Tanzania Warehouse Legal Frame Work and its Impact on Sesame and Rice Farmers

Transcription

1 Tanzania Warehouse Legal Frame Work and its Impact on Sesame and Rice Farmers 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 TH S E P T E M B E R 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

2 OUTLINE 2 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

3 1. OVERVIEW 3 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

4 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, 4 TGFA and BEST-AC Tanzania need to know how the system fares in these non-traditional crops

5 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. 5

6 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 3 rd and 20 th Dec Focus group discussions, key informants interviews Validation workshop Dialogue to sharpen the result: 6 th May 2013 Multi-stakeholder workshop Sharpening and Prioritizing advocacy issues 6

7 2. FINDING AND DELIVERABLES 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 7

8 2.1 WRS IN NEIGHBOURING COUNTRIES 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 W R S Z A M B I A W R S K E N Y A W R S U G A N D A

9 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 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 9

10 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 10

11 NCPB was established in WRS KENYA 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. 11 Government intervention through NCPB and border controls, notably by lowering the import duty in order to stabilize price

12 UCE established WRS UGANDA WRS developed with support from governement and donors UCE designated as a WRS regulator under the WRS Act of 2006 and Regulations of UCE has managed to establish grading standards, implemented a system of electronic warehouse receipts (ewrs)

13 2.2 LEGAL FRAMEWORK FOR WRS TANZANIA T H E W A R E H O U S E R E C E I P T A C T N O T A N Z A N I A L I C E N S I N G B O A R D 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 C E R E A L A N D O T H E R P R O D U C E A C T C O O P E R A T I V E S O C I E T I E S A C T

14 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. 14 The applicant upon being granted the license pay a fee as prescribed by the Board

15 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 15

16 2.2.2 TANZANIA WAREHOUSE LICENSING BOARD 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

17 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 tonnes - Minimum allowed capacity for warehouse Economies of Size Profitability 17

18 2.2.3 WAREHOUSE RECEIPTS REGULATIONS

19 2.2.4 OTHER REGULATORY FRAMEWORKS Cereal and other produce Act and its regulations 2011 Cooperative society Act of 2003 Weight and Measures Act 19

20 2.3 WRS MODELS IN STUDY AREA W R S 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 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 K I L O M B E R O P A D D Y W R S

21 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

22 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

23 LINDI REGION MODEL Abandoned in 2012 season Price for 2008 TZS /12 farm gate price 1000

24 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 24

25 KILWA DISTRICT MODEL Farm gate price TZS: 1,200/kg TZS 7 billion paid to farmers Farmer No open market Floor price TZS 1,200 reached TZS 1,800 Permit minimum 50 tonnes Buy from primary societies allocated villages Volume traded Council: TZS 395million Primary Society: TZS 250million No Borrowing: Primary Society Traders - Licensed 5% produce cess Village Government District Council 20% of collection from village Trader pay TZS 50/kg primary society Permit and PDN Exporters Produce flow Money flow

26 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 26

27 2.3.4 KILOMBERO MODEL 27

28 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

29 2.4 VIABILITY OF WRS ON NON-STATUTORY CROPS F A R M E R S O P I N I O N 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 G O V E R N M E N T T H E B O A R D

30 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 30

31 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 31

32 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. 32

33 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 33

34 Double payment system in paddy 2.5 LESSONS LEARNED 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 34

35 3. CONCLUSIONS 35

36 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. 36 The Kilombero model farmers have a choice to sale through WRS or private traders depending on where they get a higher margin

37 4. ADVOCACY ISSUES 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

38 4.1 DEVELOPING MORDEN AND EFFICIENT WRS 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. 38

39 4.2 AWARENESS CREATION ABOUT WRS 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. 39

40 4.3 CONTRACT FARMING VERSUS WRS 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. 40 How the two boards (CPBT & TWLB) work together in pursuing WRS and contract farming would need policy and regulatory harmonization necessitating advocacy.

41 4.4 NOT ALL CROPS HAVE BEEN SPECIFIED 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 41

42 4.5 COOPERATIVES VERSUS ASSOCIATIONS 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 42

43 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.

44 SUCCESS FACTORS FOR WRS 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?? 44

45 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

46 46 A warehouse receipt system doesn t create an orderly market; rather it is a product of one