MAFAP Analyzing incentives and disincentives along the value ...

MAFAP Analyzing incentives and disincentives along the value ...

Results of price incentives and disincentives analysis in Tanzania MAFAP TEAM TANZANIA (MAFC ESRF FAO OECD) Agricultural Sector Consultative Working Group 28th November 2012 - Dar es Salaam (Tanzania) With the financial support of 1 ASTWG Meeting 28th November 2012 Dar es Salaam Presentation Outline 1. Products analyzed 2. Results for specific commodities 3. Overall results for the agricultural sector 4. Analysis by commodity groups ASTWG Meeting 28th November 2012 Dar es Salaam Presentation Outline 1. Products analyzed 2. Results for specific commodities 3. Overall results for the agricultural sector

ASTWG Meeting 28th November 2012 Dar es Salaam Products under analysis Products analyzed 8 commodities [Rice, Maize, Coffee, Cotton, Sugar, Wheat, Cow Milk and pulses] Planned for future years 4 commodities [Cassava, Nuts, Livestock and Sorghum/millet] 3 commodities [Tobacco, Tea, Palm oil] 100 90 % of total production/imports/exports

80 31 33 7 7 48 47 Imports Exports 70 60 50 2 27 40 30

20 34 10 0 Production ASTWG Meeting 28th November 2012 Dar es Salaam Studied Under Study Planned for future years IMPORTS EXPORTS THINLY TRADED ASTWG Meeting 28th November 2012 Dar es Salaam Presentation Outline 1. Products analyzed 2. Results for specific commodities 3. Overall results for the agricultural

sector ASTWG Meeting 28th November 2012 Dar es Salaam Methodological approach Compare domestic prices (real prices in the Tanzanian market) with their equivalents from international trade. International trade prices are adjusted to take into account: Cost of import or export procedures Cost of processing Cost of transport and handling, storage, etc. Margins of agents along the value chain This is done at two stages of the value chain: wholesale and farm gate ASTWG Meeting 28th November 2012 Dar es Salaam Methodological approach HYPOTHESIS: Domestic prices embed the impact of domestic market and trade policies and actual functioning of markets International prices do not have the impact of domestic market and trade policies and reflect the functioning of integrated markets. CONCLUSION: Differences can be used as measurement of impact of domestic market and trade policies and the actual functioning of markets

Incentives and disincentive depending on relationship ASTWG Meeting 28th November 2012 Dar es Salaam Output per commodity [technical notes] Revision of production, consumption, trade and marketing for the commodity. Revision of the policy decisions and programs affecting the commodity Description of assumptions and data used. Indicators for the commodity and interpretation Conclusions and recommendations ASTWG Meeting 28th November 2012 Dar es Salaam For now documents are only available for registered users You can request a username and password by emailing [email protected] ASTWG Meeting 28th November 2012 Dar es Salaam

IMPORTS Sugar 20.00% Incentives 10.00% 0.00% -10.00% Disincentives -20.00% -30.00% -40.00% 2005 2006 2007 Observed NRP at farm gate 2008 2009

2010 Adjusted NRP at farm gate Import tariff of 100% with ad-hoc exemptions during the period 2008-2010 Even when prices are higher at the wholesale level (i.e. the tariff works at wholesale level) farmers do not benefit from them due to very high processing costs in Tanzania. Protection to farmers in 2007 coincided with low production and increased exports which led to competition by mills for sugar cane ASTWG Meeting 28th November 2012 Dar es Salaam IMPORTS Wheat Import tariff of 35% which is reduced to 10% as of 2007. The level of protection follows this trend however as of 2008 the reduction in the protection does not lead to lower prices. Incentives for production also include high costs for handling at the port of Dar es Salaam and lack of competition in the import market. During 2009 and 2010 imports at lower tariff do not reflect lower protection which coincides with increased exports of wheat flour. ASTWG Meeting 28th November 2012 Dar es Salaam IMPORTS Cow Milk 100%

incentives 80% 60% 40% 20% disincentives 0% -20% 2007 2008 Observed nominal rate of protection at point of competition 2009 2010 Adjusted nominal rate of protection at point of competition Import tariff of 60% with reduced tariff for Kenya and Uganda (effective tariff always above 50%)

Domestic prices are isolated from internationsl prices and variations in protection relate to variation on international markets No data on farm gate prices but only a very limited % of farmers get this protection ASTWG Meeting 28th November 2012 Dar es Salaam IMPORTS Rice Net exporter 300.00% 250.00% 200.00% 150.00% 100.00% 50.00% 0.00% -50.00% 2005

2006 2007 Observed nominal rate of protection at farm gate 2008 2009 2010 Adjusted nominal rate of protection at farm gate Import tariff of 75% lead to higher domestic prices and avoiding cheap imports as declared by President Kikwete BUT other factors also affect higher prices including excessive marketing costs along the value chain When international prices started raising the level of incentive was reduced, probably due to decreasing margins along the value chain and/or impact of releases of maize from NFRA. As of 2007 the liberalization of the rice market results in incentives to farmers reduced and mantained for traders. ASTWG Meeting 28th November 2012 Dar es Salaam Imported goods [Sugar, Wheat, Rice, Milk] 200% 180% 160%

140% 120% 100% 80% 60% Rice 80% of indicator Inclusion of Milk 40% 20% 0% 2005 2006 2007 2008 EDM (MDG) AVERAGE OBSERVED NRP FOR IMPORTED PRODUCTS AVERAGE ADJUSTED NRP FOR IMPORTED PRODUCTS ASTWG Meeting 28th November 2012 Dar es Salaam

2009 2010 EXPORTS Pulses PEAS BEANS 35% 250% 30% 200% Incentives Incentives 25% 20% 150% 15%

100% 10% 50% Disincentives 5% Disincentives 0% -5% -10% 2005 2006 2007 Observed nominal rate of protection at farm gate 2008 2009

2010 0% -50% -100% 2005 Adjusted nominal rate of protection at farm gate 2006 2007 Observed nominal rate of protection at farm gate 2008 2009 Adjusted nominal rate of protection at farm gate The situation shows incentives for farmers irrespective of the option considered in the analysis This means that domestic prices are higher than that of exported commodities: Tanzania is suffering higher food prices than could be expected Need for better integration of the beans market to assure: Lower prices for consumers

Higher prices for producers ASTWG Meeting 28th November 2012 Dar es Salaam 2010 EXPORTS Coffee 20.00% Incentives 10.00% 0.00% -10.00% Disincentives -20.00% -30.00% -40.00% 2005 2006 2007 Observed NRP at farm gate

2008 2009 2010 Adjusted NRP at farm gate Disincentives mainly related to maket power of buyers at the auction Impact of district cess is less important than overall disincentives (5% versus 20% disincentives on average) Not clear explanation for reduction of disincentives during 2007-2009 ASTWG Meeting 28th November 2012 Dar es Salaam EXPORTS Cotton 20% 10% Incentives 0% -10% -20% Disincentives

-30% -40% -50% -60% 2005 2006 2007 Observed NRP at farm gate 2008 2009 2010 Adjusted NRP at farm gate Very low level of processing in Tanzania, most exports are raw cotton not combed or carded. Disincentives linked to two aspects: High level of levies and taxes on cotton (estimated at 40.000 TzSh per ton) Very low ginning out turn of cotton factories in Tanzania compared to international standards Need to assess the potential of increasing processing in Tanzania as a way to improve the incentives for farmers. ASTWG Meeting 28th November 2012 Dar es Salaam

Exported goods [cotton, coffee, pulses] 20% Inclusion of pulses 10% 0% 2005 2006 2007 2008 -10% -20% -30% -40% -50% EDM (MDG)

AVERAGE OBSERVED NRP FOR EXPORTED PRODUCTS AVERAGE ADJUSTED NRP FOR EXPORTED PRODUCTS ASTWG Meeting 28th November 2012 Dar es Salaam 2009 2010 Thinly traded Net importer Maize 25% 20% 15% 10% 5% 0% -5% Export ban -10% -15% -20%

-25% 2006 2007 Observed nominal rate of protection at farm gate 2008 2009 2010 Adjusted nominal rate of protection at farm gate Volatile impact on farmers of policies and lack of market integration however overall not too important (max 20%) IMPORTS - Interventions by NFRA more than compensate the incentives provided by the tariff when TZA is a net importer (2006 and 2008) while excessive marketing costs provide disincentives when NFRA is not active (2010). EXPORTS The export ban prevent farmers from obtaining higher prices (2009); when there is no export ban the lack of storage forces domestic prices to be higher than value obtained from exports. ASTWG Meeting 28th November 2012 Dar es Salaam Presentation Outline 1. Products analyzed 2. Results for specific commodities 3. Overall results for the agricultural sector

ASTWG Meeting 28th November 2012 Dar es Salaam Overall Agricultural sector [8 commodities] 80% 70% 60% 50% 40% 30% 20% 10% 0% 2005 2006 2007 2008 -10% EDM (MDG) AVERAGE OBSERVED NRP FOR THE AGRICULTURAL SECTOR AVERAGE ADJUSTED NRP FOR THE AGRICULTURAL SECTOR ASTWG Meeting 28th November 2012 Dar es Salaam

2009 2010 For additional information please visit: www.fao.org/mafap ASTWG Meeting 28th November 2012 Dar es Salaam

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