THE COMPATIBILITY OF TRADE POLICY WITH DOMESTIC POLICY INTERVENTIONS AFFECTING THE GRAINS SECTOR IN

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THE COMPATIBILITY OF TRADE POLICY WITH DOMESTIC
POLICY INTERVENTIONS AFFECTING THE GRAINS SECTOR
IN TANZANIA

• Andrew E. Temu
• Sokoine University of Agriculture

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Trade Policy, Food Crops Marketing and Trade

• CORNERSTONES OF THE TRADE POLICY
• The National Trade Policy 2003
• Developed to oversee a competitive economy and
  export led growth
• Recognizes
• importance of trade openness in raising
  efficiency and productivity
• the need to go beyond reduction of tariff and
  non-tariff barriers
• The need for appropriate sector policies
• The need to transform agriculture
• and accords due weight to supply-side constraints
• Envisions
• - a role for the government in selective
  interventions
• efforts to conform to WTO rules and regulations
• Amongst goals
• Attaining 14 annual growth in trade, and
• exports contribution to GDP 25

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Practical Political Challenges, Market
Interventions and Trade

• Objectives of domestic markets interventions
• reduction of price uncertainties to producers
• stabilize farm incomes
• protect farmers from exploitation by private
  dealers
• reduce income inequalities between rural urban
  areas and between regions
• provide adequate food to urban population at
  reasonable prices and hence maintain political
  stability,
• extract agricultural surplus for the development
  of other sectors of the economy (taxation even
  at LGAs),
• guarantee foreign exchange earnings
• Political Dilemma in Grains
• Farmer Income v/s Urban Dwellers Food security
• Taxation for development versus lowered farmer
  income
• Food security intervention strategies versus
  production incentives
• Strategic grain reserve
• Food aid and food aid counterpart funds

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Restrictions of in-country regional Grain Flows
and Cross Border Trade

• Tanzania, overall is food secured,
• When there is production failure, mainly because
  of rainfall failure
• The Most common reaction has been
• Restricted movements of grains
• Often not based on critical analysis on the
  ground
• At times allowable volumes are stipulated e.g.
  0.5 tons
• Effects
• Denies farmers of income in surplus producing
  areas
• Anti-Market Discourages production for markets
• Enhances subsistence orientation of smallholder
  producers
• Poor enforcement
• Marketing and trade goes on but at high
  transactions costs
• Enhances cross-border trade itself illegal

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Uganda
Productivity and Cross-border Trade
Kenya
Burundi
Rwanda
DRC
Zambia
Mozambique
Malawi
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Informal Cross Border Trade Maize, Rice and
Beans (MT)

• Significant Informal cross-border trade takes
  place
• Often enhanced by restricted domestic grain flows
  at border regions
• Tanzania does both export and import grains
  informally
• Informal cross-border trade, though illegal
  helps in food security
• Tanzania has comparative advantage in production
  Maize
• There is room to tap on this potential
• Tanzania Borders many countries
• Comparative economic advantage in producing maize
• Recommendation
• Formalise Regional Trade as a strategy for food
  security

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Management of Strategic Grain ReserveA
Politically appealing FS strategy tool

• Tanzanias SGR
• Strategic Reserve Act No 10 of 1991
• 15 Silos, Capacity240,000 MT
• Objective
• Price stabilisation dampening price volatility
• Maintain 150,000 tons of grains
• Adequate to cover 3 months in case of food
  inadequacy to allow importation thereafter
• Criticisms
• suppresses price volatility during buying
• But raises volatility during disposal / release
  time
• Inefficient, currently only 24 of the capacity
  is deployed
• It is expensive, imposes pressure on government
  budget
• Analysts suggest regional grain stocks/reserves
  and trade to be a better option
• More analysis, however, is needed both empirical
  and one that accommodates political imperatives.

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Producer TaxationPolitical Dilemma
Decentralisation Devolution v/s Centrally
controlled Taxation

• Tanzania is committed to Decentralisation and
  Devolution
• Much of the development initiatives and resources
  managed at LGAs
• Accordingly, LGAs deserve autonomy in revenue
  generation
• Agriculture is the major pre-occupation in most
  LGAs
• Both export and food crops are therefore subject
  to taxation.
• The tax levels vary across districts
• In the 1992 Finance Act,
• LGAs are limited to tax agricultural products
  only 5 of farm-gate price.
• This is equivalent to an ad-valorem tax rate.
• Though necessary for LGAs income and
  development,
• Taxation is a disincentive to producers,
  especially marketers and trade oriented ones
• What are they paying for is the issue?
• Compounded by deteriorating public agriculture
  services extension
• Enhances subsistence production

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Management of Food Aid and FA Counterpart
FundsPolitical Dilemma Politics Surrounding Aid
to LDCsIn Tanzania, food aid accounts for 90 of
food imports

• Food aid and its effects on local crop production
  sectors A known debate
• A Special Tanzanian example Counterpart food aid
  fund
• Rice, imported and bought/distributed by
  commercial bidders
• Funds generated are intended for supporting
  agricultural productivity
• A political trap to favouring the scheme!
• Problems Fungibility of funds and Inability of
  Govt to police processes
• Unfair bidding and price setting have created
  monopolists in grain marketing and food aid
  counterpart funds
• Generated funds are politically allocated to
  projects
• Non-agricultural most have built schools
  politically appealing with quick results
• Imports effects on local markets
• Imports not coinciding with times of shortage
  depresses domestic prices
• Imported rice fetches lower market price than
  domestically produced
• Imported rice used for reconstituting domestic
  rice, 15 ratio, and sold at higher prices

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However, the lack of Interventions is more
crucial!

• Domestic Market interventions is not the only
  issue
• There not being interventions is more pertinent
  in Tanzania
• There is a broad range of interventions needed to
  address supply side , behind-the-border
  constrains

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Grain Marketing Chain Large v/s Small Scale
Players in the Chain
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Supply Side and Behind-the-Border Constraints-
Boring!- The NTP emphasises but much has yet to
be done

• Scale economies and entrepreneurial skills
• Smallholder Productivity challenge .25 to 3ha of
  low-value-bulk-commodities
• Productivity Inputs supply and use
• Lowest yield levels in the region
• Weak producer and marketers organisations
• Remnants of top down coops very slow emergence
  of strong farmer groups
• Grain post harvest storage
• Only large farmers and traders have such storage
• Agriculture finance bankers dilemma
• Risk Very many small producers, scattered,
  vulnerable to vagaries
• Weather, pests, diseases, markets etc
• Extension
• Decentralisation, lack of BDS providers auguring
  with smallholders
• Market information
• Asymmetrical information smallholders succumb,
  weak bargaining position
• Marketing infrastructure
• Rural roads, storage, etc

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Thank you for your attentionAndrew Temu
Better supply base
Better trade