Tanzania's tea sector: constraints and challenges

Tanzania's Tea Sector Constraints and Challenges Africa Region Working Paper Series No. 69 June 2004 Abstract T anzanian tea is grown under two sys- rehabilitating two tea estates, which had tems: by smallholders, on plots averag- been nationalized in the 1970s; restructuring ing less than a hectare, and on large estates, the Tea Board; privatizing the six state tea which often exceed 1,000 hectares. In the factories; and revamping public research on mid-1960s the government introduced steps tea. These policy initiatives have had some to encourage smallholder production, and success, but much remains to be done to by 1985 smallholders accounted for almost fully revitalize the tea sector. Infrastructure 30 percent of total tea output. By the late is still inadequate. The tax structure is too 1980s, however, serious problems were complex, with too many taxes and rates that visible in the smallholder sector and by are too high. Despite the restructuring, the 1995, as the sector's share fell below 10 per- Tea Board and the Ministry of Agriculture cent, it was clear that only broad-based pol- are still too powerful. And trade policy icy reforms could bring the sector back from needs to be revised to allow imports of the brink. made tea. The government attempted to revive the sector in the early 1980s by privatizing and The Africa Region Working Paper Series expedites dissemination of applied research and policy studies with poten- tial for improving economic performance and social conditions in Sub-Saharan Africa. The Series publishes papers at preliminary stages to stimulate timely discussion within the Region and among client countries, donors, and the policy research community. The editorial board for the Series consists of representatives from professional families appointed by the Region's Sector Directors. For additional information, please contact Paula White, managing edi- tor of the series, (81131), Email: pwhite2@worldbank.org or visit the Web site: http://www.worldbank.org/afr/wps/index.htm. The findings, interpretations, and conclusions expressed in this paper are entirely those of the author(s), they do not necessarily represent the views of the World Bank Group, its Executive Directors, or the countries they represent and should not be attributed to them.  Africa Region Working Paper Series No. 69 Tanzania Tea Sector Constraints and Challenges John Baffes June 2004  Authors'Affiliation and Sponsorship John Baffes Email address: jbaffes@worldbank.org T his paper is part of a larger effort by the Africa Region in collaboration with the Development Prospects Group to assess the performance and identify policy impediments of Tanzania's ex- port crop sectors. The views expressed here should not be attributed to the World Bank. I would like to thank Takamasa Akiyama, Betty Dow, Donald Mitchell, Hans Timmer, and Nanae Yabuki for comments and suggestions on earlier drafts. I am grateful to Ria Ketting, George Kyejo, S. H. Mijinga, Bruno J. Ndunguru, Hadija Shakombo, R. J. Surrey, and staff at the East Usambaras Tea Company for the valuable information obtained during interviews. I would also like to thank the World Bank country office staff in Dar es Salaam, especially Ladisy Chengula and Gloria Sindano.  Table of Contents I. Introduction.....................................................................................................1 II. A Brief History of the Tea Industry in Tanzania...............................................1 III. The Road To Recovery.................................................................................... 4 Rehabilitating the East Usambaras Tea Estates.......................................................................... 4 Separating Regulation and Smallholder Promotion.................................................................... 5 Privatizing Tea Authority-Owned Factories............................................................................... 6 Reviving Research ...................................................................................................................... 6 Restructuring the Local Tea Blending and Packing Industry..................................................... 7 IV. Recent Performance and Constraints..............................................................7 Import and Export Bans Increase the Burden on the Tea Sector................................................ 8 Taxation Is Too Complex and Rates Are Too High ................................................................... 9 The Tea Board and the Ministries Have Too Much Discretionary Power ............................... 10 Infrastructure Is Inadequate ...................................................................................................... 11 V. Conclusion ....................................................................................................12 Appendix A: The World Tea Market..................................................................... 20 The Global Balance................................................................................................................... 21 Tea Prices.................................................................................................................................. 21 The Mombasa Tea Auction....................................................................................................... 22 A Liberal International Policy Environment............................................................................. 24 Moderate Growth in the Long Term......................................................................................... 25 References........................................................................................................... 36 Box Box 1: Box 1: Tea Estate Production--Brooke Bond Tanzania, Ltd............................................. 13 List of Tables Table 1: Production and Yields of Made Tea by Sector, 1975/76