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USAID AgCLIR Roundtable: The Enabling Environment for Agribusiness in Tanzania

USAID AgCLIR Roundtable: The Enabling Environment for Agribusiness in Tanzania. Case Study on Cashews – World Bank Presented by Mwombeki Baregu. Tanzania cashew production compared. Cashew nut production (‘000 tons) 1961- 2007; Tanzania, Vietnam, Cote d’Ivorie. Cashew market participants.

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USAID AgCLIR Roundtable: The Enabling Environment for Agribusiness in Tanzania

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  1. USAID AgCLIR Roundtable: The Enabling Environment for Agribusiness in Tanzania Case Study on Cashews – World Bank Presented by Mwombeki Baregu

  2. Tanzania cashew production compared Cashew nut production (‘000 tons) 1961- 2007; Tanzania, Vietnam, Cote d’Ivorie

  3. Cashew market participants • 360,000 producers (mostly small scale) • 0 traders just primary societies • 5 - 8 processors (20%-30% of production) • 58 exporters for raw cashew • 2 export markets for raw cashew (India and Vietnam)

  4. Producer profile: many smallholders

  5. Production and history

  6. Implications from historical trend • Coops work • If they represent farmer interests • If they have not been captured • Markets work • Competition helps guarantee farmer interests • So what works best? • Currently there is single marketing channel under cooperatives, lets see how this has performed…

  7. Developments in cashew marketing:The Warehouse Receipt System Background: • Adopted in 2007 • Is a return to single marketing channel by cooperatives practiced prior to liberalization • The return is in part a reaction to: • Tensions between buyers and sellers • The liquidity power enjoyed by buyers • Price disputes Elements as packaged : • Single marketing channel (the cooperatives) Only cooperatives can buy cashews from farmers • Warehouses Warehouses as storage centers Warehouses as auction centers • The auction Closed bidding system is used (not auction)

  8. Farmers not enjoying some of highest prices for their cashews

  9. Increasing marketing margins

  10. Issues associated to single marketing channel • Inefficiencies • Farmers have no control over cooperative costs • Cooperative fees account for over 30% of marketing expenses • Lack of transparency • Auction prices remain unknown • Cooperative books and tendering process is unaudited • Contingent liabilities

  11. Single marketing channel:“Kangomba” • By law farm gate exchange can occur only through the primary society, which acts as facilitator for the exchange. • When a farmer sells cashew illegally to traders it is called “kangomba” • Kangomba is usually at discount to the indicative price and is criticized due to the way that cashew is sold (by volume not weight). • Kangomba however remains pervasive: • Transaction bottlenecks at primary society • Barter trade for other goods and services • Convenience • Liquidity preference (get full payment at once)

  12. Single marketing channel:The case of Masasi Farmers Association • Village association • 6 villages, • 900 members • Founded in 2007 • Apex company established in 2008. • Goal is to increase member incomes • go into input supply • marketing cashews • increasing knowledge • In 2008 wanted to rent processing capacity at a processor in order to export processed kernels • The processing factory however was in Dar es Salaam, thus requiring MFA to bring raw cashews to Dar es Salaam for processing • MFA was not able to receive PDN to transport raw cashews out of their district ( District Executive) • MFA had to sell its raw cashew to cooperatives • In 2009 MFA established a factory in Masasi • PDNs are still required to transport raw cashew within district • PDNs were not allowed to be distributed until primary societies were ready to purchase cashews

  13. Cashew on the news • Prime Minister proposes review of warehouse receipt system – The Guardian, 24th November 2009 • “The Prime Minister MizengoPinda, has proposed that the warehouse receipt system currently being used by cashew nut farmers be reviewed because the operating costs are too high” • PM vows to end use of `kangomba` measure – The Guardian, 25th November 2009 • Why was it that in the past cooperative unions were constructing roads, paying for school children, and now these things are no longer being done?” wondered the PM. • He said the current cooperative unions were self-centred instead of being concerned with the farmers' interests. • “We must sit down and correct these systems. I view these cooperatives as centres for embezzlement,” he said.

  14. First best solution • Provide farmer choice in marketing channel • Farmers can integrate upwards, sell to markets of choice, negotiate with buyers (local and international) • Offer warehouse receipt credit to private traders not just coops

  15. Options to improve functioning of cashew sector

  16. Cashew marketing prior and after WRS Pre-WRS WRS

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