarilyinIndia,forprocessing.

Inputs:Cashewtreesrespondtofertilizationbutwillproducenutswithoutpurchasedinputs.Abearingcashew

treetypicallyrequires500gofnitrogen,100gofphosphorusand250gpotassiumannually.viiTanzanian

farmersusepolyclonalseedsandgraftingforpropagation.Fewcashewtreeshavebeenplantedin

Booz Allen Hamilton/Columbia SIPA Capstone Workshop, Spring 2010 2


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recentdecades,andgraftingnowislesscommonthaninthe1970s.Theruraldistributionsystemfor

agrochemicalslacksfunds,reliablesuppliersandproperinfrastructure.

MostofTanzaniascashewtreesareold,plantedinthe1970s.Thisincreasestheproductioncostof

cashews,astheyrequiremorefertilizertoupholdyields.AcashewresearchstationinMtwarahas

developedclonedseedsthatmaturequicklyanddoubleyields.Theseseedswoulddecreasethe

productioncostofcashews.

Markets:Farmersharvestcashewsbyreapingthenutsaftertheyfall.Thisoccursoverseveralmonthsandis

laborintensive.Men,womenandchildrencollectthenutsingunnybagsorbaskets.Harvestersdrythe

cashewnutsonfloorsormatsofbamboo.Cashewapplesfallwiththenutsandarekeptforsecondary

processing,oftenintoalcoholicbeverages.

Farmersmarkettheirharveststoprivatemerchants.Thepricesfarmersreceivefortheircashews

dependoninternationalanddomesticmarketconditions,productioncosts,andtaxes.Tanzanias

CashewBoardissuesanindicativepriceforfarmersbeforethemarketingseasons.Thegovernmentof

Tanzaniathenbuysthecashewsfromthesemiddlemenandauctionsthemtoexportbuyers.When

Indianfarmershaveasurplus,Tanzanianbuyersandfarmersreceivelowerprices.

Post Processing:95%ofTanzaniascashewcropisexportedtoIndiaforprocessing.viiiIndianfactoriesmanuallyprocess

cashewsforexport,oftentoLondon,aswellasfordomesticconsumption.Thesefactoriesalsoprocess

Indiascashewcrop.Exportingunprocessedcashewslimitsthepossibilitiestoaddvaluetothecrop.Less

thantenprocessingfacilitiesoperateinTanzania.EntrepreneursinDaresSalaamhaveopenedfactories

thatprofitablyimitateIndiasmanualrefiningtechniques.ix

ExportofRawCashews:The

export

sector

depends

on

a

liberalized

trade

regime

to

allow

raw

exports

at

a

low

cost.

Prior

to

the

1990s,thegovernmentofTanzaniarestrictedexportsofrawcashewstofosterthedomesticprocessing

industry.Subsequently,cashewscomprisedanincreasinglyinsignificantshareofTanzaniasexports

becauseofthehighcostofdomesticprocessing.Exportearningsoncashewsrose27%afterthe

restrictionswereremoved.x

ThegovernmentofTanzaniastaxstructureraisestheproducerpricesforcashews.Thesectoristaxed

highlyatthelocalandcentrallevel.TraderspayadistricttaxofTanzaniaShillings(Tshs)100perkgof

rawnuts.TradersalsopayalicensechargeofTshs60,000perdistrictofoperation.Exporterspay3%of

thevalueoftheirshipmenttotheCashewBoard.xiExportersandtraderspassthesecostsontofarmers,

constitutingabout18%oftheirgrossmargin.xii

ThegovernmentofTanzaniacollectstaxesongrosssalesinsteadofgrossmarginsorprofits.This

penalizescashewfarmerswheninternationalanddomesticpricesarelow.Taxlevelsalsovaryby

district.Thesumoftaxesonthefreightonboardpricewas22%in2010.xiiiThiscreatesanuneven

incentivestructureforfarmersandtraders,andencouragesinterdistrictsmuggling.

ThisvaluechainbeganwiththecommercializationofcashewsinTanzaniainthe1950s.Production

declinedinthe1970sand1980s.Financialdifficultiesincooperativescausednutstogounsold.This



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loweredthefarmersshareoftheexportprice.Consequently,domesticanddonorfundedmechanized

cashewprocessingfacilitieswentbankrupt.

Thecashewsectorrejuvenatedinthe1990s,benefitingfromTanzaniaseconomicliberalization.The

governmentlicensedprivatebuyersofcashewsin1992andremovedpricecontrolsin1993.It

liberalizedtradepoliciestoallowtheexportofunprocessednutsanddepreciateditsexchangerate.

Purchasersalsobegantopayfarmersontimeandincash.Exportearningsrosefrom$4Min1990to

$107Min1998asaresult.xivAsof2009,thecashewvaluechaininTanzaniasufferedfrompoorrains

andbelownormalproduction.Thisreducedincomesfromcashewsalesandreducedthepurchasing

poweroffarmersforfoodandnonfooditems.

KeyConstraintsThecashewsectorinTanzaniafacesthreekeyconstraints:thefunctionoftheCashewBoard;adecline

incropquality;and,alackoflocalprocessing.

1. TheCashewBoardfacesconflictsofinterestsregulatingandmarketingcashews.Itsetsexportpricesandearnstaxrevenuebasedontheseprices.TheCashewBoardmaybetemptedtoset

anunfairpricetoearnmorerevenue.Itwascreatedasanongovernmentalorganizationto

regulateandpromotecashewquality,advisethegovernment,andcarryoutresearchand

development.TheCashewBoardbeganin2001topurchasecashewsfromlocaltraderstosell

toexporters,earningtaxrevenuefromthesesales.Itcontinuedtotaxexporterswhilenot

payingtaxes.xvItcompetesagainsttheprivatesectorwiththeadvantageofstatesupportand

regulatorypower.Theseactivitiesarecontrarytoitsmissionsandinhibititsimpartiality.

Tanzanias2001cashewharvestwascomplicatedbyconflictingregulationsandan

uncompetitiveindicativeprice.TheCashewBoardissuedaregulationthatcashewexporters

mustshipinsisalbagsinsteadoftraditionaljutebags.Theregulationintendedtosupportlocal

juteproducers.Farmersandlocaltradersprotestedtheregulation,becausesisalbagscostsubstantiallymorethanjutebags.Theministerofagricultureannulledtheregulation.The

CashewBoardalsoannouncedanindicativepriceforcashewsalessofarabovemarketprices

thatbuyerswereunwillingtopay.Farmersrefusedtosell,andcropswentbad.

AnexportbanwouldthreatenthecurrentuseofIndiaastheprocessingdestinationfor

Tanzaniascashews.Kenyaprovidesaninstructiveexample.ThegovernmentofKenyabanned

theexportofrawcashewsin2009toforceproducerstoselltodomesticprocessors.Previously,

65%ofKenyascashewswenttoIndiaandChina.xviThegovernmentalsoestablishedthe

NationalCerealsandProduceBoardasthesolepurchaserofcashewcrops.

Kenyancashewfarmerscontinuedtoselltolocaltradersbecauseofthelowpricesofferedby

domesticprocessorsandlaxenforcementbytheNationalCerealsandProduceBoard.In2010,

processorsarepayingSh34perkgofcashews,whilelocaltradersofferSh38.Priortotheban,

1kgofcashewsfetchedSh60.xviiCashewproductionhasfallenfrom14,000to10,000tonsover

thepastyear,andtheincomegeneratedhassimilarlydeclinedfrom$3.75Mto$3.25M.xviiiThe

exportbanhasbenefittedTanzania,asKenyanexportershavemovedoperationsthere.

2. Tanzaniascashewexportshavedeterioratedinquality.Overthepastdecade,thecountrysgradingsystemshaveloosened.Extensionagentssupervisedthegradingofcashewspriorto



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marketliberalizationinthe1990s.Traders,theNationalAgriculturalProductsBoard

warehouses,orfarmers,arenowresponsibleandfaceconflictsofinterestwhengrading

cashewsthattheylaterselltoexporters. Thegradingregimeisnowfluidandpoorlyregulated.

Theygradethecashewnutsintotwocategories:standardorundergrade.Standardnutscontain

lessthan0.25%weightbyforeignmatterandlessthan13%byweightofdamagednuts,under

gradeconstitutesthenonconformingnuts.Studiesestimatethat80%ofnutsarestandard.xix

Thereforeexporterspaylessperkgofcashews.

3. Tanzanialacksacompetitiveprocessingindustry,andthisreducesthepossibilitiestoaddvaluetoitsexports.Indiahasdominatedcashewprocessingwithmanualfacilitiescomprisedofhigh

skilledworkersworkingatlowprices.IfIndiaorAfricancountriesproducelargecashewcrops,

thedemandforTanzaniasexportsdecline.Thisthreatensfarmersincomesandfoodsecurity.

Tanzaniacanavoidthisbydiversifyingitsexportlocationsorredevelopingitsdomestic

processingindustry.EntrepreneursinDaresSalaamhaveopenedmanualfacilitiesbuttheir

capacityislimited.xx

Recommendations/InterventionsThegovernmentofTanzaniacanresolvetheseconstraintswiththefollowingpolicyactions:planting

newcashewtress;and,developingadomesticcashewprocessingindustry.ThiswillhelpTanzaniato

expanditsproductionlevels,increasethevalueaddedpriortoexportandimproveitsfoodsecurity.

1. ThegovernmentofTanzaniashouldleadanaggressivereplantingprogramforcashewtrees.Itshouldprovidesubsidizedaccesstofastermaturingvarietiesofseeds.Theprogramshouldtake

placeoverseveralyearstoallowfarmerstoslowlyreplacetheirexistingcashewtrees.Thiswill

allowfarmerscontinuedcashflow,asnewcashewtreestakethreetofouryearstoproduce

nuts.Thegovernmentshoulddisseminateclonedseedsthatmaturemorequicklyanddouble

yield.AresearchstationinMtwaradevelopedsuchvarietiesinthe1990s.xxi

MostcashewstreesinTanzaniawereplantedinthe1950sand1960s.Theiryieldshave

significantdecreasedrecently.Thetreeslifespanisaboutfiftyyearsdependingonthe

environment.xxiiAreplantingprogramwillincreaseyieldsandlowerproductioncosts.Thiswill

increasefarmerincome,improvetheiraccesstofoodandenhancefarmerlivelihoods.

2. ThegovernmentofTanzaniashouldhelpestablishadomesticcashewprocessingindustry.DonorfundedmechanizedprocessingfactoriesinTanzaniaclosedinthe1970sbecauseofthe

highcostoffinancing.Thegovernmentshouldprovidefinancingandtechnicalassistanceto

buildandrunmanualprocessingfacilities.Thesedependonlowwagesandskilledlabor.

TanzaniahasacompetitiveadvantageoverIndiainwages,anditsworkforceisbecomingbetter

educated.xxiiiThegovernmentshouldbeginbysupportingthedomesticindustrythatemergedin

2001andnowprocesses5%ofthecrop.xxiv

Adomesticprocessingindustrywillincreasethevalueofcashewexports,increaseemployment

opportunitiesandraiseworkerswages.Thevalueaddedforamanualprocessingworkeris

$3.20perday,assumingsimilarproductivitytoIndia.xxvThisisaboveTanzaniasaveragewage.

Theindustrycouldemployupto20,000workerstoprocessthecountrysentirecrop.xxviThiswill

improvetheworkersincomesandaccesstofood,enhancingfoodsecurityinTanzania.



27/27


EndnotesiTanzaniaFoodSecurityOutlook.USAID.FEWSNET.JanuarytoJune2010.iiTanzania:Cashewnutexportsup.Tanzania.TheCitizen.Dateuncertain.

iiiFAO.FoodStat.Cashewnuts,withshellinTanzaniafrom2000to2008forAreaHarvest,YieldandProductionQuantity.

http://faostat.fao.org/site/567/DesktopDefault.aspx?PageID=567#ancoriv

Topper

C.

P.,

P.

J.

Martin,

N.

Katinila,

L.

P

Kikoka,

R.

lamboll,

P.

A.

L.

Masawe

and

S.

H.

Shomari,

1998.

The

historical

and

institutionalbackgroundoftheTanzaniancashewindustry.In:ProceedingsoftheinternationalCashewandCoconut

Conference;TreesforlifethekeytoDevelopment.Pp.7683.BiohybridsInternationalLtd,ReadingUK.vOhler,J.G.1979.Cashew.KoninklijkInstituutvoordeTropen,Amsterdam.260pp.

viDavis,Kristin.Cashew.EchoTechnicalNote.1999.www.echonet.org.

viiBehrens,Rdiger.CashewasanAgroforestryCrop:ProspectsandPotentials.MargrafVerlag.1996.

viiiSijaona,M.E.R.AssessmentoftheSituationandDevelopmentProspectsfortheCashewNutSector.UNCTAD/WTO.ITC

GlobalTrustFund.ProjectINT/W3/69.July2002.ixMitchell,Donald.TanzaniasCashewSector.AfricaRegionWorkingPaperSeries.No.70.June2004.

xIbid.

xiKatinila,N.A.,S.H.ShomariandJ.M.Mdadila,2001.StatusofcashewnutIndustryinTanzania.Paperpresentedtothe

subregionalTechnicalWorkshoponDevelopmentoftheCashewsubsectorinEasternandSouthernAfrica,29thto31stOctober,

Maputo,Mozambique.xii

Mitchell,Donald.TanzaniasCashewSector.AfricaRegionWorkingPaperSeries.No.70.June2004.xiii

Binswanger

Mkhize,

Hans

and

Madhur

Gautam.

Towards

and

Internationally

Competitive

Tanzanian

Agriculture.

A

World

BankDraftReport.DaresSalaam.March22,2010xiv

Mitchell,Donald.TanzaniasCashewSector.AfricaRegionWorkingPaperSeries.No.70.June2004.xv

Ibid.xvi

Kihara,Githua.Kenya:ProcessingofCashewNutsSeenBoomingDuetoExportsBan.BusinessDaily.Nairobi.December29,

2009.xvii

Kihara,Githua.Kenya:CashewNutFarmersTurnBacktoBrokers.BusinessDaily.Nairobi.February9,2010.xviii

Ibid.xix

Ohler,J.G.1979.Cashew.KoninklijkInstituutvoordeTropen,Amsterdam.260pp.xx

Mitchell,Donald.TanzaniasCashewSector.AfricaRegionWorkingPaperSeries.No.70.June2004.xxi

Ibid.xxii

Davis,Kristin.Cashew.EchoTechnicalNote.1999.www.echonet.org.xxiii

Mitchell,Donald.TanzaniasCashewSector.AfricaRegionWorkingPaperSeries.No.70.June2004.xxiv

Ibid.xxv

Ibid.

xxviIbid.
http://faostat.fao.org/site/567/DesktopDefault.aspx?PageID=567#ancorhttp://faostat.fao.org/site/567/DesktopDefault.aspx?PageID=567#ancorhttp://www.echonet.org/http://www.echonet.org/http://www.echonet.org/http://www.echonet.org/http://faostat.fao.org/site/567/DesktopDefault.aspx?PageID=567#ancor

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