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Tanzania Tea Sector Constraints and Challenges

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Tanzania Tea Sector Constraints and Challenges Tanzania’s Tea Sector Constraints and Challenges Africa Region Working Paper Series No. 69 Public Disclosure Authorized June 2004 Abstract anzanian tea is grown under two sys- rehabilitating two tea estates, which had Ttems: by smallholders, on plots averag- been nationalized in the 1970s; restructuring ing less than a hectare, and on large estates, the Tea Board; privatizing the six state tea which often exceed 1,000 hectares. In the factories; and revamping public research on mid-1960s the government introduced steps tea. These policy initiatives have had some Public Disclosure Authorized to encourage smallholder production, and success, but much remains to be done to by 1985 smallholders accounted for almost fully revitalize the tea sector. Infrastructure 30 percent of total tea output. By the late is still inadequate. The tax structure is too 1980s, however, serious problems were complex, with too many taxes and rates that visible in the smallholder sector and by are too high. Despite the restructuring, the 1995, as the sector’s share fell below 10 per- Tea Board and the Ministry of Agriculture cent, it was clear that only broad-based pol- are still too powerful. And trade policy icy reforms could bring the sector back from needs to be revised to allow imports of the brink. made tea. The government attempted to revive the sector in the early 1980s by privatizing and Public Disclosure Authorized The Africa Region Working Paper Series expedites dissemination of applied research and policy studies with poten- tial for improving economic performance and social conditions in Sub-Saharan Africa. The Series publishes papers at preliminary stages to stimulate timely discussion within the Region and among client countries, donors, and the policy research community. The editorial board for the Series consists of representatives from professional families appointed by the Region’s Sector Directors. For additional information, please contact Paula White, managing edi- tor of the series, (81131), Email: [email protected] or visit the Web site: http://www.worldbank.org/afr/wps/index.htm. Public Disclosure Authorized The findings, interpretations, and conclusions expressed in this paper are entirely those of the author(s), they do not necessarily represent the views of the World Bank Group, its Executive Directors, or the countries they represent and should not be attributed to them. Africa Region Working Paper Series No. 69 Tanzania Tea Sector Constraints and Challenges John Baffes June 2004 Authors’Affiliation and Sponsorship John Baffes Email address: [email protected] his paper is part of a larger effort by the Africa Region in collaboration with the Development TProspects Group to assess the performance and identify policy impediments of Tanzania’s ex- port crop sectors. The views expressed here should not be attributed to the World Bank. I would like to thank Takamasa Akiyama, Betty Dow, Donald Mitchell, Hans Timmer, and Nanae Yabuki for comments and suggestions on earlier drafts. I am grateful to Ria Ketting, George Kyejo, S. H. Mijinga, Bruno J. Ndunguru, Hadija Shakombo, R. J. Surrey, and staff at the East Usambaras Tea Company for the valuable information obtained during interviews. I would also like to thank the World Bank country office staff in Dar es Salaam, especially Ladisy Chengula and Gloria Sindano. Table of Contents I. Introduction.....................................................................................................1 II. A Brief History of the Tea Industry in Tanzania...............................................1 III. The Road To Recovery .................................................................................... 4 Rehabilitating the East Usambaras Tea Estates.......................................................................... 4 Separating Regulation and Smallholder Promotion.................................................................... 5 Privatizing Tea Authority-Owned Factories............................................................................... 6 Reviving Research ...................................................................................................................... 6 Restructuring the Local Tea Blending and Packing Industry ..................................................... 7 IV. Recent Performance and Constraints..............................................................7 Import and Export Bans Increase the Burden on the Tea Sector................................................ 8 Taxation Is Too Complex and Rates Are Too High ................................................................... 9 The Tea Board and the Ministries Have Too Much Discretionary Power ............................... 10 Infrastructure Is Inadequate ...................................................................................................... 11 V. Conclusion .................................................................................................... 12 Appendix A: The World Tea Market ..................................................................... 20 The Global Balance................................................................................................................... 21 Tea Prices.................................................................................................................................. 21 The Mombasa Tea Auction....................................................................................................... 22 A Liberal International Policy Environment............................................................................. 24 Moderate Growth in the Long Term......................................................................................... 25 References ........................................................................................................... 36 Box Box 1: Box 1: Tea Estate Production—Brooke Bond Tanzania, Ltd............................................. 13 List of Tables Table 1: Production and Yields of Made Tea by Sector, 1975/76–1999/2000 ................................ 14 Table 2: Principal Institutions Involved In The Tanzanian Tea Sector............................. 15 Table 3: Average Prices At The Mombasa Auction By Country Of Origin, 1996–2001 ............... 16 Table 4: Destinations Of Tanzanian Tea Exports, 1970–2002 (Tons) ............................................ 17 Table 5: Production Of Made Tea By Company, 1996–2000......................................................... 18 List of AnnexTables Table A 1: Global Balance In The Tea Market, 1960–2001 (Thousands Of Tons) ......................... 27 Table A 2: Tea Sold At Auctions, Various Years (Thousands Of Tons)........................................ 28 Table A 3: Sales At The Mombasa Auction .................................................................................. 29 Table A 4: Price Ranges At The Mombasa Auction, Sale No. 44, November 5, 2001.......... 30 Table A 5: Tea Prices, 1960–2002 (US Dollars Per Kilogram)A ..................................................... 31 — 1 — Table A 6: Ten-Year Demand Outlook For Black Tea, 2000–10.................................................... 33 Table A 7: Ten-Year Supply Outlook For Tea, 2000–10................................................................ 34 Figure Figure 1: Tea Production and Marketing Structure in Tanzania................................................... 19 List of Annex Figure Figure A 1: Monthly Tea Prices (US dollars per kilogram) .......................................................... 35 Figure A 2: Annual Rea Prices (US dollars per kilogram)............................................................ 35 — 2 — I. Introduction Tea contributes more than $30 million to Tanzania’s export earnings, making it the fifth largest export crop after cashews, coffee, cotton, and tobacco. More than three-quarters of Tanzania’s tea is exported. The tea industry provides employment to 50,000 families and directly or indirectly affects as many as 2 million Tanzanians. Though tea is eco- nomically important for Tanzania, the country produces less than 1 percent (25,000 tons) of estimated world tea production of 3 million tons. Before Tanzania’s independence in 1961 large estates dominated tea production. By the mid-1960s the government was encouraging smallholder production, with some success, and by 1985 smallholders accounted for almost 30 percent of output. By the late 1980s, however, there were visible signs of distress in the smallholder sector. Late pay- ments to farmers by the Tea Board, the collapse of the research system, and inadequate investment in tea factories, roads, and transport equipment contributed to the decline. By the early 1990s it was clear that only broad-based policy reforms would steer the sec- tor back in the direction of success. This paper examines the performance of the Tanzanian tea sector and identifies policy-driven impediments, especially for the smallholder sector. It looks at the causes of its poor performance, evaluating policy reform initiatives and exploring alternatives in the context of the world tea market. The analysis is complemented by a review of the world tea market (see Appendix A). II. A Brief History of the Tea Industry in Tanzania Tea was first planted in Tanzania in 1902, when German settlers introduced the crop to the Agricultural Research Station in Amani and Rungwe. Commercial production be- gan in 1926 in Usambaras and Njombe. In 1934 Tanzania produced 23 tons of made
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