3 September 2013

Tanzania: Report On Agriculture Paints Gloomy Picture

THE Ministry of Agriculture, Food Security and Cooperatives, in collaboration with the Economic and Social Research Foundation (ESRF), recently launched a report on review of food and agricultural policies in Tanzania following implementation of the Monitoring African Food and Agricultural Policies (MAFAP) project conducted between 2005 and 2011.

Our Staff Writer FAUSTINE KAPAMA who attended the ceremony reports on few findings and proposals aimed at improving the agriculture sector. IN its Development Vision 2025, Tanzania is committed to achieving high quality livelihood, good governance and economic growth.

The report acknowledges agriculture as the backbone of the country's economy. About 75 per cent of the population is employed in agriculture, but productivity is among the lowest in sub-Saharan Africa.

Low productivity stems from over-reliance on unpredictable natural precipitation, use of manual labour to work the land, the limited use of improved seed and fertilizer, and low productivity indigenous animal breeds. Agriculture, which in the past ten years has been growing at the rate of about 4.2 per cent annually, makes up a quarter of Tanzania's gross national domestic product, and about 34 per cent of foreign exchange earnings.

Despite progress made in adopting a more coordinated sectoral approach with initiatives such as Kilimo Kwanza and the Agricultural Sector Development Strategy (ASDS), agricultural policies in Tanzania are still implemented through a myriad of programmes and projects. Government's decisions on trade, especially those relating to tariffs, the report notes, are numerous and sometimes contradict other policy objectives.

While markets have been liberalized to a great extent, indicative prices persist for several commodities. The agricultural sector has persistently registered a lower growth rate compared to other industry and service sectors. Services such as construction continue to be the driving forces.

While agriculture has been growing at an average of four per cent between 1998 and 2009, industry and service sectors have been growing at an average of 8.3 and seven per cent respectively during the same period. The report suggests that during the period between 2001 and 2012, growth of the economy averaged 6.6 per cent, with peaks of 7.8 per cent in 2004/05 and 7.4 per cent in 2008/09.

The services and industry sectors exhibited stronger growth rates compared with agriculture. Even when the agricultural sector has persistently registered a lower growth rate compared to other sectors, the report notes, however that it has managed to produce between five and 19 per cent above the normal national food requirements for basic cereals.

In this context, the report says, it is essential to ensure that the agricultural and food policies and expenditures provide clear signals to support decisions by producers that are consistent with national policy goals. Tanzania's economy is predominantly rural-based, with relatively low levels of manufacturing and value addition of the commodities produced.

The weight of the agriculture sector in total gross domestic product (GDP) decreased from 50 per cent in 2000 to 28 per cent in 2010. Such weight, it is said, is forecast to decline further to 18 per cent by 2025. However, the sector's role in providing employment is forecast to remain close to 50 per cent until 2025.

Over the last decade, the country's economy has been resilient to shocks such as the financial crisis of 2008, and is expected to remain buoyant, with GDP forecast to grow by 6.8 per cent in 2012 and 7.1 per cent in 2013, well above the regional averages.

Exports, which received a boost during the crisis, as demand for gold in world markets continued to rise, are expected to perform well, with growth forecast at 10.9 per cent in 2012 and 9.7 per cent in 2013. Tanzania is a member country of both the East African Community (EAC) and the Southern African Development Community (SADC). It is implementing the EAC Common Market Protocol, which became operational in July 2010.

It is also involved in negotiations on EAC monetary union and plays an important role in the establishment of a common market for SADC Member States. The Bank of Tanzania (BoT) continues to implement monetary policy in support of the government's macroeconomic objective of maintaining single-digit inflation. However, inflation rose from 6.5 per cent in 2010 to 12.7 per cent in 2011, driven mainly by food and fuel prices; the rate recorded in 2011 was the highest for a decade.

In pursuit of monetary policy objectives, BoT has deployed a mix of instruments, including the sale of government securities, foreign exchange operations, repurchase agreements and standby facilities. Monetary policy performance appeared to be on track, as of December 2011.

The report notes further that between 1993 and 2009, Tanzania radically changed its growth path and sectoral contributions to the GDP. It is noted that after economic growth rates of less than four per cent until 1996, real growth rates steadily increased until 2008.

Thereafter the economy reached more than seven per cent, before slowing down to six per cent in 2009, mainly owing to the effects of the global financial crisis according to recent report. However, the report says, upward trend returned in 2010, when growth reached 6.8 per cent, before experiencing a downwards move to 6.4 per cent in 2011, when shortage of rains led to a power crisis in the country in 2010/11.

On average, it is said in the report that the Tanzanian economy has grown by about 5.5 per cent per year for the last 15 years, and by about seven per cent for the last ten years. The relatively high growth rate of recent years is the result of economic and financial reforms and prudent monetary and fiscal policies, all of which promoted domestic and foreign investment.

Real GDP growth remained buoyant during 2011, despite energy rationing, which affected manufacturing and trade activities. The GDP grew by 6.4 per cent compared with a projected level of 6.0 per cent. Most of this GDP growth came from trade and repairs (18.2 per cent), transport and communications (13.8 per cent), agriculture (12.6 per cent), manufacturing (11.8 per cent), construction (9.8 per cent) and real estate (10.3 per cent).

Financial intermediation registered a strong growth of 10.7 per cent, but its contribution to total GDP growth was only 3.3 per cent because of its small size relative to other activities. Growth in financial intermediation was associated with financial sector reforms and increased competition in the provision of insurance services.

The report launched by Minister for Agriculture, Food Security and Cooperatives, Engineer Christopher Chiza, therefore, presents findings from the first agricultural policy review conducted by MAFAP project in the country. It reviews key economic issues and main policy decisions affecting the sector, in particular, on price incentives and disincentives faced by farmers and consumers of nine agricultural produces which make up a significant part of agricultural production, imports, exports and diet.

Findings of the report show that public expenditure to support agriculture has been declining. While the total approved budget for the sector grew by 53 per cent in nominal terms from 2007 to 2011, in relative terms it declined from almost 13 per cent of total government spending in 2007 to about nine per cent in 2011. Actual spending grew at a slower pace and, in relative terms, decreased significantly in this period.

Although public spending was above the Maputo Declaration target from 2007 to 2009, it has since remained below the target. It is shown that composition of public spending has shifted from rural development to agriculture-specific expenditure. In the first half of the period studied, rural development accounted for 72 per cent of total expenditure. During the second half of the period, it declined to 45 per cent.

Agriculture-specific support has shifted from general sector support to payments to farmers and other agents in the agricultural sector. General sector support (training, extension, and research and development) accounted for over 60 per cent of expenditure in the first half of the period analyzed. However, from 2009 onwards, there was an increased focus on payments to producers via input subsidies.

According to the report, the general sector support declined to less than 50 per cent. This increasing use of direct transfers to producers has led to fewer extension services and less support for storage facilities, marketing and infrastructure. Expenditures on rural development accounted for about 55 per cent of overall support to the food and agriculture sector.

Most of this was spent on rural infrastructure, including rural roads, water infrastructure, sanitation and energy. Considerably less was spent on rural health and education. It is shown that most public spending was on public services, investments in infrastructure, training, extension services and research.

However, spending on input subsidies for agricultural producers, in particular on subsidies for variable inputs, has been rapidly increasing. Only four per cent of public expenditure in the agricultural sector was targeted towards specific commodities, but 50 per cent of total expenditure was not targeted to any specific commodity or group of commodities.

The remaining 47 per cent, the report shows, was split evenly between maize and rice (mainly on fertilizer subsidies) and generic commodity groups. Close to 25 per cent of the budget was allocated to policy administration costs. Moreover, it is said in the report, the rates of actual spending to budget allocation in Tanzania suffered a significant fall between 2008 and 2010. Spending rates were lower for policy transfers compared to administrative spending.

The report alleges that at least 50 per cent of public expenditure on the food and agriculture sector in Tanzania came from donor contributions. However, there was a diminishing trend in the role of foreign aid during the period analysed. External aid made up 44 per cent of the agriculture-specific budget and 64 per cent of the rural development budget. Donor and government priorities in allocating public funds are closely aligned.

Policies and market performance had a much greater impact on specific commodities than public expenditure. Indeed, even including both commodity specific and non-targeted support, public expenditure compensated for only about 15 per cent of disincentives measured via price gaps.

The agricultural sector is allegedly still subject to export taxes and high local taxation and interventions such as tariff waivers and export bans are frequent. Moreover, the lack of transport and storage infrastructure impedes market integration and processing plants are largely obsolete.

Findings show that producers in the country benefited from price incentives, although these decreased from 2005 to 2010. Policies and market performance keep prices high for consumers but low for producers of export commodities. This trend for decreasing incentives masks a contradictory situation, as producers of imported commodities received price incentives while producers of exported commodities received disincentives.

It is, therefore, suggested in the report that Tanzania should consider adopting less volatile trade policies. This could include deciding whether import tariffs are needed or not and moving definitively away from export bans. Public expenditure should focus more on infrastructure aimed at improving markets (roads, storage and market information systems).

Initiatives such as the Southern Agricultural Growth Corridor of Tanzania (SAGCOT) appear to be a step in the right direction. The draft of the Agricultural Sector Development Strategy (ASDP II) is a unique opportunity for aligning public investment with policies aimed at increasing agricultural output and productivity, while reducing hunger and poverty.

While lower producers' prices might imply that food is more affordable for consumers, most of the price disincentives are related to classic export crops, which are not part of the normal Tanzanian diet. At the wholesale level (that is the level closest to purchase by consumers), most food security commodities, except for maize, had positive price gaps.

Thus, the cost of the average Tanzanian diet is higher than it would be in the absence of policies and with better performing markets. Contradictory trade policy actions (such as tariffs versus waivers) generate uncertainty for producers and penalize export-oriented commodities. Poor market performance and inefficient processing plants reduce the farm gate prices of food crops, without reducing consumer prices.

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