Southern Highlands Food Systems Project.Tanzania.

URT 132 & 133 – Tanzania, Southern Highlands Food Systems

An analysis of the Edible Oils Value Chain

Draft Final Report

November 2012

1

Table of Contents

ContentsTable of Contents................................................................................................................................2Executive Summary...........................................................................................................................4Acronyms............................................................................................................................................6List of Acronyms..................................................................................................................................61. Introduction......................................................................................................................................8

1.1 Background of the Study & Objectives......................................................................................81.2 Methodology..............................................................................................................................91.3 Brief Overview of the Sunflower Value Chain..........................................................................91.4 Other Oil Seed Crops...............................................................................................................10

2. End-markets....................................................................................................................................122.1 Total world production and main producers of oilseeds.............................................122.2 National Market for the Sunflower Oilseeds...........................................................................132.3 Export and Import of Sunflower Oilseed Products..................................................................142.4 Price Patterns in Urban Markets...............................................................................................152.5 Sunflower cake (Mashudu)......................................................................................................16

3. The Sunflower Value Chain...........................................................................................................163.1 The Value Chain Map..............................................................................................................163.2 Value Chain Governance.......................................................................................................203.3 Technology Generation............................................................................................................213.4 Input Supply & Demand...........................................................................................................223.5 Production................................................................................................................................253.6 Processing.................................................................................................................................283.7 Wholesale & Retail Distribution..............................................................................................29

4. Systemic Constraints and Upgrading Opportunities......................................................................294.1 Constraints Related to Business Enabling Environment..........................................................294.2 SWOT Analyses of the Value Chain........................................................................................30

5. Vision and Strategy for Improved Competitiveness and Growth..................................................315.1 Vision.......................................................................................................................................315.2 Strategic Issues Synthesis.........................................................................................................315.3 Value Chain Competitiveness Strategy....................................................................................355.4 Proposed Strategy Components................................................................................................35

2

List of Tables.

Table 1: Regional background for soya.Table 2: Sunflower seed production (thousand tons)Table 3: Sunflower seed oil global production (thousand tons)Table 4 Edible oil imports 2001 to 2006Table 5 Summary of Trade Statistics of Sunflower Oilseed Products (2001 - 2006)Table 6 Tanzania Sunflower imports and exports 2009Table 7 Summary of Companies Dealing with Sunflower ProductsTable 8: Functions and Actors in the sunflower value chain in the Southern Highlands.Table 9 Banks operating in the Southern Highlands.Table 10 Domestic Sunflower oil production in Tons.Table 11. Sunflower Area ('000'ha) and Production ('000'tons) by Region by District and Year.Table 12 Some Characteristics that favour competitiveness of small firms.

List of figures.Figure 1: Simplified Sunflower Oilseed Value ChainFigure 2 Characteristics of the Sunflower value chain

AnnexesAnnex A: Sunflower Value Chain MapAnnex B: Persons metAnnex C: Economic calculations

C1: Indicative Added Values.C2: Sunflower Crop Gross Margins.C3. Processor Performance

Annex D: Stakeholder AnalysisE:Suggested Public Private P Commitments

Annex F: ReferencesAnnex G: Maps

3

Executive Summary

The assignment was undertaken in the context of two projects being implemented by FAO under the umbrella of the Southern Highlands Food Systems (SHFS) Development Program. The SHFS Development Program is comprised of two projects which were twinned together in 2010 for improved implementation purposes: URT 132 “Food Systems Development in Tanzania” and URT 133 Advisory Services Capacity Development in Support of Food Security in the United Republic of Tanzania

According to 2008 estimates, the production of oilseeds in Tanzania is mainly from ground nuts (40%), sunflower (36%), sesame (15%), cotton (8%), and palm oil (1%). However, there is virtually no oil produced commercially from sesame and groundnut1. Furthermore, oilseed production in the Southern Highlands is predominantly sunflower and is increasing annually. As a result the report focuses on the sunflower value chain. Sunflower is the fastest growing crop in Tanzania which produces both edible oil and a high protein cake, as a residue from the extraction, which is used in animal feed. Oil content varies according to variety and extraction process but is generally reckoned to be about 35% with 65% cake.

The company CP Foods of Thailand has entered into a contract to establish an industrial scale poultry production unit that will require up to 600 tons per month of high protein soya bean meal plus 1200 tons of maize. This will provide a significant opportunity for farmers and processors to engage in an alternative cash crop that will ideally fit into a crop rotation of maize and sunflower under conservation agriculture practices. Given the above there is scope to support soya production in the SH by undertaking a feasibility study.

The demand for edible oils in Tanzania is estimated to be about 350,000 tons a year and growing in line with population growth of 2.9% and increasing standards of living. Sixty per cent of demand, is met from imported Crude Palm Oil (CPO), that is free of import duty and is in competition with local production of sunflower oil. Importation is dominated by a few large industrial scale processors who are producing fully refined oils in compliance with required TBS standards2. The 40% balance of demand is met from local production of unrefined crude sunflower oil most of which is produced in the Central Corridor This is dominated by small producers and processors who lack the technical and financial capability to run it efficiently and profitably resulting in weak horizontal and vertical linkages in the value chain. Nevertheless, there is considerable scope for import substitution.

Major bottlenecks in the chain are the low yields and overall production of crushing seed causing a shortage for crushing by commercial processors, large numbers of unregistered processors producing crude oil of dubious quality and, lack of refining capacity. Processors are a pivotal link in the chain as all seed must pass through them to extract the oil and cake yet they are operating at a fraction of capacity and with a low level of technology.

The local edible oil industry is still in an immature stage and needs to develop stronger horizontal linkages of farmers and vertical linkages between farmers and processors. With assistance from development agencies farmers are gradually forming producer groups to enhance their bargaining power and to access credit. Processors are forming local associations and a national organisation, TEOSA, has been formed to represent all registered processors. This association has the potential to 1 Care should be taken not to confuse oilseed production with edible oil production as many oilseeds are consumed whole rather than being used to produce oil.2 Much of the imported CPO is refined and exported as finished products within the region although reliable data on this is not forthcoming.

4

fulfil a need to coordinate the whole value chain going forward by providing a platform for all stakeholders..

The low farmer yields are largely due to the use of recycled seed that is genetically degenerate. This is being alleviated to some extent with the production of Quality Declared Seed, QDS, of improved varieties that are grown under the supervision of District Councils which are distributed through agro dealer networks. The fact that oilseeds are classified as minor crops in Tanzania has resulted in less support and attention being given to them compared to other food crops. This needs to be rectified as soon as possible.

Support services, especially from the public sector are weak due to very low operational capacity as a result of budget constraints and staff shortages. This is especially true of R&D, extension services and of the application and regulation of quality standards but provides a potential opportunity for private sector actors to undertake these on contract to government which may require external support. The provision of reliable and up-to-date statistics is a major weakness that requires addressing. Likewise, in order to attract investment, the business environment requires considerable improvement as identified by the World Bank that ranks Tanzania 127 out of 182 countries. However, the edible oil industry is continuing to develop despite the shortcomings of government.

To provide the consumer with a product of the required standard will require further investment in refining facilities. Available evidence indicates that processors are operating at below break-even level for oil at both price and volume levels. This in turn, implies the need for processors to cooperate in order to obtain the economies of scale necessary for profitable refining operations that will qualify for investment finance.

At farm level the critical factor will be the formation of registered farmer producer groups as viable business entities. These could eventually transform into limited companies that would form the basis for the commercialisation of agriculture in line with government policy. For sustainability of production within a farming system it will be necessary to promote the practice of Conservation Agriculture, CA, and also the possibility of additional income generating activities such as apiculture and the introduction of soya into the crop rotation which would enhance fertility as well as diversifying risk. This latter would also provide processors with additional supplies of oilseed for extraction.

In addition to those mentioned above other important constraints include; confusion over land rights and tenure which lead to conflict between graziers and farmers, land degradation, poor rural road maintenance, duty free import of Crude Palm Oil, lack of a policy for oilseeds, corruption, protracted bureaucracy, low business skills, and poor inter-ministry coordination.

Continued assistance will be required to enhance the business skills of farmers and producer groups through training and mentoring.

5

Acronyms

List of Acronyms(R)MSE(s) (Rural) Micro and Small Enterprises(s)AIDSAMCOS

Acquired Immune Deficiency SyndromeAgricultural Marketing Cooperative Society

AMSDP Agricultural Marketing Systems Development ProgrammeARI Ilonga Agricultural Training InstituteBCS Business Care ServicesBEE Business Enabling EnvironmentBEST-AC Business Environmental Strengthening – AdvocacyCCCm

Central CorridorCentimetre

CRDB Cooperative Rural Development BankCSDI Centre for Sustainable Development InitiativesDADP District Agriculture Development PlanDAIPESA Development Alternatives, Inc. Private Enterprise Support ActivitiesDALDO District Agriculture and Livestock OfficerDASP District Agricultural Support ProgrammeDED District Executive DirectorEACEUESRF

East Africa CommissionEuropean UnionEconomic and Social Research Foundation

FAOFAOSTAT

Food and Agriculture OrganizationFood and Agriculture Organization Statistics

FFS Field Farmer SchoolFGD Focus Group DiscussionGDPGMAGOTFSU

Gross Domestic ProductGross Margin AnalysisGovernment of TanzaniaFormer Soviet Union

HIV Human Immunity VirusIFAD International Fund for Agriculture DevelopmentKg KilogramLGA Local Government AuthorityMAFCMETL

Ministry of Agriculture, Food Security and CooperativesMohamed Enterprise Tanzania Limited

MITM Ministry of Industry, Trade and MarketingMKUKUTA Mkakati wa Kukuza Uchumi na Kupunguza Umaskini TanzaniaMt Metric tonneMUVI Muunganisho wa Ujasiriamali VijijiniMVIWATA Mtandao wa Vikundi vya Wakulima TanzaniaNADO Njombe Agricultural Development OrganizationNBS National Bureau of StatisticsNGONJODECO

Non-Government OrganisationNjombe Development Cooperation

NMB National Microfinance BankNSGRPPASS

National Economic Growth and Reduction of PovertyPrivate Agricultural Sector Support

6

PMD Powdery MildewQDS Quality Declared SeedRAS Regional Administrative SecretaryRBSS Rural Business Support ServicesREA Rural Energy AgencyRFSPRLDC

Rural Financial Services ProgrammeRural Livelihood Development Company

RMA Preliminary (Rapid) Market AssessmentSACCOSSADC

Savings and Credit Cooperative Society(ies)Southern Africa Development Cooperation

SHSIDO

Southern HighlandsSmall Industry Development Organization

SMART Specific, Measurable, Achievable, Realistic and Time boundSME Small and Medium EnterprisesSMS Subject Matter SpecialistSNVSWOT

Netherland Development AgencyStrengths, Weaknesses, Opportunities and Threats

TAFOPA Tanzania Food Processors AssociationTBSTCCIA

Tanzania Bureau of StandardsTanzania Chamber of Commerce, Industry and Agriculture

TDC Technology Development CentreTEMDO Tanzania Engineering and Manufacturing and Design OrganizationTEOSATFC

Tanzania Edible Oil Sector Association.Tanzania Fertilizer Company

TFDATIRDOTIC

Tanzania Food and Drug AuthorityTanzania Industrial Research and Development OrganizationTanzania Investment Centre

TOSCI Tanzania Official Seeds Certification InstituteTPRITRATZSUMGTUSA

Tanzania Pest Research InstituteTanzania Revenue AuthorityTanzanian ShillingUncle Millo General TradersUnited States of America

US/ADF United States/African Development FoundationUSAIDVAT

United States Agency for International DevelopmentValue Added Tax

VC Value ChainVCA Value Chain AnalysisVCD Value Chain DevelopmentVCIP Value Chain Implementing PartnerVCO Value Chain OperatorsVCSVICOBA

Value Chain SupportersVillage Community Bank

Exchange rate used: US$= TZS 1575

7

1. Introduction

1.1 Background of the Study & ObjectivesThe objective of the study is to formulate a strategy for the development of the sunflower industry on the Southern Highlands Corridor based on an analysis of the value chain.

The assignment was undertaken in the context of two projects being implemented by FAO under the umbrella of the Southern Highlands Food Systems (SHFS) Development Program. The analysis of the value chains relates to the outputs identified in both these projects as shown below.The SHFS Development Program is comprised of two projects which were twinned together in 2010 for improved implementation purposes: URT 132 “Food Systems Development in Tanzania” and URT 133 Advisory Services Capacity Development in Support of Food Security in the United Republic of Tanzania”. Both projects are closely aligned with the Government of Tanzania’s Agricultural Sector Development Strategy (ASDS) which aims to make the policy environment more favourable for private investment in agriculture and put in place sector-specific policies that have a bearing on agricultural productivity and profitability. The overall project outcome for Project URT 132 is defined as “Public and private organisations and food chain actors have improved capacity to coordinate, plan and support food chain and business development in the rice, maize, edible oil and red meat sub-sectors of the Southern Highlands. In order to achieve this outcome the project has five major outputs:

Output 1: Sub-sector specific strategies and priorities identified. Output 2: Public-private sector coordination and capacity strengthened. Output 3: Best practises for new market mechanisms promoted.Output 4: Food-chain innovation capacity strengthened.Output 5: Strategies to improve capacity utilization of agro-processing facilities identified

In respect of project URT 133 the outcome envisaged is enhanced capacity of advisory service providers and farmers in farm management and marketing to enable them to respond to better to market opportunities. In addition the project is expected to contribute to the government restructuring efforts by focusing on market oriented extension. These interventions are expected to enhance farm profitability and competitiveness and the income derived from farming operations.

Output 1. Awareness of policy makers and programme managers to market oriented agricultural extension and knowledge of ‘good practices’ heightened and realized.

Output 2 . Capacity of advisory service providers in farm management and marketing at central, district, and ward levels, developed

Output 3. Capacity of smallholder farmers and farmer groups developedOutput 4. Linkages between producer groups, private agricultural service providers and

financial institutions and market outlets established.

From the above it can be seen that analysis of value chains cuts across both projects and their outputs.

8

1.2 Methodology

The mission to Tanzania took place between 05 August and 01 September 2012 during which a 5 day field trip was undertaken to Morogoro, Iringa and Mbeya regions of the Southern highlands during which limited primary information was obtained. In Dar es Salaam meetings and interviews were undertaken with a wide range of actors. The FAO guidelines for agri-food chain performance were used as a basis for the study3

The report is based on a review of available documentation as well as interviews undertaken with a wide range of actors and stakeholders in the field as well as in Dar es Salaam as identified in Annex B4.

Although much documentation is available, (see Annex E), it is noticeable that there is a considerable disparity in available statistical data which raises doubts as to its reliability and usefulness, even though from apparently reliable sources, and it was beyond the scope of the mission to verify all the data sources and statements. Furthermore, as the sub-sector is developing rapidly, data on sunflower production soon becomes outdated. Given the above it is advisable to regard the data presented in the report as indicative rather than definitive.

According to 2008 estimates, the production of oilseeds in Tanzania is mainly from ground nuts (40%), sunflower (36%), sesame (15%), cotton (8%), and palm oil (1%).. However, according to available information, there is virtually no oil produced from groundnut and sesame, most of which is exported as seed, and given that sunflower dominates oilseed production in the Southern Highlands the report focuses on the sunflower value chain.

1.3 Brief Overview of the Sunflower Value Chain.

The demand for edible oils in Tanzania is estimated to be about 350,000 tons a year and growing in line with population growth of 2.9% and increasing standards of living. Sixty per cent of demand is met from imported Crude Palm Oil (CPO), that is free of import duty and is in competition with local production of sunflower oil. Importation is dominated by a few large industrial scale processors who are producing fully refined oils in compliance with required TBS standards. The 40% balance of demand is met from local production of crude sunflower oil. This is dominated by small farmers and processors who lack the technical and financial capability to run it efficiently and profitably. Consequently the horizontal and vertical linkages of the value chain are weak and uncompetitive, and require support to strengthen them. Given the above there, is in effect, two value chains running concurrently, one based on imports, the other on local production.

Sunflower is the fastest growing crop in Tanzania where production has more than doubled since 2005 especially in the Central Corridor. The Ministry of Agriculture estimates that Tanzania has 1.6 million sunflower seed producers who have the capacity to satisfy the national cooking oil demand if fully supported. Sunflower produces two products, oil for human consumption and industrial use, and cake for high protein animal feed.

3 “Guidelines for rapid appraisals of agrifood chain performance in developing countries”4 It was originally required that the report should not exceed 25 pages. However, it has been necessary to exceed this in order to accommodate the required information according to the prescribed table of contents. Detailed technical information in support of the report is contained in the annexes.

9

In the Southern Highlands most sunflower is grown as an intercrop with maize but is beginning to expand as a cash crop to offset low prices realised from maize. However, yields are very low resulting in shortages of crushing material for the processors who are running at a fraction of capacity.

Due to the absence of refining capacity outside of the large operators, micro and SME processors are only able to produce crude, filtered oil which does not meet the TFDA required standard and has a limited shelf life as it deteriorates rapidly. This implies that there is opportunity for investment in refining capacity to provide a product to the required standards.

As sunflower is classified as a minor crop by MAFSC it receives very little by way of government support in comparison to food crops. Thus R&D has come to a standstill and the provision of a pipeline of improved varieties is minimal. Likewise extension services are weak as are most of the other services due to the lack of operational funding. Nevertheless, it is apparent that the local oilseed industry is increasing despite institutional weaknesses which is possibly its main strength going forward.

There are many opportunities for enhancing this value chain from the producer to the consumer and already efforts are being made by some development agencies in this regard. In particular SNV and RLDC are active in the Central Corridor and have developed models that can be replicated in the Southern Highlands. The sub-sector is also being addressed by the MUVI project, funded by IFAD and implemented by SIDO in the Southern Highlands and elsewhere. The industry has also spontaneously formed a number of associations and an umbrella Tanzania Edible Oil Sector Association that has the potential to coordinate the value chain.

1.4 Other Oil Seed Crops

Statistics available for oilseed crops are widely disparate depending on source and need to be taken with a high degree of circumspection and that they are not all produced as pure stands but in mixed cropping systems making areas and yields difficult to estimate. Available data serves to confuse rather than enlighten.

SesameAlthough grown in the Southern Highlands the main production areas are in Lindi, Mtwara and Dodoma Regions but amounts are grown in Mbeya, Morogoro and Rukwa in the Southern Highlands. Apart from un-quantified domestic consumption all production is exported as crude seed. Sesame production is semi-regulated by Regional Governments in that it is all marketed through the Primary and Cooperatives who on-sell the raw seed to exporters either by auction or by tender. Furthermore the crop is subject to substantial levies by district and regional governments who depend on it for a substantial proportion of their income.5 According to SNV 20106 the value chain is in confusion and disarray due to:

Poor marketing and pricing practices, Political interference Lack of business skills of cooperatives Lack of professionalism Weak farmer bargaining power.

5 Bennett 2008 Adapting to new marketing realities: value chain analysis ofsesame in Tanzania6 UNLOCKING SESAME FARMERS’ POTENTIAL FOR FAIR TRADE IN SOUTHERN TANZANIA

10

There is one embryonic processor for sesame oil in Lindi, Frasal Intertrade, with a capacity of 10 tons per day, that is being supported by a programme implemented by SNV. It is vertically integrated with its suppliers and employs 4 extension staff for the purpose.

Estimates of sesame exports in 2009 are 50,000 tons at an average world market price of $1500 per ton which is about 70% of a national production estimate of 70,000 tons.

Soya.In general soybeans can be grown in areas where either beans or maize can be cultivated. Currently, soybeans are cultivated in Ruvuma region (Songea), Morogoro (Kilosa, Mvomero and Morogoro Rural districts), Kagera region, some parts of Iringa and Mbeya, Rukwa, Arusha, and Lindi regions (Nachingwea districts).

Current national production is about 3,500 tons, most of which is produced in the Southern Highlands. According to SAGCOT there is considerable potential for increased production in the Southern highlands shown in the table 1 below.

Table 1: Regional background for soya7

Production areas

Current production (mt) Area (ha)

Potential (mt)Mbeya 2005: 533 mt 200,000 300,000Rukwa 2005: 11 mt 150,000 225,000Ruvuma 2005: 499 mt / 2010: 800 mt

(expected)150,000 225,000

Iringa 2005: 105 mt / 2010: 120 mt 130,000 200,000Morogoro Mentioned by farmers and

researchers120,000

However, according to new information the company CP Foods of Thailand has entered into a contract to establish an industrial scale poultry production unit that will require up to 600 tons per month of high protein soya bean meal plus 1200 tons of maize. This will provide a significant opportunity for farmers and processors to engage in an alternative cash crop that will ideally fit into a crop rotation of maize and sunflower under conservation agriculture practices. Given the above there is scope to support soya production in the SH by undertaking a feasibility study.

GroundnutApart from acreage and tonnage, statistics on groundnut consumption and processing are sparse. Groundnut is widely grown throughout the country as a food crop rather than for oils extraction. A problem associated with the crop is the infection with the aflatoxin fungus which can cause severe sickness or death.

CottonCotton is grown in the cotton zones in the NE and NW of Tanzania and is marketed through the Tanzania Cotton Board, TCB. Production of seed cotton varies according to year, 369 K tons in 2009 dropping to 267 K tons in 20118. At a ratio of 1 lint to 1.6 seed the latter equates to 1612 tons of seed. Of this some is kept for planting whilst the rest goes to millers in Arusha for processing into oil and cake. Statistics for oil production are not readily available. It is an internationally traded commodity and is susceptible to world market prices. The TCB receives subsidies from the government to support farmgate prices and for pesticides. A negligible amount of cotton is grown in Morogoro in the Southern Highlands.

7 SAGCOT Value Chain and Market Analysis.8 Tanzania Cotton Board, Annual Report, 2010.

11

2. End-markets

2.1 Total world production and main producers of oilseeds.

The world’s average per capita consumption of edible oils is estimated as 17.8 Kg per year, based on a population of 6.773 billion in 2009, with global demand averaging 120 million tons per year. Given an annual population increase of 1.125%, there is likely to be a growing demand especially in developing countries where studies show that edible oil consumption rises with increased incomes.

Out of the total global production of oilseeds (404 million tons in 2008/2009), sunflower seed represents only 8%. The greatest seed production is of soybean (55%), followed by rapeseed (14%) and cottonseed (10%)

The Russian Federation, Ukraine and Argentina are the main world producers of sunflower seed and sunflower by-products, as well as suppliers to the global market. These three countries produce over the half of the sunflower seed in the world, which is why these countries are often referred to as the “sunflower triangle”. The change in the market situation of one country has a great influence on the market situation in the other two countries, and affects the world market of sunflower seeds and sunflower by-products.

In 2008/2009, about 33 million tons of sunflower seeds were harvested around the world (+23% against 2007/2008).

Table 2: Sunflower seed production (thousand tons)Sunflower Seed

Country/Region Marketing Year 2006/7 2007/8 2008/9Russian Federation (Sep.–Aug.) 6,750 5,650 7,400EU-27 (Oct.–Sep.) 6,502 4,771 6,950Ukraine (Sep.–Aug.) 5,300 4,200 6,300Argentina (Mar.–Feb.) 3,500 4,650 3,630Turkey (Sep.–Aug.) 850 700 850Other 6,910 7,225 8,291World total 29,812 27,196 33,421

Source: FAO data

N.B. In Tanzania a production level of 350,000 tons of seed equates to just 1% of global production.

Table 3: Sunflower seed oil global production (thousand tons)Sunflower Seed

Country/Region Marketing Year 2006/7 2007/8 2008/9Russian Federation (Sep.–Aug.) 2,465 2,130 2,520Ukraine (Sep.–Aug.) 2,050 1,726 2,285EU-27 (Oct.–Sep.) 2,200 1,773 2,270Argentina (Mar.–Feb.) 1,202 1,800 1,785Turkey (Sep.–Aug.) 525 523 544Other 2,172 1,958 2,270World total 10,614 9,910 11,674Source: FAO internal dataSunflower is a high quality vegetable product. It produces oil used for cooking as well as in salad oils and dressings, shortenings and margarines. It also has several industrial uses such as a drying

12

agent used in paints, resins and plastics. In addition the residue from oil extraction is a high protein animal feed.

2.2 National Market for the Sunflower Oilseeds

Sunflower National Demand and SupplyMount Meru Oil Mills estimates that the market demand is rising by 6% per year. However, available data on national demand and supply is often inconsistent and invariably covers different time frames. Thus it is presented with a degree of circumspection. FAO recommends a minimum annual per capita consumption of 5 kg of vegetable oil. National demand for edible oil is huge compared to national supply, which has forced the country to largely rely on imported palm oils. This has an impact on country foreign exchange reserves as well as the suppression of local production of oilseeds like sunflower. Domestic demand for edible oils in 2010 has been estimated to be 350,000 tons per year and rising in line with population growth of 2.9% to about 450,000 tons in 2015, but only 40% of demand is being met from domestic production. The annual import of edible oil into Tanzania is estimated at over 200,000 tons, much of which is converted into non-edible products and for export within the region whilst the rest is consumed mainly in urban centres which have yet to be significantly penetrated by locally produced sunflower oil. While there is a large production of oilseeds such as groundnuts and sesame, there has been no substantial oil production from these seeds.

Thus Sunflower is the most important oilseed crop in Tanzania and is the country’s main source of vegetable oil.

Demand may be further enhanced by the spread between GDP of 7%, and population growth of 2.9%, indicating an annual increase in standard of living of 4.1%, even though the basis of the GDP is from mining. In addition the population of Tanzania is expected to increase by 15% in the next five years to 52 million, from the 2010 estimate of 45 million, and to 75.5 million by the year 2030, which will give a commensurate increase in the demand for and consumption of edible oils. This provides a market opportunity for the domestic sunflower oil producers.

The Ministry of Agriculture Food Security and Cooperatives MAFC estimates that Tanzania has 1.6 million sunflower seed producers who have the capacity to satisfy the national cooking oil demand if fully supported.

Demand is supplied by:Three large importers and refiners producing refined oils and other products mainly for urban markets.Large numbers of smallholder farmers producing sunflower seed for crushing.Large numbers of small and micro-scale traders and processors producing crude, filtered oil.

The market for sunflower oil within the southern corridor is well established and absorbs more than 75% of the sunflower oil produced in the SH regions. Therefore only a relatively small percentage is traded outside the region. Local consumers are able to purchase crude sunflower oil in the following ways:

from farmers who have paid for the processing of their crop, from local traders who have purchased from farmers and paid for the processing, from processors who have bought either the seed or oil from the farmers, from retailers who have bought the oil from processors or traders, or from farmer/community groups who own processing equipment.

13

2.3 Export and Import of Sunflower Oilseed Products

Although there has been a significant increase in edible oil production in recent years, until 2006 this has never exceeded 100,000 tons which in turn has forced the country to import vegetable oil in order to meet its domestic demand. The import is mainly palm oil from Malaysia and Indonesia. These imports are in the form of crude, semi-refined, and refined oils the cost of which to the national budget is second only to imported petroleum products9. However, there is confusion as to whether Crude Palm Oil (CPO) or Palm Olein is being imported as this is not being tested on arrival by the authorities.

Table 4 Edible oil imports 2001 to 2006

Year Edible oil imports Palm oil imports2001 187,000 177,0002002 157,000 147,0002003 185,000 167,0002004 160,000 155,0002005 258,000 250,0002006 282,000 268,000

Source MA-POTS, 2007

Table 4 below summarises export and import of sunflower oilseed products in Tanzania between year 2001 and 2006 as compiled from FAO Statistics Division 2009 (FAOSTAT).

Table 5 Summary of Trade Statistics of Sunflower Oilseed Products (2001 - 2006)

Sunflower Oil Sunflower CakeYear Export Import Export Import

Quantity ( tonnes)

Value (1000$)

Quantity (tonnes)

Value (1000$)

Quantity (tonnes)

Value (1000$)

Quantity (tonnes)

Value (1000$)

2006 575 466 6,789 4,630 405 34 - -2005 2,762 1,804 185 101 1,091 53 4 12004 20 4 1,089 764 8,107 333 - -2003 11 3 2,380 1,407 4,076 248 - -2002 114 79 250 148 5,047 254 - -2001 114 56 227 185 8,017 397 - -

Source: FAO Statistics Division 2009

Based on the data above, in 2006 Tanzania imported about 90% of edible sunflower oil and exported only 10%. This implies that there is a need for increasing investment in this sector through supporting the enterprises in the value chain as one of the key import substitution strategies.

Table 5 shows that in 2009 almost 50% of imported sunflower oil is re-exported at a higher price per ton indicating the export of locally refined and finished products.

Table 6 Tanzania Sunflower imports and exports 2009Sunflower Oil Imports 2009

Ton Value 000$9 Disaggregated data on these imports was requested from TBC but not made available.

14

sTotal Import 4495 3659Av cost per tonne $814

Sunflower oil Exports 2009Tons Value 000$

Total Export 2182 3025Avge price per tonne $1386Trade Deficit 2313 634Source FAOSTAT

2.4 Price Patterns in Urban MarketsMajor traded products of sunflower oilseeds is edible oil and sunflower seed cake which is mainly used as a key ingredient of animal feeds. Below is the summary of sunflower oil brands and the respective prices collected from various supermarkets in Dar es Salaam.

Table 7 Summary of Companies Dealing with Sunflower Products

Product Company litres Price Price/litre in US$Sundrop sunflower TZA Muzah Oils 1 4000 4,000 2.54Sunola sunflower TZA Bidco 1 4500 4,500 2.86Veg oil from UK 2 20,100 10,050 6.38Palm Oil (Emirates) 1.8 11,900 6,611 4.20Korore (Abu Dhabi) Corn Oil Korore 1.8 23,700 13,167 8.36Korie Palm Oil Muzah Oils 1 3,200 3,200 2.03Kimbo Palm Oil Kimbo 1 3,900 3,900 2.48Afia Sunflower Alfa 1.8 24,300 13,500 8.57Lieseur sunflower Lieseur 2 15,000 7,500 4.76Bidco red palm oil Bidco 5 17,000 3,400 2.16OK Cotton Seed oil (Mwanza) OKAY 5 18,900 3,780 2.40Mazola (Saudi) Mazola 1.8 24,200 13,444 8.54Hyat Palm Oil Hyat 1.8 11,900 6,611 4.20EV Olive Oil 1 24,300 24,300 15.43Elianto corn oil(Kenya) Elianto 3 19,400 6,467 4.11From market Shop 0.00Korie Palm Oil Muzah Oils 1 3,500 3,500 2.22Korie Palm Oil Muzah Oils 3 8,500 2,833 1.80Korie Palm Oil Muzah Oils 5 15,000 3,000 1.90Sunola sunflower Bidco 3 12,500 4,167 2.65Sunola sunflower Bidco 5 19,000 3,800 2.41Sundrop Muzah Oils 1 4,000 4,000 2.54Sundrop Muzah Oils 5 19,000 3,800 2.41Kimbo Palm Oil Kimbo 5 18,000 3,600 2.29OKAY Cottonseed Oil OKAY 5 18,000 3,600 2.29FAMA Sunflower (ex Belgium) FAMA 3 19,000 6,333 4.02

15

2.5 Sunflower cake (Mashudu).As well as producing oil the other important product from the extraction process is un-decorticated sunflower cake that is a high protein animal feed.10 Much of this is used locally by livestock farmers but much is exported to Asia and regionally. According to FAOSTAT this has risen from 10,000 tons in year 2000 to 28,000 tons in 2008. Depending on price, which fluctuates considerably, cake accounts for a considerable proportion of the overall returns to processors.

3. The Sunflower Value Chain

The value chain in sunflower from input usage, through production and processing to marketing is compounded by a series of technical and institutional impediments that is due to the fact that the sector is dominated by small producers and processors who lack technical and financial capability to run it efficiently and profitable.In Tanzania the SME edible oil industry is at a very immature stage. Apart from the large processors the sunflower value chain in Tanzania can be characterised as fragmented, unorganised, unregulated and uncoordinated. It is dominated by large numbers of smallholder farmers who produce seed for crushing, an unknown number of middlemen operating between every link, and over 400 small and micro-processors producing crude sunflower oil. Consequently the horizontal and vertical linkages of the value chain are weak and uncompetitive, and require support to strengthen them.

Conversely, the large oil millers such as Muzah and Mount Meru are modern vertically integrated industries relying mostly on imported oils which they refine into products for the market. These include not only cooking oils but also margarines, soaps and detergents. Many of these products are exported within the region. They are also active in purchasing crushing material locally for oil extraction and refining whilst cake is exported. Products from these companies are registered and regulated fully refined oils that are branded and labelled with the TBS approval logo. According to one of these companies about 10% of their production is exported within the East Africa region.

3.1 The Value Chain Map

A look at a simplified version of the value chain, Figure 1, shows that the whole chain is suspended from the consumer whose link to the rest of the chain, if broken, would result in its collapse. This is true to a greater or lesser extent for all the other linkages in the chain. Each ascending link uses the product from the lower link, processes that into an output which is used by the link above, and so on. At each stage the value of the product increases until it reaches the final consumer. A pivotal role is that of the processor through which all seed must pass and from which both oils and cake are produced.

However, many of the actors occupy more than one role. For instance some farmers are processors and retailers, some processors are also retailers and traders of crushing seeds and many traders have their seed crushed for oil which they then retail whilst the processor keeps the cake as payment or else takes cash. Thus a farmer may sell seeds to either a trader or a processor or both. A trader may sell seed to a processor or may have the seed processed into oil for on-selling as retail or wholesale, or both. A processor may buy seed directly from farmers or from traders and sell the oil either as retail or wholesale to traders as well as selling cake.

10 Un-decorticate cake has an analysis of up to 20% fibre and 30% protein whereas decorticated cake has 12% fibre and up to 45% protein.

16

Each link in the chain relies on goods and services in order to enable it to undertake its processing and handling of the product. At different stages these include seeds, fertiliser, transport, energy, finance, land , labour, storage and knowledge. It also requires clearly defined standards and a regulatory framework applied by law. Unfortunately many of these requirements are weak or non-existent in Tanzania.

The main areas of value chain weakness are between farmers and processors whereby processors are short of crushing material, and between processors and the consumer, as only crude unrefined oils are produced at micro and SME level. A detailed Sunflower Value Chain Map is shown in Annex A.

17

Figure 1: Simplified Sunflower Oilseed Value Chain

A comprehensive Value Chain Map with description is shown in Annex A

18

Consumer

Retailers & Wholesalers

Processors

Traders

Farmers

Goods and services

(For every link)

Table 8: Functions and Actors in Sunflower Chain – Southern Highlands.

Actors FunctionsResearch Predominantly the Agricultural Research Institutes (ARIs) breeds crop

seeds. ARI Ilonga, in Morogoro Region, is designated as the lead station for oilseeds but work is also undertaken at Uyole located in Mbeya region, INGERI is a branch in Njombe. Unfortunately these stations are barely functional. Ilonga only produces basic seed for multiplication whilst Uyole has ceased all work on oilseeds.

Seed producers

ASA is the government agency for multiplying seeds through its “commercialized” farms. Dabaga farm is located to southern highlands. Produces basic sunflower basic seeds. Outgrowers are contracted to produce Certified Seed whilst local governments have authority to produce and distribute QDS.

Seed Certification

Tanzania Official Seed Certification Institute (TOSCI) is for control and certification of produced improved seeds to be supplied to agro-dealers. TOSCI is located in Njombe

Input suppliers

There are two types of input suppliers in sunflower value chain. Hard inputs including seed, fertilizer, agro-chemical and farm implements e.g. hand hoes, power tillers and tractors. Soft inputs including Extension services, financial services.Hard inputs are supplied by private companies. There about 500 listed agro-dealers in the SH. Tractor suppliers are not included in the list. Auto Sokoni Company is the major supplier of power-tillers.Soft inputs particularly extension services are provided mainly by the government through LGA. Financial services are limited to few actors e.g. medium processors and registered farmer groups but not individual farmers. Other Business Development services (BDS) are also provided by SIDO through ODOP Program, NGO e.g. Njombe Agricultural Development Organization (NADO)

Farmers Sunflower seeds are grown by small scale farmers (1-5 acres). The records indicated that there about 37, 496 households who are involved in production of sunflower. About 20,170 ha (2006) were under production

Traders Three types of traders were identified trading in the sunflower seed including primary buyer, primary brokers, secondary buyer/ agents. All the buying is done at farm gate. No collection Centres.

Processors Two types of processors. Service provider oriented processors, these are both small and medium scale firms. They account for about 70% of the processing business. Example are NJODECO in Njombe. Large/ medium scale owners factory who also are buyers of sunflower seeds and processors. About 30% of the processing business is done by them. Another example is Shadeco located in Iringa Municipal.

Wholesalers Wholesaling is done at factory gate.Retailers Retailing is undertaken by small-scale distributors including kiosks,

vendors, road-side stalls in towns within the region. A limited proportion is found in supermarkets in Dar es Salaam.

Source: SIDO 2012.

19

3.2 Value Chain Governance

Sunflower value chain in the Southern Highlands is governed by market forces in respect of prices of sunflower seeds, oils and cake. Governance issues include:

Lack of Governance: The governance mechanism in the sunflower value chain is underdeveloped. Value chain actors operate in an uncoordinated and unorganized way. Few rules exist among value chain actors.

Inadequate of regulation and quality control: TBS and TFDA do not have the capacity to monitor and regulate the supply which results in the supply of only crude oil with limited shelf life but may also allow unscrupulous traders to adulterate their oil with cheaper ingredients.

Presence of many small actors and transactions: The value chain is characterized by too many small actors with small businesses that increase transaction and transportation costs and a cause unfair competitiveness of products in the market.

Uncoordinated Market: There is no lead organisation that coordinates the chain in relation to markets, technology and other important information sharing among actors. Consequently actors, particularly farmers and processors, receive no incentives for up-grading in terms of their product and the value chain process as a whole to promote sustainable income earning opportunities. This results in a lack of transparency and trust between actors which is essential for a value chain to flourish.

20

Figure 2 Characteristics of the Sunflower value chain

Source, SAGCOT.

An indicative analysis in Annex C 1 shows the values added at each major stage of the value chain indicates a win-win situation for all actors. It also shows that the farmer is receiving about 13% of the retail price.

3.3 Technology Generation

Research and developmentFor any industry to prosper requires stream of new technologies and innovations. However, given the winding down of the ARI stations there is little, if any, source of new technologies based on adaptive research, available to extension services or farmers. On the other hand, much information is available on the internet but this is probably not available to most small farmers and is not exploited to any extent by the extension services.

In Tanzania responsibility for Sunflower Research is with the research stations of Ilonga (Morogoro Region), Uyole (Mbeya Region), and Naliendele (Mtwara Region). Of these, Uyole has stopped all work on sunflower whilst Ilonga only produces Basic Seed of Rekord which it supplies to the Agricultural Seed Agency (ASA), the government seed production agency, for multiplication. Both Ilonga and Uyole stations are severely underfunded and understaffed due to a recruitment freeze and retirements. The consequence is the loss of institutional memory and the inability to operate.

21

Field trials and demonstration are being undertaken by Yara on their range of NPK fertilisers but they have not yet published any results.

3.4 Input Supply & Demand

All actors in the value chain require goods and services in order to operate.At farm level there is a requirement for improved seeds, fertiliser, machinery services, transport, credit and information. Seeds and fertiliser are available through a network of Agro-Dealers, many of whom have agents at village level. Some of these even supply goods on credit to trusted clients. However, farmers prefer to apply fertiliser to food crops such as maize rather than to sunflower. Credit to individual small farmers is virtually non-existent but NMB and CRDB banks do have facilities to finance registered Producer Groups. Transport to get inputs in and outputs out can be problematic especially for more remote locations. This factor, together with the degraded rural road infrastructure, is an extra cost and has the effect of reducing farmgate prices.

At registered processor level the needs are for sufficient crushing seed, machinery, energy, packaging, storage and credit. Processors visited complained of a shortage of seed for crushing together with high prices of TS5-600 per Kg in August 2012. Other expressed problems included the need for storage capacity in order for them to acquire stock to see them through the year, credit to enable them to purchase stocks and exemption on the duty on imported crushing machinery which they want classified as agricultural equipment that is duty free. The need to refine oil for the retail market is becoming increasingly recognised by the registered, commercial processors.

At consumer level there appears to be a lack of awareness as to the difference between crude and refined sunflower oil and to the keeping qualities of each.

Seed Supplies.The commonest source of seed is that recycled by farmers from year to year and is genetically degenerate. However, adoption of improved varieties is taking place in the Central Corridor and is also taking hold in the SH..

Production of Rekord, an OPV, the most popular improved variety, is by the ASA which produces Certified Seed. District Agricultural Officers are allowed to produce Quality Declared Seed (QDS) from Certified Seed through contracts with farmers and farmer groups. The Highland Seed Company in Mbeya is also producing Certified Seed from Basic seed it obtains from ASA and intends to produce 50 to 100 tons per year depending on demand. Tanseed International of Morogoro has been producing Certified Rekord seed for 8 years. Kenya Fedha, another OPV is produced by Kibo Seeds under licence from the Kenya Seed Company whilst some hybrids are imported, mainly from South Africa and Zambia by Pannar Seed Company with its PAN varieties. Farmers obtain seed from agro-dealer retailers of which there are many, (e.g. 25 in Mbeya), but also through processors where contract farming is taking place. Reportedly there is a major problem with the supply of counterfeit seed in Tanzania covering all classes.

The Tanzania Official Seed Certification Institute (TOSCI). TOSCI is responsible for seed certification though there is no direct relationship with farmers. However TOSCI has problems with regard to its operational capacity and budget.

Pesticides and other inputs are approved by TPRI, to mitigate the risk of supply of poor quality agro-chemicals.

22

Fertiliser.The average use of fertiliser in Tanzania is 4Kg per hectare. This has been mainly in the form of DAP and Urea which, when used as recommended, exacerbates soil acidity. However, farmers routinely apply any fertiliser that they can obtain or afford to food crops rather than cash crops as a risk reduction measure. Yara Company is a main supplier of fertiliser that is now recommending the use of NPK blends and compounds to suit different soil types.. Premium Agrochemicals and Export Trading Group are also suppliers of fertiliser and agrochemicals. Products are available to farmers through agro dealers. Reportedly there is a problem with counterfeit or diluted fertiliser and chemicals which has made farmers distrustful and unwilling to purchase in some instances. Prices of agri inputs are listed in annex C1.

Credit and finance.The National Microfinance Bank and CRDB Bank are the biggest providers of credit to agriculture in Tanzania and have branches in most districts. NMB has a range of products which include loans for farmer groups and also SME loans applicable to processors. However, collateral requirements are strict sometimes requiring double the amount of the loan. Interest rates are based on Treasury Bills plus 1 or 2 % and range from 19% for SMEs to 24% for micro and small enterprises. . Both these banks provide funds to SACCOS. Other banks operating in the SH are shown in Table 7. The Government is in the process of establishing an Agricultural Bank as proposed in the Kilimo Kwanza initiative. To start with, it has opened a special window for agricultural lending in the Tanzania Investment Bank, while preparations are being finalized to establish a fully dedicated Agricultural Bank.

Table 9 Banks operating in the Southern Highlands

Bank NMB Ltd CRDB Ltd TPB NBC LTD EXIM BANKRange of loan amount (Tshs)

300-500 million per MFI/SACCOS

300-500 million per MFI/SACCOS

Average 1.1 million per MFI/SACCOS

5 – 250 million per MFI/SACCOS

500 million per MFI/SACCOS

ii) Types of Products:

Provides whole range of financial products to individual clients: these include savings, loans, money transfer, payment services etc. Wholesale loans are extended to SACCOS and MFIs.

iii) Profile of clients

NMB, NBC, EXIM and CRDB bank are primarily indirect providers to rural areas through their links with MFIs and SACCOS. TPB has a greater tendency to provide direct services to individual rural clients.

iv) Characteristics of the portfolio

CRDB volume of loans to the agriculture (rural) comprises about 25% of total lending. NMB has extended significant lending in agriculture whereas TPB, NBC and EXIM have continued to lend to individual farmers as demand arises.

v) Financing sources and capital structure

SACCOS & other MFI’s are able to generate funds from the banks, NGOs and own members.

Source: SIDO 2009

Extension Services and Training: Agricultural extension services in the country are provided by the government through the Ministry of Agriculture, Food Security and Cooperatives (MAFC). In general, the whole training and technology delivery system has not performed as well as expected. Crop yields and productivity are low compared to the potential demonstrated by agricultural research. Low performance is attributed to: Non-use of the package approach which emphasizes combining of the dissemination of

extension messages and the use agro-inputs; National extension field work is not well linked to the private sector distributing agro-inputs;

23

Weak research – extension –farmer linkage; Technical recommendations are not frequently used in combination with indigenous

technologies; Top-down extension or non-use of the participatory extension approach; Non-use of participatory research; Deficient supervision, monitoring, and evaluation of

extension work; Village extension workers are generalists and not well backstopped by a team of subject matter

specialists; Extension messages and agricultural technology are not modified to fit farmers’ production

systems;

TechnologyMany processors are running very old expellers and would like to purchase new equipment from Indian or China but are awaiting the removal of import duty on equipment. The request is that oil milling equipment is classified as agricultural which is free of duty. Major actors in sunflower processing technology and input supplies in the region include SIDO - TDC, CAMARTEC, TEMDO INTERMECH and TIRDO. There are also major importers namely AUTO SOKON and some dealers from Dar es Salaam. Enterprise Works Worldwide (formerly Appropriate Technology International) has an office in Iringa and has a wealth of knowledge in support of appropriate technology required in sunflower sub-sector. The Small Industries Development Organisation (SIDO), manufactures a range of agricultural equipment for farmers as well as oil refining units.

The majority of farmers are using only traditional low input, low output farming methods and are mainly focussed on food production. This is a reflection on the extension services which are underfunded to the point that they are barely operational. However, in some areas farmers are switching to sunflower as a cash crop to offset poor rainfall and low prices realised for maize. Across the border in Zambia farmers are obtaining considerable benefits from adopting Conservation Agriculture, CA, practices yet there seems to be little promotion of this in the SH region, even though the regional centre for CA is based in Arusha.

Business Development ServicesThe Southern Corridor has a significant number of business development service providers at LGA level which include CSDI, RUDI, MVIWATA, Techno Serve and BCS. These companies provide a number of services ranging from farmer groups organization and mobilization, business leadership and management training, financial and accounting training, design of business and investment plans, credit management, market research, market and credit linkages.

Edible oil quality standards. According to the standardization of Tanzania sunflower oil, the Tanzania Bureau ofStandards (TBS) specifies that:Raw sunflower oil is obtained by a process of mechanical expression and/or solvent extraction. The oil should be pure and not contain any particles, sediments, foreign matter or contamination.Refined sunflower oil is obtained by expression and/or extraction and, in addition, it is neutralized with alkali, washed with water, dried, bleached with bleaching earth or activated carbon, and deodorized with steam. No other chemical agent is allowed in this process except citric acid. Sunflower oil for edible purposes shall contain antioxidants and antioxidant synergists in specified levels.

TBS with TFDA aspires to align its standards with ISO 67.200 Edible Oils and Fats, Oilseeds; which is very detailed and comprehensive and is outside the scope of this report to address

24

According to the Tanzania Food and Drugs Authority (TFDA), sunflower oil for human consumption should be double refined.

The mission visited a number of registered sunflower processors and found them to be extremely filthy and with practices that could best be described as primitive. Clearly the Authority is not applying the regulations in respect to these as it is short of operational funds that reduce its capacity to undertake its statutory duties..

Standards require that all edible oils for sale to the public must be refined. This is clearly not being applied as, other than products from the very large processors such as Mount Meru, BIDCO and Muzah Oil, all locally processed sunflower oil is sold unrefined. Unrefined oil has a short shelf life and begins to deteriorate after about a month. Yet at least one processor is labelling his product with a sell by date 12 months from the date of labelling.

3.5 Production

According to RLDC report (2008), the production of oilseeds in Tanzania mainly focuses on ground nuts (40%), sunflower (36%), sesame (15%), cotton (8%), and palm oil (1%). However, there is virtually no oil produced from sesame and groundnut.

Sunflower oilseeds dominate about 36% of the total oilseeds production in Tanzania and over 50% of these oilseeds are planted in four regions namely Dodoma, Kilimanjaro, Arusha and Singida. The oilseed sub-sector is predominantly liquid products (75-80%), typically from imported palm oil. The current total demand stands at 18,000 tons per month. However, according to SIDO 2010 a significant growing interest for sunflower oilseed products among Tanzanians may reflect increased standards of living. There are also companies buying sunflower oil and seed cake from domestic suppliers for export either regionally or overseas.

While the production of sunflower oilseeds for crushing varied between 75,000 and 100,000 tons from year 2001 to 2005, it increased dramatically to between 300 to 350 thousand tons from 2006 (source MAFSC). The corresponding sunflower oil production increased to almost 90,000 tons of oil per year (source MAFSC).

Table 10 Domestic Sunflower oil production in Tons.

Year Sunflower oil

(tons)

1999 / 2000 11,5602000 / 2001 19,4092001 / 2002 25,0562002 / 2003 26,9862003 / 2004 25,5152004 / 2005 21,3252005 / 2006 89,6142006 / 2007 88,7532010 Estimate 125,000

Source MA-POTS, 2007

The following table shows that there has been an increase of 65% in area planted to sunflower in the Southern Highlands between 2006 and 2010 and an overall increase of 135%. However, most of

25

this increase has been through increased area planted rather than increased yields. A production figure of 500,000 tons of seed equates to 150,000 tons of oil which may be an overestimate.

Table 11. Sunflower Area ('000'ha) and Production ('000'tons) by Region by District and Year

Region 2005/2006 2006/2007 2007/2008 2008/2009 2009/2010+ or - %

Central Corridor (CC)Dodoma Area ( '000' ha) 18.83 73.50 83.38 91.57 77.06 309Dodoma Production ( '000' tons) 23.62 110.73 56.07 36.87 32.51 38Singida Area ( '000' ha) 40.15 74.22 99.36 93.43 129.50 223Singida Production ( '000' tons) 90.93 78.75 68.30 97.41 82.48 -9Manyara Area ( '000' ha) 10.44 19.19 39.07 32.34 20.22 94Manyara Production ( '000' tons) 24.67 30.10 29.24 17.42 14.70 -40

 Sub Total area CC 69.43 166.91 221.82 217.34 226.77 227 Subtotal production CC 139.22 219.58 153.61 151.71 129.69 -7

Southern Highlands (SH)Ruvuma Area ( '000' ha) 12.08 0.66 4.37 1.63 4.68 -61Ruvuma Production ( '000' tons) 4.61 1.26 2.84 1.26 3.62 -21Rukwa Area ( '000' ha) 39.22 39.67 36.77 47.68 53.91 37Rukwa Production ( '000' tons) 132.55 62.07 27.43 66.47 46.29 -65*Morogoro Area ( '000' ha) 8.47 0.06 5.26 8.26 0.00 -3*Morogoro Production ( '000' tons) 19.01 0.06 3.10 2.10 0.00 -89Mbeya Area ( '000' ha) 4.65 7.56 14.96 12.49 16.99 265Mbeya Production ( '000' tons) 7.06 9.66 10.13 5.72 15.43 118Iringa Area ( '000' ha) 23.27 42.88 32.27 60.68 68.70 195

Iringa Production ( '000' tons) 35.27 52.93 21.16 41.41 57.43 63Total Area SH 87.70 90.83 93.63 130.73 144.28 65Total Production SH 198.51 125.99 64.66 116.96 122.77 -38Total Area 157.12 257.74 315.45 348.07 371.05 136Total production 296.34 477.32 469.06 499.78 500.74 69

Source: Statistics Unit-Ministry of Agriculture, Food Security and Cooperatives

The production SystemSunflower is a crop which, compared to other crops like maize and sorghum, performs well under low rainfall conditions. This crop grows very well in drier areas of the country like Dodoma and Singida, due to their favourable climatic conditions11. Sunflower adapts relatively well to a wide variety of soil types. It can be planted over a period of at least three months and is usually cultivated in rotation with maize or sorghum. Sunflower is produced in both pure stand and intercropping systems depending on the scale of production. Smallholder farmers commonly intercrop sunflower with other crops such as maize, cowpeas, sorghum etc. while larger scale farmers grow sunflower on pure stand.

11

26

In the areas visited the majority of farmers typically produce sunflower intercropped with maize, (six rows of maize to one of sunflower), cowpea and sorghum. But larger scale farmers produce as a pure stand.

The most widely grown sunflower is a traditional variety that has been recycled over many years and is genetically degenerate resulting in average yields of 250 Kg per acre (600Kg/Ha) with a low oil content. This compares unfavourably with potential yields of more than 1,370 Kg/Ha (FAO 2005), a gap of some 56%. However, two improved varieties are available namely Rekord and Kenya Fedha both of which are open pollinated varieties, (OPVs), but small farmers are resistant to purchasing these due to the perceived high price.

Crop Husbandry

Farm Technology: Poor technology adoption by farmers is among the factors that limits improvement in a sunflower and other agricultural commodity production and productivity as shown in the situation analysis, below, of farm technology applied for sunflower seed production in Iringa region.

Farm implements: Most of land clearing is done by hand hoe and axes, land cultivation is done by oxen (60%) of farming households while 30% use hand hoes and (10%) tractors. Simple farm implements are used in performing other activities such as weeding. Farming practices show that sunflower cultivation can be suitably handled using a plough as primary tillage tool.

Fertilizer application: The use of fertilizers on sunflower in the region is relatively low compared to maize. It was reported that farmers normally use Urea, SA and CAN. The reasons given are that fertilizer is normally not available or fertilizer is expensive. It was also observed that maize is usually be considered the primary crop and due attention given to it instead of other crops.

Compared to grain crops, sunflower12 utilizes soil nutrients exceptionally well. The main reason for this is the finely branched and extensive root system. The roots come into contact with nutrients which cannot be utilized by other crops.

Agro-chemicals: Little or no chemical inputs such as pesticides are used for the sunflower. The extension officers who were interviewed confirmed that there is insignificant application of herbicides, fungicides or pesticides applied to sunflowers farms in the region.

Labour Force: Labour utilisation is either in the form of household family labour, or, in a few instances hired in labour. In the case of family labour, this is generally not given a monetary value. Farmers rely mainly on family labour for production of sunflower oilseeds.

Pests: Include Birds, (esp. Quelea), Cutworm, Rodents, Sucking insects, Fungus rots.

Indicative Crop Gross Margin Analyses in Annex C 2, show that even without inputs and using recycled seed there is a positive gross margin. However, by following recommended practices there is an indicated incremental benefit of 244% over the traditional methods. In conjunction with an FAO Agribusiness Specialist, a break-even analysis spreadsheet has been developed for distribution.

12 Sunflower normally reacts well to nitrogen and phosphorus fertilization where there is a shortage of these elements in the soil. It is therefore essential that any fertilization program for sunflower should be based on the soil analyses.

27

3.6 Processing

Small processors extract oil from seeds using the cold pressing method. At micro and farm level this is mostly done using a simple ram press, but much processing is now carried out using expellers which are mostly used at a fraction of their capacity. These are often located in premises that leave a lot to be desired by way of cleanliness and hygiene. Expressed oil is filtered prior to sale. There is no refining or solvent extraction facilities outside of the major processors.

The major sunflower oilseed buyers and processors in Tanzania include Mount Meru Millers (Arusha), Oils Mills (Singida), Mohamed Enterprises (Dar es Salaam), and Murzah Oil Mills (Dar es Salaam). These are producing refined edible oils for markets in the major towns and cities and regionally, whereas in the rural and peri-urban areas much of the oil is supplied by micro and SME processors. Of these there is a minority that are registered whilst the informal majority are unregistered and unlicensed. This puts the registered processors at a disadvantage in that the unregistered processors pay no dues or taxes and are thus able to operate at lower margins. Taxes, duties and fees payable by registered processors are shown in Annex C3.

IVORI, a large food processing company in Iringa, stopped processing sunflower in 2011 because it claimed that small distributors were buying its oil, adulterating it with palm oil and selling it as sunflower oil at cheaper prices. It also quoted problems with the complicated taxation system and the opportunity cost of capital which could be put to better use.

Analyses of processors undertaken by FAO in the SH in 2011, illustrated in Annex C3, indicate that they are operating at above break-even level for both price and volume for oil and cake. Nevertheless variable cost are considered to be exceptionally high as a proportion of total costs due mainly to the cost of crushing seed. Obviously variations in costs and prices will affect this but the price of seed in August 2012 was reported to be between TSH500 – 600 per Kg which is a 50% increase over 2011. Clearly demand exceeds supply which may force some inefficient producers to close but will also encourage farmers to produce more until such time as prices stabilise within a range. Perversely, however, the situation reinforces the need for processors to pursue economies of scale and to form closer relations with farmer producers. A break even analysis spreadsheet has been developed and circulated to selected processors for comment

Apart from the large industrialised companies there is no refining capacity available to SME producers thus their product is only filtered crude oil. This is subject to rapid deterioration with a consequent short shelf life, or use-by period. With such a large number of processors the quality and content of the oil is questionable and of unknown provenance. Refined oil, on the other hand, has the gum and wax removed and the acidity neutralised which prolongs the shelf life considerably. Thus, there is a need for investment in local refining capacity so that oil can be produced to the required standard. This implies additional investment which is outside the scope of most SME processors and of questionable viability so long as unregulated crude oil continues to be freely available at cheap prices. On the other hand, investment in refining capacity requires greater economies of scale which do not at present exist in the SH but which could be realised by more horizontal integration of processors to invest collectively in refining capacity.. Indicative investment costs of installing a basic refinery, as manufactured by SIDO, are in the region of $50, 000, but operational costs for this equipment are as yet unavailable. In turn this implies the need for upgrading the business skills of producers in forming companies and joint ventures.

It is the responsibility of the Tanzania Bureau of Standards to set standards and the Tanzania Food and Drugs Authority to apply approved standards and regulate production through the analysis and registration of products and the licensing and inspection of premises. However, these institutions

28

have severe budget and staffing restrictions and are unable to undertake their statutory duties in the field to the required level. Explanation of the roles of TFDA and TBS are shown in Annex D1.

3.7 Wholesale & Retail Distribution

The large producers supply double refined oil to both a wholesalers and retailers in the cities but some crude oil is also finding its way onto the supermarket shelves in Dar es Salaam. These products are labelled and dated but the expiry date is 12 months after packing which is not in keeping with the short shelf life of crude oil as it starts to deteriorate and decompose towards rancidity after one month.

Crude oil is wholesaled from the factory where a significant proportion is sold loose by processors to customers who bring their own containers. More often than not these have been re-used several times which only advances the onset of rancidity.

Retail marketing arrangements are almost entirely informal and fragmented. Much crude oil is found for sale in bazaars and along the main roads although at least one processor in Morogoro, after training from FAO, is selling his labelled product through his own retail outlets. Although it was reported that registered retailers may only sell refined oils many are obviously ignoring this.

There is very little, if any, relationship between the urban supermarkets and the producers of crude oil except to a minimal degree.

4. Systemic Constraints and Upgrading Opportunities

4.1 Constraints Related to Business Enabling Environment

Issue: According to the World Bank, Doing Business 2012, Tanzania ranks 127 out of 183 countries with the regional average being 137. Concurrently the World Economic Forum, World Competitiveness Report 2011-2012 ranks Tanzania 120 out of 142 citing the major reasons in order of priority as; Access to financing, Corruption, Tax rates, Inadequate infrastructure, Inflation and Inefficient government bureaucracy. This does not bode well for encouraging inward investment, nor internal investment in new, or the expansion of existing, businesses. Nevertheless it appears that, so far, in the oilseed sub-sector, business is expanding despite the endemic constraints. It remains to be seen if the necessary investment becomes available to take it to the next level.

29

4.2 SWOT Analyses of the Value Chain.

Strengths Weaknesses A large number of primary producers

ensuring continuity of supply and also sharing in the benefits

Entrepreneurial processors looking for opportunities to enhance the value chain.

Apparent ready market for sunflower oil and for cake.

A few large producers with the potential to stimulate local production.

Increasing number of farmer Producer Groups to enhance bargaining power and to engage in contract farming.

Win-Win at every level of value chain.

Uncoordinated value chain. Poor yields of primary producers resulting

in shortages of crushing material. Little or no R&D for oilseeds that are

classified as minor crops. No new varieties in the pipeline.

Cheap imports of palm oil without import tariff.

Poor business environment that discourages investment.

Too many processors operating at minimal capacity.

Minimal regulation and control of the quality of locally produced edible oil.

Lack of direction and policy for edible oils. The inability of government agencies to

perform their statutory duties without operational funding.

Poor support services especially research and extension.

Degraded rural infrastructure

Opportunities Threats TEOSA to coordinate the whole value

chain. Considerable opportunities for import

substitution. Re-impose duty on imported edible oils. Potential for investment in refining

capacity. Potential for regional exports of oils, cake

and finished products. Continued formation of registered farmer

Producer Groups leading to the commercialisation of agriculture.

Encouragement of the adoption of Conservation Agriculture for all farming systems.

Introduction of soya as a complementary oilseed cash crop.

Potential for outsourcing the functions of some government agencies to the private sector.

Climate change with the potential for crop failures.

Bans on the export of food crops and products.

The uncontrolled supply of counterfeit seeds and chemicals.

30

Former civil servants to establish companies to tender for government service contracts.

Consolidation of processors into larger units to take advantage of economies of scale.

Establishment of a stability fund to mitigate the effects of climate change.

5. Vision and Strategy for Improved Competitiveness and Growth

5.1 Vision

Draft policy statement.

To achieve national self-sufficiency in edible oils with an exportable surplus that results in increased rural incomes and an improvement in the trade balance of payments through the reduction in the importation of edible oils.

5.2 Strategic Issues Synthesis

Critical Issues Affecting the Sunflower Value ChainThere is a seemingly endless list of issues, and issues within issues, mitigating against oilseeds production but the more important ones have been identified for consideration below.

At Farmer levelIssue: Very low yields of seed production leading to shortage of supply to processors. Recommendation: Use of improved seed would have the biggest single effect on yield with or without fertiliser. This requires demonstration and assistance from processors in providing seed. Registered farmer groups to be encouraged to produce QDS under District supervision.

Issue: Low bargaining power of farmers.Recommendation: In order to take advantages of economies of scale smallholder farmers need to integrate horizontally into registered producer groups to enhance their bargaining power which as individuals is very weak. This would also enable them to enter into contract farming arrangements with processors to their mutual benefit. The IFAD funded MUVI project is supporting the formation of producer groups in the Southern Highlands but successful models are also emerging in the Central Corridor supported by SNV and RLDC with CEZOSPA. Further development of these groups into Limited Companies would lay the foundation for the commercialisation of agriculture.

Issue: Low level of farming practices and technology.Recommendation: Provision of improved extension services. This could be provided by some of the bigger processors as well as provision of contracts for Pay for service Providers specialising in sunflower as part of the farming system.

Issue: Land degradation and reduced fertility levels.Recommendation: Adoption of Conservation Agriculture across all farming systems and crops will enhance soil fertility as well as reducing the need for cultivations and fertiliser application resulting

31

in a reduction in costs and increases in yields. Consideration should be given to the introduction of soya production into the farming system as a complementary cash crop to sunflower. Being leguminous soya would enhance soil fertility and at the same time increase the availability of edible oil. This to be integral to any extension provision.

Issue: Limited opportunities for alternative income generation.Recommendation: Introduce apiculture as part of the sunflower recommendations. This will improve pollination and yields as well as providing additional income.

Issue: Counterfeit seeds, chemicals and diluted fertilisers.Recommendation: Districts need to enhance their inspection services and relationship with TFDA, TPRI, and TOSCI, to undertake spot checks for analysis. Offenders to be prosecuted according to law.

Issue: Unregulated weights and measures lead to cheating of sellers of seed at farm level.Recommendation: MIT to mobilise its weights and measures department to sensitise rural population to standard weights and measures.

At Processor levelIssue: Shortage of availability of crushing seed.Recommendation: Processors to form much closer relations with registered Producer Groups for their mutual benefit. Producers could assist farmers with advice and inputs on credit and farmers would produce on contract to the processor. This would serve to cut out the middle men thus reducing costs and increase farmgate price.

Issue: Inadequate storage facilities in rural areas, in most cases leads to products being sold directly from the field. During harvest seasons this practice tends to depress producer prices, leading to a reduction of farmers’ income. In addition, inadequate post-harvest storage facilities causes deterioration in the quality of agricultural products. It is estimated that in Tanzania, post-harvest losses range between 25-35 per cent of yields. Recommendation: Further attempts need to be made to establish a warehouse receipting system. The provision of which would provide collateral for processors to obtain working capital to build up stocks of crushing seed. The same would be applicable to registered producer groups. However, the Warehouse Licensing Board is short of staff and operational budget so is unable to perform its statutory duties. Alternatively storage needs to be either rented from the private sector or purpose built with a mortgage facility.

Issue: Shortage of working capital to purchase stocks of seed.Recommendation: Banks are making seasonal loans for this purpose to some registered processors who are well established and who have a good track record. It may be that the banks need to employ agriculturalists to technically appraise applications for credit.

Issue: Lack of adequate business skills.Recommendation. Further training of processors and farmer group leaders in basic business management is required. However, this needs to be followed up with on the job mentoring to assist the trainees to put their theory into practice.

Issue: Lack of refining facilities to produce oil to required quality standards.Recommendation: There is potential for some horizontal integration between processors to invest collectively in a refining facility. This would probably be in the form of a limited company or partnership that would provide a refining service to producers of crude oil that could then be registered, branded and labelled with the TBS logo.

32

Issue: Large numbers of micro unregistered processors undercutting registered processors.Recommendation: District councils to register all processors. Some exemptions may be made for those operating only a ram press.

At Market Level.Issue: Consumers unaware of quality differences of edible oils across all market levels.Recommendation: TBS to seek sponsorship from the industry to undertake a public awareness campaign to inform consumers of the qualities of different oils and of the benefits of refined oil.

Issue: Supermarkets stocking unregistered, untested crude filtered oils with 12 month use by dates.Recommendation: TBS to inspect stores for compliance with health standards.

Institutional and Governance level.Issue: Corruption, euphemistically known as Rent Seeking, that is endemic throughout the country and is an additional cost to commerce at all levels of the value chain and another disincentive to investment.Recommendation: Application of the rule of law.

Issue: The inability of government to deliver on its policies and programmes resulting in poor and unregulated sectoral performance. All government ministries and agencies visited were underperforming due to shortages of staff and operational budgets.Recommendation: If the government cannot undertake its statutory duties then consideration could be given to streamlining the civil service and contracting these out to accredited private sector companies. Many government agencies have highly qualified and skilled staff who are sitting idle due to the above reasons. These staff could be encouraged to form companies to provide required services to government on contract. Inter alia, this could apply to agricultural research, food and drug standards and inspection agencies.

Issue: Ministries of Agriculture and Trade do not coordinate enough resulting in confusion and duplication of effort.Recommendation: Cabinet Office to form a joint working group between ministries as appropriate.

Issue: There is no policy for oilseeds which results in uncertainty for investors.Recommendation: MAFSC to formulate a policy for oilseeds to include tariffs on imported oils for refining to provide a level playing field for local producers and processors.

Issue: Oilseeds are classified as minor crops by MAFC and thus do not receive priority consideration. Local Government Authority planning and budgeting overlooks edible oilseeds development. Recommendation: Reclassify oilseeds as major crops equal to food crops such as maize and rice and provide the necessary support.

Issue: Importation of cheap crude oils is distorting the local market and undermining investment in local production. For example the East Africa Community Customs Compliance in 2009/10, 10% tariff on imported crude palm oil was reduced to zero. There is also uncertainty as to the quality of these imported oils.Recommendation: Reinstate the 10% import duty on imported oils and undertake inspection and analysis of oils on arrival at the port.

Issue: Multiple taxation systems set by the local government authorities.

33

Recommendation: Review and simplify the taxation system.

Issue: Protracted government bureaucracy e.g. the issuing of business licences or export permits, limits enterprises incentive to engage in processing as a business.Recommendation: None offered.

Cross Cutting Issues.Issue: Weak vertical linkages affecting the whole chain. Actors and enterprises are not coordinating, which limits their capacity to influence domestic policy and to collectively access inputs.Recommendation: Coordination is required for the whole value chain encompassing all actors to generate communication and trust at national, regional and district levels. The role of TEOSA should be expanded to undertake this. SNV have experience of this in Uganda and the model could be adapted to Tanzania.

Issue: Poor condition of rural roads causing increased transport costs.Recommendation: This is the responsibility of government at various levels. Farmer and Processor Associations to pressure Regional and District Councils to undertake their statutory duties. TEOSA to make representation to Central Government.

Issue: Confusion regarding land rights, tenancy and ownership leading to disputes over usufruct and a disincentive to invest in land based industries.Recommendation: This will require a long-term solution but which needs addressing with immediate effect. The implication is for the undertaking of a cadastre followed by a system of land title either freehold or leasehold. These provisions could be made at district level on an interim basis by issuing Temporary Occupation Certificates of limited duration until such time as surveys are carried out.

Issue: Absence of reliable statistics available for analysis and planning purposes.Recommendation: Introduction of statistically based planning process into MAFSC and strengthen the statistics department. Provide support for the preparation of a Farm Management Handbook perhaps in conjunction with a University.

34

5.3 Value Chain Competitiveness Strategy

Table 12 Some Characteristics that favour competitiveness of small firms as compared with the sunflower value chain.

Characteristic Presence in sunflower value chainSeasonal in nature Yes

Low capital requirements Varies according to actor but relatively low.

Relatively labour intensive Yes at farm and processor levels.

Non-repetitive production process No, the process is repetitive

Small production volumes. Yes at farmer level but economies of scale needed by processors..

Vertical linkages Very weak or non-existent in some instances

Horizontal linkages Very weak.

Win-win relationships Seemingly present at all levels.

Access to new skills and technology Very weak. No R&D.

Good business enabling environment Poor and needs to improve.

Transparency Required at all levels. Especially at decision making levels.

Vertical and horizontal cooperation is essential to move a product from the primary producer to the market.

Horizontal integration usually leads vertical integration.

5.4 Proposed Strategy Components

Any proposed strategy should be considered within the context of a Public-Private Partnership, PPP, whereby the public sector provides the economic environment in which businesses can flourish whilst the private sector provides the necessary investment. A suggested list of commitments for a PPP for sunflower is presented in Annex D2.

Strategic components would include: Improvement of the business environment. Implementation of policy and statutory duties to provide confidence and security for VC investors

and consumers. R&D requirements for crop production and farming systems.

35

Enhanced support to primary producers through re-organisation (or use of private sector providers) of extension services.

Enhanced access to business advisory services with the inclusion of mentoring. Consolidation of processors into viable entities. Application of quality standards. A well-coordinated and fully commercialised edible oil value chain producing a high quality product

for national consumption and export.

Annexes

36