Best prospect for Tanzania in agriculture as business

Overview

Agriculture in Tanzania represents almost 30 percent of the country’s GDP with three quarter of the country’s workforce involved in this sector.  Agriculture is undoubtedly the largest and most important sector of the Tanzanian economy, with the country benefitting from a diverse production base that includes livestock, staple food crops and a variety of cash crops.

There are plenty of business opportunities across domestic, regional and international markets, for both traditional and new products. However, productivity is low with modest progress over the past two decades. It is dominated by smallholder farmers dependent on rainfall for irrigation. Farmers and other sector stakeholders face considerable challenges in modernizing the industry to increase yields, exports and value-added processing. Slowing export revenues; land acquisition hurdles; and smallholder farmers struggling to access economically viable technology, adequate storage facilities, markets and credit have affected the sector.

The government is taking measures to address these challenges by introducing subsidizes to farmers and investors as well as removing unnecessary levies that have been seen to hamper growth of the sector. The government has also sought foreign financing for its flagship project Southern Agricultural Growth Corridor of Tanzania (SAGCOT) designed to quickly develop that region’s agricultural potential. These wide-reaching efforts should see production levels of key crops return to growth in the coming years, helping boost value-added processing in the sector.

The most common food crops in Tanzania are maize, wheat, rice, sweet potatoes, bananas, beans sorghum, and sugar cane. Cash crops include coffee, cotton, cashew nuts, tobacco, tea and sisal. Multiple factors influence the farmer’s choice of crops, including 1) physical factors, such as soil quality and water availability; 2) economic factors, such as marketability and seed prices; 3) personal preferences of the household; 4) crop profiles, including crop yield and pest resistance; and 5) resource availability such as machinery and fertilizer.

Corn (Maize)

Corn is the most widely grown and consumed food crop in Tanzania. It is famously used to make stiff porridge (ugali) which is a local cuisine in Tanzania and most African countries. Maize production is expected to decrease by 4.7 percent to 6 million metric tons (MT) in 2021/2022 due to inclement weather, pest and high input prices. Tanzania Meteorological Agency forecast below average rainfall for year 2021/22. This will likely reduce yields as growers struggle to find ways to irrigate their fields. In early 2021, swarms of locust invaded Tanzania’s Kilimanjaro and Arusha regions and caused great devastation to the crop. This has left the region vulnerable to further invasions and dampened the outlook for corn production.

Corn exports in 2021/22 care forecast to decrease by 20 percent to 80 million MT due to COVID-19 disruptions. During the past year, there have been reports of truck driver screenings, lockdowns, and curfews in neighboring countries. This is believed to have increased border delays and the cost of cross-border trade with Tanzania’s largest export markets for corn. Neighboring markets include Zambia, Malawi, Rwanda, Burundi, Kenya, and the Democratic Republic of Congo. Most corn imports are seed, corn oil, yellow corn for animal feed, and other corn products such as breakfast cereal. Tanzania imports the most corn from the EU, South Africa, United States, and Ukraine.

Year/Trade Data	2019	2020	2021 estimated
Total Local Production (1000 MT)	5820	6300	6000
Total Exports (1000 MT)	110	100	80
Total Imports (1000 MT)	20	20	20
Imports from the US (1000 MT)	0	0	0
Total Market Size(1000 MT)	5731	6220	5940

Wheat

More than 90 percent of wheat produced in Tanzania comes from large commercial farms in the Northern Highlands or small and medium-sized family farms in the Southern Highlands. Most of the country’s wheat is grown in the North, specifically in Kilimanjaro, Arusha, and Manyara.

Wheat production in the year 2021/22 is expected to decrease by 22.2 percent to 70,000 MT, largely due to high post-harvest loss, below-average rainfall, and desert locust invasions in Northern Tanzania.

Tanzania is planning to increase domestic wheat production using market mechanisms. In January 2021, the Minister of Agriculture met with wheat millers, traders, and processors, requesting them to source 60 percent of their wheat from local producers at a premium price starting in 2021/22. Under the proposal, local buyers will be allowed to import only 40 percent of total wheat in demand. The strategy seeks to encourage local farmers to increase wheat production and reduce Tanzania’s dependence on imports. However, there is currently no evidence to suggest that Tanzania will meet its goal of reducing imports, and it is still widely believed that most wheat will be imported.

Pasta, biscuits, breakfast cereals, mandazi, chapatis, cookies, stiff porridge (ugali), cakes, and doughnuts drive the wheat industry in Tanzania. Wheat consumption in Tanzania is ranked fourth after maize, cassava, and rice. Wheat is mainly consumed in the form of wheat flour, which is both an intermediate and final product. The wheat milling industry is dominated by local companies with mills and silos in Dar es Salaam. Urbanization and the growth of major cities like Dar es Salaam, Mwanza, and Arusha are expected to increase demand for wheat products as 80 percent of wheat is consumed in urban areas.

In 2021/22 wheat imports are expected to remain at 1.1 million MT due to low domestic production and increasing local consumption. Tanzania imports wheat for commercial use from Russia, Australia, Canada, EU, and Ukraine, while imports from the United States are primarily used for food aid programs. While importers prefer U.S. wheat for its quality, traders note disadvantages with high transportation costs. Tanzania imports 90 percent of the wheat it consumes at 1 million MT per year.

Year/Trade Data	2019	2020	2021 estimated
Total Local Production (1000 MT)	100	90	70
Total Exports (1000 MT)	20	20	15
Total Imports (1000 MT)	1248	1100	1100
Imports from the US (1000 MT)	0	0	0
Total Market Size(1000 MT)	1308	1170	1185

Rice

Tanzania the biggest rice producer in the East Africa region. The rice sub-sector has long been identified by Tanzania as a strategic priority for agricultural development due to its potential for improving food security and income for rural households.

In recent years, Tanzania has prioritized rice cultivation for local consumption and export to neighboring countries. To accomplish these goals, the Ministry of Agriculture offers technical and training support from non-government organizations. It is also building irrigation schemes for rice production and encourages efficient use of fertilizers via its 10-year National Rice Development Strategy Phase II (NRDS-II). The NRDS-II purpose is to double the area under rice cultivation from 1.1 to 2.2 million hectares from 2018 to 2030, double on-farm rice productivity from two t/ha to four t/ha by 2030 and reduce post-harvest loss from 30 to 10 percent by 2030.

In 2021/22 rice consumption and residual figure is expected to increase by 11.1 percent to 2.5 million MT due to changes in dietary preferences, affordability compared to wheat, accessibility, urbanization, increases in population, and availability. In Tanzania, rice is a staple food consumed in both urban and rural areas. Dar es Salaam is the principal end market for rice in the country and accounts for about 60 percent of consumption.

Rice imports are expected to decrease by 27.7 percent to 130,000 MT in 2021/22 due to increased local production and import restrictions. Imports in the last quarter of 2020/21 are larger than normal because there is typically less rice in the market at this time of the year. Rice is not harvested in Tanzania from September to December, causing shortage of domestic supplies and encouraging imports. Tanzania primarily imports long-grain milled rice from Pakistan. In the same period, Tanzania imported rice primarily from Thailand, China, and the United States. Rice imports from the United States are primarily for food aid programs.

Year/Trade Data	2019	2020	2021 estimated
Total Local Production (1000 MT)	2046	2112	2400
Total Exports (1000 MT)	30	30	30
Total Imports (1000 MT)	200	190	180
Imports from the US (1000 MT)	0	0	0
Total Market Size(1000 MT)	2216	1272	2550

Sugar

Tanzania produces only 58 percent of its sugar consumption due to the high cost of production, processing inefficiencies, and inadequate marketing. The 42% demand gap is met by about USD 132 million in sugar imports from other countries, primarily Brazil and India.  Because Tanzania’s sugar tariff at 10% is lower than the EAC common external tariff of 25-100%, it is less protectionist than some other countries.  The market is less protected from imported sugar than in other countries.  Despite this fact, the Government of Tanzania has consistently claimed that it wants to attract new investments into the sector.

Leading Sub-Sectors

Consumer-Oriented Agricultural Products

An expanding middle class, increasing urbanization, and a developing food service sector drives growth in demand for consumer-oriented agricultural products. Tanzanians make the majority of their household purchases from family-owned shops known as dukas. Supermarkets are gradually becoming popular, especially in big cities like Dar es Salaam, Mwanza and Arusha. Tanzanians spend one-fifth of their income on consumer-packaged goods (CPG), driven largely by food. Personal care essentials (e.g. Toothpaste) and beverages (e.g., carbonated soft drinks, tea, energy drinks) are the most popular categories. Prime drivers for purchase decisions include recommendation, affordability, availability and familiarity.

The food service sector (hotels, restaurants, and institutions) has attracted U.S. investment interests and a few U.S. food service franchises (Pizza Hut, KFC and Subway) have established outlets in Tanzania’s leading cities.   The growth of consumer-ready food imports has however been negatively affected by Tanzania’s strict liability clause on genetically engineered (GE) food products.

Tanzania aims to transition from low to middle-income economy by 2025. This means the consumption habits of the population will transform to a large extent bringing about a wider market for green agricultural products. To achieve these objectives Tanzania under the previous Kikwete administration had adopted the Big Results Now (BRN) initiative which had the following goals in the agricultural sector.

1. Increase agriculture’s growth through commercial farming models
2. Improve smallholder farmer incomes and ensure food security
3. Focus on the three priority sectors of maize, rice and sugarcane and extend this focus to other priority crops such as oilseeds and horticulture
4. Cultivate 350,000 hectares of new commercial land and 330,000 hectares of smallholder farmland
5. Produce 150,000 tons of new sugar crop production, 290,000 tons of new rice production and 100,000 tons of new maize production by 2015
6. Enhance 78 smallholder rice irrigation and marketing schemes through professional management
7. Develop 275 collective warehouse-based marketing schemes (COWABAMA) targeted at linking maize farmers to the market

Opportunities

Investment in agro-processing industries entails adding value, and improvement of standards of quality. The following are key areas.

1. Fruit/ Vegetable processing: A large variety of fruits and vegetables are produced in Tanzania. The most important fruits include mangoes, oranges, pineapples, passion fruits, bananas, avocados, jackfruits, papayas, peaches, pears, guavas and grapes. The main vegetables include tomatoes, okra and chilies. Annual Tanzania production is 2.75 million of tons of fruits and vegetables but only 4 percent is processed. There is a significant potential for provision of heavy equipment for commercial farming and processing of fruits and vegetables for the locals as well as export markets.
2. Cashew nut Processing: Cashews are a major cash crop in Tanzania and production has risen to 120,000 tons annually. However, only about 10 percent of the cashew nuts produced within the country are processed in Tanzania. There are opportunities in rehabilitating old and/or unused processing plants or establishing medium-scale processing plants.
3. Oil seeds: Tanzania still imports a lot of edible oil. Processing of oilseeds locally is now on the rise, therefore there is potential in supplying oil pressing and processing equipment. Common oil seeds produced in the country include sunflower, sesame, groundnuts, palm oils, etc.
4. Textile and apparel: Tanzania produce abundant cotton but only 20 percent is locally processed. The sector has great investment potential in establishing fully integrated textile mills as well as plants for cotton ginning, yarn fabric production (spinning, weaving and printing) and cut, make and trim (CMT) units. With the high level of unemployment and the high availability of raw material there is great potential for establishing clothing factories that can produce garments for export.
5. Leather sector: Tanzania has a large livestock population (17.7 million cattle, 12.5 million goats and 3.5 million sheep) and produces about 2.6 million pieces of raw hides and skins annually. A large portion is exported raw and only 10 percent is processed. Investment opportunities in the leather sector include establishment of modern tanneries and leather finishing production units.
6. Meat and Dairy Sector: Given the large livestock population, the country is ideal for meat processing, packaging, and processing of dairy products. Investment opportunities include establishment of meat processing plants, dairy products processing plants and cattle ranches.

Opportunities exist in the chemical industries for the production of fertilizers and pesticides, which are in high demand.  Investors can establish manufacturing operations in the Special Economic Zones (SEZ) using either the SEZ User License or SEZ Export User License and enjoy the lucrative incentives provided by the scheme. Among existing investment sectors in Tanzania are agro processing, textile and garments, lapidary, leather processing, fish processing, forest and forestry products.

Challenges

Foreign access to land can be complex and bureaucratic due to the following conditions.

• Sporadic bans on export or import of various goods
• Local financing for agriculture growing but still limited; high interest rates
• Coop unions, crop boards, minimum prices hinder free market competition
• Low productivity of smallholder manual labor

Food processing investments rely on imported machinery and technologies.  Machinery and equipment for the following are in the greatest demand. 

• Production of fruit concentrates and juices and all forms of fruit and vegetable canning
• Cashew nut processing
• Specialty coffee processing
• Sugar cane processing at sugar factories
• Fish processing and packaging for export
• Meat processing and packaging from both cattle and game meat
• Production of processed dairy products such as sweetened condensed milk, milk powder, infant milk formula, butter, margarine, ice cream, yogurt, cheese, etc.
• Horticultural packaging, including cut flowers and fresh vegetables.
• Quality storage technologies
• Irrigation pivots
• Tractors, mechanization 

In addition, the existence of an abundant supply of cotton provides significant opportunities for investment in the textile industry, which can leverage duty free access to the U.S. market under the African Growth and Opportunity Act (AGOA).  Export markets for processed agricultural goods include the East African Community, the EU (duty free access), the Gulf States, and Asia.

Tanzania has an ambitious plan to prioritize agriculture for economic growth.  The private sector led Agricultural Sector Development Program Phase II (ASDPII) initiative and the establishment of the Southern Agricultural Growth Corridor of Tanzania (SAGCOT) have been endorsed by the Government of Tanzania.  The GoT through SAGCOT has allocated 63,000 hectares under the Mkulazi Project. The land will be used for cultivation and processing of sugarcane and rice. This project is an important step in achieving the GoT’s objectives for the agricultural sector. These strategies are linked to the Agricultural Sector Development Program through Tanzania’s Comprehensive African Agriculture Development Program (CAADP) country investment plan. The United States has pledged to improve global food security through Feed the Future, a broad-based agricultural development strategy with the goals of reducing poverty, improving nutrition, and building resilience through comprehensive country-led plans.