Investment Opportunities in Sisal for Tanzania

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OCTOBER 2019 Sisal is a highly versatile product, with its use determined by the form of processing

Input Semi-processed products Outputs

Carpets High quality fiber Yarn Low quality fiber Artisanal goods

Non-fiber products Fiber Ropes and twines

Cordage Baler & binder twines

Gunny bags 2% of plant Paper goods, e.g. boxes, paper, Pulp tea bags and filters

Juice Construction composites

Roving Automotive parts Sisal plant Alcohol c.25% of plant

Sugars/Syrup Waste

Biogas/Biomass

70% of plant Fertilizer

Source: Dalberg stakeholder interviews; World of Sisal, “Sisal products,” 2018; Key Color, “The Many Uses of Sisal,” 2017; FAO, “Future 2 Fibers,” 2019 High-quality sisal fiber products have a larger market value than low-quality products

Global market size of sisal products (2017) Details High-quality fiber Low-quality fiber M USD Fiber 3L: white c. 100 cm SSUG: brown 80-100 1,754 grades fiber, with 8% - 10% of cm long fiber, with 30% 34 16 fiber production share share 138 UG: white 80-100 cm 3DB: Brazilian double long fiber, with 50% brushed sisal 466 share Tow 1: short white fibers Tow 2: short colored fibers Price: 1,728 to 1,929 400 to 1,563 264 (USD/ton) 1,100 34 1 Processing Water-based large- Manual raspadora 80 format scale processing processing

149 Market use Carpets, construction Twines, ropes and yarns, materials, baler and artisanal goods, High-quality Low-quality binder twines agricultural sacks

Countries Tanzania, Kenya, Tanzania, Brazil Pulp goods Artisanal goods Madagascar Wire rope Gunny bags Substitutes Natural fibers: wool, Natural fibers: jute, Carpets Baler and binder twine cotton cotton Polishing cloth Ropes, yarns and twines Synthetics: nylon Synthetics: nylon, *Construction products polypropylene

*Modeled after gypsum board given it was the most mentioned construction product Source: TSB; FAO Committee on Commodity Problems, “Review of the Sisal market Industry,” 2017; OEC-MIT, “Sisal,” Retrieved 3 September 2019; Dalberg stakeholder interviews The demand for sisal fiber is fragmented, and declining due to competitiveness with cheaper substitutes

Sisal usage across different products (2000 – 2015) Competitiveness of nylon to sisal MT/year

127,500 129,500 Today sisal ropes are four 124,500 124,000 122,000 4X 6% 5% 118,000 times more expensive than 6% 8% 3% 10% 3% 4% nylon ropes, while bags are 11% 10% 5% 12% 8% 2X twice more expensive 11% 10% 12% 11% 11% 12% 12% 15% 15% 18% 18% Demand for sisal 16% 18% Given the fragmented nature of the sisal 23% industry there is inconsistent data on the 26% 22% 20% 23% 24% demand for sisal. • Stakeholder interviews consistently mention high demand for sisal, with 32% 32% 34% 27% 27% 27% suppliers not able to meet the requests of buyers 2010 2011 2012 2013 2014 2015 • Tanzanian Sisal Board cites a global demand of 500,000 MT per year Dartboard Sisal carpets Construction materials • Sisal can be stored for up to a year in Artisanal goods Polishing cloth Rope, yarns and twines bales, meaning there can be some lag Wire rope Pulp Baler and binder twines in production

Source: Committee on Commodity Problems, Intergovernmental Group on Hard fibers, FAO report, 2017; Biodegradable Plastics Market, 4 MarketsandMarkets, 2018; Dalberg stakeholder interviews The sisal market today is in transition as production and usage trends shift

• Brazil’s production is declining steeply due to smallholder farmers moving out of the sisal business, following numerous years of drought and low returns Producers • East African production has been volatile due to irregular rains • Tanzanian production is moving away from estate farming, changing a long- established industry norm of buying from large estates

• Historically there have been 2-3 main buyers in East Africa who trade sisal with a diverse range of industries, this has limited the ability of producers to create direct linkages with the markets they are serving • Chinese traders, and to a smaller degree Saudi and Nigerian traders, have increased Buyers their direct presence in Tanzania, shifting market dynamics from a consolidated buyer model to a more competitive model • However, this has led to price fluctuations. Farmers that lack contracts with traditional buyers sell to local producers at lower prices. This leads to lower prices in the markets, particularly in periods with high production from small producers

• Most sisal industries, already niche markets, have been declining over the past 20 years, with synthetic materials or other natural materials proving themselves to be more cost competitive with similar structural qualities Consumers • As the global move away from plastic becomes more pronounced there is potential for sisal to play a role in new industries, however these have very limited funding, and are highly fragmented

Source: Dalberg analysis 5 Sisal production has been in decline over the past 20 years, primarily driven by the Brazilian market

Production of Brazil and the Rest of the World (1990 – 2017) Tonnage

Brazil Rest of the world 450,000 418,232 444,240 409,771 410,363 405,810 400,000 388,908 365,831 352,208 350,000 320,066 316,419 312,858 300,340 300,000 269,285 250,000 244,077 214,879 200,000

150,000

100,000

50,000

0 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2017

Global production has seen an overall decrease in the last 20 years with the rise of cheaper substitutes. This is most pronounced with Brazilian low-quality sisal, which can readily be substituted compared to high-quality fiber from most producers

Source: FAOSTAT, “Sisal,” Retrieved October 2019 6 The price of fiber has increased faster than the decline in supply - suggesting the development of a niche market

Production of Brazil and the Rest of the World, with price based on fiber quality* (2004 – 2017) Tonnage, USD/T

450,000 2,200 2,050 2,000 400,000 1,850 1,700 1,800 350,000 1,580 1,600 1,450 300,000 1,320 1,320 1,290 1,325 1,400 1,200 1,200 250,000 1,100 1,200

200,000 900 900 870 880 1,000 800 800 840 700 700 720 800 150,000 670 630 650 580 620 600 100,000 420 400

50,000 200

0 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

High-quality fiber Low-quality fiber Brazil’s production Rest of the world

*Adopted prices for UG and Bahia fiber types for high-quality and low-quality fibers respectively Source: FAOSTAT, “Sisal,” Retrieved October 2019; Committee on Commodity Problems, Intergovernmental Group on Hard fibers, FAO 7 report, 2017 Tanzania is the global leader of high-quality sisal, due to historically organized producers, despite limited innovation

Global sisal production with top 5 producers (2013 – 2017) Strengths of Tanzanian sisal Tons  Sisal is a legacy crop in Tanzania with over 349,376 350,000 341,821 30 well established estates and businesses 304,970  Sisal is designated as a strategic crop in 293,608 22% 21% 300,000 Tanzania, promising more support for its 20% 22% 4% 4% 249,382 development in the coming years 250,000 5% 5% 5% 6% 6% 5% 7%  Sisal grows well in arid areas, and needs 34% 200,000 8% 6% 11% 10% limited inputs to get a sufficient quantity of 8% harvest for profitability 11% 150,000 13% 5% 7%  East African sisal is recognized as a superior 9% quality fiber than Brazilian sisal due to its 100,000 53% 53% 13% central processing 49% 47% 50,000 32%  Sisal is a labor-intensive crop to plant, harvest, and process, and labor in Tanzania is 0 readily available 2013 2014 2015 2016 2017  The ports of Tanga and Dar es Salaam can Brazil Kenya China easily export sisal around the world Tanzania Madagascar Others

Source: FAOSTAT, “Sisal,” Retrieved September 2019; Committee on Commodity Problems, “IGGHF,” 2015; Dalberg stakeholder 8 interviews Sisal in Tanzania has in the past been grown on large estates, many of which have their own spinning mills

PRIMARY SECONDARY INPUTS PRODUCTION MARKETS PROCESSING PROCESSING

Sisal is drought-resistant; Estates have historically Most processors only process to Most processors operate at 80% of fiber is exported to however, it benefits from dominated production since fibers given higher operational c.30% capacity due to low global markets which inputs for increased the colonial era, as sisal costs in semi-processing and demand for finished products demand high quality from the yields and better fiber requires huge tracts of land ease of market access given price competitive estates quality to realize health margins substitutes

Pesticides & herbicides Most estates do not Global use if they clear land before harvest

Fertilizer Increasing use of sisal Large estate Fiber processing Spinning mill Regional waste 72% of market center

Labor 50 people/ha for land preparation and Sisal leaves are passed through a harvesting decorticator that peels the flesh of the leaves apart, leaving fiber. This uses large Domestic Land amounts of water. The obtained wet fiber Average size of is dried in the sun for 1 – 2 days, after 5,000ha which it is brushed to make it softer and baled into 250kg stocks

Source: Dalberg stakeholder interviews 9 Smaller commercial farmers and smallholder farmers have entered the industry, producing high- and low-quality sisal

PRIMARY SECONDARY INPUTS PRODUCTION MARKETS PROCESSING PROCESSING Farmers currently do not There is an increasing Availability of mobile sisal Most processors operate Market for smallholder sisal use inputs due to a lack of number of SHF in sisal processing machines in under capacity is the domestic and regional financing and extension production which is inline Tanzania has increased with market for final products, workers. Crop is seen to with government policy to donor support leading to low- while cooperative and grow well on its own. encourage their involvement quality fiber commercial farmers produce at higher quality for exports

Small- Block farmer Make products for domestic holders and regional markets Average land of Large estate Spinning mill 400-1,000 ha following redistribution of Domestic Land estates Regional Min. land is 8 ha to realize profits Central Spinning mill processing Smallholders and center cooperative farmers Labor 20 people/ha Dried fiber sold for brushing and baling Global Smallholder sisal farmer Raspadora & Predominantly in mobile sisal Via processors Lake Zone. Average traders land of 8ha

Source: Dalberg stakeholder interviews 10 All producers of sisal have healthy margins, with smallholder farmers able to generate margin at small scales

Estates producing high-grade Block farms producing high- and Smallholder farmers sisal and owning end-to-end low-quality sisal through central producing low-grade sisal for processing processing domestic use 1,688 1,665 838 985 1,030 42% 38% 490 41%

Estate Central Processing SHF Farmers in the lake zone use a raspadora Estates own end-to-end processing which Farmers in cooperatives transport their machine to hand-process their sisal, ensures high-grade sisal and better leaves to a central processing facility leading to low-quality sisal (SSUG grade market prices. They leverage their within a 5km radius. The cooperative and below). They operate on a very small economies of scale to manage costs, and handles linkages to markets. Block farms scale, often just with hedge plants, and historical market linkages to access will be the growth drivers inline with using no inputs. There is limited demand better market access and prices. government initiative to encourage SHF. for the type of sisal they produce. Inputs costs are the highest for estates. Current constraints to growth: Current constraints to growth: They are also the only types of producers • Access to finance for better input use • Access to financing given 3-year required to pay land lease • Access to international buyers who gestation period for sisal growing offer better prices via marketing Extension service delivery Current constraints to growth: • Poor land organization for optimal Price uncompetitive to Brazil Old machinery reducing efficiency • • • processing The sisal they produce can only be Shortage of labor supply • • used in domestic processing

Revenue per ton Operating costs per ton Gross Profitability

Source: Analysis based on TSB statistics. Prices reflect weighted average for export and local sales, accounting for varying grades of sisal 11 Now sisal has expanded beyond estates, positioning Tanzania to produce more and different qualities of fiber

Sisal production by model (2018) Sisal production by region % share % share

39,939 40,000 39,101 38,684 38,684 36,870 37,464 Mara 35,000 Kagera 24% 24% Arusha 29% 35% 21% Mwanza 29% 30,000 Shinyanga Kilimanjaro 25,000 24% Kigoma 19% 26% 26% Manyara 19% 17% Tabora Singida Tanga 20,000 Dodoma 15,000 Key Rukwa 56% 10,000 53% 52% 48% 51% 51% 50% Iringa Pwani Mbeya

5,000 10% - 49% Morogoro Lindi 0 <10% - 5% 2013 2014 2015 2016 2017 2018 < 4% Ruvuma Mtwara Estates Block farms SHFs No production

While production has remained similar across the three production models, estates have historically had larger land and production shares. This increase in sisal landholding by smallholders is driven by: • Government seizure of unproductive lands, in some cases re-distributed to medium-sized sisal farmers • Donor support for development of sisal as a resilient cash crop in the lake region

*Estates have an average land size of 5000 ha. Block farms range from 400 – 1000 ha. SHFs have 8 ha on average. 12 Source: Tanzania Sisal Board; TARI Mlingano Center, Sisal Production and Research in Tanzania, 2018 Tanzanian sisal industry actors are well established, with primarily large estates and some newer processors

Primary processors - estate Primary processors - block Secondary processors

Tanga Tanga Yarns • Amboni Plantations Ltd • Katani Ltd – They are the • Tanga Spinning Mill (Tanga) only primary processors • Sagera Estates Ltd Yarns and Twines working with block farms • SFI Tanzania Ltd that are part of AMCOS • Amboni Spinning Mill (Tanga) • Gomba Agr. Industries Ltd • A number of smaller estates • Ubena Spinning Mill (Pwani) Morogoro and smallholder farmers also • TCTC Ltd engage Katani for processing • China State Farms (T) Ltd Yarns, Twines and Sisal bags services. However, these • New Kimamba Fibres Ltd farmers are not part of the • TPM (Morogoro) Multiple regions AMCOS that work with the Yarns, Twines and Ropes company • Highland Estates (T) Ltd • 21st Century Holdings (Dar) (Morogoro and Pwani) Yarns, Twines, Sisal bags and • Mohammed Enterprises Ropes, Geotextiles and Carpets (Tanga, Morogoro, • Tancord (1998) Ltd (Tanga) Kilimanjaro, Lindi, Pwani)

Note: Raspadora processors operate at small scale and process low-quality sisal in the lake zone area 13 Source: TSB Statistics Secondary processors are operating under capacity due to lack of demand, but primary processors cite lack of supply

• TASCO is part of MeTL • Over the years, the company has scaled down its production line, which included carpets, geotextiles and baler and binder twines due to low demand of the products. This led to high production cost as they lacked economies of scale • Currently, the company produces yarns, ropes and twines, with the factory operating at 30% utilization due to low demand 21st Century • Sisal ropes, yarns and twines have become uncompetitive to nylon rope, which is sold Holdings at a quarter of the price

• TPM is also part of MeTL, and is a manufacturer of gunny bags • The factory operates at 20% capacity and has limited sales of produce. E.g. in 2018, only c. 50% of bags were sold • Low demand is driven by high price of sisal gunny bags compared to jute bags. Sisal TPM bags are sold at a 10% higher price than jute bags

• Katani is a central processing facility, which relies on block farmers organized under AMCOS to supply sisal leaves for processing into fiber. Farmers own the land via TSB, while Katani owns the processing facility • Current processing is c.8,000T per year, which is 50% of their capacity Katani Ltd • Underutilization is driven by low supply of sisal leaves

Source: TSB statistics; Dalberg stakeholder interviews 14 This shift in production has coincided with a significant increase in Chinese interest in Tanzanian sisal

Importing countries of Tanzanian sisal (2018) • China has significantly increased its presence in the sisal % share industry in Tanzania over the past three years. While some Chinese farmers tried to grow sisal, they found it to be of poor quality and more expensive 13% • Since 2017, exports to China have increased while exports 2% to other destinations have decreased 2% 2% • Chinese buyers prioritize Tanzanian sisal due to the preferential tax arrangements compared to Kenya, as well as 5% the increase in smaller estates and smallholder farmers in the 6% 54% industry that allows them to buy at lower prices • Chinese manufacturers use sisal in a variety of industries – notably polishing cloths for stainless steel, wire rope, and 7% carpets 8% • Saudi Arabia, North and West Africa import sisal primarily for construction materials or to trade onwards given their better cash liquidity than local traders China Spain Togo Saudi Arabia Philippiness Morroco Some of Tanzania’s biggest buyers include: Nigeria Libya Other • Dada Agricultural Inv.- China (688T. UG: 73%, SSUG: 27%) • Chab Investment- Nigeria (520T. UG: 100%) • Al Boayz, Riyadh- Saudi Arabia (478T. UG: 100%) A total of c.24,000 tons of sisal fiber were • Wigglesworth- UK (290T. UG: 76%, Tow: 1-24%) exported in 2018 • ZIMCO (268T. SSUG: 100%)

Source: Tanzania Sisal Board, as quoted in M&W Heller, Sisal Market Report May to September 2018, 13 September 2018; TSB Statistics 15 UG is the most exported fiber, with Chinese buyers consistently purchasing at above average price

Quantity of exported fiber by grade and top 6 buyers (2018) % share

12,000 3,000 10,081 2,528 9,000 17% 2,000 1,646 5,793 6,000 2% 8% 1,076 1,000 3,000 290 252 5% 0 0 China Other top buyers Wigglesworth- Saudi Nigeria Spain Philippines 3L UG SSUG Tow 1 UK Arabia

Export prices by fiber grade and buyer (2018) USD/ton

1,945 1,757 1,457 1,653 2,000 1,702 1,900 1,900 1,724 1,658 1,642 1,713 1,801 1,281 1,307 1,760 1,616 1,901 1,652 1,505 1,663 1,041 1,081 904 870

3L UG SSUG Tow 1

Wigglesworth-UK China Saudi Arabia Nigeria Spain Philippines Average price line

Source: TSB 16 Most of the demand is for sisal fiber, with only 12% of the fiber processed to end-products for exports

Fiber usage by market and product (2018) The demand for sisal fiber is % share driven by buyers from Chinese manufacturing who process the 81% 12% 7% sisal as part of their product development

Exported fiber by grade (2018) Exports by product (2018) Local sales by product (2018) Tonnage Tonnage Tonnage

23,861 4,670 2,747 0% 5% 1% 5% 17% 5% 26% 17% 23%

68% 74% 60%

Other Tow 1 SSUG Baler & binder twines Other Baler & binder twines 3L UMDS UG Ropes, yarns & twines Bags Ropes, yarns & twines

Exported fiber Exported products Domestic products 17 Source: TSB There is a national goal to increase production to 100k T, however with demand trends this will be challenging

Projected sisal production and land use (2018 – 2025) Projected* global production (2018 – 2025) Hectares planted; Tons produced MT/year

100,000 200,760 Fiber produced Land planted 8% 187,568 175,244 83,378 9% 8% 163,729 8% 9% 152,971 13% 8% 142,919 70,196 9% 13% 9% 8% 133,528 13% 9% 8% 124,754 59,592 18% 13% 9% 8% 18% 13% 9% 8% 50,907 18% 13% 9% 18% 13% 43,652 18% 13% 37,46437,464 23% 18% 23% 18% 18% 23% 23% 23% 23% 23% 23%

30% 30% 30% 30% 30% 30% 30% 30%

2018 2019 2020 2021 2022 2023 2024 2025 2018 2019 2020 2021 2022 2023 2024 2025

To produce 100,000T, additional land would have to Rope, yarns and twines Construction products be made available or significant interventions made towards improving yields. Trends in declining global Baler and binder twines Pulp production suggest that increased production would Polishing cloth Other* not have a global market

*Estimated based on production trends between 2013 and 2017, and fiber usage trends between 2010 and 2015; Includes products with fiber usage less than 8% between 2010 and 2015, such as carpets, wire ropes, artisanal goods 18 Source: FAOSTAT, “Sisal,” Retrieved October, 2019; TSB; Dalberg stakeholder interviews and analysis Rather than increase production significantly, Tanzania can further cement its position as the innovative leader of sisal

Roadmap to sisal end to end processing:

R&D Planting Processing Distribution

Establish new Build additional Build relationships Invest in new hybrid nurseries to develop capacity for high- with end-product seed development and high-quality seedlings quality fiber buyers in China, Saudi, alternative uses of sisal quickly processing and Europe

Increase capacity of Raise global Create incentives for Create demand and extension workers to awareness of sisal’s more research in sisal capacity for sisal provide better potential as plastic and its end-uses agricultural bags information for sisal substitute

Develop new Improve access to Establish end-product Review VAT and other equipment for finance for sisal processing units – sisal tax exemptions for harvesting and farmers with correct fiber products and by- sisal products processing loan terms (3 years) products

Short term (next 1-3 years) Medium term (next 3-5 years)

Source: Dalberg analysis 19 Strategic investments should support both high- and low- quality sisal, while looking ahead to the industry’s potential

HIGH QUALITY FOR EXPORT • Central processing units • Seedling nurseries

LOW QUALITY FOR DOMESTIC PROCESSING • Gunny bag production

FUTURE-LOOKING OPPORTUNITIES • Mushroom farming • Agave sugar • Bioplastic bags

20 High quality for export

21 In the long-term, the export of high-quality sisal products could be an opportunity for Tanzania

Global market size of sisal products and potential number of jobs in a single processing facility (2017) 1,000 USD; Number of jobs in a single processing facility

Number of jobs There are several products 300 Polishing cloth – moderate global market that use small amounts of Wire rope share, but with limited job creation sisal, such as automotive parts, Construction products – high global 250 tea bags, cigarette filters and market size, but with low job creation recycled paper. However, given high level of mechanization global markets for these 200 products are below 10M USD. The products in these graph 150 Construction products* only show end-products with Polishing cloth market size of more than 10M 100 USD

Sisal carpets 50

0 Market size 0 200,000 400,000 600,000 800,000 1,000,000 1,200,000

High-quality sisal products have significant market potential; however, most rely on global markets and require higher skills and technology. End-to-end manufacturing could be long-term opportunities

*Based on market size of gypsum board since it was the most referred construction product that uses sisal Source: FAO Committee on Commodity Problems, “Review of the Sisal market Industry,” 2017; OEC-MIT, “Sisal,” Retrieved September 22 2019; Dalberg stakeholder interviews In the short-term however these products are currently risky – with unclear forecasts and many barriers

*Demand (M USD)/ Growth Barriers to Barriers to Products Target market Required infrastructure Fiber usage (T) trends* production competitiveness Increased demand of -11% Limited access to end • Middle- Available sisal carpets 138 2.4%* markets, leading to Carpets Eastern skills and Develop market 4,000 (*Middle uncompetitive price • markets technology linkages with high-end East) compared to China markets Increased use of sisal in Requires • Primary users are making the product Stainless steel advanced manufacturing Upskilling available manufacturers skills, similar • Polishing 466 factories in China and workforce , mainly in -8% to those in cloth 8,500 India, who currently Develop market India and woven • procure from Chinese linkages with China textiles manufacturers manufacturers that use industry stainless steel Small absolute Increased demand of Global Available • Wire rope 34 market size given wire ropes, likely driven elevator 27.7% skills and cores 6,500 sisal is only a small by increased manufacturers technology share in the product urbanization Advanced Construction Construction Increased demand of skills in companies use fibers • shops in Saudi 1,100 (Modeled after sisal for generic Construction construction directly on site, Arabia, North gypsum board) 3.7% construction materials products and therefore limiting use and West 24,000 to guarantee scaled architectural of pre-processed Africa production design fiber

= High barrier = Medium barrier = Low barrier *Considers 2017 estimated global market size and fiber usage. Growth trends is based on fiber usage between 2010 and 2015 Source: OEC-MIT, “Woven textiles,” Retrieved September 2019; ITC, “Sisal,” Retrieved September 2019; Dalberg stakeholder interviews While the end-product is not an immediate opportunity, there is an ongoing opportunity to export high-quality fiber

Projected global share of high-quality sisal market (2017, 2025*) Tons Opportunities 105,539 • Today’s sisal processing plants have 4% unused capacity of up to 50% due to an 18% insufficient crop supply Increasing production of sisal could 74,710 • 5% reduce the price for the buyer and make 25% the crop more competitive compared 24% to substitutes, without significantly impacting farmer revenues

32% • The on-going search for alternatives to plastic could lead to increased usage of 53% sisal

40% • More intentional marketing of Tanzanian sisal to direct international buyers can increase the appreciation of 2017 2025 its quality and value – especially in key markets such as China and the Middle Tanzania Madagascar East Kenya Others

*2017 calculations only considers producers with >500T of production. Of these high-quality producers are African producers based on buyer interviews. Sisal projection based on TSB projections of 100,000 T of sisal produced by 2025, of which 80% is export 24 Source: FAOSTAT, “Sisal,” Retrieved September 2019;; Dalberg stakeholder interviews This opportunity relies on increasing yields while maintaining sisal-growing land to produce 70,000T

Sisal-land by use* (2019) Increased fiber production could be achieved by either % share additional land use or increasing yields • At current average yields of 0.8T/ha and 146,000 total harvesting land of 47,000ha, 10% production is only at 37,000T • With use of the total 80,000 ha and at 15% Pre-matured current average yields, production could be 60,000T Other land Increased • However, this is capital-intensive and an 22% Fallow land ineffective use of land utilization Harvested

• With increase in yields, production can be confined in current sisal-growing land • With an average improved yield of only 53% 1.85T/ha by 2025, production could increase to 70,000T while using only 47,000 Improved yields ha of land

Of the total land available, only With increased use of fertilizer, better seedlings and land 80,000 ha can be used for harvest. clearing practices, yields can more than double, leading to 47,000 ha is currently used effective land utilization

*Other land includes infrastructural land for production and processing such as roads, houses, rivers etc. Pre-matured land has sisal that is yet matured for harvest 25 Source: TSB; Dalberg stakeholder interviews and analysis Tanzania can increase capacity for processing high-quality sisal via block farms, shifting production from estates

Projected sisal production by model and average yields (2018 – 2025) Average land owned by model type % share Hectares

To increase production for block Estates 100,000 2.0 24,000 farms and SHFs in current land, 1.85 interventions are required to 90,000 Block farms increase yields at 35% and 12% 10,000 80,000 respectively to meet production 1.52 targets 1.5 SHFs 70,000 13,000 1.24 20% 60,000 Highlights 0.99 20% 50,000 1.0 • Estates have traditionally exported 20% 0.79 0.79 0.79 0.79 high-quality fiber as they process 40,000 20% 50% using coronas. However, SHFs’ 21% 45% 30,000 39% production has relied on hand 32% 24% 0.5 processing using raspadora 20,000 • The block farm production model 10,000 56% 48% 41% 35% 30% provides opportunity for farmers to increase their production of 0 0.0 high-quality fiber as they can 2018 2019 2020 2021 2022 2023 2024 2025 process using decorticators owned by an independent Average yields SHFs Block farms Estates

*2018 is based on data shared by TSB. 2019 to 2020 data is similar to 2018 as it assumes interventions will likely be implemented starting in 2020, and yields can only improve 1 to 2 years after application. Data on later years is projected based on production targets 26 Source: TSB; Dalberg stakeholder interviews Processing sisal fiber could be a 6M USD opportunity in the next six years with additional facilities

Investment opportunity: Develop more capacity for high-quality fiber production, while supporting the participation of block farmers

Set-up Business model and market size Develop processing center in central location, • Processor charges farmers a fee to decorticate, brush and ideally 5 to 10km within multiple block farms, e.g. bale fiber. Current processors charge up to 218 USD per in Korogwe where there is limited processing. ton of fiber processed. This de-risks the processor as the Smallholders in the block farms are responsible farmer secures the market for processed fiber for production and transport costs. Once leaves • With projected additional production of 27,000T, the are harvested, farmers aggregate to processing annual revenue could be 6M USD, requiring an up-front center for decortication, brushing and baling investment of 10M USD

Investment needs and social impact

• With minimum viable production of 1,000T fibers and projected additional production at 27,000T, there is room for at 26 new processors, requiring a total of 10M USD to establish. The projected annual revenue for additional production is 6M USD, with potential to break even by year two • On a per facility basis: For a 1,500T capacity facility, 600k USD is required to develop the facility and procure machinery. Total annual revenue could be 330k USD, with potential to break even by year two

• To expand processing capacity, financing should be made available to block farmers to increase their production and supply of sisal • An additional 4,700 farmers could be part of the block farming system with increased production • The opportunity also has the potential to create 500 additional jobs in processing

*Also considers production done for non-cooperative members via Katani 27 Source: Quotations from machinery manufacturers; Dalberg stakeholder interviews and analysis Central processing units depend on sufficient sisal for operation, which necessitates an increase in sisal seedlings

Projected replanted sisal land* and seedlings supply (2021 – 2025) Planting materials analysis Incremental hectares planted; ‘1000 seedlings • Most producers use suckers and 25,000 bubils, which require a 3-year 100,000 waiting period for sisal plants to 90,000 mature 20,000 80,000 • Meristematic Tissue Culture and 70,000 15,000 greenhouse technology produces 60,000 seedlings within 6 months, reducing 50,000 time period to harvesting, and 10,000 therefore realization of profits 40,000 30,000 • MTC seedlings also have a longer 5,000 lifespan and higher yields than 20,000 suckers/bulbils, which have the same 0 10,000 age as the parent plant 2021 2022 2023 2024 2025 • MTC can primarily benefit SHFs and Total seedlings planted by end of year block farmers, who lack nurseries for Total land replanted by end of year planting materials • Fiber obtained is genetically similar Current land used by SHFs and block farms can be to other fiber but produced at higher replanted in the next 5 years to ensure higher yields and yields and quality better quality of fiber

*Assumes increments can only be made starting 2020 28 Source: TSB; TARI Mlingano, Ministry of Agriculture report, 2018; Dalberg stakeholder interviews and analysis 90M seedlings would be required to increase production from non-estate farms at better yields

Investment opportunity: Create increased supply of sisal seedlings on demand to produce 50,000 T of fiber by 2025

Set-up Business model and market size Develop a seedlings nursery that uses • To ensure higher yields and better quality of fiber for Meristematic Tissue Culture and greenhouse SHFs and block farms, current land can be replanted technology to produce better quality and higher with better seedlings yield seedlings on-demand. The opportunity is • Current producers need 4000 seedlings per hectare. contingent on increased demand for sisal fiber This translates into 90M seedlings to the non-estate farmers over a four-year period

Investment needs and social impact

• MTC seedlings are new products in the market, but with potential for high demand given lower maturing period and higher yields • Existing research facility, TARI, estimates that c.85,000 USD is required to develop a facility with a capacity of 100,000 seedlings per year

• Better quality seedlings will double farmers’ yield per hectare and increase revenues per hectare by 65% • To ensure expansive market reach cultivate collaboration with the government research institute (TARI-Mlingano) which has traditionally spearheaded seedlings development

Source: Quotations from machinery manufacturers; Dalberg stakeholder interviews 29 Financing, extension services and market access are required in addition to commercial investments

Challenge Potential Solution

• For new farmers, obtaining loans can be a • Develop suitable credit products for sisal challenge given the 3-year maturing period farmers that consider the 3-year waiting for sisal. Successful loan applications can period for plant maturity have high interest rates as a result • Provide support to farmer groups that have Financing • Loan application process can deter farmers started the process of seeking credit given from applying given requirements such as the multiple requirements and the length of prove of residency in sisal-growing village, the process however, most reside elsewhere

• The belief that sisal requires limited • Opportunity for private sector investment investments has translated to low in providing extension support to farmers as government priority in providing extension a paid service Extension support service • Investments in extension services by the • Farmers lack the technical know-how to government should be considered, given produce higher yields and better fiber sisal’s recent recognition as a strategic crop quality due to lack of extension support

• Block farmers rely on tenders bid locally to • Identify global end users of sisal fiber and access international markets, limiting their connect them to the sisal cooperatives. Market access access to better traders in the global Product traceability is increasingly markets becoming important to end users due to increase in conscious consumption

Source: Dalberg stakeholder interviews 30 These investments in the short-term will allow more end- product processing in the long-term

Roadmap to sisal end to end processing:

R&D Planting Processing Distribution

Establish new Build additional Build relationships Invest in new hybrid nurseries to develop capacity for high- with end-product seed development and high quality seedlings quality fiber buyers in China, Saudi, alternative uses of sisal quickly processing and Europe

Short term (next 1-3 years) Medium term (next 3-5 years)

Source: Dalberg analysis 31 Low quality for domestic processing

32 The domestic gunny bag and rope market is 12M USD, and could be increased with less use of substitutes

Domestic market size and number of jobs of sisal products (2017) Comparative price of gunny bags (2019) 1,000 USD; Number of jobs TZS/unit

Number of jobs 5,000 900 Sisal gunny bags 4,500 800 2,000 700

600 Rope, yarns and twines Sisal Jute Nylon 500 Baler and binder twines Comparative price of twines (2019) 400 Tanzania currently meets its demand TZS/m for these products, with ropes, yarns 300 and twines being exported to regional markets. However, demand remains 200 20 Artisanal goods limited due to high price compared to 100 substitutes Carpets 5 0 Market size 0 1,000 2,000 3,000 4,000 5,000 6,000 7,000

Both the domestic and regional markets can be expanded with price parity to jute and nylon. This demand expansion relies on tax concessions to lower price of sisal products or increase price of substitutes

Source: FAO Committee on Commodity Problems, “Review of the Sisal market Industry,” 2017; Dalberg stakeholder interviews 33 Today cash crop exports from Tanzania use imported jute bags, which could be replaced by sisal gunny bags

Market share of agricultural bags by material Market analysis % share

• Tanzania produces a total of 840k sisal bags for 95% 4% packaging products for export. This only 1% represents 20% of the market, as 80% is captured by jute bags, imported from Polypropelene (PP) Jute Sisal Bangladesh. TPM Morogoro is currently the only producer of sisal gunny bags Current demand of sisal bags by agricultural produce* • Sisal fiber is better suited for packaging because % share it does not retain moisture and can hold agricultural products longer

50% 32% 16% 2% • Jute bags are preferred for exports because they are cheaper than sisal bags at 4500 TZS compared to 5000 TZS for a sisal bag Cashews Stored grains Coffee Coco • The government could drive demand for sisal bags by temporarily removing VAT on the PP bags are used for short-term storage of grains, product to make it price competitive which are a significant share of Tanzania’s • The temporary VAT could also help producers produce. Export crops require natural fiber bags improve current technology, which uses a lot of such as jute and sisal to maintain quality. Jute fiber, making the bags heavier and more costly remains competitive to sisal given lower price

* Based on stakeholder interviews, to be validated with Ministry of Agriculture statistics Source: TSB Statistics, Dalberg stakeholder interview 34 Gunny bags could have a revenue of 11.5M USD per year, should a local producer supply to crops exporters

Investment opportunity: Develop gunny bags to serve coffee, coco and cloves exports, and reserve grains. Investor can expand to cashew exports should supply of raw materials increase

Set-up Business model and market size

Develop a sisal gunny bag industry for exports • Use byproducts from brushing fiber to manufacture gunny of coffee, coco and cloves. Manufacturer buys bags. The opportunity is contingent on demand of high- raw materials from fiber exporters and makes quality fiber for raw material supply gunny bags for sale to crop exports • Total potential revenue of 11.5M USD from 5.3M sisal bags at an average price of 2.2 USD per bag

Investment needs and social impact

• Tanzania has a projected demand of 17M bags required to export coffee, coco, cloves and cashews. Given the target of 70,000T, only 20,000T of raw materials can be supplied to make gunny bags. As a result, 31% of demand can be met, with manufactured bags used for coffee, coco and cloves exports given their small market share

• Remaining bags can be sold to cashew exporters or to the National Food Agency for grain storage

• The investment requires temporary tax concessions to make it competitive to substitutes. Mandating use of sisal gunny bags in the interim can also support industry development

• An additional 3700 people can be employed to meet this demand, while generating total farmer revenue of 18.5M USD over a four-year period

Source: Dalberg stakeholder interviews 35 With VAT exemption for two years, farmer incomes can increase to 1M USD by 2025

Projected public revenues with and without VAT exemption (2020 – 2025) M USD 1,185,680 Current model Tax exemption will allow new 881,509 producers to enter the market, and Projected model 621,533 existing producers to update their 399,332 technology. This will lower 209,416 301,945 production cost and selling price, 149,825 158,345 but can lead to c.150,000 USD in public revenue loss 2020 2021 2022 2023 2024 2025

Projected farmer revenues with and without VAT exemption (2020 – 2025) M USD 14,218,118 However, the loss in public Current model revenue can be recouped in 10,570,638 Projected model increased farmer income over the next five years driven by increased 7,453,135 4,788,602 production of gunny bags, and 2,443,4194,659,309 therefore fiber. Farmers can earn 2,511,223 an incremental income of 1M USD 1,796,627 to provide fiber required for production 2020 2021 2022 2023 2024 2025

Source: Dalberg stakeholder interviews and analysis 36 Establishing a strong local market for low-quality sisal can create a lot of jobs and use smallholder farmer sisal

Roadmap to sisal end to end processing:

R&D Planting Processing Distribution

Short term (next 1-3 years) Medium term (next 3-5 years)

Source: Dalberg analysis 37 Future opportunities

38 Fibers are only 2% of sisal, there are many new uses for other parts of sisal at the early stages of commercialization

Biomass: Effluent from sisal leaves processing can be used as fertilizer. There are however limitations in the efficiency of the process of conversion to biomass which has restricted growth. The biomass can also be fermented in appropriate environment to create biogas. This is currently in pilot stage at a biogas plant in Hale however is less cost-effective than other biomatter.

Sugar: Sisal juice can be processed and used for sugar products such as agave syrup, ethanol, industrial sugar, and other uses. However, the most common sisal variety used in Tanzania is not as adapted to juice extraction as the South American Agave plant and can lead to higher processing costs. For sisal sugar to be developed investment would be needed into plant hybrid technology development.

Bioplastic: Sisal is being tested as a potential input into bioplastics. However this is still in early stages of research, and is likely to remain uncompetitive to other bioplastic inputs

Significantly more research is needed to commercialize these opportunities; however a snapshot of their potential is provided as investment could be used to further this research

Source: Dalberg stakeholder interviews Tanzanian mushroom farms use sisal as their substrate – this market can be expanded significantly as an export

Investment opportunity: Develop commercial specialty mushroom farming businesses to serve global and regional markets, using cheap sisal substrate and labor as a competitive advantage

Set-up Business model and market size

Establish mushroom farms in areas • The global market for specialty mushrooms is growing at a CAGR of adjacent to sisal farms, creating over 7%, and in 2017 was worth 38B USD additional employment and value • China and Europe are the main purchasers of specialty mushrooms for the otherwise discarded sisal • There is also a smaller regional opportunity, estimated at 5M USD with biomass demand currently outstripping supply, and a 54% profit margin

Investment needs and social impact

• A mushroom farm at commercial scale is a 3M USD investment that can generate up to 10 M USD / year if exporting globally. Most materials are available locally, apart from mushroom substrates that must be imported • International mushroom producers in China or Europe, could be interested in leveraging the sisal substrate and access to a large labor market to create additional supply

• Using sisal waste for mushroom farming would create an additional revenue stream for farmers, adding value to a product that was previously discarded • Mushroom farming would allow for diversification of job opportunities in sisal producing areas

Source: Dalberg analysis, : Gro Intelligence, 2017, Growing Mushroom Demand 40 Agave syrup is a growing high value product that could be harvested from sisal with the right investment

Investment opportunity: Develop commercial farm and processing center for agave syrup

Set-up Business model and market size

Establish sisal farm using plants • The agave syrup industry is expected to be worth up to 700M USD by more adapted to juice harvesting, 2026, with a CAGR of 7% and build factory for agave syrup • The rise of sugar taxes and a consumer push to clean eating will ensure processing ongoing agave syrup growth • Wholesale price is 10 USD/L

Investment needs and social impact

• Investment in agave syrup for Tanzania would require significant upfront research in sisal development to ensure that Agave sisalana could generate sufficient and suitable juice for agave syrup production. This may also require innovation in the hybrid seed used by Tanzanian farmers

• Given the current shortage of agave syrup globally due to the rise in popularity of tequila, there will be appetite from investors to open a new market for supply

• Farmers could earn significantly more income from agave syrup, potentially combining sisal fiber sales with sisal juice sales

Source: Dalberg analysis 41 Alcohol can be produced from sisal bole juice, to capture the imported hard liquor market in Tanzania

Investment opportunity: Develop a plant that produces alcohol from sisal bole juice and capture the imported tequila market

Set-up Business model and market size

Sisal boles that are currently • Currently all tequila consumed is imported from Mexico. Tanzania discarded as waste can be used to is already the second largest producer of sisal and can leverage its produce premium hard liquor position by producing alcohol similar to tequila similar to tequila • This opportunity has a market potential of 133M USD in revenue, based on markets of other premium hard liquor in the market

Investment needs and social impact

• Under the Appellation of Origins, production of tequila outside Mexico is not possible. However, production could be done rebranding, franchising the technology and demarcating separate trade zones

• Further research and development is needed to develop a sisal variety plant that is better suited for alcohol production

• There is a large opportunity for increased job creation • Farmers stand to earn more income from selling sisal boles as inputs for alcohol production • Using sisal boles will also reduce environmental pollution through better waste management

Source: Dalberg analysis 42 Sisal juice can be used to develop bioplastics, which can serve the local and regional markets for single use bags

Investment opportunity: Leverage the move away from single use plastic and establish a sisal-based product for plastic bags, for Tanzania and East Africa

Set-up Business model and market size

Researchers at UDSM are in the • There are currently no biosynthetic products developed at scale in process of developing technology that Africa. Tanzania can leverage its advantage in increased sisal production can convert sisal fibers into to be a leader in the sustainability field biosynthetic material. Investment into The import of plastic bags into Tanzania costs businesses 119M USD, commercializing this research could • which could be substituted by domestic production of biosynthetic bags create a new industry for Tanzania

Investment needs and social impact

• Sisal is uncompetitive compared to ethanol and other substrates for bio-energy production. However for bioplastics it could become an African solution for a more sustainable materials

• The on-going reduction in single use plastic through legislation globally will continue to increase the need for alternatives, and sisal could provide a solution

• Farmers could earn more income by selling their sisal juice in addition to the leaves for fibers

Source: Dalberg analysis 43 With further research, the following potential products could be viable investments

Sisal hair braids and extensions: Sisal fiber can be used to make braids and hair extensions for women. The fiber can be softened using an alkaline solution and easily dyed as needed. In addition, sisal hair is biodegradable and sells for six times cheaper than imported synthetic hair braids. A pilot project is already underway in Kakamega county. Additional research is needed for quality improvement. There is also an opportunity to use high- quality fiber to make toy hairs, which requires market linkages to large- scale producers of dolls

Animal feeds: Sisal pulp dry matter from fiber processing can be used as a dietary supplement in animal feeds. This has great potential to lower costs by 5% and therefore increasing margins. This would also help prevent environmental pollution by ensuring proper usage of sisal waste. There is research on its use for growing Boran beef cattle. However, the bulkiness of sisal makes sisal animal feed an opportunistic option for feeders in the sisal- growing land, given the limited cost reduction. Additional research is needed to understand its application for different livestock and develop logistics systems for the feeds

Source: Daily Nation, 2019 ; Kavishe et al., Sokoine University of Agriculture, 2017 44 In the long run, Tanzania can help be at the forefront of research and awareness for driving the global sisal market

Roadmap to sisal end to end processing:

R&D Planting Processing Distribution

Short term (next 1-3 years) Medium term (next 3-5 years)

Source: Dalberg analysis 45 Immediate potential actions to support the sisal industry

46 In the short and medium term strategic support and investments can help the sisal industry flourish

Roadmap to sisal end to end processing:

R&D Planting Processing Distribution

Short term (next 1-3 years) Medium term (next 3-5 years)

Source: Dalberg analysis 47 Beyond investment, there are a number of areas where TADB could support growth of the sisal industry

Production: • Coordinate with Tanzania Sisal Board to identify high potential areas of bloc farmers that could benefit from a central processing facility, and ensure extension services are provided to the region • Sensitize banks and loan officers to the opportunities and realities of the sisal industry, and the needs of sisal farmers – particularly around loan application processes and loan repayment terms • Leverage support for TARI Mlingano to continue research into new sisal hybrid varieties and better technologies for seedling development

Demand: • Support the establishment of local Tanzanian sisal traders with industry-appropriate loan terms and by creating opportunities for traders to engage directly with sisal buyers • Develop more active marketing of Tanzanian high quality sisal to potential buyers of sisal, helping create a more direct supply chain that is favored by ethical producers • Promote the use of sisal products domestically where there is favorable competitiveness with a potential substitute (ex. Gunny bags) • Leverage support for research at the University of Dar es Salaam and beyond on the end uses of sisal as a substitute for plastic, and on ways in which sisal fiber by-product can be used and commercialized

48 Annex

49 Interviewee list (1/2)

Region Organization Contact person Role in organization Contact details TPM Morogoro ndekirwa@metl.net;+25575 Ndekirwa L. Nnyari Senior Manager 4689242,+255755-762244 [email protected]; 21st Century Holdings Ashok T. Chande Resident Director +255755030215, +255 (22) Limited 212 3316 University of Dar es Salaam, [email protected], College of Engineering and Prof. Abraham Temu Senior Lecturer [email protected]; Dar Technology +255652088491 UNIDO, Energy and [email protected]; Mr. Victor I. Akim Project Coordinator Environment Department +255754788562 [email protected], Mr. Baraka N. [email protected]; Tanzaland Textile Limited Managing Director Marela +255 766 666636, +255 737 792 141 [email protected]; Sisal Association of Tanzania Rafael Ngalondwa General secretary +255713316317, +255786316317 [email protected]; Tanzania Sisal Board Yunus A. Mssika Director General Tanga +255713621888 [email protected], General Manager, TPM Morogoro Mr. Ram Mohan [email protected]; Agriculture Division +255744378968

50 Interviewee list (2/2)

Region Organization Contact person Role in organization Contact details

TARI- Mlingano Joseph Mbogoni Acting Director N/A

Mr. Abdallah Mussa Hale AMCOS Chairman +255716536939 Tanga Kamili

[email protected]; Katani Ltd Mr. Juma Shamte Managing Director +255784474707 [email protected]; REA Vipingo Plantations Neil Cuthbert Managing Director +254206007091 / Ltd (Nairobi, Kenya) 6007169 [email protected] Gambeson Omary S Muya Exporter of Sisal om, [email protected] [email protected]; N/A Azimio Mbegu Expert in East Africa Sisal +255759334447, Skype: ambegu1 Phone Katani Ltd Ali Mohammed Project Manager +255272644401 Research on sisal waste as University of Dar es Salaam Prof. Mshandete manure for mushrooms jolabarri@celesa- Celesa (Spain) Jose Olabarri Procurement Director pulp.com; +34977449050 Geotextiles East Africa Ltd Miriam N/A +254729751137 (Nairobi, Kenya)