THE COMPATIBILITY OF TRADE POLICY WITH DOMESTIC POLICY INTERVENTIONS AFFECTING THE GRAINS SECTOR IN TANZANIA

1. THE COMPATIBILITY OF TRADE POLICY WITH DOMESTIC POLICY INTERVENTIONS AFFECTING THE GRAINS SECTOR IN TANZANIA Andrew E. Temu Sokoine University of Agriculture

2. Trade Policy, Food Crops Marketing and Trade CORNERSTONES OF THE TRADE POLICY The National Trade Policy 2003 Developed to oversee a competitive economy and export led growth Recognizes: importance of trade openness in raising efficiency and productivity the need to go beyond reduction of tariff and non-tariff barriers The need for appropriate sector policies The need to transform agriculture and accords due weight to supply-side constraints Envisions - a role for the government in selective interventions efforts to conform to WTO rules and regulations Amongst goals Attaining 14% annual growth in trade, and exports contribution to GDP 25%

3. Practical Political Challenges, Market Interventions and Trade Objectives of domestic markets interventions reduction of price uncertainties to producers stabilize farm incomes protect farmers from exploitation by private dealers reduce income inequalities between rural urban areas and between regions provide adequate food to urban population at reasonable prices and hence maintain political stability, extract agricultural surplus for the development of other sectors of the economy (taxation � even at LGAs), guarantee foreign exchange earnings Political Dilemma in Grains: Farmer Income v/s Urban Dwellers Food security Taxation for development versus lowered farmer income Food security intervention strategies versus production incentives Strategic grain reserve Food aid and food aid counterpart funds

4. Restrictions of in-country regional Grain Flows and Cross Border Trade Tanzania, overall is food secured, When there is production failure, mainly because of rainfall failure The Most common reaction has been: Restricted movements of grains Often not based on critical analysis on the ground At times allowable volumes are stipulated e.g. 0.5 tons Effects: Denies farmers of income in surplus producing areas Anti-Market: Discourages production for markets Enhances subsistence orientation of smallholder producers Poor enforcement Marketing and trade goes on but at high transactions costs Enhances cross-border trade; itself illegal

7. Management of Strategic Grain ReserveA Politically appealing FS strategy tool Tanzania�s SGR Strategic Reserve Act No 10 of 1991 15 Silos, Capacity=240,000 MT Objective: Price stabilisation; dampening price volatility Maintain 150,000 tons of grains Adequate to cover 3 months in case of food inadequacy to allow importation thereafter Criticisms: suppresses price volatility during buying But raises volatility during disposal / release time Inefficient, currently only 24% of the capacity is deployed It is expensive, imposes pressure on government budget Analysts suggest regional grain stocks/reserves and trade to be a better option More analysis, however, is needed; both empirical and one that accommodates political imperatives.

8. Producer TaxationPolitical Dilemma: Decentralisation & Devolution v/s Centrally controlled Taxation Tanzania is committed to Decentralisation and Devolution Much of the development initiatives and resources managed at LGAs Accordingly, LGAs deserve autonomy in revenue generation Agriculture is the major pre-occupation in most LGAs Both export and food crops are therefore subject to taxation. The tax levels vary across districts In the 1992 Finance Act, LGAs are limited to tax agricultural products only 5% of farm-gate price. This is equivalent to an ad-valorem tax rate. Though necessary for LGAs income and development, Taxation is a disincentive to producers, especially marketers and trade oriented ones; What are they paying for is the issue? Compounded by deteriorating public agriculture services � extension Enhances subsistence production

9. Management of Food Aid and FA Counterpart FundsPolitical Dilemma: Politics Surrounding Aid to LDCsIn Tanzania, food aid accounts for 90% of food imports Food aid and its effects on local crop production sectors: A known debate A Special Tanzanian example: Counterpart food aid fund Rice, imported and bought/distributed by commercial bidders Funds generated are intended for supporting agricultural productivity A political trap to favouring the scheme! Problems: Fungibility of funds and Inability of Govt to police processes Unfair bidding and price setting have created monopolists in grain marketing and food aid counterpart funds Generated funds are politically allocated to projects Non-agricultural; most have built schools � politically appealing with quick results Imports� effects on local markets Imports not coinciding with times of shortage depresses domestic prices Imported rice fetches lower market price than domestically produced Imported rice used for reconstituting domestic rice, 1:5 ratio, and sold at higher prices

10. However, the lack of Interventions is more crucial! Domestic Market interventions is not the only issue There not being interventions is more pertinent in Tanzania There is a broad range of interventions needed to address �supply side� , �behind-the-border� constrains

11. Grain Marketing Chain: Large v/s Small Scale Players in the Chain

12. Supply Side and �Behind-the-Border� Constraints- Boring!- The NTP emphasises but much has yet to be done Scale economies and entrepreneurial skills: Smallholder Productivity challenge; .25 to 3ha of low-value-bulk-commodities Productivity: Inputs supply and use Lowest yield levels in the region Weak producer and marketers organisations Remnants of top down coops; very slow emergence of strong farmer groups Grain post harvest storage Only large farmers and traders have such storage Agriculture finance: bankers� dilemma Risk: Very many small producers, scattered, vulnerable to vagaries Weather, pests, diseases, markets etc Extension Decentralisation, lack of BDS providers; auguring with smallholders Market information Asymmetrical information; smallholders succumb, weak bargaining position Marketing infrastructure Rural roads, storage, etc

13. Thank you for your attentionAndrew Temu