A g r i c u lt u r e G l o b a l P r a c t i c e N o t e 10 Tanzania Agricultural Sector Risk Assessment Carlos Arce and Jorge Caballero Despite Tanzania’s comparative advantage in the production of many crops (cashew nuts, coffee, cotton, tea, tobacco, maize, and rice, for example) and the relative abundance of natural resources, 38 percent of the rural population, or 13 million rural inhabitants, live below the poverty line. Agricultural gross domestic product (GDP) grew at an annual average rate of 4 percent between 2005 and 2012, which is significant but below the 6 percent target set by the Comprehensive Africa Agriculture Development Programme. Most small-scale farmers in Tanzania still use low-input technologies that result in poor yields and scanty economic returns while facing high production volatility, high price volatility, and limited incentives to invest. Background The Agricultural Risk Management Team of the World Bank’s Agriculture Global Practice In 2001, the government established the conducted a risk assessment to evaluate and Agricultural Sector Development Strategy prioritize agricultural risks in Tanzania and to (ASDS). The ASDS highlights the key constraints identify potential risk management solutions. to achieving agricultural growth targets, among The findings of this assessment aim at informing them “un-managed risks with significant Tanzania’s new ASDP. exposure to variability in weather patterns with periodic droughts.” The Agricultural Sector Tanzanian agriculture has not suffered Development Program (ASDP) Framework catastrophic natural or artificial events at the and Process Document (2005) provides the national level during the past 20 years, and guiding framework for implementing the ASDS. that is reflected in the agricultural GDP growth Development activities at the national level are rate, which has never been negative during to be based on the strategic plans of the line that period. However, aggregated figures at the ministries while activities at the district level national and sector levels tend to mask volatility are to be implemented by local government at the regional level and within individual crop authorities. The ASDP components are to be supply chains, which in turn hide fundamental financed through a basket fund. Currently, vulnerabilities. As was highlighted by the ASDS, there is an attempt to link risk management such volatility represents an important constraint interventions to the new ASDP. to growth and poverty reduction. AGRICULTURE GLOBAL PRACTICE NOTE — MARCH 2016 Major Risks Figure 1: Planted Area Stakeholders identified unreliable rainfall in terms of intensity and distribution as one of the most likely and damaging production risks to agriculture. Drought is also recognized as a severe risk that occurs with lower frequency while retaining the potential to severely affect agriculture. Pests and diseases are also important Source: MAFC production risks that cause yield volatility and, occasionally, can result in severe and extensive international markets. Figure 3 illustrates the damage to agriculture when outbreaks occur. quasiperfect price transmission effect on the However, their damage potential varies greatly prices received by the Rural Meru Cooperative among crops and depends in part on the quality Society from Singisi, Arusha, as compared with of the risk management actions, if any, that are in the New York cash price over the past 20 years. place. Supply chain actors with low capacity to Price volatility is a key market risk in Tanzania and manage volatility, particularly farmers, are is particularly present in coffee and export crops, negatively affected by sudden price fluctuations. where interannual domestic price changes are The enabling environment is another source of strongly correlated with the high international risk. For the purpose of this analysis, enabling price volatility of these commodities. Monthly environment risk refers to the set of conditions coffee price changes in New York between that facilitate the efficient performance of January 1988 and December 2012 are shown in business along the supply chain, among which figure 2. The series standard deviation is more public policy and regulation are the most than 8 percent. Transmission of interannual prominent. In Tanzania, the most important international price changes to domestic enabling environment risks are changes in producer prices is high, making all actors in regulation affecting the marketing system and the value chain vulnerable to volatility in the Figure 2: International coffee price change Figure 3: Coffee international-domestic price compariason Percent Percent Source: International Coffee Organization: Coffee, Other mild Arabica, New York cash price, ex-dock. Source: International Coffee Organization: Coffee, Other mild Arabica, New York cash price, ex-dock. 2 | AGRICULTURE GLOBAL PRACTICE NOTE — MARCH 2016 account for 61 percent of all losses. How the losses are distributed among stake- holders within the supply chain is to a great extent a function of value chain governance and the actors’ capabilities and opportunities for risk management. Some exporters, millers, and large trading companies are able to hedge price risks globally through the practice of standard futures risk management strategies. The great majority of farmers, traders, and cooperatives are highly exposed to price risk, largely through a lack of risk management practices and knowledge. Primary cooperative societies, ginners, and other procurement agents involved in export crops Photo credit: Anne Wangalachi/CIMMYT take significant risks when they make advance payments to farmers or keep the products in storage until delivery in the auction (coffee) or to the exporting companies (cotton). Small-scale farmers’ capacity to protect themselves against price risk is extremely limited. Primary cooperative the functioning of supply chain stakeholders; societies are also the weakest segment in the decision-making processes of primary societies in supply chain. Product price variations within the their intermediary roles; and logistic disruptions marketing year can expose primary cooperative in the supply, access, and availability of inputs to societies relying on multi-payment systems to agriculture. financial losses. All actors along the supply chains are exposed Adverse Impacts to the variability in primary farming production. The value of average annual production However, smallholder farmers are particularly losses in the agricultural sector as a result of vulnerable to production and yield variability. unmanaged production risks has been estimated Their monetary income, family food security, and at approximately US$203 million, or 3.5 percent household wellbeing are extremely dependent of agricultural GDP. The calculation involves the on the crop harvest. Thus, to mitigate potentially following crops: tobacco, coffee, cotton, cashew catastrophic weather and pest and disease risks at nuts, sesame, maize, rice, beans, and cassava, the farm level, many producers adopt low-risk and which in aggregate make up more than 80 low-yield crop and production patterns to ensure percent of agricultural GDP. minimum volumes for food security purposes. Drought was the main cause of these shocks, sometimes in combination with other events. With Risk Prioritization regard to maize, more than 40 percent of losses over a 30-year period are concentrated in Mbeya, The identified risks were prioritized according to Manyara, Shinyanga, and Iringa. Kilimanjaro and the frequency of realized risk events, their capacity Arusha have also been adversely affected by to cause losses, and the ability shown by the production volatility. Altogether, the six regions different stakeholders to manage the risks. The prioritization exercise indicated that the following AGRICULTURE GLOBAL PRACTICE NOTE — MARCH 2016 | 3 Photo credit: Cecilia Schubert (CCAFS) were the major risks causing losses to the agricultural technology innovation 3) maize agricultural sector: drought events mainly for trade policy and 4) price risk management for maize, rice, and cotton; widespread outbreaks export crops. The team’s recommendations to of pest and diseases especially for cotton, maize, improve risk management focus on capacity and coffee; price volatility for cotton and coffee; building, investment, and the regulatory and regulatory risks, mostly within the trade framework. policy framework, for various cash crops and for maize. Although these risks do not necessarily 1. Seed supply chains manifest themselves in the form of catastrophic Clean, healthy planting material can improve shocks to agriculture as mentioned above, they and stabilize yields, reduce the risk of spreading are identified as the main drivers of agricultural pests and diseases to new areas, and support GDP volatility that cause income instability growth in crop production and enterprise. and recurrent food security problems among Currently, 75 percent of farmers in Tanzania still stakeholders. save their seed, and certified seed sales are low compared to neighboring countries. There are ongoing Government, donor, and grassroots ef- Risk Management forts aimed at strengthening farmers’ awareness Based on the results of the risk prioritization and of improved seeds and linking informal seed sys- interviews with stakeholders, the assessment tems with formal institutions. However, compli- team identified four areas for risk management mentary actions are needed to strengthen seed interventions 1) seed supply chains 2) supply chains for producing and disseminating 4 | AGRICULTURE GLOBAL PRACTICE NOTE — MARCH 2016 drought-tolerant seeds, disease-resistant seeds, available land. and planting material. To fill gaps in existing efforts • Support public institutions like the Tanzania to strengthen seed supply chains in Tanzania, the Official Seed Certification Institute (TOSCI) to following is recommended: increase regulation of seed and agro deal- Strengthen National Agricultural Research ers. This includes increasing TOSCI staffing, Institutes (NARIs) training inspectors, and regularly evaluating inspectors’ performance. • Invest in irrigation and cold storage capacity, including electricity for the NARIs, starting • Enhance extension services so that seed with the main zonal centers. MAFC estimates education is not left to uninformed or profit- that adding irrigation at NARIs could reduce incentivized agro-dealers. varietal release time by half. Until these nec- • Link seed production more directly to com- essary improvements are made, seed produc- mercial processing to entice private compa- tion will remain unstable and vulnerable. nies to pursue expanding their crop portfolio • Increase NARI staffing levels immediately and beyond maize. scale-up the mentor program to prepare for a wave of retirements. This will allow overlap 2. Agricultural Innovation System (AIS) between seasoned researchers and new The use of good agricultural practices (GAPs) and employees. To incentivize employment for improved agricultural technologies (IATs) can recent graduates, ensure that NARI salaries significantly reduce impacts from production are competitive with university salaries. risks such as drought, irregular rainfall, and pests and diseases. Most of these GAPs and IATs are Strengthen the Agricultural Seed Agency well known to agricultural researchers around the (ASA) world and in Tanzania, however, adoption remains • Invest in basic infrastructure to help ASA very low. The organizations and institutions that meet its heavy mandate, including irrigation comprise Tanzania’s agricultural innovation system at ASA seed farms and decentralized storage have an important role to play in disseminating locations to facilitate transport in high de- new technologies and practices to farmers. Some mand areas. of these GAPs/IATs need to be further refined and • Encourage more congenial Public Private adapted to local conditions. Others need to be Partnerships (PPP) through clearer policies. promoted through farmer training on appropriate • To fully maximize infrastructure investments, use and potential benefits. In order to strengthen ASA could use the irrigated farms and stor- the agricultural innovation system and successfully age to expand their arrangement of renting scale up the use of GAPS and IATs, the following is to private seed companies, a role which they recommended: said they would gladly magnify and which Strengthen the National Agricultural Re- could help ease PPP strain. search System (NARS) • Develop a transparent strategy that outlines • Establish an autonomous Tanzanian Agricul- how and when ASA will transition seed tural Research Council responsible for coordi- production over to private companies, as nating all agricultural research in the country, intended. including research prioritization, core funding for priority research, capacity development of Enable private sector growth scientists, and development of relevant tech- • Invest in irrigation for out growers so that nologies for use by farmers. This is absolutely production can increase and stabilize on essential for revitalizing the NARS in Tanzania. AGRICULTURE GLOBAL PRACTICE NOTE — MARCH 2016 | 5 Photo credit: Scott Wallace/World Bank • Establish a framework and strengthen ca- (websites) and fully equipped agricultural pacity to undertake priority research related information centers. to adaptation to climate change (including • Promote the establishment of private agri- drought), mitigation of agricultural risks, and cultural advisory services as a business. For the effects of pesticide use on food safety example, the Kilicafe farmers’ association and human health. Kilicafe provides extension services to small- • Provide technical assistance to researchers holder growers. to enable them to develop and test “ready to • Improve the performance of the existing use” GAPs and IATs for adoption by farmers. extension system. This will require additional Train new scientists (MS and PhD degrees) in funding and training of extension agents. scarce and critical disciplines, and strengthen research linkages with CGIAR institutes. Modernize the National Agricultural Training System (NATS) Revitalize agricultural extension services and • Provide incentives to the NATS centers gradu- policy ates to establish their own businesses provid- • Promote the use of Information and Com- ing private agricultural advisory services to munication Technology (ICT) to complement farmers and agribusiness. MAFC should not the existing extension approach and reach be the only employer/client. farmers in remote areas. This will include the • Upgrade training facilities, including class- use of smart phones, tablets, computers, electronic commodity innovation platforms rooms, labs, equipment, computers, internet and training material to improve the overall AGRICULTURE GLOBAL PRACTICE NOTE — MARCH 2016 | 6 quality of training, including training in ICT. • Concentrate National Food Reserve Agency The overall budget needs to be increased so operation in emergency distribution and agricultural training centers are able to reno- social programs, with maize purchases sub- vate their facilities and hire well qualified staff. ject to a bidding process to reduce market • Carry out needs assessments at each train- distortions. ing center to determine the requirements for • Establish a market information system to im- advisory services at present, as well as in the prove price transparency for stakeholders. next 20 years. Staffing and curriculums must be updated in response to the needs assess- 4. Price risk management for export crops ment. There is an emerging need for training Risk management strategies for high-priced, related to ICT, M&E, high-value agriculture, volatile export crops (principally coffee and cot- value chains, climate change, and production ton) are needed to reduce exposure to price risk, risk mitigation. particularly for the most vulnerable stakeholders • Open trainings to private extension agents in the supply chains. The following recommenda- and progressive farmers (farming as a busi- tions are aimed at the three participants in the ness), based on consultations with the man- marking chain facing the greatest exposure to agement of Kilimo Kawanza, SAGCOT, and export crop price volatility risk: growers, coopera- other private sector stakeholders to deter- tives/farmers’ groups, and banks. mine demand. Price risk management solutions for the 3. Maize trade policy coffee sector • Continue existing efforts to provide coffee- Current maize trade policy adds market volatility to the normal production (climatic and sanitary) specific extension services, improve product risks because of the variability and unpredictability quality, diversify small farmer incomes, and of the norms restricting trade and the way regula- promote certification schemes. tions are enforced. Given that most of the limited • Improve access to, and the quality of, up-to- maize traded in the market is consumed in towns, date market information. this policy is to a great extent biased in favor of • Streamline the decision-making process urban consumers. Maize supply support measures within cooperatives, primary societies, and have focused mainly on production support (e.g. farmers’ groups for setting prices. Today’s co- input distribution in the form of vouchers) and operative managers need to have the power less on policies that encourage a market-based to set prices in response to rapidly-changing supply response. In practice, trade regulations market conditions. have tended to restrict rather than promote trade. • Provide training aimed at lending institu- In order to allow Tanzanian farmers to benefit from new market opportunities, the following is recom- tions and cooperatives/farmers’ groups on mended: price risk management and on basic business management. Establish a predictable and transparent • Establish specialized agricultural commodity maize trade regime units in banks, designed to facilitate access to • Commit to not impose export/import bans agricultural price risk management mecha- and to eliminate trade permits, maintaining nisms and to provide an active business men- only normal phyto-sanitary and tax payment tor to assist and monitor their clients’ price regulations. risk exposure. • Restrict and control district levies. AGRICULTURE GLOBAL PRACTICE NOTE — MARCH 2016 | 7 Price risk management solutions for the to training producer groups to progressively cotton sector take over primary marketing of seed cotton, • Promote sector consolidation through in order to bring transparency and reduce licensing authority. To be competitive the number of intermediaries. through economies of scale, the Tanzanian cotton sector must reduce the number of Next Steps ginners and middlemen. This assessment added to the existing knowledge • Ban defaulters (ginning companies on ICA base on Tanzania’s agricultural sector by systemat- default list should not be licensed). ically analyzing a range of risks and impacts over a • Revise floor price periodically during the 30-year period. The assessment recommendations season, in response to changing market should inform the design of a holistic agricultural conditions. risk management strategy that takes into account the linkages between different types of risks. An • Develop a price-setting formula to improve agricultural risk management plan would ideally predictability based on fair allocation of include actions in all four of the intervention areas revenues and risks between producers and identified above. ginners. • Promote strong farmer-ginner relationships In addition to improving risk management, these to foster improved access to agricultural actions would make a significant contribution to extension services, farm inputs and credit improving agricultural productivity and therefore facilities (contract farming) rather than pur- promote sector growth and national food suing intermittent relationships through security. They may be regarded as the basis for middlemen. designing the Agriculture Sector Development Programme’s risk management module. • Build capacity of producers to increase their bargaining power. Priority should be given This Note was based on the publication: Arce, Carlos and Caballero, Jorge. 2015. Tanzania Agricultural Sector Risk Assessment. Washington, D.C. : World Bank Group. This activity was funded by the World Bank, the United States Agency for International Development, and a Multi-Donor Trust Fund on risk management financed by the Ministry of Foreign Affairs of the Government of the Netherlands and the Secretariat for Economic Affairs (SECO) of the Government of Switzerland. The work was conducted by the World Bank’s Agricultural Risk Management Team. Internet: www.worldbank.org/agriculture, Twitter: @wb_agriculture