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Mitchell and Baregu
An additional channel of direct marketing from farmers to the auction was also allowed and has resulted in one group of large farmers bypassing their primary societies and cooperative unions and consigning their cashews directly to the auction. However, small farmers have not yet been able to use this marketing channel. Under the new marketing policy, farmers are required to give estimates of their expected harvest to their primary society. The estimates are then used by the primary society to apply for a bank loan to market cashews. An indicative price, set by the CBT and agreed to by farmers, sets the total value of the loans. The government of Tanzania issues guarantees to banks that lend to primary societies. The guarantees are handled through the cooperative unions, which authorize access to loans through government guarantees. The unions also determine the capacity of the primary society to borrow, thus setting loan limits. A regional task force prepares all the marketing arrangements for primary societies within the region. During harvest, primary societies and farmer associations consign cashews to designated warehouses. At the warehouses, blind auctions take place; for the primary societies, this process is managed by the cooperative unions, whereas other farmer associations manage this process themselves. The auction is not what the name suggests, since buyers submit the equivalent of closed tenders naming price and amount. The review and selection of these tenders is done in secret, and the winning tender is not publicly announced until the end of the season. Although the system has only operated since 2007, problems are already apparent, and it does not appear to be an improvement over the previous system. Between 2007–08 and 2008–09, marketing costs from the primary societies increased 20 percent (almost double the rate of inflation). The share of the export price received by farmers in 2007–08 and 2008–09 averaged 46 percent, which is less than the average under the liberalized marketing system. The banks selected to loan to cooperative unions to finance cashew purchases have charged approximately 18 percent annualized rates, despite cashews that collateralize these loans and government guarantees for 75 percent of the value of the loans. These high interest charges are ultimately borne by the farmers, who receive lower prices because of increased costs on interest charged to their primary societies. The auction system is not transparent, and there are reports of buyers being allowed to change their offer price during the auction, which is supposed to be conducted by sealed bid.