Document of The World Bank FOR OFFICIAL USE ONLY FILE COPY Report No. 1866-TA STAFF APPRAISAL REPORT TANZANIA TOBACCO HANDLING PROJECT April 24, 1978 Regional Projects Department Eastern Africa Regional Office This document has a restricted distribution and may be used by recipients only in the performance of their officiat duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS Currency unit Tanzanian shilling (TSh.) US$0.12 1/ Tsh. 1.0 US$1.00 Tsh. 8.30 US$1,000 Tsh. 8,300 WEIGHTS AND MEASURES 1 metre (m) 3.28 feet (ft.) 1 kilometre (k) 0.62 miles 1 sq. metre (m ) 10.76 sq2 ft. 1 hectare (ha) 10,000 m = 2.47 acres 1 kilogram (kg) 2.204 pounds (lb.) I metric ton (m. ton) 1,000 kg. = 2,204 lb. GLOSSARY OF ABBREVIATIONS CCM - Chama Cha Mapinduzi, the sole political party of Tanzania DDD - District Development Director EAC - East African Community EARC - East African Railways Corporation ERB - Economic Research Bureau of the University of Dar es Salaam ICB - International competitive bidding KILIMO - Ministry of Agriculture MDB - Market Development Bureau of Kilimo PMO - Prime Minister's Office RDD - Regional Development Director RPO - Regional Planning Officer TAT - Tobacco Authority of Tanzania TAZARA - Tanzania-Zambia Railway Authority TRDB - Tanzania Rural Development Bank TTPC - Tanzania Tobacco Processing Company GOVERNMENT FISCAL YEAR July 1 - June 30 TAT FINANCIAL YEAR March 1 - February 28 l/ The Tanzanian shilling is pegged to the SDR at a fixed rate of Tsh. 9.66 to the SDR, and hence is floating against the US dollar. The exchange rate quoted is close to the recent average exchange rate. FM OFFCIAL USE ONLY TANZANIA APPRAISAL OF THE TOBACCO HANDLING PROJECT Table of Contents Page No. I. THE AGRICULTURAL AND RURAL SECTOR ............................ 1 A. Background .............................................. 1 B. Rural Organization ...................................... 2 C. Agricultural Marketing and Prices ....................... 4 D. Agricultural Services ................................... 6 11. THE TOBACCO SUB-SECTOR ....................................... 8 A. Production . ...................................... 8 B. Tobacco Cultivation . ........................ . 9 C. Tobacco Marketing and Processing .......... .. ............ 10 D. Input Marketing and Credit ............................. 13 E. Tobacco Prices ....... .............. ..................... 13 F. Projected Production .................................... 14 G. Previous IDA Tobacco Projects ......... .................. 15 III. THE TOBACCO AUTHORITY OF TANZANIA ......... 16 A. Organization and Staffing ............................... 16 B. Finances ...................... .......................... 18 IV. THE PROJECT ............... 19 A. General Description ................... .................. 19 B. Detailed Features ..... .................................. 20 C. Project Costs ...................... ..................... 28 D. Financing ....................... ....................... 30 E. Procurement ........... ............ ...................... 31 F. Disbursements ..................... . ...................... 32 G. Accounts and Audits ................... .................. 33 This report is based on the findings of two appraisal missions. The first mission, in June 1977, comprised J. Wijnand, J. Mullan and R. Poldermans (IDA) and P. Green (consultant) and appraised Phase I of the National Agri- cultural Development Program of which this Project then formed a part. The second mission, in October 1977, was composed of J. Mullan (IDA), E. Bowles, D. Low and C. Bailey (Consultants), and dealt only with this Project. This document has a restricted distribution and may be used by recipients only in the performance of their ofcial duties. Its contents m ay not otherwise be diclosed without World lank authorization. Table of Contents (Continued) Page No. V. PROJECT IMPLEMENTATION ............................. ...... 33 A. Management and Staffing ................... . .............. 33 B. Reporting ..................... ..... ............. 34 C. Monitoring and Evaluation ..... ........................ 35 VI. TOBACCO MARKETS AND PRICE PROSPECTS .......................... 36 A. World Markets ........................................ *. 36 B. The Market for Tanzanian Tobacco ........... .. ........... 37 VII. PROJECT BENEFITS AND FINANCIAL RESULTS ....................... 40 A. Project Benefits ........................................ 40 B. Effects on Farmer Incomes ..... .......................... 43 C. Financial Effects on TRDB ............................... 45 D. Financial Effects on TAT ................................ 45 E. Government Cash-Flow Implications ................... . . ... 46 F. Foreign Exchange Implications .... ....................... 46 VIII.ECONOMIC ANALYSIS ...... ................ ...................... 47 IX. AGREEMENTS TO BE REACHED AND RECOMMENDATION ................. . 49 ANNEXES 1. Supporting Charts and Tables ............... . .................. 51 Chart C-1 TAT Organization Chart C-2 Implementation Schedule Table T-1 Pattern of Smallholder Flue-Cured Tobacco Production Table T-2 TAT Summary Income Accounts, 1974-78 Table T-3 TAT Summary Balance Sheets, 1974-78 Table T-4 TAT Projected Cash-flow, 1979-82 Table T-5 Annual Project Costs Table T-5 Estimated Disbursement Schedule Table T-7 Transport Cost Savings Table T-8 Benefits of Project Components Table T-'9 Tobacco Crop Budgets Table T-L0 Financial Analysis of Flue-Cured Grading/Baling Centre Table T-11 Financial Analysis of Fire-Cured Grading/Baling Centre Table T-L2 Incremental TRDB Cash-flow Table T-13 Incremental TAT Recurrent Costs Table T-14 Incremental TAT Cash-flow Table T-15 Projected TAT Operating Accounts Table T-16 Projected TAT Cash-flow Table T-17 Projected TAT Balance Sheets Table T-18 Incremental Government Cash-flow Table T-19 Foreign Exchange Effects of Project Table T-20 Economic Costs and Benefits 2. Selected Documents and Data Available in the Project File ..... 74 MAP - Tobacco Growing Areas in Tanzania - IBRD 13360 I. THE AGRICULTURAL AND RURAL SECTOR A. Background 1.01 Tanzar4a has a total population of about 15.3 million (mid-1976), which is increasing at an annual rate of about 2.7 percent. Average per capita GNP for 1976 is estimated at US$180, and average per capita income in the rural areas is put at about US$70. The real growth rate of GDP of the economy averaged about 4.8 percent per annum over the period 1964-1975. Roughly 40 percent of GDP is derived from agriculture and related activities such as forestry, with about half of this contribution coming from subsistence production. About 94 percent of the Tanzania population lives in the rural areas, and 90 percent of the economically active population is engaged in agriculture. 1.02 Most agricultural production is from smallholdings using family labor. Large-scale agriculture is confined to a small number of private estates and state farms producing sisal, coffee, tea, sugar, wheat, rice and livestock. Estate production has diminished in importance, and the state farm program remains small. Tanzania's national livestock herd, with a cattle population estimated at 10 million head, is grazed extensively over the 40 percent of the country which is free from tsetse fly infestation. It is largely managed along traditional lines. 1.03 About 70 percent of Tanzania's foreign exchange earnings from merchandise exports are accounted for by exports of unprocessed agricultural commodities, and a further 7 percent comes from exports of processed farm products. The major agricultural export commodities are cotton, coffee, sisal, cashew-nuts, tea and tobacco. 1.04 The recent performance of the agricultural sector has been sluggish. Over the period 1967-1976, the average annual rate of growth of agricultural production was 2.8 percent, only slightly greater than the rate of population growth. From the late 1960's onward, food crop production failed to keep pace with population growth and, as a result, Tanzania became increasingly dependent on imports of maize, rice and wheat. The effects of this slow growth were exacerbated in 1973 and 1974 by a severe drought which resulted in poor harvests and large imports of foodgrains. In 1975 and 1976, agricul- tural production recovered from the effects of the drought, increasing in real terms by about 6.5 percent in 1975 and by a further 4.5 percent in 1976. Preliminary estimates are that agricultural production expanded by about 5 percent in 1977. Agricultural and Rural Development Strategy 1.05 The Government has undertaken a comprehensive program to support the development of productive activities in the agricultural sector, in conjunc- tion with efforts to achieve balanced regional growth and more equitable income distribution. Within these objectives, Government is paying partic- ular attention to achieving self-sufficiency in food production (assisted by an IDA credit of US$18.0 million for a National Maize Project) and to supporting those crops which represent sources of foreign exchange earnings. Considerable emphasis is being placed on production as well as on the social -2- aspects of rural development projects. Government has made substantial head- way during the past decade in laying the foundations for a long-term program of rural development. Beginning in 1970, the Government launched a wide- ranging program to resettle the country's rural populations into villages. In 1972; it decentralized government administration to the regional and district levels in order to tailor development programs more closely to the needs of the villages (paras. 1.07-1.09). In 1975, it instituted the Vi:Llage and Ujamaa Villages Act, which laid down the legislative base and procedures for the newly created villages (paras. 1.10-1.12). With the establishment oE new villages, the Government set very ambitious targets, (which may be beyond its limited capacity to achieve), to provide essential social services. Under a Universal Primary Education Program launched in 1974, close to 1L00 percent of all primary school age were enrolled in primary schlool by the end of 1977. A program of village water supply was initiated in the same year with the objective of providing the entire rural population with an accessible supply of potable water by 1991; so far, 36 percent of villages have water supply systems. A program has also been launched to provide the full rural population with access to rudimentary health care as socn as possible. 1.06 However, the rural populace has yet to experience the benefits of the Government's overall strategy. Real rural per capita incomes actually declined by 4 percent between 1969-1975 and represent only about 40 percent of average urban incomes. Because of implementation problems, the Government's social programs still meet the needs of only a small proportion of the total rural population. Although major institutional reforms have been made, the institutional structure in the rural sector is still in flux, and may require yet further change. In some respects (for example, changes in the input delivery system), excessive institutional change has been partly responsible for the relatively poor performance of the agricultural sector. B. Rural Organization Decentralization 1.07 In order to obtain greater local participation in the design of its programs and projects, to speed their execution and to encourage the mobil- ization of local resources, the Government, in 1972, adopted a decentralized administrative structure. Regional and District authorities were granted primary responsibility for the planning and implementation of development activities within their jurisdictions, and were given a high degree of ad- ministrative autonomy. Tanzania is now divided in 20 Regions, containing a total of 80 Districts. The political head of each Region is the Regional Comnissioner, who has the rank of Cabinet Minister, and who is chairman of the Regional Development Committee, a member of the country's National Assembly and of the National Executive Committee of Tanzania's only political party, Chama Cha Mapinduzi 1/ (CCM), and also regional CCM Secretary. The political head at the District level is the Area Commissioner, who is the CCM 1/ Roughly translatable from the Swahili as "the Party for Revolution". -3- District Secretary and Chairman of the District Development Committee. All Regional and Area Commissioners are directly appointed by the President of the Republic of Tanzania. 1.08 The Regional civil service is headed by the Regional Dev lopment Director (RDD), assisted by a Regional Planning Officer, and by the heads of the twelve Regional functional departments of the eleven central ministries represented in each Region. 1/ The head of each of these departments reports directly to the RDD, who, in turn, is responsible to central Government through the Prime Minister's Office (PMO). At the District level, the admin- istration is headed by the District Development Director (DDD), assisted by a District Planning Officer and the heads of the District functional departments, which are the same as those represented at the Regional level. The field-level staff of the central ministries are answerable to the DDD through the heads of their functional departments, but receive technical guidance from the func- tional staff at the Regional level and, through them, from the central minis- tries. All civil servants within a Region are ultimately responsible to the RDD and, once appointed to a Region, can only be transferred with the consent of the RDD. 1.09 This decentralization of government authority has served to improve communications between the Government and the village and between the Party cadre and the civil service. Villages, in principle, have more opportunity to participate in the planning and implementation of the development programs which affect their future. The Party is more aware of individual village needs. The civil service operating at the district and regional levels has a more integrated approach to rural development than was possible through the central technical ministries. However, qualified manpower is still insufficient to fill the many positions demanded by a decentralized government structure. Decentralization has not led to the anticipated levels of local participation in the planning process, which remains dominated by the central ministries. The division of responsibility between the central ministries, regional and district authorities and parastatals remains poorly defined, and bureaucratic tensions persist. Villagization 1.10 Since independence, the grouping of dispersed farm families into villages has been a key element of Government strategy for the rural areas, in order to facilitate the provision of infrastructure and services to the rural population, and to encourage self-reliance and a community approach to rural development. During 1974, the emphasis shifted from creating additional ujamaa 2/ villages (the ultimate goal of which was fully collectivized agri- cultural production) to forming "planned" or "development" villages, which place less stress on communal production, and more on "block farming" (in 1/ The eleven Ministries are Education, Health, Lands, Industry, Commerce, Natural Resources, Water, Public Works, Ujamaa and Cooperatives, Culture and Kilimo. Kilimo has two departments in each Region, Crop Development and Livestock Development. 2/ "Ujamaa" is a Swahili word meaning "familyhood". - 4 - which each farmer cultivates his own plot within an overall block of land allocated to the village) and on individual holdings within the village frame- work. At the same time, the pace of villagization was considerably accele- rated, not without some disruption of production in some areas. At the present time, there are some 7,670 registered villages, containing over three-quarters of Tanzania's rural population. 1.11 The village is intended to act as the country's primary social, economic and political unit. Basic social services, including health facili- ties, classrooms and water supply systems, are to be located in each village. Economic services, including provision of credit, supply of inputs, organi- zation of extension services and marketing of produce, are to be coordinated at village level. Economic infrastructure, such as storage godowns, proces- sing equipment and small-scale industries, is to be village-owned. The vil- lages' legal status has been spelled out in the Villages and lJjamaa Villages (Registration, Designation and Administration) Act of 1975. Each village of between 250 and 650 families is registered and elects through a Village Assembly a Village Council. The Village Council has the power to allocate land and control its use, can own heavy agricultural machinery and other capital goods, can borrow and is required to establish a capital fund, a reserve funld and a disposable fund. 1.12 It is too early to judge how effectively the villages will be able to meet their ambitious goals. Early peformance has been mixed, with villages in some regions demonstrating an impressive ability to mobilize local support fot the construction of social infrastructure (such as schools) or productive infrastructure (such as village grain and input stores), whilst other villages have shown little ability to effectively mobilize local resources. Villagiza- tion has brought with it problems which are increasingly being felt in Tanzania. In some areas of high population density, villagization has led to overgrazing and depletion of soil fertility. In other areas, there are substantial diseconomies in that villagers must now travel further to cultivate fields, collect fuelwood and draw potable water. The Government has already acted (through 'Operation Correction' in 1976) to rectify the most serious cases of misallocation, buat more attention to village siting and size is needed to overcome many of the existing problems of village settlements. C. Agricultural Marketing and Prices Parastatals 1.13 In 1976, the District and Regional Cooperative Unions, which formerly played an important role in agricultural marketing, were dissolved and their functions transferred to other national, regional and district organizations, the most prominent of which are the various parastatal crop authorities. At present, there are separate parastatal institutions for coffee, cotton, sisal, tea, tobacco, cashew-nuts, pyrethrum, sugar, livestock and dairy products and foodgrains. Many of these parastatals have been established quite recently, or have taken over the functions of predecessor organizations. The general tendency has been for Government to enlarge the role and scope of these organizations, placing a severe strain on their manpower resources. - 5 - 1.14 The marketing system is often characterized by lack of competition, high marketing costs, poor service and slow payments to farmers. Many para- statals have been proven to be inefficient, with excessive overhead costs. Overall operational efficiency has not improved over the past decade, and may even have declied in some cases. These inefficiencies have resulted in in- creased trading margins, which in turn lead to higher consumer prices and/or lower producer prices. These problems have been exacerbated by the changes outlined above. While some parastatals have performed creditably, there is evidence of crops not being purchased and transported in a timely fashion, of delayed payments and of further increases in marketing costs. The Tanzanian Government is aware of these problems, and is taking steps to remedy the situation, which include the review by the Standing Committee on Parastatal Organization (SCOPO) of the structure and managerial performance of parasta- tals, recent dismissals of staff in parastatals that were over-manned, and the return of some parastatal activities to the private sector. Pricing Policy 1.15 The control of producer and wholesale prices of major crops in Tanzania is an important policy tool of Government. Almost all principal export crops are controlled, as are major food products (with the exception of such items as fruits, vegetables, eggs and fish). Responsibility for making price recommendations rests with the Ministry of Agriculture, with final decisions on pricing taken by the Economic Committee of Cabinet. Prior to 1974, Government downplayed the use of price incentives to encourage in- creased production. Thus, for several years prior to 1974, most producer prices were held fixed despite increases in input costs. Since then, however, the Government has recognized the need to maintain farmer incentives by pro- viding remunerative returns. During 1974, very substantial producer price increases were introduced and since then, producer prices have been reviewed annually, with further price increases announced to maintain farmers' produc- tion incentives. 1.16 In recent years, Government has encouraged the use of inputs such as fertilizer and improved seed through subsidization. Particularly in the case of fertilizer, distribution and use has often been indiscriminate, with little regard being paid to whether the use of fertilizer on particular crops or particular soil types was agronomically and economically desirable. Much greater attention is now being given by Government to ensuring that such inputs are distributed for use only where such use is profitable. In the case of fertilizer, the level of subsidy has been progressively reduced from 100 percent of total cost in the 1973/74 and 1974/75 seasons, to 75 per- cent of cost in 1975/76 and 50 percent of cost in 1976/77 and 1977/78. How- ever, at present world fertilizer prices, the subsidized price of fertilizer to farmers is roughly equivalent to the landed cost of imported fertilizer, reflecting the fact that the Tanzania Fertilizer Company (which produces the bulk of fertilizer used in Tanzania) is a high-cost producer, and that the present level of subsidy represents a subsidy to the factory, rather than to the agricultural sector. -6- D. Agricultural Services Research 1.17 Agricultural research in Tanzania is undertaken by a variety of governmental agencies. Kilimo is responsible for overall guidance of the national research effort, and operates a network of crop and livestock re- search stations Tanzania's research system has several weaknesses. Kilimo has not been able to exercise effective control and, as a result, priorities have not always been firmly established, the regional emphasis has been unclear, and research resources have not been allocated in accordance with development priorities. There is a need for greater focus on improving knowledge about Tanzania's various agro-economic zones, and on improving the farming systems in these zones through a greater emphasis on field testing. The links between research and extension are weak, partly as a result of the failure of the Regions, who are responsible for extension, to coordi- nate with Kilimo which is in charge of research and training. 1.1.8 Agricultural research in Tanzania is increasingly becoming linked with the various international agricultural research institutes under the Consultative Group for International Agricultural Research (CGIAR). IDA is intending to assist, as part of a proposed Agricultural Services Project, in strengthening the ability of the Tanzanian research system to carry out field testing, and in forging effective links with the agricultural extension services. The Tanzanian research system also receives support under the Tabora Rural Development Project (Cr 703-TA), and additional support would be provided under the proposed Mwanza/Shinyanga Rural Development Project. Extension 1.19 The agricultural extension service in Tanzania is staffed by about 100 graduates, 3,000 field officers who have received some formal training, and about 3,500 field assistants, many of whom have received no formal training. Of field level extension staff, about 54 percent are employed by Kilimo but under the day-to-day control of the region, with the remaining 46 percent employed by various crop parastatals. As the research base is weak, extension agents have few proven technical packages to extend to the farmers. The training of ifield staff is grossly inadequate, and refresher courses are infirequent. A review of the extension system has been underway in Tanzania for about two years, with Kilimo and the PMO holding differing views on how it should be reorganized. In order to assist in the development of an effective extension service, IDA has proposed to carry out jointly with the Government an i'nitial survey of the needs of research and extension services in Tanzania, with the intention of following through to the preparation of a research and extension training component of a National Agricultural Services Project. -7- Credit 1.20 Long, medium and short-term agricultural credit is provided by the Tanzanian Rural Development Bank (TRDB) which administers special funds on behalf of the Government, and which has been supported by the Bank Group as the major credit channel for those IDA funds disbursed for direct use by farmers. During the year ending 30th June 1977, (1976/77) TRDB made loans totalling Tsh. 77 million, of which Tsh. 33 million (43 percent) went to registered villages (mainly for seasonal inputs), and Tsh. 16 million (20 percent) went to parastatals, with the remainder split between cooperative societies, producer associations and District Development Corporations. Almost Tsh. 53 million (68 percent) of TRDB's lending in 1976/77 was for short-term finance of seasonal crop inputs. The remainder was medium and long-term credit, including Tsh. 15 million (19 percent) for livestock de- velopment and Tsh. 5 million (7 percent) for rural transport, with smaller amounts for small-scale industries, crop storage facilities, farm machinery and fisheries development. TRDB at present charges interest rates of 8.5 percent on short-term financing, and 7.5-8.5 percent on medium- and long- term credit. A project to further strengthen TRDB is currently being pre- pared with IDA assistance. 1.21 Since it was founded in 1971, TRDB's operations have been complicated by villagization, decentralization the disbanding of the regional co-operative unions, and the drought of 1973 and 1974. These developments have created special difficulties for TRDB, and weaknesses in its portfolio reflect these difficulties. Yet, throughout this period, TRDB has increased its level of operations and upgraded its staff, and its management has shown an ability to deal with its problems. Rural Transport Services 1.22 An adequate road transport system is needed to ensure the efficient movement of crops to market centres and railheads, and to support timely delivery of agricultural inputs to the farmers. Despite Government's efforts to upgrade the road network, which have been concentrated in recent years on bitumenizing existing roads rather than building new ones, only about 10 per- cent of the 33,400 km of roads provide reliable, all weather service. The remainder are, in general, little more than earth tracks impassable in the rainy season. The condition of the road network is generally poor, reflect- ing the lack of adequate maintenance due to shortages of equipment and qual- ified staff, institutional inefficiencies and insufficient budgetary alloca- tions. Rural roads are in especially poor condition. Current government action to address these problems includes the provision of staff training and equipment under the IDA-assisted Highway Mtaintenance Project (Credit 507-TA), the Tabora Regional Development Project (Credit 703-TA), and the Geita Cotton Project (Credit 454-TA), and recently created Betterment and Maintenance Units, which are upgrading selected secondary roads in several regions. Assistance to the trucking industry is being provided through the IDA-supported Trucking Industry Rehabilitation and Improvement Project (Cr. 743-TA). - 8 - II. THE TOBACCO SUB-SECTOR A. Production 2.01 The production and export of tobacco is becoming increasingly important to the Tanzanian economy. At present, about 54,000 farm families, containing around 270,000 people, are dependent on the production of tobacco for at least part of their cash income. The value of exports of tobacco rose from Tsh. 30 million in 1968, to Tsh. 260 million in 1976, when tobacco exports accounted for 7 percent of total Tanzanian merchandise exports. Two main types of tobacco are currently produced in Tanzania: flue-cured Virginia tobacco and fire-cured dark tobacco. Recently, some areas of the country have started production of burley tobacco, which is air-cured, but current produc- tion is less thian 40,000 kg. The location of the main tobacco producing areas in Tanzania is illustrated in Map IBRD 13360. Tobacco production in recent years is tabulated below: Tanzanian Tobacco Production Flue-cured Fire-cured Production Year 1/ Production (million kg. 2/) 1964/65 3.9 1.2 1965/66 3.6 1.5 1966/67 4.6 3.2 1967/68 8.2 2.1 1968/69 8.9 3.5 1969/70 8.7 2.1 1970/71 10.6 3.6 1971/72 10.6 1.9 1972/73 11.1 2.9 1973/74 15.2 4.1 1974/75 11.9 2.3 1975/76 14.5 4.1 1976/77 14.7 3.6 3/ 1/ The production year runs from August to July. 2/ Cured leaf. 3,1 Lower than the 5.0 million expected, as a result of late factory opening, which led to substantial private sales by producers on local markets. 2.02 Flue-cured tobacco is grown mainly in the Tabora, Mbeya and Iringa Regions, but also in the Shinyanga, Rukwa, Singida and Kigoma Regions. Pro- duc:tion has risen from 3.9 million kg in 1964/65, to 14.7 million kg. in 1976/77. This r-ise in production resulted largely from increasing numbers of small farmers being attracted to tobacco production by favorable prices. In the 1976/77 season, about 25 percent of the crop was produced by sixty relatively large scale farmers in the Iringa Region. Production from these farmers has remained relatively constant over the past few years at about 3.5 million kg., and is expected to remain at about this level in the future. About 75 percent of the 1976/77 crop was grown by smallholder producers. Table T-1 summarises smallholder production data for the 1976/77 season. About 290 villages, containing 110,000 farm families, were involved in flue- cured tobacco production, and, of this population, about 35,000 families (about 32 percent) were engaged in tobacco production. Slightly fewer than 19,000 hectares (ha) of tobacco were cultivated in 1976/77, an average of 0.54 ha per family. Average marketed yield was about 580 kg. per ha, or 313 kg. per producing family. Fluecured tobacco production is concentrated in the Tabora and Urambo areas, which together compose the administrative region of Tabora, and which account for about 80 percent of total smallholder flue- cured tobacco production. 2.03 Fire-cured tobacco is grown mainly in Ruvuma region, but also, to a very small extent, in the West Lake and Kigoma Regions. Production marketed through TAT has risen from 1.2 million kg. in 1964-65 to 4.1 million kg. in 1975/76, but expansion has been erratic, largely as a result of unreliable supplies of inputs and services to Ruvuma during the period when access to this Region (which borders on Mozambique) was restricted on security grounds, and because the crop is sold locally on informal markets. Fire-cured tobacco is produced entirely by small scale producers. In 1976/77 about 230 villages were involved. The total number of farm families settled in these villages was about 90,000, of whom about 19,000 were engaged in the production of firecured tobacco. About 9,500 hectares were planted to fire-cured tobacco, an average of 0.5 hectares per family. Average marketed yield was 530 kg. per hectare. Ruvuma Region accounted for about 98% of total marketed production. B. Tobacco Cultivation 2.04 Flue-cured tobacco is generally grown in a five-year rotation with food crops (maize and cassava) and a period of fallow. Farmers establish their own nursery beds in September, and transplant seedlings at the start of the rains in November or December. Reaping of leaves starts in late January, and continues, at 6 to 10 day intervals, until April or May. The reaped leaves are cured in small barns heated by hot air which passes through the barn in metal flue-pipes leading from a wood-fired furnace. The curing process takes about 6 or 8 days. When the lamina and mid-rib of the leaf are completely dry, the fire is allowed to go out and the cured tobacco leaves, which are hygroscopic, are allowed to condition by taking up atmospheric moisture. 2.05 Cultivation techniques for fire-cured tobacco are similar. However, since the leaves for fire-curing need to be heavy-bodied, the bottom three or four leaves on each plant are discarded in the field. After harvesting, the leaves are tied and packed into a curing barn constructed of unburnt mud bricks or poles plastered with mud. The leaves are left for six to eight days to wilt and yellow, without heat being used. After this period, open fires using partially wet wood are started in pits within the barn. Smoke then gradually turns the leaves brown. After a further four or five days, larger fires using dry wood are started, to raise the barn temperature. Cur- ing is complete on about the 18th or 20th day. - 10 - 2.06 In some areas, particularly the older established flue-cured tobacco producing areas of Tabora and Urambo, the supply of wood for use as fuel dur- ing tobacco curing is becoming restricted. This has led to rising produc- tion costs and deteriorating environmental conditions. To ensure an adequate future supply of firewood, a plantation program is needed in all flue-cured tobacco areas and in some fire-cured tobacco producing areas. The Government is aware of this problem. Kilimo is presently discussing a reafforestation program for the tobacco areas with the Forest Division of the Ministry of Natural Resources, and the Tabora Regional Development Project, supported by IDA Credit 703-TA, provides for a pilot program for the establishment of vil- lage forest plantations. 2.07 In general, tobacco production in Tanzania is free from the effects of major tobacco diseases. However, virus bushy top disease was first observed in Ruvuma Region in 1975, and has since spread throughout the tobacco growing areas of Tanzania. Bushy-top is a leaf distorting disease which is trans- mitted by the peach aphid, and which can cause severe reductions in tobacco yields. The most important step that can be taken by producers to limit the spread of this disease is prompt destruction of tobacco plant residues. As each plant is stripped of its last leaves, the stalk plus roots must be pulled out, left to dry in the sun and later burned. Any field regrowth must also be destroyed. At present, these procedures are not being followed by Tanzanian tobacco producers, principally because the incidence of disease is as yet minor in Tanzania. However, in order to safeguard the considerable Tanzanian investments in tobacco production, marketing and processing facilities, TAT has been requested to consider how best it might enforce existing legislation, under the Tobacco Act, to provide for a tobacco 'close-season.' It is not envisaged that the destruction of tobacco plant residues would place an undue burden on producers. It was agreed at negotiations that TAT would mount a campaign to ensure that farmers carry out the destruction of crop residues, would formulate adequate crop hygiene standards and consult with IDA on the methods and steps to be taken to reach such standards; and that, after July 31st, 1980, no seasonal or medium-term credit for tobacco production would be extended by T'RDB to villages which failed to meet these standards. C. Tobacco Marketing and Processing Grading and baling 2.08 When the tobacco (flue - or fire-cured) has taken up sufficient moisture to become pliable, it is removed from the barn and graded. Tobacco grading involves the sorting of the individual leaves into uniform lots. The criteria for grading are the position of the leaf on the plant, leaf texture, color, the degree of spotting, and whether the leaf is broken or whole. One barn of flue-cured tobacco normally contains eight to twelve disitinct types of tobacco that should be separated during grading, since prices vary from one grade to another. For fire-cured tobacco the number of grades from each harvesting is unlikely to exceed six. After grading, - 11 - the tobacco is stored by the farmer until he has accumulated sufficient for baling. Major grades, each consisting of 30 kg. or more, are placed in a baling-box and, after compression, are sewn in tar-lined paper and hessian cloth. Minor grades are pooled by a number of farmers and are baled together, with each farmer keeping a record of his contribution to that bale. Each bale is marked with a number, identifying the producer or producers. 2.09 There is a lack of adequate on-farm storage for tobacco prior to baling. The tobacco is usually stored in the farmers' homes or in make- shift sheds and this results in a significant lowering of tobacco quality, often past the point at which tobacco is marketable. To maximize efficiency of operation and to minimize damage to the tobacco, both grading and baling should take place in a weatherproof building with good natural lighting conditions, under the supervision of a tobacco extension agent. At present, owing to the general lack of such facilities, grading and baling are often carried out in the open or in makeshift temporary sheds, with resulting loss of quality and quantity of tobacco. A principal aim of this Project would be to reduce these losses (paras. 4.04, 4.07). Tobacco Classification 2.11 Each bale of tobacco is purchased by the Tobacco Authority of Tanzania (TAT) on the basis of its weight, and a quality grade assigned to it by a TAT classifier. If, as is often the case, grading has been poorly carried out, and the bale contains a mixture of grades, the grade assigned to the bale is determined by the quality of the lowest grade in the bale. Hence, it is important for farmers to grade well if they are to receive the full value of their crop. In the case of flue-cured tobacco there are more than one hundred such grades, and there are sixteen grades for fire-cured tobacco. The purchase price for each grade is announced by TAT in advance of the mar- keting season. 2.12 Tobacco classification should be carried out in well-constructed permanent market centers, where tobacco bales can be adequately stored prior to and after classification. At present there is a shortage of permanent marketing centers and classification is often carried out in the open air. Tobacco bales must then be stored in the open while awaiting transportation to a processing facility. Lack of transport capacity results in delays in the transport of bales, and this, coupled with the lack of storage, leads to losses in tobacco quantity and quality. The Project would aim to reduce these losses through improvements in the marketing system (paras. 4.09, 4.13). Tobacco Processing 2.13 Fire-cured tobacco is processed in the TAT factory at Songea, while flue-cured tobacco is sent to a factory at Morogoro which is operated by the Tanzania Tobacco Processing Company (TTPC), a subsidiary of TAT. Both of these processing factories are currently being expanded, that at Morogoro under the Tobacco Processing Project supported by IDA Credit 658-TA. The processing of - 12 - tobacco involves the blending and preparation of the leaf, followed by drying of the product to a specified moisture content. The tobacco is sold to pur- chasers by TAT prior to processing, on the basis of a price for each tobacco grade which is announced to prospective buyers by TAT in advance of the start of the marketing season. The efficient operation of the tobacco processing factories is presently hampered by a lack of storage capacity and by inadequate transport facilities for moving the crop to and from the factories. Measures to deal with these problems are proposed under the Project (paras. 4.20, 4.23). Efficiency of Marketing System 2.14 The average smallholder farmer in Tanzania produces a crop with a potential yie:Ld of cured tobacco in excess of 1,100 kg. per hectare. However, analysis has shown that the small-scale producer loses about 10 percent of his potential crop in the field, due to lack of barn capacity; a further 10 percent in the curing barn, through poor curing techniques; and an additional 25 percent through inefficient post-curing handling and marketing procedures. Consequently, average marketed smallholder production per hectare is only about 600 kg. These levels of marketed yield compare extremely unfavorably with those obtained on the large commercial farms in Iringa, where field crops of similar standard to smallholder crops produce 1,100 kg. per hectare of marketed tobac:co, largely as a result of superior storage, grading and baling techniques. The present marketing system for smallholder tobacco thus has significant shortcomings, mainly as a result of the poor standard of storage, handling and transport facilities. 2.15 In other respects, the present tobacco marketing system generally operates satisfactorily. TAT's selling prices for the various grades of tobacco are set on the basis of a review by TAT and the Market Development Bureau (MDB) of Kilimo of market prospects for tobacco, and corresponding sales prices in other tobacco producing countries, in particular Malawi and Zambia. Producer prices are established annually on the basis of TAT sales prices less TAT operating costs and are reasonably attractive to farmers. Classifiers are well-trained and competent, and TAT has a training program for classifiers, to ensure that an adequate supply of qualified staff will be available to meet expected future demands. 2.16 A study was carried out in 1971 to investigate the possibility of moving from the present system, where final sales are made by TAT on a contract basis, to a marketing system in which tobacco bales are sold by auction. The findings of this study were that while in the longer-term Tanzania should aim to adopt an auction-based system, in the short and medium term the exist- ing standards of tobacco presentation were considered too poor to enable buyers at an auction to be able to bid on bales with confidence, and the high proportion of mixed and mouldy bales (resulting from poor grading, baling and storage) was considered unmanageable under an auction system. In addition, it was felt that Tanzania needed to reach and sustain a substantially higher volume of tobacco production. These reasons for not recommending immediate - 13 - adoption of an auction system still hold good today and IDA staff concurs with TAT's judgement that introduction of an auction sales systems is not at present warranted. D. Input Marketing and Credit 2.17 The input required for the production of tobacco are provided on seasonal credit extended to villages by the Tanzanian Rural Development Bank (TRDB), (para. 1.20). No downpayment by tobacco producers is required. The credit from TRDB covers the full cost of fertilizer, seed-bed packs, pesti- cides, materials for curing barn construction (flue-pipes, etc.) and materials for baling (tar-lined paper, hessian cloth, jute twine). Input requirements are estimated for each village by TAT and TRDB jointly. TRDB procures the necessary inputs and arranges delivery to the villages. TAT field staff in each village maintain records of the quantity and value of inputs used by each producer. When the crop is marketed TAT deducts and pays to TRDB 60 percent of the crop proceeds from each producer, until his seasonal loan repayments are net. Current seasonal credit recovery rates from tobacco producers are about 90-95 percent. E. Tobacco Prices 2.18 Both TAT's selling prices and producer prices have been rising steadily in recent years. Average TAT Tobacco Prices (Tsh per kilogram) Year 1/ 1973/74 1974/75 1975/76 1976/77 1977/78 2/ Flue-cured tobacco Processed tobacco sales 13.01 15.93 16.15 17.20 19.20 Wet-leaf basis 3/ 11.31 13.85 14.04 14.96 16.70 Producer prices 5.67 6.50 7.41 7.99 8.10 Fire-cured tobacco Processed tobacco sales 7.93 9.77 11.90 13.30 13.80 Wet-leaf basis 3/ 6.90 8.50 10.35 11.63 12.00 Producer price 2.21 2.37 2.89 4.49 4.50 1/ Refers to marketing years; the tobacco is produced in the previous crop year. 2/ Partly estimated. 3/ A 15 percent weight loss occurs during processing. - 14 - Over the period 1973/74 to 1977/78 the average TAT selling price for flue- cured tobacco rose by 48 percent, and in the case of fire-cured tobacco, the increase was 74 percent. Over the same period, the average producer price paid to farmers has risen by 43 percent in the case of flue-cured tobacco, and by 103 percent for fire-cured tobacco. F. Projected Production 2. L9 In the last thirteen years, the total production of tobacco of al'L types in Tanzania has increased from 5 million kg. to just under 20 mi:Llion kg. Most of the expansion was achieved by smallholders. It is not: easy to pro ject the rate at which future production increases will be achieved. The future rate of growth will depend on the number of families taking up and maintaining tobacco production, the area grown by each family, ancl the marketed yields achieved. These variables in turn will be subject to such factors as relative prices of tobacco and competing crops, such as maize; the availability and price of inputs and fire-wood for curing; the eff'iciency of the extension service, and the longer-term effects of villagi- zat;ion. TAT has adopted a policy of consolidation for the next few years, during which efforts will be concentrated on raising production in existing tobacco villages, through recruitment of new tobacco farmers, and increases in tobacco areas and yields. TAT forecasts production increases averaging about 15 percent per annum until 1982/83, when production will reach 36 million kg. These projections appear over-optimistic. The greater emphasis being placed on food-crop production (as evidenced by sharply increased grain producer prices) is likely to channel land and labor resources away from tobacco towards crops such as maize. In some areas, such as Chunya, in Mbeya Region, there is increasing competition for labor from other sectors (steel, gold- mining, etc.). Depletion of forest resources, which will increasingly in- volve growers in heavy firewood transport costs and labor expenditure, may be a constraint on a crop growth, particularly in the older-established areas. Taking those factors into account, a reasonable figure for future production increases might be 7 percent per annum, about 5 percent per annum of which would come from recruitment of new growers, 1 percent from increases in area cultivated per grower and 1 percent from yield increases. This would result in the following pattern of growth: Year: 1976/77 77/78 78/79 79/80 80/81 81/82 82/83 --- 86/87 Flue-cured 14.7 15.7 16.8 18.0 19.3 20.6 22.1 28.9 Fire-cured 3.6 5.4 5.7 6.1 6.6 7.0 7.5 9.8 Total 18.3 21.1 22.5 24.1 25.9 27.6 29.6 1/ 38.7 1/ This compares with an estimate by TAT of 36.0 million kg. - 15 - G. Previous IDA Tobacco Projects Flue-cured Tobacco Production Project (Credit 217-TA) 2.20 An IDA credit of US$9.0 million was extended in October 1970 for a project aimed at increasing the production of flue-cured tobacco in Tanzania. The project was restricted to development of flue-cured tobacco only because the fire-cured producing areas were close to the border with Mozambique, and access to them was restricted at that time. The project specifically provided for settlement of 15,000 new tobacco growers, and for on-farm credit, exten- sion services, construction of curing barns and grading sheds, access roads, water supplies, a minor expansion of processing facilities and additional storage. Responsibility for crop development, training and research was initially vested in Kilimo with the Tanganyika Tobacco Board (the predecessor of TAT) responsible for crop purchase and marketing. However, shortly after the Credit was signed. TAT was established (as had been recommended by the appraisal mission) and took over responsibility for crop development, training, research and marketing. The Tanzania Rural Development Bank (TRDB) was given responsibility for the extension of credit. The Project became effective in January 1971. 2.21 The project quickly encountered difficulties. The settlement of farmers fell behind schedule as a result of government pressures on farmers to undertake collective tobacco cultivation and curing. A full review of the project was carried out in late 1972, and this resulted in recommendations for the reallocation of the credit to allow for more elaborate village water supply systems, and for rephasing of physical development and costs. The gov- ernment also took steps to remedy the situation. Most importantly, it agreed that the type of cultivation and curing system within each village settlement would be decided by the settlers themselves. Thereafter, recruitment of farmers increased markedly. 2.22 By the 1976/77 season, the number of settled farmers was over 11,300, or 81 percent of the revised estimates. However, only about 7,000 of these have started growing tobacco (49 percent of revised estimates), and the tobacco area was only 31 percent of revised estimates. Estimated tobacco yields, at 774 kg/ha, were 5 percent less than estimated, but are some 30 percent higher than national average smallholder yields. The average quality of tobacco pro- duced was also higher than the national average. Tobacco production from the project in 1976/77 is estimated at only 30 percent of the revised estimates, and is only about 10 percent of total Tanzanian flue-cured tobacco production, rather than the 47 percent anticipated. Although the amount of tobacco so far grown is disappointing, the project has established settled farming in an area of previously largely unoccupied land, and has contributed substantially to food grain production, with maize production from the tobacco complexes esti- mated at 15,000 tons in 1976/77. The fact that farmers are settled forms a base on which to expand tobacco production in the future. TAT is intensifying its agricultural extension work in the project area, in order to encourage expanded production. It is anticipated that, over the next few years, produc- tion from the project should begin to represent an increasingly significant part of total national production. A mission to prepare a Project Completion Report visited Tanzania in March 1978. - 16 - Tobacco Processing Project (Credit 658-TA) 2.23 An IDA credit of US$8.0 million was approved in September 1976 for a project including provision for improvement and enlargement of the exist- ing processing line and installation of a completely new processing line at Morogoro, construction of new storage facilities and basic infrastructure at Morogoro, technical assistance and training, and a study of further tobacco processing investment requirements. Overall responsibility for Project imple- mentation, including procurement, rests with TAT, which delegates responsibil- ity for day-to-day Project activities at Morogoro to the Tanzania Tobacco Processing Company (TTPC), a subsidiary of TAT. 2.24 The credit became effective in February 1977. Most contracts for project equipment have already been awarded, and machinery installation com- menced in November 1977. However, it has become apparent that more additional storage space will be required than envisaged during appraisal and provided for under the project. The new processing line will occupy almost twice the anticipated area, the hand-stripping process has had to be transferred to a storage area, and the temporary sheds will not remain serviceable after 1980, as was thought as the time of appraisal. Hence, this proposed Project con- tains provisioni for the construction of additional storage facilities at Mc,rogoro (para 4.23). III. THE TOBACCO AUTHORITY OF TANZANIA A. Organization and Staffing 3.01 The Tobacco Authority of Tanzania (TAT), which would be is the prin- cipal entity responsible for organizing and managing the Project, was estab- lished under the Tobacco Industry Act of 1972, to succeed the Tanganyika Tobacco Board. The responsibilities and duties of TAT have developed over time, from the relatively limited involvement of the Tanganyika Tobacco Board, with exports being marketed through foreign agents, to TAT's present overall responsibilities for input distribution, crop procurement and sale, and for the organization and development of smallholder tobacco production. TAr is the sole owner of the Songea fire-cured tobacco processing factory, and of the Tanzania Tobacco Processing Company (TTPC), which owns and operates the Morogoro processing factory. Until July 1977, TAT also had responsibility for operating the Tiumbi Tobacco Research and Training Station in Tabora Region, but this is now the responsibility of tne Ministry of Agriculture (Kilimo). 3.02 TAT comes under the direction of Kilimo. It is headed by a Board of Directors, comprising nineteen Directors who are appointed by the Minister of Agriculture. The Board includes the Regional Development Directors of the three principal tobacco producing regions (Tabora, Iringa and Ruvuma Regions), representatives of the Ministries of Agriculture, Finance and Trade, and a number of tobacco growers, selected by the Minister of Agriculture. The Board is chaired by an Executive Chairman, but responsibility for the day to day operations of TAT rests with the full-time General Manager. - 17 - 3.03 TAT's present organizational structure is shown in Chart C-1. TAT's headquarters staff at Morogoro is divided into four functional depart- ments: (a) Manpc--- --UN-/.< KE f: r rl A, --''-;- - A 7I' 76 r t~~~~~~AWANIA ;;z - * ti j f L o r <3gV / C 0 R /A g r Bukoba TrriN | TOBACCO ANDNG PROJ . EJEC S~~5ir-r- U vu t AL tAA1k0 * 'Bukino U ' *amiremA Bi1 e1 rit r - 2 Luguru Olduwai 7gSfii0t03Wl ! //iUir W X S alikungu Mondu Ui - X hin, I\9! ,-\ MAN YARA - \ NZIBAR )r r [ rw r \> i~~~/ 9~___t y; > i ¢ rz1/9t /Rungwa ) ' '' \ 9,~~~AR EqS SALAAM 11 0 o X X 4>MSK+yna M uua Mceke 4 1 .X ,i ( bL I"I w OK. S.nanna*aFaUr\, A4 U t MdKBrakpnOflanCAna ~ ~ ~ ~ ~ ~~~~~~~al Ki9 Singid - -V -u Nachingwed T iSan 'aIo nr.C K,;n d any' - Cj ,.,f; t - ~ ~ ~ -m 9/ itm~ Ba t; t4OZAs, h lP ~ ~ B=IqNEwuc,< ;. Lt A g - P - P U = = w E S S ;bS L - z z r r * eb F s \ s nu o n u . 4 ri K q -u X5 LrUwtt 1SQmcsy,<)4e tIPU<5 o;"l L 1 | 1 _ Q At = i | L _ $ E 1 ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ MB