Institutional Innovations and Barriers to Competitiveness: Case Studies of Smallholder Farmers in Tanzania


Institutional Innovations and Barriers to Competitiveness: Case Studies of Smallholder Farmers in Tanzania

Multitude of constraints that face smallholder farmers requires interrelated interventions and investments that do not occur spontaneously and often exceeds the abilities of firms and individuals within the conventional market framework.

The book examines the Tanzania’s policy path and institutional reforms aimed at increasing efficiency and productivity in agriculture since independence and their outcomes.  It further examines the potential of various forms of institutional innovations in building competitiveness of smallholder farming.

Drawing from three case studies in the coffee, sugarcane, and sisal subsectors, the book shows that while some policies and interventions after independence contributed to the poor performance in export crop production, structural adjustments and trade liberalisation did not reverse the performance as envisaged. This paradox leads the author to argue that collective efforts of market and non-market institutions is crucial for addressing market failures and other policy and institutional rigidities that impede the competitiveness of smallholder farmers.

In the coffee subsector, the changing dynamics in the production and consumption of coffee around the globe significantly affected the market position of Tanzanian coffee. The dynamics includes the dramatic increase in world coffee production, led by Brazil and Vietnam, the latter emerging as the second largest coffee producer, and the collapse of the International Coffee Agreement’s (ICA) quota system in 1989 which led to decline in coffee prices; and the technological evolutions in coffee roasting and blending that has enabled substitution between coffee grades without affecting quality in the coffee cup. The three factors created bifurcation of coffee markets into mainstream and high-quality specialty markets, but Tanzania became squeezed in the middle market position and rendered uncompetitive. The book recommends re-design of intermediary coordination of coffee value chain involving state and market institutions to enable coffee growers to reposition competitively in the specialty coffee niche markets.

In the sisal subsector, the structure of production historically designed around estate production made it difficult for commercial feasibility of sisal farming under conditions of low global demand and low prices. The re-introduction of smallholder sisal growing is a notable institutional innovation led by the private firm, but the nature of partnership between the private firm that play a lead role as a processor and marketer of sisal fibre on one hand and the smallholder growers on the other hand requires countervailing powers to mediate the transaction process between the two parties, particularly with respect to land rights and contractual obligations of both parties.

This intermediation will provide incentives for the firm to cut operating costs and to increase the share of market price available to famers, and the farmers will be induced to increase productivity, and hence the efficiency of the value chain that is crucial for its competitiveness.

In the sugarcane subsector, the reforms in the global sugar industry, particularly within the European Union and the change in the framework of international sugar agreements have exposed Tanzania sugar producers to more efficient producers around the world.  The domestic demand for sugar outweighs domestic supply, necessitating the need for sugar imports, sometimes from cheaper producers.  This situation means that local producers of sugar must increase production and efficiency in order to fill the domestic sugar deficit and to compete with efficient producers around the globe. Smallholder growers of sugarcane, commonly known as outgrowers are important actors in the sugar value chain, as they contribute significant proportion of sugarcane supplied to sugar mills in Kilombero and Mtibwa.

However, the current farming practice by outgrowers is fragmented, constrained by limited access to credits and improved inputs; poor crop husbandry; and market uncertainty due to constrained plant capacity and/or strained partnership between outgrowers and milling company. A combination of these factors translates into low productivity of sugarcane by outgrowers, which reduces not only sugar output but also sugar production efficiency.

The book recommends the review of existing institutional arrangement governing relationship between outgrowers and milling companies to ensure adequate and stable supply of cane; effective design of outgrower’s intermediary organizations; and land regime and use planning that will facilitate vertical coordination of outgrowers by pooling their land in a manner that will allow for economies of scale for large investments in irrigation and improved farming practices for raising productivity and efficiency across the value chain.

The book concludes that, the multitude of constraints that face smallholder farmers requires interrelated interventions and investments that do not occur spontaneously and often exceeds the abilities of firms and individuals within the conventional market framework. Thus, non-standard institutional arrangements are key, and these requires state and market actors working together to design and implement strategic institutional solutions tailored to the peculiarity of different commodity value chains.