NATIONAL AGRICULTURAL INPUT VOUCHER SCHEME (NAIVS)

Transcription

1 PUBLIC EXPENDITURE REVIEW NATIONAL AGRICULTURAL INPUT VOUCHER SCHEME (NAIVS) TANZANIA SEPTEMBER 2013

2 TABLE OF CONTENTS TABLE OF CONTENTS... 2 LIST OF FIGURES... 4 LIST OF TABLES... 5 ACRONYMS... 6 ACKNOWLEDGEMENTS... 7 EXECUTIVE SUMMARY INTRODUCTION ECONOMIC AND POLICY CONTEXT TRENDS IN CROP PRODUCTION AND PRODUCTIVITY NAIVS PROGRAM MOTIVATION NAIVS IMPLEMENTATION AND COSTS OVERVIEW OF NAIVS IMPLEMENTATION FEATURES OF NAIVS Annual Implementation Cycle Implementation Procedure EXPENDITURE ON NAIVS MEASURING FINANCIAL AND ECONOMIC RETURNS ANALYTICAL APPROACH AND STUDY POPULATION Sample Selection Data Collection Data Collection Instruments Household Survey Listing Survey Other Surveys Changes to the Sample EMPIRICAL MODEL AND RESULTS Summary Statistics of Program Participants Impacts of Program on Input Usage and Yields Benefit-Cost Analysis NAIVS DESIGN AND IMPLEMENTATION ISSUES HOUSEHOLDS TARGETING AND DISPLACEMENT Households Targeting Displacement BENEFICIARIES GRADUATION AND PROGRAMME KNOWLEDGE INPUT MARKET ACCESS AND PUBLIC AWARENESS EXPANSION TO LOWER RAINFALL ZONES SUSTAINABILITY EVIDENCE OF MISUSE OF VOUCHERS DELAYED DELIVERY OF VOUCHERS AND INPUTS PARTICIPATION OF TRAINED AGRO DEALERS IN THE PROGRAM CONCLUSIONS AND RECOMMEDATIONS

3 REFERENCES APPENDICES APPENDIX 1: PERFORMANCE INDICATORS FOR NAIVS APPENDIX 2: ANNUAL ACTIVITY IMPLEMENTATION TIMELINE FOR THE PROGRAM APPENDIX 3: INSTITUTIONAL ARRANGEMENT APPENDIX 4: NUMBER OF VOUCHERS DISTRIBUTED TO REGIONS IN 2010/11 CROP SEASON APPENDIX 5: NUMBER OF VOUCHERS DISTRIBUTED TO REGIONS IN 2011/12 CROP SEASON APPENDIX 6: NUMBER OF VOUCHERS DISTRIBUTED TO REGIONS IN 2012/13 CROP SEASON APPENDIX 7: TECHNICAL DETAILS OF THE IMPACT EVALUATION APPENDIX 8: CONSUMER AND PRODUCER PRICES PER KG APPENDIX 9: VOUCHER DISTRIBUTION TO THE REGIONS: ADMINISTRATIVE COSTS IN TZS APPENDIX 10: TERMS OF REFERENCE OF THE DISTRICT AGRICULTURE AND LIVESTOCK DEVELOPMENT OFFICER (DALDO) APPENDIX 11: TERMS OF REFERENCE OF THE VILLAGE AGRICULTURAL EXTENSION OFFICER (VAEO)

4 LIST OF FIGURES FIGURE 1.1: SHARE OF AGRICULTURE IN GDP AND GDP PER CAPITA IN TANZANIA FIGURE 1.2: AGRICULTURE AND GDP GROWTH RATES IN TANZANIA FIGURE 1.3: PERCENTAGE OF FARMERS USING FERTILIZER IN TANZANIA BY DISTRICT FIGURE 1.4: TRENDS IN CROP PRODUCTION FIGURE 1.5: TRENDS IN PRODUCTIVITY FIGURE 1.6: PADDY IRRIGATION SCHEMES IN TANZANIA FIGURE 2.1: ANNUAL ACTIVITY IMPLEMENTATION TIMELINE OF THE PROGRAM FIGURE 2.2: IMPLEMENTATION PROCEDURE FIGURE 2.3: NAIVS DIRECT COSTS BY PLANNED BUDGET AND ACTUAL EXPENDITURE IN USD

5 LIST OF TABLES TABLE 1.1: AGRICULTURE AND POVERTY IN TANZANIA, TABLE 2.1: INPUT PACKAGES FOR MAIZE AND RICE (FOR 0.5 HA) TABLE 2.2: NAIVS AREAS TABLE 2.3: CHANGES MADE BETWEEN 2009/10 AND 2011/ TABLE 2.4: NAIVS TOTAL PLANNED BUDGET AND ACTUAL EXPENDITURE IN USD TABLE 2.5: INPUTS MARKET PRICES IN RUKWA REGION 2011/ TABLE 2.6: DISTRIBUTION OF VOUCHERS BY SEASON TABLE 2.7: DISTRIBUTION OF VOUCHERS BY REGION: 2010/ TABLE 3.1: SUMMARY STATISTICS TABLE 3.2: INPUT USAGE AND YIELDS ACROSS REGIONS (ONLY BENEFICIARIES 1-3 YEARS) TABLE 3.3: IMPACT OF VOUCHER SCHEME ON YIELDS BY REGION (HOUSEHOLD-LEVEL DATA) USING THE LISTINGS SURVEY TABLE 3.4: INPUT USAGE AND YIELDS AMONG 4TH YEAR PARTICIPANTS TABLE 3.5: BENEFIT-COST ANALYSIS (LISTINGS SURVEY) TABLE 4.1: TARGETING RESULTS FROM LISTING SURVEY (2010/11 VOUCHER CYCLE) TABLE 4.2: BENEFICIARIES USED INPUT IN YEARS BEFORE THE START OF NAIVS TABLE 4.3: REASONS GIVEN FOR NOT USING INPUTS IN THE PAST ( % OF TOTAL RESPONDENTS) TABLE 4.4: AVERAGE YIELD GAIN OF FARMERS WITH AND WITHOUT VOUCHERS BY HIGHER AND LOWER RAINFALL DISTRICT TABLE 4.5: COMMON AUDIT CONCERNS TABLE 4.6: CASES OF POSSIBLE MISUSE OF NAIVS VOUCHERS UNDER INVESTIGATION FOR 2010/ TABLE 4.7: NUMBER OF VOUCHERS RECEIVED AND USED BY RECIPIENT HOUSEHOLDS, 2010/11 SEASON TABLE 4.8: PARTICIPATION OF AGRO-DEALERS IN NAIVS (2010/11 AND 2011/12)

6 ACRONYMS ACT Agricultural Council of Tanzania AFSP Accelerated Food Security Project AG Attorney General s Office AGRA Alliance for a Green Revolution in Africa AIS Agricultural Input Section ASDP Agricultural Sector Development Program BOT Bank of Tanzania CNFA Citizens Network for Foreign Affairs CAG Controller and Auditor General CBO Community-Based Organization CSOs Civil Society Organizations DALDO District Agriculture and Livestock Officer DAP Diammonium Phosphate DVC District Voucher Committee ESRF Economic and Social Research Foundation GDP Gross Domestic Product HAIS Head of Agricultural Input Section LGA Local Government Authority MAFC Ministry of Agriculture, Food Security and Cooperatives MKUKUTA National Strategy for Growth and Reduction of Poverty MoFEA Ministry of Finance and Economic Affairs MRP Mmussoorie Rock Phosphate NAIVS National Agricultural Input Voucher Scheme NMB National Microfinance Bank NVSC National Voucher Steering Committee OPV Open Pollinated Variety PADEP Participatory Agricultural Development and Empowerment Project PCCB Prevention and Combating of Corruption Bureau PIM Programme Implementation Manual PMO-RALG Prime Minister Office-Regional Administrative and Local Government RC Regional Commissioner RVC Regional Voucher Committee TAFSIP Tanzania Agriculture and Food Security Investment Plan TASAF Tanzania Social Action Fund URT United Republic of Tanzania USAID United States Agency for International Development VA Village Assembly VEO Village Executive Officer VG Village Government VVC Village Voucher Committee WDI World Development Indicator WVC Ward Voucher Committee 6

7 ACKNOWLEDGEMENTS The study team consists of staff members from the Tanzanian Ministry of Agriculture, Food and Cooperatives (MAFC), University of Dar-es-Salaam, Tanzanian research institution (REPOA), and the World Bank. In particular, the report was prepared jointly by David Biswalo, Xavier Gine, Aparajita Goyal, Oswald Mashindano, Donald Mmari, David Rohrbach, under the overall guidance of Stephen Mink; and has been possible, thanks especially, to the continuous support provided by the Ministry of Agriculture, Food and Cooperatives, Government of Tanzania. Additional comments and suggestions were received from Sergiy Zorya, Madhur Gautam, Jacques Morisset, Emmanuel Mungunasi, Isis Gaddis, Victoria Cunningham, and Michael Morris. Faith Lucy Motambo and Volana Farantsa Andriamasinoro provided excellent assistance in various aspects of administration of the project. Financial support from Bill and Melinda Gates Foundation for the overall project on Strengthening National Comprehensive Agricultural Public Expenditure in Sub-Saharan Africa, 3ie International Initiative for Impact Evaluation, and the World Bank Accelerated Food Security Project is gratefully acknowledged. 7

8 EXECUTIVE SUMMARY The National Agricultural Input Voucher Scheme (NAIVS) is a market smart input subsidy program aiming to increase the adoption of improved seed and fertilizer in smallholder maize and rice systems in order to raise productivity and improve food security. Since 2008/09, approximately TZS 480 billion has been invested in helping 2.5 million farmers (roughly 45 percent of all smallholders in the country) by distributing vouchers that subsidize half of the price of a package of improved seed and fertilizer that farmers obtain with the vouchers from private dealers at market prices. Each farm household is expected to receive three consecutive years of assistance that would allow farmers to estimate the returns to investing in improved seed and fertilizer under variable rainfall conditions, and build a stock of capital for continuing purchases of these inputs once the subsidy is withdrawn. The three year coverage also provides time for input retailers to strengthen their supply chains and understanding of the rural market conditions. Hence, the immediate gain of the program is expected to be the additional grain obtained through the productivity gains derived from using improved inputs, while the medium term gain is expected to be the level of sustained productivity gain derived from continuing adoption of improved seed and fertilizer after the subsidy ends. Farming households that cultivate no more than 1 hectare (approximately 2.4 acres) of maize or paddy and could afford the top-up payment for the input package are selected into the NAIVS subsidy program. Priority is given to female-headed households and to households that have not used any fertilizer and improved seeds for targeted crops over the last five years. More broadly, NAIVS expected to introduce improved maize and rice seed varieties to farmers who would not otherwise have applied these inputs, and introduced the use of chemical fertilizer to households who would not otherwise have tried this input. The aim of the NAIVS is to intensify food production in areas with high agro-ecological potential for producing the two staple foods. These areas are concentrated in the Southern Highlands, Northern Highlands, and Western regions with agro-ecological zones suitable for the targeted crops, accounting for at least 70 percent of total maize production and 50 percent of total paddy production in Tanzania. These three regions accounted for 82 percent of the total number of household beneficiaries and 82.3 percent of the total value of voucher in 2010/11. Moreover, Tanzania s grain belt known as the big six regions covers the Southern Highlands (Ruvuma, Iringa, Rukwa, Mbeya) as well as some of the Western (Kigoma) and Central zones (Morogoro). In 2010/11 season, the big six regions had received 62.1 percent of total printed vouchers. When the program was designed, it was targeted to cover 65 districts in Tanzania s higher potential zones for maize and rice. However, there appears to have been a political imperative to cover all regions and all farming districts in the country. By 2011/12, the project provided support to farmers in over 130 of the country s 152 districts. The additional districts encompassed many relatively drier and more drought prone areas of the country. 8

9 The average annual expenditure on NAIVS between 2009/10 and 2011/12 is USD 71 million that includes three types of costs: direct costs, indirect costs and complementary investments, with direct subsidy costs taking the largest share of the total annual expenditures on NAIVS (96.5 percent on average annually). Indirect costs mainly consist of resources spent to improve farmers awareness and project management costs, while complementary investments include the costs of strengthening agro-dealers network, strengthening the national seed system, and the project monitoring and evaluation; that together make up the remaining share of the total expenditure on NAIVS. NAIVS started with 740,000 household beneficiaries in 2008/09 and then expanded to 1,511,900 households in 2009/10 and 2,011,000 household receiving a total of six million vouchers in 2010/11. The number of beneficiaries in 2011/12 season decreased a bit because the first-round (2008/09) beneficiaries of NAIVS had graduated from the program. On average, the amount of NAIVS expenditure on each household beneficiary was USD 51 in 2009/10, USD 33 in 2010/11 and USD 41 in 2011/12. To evaluate the impacts of NAVIS, two rounds of household surveys were conducted between December 2010 and December 2012 focusing specifically on eight regions that comprised of the big six as mentioned before (Iringa, Mbeya, Ruvuma, Rukwa, Morogoro, Kigoma) and two additional regions in the North (Arusha and Kilimanjaro). Among these eight regions, Morogoro, Arusha, and Kilimanjaro are distinct because they experience bimodal rainfall patterns, which result in a later start date for the main planting season as compared to southern areas with uni-modal rainfall. The sample was also expanded in the 2012 follow up survey to include regions that experience lower rainfall (Tabora and Dodoma) to estimate spatial heterogeneity in effects and implications of expanding the program to drier regions of the country. A total of 2,000 households comprising of both beneficiaries and non-beneficiaries were interviewed in both baseline and follow-up surveys over time. The empirical analysis exploits the roll-out plan of the program to generate comparable treatment and counterfactual groups for estimating the program impacts. The treatment group is comprised of farming households that receive the subsidy for the first time in the 2009/11 planting season and the comparison group consists of eligible farming households in the same village that did not receive the subsidy. By comparing eligible beneficiary and eligible non-beneficiary households within the same village, we find that for 2010/11 season the usage of improved inputs significantly increased average maize yields. In contrast, the impacts for paddy are smaller and much less significant. This may partly reflect the fact that the rice farmers being targeted were all expected to be on irrigation schemes. Therefore they had higher yields to begin with. Some rice farmers perhaps also have had access to improved rice seed and fertilizer through alternative development programs. The analysis also suggests that the average yield gains achieved in these drier regions were lower than the gains achieved in areas of more reliable rainfall. 9

10 Overall, the program appears to be cost effective for maize in most of the surveyed regions at the current level of subsidy but not so for paddy. The survey data also indicates that a significant proportion of the voucher graduates who had not used improved inputs prior to the program are continuing to purchase improved seed an fertilizers. This suggests that farmers widely valued the improved access to the modern varieties of maize and rice and will continue to grow these varieties into the future, indicating a sustained payoff of the program that would extend well beyond the period of the subsidy program if the behavior persists. This coincides with evidence received from both fertilizer and seed companies that their commercial sales were increasing in the aftermath of the subsidy program. Several of these companies are investing more in developing wholesale to retail marketing chains, and in the provision of private technical advice to encourage smallholders to continue to purchase their products. It should be noted that the analysis reflects the most immediate returns to the investment, and underestimates the longer term gains derived from training farmers about the value of improved seed and fertilizer, and developing retail input supply chains extending closer to the farmgate. A number of farmers interviewed suggested that they were seeing some improved varieties of maize or paddy for the first time. Insofar as they continue to use improved varieties, the productivity gains will be sustained. The increase in seed and fertilizer adoption rates among subsidy graduates, particularly those who had not previously purchased these inputs, also raises the level of investment gains. Despite the success of the NAIVS program in terms of increase in adoption rates for improved seed and fertilizer, yield and food security, there are still some concerns that need to be addressed. First, there has been substantial public attention to the misuse of vouchers The impact survey data reveal that many farmers only received 1 or 2 vouchers instead of the mandated three. Data from the National Microfinance Bank, which has been responsible for the payment of all vouchers, suggests that in 2010/11, approximately 92 percent of all vouchers were redeemed and paid out suggesting a need to tighten voucher tracking and security to reduce fraudulent redemption. Perhaps deploying electronic vouchers that are transferred to farmers cell phones and then transferred to licensed agro-dealers upon purchase of inputs could be one way to address such distortions. Second, farmers commonly complained about the late delivery of vouchers, as well as the late delivery of inputs once the vouchers were in hand. The period of delay varied considerably depending on the district and local practice. For example, in 2010/11, the subsidy vouchers were printed late, arrived in early December, but then remained in the port of Dar es Salaam until mid-january because of a tax dispute. Many farmers only received their vouchers in late January and early February long after the planting season. The yield gains derived from the use of improved seed and chemical fertilizer depend heavily on the timeliness of application of these inputs. In general, the later the crop is planted, relative to the start of the rainy season, the lower the yield. The actual level of loss depends on the choice of seed variety, the consistency or rains and the length of the season. Basal fertilizer should commonly be 10

11 applied at or just prior to planting. Perhaps, if the voucher and input delivery had been achieved on a timelier basis, these yield gains would likely have been higher. Third, the failure to withdraw the subsidy from participating farmers after three years led to some households receiving a subsidy for four or even five years. Finally, withdrawal of the services of agro-dealers would undermine the levels of continuing commercial purchases of improved inputs. Many of the agro-dealers providing inputs under the program withdrew from village markets when the demand for their inputs was no longer guaranteed by the vouchers. While the agro-dealers were required to set up shops in the villages in order to participate, many of these shops were seasonal and rented on a short term basis. This is sensible because grain seed and chemical fertilizer sales are highly seasonal. If farmers have to travel to a distant town to look for seed or fertilizer with uncertainty about prices and availability, commercial sales will decline. Another factor undermining the continuing purchase of these improved inputs is their high cost. The fact remains that seed and chemical fertilizer remain expensive commodities at the farmgate. Many farmers face difficulty finding the capital to make this investment during the start of the growing season. Thus, whether the adoption of improved seed and fertilizer will be sustained as the subsidy is withdrawn is of greater concern. Different from the inputs subsidy program like NAIVS, the investment programs proposed in the Big Results Now laboratories primarily target the objective of making maize and rice production more profitable. The maize program principally targets the improvement of production returns by helping farmers make use of warehouse based crop storage systems that facilitate the exploitation of price seasonality and the opportunities for achieving better farmgate prices through bulk sales. These warehouse operations can also be used to facilitate the bulk purchase of crop inputs. The Big Results Now proposal for paddy seeks a combination of improvements in production and market productivity through the pursuit of better crop management through block farming as well as a similar warehousing arrangement as that proposed for maize. This could help resolve the question raised by the NAIVS impact assessment of how the agronomic performance derived from the improved inputs can be sustained and further improved. Moreover, there are similarly multiple ways to help farmers resolve the cash flow constraint in the face of limited credit markets and high borrowing costs. The rest of the report is comprised of six chapters in addition to this executive summary. Chapter 1 reviews the developments of the economy and the agricultural sector, especially the crop production and productivity. Chapter 2 provides a comprehensive overview on the NAIVS program, including budget, expenditure and implementation. Chapter 3 presents the general economic model used in the paper and discusses and analyzes the empirical results. Chapter 4 discusses the challenges and problems faced during the implementation of NAIVS program. The final chapter describes policy implication of the NAIVS program and concludes the report. 11

12 1.0 INTRODUCTION 1.1 Economic and Policy Context The United Republic of Tanzania is largely an agriculture-based economy, accounting for more than a quarter of GDP (Figure 1.1) and remains an important contributor to economic growth (Figure 1.2). More than 73 percent of the population is rural and about two-thirds of the employed population works in the agricultural sector making this sector extremely important for poverty reduction and food security (Table 1.1). Although per capita income has grown continuously for the past 2 decades, the 2010 per capita income in Tanzania of 399 thousands TZS (473 constant 2000 USD) places it among world s poorest countries. According to the World Bank figures, almost 88 percent of the population lives on less than 2 dollars-a-day and almost 68 percent is estimated to live on less than 1.25 dollar-a-day, a level that defines extreme poverty. Further, about 39 percent of the population is estimated to be undernourished, i.e. living with chronic hunger. Table 1.1: Agriculture and Poverty in Tanzania, 2011 Agriculture, % GDP 27.1 Employment in agriculture (%) a 76.5 GDP per capita (constant 2000, 000 TZS) 399 GDP per capita (constant 2000 USD) 473 GDP per capita (PPP 2005 USD) 1334 Poverty headcount ratio USD PPP 1.25 a day (% of population) b 67.9 Poverty headcount ratio USD PPP 2 a day (% of population) b 87.9 Prevalence of undernourishment (% of population) c 38.8 Rural population (% of total population) 73.3 Population (million) 44.8 Notes: a estimate; b estimate; c estimate. 12

13 Figure 1.1: Share of Agriculture in GDP and GDP per capita in Tanzania 000 TZS % Source: WDI (2012) GDP per capita (constant 2000, 000 TSH) Agriculture, % of GDP (right scale) Figure 1.2: Agriculture and GDP Growth Rates in Tanzania % Agriculture growth (annual % ) GDP growth (annual %) Source: WDI (2012) Agricultural value-added grew by an average of 4.4 percent per year between 1999 and 2007, with growth declining in recent years (World Bank, 2009). Agricultural growth has been only 1.5 percent higher than population growth (2.7 percent). Production of the major staple food crops (maize, rice, cassava, and beans) grew at an average rate of 3.5 percent, compared to 5.4 percent for cash crops. Tanzania s agriculture is dominated by low productivity smallholder farms. Because agriculture in Tanzania depends almost entirely on rainfall, it is highly susceptible to climatic shocks, particularly in the semiarid areas of central and northern Tanzania. Farmers yields are only percent of potential yields (World Bank, 13

14 2009). Moreover, improved agricultural technologies have been adopted at extremely low rates in Tanzania. Figure 1.3 shows the percentage of farmers using fertilizer in Tanzania by districts. As shown in the figure, fertilizer utilization rate in Tanzania has generally been low. Between 2002 and 2003 less that 5 percent of farmers in approximately 50 percent of the districts in Tanzania used fertilizer. On average, Tanzanian farmers use approximately 9kg/ha of fertilizer as compared to Malawi that uses 27kg/ha, and Vietnam that uses 365kg/ha (Msambichaka et al., 2010). Only 5.7 percent of maize farmers and 0.7 percent of paddy farmers in Tanzania use improved crop varieties together with fertilizer, according to the Agricultural Census 2002/03. The few farmers who use improved maize and rice varieties with fertilizer obtain significantly higher yields than those who use unimproved varieties (Agricultural Census, 2002/03). Figure 1.3: Percentage of farmers using fertilizer in Tanzania by district Source: Tanzania Agricultural Sample Census in Minot (2009) Yet, the importance of agriculture in Tanzanian economy was not recognized until late 1990s, when the long term vision of development in URT, the Tanzania Development Vision 2025, was established to accelerate economic growth and reduce poverty. The Vision was the first to recognize the role of agriculture sector in national development and identified agriculture as the key driver of economic growth. The more recent medium term development goals, expressed in the 2004 National Strategy for Growth and Reduction of Poverty, more commonly known under its Kiswahili acronym MKUKUTA, have further underlined the importance of agriculture sector development giving priority to the following drivers of growth in agriculture: supporting physical infrastructure, water and irrigation infrastructure, financial and extension services, knowledge and information, value addition activities (crop production, livestock, fish processing, and mechanization), trade and export development services (World Bank, 2010). 14

15 To address these priority areas, the Agricultural Sector Development Strategy (ASDS) was developed and adopted in The ASDS provides specific goals, operational targets and priority action plans aiming at achieving the broad policy objectives. The ASDS main strategic objectives include: creating an enabling environment for improved productivity and profitability in the agricultural sector; increasing farm incomes to reduce income poverty and ensure household food security by enabling farmers to have better access to and use of agricultural knowledge, technologies, marketing systems and infrastructure; and promoting private investments based on improved regulatory and policy environment (ASDS, cited from ESRF 2010). The strategies described above were translated into more than 170 individual projects and programs that shaped public expenditures in support of food and agriculture sector development in URT. The total approved budget 1 in the agriculture sector grew by 53 percent, in nominal terms, from 2006/07 to 2010/11 reaching billion TZS (Table 1.2). The peak of budget allocations occurred in the 2009/2010 financial year with the billion TZS allocated in support of agriculture. The total actual spending has grown at a slower pace: it increased by 30 percent from 2006/07 to 2010/11 reaching 728 billion TZS, although the highest actual spending value falls in the 2007/08 financial year with billion TZS spent in support of agriculture. Table 1.2: Tanzania Billion TZS Budget Allocation Total Public Expenditures in Support of Food and Agriculture Sector in 2006/ / / / /11 p % change 2006/ / Actual Spending Exchange Rate 1 (TZS per USD) Exchange rates are the annual averages for the calendar year from 2007 to 2011; p indicates provisional. Source: WDI (2012). Important projects include Accelerated Food Security Project (AFSP), implemented under MAFC, to support the government s efforts in achieving greater food security by increasing food production and productivity through inputs (seeds and fertilizers) subsidies provided under the government s National Agricultural Inputs Voucher Scheme (NAIVS); Agricultural 1 Total agricultural expenditures (budget allocations and total spending) include both policy transfers in support of agriculture and policy administration costs. They include funding from national resources and from foreign aid. 15

16 Sector Development Program (ASDP), Participatory Agricultural Development and Empowerment Project (PADEP), also implemented by the MAFC, that supports grants to communities and farmer groups for investment in agricultural development subprojects and focusing primarily on improving soil fertility and land management; the Tanzania Social Action Fund (TASAF) of the President s Office that supports implementing food security, education, roads, water, health, training and environment related projects. 1.2 Trends in Crop Production and Productivity Maize is considered the most important food crop in Tanzania covering 45 percent of total arable land and generating close to 50 percent of rural cash income, an average of 100 USD per maize producing household in 2008 (USAID, 2010). On the basis of Ministry of Agriculture, Food Security and Cooperatives (MAFC) reports, more than 20 regions in Tanzania are producing maize annually, mainly of white type. The southern regions of Iringa, Rukwa, Ruvuma, and Mbeya account for more than 35 percent of the total annual maize production. The southern highlands produce surplus maize compared to consumption levels, while there are deficits in the northern highlands, Dar es Salaam, and central regions. Rice is the third most important food and cash crop after maize; and it s among the major sources of employment, and income for many farming households. According to the Agricultural census of 2004, 17 percent of all agricultural households grow rice. Rice production in Tanzania covers approximately 681,000 ha, representing 18 percent of cultivated land. Almost all rice (99 percent) is grown by smallholder farmers using traditional seed varieties. Nearly half of the country s rice production is concentrated in the regions of Morogoro, Shinyanga, Tabora, Mwanza and Mbeya. The first four rice producing regions are located in the northern part of the country and the fifth is located in the south. The overall trends in maize as well as paddy production and productivity for the past three decades from 1981/82 to 2009/10 in the NAIVS program area are shown in Figures 1.4 and 1.5. Production of maize has been increasing over time despite the fact that its productivity over the period shows a declining trend. While maize recorded 1.1 million metric tons in 1981/82 and 2.2 million metric tons in 1995/96, a total of 3 million metric tons were produced in 2009/2010. On the other hand, maize productivity was 1.1 tons per ha in 1981/82 and 1.8 metric tons per ha in 1995/96, while in 2009/10 productivity declined to 1.5 metric tons per ha. For paddy, both production and productivity over the period have been increasing. In 1981/82, metric tons were produced in the NAIVS project regions with productivity at 1.6 metric tons per ha. In 2009/10 production of paddy was 1.6 million metric tons in the project regions with productivity at 2.4 metric tons per ha. In terms of quantity produced maize has been far better compared to paddy, while in terms of productivity paddy performs slightly better in comparison to maize. This trend in production and particularly productivity of maize and paddy can be explained by the fact that over time paddy becomes a more attractive crop to farmers due to its higher prices in the market compared to maize. In 16

17 1981/ / / / / / / / / / / / / / / / / / / / / / / / / / / / /10 Metric Tones per Ha 1981/ / / / / / / / / / / / / / / / / / / / / / / / / / / / /10 '000 Metric Tonnes addition, the government has developed a number of projects to promote paddy production through irrigation in the country (Figure 1.6), which also leads to the good performance of paddy compared to maize which depends mainly on rainfall. Figure 1.4: Trends in Crop Production Year Maize Q Paddy Q Linear (Maize Q) Linear (Paddy Q) Source: Constructed using data from MAFC Agricultural Input Section Figure 1.5: Trends in Productivity Productivity M Year Productivity P Linear (Productivity M) Linear (Productivity P) Source: Constructed using data from MAFC Agricultural Input Section 17

18 Figure 1.6: Paddy Irrigation Schemes in Tanzania Source: ESRF (2012) 1.3 NAIVS Program Motivation The history of farm input subsidy in Tanzania can be traced back to 1967 when the Tanzanian Villagization programs were adopted to agglomerate rural living units to enable rural development through providing for the rural population services as schools, health centers, piped water, electricity and access to roads (Coulson, 1982). Importation and distribution of agricultural inputs were state-controlled with highly subsidized input prices. The program was largely halted in 1982 due to the repeal of the village legislation. The economic crisis of the mid-1980s led to the commencement of an economic reform program in 1986, involving liberalization of agricultural markets and foreign exchange, removal of domestic price controls, and reform of state monopolies. Agricultural market liberalization started with the food crop markets, and then cash crops market in early 1990s. Input subsidies were phased out between 1991 and 1994, i.e. fertilizer subsidies decreased from 80 percent in 1990 to 55 percent in 1992 and to no more that 20 percent by mid-1992 (Putterman, 1995). Since 1993, the United Republic of Tanzania radically changed its growth path and sectoral contributions to GDP. Over the period , the growth rate of the agriculture sector fluctuated from 1.9 percent in 1998 to 5.9 percent in 2004 (Figure 1.2), while GDP growth fluctuated from 3.7 percent in 1998 to 7.8 percent in The agriculture sector has persistently registered a lower growth rate than the industry and service sectors, thus affecting its contribution to poverty reduction in the country. In 2008, global food prices hit record highs. Rising domestic prices for food and farm inputs, the failure of the 2008/09 short rains and the continued global economic crisis worsened the food security situation in Tanzania. Then, in response to an urgent request from the Government of Tanzania to support its efforts to achieve greater food security by increasing food yield and production, the World Bank s Board of Executive Directors approved an International Development Association (IDA) 18

19 credit of US$220 million to support implementation of Tanzania s Accelerated Food Security Program (AFSP) in To stimulate a rapid supply response to deal with high food prices, The National Agricultural Input Voucher Scheme (NAIVS) was adopted to intensify food production by giving farmers better access to inputs. A detailed description of the NAIVS program is presented in Chapter 2. 19

20 2.0 NAIVS IMPLEMENTATION AND COSTS 2.1 Overview of NAIVS In response to the food and fertilizer price increases in 2008, the government launched the Accelerated Food Security Program (AFSP), which aims to boost food production and productivity in targeted areas, as the URT s agricultural input intensity is among the lowest in the region. A pilot input subsidy program was launched in 2008, and was expanded into the National Agricultural Input Voucher Scheme (NAIVS) in The NAIVS initiative uses vouchers to transfer resources directly to farmers, increasing their purchasing power, stimulating the development of input supply chains, and fostering competition among input suppliers and agro-dealers (World Bank, 2009). The main objective of the program is to improve farmers access to critical agricultural inputs (fertilizer and improved seeds) for maize and rice production, and it has been implemented by the Ministry of Agriculture, Food Security and Cooperatives (MAFC) to provide input vouchers to a total of 2.5 million maize and rice farmers until now. The vouchers that NAIVS provides to maize and rice farmers subsidize half of the price of a package of improved seed and fertilizer (the package provides enough of these inputs for one acre of maize or rice) they obtain with the vouchers from private dealers at market prices. The face value of vouchers has been adjusted annually due to the increasing inputs price. Each eligible farmer receives vouchers for a maximum of three years. Beneficiaries obtain an input package consisting of three vouchers 2 : one voucher for a N or nitrogenous fertilizer (1 bag of urea); one voucher for a P or phosphate fertilizer (1 bag of diammonium phosphate (DAP), option 1, or 2 bags of mussoorie rock phosphate (MRP), option 2) with nitrogen supplement depending on farmers choice); and one seed voucher (10 kg hybrid/open pollinated variety (OPV) maize or 16 kilograms of a rice variety) providing inputs for an average of 0.5 hectare of maize/rice cropped area (Table 2.1). Table 2.1: Input packages for maize and rice (for 0.5 ha) N source P source Seeds Maize farmer (Option 1) 1 bag of Urea 1 bag of DAP 10 kg (OPV or hybrid seeds) (Option 2) 1 bag of Urea 2 bags of MRP + 10N 10 kg (OPV or hybrid seeds) Rice farmer (Option 1) 1 bag of Urea 1 bag of DAP 16 kg OPV seeds (Option 2) Bag of Urea 2 bags of MRP + 10N 16kg OPV seeds Source: URT (2009) At current market prices, using fertilizer and seed does not generate sufficient cash for many resource-poor farmers to purchase inputs from one year to the next. The Project s three-year 2 Seeds package would cover 0.5 hectare (100 percent) and 0.25 hectare (50 percent) for maize and paddy respectively. 20

21 support for seed and fertilizer purchases should allow farmers to earn enough to continue purchasing inputs at market prices to sustain their gains in production and productivity. Moreover, NAIVS also includes critical complementary activities, such as a public awareness campaign, support to private agro-dealers to improve their capacity to deliver inputs, support to strengthen the national seed systems, the development and dissemination of integrated soil fertility management practices (including conservation farming), and rigorous monitoring and evaluation 3 to strengthen the overall effectiveness of the program. The aim of the NAIVS has been to intensify food production in areas with high agroecological potential for producing the two staple foods. These areas are concentrated in the Southern Highlands, Northern Highlands, and Western regions with agro-ecological zones suitable for the targeted crops (Table 2.2). Provision of input vouchers has been targeted to farmers cultivating less than one hectare, and focusing on paddy farmers using irrigation facilities. The targeted project areas in Table 2.2 account for about 70 percent of total maize production and 50 percent of total paddy production in Tanzania. Subsequently, gradual expansion of the program to other regions has been taking place with vouchers distributed in more than 152 districts in more than 20 Mainland regions (MAFC 2012a). Table 2.2: NAIVS Areas Agro-ecological zone Southern Highlands Northern Highlands Western Zone Source: URT (2009) Regions Iringa, Mbeya, Katavi, Njombe, Rukwa, Ruvuma and Morogoro Arusha, Manyara and Kilimanjaro Districts Iringa Rural, Ludewa, Kilolo, Mufindi, Makete, Njombe, Mbeya Rural, MboziRungwe, Kyela, Ileje, Chunya, Mbarali, Sumbawanga, Nkasi, Mpanda, Songea Mbinga, Namtumbo, Morogoro Rural Kilosa, Ulanga, Mvomero and Kilombero districts. Arusha Rural, Karatu, Babati and Moshi Kiteto, Mbulu, Hanang, Simanjiro, Longido, Ngorongoro, Meru, Same, Siha, Hai, and Rombo districts Tabora and Kigoma Sikonge, Kigoma (R), Kibondo and Kasulu districts Besides the expansion of the program, a number of changes have also taken place during 2009/10 to 2011/12. Table 2.3 summarizes some of the changes made during the course of the program, and the reasons for the changes. For example, in 2011 farmers boycotted the Minjingu fertilizer because it was reported to be harmful for the soil and therefore lower the yields and started to use imported fertilizers. Consequently, in 2012 the government urged all agro-dealers and farmers to use Minjingu Phosphate in order to protect and promote domestic industries, which contradicts the program guidelines and affects productivity target of the 3 Performance indicators used are presented in Appendix 1. 21

22 program. Also, the project has trained 3,855 agro-dealers across the country. In 2010/2011, 2,335 agro-dealers were involved in NAIVS implementation and 2,010 agro-dealers were confirmed to participate in NAIVS implementation in 2011/2012 with some attrition due to delayed payments to agro-dealers and late delivery of the vouchers making the agro-dealers uncertain as to whether or not the program was going to be implemented or not. Also, it has been common during the implementation of the program for farmers to sell vouchers at a throw away prices in search for quick money to meet their needs. This is particularly so during the harvest season when the market conditions for their crops are not attractive, or when the crop markets are generally limited, farmers cannot therefore access the necessary inputs for their farms. Over time market price of farm inputs has been increasing and therefore farmers have to pay more on inputs, which also affect the input utilization. Table 2.3: Changes made between 2009/10 and 2011/12 Year Changes Reasons Implications 2011 Farmers boycotting It was technically reported Necessitates use of the imported Minjingu fertilizer to be harmful because the fertilizer 2012 The government urges agrodealers and farmers to use Minjingu Phosphate 2011/12 The World Bank actual spending was increased to 83 percent from 50 percent 2011 Completion of the Alliance for a Green Revolution in Africa (AGRA) guarantee to the National Microfinance Bank for agro-dealers to get loans 2011 Closure of Citizens Network for Foreign Affairs (CNFA) yield are low To promote domestic industries The government s delays to disburse the money (50 percent) Affected agro-dealers who could not obtain loans from NMB Resulted into the closure of the matching grant which enabled agrodealers to get input loans from the Input supply companies That contradicts the programme guidelines and deters or affects productivity target of the programme because Minjingu fertilizer was technically reported to have negative consequences to the soils and yields Government commitments not honored Failure of agro-dealers to participate in the implementation of NAIVS Failure of agro-dealers to participate in the implementation of NAIVS 2.2 Implementation Features of NAIVS Annual Implementation Cycle The NAIVS annual budgeting process starts with commitment of subsidy budget and total number of beneficiaries (Figure 2.1). Programming and budgeting is mainly carried out between March and April despite the fact that some activities related to this phase such as the awareness creation of targeted farming population overlaps up to June. This is undertaken by the Ministry of Agriculture, Food Security and Cooperatives (MAFC). Another important 22

23 activity during this phase is the awareness creation of fertilizer importers and seed producers on implementation mechanisms and volumes of inputs (fertilizer, seeds and etc.) needed for the scheme. The farming population is targeted through various methods such as television, radio and extension. The total budget of input subsidy program is then submitted to the parliament through the Ministry s annual budget submission. While the awareness creation runs from March to June, the Ministry s budget presentation to the parliament is delivered in June. The annual activities of NAIVS have been outlined in detail in AFSP Program Implementation Manual (PIM) (URT 2009) 4. The second phase is for organizing and instituting the governing rules. This phase runs from April to May with a few activities overlapping to June. This is a stage where selection criteria of the targeted beneficiaries is determined by the National Stakeholders meeting, and inventory of in-country improved seed availability and potential imports are also determined. Other activities include: communication with input suppliers on quantities required and average expected prices; determination of subsidy rate per beneficiary (type and quantities of fertilizers, seeds, etc.); determination of the share of farmers that will benefit from the subsidy scheme; approval of the overall input subsidy implementation plan; and printing of vouchers with the highest security. Major actors for the second phase include the MAFC, regional and district NAIVS organizations, farmer organizations, Zonal research institutions, and seed companies (input suppliers). Phase three of the annual activity implementation cycle involves the selection of beneficiaries. This phase runs from May to July, and it entails awareness campaigns at local district/ward/village levels and sensitization of the regional, district and village authorities, establishment of Village Voucher Committee (50 percent of members need to be women), establishment of village beneficiary lists, and transmission of beneficiaries lists. Selection of beneficiaries is done jointly by MAFC, regional and district NAIVS bodies, extension unit, and villages. The fourth stage is voucher distribution which is executed jointly by MAFC, regional and district NAIVS bodies, extension unit, wards and villages from August to September. The last stage of the implementation cycle involves the inputs purchase and voucher redemption and adoption by farmers. This activity is carried out from September to October through May the following year Implementation Procedure Beneficiary households are selected using strict criteria as follows: A full-time farmer residing in the village cultivates no more than 1 hectare (approximately 2.4 acres) of maize or paddy 5 and is willing to use provided inputs on those crops while following recommendations provided by extension; A farmer could afford the top-up payment for the input package 4 Detailed information regarding annual implementation timeline is presented in Appendix 2. 5 The land ownership can be higher than a hectare, but average cultivated area should not be more than one hectare. 23

24 Priority is given to female-headed households and to households that have not used any fertilizer and improved seeds for targeted crops over the last five years (URT 2009). Figure 2.1: Annual Activity Implementation Timeline of the Program Programming and Budgeting: March-April Purchasing of inputs, Voucher Redeeming and use by farmers: Sept Oct - May Organization and rules (stakeholder meeting): April May Voucher distribution: Aug Sept Selection of beneficiaries: May July Source: Composed based on the information in URT (2009) The design of NAIVS, officially implemented by the Ministry of Agriculture and Food Security (MAFC) on behalf of the Government of Tanzania, consists of an extensive institutional arrangement 6 and implementation procedures. Figure 2.2 illustrates the implementation procedure of NAIVS. Based on the criteria above, the Village Voucher Committee (VVC) develops a recommended list of beneficiaries and a waiting list ranked in order of priority to replace farmers that may be unable to use the voucher and may, therefore, drop from the list. Both lists are submitted to the Village Assembly (VA) for approval and then the final list will be send back to VVC with a copy to the Village Government (VG). The VA also ensures that both the recommended list and the waiting list are made public to the villagers (URT 2009). The selected beneficiaries complete the Standard Application Form to participate in the program and then submit the forms in duplicate to the VVC. Within three days of receipt of the final list, the representative of the VG and the Chairperson of the VVC sign and issue the vouchers under the name of each of the selected beneficiaries and send the entire signed vouchers to the VVC. The beneficiary farmers sign the voucher in front of the District Government representative and the voucher numbers are recorded next to the name of the beneficiary farmers in the final list. At last, the VVC distributes the vouchers 6 Detailed institutional arrangements are presented in Appendix 3. 24

25 to the selected beneficiaries who acknowledge receipt of the vouchers by completing and signing standard form. Vouchers are immediately ready for use by the beneficiary farmers. Figure 2.2: Implementation Procedure VVC establishes beneficiary list rank according to selection criteria; select beneficiaries equal to number of voucher send to the Village Assembly (VA) for approval VA review recommendation of the VVC and the "Waiting List" send approved list to VVC with copy to the Village Governemnt (VG) VVC approved beneficiaries fill and sign application forms VVC send the completed application forms and final list to VG VG & VVC VVC Chairperson and VG representative sign voucher with the name of beneficiary on it write voucher number issued against the name of beneficiary in the master list VVC VVC distribute voucher; beneficairy sign on the list acknowledging receipt Source: Adopted from URT (2009) Farmers can convert vouchers to agricultural inputs with agro-dealers. A farmer who receives a voucher from the VVC goes to any registered agro-dealer of his choice, redeems the voucher, pays the difference between the voucher face value and the market price of the inputs, and collects the inputs. Farmers are advised to go and get inputs from authorized agrodealers who accept vouchers and have a good record of supplying inputs that meet recommended quality standards. Usually agro-dealers ask for identification to match with the name on the voucher identification and register the voucher number, name of the beneficiary, and get beneficiary signature. The agro-dealer must check the authenticity of the voucher with district authorities and VVC, if in doubt. Agro-dealers then convert vouchers to cash with the National Micro-Finance Bank (NMB). Agro-dealers conversion of vouchers to cash is based on the conversion procedure set by NMB, the only Bank that has been mandated to convert vouchers to cash. 2.3 Expenditure on NAIVS Table 2.4 summarizes costs incurred on NAIVS from 2009/10 to 2011/12 for both planned and actual expenditures. Under each category the budgets are disaggregated into direct costs, indirect costs and complementary investments. While the direct costs (scaling up of NAIVS) entail expenditure on fertilizer and seeds (input subsidy), indirect costs consist of the resources spent to improve farmers awareness and project management costs. 25

26 Complementary investments mainly include the costs of strengthening agro-dealers network, strengthening the national seed system, and the project monitoring and evaluation. Overall, NAIVS accounted for 44.4% of the total MAFC budget in 2009/10. As shown in Table 2.4, the total planned budget for NAIVS have been rising from USD 89.5 million in 2009/10 to USD102.3 million in 2011/12 with direct costs taking up the largest share of the total costs of NAIVS. Approximately 75 percent of the planned total direct costs are spent annually. Unlike direct costs, the differences between indirect planned budget and indirect actual spending as well as the planned complementary investment and actual complementary investment are significant. These differences are the results of some delays in the procurement. The 2012 MAFC progress report, for example, points out that the NAIVS project implementation was scheduled to start in August 2009 and conclude in 30 th June However, since a number of procurement activities had not been accomplished, the government requested the World Bank to extend the project for one year so that the remaining procurement could be carried out. It should also be noted that in practice there have been a number of budget carryovers where the remaining budget for one year was be used in successive years. On average about 45 percent of the planned indirect costs per annum was not spent during the period between 2009/10 and 2011/12. The total NAIVS cost per HH was highest at USD 50 in 2009/10 season and lowest at USD 33 in 2010/11 season, even though the actual subsidy per household does not change much per year. The reason for changes in the cost per HH over time is that the fiscal year budget changes as the subsidy payments for any given crop per year cuts across fiscal years and the number of households covered each year changes. Table 2.4: NAIVS Total Planned Budget and Actual Expenditure in USD Planned Budget Direct Costs 77,153, ,942, ,647, Indirect Costs 2,567, ,556, ,442, Complementary Investments 9,775, ,646, ,178, Total 89,496, ,145, ,268, Actual Expenditure Direct Costs 75,322, ,870, ,221, Indirect Costs 1,237, , , Complementary Investments 399, ,127, ,213, Total 76,959, ,549, ,361, HH Beneficiaries Reached 1,511, ,011, ,658, Cost of NAIVS/HH Beneficiary Indirect Costs/HH Beneficiary Source: MAFC Agricultural Input Section 26

27 % share Figure 2.3: NAIVS Direct Costs by Planned Budget and Actual Expenditure in USD Actual Expenditure Planned Budget 100% 95% 0.52% 1.61% 3.20% 3.24% 0.83% 1.36% 10.92% 4.11% 2.26% 2.13% 1.41% 90% 2.87% 85% 97.87% 95.97% 95.41% 93.63% 96.46% 80% 86.21% 75% Crop Season Direct Costs Indirect Costs Complementary Investments Source: Constructed using data from MAFC Agricultural Input Section NAIVS started with 740,000 household beneficiaries in 2008/09 and then expanded to 1,511,900 households in 2009/10 and 2,011,000 household receiving a total of six million vouchers in 2010/11 (Table 2.4). The reason of the reduction of the number of beneficiaries in 2011/12 season is because the first-round (2008/09) beneficiaries of NAIVS have graduated and purchased inputs using their own money. Using prices received by an agro-dealers in Rukwa Region last season for example, the total value of fertilizer requirements for the first option (one bag of Urea, one bags of DAP, and 10 kg seeds (OPV or hybrid seeds) is approximately 141,500 TZS, while that of hybrid seeds is about 37,500 TZS for maize. The value of fertilizer requirement is approximately four times of the improved seeds. Table 2.5: Inputs Market Prices in Rukwa Region 2011/12 Sn Type of the Input Average Market Price Fertilizer 1 DAP (TZS/50kg) 76,500 2 UREA (TZS/50kg) 65,000 3 CAN (TZS/50kg) 55,000 Improved Seeds 1 Maize (TZS/kg) 3,750 2 Paddy (TZS/kg) 1,700 Source: Agro-Dealer, Sumbawanga, Rukwa Region 27