The Tanzania Tobacco Sector: How Market Reforms Succeeded
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crops. This was partly a response to the concern that the ATTT was a monopoly that did not allow farmers to decide on which input to use. Among other things, the MoU instructs stakeholders to determine a mechanism for financing the development of the tobacco crop (shared function). The mechanism will increase the role of the primary societies and cooperative unions in supplying inputs to farmers on credit provided by commercial banks. The government will guarantee 75 percent of the loans. This new credit channel first operated in the 2009/10 season, and the repayment rate on credit extended to farmers through their primary societies is not yet available. In addition to the new method of delivering credit, the industry has shifted to a one-year contract between growers and companies, instead of the three-year contract that had been in use for several years. This will make it more difficult for private companies to finance infrastructure loans for curing barns and other structures since they are not assured of renewed contracts with the primary societies. The changes have also increased companies’ uncertainties and caused them to revise their investment plans until the impacts of these changes are clear. Going forward, it seems risky to change a system that has provided such positive benefits to producers, tobacco companies, and the nation. However, the system has changed in accordance with the MoU agreed to in August 2006, which provides for a large role for cooperative unions in the provision of inputs, beginning with the 2009/10 crop season. The government has increased its risk by providing a credit guarantee to input loans made to farmers through the cooperative unions. The performance of this new system has not yet been evaluated; however, past experience in tobacco and other industries suggests that the cooperative unions and primary societies will not be as efficient at providing inputs to farmers as were the tobacco companies under the ATTT. This will most likely result in lower prices for farmers because of higher costs in input supply. The government also has taken a risk by guaranteeing input loans to cooperative unions.
Notes 1. The traditional export crops include cashews, cloves, coffee, cotton, sisal, tea, and tobacco. 2. Tanzanian Leaf Tobacco Company (TLTC). Personal Communication with CEO, August 2010. 3. Alliance One. Personal Communication with CEO, August 2010.