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An Empirical Analysis of Rice Demand in Tanzania THESIS Presented in Partial Fulfillment of the Requirements for the Degree Mast

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An Empirical Analysis of Rice Demand in Tanzania THESIS Presented in Partial Fulfillment of the Requirements for the Degree Mast An Empirical Analysis of Rice Demand in Tanzania THESIS Presented in Partial Fulfillment of the Requirements for the Degree Master of Science in the Graduate School of The Ohio State University By Edith Ezra Lazaro, B.A. Graduate Program in Agricultural, Environmental and Development Economics The Ohio State University 2014 Master's Examination Committee: Abdoul Sam -Advisor Stan Thompson- Member Copyrighted by Edith Lazaro 2014 Abstract This study analyzes the consumer side of the Tanzania rice market. The study’s primary objective is to estimate own-price and cross-price elasticity of imported and domestically-produced rice. Previous studies into the Tanzanian rice market have claimed that consumer preference protects the local rice market; this line of research implies that the small amount of imported rice allowed on the market cannot disrupt the local rice market because consumers prefer domestic varieties. However, in practice, little has been observed in terms of the natural protection of local rice through consumer preference. In fact, rice traders have increasingly complained about the impact of imported rice, which has continuously dragged down the prices of domestic rice. To date, there are conflicting views regarding the extent of substitutability between imported and domestic rice when accounting for price and consumer preference. Therefore, this study pays particular attention to the question of substitutability for these two varieties. Using consumer data from a survey conducted by the researcher, the Linear Approximate Almost Ideal Demand System (LA/AIDS) provides estimates of price and income elasticities for different rice varieties and maize. The results show that consumers have a high preference for domestic rice varieties with elasticity estimates indicate weak substitutability between domestic and imported rice varieties. The results of the study provide little justification for the country’s rice import tariff. However, the study does not account for the possibility of rice mixing, whereby local varieties are mixed with imported rice. When prevailing market issues, such as rice mixing, are included in the analysis, the country’s import tariff may be justified. ii Acknowledgments Foremost, I would like to express my deep gratitude to almighty God who has been my rock and strength throughout the undertaking of this study. I would like to extend my sincere appreciation to Professor Abdoul Sam for his guidance and constructive criticisms, suggestions and comments, enabling the successful completion of this work. I am also grateful to Professor Stan Thompson for his invaluable advice and input from the first moment I arrived in the department. Dr. Fulgence Mishili, my local advisor, is to be thanked for his guidance and support in conceptualizing the study from its early stages to completion. My sincere appreciation goes to the iAGRI Project led by the Office of International Programs at Ohio State University for granting me sponsorship and unconditional support throughout my master’s program. I thank Professor David Kraybill, Director of iAGRI; Professor Isaac Minde, Deputy Director of iAGRI; all iAGRI staff members; and the Office of International Programs at The Ohio State University for their inspiration and support. Special thanks to Temeke, Ilala, and Kinondoni district authorities, the Morogoro Municipal Council Authority, and the Morogoro Rural District Authority for their cooperation during my field work, which enabled the smooth collection of my data. I remain indebted to my data collection managers (Dr. J. Jeckoniah and Ms. E. Mshote) and the whole data collection team for their hard work and resilience throughout the data collection exercise. Last but not least, my heartfelt gratitude goes to my father, mother, and brothers for their unwavering support and encouragement during the completion of this work. iii Vita February 2008 ……………………………Advanced Level Secondary Education, Mary Goreti 2011………………………………B.A. Rural Development, Sokoine University of Agriculture Field of study Major Field: Agricultural, Environmental and Development Economics iv TABLE OF CONTENTS Abstract ............................................................................................................................... ii Acknowledgments.............................................................................................................. iii Vita ..................................................................................................................................... iv List of Tables .................................................................................................................... vii CHAPTER 1: INTRODUCTION ...................................................................................... 1 1.1 Background information ...................................................................................... 1 1.2 Problem Statement and Justification .................................................................... 4 1.3 Objectives of the Study ........................................................................................ 5 1.3.1 General Objective ......................................................................................... 5 1.3.2 Specific Objectives ....................................................................................... 5 1.4 Hypotheses ........................................................................................................... 5 CHAPTER 2: LITERATURE REVIEW ............................................................................ 7 2.1 Estimating Price Elasticities from Cross-Sectional Household Data ................... 7 2.2 Tanzania and International Trade in Rice ............................................................ 7 2.3 Nature of the Tanzanian Rice Market .................................................................. 8 2.4 Rice and Agricultural Policies in Tanzania .......................................................... 9 v 2.4.1 The Import Tariff .......................................................................................... 9 2.4.2 Export Bans ................................................................................................. 10 CHAPTER 3: METHODOLOGY AND DATA .............................................................. 12 3.1 Methodology ...................................................................................................... 12 3.2 Data .................................................................................................................... 13 3.3 Estimation........................................................................................................... 15 3.3.1 Zero Consumption Households................................................................... 18 3.3.2 The Missing Prices Problem ....................................................................... 20 3.3.3 Elasticities ................................................................................................... 20 CHAPTER 4: RESULTS AND DISCUSSION ................................................................ 22 4.1 First Stage Estimation Results ........................................................................... 22 4.2 Second Stage Results ......................................................................................... 26 4.3 Elasticity Results ................................................................................................ 28 CHAPTER 5: CONCLUSION AND POLICY IMPLICATIONS ................................... 34 BIBLIOGRAPHY ............................................................................................................. 36 vi List of Tables Table 1. Variable Definition and Sample Statistics (Sample Size: 1064) ........................ 17 Table 2. Percentage of Zero Consumption for each Cereal Category .............................. 18 Table 3. Parameter Estimates for the First Stage Estimation. ........................................... 25 Table 4. Linearized Almost Ideal Demand System (LAIDS) Parameter Estimates ......... 27 Table 5. Expenditure Elasticity and Budget Shares .......................................................... 29 Table 6. Compensated and Uncompensated Elasticity Estimates .................................... 33 vii CHAPTER 1: INTRODUCTION 1.1 Background information Rice is one of the most widely-grown crops in Tanzania, after maize. It is the second most important food crop in terms of household consumption, area planted, and production volume (European Cooperative for Rural Development EUCORD 2012). The average consumption of rice in Tanzania is around 1,024,000 metric tons (MT) annually (2007 – 2013) (United States Department of Agriculture USDA 2013) with a consumption per capita of around 25kg in 2007. Rice production in the country covers approximately 681,000 ha, representing 18% of the cultivated land (Ministry of Agriculture Food Security and Cooperatives MAFC 2009). According to the Agricultural Census of 2004, 17% of all agricultural households grow rice. Almost 90% of these farming households are smallholder farmers using traditional technology in their cultivation. In 2007, total production was 818,000 tons, with a productivity of between 1.0 to 1.2 tons of milled rice per ha (MAFC 2009). In comparison to other countries in the East Africa region, Tanzania has the lowest yield in rice production (Barreiro-Hurle 2012), in part because of the country’s primary reliance on traditional technology
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