Tanzania - Grain Storage and Milling Project

Document of C The World Bank FOR OFFICIAL USE ONLY Report No. 2693a-TA STAFF APPRAISAL REPORT TANZANIA GRAIN STORAGE AND MILLING PROJECT April 15, 1980 Regional Projects Department Eastern Africa Regional Office 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.  CURRENCY EQUIVALENTS Currency Unit = Tanzanian Shilling (TSh.) US$0.12 = TSh 1.0 US$1.00 = TSh 8.30 US$1,000 = TSh 8,300 WEIGHTS AND MEASURES 1 meter (m) = 3.28 feet (ft) 1 kilometer (km) = 0.62 miles 1 sq. meter = 10.76 sqn feet 1 hectare = 10,000 m = 2.47 acres 1 kilogram (kg) = 2.204 pounds (lbs) 1 metric ton(mt) = 1,000 kg. = 2,204 lbs. GLOSSARY OF ABBREVIATIONS ADS - Agricultural Development Services BADEA - The Arab Bank for Economic Development in Africa CIDA - Canada International Development Agency FAO - Food and Agriculture Organization KILIMO - Ministry of Agriculture MDB - Marketing Development Bureau of Kilimo NAFCO - National Agricultural and Food Corporation NAPB - National Agricultural Products Board NBC - National Bank of Commerce NMC - National Milling Corporation NMP - National Maize Project SGR - Strategic Grain Reserve PPF - Project Preparation Facility PPMB - Project Preparation and Monitoring Bureau of Kilimo SCOPO - Standing Committee on Parastatal Organization TAT - Tobacco Authority of Tanzania TAC - Tanzania Audit Corporation USAID - United States Agency for International Development USDA - United States Department of Agriculture FISCAL YEAR Government July 1 - June 30 NMC August 1 - July 31  FOR OMCIAL USE ONLY TANZANIA APPRAISAL OF THE GRAIN STORAGE AND MILLING PROJECT Table of Contents Page No. I. THE AGRICULTURAL AND RURAL DEVELOPMENT SECTOR ........... 1 A. Background ...... e................ .........................* ....... 1 B. Agriculture and Crop Marketing ..................... I II. THE FOOD CROP SUB-SECTOR ... ..................... . .... 3 A. Food Crop Production *..* .........o...... 3 B. Food Crop Marketing and Processing ... .............. 5 C. Consumer Demand and Projections .................... 5 D. Government Policies ....... ....... ......... 7 E. Previous IDA Experience ...i ................ 9 III. THE NATIONAL MILLING CORPORATION ........................ 10 A. Background ........... . ................ ... .......... 10 B. Organization, Management and Staffing .............. 10 C. Storage Practices and Facilities ................... 11 D. Milling Facilities and Practices ..........*.....a.... 14 E. Financial Situation ..... ..... ................... . 16 IV. THE PROJECT ............................................. 17 A. Background of the Project .................. . . ....... 17 B. General Description ... .......... .. ................... . 18 C. Detailed Features . ............ o............... ...... ... 19 D. Project Costs ... ...................... ... ......... . 26 E. Financing .............. so..... **......*so.......................... 27 V. PROJECT IMPLEMENTATION .... .................... ... ......... . 28 A. Organization ........0................ .................so........... 28 B. Management ..... ........... ............ .............. 28 C. Implementation Schedule ............ .. .............. 28 D. Procurement .................. ...................... 28 E. Disbursement ................... ....................... 29 F. Accounts and Audit . ............ .. # ................... . 30 G. Management Information System ......... .. ........... 30 H. Reporting ........................................................ 31 I. Monitoring and Evaluation ........... ............... 32 This report is based on the findings of an appraisal mission that took place in Tanzania in January-February, 1979. The Missron comprised D. Lomax, L. Effron, S. Bhatia (IDA), R. Gillespie and V. Raswant (consultants). This documont has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be 4isclosed without World Bank authorization.  Table of Contents (Continued) Page No. VI. FINANCIAL ANALYSIS ...................................... 32 A. Financial Effects on NMC ........................... 32 B. Financial Action Program ........................... 33 C. Government Cash Flow Implications .............. .. ... 37 D. Foreign Exchange Implications ....................... 37 VII. ECONOMIC ANALYSIS .................................. ... *. 37 VIII. AGREEMENTS TO BE REACHED AND RECOMMENDATION .......... ... 42  ANNEXES 1. Supporting Charts and Tables Chart C-1 NMC Organization Chart Chart C-2 Implementation Schedule Chart C-3 Financial Action Program Implementation Schedule Table T-1 Projections of Domestic Purchases and Sales and Imports/Exports for Maize, Wheat and Rice Table T-2 Comparative Income Statements, 1974-1978 * Table T-3 Comparative Balance Sheets, 1974-1978 Table T-4 Unit Costs of Local Maize Table T-5 Unit Costs of Local Paddy and Rice * Table T-6 Unit Costs of Local Wheat Table T-7 Variable Cost/ton of Maize, Wheat and Rice Table T-8 Annual Project Costs Table T-9 Annual Profit/Loss Projections, 1978/79 - 1985/86 (Without the Project) Table T-10 Annual Profit/Loss Projections, 1978/79\- 1985/86 (With the Project) Table T-11 Projected Cash Flow, 1978/79-1985/86, Without Project Table T-12 Projected Cash Flow 1978/79 - 1985/86, With the Project Table T-13 Projected Balance Sheets 1979-1986, Without the Project Table T-14 Projected Balance Sheets 1979-1986, With the Project Table T-15 Incremental Government Project-related Cash Flow Statement Table T-16 Foreign Exchange Effects of Project Table T-17 Economic Costs and Benefits Table T-18 Cost Sharing Table for IDA Contribution to MDB and PPMB Table T-19 Estimated Disbursement Schedule Map - NMC's Existing and Proposed Facilities IBRD 14713 2. Selected Documents and Data Available in the Project File - Coopers and Lybrand, Ass. Ltd., Grain Storage and Milling Project, Preparation Report, Sept. 1976 - IDA, Grain Storage and Milling Project, Preparation Report, Sept. 1978 - FAO manual on foodgrain storage - Suggested specifications for conventional grain storage - Fumigation practices - Terms of reference for technical assistance and staffing to be hired by NMC * - Terms of reference for Marketing Development Bureau including analysis to be carried out under the Project - Terms of reference for Project Preparation and Monitoring Bureau - Terms of reference for team of experts as part of financial action program - Terms of reference for baseline survey   TANZANIA FOODGRAIN STORAGE AND MILLING PROJECT I. THE AGRICULTURAL AND RURAL SECTOR A. Background 1.01 Tanzania's population (for the mainland about 15.5 million in 1977) is increasing at about 3% per annum. Per capita GNP for 1978 is esti- mated at US$230. Real growth of GDP averaged about 5.0% per annum over 1976-78. Roughly 50% of GDP is derived from agriculture and related activ- ities, more than half of this from subsistence production. More than 90% of the population reside in rural areas, the majority engaged in agriculture. About 70% of Tanzania's foreign exchange earnings from merchandise exports are accounted for by unprocessed agricultural commodities, and a further 7% by processed farm products. The major export commodities are coffee, cotton, sisal, tobacco, tea and cashewnuts. 1.02 Large-scale agriculture is confined to a small number of private estates and state farms producing sisal, coffee, tea, sugar, wheat, rice and livestock. The largely traditionally managed national livestock herd, estimated at 12 million head, is grazed extensively over the 40% of the country free from tsetse fly. 1.03 Recent performance of the agricultural sector has been somewhat sluggish. Over the period 1967-77, the average annual rate of growth of agricultural production was about 2.7%, less than the estimated population growth. From the late 1960's onward, food crop production also failed to keep pace with population growth and, as a result, Tanzania became increasingly dependent on imports of maize, rice and wheat. This slow growth was due to a number of reasons (para. 2.02), and its effects were exacerbated in 1973 and 1974 by the effects of a severe drought which resulted in poor harvests and the need for large imports of food grains. Since 1976, agricultural produc- tion has recovered from the effects of the drought, increasing in real terms at an average of about 7%, at the same time that there has been a shift in the pattern of production away from cash export crops toward food crop production. Nevertheless, increasing demand for food crops has meant that Tanzania has continued to depend on imports of rice and wheat. Further information on the food crop sub-sector is found in Chapter II. B. Agriculture and Crop Marketing 1.04 The Government has undertaken a comprehensive program to support the development of the agricultural sector, in conjunction with efforts to achieve balanced regional growth and equitable income distribution. Within these objectives, Government is paying particular attention to achieving self-sufficiency in food production and to supporting export crops. In the past few years, greater emphasis has been placed on the productive rather than on the social aspects of rural development projects than was true in the late 1960s and early 1970s. Beginning in 1970, the Government launched a wide-ranging program to resettle the country's rural population into villages in order to facilitate the provision of infrastructure and services to the rural population, and to encourage self-reliance and a community approach to rural development. There are now about 7,700 registered villages, containing  over three-quarters of Tanzania's rural population. The village is intended to be the country's primary social, economic and political unit. With respect to crop marketing, village councils (elected in each village of 250 families or more) now purchase crops from farmers on behalf of parastatals. This serves to reinforce the village as an economic entity, receiving a commission for its marketing services which can then be used for village infrastructure. At the same time, however, it creates problems at the village level for record keeping of individual farmers and, in villages without storage facilities, for storing crops until parastatals can transport them to their own storage facilities. Tnere is considerable potential for improvements in crop market- ing at the village level through village investment in storage facilities and in small-scale mills and through training of villagers in the proper grading, handling and storage of crops. Funds for village stores are being provided under several IDA-assisted projects, I/ and within 2-3 years it will be possible to evaluate the demand for such stores. 1.05 Cooperatives. Until 1976, local cooperative marketing societies marketed all major agricultural commodities in Tanzania and private trading in these crops was officially banned, although informal marketing channels existed. These societies were affiliated with regional cooperative unions which provided the link between the societies and the marketing parastatals. Cooperatives were generally over-extended and suffered from shortages of trained and experienced manpower and from financial difficulties. Neverthe- less, they served an important marketing function for inputs and outputs. In May 1976, because of increasing friction between the Ujamaa 2/ and cooperative movements, the Government abolished all cooperative societies, and the villages took over their crop marketing functions. Cooperative unions were dissolved and their functions were transferred to national, regional and district institutions such as the District Development Corporations, Regional Trading Companies, and the parastatal crop authorities. Parastatals were expected to purchase crops directly from villages, which greatly increased their burden because of the large number of outlets, and since 1976 have been trying to develop the organizational, transport and handling capacity to do this. Particularly for food crop marketing, which is the responsibility of the National Milling Corporation, the difficulties have been compounded by the large number of (over ten) crops marketed and the fact that the marketing encompasses the entire country. 1.06 Parastatals. There are separate parastatals which deal with vil- lages for coffee, cotton, sisal, tea, tobacco, cashelwnuts, pyrethrum, sugar, livestock and dairy products and food crops. Generally, ambitious expecta- tions have placed severe s rains on their manpower resources, since they not only now provide marketing services directly to villages (para 1.05), but provide processing services and have development responsibilities as well. 1.07 Parastatal marketing is usually characterized by lack of competi- tion, high costs, poor service and slow payments to farmers. The Government 1/ Tabora Rural Development Project, Credit 703-TA, National Maize Project, Credit 606-TA, and Mwanza-Shinyanga Rural Development Project, Credit 803-TA. 2/ Ujamaa means "familyhood" in Swahili.  - 3 - is aware of these problems and its Standing Committee on Parastatal Organiza- tion (SCOPO) is reviewing the structure and managerial performance of para- statals. The Bank Group is assisting in this process through its analysis of parastatals involved in recent and proposed lending operations, e.g., the Cashewnut Authority, the Tobacco Authority, the Tea Authority, the Pyrethrum Authority, and the National Milling Corporation (NMC) (see Chapter III). 1.08 Rural Transport Services. An adequate road transport system is needed to ensure the efficient movement of crops to market centers and rail- heads, and to support timely delivery of agricultural inputs to the farmers. Despite Government's efforts to upgrade the road network, only about 10 percent of the 33,400 km of roads provide reliable, all weather service. The remainder are, in general, little more than earth tracks impassable in the rainy seasons. Rural roads are in especially poor condition. In addition, the trucking fleet available for use by parastatals (either through owner- ship or hire) has been limited, thus making crop movement even more diffi- cult. Crop marketing has suffered from high transport costs, and deterioration of crops in villages with inadequate storage facilities. While poor transport facilities cause delays in payment to villages, often they also dictate that villages receive sums large enough to handle crops over extended periods, leading to inadequate supervision and accounting of funds advanced for pur- chases. Current Government action to address these problems is directed mainly at the public sector, and includes the provision of staff training and equipment and construction of secondary roads under several IDA-assisted projects, 1/ and the recent creation of the Betterment and Maintenance Units, which are upgrading selected secondary roads in several regions. Assistance to the public trucking industry is being provided through the IDA-supported Trucking Industry Rehabilitation and Improvement Project (Cr. 743-TA). This has not proved sufficient to overcome transport bottlenecks in the critical areas of large procurement of food crops and the Government, under IDA assisted projects 2/, has provided parastatals with additional transport facilities. II. THE FOOD CROP SUB-SECTOR A. Food Crop Production 2.01 Estimates of food crop production are unreliable, as most production goes for subsistence consumption, and of the surplus that is marketed, a substantial but unquantified portion goes into unofficial channels. Data on acreage and yields are also imprecise, and estimates by various organizations and agencies show considerable differences. i/ These include the Highways Maintenance Project (Credit 507-TA), and road components in the Tabora Regional Development Project (Credit 703-TA), the Geita Cotton Project (Credit 454-TA), the Mwanza-Shinyanga Rural Development Project (Credit 803-TA) and Kigoma Rural Development Project (Credit 508-TA). 2/ Including a number of trucks to the Tobacco Authority of Tanzania (TAT) under the Tobacco Handling Project (Credit 802-TA) and to NMC, financed by BADEA (The Arab Bank for Economic Development) under the National Maize Project (Credit 606-TA).  -4- 2.02 Food crop production in Tanzania is characterized by large year to year variations, but over the past fifteen years there has been some upward trend, which has not, however, kept pace with increases in population. This is the result of a number of factors: intermittently poor weather, low producer prices offering insufficient incentives, and villagization which moved many farmers far from their cultivation and introduced greater un- certainty into their situation. In 1973 and 1974, production was particularly affected by drought, and resulted in large food crop deficits. Since 1975 there has been an apparent recovery, which can be attributed to a number of factors: better weather, a concentration of Government effort directed at subsistence production, and increases in producer prices. Nevertheless, the food crop sector can still be generally characterized by traditional cul- tivation methods, low yields and vulnerability to changes in weather. Table 1: Foodcrop Production Estimates 1/ ('000 MT) Sorghum and Crop Year Maize Paddy Wheat Bulrush Millet Cassava 1965/66 532 73 38 265 na 1966/67 752 113 37 299 527 1967/68 630 110 45 254 587 1968/69 647 125 42 285 716 1969/70 663 139 72 282 857 1970/71 746 184 86 323 799 1971/72 730 193 100 277 793 1972/73 856 171 90 319 639 1973/74 624 185 80 333 685 1974/75 623 134 35 190 965 1975/76 825 150 46 339 na 1976/77 897 172 58 360 na 1977/78 968 194 71 na na 1978/79 (est) 1,041 na 104 na na 1/ The sources for these series are the Marketing Development Bureau (MDB) Price Recommendations, 1978/79 and 1979/80. Other series, by FAO and USDA, for example, present figures that are considerably different from these, in some cases by a factor of 2 or 3, and although the general trends are similar, year to year variations are sometimes in opposite directions. (See IDA preparation report on grain storage and milling). 2.03 Maize is the most important food crop, grown by more than 50% of Tanzanian farmers, for both subsistence and commercial uses. Less than 1% of total production comes from large-scale commercial farms. Rice is also an important subsistence crop in Tanzania and second only to maize in terms of volume and value of crops marketed officially. Smallholders have traditionally dominated production, but the National Agricultural Farming Corporation (NAFCO) state farms have recently produced about 5% of total supply and an increasing portion (about 20%) of the officially marketed surplus. Wheat production is dominated by large-scale farms, with smallholders accounting for perhaps one-third of the area planted to wheat, but only about 5% of officially marketed production. Production of other food crops, including cassava, white  - 5 - sorghum and bulrush millet, has traditionally supplied, after maize production, an important source of subsistence food in semi-arid areas. It is estimated that about 40% of farming families in Tanzania grow these crops. 2.04 Research on individual food crops (maize, sorghum, millets, tuber crops and legumes) is financed by several bilaterals, of which USAID is the principal one, to find improved varieties and to improve input packages for greater yields. B. Food Crop Marketing and Processing 2.05 The minor part of food crops that is marketed passes either through informal private channels or through the official channel of the National Milling Corporation (NMC, Chapter III). The quantity of crops marketed officially in any year (Table 2) depends on the levels of production, the size of the surplus available for marketing, and the official prices fixed by Government relative to the prices in the informal market, including those in neighboring countries, and the number of NMC's purchasing centers. Of the total quantities marketed, roughly 50-70% of the maize and about 50% of the paddy, rice and wheat pass through informal markets. Because of year-to-year variations and the unreliable data base, it is difficult to project levels of official purchases. Purchases of other food crops, including sorghum, bulrush millet, finger millet and cassava, have only recently become official. These have traditionally served as subsistence drought-resistant crops in semi-arid areas, but as producer prices for these crops have increased, in some cases by 50-100% in two years, official purchases have increased dramatically. This has created enormous problems for NMC, because it has been unable to dispose of them in the domestic market (para 2.09). 2.06 About one-third of the milling activities are carried out by para- statal organizations (NMC and NAFCO) and the remaining two-thirds by smaller- scale private groups or individuals. Milling in the private sector is done in village mills, owned by an individual or a small group and used as a substitute for hand-milling. About 25% of the 8,000 villages in Tanzania now have one or more maize or rice mills. The private sector also includes custom mills in urban areas, which are used to help satisfy urban demand. Their number and capacity are not known, and although NMC sometimes contracts them to meet peak demand requirements, they are probably decreasing in numbers, because spare parts are scarce and Government pricing policies have reduced profits. C. Consumer Demand and Projections 2.07 In spite of increased official purchases of paddy, rice and wheat, Tanzania has been a net importer of rice and wheat; Tanzania, however, has been able to export maize in some years, although it has also imported large quantities in years of bad weather (Table 2). Projections of import require- ments (Annex 1, Table T-1) are based on a number of assumptions about future purchases, storage losses, extraction rates, and domestic demand and are therefore approximate. The projections do not take into account substantial year-to-year variations in production surpluses due to weather changes, so that for maize in particular, Tanzania will probably continue to be an exporter in some years and an importer in others. For rice and wheat, Tanzania will continue to rely on imports to satisfy at least half of domestic demand.  t g M<m H H H - o -o - H - - HOOHOsE PH f WQO - C O~. 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