FACILITATING EQUITABLE AGRICULTURE DEVELOPMENT

IN SUB-SAHARAN AFRICA: THE CASE OF TANZANIA

ByThe Economic and Social Research

Foundation (ESRF)

Presented in a Workshop on Promoting Agriculture-Climate-

Trade Linkages in the EAC (PACT EAC)

23rd February 2012

Outline

Introduction: Agriculture and Poverty Policy Framework Objectives

Analysis and Discussion of the Study Findings: Nature and Challenges of Agriculture Stakeholders’ Roles and Interactions Towards Equitable Terms of Trade Challenges facing the Private Sector

Conclusion and Recommendations

Introduction

Impact of macro economic reforms adopted by TZ: Have enabled the country to sustain growth

of GDP at a rate of not less than 6% since 2001;

Integrated domestic economies with the rest of the world; and

Lead to increased inflow of FDIs. innovations in production, processing and

organization skills in mining, banking, telecommunication, hotels and other industries

…Cont

Despite such an impressive economic performance over a decade, little has been registered in terms of poverty reduction and livelihoods: 2007 HBS - poverty declined from 35 to

33% within a period of 5 years This trend is a challenge on economic

growth and poverty reduction initiatives including the TDV 2025

…Cont

High GDP growth has been accompanied by: increases public spending over the years with

fiscal deficit peaking to almost 6.6% of the GDP budgetary pressures that could bring bad

impacts eg: price surge, capital flight and exchange rate misalignments

inflationary pressures (4.5% in 2002 to 12.1% in 2009, and 19% currently)

export earning instability Thus, deteriorating livelihoods of most Tanzanians

Agriculture and Poverty in Tanzania

Agriculture has remained an important sector: Employment (about 80%) Contribution to GDP (about 26.5%)

Has declined overtime due to growth in other sectors (service) and poor performance of the sector

Export Earnings (about 24%) Supply of raw materials for domestic industries

(about 65%) Supply of food consumed in the country (about

95%) The country has the potential to produce enough

food for the entire EAC region given land suitable for food production and other advantages

…Cont

But overall sector performance is dismal: Food supply lags behind demand The sector growth rate is low The sector GDP contribution is also low At 80% employment rate in agriculture is too high

Lack of sufficient investment in terms of putting appropriate technology, credits and removal of all forms of constraints for value addition

In addition, the sector is dominated by small-scale farmers who are less educated and uninformed as well as use rudimentary technology; leading to low productivity and food insecurity

Dominated by rain-fed agriculture Higher levels of poverty compared to the urban

areas

…Cont

The vagaries of climate change Lack the necessary credentials to access

loans, lack insurance schemes to hedge against risks and face unpredictable Government policy

The effect of market liberalization which have made smallholder farmers vulnerable and without any form of safety net to insulate them

Poorly developed infrastructure to improve marketing and distribution of food

…Cont

Agricultural share to GDP has been decreasing since 2000:

For example, between 2000 and 2009 its share to GDP has been making a gradual decline from 29% in 2000 to 25% in 2009 and 26% in 2010

The service sector contributes the largest share in total GDP contributing an average of 45% per annum between 2000 and 2010

Though marginally, the GDP share of the service sector has been rising overtime

Likewise, the industry sector’s share to total GDP has been rising overtime despite the fact that its share is lower than that of agriculture

…Cont

Sector Contribution to Real GDP in Percentage Year→ Sector↓

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009p 2010p

Agriculture 29 29 28 27 27 26 25 25 26 25 26

Industry 17 18 18 19 20 20 20 21 21 22 22

Services 45 45 46 46 46 46 47 47 48 48 48

Other 7.5 7.5 7.5 7.4 7.4 7.3 7.5 7.5

9.5

9.8

9.5

BoT (2010)

…Cont

0

5

10

15

20

25

30

35

40

45

50

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009p

GD

P Sh

are

(%)

Year

Agriculture Industry Services Other

Sector Contribution to Real GDP in Percentage

…Cont

• Likewise, agricultural sector has persistently registered a lower growth rate compared to industry and service sectors

• While agriculture has been growing at an average of 4% between 1998 and 2009, industry and service sectors have been growing at an average of 8.3 and 7% respectively (The average growth of GDP between 1998 and 2009 is 6.4%)

• Thus, the main reasons why economic growth in Tanzania over the past decade has not been associated with poverty reduction especially in rural areas is that agricultural sector which support nearly 80% of the population has been growing relatively slowly compared to other major sectors

• Growth is therefore happening in non-agricultural sectors

…Cont

Growth Rates of Total GDP, Agriculture, Industry and Services

0

2

4

6

8

10

12

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

PERCENTAGE

YEAR

Agriculture Industry Service GDP

…Cont

Percentage of the Population below Basic Needs and Food Poverty Lines in Tanzania Mainland

HBS Basic

Needs Poverty

Change in Headcount Ratio:

Basic Needs Poverty

Food Poverty

Change in Headcount Ratio: Food Poverty

1991/92 38.6 -- 21.6 --

2000/02 35.7 - 2.9 18.7 - 2.9

2007 33.3 - 2.4 16.5 - 2.2

Source: URT (2002c) and URT (2007a)

Policy Framework

Review of agriculture, trade and investment policies has established evidences of the linkages between them:

investment policy focuses on ensuring that investments are increasing in different sectors including agriculture

Trade policy provides a framework under which agriculture can transform in the liberalized economy through increased trade

But in order to attain agricultural development, there is a need of increasing both foreign and domestic investments

It is from this perspective; these policies are considered to be complementing each other

…Cont

Tanzania is among few African countries which has been able to attract a high level of FDIs

But the largest share of these FDIs are directed into mining and services sectors where the dominant players, especially in mining

sector, are multinational companies which are highly mechanized and provide few jobs

Such investments are not pro-poor Agriculture (where majority are making their

living) does not attract FDIs

Study Objectives

To examine the relationships between the agriculture policy makers, farmers, investors and traders and their role/contribution to the policy formulation and implementation

To identify positive and negative elements in the policy framework that either facilitate or hamper positive interaction and equitable ToT among farmers, investors and traders

Methodology

Both primary and secondary data collected: Primary data was collected using an interview guide while

secondary data was collected from institutions such as The Ministry of Agriculture, Food Security and Cooperative, Economic and Social Research Foundation Library, the National Website, etc.

Respondents were drawn from different actors engaged in agriculture:

The interviews focused on establishing constraints, interactions by stakeholders, power and ability to influence existing policy and how they affect equitable interaction between stakeholders

The survey intended to gauge whether there was an equal inclusion in policy formulation or change among actors

Role of associations formed by different actors was also established. We were particularly interested in the lobbying and advocacy function

of associations or group and their outcome.

The Study Findings - Nature and Challenges of the Sector

Agricultural employment very high – an indication of agricultural underdevelopment

Growth in volume of agricultural production not consistent with food security or poverty reduction

Low technological uptake eg: productivity enhancing factors such as improved seeds and fertilizer leading to low productivity

Dominated by small scale farmers and rain fed agriculture – an indication of absence of irrigation

Low intensity activity - an indication of non attractiveness of capital investment

…Cont

Land acquisition and ownership is a serious problem

Contract Farming has been introduced in very few areas

Value addition is constrained by lack of skills and a weak private sector

Misconception of market liberalization or free market

Stakeholders Roles and Interaction

Farmers Private Traders Non-Governmental Organizations (NGOs) for

Farmers Private Sector Organizations Government Institutions Warehouse Receipt Agency Crop Marketing Board Agricultural Research Institutes (ARI) Local Government Authority Agencies In-charge of Standards

Towards Equitable ToT Among Stakeholders

Inefficient Marketing System Access to Financial Services Dry Weather Conditions Provision of Extension Services Ad hoc Policy Problems Access to Agricultural Inputs Tax or Crop Levy Plant/Land compensation Unattractive producer price

Problems Facing the Private Sector

Lack of Steady Supply of Crop Produce Problem of Electricity Transaction Costs Expectations of Farmers and Private Sector Role of the Government Lack of Skills Capital Deficiency Policy Environment and Legal Framework Knowledge on safety and standards

Conclusion

Agriculture is dominated by small farmers and there are few medium and large scale farmers;

Agriculture is constrained by many factors such as lack of access to credit, marketing infrastructure, market information, agricultural inputs (technology), storage facilities and insufficient supportive services such as extension services;

Farmers use different mechanisms to influence policy depending on their scale of production;

While large scale farmers use their association or even individual firm to lobby for a particular policy change, NGOs represent smallholders in policy review or lobbying and advocacy for policy change -

…Cont This important activity is complemented by politicians

particularly members of parliament who normally pressurize the Government to implement or change specific policies which are not favorable to the sector;

The role of traders is to purchase farm produce from the farmers, process and then supply them either to domestic or foreign markets;

Like large farmers, traders also have associations which present their interests in policy design. Private investors are found to have more lobbying power than the smallholder farmers;

Different abilities and approaches for lobbying and advocacy used by each group is one of the reasons for inefficiencies within the marketing system.

Recommendations

A number of support services are required to attract private sector in agriculture and be able to implement successfully the ‘Kilimo Kwanza’ strategy:

Resources are therefore needed to build up infrastructure such as irrigation and rural roads and ensure that there is sufficient and reliable electricity

Both the government and the Private Sector must work hard towards empowering small scale farmers by way of promoting farmers groups and associations or cooperatives to foster information sharing and reduce transaction costs of reaching them

Establishment of Warehouse Receipt System (WRS) should be scaled up and introduced to other crops subsectors as well

…Cont

Private sector should scale up their activities and ensure profits are equitably distributed to all actors along the supply or value chain. Approaches such as contract farming will be relevant

A few large scale farmers and small scale farmers should operate as partners where the later will be suppliers of raw materials to large scale farmers

Thank You!