Draft Agro-processing Strategy for the Government of Tanzania

Transcription

1 Draft Agro-processing Strategy for the Government of Tanzania Presentation January 2017

2 Agenda Importance of agro-processing to Tanzania s industrialization goals Approach to developing an effective agro-processing strategy Prioritization of value chains Agro-processing strategy: Crowding in investments in three zonal clusters Annex Value chain prioritization analysis Illustrative example: Dodoma / Central clusters Barriers across and within value chains Discussion Questions 2

3 The agro-processing strategy stems from ASDP II pillars to support Tanzania in becoming a middle income, semi-industrialized nation by 2025 Five Year Development Plan (FYDP II) Objectives The FYDP II outlines bold ambitions for Tanzania to become a middle income, semi-industrialized nation by

4 Agro-processing is crucial to Tanzania s industrialization and broad based economic growth over the next decade The Agricultural Sector is crucial to Tanzania s industrialization and broad based economic development over the next decade. The sector contributes approximately 65% of inputs to the industrial sector, makes up 23% of the country s GDP, and employs approximately two-thirds (67%) of Tanzania s workforce Agro-processing provides an opportunity for increasing incomes and creating jobs along the value chain through expansion of forward and backward linkages in the economy. Today, however, the majority of crops in the country are marketed in raw form with little or no value addition Tanzania has the ability to produce most raw materials, resulting from favorable soil and agro-ecological zones across the country Two trends that support the need for agro-processing: Rapid urbanization and affordability is growing the local demand for food products in Tanzania. For example, disposable income is allowing families to purchase processed rice, sugar, and edible oil A large and growing food import bill, especially for processed food, testifies to the potential of domestic agro-processing. Source: Second Five Year Development Plan (FYDP II) 2016/ /21 4

5 Agenda Importance of agro-processing to Tanzania s industrialization goals Approach to developing an effective agro-processing strategy Prioritization of value chains Agro-processing strategy: Crowding in investments in three zonal clusters Annex Value chain prioritization analysis Illustrative example: Dodoma / Central clusters Barriers across and within value chains Discussion Questions 5

6 The Ministry of Agriculture can use three levers to catalyse growth in agroprocessing in Tanzania Levers to agro-processing growth Catalytic Investments Effort What levers can be used to unlock barriers to the growth of agro-processing in Tanzania? How can these barriers be categorized? How catalytic will unlocking the barriers be to driving agro-processing growth in Tanzania? How much additional human capital or financial resources need to be provided for these efforts? Crosssectoral Efforts to unlock barriers such as tax, trade, labor, land and main-stream infrastructure that are cross-sectoral and neutral across all investors This is core to creating an enabling environment for businesses (including agro-processors) to thrive Creating an enabling business environment for investors and operators across sectors is imperative MALF should continue working with the Prime Minister s Office and other Ministries Zonal clusters Investments targeted towards clusters of interlinked value chains (e.g. dairy, meat and leather) by unlocking common barriers for a set of public and private actors in close proximity within a regional processing hub (e.g. Dodoma region) Investments to remove land, infrastructure, talent, and tech barriers will be most catalytic for clusters of value chains MALF should invest new resources for clusters of value chains at the regional level Value chain specific Investments targeted towards specific value chains, particularly around improving productivity. For example, improving extension services for all maize smallholder farmers This is the approach currently taken by the Ministry For specific value chains, improving productivity will be critical to reaching the country s agro-processing capacity MALF should realign current efforts towards value chain clusters in priority regions 6

7 MALF should continue to support the Prime Minister s Office (PMO) in unlocking cross-cuttingbarriers that are limiting investments across sectors Infrastructure Crosssectoral Description of cross-cutting barriers Action & Major Players Tax The existing tax code and avenues for tax payments are complex and costly. Currently, investors pay multiple taxes through multiple agencies (including local taxes); face inconsistent application of pre-profit tax on produce (cess); and pay VAT on some agricultural inputs, machinery and spare parts, despite agri-inputs being declared VAT-exempt Through the PAC s Tax Working Group, PMO, MALF, Ministry of Finance and others work to achieve simple tax codes and clear implementation of VAT-exempt agriculture related products Trade Obtaining export permits is lengthy and costly requiring multiple procedures and visiting multiple agencies Misaligned tariffs and quotas on commodities between Zanzibar and Mainland Tanzania create loopholes for importing cheap, counterfeit products Recent temporary policies (such as duty-free imports or export bans) can be counterproductive. Although aimed to improve food security, these policies create uncertainty in markets and reduces the price of agriculture products Through the PAC s Trade Working Group, PMO, MITI, Ministry of Finance, MALF and others work to achieve easy access to export permits and ensure effective use and implementation of protective policies Labor Land Limiting labor laws are restricting investments across sectors in Tanzania as a result of limited technical and managerial skills available to them locally SEZs/EPZAs restrict business visas for foreign labor to 2 months with a 5 person quota The process of accessing land is costly and lengthy for both domestic and foreign agriculture and non-agriculture investors, leading to a mass underutilization of land and limited investments. The national transportation infrastructure, such as major roads, seaports and airports, across the country remains weak. However, there are plans to develop these further PMO, Ministry of Labor and Ministry of Foreign Affairs work to ease access to foreign labor, particularly for agro-processing in SEZs Through the PAC s Land Working Group, PMO coordinates efforts with MALF, MLHHSD, EPZA, PORALG and others to ease access to land for investors PMO, Ministry of Works, Ministry of Finance and MALF advocate for and align major infrastructure investments to open regional markets Source: USAID Feed the Future and Tanzania Partnership and Accountability Committee (PAC) Land, Tax and Trade Working Group; REPOA Tanzania Market Pan; OECD Overview of progress and policy challenges in Tanzania; Dalberg Analysis 7

8 As progress is made to create an enabling environment, the strategy should focus on growing regional processing hubs within zonal clusters Zonal clusters Zonal Clusters Regional Processing Hub Tanzania is a large country with various agroecological zones having the comparative advantage for producing specific or a set of commodities (crops, livestock, fisheries) There are many challenges of prioritizing and making investments in value chains at the national level: Investments are spread thin across priorities Investments are not catalytic in unlocking multiple value chains Difficulty in prioritizing spending and promotion activities across value chains in many regions Processing is highly dependent on land, electricity, water and other infrastructure investments are highly dependent on location. Therefore, making investments to support processing in every region may not be cost-effective, given existing processing firms are highly underutilized Existing or planned infrastructure are crowded around specific growing city or region. For example, Dodoma is linked to Singida and Tabora to Rwanda and Burundi. However, Dodoma is also linked to Arusha, Mbeya and Mwanza Source: Five Year Development Plan II; FAO Agro-based clusters in developing countries: staying competitive in a globalized economy; Dalberg analysis 8

9 Within a regional hub, value chain clusters allow MALF to make catalytic investments, enable economies of scale and encourage shared knowledge Zonal cluster What are the major value chain clusters to be prioritized? (E.g. Dodoma) A cluster-based approach supports the growth of inter-linked value chains (e.g. dairy, meat and leather) by unlocking common barriers for a set of public and private actors in close proximity (e.g. Dodoma region) What are the common needs to make this value chain cluster successful? (E.g. infrastructure, talent) What types of investments should the Ministry prioritize for this cluster? (E.g. direct investments, financing facilities, research) What value-chain specific investments should the Ministry prioritize in this region? (E.g. seed variety for sunflower value chain) There are benefits to building out value chain clusters within a regional hub: Catalytic investments: Government can focus investments that are most catalytic in driving processing across a number of value chains. For example, packaging materials are a common need across value chains Economies of scale: Regional clusters encourage inter-firm cooperation allowing firms to reach economies of scale (marketing, transportation and logistics), particularly beneficial for small and medium processors and service providers Shared knowledge: Regional clusters encourage sharing of knowledge, research and innovations between public institutions and private companies Source: Five Year Development Plan II; FAO Agro-based clusters in developing countries: staying competitive in a globalized economy; Dalberg analysis 9

10 Within regional hubs, MALF can use two models of building clusters of prioritized value chain based on similar raw materials or end-products Zonal cluster Raw Material-Focused Cluster Product-Focused Cluster This cluster is based on the production of raw materials for processing (crop, livestock or fish) that is processed into different types of non-competing products (e.g. cattle contributes to dairy, meat and leather products) The cluster is based on similarity between the endproduct and market types, rather than the produce. For example, sunflower (A.1) and groundnuts (A.2) can be processed into edible oil for similar markets Cattle Sunflower Groundnuts Dairy Processor Meat Processor Leather Processor Processor Processor Processor Milk Meat Leather Edible Oil Edible Oil Seed Cake Local Markets Urban Markets Regional or Foreign Markets Local Markets Urban Markets Regional or Foreign Markets Source: FAO Agro-based clusters in developing countries: staying competitive in a globalized economy; Dalberg analysis 10

11 The Ministry of Agriculture can make catalytic investments to unlock common challenges across value chain clusters at the regional level Zonal cluster What are the major value chain clusters to be prioritized? (E.g. Dodoma) Land: Identify land for the development of value chain clusters - close to production of raw materials, existing processing activity and existing or planned infrastructure What are the common needs to make this value chain cluster successful? (E.g. infrastructure, talent) Infrastructure: Make strategic investments in infrastructure within regional processing hubs (e.g. energy, water) and infrastructure connecting regional processing hubs to production in neighboring regions (feeder roads, storage) commonly needed across value chains What types of investments should the Ministry prioritize for this cluster? (E.g. direct investments, financing facilities, research) What value-chain specific investments should the Ministry prioritize in this region? (E.g. seed variety for sunflower value chain) Finance: Enable financing facilities for assets, technologies and storage that 1) build common aggregation and distribution channels, and 2) align to seasonality of raw materials Talent: Fund universities in the region to fill common gaps in technical, managerial and soft skills. This will allow for a flow of skilled labour within and across value chains Technology: Invest in research of new innovation and technologies that enable processing capabilities. For example, common milling or crushing technologies for different crops Source: FAO Agro-based clusters in developing countries: staying competitive in a globalized economy; Dalberg analysis 11

12 MALF should then focus on specific value chain challenges, particularly productivity, to support stronger linkages to regional processing hubs Value chain specific What are the major value chain clusters to be prioritized? (E.g. Dodoma) What are the common needs to make this value chain cluster successful? (E.g. infrastructure, talent) The growth of agro-processing in any region relies on the quality and sustainability of raw materials. Productivity can be a major bottleneck for scaling and improving quality of processing in Tanzania. These productivity challenges (e.g. limited use of inputs such as seeds and fertilizers, limited extension services) are specific to a particular raw material found across zonal clusters. There is a need for a whole value chain approach to provide a holistic pre- and post-farm strategy What types of investments should the Ministry prioritize for this cluster? (E.g. direct investments, financing facilities, research) What value-chain specific investments should the Ministry prioritize in this region? (E.g. seed variety for sunflower value chain) There is an opportunity to crowd-in investments for specific value chains within priority regions where the government is driving investments to build value chain clusters For example, the government can focus efforts to increase productivity in the sunflower value chain through introducing seed variety and supporting demonstration plots in the Dodoma region, where the government is prioritizing investments to develop edible oil and feed processing clusters 12

13 Given this approach, the strategy will answer two key questions to identify and unlock agro-processing investments Key Questions Description Process 1 WHICH VALUE CHAINS? What are the agricultural value chains that have the potential to contribute to broad based economic growth? The Ministry of Agriculture should prioritize value chains that hold the greatest potential for economic transformation and broad based growth? Examples include edible oils, cashew nut processing, fruit processing, dairy products, leather products, grain milling, and forestry products, among many others The strategy will use market-driven and job potential criteria to further narrow down ASDP II priority value chains 2 WHERE TO INVEST? Where should the Government of Tanzania make these investments? The Ministry of Agriculture will need to establish where to make productivity, finance, land, infrastructure, technology and talent investments around value chain clusters The selection of focus of a zonal cluster and regional processing hub will be based on the levels of production and processing of various value chain clusters in the region, as well as regions with strong existing or planned infrastructure (e.g. storage, roads), universities and supportive partners 13

14 Agenda Importance of agro-processing to Tanzania s industrialization goals Approach to developing an effective agro-processing strategy Prioritization of value chains Agro-processing strategy: Crowding in investments in three zonal clusters Annex Value chain prioritization analysis Illustrative example: Dodoma / Central clusters Barriers across and within value chains Discussion Questions 14

15 1 Building on existing research, the agro-processing strategy further prioritized ASDP II priority commodities using market and job potential criteria ASDP II Priority Crops Crops Maize Rice Beans Cassava Pulses Legumes Horticulture Sorghum Millet Oil seeds (incl. sunflower and groundnut) Cotton Livestock and Fisheries Dairy cattle Meat-beef Meat-goat Skin & hides Poultry Market Potential Job Potential Barriers and Risk Local market potential: What is the size and growth potential of local markets for processed crop? Regional market potential: What is the size and growth potential of regional markets for processed crop? Global market potential: What is the size and growth potential of global markets for processed crop? Suitability to meet demand: What is Tanzania s suitability to meet local and regional demand, based on current production volumes, climate and soil type, ease of increasing production? Job potential: What is the estimate size of jobs created by enabling agro-processing in the value chain? What is the quality of potential jobs in the value chain? Skill Readiness: Does the workforce have the skills needed in order to transition towards agro-processing in particular crop? What is the ease of building out these skills? Barriers and risks: What is the level of political influence, regulatory barriers, structural barriers for private sector engagement within value chain? How susceptible is the value chain to economic or climate uncertainties? 15

16 1 MALF should prioritize eight value chains to drive the agro processing strategy towards decreasing import dependence and increasing exports Food Products Processed grains (excluding maize & rice) Horticulture (fruits and vegetables) Fish fillet Edible oils (Sunflower & groundnuts) Dairy Meat (beef and goat) Key: Non-food Products Fertilizer Leather processing Import substitution Regional and foreign demand 16

17 Agenda Importance of agro-processing to Tanzania s industrialization goals Approach to developing an effective agro-processing strategy Prioritization of value chains Agro-processing strategy: Crowding in investments in three zonal clusters Annex Value chain prioritization analysis Illustrative example: Dodoma / Central clusters Barriers across and within value chains Discussion Questions 17

18 2 Based on the prioritized value chains, the Ministry of Agriculture should use five criteria to select priority zonal clusters to focus agro-processing efforts Criteria for prioritizing zonal clusters Select regions with: Production level: High production of prioritized value chains (building on existing mapping of agro-ecological zones) Processing level: Potential to increase processing activities Infrastructure level: Proximity to strong infrastructure or future infrastructure investments that have been committed (e.g. merge with Uganda oil pipeline) that allow access to local and/or regional markets Productivity support: Level of extension, business development, and technological provided to agro-processors Mara Kagera Arusha Mwanza Shinyanga Kilimanjaro Kigoma Tabora Singida Manyara Tanga Rukwa Dodoma Pwani Iringa Mbeya Morogoro Lindi Key Ruvuma SAGCOT Region Mtwara Access to markets: Proximity to borders for distribution to regional markets 18

19 2 There are distinct zonal clusters emerging as primary areas of production for priority value chains and high potential for processing Primary Production Across Regions Level of Processing Activities by Regions 22 Furniture, others Key Sunflower, groundnut Sorghum, millet Fruits & Vegetables Dairy cattle Livestock (cattle, goat) Livestock, primarily pastoralists Fisheries Machinery & Electric Metal & Allied Building Materials Chem, Plstc, Rubber Paper & Publishing Timber & Wood Leather & Footwear Textile & Garments Food, Bev, & Tob = 1 firm = 10 firms = 20 firms Source: Cluster Competitiveness Report (2009); Tanzania National Census of Agriculture 2007; Dalberg analysis 19

20 2 The Ministry of Agriculture should consider existing and planned infrastructure investments within the country in selecting zonal clusters Key: These bubbles represent the cities of Tanzania and the size of the bubbles indicate the population size of the city Existing Airport Existing Port Future Airport Future Port Railway Future Railway Road Future Road Source: PWC Africa Gearing Up ( ) 20

21 2 The Ministry of Agriculture should initially catalyze agro-processing in 3 zonal clusters: Central Zone, Northern Zone, and Lake Zone Central Cluster / Dodoma High production of sunflower, groundnuts, meat, and grain in the Dodoma (and neighbouring Singida region) High concentration of and investments in processing facilities in edible oil and meat Major road and railroad infrastructure has been set up for connections to Dar es Salaam, Rwanda and Burundi, as well as Zambia, DRC and Malawi via the SAGCOT region Northern Cluster / Arusha High production of livestock and fruits and vegetables High concentration of underutilized processing capabilities Ease of accessing export markets, given close proximity to Kenya and Uganda Strong linkages to domestic markets facilitated through the growing Northern tourism circuit Kigoma Kagera Rukwa Mara Mwanza Arusha Shinyanga Kilimanjaro Tabora Singida Manyara Tanga Dodoma Pwani Mbeya Iringa Morogoro Lake Zone Cluster / Mwanza High potential for rapidly growing fish production Highest number of food and non-food processing firms across Tanzania, particularly driven by the cotton industry Existing infrastructure and ease of accessing export markets, given close proximity to Uganda, Rwanda, Burundi, DRC and Kenya Key Cluster A Cluster B Cluster C Ruvuma Lindi Mtwara Source: Dalberg analysis 21

22 2 Within each zonal cluster, the government should ask four strategic questions to prioritize investments ILLUSTRATIVE What are the major value chain clusters to be prioritized? (E.g. Dodoma) Mara Kagera Mwanza Arusha What are the common needs to make this value chain cluster successful? (E.g. infrastructure, talent) Kigoma Shinyanga Tabora Singida Kilimanjaro Manyara Tanga Rukwa Dodoma Pwani What types of investments should the Ministry prioritize for this cluster? (E.g. direct investments, financing facilities, research) Mbeya Iringa Morogoro Lindi What value-chain specific investments should the Ministry prioritize in this region? (E.g. seed variety for sunflower value chain) Ruvuma Mtwara 22

23 Thank you! - Q&A - 23

24 Agenda Importance of agro-processing to Tanzania s industrialization goals Approach to developing an effective agro-processing strategy Prioritization of value chains Agro-processing strategy: Crowding in investments in three zonal clusters Annex Value chain prioritization analysis Illustrative example: Dodoma / Central clusters Barriers across and within value chains Discussion Questions 24

25 Agenda Importance of agro-processing to Tanzania s industrialization goals Approach to developing an effective agro-processing strategy Prioritization of value chains Agro-processing strategy: Crowding in investments in three zonal clusters Annex Value chain prioritization analysis Illustrative example: Dodoma / Central clusters Barriers across and within value chains Discussion Questions 25

26 1 Previous value chain prioritizations are primarily based on an assessment of the market situation for each value chain World Bank 2014 AgYees Report IIDS 2025 USAID COMPETE AgriFin Accelerate Report Description The report assesses comparative advantage of VCs; strong data for import substitution and export potential The report provides a market assessment of processed foods; Employment data not available for each VC Tanzania s Industrial strategy identifies core value chains based on demand assessment data This report prioritizes value chains based on food security and poverty reduction criteria The focus of this prioritization was on the size of smallholder farmers each value chain reaches Local market demand Regional market demand Global market demand Suitability to meet demand Job potential in production Job potential in processing Skills readiness Barriers and risks Across these studies, value chains have not been prioritized based on an assessment of the labour situation, barriers and risks within each value chain Source: World Bank (2014) Tanzania: Productive Jobs Wanted; Agrifood Youth Employment and Engagement Study (2016); Integrated Industrial Development Strategy (2025); USAID COMPETE Analysis (2009); AgriFin Accelerate Tanzania Landscape Analysis (2016) 26

27 1 Among the shortlisted value chains, seven value chains show potential for creating production and processing jobs in the future Value Chain Production Processing Skill readiness (Yes/No) Current jobs Job growth Current jobs Barriers and Risks Wheat 4% Yes Wheat imported for processing Sugar 3% Yes* Import ban is risky for future sustainability; fluctuation in sugar; poor weather affects production Fruit/Veg 5% No* Unstructured value chain; limited seed variety Dairy 4% No* Limited improved breeds, storage infrastructure is weak Edible oil ~4-7% Yes Processors underutilized; Local preference for unrefined oil Nuts 9% Yes* Cashew Is highly political Processed grains (exc. maize & wheat) 0.5% Yes Light processing is common, limited preference for highquality products Meat 2.5% No Market preference for unprocessed meat Fertilizer ~4% No Low demand; require strong distribution networks Light wood manufacturing 3.7% Yes Highly reliant on strong trade logistics; illegal logging is a major challenge Paper 3.7% No Fluctuating pulp prices; compete with plastic for packaging Leather processing 2.5% No Hides and skins smuggled to neighboring countries (Kenya) Fish processing 3.6^ No Unstructured value chain; sustainability pressures Definitions: Current jobs in production: This is a qualitative assessment of the relative size of current jobs, based on the estimate of the number of SHFs in the value chain Job growth in production: This is the growth of jobs in production for each value chain, represented by the expected growth rate of production of the value chain Current jobs in processing: This is a qualitative assessments of the relative size of processing jobs, based on the number of processing jobs per firm Skill readiness: This is determined by the current level of processing activities in Tanzania and the skill needed to move value chain towards further value addition Source: Tanzania National Census of Agriculture 2003 and 2007; Feed the Future (2015), Tanzania Policy Research Brief #2; Euler Hermes, Global Paper Report; Light Manufacturing in Tanzania; Rabobank Tanzania Sugar; Tanzania Invest Agriculture Growth Rate

28 Agenda Importance of agro-processing to Tanzania s industrialization goals Approach to developing an effective agro-processing strategy Prioritization of value chains Agro-processing strategy: Crowding in investments in three zonal clusters Annex Value chain prioritization analysis Illustrative example: Dodoma / Central clusters Barriers across and within value chains Discussion Questions 28

29 Dodoma provides an opportunity for edible oil and meat processing, as a result of, large production volumes and emerging processing capabilities Key opportunities and investments in Dodoma ILLUSTRATIVE National Social Security Fund (NSSF) and Cereals and Other Boards of Tanzania have invested Tshs. 3.7 billion for the purchase of grain and sunflower milling machines for the development of a modern processing factory Recent move of government offices to Dodoma will source further funding for infrastructure development (road, airports) as well as grow local market for processed food Value Chain Crops Current production levels Current processing activity Edible Oil Sunflower Groundnuts Meat Cattle Goat Grain Sorghum Bulrush millet 63,000 tons of sunflower (50-60% of national production from Dodoma and neighboring, Singida) 19,000 tons of groundnuts 1.5 million cattle 1.2 million goats (third largest) 82,000 tons of sorghum 16,240 tons of bulrush millet; leading production in long rainy seasons There are 94 processors (65% urban) in the Dodoma region. Only 33 processors are registered under CEZOSOPA On average, 7,560 MT of Kernels are processed to provide 2,268 MT of sunflower oil annually Few processors include: Nyemo Investment, Jackma Enterprises, Heshima ya Jiko and Kisasa Supplies Dodoma has set up a modern abattoir with improved hygienic standards of urban retailing. The abattoir has the capacity to slaughter about 200 cattle and 200 small ruminants each per day There are an emerging number of private meat processing plants, including the Meat Technology Training Centre Despite production levels, low level of processing in the Dodoma region; Majority of grain is processed by breweries in the Dodoma and Singida regions The National Social Security Fund (NSSF) and others made investments in grain milling machines in Dodoma Source: Agriculture Production Survey 2002/03 Crop Report; Agriculture Production Survey 2002/03 Regional Report: Dodoma Region; Local Investment Climate Sunflower Value Chain for Dodoma region; United Republic of Tanzania Sunflower Sector Development Strategy ( ) 29

30 Ministry of Agriculture should cluster investments around dairy, meat, leather, edible oil and feed processing in Dodoma ILLUSTRATIVE Agrovets Sunflower Groundnuts Cattle Goats Input suppliers and distributers Processor Processor Slaughter House Energy Grains By- Products Dairy Processor Meat Processor Leather processing Powered by energy produced from grain byproducts (Husks) Feed Processor Seed cake Edible oil Local Markets Urban Markets Foreign Markets Foreign Markets Local Markets Urban Markets Source: Agriculture Production Survey 2002/03 Crop Report; Agriculture Production Survey 2002/03 Regional Report: Dodoma Region; Local Investment Climate Sunflower Value Chain for Dodoma region; United Republic of Tanzania Sunflower Sector Development Strategy ( ) 30

31 Strategic investments across production, processing and distribution in Dodoma s livestock and edible oil cluster will help realize its full potential Production Processing Market ILLUSTRATIVE Productivity: Access to improved breeds of cattle to improve quality of milk and meat products. This is a major bottleneck for the cluster because processors are underutilized, particularly in the dry seasons Infrastructure: Singida is the second largest producer of sunflower and groundnuts. Therefore, feeder roads from Singida to Dodoma for transportation of sunflower and groundnuts Talent: Despite availability of chilling plants and in some cases cooling facilities, there is limited capability to maintain technology that frequently breakdown Linkages between processors: Strong linkages between meat and livestock processors to ensure optimal treatment of hides and skins Technology: Livestock: Given linkages between processors, technology needs to be updated and optimized to ensure limited loss of products Edible Oil: Use of common technologies to process sunflower and groundnuts Finance: Limited access to finance for smaller processors across value chains, customized for limited cattle/goats during dry season Talent: Supply of managerial and technical capabilities across processing of value chains Local Market Preference: There is a growing local demand for refined edible oil Packaging: Imported packaging materials for both meat and edible oil products drive up costs and make then not competitive. Build packaging industry primarily through talent development and financing facilities Infrastructure: Dodoma Dar: Strong road and rail infrastructure from Dodoma to Dar es Salaam and Mwanza for the distribution of processed products to urban markets. Arusha, the second largest city, has strong livestock processing potential Dodoma Kenya: Cheap air freight logistics to export meat and leather to foreign markets 31

32 Four investments should be prioritized to catalyse agro-processing across value chains clusters in the Dodoma region ILLUSTRATIVE Need Action Priority Effort Land Select land and invest infrastructure (electricity, water, storage) for this cluster of value chains. Land selection should take into the size of land required based on the processing potential of the land, proximity to production sites, land suitability for commercial production, and/or proximity to existing slaughter houses or aggregation points. For example, costs for electricity and transport make sunflower uncompetitive against Palm Oil in domestic markets High High Talent Invest in building the capacity of University of Dodoma and the Meat Technology Training Centre to train labour force for: Equipment operations, maintenance and management for all value chains Managerial capabilities to scale small and medium processors Technologies and innovations around packaging as well as packaging requirements and preferences for urban and foreign markets Animal husbandry to enhance cattle productivity and grow feed processing High High Technology & Research Invest in transforming the Agricultural Research Institute in Dodoma into a hub for research and innovation for the livestock, edible oil and animal feed processing. This includes conducting market research for primary products, research and implementation of new technologies, as well as hosting technical conferences and trade shows High High Finance In partnership with the Tanzania Agricultural Development Bank, facilitate the provision of: Working capital for dairy, meat and leather processors, particularly designed to adapt to low supply of cattle during dry seasons Asset financing to set up cold storage facilities or milling equipment Working capital for packaging and logistics services High Med 32

33 Investments in infrastructure need to be aligned with existing efforts within the Ministry of Agriculture and the Ministry of Works ILLUSTRATIVE Need Action Priority Effort Infrastructure Feeder roads In partnership with Ministry of Works, invest in feeder roads between Dodoma clusters and strategic production sites in Singida. This investment should be accompanied by appropriate storage facilities, particularly for livestock or milk Med Low Infrastructure - Markets In partnership with Ministry of Works, invest in upgrading road and rail infrastructure to improve access to urban markets, such as Dar es Salaam and Mwanza. These investments are already underway as part of the trade corridors linking the Dar es Salaam port to Kigali and therefore, has not bee prioritized as high for the agro-processing strategy Med Low Marketing Launch advertising campaign to generate growth in local demand for refined edible oil (from sunflower, groundnuts, sim sim and others) as healthier over the use of unrefined oil (current market preference). Growing demand is low priority until production capabilities are able to consistently meet existing demand Low Low 33

34 Productivity of cattle-keeping and sunflower production is a major bottleneck for the edible oil and livestock value chain clusters ILLUSTRATIVE Value Chain Productivity Challenge Action Priority Effort Cattle - Dairy There has been an increase in production, based on growth of cattle population Yield has stagnated as a result of local generic cows producing litres per lactating cow. Further lowered by lack of farmer education, poor nutrition, disease and weak extension services Introduce improved cattle breed into the Dodoma regional cluster, alongside a financing facility and training program tailored to support smallholder farmers through the Agricultural Research Institute in Dodoma Given high proportion of households receiving extension services, focus on improving existing extension services to support the use of improved cattle breed in the Dodoma cluster, strongly linked to the Agricultural Research Institute High High Cattle - Meat The indigenous cattle grows slowly to a light mature weight compared to improved beef breeds (such as Boran) reaching optimal weight in 3 years Introduce improved cattle breed into the Dodoma regional cluster, alongside a financing facility and training program tailored to support smallholder farmers through the Agricultural Research Institute in Dodoma High High The quality of meat (taste and fat distribution) from local breeds is low against the demand of upper internal markets and export Goats The indigenous goats have limited and slow growth (25-30 kg mature weight), while improved goats reach slaughter weight of 40 kg in less than 18 months Introduce improved goat breed into the Dodoma regional cluster, alongside a financing facility and training program tailored to support smallholder farmers through the Agricultural Research Institute in Dodoma Med Med The quality of meat (taste and fat distribution) from local breeds is low against the demand of upper internal markets and export Source: United Republic of Tanzania Sunflower Sector Development Strategy ( ); REPOA Socio-Economic Factors Limiting Smallholder Groundnut Production in Tabora Region 34

35 Productivity of cattle-keeping and sunflower production is a major bottleneck for the edible oil and livestock value chain clusters ILLUSTRATIVE Value Chain Productivity Challenge Action Priority Effort Sunflower There is limited higher-quality seeds available in the market; Seed certification can take 2-3 years Limited availability of agricultural inputs, including fertilizers and pesticides Work with Tanzania Agriculture, Food and Drug Authority (TAFDA) and Tanzania Official Seed Certification Institute (TOSCI) to fast-track seed variety verification and registration process for edible oil seeds, based on research conducted in other East African countries High Med Establish seed production requirements between agroprocessors and ASA/TASTA Support demonstration plots of improved seed varieties and improved agricultural practices for smallholder farmers to adopt. Ensure these demonstration plots are accompanied with financing facilities for farmers Groundnuts Groundnut is a source of household nutrition, not sold for processing Production per hectare is low compared to estimated minimum yields, esp. in dry seasons. Cost of input is higher than earrings by margins Expand extension services to ensure that smallholder groundnut farmers have access to high-yielding groundnut seed varieties, agro-chemicals, and improved farm inputs Provide a financing facility (through the Tanzania Agricultural Development Bank) designed for the seasonality of groundnut production Med Low Source: United Republic of Tanzania Sunflower Sector Development Strategy ( ); REPOA Socio-Economic Factors Limiting Smallholder Groundnut Production in Tabora Region 35

36 Arusha and Kilimanjaro regions shows significant opportunity to grow processing across dairy, meat as well as fruits and vegetables Key opportunities and investments in Arusha and Kilimanjaro Ease of accessing export markets, given close proximity to Kenya and Uganda Strong linkages to domestic markets facilitated through the growing Northern tourism circuit Climate conditions are favourable to livestock keeping and production of fruits and vegetables Arusha and Kilimanjaro regions have the third and forth largest planted area (Ha) with irrigation in Tanzania, the highest percent of total planted area (% of region), a moderate number of households selling crops, and largest proportion of households receiving extension services Value Chain Crops Current production levels Current processing activity Dairy Cattle 240,000 improved dairy cattle in Arusha and Kilimanjaro Arusha produces 12% of the countries milk production There are 5 operating processors in Arusha (30-60% capacity, avg. production of 3100 liters per day), including International Dairy Products, Mountain Free, Arusha Dairy, Kijimo Dairy and Longido Brookside (T) Ltd is not in operation (capacity of 45,000 liters per day) Kilimanjaro has 9 operating processors (27-60% capacity; avg. production of 510 liters per day) Meat Cattle Goat The highest number and density of cattle in Arusha (1.2 million heads) The highest number and density of goats in Arusha and Kilimanjaro The two modern abattoirs in Arusha are the Arusha Meat Company Limited (AMC) owned by Arusha Municipal Council and Happy Sausages. Meat King is an additional meat processing plant High-class butcheries serve a small portion of the red meat market, mainly high-class hotels and restaurants in the city, and wealthy individuals Leather Kilimanjaro has a higher concentration of tanning facilities, including Moshi Leather Industries (IPS), Afro Leather Industries (100 hides), Himo Tanners (250 hides, 3000 skills per day). Arusha has one tanning facility Fruits & Vegetables Onions Tomatoes More 26,000 tons total; 69% of production from onions and tomatoes Processors in the Arusha/Kilimanjaro region, include Darsh (tomatoes). More exporters of fresh fruit and vegetables in the market including Home Veg Foods and Serengeti Fresh Source: National Sample Census of Agriculture 2007/08 Livestock Sector; National Sample Census of Agriculture 2002/03- Regional Report: Arusha Region; Livestock Sector Development Strategy (2010); SNV Read Meat for Local and Export Markets (2008) 36

37 Ministry of Agriculture should cluster investments around dairy, meat, leather, fruits and vegetables clusters in the greater Arusha region Agrovets Fruit Vegetables Cattle Goats Input suppliers and distributers Processor Processor Slaughter House Dairy Processor Meat Processor Leather Processor Juice/Beer Chips/Flour Canned Local Markets Urban Markets Foreign Markets Local Markets Urban Markets Source: Agriculture Production Survey 2002/03 Crop Report; Agriculture Production Survey 2002/03 Regional Report: Dodoma Region; Local Investment Climate Sunflower Value Chain for Dodoma region; United Republic of Tanzania Sunflower Sector Development Strategy ( ) 37

38 Strategic investments across production, processing and distribution in Arusha s value chain cluster will help realize its full potential Production Processing Market Productivity: Access to improved breeds of cattle and seed variety to improve quality of produce. This is a major bottleneck for the cluster because processors are underutilized Infrastructure: Kilimanjaro has a large production of fruits and vegetables as well as livestock population. Therefore, feeder roads from Kilimanjaro to Arusha for transportation of raw materials Finance: Build cold storage and aggregation facilities between Kilimanjaro and Arusha Talent: Despite availability of chilling plants and in some cases cooling facilities, there is limited capability to maintain technology that frequently breakdown Linkages between processors: Strong linkages between meat and livestock processors to ensure optimal treatment of hides and skins Technology: Livestock: Given linkages between processors, technology needs to be updated and optimized to ensure limited loss of products Finance: Limited access to finance for smaller processors across value chains, customized for limited cattle/goats during dry season Talent: Supply of managerial and technical capabilities across processing of value chains Packaging: Imported packaging materials for both meat, fruit and vegetable products drive up costs and make then not competitive. Build packaging industry primarily through talent development and financing facilities Infrastructure: Road or Air Infrastructure: Cheap and reliable access to air freight or road logistics to export processed goods 38

39 Four investments should be prioritized to catalyse agro-processing across value chains clusters in the Dodoma region Need Action Priority Effort Land Talent Technology & Research Finance Select land and invest infrastructure (electricity, water, storage) for this cluster of value chains. Land selection should take into the size of land required based on the processing potential of the land, proximity to production sites, land suitability for commercial production, and/or proximity to existing slaughter houses or aggregation points Invest in building the capacity of University of Arusha and the Arusha Meat Company Limited (AMC) to train labour force for: Equipment operations, maintenance and management for all value chains Managerial capabilities to scale small and medium processors Technologies and innovations around packaging as well as packaging requirements and preferences for urban and foreign markets (particularly for fruit/vegetable processing) Invest in transforming the Agricultural Research Institute in Arusha into a hub for research and innovation for the livestock and fruit/vegetable processing. This includes conducting market research for primary products, research and implementation of new technologies, as well as hosting technical conferences and trade shows In partnership with the Tanzania Agricultural Development Bank, facilitate the provision of: Working capital for dairy, meat and leather processors, particularly designed to adapt to low supply of cattle during dry seasons Working capital for packaging and logistics services High High High High High High High Med 39

40 Four investments should be prioritized to catalyse agro-processing across value chains clusters in the Dodoma region Need Action Priority Effort Infrastructure Feeder roads Productivity (Value-Chain Specific bottlenecks) Infrastructure - Markets In partnership with Ministry of Works, invest in feeder roads between Arusha clusters and strategic production sites in the Kilimanjaro region. This investment should be accompanied by appropriate storage facilities, particularly for livestock or milk As part of MALF s existing efforts to improve agriculture productivity, prioritize productivity investments for prioritized crops or livestock. For example, prioritize introduction of improved cattle varieties for improved quality of dairy and beef in the greater Arusha region In partnership with Ministry of Works and President s Office, assess the cost of upgrading road infrastructure versus air freight services to improve access to bordering countries, Kenya and Uganda Med High Low Low Med Low 40

41 Agenda Importance of agro-processing to Tanzania s industrialization goals Approach to developing an effective agro-processing strategy Prioritization of value chains Agro-processing strategy: Crowding in investments in three zonal clusters Annex Value chain prioritization analysis Illustrative example: Dodoma / Central clusters Barriers across and within value chains Discussion Questions 41

42 There are four principles to creating, socializing and executing a successful agro-processing strategy Employment growth Rational and Implications The core objective of developing an agro-processing strategy in Tanzania is to address the very rapid growth in Tanzania s labor force. Tanzania s rapidly growing youth population should be driving the country s agenda, as youth under 25 account for 66% of Tanzania s population This will influence the prioritization of value chains. For example, current international exports (e.g. coffee, cotton, tobacco) are important but cannot be the foundation of a strategy, as they involve too few farms and firms Many Small and Medium Enterprises (SMEs) are likely to employ more people compared to large companies for the same level of output, therefore, will be a focal point of the agro-processing strategy Local and regional markets Private sector engagement The primary focus should be addressing local and regional demand. Regional markets are larger and provide an environment in which local firms can grow and be competitive. Regional demand expands the market for Tanzanian products, allows the country to grow its scale of production and thus reduce unit costs. In the long term, agro-processing in Tanzania can move up the product sophistication ladder for higher value added and eventual expansion outside the region into global markets This will determine the types of value chains that Tanzania can compete in regionally Private sector engagement is critical in developing and implementing the agro-processing strategy. Private sector players are facing significant challenges that policy and planning efforts often overlook. As a result, private sector engagement will strengthen the buy-in and effectiveness of the strategy Full value chain development There is a need for a whole value chain approach to provide a holistic pre- and post-farm strategy towards industrialization. If Tanzanian processing companies are to respond to rapid growth in local and regional markets, they need reliable supplies of sufficient raw material (of adequate quality) from local (preferably) or nearby regional sources Source: Source: FSDT Micro, Small and Medium Enterprises in Tanzania (2012); UNCDF Report (2016); Dalberg analysis 42

43 Tanzania faces a number of overarching barriers across value chains nationally Agricultural Productivity The quality of produce received from smallholder farmers often does not meet the quality requirements of regional and global markets. The average food crop productivity in Tanzania is 1.7 ton per hectare, whereas good agriculture practices should result in yields of tons per hectare. This stems from limited use and high costs of inputs (fertilizers, high quality seeds, etc.) Quality of training provided by government extension workers varies from region to region, given funding is allocated at the local government level. NGOs have stepped in to complement agronomics and farmers training provided to smallholder farmers Innovative Finance Access to financial products for small and medium agro-processors is limited. Over 50% of agribusinesses are excluded or use informal financial mechanisms. A few banks provide loans in select conditions, such as using warehouse receipts as collateral Access to finance for smallholder farmers is important for the success of agro-processors. Smallholder farmers are unable to finance inputs, limiting the quality of produce that meets global quality requirements. Large agro-processors often have to act as a financers for smallholder farmers; limiting their scale in the long-term Technology Efforts There are limited technologies available in Tanzania to improve packaging, quality control and communication for agroprocessing firms. The need for quality-enhancing technologies is more importance than cost-reducing technologies Talent Capabilities Human capital and managerial expertise are critical, especially for semi-processes and consumption-ready products. Business support systems are needed to support smaller and medium-sized agribusiness scale to meet demand There are limited skills to create and use new technologies for value addition and processing activities Land Special Economic Zone and Export Processing Zones have fallen short to support the growth of agro-processing in Tanzania, in the absence of a national agro-processing strategy with clearly prioritized value chains and regions. There are over 30 agroprocessing investments in the SAGCOT region that have not been realized resulting from varying barriers, including land issues Infrastructure Weak infrastructure (including roads, water, electricity, storage) is a barrier to the growth of agro-processing. Both smaller and larger firms are faced with increased costs of generators, loss of processed products and upkeep of storage facilities Despite recent investments in rail and road in the SAGCOT region, studies show farmers face up to 40% loss of harvest and reduced quality of produce needed for processing in Tanzania Source: USAID Feed the Future and Tanzania Partnership and Accountability Committee (PAC) Land Working Group; REPOA Tanzania Market Pan; OECD Overview of progress and policy challenges in Tanzania; Agribusiness for Africa s Prosperity; Dalberg Analysis 43