Download Agricultural Growth Challenges

MINISTRY OF AGRICULTURE FOOD SECURITY AND
COOPERATIVES
General Budget Support (GBS) Annual Review, 24-27 November 2008
Dar es Salaam
Accelerating Agricultural Transformation as a Key
Instrument for Reducing Rural Poverty and
Enhancing Food Security
1
Introduction
Agriculture contributes significantly to the overall
economy in Tanzania but it had limited impact on
reducing poverty most of which resides in rural areas.
 Agricultural contribution to the GDP in the past 10
years was about 48% and 25% in mainland and
Zanzibar respectively
 Level of poverty reduced by a mere 3.4% between
1991 and 2007;
 37.4% of people in rural areas in mainland Tanzania
still live in poverty compared to a national average
of 33.3% ;
 2007 NBS (NA) – 26.5% of GDP
Agricultural Growth Challenges:
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High Transaction costs
Under-investment in productive enhancing
technologies;
Limited access to technology demand and delivery
channels (with 60 – 75% of households having no
contact with research and extension services;
Limited access to finance for uptake of technologies;
Un-managed risks with significant exposure to
weather variability;
Agricultural Growth Challenges cont….
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Weak formulation of local investment plans.
Depressed demand for primary commodities in
global markets;
Low level of utilization of available land;
Limited support to improved seeds, fertilizer
and agrochemicals;
Limited agro-processing industries for value
addition and market access.
Agricultural Sector Development
Programme (ASDP)
In order to improve agricultural growth and reduce
poverty, the Government formulated an Agricultural
Sector Development Programme which is
implemented using A Sector Wide Approach. ASDP
has two components:
Component 1: Local Level Support (75% of
programme resources)
i)
Agricultural Investment – priority irrigation
infrastructure;
ii)
Agricultural Services;
iii) Agricultural capacity building and reforms
Agricultural Sector Development
Programme (ASDP)
Component 2: National Level Support (25% of
programme resources)
 Agricultural Services
 Irrigation Development (medium/large scale)
 Marketing and Private Sector Development
 Food Security
 Coordination Monitoring and Evaluation
Progress on implementation of ASDP as per ASDP
Joint Implementation Review (AJIR) done in October
2008, indicated that the programme implementation is
on track despite several challenges, which have been
encountered.
Government Expenditure Analysis
Despite priority on agricultural growth as a driver for
economic growth and poverty reduction public
spending has remained relatively low.
 Approved budget as share of total government
budget for 2008/09 is estimated at 3.96 percent
lower than 4.17 percent in 2007/08;
 The agriculture spending as share of GDP was 1.15
(2006/07), 1.11 (2007/08) and 1.12 (2008/09).
Expenditure for core public goods (research, extension,
training, policy and planning, institutional and
regulatory agencies) remains critically low and
sometimes decreased.
Investment in Agriculture
Private Sector investment
 Role of private sector in value chains is critical. The government
has important facilitative role for this to materialize in cooperation
with private sector;
 BEST programme aims at addressing in general investment issues
however, private sector faces additional constraints peculiar to the
agricultural sector;
 Additional actions are required to create a special enabling
environment through public goods specific to the sector to
improve incentives to invest in the sector. (e.g. investment in
supporting infrastructure such as irrigation, rural roads,
electrification, communication, agro processing, marketing and
surveying, titling and mapping of agricultural land).
Investment in Agriculture cont ….
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Challenges faced by private investors more
broadly in the economy are also faced by private
sector in agriculture. Specific areas that needs
attention within the sector include:
 Increasing investment in agriculture
 Improving ASDP implementation at local
level;
 Legal and regulatory environment for
business
 Agricultural marketing and pricing
 Local taxes (cess) regimes and levies
Investment in Agriculture cont ….
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Public Sector Investment:
 Need for increased public investment in
public goods such as research and
Development (R&D), Extension Services,
Sanitary and Phyto-sanitary Services (SPS)
and control of Outbreak Pests and Diseases
Agricultural Finance
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Low level of public investment in agricultural
public goods makes agriculture less attractive
to private investors in Tanzania;
Sector’s vulnerability to natural calamities
has ingrained the perception that agriculture
and agro-industries is high risk.
Agricultural Finance
Issues for Consideration
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Possibility of PPP that could see financial
concessionary rates to SACCOS that could
then be passed on to farmers;
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SACCOS are not officially recognized as
financial institutions, hence not regulated.
Possibilities and modalities for some
regulation could be assessed;
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Collateral has always stalked the agricultural
sector and agro-based industries and
enterprises. Implementation of the land
administration reform through BEST can be
on track.
Agricultural Finance
Issues for Consideration
 Credit guarantee schemes established to
facilitate access to credit for small enterprises
are limited. Efforts are needed to strengthen
and scale up PPP’s such as AGRA/CNFA
USAID/ADB/CRDB and PASS.
 High prices of agricultural inputs always
prevent use of improved seeds, fertilizers and
agro chemicals resulting low production and
productivity. More support in smart targeted
input subsidy programme is required.
Improving ASDP Implementation
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ASDP Review shows moderate progress in
implementation. The review made the following
recommendations:
 Capacity for local planning and implementation is still
weak – strengthen training on key planning elements;
 Low level of funding for irrigation developmentincrease resources for irrigation development, proper
planning to build capacity to ensure effective support
for irrigation users, modalities for PPP could be
reviewed;
 Explore and promote opportunities for PPP in
research and extension services;
 Limited awareness at regional and LGA level for
integration of private sector in ASDP implementation
– capacity of private sector need to be improved.
Legal and Regulatory Environment
for business
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Local taxes (cess) regimes and levies. The existing
excessive taxation, both direct and indirect taxes is a
disincentive to the growth of agricultural markets;
Despite commendable efforts by Government through
introduction of new tax reforms in 2004, the following
need attention:
 LGA’s charge farmers the upper tax limit above
5%;
 Traders pass the cess to farmers during prices
setting resulting to very low farm gate prices;
 Cess is charged on turn over (gross revenue) not on
profits
 Tendency of charging cess when the same produce
enters a new district or region.
Multiple Charges on Produce
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The VAT system of pre-payment and refund is
a disincentive to agriculture. Despite VAT
exemptions some sub-sectors such as
agricultural spares, trailers, agricultural
services are still subject to such payments.
There is need to look at ways to relax such
charges for the sector
Agricultural Markets
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Tanzania has opted for a market driven economy
increasing the role of private sector in the agricultural
economy especially in factor and product markets;
This is the driver for involvement of private sector in
ASDP. For this to be realized attention is needed in:
 Addressing key obstacles (phyto-sanitary, quality,
standards, grading, pricing and licensing)
 Close coordination among MDA’s (MAFC, MITM,
PMO-RALG, MLDF) as well as LGA’s responsible
for related infrastructure;
 Policy predictability – appropriate incentives to
invest in productivity enhancing technologies,
which require efficient and well performing markets
to provide competitive and remunerative prices to
farmers.
WAY FORWARD
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Agricultural Finance and Credit
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Finalize and adopt the rural finance strategy;
Strengthen and up-scale current PPP’s for credit
guarantee scheme;
Strengthen and scale up the rural agro-dealers
input networks;
Explore new and innovative modalities to
increase credit access for farmers and agro
SME’s;
Finalize legal framework on contract farming.
WAY FORWARD
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Improving ASDP Implementation
i)
Improve LGA capacity for planning and
implementation;
ii)
Increased budget allocation for community
irrigation projects;
iii) Complete and initiate implementation of irrigation
capacity development plan and explore
mechanisms for appropriate PPP;
iv) Finalize and initiate implementation of the
national irrigation policy and strategy;
v)
Capacity of private sector in the districts need to
be improved.
WAY FORWARD
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Legal and Regulatory Environment for Business
i)
Review and rationalize local taxes (cess, levies
and VAT);
ii)
Review regulatory framework for agriculture to
ease the cost of doing business and transaction
costs in agriculture;
iii) Strengthen institutional capacity of regulatory
agencies (TBS, TFDA and TPRI);
iv) Operationalization of the agricultural marketing
policy.
THE END
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