Tanzania - Smallholder Tea Development Project

Document of The World Bank FOR OFFICIAL USE ONLY Aot Report No. 2787 PROJECT PERFORMANCE AUDIT REPORT TANZANIA: SMALLHOLDER TEA DEVELOPMENT PROJECT (Credit 287-TA) December 27, 1979 Operations Evaluation Department This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  FOR OFFICIAL USE ONLY ABBREVIATIONS ADS - Agricultural Development Service Comworks - Ministry of Communication and Works Kilimo - Ministry of Agriculture MT - Made Tea NDCA - National Development Credit Agency NORAD - Norwegian Agency for International Development PMEA - Permanent Mission in Eastern Africa (Now RMEA - Resident Mission in Eastern Africa) TRDB - Tanzania Rural Development Bank TRIEA - Tea Research Institute for East Africa TTA - Tanzania Tea Authority USAID - United States Agency for International Development VP - Vegetative Propagation Thbi document has a rstietod distribution and may be used by recipients only in the performance of their officil duties. Its contents may not otherwise be disclosed without World Bank authorization.  Project Performance Audit Report TANZANIA: SMALLHOLDER TEA DEVELOPMENT PROJECT (Credit 287-TA) TABLE OF CONTENTS Page Preface ............ ........................................... i Basic Data Sheet .............................................. ii Disbursements ................................................. iii Highlights .................................................... iv PROJECT PERFORMANCE AUDIT MEMORANDUM I. Project Summary ..................................... II. Main Issues ......................................... 3 Shortfall in Planting Program ....................... 3 Processing .......................................... 5 Extension ........................................... 7 Viability of Tea Subsector .......................... 7 PROJECT COMPLETION REPORT I. Introduction ......................................... 9 II. Formulation .............................. 10 III. Implementation ........... ................... 12 IV. Project Impact .......... ................... 23 V. Financial Performance ............................. 28 VI. Institutional Performance and Development .... ........ 28 VII. Economic Reevaluation ....... ......................... 31 VIII. Bank Performance ......... ............................ 32 IX. Conclusions . ......................................... 33 Appendices (including Map, at Appendix 1)  Project Performance Audit Report TANZANIA: SMALLHOLDER TEA DEVELOPMENT PROJECT (Credit 287-TA) PREFACE This is a performance audit of the Tanzania Smallholder Tea Develop- ment Project for which Credit 287-TA was approved in February 1972 in the sum of US$10.8 million. Of this amount a total of US$9.4 million *had been dis- bursed by November 1979, the remainder is committed and expected to be drawn down by the Closing Date of December 31, 1979. The audit report consists of an audit memorandum prepared by the Operations Evaluation Department, and a Project Completion Report (PCR), dated April 20, 1979. The PCR was prepared by the Eastern Africa Regional Office on the basis of, among others, a country visit in November 1978. The audit memorandum is based on a review of the President's Report No. P1009 (January 5, 1972), the Appraisal Report No. PA97a (November 16, 1971), the Credit and Project Agreements, (both dated March 3, 1972), and the PCR; correspondence with the Borrower and internal Bank memoranda on the project issues as contained in the Bank files have also been consulted and Bank staff associated with the project have been interviewed. An OED mission visited Tanzania in August 1979. The mission held discussions with officials of the Ministry of Agriculture (Kilimo), the Tanzania Tea Authority (TTA), the Tanzania Rural Development Bank (TRDB), the Ministry of Communication and Works (Comworks), and regional authorities in Mbeya. A field trip to visit some participating farmers was made. The information obtained during that mission was used to test the validity of the conclusions of the PCR and permitted discussions of some aspects leading to the shortfall in the planning program and insufficient processing capacity. A copy of the draft report was sent to the Borrower on October 30, 1979, for comments; however, none were received. The audit finds the PCR generally adequate with respect to the project's principal achievements and shortcomings. The points discussed by the audit have been selected because of their relevance to this and other projects in Tanzania. The valuable assistance provided by the Government of Tanzania, particularly the Tanzania Tea Authority and the Ministry of Agriculture's Project Preparation and Monitoring Bureau, is gratefully acknowledged.  - ii - Project Performance Audit Report TANZANIA: SMALLHOLDER TEA DEVELOPMENT PROJECT (Credit 287-TA) BASIC DATA SHEET KEY PROJECT DATA Appraisal Actual or Item Expect:ation Current Estimate Total Project Cost (US$ million) 16.5 16.8 Overrun (%) 0 2 Credit Amount (US$ million) 10.8 10.8 Disbursed 10.8 9.4 (12/01/79) Cancelled 0 0 Repaid 0 0 Outstanding 10.8 9.4 (12/01/79) Co-lender Kingdom of Norway US$ million financed by co-lender 2.0 2.0 Date Physical Components Completed 1976 1980 Proportion Compreted by Above Date (%) 100 69 Proportion of Time Overrun (%) 0 100 Economic Rate of Return (x) 17 12 OTHER PROJECT DATA Original Actual or Item Plan Revisions Est. Actual First Mention in Files or Timetable - - / /68 Government's Application - 07/ /70 Negotiations - - 09/ /71 Board Approval 01/18/72 01/25/72 02/29/72 Credit Agreement Date - - 03/03/72 Effectiveness Date 06/01/72 - 07/26/72 Closing Date 12/31/76 12/31/77; 78; 79 12/31/79 Borrower United Republic of Tanzania Executing Agency Tanzania Tea Authority Fiscal Year of Borrower July I - June 30 Follow-on Project Name currently being appraised Credit Number Amount (US$ million) Credit Agreement Date MISSION DATA Sent Month, No. of No. of Dare of Item by Year Weeks Persons Manweeks Report Identification IBRD/PMEA 11/68 NA NA NA 11/68 Preparation GOT/USAID 69/70 NA NA NA 07/70 Preappraisal - - - - - - Appraisal IBRD 02/71 NA 6 NA 02/71 Total Supervision I RMEA 11/72 1.5 1 1.5 12/72 Supervision II " 5/73 1.5 2 3.0 06/73 Supervision III 12/73 2.0 2 4.0 01/74 Supervision IV 6/74 1.5 3 4.5 07/74 Supervision V 7/75 1.0 1 1.0 08/75 Supervision VI 2/76 1.5 2 3.0 04/76 Supervision VII 8/76 2.0 3 6.0 09/76 Supervision VIII 4/77 1.0 1 1.0 07/77 Supervision IX 11/77 1.4 1 1.4 02/78 Completion Washington 11/78 1.4 2 2.8 04/79 Total 14.8 28.2 COUNTRY EXCHANGE RATES Name of Currency (Abbreviation) Tanzania Shilling (Tsh) Year: Appraisal Year Average Exchange Rate: US$1 - 0.1435 Intervening Years Average US$1 = 0.1290 Completion Year Average US$1 - 0.1270  Project Performance Audit Report TANZANIA: SMALLHOLDER TEA DEVELOPMENT PROJECT (Credit 287-TA) DISBURSEMENTS Cumulative, Estimated and Actual (US$'000) IDA Fiscal Year Apraisall/ Actual as % and Semester Estimate Actual of appraisal 1971/72 June 30, 1972 2,144 - 0 1972/73 June 30, 1973 4,330 1,300 30.0 1973/74 June 30, 1974 6,927 1,985 28.6 1974/75 December 31, 1974 8,054 3,458 42.9 June 30, 1975 8,712 4,994 57.3 1975/76 December 31, 1975 9,370 5,728 61.1 June 30, 1976 10,197 7,004 68.6 1976/77 December 31, 1976 10,800 7,492 69.3 June 30, 1977 7,659 70.9 1977/78 December 31, 1977 8,749 81.0 June 30, 1978 8,870 82.1 1978/79 December 31, 1978 8,961 82.9 June 30, 1979 9,3452/ 86.5 1/ Adjusted for exchange rate change (see first page of Appraisal Report. 2/ Disbursements as at December 1, 1979, stood-at US$9,413,000.  - iv - Project Performance Audit Report TANZANIA: SMALLHOLDER TEA DEVELOPMENT PROJECT (Credit 287-TA) HIGHLIGHTS The project aimed at expanding tea plantations by about 8,300 ha on 14,000 smallholdings. Specifically, the project was to strengthen the Tanzania Tea Authority (TTA), and to provide for the construction of two and expansion of three tea factories; extension and leaf collection services; construction of about 300 km of roads; establishment and operation of tea nurseries; and provision of credit for farm inputs. Total project costs were estimated at US$16.5 million. Achievements fell short of targets. Only 69% of the targeted area has been planted to tea, with tea production at full development projected to reach 50% to 60% of appraisal estimates. Other project components were implemented in line with the reduced planting program. Main reasons for the shortfall in plantings were over-ambitious targets, weak management during the early project years and Government policies to introduce collective farming and to ban hired labor. The number of beneficiaries, however, at 16,000 participating farmers, exceeded appraisal estimates by 2,000. The recalcu- lated rate of return is 12% compared to the appraisal estimate of 17%. The following points may be of special interest: - insufficient arrangements to strengthen project management (PPAM para. 16; PCR para. 8.02); - farm labor requirements underestimated at appraisal (PPAM paras. 15 and 17; PCR para. 4.13); - presentation of supervision findings in initial project stage was too vague to prompt Bank action (PPAM para. 20); - tea processing problems resulted partly from imbalance between leaf production and leaf processing capacity (PPAM paras. 21-23; PCR paras. 3.07 and 3.08); - tea subsector is economically viable, but Tanzania Tea Author- ity is facing financial difficulties (PPAM para. 28; PCR paras. 5.01-5.03 and 7.02).  Project Performance Audit Memorandum TANZANIA' SI4ALLHOLDER TEA DEVELOPMENT PROJECT (Credit 287-TA) I. PROJECT SUMMARY 1. The Smallholder Tea Development Project was in support of the Government's Second Five-Year Plan for economic and social development, 1969-1974. which aimed at a rapid production expansion of selected cash crops, one of which was tea. The project was identified in November 1968 by a Bank mission. and prepared by consultants, with the preparation report submitted in July 19/0. In February 1971 a Bank mission appraised the project. 2. The project was to expand tea plantations by about 8,300 ha on 14 000 smallholdings in four areas (Rungwe, Lupembe, Bukoba and Usambara) from 1971/72 - 1975/76. Specifically, the project was to strengthen the Tanzania Tea Authority (TTA), and to provide for the construction of two and the expan- sion of three tea factories; extension and leaf collection services; construc- tion of about 300 km of roads: establishment and operation of tea nurseries; and provision of credit for farm inputs. 3. TTA was to manage the project; extension staff was to be seconded to TTA by the Ministry of Agriculture (Kilimo). Credit was to be channeled through the Tanzania Rural Development Bank (TRDB) and cooperatives. Road construction was to be carried out by units established under the Ministry of Communication and Works (Comworks). Project costs were estimated at US$16.5 million of which IDA was to finance US$10.8 million, Norway US$2.0 million and the Government the remaining USS$3.7 million. The economic rate of return was estimated at 17%. 4. Board approval was held up for six weeks by a complaint of a Bank member country on the implementation of the Tanzanian Acquisition of Buildings Act. After clarifications were given by Tanzania on how it intended to imple- ment the Act, this issue was settled bilaterally and the Board proceeded to approve the Credit on February 29, 1972. Effectiveness was delayed by about two months to July 26, 1972, due to difficulties encountered in recruiting of staff. 5. The project fell short of its targets. The area planted to tea is 5,700 ha, only 69% of the 8,300 ha anticipated at appraisal and includes 300 ha established directly by TTA, trying to compensate for shortfalls in small- holder planting. The number -of registered tea growers was 16,000, or 2,000 above the target of 14,000, but their average tea area was 0.3 ha only, half of the 0.6 ha expected at appraisal. Tea production at full development is now projected to reach 50% to 60% of the appraisal estimate. 6. Reasons for the shortfall in the planting program are varied, some are area-specific and some are of a general nature. In Lupembe, farmers were offered employment with the construction teams of the Tanzania/Zambia railway. The pressure by regional authorities to introduce collective farming also hampered tea production. In Bukoba, national policy eliminating hired labor, halted the traditional availability of migrant labor from Rwanda/Burundi. The Rungwe area remained relatively problem free although the planting target there was not reached either. Only in Usambara was the planting target sub stantially exceeded because tea was relatively attractive as a cash crop there. 7. Other, general and perhaps more important reasons for the planting shortfall were overambitious targets, set during preparation and appraisal, and management shortcomings in all TTA departments. Because of the weak management, the project was designated a problem project in November 1973, and remained so for four years. 8. Factory construction was delayed deliberately, at least initially, to be in line with the reduced plantings of tea. Further delays occurred later due to technical difficulties. Factory management was poor during much of the project period but improved towards the end. Increased green leaf production during the past two seasons led from overcapacity of tea factories to undercapacity, resulting from the technical problems factories had suffered from, but also illustrating the difficulty in properly projecting tea yields and phasing factory capacity accordingly. During the 1978/79 season some green leaf even had to be discarded and some leaf accepted by the factory deteriorated in quality because proper processing was impossible with the limited capacity available. Leaf production during the current season (79/80) is reportedly up from previous years and causing congestion in tea factories. 9. Provision of other services was not without problems, but roughly in line with the requirements of the reduced planting program. Tea plants pro- duced by nurseries were in excess of requirements for new plantings, but some were also provided for infillings. Road construction, though delayed, was carried out as planned. Extension services and credit were provided with varying effectiveness. TTA itself experienced grave administrative problems initially, but started improving its effectiveness in 1974 and is now con- sidered one of the better managed parastatals in Tanzania. 10. Project costs cannot be adequately reestimated yet because the credit is not yet fully disbursed: one tea factory is still under construc- tion. A rough calculation shows, however, that the ultimate project cost may be close to appraisal estimates, because of the considerable scaling down of project investments. With production at full development estimated at about half the appraisal projections and with tea prices at almost two-thirds above those assumed at appraisal, the economic rate of return has been re-calculated at 12%. If opportunity cost of the land planted to tea is taken into account, this rate is reduced to 10%.  - 3 - 11. The project's acceptable economic rate of return is the result of much higher than expected tea prices. However, TTA's improved efficiency and the expected high farm benefits at full development, also contribute to the project's relative success. Main problems remaining are likely to be resolved by the follow-on project, i.e. the insufficient green leaf processing capacity of factories and the financing of TTA's activities. II. MAIN ISSUES Shortfall in Planting Program 12. The PCR (paragraphs 3.11 - 3.16) gives some explanation for the shortfall in the tea planting program. There were different reasons respon- sible in each area. In Lupembe, construction of the Tanzania/Zambia railway offered employment to many farmers, and during the villagization campaign of 1973-75 collective farming, unpopular with many farmers, was made mandatory. In Bukoba, according to the PCR, suitable land for tea appeared to be in short supply, but this was disputed by TTA. The main impediment in Bukoba was that the employment of hired labor was made illegal under a national policy, affecting local farmers of the region who had traditionally relied on hired labor from Rwanda/Burundi. In Usambara the planting target was exceeded, partly offsetting the shortfall in other project areas. This resulted from tea being the only major cash crop in the area. 13. The minor shortfall in Rungwe is due to tea competing with coffee and maize. Farmers in the Rungwe area are hardworking; also, there was some tradition of growing tea prior to the project and collective farming was not emphasized. There are, however, successful communal tea farms in that area: those initiated by the villagers themselves, as distinct from those initiated by regional authorities, which usually failed. 14. In the audit's opinion, other reasons contributed to the shortfall. The main reason was over-optimistic targets and expectations at appraisall!. The appraisal team was over-ambitious in setting planting targets, which were based on over-estimated tea areas that could on average be established and maintained by one family. The team was also over-optimistic in its assessment of TTA's ability to manage the project. 15. At project preparation the target area to be planted was originally 6 000 ha, as suggested by TTA and RMEA (then PMEA). At Kilimo's request, however, the target area was increased to 12,900 ha, more than double the preparation estimate. RMEA felt that this target was over-ambitious in view of, among others, TTA's limited administrative capacity and lack of experi- ence. In the preparation report, the target area was subsequently reduced to 1/ See also PCR paragraph 8.02. about 9,000 ha. Kilimo was not agreeable to further reduce the planting program because of political considerations. The appraisal mission, despite initial scepticism, was in the end persuaded that the higher planting targets were realistic and agreed to a planting program of about 8,300 ha, on 14,000 farms, with. 0.6 ha of tea per farm. Prior to the project about 3,300 ha of tea had been planted by 12,600 smallholders, with an average uf 0.26 ha per farm, far below the 0.6 ha per farm average targeted by the project. 16. The main difficulty encountered by the appraisal mission was to convince Government to employ managing agents and consultants' services to assist TTA and the cooperatives in setting up an adequate organization to implement the project. At negotiations the Tanzanian delegation acknowledged that the project would significantly increase the responsibilities, scope and functions of TTA, but the only agreement reached in this respect, however, was "... that TTA's staffing structure should be reviewed by the appropriate Government body and upgraded. "'11/, which was rather vague. The Bank also agreed to delaying the appointment of three senior TTA staff until after Board presentation, and to engaging visiting agents for TTA factories instead of managing agents, because under existing Government policies such management arrangements with foreign firms were no longer possible. 17. With the benefit of hindsight it can be said that the early skepti- cism of TTA and RMEA about accomplishing the high planting target, considering TTA's limited administrative capabilities and experience, was justified. Throughout the first three years of project implementation weak management was indeed the main constraint on reaching planting targets. Although 16,000 farmers2/ registered as tea growers (2,000 above target), total area planted was only 5,700 ha (69% of target). With a farm on average growing about 0.3 ha of tea, only half the target area of 0.6 ha was realized. In Rungwe and Lupembe, the target area was in fact achieved, but farm plantings in Bukoba and Usambara fell far short of the target. (TTA now considers an average tea area of 0.40 ha per farm feasible). Phased development by area, rather than going ahead in all areas concurrently, might have prevented or reduced the shortfall, because such phasing would have permitted a gradual strengthening of TTA while aiming at more realistic planting targets. 18. With the project approved as it was, should the Bank have made a greater effort during supervision to upgrade TTA? The first supervision mission of November 1972 reported already a lack of coordination and weak management of all TTA departments. The follow-up letter was sent to Govern- ment only in February 1973, and did not convey the urgency of resolving the management problems. The second supervision (June '73) did not focus on management. Only the third supervision (November'73) identified the problem clearly and stated in its letter to Government that, unless the management situation was satisfactorily resolved, it could not recommend to Bank manage- ment to continue financing the tea planting program. The project was then designated a problem project, which it remained for four years. 1/ Source: Bank files. 2/ Reliability of this figure is discussed in PCR paragraph 4.14. 19. The next supervision mission (June '74) shared the concern about weak management, but reported that the problem was being resolved, that already some improvement in management had taken place, and that TTA should continue planting. The supervision mission of July 1975 was able to report that TTA had a strong technical team (including staff seconded to TTA by RMEA's Agricultural Development Service) with clearly visible improvement of control over field activities. From then on TTA management continued to improve. Only 5,100 ha were planted to tea when the improvement finally came about in 1975, and there was a legacy of problems TTA had to deal with: abandoned tea plantings, gaps in tea stands, poor husbandry standards, poor yields, low factory throughputs, and financial losses. As a result, by mid 1976 it was decided that TTA should attend to these problems rather than continue tea plantings, which then stood at 5,700 ha. 20. In conclusion, the shortfall in achieving the tea planting target was partly due to problems specific for certain areas, and partly to an over- ambitious planting target and lack of efficient TTA management aggravated by lack of control over field activities. On two occasions the Bank could have done something to improve the situation: (i) during appraisal by reducing the planting target, bringing it to a more realistic level and requiring more assurances of strengthened TTA administrative capacity, and (ii) during early supervision, by presenting management problems and recommendations for neces- sary improvements more vigorously. Processing 21. Lack of technical staff and supervision together with limited withering capacity in all factories led to unsatisfactory quality of pro- cessed tea for most of the project period. TTA admits it gave too little attention initially to factories, citing as the reason that factories were working below capacity anyway and TTA had to focus on shortfalls in leaf production. Recently, however, sufficient technical staff have been appointed to the factories, but quality of processed tea has deteriorated because expansion of processing capacity has not kept pace with increased green leaf production. 22. Smallholder tea production in Tanzania increased rapidly over the past few years: All smallholders Prolect smallholders ------------ Made Tea (million kg)-------------- 1972/73 2.14 1973/74 (drought) 2.20 0.18 1974/75 2.55 0.47 1975/76 2.61 0.90 1976/77 3.50 1.44 1977/78 5.10 2.01 1978/79 (unfavorable 4.78 n.a. weather) Production during the current season (1979/80), judging by the difficulties encountered in processing all green leaf delivered to the factories, appears to be much higher. The expansion of factory capacity (PCR paragraphs 3.04 - 3.06) has fallen behind the increase in green leaf production not only because of technical problems, but, as TTA feels, also because of disagreements with the Bank on timing and design of factory construction. 23. These disagreements stem from a survey on tea yields, carried out by TTA in late 1976 on a Bank suggestion. On the basis of this survey, small- holder tea yields at full development were projected at 811 kg/ha (national average), a yield also expected in earlier Bank supervision reports. TTA was of the opinion that, contrary to the assumptions of the survey, yields would reach 1,000 kg/ha. In fact, the initial low tea production tended to confirm the lower production projections, but recently tea production increased dra- matically leading to congestion in factories. TTA maintains that, had the Bank previously agreed to a more rapid factory expansion, this situation would not have occurred. TTA felt strongly that the Bank should have accepted its yield assumptions. The Bank, however, went by past performance and cautioned against creating overcapacity, which had plagued TTA factories so much in the past. A factor coming to support TTA's view was the increasing world market price of tea, starting in 1976 in the wake of the coffee price rise. This was followed by a substantial increase in the, until then, low tea producer price in Tanzania in 1977. This producer price increase offered adequate incentives leading to better husbandry practices and consequently, yield increases (drop in production in 1978/79 was due to unfavorable weather). The conclusion, in the audit's view, is that in cases of still expanding production some over- capacity in processing facilities needs to be allowed for. 24. The remainder of this processing section comments on some other aspects concerning processing. The design of the new, two-storied, Mwakaleli factory, according to the PCR (paragraph 3.05), will increase construction cost, will introduce inflexibility, will create problems related to efficient withering, and does not follow appraisal guidelines. However, TTA pointed out to the audit mission, that under Tanzanian conditions the cost of constructing a two-storey factory is actually lower because of less roof and floor area, that inflexibility and problems related to withering were not expected and that the two-storey design was standard in Tanzania. The appraisal report does not specify any particular factory design; it only recommends the Rotor- vane/CTC process, which is in fact standard in all TTA factories. 25. The generally preferred (according to the PCR, paragraph 3.08) practice of growers, to concentrate plucking towards the end of the month when payments are made, was, according to TTA, only a problem in Usambara and was eased with the introduction of a new plucking scheme with payments every two weeks.1/ The conversion of the Katumba factory boilers from oil to solid 1/ The Region maintains that the new plucking scheme proved unsuccessful and was discarded.  - 7 - fuel (firewood and coal) was done, according to TTA, with sufficient knowledge of the coal supply (contrary to what is said in the PCR, paragraph 3.09). Already in 1974, TTA prepared a paper on the fuel situation after a directive to change away from oil; TTA failed, however, to produce the document to Bank missions, when so requested. Extension 26. The audit agrees with the PCR conclusions (paragraphs 6.05 and 6.06) that quality of extension staff needs emphasizing and that the appraisal recommendation for the ratio of field staff to farmers of 1:100 appears excessive, with farmers on average cultivating only 0.3 ha, and many of them participating in block farming where they can be approached as a group. In 1974 the ratio was even higher (1:56) and a fully justified reduction in that excessive extension coverage was then made. The reduction, however, has now been carried too far, and the ratio stood at only 1!574 by mid 1978 and even reached 1-610 in 1979. The audit considers this extension coverage too low, tea being such a high value crop. A ratio of one tea extension officer per 350 farmers appears, for the time being, more appropriate. Viability of Tea Subsector 27. At appraisal the pro ect's economic rate of return (ERR) was esti- mated at 17%. At completionl, the PCR re-estimated the ERR at 12% on the basis of the much lower than expected physical achievements. When the audit mission discussed the yield projections in the field, TTA officials strongly felt that these were too low. The economic analysis is based on a yield of 840 kg of made tea per ha, while TTA feels the yield is close to 1,000 kg, judging by the huge deliveries in the factories (see also paragraph 22). A field survey to back up these TTA projections has, however, not been carried out and a revised ERR has therefore not been computed. But the 12% ERR given in the PCR may be on the low side and is likely to be exceeded. Considering the problems the project encountered this is a satisfactory result and demon- strates that the tea industry in Tanzania is economically viable. 28. At the time of the audit the financial viability of TTA is in jeopardy. Although TTA realized a trading profit of Tshs 5.80 per kg made tea in 1976/77 on its London export tea (comprising 60% of total TTA sales), following increased tea prices in the world markets, it suffered a loss of about Tshs 1.50 per kg made tea in the following years (see also PCR paras. 5.01-5.03). TTA's efficiency, however, as assessed by MDB, is considered satisfactory: expenses at headquarters and in the field are now at reasonable levels due to strict financial control, and expenses at the factories, though some savings can still be made, are kept fairly well within justifiable limits. TTA is now considered one of the stronger Tanzanian parastatals. Its financial problems, TTA feels, exist because it bears costs which should be borne by the Government and it has made proposals to Kilimo and the Treasury 1/ A project completion mission visited Tanzania in November 1978, more than a year before credit closing. 2/ Sourcet Marketing Development Bureau.  - 8- to reduce its financial losses. The proposals include (i) reduction in green leaf producer prices, (ii) Government financing of the tea extension service, (iii) Government financing of made tea stocks (exceptionally high at present), (iv) Government allowing TTA to use the Mombasa auction, and (v) charging farmers for the cost of green leaf transport. TTA's financial situation is currently under review by the appraisal of the proposed follow-on project.  -9 - TANZANIA SMALLHOLDER TEA DEVELOPMENT PROJECT COMPLETION REPORT 1/ I. INTRODUCTION 1.01 The agricultural sector is the dominant sector of the Tanzania economy, supplying some 40% of the total GDP and contributing over 80% of exports. It is estimated that roughly 60% of value added in agriculture is generated by subsistence production. Over 80% of Tanzania's total population of about 15.7 million (1977) depend on agriculture for their living; the average per capita income in the rural areas is about US$80 (1977) as compared to an average per capita GNP of US$225. The Government has undertaken a comprehensive program to support the development of productive activities in the agricultural sector, in conjunction with efforts to achieve balanced regional growth and more equitable income distribution. Within these objectives, Government is paying particular attention to achieving self-sufficiency in food production and to support- ing those crops which represent sources of foreign exchange earnings. 1.02 The Tanzania Smallholder Tea Development Project (Credit 287-TA) was part of the overall Government strategy, as laid down in the Second Five-Year plan for Economic and Social Development, 1969-1974, to bring about a rapid expansion in :roduction of selected cash crops, one of which was tea. It was the fourth Bank group operation in the agricultural sector in Tanzania. The three previous projects were an IDA credit of US$5 million in 1965 for agricultural credit (Credit 80-TA); a credit of US$1.3 million in 1968 for beef ranching development (Credit 132-TA); and a credit of US$9 million in 1970 for flue-cured tobacco development (Credit 217-TA). Part of IDA Credit 80-TA (i.e. Tsh 5.4 million) was used to supply smallgrowers with tea planting material. Actual total amount spent on Smallholder Tea was Tsh 6.6 million, Tsh 1.2 million being from NDCA funds. A further Tsh 2.0 million IDA funds were expended on factories at Bukoba and Usambara. Tanzania's First Five-Tear Development Plan (1964-1969) had not set a definite planting target although smallholder production was expected to reach 1,000 tons of made tea (MT) by 1970. 2/ The Second Five-Year Plan, however, established a planting target of over 9,700 ha by 1974 and called for the creation of an organization capable of handling an additional 20,000 ha by 1979. The organization was to supervise the Smallholder Tea program, manage tea factories, undertake regulatory and research functions as well as sales promotion and marketing. The 5-year plan also called for a shift to cooperative farming by smallholders. 1.03 Tea cultivation in Tanzania, prior to 1961, was exclusively carried out by private estates and the total area planted to this crop was estimated to be 7,330 ha. Smallholder Tea cultivation was initiated after 1961 and by 1970 had expanded to 3,270 ha. 1/ This Report is based on a mission to Tanzania by Ajit S. Sidhu and Arno Klempin in November 1978. 2/ Actual production - 830 tons (mainly from immature tea).  - 10 - 1.04 As appraised, the Smallholder Tea Development Project was to provide for 8,300 ha of new plantings, extension and leaf collection services, credit facilities for farmers and construction of factories and roads. The foreign exchange earnings from the export of tea were stated to be the Project's principal economic benefit. In the meantime, the drastic increase in import prices and a poor export performance have aggravated the balance of payments problem and, therefore, underlined the Project's role in contributing to export growth. Through the direct participation of about 14,000 smallholders, the Project was also to contribute to the Government's overall aim of improving the living standards of the rural masses. 1.05 Total Project costs were estimated at US$16.5 million and the approved IDA credit for US$10.8 million was to finance 65% of the total Project costs, the balance to be funded by Norway - US$2.0 million C12%), and Government US$3.7 million C23%). The IDA credit was to cover foreign costs of US$4.8 million (75%) and local costs of US$6.0 million (59%). The balance of foreign costs were to be provided by Norway (US$1.6 million) and the balance of local costs were to be provided by Government (US$3.7 million) and Norway (US$0.4 million). The Effective Date and Closing Date of the Credit Agreement was-June 1,71972 and December 31, 1976, respectively. 1/ 1.06 This Report is based on interviews with Bank and, TTA staff, readings of the Appraisal Report, correspondence and documents in the Divisional and Departmental files including Supervision Reports prepared by RMEA, and field visits to the tea growing areas. II. FORMULATION A. Project Identification, Preparation, Appraisal 2.01 A Smallholder Tea Project was identified in Tanzania by an IBRD/ PMNIA mission in November 1968. The Tanzania Tea Authority (TTA), a para- statal organization, responsible for smallholder tea development and the functions previously exercised by the Tea Board (see para 1.02), was established in mid-1969. The United Research Company of Alexandria, Virginia, was employed by Government and financed by USAID, to prepare the Project. The preparation report, together with a request for financing the Project, was submitted to the Bank by the Government in July, 1970. The Project was appraised by a Bank mission in February, 1971. 2.02 The Project, on appraisal, included the expansion of the planting program and subsequent maintenance and production of tea by 14,000 smallholders on about 8,300 ha during the three years 1971/72 to 1973/74 in the four areas of Rungwe, Lupembe, Bukoba and West Usambara (see Appendix 1 (Map)). The tea was to be grown on existing holdings, on individually-owned composite blocks on unutilized land, or on communally-owned and operated Ujamaa village blocks. The Project would also finance green leaf collection, provide credit to growers for purchase of planting material and fertilizer, and provide for 1/ Later amended to July 26, 1972 and December 31, 1979 respectively (see para 3.01 and 3.03).  - 11 - processing, marketing, and export of made tea, over the 5-year period 1971/72 - 1975/76, 2.03 There were no major differences between the proposals as submitted by Government and the Appraisal Report except that the original proposal envisaged a planting program from 1970/71 to 1973/74, whereas, the Appraisal team modified it to a planting program from 1971/72 to 1973/74 since the appraisal was done in 1971. The area to be planted and number of growers remained approximately the same. Specifically the Project components were: Ca) strengthening of TTA by provision of technical services and construction and equipping of staff homes, offices, workshops, stores for TTA field operations, and training facilities at Kiwira in the Rungwe district; (b) construction of two 1/ and expansion of three 2/ tea factories and provision of processing equipment for them; Cc) provision of extension and leaf collection services for Project growers and related transportation; Cd) construction of about 300 km of all-weather roads in the Project areas, and provision of consultants' services for construction and maintenance of these roads and for the training of Tanzanian personnel in this connection; Ce) establishmeuit and operation of tea nurseries and mother bushes to provide planting material for the Project growers; and Cf) provision of credit to Project growers for the purchase of planting material and fertilizer. 2.04 TTA which was to manage the Project, was to be strengthened by increasing management personnel at its headquarters in Dar-es-Salaam, improving the field extension service and providing technical assistance in processing. It was to deploy its extension staff, on secondment from the Ministry of Agriculture, to recruit and advise farmers in modern tea production techniques and be responsible for the provision of good quality planting material. The extension service was to continue to be based on the ratio of one assistant field officer for every 100 smallholders and one field officer to about 500 smallholders. The organization of TTA, as proposed, is shown at Appendix 2. 1/ Katumba and Mpuguso (Mwakaleli) in Rungwe area. 2/ Lupembe, Mphonde, Bukoba in Lupembe, Usambara, Bukoba areas.  - 12- 2.05 The. fertilizer and clonal planting material to be distributed on credit, together with the strengthened extension service, was expected to bring about improved yields. The current average yields of made tea (small- holders and estates) at maturity were estimated to be about 900 kg/ha. The improved yields at maturity were projected at 1,010 kg/ha in _upembe and Usambara, 1,200 kg/ha in Rungwe, and 1,300 kg/ha in Bukoba. Road improvement was to be carried out by units established under Comworks. The construction of roads in the Rungwe and West Usambara areas was to be financed by Norway. 2.06 The Tanzania Rural Development Bank (TRDB) was to be the credit channel for loans to TTA and the Cooperatives. TTA would receive funds for tea factories, vehicles and spare parts for the leaf collection services, and establishment of nurseries, while the Cooperatives would receive funds for on-lending to Project growers required for financing fertilizer and planting material. 2.07 IDA funds were to be passed on to TRDB by Treasury at 4% p.a. who in turn were to on-lend to TTA and the Cooperatives at 8-1/2% p.a. Tsh 0.20/kg of green leaf was to be deducted by TTA factories over 15 years from smallholder green leaf deliveries for payment of interest and principal on TRDB loans to Cooperatives for the purchase of planting material and fertilizer for the first two years. The proceeds of this cess were to be remitted directly by TTA to TRDB. After the second year, growers were to purchase fertilizer from the proceeds of their green leaf sales with use of seasonal credit financed by TRDB. III. IMPLEMENTATION A. Effectiveness and Start-Up 3.01 At the time of the Credit Agreement in March 1972, the Project was to become effective as of June 1, 1972. The two major conditions of effective- ness were (a) Government to complete arrangements satisfactory to IDA for the construction of Project roads in the Rungwe and West Usambara areas, and (b) TTA to complete arrangements satisfactory to IDA for employment of: Chief Marketing Officer, Planning Economist, Factory Managers and Visiting Consultants. The arrangements for the construction of roads were satisfac- torily completed by April, 1972 with the signing of an agreement between Norway and the Tanzanian Government. There was, however, a slight delay in implementing the second major condition of effectiveness particularly in the employment of factory managers who had to be recruited from outside the country. As a result, the date of effectiveness was amended to July 26, 1972. 3.02 A further complication, though not affecting the date of effective- ness, arose on the question of road construction in the Lupembe and Bukoba areas. As part of the overall Credit Agreement, the Government was to ensure that all road construction was carried out within two years from the date of the Agreement. To be able to comply with this undertaking two Road Construc- tion Units were to be set up within Comworks, one each for Lupembe and Bukoba, with the help of consultants. There was difficu'lty in gettirg consultant  - 13 - firms to undertake the establishment and maintenance of the Construction Units and the one firm that had responded favorably was reluctant to take on the two Units together apparently because of the distance separating the two areas. However, it would appear that the real reason was the inability of the firm to handle the two Units in addition to those that it was already handling in other parts of the country under the Third Highway Project. Furthermore, due to changes in the country's Income Tax Laws which now required income tax payments by expatriate staff, it was claimed that it was becoming difficult to recruit suitably qualified expatriates for jobs. The apparent lack of interest from other firms appears to be centered around similar reasons as well. Consequently, Comworks, using its own staff, set up the two units to handle the Lupembe and Bukoba areas. The Lupembe unit came into operation about mid-1974 while the Bukoba unit became operational only by end 1975. B. Revision 3.03 The major change in the scope and design of the Project came about in 1974/75 when, in addition to plantings by smallholders, TTA itself decided to undertake plantings in the Bukoba and Lupembe areas to make up for the shortfall in planting targets in these areas. However, the under- standing was that TTA would plant 100 ha of tea in Bukoba and a maximum of 150 ha.in Lupembe and allocate these to small growers after establishment. Other changes that took place were: (a) Extension of the planting program from 1973/74 to 1975/76 due to shortfall in planting targets. Cb) Extension-of the Closing Date from December 31, 1976 to December 1977; then to December 1978; and now to December 1979, to allow for making up the planting program shortfall (see para 3.12) and completion of factory construction (see para 3.04). C. Implementation Schedule (a) Physical Construction Factories: 3.04 Of the two new factories proposed for construction, the Katumba factory has been completed but the construction of the Mwakaleli factory, which was scheduled for completion by 1977, has been delayed till 1980. The delay initially was deliberate because the volume of green leaf production in the Rungwe area was not forthcoming as envisaged due to delays in planting. The production of made tea in 1977/78 was only 57 percent of the estimates (Table 1). As a result, construction work on the factory was only initiated in 1978 with a view to completing it by 1979. However, a further delay has now been brought about by the introduction of an unscheduled pre-loading test of the factory site by the consultants which is expected to push the completion date to 1980.  - 14 - Table 1: Made Tea Production in TTA Factories Actual in'19 7 7/78 Comnared to AvDtaisal Estimate Factory Actual Appraisal 1/ Actual as % of ('000 kg) C'000 kg) Appraisal Katumba 1,895 3,311 57.2 Lupembe 1,208 2,257 53.5 Mponde 1,081 1,183 91.3 Bukoba 611 2,016 30.3 Total: 4,796 8,767 54.7 3.05 The design and layout of the Mwakaleli factory has been ccmmented on. 2/ It does not follow the guidelines given in the Appraisal Report, and while the design now adopted reduces machinery costs as there are no boilers, this is more than offset by increased costs of the building which is now a two-storied structure (see para 3.23). Further the design is said to introduce inflexibility and problems related to efficient withering of tea leaves. 3.06 The expansion program of the other factories has also been slow and the projected factory capacity has, therefore, not been available (see Table 2). Table 2. Factory Capacity. Actual 3/ in 1977/78 Compared to ApDraisal 1/ Estimate Factory Actual Appraisal Actual as Z of ('000 kg) ('000 kg) Appraisal Katumba 1,029 1,700 60.5 Lupembe 655 1,700 38.5 Mponde 570 1,130 50.4 Bukoba 421 1,700 24.8 Total: 2,675 6,230 42.9 1/ Appraisal Report CCr. 287-TA), Annex 5, Table 1. 2/ Comments by Consultant Engineer as member of Smallholder Tea Consolidation Project Appraisal Team, 1978. 3/ As estimated by Smallholder Tea Consolidation Project ADpraisal Team, 1978.  - 15 - 3.07 The ability of the factories to handle efficiently the increasing green leaf production has been curtailed principally by inequalities in capacities of the various factory processes with a common constraint in all factories being limited withering capacity. Most of the factories also suffer from marked fluctuations in green leaf delivery and often face crop- ping peaks more than three times their actual capacity. These fluctuations and peaks are brought about by normal seasonal peaks being aggravated by the generally preferred practice of growers to concentrate their plucking towards the end of the month when payments are made by TTA and cessation of plucking and processing during festivities, holidays and other social occasions. Out of a total of about 310 plucking days TTA factories in 1977/78 on the average worked only 270 days (see para 4.09). 3.08 The purely administrative aspects of factories are generally satisfactory but the technical management of the tea factories poses serious problems due to lack of technical staff. The Tea Development Managers (TDM) who head the Branches in the four regions are mostly field men and lacking in factory experience. There have been no factory engineers over the years 1/ and a serious shortage of skilled mechanics exists. Spare parts supply for repairs and servicing of machinery has been a problem as no coordinated or planned system of carrying stocks has been in operation. The distance of the factories from HQ has meant infrequent and irregular visits from supervisory and advisory staff. This problem has been further aggravated in the last couple of years when TTA headquarters staff (manage- ment and technical) were severely restricted in their travel in order to cut down on costs. The lack of technical management expertise and supervision together with the growing problem of factory under-capacity as discussed in the preceding paragraph, has led to a deterioration in quality of tea being manufactured which is refle`cted in the relatively lower prices realized in the London auction market in 1977/78 (see para 3.30). 3.09 The new Katumba factory has been functioning on oil-fired boilers. However, a year ago a new coal fired boiler was installed so as to gradually change over the factory to solid-fuel with a view to reducing processing costs. This decision to convert to solid fuel, however, was taken without sufficient data on the availability and suitability of fuel in the region. Wood fuel is in short supply and reliable information on the coal supply situation is lacking. Only now are attempts being made to accurately assess the quantity and quality of coal that may be available from the coal mine in the Rungwe area. The new Mwakaleli factory is also designed to function on coal. Roads: 3.10 The road construction in Rungwe and Usambara by the NORAD was completed on schedule but roads in Bukoba and Lupembe were completed two years behind schedule (see para 3.02). 1/ Two factory engineers were appointed in Rungwe and Bukoba in late 1978.  - 16 - 31 Planting Program 3A1I The planting program as incorporated in the Appraisal Report, was for 14,OGG smallholders to plant 8,30Q ha of tea in Rungwe, Lupembe, Bukoba and Usambara areas over a three year period, i.e. 1971/72 - 1973/74. The planned distribution of acreage and rate of development are shown in Appendix 3, Table 1. The Project was expected to handle the planting of about 3,000 ha in the first year followed by slightly reduced areas in the second and third years. Each grower was to plant 0.2 ha in the first year followed by a further 0.2 ha in each of the following two years, thereby attaining 0.6 ha in total. TTA was to establish nurseries and supply planting material to the growers. 3.12 Due to poor response from snallholders, the total area planted over the three years, 1971/72 - 1973/74, was only 4,172 ha as against the planned 8,300 ha. The annual achievement as a percentage of the planned area was 49%, 42% and 61% for each of the three years respectively. Of the four areas, only Usambara achieved the target while the shortfall was greatest in Lupembe which planted only 15% of the planned area. 3.13 To overcome the smallholder planting shortfall TTA undertook with IDA approval, the clearing of land and planting of tea which would be handed over to smallholders after establishment. 1/ The period for Project planting was also extended to 1975/76 for the same reason. In spite of TTA's direct participation and extension of planting years, only 68% (5,671 ha) of the projected area was planted by 1975/76. An additional 40 ha was planted by TTA in 1977/78 in Lupembe, bringing the total planted area to 5,711 ha, i.e. 69% of projected area. 3.14 Prior to the start of the Project both the Government proposals and the Appraisal Report had expressed overall optimism in achieving the targets set. Earlier experience appeared to have indicated strong interest by farmers to plant tea. In some areas farmer initiative in producing planting material in their own nurseries and "illegal" 2/ cultivation of tea had been reported. Some reservations, however, had been expressed for the Lupembe and Usambara areas. In the Lupembe area a mass exodus of people had taken place some years ago and the sparse and scattered population was considered not sufficient for the proposed level of plantings. However, a large-scale resettlement program was planned by Government and it was expected that sufficient numbers of farmers could be recruited to participate in the Project. In the Usambaras, the high population density and presence of heavy forest cover were cited as potential factors that could cause delays in the implementation of the program. 3.15 As it turned out Usambara achieved its target well before schedule. By the second project year it had planted 784 ha and ended up by planting nearly twice the projected area by 1975/76. A much needed cash crop had been enthusiastically adopted by Usambara farmers. Lupembe, however, 1/ This has not, as yet, taken place. 2/ Only registered growers were allowed to grow tea.  - 17 - achieved only about 31% of the target set. Two major factors appear to have militated against achieving the targets. First, the construction of the Tanzania/Zambia railway during the same period as the Tea Project offered employment opportunities to a large number of residents who otherwise might have settled in the area and second, Government's strong emphasis on villagization and Ujamaa tended to produce a negative reaction in the initial years from the people in this particular area. 3.16 Bukoba, too, fell far short of its target and this was contrary to Appraisal expectations. Smallholder Tea was first planted in Bukoba in 1963. After an initial hesitation on the part of the farmers, interest in the tea planting increased and by 1969, 875 smallgrowers were cultivating a total of 298 ha. The principal population group in Bukoba (the Wahaya) was considered to be industrious and successful farmers and the area was a major producer of Robusta coffee. Several reasons have been put forward for the shortfall in tea planting targets. Suitable land for tea appears to have been in short supply. The proposed tea areas were densely populated and much of the better land was already under cultivation and new tea areas would have to be on the fringes of, or at some distance from, existing holdings. Most of the apparently unused land was in fact grazing land, and in view of the importance of cattle both as meat and milk suppliers, as well as suppliers of manure for the banana holdings, the conversion of grazing land to tea holdings was not favored. Farmers were reluctant to replace existing coffee plantings with tea even though many of the coffee bushes were old. However, the scarcity of hired labor appears to have been a major reason which discouraged tea cultivation. The Bukoba area has traditionally relied on imported labor from Burundi and many of the earlier tea holdings were established using hired labor. With the closing of the border, hired farm labor beciame scarce. Thus, due to a combination of factors, on the one hand the'number of farmers who responded to the Project were far larger than anticipated (7,769 as against 2,800) but on the other hand, the average size of tea holding achieved was only about 0.1 ha as compared to the 0.6 ha proposed at appraisal. D. Procurement 3.17 There were no major problems of procurement except in the initial year of the Project when TTA and TRDB purchased items using procedures which did not conform to IDA requirements. This failing was attributed to the lack of knowledge of IDA procedures on the part of Project staff and was remedied by IDA by organizing a seminar in Tanzania at which the procedures were explained in detail. E. Costs 3.18 It has been difficult to determine costs accurately because TTA books and records in the early years of Project implementation were not properly kept. Figures were misposted, recurrent and capital expenditure was not separated and some accounts contained assets twice. All this gave incomplete and sometimes wrong information on capital expenditure and results of annual operations. The appraisal report had emphasized the need for reorganizing the accounting system. A new system was introduced 1/ but due 1/ The system was introduced by a person on loan to TTA under USAID Technical Assistance and who was Financial Controller until May 1973.  - 18 - to changes in staff only by 1975 were the positions of a Chief Accountant and a Financial Controller at TTA satisfactorily staffed, and since then, considerable Improvements in accounting procedures have taken place. How- ever, the coordination of reporting procedure from the four Branches, i.e. factories, to TTA headquarters needs further improvement so that the consolidation of TTA and individual factory accounts can be done smoothly and on time. Also, the adjustment oL past accounts for the changed treat- ment of the annual Government subventions needs to be completed. For years they had been credited to TTA's capital account whereas the expenses had been debited to the profit and loss account. In 1977 the Treasury decided that the subventions should be removed from TTA's capital accounts and treated as revenue to meet expenditure incurred by TTA towards the develop- ment of the tea industry. 3.19 Due to the weaknesses in the accounting system most of the figures provided in the breakdown of actual costs in Appendix 4 Table 1 were not readily available from TTA central accounts but had to be compiled from various information sources. As the sum of actual costs from 1972-1978 shows, there is only an overrun of 7 percent if measured in Tsh., and even an underrun in US$ since the Tsh devalued against the US$ during this period. The main reason for this lies in the reduced project scope from a planned 8,300 hectares of tea to less than 6,000 hectares. rhe effects of this reduation in Project tea areas, however, varied among the major cost components and are discussed below. (a) Nursery Development 3.20 The nursery program aimed at producing plants for the planting of 3,000 ha in the first projedt year, and another 5,300 ha distributed over the next two years as laid down in the Appraisal Report. By the time it was realized by TTA headquarters that these targets could not be achieved, it was too late to reduce the nursery program accordingly. Plants were produced in excess of requirements and nursery costs could not be recovered through the sale of planting material. Even in later project years, however, nursery costs remained high because TTA apparently assumed that the tea plantings in the existing project areas would be expanded and, eventually, even a new area be opened for tea. Furthermore, TTA continued to produce plants for infillings instead of leaving this to the tea growers themselves, as proposed in the appraisal report. For these reasons, no savings were incurred on nursery development costs despite the reduced planted area. (b) Growers Fertilizer 3.21 Under the category "Growers Fertilizer" only the requirements for the first and second year of tea establishment have been aggregated. Since the application rates per hectare assumed at appraisal and those recommended by TTA remained the same, total requirements were reduced according to area reduction. Thus, despite an average quadrupling of fertilizer unit costs between 1972 and 1976, actual costs were only about one-third higher than at appraisal.  - 19 - (c) Road Construction 3.22 The reduction of the tea area had no effect on the road construction program. A total of about 300 Im were improved as planned at appraisal. Although actual completion lagged two years, actual costs were only 13 percent higher than appraised. (d) Factory and Leaf Collection 3.23 Based on the production estimate at appraisal, the construction costs of a second factory in Rungwe (in addition to Katumba), amounting to Tsh 4.7 million, were included in the cost estimates for 1976. Because construction work on the Mwakaleli factory was not started till late 1978 (see para 3.04), delayed expenditure on this item mainly accounts for the cost underrun in the category 'Factory and Leaf Collection'. However, the delay to 1979/80 in construction has also meant a more than doubling of construction costs due to inflation and changes in factory design (see para 3.05) and this will mean an eventual cost overrun in this category. 1/ (e) Extension Services 3.24 Overstaffing of the extension service as compared to appraisal mainly accounted for the cost overrun. The appraisal team considered a ratio of one assistant field officer to 100 farmers as adequate but by 1974, TTA had as many as 382 extension officers which gave a ratio of 1:56 (see Table 8). Acting on a suggestion from the Bank, the staff was reduced in later Project years (see para 6.04). (f) TTA Headquarters 3.25 Costs for TTA headquarters included provision of salaries for specialist staff. Since TTA paid a constant salary in Tanzania shillings to its expatriate staff over the whole Project period, only a slight cost overrun was incurred because of a longer contract period than assumed at appraisal for some of the expatriates. However, this overrun was more -than offset by reduced actual staff training costs (see para 6.06) as compared to appraisal estimate. (g) Growers Purchase of Planting Material 3.26 The appraisal estimate had been based on a planting material supply for 8,300 ha plus infills during the first two growing seasons at a price of Tsh 0.30 per plant. At implementation, TTA added another Tsh 0.05 as a transportation charge so that the actual price charged to the growers' credit account amounted to Tsh 0.35 per plant. This price was held constant over the whole Project period. Since, on the other hand, TTA's nursery costs were affected by inflation, it is obvious that the price of planting material during the later years was subsidized. At appraisal, a large mark-up on nursery development costs was intended to improve TTA's liquidity out of the sale of planting material. In fact, however, a-cost overrun was incurred at the nursery while receipts from planting material sales were substantially lower because of the reduced tea area. 1/ Funds already committed for Mwakaleli factory buildings (excluding machinery and electrification) as of Nov. 1978, amount to Tsh 10.7 million.  - 20 - (h) Seasonal Revolving Fund for Growers Purchase of Fertilizer 3.27 The appraisal team recommended that a revolving fund be establisbed at TRDB for financing growers' fertilizer requirements after the second year of tea planting. After each season the growers would repay this loan from their green leaf sale receipts. Despite a 50 percent subsidy on fertilizer prices for farmers in Tanzania, and despite the reduced total fertilizer requirement due to the reduced tea area, seasonal fertilizer costs are 120 percent higher than estimated at appraisal. A revolving fund had not been established at TRDB, and seasonal fertilizer costs are mixed with capital costs on the growers credit account; repayment is not separated but combined in the process. Contrary to the assumptions of the appraisal report about Tsh 5.0 million of the IDA credit had to be used for financing seasonal fertilizer requirements to meet the increased costs. (i) Contingencies 3.28 The cost estimate at appraisal as shown in Appendix 4, Table 1 includes the provision for contingencies. For vehicles, factories and fertilizer a cumulative 5Z p.a., and for other costs a cumulative rate of 3% had been allowed. Actual inflation rates during the project period, however, were considerably higher.. F. Disbursements 3.29 The slow physical development of the project and the failure to submit claims in the start-up period resulted in significant delays in disbursements (Appendix 4, table 2). During this initial period, three Tanzanian agencies involved in the Project, i.e. TRDB, TTA and Comworks, were not familiar with IDA procedures. Funds were disbursed through TRDB while TTA and Comworks implemented the project. Poor communication with TRDB made it difficult for TTA and Comworks to reconcile undisbursed balances. Claims were further delayed because of the poor records and lax management control of TTA during the first two years of the project. As qualified accountants and financial analysts were employed, disbursements accelerated from 1974 onwards. However, at the iniital closing date of the Credit in 1976 less than 70 percent of the Credit was disbursed. In the meantime, the Closing Date has been repeatedly postponed, the present date being December 31, 1979 (see para 3.03). The Credit disbursements by category are given in Appendix 4, Table 3. G. Marketing and Prices 3.30 Tanzanian teas, including TTA teas, have, in general, sold well until recently. The prices obtained were about average or slightly better than those achieved at the London auctions (Table 3). While there were variations from year to year and between project areas, Lupembe has evolved as a factory commanding highest prices. Lower prices of the other TTA factories accounted for the poor overall performance of TTA's teas as compared to the average London price in 1977/78 (Table 4). Though location probably explains a proportion of the difference in quality between these factories, factory management and leaf collection system are also factors which contribute to the quality'difference (see paras 3.07 and 3.08).  - 21 - Table 3. Average London Auction Prices of Made Tea (New British Pence/Kg) Year All Tea Tanzania Tea TTA Tea 1972 42.2 41.7 41.7 (a) 1973 43.4 42.6 43.0 (a) 1974 59.9 60.2 59.7 (a) 1975 62.4 64.5 62.8 1976 84.1 88.9 87.1 1977 156.3 157.8 157.3 1978 (b) 119.3 119.6 117.6 (a) First Quarter only. (b) January-June 1978. Table 4. Average Prices of TTA Made Tea Sold at London Auction by Factory, 1975/76-1977/78 (Tsh/Kg) Lupembe Katumba Mponde Bukoba 1975/76 9.18 9.70 7.89 n.a. 1976/77 23.40 23.51 21.89 18.03 1977/78 18.41 15.74 12.46 15.69 3.31 As Table 3 shows,2tea prices in current terms increased from 1973/74 to 1977/78, reaching a record level in 1977. Even in 1977 constant dollar, the increase was still substantial (about 33Z from 1974 to 1977). During the 1978-production season, however, prices have dropped and, in constant terms, are projected to decline further until 1985. At,appraisal a constant price was projected from 1972 through 1980, and after 1980,prices were expected to rise by about five percent. 3.32 About 40 percent of TTA's annual tea production between 1972 and 1978 was sold on London auctions; 20 percent was supplied through the Tanzania Tea Sales and Distribution Organization (TTSDO) for domestic consumption. Of the remaining 40 percent, a large proportion was sold on the Mombasa auctions until the closure of the Kenyan border in 1977, and a smaller part were direct sales. Since the border closure the direct sales have increased to about 40 percent. The direct sales, and also formerly the Mombasa auctions, have the advantage that lower line tea grades can be disposed of, and that payments are realized faster. Due to the lower quality, average prices are, in general, lower than at London auctions (Table 5). The tea supplied to TTSDO has been sold at a fixed price l/which is lower than the overseas auction prices as well as the direct sales price. 1/ Formerly Tsh 8/kg; presently Tsh 10/kg.  - 22 - Table 5. Average TTA Tea Prices 1/ at London Auctions, Mombasa and Direct Sales, 1975/76 - 1977/78 Tsh/Kg London 2/ Mombasa 3/ Direct Sales 3/ 1975/76 9.18 (8.20) 8.03 8.62 1976/77 21.30 (19.43) 12.59 13.87 1977/78 16.70 (15.56) _ 12.60 3.33 Marketing costs have varied from factory to factory, being highest for the factory farthest from a seaport, i.e. Bukoba. In 1977/78, the difference in transportation costs from factory to Tanga between Bukoba and the other three factories amounted to as much as Tsh 1.30 per kg. M.T. (see Appendix 4, Table 4). Other costs are standard for all factories. 3.34 TTA's efficiency in marketing has been hampered by slow selling. As a result, tea chests piled up at the warehouse, increasing storage costs and causing deterioration in tea quality. The delays were caused by poor communication between Dar-es-Salaam - where clearance was given - and Tanga from where most of the tea was shipped. To overcome this problem, TTA has opened a marketing office at Tanga, appointed a private firm as its marketing agent, and attached a marketing officer to this agent for training. 3.35 The,producer price for green leaf was kept almost constant for three years after the first tea plantings under the Project started yielding in 1974 (Table 6). During the_first two years the prices and deductions varied from Project area to Project area, but from 1976 onwards Government decided to standardize prices. The decline of the producer price in real terms and the relatively low net price were stated by Supervision missions as being among the reasons for a low husbandry standard and irregular plucking of tea. Only after the dramatic increase of tea prices on the world market in 1977 were gross producer prices increased from Tsh 0.90 to Tsh 1.50 per kg. However, since fertilizer prices had already increased sharply in 1974 and it had become clear that loan repayment on the basis of Tsh 0.20 per kg was insufficient to recover both capital and seasonal credit, the deduction was also increased to Tsh 0.40 per kg. Nevertheless, the increase of the net producer price from about Tsh 0.70 to almost Tsh 1.10 was still substantial and contributed to the sharply increased green leaf supplies in 1977/78. Though the repayment schedule of the appraisal report (13 to 15 years) is no longer realistic the increase of the cess to Tsh 0.40 makes at least a repayment by about 1995 feasible. 1/ Of three factories: Lupembe, Katumba and Mponde. 2/ On c.i.f. basis. F.O.B. Tanzania prices given in ( ). T/ F.O.B. Dar-es-Salaam and Tanga.  - 23 - Table 6. Green Leaf Price, 1974-78 (Tsh/Kg) Loan Gross Repayment Net 1974/75 0.77-0.80 0.15-0.20 0.57-0.65 1975/76 0.80-0.90 0.20 0.60-0.70 1976/77 0.90 0.20 0.70 1977/78 1.50 0.40 1.10 H. Compliance with Covenants 3.36 All covenants were complied with, except for the covenant on procurement procedures, 1/ the covenant on keeping of satisfactory records to identify the goods and services financed out of the Credit, 2/ and the covenant requiring the Borrower to furnish operational and financial reports of cooperative societies. 3/ The lapse in implementing the covenant on procurement procedure was corrected after the initial year of Project implementation (see para 3.17), but satisfactory compliance of the other two covenants has not been achieved. The unsatisfactory accounting records have resulted in difficulty in determining costs accurately. .IV. PROJECT IMPACT 4.01 The Project's maj6r goals were to increase smallholder tea production and thereby increase their income and at the same time, enhance the country's foreign exchange earnings through the export of tea. The Project's impact, therefore, can best be assessed by its effect on tea production. A. Tea Production 4.02 (a) Tields:- At appraisal the projected yield from mature tea plantings were estimated in the range of 1,010 to 1,300 kg made tea/ha depending on the region. The high'est yield was projected for Bukoba and the lowest for Lupembe and Usambara (see Appendix 3, Table 2). These yield estimates were considered to be realistic because similar yields were being obtained by tea smallholdings in Kenya and Uganda. However, the production from the existing tea plots in the Project areas and development setbacks of the new plantings led to early doubt whether the projected yields could be achieved. A study of 1/ Sec. 2.03 of Development Credit Agreement. 2/ Sec. 3.06 of " " " 3/ Sec. 3.07Cb) of " "  - 24 - the field areas carried out in August 1976 1/ estimated the overall average yield at about 700 kg/ha at maturity, with the lowest yields at Bukoba (425 kg as compared to 1,300 kg at appraisal). A mixture of management, staff, agricultural and technical problems were listed as the cause of the low yields. Since then, however, some improvement in husbandry and intensi- fied plucking - mainly in the wake of the 1977 green leaf price increase by Tsb 0.40/kg (net) have led to revised yield projections in 1978 2/ (Appendix 3, Table 2). The overall average yield at maturity is now estimated at 812 kg/ha but the average yields at Bukoba are still only about half, and at Rungwe and Usambara three-quarters of that estimated at the earlier appraisal. Unfortunately, no attempt was made by the Project management to collect data from sample plots over the years which could have assisted in arriving at more precise yield estimates. (b) Acreage 4.03 As discussed earlier (paras 3.12-3.13) the actual area planted with tea during the Project period has fallen short of appraisal targets. Out of a projected area of 8,293 ha only 5,711 ha (69%) have actually been planted to date. Included in the 5,711 ha are 308 ha of estates, which were established by TTA, with Bank's approval, to supplement the shortfall in smallholder plantings. As with yields, the accomplishment in planting varied considerably from area to area. In Lupembe less than a quarter of the area projected at appraisal was actually planted by smallholders (not including TTA estate plantings), while in West Usambara 80 percent more than estimated was planted. Bukoba was a second area with a poor performance while the largest Project area, Rungwe, reached 77 percent of the appraisal target. The reasons for differences in performance are specific to each region and have been discussed in Section III. (c) Production 4.04 As an effect of both shortfall in yield per unit of land and in total planted area, the production of made tea over the period 1972/73 to 1977/78 was only about 40 percent of appraisal estimate (see Appendix 3, Table 3). The projections for 1985/86, when all plantings under the Project reach maturity, (one year later than appraisal), show an annual production of 4.8 million kg, i.e. half of the appraisal projection. At a projected ex-factory price (constant 1977) of Tsh 10.30/kg, this converts to a gross production value of about Tsh 50 million as compared to Tsh 61.3 million at appraisal (at a projected average factory price of Tsh 6.38/kg). B. Technological Change 4.05 The technological impact of the Project was in part predetermined in that the type of planting material and fertilizers (as well as fertilizer 1/ By a consultant as member of Supervision mission. 2/ By Smallholder Tea Consolidation Project Appraisal team.  - 25 - rates) to be used was determined by TTA who was also the sole supplier to the smallholder tea growers. Further, both items were supplied on credit, and repayment by all growers was automatic at the time of green leaf sale since a fixed cess was deducted by TTA from the proceeds of the individual growers sale. Thus, by virtue of the design of the Project it could be assumed that there was virtually total adoption of these two items by participating tea growers. Random field checks tend to confirm this assumption. 4.06 Some misuse of fertilizers may have occurred, in that some growers used fertilizer intended for tea on other crops,particularly food crops. But, what is of greater importance is that the current TTA fertilizer recommendations are general and are not based on any formal research trials in Tanzania. They are an adaptation of the general recommendations made by TRIEA. Scattered observations by TTA staff tend to indicate some reduction in green leaf yields with reduced rates of fertilizer application, but no formal data is available to substan- tiate the claims or to make precise judgments on such issues as type, rate, time and method of application for specific tea growing areas. 4.07 In the case of planting material the bulk of it was VP material from selected clones and raised by TTA in its nurseries. Potentially it was some of the better material available. However, due to lack of expertise and supervision in the early years of the Project, the standard of some nurseries was poor and resulted in low percentage outturn (60-65%) and lack of proper selection and roguing in the nursery resulted in the supply to growers of weak and often over-aged plants resulting, in part at least, to subsequent high infilling requirements (up to 35%). TTA nursery standards appear to have improved in recent years but there is need for even closer supervision and&coordination of nursery operations to ensure production of quality planting material. 4.08 TTA was also responsible through their extension service for advising tea growers on husbandry practices. The adoption of these recommended practices varies from region to region and from farm to farm, but the overall standard could be assessed as being the best in Rungwe to the worst in Bukoba. The higher standard in Rungwe could be attributed to a large extent, to the availability in that region of a high standard of planning, supervision and technical advice during part of the Project implementation years, and indicates the standards that can be achieved by the extension service. 4.09- One important aspect of husbandry which TTA has not been able to influence very much so far is that of leaf plucking patterns. As was discussed in paras 3.04-3.08 the efficient operation of the factory and quality of made tea are related to the flow of green leaf to the factory; marked fluctuations and excessive peaks being detrimental to efficiency and quality. One of the reasons for the green leaf fluctuations is said to be TTA's monthly green leaf payment system, TTA claims, however, that their attempts on an experimental basis to even out flows by the introduction of 2-weekly payments have not been successful. Needless to say, attempts at producing improved plucking and collecting schedules have to be continued. There is also need for closer scrutiny and review of TTA factory working schedules in order to improve their performance in terms of number of working days since it could well be that the present factory schedules, which have resulted in the factories on the average operating for 270 days out of a  - 26 - possible 310 days (approximately), are also contributing towards the green leaf flow fluctuations. 4.10 Though these are not strictly Project effects, the demonstration effects of good husbandry practices are also evident on some tea farms adjacent to private estates where small growers have adopted pruning and weeding techniques practiced by estates. The use of herbicides to control weeds as adopted by some small growers particularly in the Rungwe area could fulfill a useful role in overcoming tight labor situations. Demonstration plots for improved husbandry practices both on TTA tea areas as well as on farmers land could serve as useful adjuncts to the extension efforts. 4.11 Since tea is generally grown on slopes the appraisal report recommended the adoption of soil conservation measures. However, there has been very little evidence of such measures in small growers plots. Even on TTA estates considerable soil erosion has occured indicating inadequate measures having been taken. C. Participating Farmers 4.12 At appraisal it was assumed that 0.6 ha of tea could successfully be incorporated into the mainly subsistence oriented farms of the Project areas. Therefore, to achieve the appraisal target of 8,300 ha tea on smallholdings a total of about 14,000 farmers were to be recruited for participation in the planting program. 4.13 The overall response in terms of farmer numbers was well above appraisal projections but average tea farm size achieved was only half that envisaged (Table 7). Further, the response in each of the four tea regions va-ied. Less farmers than projected at appraisal participated in the Project at Rungwe and Lupembe, but the average area of tea planted by the participants was almost the same as estimated at appraisal (0.6 ha). On the other hand, a much stronger response from farmers in terms of numbers is seen in Bukoba and West Usambara although the average area per tea grower is smaller than appraisal estimates (0.09 and 0.44 ha as compared to 0.6 ha). Some of the reasons for the shortfalls have been discussed in Section III. Table 7. Estimated Number of Tea Growers Under the Project and Average Tea Area Der Grower (Hectares) App. - Actual Number Average Number Z of Average % of Ha App. Ha App. Rungwe 6,200 0.6 4,492 72.5 0.63 105 Lupembe -3,700 0.6 912 24.6 0.56 93 Bukoba 2,800 0.6 7,769 277.5 0.09 15 West Usambara 1,300 0.6 2,874 221.1 0.44 73 14,000 0.6 16,047 114.6 0.32 53  - 27 - 4.14 The picture as to number of farmers who participated in the Project is not entirely clear. The summarized Project records that are currently available do not differentiate between entirely new tea farmers and existing tea farmers who have expanded their areas.l/The total number of farmers who participated in the Project is given as 16,047, having planted a total of 5,403 ha. Individual tea growers records have been kept at the factories but were never edited. Sample checks tend to indicate that: (1) the total number of tea growers, i.e. pre-Project and Project growers, is smaller than indicated so far because expansions of existing tea farms were counted as participation by new growers, and. (2) the arithmetic average size per farm is misleading. It is estimated that at Rungwe and West Usambara about half of the farmers participating in the Project were existing tea farmers; at Lupembe about 70 percent were existing tea farmers and only about one-third new growers; at Bukoba, however, most of the participating farmers were new growers (80 percent). 2/ This issue can only be resolved by a careful and systematic check of growers records which are available in each of the tea factories. D. Farmers Benefit 4.15 No substantial benefits have been realized by the farmers from their tea plantings under the Project so far, since the bushes are still immature. Due to the delayed planting schedules, about half of the plots are estimated to have yielded in 1977/78 less than 300 kg/ha of made tea. Even the first plantings in 1971/72 have still another four years before they reach maturity (i.e. 10 years plus). As the farm budgets in Appendix 5 (Tables 1-4) show, receipts from the sale of green leaf were sufficient to cover fertilizer cost, tool depreciation and cess but the net surplus is still too small to offer an attractive remuneration for the grower's labor input. However, once tea plantings mature in Rungwe, Lupembe and West Usambara, the crop will yield substantial net benefits. For most of these farmers, tea is the major cash crop; for many growers in West Usambara, it is the only one since the slopes are too steep for other crops. Tea offers a regular supply of cash over the whole year, and has, at the moment, no serious risks from disease or pest attacks. At 1978 prices, a 0.6 ha mature tea plot provides a net cash income of about Tsh 3,000 (Rungwe and Lupembe), and a 0.4 ha plot in West Usambara about Tsh 2,000. In both cases the net return per manday exceeds the wage rate. In Bukoba, however, the small average tea area per grower and the projected low yield relegates tea to a minor cash crop within the existing coffee- banana-livestock holdings. 1/ The Appraisal Report also is not clear on this issue. 2/ Estimate by TTA Production Manager.  - 28 - V. FINANCLkL PERFORMANCE 5.01 TTA's financial viability depends almost entirely on the profit of its tea factories. For 1976, the appraisal report projected a net income of Tsh 5.6 million from factory operations but, in fact, all four factories incurred a total loss of Tsh 3.0 million. A large deficit had to be met by Government subventions, amounting to a total of about Tsh 50 million over the period 1972 to 1977 (for details see Appendi;x 6, Table 1). This performance by TTA has placed it on the list of non-viable parastatals in Tanzania. 1/ 5.02 The reasons for the poor performance of the factories have been discussed earlier (para 3.04-3.08). As a measure to reduce costs, TTA, in particular, cut salaries back through reducing the number of extension staff in 1976/77 (see para 3.24). The rise of world tea prices at the same time should have improved TTA's financial position considerably but then, in 1977, the price of green leaf - the factory's major cost item - was also increased from Tsh 0.90 to Tsh 1.50 per kg. Consequently, the decline of world tea prices since 1977/78 has left TTA's and its factories' financial position as weak as before. Of late, TTA is also attempting to reduce tea processing costs by lowering factory fuel costs by using coal instead of oil (see para 3.09). 5.03 TTA's other income sources - cess on made tea manufactured in Tanzania, sale of planting material, dividend from a 60% share investment in Tea Blenders Ltd. etc. offer little scope for increasing revenues. The revenue from the sale of planting material will practically disappear in future years when new plant±hg ceases. A major effort to consolidate and improve the efficiency of the factories is, therefore, needed. VI. INSTITUTIONAL PERFORMANCE AND DEVELOPNMENT A. Oraanization 6.01 The organizational structure of TTA changed as compared to Appraisal and this is shown in Appendix 2. This change was brought about by the need to provide better coordination and supervision between HQ and the field branches. At Appraisal it was envisaged that TTA would have four operating departments, i.e. extension, factories, marketing, cooperatives, and three service departments, i.e. administration, planning and financial control. 1/ For further details also see TTA Balance Sheets at Appendix 6, Table 2.  - 29 - Each department head was to be directly responsible to the General Manager. In practice, however, this structure was found to be ineffective as the then incumbent General Manager was unable to effectively supervise and manage the seven departments. A revised structure with two operational departments - Production and Marketing and two service departments - Administration and Finance and Planning, was implemented. 6.02 In the initial years of the Project there was serious concern related to the management of TTA. Excess planting material, excessive fertilizer orders and to some extent the slow development of new tea areas, all reflected lack of coordination and management control over regional staff. Supervision and technical management of factories was also inadequate. As a means of strengthening management, the Bank suggested to TTA that the services of a team of technically qualified personnel be obtained through an established and experienced tea company. This suggestion, however, was not followed up - but arrangements were made through ADS for the appointment of an Operations Coordinator (later designated as a Production Manager). The Operations Coordinator was to strengthen the link between HQ and field staff and to organize and direct extension services as well as factories. There has been some lack of continuity of local counterparts to expatriate staff since some of those that have shown initiative and capability have been moved or have themselves initiated moves to other organizations. TTA itself while still in its relatively weak and formative years has been asked to take on additional responsibilities of managing private estates acquired by Government as a matter of policy. While expected to function and produce results very much like a private, commercial organization, it is subjected to all the governmental, bureaucratic and political pressures. The capability and performance of the organization, however, has gradually improved as local staff have accumulated experience and expertise. Expatriate staff have played an important role in bringinLg about this improvement. B. Extension Service 6.03 Extension Services for tea were the responsibility of the Ministry of Agriculture. Since 1969, however, when the Government decided to set up individual Crop Authorities for some of the major cash crops in the country, extension services have been decentralized and integrated with the respective crop authorities so as to provide better coordination and control. 6.04 TTA is entirely responsible for all extension services for tea. Its extension staff were seconded officers from the Ministry of Agriculture but working under the direct control of TTA for operational purposes. At appraisal a ratio of one Field Officer to 500 farmers and one Assistant Field Officer to 100 farmers was recommended. However, over the years the number of tea extension officers, particularly the Assistant Field Officers has varied considerably (see Table 8). Table 8. Staff to Farmer Ratio Dec. Dec. June June June June June 1972 1973 1974 1975 1976 1977 1978 No. of Staff 16Z- 177 382 310 184 93 50 No. of Farmers 18,908 NA 21,300 23,637 28,684 28,684 28,684 Staff: Farmers 1:117 NA 1:56 1:76 1:156 1:308 1:574  - 30 - At the start of the Project the ratios agreed to at appraisal were adhered to but soon reached such extravagant proportions 1/ that TTA was asked to take measures to reduce staff numbers in order to reduce extension costs. This initial reduction of staff numbers was followed by a further reduction when the Ministry of Agriculture decided to recall large numbers of tea extension staff to reallocate them to work as village managers. As a result, the ratio of staff to farmers is now 1:574 as compared to 1:100 envisaged at appraisal. 6.05 While the ratio proposed at appraisal is based on farmer numbers, not all tea farmers are served by extension personnel on an individual farmer basis. Those in block or Uj-aaa plantings are usually approached as a group. Furthermore, at the time of appraisal it was proposed that the size of tea holding per farmer would be 0.6 ha. This would give each ATO 60 ha to supervise. However, in actual practice farmers on the average planted only 0.3 ha, thereby reducing the area to be supervised by an ATO to about 30 ha. Thus, taking into consideration TTA's financial situation (see para 5.01), the ratio of 1:100 appears at the moment somewhat extravagant. 6.06 More than ratios or numbers of extension staff, however, the quality of staff in terms of training and experience in extension methods in general and for tea in particular, needs emphasizing. Field staff are trained by the Ministry of Agriculture at their Training Institutes. A diploma level staff 2/ requires a three year course and the certificate level 2/ a two year course. The courses cover tea as one of the crops. However, to provide specialized training in tea, TTA as proposed at appraisal, set up a training center of its own at Kiwira but this was closed down at the insistence of the Ministry which felt that all training should be centralized in the Ministry. The method' of on-the-job training was adopted but this required guidance and supervision from experienced staff of which there were only a few. Many of the young and raw extension staff were in the field virtually on their own, without adequate means of transport or supervision. There have been very few in-service or refresher courses. Thus, the perform- ance of the extension service and its ability to motivate a large number of tea farmers to adopt improved methods of tea husbandry has been varied and limited. The necessary technical information or package was available and had been tried by estates and also adopted by some progressive farmers with encouraging results. Planting material propagated from high yielding clones and fertilizer was available on credit and was accepted by t-ea growers generally. Yet, there are considerable numbers of farmers whose standards of tea husbandry, e.g. plucking, weeding, pruning, are poor. C. Research 6.07 Tanzania has been a member of the Tea Research Institute of East Africa (TRIZA), with its EQ in Kenya, until mid-1978 when it decided to withdraw from the Institute. Under the Tea Research Institute's program 1/ A parallel growth of staff numbers had also taken place in the EQ staff, particularly at the lower grades. 2/ Now designated as Tea Officer (TO) and Assistant Tea Officer (ATO).  - 31 - recommendations for tea husbandry practices were based on information obtained from trials carried out in Kenya as well as from a limited number of trials in Tanzania and Uganda. The recomendations, when followed, have generally produced satisfactory results. However, these recommendations have been general in nature with the expectation that answers to specific problems for specific envirorments would be developed by individual countries or growers themselves. TTA and the Ministry of Agriculture have made small scale attempts in the past to carry out clonal and fertilizer trials but due to lack of research staff, proper planning, and continuity of effort, these attempts have been unsuccessful. 6.08 The Ministry of Agriculture has now assumed responsibility for all research and is presently in the process of reorganizing the National Research Program which will also include tea research. While current information and recocmendations for tea cultivation are adequate for the short term it is essential that the Ministry organizes an intensified program of tea research to cater for the long-term period (see para 4.06). D.. Visiting Consultants 6.09 TTA employed Visiting Consultants for three of their factories as required by the Credit Agreement. However, the VCs found themselves in an invidious position as their recommendations did not have the force nor in many cases the backing of an executive order. Consequently, the factory managers, being aware of this situation and being inadequately supervised from HIQ, paid little attention to the recommendations. In view of the ineffectiveness of the VCs their services were, therefore, not renewed. VII. ECONOMIC REEVALUATION A.. Internal Economic Rate i Return 7.01 The economic analysis has followed the assumptions of the appraisal report but with two exceptions: the treatment of farm labor and foreign exchange. While at appraisal zero labor costs were assumed, actual develop- ment showed that labor in the Project areas has an opportunity cost. In fact, labor shortage in one Project area (Bukoba) and competition of other agricultural (tea plucker on estates, coffee and maize cultivation) and non- agricultural activities (e.g. construction work, trading) have affected tea development. Therefore, farm labor has been valued at half of the legal minimum wage. In contrast to the appraisal analysis, a shadow rate has also been applied to foreign exchange from 1974 onwards since the Government's foreign exchange policy has led to increasingly distorted exchange rates. 7.02 The internal economic rate of return at appraisal was estimated at 17%. The valuation of farm labor at one half the minimum wage in the sensitivity analysis decreased the rate of return to 14%. On the basis of implementation data from 1971/72 to 1977/78 and of new projections for the remaining 43 years of Project life the internal economic rate of return at constant 1977 prices is estimated at 12%, making the Project marginally still acceptable. Results of the individual Project areas would differ considerably, of course, as previous chapters have shown. Due to the lack of individual factory data, however, separate economic rates of return of the four Project areas have not been calculated. 7.03 In a second run of the internal rate of return computation, the foregone net production value of the incremental tea area in the 'without project' situation was added as opportunity cost to the cost stream (for details see Appendix 7). The IRR declined to 10%. At appraisal, no opportunity cost of land was included, therefore, no comparison can be made.  - 32 - VIII. BANK PERFORMANCE 8.01 The involvement of the Bank in the Tea Project can be assessed for its performance at appraisal and during supervision. The appraisal team formulated a Project based, to a very large extent, on the Kenya and Ugandan experience. This was to a large extent inevitable since the smallholder tea projects in the two neighboring countries were then being implemented successfully. The only major change which the appraisal team introduced as compared to the Kenya Project was the channeling of Credit funds through the TRDB instead of directly to TTA. This, the team admitted made the project more costly and complicated but justified it by treating the extra cost as a contribution towards strengthening TRDB. The shortage of experienced tea personnel within the country was also recognized and hence, the reccsmendation to recruit key senior personnel from outside for the initial period with a view to replacing them as Tanzanian staff became conversant and experienced with the various facets of the tea industry. 8.02 With hindsight, it can be said that the appraisal team was over-optimistic in its assessment of TTA's ability to attract the right caliber of staff and to manage efficiently a project which covered the whole gamut of dctivities from planting to processing and marketing of tea, and implemented in widely scattered areas of the country. This over-optimism in TTA's capabilities was, of course, also carried over to the production targets set for achievement over the Project period. All this happened at a time when the country's staff resources were limited and Government was pressing ahead with its plans to set up separate Crop Authorities and the implementation of their Development Projects, all of which required managerial and technical staff. Furthermore, this was also a period when major political and social changes were being brought about in the country along the lines of the Arusha Declaration of 1968. Government policy of acquiring private tea estates, introduction of new tax laws, construction of the Tan-Zam railway, resettling of villages, were all factors which have, in one way or another, affected the implementation of the Tea Project. 8.03 A phased development (taking into account Government's overall development strategy) starting off with expanded tea activities in one or two areas instead of the simultaneous development in all the four scattered areas located at considerable distances from TTA Headquarters, and closely coordinated with the strengthening of TTA might have been a more realistic approach. 8.04 Supervision teams have been coxstructive and flexible in their approach to the implementation of the Project. They have constantly provided guidance and advice to TTA on the many and varied problems arising during implementation. These included, among others, problems related to procurement, developing formats for reporting and on occasions engaging specialists as members of the supervision teams to provide advice on factory and field aspects.  - 33 - IX. CONCLUSIONS 9_.Ol The Project is now at a stage where the accumulated experience of the past few years is beginning to produce a measure of expertise and confidence in TTA staff. The Branches are beginning to function as part of an organization and procedures and reporting are being standardized and coordinated. In terms of production the full impact of the project will only be felt several years from now since the bulk of the tea plantings are still immature. As of now, however, project achievements have fallen shott of Appraisal targets in virtually all important aspects. The financial performance has been poor while the economic rate of return is marginal. 9.02 The overall targets set for achievement over a 5-year period were perhaps too ambitious particularly when it involved the organization of a relatively complex and specialized undertaking as a tea development program within the confines of a parastatal. Tea development covers a range of activities covering a large number of small farmers with varying backgrounds, factory operations involving specialized technical and tea making expertise, international marketing where time is of the essence and price premium is dictated by quality. With the dearth of experience and expertise on tea within the country, to recruit and train staff to implement a wide-ranging project with a view to producing a successful and viable industry at the end of 5 years is a stiff order even with expatriate staff assisting in key positions. And particularly so when the country is involved in a wide ranging development program with a number of projects with somewhat similar and competing requirements. 9.03 With the Project and tea development where it is today, it is essential that the next few years be devoted to consolidation and strength- ening of the organization rather than to further expansion. The quality of made tea has to be improved and the cost of production reduced. While this would mean a general all-round strengthening and improvement of TTA's performance, the factory processing and closely related leaf collection aspects as well as the green leaf price, need urgent attention because of their bearing on tea quality and production costs.  - 34 Appendix 1 PCR) 3398R UGANDA - 32, A A0 , - TANZAN-.A 970 V/C TAZNA ORALi RWANDA 0 Mu __SMALLHOLDER, TEA -DEVELOPMENT A ;° RW ND A (A0 g 00 - 9 R'm A "IOBA i. PROJECT, LOCATION 0Z ~ ~ ~ ~ ~ ~ ~~~ A\N o ~~N 0 100 200 3(o_ Zg 0r N'N 5, 091, IILOMETEK5 010rRo 4;t Uttl/ Fo qtiduoDt H~~~~~~~~~~~~~~~~~~ILES | U RU N DI lolnsu 0 mt ;AJ K p)Wt~~~~~~~~~~~~~~~~~~~~~~~~~ F-A YLAE\AYA / a N < KohAsa < !;0/ O D 7 0 Mbulu JAttO 7 & s r.zariio ~ 4 IV MANYARA s ~ ~ SABAA ! a TI Q R A A Ol Mz~9 A5I t\g N1 Kiiom rombo Tab s~~~~~~~~~~~~~~~~~~~~~~~~~oegr LReu~ \4 \\¢_-sulRunitwo 7_ * 2, A SAM . . .; ; L r_ THISMAPIS BASED ONleRD 'i33ER. SEPT.,1571,7^7 377,073. TunduP 7)3073.dl'S53, ,y/dpnn7 0t he sq. 37)03p7~ 7y4* i- I aocspl,nc. a ,ock Oaondaoco~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~i ONLY SOMECOU0NTRYNAMES HAVEBEEN UPDATED. 4t<Po \, ,_N pO t 0 N MYA T3 expansion areas !and Region boundaries - j - \, \ If-) \ t- E v * r Areas with high population density in i967 uj ino V A Do77xsIozsC tha,...r nrjizenlreDhlegalsealusoron~Hr. of 77,d0,,o n=70F S+ 0000307330091000l30)30,070 - 013ldtlrRe 3000* rTh pad d.s,o,s 0707i 0)L larilorr Ion Dh..d and70 . hembI rv o J M OZ AM3BI O UE _  - 35 - TANZANIA Appendix 2 SMALLHOLDER TEA DEVELOPMENT PROJECT COMPLETION REPORT TTA ORGANIZATION As at Appraisal GM Smallholder Dev. Staff iervices Services I I I I l Extension Factories Marketing Co-ops. Admin. Planning Finance Branches Branches Rungwe Katumba Lupembe Lupembe Bukoba Bukoba Usambara Mphonde As Revised Operational Services I1 Staff Se'rvices r- I -I ~~~~ ~~~~~~~~~I I Production Marketing Admin. Finance & Planning r - -- I I I Extension Factories Planning AccountB Audit & Co-ops Branches Branches Rungwe Katumba Lupembe Lupembe Bukoba Bukoba Usambara Mphonde  TANZANIA SKAI.LIIOLDVR TEA DEWIL0PI9ENT PROJECT CONPLETION REPORT Area Planted with Ten Under tiCe Prolect (Ha) --- -T.LuIl CurreuL EuBkoba Uest Usambdrs h *8e _ Lup~eube App l Arataal Actua! is 7-_.E APt?! ipprilsat Actus_ AppraAsppa Actal Approlual Actual Apprfaial Act"al 3.029 1,484 49Z 542 208 313 386 1,339 e8t 835 72 1971/72 45.S 208 398 2.692 1,122 798 58 554 228 1.132 438 1972/713 1,5(6 50.3 305 186 274 2,572 166 630 221 524 1973/74 1.232 178 - 946 61.7 163 - 34 - - 571 - 1974/75 68.4 - 40 - - 5i3 - 154 x - 103- - 256/ 1975/76 _ _ _ _ -- - 1976/77 401 6q.9 - - - - - 40-- - 8.293 51. 68.9 - 1,620 878 707 1,276 l')77/7tt 3,703 2,849 2.2653 70 ThiAI. 1977/Id IBO.S 68.9 31.3 54.2 76.91 Acl.,aI su 1 uf ApIlt.iI5al 11 ha of TTA eatal:e. plaitIgs (total - 308 lw). In 1974/75 the Dukobs plantIngs of 34 lia includes it VriACut.lh 1I P  TANZANIA SHALLHOLDER TEA DEVEL0PHENT PROJECT COH4PLETION REPORT Yield Estimtes for Tea at Various Stages Of Matrit (Ky/Ia H.T.) Rev. as I of Appr.at Year from Plantiln 1 2 3 4 5 6 7 8 9 10 Mature Hatiurity RUNCWE AppraiSal - - 125 300 550 700 850 960 1,050 1,140 1,200 Revlsed (1978) - - 125 222 319 416 513 610 707 804 900 75% L.UPEHBE Appraisal - - 125 195 325 520 680 810 910 960 1,010 Revised - - 125 234 343 454 561 670 779 888 1,000 99% BUKOHA Appraisal - - 125 300 550 650 800 1,040 1,170 1,230 1,300 Revised - - 125 184 243 302 361 420 479 538 600 46% US AMBARA Appraisal - - 125 195 325 520 680 810 910 960 1,010 Revised - - 125 203 281 359 437 515 593 671 750 74%  TANZANIJ SHAI.I.IIf)lDKR TEA DIEVELOPMENT PROJECT COHIPLETION REPORT Eatimated Hade Tea Prodiuction (Thousand Kg) of the Area Planted Unider the Seallholder Tea Develoepnt Projeet Current _ung~Ja hukoba ,.Ži ezmb Wesat Usambais Total as X. of AppralBal Current A i Current Appraisal Current l_ppraisal Current Apprall Current Apreleal 1972/73 1 1973/74 167.4 102 67.8 I3 104.4 9 i 39.1 35 1 178.7 177 46.71 1974115 543.2 236 231.9 81 262.6 24 87.0 126 1,124.7 467 41.5 197S/76 730.1 454 599.8 IS0 505.7 66 165.5 229 2,001.1 899 44.9 1976/77 1,929.5 721 814.2 2 (.J 816.4 125 266.6 390 3,826.7 1.439 37.6 ~h127 L92,608. 2 1,005 1.081.9 266 1.187.3 200 I 381.5 535 5 259.1 2 6 38.1 Tu.al 1972/173 1977/78 5,978.4 2,518 2,795.6 731 2,876.6 424 939.7 1,315 12,590.3 4.988 Currenct as 1 of Appraisal 421 261 151 1401 407. 1978/79 3,110.0 1,281 1,347.5 323 1,546.6 273 f491.7 651 6,495.8 2,528 Co 1979/80 3,539.9 1,558 1,629.5 379 1,826.3 350 579.8 743 7,575.1 3,030 190/801 3.897.8 1,834 1,859.8 436 1,980.0 428 640.4 813 8,378.0 3.511 1981/82 4,190.1 2,110 1,988.3 493 2,128.6 505 685.1 877 8,992.1 3.985 1982/83 4,369.7 2,306 2,058.2 533 2,216.3 574 704.8 922 9,349.0 4,335 1983/84 4,443.6 2,460 2,095.5 560 2,285.6 638 714.1 946 9,538.8 4,604 1984/85 4,443.6 2,540 2,106.0 568 2,285.6 678 714.1 957 9,643.8 4,743 08 1985/86 4,443.6 2,564 2.106.0 375 2,285.6 699 714.1 959 9,643.8 4.797 I986[87 4~443.6 2,564 2,106 0 575 2,285.6 699 714.1 959 9.643.8 4._79t Annual Production at Maturity oIrrwut as 1 of Appraisal 587. 277. 307. 1347 5017  TANZANIA SMALLHOLDER TEA DEVELOPMENT PROJECT COMPLETION REPORT Summary of Project Costs Appraisal Estimate and Actual Cost Appraisal (1972-1976) Actual (1972-1978) % change (T.Sh. '000) (US$ '000) (T.Sh. '000) (US$ '000) T.Sh. $ Nursery Development Costs 14,433 2,071 20,000 2,631 38 27 Growers Fertilizer 3,811 47 5,187 692 36 26 Road Construction provisional 26,786 3,844 30,386 3,920 13 2 (only Bukoba and Lupembe) (11,969) (1,718) (13,578) (1,752) (13) (2) Factory and Leaf Collection 19,727 2,831 15,070 2,037 -24 -28 Extension Services 18,392 2,639 25,596 3,315 39 27 TTA Headquarters 6,061 870 4,222 544 -30 -37 Credit Growers Pur. of Planting Mat. 23,766 3,411 18,460 2,542 -22 -25 Seasonal Revolving Fund for Growers Purchase of Fertilizer 1,858 267 4,100 543 120 48 Subtotal 25,624 3,678 22,560 3,085 -12 -16 Total Costs including Contingencies 114,834 16,480 123,021 16,224 7 -1.5 D m  - 40 - TANZANIA Appendix 4 Table 2 SMALLROLDER TEA DEVELOPMENT PROJECT COMPLETION REPORT Schedule of Cumulative Disbursements (US$ '000) Estimated and Actual IDA Fiscal Year Appraisal-/ Actual as % and Semester Estimate Actual of aDDraisal 1971/72 June 30, 1972 2,144 - 0 1972/73 June 30, 1973 4,330 1,300 30.0 1973/74 June 30, 1974 6,927 1,985 28.6 1974/75 December 31, 1974 8,054 3,458 42.9 June 30, 1975 8,712 4,994 57.3 1975/76 December 31, 1975 9,370 5,728 61.1 June 30, 1976 10,197 7,004 68.6 1976/77 December 31, 1976 10,800 7,492 69.3 June 30, 1977 7,659 70.9 1977/78 December 31, 1977 8,749 81.0 June 30, 1978 8,870 82.1 1978/79 December 31, 1978 8,961 82.9 1/ Adjustedfor exchange rate change (see first page of Appraisal Report.  - 41 - Appendix 4 Table 3 TANZANIA SMALLHOLDER TEA DEVELOPMENT PROJECT COMPLETION REPORT Schedule of Credit by Category (US$'000) Development Amendment Amendment Withdrawal Credit July December as of Dec. Category Agreement 1977 1978 29, 1978 1/ I. (a) Processing equipment for tea factories 1,100 1,436 1,321 840 (b) Road construction machinery for Bukoba and Lupembe area roads 700 475 445 448 (c) Services of experts employed by TTA 400 317 354 270 (d) Ser:ices of experts employed by the Borrower 200 209 259 233 II. (a) Tea factory buildings 1,400 1,616 1,820 688 (b) Vehicles and spareparts for TTA leaf collection services and office equip- ment for TTA headquarters 100 173 237 103 (c) Vehicles and spareparts for TTA extension services 100 102 63 63 (d) Fertilizer and tea planting material 2,300 3,094 3,043 3,043 III. (a) Establishment of nurseries 1,300 1,836 1,816 1,816 (b) Construction of roads in Bukoba and Lupembe areas (other than construction machinery) 400 911 811 826 (c) Staff houses and training facilities for extension services 400 54 54 54 (d) Services of Tanzanian ex- tension service staff employed by the Borrower 1,500 577 576 576 IV. Unallocated 900 - - TOTAL 10,800 8,961 2/ 1/ Figures rounded. 2/ Exchange rate adjustment excluded (US$41,707).  - 42 - Appendix 4 Table 4 TANZANIA Page 1 of 2 pages SMALLHOLDER TEA DELLOPMENT PROJECT COMPLETION REPORT TTA Marketina Costs (Actual 1977/78) A. TRA!4SPORT j Katumba/Dar es salaam .0.330 KatumbalTanga .0.340 Bukoba/Tana .1.500 Lupembe/Dar es salaam.0.320 Lupembe/Tanga ................ 0.340 Mponde/Tanga .0.190 B. PORT Handling charges ............... ,.,.,.,.O0.005 C + P charges - 1.00 per chest ... 0.020 Warehousing charges - /60 per chest ... 0.144 Export Tax ... 0.150 Transport to Wharf 3/50 per chest ... 0.070 Marking charges - /25 per chest ... 0.005 Miscellaneous charges 271.00 per 300 chests - 0.903 per chest ... 0.018 Palletising - Cost of Pallet ............ 57.50 loading charges 115.00- - 172.50 0.173 Shipping charges .. 0.127 Total 0.707 C. EXPORT (London) Freight, Insurance & Prepaid charge 16.52 per ton ....... 0.017 o.005 Sales charges 4.94 per ton .............................. Warehousing 720/-per ton ................................ 0.720 Brokerage and Agency 390/-per ton . . 0.390 Total 1.138  - 43 - Appendix 4 Table 4 SUMMARY Page 2 of 2 pages Tanzania f.o.b.: Katumba and Lupembe 1.03 Bukoba 2.21 Mponde 0.90 London auction: Katumba and Lupembe 2.16 Bukoba 3.34 Mponde 2.03  TAJiZAI1IA T.-a CrowI r' ! Cash l'l.w, Lup,-rmba 1972- 1978 In currant prics. aft.r In contant 1978 prices AvLr t5ar.j ltfl-o: O.S he 1 jlanted over 5 year. fro 1971219!i, 6 ch y.sr 0.11 ha .& - L-k-n _jt!.r 0.111 bs~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~a .r 1972 197) 19 1975 1976 1977 1978 1979 1980 1981 1982 1983 1Ž Loa,, f r st.apn anq,fertillser 433 552 620 688 795 240 175 170 170 170 170 170 170 S4l. I.. r ccn l..A - - $4 155 314 8 Sd 1.440 1.,98 2250 2 406 3,27 3642 3 7El 1. X.>tal ,lr.lo.. 433 552 674 843 1.109 821 1.615 2,068 2.420 2.S76 1.103 3.812 3,95:! St-lmp.2/ 379 436 445 445 445 66 9 F, r. I I ... rs2/ S4 116 161 202 266 19 - - - - - 1. . n a 1aske9 , II 11 19 35 35 3S 35 3S 35 1s 35 35 3' tn-n - | 14m n 41 eal 84 2t I 155 3q4 50t6 kO0 1 -, 2971 971 . 2 Tb .1 ' 'fi... 444 563 619 123 830 275 428 541 6iS b7i 908 I.Oub6 1.01 3 N.,r Ca 1. l,In. (0.,t flo..w (11) (11) 35 120 279 546 1.187 1.527 1.785 1.899 2.195 2.806 2.90' 4 l.,p.t. i .abor .. n -t 111 222 334 974 1,223 1,223 1,223 1 ,22 3 1,23 j.j21 13j1 41..2 5 S,.rpl,. (AeficIlt) (122) (233) (299) (854) (944) (677) (79j) 304 562 676 972 1.563 1.6S: I/ Sce Ar .- ^lix i. Ta..Ie 2 for yield estimates of made tea (I kg made tea converted to 5 kg; reen leatf). Creen laj pricc of Tsh 0. 77/1; in 1914, Tl,. 0.80 In 19Z1, Tel. 0.90 In 1977 ..n Tsh 1'.5 2/ At T ' 0.3', per stomp. fo 99o,r~ 3/ D. *c'.IC(r- illleor for the first two yearm after planting. Afterwards tlie outflow for seasonal fertilizer Is ftc. 1978 n..jr. In.-I-I' I i-. II.-. r-pay..e.t since the levy on green leaf as flxed by TIA i S,ppo"a to c,e,vr both,. d.!velopm.nt end 4/ Le.- c'r r.Slh. 0.20 per kg.'of greean leaf from 1974-1977. and of T. Sbi. 0.40 Ith.r,after. 5t 260 msa, l.Ys p" r hl,.tare at the -. ge rate of T.Sh. 3.84 per man day from 197;-19Z4. and T.Sh. 8.40 thereafter. L ,;  TAN7 AKA s"L-0::oIl .. TrA DOt1T1' ;t PgOJ2CT COMPLETION REPORT Tea Cro'wr's Carb Flnv, pn,cve (Tah) 1972-197& In Current l'rices, Afcer In Constant 1978 PrIces hverano Tea Area In Rung.es 0.63 Ha. Planted Over 5 Years from 1972-1976, Each Year 0.126 Pa.u Ha IC 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 7983 15Fi LMFl OW IW oFOnfor t', pa an 1 ferti1iaer 491 621 708 795 926 321 SL,. fof at-,P lef- eriir 288 235 230 230 230 230 :30 -6 38 64 1. Tol of ni t 757 1 828 2.4)2 2.880 3.338 3 701 j.Z25 491 621 771 970 1.304 935 so? 1,795 6} 16152 3:0 l.e (ii 4.452 ~n.,r :ltX/ it. *B,s: 427 491 S10 510 S10 74 FerLIM13-r_/ 10 64 130 182 241 315 83 to and ba.~~~~~~~~~~~.ots 124 - - 3 i 11~~~~i It 19 28 35 35 15 1 R1 .. 35 3 53 53 2. To -4 - 76 44 103 161. 402 681 tI_''-_I. .' 646 768 890 987 1j.1 502 632 727 823 961 356 571 '22 - 66- 925 T6Fi i.l 3. *., Ca4 1 I '".- (O..l flrv) (1) (15) ...................... 44 147 343 579 1,224 1,541 1,971 2,307 2.643 2.90 1 3,111 4 l'.proeJ .l. r .Cost 127 1 _ 253 381 IS 29 1.378 3.378 1. 378 h _ iL18 .178 3.318 3. 5. Surp,lus(0r lt.I2 (138) (264) (337) (953) (1.035) (779) (14) 163 593 929 1,265 1.513 1.935 I/ S.e Appcnlt! 3. T.,ble 2 for yield estimates of made ten (I klx sade tea converted 2/ A, T SI. 1 35 PI' at-oP to S kg grren leaf).. Crten leaf pritce of Tah 0.80/L1 in 1974; other.ise as ln Lupenbe. it D- elop.r fertill.or for the first two years after planting Afterwards the outflow for ne-sonal fertillter to I.-cl,d.d Ir loon r.paynent aircs the levy on green leaf as fixed by TTA In auppose .to cover both, d.volopmtent and s.asonal f atiltzer 4/ L. ,y of T -.n 0.20 per kg. of green latf fror 1974-1977, and of T.Sb. 0.40 ther.after. 5/ 2.-0 ao da per hectare at the wage rate of T.Sh. 3.84 per man day from 1972-1974, and T.Sh. 8.40 thereafter.  TAXZA4h1A S3A-1.1101.11FII lR.IEA I oPIir IWrvi rcoiJcT COtiPI ETTON RFPORT Teca ro:crg gCaoh1oIta ! at laacb.ra (Tsh) 1972-1978 li C,rrt..st Pricl. 1Aftr li- C i otAnt 1978 Prices Averagle Tea Area In West UsVutbara: 0,44 Ulb Planted Over S Yeers trom 1972/1976. Each Year 0.088 1AE.rt, Ha 1972 1971 1974 197_ 1976 1977 1978 1979 19b0 1981 1982 1983 19866 1';F1f*W 340 434 489 542 625 189 I3S 130 130 110 130 130 110 L.,a.for .- umps .. d fertlliser - 42 111 214 281 927 1 268 1 441 1.100 1.9;9 2.165 $eS Sile of .r n iei,. 340 4j4 531 6-3 839 472 1.062 1.398 i.S73 1.830 2.0 8 i 29S 2.605 1. T.cal lIn l. 14'TI-I Ioi St...PI2/ 298 341 1SO 150 l10 52 7 42 91 128 162 218 62 - - - - - - Ii It 19 35 Is 35 31 31 31 11 31 i k.-. land ., kes L.a..*Ri! .k4 ot It Si is 247 338 385$ 43 522 577 63 351 445 S08 517 660 224 289 371 420 468 5 7 ei 12 2 t AI .. I (11) (11) 23 76 179 2S8 771 1.025 1.1%3 1 1.2 I I11 1.683 1.910 1 *r C,il, Inflor (0g..tflos) 88 177 265 773 958 _958 918 958 958 9_*" 9JR 958 _5 - '1'' I. .r C.-.t it14 (188) (2423 (697) (779) (710). (185) 67 t95 3d1. 71 7215 0 5 S.nrplis (1)-fIelt) (99) I/ S.e App- lix 3. I.,bl. 2 (or yield estimates of mde tea (1 x. made tea converted to S kg rren lest). Green leaf price as In Lupesba. 2/ Al f Sh II 15 pcr atuap. 1/ !kve:1I.per.ist fertllx..r fur thea first two years after planting. Afterwards the outftow for sessonal fertillier is g,,clu,IeI 4 the I tan reprament since the levy on green leaf as fixed by TTA is supposed to covar botibg development and s.,-al t :rtililr. S/ !.cvy f t. 0 20 par kg. of green leaf from 1974-1977. and of T.Sh. 0.40 thereafter. .1r S/ 24,0 man -I.l,s pe- hectare at the wage rats of T.Sh. 3.84 per man day frois1972-1974. and T.Sb. 8.40 thereafter.  TANZANIA SFIALLIIOIFR TrA I_DVFI OPFIFNTPROJECT IBFPORT Cn'4I.ETTOnl Tea Grower's Cash Plov. IHkoba (T.Sh.) 1972-1978 in curr.1cPrices afterLn coostalit 1978 prices Averj._ tej _rea ifn P.koba: . pl.nt.d over 5 year. frm 0.09 hO a 19J2-1976 ech _yer 0.018 ha 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1986 I.ouar f r st,.qp, and fertilizer 70 88 99 110 127 38 26 25 25 25 25 25 25 Sale of i een loaf!' _ 8 21 42 68 162 212 236 292 _22 356 405 I Trtal I I v 70 - 1-i 07 -- 16i 9-6 t188 237 261 307 341 301 430 OUT: IOW 61 70 71 71 71 10 1 - - - - r3/ IrrIt. 9 18 26 33 45 10 - - - - _ 11 11 12 28 35 35 35 35 15 Is 35 35 )5 Ioao r. Tz ' 0.nII* 2 Sa 6 18 43 56 63 7i 86 9S 1ins 2. o flo. Iotal 81 99 111 138 162 73 79 91 98 110 i2f ISO 141 1 s (o.- snfl.,,. (Cfortflr) (11) (1) (4) (7) 7 33 109 14; 163 197 226 251 287 4 . Inp... I l.or C G t 19 38 _57 160 196 _196. 196 19b 19u 19. _96 19. 1 S S,orpIl- (t rfici ) (30) (49) (61) (167) (189) (163) (87) (50) (33) ' 50 55 91 1/ Ser App.: Iat 3, Table 2 for yield estimates at made tea (I kitmade tea converted co 5 kg green leaf). Creen leaf price of Tsh 0.85/Lg In 1976. In ocher yelrs as for L.peabe. 2/ At T 54 0.35 per Luslp. 3/ De-lop ,c ferritii r for the first two year. after planting. Afterwards the o.tflow for seasonal fertilteer La locI,,d..I -n loaI repsyr .. t in.e the levy on green leaf .s fieed by TTA Is a.ppac Oco ver both, developient and SeaStoal t'rtllrer. 4/ levy of , Sh. 0 20 per kg. of green leaf from 1974-1977. and of T.Sh. 0.40 thereafter. 5/ 260 r&an Inys p.r hectare at the wAge rate of T.Sh. 3.84 per man day from 1972-1974. and T.Sh. 8.40 thereafter.  - 48 - Aooendix 6 Table L SMALLEOLDER TA LOPT ?R0A,C CCXPLETION RE?CRT Coacarative :ncoae and !.=endt: -e' From 1972-73 to 1976-77 (-o June 30 (T.Sh. '000) 1973 1974 1973 1976 1977 Tanzania Tea .Authoritv InccmeV C*sh received 1,231 1,082 1,211 1,150 3,639 Sale of st=ps 3,358 6,058 3,301 1,691 1,277 Dividend - - - 173 600 Goverraent Grants 9,546 8,8L5 8,000 16,161 8,209 Other 60 101 182 538 447 14,195 16,056 12,694 19.713 14,172 Exoemditure. Nursery Costs 1,999 3,840 5,612 3,962 2,048 Interest au Loans - 690 1,434 2,261 2,918 Administrative Cost 4,648 6,646 6,814 4,614 5,060 Extensiou Services 4,017 3,382 5,943 6,173 4,973 Depreciation 870 1,373 1,362 1,181 1,075 1.,534 15,931 21,165 18,191 16,074 Surplus (Deficit) 2.661 125 (8,471) 1.522 (1.902) Project Factories Incame and E.xenditure.3/ Surolus (Deficit) RLmgwe-Katumba Factory - (292) L12 (1,622) Niombe-Lupembe Factory (397) (58) 243 (792) Bikoba-Bukoba Factory (517) (153) (553) (387) Usambara-foonde Factory (440) (308) (339) (157) Total (1,354) (195) (537) (2,958) Combined TrA and Factor' Income and Ex=enditures Set Surolus (Deficit) TIA 2,661 125 (8,471) 1,322 (1,902) Factories (1,354) (195) (537) (2,?8) _ TIA and Factorees rotal 1,307 (70) (9,008) r1.!.36) - 1/ Totals have been rounded. 2/ Last TTA audited ac:outs co June 20, 1977. 3/ Lasr -ac:cr7 audi:ad accouncs :o Z=e 30, .976.  - 49 - Aopendix 6 T.ANZLA Table 2 SMALLHOLDER TEA DEVELOPmNT PROJECT COMPLETION REPORT TVLNZA'IIA !A A 17ORI Comoarative Balance Sheets From 1971-72 to 1976-77 (To June 30) (T. Shs. '000) 72 73 74 75 76 77 ASSETS Fixed Assets 2,431 3,342 5,415 5,763 6,429 7,492 Investments - Factories 8,501 20,994 22,720 28,205 33,242 32,449 Loan to T.T.S.D.O. - - 2,026 2,026 1,665 1,277 Investment-Estates Development - - - - 3,088 4,112 Stores 110 35 439 946 713 1,618 Trade Debtors 6,503 3,968 8,472 3,084 3,801 2,945 Staff Debtors - 244 541 677 1,135 528 Cash and Bank _869 2,271 148 478 6,357 4,092 TOTAL 18,396 30,854 39,761 41,179 56,430 54,513 LIABILITIES Govt. Loans-.'(Bukoba Factory Purchase) - 6,880 6,880 6,880 6,880 6,880 TRDB (IDA Loans) - 5,293 13,054 21,892 32,804 34,554 Excess of Income 18,092 17,960 18,417 9,944 11,468 9,566 Interest Payable - - 418 818 1,262 1,368 Trade Creditors 304 721 992 1,645 2,402 2,145 Bank O/D - - - - 1.614 - TOTAL 18,396 30,854 39,761 41,179 56,430 54,513 1/ T. Shs. 6,880,000 is the Government's investment for purchase of the Bukoba Factory. This figure is shown in the TTA's accounts as a Governnent Loan. No 'nterest is charged on this lcan.  - 50 - AoDendiL 7 TANZALNIA SMALLHOLDER TEA DEVELOPMENT PROJECT COMPLETION REPORT Economic Analvsis As at appraisal, only half of the road costs were allocated to the tea project in computing the internal rate of return because the. roads in the tea areas have been used for other purposes as well, including transporting other agricultural produce (e.g. maize, vegetables, coffee) besides tea. Since these benefits are difficult to assess due to the lack of statistics, the method of allocating reduced costs to the tea project was chosen to account for the road impact. Actual project development has sbown that the appraisal assumption of zero labor costs was too optimistic (see para 7.01). Therefore, costs of farm labor have been included in the reevaluation at a shadow wage rate of half of the minimum wage, i.e. Tsh 3.84 per manday from 1972 - 1974, and Tsh 8.40 thereafter. Despite this change in the valuation of farm labor a comparison with the appraisal analysis is still possible since the appraisal included the pricing of farm labor in its sensitivity analysis. Alternatively, in a second computer run the opportunity cost of the incremental tea area (see Appendix 3, Table 1) was also included. At appraisal it was assumed that tea would not replace any other crop on the subsistence oriented farms but be cultivated on otherwise uncultivated land with no opportunity cost. However, assuming that an expansion of maize cultivation could have occurred on the uncultivated land the foregone net production value of maize has been included in the reevaluation. The calculation has been based on the assumption of a yield of 1,000 kg maize/ha, a cost of Tsh 30/kg for seed and tool depreciation, opportunity cost of labor for 127 mandays/ha at the same wage rate as applied for tea and an economic maize product price of Tsh 0.30/kg in 1972 and 1973, and of Tsh 0.60/kg afterwards. Foreign exchange had not been shadow priced at appraisal either. Increasingly distorted exchange rates of the Tanzanian Shilling during the years of project implementation justify the use of a shadow rate from 1975 onwards. Following rates to US$1.0 have been used in computing the internal rate of return: 1975 - Tsh 10.0, 1976 - Tsh 11.0, 1977 and onwards - Tsh 12.0. The internal rate of return has been calculated at constant 1977 prices. Following GDP-deflators have been used: 1972 - 6%, 1973 - 11.2%, 1974 - 18.9%, 1975 and 1976 - 14.5%, and 1977 - 16.2%.  - 51 - Appendix 7 Page 2 Tea prices have also been calculated in 1977 constant terms. A gradual decline from the high price level in 1977 of Tsh 14.40/kg is followed by a constant price of Tsh 10.30/kg from 1982 onwards. This compares with an average FOB price of Tsh 6.4 from 1981 onwards assumed at appraisal. In both cases it was assumed that the construction of new and the expansion of existing factories would meet the requirements for the processing of increased green leaf output without adverse affect on the quality of made tea sales.  TANZANIA SHAIlJliOL.DER TA PDEVVEliAMEti4P0JiW COWlcTl r04 PU'OBT Fncresfecal Ffinancial Preoect'Coadt ia 5ti41 for coanomtc Analyasi Annual 1972 1973 19714 1915 1976 1977 1978 1979 1930 1981 1982 1983 1984 198S 191i6 Aver ,e 1987- 2121 N,lruary tcveloj.wout 1,700 1,868 3,518 2,985 2,988 - - - - -- - Growers ecrtillzer 257 700 1,521 2,190 4,168 5,522 6,340 8,000 o,000 8,000 8,000 a,ooo e,0oo a,1wo 8,Lmto 8,04*0 IBoad Cuoutructlo I/ - - 868 1,300 2,176 1,394 576 628 628 628 628 628 628 628* 628 620 V.attiey tsilIsdin 8 ad Iq,Lmti1.umemt - 2,052 1,457 2,250 3,140 122 108 6,450 6,450 - 3,700 2,600 1,750 2100 713 1,880 VaFctry OprcCULln EXaPeCn.e - - 554 1,938 3,524 4,304\V1,700 1,30 9,400 l0,9U0 12,400 13,400 14,500 14,.Jim) 14,.93 14.90*i Lesf Collctionu 0*PerLtillt ExPIem,c - _ 40 68 330 475 1,000 1,390 1,670 1,930 2,190 2,384 2,332 2,600 2,640 2,640 Extcaledo, Versun.0Ie 533 2,000 2,500 2,080 628 382 420 420 420 420 420 420 420 42:1 420 420 Vel,l t ILD 85 204 17 - 928 - 734 - 800 - 255 570 - - 1,180 355 rrA Hlaud, 1 1,61terd St&.tf 366 958 1,440 2,200 2,050 2,200 2,400 1,775 1,600 1,600 1,600 1,600 1,600 1,603 1,61)1* 1,600 Crowers l.lor 3/ 741 1,300 2,083 5,589 6,150 6,150 6,150 6,150 6,150 6,150 6,150 6,150 6,150 6,150 6, Vill 6,150 TOTAL. ciswrs 31,682 9,082 11,998 21,097 26,102 20,749 23.428 32,613 35,118 29,628 35,343 35,752 35,380 36,198 35,591 - Incl-emotl thltjL, at F ade Ted ('04100g- . 177 467 899 1,439 2,006 2.528 3,030 3,S11 9 4-1 S 4,64 4,*43 4*7,1 _____ Il 502 of CO,,ocrUCLIOn asnd 1tolnte*ance Costs (see Apppudlx 1). 27 O.,ly l!xLe.laIn, V.t11cLum InCec I.eat Co41hcLIon VlhIcle. O41 Coei *rac Included In Loat Collectto Oporaring lxipenase- 3/ 260 maa,daya/l.a val,wJ at lltotat l, alna &,ag ratl. 3tu , 2/28/119  - 53 - A.NZA.'tZA AAP!1tYD 7 Tab I* 2 5SMtJL0TLER -A E7.-P!'rr 0!Ce PROJ!CVrT CcMMP'r2 5?.OR. lacernal !cvna=e .ate of 'ecuTl Net Incremental Incremental Incremental Year Benefits Costs Costs . o~~~~~~~~~1.o -8 : - '8o. . i 0. 0 .) ,_ j .. 1973.0 2 . .3 S.t3.0 31159.0 -2%941.0 2081. 0 s6093.0 - :0Q.0 9')11.0 2'b44. ) 35666.0 29519.0 S ~~~~~~~~40701.041i"9_.0-3 . 44965.0 49_ 4424'.0 10Sol. 37331.Q0^S. 11 S7463.0 44532.0 12931.0 62510.0 45048.0 t7462.0 14 66389.0 4A579.0 21810.0 L4 68393.0 4S09.0 22784.0 iS 49173.0 44845.0 24329.j 16 49173.0 43348.0 2Sa:s.o ;7 469173.0 49198..0 199S5.o Is 69173.0 48180.0 20993.0 ;9 69173.0 44274.0 24899.0 20 69173.0 47928.0 21245.0 21 69173.0 46863.0 22310.0 '- 69173.0 46889.0 2:984.0 '; 69173.0 45912.0 23261.0 24 69173.0 43358.0 25815.0 25 69173.0 43348.0 25825.0 26 69173.0 49198.0 19985.0 '.7 69173.0 48180.0 20993.0 69173.0 4A274.0 24899.0 69173.0 47928.0 21245.0 Z i4t,73.0 46a63.0 '23;0.. 69173.0 4o189.0 ::9S4. 7: <9173.0 4S912..0 3; 69173.0) 4335'8.0 :581Z5. 3; xof~~~;73.0 43348.0 °'. 69173.0 49138.0 19P5.3 69173.0 481S0.0 20993.0 37 69t73.0 44274.0 24899.0 3a 69173.0 47928.0 21245.0 39 69173.0 46863.0 2:310.0 40 69173.0 46189.0 22984.0 41 69173.0 45912.0 23261.0 4: 69173.0 433'8.0 25815.0 43 69173.0 43348.0 :2SS:.0 4- 69173.0 49188.0 19985.C 4' 69173.0 48180.0 20993.0 4a 69173.0 44=74.0 24899.0 47 69173.0 4792S.0 2124T.0 4tj 69173.0 S6863.0 2310.0 4; 69 1 73-0 46S;9.0 :o94.0 ZO :9t173.0 4 12 .0 2:2;..