Southern Highlands Food Systems Project.
Tanzania.
URT 132 & 133 – Tanzania, Southern Highlands Food Systems
An analysis of the Edible Oils Value Chain
Draft Final Report
November 2012
Table of Contents
Contents
Table of Contents
Executive Summary
Acronyms
List of Acronyms
1. Introduction
1.1 Background of the Study & Objectives
1.2 Methodology
1.3 Brief Overview of the Sunflower Value Chain.
1.4 Other Oil Seed Crops
2. End-markets
2.1 Totalworldproductionandmain producers of oilseeds.
2.2 National Market for the Sunflower Oilseeds
2.3 Export and Import of Sunflower Oilseed Products
2.4 Price Patterns in Urban Markets
2.5 Sunflower cake (Mashudu).
3. The Sunflower Value Chain
3.1 The Value Chain Map
3.2 Value Chain Governance
3.3 Technology Generation
3.4 Input Supply & Demand
3.5 Production
3.6 Processing
3.7 Wholesale & Retail Distribution
4. Systemic Constraints and Upgrading Opportunities
4.1 Constraints Related to Business Enabling Environment
4.2 SWOT Analyses of the Value Chain.
5. Vision and Strategy for Improved Competitiveness and Growth
5.1 Vision
5.2 Strategic Issues Synthesis
5.3 Value Chain Competitiveness Strategy
5.4 Proposed Strategy Components
List of Tables.
Table1:Regional background for soya.
Table 2: Sunflowerseedproduction (thousandtons)
Table3:Sunflowerseedoilglobalproduction(thousandtons)
Table 4 Edible oil imports 2001 to 2006
Table 5 Summary of Trade Statistics of Sunflower Oilseed Products (2001 - 2006)
Table 6 Tanzania Sunflower imports and exports 2009
Table 7 Summary of Companies Dealing with Sunflower Products
Table 8: Functions and Actors in the sunflower value chain in the Southern Highlands.
Table 9 Banks operating in the Southern Highlands.
Table 10 Domestic Sunflower oil production in Tons.
Table 11. Sunflower Area ('000'ha) and Production ('000'tons) by Region by District and Year.
Table 12 Some Characteristics that favour competitiveness of small firms.
List of figures.
Figure 1: Simplified Sunflower Oilseed Value Chain
Figure 2 Characteristics of the Sunflower value chain
Annexes
Annex A: Sunflower Value Chain Map
Annex B: Persons met
Annex C: Economic calculations
C1: Indicative Added Values.
C2: Sunflower Crop Gross Margins.
C3. Processor Performance
Annex D: Stakeholder Analysis
E:Suggested Public Private P Commitments
Annex F: References
Annex G: Maps
Executive Summary
The assignment was undertaken in the context of two projects being implemented by FAO under the umbrella of the Southern Highlands Food Systems (SHFS) Development Program. The SHFS Development Program is comprised of two projects which were twinned together in 2010 for improved implementation purposes: URT 132 “Food Systems Development in Tanzania” and URT 133 Advisory Services Capacity Development in Support of Food Security in the United Republic of Tanzania
According to 2008 estimates, the production of oilseeds in Tanzania is mainly from ground nuts (40%), sunflower (36%), sesame (15%), cotton (8%), and palm oil (1%). However, there is virtually no oil produced commercially from sesame and groundnut[1]. Furthermore, oilseed production in the Southern Highlands is predominantly sunflower and is increasing annually. As a result the report focuses on the sunflower value chain. Sunflower is the fastest growing crop in Tanzania which produces both edible oil and a high protein cake, as a residue from the extraction, which is used in animal feed. Oil content varies according to variety and extraction process but is generally reckoned to be about 35% with 65% cake.
The company CP Foods of Thailand has entered into a contract to establish an industrial scale poultry production unit that will require up to 600 tons per month of high protein soya bean meal plus 1200 tons of maize. This will provide a significant opportunity for farmers and processors to engage in an alternative cash crop that will ideally fit into a crop rotation of maize and sunflower under conservation agriculture practices. Given the above there is scope to support soya production in the SH by undertaking a feasibility study.
The demand for edible oils in Tanzania is estimated to be about 350,000 tons a year and growing in line with population growth of 2.9% and increasing standards of living. Sixty per cent of demand, is met from imported Crude Palm Oil (CPO), that is free of import duty and is in competition with local production of sunflower oil. Importation is dominated by a few large industrial scale processors who are producing fully refined oils in compliance with required TBS standards[2]. The 40% balance of demand is met from local production of unrefined crude sunflower oil most of which is produced in the Central Corridor This is dominated by small producers and processors who lack the technical and financial capability to run it efficiently and profitably resulting in weak horizontal and vertical linkages in the value chain. Nevertheless, there is considerable scope for import substitution.
Major bottlenecks in the chain are the lowyields and overall production of crushing seed causing a shortage for crushing by commercial processors, large numbers of unregistered processors producing crude oil of dubious quality and, lack of refining capacity. Processors are a pivotal link in the chain as all seed must pass through them to extract the oil and cake yet they are operating at a fraction of capacity and with a low level of technology.
The local edible oil industry is still in an immature stage and needs to develop stronger horizontal linkages of farmers and vertical linkages between farmers and processors. With assistance from development agencies farmers are gradually forming producer groups to enhance their bargaining power and to access credit. Processors are forming local associations and a national organisation, TEOSA, has been formed to represent all registered processors. This association has the potential to fulfil a need to coordinate the whole value chain going forward by providing a platform for all stakeholders..
The low farmer yields are largely due to the use of recycled seed that is genetically degenerate. This is being alleviated to some extent with the production of Quality Declared Seed, QDS, of improved varieties that are grown under the supervision of District Councils which are distributed through agro dealer networks. The fact that oilseeds are classified as minor crops in Tanzania has resulted in less support and attention being given to them compared to other food crops. This needs to be rectified as soon as possible.
Support services, especially from the public sector are weak due to very low operational capacity as a result of budget constraints and staff shortages. This is especially true of R&D, extension services and of the application and regulation of quality standards but provides a potential opportunity for private sector actors to undertake these on contract to government which may require external support. The provision of reliable and up-to-date statistics is a major weakness that requires addressing. Likewise, in order to attract investment, the business environment requires considerable improvement as identified by the World Bank that ranks Tanzania 127 out of 182 countries. However, the edible oil industry is continuing to develop despite the shortcomings of government.
To provide the consumer with a product of the required standard will require further investment in refining facilities. Available evidence indicates that processors are operating at below break-even level for oil at both price and volume levels. This in turn, implies the need for processors to cooperate in order to obtain the economies of scale necessary for profitable refining operations that will qualify for investment finance.
At farm level the critical factor will be the formation of registered farmer producer groups as viable business entities. These could eventually transform into limited companies that would form the basis for the commercialisation of agriculture in line with government policy. For sustainability of production within a farming system it will be necessary to promote the practice of Conservation Agriculture, CA, and also the possibility of additional income generating activities such as apiculture and the introduction of soya into the crop rotation which would enhance fertility as well as diversifying risk. This latter would also provide processors with additional supplies of oilseed for extraction.
In addition to those mentioned above other important constraints include; confusion over land rights and tenure which lead to conflict between graziers and farmers, land degradation, poor rural road maintenance, duty free import of Crude Palm Oil, lack of a policy for oilseeds, corruption, protracted bureaucracy, low business skills, and poor inter-ministry coordination.
Continued assistance will be required to enhance the business skills of farmers and producer groups through training and mentoring.
Acronyms
List of Acronyms
(R)MSE(s) / (Rural) Micro and Small Enterprises(s)AIDS
AMCOS / Acquired Immune Deficiency Syndrome
Agricultural Marketing Cooperative Society
AMSDP / Agricultural Marketing Systems Development Programme
ARI / Ilonga Agricultural Training Institute
BCS / Business Care Services
BEE / Business Enabling Environment
BEST-AC / Business Environmental Strengthening – Advocacy
CC
Cm / Central Corridor
Centimetre
CRDB / Cooperative Rural Development Bank
CSDI / Centre for Sustainable Development Initiatives
DADP / District Agriculture Development Plan
DAIPESA / Development Alternatives, Inc. Private Enterprise Support Activities
DALDO / District Agriculture and Livestock Officer
DASP / District Agricultural Support Programme
DED / District Executive Director
EAC
EU
ESRF / East Africa Commission
European Union
Economic and Social Research Foundation
FAO
FAOSTAT / Food and Agriculture Organization
Food and Agriculture Organization Statistics
FFS / Field Farmer School
FGD / Focus Group Discussion
GDP
GMA
GOT
FSU / Gross Domestic Product
Gross Margin Analysis
Government of Tanzania
Former Soviet Union
HIV / Human Immunity Virus
IFAD / International Fund for Agriculture Development
Kg / Kilogram
LGA / Local Government Authority
MAFC
METL / Ministry of Agriculture, Food Security and Cooperatives
Mohamed Enterprise Tanzania Limited
MITM / Ministry of Industry, Trade and Marketing
MKUKUTA / Mkakati wa KukuzaUchuminaKupunguzaUmaskini Tanzania
Mt / Metric tonne
MUVI / Muunganisho wa UjasiriamaliVijijini
MVIWATA / Mtandao wa Vikundi vya Wakulima Tanzania
NADO / Njombe Agricultural Development Organization
NBS / National Bureau of Statistics
NGO
NJODECO / Non-Government Organisation
Njombe Development Cooperation
NMB / National Microfinance Bank
NSGRP
PASS
PMD / National Economic Growth and Reduction of Poverty
Private Agricultural Sector Support
Powdery Mildew
QDS / Quality Declared Seed
RAS / Regional Administrative Secretary
RBSS / Rural Business Support Services
REA / Rural Energy Agency
RFSP
RLDC / Rural Financial Services Programme
Rural Livelihood Development Company
RMA / Preliminary (Rapid) Market Assessment
SACCOS
SADC / Savings and Credit Cooperative Society(ies)
Southern Africa Development Cooperation
SH
SIDO / Southern Highlands
Small Industry Development Organization
SMART / Specific, Measurable, Achievable, Realistic and Time bound
SME / Small and Medium Enterprises
SMS / Subject Matter Specialist
SNV
SWOT / Netherland Development Agency
Strengths, Weaknesses, Opportunities and Threats
TAFOPA / Tanzania Food Processors Association
TBS
TCCIA / Tanzania Bureau of Standards
Tanzania Chamber of Commerce, Industry and Agriculture
TDC / Technology Development Centre
TEMDO / Tanzania Engineering and Manufacturing and Design Organization
TEOSA
TFC / Tanzania Edible Oil Sector Association.
Tanzania Fertilizer Company
TFDA
TIRDO
TIC / Tanzania Food and Drug Authority
Tanzania Industrial Research and Development Organization
Tanzania Investment Centre
TOSCI / Tanzania Official Seeds Certification Institute
TPRI
TRA
TZS
UMGT
USA / Tanzania Pest Research Institute
Tanzania Revenue Authority
Tanzanian Shilling
Uncle Millo General Traders
United States of America
US/ADF / United States/African Development Foundation
USAID
VAT / United States Agency for International Development
Value Added Tax
VC / Value Chain
VCA / Value Chain Analysis
VCD / Value Chain Development
VCIP / Value Chain Implementing Partner
VCO / Value Chain Operators
VCS
VICOBA / Value Chain Supporters
Village Community Bank
Exchange rate used: US$= TZS 1575
1. Introduction
1.1 Background of the Study & Objectives
The objective of the study is to formulate a strategy for the development of the sunflower industry on the Southern Highlands Corridor based on an analysis of the value chain.
The assignment was undertaken in the context of two projects being implemented by FAO under the umbrella of the Southern Highlands Food Systems (SHFS) Development Program. The analysis of the value chains relates to the outputs identified in both these projects as shown below.
The SHFS Development Program is comprised of two projects which were twinned together in 2010 for improved implementation purposes: URT 132 “Food Systems Development in Tanzania” and URT 133 Advisory Services Capacity Development in Support of Food Security in the United Republic of Tanzania”. Both projects are closely aligned with the Government of Tanzania’s Agricultural Sector Development Strategy (ASDS) which aims to make the policy environment more favourable for private investment in agriculture and put in place sector-specific policies that have a bearing on agricultural productivity and profitability.
The overall project outcome for Project URT 132 is defined as “Public and private organisations and food chain actors have improved capacity to coordinate, plan and support food chain and business development in the rice, maize, edible oil and red meat sub-sectors of the Southern Highlands. In order to achieve this outcome the project has five major outputs:
Output 1:Sub-sector specific strategies and priorities identified.
Output 2:Public-private sector coordination and capacity strengthened.
Output 3:Best practises for new market mechanisms promoted.
Output 4:Food-chain innovation capacity strengthened.
Output 5:Strategies to improve capacity utilization of agro-processing facilities identified
In respect of project URT 133 the outcome envisaged is enhanced capacity of advisory service providers and farmers in farm management and marketing to enable them to respond to better to market opportunities. In addition the project is expected to contribute to the government restructuring efforts by focusing on market oriented extension. These interventions are expected to enhance farm profitability and competitiveness and the income derived from farming operations.
Output 1.Awareness of policy makers and programme managers to market oriented agricultural extension and knowledge of ‘good practices’ heightened and realized.
Output 2.Capacity of advisory service providers in farm management and marketing at central, district, and ward levels, developed
Output 3. Capacity of smallholder farmers and farmer groups developed
Output 4. Linkages between producer groups, private agricultural service providers and financial institutions and market outlets established.
From the above it can be seen that analysis of value chains cuts across both projects and their outputs.
1.2 Methodology
The mission to Tanzania took place between 05 August and 01 September 2012 during which a 5 day field trip was undertaken to Morogoro, Iringa and Mbeya regions of the Southern highlands during which limited primary information was obtained. In Dar es Salaam meetings and interviews were undertaken with a wide range of actors. The FAO guidelines for agri-food chain performance were used as a basis for the study[3]
The report is based on a review of available documentation as well as interviews undertaken with a wide range of actors and stakeholders in the field as well as in Dar es Salaam as identified in Annex B[4].
Although much documentation is available, (see Annex E), it is noticeable that there is a considerable disparity in available statistical data which raises doubts as to its reliability and usefulness, even though from apparently reliable sources, and it was beyond the scope of the mission to verify all the data sources and statements. Furthermore, as the sub-sector is developing rapidly, data on sunflower production soon becomes outdated.Given the above it is advisable to regard the data presented in the report as indicative rather than definitive.
According to 2008 estimates, the production of oilseeds in Tanzania is mainly from ground nuts (40%), sunflower (36%), sesame (15%), cotton (8%), and palm oil (1%).. However, according to available information, there is virtually no oil produced from groundnut and sesame, most of which is exported as seed, and given that sunflower dominates oilseed production in the Southern Highlands the report focuses on the sunflower value chain.
1.3 Brief Overview of the Sunflower Value Chain.
The demand for edible oils in Tanzania is estimated to be about 350,000 tons a year and growing in line with population growth of 2.9% and increasing standards of living. Sixty percent of demand is met from imported Crude Palm Oil (CPO), that is free of import duty and is in competition with local production of sunflower oil. Importation is dominated by a few large industrial scale processors who are producing fully refined oils in compliance with required TBS standards. The 40% balance of demand is met from local production of crude sunflower oil. This is dominated by small farmers and processors who lack the technical and financial capability to run it efficiently and profitably. Consequently the horizontal and vertical linkages of the value chain are weak and uncompetitive, and require support to strengthen them. Given the above there, is in effect, two value chains running concurrently, one based on imports, the other on local production.
Sunflower is the fastest growing crop in Tanzania where production has more than doubled since 2005 especially in the Central Corridor. The Ministry of Agriculture estimates that Tanzania has 1.6 million sunflower seed producers who have the capacity to satisfy the national cooking oil demand if fully supported. Sunflower produces two products, oil for human consumption and industrial use, and cake for high protein animal feed.
In the Southern Highlands most sunflower is grown as an intercrop with maize but is beginning to expand as a cash crop to offset low prices realised from maize. However, yields are very low resulting in shortages of crushing material for the processors who are running at a fraction of capacity.
Due to the absence of refining capacity outside of the large operators, micro and SME processors are only able to produce crude, filtered oil which does notmeet the TFDA required standard and has a limited shelf life as it deteriorates rapidly. This implies that there is opportunity for investment in refining capacity to provide a product to the required standards.