FOREIGN AND LOCAL DIRECT INVESTMENTS IN AGRICULTURE: Lessons from Financing Agricultural Investments in Tanzania

1. FOREIGN AND LOCAL DIRECT INVESTMENTS IN AGRICULTURE: Lessons from Financing Agricultural Investments in Tanzania ________________________________________________ AFRACA Eastern Africa Sub Regional Workshop, Kunduchi Beach Hotel, Dar es salaam, Tanzania 16th to 18th May, 2012 _________________ Presentation By: Mr. Nicomed Bohay Manager Agribusiness CRDB Bank Plc Tanzania.

2. Outline: • About CRDB Bank Plc, Tanzania • Scope of Agriculture – FAO definition of agriculture • The future of Agriculture in Africa • Opportunities of investment in agriculture (The case of Tanzania) • Challenges of investment in agriculture (The case of Tanzania) • Lessons from agricultural financing in Tanzania • Four case studies for investment in sugarcane estate, tea estate, dairy farm and large scale sorghum farming • Conclusion

3. About CRDB Bank PLC: • The largest Bank in Tanzania in terms of assets, deposits and lending* • Present in every region in Tanzania – 75 branches 10 mobile branches • Total assets – TZS 2.7 Trillion • Customer deposits – TZS 2.4 Trillion • Total loans – TZS 1.4 Trillion • Over 500 Collaborating Microfinance Institutions • Over 1,200 POS at Merchant outlets * The figures above is the position as at 31.12.2011

4. Tarime Mugumu Nyerere Bugando Meru (K/nyama)

5. The Scope of Agriculture (FAO Definition) • Agriculture includes • Crop farming • Agro processing • Livestock • Forestry

6. The Future of Agriculture in Africa • As the world population has reached about 7 billion people; - • Increased demand for food to feed the world population • More and more agricultural land in the world is encroached by urbanization i.e. less and less agricultural land is available to feed increasing world population!

7. The Future of Agriculture in Africa • Developed/developing countries (e.g. China, Thailand, etc) are now looking at Africa for investment in agricultural land to feed their population. Looking for bilateral agreements with African countries in invest and export food crops to their home countries • Africa has the largest potential to feed the world population – arable and virgin land

8. The Future of Agriculture in Africa • Tanzania has over 10 million Hectares of arable land for agriculture that is not utilized (source FAO) • In Tanzanian case, it is the “peasant farmer” feeding the country. What we have seen recently is transformation of Tanzanian peasant farmer to national regional “commercial farmer”………... Perhaps we can transform local small holder farmers to global supplier

9. Opportunities of Investment in Agriculture (The Case of Tanzania) • Available green field land for new agricultural investment e.g. Land Bank database at TIC, local government (village land) • Available small holder farmers organized in farmer groups/cooperatives or associations that can be easily mobilized to out grower schemes (Note over 80% of population are engaged in agriculture)

10. Opportunities of Investment in Agriculture (The Case of Tanzania) • Abundant water resources – rivers and lake basins, under ground water (e.g. Dodoma grapes farming project) • Available local finance to leverage agricultural investments – working capital facilities, structured finance, pre and post export finance, medium and long term senior debt.

11. Challenges of Investment in Agriculture (The Case of Tanzania) • Limited land for expansion for existing investments e.g. TPC in Moshi, KSL in Kilombero valley, etc • Long approval process for land acquisition through the local government system (e.g. village land) • Negative perception of local communities that the investors are robbing their ancestral land • Water

12. Lessons from Agricultural Investment Financing in Tanzania Case 1: Foreign investor in large scale sugarcane farming and processing Sugar wholesalers retailers Sugar Estates (investor) Block Farms Sugar Factory (FI) Sugar distributors Sugarcane Outgrowers Value Addition Plant

13. Lessons from Agricultural Investment Financing in Tanzania Case 1: Foreign investor in large scale sugarcane farming and processing Foreign investor invested in sugar factory and sugarcane estates Contracted small holder farmers (outgrowers) through their organizations (e.g. SACCOS) Contracted medium scale farmers through block farms Provided extension services and link to input suppliers and financiers Successful model, Foreign investor now expanding to a new value addition plant

14. Lessons from Agricultural Financing in Tanzania Case 2: Partnership between foreign investor and local farmer organization in Tea farming and processing Tea Estates (investor) Tea Processing Factory (JV-FI/FO) Local Tea Packaging (JV) Tea Outgrowers Tea Export Buyers

15. Lessons from Agricultural Financing in Tanzania Case 2: Partnership between foreign investor and local farmer organization in Tea farming and processing Foreign investor invested in tea processing factory and tea estates Shares were sold to local farmer organization on a free carry initially, later on farmers acquired more shares using cash flow from dividend payments Farmer organization has grown to 16,000 member farmers, supplying 70% of the factory green leaf The JV has expanded to new tea factory and new tea packaging subsidiary company

16. Lessons from Agricultural Investment Financing in Tanzania Case 3: A local investor in dairy farm Dairy Farm (investor) Milk Processing Factory (LI) Wholesalers and retailers Dairy Keepers (Outgrowers)

17. Lessons from Agricultural Investment Financing in Tanzania Case 3: A local investor in dairy farm Local investor has invested in a milk processing factory and large scale dairy farm with over 4,000 dairy cattle Local dairy farmers around the farm were mobilized through outgrower scheme and provided with extension services from the investor Today the milk processing factory depends on outgrower dairy famers milk production for about 50% of milk supplies

18. Lessons From Agricultural Investment Financing in Tanzania Case 4: A local investor in large scale sorghum contract farming Input Suppliers Large Scale Sorghum Farmer (LI) Breweries (contract farming) Small holder sorghum farmers (Outgrowers)

19. Lessons From Agricultural Investment Financing in Tanzania Case 4: A local investor in large scale sorghum contract farming A local investor contracted by the breweries to supply sorghum Cultivated over 3,000 acres of sorghum and mobilized/sub-contracted small holder farmers around the estate (out growers) Provided extension services and linked to input suppliers with financing from financial institutions Over 70% of the contracted volume is supplied by small holder farmers

20. Conclusion Linking of agricultural production to market is a key for successful and sustainable investment in agriculture Out grower model can easily address limitations in expansion of agricultural land for the investor, and can have a direct positive impact to the community around the project site. Africa has the largest potential of becoming the food basket of the world, if its agricultural potential is harnessed and managed efficiently

21. End/Fin Thank you