The Local Management Unit (LMU) is located in Pamba
House, Dar es Salaam and headed by a three-member team:
Ms Elizabeth Kimambo (Head and National Project
Coordinator)
Mr Fidelis Temu (Associate Project Coordinator
for Coffee sector)
Mr Mohammed Mbaga (Associate Project Coordinator
for Cotton sector).
The two key stakeholders are the Tanzania Coffee
Board and Tanzania Cotton Board. The Project is hosted by the Ministry
of Trade, Industry and Marketing.
The Tanzania WRS Model
The key features of the Tanzania WRS are:
Designated warehouse operators are private coffee
curing factories and cotton ginneries.
Depositors are mainly primary cooperative societies
who market coffee on behalf of their members, though some medium-scale
traders and cooperative unions are also participating.
Financing is not so much for speculating on
favourable price movements but to provide working capital,
e.g. to the primary cooperative societies, allowing them to make
initial payments to members while waiting for the crop to be processed
for the market. The lead banks financing against Warehouse Receipts
issued under the project are CRDB Bank, Exim Bank (Tanzania) Ltd.
and the Kilimanjaro Cooperative Bank.
Cured coffee is predominantly sold through the
Moshi Coffee Auction. Payment is channelled through the Auction
to the financing bank, allowing it to recover the loan provided
and related charges.
The system is primarily trust-based and does
not involve a collateral manager or a regulatory body in overseeing
the activities of the warehouse operators.
A Warehouse Receipt Act was recently passed by
the Tanzanian parliament. In addition to providing a framework within
which Warehouse Receipts can be issued, the Act provides for the
establishment of a Regulatory Board to license and inspect participating
warehouse operators. For more details please visit http://www.wrs-tz.org.
PROGRESS MADE
Considerable progress has been made in piloting
the WRS for coffee and cotton in Tanzania (further details provided
in Coffee/Cotton Sector Pilots below). This progress and the promulgation
of supportive legislation by the Government of Tanzania have helped
create a platform for mainstreaming WRS in the country. So far the
main achievements have included:
Printing of secure Warehouse Receipts, the issuing
of which will be regulated by the proposed Regulatory Board.
Warehouse Operators and primary cooperative
societies have been trained in warehouse standards and commodity
quality assurance.
Warehouse regulations and inspection manuals
are under preparation to facilitate establishment of the Regulatory
Board.
LMU staff and other relevant key stakeholders
were trained in warehouse inspection to enable them to enforce
regulations/standards prior to the establishment of the Regulatory
Board. The resource person came from the Zambia
Agricultural Commodity Agency (ZACA) - set up by NRI to regulate
the WRS for grains in Zambia.
Arrangements have been initiated to institutionalise
training in warehousing to assure availability of skilled professionals.
The development of an effective and sustainable
market information system is underway. This includes a website
for disseminating project information as well as market related
issues. The site will be transferred to the Regulatory Board once
it is functional. Other means for disseminating market information
will include radio bulletins, newspapers, television, newsletters
and flyers. A training manual on market information is being prepared
and will be available from the LMU and later from the Regulatory
Board.
Coffee Sector Pilot
Coffee contributes over 17% of Tanzania's foreign
exchange earnings and is mainly produced by smallholders (over 85%).
Nearly 75% of coffee produced in Tanzania is Arabica.
Four warehouse operators are participating in the
WRS pilot. These are Tanzania Coffee Curing Company (TCCCO), Mbozi
Coffee Curing Company Ltd, Mbinga Coffee Curing Company Ltd, and
Tanganyika Coffee Curing Company Ltd. The geographical spread of
the operators cover the following regions: Kilimanjaro, Tanga, Arusha,
Kigoma, Mbeya, and Mbinga regions.
There are over 50 coffee farmer groups using the
Warehouse Receipt Systems. These are predominantly Primary Cooperative
Societies. The table below shows quantities of parchment coffee
deposited by these groups and the financing against these deposits
by CRDB Bank, Exim Bank and Kilimanjaro Cooperative Bank Ltd over
the past 4 seasons.
Season
Parchment
Deposits (kg)
Total Bank Finance
under WRS (TZS)
2002/03
8,269,507
4,697,692,852
2003/04
9,842,066
2,264,686,440
2004/05
15,297,250
8,653,345,500
2005/06
12,022,717
N/A
KCB, one of the Banks providing
finance under the WRS
Farmers have reported receiving much higher prices
under the WRS which are up to 45% more than prices paid by the private
traders. Anecdotal evidence also suggests that the quality of the
coffee delivered by the primary level organisations is constantly
improving. The improvements have been attributed to the higher prices
linked directly to higher quality coffee and the improved traceability
systems enhanced with the use of WRS. Primary level farmer organisations
using the WRS are also showing increasing sophistication in their
marketing strategies as the case below illustrates.
Mamsera Rural Cooperative Society
The Mamsera Rural Cooperative Society (MRCS)
is a coffee marketing groups and has a membership of 1,024
people. Coffee is bought from members and non-members on the
basis of quality [Special, Parchment 1 and Parchment 2]. This
procurement system is aiding in the production of higher quality
coffee.
For ‘first payment’ to producers,
MRCS has to borrow money from the banks at going interest
rates. The MRCS opted to deposit with Rafiki Coffee Ltd Company,
a coffee curing factory venturing into lending under the WRS
because of the lower financing cost. Rafiki offers
advances against the deposited parchment coffee at interest
rate of 12%, instead of 20% on loans from the Kilimanjaro
Cooperative Bank (KCB) previously used. As is the case with
groups borrowing from KCB and depositing with other curing
factories, loan repayments are completed when the coffee is
sold through the Moshi Coffee Auction.
A member of the Mamsera RCS proudly
showing warehoused coffee ready for depositing under WRS
Besides the coffee business, the MRCS
is involved in other activities, each of which is assigned
its own budget and handled separately:
hardware business
brick making
inputs business
coffee nurseries
Cotton Sector Pilot
Cotton contributes about 14% of foreign exchange
earnings to Tanzania’s economy. More than 95% of Tanzanian
cotton is grown in the Western Cotton Growing Areas while the rest
comes from the Eastern Cotton Growing Areas. Cotton production is
dominated by smallholder farmers, harvesting on average 600kg seed
cotton per hectare.
The cotton pilot is currently only operating in
Moshi. The Tanzania Cotton Board is currently running the ginnery
on a short-term lease from the Kilimanjaro Native Cooperative Union
(KNCU) who in turn is offering toll (contract) ginning services
to primary societies. The main depositor is the Oridoyi Rural Cooperative
Society (a smallholder primary society) from Manyara Region in Eastern
Tanzania.
KNCU and TCO providing Toll-Ginning
services to farmers
The Oridoyi Rural Cooperative Society was established
in 1995 and has a current membership of 600 farmers. The Society
began using the WRS to market their cotton in 2003/04 season. The
process of depositing involves the primary society sending seed
cotton to the Moshi Ginnery. Because of the toll-ginning service
offered, the primary society is able to use the deposited seed cotton
as collateral, allowing them to obtain finance of TZS390 million
in the 2005/06 season from the CRDB Bank. The loans obtained are
used to make initial payments to the members. The initial payment
to the producer is often set close to the minimum price set by the
Tanzania Cotton Board at the beginning of each season.
After ginning, the primary society markets the lint
and cotton seed. In the 2004/05 season, the group was able
to market cotton lint directly to a UK-based merchant, with the
assistance of the Tanzania Cotton Board. Proceeds from the sales
are channelled through the bank, allowing the bank to recover loans
and related interest costs and charges. The balance is credited
to the primary society, which deducts operating and administration
costs after which point it can opt to make a second or third payment
to the depositors. During the 2003/04 season, the society financed
expansion of area under cultivation by about 4 hectares for each
member from the profits made from the sale of lint and cotton seed.
This explains the substantial increase in output the following season
(2004/05) as shown in the Table below.
Season
Seed Cotton Deposited under WRS (kg)
2002/03
103,273
2003/04
229,470
2004/05
826,000
2005/06
1,200,000
Oridoyi Committee Members’ Meeting
However, the WRS cotton pilot was seriously hampered
by the use of old gin stands which were in operation at the Moshi
ginnery. Following recommendations by the WRS project, four gin
stands were imported from India with funding from the Ministry of
Cooperatives and Marketing (MCM). This installation of new gin stands
improved ginning efficiency substantially. The efficiency in ginning
is expected to substantially increase the net income of the depositors,
through reducing the cost of servicing loans and obtaining higher
lint quality.
The main challenge for the WRS Project team is to
expand use of the system to the Western Cotton Growing Areas. The
LMU continues to work tirelessly to replicate the Oridoyi success
story in the West. Further to this, there is need to identify ginners
willing to provide toll ginning services to the farmer groups intending
to use the WRS. The financial benefits of a ginner providing toll
ginning services to producers, and for cotton producers to market
lint cotton instead of seed cotton is being explored. The report
will be available soon.