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Technical Assistance Consultant’s Report Project Number: 37124 September 2003 Tonga: Agriculture Sector Review Prepared by Peter Crowley, Paul Karalus, and Francis Foo ACIL Tasman This consultant’s report does not necessarily reflect the views of ADB or the Government concerned, and ADB and the Government cannot be held liable for its contents. ASIAN DEVELOPMENT BANK TA no 4112 – TON: Agricultural Sector Review in Tonga Peter Crowley, Team Leader Paul Karalus, Local Consultant Francis Foo, Agriculture Specialist September 2003 TONGAN AGRICULTURE SECTOR REVIEW I. EXECUTIVE SUMMARY IX II. BACKGROUND TO THE REVIEW 1 A. Objective of the Technical Assistance 3 B. Terms of reference 3 C. Approach to the review 4 D. Lessons from the past 4 E. The broader policy environment 6 F. The outcomes sought 6 III. THE PERFORMANCE OF THE AGRICULTURAL SECTOR 8 A. Introduction 8 B. Performance indicators 8 1. Overall contribution to economic growth 12 2. Export market access 12 3. Sustainable agriculture 13 4. Enhanced productivity 13 5. Enhanced commitment to commercial farming 14 6. Overall assessment of performance 15 C. Performance targets 16 D. Past performance 18 1. Defining the sector 19 2. Contribution to national income 23 3. Agricultural trade 25 4. Returns to growers 28 5. Household involvement in primary sector activities 36 6. Inputs to agricultural production 41 7. Cash and non-cash income 45 8. Repatriation payments 48 9. Sustainability of resource use 49 ii TONGAN AGRICULTURE SECTOR REVIEW 10. Summary and conclusions 56 IV. REVIEW OF THE MINISTRY OF AGRICULTURE, FORESTRY AND FOOD 59 A. Community need 59 1. The provision of public good research and extension services 61 2. The provision of other goods 61 3. Regulations to correct for market failures 61 4. Social welfare objectives 62 5. Policy reform 62 6. Private sector promotion and facilitation 62 B. Legislative and policy objectives 62 C. Inputs: Resources allocated to MAFF 68 1. Budget 68 2. Staffing 70 3. Facilities and equipment 72 D. MAFF Activities 73 1. Organisational structure 73 2. Main work programs 75 E. Quality of outputs 77 1. Input supplies 78 2. Extension 79 3. Research 84 4. Market information 86 5. Marketing 88 6. Quality standards 89 7. Food security and import substitution 90 8. Export protocols 90 9. Environmental protection 92 10. Pest control 93 11. Agricultural education 94 V. CONSTRAINTS TO THE DEVELOPMENT OF THE SECTOR 97 iii TONGAN AGRICULTURE SECTOR REVIEW A. Introduction 97 B. A stable macroeconomic environment 100 C. A sustainable resource base 101 D. Political and social stability 103 E. Secure access to land 104 F. An efficient fiscal and regulatory regime 109 1. Regulatory regime 109 2. Taxation 113 3. Taxation reform 116 G. Finance 117 H. Efficient transport and port services 122 I. Power, water and communications 124 J. Input supplies 125 K. Summary and conclusions 127 VI. OUTPUTS REQUIRED 130 A. Output 1: A sound agricultural policy 136 1. Impact on the outcome 136 2. Performance 136 3. Constraint 136 4. Intervention 137 B. Output 2: A stable macroeconomic environment 138 1. Impact on the outcome 138 2. Performance 138 3. Constraint 138 4. Intervention 139 C. Output 3: A sustainable resource base 139 1. Impact on the outcome 139 2. Performance 139 3. Constraint 140 4. Intervention 140 iv TONGAN AGRICULTURE SECTOR REVIEW D. Output 4: Political and social stability 140 1. Impact on the outcome 140 2. Performance 141 3. Constraint 141 4. Intervention 141 E. Output 5: Secure access to land 142 1. Impact on the outcome 142 2. Performance 142 3. Constraint 143 4. Intervention 144 F. Output 6: An efficient fiscal and regulatory regime 144 1. Impact on the outcome 144 2. Performance 144 3. Constraint 145 4. Intervention 145 G. Output 7: Competitive financial markets to finance sector development 146 1. Impact on the outcome 146 2. Performance 146 3. Constraints 147 4. Intervention 147 H. Output 8: Efficient and reliable transport infrastructure 148 1. Impact on the outcome 148 2. Performance 148 3. Constraints 149 4. Intervention 149 I. Output 9: Market and investment promotion 150 1. Impact on the outcome 150 2. Intervention 152 J. Output 10: Competitive input supplies 153 1. Impact on the outcome 153 v TONGAN AGRICULTURE SECTOR REVIEW 2. Performance 153 3. Constraints 153 4. Intervention 153 VII. THE PROPOSED ROADMAP FOR SECTOR DEVELOPMENT 154 A. Design principles 155 B. Phase 1: Project institutional structure 157 C. Phase 2: Policy reform 160 1. Agriculture Development Indicators Survey Project 161 2. Model development 162 3. Policy analysis 163 4. Empowering stakeholders 164 5. Financial and economic analysis of infrastructure projects 164 D. Phase 3: Project development and implementation 165 1. Specific interventions 166 2. Private sector development project 170 Table 1 : Performance indicators and targets 9 Table 2: Suggested scope of agricultural survey 16 Table 3: Tonga's principal exports and destinations: 2001-02 Error! Bookmark not defined. Table 4 : Tonga's principal imports of agricultural, fishery and forestry products 27 Table 5: Gross margin analysis for vegetable crops (per one-acre plot) 31 Table 6: Gross margin analysis for root crops (per one-acre plot) 32 Table 7: Farm gate prices based on wholesale prices in Auckland produce market (winter) 33 Table 8: Competitiveness of Tongan vegetables in Auckland 34 Table 9: Employed population by sector 36 Table 10: Household holdings of livestock 39 Table 11: Fishing activities of Tongan households 40 Table 12: Households engaged in handicraft production 40 vi TONGAN AGRICULTURE SECTOR REVIEW Table 13: The use of agricultural chemicals 41 Table 14: Number and use of tax allotments 43 Table 15: Number and area of holdings and parcels 43 Table 16: Number of holdings and land area by commercial status 44 Table 17: Land uses on agricultural holdings (a) 44 Table 18: Areas planted to major crops (hectares) 45 Table 19 : Proportion of household income earned from agricultural activities 46 Table 20: Cash income from sales of livestock 47 Table 21: Funds Allocation for Ministry of Agriculture & Forestry 69 Table 22: Ministry of Agriculture, Forestry and Food Budget Estimate 69 Table 23: Terms and conditions of Development Bank loans 119 Table 24: Outputs sought, constraints to be addressed and suggested interventions 131 Table 25: Project phases and components 176 Table 26: Outputs required for increased export earnings 188 Table 27: Outputs required for increased farm productivity 188 Table 28: Outcomes for sustainable agriculture 189 Box 1: Recent Tongan agri-business developments (as at May 2004) 2 Box 2 : South Seas Coffee 22 Box 3: Handicraft and Tongan cultural items. 26 Box 4 : Gross margin analysis methodology 29 Box 5: MAFF Corporate Plan Objectives 66 Box 6: Examples of government crowding out private enterprise 78 Box 7: Conclusions of the institutional specialist on agricultural extension 80 Box 8: Community managed extension service 82 Box 9: Land allocation system in Tonga 104 Box 10: The impact of trade taxes and reparation payments on export earnings 115 Figure 1: Growth and commercialization of the primary sector 23 vii TONGAN AGRICULTURE SECTOR REVIEW Figure 2: Tonga's principal exports and destinations: 2001-02 25 Figure 3: Cropping activity by main purpose 38 Figure 4: Main sources of cash and non-cash income 48 viii TONGAN AGRICULTURE SECTOR REVIEW I. EXECUTIVE SUMMARY 1. During the country strategy and programming mission in March 2003, the Tonga Ministry of Finance requested urgent assistance for a small-scale technical assistance (TA) to prepare an agricultural sector review. This review was to present recommendations for specific action areas to assist the Government in its budget deliberation and the proposed re-organization of the Ministry of Agriculture, Forestry and Food. The Ministry of Finance expressed concerns that the agricultural sector was not contributing to the overall growth of the economy of Tonga. 2. This report summarises the findings of the Tongan agricultural sector review. It proposes a package of interventions (a development program) for consideration by the Tongan Government and the private sector in Tonga. The objective of the development program is to directly and indirectly raise Tongan national income and employment through an increase in the value added of the agricultural sector. 3. The performance of the agricultural sector in Tonga over the past decade in terms of cash income and employment creation has been poor. Growth in the value added (return to labour and capital) of the sector has lagged behind growth other parts of the economy. The result is that the sector’s contribution to GDP fell significantly during the past decade. 4. Tongan households derive both cash (commercial sales) and non-cash income (produce for home consumption) from agricultural activities. The agricultural sector in Tonga is still dominated by subsistence and part time farmers, with only around 250 individuals that consider themselves to be commercial farmers. Most of these commercial farmers operate on a small scale. A commercial agricultural sector has barely emerged from a subsistence base in Tonga. The reasons for this are difficult to understand. The share of marketed production in total production actually fell over the last decade. 5. Tonga would appear to have a comparative advantage in agricultural production, given its favourable climatic and physical conditions and, relative to population size, its relative abundance of suitable land. In many countries, agricultural sector development (private sector) has been constrained by poorly defined property rights, lack of access to suitable land and to capital, poor marketing by government agencies, high taxes, price controls, excessive regulation, poorly developed infrastructure and a host of other factors. Tongan farmers do not appear to face many of these disincentives. 6. Government activities and policies, with the exception of the distorting effects of trade taxes on the sector’s competitiveness, would appear to have little impact on costs and returns.
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