D I A L O G U E M U L T I S T A K E H O L D E R S W O R K S H O P H E L D A T T O P L I F E H O T E L –
M O R O G O R O 6 T H S E P T E M B E R 2 0 1 3
Tanzania Warehouse Legal Frame Work and its Impact on Sesame
and Rice Farmers
P R E S E N T E D B Y E L I B A R I K I E M S U Y A
O N B E H A L F O F
L E N G A L E C O N S U L T I N G C O M P A N Y
1 . O V E R V I E W
2 . F I N D I N G S A N D D E L I V E R A B L E S
3 . C O N C L U S I O N S
4 . W H A T T O A D V O C A T E
OUTLINE 2
1 . O B J E C T I V E O F T H E S T U D Y
2 . S C O P E O F T H E W O R K
3 . D A T A C O L L E C T I O N M E T H O D O L O G Y
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1. OVERVIEW
1.1 OBJECTIVE OF THE STUDY
Investigate the current warehouse legal framework in Tanzania
Why?
The aim of increasing access to smallholders into the warehouse receipt system.
Looking at two non-traditional export crops
Sesame and Paddy
WRS seem to be working well in traditional cash crops,
TGFA and BEST-AC Tanzania need to know how the system fares in these non-traditional crops
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1.2 SCOPE OF WORK
Review of policies, strategies, legislation and processes guiding establishment of Warehouses in Tanzania.
Review of warehouse regulations from our neighbouring countries.
Development of tool to guide TGFA and its partners to solicit the Government to accept the envisioned warehouse system under the spirit of PPP arrangement.
Collection and analysis of views from key players on the viability of warehouse system at village and district levels.
Prepared a Position Paper with appropriate guiding system in establishing Warehouse system at village and district levels.
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1.3 DATA COLLECTION METHODOLOGY
5 distinct phases
Literature review on key aspects relating to
Establishment, functions, management, including existing weaknesses and opportunities
The field mission occurred between 3rd and 20th Dec 2012.
Focus group discussions, key informants interviews
Validation workshop
Dialogue to sharpen the result: 6th May 2013
Multi-stakeholder workshop
Sharpening and Prioritizing advocacy issues
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1 . W R S N E I G H B O U R I N G C O U N T R I E S E X P E R I E N C E
2 . L E G A L F R A M E W O R K F O R W A R E H O U S E B U S I N E S S I N T A N Z A N I A
3 . W R S M O D E L S I N T H E S T U D Y A R E A
4 . V I A B I L I T Y O F W R S O N N O N - S T A T U T O R Y C R O P S
5 . L E S S O N S L E A R N E D
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2. FINDING AND DELIVERABLES
2 . 1 . 1 W R S I N T E R N A T I O N A L E X P E R I E N C E
2 . 1 . 2 W R S Z A M B I A
2 . 1 . 3 W R S K E N Y A
2 . 1 . 4 W R S U G A N D A
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2.1 WRS IN NEIGHBOURING COUNTRIES
2.1.1 WRS IN THE WORLD
WRS have a long history of use in facilitating commodity trade and finance.
WRS operational in USA as early as 1830.
In the year 1916 the US Warehousing Act was enacted
It played a major role in the development of commercial farming in North America.
WRS is also used widely in Africa, from Egypt to Zambia, for commodities and for manufactured products.
Two major warehousing approaches are being used
Commercial approaches
Farmer-focused approaches
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2.1.2 WRS ZAMBIA
Collateral management agreements have been existence for a number of years in Zambia
A regulated warehouse receipt system for grains was introduced in 2001
ZACA - certify and inspects warehouses, also sets and enforces commodity standards used in the WRS
2006 ZAMACE established in place of ZACA
Is private limited liability company with corporate membership
Main challenge – absence of legal framework for commodities exchange
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2.1.3 WRS KENYA
NCPB was established in 1979
Amalgamation of Maize and Produce Board & Wheat Board
1985 the NCPB Act was passed - monopoly powers to purchase, store, market and general management of all cereals and pulses in Kenya
1988 Cereal sector reform programme - liberalized the cereals sub-sector in 1993
Attempts to establish a regulated WRS have focused on maize
IN 2011 Gov. committed it self to support WRS ; building on pilot by EAGC
Volatile policy environment impedes establishment of WRS.
Government intervention through NCPB and border controls, notably by lowering the import duty in order to stabilize price
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2.1.4 WRS UGANDA
1998 - UCE established
2006 -2010 – WRS developed with support from governement and donors
UCE designated as a WRS regulator under the WRS Act of 2006 and Regulations of 2007
UCE has managed to establish grading standards, implemented a system of electronic warehouse receipts (eWRs)
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2 . 2 . 1 T H E W A R E H O U S E R E C E I P T A C T N O 1 0
2 . 2 . 2 T A N Z A N I A L I C E N S I N G B O A R D
2 . 2 . 3 T H E W A R E H O U S E R E C E I P T S R E G U L A T I O N S 2 0 0 6
2 . 2 . 4 C E R E A L A N D O T H E R P R O D U C E A C T
2 . 2 . 5 C O O P E R A T I V E S O C I E T I E S A C T
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2.2 LEGAL FRAMEWORK FOR WRS TANZANIA
2.2.1 WAREHOUSE RECEIPT ACT 2005
The Warehouse business in Tanzania is governed by the TWLB
It is regulated through the
Warehouse Receipts Act No. 10 of 2005 and
The warehouse regulations of 2006
The Act establishes the TWLB and gives it powers to issue warehouse license for conduct of warehouse business
Part IV of The Act put forth Licensing Procedures
The Board before granting a license needs to satisfy itself.
After being satisfied the Board grants a warehouse license.
The applicant upon being granted the license pay a fee as prescribed by the Board
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2.2.2 TANZANIA WAREHOUSE LICENSING BOARD
TWLB is an outcome of a project funded by Common Fund for Commodities titled “Coffee and Cotton Marketing Development”.
Piloted WRS coffee and cotton in 6 regions
The board has the following roles:
License warehouse, warehouse operators, warehouse inspectors
Approve warehouse receipts books
Ensure establishment and maintenance of accurate information system
Develop standards and grading system
Awareness creation in use of WRS
Monitoring the operation of the WRS
Coordination of stakeholder forums
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2.2.2 TANZANIA WAREHOUSE LICENSING BOARD
60 – number of warehouses licensed by TWLB
267,000 tonnes – combined storage capacity of the 60
licensed warehouses
WRS seem to work well with crops that are statutory like
coffee and Cashewnuts.
The Board (TWLB) does not have crop specific regulations.
Both Central government and Local Government Authorities (LGAs)
have tried to regulate sell of non-statutory crops - sesame in Lindi and
Mtwara
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2.2.3 WAREHOUSE RECEIPTS REGULATIONS 2006
The warehouse receipts regulations 2006 (the regulations), section 22 (1) (2), instruct the board on designation and licensing of warehouses.
Three grades of warehouses
A – points 75 and above;
B – 60 – 74; &
C – 40 – 59.
200 tonnes - Minimum allowed capacity for warehouse
Economies of Size
Profitability
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2.2.3 WAREHOUSE RECEIPTS REGULATIONS 2006
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2.2.4 OTHER REGULATORY FRAMEWORKS
Cereal and other produce Act and its regulations 2011
Cooperative society Act of 2003
Weight and Measures Act
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2 . 3 . 1 W R S
2 . 3 . 2 W R S I N S E S A M E M A R K E T I N G L I N D I
2 . 3 . 3 K I L W A D I S T R I C T S E S A M E M A R K E T I N G M O D E L
2 . 3 . 4 K I L O M B E R O P A D D Y W R S
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2.3 WRS MODELS IN STUDY AREA
2.3.1 WRS
Deposit of commodity in a licensed warehouse
Depositor borrows against commodity upon surrendering the Warehouse receipt to the bank.
Depositor with loan sells the commodity depositor without loan sells the commodity
Buyer redeems CP from the financier
Buyer gets the commodity from the warehouse
Balance after payment of loan & interest is left in the depositors account
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2.3.2 LINDI REGION MODEL
Price based on an average open tender
A single price paid with no quality differentials
Transport cost cooperative union pays
All marketing cost responsibility of cooperative union
Farmers paid in full at time of sale
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2.3.2 LINDI REGION MODEL
Abandoned in 2012 season
Price for 2008 – TZS 1300
2011/12 –farm gate price 1000
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2.3.3 KILWA DISTRICT MODEL
Since 2008 the District participated in the unpopular WRS under the Regional Government
2012/2013 – Kilwa District Council opted out of the system pointing out to several challenges
Led to the collapse of the system in the region
Price set by the regional development committee TZS 1,000 much lower than prices offered in neighbouring districts
Revenue loss due to heavy cheating by traders and farmers
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2.3.3 KILWA DISTRICT MODEL
No open market
Floor price TZS 1,200 –reached TZS 1,800
Permit minimum 50 tonnes
Buy from primary societies allocated villages
Trader pay TZS 50/kg primary society
Permit and PDN
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Farm gate price
TZS: 1,200/kg
TZS 7 billion paid to farmers
Volume traded
Council: TZS 395million
Primary Society: TZS 250million
No Borrowing:
Farmer
Primary
Society
Traders -
Licensed
District
Council
Exporters
Village
Government
5% produce cess
20% of collection from village
Produce flow Money flow
2.3.4 KILOMBERO MODEL
Started in 2004/2005 season – 20 farmer associations
46 - current member ship in AKIRIGO
The model have 7 key actors
RUDI – sensitization and capacity building
LGA – availability of inputs (NAIVS), extension services, policy issues
AKIRIGO – warehouse operator, negotiate with buyers, provide price information
Financial Institutions (FBME/CRDB/NMB) – loan to SACCOs through Apex
SACCOS – members of AKIRIGO, select warehouse committee
TWLB
BUYER – purchase paddy/rice
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2.3.4 KILOMBERO MODEL 27
2.3 COMPARING THE 3 MODELS 28
LINDI MODEL
KILWA MODEL
KILOMBERO MODEL
Price Set by Regional dev. committee
Set by District council
Agreed by Members
Transaction costs 29% 8% 15%
Credit YES NO YES
Main actors 8 4 6
2 . 4 . 1 F A R M E R S O P I N I O N
2 . 4 . 2 A S S O C I A T I O N A N D C O O P E R A T I V E S
2 . 4 . 3 G O V E R N M E N T
2 . 4 . 4 T H E B O A R D
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2.4 VIABILITY OF WRS ON NON-STATUTORY CROPS
2.4.1 FARMER OPINION
WRS important though – single payment system remove the essence of the system
Deductions per Kg(makato) – many and high e.g. shrinkage in sesame, payment for regional task force
operationalization of the CPBT could be an answer
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2.4.2 COOPERATIVES & ASSOCIATION OPINION
WRS boosted cooperatives – case of Ilulu and AKIRIGO
Need to have different standards for traditional cash crops versus non-traditional
For Kilwa primary societies – district move commended as it boosted income to primary societies
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2.4.3 GOVERNMENT OPINION
WRS works well and is very beneficial both to farmers and LGAs
Means of collection produce cess –
For Kilwa TZS 395 million compared to TZS 70 million previous year
It could be much better if left to operate without political interference
Operationalize the CPBT regulations,
most Government official believe currently non-statutory crops would be better managed.
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2.4.4 THE BOARD OPINION
WRS has registered success in many parts where it operates.
Access bank loans to purchase produce from farmers by cooperatives
Increased revenue to LGAs through improved collection of crop cess
Cooperatives unions and societies have been rejuvenated
The Board see the following challenges
Most warehouses in villages have limited storage capacity, not exceeding 250 tonnes – production surpasses 1,000 tonnes
Farmers are not fully informed of WRS mechanisms
Government inference - export bans and confusing/conflicting messages from politicians
Large variation on quality of produce being deposited at the warehouses with a negative implication when it comes to international trade.
Lack of clear marketing structure for non-traditional cash crops
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2.5 LESSONS LEARNED
Double payment system in paddy
Bulking/ warehousing done at primary society in Kilwa and no need for Apex or Union thus reducing transaction costs
Traders financed system in Kilwa versus bank loans financed systems in Kilombero and Lindi Region
First payment price based on actual cost of production in Kilombero
Much less deductions in Kilwa (8%) compared to the other two models.
Village level warehouses reduces transaction cost especially transport cost to cooperatives union.
WRS need to be in place (either stand alone or with free buying) as a control of prices
The current allowed minimum capacity tonnage for warehouses are proper for economies of scale in place
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3. CONCLUSIONS
3.1 CONCLUSIONS
Tanzania has a well-established legal and regulatory framework guiding establishment, and operations of warehouse business.
Certainly Tanzania is yet to have a trouble free WRS.
Pan-territorial pricing - farmers near to stores are heavily subsidizing those in isolated areas.
The Kilombero model farmers have a choice to sale through WRS or private traders depending on where they get a higher margin
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4 . 1 D E V E L O P I N G M O D E R N A N D E F F I C I E N T W R S
4 . 2 A W A R E N E S S C R E A T I O N A B O U T W R S
4 . 3 C O N T R A C T F A R M I N G V E R S U S W R S
4 . 4 N O T A L L C R O P S H A V E B E E N S P E C I F I E D
4 . 5 C O O P E R A T I V E S V E R S U S A S S O C I A T I O N S
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4. ADVOCACY ISSUES
4.1 DEVELOPING MORDEN AND EFFICIENT WRS
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Part II section 4 (a) of the warehouse receipt regulations of 2006, prescribes additional function of TWLB as that of carrying out studies and researches aimed at developing a modern and efficient warehouse receipt system.
4.2 AWARENESS CREATION ABOUT WRS 39
Awareness about WRS is one of the functions of TWLB as indicated in Part II section 4 (c) & 4 (d) of the warehouse receipts regulations.
4.3 CONTRACT FARMING VERSUS WRS 40
As was the case in Lindi and Mtwara, all sesame has to be sold through the WRS
Cereal and Other Produce Regulations, 2011 part III schedule 7 (2) give the Cereal and Other Produce Board (CPBT) mandate to promote contract farming and safeguard the interest of the growers.
How the two boards (CPBT & TWLB) work together in pursuing WRS and contract farming would need policy and regulatory harmonization necessitating advocacy.
4.4 NOT ALL CROPS HAVE BEEN SPECIFIED
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The Cereal and Other Produce Regulations, 2011, Part II section 4 (1) limits the board (Cereal and Other produce board) to execute its commercial functions, to crops specified by the Minister.
Currently, only two crops, maize and paddy/rice have been specified.
This means the board is yet to have mandate to regulate sesame in the whole country.
Therefore currently there are fragmented management systems to the marketing of sesame.
a major limitation to sesame marketing under WRS
4.5 COOPERATIVES VERSUS ASSOCIATIONS
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Kilwa and Lindi cases are based on cooperatives,
Kilombero case based on associations
Different registrar –
For cooperatives/primary societies (MAFC)
Associations/NGOs – Ministry of Internal Affairs
Different operations with difficulties in cooperatives as they have to work with cooperative officers
PPP for cooperatives
4.6 MTIM VERSUS MAFC 43
Sesame marketing comes under the responsibility of the MTIM
Cooperatives are the responsibility of the MAFC
MTIM - responsible for organizing the warehouse receipt marketing system for sesame, while
The Directorate of Cooperatives in the MAFC issues the loan guarantee, known as the Maximum Liability Certificate, for sesame.
SUCCESS FACTORS FOR WRS 44
Working warehouses Quality/standards –TWLB
Number – rehabilitation/building (PPP) – NMC to NFRA
Well functioning markets Price setting – get the prices right
Policy environment – 2009/2010 experience (ad hoc interventions)
Transparency – understanding by stakeholders (creation of fear)
Financial institutions About 300 m USD – loan portfolio
Low penetration in rural area – high interest rates 17%-22% -still make profit
Role of government through NFRA – a trader and guarantor of loans??
ACKNOWLEDGEMENTS 45
Mr Stephen Kingazi and Dr Dos Santos of TGFA
The BEST-AC team
Lindi Regional Office (cooperative),
Kilwa District Executive Director
Mr Hamza Mkungula of Ilulu Cooperative Union,
Mr Iddi Kindamba of Aga Khan Foundation and
Executive members of several Primary societies
TWLB
CPBT
AKIRIGO
Validation workshop participants
“A warehouse receipt system doesn’t create an orderly market; rather it is a
product of one”
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