Zanzibar fruits and vegetable company - feasibility study

Ramkishan Singh, February – April 2016

Zanzibar Fruit and

Vegetables Company: Feasibility Study

Zanzibar fruit and vegetables company: Feasibility study

VSO 2

2016

Executive summary VSO, under its CASH project, has been supporting smallholder horticulture farmers in Zanzibar for over five years now.

The project has done exceptionally well in achieving its objectives. The major success has been in terms of improved

quality and quantity of the produce. This has been done through training on best agriculture practices and providing

inputs such as better quality seeds, fertilizers, and farm equipment.

However, the success in terms of connecting these smallholders to the high-end market (read hotels in Zanzibar) has

been limited. In the existing model, this is being done through Farmer’s Associations such as UWAMWIMA, JUWA, and

UWZ. These organizations not only lack the required capacity, but most importantly, they lack the aptitude to do

business. The hotels interviewed for a previous study showed a great deal of interest in supporting the local farmers. But

the reason that they are still buying fresh fruits and vegetable through their suppliers on the mainland is based on the

fact that no single trader or Farmer’s Association on the island has the capacity to supply required quality and quantity

in a timely manner. Initially, there were 12 high-end hotels that were buying local produce through the farmer’s

associations. But, gradually – on account of issues related to consistent supply of desired quality and quantity, the

number of hotels on board went down to four. Currently, the farmers are provided with a list of hotels with their phone

numbers whom they can call when they have produce to sell or vice versa. This is an ad hoc approach that does not

provide a long-term solution.

The purpose of this study is to determine the feasibility and desirability of a fruits and vegetable marketing company in

the islands of Zanzibar. The business of trading fruit and vegetables was chosen because of positive community response

to the idea, large and growing fruits and vegetable production on the islands, growing demand for fresh fruit and

vegetables from the sufficiently large hotel industry on the islands, and lack of coordination among the stakeholders to

fulfil this demand.

A mixture of desk based and primary research was used for this study. A previous report (Hotels Visit Report – CASH)

prepared by VSO staff was used to approximate the available demand for fresh fruits and vegetable. Whereas, primary

data collection was used to gather the information regarding production of fruits and vegetable. A survey of 175 farmers

and 21 traders was conducted for the purpose. A number of key informant interviews were also conducted to gather the

qualitative data regarding legal structure and taxation. The costs versus the revenues of the proposed business process

were estimated to determine its profitability and feasibility.

The study concludes that the proposed business would be both financially feasible and profitable as long as the initial

capital expenditure is provided through grants. In addition, the business will have desirable economic impacts on the

local economy in Zanzibar, providing farmers with a steady income – thus an infusion of spending across several sectors

on the economy and creating jobs. This study demonstrates the potential for agriculture and agribusiness as a viable

method for economic development.

Choosing between PLC and co-operative model as the legal form for the proposed enterprise, it was recommended that

VSO consider going for co-operative. A comparison between the two was carried out on issues such as the laws and

regulations governing these two forms of entities in Zanzibar, taxation, and the general perception of these from the

state.


VSO 3

2016

In order to ensure the success of the proposed enterprise, it’s crucial that it is managed by professionals until the local

capacity is built, this is expected to take at least three years. In order to ensure this, VSO may have to assume full control

of the operations and management of the enterprise for, at least, three to five years and withdraw itself gradually.

Finally, the establishment of the proposed social enterprise would build upon the good work undertaken over a number

of years by VSO in the CASH project, and help lift the horticulture farmers in Zanzibar to a new level of certainty on

income and provide greater incentive to expand both their production and product varieties.


VSO 4

2016

Table of contents Executive summary ................................................................................................................................................................. 2

List of abbreviations ................................................................................................................................................................ 5

Introduction ............................................................................................................................................................................ 6

The CASH project ................................................................................................................................................................ 7

Literature review ................................................................................................................................................................. 8

Methodology of the feasibility study ................................................................................................................................ 10

Sampling ........................................................................................................................................................................ 10

Methods ........................................................................................................................................................................ 10

Assumptions and limitations ............................................................................................................................................. 10

Market analysis ..................................................................................................................................................................... 11

Demand side ..................................................................................................................................................................... 11

Supply side ........................................................................................................................................................................ 12

The Solution .......................................................................................................................................................................... 13

Organisation and technical structure ............................................................................................................................... 14

Legal structure .............................................................................................................................................................. 14

Discussion of the operating environment ..................................................................................................................... 15

Tax ................................................................................................................................................................................. 16

Operations and planning ................................................................................................................................................... 17

Collection and transportation ....................................................................................................................................... 17

Storing and supply......................................................................................................................................................... 18

Technological requirements ............................................................................................................................................. 19

IT .................................................................................................................................................................................... 19

Customer relationship management (CRM) ................................................................................................................. 19

Software for inventory management and accounting .................................................................................................. 19

Accounting software ..................................................................................................................................................... 19

Cold storage .................................................................................................................................................................. 19

Cooling vehicles for supply ........................................................................................................................................... 20

Staffing requirements ....................................................................................................................................................... 20

Fulltime staff ................................................................................................................................................................. 20

Volunteer support to develop capacity ........................................................................................................................ 20

Financials ........................................................................................................................................................................... 21

Profit and loss projections ............................................................................................................................................ 21

Start-up costs ................................................................................................................................................................ 22

Balance sheets .............................................................................................................................................................. 23


VSO 5

2016

Sources of finance/capital................................................................................................................................................. 24

Conclusion, recommendations and long-term planning ...................................................................................................... 24

References ............................................................................................................................................................................ 26

Annexes ................................................................................................................................................................................. 28

1. List of traders interviewed ........................................................................................................................................ 28

2. List of lead farmers Interviewed ............................................................................................................................... 28

3. Questionnaire for lead farmers................................................................................................................................. 28

4. Questionnaire for traders ......................................................................................................................................... 28

5. Financial statements ................................................................................................................................................. 28

6. Hotel Visit Report – CASH ......................................................................................................................................... 28

7. SWOT analysis for the proposed enterprise ............................................................................................................. 29

8. A VFM study graph showing outcomes of CASH ....................................................................................................... 29

9. An overall ranking of the products grown in Zanzibar .............................................................................................. 30

List of abbreviations CASE Centre for the Advancement of Social Entrepreneurship CASH Commercial Agriculture for Smallholder Farmers in Horticulture CRM Customer Relationship Management CUZA DFID EU FDI

Cooperative Union of Zanzibar Department for International Development European Union Foreign Direct Investment

FIFO GDP

First in First Out Gross Domestic Product

ICA ICS IT JUWA KE Kg KATI MoA MoF MoT NEF

International Co-operative Alliance International Citizen Service Information Technology Jumuiya ya Uwokozi wa Wakulima Zanzibar (Zanzibar Farmer’s Association) Knowledge Exchange Kilogram Kizimbani Agriculture Training Institute Ministry of Agriculture Ministry of Finance Ministry of Trade New Economic Foundation

NGO SE SME

Non-Government Organizations Social Enterprise Small and Medium Enterprise

TAHA Tanzania Horticulture Association TRA TSH

Tanzania Revenue Authority Tanzanian Shilling

UWAMWIMA Umoja Wa Wakulima wa Mbogamboga na Matunda (Vegetable Farmer’s Association) UWZ Umoja wa Walemavu Zanzibar (Association of Farmers with Disability)


VSO 6

2016

VAT Value Added Tax VFM Value for Money VSO Voluntary Service Overseas ZATI Zanzibar Association of Tourism Investors ZIPA Zanzibar Investment Promotion Agency ZRB Zanzibar Revenue Board ZSSF Zanzibar Social Security Fund

Introduction Zanzibar is a semi-autonomous region of Tanzania. It is composed of the Zanzibar Archipelago in the Indian Ocean, 25-50

kilometres off the coast of the mainland, and consists of many small islands and two large ones: Unguja (the main island,

referred to as Zanzibar) and Pemba. The capital is Zanzibar city, located on the island of Unguja. Its historic centre is

Stone Town, which is a world heritage site.

Over the last few years, Zanzibar has experienced a period of economic growth. The GDP has been rising consistently,

standing in 2013 at TSH 1,300bn (7.4% annual growth)1. This economic growth has been fuelled by a strong flow of

Foreign Direct Investment (FDI) into the economy. In 2011, Zanzibar received USD 176m of new foreign direct

investment, which is a 319% increase from 2010 (Zanzibar Investment Report, 2013). Over 85% of this was in the

tourism sector alone. This influx of FDI has led to a thriving tourism industry in Zanzibar. A large number of high-end

hotels2 (national and international brands) have setup their units on the island. These hotels serve thousands of local

and foreign tourists every day.

The growth in the tourist industry has had a positive impact on horticulture sub-sector. The sub-sector has grown

significantly during the past few years. The net import for fruits and vegetables has gone down by almost half in the last

decade (TAHA, 2016). Not only does this save Zanzibar from spending scarce foreign exchange on imports; it also makes

a significant contribution to food security, nutrition, and economic growth. The horticulture production in Zanzibar is

contributed by a large number of smallholder farmers who produce a limited range of indigenous fruits and vegetables.

The area under agricultural cultivation is estimated at 4,617 hectares (Unguja: 4,057ha; Pemba: 560ha). The average

yield per hectare varies from 5 to 7 tonnes with a total annual production of around 10,000 metric tonnes. However, not

only are these figures below the Isles’ total annual requirement; they indeed are far below the potential yield levels

obtained in other regions.

This study evaluates feasibility – both economic and operational – of a desired social enterprise and discusses ways in

which it transcends current market inefficiencies to produce a favourable outcome for farmers. Part of this research is

an effort to help overcome the ideological barriers that keep us from realizing capitalism’s full social potential. Yunus

(2006) argues that capitalism centres on the free market. On one hand, he favours the strengthening of free market, but

on the other hand, he expresses his concerns about the conceptual restriction imposed on the players in the market.

The assumption that entrepreneurs are dedicated to the mission of profit maximization all their business lives insulates

them from other dimensions of life, such as political, emotional, and environmental. In some cases, there has been a

prioritization of economic values over social values which have widened the gap between rich and poor despite the

1 Economic Survey 2013 (Office of Chief Government Statisticians – Zanzibar) 2 As per the Revolutionary Government of Zanzibar (RGZ) website, currently there are 263 hotels, of which 20 are five star, operating in Zanzibar.


VSO 7

2016

economic growth during the past decade. However, what is more important at this stage is that societies remain in a

self-reflective state and are willing to evaluate and alter their assumptions from time-to-time.

The following terms are used almost synonymously with social entrepreneurship to describe similar activities and

initiatives: social enterprise, social business, social capitalism, and social purpose venture. The terms social

entrepreneurship and social enterprise are used alternately to represent the same concept. Additionally, the term social

entrepreneur is used to denote those who start or operate social enterprise organizations.

The CASH project

The Commercial Agriculture for Smallholders in Horticulture (CASH) project was commenced in February, 2012. The

project is funded by Accenture, the Department for International Development (DFID) and European Union (EU) and is

implemented by VSO in collaboration with local partners such as UWAMWIMA, UWZ, and KATI. The project aims to

empower smallholder farmers to participate in the market and transform agriculture from a subsistence activity to a

profitable enterprise.

The project has three main objectives:

- Improve quality and quantity of the produce through training on best agriculture practices and providing inputs

such as seeds, fertilizers, and other equipment.

- Introduce revolving fund as a means of financing commonly used services and facilities.

- Improve farmers’ capacity to participate in higher return markets.

Since its inception, the project has done exceptionally well in achieving its Objectives3. Through its network of 194 Lead

Farmers4, the project is serving around 4000 smallholder farmers in Zanzibar. A number of long term (a year or more)

VSO volunteers who are experts in agronomy, marketing, SME development have worked on the project. Currently,

along with three international long term volunteers, there are 20 agronomists5 employed by CASH to support the

farmers.

During the past couple of years, smallholder farmers in Zanzibar have received all kinds of support from various national

and international development organisations and agencies. Gatsby Foundation, the Tanzania Horticulture Association

(TAHA), VSO, USAID, and other programs under the Ministry of Agriculture are chief among them. The work done by

these organizations has a clear impact on the quality and quantity of fruits and vegetables grown on the island.

The farmers interviewed for this study, however, reported that access to market is still a challenge. The success in

connecting the farmers to the high-return market - specifically hotels - has been very limited. Farmer’s Associations such

as UWAMWIMA and UWZ lack the required capacity and, most importantly, the aptitude to do the business. The Hotel

Visit report clearly highlights the apprehensions that the hotels have while dealing with farmers or their associations

directly:

“[…] yet respondent’s (read hotels) enthusiasm is tempered by the realities of business. Although sympathetic to

the plight of local farmers and reporting a desire to source locally grown produce, hotels are unlikely to support

a programme based on philanthropic virtue alone. In short, there is a need for the CASH project to present its

3 A Value for Money (VFM) study done by NEF Consulting. There is a table in the appendices that explains that objectives achieved. 4 To be a Lead Farmer in the CASH project, a farmer has to go through a number of trainings and meet certain criteria. 5 These are local youth trained by KATI on agriculture


VSO 8

2016

produce to the market in a business like fashion with a focus on consistent quality, quantity and continuity of

supply.”

The fact that the Farmer’s Association have more downward accountability to famers than they have towards hotels

puts the interest of the hotels in jeopardy. Procuring fresh fruits and vegetables from farmers and supplying to hotels is

not the primary activity of the associations. They are registered as NGOs and are legally prohibited from carrying out

commercial activities. They can, however, facilitate the farmers in doing business with the hotels/traders.

On one hand, the Farmer’s Associations have done exceptionally well in terms of improving the quality and quantity of

the produce. On the other hand, they have failed to tap into the high return market. Initially, there were 12 hotels that

were procuring local produce via UWAMWIMA alone. The produce was collected by UWAMWIMA staff and supplied to

the hotels on board. After sometime, everyone started complaining. Farmers were upset because of late payments.

Hotels on the other hand had issues regarding quality of produce and consistent supply. The number of hotels gradually

came down to eight making it unviable for UWAMWIMA to continue this activity. Currently, the farmers are provided

with a list of hotels with their phone numbers whom they can call when they have produce to sell or vice versa. This is

an ad hoc approach that does not provide a long-term solution.

The only option left to farmers is to take their produce to one of the three vegetable markets in Zanzibar town. In some

cases when the demand is high, the traders - especially those supplying hotels – buy produce directly from farms. In

both these cases the farmers’ low bargaining power limits the price they receive for their produce. According to the NEF

report (New Economic Foundation, 2015) although they were not considered at CASH’s planning stage, traders are

currently benefitting greatly from the improved produce as a result of the project’s interventions. If left unaddressed,

farmers – the primary stakeholders of the CASH project – may not benefit as much as intended from the project.

Literature review

“How to save the world? Treat it like business (Eakin, 2003)”

This apparent paradox stated by New York Times columnist Emily Eakin is an interesting starting point for the

investigation of social entrepreneurship, because how can benevolence and business be mixed and how can these

different aspects interact in a way that brings about social change (Martin, M. Larsen, 2012)?

The concept of social entrepreneurship has become well established in business. A major theme has been the creation

of value through innovation (Schumpeter, 1951; Drucker, 1985). Having been applied more recently to social concerns,

the concept has taken on a variety of meanings. Many books and articles are written about the characteristics of

organizations engaged in social entrepreneurship (Dees, 1998; 2007; 2008; Nicholls, 2006; Bornstein, 2004; Yunus,

1991). It has also become part of the curriculum of many leading business schools. There are associations devoted to

studying and implementing social entrepreneurship, and there are numerous websites from where one may gather

information about the concept and how to practice it (Alvord, Brown, and Letts, 2004).

However, this variety of material on social entrepreneurship leaves us wondering exactly what social entrepreneurship

is? Is it optimising the operations of non-profit organizations through sound business practices as some seem to suggest

(Reis, 1999), or is it a more radically different approach to the business of ‘doing good’? It is said that “social

entrepreneurship is emerging as an innovative approach for dealing with complex social needs” (Johnson, 2000: 1),

especially in the face of diminishing public funding. But, what is it that makes this approach so promising? Indeed, part

of answering these questions rests on understanding what the phenomenon is (Thiemboonkit, 2013)?


VSO 9

2016

Scholars, such as, Reis, (1999) note that social entrepreneurship is the incorporation of business practices into the non-

profit sector, while others (e.g. Henton et al., 1997) say it is the incorporation of social value in the economy. These

varying descriptions are possible because there is currently no authoritative definition for the concept. Yet, even with

this wide range of interpretations, a number of strong themes in social entrepreneurship have emerged. Innovation;

social impact; sustainability; societal transformation; individual or citizen driven change; challenging existing structures;

merging traditional sector boundaries; and building a more inclusive market system, all characterize social

entrepreneurship.

The world is facing myriad of socio-economic problems today. There are many reasons that social problems such as

hunger or hunger-related disease are so resistant, one of which is the ideological limitation in the way society’s most

basic systems have been constructed (Yunus, 2006a; 2006b). Nicholls (2006), in other words, notes that the narrow

interpretation of capitalism is at the heart of the ideological failure to conceptualize a more socially economic order that

the world is suffering from. Yunus (2006) argues that in this narrow interpretation we create a one-dimensional human

being to play the role of entrepreneur. We insulate him from other dimensions of life, such as religious, emotional,

political, and social dimensions. S/he is dedicated to one mission in life – to maximise profit. This theory resulted in the

perception that you are contributing to the society and the world if you are just concentrating on squeezing out

maximum for yourself. When you get your maximum, everyone else will get his/her maximum. Hence, at the heart of

this failure is the division and categorization of society’s most basic entities: the for-profit and non-profit sectors. We

have compartmentalized and segregated social value from economic value in this construction in such a way that does

not allow the two to integrate and capture the multi-dimensional nature of the human beings (Yunus, 2006a). This has

led to the inability of each sector to do a sufficient job of meeting the social need, a problem that has gained attention in

recent years.

The general problem with non-profit is that they are trying to serve too many masters, as the management guru Peter

Drucker sees it (Drucker, no date; cited in Bronstein, 1998). In order for non-profits to be effective and competitive,

Drucker had some blunt advice for them: if your products/services are not number one or two in the market, kill them.

Rather than trying to be all things to all people, concentrate on doing the best job possible in few, carefully chosen areas

(Sterne, 1998). But, it is not easy to kill programs however economically unviable they are, especially if they are the pet

projects of board members or funders. This has not only earned a greater scepticism for the non-profit sector, but a

subsequent financial pressure as well (Johnson, 2000). On one hand where the non-profit sector is being criticized for

not being able to integrate the positives of free market, the for-profit, on the other hand, is facing increased pressure

regarding its failure to deliver social benefits (Johnson, 2000). In these circumstances, social entrepreneurship emerges

as a socially and economically efficient combination of these entities. It becomes a significant driver of social innovation

and transformation of various fields (environment, health, education) and thus seizes the opportunity that the

aforementioned two seem to have missed in order to improve systems, invent new approaches and advance sustainable

solutions that create social value.

Social entrepreneurship is also believed to have opened windows for private and non-profit sectors to partner and

overcome the problems faced and also in serving the social needs as Jeb Brugmann and C. K Prahalad (2007) have

suggested. They argue that “the liberalization of markets is forcing executives and social activists to work together. They

are developing new business models that will transform organizations and lives of poor people everywhere”. However,

the question worth asking here is why this move from being adversaries to partners? What is evident from the cases

reviewed during this study and the scenario explained above is that the private and non-profit sectors need each-other

to achieve their respective goals. On one hand, companies require NGOs local knowledge and community-based


VSO 10

2016

marketing techniques to set up successful enterprises. On the other hand, NGOs need the business discipline, urgency

and professionalism that corporations bring to their operations.

In conclusion, this can be said that the phenomenon of social entrepreneurship is on the rise, in research as well as in

practice. The first part of this study highlights the concept’s basic characteristics, it’s emergence at the global level, and

how it fills the void left by private and non-profit sector in serving the poor; the second part is focused on the economic

feasibility of the proposed social enterprise in Zanzibar. The concept has been successful in the past and will be even

more needed in the future in order to balance market failures, insufficient state allocation of social services and the

socially pervasive paradigm of money.

Methodology of the feasibility study A mixture of desk based and primary research was used for this study. A previous report (Hotels Visit Report – CASH)

prepared by VSO staff was used to approximate the available demand for fresh fruits and vegetable. Whereas, primary

data collection was used to gather the information regarding production of fruits and vegetable.

Sampling

To complement the data from a previous research (Value Chain Analysis – VSO ICS), 21 fruits and vegetable traders were

interviewed to gather the information regarding market price for the produce. Since the proposed business – at least for

the first year – will be sourcing the produce from the 194 Lead Farmers, and looking at the heterogeneous profile, it was

decided to interview all of them rather than a representative sample. However, during the survey only 175 of them were

interviewed as some of the Lead Farmers were travelling outside Zanzibar or were not available for reasons beyond their

control. As for the traders, a Convenient Sampling method was followed considering the time constraint and availability

on their part.

As for the qualitative data collection – regarding issues related to legal structures and taxation – extensive interviews

and discussions were held with Cooperative Union of Zanzibar (CUZA), Registrar of Companies, Zanzibar Revenue Board

(ZRB), Tanzania Revenue Authority (TRA), Zanzibar Investment Promotion Agency (ZIPA), and a private consultant

agency, SISI Consultant.

Methods

For the quantitative data collection – regarding price and production – surveys were conducted. 14 local agronomists,

who have worked with the farmers under CASH, were used to carry out these surveys. A workshop was conducted to

train the researchers on necessary skills needed for the survey. Mock interviews were done to familiarise the

researchers with the practicalities of data collection. The researchers were run through the questionnaires to make sure

that they understood the questions. The questionnaires were pre-tested and based on the feedback, necessary changes

were made before starting the full-fledged survey.

For the qualitative data collection, unstructured key informant interviews were conducted with the respondents

mentioned above. Data was captured in the form of hand notes.

Assumptions and limitations The study is based on the assumption that the overall demand for fresh fruits and vegetables in Zanzibar exceeds the

overall production and that whatever quantities of fruits and vegetables being produced on Zanzibar can be sold locally.

This assumption is based on various previous reports/research previously conducted by VSO.


VSO 11

2016

The study also has a geographical boundary. Literature and cases on social entrepreneurship from mainland Tanzania

and some other countries have been reviewed. The development of social enterprises (SEs) in Tanzania is at the nascent

stage. This means a large proportion of sources considered in this study are from the developed North and a few other

countries - such as Bangladesh and India – that have made progress with similar models.

Many of the cases reviewed for this study were legally identified as non-profit organizations. As discussed in details in

the later section on Legal Structure. This is, in part, due to the lack of appropriate legal structure that might host the

hybrid forms of social enterprises found elsewhere. However, for the purpose of this study, organizations identified as a

social enterprise in existing literature, or by a foundation or venture philanthropy organizations are considered.

The 175 farmers interviewed for this study cannot qualify as the true representative of all farmers in Zanzibar. These

farmers have been the beneficiaries of the CASH project for over 5 years. A large number of smallholders in Zanzibar is

yet to be benefited from these kinds of support.

Market analysis The purpose of this section is to bring forward the need for an intervention from the market’s point of view. From the

various meetings/interviews and literature review, it is evident that the exiting value chain for fresh fruit and vegetables

does not meet the expectations of the market - the hotels.

Below is an analysis of the current market situation and the gaps that exist. A solution to overcome this and to help all

the stakeholders in the value chain is presented in the following section.

Demand side

According to existing literature and multiple discussions with VSO/UWAMWIMA staff members, it is well established

that the overall demand for fresh fruits and vegetables in the islands exceeds the overall supply. The Value for Money

study (2015)6 conducted by New Economic Foundation quotes:

“Despite the significant growth in tourism over the last 20 years; Zanzibar is under-cultivated with 80% of the

vegetables and fruits supplied to the hotel industry coming from outside the island.”

However, data gathered suggests that farmers are currently producing much more than 20 % of total demand for

produce, and that market failure plays a large role in preventing existing supply from meeting demand. Most of the

hotels have their suppliers on the mainland to supply things that are not grown on the island. And as for the products

that are grown in Zanzibar, hotels do not have confidence that one single trader or farmer’s association can consistently

supply the required quantity and quality in a timely manner. So, rather than having multiple suppliers on the island and

still having to import produce (that are not grown in Zanzibar) from mainland, hotels indicated that they would prefer to

have a single point of contact that can meet all their needs consistently.

What is clear is that importing fruits and vegetables from the mainland is costly for hotels when compared to procuring

locally. Although these outside sources meet the volume, variety and size requirements of hotels, they fail to deliver

fresh produce. Normally, the produce from outside Zanzibar takes three or more days, post-harvest, to reach the hotels

by which time quality, in terms of freshness, is poorer than that of the best locally produced goods. This is another

reason why hotels would prefer the local produce over importing from mainland.

6 Value for Money (VFM) study – CASH project


VSO 12

2016

Hotels interviewed in the previous research mentioned that they have tried sourcing local produce through the farmer’s

associations but they faced issues regarding timely and consistent supply and so many no longer source from the

associations directly. Hotels expect the farmers associations to operate like businesses; just as hotels are upwardly

accountable to their customer, they need their supply chain to be similarly professional. On the other hand the Farmer’s

Associations cite a lack of downwards accountability, blaming the hotels for not paying on time, as the reason for the

breakdown of commercial relationships.

Supply side

The primary quantitative data regarding the production of fruits and vegetable collected for this study clearly suggests

that the production of fruits and vegetables on the island has increased significantly in recent years. The charts below

show the kinds and quantities of fruits and vegetable grown on the island (Data collected for this study).

The products marked with (*) are bought/sold in bunches, not kgs. Since there is no standard size for bunches, it was not possible to convert them into kgs.

29

26

50

21

88

75

17

68

80

16

41

38

10

10

10

95

80

0

93

07

5

88

86

3

82

34

6

55

98

0

37

41

5

20

91

0

12

07

5

96

25

65

31

44

50

44

50

37

97

30

20

20

80

10

09

10

00

56

0

21

0

32

10

10

CU

CU

MB

ER

EG

GP

LA

NT

PA

SS

ION

FR

UIT

TO

MA

TO

WA

TE

RM

EL

ON

OK

RA

PIN

EA

PL

E

GR

EE

N P

AP

PE

R

AM

AR

AN

TH

*

MA

NG

OS

PA

PA

YA

OR

AN

GE

S

PU

MP

KIN

CH

INE

SE

…

BA

NA

NA

*

CA

BB

AG

E

AF

RIC

AN

…

ZU

KIN

I*

HO

T P

EP

PE

R

PO

TA

TO

JAC

K F

RU

IT

LIM

ES

ON

ION

BE

ET

RO

OT

BA

SIL

CO

RIA

ND

ER

*

AV

OC

AD

O

PRODUCTION (IN KG/BUNCHES)


VSO 13

2016

Training on best agricultural practices, better quality seeds, and other supports provided under projects such as CASH

has helped the farmers to graduate from being subsistence to having surplus to sell. Access to irrigation facilities have

also improved. 86 per cent7 of respondents report having unrestricted access to at least one reliable source of water8,

allowing for year round cultivation.

The main challenge now is to connect these farmers with the high-return markets, the hotels in Zanzibar. VSO, through

CASH project, tried doing this via its partner NGOs such as UWAMWIMA, UWZ, and ZUWA in Zanzibar. However, for the

reasons explained in previous sections, this model did not work largely because of issues of accountability and business

planning that need to be addressed if farmers are to profit fully from their improved production. The farmers’

association are staffed by the farmers themselves. The associations are well placed to respond to issues relating to

agricultural production and immediate post-harvest activities (downwards accountability), but less well placed to

understand and respond appropriately to commercial relationships (upwards accountability).

The Solution In order to guard against stock shortages, hotels are currently sourcing fresh fruit and vegetables from multiple traders.

This is because no single trader/business currently has capacity to consistently supply the desired quality and quantity

week in week out. To manage this risk hotels use multiple sources/traders to buy produce. They also buy the produce

from the mainland Tanzania via traders there, especially during the peak tourist season, this comes at an increased cost

to hotels.

This presents an opportunity for the proposed enterprise to enter into the market9. To ensure the regular supply of the

desired quality produce, the existing network of Farmer’s Association will/can be used. These associations are working

with the farmers closely on the production side. The associations – funded by various national and international

organizations – are providing the farmers with agriculture know how, credits to buy farm inputs/tools such as material

7 The remaining 13 per cent of farmers whom do not have access to adequate irrigation facilities and can only grow crops during the rainy season are working with the CASH project to change this. 8 This could be their own bore/open well, municipal water supply or a neighbour’s well 9 A SWOT analysis for the proposed enterprise is presented in the appendices

13%

42%11%

33%1%

Irrigation methods

Only grow during rainy season Have bore/open well

Share neighbor's bore/open well Use municipal water supply

Do rainwater harvesting


VSO 14

2016

required for drip irrigation, and other related services. Using this existing network of farmer’s associations will not only

be cost effective for the proposed business but will also promote local ownership of the initiative. On one hand, the

CASH project, in partnership with the Farmer’s Associations, will continue to support the farmers on the production side.

The proposed enterprise, on the other hand, will provide the farmers with an assured market for their produce. The

enterprise will be responsible for collecting, sorting, storing, packing, and supplying the produce.

However, there will still be times – especially during the peak tourist season – when the supply from farmers will fail to

meet contractual obligations with hotels; conversely, during the high production season (rainy season in Zanzibar), the

business might have extra produce to sell. To minimize the risk in either situation, sourcing from/selling into the open

market is advisable. Also, going forward, a third party contact should be setup on the mainland so as to import the items

that are not grown on the islands and/or to export things that are in excess quantity.

Importantly, by separating roles relating to upwards and downwards accountability, a social enterprise will help address

crucial issues by simplifying relationships. What must be assumed is that the farmers unions and the enterprise will

operate with a single aim. Farmers associations will be free to be fully downwardly accountable to farmers by

predominantly dealing with productive capacity and immediate post-harvest practices. In its new role, the enterprise

will manage commercial relationships with the buyers and ensure the whole operation remains upwardly accountable to

all stakeholders.

Organisation and technical structure

This section is in two parts: the first part discusses the possible legal forms that the proposed enterprise can take.

Considering the objectives of the enterprise and the current legal environment in Tanzanian, two suitable legal forms are

identified; these legal forms are then discussed. The second part of this section discusses the operations and planning.

Issues such as business operations, technical requirements, and staffing needs are considered here.

Legal structure

Existing debates and attempts to categorise social enterprises all focus on the function and efficiencies of institutions

(SEs) more so than legal structures. In terms of legal constructs, there is no categorising yet. While legal structure will

decide the origin and nature of the funds it attracts, non-profits, private limited, trusts/societies, co-operatives etc.

might all be considered here. However, because the proposed enterprise needs to be at least majority owned by/on

behalf of the farmers, the only suitable legal forms are Co-operative union and Public Limited Company. These two types

or organisation and their legal structure are explored below.

Cooperatives union

A co-operative is a group of people who work together voluntarily to meet their common economic, social, and cultural

needs through a jointly owned and democratically controlled enterprise. Co-operatives are based on the values of self-

help, self-responsibility, democracy, equality and solidarity. Co-operatives are voluntary organizations and its

membership is open to all persons who are able to use their services and willing to accept the responsibilities of

membership, without any discrimination10. The members elect a management committee that is responsible for carrying

out the business that the co-operative is involved in. The management committee - acting on behalf of the members -

can enter into an agreement with other organizations including the government, or raise funds from external sources.

However, this is to be done by ensuring the democratic control by their members and maintain their autonomy.

10 Zanzibar Cooperative Development Policy - The Revolutionary Government of Zanzibar, April, 2014


VSO 15

2016

All cooperatives in Zanzibar are governed by the Co-operative Societies Act, (1986)11. The sector has a three-tier

structure comprising of primary cooperatives, secondary cooperatives (unions), and an apex body. The responsibility for

coordinating cooperative development is vested under the Department of Cooperatives within the Ministry of

Empowerment, Social Welfare, Youth, Women, and Children. The mandatory area of the Department includes

registration of cooperative societies, facilitation of cooperative education and training, auditing, monitoring and follow-

up of co-operative societies. There are four main sectors, namely: (i) finance, (ii) agriculture (including livestock and

fisheries), (iii) small-scale manufacturing and handicrafts, and (iv) tourism, in which cooperatives in Zanzibar are

operating.

Public Limited Company

A public limited company (PLC) is the standard legal designation used for a company that has offered shares to the

general public and has limited liability12. A public limited company’s stock can be acquired by anyone and the liability of

shareholders is limited to potentially losing the amount paid for the shares. Being a PLC allows a firm to sell shares to its

investors to raise capital. Only PLCs may be listed on a Stock Exchange to trade its shares.

A company, public or private, in Zanzibar is registered under/governed by the Company Decree, Cap 153. The rules and

regulations around PLCs in Zanzibar are, however, a bit ambiguous. This is mainly because Zanzibar does not have many

resident corporations registered as PLCs. Nor is there a Zanzibar stock exchange where a PLC might be registered and

shares traded in order to raise capital. Companies in Zanzibar wishing to become a PLC choose to register at Dar es

Salaam’s stock exchange on mainland Tanzania.

Discussion of the operating environment

Even though the state has introduced a few policies in past two decades aiming at liberalizing Zanzibar’s economy and

promoting its resources for global markets, in general the private sector in Zanzibar still remains highly regulated. In a

ranking of 183 global economies, Zanzibar falls at 155th place – 21 places behind Dar es Salaam in 131st place (World

Bank, 2010). On the ease of starting a business and registering property, Zanzibar would rank 162nd and 170th,

respectively. The relatively poor performance is mostly due to the high number of procedures and the high cost

associated with them. Starting a business requires 10 steps, 2 more than the global average. It takes around 28 days to

comply with all registration requirement to set up a limited liability company and start to operate. While incorporation

with the Company Registrar in Zanzibar is relatively simple and takes less than a week, the post-incorporation

procedures – such as preparing a company seal, applying for all required tax numbers from TRA and ZRB, obtaining a

business licence, registering with the Zanzibar Social Security Fund (ZSSF) and with the National Insurance Corporation,

11 The Co-operative Societies Act, No. 4 of 1986 12 Information retrieved from http://www.investopedia.com/terms/p/plc.asp

http://www.investopedia.com/terms/p/plc.asp


VSO 16

2016

and submitting employees’ contract at the Labour Commission – take up to 18 days to complete.

On the other hand, the regulation and oversight present in the non-profit sector are significantly fewer. The state’s co-

operative policy is to simplify the procedures as much as possible and to adopt a self-regulatory system. Grey areas in

law constructed within the non-profit sphere worldwide have turned out to be favourable for social entrepreneurs. This

has helped them to bypass the regulatory limitations. While social enterprises do strive towards sustainability, neither

financial self-sufficiency nor profit generation is mandated. The criteria by which social enterprises are identified are

generally a mix of social impact, sustainability/financial self-sufficiency, innovation, scalability and entrepreneurship. As

a result, the most common form of social enterprise is the ‘hybrid’13 model of a for-profit and non-profit organization

that can generate some income, but still accepts or relies on philanthropic donations to continue its operations. This is

also because in most cases, the initial capital that is required to start a business that is driven by a social cause is huge

and can make the business look unviable.

The department of co-operatives in Zanzibar produced a draft of its new policy in 2009. There are numerous

amendments/policy objectives that are proposed in the draft – if implemented with good intentions – can change the

way the co-operative sector is working. Some of these policy objectives are as under:

- To reverse the trend of state controlled co-operatives and promote autonomous self-help co-operatives that are

member-based, economically viable and strong

- To comply with the International Co-operative Alliance (ICA) standards

- To support the establishment of viable co-operative financial institution

- To encourage internal co-operative capital formation

- To protect co-operative business operations against unfair competition

- To recognize and support small producer group initiatives so that they can become economically strong co-

operatives

- To support and encourage the provision of co-operative education, training, and research services that focus on

member empowerment

The Director of the government’s co-operative department in Zanzibar stated that the department has already started

working to reach these objectives. However, these activities have not been verified as they fall outside of this study’s per

view. The Director displayed great enthusiasm to collaborate with VSO in promoting the co-operative movement in

Zanzibar. Based on these observations, considering the initial capital requirement, the attitude of the state towards

private sector and the support available to co-ops, it is recommended that VSO use a co-operative model for the

proposed enterprise.

Tax

As for the taxation, there are two main authorities involved in tax collection from businesses, namely: Tanzania Revenue

Authority (TRA) and Zanzibar Revenue Board (ZRB) who also collect Value Added Tax (VAT).

13 In India, for example, a majority of SEs are registered under Sec 25 of the Companies Act 1956. The companies registered under this section have all the positives of being a private limited and are still allowed to accept grants. The only condition is that the proceedings made from the operations have to be used for development purposes. However, this kind of hybrid model is yet to emerge in Tanzania.


VSO 17

2016

VAT

Some products are highly taxed at point of sale and some are exempted from VAT, thus the amount of VAT paid by a

business varies greatly depending upon the nature of the product(s) with which it is dealing. According to the ZRB, every

business - irrespective of its legal form - must be registered for VAT unless their product(s) is/are exempted from VAT or

gross sales are below TSH 30 million per year. However, in the latter case, a business is required to be registered for

stamp duty and to pay 3 percent of its gross sale as stamp duty.

Business revenue tax

The business revenue tax - irrespective of a business’s legal form - is charged at 30 percent of the profits and is collected

by the TRA. A business can approach the Ministry of Finance and can apply for income tax exemption if the sole purpose

of the business is socio-economic development of underprivileged communities and if the profits made by the business

are not shared by few individuals but by the community at large.

From a practical point of view, it is far easier to get tax exemption being a co-operative as compared to a company. The

perception of co-operatives – from the government in particular – is that they are a fragile entity that needs all kinds of

support necessary to achieve its objective. Companies, on the other hand, are perceived by tax authorities as

opportunistic entities solely interested in profits.

Operations and planning For the administrative purposes, Unguja the main island of Zanzibar, is further divided into six districts; North A, North B,

West, Urban, Central, and South. The main town on Zanzibar which houses a majority of high-end hotels and all the

three main vegetable markets is in Urban district. Most of the agro-production, however, happens in the other five

districts. Farmers from these districts bring their produce to the main markets in Stone Town to sell. For lower quality or

for smaller quantities of produce farmers currently use local government markets in their areas - Kinyasini vegetables

market in North A, for example – as it does not makes economic sense to travel all the way to markets in Stone Town.

Some of the hotels located further away from Stone Town, may also buy fruits and vegetables from these local markets.

Collection and transportation

Currently, most small-scale vegetable producers personally take their produce to sell in local markets, despite the high

transaction costs involved. The produce is normally loaded onto a local bus (daladala) or sometimes a private vehicle is

used. Traders are likely to hire or use their own vehicle to transfer the produce from farm or port to market and

between markets and to consumer. Some larger hotels and restaurants tend to have their own transport. In almost all

cases, packaging is usually inadequate – commodities are thrown into baskets or sacks, which are handled poorly –

leading to considerable damage and wastage.

To avoid this damage/wastage, the proposed enterprise plans to use a standard size plastic crate to carry and store the

produce. These crates can be stacked one on top of other, which makes it easier to store and also saves space. Farmers

can be provided with the crates at a nominal price. Four collection centres (one each in North A & North B districts and

two in Central district) will be setup to collect and grade produce. The farmers in the respective areas will come to these

centres (during the stipulated hours) to supply their produce. They will use the crates to bring the produce to the

collection centres. Each collection centre will be provided with two electronic weighing scales (one 0-10kg capacity and

the other up to 100kg). To ensure the quality of the produce, strong quality standards will need to be established.

Collection centres should not accept sub-standard produce. Payments to farmers shall be made upfront when produce is

submitted to the collection centres. A collection vehicle (a medium size truck) will then collect the produce from all the


VSO 18

2016

collection centres and bring to the central cold storage facility in Stone Town. Considering the quantities of the produce

and in order to optimize the operating costs, the collection should be done on alternate days. On the first day, the

collection vehicle will visit the collection centres in North A and North B districts. On the second day, it will go to the

centres in Central district. And the cycle continues.

For the first year, the proposed business plans to source its produce from the 194 Lead Farmer who are spread across

Unguja Island. However, only 175 Lead Farmers who were interviewed for the study have been considered for first year

revenue projections. Each Lead farmer supports and mentors 15-20 additional smallholder farmers. Going forward, the

proposed enterprise will increase the amount of produce collected by asking Lead Farmers’ to source additional quality

produce from group members who are ready to participate.

For further information on route plan and contact details for each collection centre, please follow the link https://www.google.com/maps/d/edit?mid=zcJNOI-

SwvyY.kTlcjw1aYHgY

Storing and supply

In order to make sourcing, sorting and supplying fresh fruits and vegetables more efficient, a central

warehouse/collection/cold storage facility is required. This facility should be big enough to store 4-5 days’ worth of

supply in case there should be an unforeseen situation affecting the collection of the produce. A facility that can house

around 20,000 kg of fruit and vegetables should be big enough even taking into consideration the expansion of the

business for next 4-5 years. The facility should ideally be located in or near to one of the vegetable markets in stone

town. However, considering the size of the market and the number of farmers/traders coming there to buy/sell the

fruits and vegetable every day, Mwanakwerekwe market will be the best location for the facility. The ideal space for this

https://www.google.com/maps/d/edit?mid=zcJNOI-SwvyY.kTlcjw1aYHgY

https://www.google.com/maps/d/edit?mid=zcJNOI-SwvyY.kTlcjw1aYHgY


VSO 19

2016

would be an independent property that has enough space for housing the cold room, office space, and parking for the

vehicles.

A small size cooling truck will be needed to supply the produce to the clients. For collection, however, an ordinary

freight truck (non-cooling) may be used for collection as the produce will be fresh and it will not take more than two

hours to transport it to the storing facility. So there is practically no risk of produce going bad. But, once the produce

enters the cooling facility and the temperature is brought down from, say, 25C to 10C, it will be risky then to take it in a

non-cooling truck to supply.

The first in first out (FIFO) model of stocking should be followed at the storing facility. And appropriate inventory

management software should be put in place for better stock management. As also mentioned above, a buffer stock of

4-5 days’ worth of supply should be maintained at all times to guard against any sourcing related uncertainty.

Technological requirements

IT

Two desktop computers, one each for operations and accounting, will be needed. Buying a good quality licensed

antivirus is also advisable. One small sized printer, with the facility of photocopy and scan, will be needed. An internet

connection with reasonable speed will be needed as well.

Customer relationship management (CRM)

CRM software is a category of software that covers a broad set of applications and software designed to help businesses

manage customer data and customer interaction, access business information, automate sales, marketing and customer

support and also manage employee, vendor and partner relationship. While the phrase customer relationship

management is most commonly used to describe a business-customer relationship, CRM systems are used in the same

way to manage business contacts, clients, contract wins, and sales leads.

Small business CRM software will be a big enabler for the proposed enterprise helping to manage all operations in an

efficient and in a business like fashion. In case fulltime staff are not equipped with the necessary IT skills to be able to

make the most out of it, a VSO Knowledge Exchange volunteer should be requested to train the designated staff. Most

software vendors also provide some preliminary IT training to help the businesses.

Software for inventory management and accounting

A simple Inventory Management software used by small super markets will suffice. However, there is a fair chance of

getting this inbuilt within the CRM software. This needs to be further explored with the vendor.

Accounting software

Even though simple Tally software might meet basic requirements, using accounting software that is used locally by

accounting institutions will support a working relationship with local accountants.

Cold storage

Considering the perishable nature of the products, the cost and availability of the technology (for cooling) is critical.

Since 4-5 days’ worth of supply will be stored in the warehouse, there should be a good quality cooling system in place

so as to maintain the quality of the produce. Two quotations were received from Zanzibar Hotels & Catering Supplies

and OZTI East Africa for constructing a cold room.


VSO 20

2016

Even though the electricity supply in Zanzibar is fairly reliable, it is still necessary that we have a backup generator set for

any power cuts.

Cooling vehicles for supply

Other than a small size mini truck for collection, one mini truck/van with cooling facility will be needed for supplying the

produce to hotels and other potential clients. There are two small cooling vans sitting in Dar office that were bought

under CASH project. These can be used for the supplying the produce to the hotels. However, since they are bought

second-hand and haven’t been operational for quite some time now, some repairing/maintenance work will be needed.

Staffing requirements

Fulltime staff

The table below suggests the number of fulltime staff with required skills and experience needed for the proposed

enterprise.

Profile No. of Posts Ed. Qualification & Exp.

CEO/GM 1 Master’s Degree in Economics/Business Management with 5+ years of work experience in similar organization

Sales & Marketing Manager 1 Degree in Marketing/Business Management with 2+ years of experience in sales/marketing

Finance Manager 1 Degree in Finance or Business Management with Finance as major subject, 4+ years of work experience

Warehouse/Stock Manager 1 Degree in Procurement or Business Management with Operations as major subject, 2+ years of experience

Driver 2 Secondary education with 5+ years of driving experience on commercial vehicle

Helpers 2 Secondary education

Office Assistant 1 Secondary education with basic computer skills

Volunteer support to develop capacity

Some of the fulltime positions mentioned above can be filled by the long term VSO volunteers, especially if the required

skills are not available locally. A local counterpart may be assigned to these volunteers to build his/her capacity. Short

term Knowledge Exchange (KE) volunteers can be used to put systems such as CRM in place and train the fulltime staff

to insure sustainability.


VSO 21

2016

Financials

Profit and loss projections

Tsh Tsh

'000 '000

Sales (from Sales Tab) see note 1 2,368,430

Less Cost of Goods Sold 1,496,781

Less spoilage (5% allowance) see note 2 118,422

Less collection costs see note 3 7,000

Total Cost of goods sold 1,622,203

Gross Revenue 746,228

Operating Expenses

Bank Fees 600

Communications (Phone & Internet) 4,000

Depreciation 28,226

Electricity Office 1,500

Electricity - Cold Store see note 4 6,000

Insurance -Fixed Assets Total of USD 500 per annum 1,100

- Staff Ins (3% of salaries) 5,760

Licences & Fees First year only 500

Marketing Activities 15,400

Maintenance (buildings & equip) 12,000

Office Supplies & Cleaning see note 5 12,000

Rent USD1,000 per mth 26,400

Sales Tax (Zanzibar Revenue Board) 3% of gross sales (note 6) 67,500

Transport - delivery / freight outwards 14,000

Travel costs and allowances 12,000

Training see note 6 0

Wages & salaries 192,000

398,986

Net Profit Before Income Tax 347,241 Tsh '000

Projected income tax (note 7) TRA - 30% of Net Profit 104,172

Profit after Tax 243,069 Tsh '000

Zanzibar Fruit and Vegetable Company

Projected Profit & Loss Statement for first 12 months of operation


VSO 22

2016

Start-up costs

Estimated Annual

CAPITAL EXPENDITURE BUDGET Tsh Life - Years Straight Line

Depreciation

Pre fabricated vegerable cold store

Supply 13,820

Installation 5,200

Transport 3,125

USD 22,145 48,719,000 10 4,871,900

Back up Generator for Cold room USD 18,000 39,600,000 10 3,960,000

Pick up truck - collect produce from collection centers

quotes to be obtained estimate USD 30,000 66,000,000 10 6,600,000

Desktop PC's x2 USD 1,390

Printer USD 257

Software USD 18,440

20,087 44,191,400 5 8,838,280

Packaging Crates

Product Crates these to be supplied to farmers for delivery of produce, storage and used

for conveyance and delivery to customers

Indicative pricing (subject to negotiation) Tsh 20,000 each

Numbers required

Initial estimate 500 10,000,000 5 2,000,000

Weighing Scales 1x small & 1 x large at each location

3 collection centers and 1 Cold store

4 Table Top scales 0 to 15 kg 466,102 each 1,864,408

4 Platform scales 10 to 1-0 kg 974,576 each 3,898,304

5,762,712 5 1,152,542

Delivery Trolleys 1,500,000 10 150,000

Processing Packaging tables 2,000,000 15 133,333

Fire Extinguishers / Safety Equip 200,000 10 20,000

Office Furniture & Fixtures - Tables, Chairs air Cond. 5,000,000 10 500,000

Working capital based on 3 months purchases 350,000,000

Cover cash flow mismatch (pay on purchase / 30 payment

from Customers) plus operating expenses.

TOTAL ESTIMATED START UP CAPITAL 572,973,112 Tsh

INCLUDING WORKING FUNDS

Estimated annual depreciation 28,226,056



VSO 23

2016

Balance sheets

Notes:

Tsh '000 Tsh '000

ASSETS

Current Assets

Cash at Bank 350,000 511,167

Accounts Receivable 0 200,000 2

Stock on Hand (estimate) 14,300 3

725,467

Fixed Assets

Cold Store & Generator 88,319 88,319

Less Provn. for Depreciation 8,832 79,487

Vehicles 66,000 66,000


Equipment 68,654 68,654


194,747

TOTAL ASSETS 572,973 920,214

LIABILITIES

Current Liabilities

Taxation Liability 0 104,172

Total Liabilities 0 104,172

Owners Equity

Retained Earnings 0 243,069

Establishment Grant 572,973 572,973 1

Total Owners Equity 572,973 816,042

Total Liabilities & Owners Equity 572,973 920,214

Notes:

1. Balance Sheet is predicated on assumption that the start up funds of Tsh 573 million is provided

by way of a grant and that the Company has no liabilty to repay that grant.

2. Accounts receivable has been assumed as one months projected sales.

3. Stock on Hand is estimated as 3 days of average purchases.

(purchases of Tsh 1,496,000 / 313 (6 days per week) x 3)

PLUS 12 MONTHS

Projected BALANCE SHEET as at:COMMENCEMENT DATE COMMENCEMENT DATE



VSO 24

2016

To gain a full understanding of the financial statements, especially the Sales and Purchases figures in the Profit & Loss

Statement, please refer to the various tabs on the spreadsheets provided.

The “Sales” and “Cost of Goods Sold” figures were developed by several steps:

1. The Production spreadsheet sets out the total fruit and vegetable production by the lead farmers (Tot. Prod tab),

it also shows how the product buy and sell pricing was derived (Prod Pricing tab).

2. The Purch & Sales tab in the P&L workbook then shows how the product production and buy/sell pricing were

combined to come up with the figures for Sales and Cost of Goods Sold in the P&L.

3. The “Notes” tab on the various spreadsheets is also important as they set out the assumptions that are inherent

in the numbers used.

Sources of finance/capital The farmers are not in a position to raise funds that can meet the requirement for start-up capital which is around USD

260,000; around 60 percent of which will go towards meeting working capital requirements. VSO need to raise funds for

this. The start-up capital can come as mix of grant and soft loan. However, for the calculation purposes here, it is

assumed that the whole start-up capital will be raised in form of grants. That is why neither there is provisioning done

for interest payment/repayment of loan in the P&L account nor any liabilities shown in the balance sheet

It is worth mentioning here that the grant part is needed to buy the fixed assets for the first time only. The projected

P&L account has a provision for depreciation which means that the enterprise can and will be in position to replace

these assets in due course without having to need external support.

Conclusion, recommendations and long-term planning From this study it seems evident that an enterprise of this nature is feasible and will benefit both farmers and the hotels.

But, the devil is in the details. Once you start calculating the amount of capital expenditure one has to spend in order to

get the enterprise up and running, you begin to think whether this is possible or not, considering that the farmers

themselves can never raise enough capital to meet the requirement. Perhaps that is the reason why many

researchers/experts on the topic of social entrepreneurship have suggested that a social enterprise should adopt a

hybrid model whereby it can accept some charitable funds to get it off the ground. However, the underline condition

remains that the enterprise should – in order to be financially sustainable in future – be able to cover its running costs

from its operations. Considering this, the proposed enterprise is financially viable as long as it can manage to raise funds

to support the initial capital expenditure. The financial analysis shows that the enterprise can not only take care of its

operating costs, it can also manage to replace the fixed assets in future without having to need external support.

As for the legal structure, it seems that in the given situation going for co-operative model is the best choice. Unlike

countries that recognize the role of SE sector in addressing social needs and have subsequently developed legal

structures that support their development, Tanzania is yet to legislate for ‘hybrid’ legal form that are fit for purpose.

The proposed enterprise should be registered as secondary co-operative society. It’s the second level of the three tier

co-operative structure in Zanzibar. Any five or more persons can form a primary co-operative society. A majority of the

farmers that CASH works with are already organized in groups which can be registered as primary societies. These

primary societies then can go on to form a secondary society. As per the Co-operative Act 1986, secondary societies are

formed to perform the following, but not limited to, tasks:


VSO 25

2016

- To collect from primary societies to process, and to deliver for marketing various products

- To procure and distribute various inputs required by its member primary societies

- To provide finance for the purchase of various products for its member primary societies

- To establish, operate, and maintain large scale farms for agricultural production

- To manage, supervise, and coordinate the activities of member societies

- To acquire, maintain, and operate building and equipment for the assembling, warehousing, and transporting of

agricultural products belonging to member primary co-operative societies

- To provide accounting and audit services to member societies

If the proposed enterprise is to succeed it is crucial that it is managed by professionals until the local capacity is built,

this is expected to take at least three years. In order to ensure this, VSO may have to assume full control of the

operations and management of the enterprise for, at least, three to five years. This arrangement can be made possible

by signing an agreement with board/management committee of the co-operative, which is legally possible. However, it

is advisable that VSO discusses this with the department of co-operatives beforehand14. VSO may want to make it its

primary condition for the support/investment that it brings. VSO can also assume an advisory position on the board of

the co-operative. But, again, this needs to be further explored with the department.

The CASH project is also experimenting with processing some of the fruits and vegetables grown on the island. This is

being done in partnership with the Ministry of Agriculture. However, there is no clarity as to who will be

running/managing should this initiative becomes a mainstream enterprise. A current VSO volunteer working on the

project shows concerns over leaving this to the Ministry to manage. Since this project – if operational – will be selling

processed fruits and vegetable based products, this has to be done by a business entity. VSO or the Ministry are not

legally meant for carrying out business activities. So one of the wild recommendation here is to bring this initiative under

the proposed enterprise. This will be very cost effective as the proposed enterprise will already have its sourcing and

supplying channels and other infrastructure in place. A lot of money can be saved that the initiative – if chooses to be a

separate business entity – will have to incur on overheads. In case of any technical reason, if this does not work out and

that VSO/Ministry do decide to have this initiative registered as a separate legal entity. The proposed enterprise, in that

case, can still be a supplier for the raw material that the processing business will need for its operations.

Going forward, more emphasis might be put on producing Organic/Fairtrade products and a separate product category

can be created in order to tap into the premium market. Some high-end hotels and high-income residents – mostly

expats – in Zanzibar might be target market for these products. The promotion of Organic/Fairtrade agriculture can be

done through trained extension workers and through certification (e.g. Tanzania Organic Certification Association

TanCert). In case the enterprise starts processing/manufacturing products such as juice, sauces, and preserves, there is a

greater possibility to tap into the tourist market15.

Zanzibar has a substantial expat community living/working in and around Stone Town on the main island. An average

size family – two adults with two kids – spends something between TSH 100k to 150k on their weekly shopping for fruits

and vegetables. It will be worth considering for the proposed enterprise to serve this niche market. The worth

mentioned fact here is that the enterprise need not to make any extra investment in order to serve this market. All the

needed infrastructure will already be in place. On the other hand, however, this can generate a significant revenue on

14 The Director of Co-op Department, Mr. Simba, when interviewed, was in full agreement for this kind of arrangement with VSO. 15 As per the RGZ website, Zanzibar received around 200,000 foreign tourists last year and the number is expected to grow year-on-year.


VSO 26

2016

top of serving hotels. If the enterprise can design a basket that has the main fruits and vegetable products that can last

for a week for an average size household, this can be a big hit. Not to mention, the profit margins will also be high in this

case. A couple of expat household that I visited during this study showed a great interest in supporting an initiative like

this.

In terms of product portfolio, there are around 27 products (both fruits and vegetable) that are grown on Zanzibar.

There is a huge variation in the quantities of these products being produced. An overall ranking16 of these products was

done based on two criteria; the quantity produced for a particular product and how many farmers are growing that

product. They are ranked from 1 – 27, where one being the highest rank and 27, the lowest. In the beginning, it is

advisable for the enterprise to focus on supplying hotels with the products with higher ranks, especially when the

relationship is in form of enforceable contracts. Unless a reliable and sizable supply is ensured for the products with

lower ranks, the enterprise should avoid supplying them to the key buyers. This may, however, discourage hotels to

come on board in the beginning as they prefer to have a supplier with a broad range of products.

From the procurement side, however, the enterprise should buy every product from the farmers that it will serve. Since

the proposed enterprise plans to use the open fruits and vegetable market as its fall back17 option. The products that are

not supplied to the hotels can be sold in the open market. There are two benefits of doing this. One the farmers will be

more willing to participate if they were to sell all their produce at one point of sale rather than selling part of it to the

enterprise and still having to go to the open markets to sell the rest. Two, this will help the enterprise reaching

economies of scale and thus bringing down the operational costs.

References

Alvord, S. H., Brown, L. D., & Letts, C. W. (2004). Social entrepreneurship and societal transformation. Journal of Applied

Behavioural Science .

Bornstein, D. (2004). How to change the world: Social entrepreneurs and the power of new ideas. Oxford: Oxford

University Press.

Brugmann, J., & Prahalad, C. K. (2007). Cocreating business's new social impact. Harward Business Review.

Dees, J. G. (1998). Enterprising Non-profits. Harward Business Review .

Dees, J. G. (2007, March/April). Taking Social Enterprises Seriously. Society , pp. 24-31.

Dees, J. G., & Joan, E. (2008). The Challenges of Combing Social and Commercial Enterprises. Business Ethics Quarterly.

Doing Business in Zanzibar. (2010). Retrieved from World Bank: http://www.doingbusiness.org/reports/subnational-

reports/zanzibar

Drucker, P. F. (1985). Innovation and Entrepreneurship. New York: Harper & Row.

Foundation, N. E. (2015). The Value for Money. Zanzibar: VSO, Tanzania.

16 The chart that shows this ranking is available in the appendices 17 In case of short supply the enterprise will procure from the open market in order to meet its contractual obligations. And if there is excess produce, it can be sold in the open market.


VSO 27

2016

Henton, D., Melville, J., & Walesh, K. (1997). The age of the civic entrepreneur: Restoring civil society and building

economic community. Nationa Civic Review, (pp. 149-156).

James, S., & Frank, G. (2015). Hotel Visit Report. Zanzibar: VSO, Tanzania.

Johnson, S. (2000). Literature review on social entrepreneurship. Canadian centre for social entrepreneurship.

Martin, M. L. (2012). Social Entrepreneurship, A single case study of a social entrepreneurship in Danish non-for-profit

sector.

MoA. (2000). Zanzibar Agriculture Sector Policy. Zanzibar: Ministry of Agriculture, Livestock, and Environment.

MoF. (2002). Zanzibar Poverty Reduction Plan. Zanzibar: Ministry of Finance and Economic Affairs.

MoF. (2002). Zinazibar Vision 2020. Zanzibar: Ministry of Finance.

MoT. (2004). Zanzibar Tourism Policy Statement. Zanzibar: Ministry of Trade, Industry, and Tourism .

Nicholls, A. (2006). Social Entrepreneurship: New models of social change. New York: Oxford University Press.

Reis, T. (1999). Unleashing the new resources and entrepreneurship for common good: A scan synthesis and scenario for

action. Battle Creek: W. K. Kellogg Foundation.

Revelutionary Government of Zanzibar. (2016, April 4). Retrieved from

http://www.zanzibar.go.tz/index.php?rgo=tourism

Schumpeter, J. A. (1951). Entrepreneurs, Innovations, Business Cycles, and the Evolution of Capitalism. In R. V.

Clemence. Cambridge.

TAHA. (2016). Horticulture in Tanzania. Dar es Salaam: TAHA.

Volunteers, I. (2015). Value Chain Analysis; Fruits and Vegetables. Zanzibar: VSO, Tanzania.

VSO. (2007). Market Assessment and Value Chain Development, Unguja. Zanzibar: VSO.

Yunus, M. (2006). Free Market Economy. Nobel Lecture. Oslo, Norway.

Yunus, M. (2006). Social business entrepreneurs are the solution. Skoll World Forum on Social Entrepreneurship at

Oxford University. Packages Corporation Limited.


VSO 28

2016

Annexes

1. List of traders interviewed

List of traders

interviewed.xlsx

2. List of lead farmers Interviewed

List of Lead Farmers

interviewed.xlsx

3. Questionnaire for lead farmers

Questionnaire for

Lead Farmers.docx

4. Questionnaire for traders

Questionnaire for

Traders.docx

5. Financial statements

CAPEX BUDGET

APR16 v3 20 apr.xlsx

Profit & Loss

statement.xlsx

Projected Balance

Sheet.xlsx

Production.xlsx

6. Hotel Visit Report – CASH

CASH Hotel Visit

Report.docx


VSO 29

2016

7. SWOT analysis for the proposed enterprise

Strengths Weaknesses

- Many years of supply-side capacity building work done by VSO and partners organization

- The available network of farmer’s associations - Lack of competition from a sizable competitor - Pro-poor model - Professional support from VSO

- Pro-poor model - Lack of business mindedness among the locals - Lack of start-up capital

Opportunities Threats

- Fresh start with a business mind-set to address the challenges exposed through CASH

- Tap into the potential market which has no sizable competitor serving it

- Ambiguous laws and regulations governing the businesses in Zanzibar

- Excessive taxation levied by the government - State’s involvement with the co-operatives

8. A VFM study graph showing outcomes of CASH


VSO 30

2016

9. An overall ranking of the products grown in Zanzibar

Documents

Zanzibar fruits and vegetable company - feasibility study