University of Groningen. Contractual governance in agro-industry institutions in Tanzania Kamuzora, Aurelia Kokuletage Ngirwa

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1 University of Groningen Contractual governance in agro-industry institutions in Tanzania Kamuzora, Aurelia Kokuletage Ngirwa IMPORTANT NOTE: You are advised to consult the publisher's version (publisher's PDF) if you wish to cite from it. Please check the document version below. Document Version Publisher's PDF, also known as Version of record Publication date: 2011 Link to publication in University of Groningen/UMCG research database Citation for published version (APA): Kamuzora, A. K. N. (2011). Contractual governance in agro-industry institutions in Tanzania: a case study analysis Groningen: s.n. Copyright Other than for strictly personal use, it is not permitted to download or to forward/distribute the text or part of it without the consent of the author(s) and/or copyright holder(s), unless the work is under an open content license (like Creative Commons). Take-down policy If you believe that this document breaches copyright please contact us providing details, and we will remove access to the work immediately and investigate your claim. Downloaded from the University of Groningen/UMCG research database (Pure): For technical reasons the number of authors shown on this cover page is limited to 10 maximum. Download date:

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3 CONTRACTUAL GOVERNANCE IN AGRO-INDUSTRY INSTITUTIONS IN TANZANIA

4 2011 A.K. Kamuzora Ngirwa No part of this book may be reproduced in any form, by print, photoprint, microfilm or any other means without written permission from the author. ISBN:

5 CONTRACTUAL GOVERNANCE IN AGRO-INDUSTRY INSTITUTIONS IN TANZANIA A CASE STUDY ANALYSIS Proefschrift ter verkrijging van het doctoraat in de Rechtsgeleerdheid aan de Rijksuniversiteit Groningen op gezag van de Rector Magnificus, dr. F. Zwarts, in het openbaar te verdedigen op donderdag 24 februari 2011 om uur door Aurelia Ngirwa Kamuzora geboren op 28 november 1966 te Dar es Salaam, Tanzania

6 Promotores: Prof. dr. O. Couwenberg Prof.dr. J. A. Kuzilwa Beoordelingscommissie: Prof. dr. F.M. Tempelaar Prof. dr. J. de Ridder Prof. mr. W.D. Kolkman

7 Acknowledgement It was a wonderful journey, which started in 2006 to carry out the Ph.D. research project up to late The research was sponsored by NUFFIC through the NPT/Tanzania project. I am so grateful to the project leader, Prof. dr. Ko de Ridder who offering me a PhD position at the University of Groningen, faculty of law. Prof. dr. Oscar Couwenberg is appreciated for his impeccable mentoring and coaching during the research project as my supervisor. His tireless guidance has contributed to this success. This work has also been shaped by the two supervisors Prof. dr. Estomih Nkya and Prof. dr. Joseph Kuzilwa of Mzumbe University who guided me on issues concerning local aspects of this study. The two supervisors played this role at different points in time. It was Prof.dr. Estomih Nkya who supported me at the initial stage of this study. Unfortunately, he fell sick and Prof.dr. Joseph A.Kuzilwa took over this role. I am so grateful to them. I am also grateful to various University officials, who assisted me with my studies and in my stay in Groningen, and all participants in the study who provided me with their knowledge, comments, and suggestion. Finally yet importantly, I am thankful to my parents, my husband, and my children for their tireless support and encouragement. Aurelia Kokuletage Ngirwa Kamuzora Groningen University, December v

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9 TABLE OF CONTENTS TABLE OF CONTENTS...VII LIST OF FIGURES... X LIST OF TABLES... X LIST OF ABBREVIATIONS...XI CHAPTER 1 INTRODUCTION INTRODUCTION STUDYING EFFICIENCY IN AGRICULTURE SYNOPSIS OF THE INSTITUTIONS OF TANZANIA THEORETICAL APPROACH RESEARCH QUESTIONS LIMITATIONS OF THE STUDY STRUCTURE OF THE BOOK... 6 CHAPTER 2 BACKGROUND OF AGRO-INDUSTRY INSTITUTIONS IN TANZANI INTRODUCTION EVOLUTION OF THE AGRO-INDUSTRY INSTITUTIONS DESIGNING THE COOPERATIVE STRUCTURE OF THE AGRO-INDUSTRY INSTITUTIONAL CHANGES TOWARDS INDEPENDENCE DESIGNING THE TANZANIAN INSTITUTIONS AFTER INDEPENDENCE COOPERATIVE SOCIETIES INSTITUTIONS DURING UJAMAA PERIOD SUMMARY CHAPTER 3 ECONOMIC ORGANISATION INTRODUCTION BEHAVIOURAL ASSUMPTIONS PROPERTY RIGHTS THEORY TRANSACTION COST THEORY AGENCY THEORY FACTORS CAUSING GOVERNANCE PROBLEMS SOME SOLUTIONS TO GOVERNANCE PROBLEMS SMALLHOLDER FARMERS CONTRACT LEARNING CYCLE IN TANZANIA BEHAVIOURAL ALTERNATIVES FOR THE FARMER vii

10 3.10 THE FARMER BEHAVIOUR MODEL (FBM) SUMMARY CHAPTER 4 METHODOLOGY INTRODUCTION APPROACH DEVELOPING THE RESEARCH PROBLEM THE SPECIFIC RESEARCH DESIGN OF THIS STUDY MODEL BUILDING: A FARMER BEHAVIOURAL MODEL DATA COLLECTION TECHNIQUES DATA ANALYSIS LIMITATIONS OF THE QUALITATIVE CASE STUDY APPROACH SUMMARY CHAPTER 5 MTIBWA SUGAR ESTATE LIMITED (MSEL) INTRODUCTION PRODUCING GOOD QUALITY SUGARCANE EFFECT OF SEASONAL FLUCTUATIONS ON SUGAR CONTENT CONTRACT OF SUGARCANE MANAGING THE VALUE CHAIN MEASUREMENT MISTRUST AND OPPORTUNISTIC BURNING SUMMARY CHAPTER 6 KILOMBERO SUGAR COMPANY LIMITED (KSCL) INTRODUCTION THE NATURAL FERTILITY OF THE KILOMBERO VALLEY ECONOMIC ORGANISATION OF SHFS IN KILOMBERO VALLEY CONTRACTING FOR SUGARCANE COPING WITH OVERPRODUCTION COMPARING THE EFFICIENCY OF KSCL AND MSEL SUMMARY CHAPTER 7 ALLIANCE ONE TANZANIA LIMITED (AOTL) INTRODUCTION REGULATING THE TOBACCO INDUSTRY CONTRACTING THE TOBACCO SMALLHOLDER FARMERS INFLUENCE OF UJAMAA LEGACY TO THE SHFS INTRODUCING A-TRIPLE T GRADING AT THE GULIO AND THE PCS TRANSPORTATION OF TOBACCO GRADING AT THE FACTORY FARMERS PERCEPTIONS OF GRADING DEFAULTING BEHAVIOUR IN IBIRI NEW BARGAINING SYSTEM SUMMARY viii

11 CHAPTER 8 TANZANIA TEA PACKERS LIMITED (TATEPA) INTRODUCTION TEA FARMING AND PLUCKING TEA FAIRTRADE LABELLING ORGANISATION (FLO) RULES AND CERTIFICATION ORGANIZING THE SHFS VIA RSTGA CONTRACTING BENEFITS OF PRIVATE ORDERING SUMMARY CHAPTER 9 CROSS-CASE ANALYSIS INTRODUCTION THE CONTRACTUAL RELATIONSHIP BETWEEN SHFS AND FOS GOVERNANCE PROBLEMS IN THE CONTRACTUAL RELATIONSHIP APPLYING THE FARMER BEHAVIOUR MODEL (FBM) TO THE CASES INSTRUMENTS FOR SOLVING PROBLEMS SUMMARY CHAPTER 10 CONCLUSIONS AND IMPLICATIONS INTRODUCTION THE TYPES OF CONTRACT WHY DO THESE PROBLEMS ARISE? LESSONS TO IMPROVE AGRO-INDUSTRY INSTITUTIONS IN TANZANIA PUBLIC POLICY IMPLICATIONS FURTHER RESEARCH SUMMARY SAMENVATTING (DUTCH SUMMARY) BIBLIOGRAPHY APPENDICES ix

12 LIST OF FIGURES FIGURE 1 AGRO-INDUSTRY INSTITUTIONS AND THE GOVERNMENTAL STRUCTURE DURING THE UJAMAA SYSTEM FIGURE 2 COFFEE PROCUREMENT IN THE KILIMANJARO NATIVE COOPERATIVE UNION FIGURE 3 MAP OF TANZANIA INDICATING THE AREAS OF THE CASES FIGURE 4 TREND OF SUGAR PRODUCTION AND CONSUMPTION FIGURE 5 TOBACCO PRODUCTION TREND IN TANZANIA FIGURE 6 TEA PRODUCTION SINCE FIGURE 7 FARMERS CONTRACTING LEARNING CYCLE FIGURE 8 FARMERS DECISION TREE FIGURE 9 CONTRACT DECISIONS AND WELFARE OUTCOME FOR SHFS FIGURE 10 FARMER DEVELOPMENT PATH FIGURE 11 STAGES OF THE RESEARCH PROCESS FIGURE 12 RELATIONSHIP OF SEASONAL FLUCTUATIONS AND QUALITY OF SUGARCANE FIGURE 13 PRODUCTION OF SUGARCANE OF ROA AND KCGA, FIGURE 14 EFFICIENCY OF MSEL AND KSCL SUGAR PRODUCTION FIGURE 15 TOBACCO TOTAL SALES IN TONS PER YEAR IN TANZANIA FIGURE 16 TEA HARVESTING AND SEASONAL FLUCTUATIONS FIGURE 17 RUNGWE TEA DISTRICT ORGANISATION STRUCTURE FIGURE 18 FOUR CASES AND THE FBM LIST OF TABLES TABLE 1 SUGARCANE, TOBACCO AND TEA PRODUCTION IN TANZANIA, IN TONS TABLE 2 COMPARING KSCL AND MSEL TABLE 3 GOVERNANCE INSTRUMENTS EMPLOYED IN FOUR CASES TABLE 4 PRIVATE AND SOCIAL COSTS OF ECONOMIC ORGANISATION IN FOUR CASES x

13 LIST OF ABBREVIATIONS ANC: Africa National Congress AOI: Alliance One International AOTL: Alliance One Tanzania Limited BBU: Bukoba Buhaya Union CCM: Chama Cha Mapinduzi ( "revolutionary party") CRDB: Cooperative and Rural Development Banks CO: Cooperative Officer CTA: Technical Centre for Agriculture and Rural Cooperation CU: Cooperative Union CY: Cane Yard DCL: Dimon Company Limited DCO: District Cooperative Officer EU: European Union DRD: Daily Rate of Delivery DSE: Dar es Salaam Stock Exchange Exp(Revi): Expected Revenues of investing fertilizers for future returns for the smallholder farmer FBM: Farmer Behavioural Model FGD: Focus Group Discussions FOs: Factory Owners FTLO: Fairtrade Labelling Organisation HIV/AIDS: Human Immunodefficiency Virus / Acquired Immune Deficiency Syndrome ICT: Information and Communication Technologies IMF: International Monetary Fund ISL: ILLOVO Sugar Limited K1: The first sugarcane factory in the Kilombero Valley K2: The second sugarcane factory near the Kilombero River KCGA: Kilombero Sugar Cane-Out-Growers Association KNPA: Kilimanjaro Native Planters Association KSCL: Kilombero Sugar Industry Limited KSDL: Kilombero Sugar Distributors Limited MCP: Miller CumPlanter MOA: Mtibwa Out Growers Association MOC: Mill Operation Committee. MU: Mzumbe University MVF: Monetary Value of Fertiliser MSEL: Mtibwa Estate Limited NDP: Net Division Proceeds NGO: Non-Governmental Organisation xi

14 OB: Operating Board OG: Out-Grower OGD: Outgrowers Development Department PCS: Primary Cooperative Society PCSs: Primary Cooperative Societies PhD: Doctor of Philosophy PPF: Production Possibility Frontier R: Interest rate ROA: Ruhembe Out-growers Association (ROA) RSTGA: Rungwe Tea Growers Association SBT: Sugar Board of Tanzania SGC: Super Group of Companies SUA: Sokoine University of Agriculture SHF: Smallholder Farmer SHFs: Smallholder Farmers TBT: Tea Board of Tanzania TANESCO: Tanzania Electrical Company TANU: Tanganyika National Union TRCL: Tanzania Railway Corporation Limited TASIL: Tanzania Sugar Industries Limited TATEPA: Tanzania Tea Packers TCCL: Tanzania Cigarette Company TCP: Tons of Canes per day TLTCL: Tanzania Leaf Tobacco Company Limited TRIT: Tea Research Institute of Tanzania TTB: Tanzania Tobacco Board TTC: Tanzania Tobacco Council URT: United Republic of Tanzania UTP: United Tanganyika Party VDC: Village Development Committee VEO: Village Executive Officer WATCO: Wakulima Tea Company WB: Weighing Bridge WEO: Ward Executive Office WNOTE: Weigh Note WW I: World War I xii