AN OVERVIEW OF CHINESE AGRICULTURAL AND RURAL ENGAGEMENT IN TANZANIA - PDF

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AN OVERVIEW OF CHINESE AGRICULTURAL AND RURAL ENGAGEMENT IN TANZANIA Deborah Brautigam 1 Senior Research Fellow Development Strategy and Governance Division International Food Policy Research Institute
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AN OVERVIEW OF CHINESE AGRICULTURAL AND RURAL ENGAGEMENT IN TANZANIA Deborah Brautigam 1 Senior Research Fellow Development Strategy and Governance Division International Food Policy Research Institute and Tang Xiaoyang Senior Research Assistant Development Strategy and Governance Division International Food Policy Research Institute January 2012 DRAFT Abstract: Chinese engagement in agriculture and rural development in Tanzania is longstanding. Changes in this engagement reflect the changes in China s engagement in Africa more generally. This overview paper explores China s engagement in historical perspective, focusing on foreign aid, other official engagement, and investment by Chinese firms between 1964 and Keywords: China and Africa; China and Tanzania; agribusiness; foreign aid and agriculture 1 INTRODUCTION Chinese engagement in agriculture and rural development in Tanzania is long-standing and covers multiple activities. Very active as a donor in the 1960s and 1970s, Chinese engagement slowed in the 1980s, shifting away from new projects into efforts to boost the sustainability of past projects. In the 1990s, the focus changed to incorporate far more commercial and investment activities. Yet few Chinese investors have made commitments to invest in agricultural activities in Tanzania. As the Chinese economic counselor said in 2008, Agriculture is risky here. It is hard to have win-win. 2 This paper documents the full range of agricultural and rural development activities, both historical and contemporary. Its primary purpose is to serve as background for other researchers: Tanzanians and foreigners. Researchers from IFPRI visited Tanzania (Dar es Salaam, Kilosa and Dakawa in the Morogoro Region, and Zanzibar) between September 17 and 30, 2011 to conduct a scoping study of Chinese engagement in agriculture and rural development. The researchers conducted over thirty interviews, primarily with Chinese and Tanzanian officials and businesses, and with several knowledgeable foreign experts. We also obtained census data on all approvals of specific Chinese foreign investment activities in agriculture and agribusiness from the national investment authorities to locate Chinese investors. The report also draws on earlier visits by IFPRI researchers to Tanzania as well as published and unpublished documents and secondary material. 3 China and Africa: Frameworks for Engagement in Agriculture China s success in feeding a fifth of the world s population with only eight percent of its arable land is well known. Thousands of years of intensification of farming in much of the country has led to very high yields per hectare of land. China s hybrid rice pioneer Yuan Longping, for example, has just produced a variety that yields 13.9 mt/ha under trial conditions. Laborintensive cultivation practices such as the transplantation of irrigated paddy rice are common. Yet China also has arid grasslands and pastoral communities that bear some resemblance to the rural areas of Tanzania. China s policy on engagement in agriculture in Africa can be seen in its January 2006 Africa Policy White Paper, and in the action plans resulting from several rounds of high level meetings under the Forum on China-Africa Cooperation (FOCAC). 4 The 2006 Africa Policy White Paper commented that: Focus will be laid on the cooperation in land development, agricultural plantation, breeding technologies, food security, agricultural machinery and the processing of agricultural and side- 2 line products. China will intensify cooperation in agricultural technology, organize training courses of practical agricultural technologies, carry out experimental and demonstrative agricultural technology projects in Africa and speed up the formulation of China-Africa Agricultural Cooperation Program. 5 Two recent action plans following ministerial level meetings of the Forum on China Africa Cooperation have emphasized agricultural cooperation. (As with other summits, action plans are developed beforehand by working groups.) During the 2006 Beijing Summit of the Forum on China-Africa Cooperation, the two sides China, and African governments -- pledged to intensify their exchanges and cooperation in farming, animal husbandry, irrigation, fishery, agricultural machinery, processing of agricultural produce, sanitary and phytosanitary measures, food safety and epidemic control. 6 In 2009, China pledged to enhance cooperation in agricultural infrastructure, grain production, breeding industry, exchanges and transfer of practical agricultural technologies, and in processing, storage and transportation of agricultural products. 7 China s agricultural engagement in Africa involves trade, investment, foreign aid, and government-sponsored bilateral cooperation based on mutual benefit. 8 The Ministry of Commerce (MOFCOM) is a central actor. China s foreign aid program is run out of MOFCOM s Department of Foreign Aid, while investment and some areas of cooperation are promoted by MOFCOM s Department for Outward Investment and Economic Cooperation. For agricultural aid, MOFCOM coordinates with the International Economic Cooperation Center of the Ministry of Agriculture and sometimes the equivalent department in the Ministry of Science and Technology. In the 1960s and 1970s, China s agricultural aid in Africa emphasized large state farms. This changed in the 1980s, when small-scale projects in support of smallholder farmers were favored. 9 Recent agriculturally-relevant foreign aid includes the dispatch of 100 senior agricultural experts to Africa for a year of technical assistance (most countries received two or three experts); short term training in China; and the establishment of twenty agro-technology demonstration centers across the continent. In addition to these standard programs, some African countries have received other agricultural assistance: vocational training, South-South Cooperation with the Food and Agricultural Organization (FAO), rural roads, etc. Together with the Ministry of Agriculture, MOFCOM originally conceived of its grant-financed agro-technology demonstration centers as an experiment. Chinese companies and institutes, selected via a competitive tender system in China, would build the centers, and the Chinese aid budget would pay for equipment and Chinese personnel to help run the centers for three years. During that time, the Chinese companies and institutes would seek out income generation activities that would enable the centers to fund their own revenue streams. They would also 3 use their time at the center as a platform to seek other commercial opportunities in the country. This experimental approach is an example of foreign aid coupled with mutually beneficial cooperation. It is based on a responsibility system that has been widely practiced in many of China s own domestic government centers and agencies. Other Chinese engagement in agriculture involves China Development Bank (CDB) and China Export Import Bank (Eximbank), both of whom provide commercial development finance and export credits; China Eximbank also provides concessional foreign aid loans. China Development Bank is the parent organization of the China-Africa Development Fund. CAD-Fund has signed a strategic agreement with China State Farm Agribusiness Corporation to set up a joint company to make agricultural investments. In Africa, this has not yet resulted in much beyond the transfer of some of CSFAC s existing investments (mainly, but not only, former aid projects) to the new joint venture. China also has provided zero-tariff entry for a large number of agricultural commodities and processed goods (cotton yarn, sisal fiber, finished leather, etc.) from Africa s low income countries. China s strategy for agricultural engagement abroad has a long-term perspective. They believe that aid, investment, and other forms of cooperation should be used to increase food and agricultural output globally. They are fully aware of the sensitivities of large-scale agricultural investment in Africa. Although Chinese companies have investigated a number of potential projects, generating many media stories, there do not appear to be any documented cases of Chinese companies actually implementing investments in agricultural operations above 10,000 hectares in Africa. 10 Tanzanian Agricultural Strategy Fifty years after independence, Tanzanian agriculture remains dominated by smallholder farmers growing food crops with hand hoes, dependent on an uncertain rainfall. Yields are low. As a result of the market-oriented reforms, the entire agricultural sector, such as production and processing, input importation and distribution and agricultural marketing, has opened up to private investment, and the private sector is now expected to carry out most of the production, processing and marketing functions. 11 The Agricultural Sector Development Strategy (ASDS), prepared in 2001, has set the road map for the sector until The ASDS aims to improve market dynamism by strengthening the institutional framework, creating a favorable environment for commercial activities, clarifying public and private roles in providing services, and improving market efficiency. 12 Correspondingly, the Kilimo Kwanza program, which was initiated in 2009 to foster a Tanzanian green revolution, focuses on facilitating commercial financing, building public-private partnership, providing fiscal incentives, removing market barriers and promoting investment in agriculture-related industries. 13 4 In this connection, agricultural research and extension services will be decentralized to local communities and be outsourced to non-governmental organizations and private groups. 14 Similarly, local communities and various stakeholders will be given the responsibility to manage small-scale irrigation schemes, develop local renewable energy programs and construct local housing. 15 The government will continue rehabilitating the road network which is in poor condition. 16 CHINA AND TANZANIA HISTORICAL BACKGROUND, China s assistance to agriculture and rural development in Tanzania has been extensive, with multiple projects going back to the first economic and technical cooperation and loan agreements in Between 1964 and 1970, China financed the Ruvu State Farm, Upenja State Farm, Urafiki Cotton Textile Factory, Ubungo Farm Implements Factory, Mbarali Rice Farm, and at least four farmer training centers. The Tazara Railway was built between 1970 and In subsequent years, Chinese teams remained or returned to many of these projects, attempting to keep them afloat. However, few Chinese investors were interested in bidding on these assets when Tanzania began to privatize many of its state-owned companies. Ruvu State Farm. In 1965, China and Tanganyika agreed to co-finance the Ruvu State Farm, a 2834 hectare (ha) development located 50 miles west of Dar es Salaam. The farm itself developed 810 ha for rice, cotton, vegetables and cereals (other reports put the total at 720 ha), while 2834 ha was dedicated to fruit trees, dairy and beef cattle, for a total cost estimated at between $1.1 and $1.4 million. China agreed to meet the recurrent costs of the project until it was self-sustaining. 17 In addition, the Chinese financed a $14 million irrigation and hydroelectric dam on the Ruvu River to provide power for the farm. 18 Ruvu State Farm was set to be privatized in the late 1990s, along with other state farms. 19 As of January 2009, however, Ruvu Farm hosted small-scale farmers and comprised 1215 hectares. 20 Upenja State Farm. The island of Zanzibar also received finance and Chinese assistance for Upenja State Farm (526 ha) between 1965 and Upenja was designed to be a modern, mechanized farm with rice, beans, tropical fruits, poultry and vegetables. The Chinese trained Zanzibaris in harvest operations, tractor driving, and machine repair. 21 Irrigation was done via thirteen deep wells. The project appears to have been somewhat controversial in Zanzibar. In recollecting the project today, a Zanzabari told us that all mango trees which helped to bring rain were bulldozed despite popular acclaim against it. 22 Another Zanzibari told us that Upenja never reached the goals set out at the beginning, although it is still operating as a state farm under the Ministry of Agriculture and Natural Resources. 23 He noted that the Chinese have expressed interest in supporting agricultural projects in Zanzibar, and were interested in trying 5 to revive the old projects that were assisted by them in 1960s. So far, Upenja farm has not been on this list, however. Maziwa-Ngombe and Wete Road. On the small island of Pemba north of Zanzibar, a Chinese team built a road between Maziwa-Ngombe and Wete in 1964, approximately 20 miles. 24 This appears to be the only road project ever financed out of Chinese aid in Tanzania. Tanzania-Zambia (Tazara) Railway. China s largest aid project in Africa to date remains the iconic Tanzania-Zambia (Tazara) Railway: 1,860 kilometers, running from the port of Dar es Salaam to join an existing line at New Kapiri Mposhi in Zambia. Discussions on the project began in 1964, with feasibility studies and subsequent agreements signed in 1967, and the final agreement being signed in 1970, the same year that the work began. Built between 1970 and 1976, this project was financed by a zero-interest loan of almost 500 million yuan ($286 million) and a grant of $28.6 million. It also included construction of a center that could train 200 people at a time. 25 The purpose of the railway line was to open up rural areas of Tanzania and Zambia, and to enable Zambia s copper to reach the sea without being held hostage to South Africa, controlled at that time by a hostile regime. The railway is still supported by the Chinese government, which provides regular, concessional loan-based financing. Mahonda State Sugar Cane Farm and Processing Factory. In Zanzibar, China began building the Mahonda State Sugar Cane Farm and Processing Factory in 1974, about 25 kilometers north of Zanzibar town. The feasibility study for the project was done in The factory processed cane grown on a 1216 ha plantation, which also seems to have been developed with Chinese assistance. In the mid-1980s, Chinese experts returned to revamp the factory, financed by a TSH 20 million soft loan; they did not stay, however. In 1996, China offered Zanzibar $ 2 million for additional rehabilitation of Mahonda, among other projects. 27 However, the factory was plagued by problems of embezzlement and mismanagement under Zanzibari management. Production at the adjacent plantation had declined from an annual 6000 mt to 500 tons, workers suffered significant salary arrears, and when the factory closed in 1998, they were suspended without having been paid. 28 Although Mahonda was offered under the privatization program, and sparked some interest among Indian, Spanish, and Chinese investors, it was ultimately shut down and remained closed until 2004, when it was purchased by a local Indian private investor, who is apparently also struggling to run it profitably. 29 Mbarali Rice Farm. China s most extensive agricultural aid project in Tanzania was Mbarali Rice Farm in Mbaye, built between 1971 and 1977 and managed with Chinese technical assistance for several decades thereafter. The Mbarali District lies in the southern Usangu plain, famously known as the national rice basket because it used to yield up to 60% of the rice consumed in Tanzania. 30 Mbarali had its origins in 1958 when the Tanganyika Agricultural Corporation (TAC) developed irrigated rice with the assistance of the FAO. The Chinese government signed an 6 agreement to develop a rice station at Mbarali in The task was assigned to the Department of Agriculture and Forestry of Jiangsu Province. Construction began in 1971 and finished in September The cost came to RMB 24.9 million ($13.4 million). 31 According to one source, the Chinese team developed 3530 hectares, half of which was new, and half reclaimed. 32 Another source put the size at 5575 ha in 1977, and 5842 ha in Mbarali was a self-contained state farm, with its own irrigation and drainage, barrages to control floods, and a 320kw hydropower system, piggery, dairy farm with 100 cows, poultry farm with 50,000 chickens, rice mill with an annual capacity of ,000 mt, staff housing. The Chinese developed it as a highly mechanized system, employing 393 full time workers, and 73 on contract. According to Chinese sources, when Mbarali was at full production, it supplied 25 percent of Tanzanian market demand, and was able to repay the initial investment within six years. 34 Yields during that period were as high as 8 tons (Fig. 1). 35 According to a Chinese source, The shining example of the farm had also promoted rice production in the surrounding area. Small farmers in the area grew more than 2000 hectares of paddy rice with annual output of more than 6000 tons. The farm was formally handed over in 1977, but teams of Chinese experts were attached to the farm in rotating teams, each team providing assistance for two years. Ten teams served, until July 1999 (the eighth team stayed for four years). 36 The Farm finally closed in China sent 10 runs of technical assistance teams since Oct. 1977, with each staying for 2 years while the eighth run prolonged to four years. In the first 8 runs, each team consisted of 20 experts, while the number of team members reduced to 13 in the last two runs Fig. 1: Mbarali Rice Farm Yield (t/ha) The Chinese government provided loans to pay for spare parts and new farm machinery. After the farm was handed over, however, production declined sharply, from an average of 8.2 tons/ha to under 4.0 tons (Fig. 1). The Chinese explain this as due to economic hardship and foreign exchange shortages, which made it difficult to procure spare parts, keep machinery repaired, and provide fertilizer and pesticides. At these lower yields, when Tanzania liberalized rice marketing, Mbarali could no longer compete with small farmers. As Tanzania began to offer some state assets for privatization in the mid-1990s, the Jiangsu Province team investigated the possibility of transforming Mbarali into a commercial joint venture. Yet the Tanzanian government at that point required Tanzanians to have to have a 7 majority share. Jiangsu did not believe that Mbarali could be made to operate profitably unless they controlled the management. Believing in non-interference, they did not press the issue. The privatization of Mbarali was a dramatic process that began in 2001 and stalled for a long time. 37 In the budget speech, the former Minister of Agriculture announced that Mbarali and Ruvu would be privatized to smallholders. A number of smallholders were leasing or otherwise using land to grow rice around Mbarali. However, in , the government changed course and announced that Mbarali would be put up for sale. The farm was purchased by Highland Estates Limited, a company owned by Nawab Mulla, a local investor and CCM politician whose family had built an irrigation canal in the region in the 1930s. The cost apparently was Tsh 3.5 billion ($ ), and the investor put another Tsh 2.72 billion ($ ) to renovate and upgrade equipment. He has sub-leased 2500 hectares to cooperative groups of 884 smallholders, and provided water. But some complain that leases require a minimum acreage that is prohibitive for some smallholders. Agricultural Extension and Farmer Training Stations. In addition to the large state farms built in the early years of Chinese aid, the Chinese government also built at least five Agricultural Extension and Farmer Training Stations. 38 These stations seem to have been built in several rounds and were located in Morogoro, Dodoma, Mbeya, and Kagera Regions, inter alia. Three agro-technical popularization centers or stations were built in the late 1960s, at least one in the 1970s (Mbaye) and two wer
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