STRENGTHENING MICRO ENTERPRISES IN TANZANIA: THE CASE OF SMALL SCALE VEGETABLE FARMERS IN ARUSHA FINAL REPORT

Transcription

1 STRENGTHENING MICRO ENTERPRISES IN TANZANIA: THE CASE OF SMALL SCALE VEGETABLE FARMERS IN ARUSHA FINAL REPORT Economic and Social Research Foundation (ESRF) April

2 TABLE OF CONTENTS 1 THE BACKDROP Objectives of the Research The Methodology Organization of the Research Report INCOME AND EMPLOYMENT POTENTIAL OF SMALL SCALE HORTICULTURE PRODUCTION SOCIAL ECONOMIC CHARACTERISTICS OF THE SURVEYED SMALL SCALE FARMERS IN ARUSHA General Characteristics of Smallholder Horticultural Farmers Main Source of Income and Participation of Family Labour in Farming Activities Types of Crops Grown Financing of Farming Activities Marketing Methods Supply Chain CONSTRAINTS IN FARMING AND MARKETING ACTIVITIES Extension Services and Quality Ability to Meet Needs of Buyers Existence of Processing Firms and Potential for Increasing Production of Horticultural Products Opportunities to Export Growth and Expansion DETERMINANTS OF PROFITABILITY CONCLUDING DISCUSSION LIMITATIONS OF THE STUDY APPENDIX

3 LIST OF TABLES Table 1: Summary of Demographic and Education Characteristics Table 2: Where Farm Implements are Hired or Borrowed From Table 3: Main Horticultural Vegetables Grown Table 4: Other Crops Grown Table 5: Main Source of Start up Capital Table 6: Other Sources of Start Up Capital Table 7: Ownership of Bank Account Table 8: Reasons for Not Owning a Bank Account Table 9: Where they Usually Borrow Money From Table 10: Main Buyers of Produce Table 11: Main Marketing Methods Table 12: Types of Inputs used Table 13: Existence of Extension Services Table 14:Reasons for the Failure to Meet the Buyers Requirements by Farmers Table 15: Descriptive Statistics of Logit Model Table 16: Logistic Regression Results Table A1: Top 20 Producers of Vegetables Table A2: Top 20 Exporters of Vegetables Table A3: Distribution of Farmers by District Table A4: Definition of Variables Figure A 1: Map of Tanzania

4 LIST OF FIGURES Figure 1: Average Annual Production, (metric tonnes)... 5 Figure 2: Land and Implement Ownership Figure 3: Main Sources of Income Figure 4: Income Supplementation Figure 5: Use of Family and Hired Labour Figure 6: Supply Chain Figure 7: Main Constraints Faced by Smallholder Horticultural Farmers Figure 8: Other Constraints Figure 9: Satisfaction with Quality of Extension Services Figure 10: Ability to Meet Needs of Buyers Figure 11: Whether Buyers are Satisfied with the Products (%) Figure 12: Main complaints from Buyers Figure 13: Existence of Processing Firms and Percentage Selling to Them Figure 14: Estimated Percentage Increase in Output if Processing Firms Existed Figure 15: Percentage Share of Farmers Who Sell to Foreign Firms and Ability to Meet their Standards Figure 16: Availability of Export Information Figure 17: Membership to TAHA and Usefulness Figure 18: Percentage of Farmers Considering Diversification ABBREVIATIONS FAO TAHA URT UVIWA ROSCAS Food and Agriculture Organisation Tanzania Horticulture Association United Republic of Tanzania Ushirikiano wa Vijana na Wanawake wa Arumeru (Partnership for the Youth and Women of Arumeru) Rotating Savings and Credit Associations 4

5 1 THE BACKDROP It is no secret that the world has witnessed a rapid increase in demand and production of nontraditional horticulture products 1 in recent years. The increase in production of non traditional horticultural product has been in response to the increase in demand and popularity of these products. The increase in popularity has been due to the health awareness of people regarding the benefits of eating fruits and vegetables (Dolan and Humphrey, 2000). The increase in demand has also led to supermarkets taking a lead in stocking and sourcing vegetables and fruits from guaranteed sources in developing countries, in what is called global governance. In developed countries for example, the availability of fresh vegetables and fruits in supermarkets is almost taken for granted all year round (Dolan and Humphrey, 2000). On the production side, a key factor accounting for the increase in horticulture products is the rise in the number of supermarkets, which has made small scale producers in developing countries to rise to the challenge of supplying the supermarkets with non traditional horticulture products to meet the growing demand of consumers in the developed countries as well as in their own urban centres (see FAO, 2003). Tanzania s contribution in the global production of fresh vegetables shows that between 1990 and 2008, annual average growth rate of production was 0.14%. Production of fresh vegetables was highest in 1990 at 1 million tonnes, but it tapered off two years later to 800,000 tonnes. Between 1994 and 2001, production showed an increasing but fluctuating trend. From 2002 to 2008, production remained constant (FAO Website). Figure 1 shows the average annual production levels for selected countries including Tanzania. It shows that between 1990 and 2008, Tanzania was far ahead of the countries in terms of level of production, followed by Kenya. Figure 1: Average Annual Production, (metric tonnes) Source: 1 Non traditional horticulture products in this study are fresh fruits and vegetables. The study therefore leaves out flowers that are mostly produced by large scale farmers, and focuses only on vegetables. 5

6 While Tanzania s level of production of fresh vegetables is impressive, it does not do as well in the export market. Tanzania s position in international trade of horticultural products can be understood by looking at global ranking. In terms of production of fresh vegetables, Tanzania is among the top 20 countries (see Table 1A in the appendix). In 2000, Tanzania was ranked 20 th, but her position improved to 18 th in However, when we look at exports, Tanzania does not appear among the top 20 exporters of fresh vegetables. Amazingly, Kenya, which does not appear among the top 20 producers, maintained her 6 th position among the top 20 exporters of fresh vegetables in both periods shown (see Table A2 in the appendix). This shows that although Tanzania has a comparative advantage in producing agricultural based products, in this case, vegetables, it does not utilise this advantage in making an impact in the export market. The potential for increasing production of non traditional horticulture products in Tanzania is enormous (URT, 2002). Tanzania is endowed with ideal climatic conditions for growing a variety of non traditional horticulture products, and does not face labour shortages. In spite of this potential, Tanzania s export levels fall below that of Kenya. This research will thus help in understanding the constraints that small scale producers face, so that suggestions can be made on how they could enhance their productivity in order to benefit from production of nontraditional horticulture products, and hopefully make Tanzania register its presence in the export market for fresh vegetables. A study that was done on behalf of the Ministry of Food and Security acknowledged the existing high potential for producing horticulture products in general, and that the full exploitation of this potential is limited by constraints ranging from poor production organization to poor quality system (URT, 2002, p.9). While the Ministry s study involved the whole sector in Tanzania, this one confines itself to a particular product, vegetables, and to a particular region, Arusha. The study area chosen for the study, Arusha, is located in the north of Tanzania, over 600 kilometres from the commercial capital of Dar es Salaam. Figure 1A in the appendix gives the geographical location of Arusha. Arusha was chosen as the study area because of its known potential for growing non traditional horticulture products, as well as its proximity to Kilimanjaro Airport through which horticulture products for export are transported. The study focuses on vegetables farmers as little is known on their production activities. 1.1 Objectives of the Research The objectives of this research are; firstly, to examine the main constraints that small scale farmers of vegetables in Arusha encounter. The second objective is to understand the determinants of profitability in vegetable production among small scale farmers. Thirdly, the research investigates whether smallholder farmers are able to meet the supply and quality needs of the main buyers of vegetable, and what challenges they face in their farming activities. Lastly, the study aims at mapping the main actors in the fresh vegetable supply chain. This is important because the interactions of these actors can determine the benefits that producers get in the sector. The supply chain of horticulture products contains other actors too, besides the producers. The buyers of non traditional horticulture products are also important in the chain, 6

7 as well as the suppliers of inputs, such that an improvement in the sub sector cannot ignore their existence and role in the chain. To address these objectives, the research will focus on the following questions; - What constraints do small scale producers of vegetables face? - Who are the key actors in the supply chain of vegetable products? - Are the smallholder farmers able to meet the supply and quality needs of their buyers? - What determines profitability of smallholder farmers of vegetables? 1.2 The Methodology A structured questionnaire, based on the objectives of the study, was administered to selected small scale farmers in November 2009 in Arusha region. The sampled households for this study were selected purposely, and it involved farmers producing vegetables. A total sample of 65 small scale farmers were interviewed on questions relating to their personal and household characteristics, resource endowments (land and labour), production and marketing activities. The aim was to get as many producers of vegetables as possible, and as resources allowed. Information on where to find the producers and buyers was sought from the District Agriculture Office in Arusha and from the Tanzania Horticultural Association (TAHA). Information was also sought from the Tanzania Smallholder Horticultural Out grower Promotion Project. Besides primary data from the survey, the study used secondary sources of data and literature. 1.3 The Study Area The study area, Arusha, is located in the North of Tanzania. The distance from the commercial capital of Dar es Salaam to Arusha is 653 kilometres. Arusha was chosen as the study area because of its known potential for growing non traditional horticulture products. Arusha has three distinct agro economic zones based on various physical features, soil types and climatic conditions. 2 The first zone is the Highlands Zone, also known as the banana and coffee zone. This zone is around the slopes of Mount Meru, and it has a temperate climate with heavy rainfall, averaging over 1000mm per year. The main crops found in this zone are coffee, bananas, vegetables and flowers. Dairy farming is also another lucrative economic activity in this zone. The highlands zone offers Arusha the greatest agricultural potential because of its high soil fertility and reliable rainfall. The second zone is the Rift Valley Zone. This zone lies in the rift valley of Oldeani Plateau and on parts of the southern part of Monduli and Ngorongoro districts. The temperature in this zone is high, and it receives adequate rainfall, which averages between 800 and 1000mm. The main crops grown in this zone are paddy rice, maize, wheat, barley, and legumes. Dairy and traditional livestock is also a key economic activity. The third is the Maasai Steppes. It covers most parts of Monduli, Longido and Ngorongoro. The renowned Manyara National Park and the Ngorongoro Creater are found in this zone. This zone 2 This part heavily draws on and 7

8 has long dry seasons, receiving rainfall below 800mm per annum. It has high temperature, with soils that are moderately fertile. The main crops grown in this zone are maize, beans, legumes. The keeping of traditional livestock is also a key economic activity, but due to a high concentration of livestock, overgrazing is common. To analyse the data collected, Stata was used to produce tabulations of key variables and also in calculating some descriptive statistics. A logit model was also estimated, specifically to model the determinants of profitability in non traditional horticulture production. 1.3 Organization of the Research Report The research report is organised as follows; after the backdrop presented in Section 1, Section 2 briefly discusses the income and employment potential of small scale horticulture production. It also discusses why smallholder farmers are important and could drive poverty reduction in Tanzania. Section 3 presents results of the study by discussing various aspects of smallholder production activities, including their characteristics. Section 4 discusses the constraints that smallholders in Arusha face in their farming and marketing of fresh vegetables. Section 5 presents results of an econometric estimation of the determinants of profitability in horticultural smallholder farming. Section 6 gives a concluding discussion, and the last section (Section 7) presents the key limitations of the study. 2 INCOME AND EMPLOYMENT POTENTIAL OF SMALL SCALE HORTICULTURE PRODUCTION Production in Tanzania s agriculture sector is dominated by small scale farmers. In the production of non traditional horticulture products, smallholders are also dominant, although in terms of participating in exporting the horticultural products, smallholder farmers who are directly engaged in it are few, and they rely on supplying to exporting firms who in turn export the products. The dominance of small scale farmers in non traditional horticulture production presents an opportunity for making an impact on poverty reduction efforts, especially if smallholder farmers are themselves directly linked to high value export markets. The potential for poverty reduction through horticulture production lies in the fact that it increases income (through high value crops), and it also generates employment (through production and processing of crops and fruits) (Weinberger and Lumpkin, 2007). The potential to increase income lies in the fact that horticultural production shifts resources from low value crops to high value ones, and hence increases the returns that small scale farmers get. Research findings have shown that small scale farmers who produce fruits and vegetables earn more than those who produce cereals. For example, in the case of Kenya, it was found that net incomes of small scale farmers of horticulture products for exports were five times higher than those of farmers that did not produce horticulture products (Weinberger and Lumpkin, 2007). 8

9 Thus, given that production of non traditional horticulture products in Tanzania is dominated by small scale producers, the potential for reducing poverty by enhancing their productivity and incomes is enormous. It is therefore important to understand how small scale producers of fresh vegetables can increase their productivity to enhance their incomes. Such an understanding entails studying the supply constraints that they face, as well as the market opportunities and obstacles that they face. Besides understanding the constraints limiting them, it is also important to examine how the various actors in the horticulture supply chain interact, as well as the environment surrounding their production activities. Such an understanding will unveil linkages that could help in enhancing their productivity. It is also important to understand the key factors that determine the profitability of smallholder farmers. This is because the extent to which they are profitable will in turn determine the extent to which they can invest further in their farming activities, which eventually is essential for poverty reduction. It is increasingly becoming evident that the growing of horticulture products is likely to contribute more significantly to poverty reduction in developing countries. This is because they command higher prices compared to traditional agricultural crops. Also, given a world wide increase in demand for vegetables and fruits, production of horticulture crops guarantees that farmers of non traditional crops will continue enjoying better prices than traditional agricultural crops. The other important factor for significant poverty reduction from growing horticultural crops emanates from its potential for employment creation. Horticultural crop production is labour intensive, and it has strong forward and backward linkages; the requirements for organic and inorganic fertilizer, pesticides and seeds in production is huge, as well as the need for further processing for supermarkets is an absolute necessity. Such linkages can only benefit an economy that promotes the growth of horticultural products. 3 SOCIAL ECONOMIC CHARACTERISTICS OF THE SURVEYED SMALL SCALE FARMERS IN ARUSHA Table A3 in the appendix gives the distribution of the small scale farmers surveyed in Arusha by district. Data from 65 small scale farmers was collected. Of the 65 farmers, 36 were male, and the rest were female. This section reports analysis done on the data that was collected. 3.1 General Characteristics of Smallholder Horticultural Farmers Table 1 gives a summary of the demographic and education characteristics of the surveyed farmers. It shows that the small scale farmers are not very educated, with about three quarters of them having only primary level education. The median age of the farmers is 41 years, and the household size of three quarters of them is between 6 and 10 people. The household size is quite important for agricultural production, and we will see later that having a sufficient number of people in a household helps for providing family labour on farms. Close to 90 percent of the farmers are married. 9

10 Table 1: Summary of Demographic and Education Characteristics Median age Highest level of education Household size Marital status 41 years 82% (Primary) 49% (6 10 members) 89% (married) Figure 2 shows land and implement ownership by the surveyed farmers. The figure shows that over half of the surveyed farmers' landholding is less than an acre, which is in line with most studies that indicate smallness of landholding as one of the characteristics of small scale farmers. In terms of implements, a significant number of the farmers (86 percent) indicated that they owned all the farm implements, and majority of those who did not own them acquired the implements through borrowing rather than hiring. Figure 2: Land and Implement Ownership Table 2 shows the source of implements for farmers that borrow farm implements. Most of the implements are borrowed from neighbours and friends. Table 2: Where Farm Implements are Hired or Borrowed From NUMBER PERCENTAGE SHARE Neighbours and friends 5 56 Compassion group 2 22 Maksai and from private people 2 22 Total

11 3.2 Main Source of Income and Participation of Family Labour in Farming Activities The surveyed farmers were asked to indicate their main sources of income. Figure 4 shows that 97% of them derived their main income from farming activities, while less than 3% of them derived their main income from formal sector employment and other activities. Figure 3: Main Sources of Income Farming is not the only source of income to majority of the farmers. When asked to indicate if they engaged in other activities to supplement their incomes, 74% of them indicated that they actually did (Figure 5). Figure 4: Income Supplementation 11

12 Given the finding that the majority of farmers have between 6 to 10 members in their households, it is an indication that the farmers have sufficient family labour to run their farms. Figure 5 shows that 66% of the surveyed farmers use family labour on their farms. However, in spite of this, a large percentage of them use hired labour (85%). Figure 5: Use of Family and Hired Labour 3.3 Types of Crops Grown The respondents indicated growing a variety of horticultural crops, but they were asked to indicate the main crop that they grow. Table 3 shows baby corn is widely grown by smallholder farmers, with 43% indicating it as being their main crop. Tomatoes are grown by 31% of the farmers, followed by French beans, which is grown by 17% of the farmers. Other crops grown peas (6%) and spinach (3%). Table 3: Main Horticultural Vegetables Grown NUMBER PERCENTAGE SHARE Baby corn Tomatoes French beans Peas 4 6 Spinach 2 3 Total Besides horticultural crops, the smallholder farmers also grow non horticultural crops. Table 4 shows the other crops grown grouped according to horticultural and non horticultural crops. 12

13 Table 4: Other Crops Grown HORTICULTURAL Cabbage Banana Egg plant Onions Carrots, Green pepper Baby carrots Irish Potatoes Chillies Chinese cabbage Leeks NON HORTICULTURAL Maize Coffee Millet 3.4 Financing of Farming Activities This section analyses the sources of finance for farming activities by smallholders, as well as whether they use bank facilities in their area. The study found that most of the surveyed smallholder farmers used their own savings to start their farming activities (about 50% of the surveyed farmers). This is given in Table 5. Some farmers also sourced their start up capital from local money lenders and from friends and relatives. Other sources of capital are a company called Home Veg. and Uwano Ngarenanyuki Horticultural Cooperative Society (Table 6). Table 5: Main Source of Start up Capital Source Number of farmers Percentage share Savings Loan from local money lender Borrowed from friends/relatives Other Total

14 Table 6: Other Sources of Start Up Capital OTHER SOURCE NUMBER OF FARMERS PERCENTAGE SHARE Home Veg Uwano Ngarenanyuki Horticultural Cooperative Society Cooperative Society Agents Total Although some of the farmers indicated that their source of start up capital is from their own savings, it is important to note that a large number of them did not own a bank account. Table 7 shows that 83 percent of the farmers did not own a bank account. Information provided in Table 5, combined with this, indicate that most farmers have savings, but they do not use banking facilities to keep their savings. Table 7: Ownership of Bank Account NUMBER OF FARMERS PERCENTAGE SHARE YES NO TOTAL The study asked those who did not own a bank account to provide a reason why. Table 8 presents the given reasons for not owning a bank account by the surveyed farmers. The responses indicate that by far most smallholder farmers did not own a bank account because they did not feel that they had enough cash to save. Most of the cash earned from their farming activities was used to meet needs such as paying for children s fees. 14

15 Table 8: Reasons for Not Owning a Bank Account NUMBER OF FARMERS PERCENTAGE SHARE No enough cash to save, children in school, too many responsibilities Save with local group (UVIWA)/village group/roscas, save with husband 6 11 Intend to open account soon 3 6 Money stored in animals/fixed assets 2 4 Not aware of importance/no reason/not my tradition 5 9 Total The study findings also show that some of smallholder farmers use other means for saving other than banks. These are local village groups and ROSCAS. Other farmers stored their savings in fixed assets, while others were not aware of the importance of owning a bank account. The study further examined where the smallholder farmers borrowed money from when needed. Table 9 shows that more than half of them rely on relatives when they need to borrow money, compared to just a mere 2% of them who go to a commercial bank. Other lending sources are neighbours and friends, and agricultural cooperatives. The fact that smallholder horticultural farmers heavily rely on informal sources for borrowing money reflects a severe lack of reliable sources of significant capital for their activities. Since the buying of inputs in horticultural production is important, smallholder farmers require availability of formal sources of capital. Since informal sources tend to be more expensive sources of credit, it could help the farmers to cut down on costs of borrowing by utilising formal sources. Table 9: Where they Usually Borrow Money From SOURCE OF BORROWING NUMBER OF FARMERS PERCENTAGE SHARE Relatives Neighbours and friends 8 12 Agriculture cooperative 7 11 Local lender 5 8 No answer 5 8 Other 3 5 Commercial bank 2 3 Total

16 3.4. Marketing Methods Table 10 presents different ways that the farmers market their produce. The most common outlet consists of companies (and cooperatives), followed by local consumers at markets. It is important to further understand the role of the companies and cooperatives as market outlets for vegetable farmers. Table 10: Main Buyers of Produce NUMBER OF FARMERS PERCENTAGE SHARE Home Vegetable(T)Ltd, Serengeti Fresh 3 and Uwano Ngarenanyuki Horticultural Cooperative 42 Society 64.6 Local consumers at market Middlemen Traders Total 65 It is important to understand their role in the market as it appears that the companies have arrangements of providing inputs to the farmers, which they then use in their farming activities. The farmers then pay back by selling their produce to the companies. This needs to be further investigated to understand how the arrangement works. The types of marketing methods used by smallholders are given in Table 11. It shows that the two most common marketing methods are; farmers selling to marketing cooperatives and farmers themselves personally looking for buyers. A good number of them also take the produce to the market themselves. 3 Serengeti Fresh is a private company engaged in exporting horticultural crops. The company used to source its produce mainly through an out growing scheme, targeting out growers with a minimum of 50 hectares of land. However, it seems that increasingly due to high demand for horticultural products in the export market, it has taken up include more small and medium scale farmers so as increase its export volumes and fulfill its export orders (Nyambo and Verschoor, 2005). 16

17 Table 11: Main Marketing Methods NUMBER OF FARMERS PERCENTAGE SHARE Through the marketing cooperatives Personally look for buyers Take it to local market Middlemen by paying commission 4 6 Other* 7 11 Total *Home veg. looks for them. 3.5 Supply Chain The supply chain, showing the key actors in production of horticultural vegetables in Arusha is given in Figure 6. Figure 6: Supply Chain SUPPLY CHAIN Types of inputs Organic and Inorganic fertilizer, pesticides, seeds Main crops Baby corn, French beans, tomatoes, peas, spinach INPUTS SMALLHOLDER FARMERS CROPS SUPPLIERS BUYERS Home Veg, Cooperative, societies, Private shops Home Veg, Serengeti Fresh, Cooperative, local market, Traders, middlemen 17

18 4 CONSTRAINTS IN FARMING AND MARKETING ACTIVITIES This section examines the main constraints that smallholders horticultural farmers face in farming and marketing activities. It forms the main focus of the study. Figure 7 shows the main constraints identified by smallholder farmers. It shows that a lack of inputs is the main constraint faced by smallholder farmers. It was indicated by 51% of the farmers as being the main constraint they face. This was followed by a lack of farm implements, indicated by 29% of the farmers. Other constraints are a lack of credit and extension services. Irrigation facilities do not seem to be a main constraint, as only 1 farmer indicated lacking irrigation facilities. Figure 7: Main Constraints Faced by Smallholder Horticultural Farmers It is important to know the type of inputs that smallholders of horticultural crops use. Table 12 shows the types of inputs and combination used. It shows that a large percentage of farmers use manure, seeds and pesticides (65%), followed by those using manure and seeds (28%). In general, there are four types of inputs that smallholder farmers use. These are; manure, seeds, fertilizer, and pesticides. 18

19 Table 12: Types of Inputs used NUMBER OF FARMERS PERCENTAGE SHARE Manure, seeds and pesticides Manure and seeds Fertilizers, seeds, and pesticides 3 5 Pesticides and seeds 1 2 Seeds, manure, fertilizer and pesticides 1 2 Total Figure 8 further shows the other constraints identified by the smallholder farmers. A lack of water and drought was identified as one of the constraints, followed by crop diseases, and in particular, the existence of caterpillar worms that destroy their crops. It is interesting to note that while some farmers indicated lack of water and having drought conditions, one of them indicated that too much rain hampered production activities. The farmer who indicated too much rain resided in Meru Momela. This indicates that it is important to establish what kind of weather condition different farmers that live in different areas within the region face. Figure 8: Other Constraints The implication here is that while some smallholder farmers within the region need irrigation facilities to deal with lack of water and drought conditions, others require assistance on growing crops that can withstand too much rain. A further implication here is that there is need to invest 19

20 in crop development that adapts to the different weather conditions where farmers are. The crops have to be ones that can withstand insect and weather conditions. 4.1 Extension Services and Quality Horticultural crops require high use of fertiliser, herbicides, pesticides and irrigation. Such high use of the inputs necessitates that smallholder farmers are knowledgeable on their use. Knowledge imparted by extension services is thus crucial. The study sort to find out whether extension services existed, and if they did, how many farmers accessed them and whether they were satisfied with them. Table 13 indicates that about a third of the farmers did not access extension services due to them being non existent in the area. Even when the services are available, they are likely to be of poor quality. This is evident from the fact that the two thirds of the farmers that accessed extension services 58% of them were dissatisfied with the quality of extension services provided (see Figure 9). Table 13: Existence of Extension Services NUMBER OF FARMERS PERCENTAGE SHARE YES NO TOTAL Figure 9: Satisfaction with Quality of Extension Services 20

21 Studies have indicated that a lack of extension services particularly in horticulture farming can hamper intensification as well as production levels of crops (see for example, Gockowski and Ndoumbé, 2001). Smallholder farmers of horticulture crops need extension services, especially that the crops require knowledge on crop diseases and levels of pesticides. A finding that some small scale farmers do not have access to extension services and that a large percentage of those who have access to them are not satisfied with the services provided is a serious one requiring urgent attention. It cannot be overemphasized that improvements in horticultural production can be sustained if farmers receive extension services that are useful to them. It is one thing to have extension services, but another when it comes to providing them with information and services that can help them to improve their earnings from horticultural products. 4.2 Ability to Meet Needs of Buyers The respondents were asked to indicate whether they meet the needs of buyers in terms of quality of products and amount. Figure 10 shows that two thirds of the farmers meet the needs of buyers. Of those who do not meet the needs of the buyers, they were asked to indicate the reasons why they did not meet the buyers needs. Figure 10: Ability to Meet Needs of Buyers Table 14 gives the reasons given by those who failed to meet the needs of buyers. Most of the farmers that fail to meet the needs of buyers are faced with problems relating to drought and lack of pesticides, as well as their crops being rejected due to poor quality. According to the farmers, the rejection due to poor quality of crops is due to among other things, crops exceeding their harvest time, crops having a high level of pesticides, and those affected by worms. 21

22 Table 14:Reasons for the Failure to Meet the Buyers Requirements by Farmers REASON NUMBER OF FARMERS PERCENTAGE SHARE Drought, lack of pesticides Low quality leading to rejects Overwhelmed with double contracts Pesticide destruction of crops Late in delivering produce High price of inputs Lack of extension services Destruction of crops by caterpillar worm Low production Inadequate capital Lack of hybrid seeds Total Besides getting an impression from farmers themselves on why they did not meet the needs of buyers, the study also inquired from the farmers whether buyers were satisfied with their products. The question inquired whether the farmers received any complaints from buyers. Figure 11 shows that 60% of the farmers indicated that they did not receive any complaints. Of the 40% who received complaints, Figure 12 shows that the most common complaint that the farmers received related to the quality of horticulture products. Other complaints were insufficient supply and high price of products. Figure 11: Whether Buyers are Satisfied with the Products (%) 22

23 Figure 12: Main complaints from Buyers It is not surprising that poor quality of products is the main complaint that farmers receive. We have already seen that buyers, especially those that export to foreign markets, are usually particular about the quality of horticultural products. The products for the export market have to be harvested at the right time, as any late harvest renders the crops unsuitable, and they also need to contain pesticide levels that are acceptable in foreign markets. Other factors that compromise the quality of crops are caterpillar worms that attack the crops. Any crop that is attacked is rejected. Insufficient supply is also a significant complaint. Factors that lead to low production among smallholder farmers are lack of sufficient inputs, drought conditions, and having multiple contracts. However, the fact that smallholder farmers are unable to meet the demand from buyers indicates a huge potential to increase production of vegetables to meet this demand. 4.3 Existence of Processing Firms and Potential for Increasing Production of Horticultural Products The growing of horticultural products requires that processing firms exist for packing, sorting, and if meant for exports, graded for requirements for exporters. Processing firms can also be instrumental in packaging for supermarkets, either for domestic markets or for foreign markets. Such forward linkages of horticultural production are therefore important as they create employment, and they are a ready market for smallholder farmers. The research inquired whether processing firms existed in the area where smallholder farmers grew their crops. Figure 13 shows that 80% indicated that processing firms existed in the area, and of those who indicated the existence of processing forms, 81% of them indicated selling their crops to the processing firms. The percentage of total output that the farmers sold to the processing firms was between 71 and

24 Figure 13: Existence of Processing Firms and Percentage Selling to Them The farmers who lived in areas where processing firms did not exist where asked to indicate by how much they would increase their output if processing firms existed in their area. Figure 14 shows that a significant number of smallholder farmers would increase their total output between 71% and 100% if processing firms existed in the area. Clearly, the establishment of processing firms is an incentive to farmers for boosting the output of horticulture products. Besides acting as an incentive to increase production, processing firms can also take care of surplus produce that goes to waste as a result of lacking a means of processing them. According to SIDO ( there is a huge surplus of fruits and vegetables produced in Arusha, but it goes to waste because of lack of a sustainable fruit and vegetable canning/processing plant. A study by Nyambo and Verschoor (2005) also found that the capacity of vegetable processing is very low in Tanzania, with a small share of vegetables like beans and peas frozen or canned for the export market (p.11). 24

25 Figure 14: Estimated Percentage Increase in Output if Processing Firms Existed 4.4 Opportunities to Export Another aspect of this study was to investigate the extent to which smallholder farmers directly sell to foreign firms, and whether they are able to meet their standards. Figure 15 shows that a significant percentage of them do not sell to foreign firms. Furthermore, of those who sold to foreign firms, a significant percentage of them failed to meet the standards of the foreign firms. Figure 15: Percentage Share of Farmers Who Sell to Foreign Firms and Ability to Meet their Standards The small number of farmers selling to foreign firms can be explained by lack of information on how to get into the export, as well as availability of agents where the farmers sell their produce to. This is a major constraint that limits the farmers ability to get a good price for their produce. 25

26 Findings from the survey validate these assertions. For example, 72% of the smallholder farmers indicated that they did not get information on export opportunities, and those who got information, they obtained it from private companies and cooperatives where they sell some of their crops to (Figure 16). Figure 16: Availability of Export Information The farmers were asked to indicate if they knew any companies that exported horticulture products and whether they had tried to channel some of their produce through them. The survey findings show that 89% of them knew companies engaged in exporting, and of these farmers, 78% of them had channeled their produce through these companies. The ones who did not use these companies indicated that they did not do so owing to receiving a low price, not growing sufficient crops to export, and having contracts with a private company called Home Vegetables Limited. One reason most of smallholder farmers do not get information on export opportunities is that they lack membership to the Tanzania Horticultural Association (TAHA). 4 The survey found that 79% of the farmers were not members of TAHA (Figure 17). This is a significant number given the usefulness of TAHA in disseminating information on market opportunities. Surprising enough, of the farmers who indicated that they were members of TAHA, 84% of them pointed out that TAHA was not useful to them. This indicates a serious need for TAHA to evaluate its role among small scale vegetable growers. 4 Founded in 2004, TAHA was born after changing its name from Tanzania Floriculture Association, which then used to promote the interests of export oriented flower growers. The change in the name came about when vegetable and fruit exporters became members. TAHA receives financial support from the Netherlands (Nyambo and Verschoor, 2005). Today, although TAHA is dominated by large scale growers, it also has smallholder farmers in its membership. 26

27 Figure 17: Membership to TAHA and Usefulness 4.5 Growth and Expansion The prospects for increasing smallholder production of horticultural products can be assessed by looking at whether farmers consider diversifying their production activities. The survey inquired whether the farmers were considering diversifying their farming activities into new products. Figure 18 shows that among the surveyed farmers, a significant percent of them (72%) were considering diversification. Among the crops identified as being candidates for diversifying into are; baby corn and French beans, broccoli and green peppers. Among the farmers who were not diversifying, their limiting factors are; low demand, lack of capital, and land not being suitable for anything else apart from what they were already growing on the land. Figure 18: Percentage of Farmers Considering Diversification 27

28 5 DETERMINANTS OF PROFITABILITY The determinants of profitability was modelled using the logit regression model. The model assumes an underlying latent profitability variable y i *, which is defined by the following relationship: * y i = β ' xik + ui where we assume that u i are IN(0, σ2). However, in practice our observations are such that y is defined by y i = 1 if y i * = 1 (yes), and y i =0 (otherwise). In other words, y assumed a value of 1 if farmers reported that their farming activities were profitable, and 0 otherwise. Our focus in the model is on understanding the key determinants of profitability of smallholder farmers. The model estimated is PROFIT FLABOUR + u = β 0 + β1farm i + β 2EDUCi + β3processfi + β4agei + β5agesqdi + β6 i i where the dependent variable (PROFIT) equals one, if farming was profitable to the farmer, and otherwise equals zero. 5 A description of variables used is given in Table A4 in the appendix. We expected farm size to have a positive effect on profits, given that the larger the landholding, the more diversified the crops would be and therefore more would be produced for sale on a larger land. The level of education was also expected to positively affect profits. More educated farmers would grasp more modern ways of using inputs, and are generally more skilled in managing their farms, which would positively impact on their profits. The existence of processing firms in an area is likely to increase profitability given a ready market for the produce. A positive effect is thus expected. Age is likely to also positively affect profitability, with more experience contributing to increase in expertise in farming. However, as a farmer ages, profitability would increase only at a decreasing rate. This is captured by squaring the age variable, and the expected coefficient should have a negative sign. The household endowment of family labour is a crucial input in farming activities. Given that farming is labour intensive, we expected the use of family labour to have a positive effect on profitability. Table 15 gives the descriptive statistics of the variables used in the model. 5 The farmers were asked to state whether their farming activities were profitable to them or not. 28

29 Table 15: Descriptive Statistics of Logit Model VARIABLE OBS. MEAN STD. DEV. MIN MAX PROFIT FARM EDUC PROCESSF AGESQD AGE FLABOUR The results of the estimation are given in Table 16. All the variables have the anticipated signs, except the education variable, where we expected a positive effect. This can be explained by the fact that a significant number of smallholder farmers (75%) have only primary education. The explanation for the counterintuitive sign means that it is sufficient to have a primary education or lower in order to have a profitable farming livelihood. It is also important to note that since that coefficient on the education variable is not significant, it means that the education level of smallholder farmers does not matter in determining profitability of farming activities. Table 16: Logistic Regression Results COEFFICIENT STANDARD ERROR Z STATISTIC FARM EDUC PROCESSF * AGE AGESQD FLABOUR Number of observations = 65 LR chi2(5) = Prob > chi 2 = 0.08 Pseudo R 2 = 0.47 *Significant at 10%. Although most of the hypothesized signs are correct, it is important to note that only one variable, existence of processing firms, is significant at 10%. This is a key finding that demonstrates the importance of firms that can process the horticultural products that smallholder farmers grow. Processing firms provide a ready market for farmers and hence are important for their profitability in farming activities. This result is significant as it encourages further investigation to see the extent to which it is valid to other parts of Tanzania. It is no secret that the processing of horticultural products adds value to the crops produced, and can enhance incomes of smallholder farmers. 29

30 6 CONCLUDING DISCUSSION Horticultural production clearly offers Tanzania one of the pathways to poverty reduction, as well as a means for enhancing incomes. This has been established in a number of research findings. However, this study has unearthed some of the constraints that smallholder farmers of vegetables in Arusha encounter. A number of policy implications from the study can be drawn. Firstly, processing firms can significantly contribute in boosting production levels of horticultural products. This is because it provides a ready market for the crops, and this is an incentive to farmers. The study found that if processing firms existed in some areas where they did not exist, farmers estimated that they could increase their production levels to as much as 71% and above. The existence of processing firms was also significant at 10% in the regression of determinants of profitability among vegetable growers. Secondly, it is important that extension services in vegetable growing areas are improved. This will help smallholder farmers to improve the quality of their produce, a factor that is very important for consumers, especially for export markets. The study found that besides crop diseases, most crops are rejected due to pesticide levels and the fact that they exceed their harvest time. Provision of extension services is also important given that most farmers have primary or no education. The last conclusion relates to financing of farming activities. While there are cooperatives and companies that provide some farmers with credit for inputs, smallholder farmers require banking facilities that are tailored to their needs. The study found that most farmers started their activities from own savings, and that if they require borrowing funds, their main sources is relatives and friends. In order for smallholders to expand their operations, access to reliable credit is essential. 7 LIMITATIONS OF THE STUDY While the results of this study gives some indication of the constraints that smallholders in horticultural products face, as well as their socio economic characteristics, it should be treated as a basis for further study and analysis. This is because the research has a number of limitations. First and foremost, this study could have benefitted from a deeper understanding of other issues had the research been piloted. Lack of piloting the research instrument due to funding limitations prevented the researcher from identifying issues needing further examination. For example, more data relating to irrigation could have been collected to clearly indicate whether smallholder farmers indeed have irrigation equipment for their farming activities. This issue of irrigation is a key aspect of the need to increase the level of production in some farming areas where farmers indicated a scarcity of water and drought. Thus, further research is required to 30

31 build on this study, to specifically collect data pertaining to irrigation facilities available and the extent to which smallholder farmers utilize them. Secondly, lack of piloting of the research instrument prevented collection of data pertaining to production levels and actual costs incurred in production and marketing activities. This would have provided valuable information for undertaking a value chain analysis of farming of horticultural products among smallholder farmers. Lack of piloting also prevented the research from collecting detailed information related to the supply chain of smallholder. For example, the actual role of some of the companies that farmers mentioned as providing them with inputs and also as main buyers of their produce needs further investigation. Research needs to probe further the kind of arrangements for inputs and marketing that smallholder farmers engage in with the companies such as Serengeti Fresh and Home Vegetables Limited. Thirdly, due to limitations on funding, the study did not collect data on small scale farmers that grow fruits, and it focused only on one region. The research could have richer findings from fruit growers, whose performance can be compared to that of vegetable growers. The limited funds also prevented data to be collected from other regions where fruits and vegetables are grown. Regional comparisons of farmers can provide information specific to those regions, given the different ecological zones of the country. 31

32 REFERENCES Dolan, C., and Humphrey, J., (2000), Governance and Trade in Fresh Vegetables: The Impact of UK Supermarkets on the African Horticulture Industry, Journal of Development Studies, Vol. 37 (2), pp FAO (2003), Rise of Supermarkets Across Africa Threatens Small Farmers: Opportunities and Challenges in a Changing Market, website accessed on 09/09/2008. Gockowski, J., and Ndoumbé, M., (2004), The Adoption of Intensive Monocrop Horticulture in Southern Cameroon, Agricultural Economics, Vol. 30, pp Kaplinsky, R., and Morris, M., (2001), A Handbook for Value Chain Research, prepared for the IDRC. LEI and MSU, (n.d.), Ghana Sustainable horticultural export chain, website accessed on ( ). Nyambo, B., and Verschoor, R.,(2005), Partnership for Market Access Towards a Sustainable Market Oriented Horticultural Sector in Tanzania, Wageningen UR Position paper. URT, (2002), Study on the Horticulture Development In Tanzania, Ministry of Agriculture and Food Security, December. URT, (2007), The Economic Survey 2007, The Ministry of Finance and Economic Affairs. USAID Briefing Paper, not dated), Value Chain Approach to Economic Growth with Poverty Reduction. Weinberger, K. and Lumpkin, T.A., (2007), Diversification into Horticulture and Poverty Reduction: A Research Agenda, World Development, Vol. 35 (8), p Websites:

33 APPENDIX Table A1: Top 20 Producers of Vegetables Rank Country Production (MT) Rank Country Production (MT) 1 China China India India Viet Nam Viet Nam Philippines Nigeria Nigeria Philippines Korea Korea France Myanmar Japan Japan Myanmar Russian Federation Korea (DPR) Brazil Brazil Nepal Italy Korea (DPR) Iran Iran Nepal Italy Germany Bangladesh Russian Federation Pakistan Pakistan Thailand USA Tanzania Thailand USA Tanzania, Cuba Source: 33

34 Table A2: Top 20 Exporters of Vegetables Rank Country Quantity (Tonnes) Value (1000 $) Rank Country Quantity (Tonnes) Value (1000 $) 1 USA Mexico Italy Netherlands China Italy France USA Netherlands France Kenya Kenya Spain Spain Israel China Thailand Israel Belgium Thailand India Belgium Syria Germany Mexico India New Zealand Bangladesh Bangladesh Panama Costa Rica Jordan Malaysia Saudi Arabia Philippines Uzbekistan Australia Malaysia Germany Costa Rica Source: 34

35 Figure A 1: Map of Tanzania Source: political map.html 35