Agriculture in Tanzania Since 1986: Follower or Leader of Growth?

Abstract

Agriculture in Tanzania since 1986: Follower or Leader of Growth is organized in nine parts. In addition to the executive summary which outlines the main findings and key messages, Chapter One addresses the main agricultural controversies in Tanzania's development strategy, outlined earlier. The analysis in the report establishes that agriculture can be an engine rather than a follower of growth in Tanzania and the pivot for poverty reduction. The sector has higher multiplier effects especially through forward linkages than other sectors, the actors in it are responsive to changes in incentives associated with the macroeconomic and policy reforms implementeds o far; and with widev ariationsa cross crops overalla gricultureh as posted a modest growth performance after reforms but somewhat less than implied by the national accounts data. Chapter Two traces the evolution of public policy affecting agriculture and its impact on the sector's performance in Tanzania. It reviews the evolution of sector policy regimes, from unregulated grain and export markets to cooperative-based marketing to centralized crop authorities and back to relatively unregulated markets. On the macroeconomic side the evolution of the exchange rate policy, trade taxes, fiscal stances play a particularly prominent role in shaping agricultural incentives. It is difficult to interpret current policy debates and recent agricultural performance without an understanding of the evolution of these policies. Analysis of government expenditure on agriculture is also included in this chapter. Chapter Three analyses the impact of the evolving output price incentives for agricultural production since 1986. Specifically it recognizes that the combination of evolving policies towards agriculture and towards the macro economy, the state of infrastructure, the degree of commercialization, weather trends, and shifting world prices have all jointly altered, fundamentallyt,h e structureo f outputp rice incentivesf acing agriculturalp roducersi n Tanzania. It also focuseso n the effecto f these changeso n agriculturalp roducersa nd consumerso f different goods. In addition, the chapter assesses the extent to which parts of Tanzania's agriculture are insulated from world price movements, while others are directly linked to world markets. The chapter concludes by a review of trends and issues on the cost side of agricultural production, and brings the evidencet ogethert o assess evolvingf inancialp rofitabilitya nd comparativea dvantage for specificm ajor crops in Tanzania.T he report identifiest he movementi n the real exchanger ate to be a prime determinanti n the time pattem of the profitabilityo f tradablec rops. Chapter Four analyses the costs and returns to crop production in Tanzania. Relativeoutput prices are only half of the picture regarding incentives; equally important are costs of production. Costs of production depend on the prices of purchased inputs, the cost of primary factors of production such as labor and land, the availability of skills and technology, and the institutions, including functioning markets, to make all these items available to producers. In the absence of technologicalc hange, short term changesi n the cost of productionw ill be determinede ssentially by changes in relative prices, actual use of purchased inputs, and by changes in the opportunity costs and use of primary factors. This chapter recognizes that these items changed greatly for different crops over the period in Tanzania. In addition, the costs of marketing outputs and procuring inputs also changed significantly over the period. Even though these changes can be expected to show up in lower producer prices and higher input costs at the farm-gate, the magnitude of marketing costs as a share of prices received and paid by farmers suggests that it is a key factor in influencing the cost formation at the farm level and overall profitability of the sector. Chapter Five focuses in greater detail on the controversy of what has actually been the performance of Tanzania's agriculture. It is recognized that evaluating the impact of policy reforms on the performance of the agricultural sector in Tanzania is not easy since the mid-1980s when the first economic reforms were implemented because of a number of limitations and inconsistencies in Tanzania agricultural data and the usual problem of absence of a proper counterfactual. As stated earlier, the 1998 OED report had noted that estimates of the annual growth in agricultural output between the mid-1980s and the early 1990s vary between I and 5 percent. The study, after reconciling various data sources and using indirect performance indicators, concludes that the sector's growth post reforms averaged 3.3 percent, a modest but considerably better performance than earlier. There were significant differences across crops but generally export crops performing much better than food crops and within food crops those whose demand rises with income level fairing much better than the others. The chapter also assesses performance of the livestock and fisheries sub-sectors since the onset of reforms. Chapter Six analyses the extent of rural poverty and the status of food security in Tanzania. The study recognizes that progress in reducing poverty, food insecurity, and malnutrition in Tanzania is highly dependent on the performance of the agricultural sector for two reasons. First, poverty is primarily a rural phenomenon. The incidence and severity of poverty is twice as high in rural areas as in urban area, urban incomes are 2-3 times greater than rural incomes, and rural households lag behind urban households in almost every indicator of the standard of living. The study concludes that since 1986 the trends in poverty and nutrition are generally positive or neutral. Household survey data suggest that rural incomes have risen and poverty rates have fallen between 1976 and 1993, the latest year for which national household budget data are available. Furthermore available evidence indicates that nutrition has either improved or has remained unchanged since the mid-1980s when the reforms were implemented. Nutrition surveys reviewed in the study show a decline in the rate of stunting among children (a measure of chronic malnutrition), while wasting (a measure of recent or acute malnutrition) rose slightly. Nonetheless, the chapter concludes that the levels of poverty and malnutrition remain high by international standards and improved agriculture remains a key to reduction of both. Chapter Seven explores the linkages between agriculture and the rest of the economy. The section applies the method of Domestic Resource Cost Ratio (DRC) in working out the partial equilibrium and the attendant multipliers. Addressing the issues in this section involves defining whether agriculture is the leader of growth, in the sense that it comes first and provides the necessary stimulus to the creation of other economic activities, or whether it is the follower of growth. The study finds the linkage to be particularly strong for export agriculture with a shilling worth of income from this source leading to shillings 1.8 increase in overall GDP. It is also emphasized that for agriculture to be an engine of growth in a small, largely open economy, at least some of its major products must lie within the comparative advantage in production of the country. Furthermore, this chapter reiterates that comparative advantage activities are the only economically sustainable ways to bring in new resource inflows into the country. The chapter confirms Tanzania's strong comparative advantage in traditional export crops and maize as well as paddy among food crops even as the country is diversifying its export base. Finally, Chapters Eight and Nine summarize the main conclusions and a list of references respectively.