Tanzania launches initiatives to modernise and expand smallholder agricultural production

Smallholder farmers account for the large majority of agricultural output in Tanzania, making their integration into larger value chains a vital component of the sector’s growth agenda. At present, smallholder growth remains constrained by severe infrastructure deficits that limit access to domestic and international markets, challenges in obtaining and utilising high-yielding inputs such as seeds and fertiliser, limited irrigation and dependency on rainfall, and poor access to credit.

The government is making significant progress in mitigating these challenges as it seeks to modernise and expand agricultural production, with the aim of boosting industrialisation and value-added processing. New lending and microfinance programmes could reach more farmers in the coming years, and private companies have increasingly moved to invest in input provision, including high-quality seeds and fertiliser.

Private investment will play a critical role in boosting smallholder farmer inclusion, most notably through the Southern Agricultural Growth Corridor of Tanzania (SAGCOT) programme led by the World Bank. The project is expected to mobilise $2.1bn of private investment in the near future, with new initiatives expected to be delivered under a public-private partnership framework. Although difficult land acquisition processes may continue to constrain private investment in the sector, recent SAGCOT announcements indicate that the project is set to move forward in 2018 after years of delays, paving the way for improved smallholder inclusion in the area.

Challenges

According to a 2015 report published by the UN Food and Agriculture Organisation, 73% of Tanzania’s population lives in rural areas and the country has a total of 3.7m smallholder farms, a category defined as any plot smaller than the mid-size threshold of 2.2 ha. Smallholder farms account for around 80% of total farms in the country, with an estimated 19m people living and working off such plots. Although these farmers play a vital role in maintaining food security, and supporting export and macroeconomic growth, they face a number of serious obstacles. According to a 2016 report by the International Centre for Trade and Sustainable Development (ICTSD), Tanzanian farmers have been unable to exploit the country’s agricultural advantages, which include a favourable landscape and location, and access to Dar es Salaam, the site of Africa’s fourth-largest port on the Indian Ocean.

Infrastructure Deficit

According to the ICTSD, many smallholder farms are situated in extremely remote locations, with the lack of roads, railways, infrastructure and electricity standing as major growth impediments, limiting access to larger markets.

Although these problems are hardly endemic to Tanzania, they continue to constrain quality improvements and value chain inclusion, limiting the country’s ability to fully capitalise on its abundant agricultural resources. As a result, agricultural productivity has consistently fallen short of the government’s 7% annual growth target. Tanzanian producers often export their produce via Kenya to make use of its more attractive airport tariff rates, less-onerous bureaucracy and well-developed cold storage facilities.

Lending

Limited access to credit also poses a major obstacle for the industry, but especially for smallholder farmers. Lending rates for foreign investors are prohibitively high, at between 14% and 24%, while farmers themselves are often unable to access any financing at all. In May 2017 the Bank of Tanzania reported that agricultural lending contracted by 9.2% in the year ending March 2017, with the sector’s share of total lending in the country down slightly from 6.9% to 6.8%.

Although the government launched the Tanzania Agricultural Development Bank (TADB) in 2015 to provide specialised financing instruments for smallholder farmers, the bank lacks sufficient capital to cater to all farmers in that category. Out of the TSh800bn ($363.9m) of planned capitalisation, only TSh60bn ($27.3m) had been allocated as of May 2017, stated William Ole Nasha, the then-deputy minister of agriculture, livestock and fisheries. The ministry has since been split into two entities: the Ministry of Agriculture and the Ministry of Livestock and Fisheries. According to the ICTSD, the delay in funding raises the possibility that medium-scale farmers who already possess some worthy collateral will be the more likely beneficiaries of TADB lending, and smallholders will continue to deal with the sporadic distribution of rural banks and the limited provision of mobile phone banking.

In addition to establishing the TADB, the government also launched the AgriBiashara (AgriBusiness) five-year agriculture credit strategy in August 2016, with the National Microfinance Bank announcing in the same month that it had set aside TSh500bn ($227.4m) for the sector, with an emphasis on smallholder farmers. Further, in May 2017 the government announced that it had allocated TSh246bn ($111.9m) to the TADB for FY 2016/17, which will be used to help farmers, livestock producers and fishermen obtain concessional loans.

Smallholder Projects

Several recent initiatives aimed at supporting smallholder farmers have been launched by development partners and private companies. In January 2017, for example, Danish NGO ROCKWOOL Foundation announced it had partnered with World Vision Tanzania to train 15,000 smallholder farmers in improved crop cultivation and animal husbandry techniques, with the two-year project expected to cover 41 villages in the country’s Northern Zone.

In the same month, the Agricultural Markets Development Trust (AMDT) announced plans to partner with seed companies to develop up to six new varieties of sunflower seeds, offering improved hybrids to replace the open pollinated variety. Established by the governments of Denmark, Ireland, Sweden and Switzerland, the AMDT plans to deliver its seed project over five years, targeting improved yields and inclusion for roughly 150,000 smallholder farmers, enabling them to capitalise on rising domestic demand for edible oils.

Investment Promotion

Private investment in agro-processing also offers major benefits to smallholder farmers. In a bid to improve slowing export revenues and boost value-added manufacturing production, the government unveiled a host of investor-friendly policies for the agriculture sector.

The Tanzania Investment Centre (TIC), for example, offers incentives to domestic and international investors with a minimum investment value of $500,000. TIC has also created safeguards for smallholder farmers within its investment policies, including mandatory corporate social responsibility requirements such as contributions towards land tenure security for smallholders, infrastructure improvements and joint ventures with local communities.

SAGCOT

The SAGCOT programme is one of the largest agriculture projects ever launched in the country, with perhaps the greatest potential to attract new investment. First launched at the World Economic Forum on Africa 2010 in May, the SAGCOT programme counts dozens of companies and NGOs among its stakeholders, and seeks to attract $2.1bn in new private sector agribusiness investment. It is supported by $1.3bn of planned public sector facilitating investments in infrastructure and related public services.

Within the greater programme, the SAGCOT Investment Project (SIP) focuses its efforts specifically on smallholder farmers. The World Bank announced it had approved a $70m facility for the project in March 2016, which is expected to boost income opportunities for 100,000 of these farming households through expanded partnerships with agribusinesses located in Tanzania’s southern corridor. Upon completion, SIP is expected to benefit more than 500,000 people and engage with up to 40 agribusiness operators.

Early Successes

To strike a balance between investor and farmer rights, the SAGCOT project provides between 3000 and 50,000 ha of land to be leased to investors, significantly mitigating land acquisition challenges. In turn, investors are expected to bring benefits as they implement new investment projects, such as better access to larger markets, improved inputs, extension services and irrigation.

The ICTSD reports that SAGCOT is already having a positive impact on agriculture investment, highlighting local Kilombero Plantations and Tanga Fresh as two companies set to participate in the project. These businesses – which deal in rice and maize, and dairy products, respectively – will benefit from foreign investment for training and producer support.

In other news, Yara International of Norway, a major SAGCOT stakeholder, announced plans in May 2017 to invest $80bn at the Port of Dar es Salaam to improve the port’s fertiliser handling area, which is currently capable of offloading 422,400 tonnes of fertiliser annually. The area has benefitted significantly from the 2016 launch of railway services that have cut shipping costs by up to 40%. These early partnerships are brightening the mid-term outlook and offering critical support mechanisms for the sector, and for smallholder inclusion in the Tanzanian agricultural value chain.