284
Mitchell and Baregu
the market and bought tobacco in competition with the established companies. According to tobacco company officials, in that year, the average buying price paid for tobacco increased by about 10 percent, compared to the price that would have been paid to farmers if Premium Active had not entered the market. Still, compared to the period when the public sector was in control of marketing and processing, farmers were better off because of higher yields, higher prices relative to the world market, and a higher share of the export price because of lower operating costs. The share of export prices received by farmers rose from 34 percent in 2003 to 53 percent in 2009/10.3,4
Why Market Reforms Were Successful The multinational companies were successful in increasing tobacco production and quality where the parastatal was not. The success of the new arrangements reversed more than two decades of stagnation in production and declines in real producer prices relative to the world market. This benefited tobacco growers and reduced poverty. There are many reasons why this should have been expected. The private sector should be more efficient in marketing and processing, have tighter accountability and cost containment procedures, have better access to technology and capital, and be able to make decisions more quickly to respond to problems that develop. Yet that has not always been the case. In the Tanzania cashew industry, for example, privatized marketing that began in 1991 was less successful and stalled within a decade, to be replaced by an increased role for the public sector. Why was private sector marketing of tobacco successful? There seem to be four reasons. First, the multinational tobacco companies that entered the tobacco industry as buyers and processors were well capitalized and had access to superior technology and management. Second, the public sector played a supporting role rather than a competing role, and this reduced government interventions that undermined marketing reforms in other Tanzanian crops, such as cashews. Third, the tobacco companies, with the support of government, were able to solve the problem of side-selling and thus allow these companies to provide inputs to farmers on credit and to make longer term loans to improve infrastructure, such as curing barns. Fourth, the structure of the industry was amenable to the kinds of strict controls imposed by the tobacco companies. Each of these is considered in more detail in the remainder of this section.