TADB financing restores cotton sector to its glory days

In the two seasons of the Tanzania Agricultural Devel­opment Bank (TADB) financ­ing the ‘Cotton Value Chain’ farmers are able to sale their cotton at Tsh 1800 per Kg. “We farmers here in Mbogwe Dis­trict have never thought of the day that cotton would be prof­itable like it has been in these two seasons. I can’t remember the last time my cotton was bought at even Tsh 1000, let alone now being at Tsh 1,800.” Explains Juma Magesa a cot­ton farmer.

According to TADB’s Poli­cy brief Cotton is Tanzania’s third-largest export crop after cashew and coffee. The crop accounted for 14.5% of Tan­zania’s total export earnings between 2005 and 2010. In 2016 alone, cotton account­ed for 1.3% of all Tanzania’s exports, valued at US$ 63 million with main export des­tinations being Far Eastern countries (Bangladesh, China, Malaysia etc.), India, Europe and regional markets. At the micro-level, cotton provides a vital source of livelihood to around 40% of Tanzania’s pop­ulation directly and indirectly employed in the sub-sector. At the macro level, the cotton sub-sector remains a key driv­er of Tanzania’s economy and holds great potential to con­tribute to the country’s indus­trial transformation.

“Understanding the impor­tance of the Cotton value chain to our country’s economy, it was important for TADB to intervene and rescue the then dwindling sector. Considering the potentials in foreign cur­rency the nation obtain from the export, the employment factor and need for improve­ment of livelihood among cotton farmers even steered TADB’s fast interventions for the sector.” Explained Frank Nyabundege Managing Direc­tor at TADB.

Financing ginneries through cooperative unions

Cotton ginning plays very important role in the cotton value chain. Ginning refers separation of cotton fibers and seeds from cottonseed and converts field crop into a saleable commodity known as lint. There are 87 ginneries in the Tanzania. By 2019, only 26 ginneries were active, with the rest either defunct or perform­ing poorly.

Regional cooperative unions were re-introduced in the cotton sector in 1986. Their responsibilities included cot­ton production, the provision of seasonal credit, and ginning in their respective regions for as long as the unions them­selves could access the neces­sary finance. Although cotton production reached record lev­els in the 1991 and 1992 harvest seasons a report by the World Bank identifies that many of the cooperative unions were soon beset with problems of corruption, poor management and, above all, financial mis­management.

“Understanding this history has been very useful for TADB to examine the cotton players and inform us best on how we can intervene and rescue the sector successfully” Affirmed Mr. Nyabundege.

TADB adopted the farm­er-centered approach to the industrialization of the cotton sub-sector based. The strate­gies included revival of coop­erative unions’ cotton ginner­ies, Facilitating investments in cooperative unions’ cotton/ edible oil milling; and Facili­tating investment in strategic warehouse facilities and the establishment of an efficient and transparent marketing system for cotton through the Tanzania Mercantile Exchange (TMX).

Recognizing the need for a proactive approach, TADB is implementing a phased plan which targets to revive 7 coop­erative unions’ ginneries in the Lake Zone. These include Cha­to Cooperative Union (CCU) in Geita, Kahama Cooperative Union (KACU) in Shinyanga, Nyanza Cooperative Union (Manawa) in Mwanza, Pam­ba Mara Cooperative Union (Mugango) in Mara, and three Shinyanga Region Coopera­tive Union (SHIRECU) gin­neries namely Sola and Lugulu in Simiyu and Masumbwe in Geita. The revival of the of the above mentioned ginneries is estimated to require capital investments to the tune of TZS 19.9 billion and working capital of TZS 80 billion.

“During the 1st Phase of the Plan, we proposed to revive 3 cooperative ginneries namely Chato Cooperative Union (CCU), Kahama Coop­erative Union (KACU) and SHIRECU’s Mbogwe Ginnery (MBCU). A promise we have been able to realize with the recent beginning of ginning of Mbogwe Ginnery.” Confident­ly acclaimed Mr. Nyabugende.

TADB supporting the govern­ment efforts and the FYDP III

Recognizing this huge potential, the Government of Tanzania has been active­ly incentivizing farmers to increase the production of cotton through a shift to an AMCOS model of production. The model is expected to cre­ate greater organization and reduction of costs for individ­ual farmers. “The government intervention through different ministries affirms the govern­ment commitment at creat­ing an enabling environment to our cotton farmers.” Com­mented Mr. Nyabundege.

To date TADB has approved a total of TZS 41.9 billion to the cotton sector through the 3 Cooperative Unions (CCU, KCU &MBCU). The impact of TADB intervention has ena­bled creation of over 2,000 jobs along the value chain, increase of price from Tsh 814/ kg to 900/kg of 2019/20, Tsh 1,050/Kg of 2020/21 season to Tsh 1,800/Kg in the 2021/22 season. In 2020 price rose from and in 2021 price rose from 1,050/kg to 1,800/kg.

The TADB interventions to the cotton sub-sector sees aligning of the bank’s mandate in transforming the agricultur­al sector and further support­ing the Five Year Development Plan phase three (FYDP III). The FYDP III has listed the priority areas of implementa­tion that includes; Strengthen­ing Industrial Production and Service Delivery Capacity, and Promoting Investment and Trade.

“As a government insti­tution, we are committed at realizing our existence’s goal and furtherer the government agenda of industrialization economy. We believe that with revival of these ginneries and our intervention in other value chains, we can stimulate reali­zation of the FYDP III.” Said Nyabugende.

TADB has revived three gin­neries under three Coopera­tive Unions. The influence of the TADB intervention to the cotton sector has stimulated farmers’ price beyond indica­tive price for the two consecu­tive seasons.

Managing Director at TADB, Frank Nyabundege confirms that TADB interventions has been of benefit to not only farmers but also to the coun­cils. “In the two seasons of TADB financing the sub-sec­tor, councils have collected TZS 323million on cess, farm­ers have been paid total of 10.6 billion, TZS 311million has been paid as AMCOs levy.”