Tanzania - Economic development and prospects (Vol. 2 of 4) : Volume II

RESTRICTED Report No. AE-26 FLE copy This report is for official use only by the Bank Group and specifically authorized organizations or persons. It may not be published, quoted or cited without Bank Group authorization. The Bank Group does not accept responsibility for the accuracy or completeness of the report. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION THE ECONOMIC DEVELOPMENT AND PROSPECTS OF TANZANIA (in four volumes) VOLUME II ANNEX I: AGRICULTURE AND RURAL DEVELOPMENT ANNEX II: TOURISM ANNEX III: URBAN DEVELOPMENT AND HOUSING June 22. 1972 Eastern Africa Department  CURRENCY EQUIVALENTS 1 Tanzanian Shilling = U.S.$0.14 1 U.S. Dbllar = Sh 7.14 This report is based on the findings of a mission which visited Tanzania during August/September 1971. The mission consisted of the following: Messrs. Lyle M. Hansen (lission Chief); Pieter Bottelier (general economics); John Cleave (agriculture); Andrew Hayman (tourism); Esref Erkmen (power); Raimundo Guarda (consultant on housing and urban development).  ANNEX I AGRICULTURE AND RURAL DEVELOPMENT TABLE OF CONTENTS Page No. A. Background ........ ............................ 1 Agriculture in the Economy ..... ............. 1 The Second Five-Year Plan ..... .............. 1 B. Commodity Production and Prospects ............ 2 Cotton .......... .............................. 2 Scope for Production Increases .............. 4 A Cotton Compaign ........................... 7 Coffee .......... .............................. 9 Crop Prospects .............................. 10 Sisal ........... .............................. 11 The Future of Sisal ......................... 12 Cashew .......... .............................. 13 Increasing Returns to Cashew .... ............ 14 Tea . .......................................... 15 Expansion Prospects ..... .................... 16 Flue-Cured Tobacco ............................ 17 Development Plans ........................... 17 Other Tobacco ....... .......................... 18 Pyrethrum ............... ...................... 19 Oilseeds ......... ............................. 21 Copra and Copra Oil ...... ..................... 23 Wheat ........... .............................. 23 Maize ....................................................... 25 Sugar ............... .......................... 25 Rice ......... , .............. 26 Paddy Policies ........ ...................... 27 Beef Cattle ........ . , 28 Development Prospects ............ .. ......... 29 Dairying ...................... ................ 30 Dairy Projects ...... ........................ 30 Fisheries ..................................... 31 Forestry ...................... ................ 33 C. Summary of Export Growth Prospects ............ 34 D. Services, Programs and Policy Issues .......... 36 The Ujamaa Village Program ..... ............... 36 Progress in Ujamaa Development . ............. 36  TABLE OF CONTENTS (Cont'd) Page No Economic Impact ...... i. .................... 40 Mobilization and Services ................ . 41 Problems .............................. 42 State Farms ............. ...................... 43 The Present Position ........................ 43 Prospects .............. .. .. ............... .... 45 Tractor Mechanization ti......... a... t........... 46 Problems of Mechanization ................... 46 Mechanization in Tanzania ................ ... 48 Marketing, Cooperatives, and Prices ...... ..... 50 Problems in Marketing ................... .... 50 Current Action .............. ... .. . .......... .. 54 Regional and Rural Development ................ 55 Kigoma Region ......................... ...... 57 Irrigation ............ ......... 60................... 59 Progress in the Second Plan ...... o........ o. 59 Future Action ....... ................... . . 60 Research.. ........... . .. ...... .... 60 Census of Agriculture ......... o.............. 64 Organization, Services, and Production Programs 64  ANNEX I Page 1 A. Background 1. Agriculture in the Economy. Agriculture and related activities continue to make up the largest single sector in the Tanzanian economy. In 1970, 40 percent of GDP was derived from this sector, and rather over half of the value of the sector's output was derived from subsistence production. In 1970, agricultural exports 1/ accounted for 77.9 percent of national total. Coffee, cotton and sisal are the major foreign exchange earners. About 94 percent of the country's population of 13.2 million live in rural areas and 90 percent of the economically active people are engaged in the agricultural sector. Except for population, which is growing at about 2.7 percent p.a., these figures have not changed significantly in recent years. Land is gen- erally plentiful, but there is localized population pressure on Mt. Kilimanjaro, in the Usambara and the Southern Highlands, and in the Lake Victoria basin. 2. Most production is from smallholdings, cultivated by hand using family labor. Large scale agriculture is represented by estates, engaged in sisal, coffee, tea and coconut production; and State Farms, mainly in wheat, rice and livestock. Estate production has diminished in importance particularly as sisal has declined, and the State Farm program remains small. Tanzania's national herd of 13 million cattle is the second largest in Africa. The herd is largely of Zebus, grazed extensively over the 40 percent of the country which is free from tsetse infestation. There is limited use of oxen for cultivation, mainly in the western cotton areas. Tanzania is largely self-sufficient in staples, but 11 percent of total imports in 1970 were foods among which dairy products, wheat and maize were major items. 3. The Second Five-Year Plan. The emphasis in SFYP is on rural de- velopnqent. The major aim of the Plan is to make significant progress towards socialist organization of rural activity, based on ujamaa vijijini. State Farms fill a need for larger scale production units, but the approach to mechanization is to be cautious, based on proven viability. A similar cau- tion is expressed towards irrigation development. Agricultural production is to be increased within a framework of crop priorities based on production possibilities, market prospects, and a desire for increased self-sufficiency. High priority is given to raising nutritional standards in the country, and to the expansion of selected export crops including cotton, flue-cured to- bacco, tea, oil-seeds and cashewnuts. Sisal, pyrethrum and coffee are given lower priority. Increased efficiency in production is noted to be important for wheat and maize, and quality improvements are important to tea, flue- cured tobacco, cashewnuts and coffee. A vigorous policy for the development of public marketing institutions is foreseen, and cooperatives are to play a central role in primary marketing. 4. The previous Bank economic mission to Tanzania was in the country shortly after SFYP was launched. The mission made a close appraisal of the 1/ SITC sections 0, 1, 2 less 27 and 28, and 4.  ANNEX I Page 2 Plan proposals for agriculture and rural development, but performance under the Plan obviously could not be appraised. This Annex focuses on progress so far, rather under half-way through the Plan period, and attempts to out- line prospects by the end of that time. Production and prospects of major commodities are dealt with in Section B. Some of the more important pro- grams and current policy issues are discussed in Section D. B. Commodity Production and Prospects 5. Recent commodity production levels and performance and prospects for major commodities in the SFYP period are discussed below. A summary view of agricultural growth prospects and its effect on the economy is given in Section C. Cotton 6. In recent years cotton has given way to coffee as Tanzania's most valuable single crop and highest export earner. It has, however, the great- est potential for absolute growth of any agricultural product in the country. The Mwanza, Shinyanga, Mara and West Lake Regions, around Lake Victoria, accounted for 96 percent of production in 1969/701/. Production is very variable. Peak production was in 1965/66, a year of exceptionally favorable weather, when over 436,000 bales 2/ were ginned and this level was approached in 1969/70, another climatically good year. However, average production is well under 400,000 bales which was taken as the base output for the first year of SFYP, and a long way short of the SFYP trend target of 615,000 bales by 1974. 3/ Over the past decade production has about doubled, but the growth has been far from steady. if this average rate of expansion were to continue, the target would not be achieved until 1971 or 1978. 1/ The cotton growing season in Tanzania starts with planting in late November or in December and ends with harvesting in May to August in the following year. The season referred to throughout this report is this growing season: in this case the year of harvest, 1970. The LSMB records a season which refers to ginning and selling, and would in this case be 1970/71. 2/ All bale figures used in this report are standard bales of 400 lbs net weight. Running, or actual bales, reported by LSMB, are heavier by up to 5 percent. 3/ SFYP, Volume I, p. 197. The Plan is inconsistent on this, however, and quotes 700,000 bales in Volume II, p. 57, and 700,000 in climatically favorable years in Volume I, p. 44. 700,000 bales was quoted by Tanzania as the target at the Inter-Cotton Advisory Committee meeting in May/ June 1971.  MANNEX I Page 3 Table 1: COTTON PRODUCTION AND EXPORT VALUE Production Export Value./ Actual 3-yr Average Season ('000 bales of 400 lbs) (Sh million) (% of Exports) 1960/61 167.5 190.0 154 14.4 1964/65 370.1 365.5 256 17.2 1965/66 436.2 366.8 350 19.8 1966/67 294.2 337.8 251 14.5 1967/68 283.1 323.5 283 16.9 1968/69 393.2 366.5 235 13.3 1969/70 423.2 383.9 247 13.4 1970/71 335.9/2 - n.a. n.a. /1 In calendar year in which production season ends. Includes inter- territorial trade. /2 Provisional. Source: Kilimo and East African Customs and Excise. 7. The last Bank economic mission considered the 700,000 target ambi- tious and in its report noted the need to overcome a number of problems if this was to be achieved. These included: (a) the lack of an integrated cotton production campaign; (b) a low input of agricultural staff in the cotton areas, poor quality of staff, and inadequate liaison between extension and research; (c) an expected 15 percent decline in world cotton prices for 1969-74, likely to be reflected in producer prices; (d) alternative cash crops competing for resources in the cotton area, and receiving emphasis in Kilimo programs; (e) a low use of fertilizers and insecticides. 8. There has been little change in the average level of production of cotton since the last mission, and to the problems noted - all of which re- main- may be added a short-term but critical shortage of trucks which seems  ANNEX I Paged to have affected distribution of seed for the 1971/72 crop, and may affect collection of the crop in 1972; and possible disruption caused by the reor- ganization of the Nyanza Cooperative Union (NCU). There is little chance that the Plan target will be met even with a major effort to increase pro- duction, and no prospect of it being reached without such an effort. The 1970-71 Economic Survey refers to A major exercise, under way by Kilimo, to increase cotton production. Little evidence was found of any consistent and concentrated effort, however, in spite of the fact that achieving the higher cotton target could gross an increment of Tsh 200 million ($28 million) a year in foreign exchange, compared with anticipated increments of Tsh 82.1 million ($11.5 million) by 1978 from tobacco developments and a projected Tsh 6.4 million ($8.9 million) at maturity (about 12 years) from a recently negotiated tea credit. Increases are possible both from expansion of area and intensification. 9. Scope for Production Increases. There are no reliable figures on which to judge past changes in area or yields. Overall yields have increased in the last 3 decades almost entirely as a result of improved seed, but it seems that most recent growth in production has come about from area expan- sion. Continued increases in area can only take place in limited areas. Some can be anticipated in new areas of Mara, Tabora and West Lake Regions, and a limited extension of area within the present cotton-growing areas of Shinyanga and Mwanza Regions. Continued expansion of area at the rate of population growth in Mwanza and Shinyanga, and at the trend rate of produc- tion increase (7.2 percent) in all other areas implies an expansion in pro- duction of about 45,000 bales in 3 years from this source. 10. Further area expansion could come about if farmers who have recently shifted from cotton production into rice and maize return to cotton growing. The two crops compete directly with cotton for labor time, and have been fa- vored by relatively high statutory prices. Between 1965/66 and 1968/69, the price of rice to farmers rose by about 25 percent, and production costs are just double recent quotations for major foreign producers. 1/ In contrast cotton prices rose only 10 percent in this period and remain as much as one- fifth below the levels of the 1950's and early 1960's. The rice price policy has probably cost considerable cotton exports as well as depriving consumers of relatively cheap food. The area transferred to rice production has not been established. One considered estimate is that 1970/71 production was down 68,000 bales as a result of the relatively favorable price of rice. Paddy purchases from the combined Mara, Mwanza and Shinyanga Regions in the last 6 years are recorded as follows (m tons): 1965/66 1966/67 1967/68 1968/69 1969/70 1970/71 4,340 3,420 5,820 11,650 15,620 18,000 (est.) 1/ Malawi, 1969: $66.14/m. ton at central depot. Madagascar, 1967 $65.00/ m. ton, delivered mill, compared with $127 ex main agents store in Tanzania.  ANNEX I Page s Wice prices should be cut, but not too rapidly for fear of over-reaction by producers. A feasible rate of change of policy on rice prices could possibly rr-aulj in an increase of 210,000 bales by the end of the next three years: nore if this was combined with increases in producer prices for cotton. il. Yield increases will come about from use of new seed varieties, application of fertilizers and spray, and improved management. Plans exist for the distribution of UK 69 seed to cover an area currently producing 180,000 bales. A 20 percent increase in yields from improved seed would give an in- crement of 36,000 bales. The acceptance of fertilizer and spray would depend on relative prices of the inputs and cotton, the proven increments from fer- tilizers, the effectiveness of the ultra-low volume (ULV) sprays on which ex- perlrents are being conducted, and the coverage and quality of extension staff. 12. Fertilizer recommendations for the Western cotton zone are the ap- nilcatton of 125 kg/ha of amonium sulphate or its equivalent, plus 125 kg oe n:ingle superphosphate per ha, for a total cost, at present unsubsidized prices, of about Tah 150/-ha. This is a blanket recommendation for the whole of the zone. The average increment to be expected from small farms does not appear to have been established. On experimental plots increments of 23-30 percent are obtained regularly. This is on early planted, correctly spaced, sprayed cotton on which the average yield of control plots is typ- ically at least twice that of the average on farmers' plots in the Western Cotton Growing Area (WCGA). Applied to the average yield in WCGA of about 500 kg/ha, a 25 percent increment would barely pay for the fertilizer: a fuil 50 percent would leave about Tah 150/mha to cover extra labor for fer- tilizer application, interest on any loan, profit, and risk. 13. Risk is a very important element in farmers' decisions, and will be viewed relative to income expectations. Given the wide range of climatic and soil conditions in WCGA, the individual farmer is exposed to considerable risk of under or over applying fertilizer and not achieving a worthwhile re- turn in consequence. More locally, specific recommendations should be de- velcoped for sub-areas or Districts to reduce this risk. Fertilizer use is thought to have been applied to only about 15,000 ha in recent years. Even if this reached 40,000 ha in the next 3 years, the increment would only be about 9,000 bales. High acceptance rates are, however, unlikely without more specific, lower risk, recommendations. Once these are made they should be adhered to, because another problem met with in WCGA is that recommenda- tions have changed frequently in recent years, confusing farmer and extension worker alike. A proposal for strengthening soil analysis facilities has been wade, and this combined with existing research results is believed to be enough to enable refinement of present recommendations. Resources should be devoted t.o this work; but it cannot have much impact within the remaining 3-year pe- riod of SFYP. 14. Tanzania has been quick to see the advantages of ULV sprays. In pilot projects ia 1970/71, 800 ha were sprayed, and a further experimental program for 1971/72 will treat 2,000 ha. Rather extravagant claims have  ANNEX I Page t_ been made for the increment to spraying - about 1,500 kg per ha. A more realistic level would oe 250 kg/ha. The UNV technique increases acceptance because the rate of application can be 6-8 times that using conventional hand pumps with water-soluble high volume sprays, and the task of drawing 30 gal- lons of water per ha - a grave disincentive to correct spraying in the con- ventional system - is avoided. TIhe organizationi of spraying teams will take time to develop, and it is doubtful whether more than 20,000 ha or 5 percent of the planting can be fully covered by 1974, and to be effective this must also receive fertilizer application. An increment of 10,000 bales could come from this source, however. 15. An element in the acceptaice rate for fertilizer, spray and im- proved management techniques - wnich are needed to complement the new inputs - is the coverage by extension staff botlh in numbers and quality. There appears to be one extension worker to every 1,000 farmers in the cotton zone, a poorer ratio than in the uountry as a Whole. Surveys have sheown that even cursory contact is made with only 30 percent of farmers in the area in any year, and that the quality of the adv'ice givent is often unsatisfactory. Increases in numbers of staff may help boost cotton production: reorganization of the extension system - as, for example, is proposed in ujamaa villages: and better maintenance of skills, supervision, aud follow-up could increase ef- fectiveness of existinLg staff. However, the i,mfpact of aa extension service will depend above all on the economic viability of the recommendations being made. The yield increases reliably expected from fertilizer and spray ap- plication, from modifying the timing of operations, from better land prepara- tion or weeding, must give returns of several times the farmers' cost if the improvements are to be accepted. Generally, this has not applied to the recommendations made in WCGA. The full benefit of individual recommendations is, however, only achieved when the other improvements are also made. This is the argument for a package approach to the provision of inputs and exten- sion advice, an approach which would be eminently suited to the WCGA where a high proportion of farmers are engaged on the same crop. A number of differ- ent packages could be designed to fit varying coniditions, although to be effective the quality of extension staff would have to be improved by re- training and closer supervision. 16. The value of returns, and acceptance of new ideas will be effected by the prices paid to farmers. In the face of falling world prices, increas- ed prices to growers may not be possible by the mid-1970's. A temporary halt in the decline, occasioned by a world shortage of cotton, allows this to be done if export duties are drastically cut, or removed, and marketing and ginning made more efficient. Export duty takes about 7 cents/kg seed cotton from the farmer, and it has been estimated that a further 6 to 9 cents/kg could be pared from primary society and ginninig costs. A recent estimate put the price elasticity of supply of Tanzania cotton at 2.44, but the price in this case is a long-term "normal" expectationi. If this is accepted an increase in price by 4-5 cents/kg seed cotton, maintained through the plan period, could lead to a further 35,000-40,000 bales increase by about 1974. Because cotton prices are expected to fall, producers prices  ANNEX I Page 7 probably could only be raised and held by this amount if the export duty were paid into a stabilization fund which could be run down as prices fell. 17. In summary, a crude estimate of possibilities for production in- creases in the immediate future would be: (a) Area expansion (i) new land opened up 45,000 bales (ii) reduction in rice price 20,000 " (b) Yield increases (i) improved seed 36,000 R (ii) fertilizers 9,000 (iii) ULV sprays 10,000 Vc) Area and yield response to price increases 40,000 160,000 or anything from 100,000-200,000 bales. Variations in weather conditions can cause 100,000-bale changes in the crop from year to year, but a normal year in 1974 may be looked upon as 540,000 bales; a good year perhaps 580,000 bales. This is 75,000-120,000 bales short of the target figures but assumes a continuation of present efforts plus revisions of price policy. There se-cas to be very little chance that the target will be reached on schedule, and clearly a renewed effort needs to be made to reach and surpass this in the near future. 1i. Diversion for domestic consumption has increased recently to about 110.000 bales a year. This could rise to about 130,000 bales by the end of S'-YP, leaving 410,000 bales for export, or 450,000 in a favorable year. 19. A Cotton Campaign. The previous Bank economic report set out niae recommendations for lines of action on a cotton campaign. Principal among them are: (a) a drastic reduction or elimination of the export duty on cotton; (b) the appointment of an Interregional Committee to draw up a campaign to increase cotton production; (c) the development of a "package approach" as part of the cam- paign; (d) an examiination of the feasibility of introducing a subsidy on insecticides for a definite period;  ANNEX T Page 8 (e) mounting a full farm management survey in WCGA; (f) accelerated itterpretation of fertilizer trials to produce district-level recommendat