Business Case and Intervention Summary
Intervention Summary
Southern Agricultural Growth Corridor in Tanzania (SAGCOT)
What support will the UK provide?
The UK will provide £36.4 million over a period of five years from 2013 to 2017 to support the Southern
Agricultural Growth Corridor (SAGCOT). SAGCOT involves an innovative partnership between the
Government of Tanzania, large international agribusiness companies and the local private sector, to
grow commercial agriculture in Tanzania’s high potential southern corridor (which links the port of Dar
es Salaam to Malawi, Zambia and the DRC). The UK will support two newly established SAGCOT
institutions. The SAGCOT Centre will coordinate the partners, promote investment into the corridor,
address obstacles faced by businesses and monitor all projects. The Catalytic Fund will attract impact
funding and provide investment funds and support to start-up agribusinesses. Together with the EU
and USAID, DFID will fund the highest priority road construction project in the corridor linking the high
potential Kilombero cluster to the Tanzam highway. Direct support will be provided to increase the
incomes of a significant proportion of smallholder farmers in four sectors - tea, forestry, maize and
horticulture. DFID will work with a range of dynamic and innovative partners including Technoserve,
the Gatsby Charitable Foundation and the Wood Family Trust, to achieve the targets.
Why is UK support required?
Tanzania has the largest area of arable land and the best water endowment in East Africa and should
be the breadbasket of the region. Instead, the country has barely enough food to feed its current
population of around 45 million. At current rates of agricultural productivity, Tanzania will not be able to
feed its projected population of 70 million by 2025. Agriculture is largely subsistence farming practiced
by smallholder farmers with fewer than 20 truly commercial farming operations in the southern corridor.
It is thus no surprise that 85% of the 12.9 million Tanzanians who live in poverty live in rural areas.
Although the government has adopted policies intended to transform Tanzanian agriculture and bring
in more private business, the legacy of its socialist past persists and not much more is produced than a
decade ago.
SAGCOT is a promising new initiative born from the urgent need to increase agricultural productivity
and reduce rural poverty. It is personally driven by the President of Tanzania with the support of G20
nations. The agricultural sector faces severe obstacles in the form of (1) a very difficult environment for
companies in which to do business with many obstacles to starting up new farming enterprises; (2)
poor infrastructure, especially roads and electricity in those rural areas with the highest agricultural
potential; (3) very limited finance available for farmers and firms who want to expand their farming and
processing businesses; and (4) very low use of modern farming practices and inputs. Without external
support, it is unlikely that Tanzania will be able to address these obstacles soon enough to feed its
population and reduce poverty. DFID will thus work with other development partners to assist with the
implementation of the SAGCOT initiative which aims to catalyse $2.1 billion of private investment over
a 20 year period alongside public sector grants and loans.
In addition to financial support for the construction of infrastructure and investment capital, the UK has
two specific strengths which it brings to this process. Firstly, DFID’s experience in many countries of
setting up institutions able to change the environment for doing business over time. It will leverage this
strength in its support for the SAGCOT Centre. Secondly, DFID brings sorely needed expertise from a
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number of countries and in various agricultural sectors of successfully working directly with smallholder
farmers to make it easier for them to market their products at better prices and to buy better and
cheaper inputs. This is the most viable approach to increase incomes for rural Tanzanians in the 3-5
years before large-scale foreign investment into commercial agriculture in the corridor is possible.
What are the expected results?
The portfolio of interventions supported by this programme will contribute to improvements in the
business environment for commercial agriculture in Tanzania (especially the southern corridor), growth
in the number and scale of commercial agribusinesses and substantial improvement in the market
operations of a number of agricultural commodity markets.
Specific outputs to be delivered by the programme include:
 The upgrading of the Kidatu-Kiberege (38km) and Signali-Kibaoni (18km) sections of the road
linking the Kilombero cluster and its extension to Ulanga to the Tanzam highway;
 New commercial agribusiness investment in the southern corridor;
 Funding of approximately 24 start-up agribusinesses through the catalytic fund;
 Ten thousand hectares of commercial forests established and a stabilisation of charcoal prices
after a period of 7- 8 years benefitting 500,000 households in Dar es Salaam;
 Reform of the green leaf tea price mechanism to increase yields for smallholder tea farmers as
well as the purchase of one or two tea factories on behalf of smallholder tea farmers (similar to
the model implemented in Kenya and Rwanda);
 Improved market linkages and productivity for smallholder farmers in the maize, rice and
horticulture sectors in the region;
 A reduction in the rate of deforestation.
The programme is expected to increase incomes for at least 100,000 rural households by March 2015
and over 230,000 households by the end of the programme in 2017. The impact on the energy sector
(charcoal, which provides 70% of cooking fuel for Dar es Salaam) is projected to kick in by 2018 and to
have benefitted 757,000 households by 2022, which includes poor urban households in Dar es
Salaam. By that time the interventions should have improved 3.8 million lives and will generate a net
present value (NPV) of £336 million.
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Table of Contents
Strategic Case
A.
B.
Context and need for a DFID intervention
Impact and Outcome that we expect to achieve
4
9
Appraisal Case
A.
What are the feasible options that address the need set out in the Strategic case? 10
Option 1: The counter factual
12
Option 2: Support the SAGCOT Initiative
13
Component 2A: Support to the SAGCOT Centre
20
Component 2B: Invest in the SAGCOT Catalytic Trust Fund or another provider of
patient capital
21
Component 2C: Invest in rural roads within the corridor
23
Component 2D: Invest in value chain interventions in key agricultural sectors in the
corridor
25
B. Assessing the strength of the evidence base for each feasible option
33
C. What are the costs and benefits of each feasible option?
38
D What measures can be used to assess Value for Money for the intervention?
46
E. Summary Value for Money Statement for the preferred option
48
Commercial Case
Indirect Procurement
49
Direct Procurement
51
Financial Case
53
Management Case
55
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Business Case
Strategic Case
A. Context and need for a DFID intervention
Despite Tanzania’s recent robust economic growth of 6.6 per cent per year between 2001 and
2007, poverty levels remain stubbornly high at 33.6 per cent from 35.7 per cent and the number
of absolute poor actually increasedi.
Agriculture presents the best opportunity for reducing poverty in Tanzania. While the
economy needs to continue to diversify into other sectors (see Figure 1 & Figure 2 below which
sets out where new jobs are being created), in order to have a significant impact on poverty in
Tanzania in the short to medium term and to make use of Tanzania’s regional comparative
advantage, transforming the agriculture sector remains fundamentally important. The sector
needs to evolve from one based predominantly on subsistence farming with thinly spread and
at times ineffective support from Government, to one based on commercial farming that
encourages the private sector to play a much greater role.
Figure 1: Employment vs GDP 2000
Figure 2 : Employment vs GDP 2006
Source: ILO, MDG Employment Indicators: Tanzanian
Analysis, Graph 2.2; Economic Survey 2008, Table No. 3
Source: ILO, MDG Employment Indicators: Tanzanian
Analysis, Graph 2.2; Economic Survey 2008, Table No. 3
This support will contribute to DFID’s objective of boosting wealth creation, Priority 3 in the
Structural Reform Priorities and deliver DFID Tanzania’s commitment of raising incomes for
563,500 farming households and increasing food security.
Context
12.9 million Tanzanians live in povertyii and 85 per cent of those live in rural areas and
rely on agriculture for their livelihoodiii. Tanzania is dominated by labour intensive, small
scale agriculture with low productivity and only a fifth of arable land is used productively.
Households have poor nutritional outcomes and face food insecurity for an average of 3 to 4
months of the year.
In most areas of Sub Saharan Africa evidence suggests increasing productivity of farm
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activities has the greatest potential for poverty reduction, either directly through increasing
incomesiv or indirectly through lowering food prices. A study conducted by the International
Food Policy Research Institute found that in many developing countries the agriculture sector is
often ranked first or second in terms of returns to poverty reduction, usually above more
traditional sectors such as education, health or roadsv.
Agriculture is also closely linked to economic growth. A $1 increase in agricultural outputs
increases economic production by between $1.2 to $1.9 in agricultural economiesvi.
Agriculture’s links to other sectors, such as manufacturing, generate considerable employment,
income, and growth in the rest of the economy. Globally, very few countries have experienced
rapid economic growth without agricultural growth either preceding or accompanying itvii.
Internationally, food security has gained political prominence since the food price spike
of 2007/08. Food prices are now higher than those in 2008. The latest inflation figures in
Tanzania show that food prices increased by 20.8 per cent over the last 12 months to July
2012. Hence there is continued urgency globally to tackle the causes of high and volatile prices
and to mitigate the impacts on the poorest. In June 2011 the G20 Agriculture Ministers
committed to an Action Plan on the sustainable intensification of agricultureviii. At the Camp
David G8 meeting in May 2012, the G8 countries signed a compact with four vanguard
countries, including Tanzania, agreeing to support the development of agriculture with
complementary necessary reforms within the business environment. A new programme in
Tanzania will form part of the UK’s contribution to these international commitments.
Investing in agriculture will also support the UK Government to meet its global
commitments, over the next four years to: stop ten million more children going hungry; ensure
another four million people have enough food throughout the year, and help poor families to
grow enough food by increasing their access to seeds, tools and training in farming.ix
There is good potential to boost productivity and food security, substantially decrease
poverty and improve nutritional outcomes. The country is well endowed with large areas of
favourable soils; it has good potential access to water; relatively sparsely populated areas; and
a favourable geographic position for both regional trade – bordering eight other countries - and
international trade - with its long coast line and relatively well-functioning sea ports. The current
low levels of productivity make a doubling of yields possible in a short period of time if farming
practices are modernised.
However the sector has failed to capitalise on its resources. Its poor performance can be
traced back to legacy issues of previous socialist policies. A continuing weak policy
environment, outdated agricultural practices, inadequate infrastructure making routes to market
expensive and inputs inaccessible, and soil degradation and irregular weather patterns have led
to low growth within the sector.
There are distinctive roles for the public and private sector. The public sector should focus
on improving the business environment and investing in public goods while from the private
sector, substantial investment and skills need to be attracted into commercial farming. If this
investment can be facilitated to establish strong links with smallholder farmers through mutually
beneficial partnerships, and appropriate environmental and social safeguard measures are put
in place, this can be done in a way that will sustainably increase wealth and decrease poverty.
Tanzania can reform to be a food basket for the vulnerable East African region and the
wider African continent moving it from a country that currently struggles to produce enough food
for its own population, to one that can both feed itself and be a significant exporter.
Until recently not enough has been done to promote private sector investment in
agriculture. Commercialising agriculture will have a significant positive impact on poverty,
however for the very poorest and particularly for households who live in remote areas this will
take some time. Additional complementary measures are needed to alleviate poverty in these
areas. The Government’s Agriculture Sector Development Programme (ASDP) and initiatives
that focus on poorer areas (like BRAC Tanzania) have an important role to play, alongside
other safety net programmes.
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There is a direct relationship between agricultural productivity, the environment and
climate change. An expansion of agriculture production will both impact and be
impacted by the environment and climate change. This relationship must be taken account
of in the development of SAGCOT to ensure that investment in the area is Climate Smart and
environmentally sensitive. Due to the significant environmental, climate and social elements of
the expansion of agriculture in SAGCOT and associated infrastructure development, the World
Bank, supported by DFID is undertaking a Strategic Environmental Assessment (SEA). The
final SEA will report in November 2012. In addition, DFID together with the Norwegian
Embassy is funding a Green Growth Strategy for the development of the Southern Corridor to
help ensure that the opportunities for sustainable development and green growth are
maximised.
POLICY CONTEXT
The Government of Tanzania is well aware of the sector’s importance for reducing
poverty and boosting economic growth. It has, supported by its development partners,
repeatedly attempted to kick start the sector, with limited success. This has ranged from
sector-wide efforts in the form of the ASDP to targeted and resource intensive input subsidies
in the National Agriculture Input Voucher Scheme (NAIVS).
However apart from where subsidies have concentrated or links with commercial farms
been fostered, the livelihoods of most rural Tanzanians have not improved. The recent
DFID/Irish Aid joint country programme evaluation noted that ASDP had not delivered the
impetus for agricultural reform, overall sector performance is still weak, and transformation is
taking place too slowly. It recommended that DFID should provide greater direct support to the
private sector. However, how such support is targeted will be critical due to binding structural
constraints, such as the very limited market in agricultural land which will for the foreseeable
future make it difficult for external investors to obtain large tracts of land for primary production.
In 2009, the government recognized the need to strengthen the role of the private sector as an
engine of growth and to focus Tanzania’s attention on boosting agriculture in a new
complementary strategy called the Kilimo Kwanza (Agriculture First) initiative. A year later the
government proposed the establishment of a Southern Agricultural Growth Corridor of
Tanzania (SAGCOT) initiative as a means of putting Kilimo Kwanza into practice. SAGCOT will
target a number of high potential clusters within the southern corridor. It will bring to bear an
integrated approach to development ensuring issues around infrastructure, policy, finance and
information are tackled simultaneously.
Alongside these initiatives the Government of Tanzania is also signed up to the African Union’s
Comprehensive Africa Agriculture Development Programme (CAADP). As part of this process
the Government launched the Tanzania Agriculture and Food Security Investment Plan
(TAFSIP). This provides an overarching framework under which all Government and
development partner initiatives will be coordinated. CAADP has two principles: to increase
agriculture sector growth to 6 per cent per annum – it currently sits at just over 4 per cent –
and to allocate 10 per cent of government spending to the sector – it has increased to an
impressive 9.3 per cent in the 2012/13 budget. .The agricultural ministries and departments
are continuing to undertake an alignment exercise of their programmes to the new TAFSIP,
this will have budgetary implications. SAGCOT forms part of the investment plan.
FINANCIAL RESOURCE
Greater and better targeted investment in agriculture is needed and this cannot be done
by the public sector alone. While forecasted spend is increasing, it is still below the CAADP
target of 10 per cent. In addition current spend is not as effective as it could be. In recent
years, the share of agricultural public expenditure in agricultural GDP has increased (from 2.6
6
per cent in 2005/06 to 7.7 per cent in 2010/11), making the sector more dependent on public
support while not generating significant agricultural growth from the increased spend.
Private sector investment is extremely low. Despite 85 per cent of Tanzanians earning a
living from agriculture, it constituted a mere 2.3 per cent of the total Foreign Direct Investment
stock in 2008 and in 2011 primary agriculture accounted for only two per centx of domestic
financial loansxi.
Government expenditure can be made more effective if it improves the allocative and
technical efficiency of current spend. While investment in private goods, the input subsidy
programme is one example, can lead to an increase in yields, studies from other countries
have shown that increasing investment in public goods can have a greater return.
More importantly in order to transition from small-scale farming to commercial farming
the agriculture sector needs to attract substantially larger amounts of private foreign
and domestic financing. Banks view the sector as high risk and only offering a moderate
return. In addition agriculture businesses often need a lengthy payback period, and in
Tanzania long term financing is constrained. Furthermore minimal hedges to natural risks,
seasonality, a lack of property rights and the poor rural branch network make banks reluctant
to lend to agribusinesses.
Smallholder farmers have almost no access to finance. Microfinance institutions cover less
than 1 per cent of the rural population but there are some positive signs of improvement
including BRAC Microfinance and Pride Rural Financial Window. More informal community
savings groups play a significant role in rural communities and have been shown to be an
effective savings tool as well as a way to mitigate risks, smooth consumption and finance the
start-up of micro businesses. There are a number of programmes in Tanzania supporting the
roll out of this initiative through Financial Sector Deepening Trust (FSDT).
Reforms within the financial sector and business environment are needed to boost
private sector agricultural financing. Our investment in FSDT is part of the long term
solution and a recent survey of finance in the agriculture sector funded by FSDT has provided
greater insight. In the shorter term organisations like the African Enterprise Challenge Fund
(AECF), CDC and SAGCOT will provide cheaper funds and grants to stimulate greater
agricultural investment.
Fit with DFID Tanzania’s Operational Plan
DFID Tanzania is committed to raising rural incomes; the operational plan has a target of
563,500 rural households. DFID’s current investments are forecast to increase rural incomes
of 270,000. These are: the Coastal Rural Support Programme, the Cotton Programme, the
African Enterprise Challenge Fund’s Tanzania Agribusiness Window (TZAW), and the
agriculture sector’s portion of general budget support. Two additional programmes are under
design: i) BRAC implemented Livelihoods Enhancement through Agriculture Development
(LEAD) programme, and ii) a rural roads programme. These two are expected to deliver
increased in comes for 220,000 households, leaving a gap of 60,000 households. In order to
achieve the results target additional investment is required. How the portfolio of initiatives
complement each other is set out below and geographically in Figure 3
The agriculture sector can be supported in a number of different ways to boost incomes and
reduce poverty. These can be grouped into three:
i)
Support to strengthen the enabling environment and improve the allocative and
technical efficiency of Government’s investment in agriculture.
ii)
Support to boost commercial agriculture and establish links with smallholder
farmers using a top down approach.
iii)
Support directly to smallholder farmers to improve productivity and links with
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markets using a bottom up approach
Currently DFID supports the first through general budget support where approximately 5 per
cent of these funds flow to the agriculture sector. DFID is also an active member of the
agriculture donor working group that works alongside that of the agriculture ministries and
departments in Tanzania, to improve the policy environment and the efficiency of public funds.
DFID Tanzania’s investment in the agribusiness window of the African Enterprise Challenge
Fund supports specific commercial agribusinesses to enhance their productivity and the
livelihoods of the surrounding communities. This investment will deliver results of increased
incomes over the medium to long term.
DFID Tanzania’s two value chain programmes cut across these three groups, focused on
specific crops, namely cotton, rice and sesame in pockets of significant poverty. Again the
approach is to work with lead companies (ginners, agrodealers, millers, processors) as well
farmer groups to develop markets.
An investment in the LEAD programme will support a bottom up approach spread across a
significant portion of rural Tanzania. It will work directly with smallholders to improve their
productivity, access to inputs and markets, and access to finance. This will deliver results in
the short to medium term. It will have a significant impact on poverty, and slightly less impact
on transforming the sector.
An investment in the SAGCOT initiative presents an opportunity to combine top-down and
bottom-up support in a defined geographic scope (the geographic cluster approach utilised by
SAGCOT) and within a context where there is strong political support. The top down approach
to improving the business environment will deliver results in the medium to long term spread
across the entire national agricultural sector and not limited to the SAGCOT focus area, while
direct support for value chains in the southern corridor will deliver shorter term results as well
as valuable information to direct enabling environment support. It will provide a significant
contribution to the DFID portfolio through the transformational impact it will have on the
agriculture sector, moving it from subsistence based to commercially-orientated. It will also
provide impetus to improve the enabling environment more generally. The GoT’s commitment
in the global food security effort was illustrated by their joining with the G8 member countries in
the “New Alliance for Food Security and Nutrition”. This includes “working together to generate
greater private investment in agricultural development, scale innovation, and achieve
sustainable food security outcomes”xii.
Figure 3: DFID supported agriculture programmes
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BRAC
offices
Cotton
Programme
SAGCOT
Corridor
Coastal
Rural
Support
Programme
The feasibility of the SAGCOT initiative is good. There is good evidence that agribusiness
in Tanzania can be profitable and that inclusive business models can work. Evidence from the
Beira Agricultural Growth Corridor review in Mozambique showcased a range of innovative
partnership models that are starting to produce results. In Tanzania there are also a number of
successful examples, including the Illovo sugar outgrowers’ scheme and the Kilombero Rice
outgrowers’ scheme, both found within the SAGCOT corridor.
DFID has good experience of supporting policy platforms to undertake research and
provide a knowledge hub for progress and M4P interventions within a sector. In
Tanzania the FSDT organisation is a good example operating in the financial sector,
Trademark is another that is stimulating better trade links within East Africa. Development
partners and particularly DFID through the Africa Enterprise Challenge Fund has good
experience of supporting new businesses overcome high initial costs and risks associated with
setting up businesses and establishing partnerships with smallholder farmers.
B. Impact and Outcome that we expect to achieve
1. The expected impact of this intervention is to reduce poverty and improve food security
within the region.
2. The main expected outcomes are an increase in rural incomes. However further outcomes
expected include:
 A sustained increase in agriculture production and productivity
 A reduction in food prices for consumers
 Job creation
 An increase in export earnings
 Development of the agriculture sector in an environmentally sustainable and climate
smart way

Contribution to renewable energy and stable or lower energy prices for poor
households.
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Appraisal Case
A. What are the feasible options that address the need set out in the Strategic case?
Given Tanzania’s socialist background and only recent policy turn to private-sector agriculture, the
SAGCOT initiative presents the best opportunity to date for the public and private sectors to work
together to achieve substantial impact in commercialising Tanzania’s agricultural sector and increase
smallholder incomes.
Given the very under-developed nature of Tanzania agriculture and the legacy of an agricultural
economy run on collectivist and dirigiste principles, a number of pillars must be put in place for a
significant portion of smallholder agriculture to commercialise and grow:
1. The business enabling environment for agribusiness must be improved in critical areas: The
most prominent areas that need attention are land use planning, agricultural taxation, trade
policies as well as access to utility services. Although the need for change has already been
identified in the Government’s 2009 Kilimo Kwanza policy for private-sector driven
agriculture, implementation has lagged. Successful implementation will also require growing
alignment between national government priorities and regional, district and local government
agencies.
2. More agricultural land must become tradable: Tanzania does not have private land
ownership, all land being public land held in trust by the President. Most of the land available
for agriculture is village land controlled by village governments. A very small portion of
agricultural land (less than 2%xiii) is “titled”, giving the title holder long-term lease rights.
These titles can be bought and sold. Converting village land to titled land can take between 3
and 10 years.
3. Access to appropriate finance for commercial farming: Despite being Tanzania’s largest
economic sector by employment and livelihoods, less than 12% of total financial sector
lending goes to agribusiness and only about 2% to primary productionxiv. Estimated lending
to the agricultural sector in 2011 amounted to a paltry US$52m. Interest rates are high at 16
– 20% per annum in 2012 and agricultural bank loans have a maximum term of 3 years,
making it virtually impossible to repay loans from farming operations. A range of financial
instruments are required ranging from short-term working capital to long-term patient capital
and including risk-sharing grants.
4. Investment in public and on-farm infrastructure: In most of the southern corridor, commercial
farming operations and infrastructure will have to be developed from scratch. Bulky “on farm”
infrastructure investments required include bringing electricity supply to farms, building dams
and developing irrigation schemes. The larger infrastructure needs are primarily power
supply and roads. Although the southern corridor has relatively good backbone infrastructure
in the form of the Tanzam highway and the TAZARA railway, feeder roads are not in good
condition.
5. Establishing a critical number of commercial farmers: The success of SAGCOT is premised
on the existence of a critical mass of viable commercial farmers in the southern corridor who
can act as agrihubs for smallholder farmers. In the entire area there is currently no more than
about 20 - 30 commercial farms operating at an industrial level, a number of them struggling
financially. At the same time there is no shortage of aspiring commercially minded
smallholder farmers. The AgFIMS survey 2011 found that there were at approximately
490 000 smallholder farmers in all of Tanzania who farmed at least 5 acres or had a turnover
of at least US$600 per annum. These are the smallholder farmers producing most of the
cash crops. Increasing their revenue from existing production through improved market
access and subsequent productivity increases provides a complementary commercialisation
strategy to the hub-and spoke out grower model.
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6. Application of improved agricultural technology to primary production: Agricultural technology
refers to farming practices such as the use of good quality germplasm in seeds, appropriate
application of lime to acidic soil, use of fertilisers and crop protection chemicals, mechanised
land cultivation and other good agronomy practices. The application of these technologies
lags greatly in Tanzania. For example, about 70% of Tanzania’s crop area is still cultivated
by hand hoe, 20% by ox plough and 10% by tractor. For most crop varieties high quality
seed is not available.
For the SAGCOT initiative to succeed in meeting the need identified in the strategic case, all of these
pillars must be addressed over time. DFID’s investment must be guided by these critical areas for
success and where it can achieve the best returns in terms of rural household incomes. A portfolio
approach is therefore required with some of the pillars being addressed by interventions proposed in
this programme, while others are best dealt with in complementary programs or through support to
other institutions. The following Table maps the issue pillars to the components developed in this
programme as well as other DFID interventions and relevant interventions by other development
partners in Tanzania.
Table 1: DFID Tanzania interventions to address pillars supporting commercial agriculture
Pillar 1: Business enabling
Component 2A – support for SAGCOT Centre
environment for agriculture
Pillar 2: Improving market in
DFID Tanzania is developing a separate program to deal with this pillar
agricultural land
Pillar 3: Access to finance
Component 2B – support to SAGCOT Catalytic Fund Social Venture
Capital Window (patient capital)
TZAW – matching grants
FSDT - Support to PRIDE Tanzania and BRAC Microfinance – working
capital, and general financial sector support, including AgFiMS
World Bank will support SAGCOT CF matching grant window
Private Infrastructure Development Group funding for agriculture
Pillar 4: Investment in public
Component 2C – road construction in SAGCOT corridor
Component 2B – SVCF will also fund on-farm infrastructure
and on-farm infrastructure
ASDP program supported by several DPs also funds infrastructure
especially irrigation
Pillar 5: Establishing
Component 2D – value chain interventions all target pillars 5 and 6
commercial farmers
Various value chain and cluster initiatives supported by other DPs
Pillar 6: Applying improved
Component 2D – value chain interventions all target pillars 5 and 6
agricultural technology
Various value chain and cluster initiatives supported by other DPs
The following options for investment have been identified. Option 2 has four components.
Option 1: Do nothing further to support the agriculture sector – the counter-factual
Option 2: Support the Southern Agriculture Corridor of Tanzania (SAGCOT) initiative
The SAGCOT initiative can be supported in different ways. This appraisal will assess a portfolio of
components for supporting the initiative.
Component 2A: Invest in the policy and coordination function necessary to align multiple
stakeholders and trigger enabling environment changes (pillar 1 above);
Component 2B: Invest in a provider of patient capital to Tanzanian agribusiness (pillar 3 above);
Component 2C: Invest in rural roads within the corridor (pillar 4 above)
Component 2D: Invest in value chain interventions in key agricultural sectors in the corridor (pillars 5
and 6 above).
DESCRIPTION OF OPTIONS
Option 1: Do nothing further to support rural incomes – the counterfactual
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DFID will not invest further funds in the agriculture sector other than those already being provided
through GBS, the Coastal Rural Support Programme, the Cotton Programme, the Agribusiness
window of the African Enterprise Challenge Fund and the proposed LEAD and rural roads
programme. These current investments are expected to generate increased incomes for 490,000
households. Should DFID make no more investments in agriculture and the rural sector, it will not
achieve its target of 563,500 households.
In terms of the actual interventions, the result of not proceeding with the programme is difficult to
predict because there are so many other players in the market that impact agriculture in
Tanzania, not least of which is DFID’s new East and Southern Africa Staple Food Markets
Programme, which will focus strongly on cross-border trade in staple food commodities as well as
Trademark East Africa which also focuses on the trade side. On the cross-border trade side at
least, this programme is unlikely to add value not yet delivered by these other programmes. The
distinctive contribution of this programme is therefore likely to occur within the specific Tanzanian
context. Utilising the intervention pillars set out above, the following can be projected:
Business enabling environment for agriculture: Since the launch of Kilimo Kwanza there has
been little progress with the development of an enabling environment for private sector-driven
agriculture. The central planning mind-set still prevails in most public institutions and the initiative
of private-sector minded champions are easily squashed. In the absence of independent
institutions with an M4P mind-set pursuing reforms in this area on an extended, consistent and
tactically flexible basis, progress is likely to remain slow and patchy. This is especially true given
the weak capacity of critical institutions such as the Tanzania Investment Centre (TIC) and the
Rufiji Basin Development Authority (RUBADA). It will remain difficult for commercial agriculture to
take root in Tanzania without significant progress with these enabling environment reforms.
Amongst development partners in Tanzania DFID is the strongest proponent of the M4P
approach.
Market in agricultural land: This programme is not proposed to work on this pillar.
Access to finance: DFID Tanzania already supports a number of programs designed to promote
access to finance for rural communities. These include the Tanzanian window of the AECF
(TZAW) which provides matching grants for larger established firms, BRAC Microfinance and
Pride Rural Financial Window which provides short term working capital for smallholder farmers
and broader enabling environment reforms through FSDT. The World Bank will provide ample
additional support for matching grants through their funding of the proposed SAGCOT Catalytic
Fund matching grant window. The most critical financing gap at this point is for patient capital
directed at start-up agribusinesses. Experience with the TZAW shows that the pipeline for
matching grants directed at established agribusinesses in Tanzania is thin. There are simply very
few commercial farming enterprises in Tanzania. In the absence of a program, with dedicated
pipeline development and technical support to start-ups, commercial farming will remain limited to
a few existing enterprises and a few new foreign investments able to secure land. Commercial
agriculture will therefore remain a very narrow sector. This program will therefore support patient
capital for start-up agribusinesses.
Infrastructure: It is proposed that this program will support the upgrading of the Mikumi-KidatuIfakara road linking the Kilombero cluster to the Tanzam highway. The guiding planning
instrument for the transport sector in Tanzania is the Transport Sector Investment Programme
(TSIP). The first five year phase (from 2007/8 to 2011/12) of TSIP ends 30 June 2012. TSIP II
(from 2012/12 to 2016/17) is under preparation. The paving of the 56 kilometres unpaved
sections between Kidatu and Ifakara was planned to be done under TSIP I and is now part of
TSIP II. The problem with TSIP I was that it was not aligned with the available resources of the
Medium Term Expenditure Framework (MTEF). Just prior to elections in 2010, government
awarded contracts valuing jointly almost a billion US dollars. This has the consequence that it is
unlikely the GoT will have the finances available for the works between Kidatu and Ifakara during
12
the TSIP II period since it can hardly finance the contracts already awarded during TSIP I. In the
absence of funding from development partners it is therefore unlikely that the main road link for
the Kilombero cluster will be upgraded before 2017/18 at the earliest.
Commercial agribusiness: There are currently very few commercial farming operations in the
SAGCOT corridor able to support out grower schemes for smallholder farmers. Those that do
exist took a long time to establish. For example, it took more than 5 years from first engagement
with RUBADA to bring the rice operations of Kilombero Plantations Limited (KPL) into production.
A number of the operations, mostly those that are Tanzanian owned, are experiencing financial
difficulties and may even discontinue operations. Due to the limited availability of large tracts of
land for commercial agricultural operations, large-scale foreign investment into primary production
in the corridor is unlikely to materialise in the first 3 – 5 years of SAGCOT’s operations. In the
short to medium term the growth of commercial agricultural in the southern corridor will therefore
have to be primarily bottom-up rather than top-down. A number of development partners, and
recently also the GoT, have pursued agricultural value chain interventions in Tanzania, also in the
southern corridor. However, most of them have followed a traditional “put it on the ground and
leave when the project finishes” approach, rather than the M4P approach. As a result, the impact
of many of these interventions has not been sustainable. In the absence of strong M4P
interventions and institutions targeting smallholder farmers able to upscale, the development of
commercial agriculture in the SAGCOT area is likely to develop very slowly and even lose
momentum whilst the larger investors have to bide their time for substantial and difficult enabling
environment changes to be implemented.
Application of improved agricultural technology: A number of development partners and
numerous interventions target the development and application of improved agronomy practices
in Tanzania. The larger ones include AGRA and USAID and interventions vary from supporting
the development of new seed varieties to training courses for smallholder farmers. There is
however substantial uncertainty on the extent to which new agronomy practices are indeed
adopted and consistently implemented by farmers. Publicly delivered agricultural extension
services have largely ceased to exist and private extension services are slow to develop. The
most comprehensive study on adoption rates for new agronomy practices was done more than 12
years ago and indicated great variation by region and type of practice. The delivery of improved
technology and training is thus no guarantee that productivity will improve. In fact, there is little
evidence of a widespread improvement of smallholder productivity over the past decade. In the
absence of a concerted effort to monitor the relative impact of different marketing and productivity
interventions, much of the agronomy support currently delivered may yield little in poverty
reduction and improved food security.
Option 2: Support the Southern Agriculture Growth Corridor of Tanzania (SAGCOT) initiative
Background
SAGCOT is a partnership between Government, the international and local private sector and
development partners that will spearhead reform and growth in the southern agriculture corridor
of Tanzania. Its aim is to bring an integrated approach to development ensuring issues around
infrastructure, policy; finance and information are tackled simultaneously to boost both
commercial agribusiness and smallholder farmers.
Tanzania’s southern corridor, which is approximately the size of Italy and is home to 9 million
people, links the port of Dar es Salaam to Malawi, Zambia and the Democratic Republic of
Congo. It benefits from relatively good ‘backbone’ infrastructure – including road, rail and power –
and passes through rich farmland. The area could become instrumental in boosting food security
in the region. Today, however, its agricultural potential is largely dormant and the majority of the
rural population remains poor and food insecure.
SAGCOT aims to catalyse $2.1 billion of private investment over a twenty year period, alongside
public sector grants and loans of $1.3 billion. The projected result will be a tripling of the area’s
13
agricultural output. Approximately 350,000 hectares will be brought into profitable production,
much of it farmed by smallholder farmers, and with a significant area under irrigation. By 2030
this initiative is expected to lift 2 million people (roughly 450,000 farm households) out of
poverty and to increase food security in Tanzania and the region.
Figure 4: Map of the SAGCOT region
One of SAGCOT’s main objectives is to provide opportunities for smallholder producers to
engage in profitable agriculture. It will do this by incentivising stronger linkages between
smallholders and commercial agribusinesses, including ‘hub and outgrower’ schemes that allow
smallholders in the vicinity of large-scale farms to access inputs, extension services, value-adding
facilities and markets. SAGCOT will also support smallholder producer associations, helping them
enter into equitable commercial relationships with agri-processing and marketing businesses. In
many cases irrigation will be made available through professionally-managed farm blocks.
Due to economies of scale, farmers and agribusinesses are most likely to be successful when
they are located in proximity to each other and related service providers. SAGCOT focuses on an
initial six geographic ‘clusters’ within the southern corridor where there is the potential, over time,
for profitable groupings of farming and processing to emerge. Each cluster requires investment
along the full agricultural value chain. Some of these investments are public goods (e.g. rural
infrastructure) which must come from the government and its development partners; others can
expect to earn a financial return and will come from the private sector.
SAGCOT is intended to be a flagship example of the GoT’s public private partnership approach.
The partnership nature will be reflected in the SAGCOT Partnership Forum which will effectively
be SAGCOT’s membership association. The Partnership Forum will be open to a wide range of
Partners with an interest in agricultural growth in the southern corridor of Tanzania. Current
partners include multinational agribusiness companies such as Unilever, Yara, Syngenta and
Monsanto, financial and communications companies such as Stanbic Bank, NMB and Vodafone,
Tanzanian private sector associations and development partners. Twice a year the SAGCOT
Centre will invite all registered partners to a SAGCOT Partnership Forum. The purpose of the
Forum will be to share information, best practices, ideas, concerns, lessons and opportunities.
Private sector representatives who are not ingrained in Tanzanian private sector associations
place high value upon this Forum. The Forum is intended to provide a critical mass of key actors
that align with SAGCOT objectives and pro-actively engage in public-private activities in the
Corridor.
Two new institutions have been created to assist the Initiative deliver its goal:
14
(1)
The SAGCOT Centre will act as the executive arm of the Initiative. It is intended to provide
an institutionally neutral, professionally competent platform for SAGCOT planning,
coordination, facilitation and monitoring and evaluation. SAGCOT Centre Ltd was
incorporated as a company limited by guarantee in Tanzania in May 2011. The 2012 work
plan approved by the SAGCOT board of directors envisages four sets of activities for the
Centre:
 Partnership Promotion: To increase public and investors’ awareness about SAGCOT and
encourage public and private sector organizations to become active registered partners of
the SAGCOT Partnership Forum;
 Agribusiness development services: A broad range of field related coordinating activities
to facilitate the successful development of Agribusinesses. These activities are intended to
crowd resources, reduce investment risk and lower barriers to entry.
 Improving the business-enabling environment: To identify priority policy and regulatory
limitations to the expansion and profitability of farming and agribusiness investment in the
corridor and subsequently role out targeted advocacy.
 Monitoring and Evaluation (M&E): Working in consultation with key partners, the Centre
will develop an M&E Framework that includes baseline data and a list of monitoring and
evaluation criteria. It will also clearly identify what the different partners see as “success”
in their own activities and aims, and those of the overall partnership.
(2)
The SAGCOT Catalytic Trust Fund (CTF) is a financing vehicle created in response to the
challenges of catalysing private sector investment in commercially and financially viable
agribusiness ventures throughout the value chains operating in SAGCOT. The objectives of
the Trust Fund are both developmental and commercial and its purpose is to fill the gap that
exists for longer-term finance for commercial agriculture that will ultimately drive the
transformation of SAGCOT. The Trust Fund will provide access to the initial capital required
to enable the agricultural and agribusiness development of SAGCOT. The CTF will have two
distinct facilities – the Social Venture Capital Fund (“SVCF”) and the Matching Grant Facility
(“MGF”):
The SVCF will identify and support the development and expansion of emergent and
generally smaller agribusinesses, who are either currently operating within SAGCOT or have
a desire to commence operations in the corridor and whose operations will ultimately
develop supply chain links with smallholders. The SVCF will provide a combination of
concessional finance and “hands on” agricultural project development expertise. It will
support activities and capital expenditure required for the growth of these types of
companies to the point where they can attract commercial finance, private equity or be sold
to private investors. All investments made by the SVCF will be repayable when the project
attracts third-party private investment. The proceeds would then be recycled into developing
new projects in the corridor.
The MGF will provide matching grants to established agribusinesses for developing or
expanding commercial activities that generate income and create employment for
smallholders in trade, processing and service sectors thus providing a multiplier effect on
improving incomes and social conditions. The MGF is being developed to encourage private
investment directly benefiting smallholders that would otherwise not be made without these
funds. The targeted grant recipients are established commercial agribusinesses, or new
investment by established companies, who wish to link with and develop mutually beneficial
relationships with smallholder farmers to build or extend competitive supply chains. The
grant will help support those agribusinesses establishing new models of linking smallholders
to markets as well as those that may replicate successful models.
However there are a number of challenges ahead including:
15





SAGCOT has generated high expectations – it has been heralded on the international stage
but this has not yet translated into significant activities within the corridor.
There is the need for a strong Government counterpart to improve trade policy and its
transparency, reduce and rationalise taxes and regulations, improve infrastructure and
importantly resolving uncertainties around availability and access to land for investment.
Although Kilimo Kwanza, the Government’s policy to create a private sector-driven
agriculture, was already launched in 2009, policy commitments for example on land and
institutional reform, due for completion in 2009 and 2010, have not yet seen the light of day.
Two new institutions are being created with accompanying governance and management
capacity considerations. The consensus-based SAGCOT Executive Committee, with strong
representation from international agribusiness enterprises is playing a critical role in
continually advocating for adherence to best practice principles.
Rapidly increasing investment in agriculture can have a significant impact on the environment
and communities. This will need to be carefully managed and monitored. The World Bank,
supported by DFID, is undertaking a Strategic Environmental Assessment to scope risks and
recommend mitigating measures.
Balancing the benefits of SAGCOT between big business and smallholder farmers. A number
of farming enterprises in the Southern corridor with outgrower schemes are making headway,
while others are struggling to find a viable model.
Why DFID funds are needed
While the private sector will ultimately lead this process, public funds are needed to 1) ensure the
investment climate is conducive to private sector investment, and this includes investment in
infrastructure and reforming of the legal and regulatory environment, and 2) share some of the
risk and cost of setting up equitable and sustainable partnerships with smallholder producers.
There is strong high level political support and the Government has committed $1 million to the
catalytic fund and has contributed to the set up costs of the SAGCOT centre. The Government
has requested development partner support for SAGCOT because it is difficult for the
Government to justify further support for 1) private enterprise and 2) for a region that is relatively
better off than other regions in Tanzania.
See Table 1 below for contributions to date and potential future investments.
Table 1: Current financial contributions to SAGCOT
SAGCOT financial support
To date
Catalytic fund
Government of Tanzania
World Bank
USAID
Private investors
SAGCOT centre
Norwegian Embassy
USAID
World Bank
Multinationals
Other support within in the corridor
USAID
EU
Many other government and donor funded
programmes support activities within the corridor
16
Potential future
investment
-
$0.25m
$1 m
$0.1m
$1 m
$60 m
$12.5 m
tbd
tbd
$2 m
$4 m
$280m
€41m
Options for DFID support
DFID can support the SAGCOT Initiative either directly or indirectly or both. Direct support could
be channeled to the SAGCOT Centre or the Catalytic Trust Fund or to specific projects initiated
and implemented by these institutions. Indirect support could be provided through institutions or
programs that support the objectives of SAGCOT and seek to capitalise on the momentum and
focus created by the Initiative, but that are not channeled directly through the two SAGCOT
institutions. The identification (see above) of the pillars required for the growth of successful
commercial agriculture makes it clear that direct support only will be inadequate to achieve the
SAGCOT objectives. A combination of direct and indirect support is required. Whereas direct
support can only go to the SAGCOT Centre and Catalytic Fund, there are a number of options for
indirect support. These are developed below.
Theory of change
The impact sought by DFID Tanzania is a reduction in poverty. The bulk of poverty in Tanzania is
rural and this is accordingly the primary target of DFID Tanzania’s operational plan. This
programme is therefore designed to deliver increased incomes for rural households as the
outcome. Increased incomes can accrue to rural households either in their capacity as producers
or as employees. Both capacities are targeted.
The theory of change focuses on how incomes can increase for rural households as producers or
employees. Due to the fact that multiple interventions targeting multiple outputs are likely to be
funded under the programme and the need to underpin these with a defensible understanding of
how agricultural markets for smallholder farmers work, the theory of change itemises the market
changes (the likely outputs from the interventions) that are required to eventually deliver
increased incomes as well as the most likely impact chains that link these market changes
causally. An important requirement of the programme’s implementing partners will be to test and
refine these impact chains utilising M4P approaches.
Markets are complex and interlinked systems where one change will impact various other
processes and players. Illustrating all these linkages will make for a rather complex and not
particularly useful diagram or theory. The point of departure of the theory of change is therefore a
categorisation of qualitatively (and in all likelihood quantitatively) different ways in which rural
incomes can increase. What makes this particularly useful is that the different categories of
income increases are normally yielded by different types of interventions. Measuring the relative
effectiveness of these interventions will be a major objective of the monitoring and evaluation for
the program. To the extent that one market change is dependent on a prior change or condition,
the prior change or condition, if not addressed by the program, constitutes an assumption or risk
and need to be monitored by the program.
Five different categories of income increases are distinguished:
(1) Smallholder farmers can receive increased revenue from farming activities by selling existing
production at higher prices or increasing off-farm revenue, for example participating as coowners in the processing of farm produce (the marketing dividend). This particular form of
the targeted programme outcome does not depend on changes in the level of farm production,
although it will in all likelihood lead to increases in farm production. Establishing warehousing
systems and improving post-harvest handling processes are typical examples of programme
outputs that allow farmers to bulk up and delay the sale of produce for selling at better prices.
Market changes (programme outputs) that can support or lead to a marketing dividend are set
out in Annex A1.
(2) The cost of farming/agricultural production can be reduced, either through a reduction in input
prices such as the prices of land, capital, labor, and agricultural inputs, or through the
provision of public goods such as roads and electricity reticulation in a manner that reduces
17
farm costs (referred to in this context as the cost dividend). Market changes that can deliver a
cost dividend are illustrated in Annex A2.
(3) Smallholder farmers can receive increased revenue from their farming activities through
increased production volumes, increases in the quality of products produced or producing
different higher value products (the production dividend). This outcome depends on changes
in the level or composition of farm production and requires changes in the inputs and skills
required for agricultural production. The various market changes and interventions that can
lead to a production dividend are set out in Annex A3.
(4) Increased job opportunities can result from farming and other agricultural activities. These
could include direct net incremental employment by farmers, agriprocessors, input suppliers or
other rural service providers resulting from growth in the agricultural sector. This category of
income increase is referred to as the employment dividend. Market changes that can lead to
an employment dividend are set out in Annex A4.
(5) Finally, smallholder farmers can receive increased revenue through a reduction in the taxes
that they have to pay (the tax dividend). The tax dividend can result from either a reduction in
tax rates or an improvement in tax administration. These are illustrated in Annex A5.
The different categories of income increases and their linkage to the desired programme impact
are graphically illustrated in Figure 5. Broadly speaking, agricultural value chain interventions
targeting increased income and welfare for poor rural households fall into two broad categories:
interventions seeking to increase productive yields (which require the farmer to change his or her
ways of production and referred to above as the production dividend) or interventions that
increase the economic yields of existing and new production (for example lowering the cost of
inputs or increasing the prices for products sold – referred to above as the cost dividend and
marketing dividend respectively). The relative effectiveness in delivering increased incomes from
these two types of interventions should be a critical design element for any agricultural value
chain intervention. However, evidence on this is sparse and may suggest that targeting the
marketing dividend is more effective. Two possible reasons for this present themselves: the
adoption rates for new farming practices can be significantly lower than projected, often because
new and more costly inputs or technologies are required. Secondly, because improved inputs are
not always consistently available nor the extension services required to embed new agronomy
practices over time, the adoption of new agronomy practices can be limited or short lived. Value
chain programs can therefore be more successful if they target or are at least led by interventions
targeting the marketing and cost dividends. These dividends will invariably provide both the
incentive and resources for changes in production which then yield a production dividend. The
outcome categories above are therefore ranked in descending order of the speed and likelihood
of impact. The employment dividend is normally linked to increased production. The tax dividend,
although pretty immediate in impact if implemented, is ranked lowest due to the fiscal difficulties
experienced by the GoT which makes further tax concessions unlikely, at least in the foreseeable
future.
Since this programme also targets improved food security for Tanzania, focusing single-mindedly
on the marketing dividend will not be sufficient. Improved food security requires a production
dividend. The programme must therefore explore multiple options to deliver a production
dividend.
Figure 5: Theory of Change
18
Impact: Poverty reduction
Outcome: Increased incomes for small holder farmers & rural employees in agriculture
1. Increased revenue from farming activities
1a. Increased &
improved quality farm
production
(incorporates improved
productivity) - Pillar one
of G20 Agriculture
Action Plan
1b. Current farm
produce sold at
better
prices/increased offfarm revenue from
existing production
1c.
Reduced
tax burden
2. Reduced cost of
farming activities
3. New jobs from
agricultural &
farming activities
(and increased
incomes for
existing
employees)
Enabling environment changes can positively impact all the outcome categories listed above,
but are dependent on public policy changes, regulatory actions and changes in the capacity and
efficiency of public institutions. Due to the dominance of state-controlled institutions in Tanzanian
agriculture, none of the above outputs or outcomes can be sustainably achieved without changes
in the enabling environment. However, to date donor programs targeting these changes in the
agricultural sector through supporting direct state programs have not had a good record of
success in Tanzania as indicated by the recent DFID/Irish Aid joint country program evaluation of
amongst others the ASDP. Programs at one remove from state agencies, such as the FSDT,
have had more success with enabling environment changes (although in this case related to the
financial sector).
Success with enabling environment change in agriculture in Tanzania is therefore likely to require
longer term strategic engagement (beyond the life cycle of a traditional donor program) from an
independent base with strong Tanzanian roots.
Portfolio approach: No single intervention supporting SAGCOT is large enough and has the
impact and risk profile to justify DFID investing all funding available in that single intervention.
What is therefore proposed is a portfolio of interventions that would collectively be able to meet
the targets set in DFID’s operational plan and balance risk across a number of parameters:
 Does it deal with pillars (see Error! Reference source not found.) that must be put in place
for smallholder agriculture to commercialise and grow? Unless there are other interventions
that target a specific pillar, DFID should have a good reason for not targeting such an area.
 Wherever possible, the program should initially target the marketing and cost dividends before
the production and employment dividend. The ability of the intervention to impact the
enabling environment;
 There should be a balance between interventions targeting short-term, vs medium to longerterm impact. The program should also provide DFID with continuity in its engagement with
agriculture in Tanzania, given its overriding importance in poverty reduction and food security.
 The transaction cost for DFID, especially in staff time and procurement.
Four components are considered as part of the business case. One of the components has
subcomponents which are evaluated. (Note that option 1 is the counter-factual).
Component 2A: Invest in the policy and coordination function
This option would target essential public policy and other enabling environment changes
necessary to facilitate commercial agriculture in Tanzania. It would also support the coordination
19
of the various stakeholder groups who need to cooperate to ensure that SAGCOT makes
progress: public institutions at national, regional and local level, small and large players in
agribusiness including international agribusiness enterprises, as well as donor partners.
Support to the SAGCOT Centre:
The SAGCOT Centre (also referred to as the Centre) has the mandate to perform the executive
function for the SAGCOT Partnership. It is governed by a board of directors and staffed by a
management contingent. The firm intention of the Partnership was that the Board of the Centre
should reflect the nature of the partnership, i.e. a true public-private partnership (PPP), with
neither the government nor the private sector prevailing or dominating. Unfortunately, the board
was set up unilaterally by the GoT through the appointment of 5 directors drawn from Tanzanian
institutions without consulting its partners. An additional two directors has since been appointed
to represent international private agribusiness. Until the Centre has finalised its policies and
procedures and completed its strategic plan, the business partners in SAGCOT are insisting that
the Executive Committee which was originally put in place to establish SAGCOT, continues to
exist.
An interim or proto centre was set up under the ACT-managed TAP programme to provide initial
executive capacity for the SAGCOT Centre. The proto centre currently has four staff members
consisting of a newly appointed CEO (following the resignation of the first CEO), a deputy CEO
(seconded from the WEF) and two administrative staff. The Centre is supported by a number of
consultants.
The 2012 Work Plan contains a budget with a total funding requirement of US$2.2 m for 2012.
The net funding requirement is US$1.6m. Although some funds will be committed through partner
fees, the Centre is looking to development partners to fund the bulk of this. Depending on the
Centre’s success with recruitment it is unlikely that more than this will be required during the
current year. However, once the Centre is fully constituted and staffed, significantly more
resources will be required, at least for the initial 4-5 year period. USAID has already committed
US$3 million to the Centre; the World Bank and Norwegian Embassy have contributed to its
establishment and it is likely they will contribute to its running expenses. The funding shortfall is
estimated to be between $500,000 and $1 million per year. DFID has not yet made a firm
commitment to support the Centre, but has been engaged in discussions
To ensure that Tanzania’s public institutions deliver on the commitments made by the
government as part of the SAGCOT initiative, the Minister of Agriculture, following the World
Economic Forum in 2012, set up a National Technical Committee (NTC) comprising of senior
representatives of key government institutions, the SAGCOT Centre (who acts as Secretariat)
and representatives from private sector associations. Without the NTC and the critical support
provided by the Prime Minister’s Office, the ability of SAGCOT to impact government policy and
decision-making would be limited.
There is no doubt that the SAGCOT Centre can potentially play a very powerful role in the
development of agribusiness in the southern corridor. However, there are some major concerns
about its ability to fulfill this potential. Firstly, the evidence suggest that impact of institutions that
nestle close or even inside government (which is effectively where the current composition of the
board of directors places the Centre) on enabling environment and regulatory change has not
been great. The Business Environment Strengthening for Tanzania (BEST) program was found to
have had very limited impact with Tanzania’s Doing Business Indicator ranking actually
deteriorating during the course of the program. Secondly, the institutional structures with which
the Centre needs to work most closely to address the major enabling environment constraints –
the TIC and RUBADA – are neither geared nor capacitated to implement the changes which are
required in the short to medium term (next 2 – 3 years). Thirdly, the Centre struggles to find
leadership able to navigate a credible independent position between public and private sector
20
interests and that has the strategic wherewithal to make the most of the current opportunity. It is
hoped that the new CEO can fulfill this role.
On the other hand, the close working relationship between the Centre and the NTC places the
Centre in a strong position to liaise directly with government ministries and agencies that can
impact the enabling environment. SAGCOT enjoys a high profile at the moment with the
commitment of critical partners in place – the president, international business, national and
regional government authorities. It can be assumed that this commitment will stay in place
(barring unexpected circumstances) for at least the duration of the second term of President
Kikwete, i.e. up to November 2015 (the best part of 4 years). Given the momentum and
reputation staked on this process, it is reasonable to engage with and invest in the SAGCOT
institutions despite patent weaknesses. The “New Alliance for Food Security and Nutrition” cosigned by Tanzania at the May 2012 G8 summit in Camp David, gave added impetus and priority
to the reform of agriculture in Tanzania.
This SAGCOT Centre has not finalised its strategic plan, once this is done a submission will be
sent up to the DFID Tanzania Head of Office seeking approval to fund this component based on
the expected results an investment in the Centre can be expected to generate.
Component 2B: Invest in the SAGCOT Catalytic Trust Fund or another provider of patient
capital
Pillar 3 of a comprehensive support programme for agribusiness in the southern corridor deals
with access to finance. The requirement is for patient capital as opposed to the short term high
cost capital currently available from commercial banks. The CTF presents one opportunity to
provide such patient capital to agribusiness enterprises in the southern corridor.
The World Bank has committed US$40 million to the MGF. At this stage, given the uncertainty
surrounding a pipeline to be developed in the corridor and the fact that the MGF will be limited to
a five year lifespan, no further funding is required for the MGF. Moreover, DFID is already funding
the TZAW, including a new commitment of £6 million made in February 2012, which targets the
same investment opportunities as the MGF, although on a Tanzania-wide basis. The SVCF, on
the other hand, has a shortfall. The GoT will contribute an initial US$1 million and USAID
US$12.5m. This leaves a significant resource gap since the SVCF is anticipated to have a
lifespan of at least 10 years. DFID is therefore considering an investment in the SVCF.
SVCF Structure: The SVCF will operate as a window of the CTF. The CTF was registered as a
trust under Tanzanian law in May 2011. Subsequently, a sub-committee of the SAGCOT
executive committee (with strong participation by the World Bank and USAID) led a design
process which culminated in a revised Trust Deed, comprehensive business plans and
investment policies for both the MGF and the SVCF as well as various governance documents.
These have been agreed by the SAGCOT Executive Committee and will result in an amendment
of the original trust deed.
The Board of Trustees will consist of a mixture of public and private sector, international and
Tanzanian representatives with a range of requisite skills. An international search company has
been engaged to find suitable candidates for the board. The Board in turn will engage a fund
manager through international tender to manage the SVCF (and a separate fund manager to
manage the MGF). Finally, the Board will appoint an independent three-member Investment
Committee with delegated responsibility to evaluate, shortlist and select the project applications
recommended by the Fund Manager. A small secretariat will provide administrative and logistical
support to the Board.
SVCF operations: The fund manager will manage the day to day operations of the SVCF. The
fund manager is responsible for marketing and pipeline development as well as assessment of
applications for eligibility and suitability. However, the SVCF will not be a passive financing
21
vehicle. The fund manager (as opposed to the fund manager of the MGF) will also be required to
assist, where necessary, the fund’s agribusiness investments with general business assistance
and/or targeted technical agricultural assistance.
The SVCF will support the development and expansion of emergent and generally small
agribusinesses. These are firms that are in the early stage of their life (generally within five years
of the commencement of business), have limited resources in terms of staff and equipment and
are generally unable to gain commercial finance. The minimum size of the investment will be
US$250 000 with no more than 10% of the SVCF to be invested in any one recipient. The SVCF
is designed to make loans or quasi-equity, provided that all funding must be repaid once the
business is commercially viable. The SVCF will therefore also contribute to pillars 4 (provision of
on-farm infrastructure) and pillar 5 (supporting new commercial agribusiness enterprises) of the
support programme set out in section --- above.
Funding: In compiling the business plan and financial model for the SVCF, the design
consultants assumed a provisional funding commitment from DFID amounting to US$10m. This
would bring the total initial capital to US$23.5 million. This would not be enough to cover the
operating costs for 10 years of operations as well as a projected 24 investments at an average
investment size of US$ 450 000 per project. The TORs for the fund manager therefore provide
that the fund manager will be expected to raise additional investment capital for the SVCF from
primarily foundations and social impact investors to allow the SVCF to meet the projected
investment goals. The financial plan assumes that these private investor funds will flow in at the
beginning of the second year (US$10 million) and the beginning of the third year (US$10 million)
respectively, bringing the total projected capitalisation of the SVCF to US$43.5m. The initial
capital from the GoT and development partners is permanent capital and will not be repaid. It will
be applied on a first loss basis to pay for the SVCF’s operating costs and technical assistance,
with a limited amount being allocated for investment purposes. The capital received from private
investors will have to be repaid, both in terms of the principal and a yield.
Timeline: As at September 2012 the international recruitment process of the fund managers for
the MGF and SVCF had not yet been commenced. Considering the length of a full international
tender (4 - 6 months), an in-country mobilisation phase, a period of marketing and pipeline
development, followed by the selection process and contracting period, it is unlikely that the first
disbursements from the CTF will occur before April 2014. Moreover, due to the less developed
and lower capacity nature of the emergent farmers and agribusinesses that will be the recipients
of funding from the SVCF, it is likely to take longer to develop its pipeline. It is also worth noting
that the TZAW process was on average 6 months behind schedule, with notable delays in the
contracting and disbursement phase.
Taken together it is unlikely that the SVCF will make disbursements before the second half of
2014. Moreover, it is doubtful how many projects can be developed that will be able to absorb
US$450 000. The TZAW, which targets larger applicants similar to the MGW, was forced to
reduce the minimum size of their funding from the usual US$250 000 to US$100 000 to be able to
draw sufficient applications. Given the pressure on DFID Tanzania to produce tangible results by
March 2015, it is therefore recommended that DFID makes an initial investment in the SVCF of
£5m. Should the SVCF perform to expectations, a submission will be made to the DFID
Tanzania’s Head of Office to make an additional contribution of £5m to the SVCF.
AgDevCo: An additional option to provide access to patient capital to emergent farmers is to
channel funding through the PIDG facility to AgDevCo, a not-for-profit agricultural development
company operating in sub-Saharan Africa. DFID supports AgdevCo projects in a number of
African countries. Acting as principal, it invests social venture capital to create commercially
viable agribusiness investment opportunities, bringing them to the point, where in the longer term,
they can attract private investment from domestic and overseas investors. AgDevCo manages
the Beira Agricultural Growth Corridor Catalytic Fund, a precursor to SAGCOT and also played a
leading role in drawing up the SAGCOT Investment Blueprint. They already manage two
22
investments in the southern corridor and have investigated a number of other investments in the
SAGCOT region. They will open an office in Tanzania in December 2012.
From DFID’s perspective, a smaller early investment in AgDevCo could bridge the impact gap
until the SVCF comes on stream. The possibility also exists that AgDevCo is appointed as one of
the fund managers for the CTF.
Component 2C: Invest in rural roads within the corridor
Infrastructure is essential for agricultural development. In most of the southern corridor
commercial farms will have to be developed from scratch. Excluding land preparation, the bulky
“on farm” infrastructure investments will be in getting electricity to the farms, building dams and
developing irrigation schemes. Smallholder farmers wishing to participate in outgrower schemes
or to commercialise their own operations will have the same challenges. The Tanzania Social
Action Fund (TASAF) is designed to assist communities with the installation of such
infrastructure. In addition, most of the applications for patient capital directed at the CTF and
other instruments will include some form of on farm infrastructure.
The larger infrastructure that is relevant for the SAGCOT clusters is power supply and roads.
While there are issues with insufficient power supply at national level, there are efforts on-going,
by the Rural Electrification Agency (REA), to improve the local power supply network within the
clusters. The main infrastructure area where additional resources are needed, and where there is
also adequate absorption capacity, is the road sub-sector.
The roads sub-sector in Tanzania is well organized. National roads, which include trunk and
regional roads, are managed by TANROADS, an agency of the Ministry of Works. Local
government roads are the responsibility of Local Government Authorities. National and local
government roads (district, feeder and urban roads) are gazetted and are governed by the Roads
Act of 2007. For the financing of the maintenance of the road network a Road Fund (RF) was
established in 1998. The RF essentially is funded by a fuel levy (currently TZS 200 per litre of
fuel). Total collection currently is about US$200 million per annum. The RF channels 70% of its
funding to national roads and 30% to local roads.
The national backbone road infrastructure in the SAGCOT corridor is the Tanzam highway. It is
generally in good condition. Rehabilitation and upgrading of sections, financed by development
partners, is on-going. A threat to the highway is the heavy load of transit freight hauled (including
copper from Zambia) and not on the parallel TAZARA railway. Unfortunately, the TAZARA railway
is currently practically irrelevant for agricultural producers in the corridor. Efforts are being made
by the owner governments (Tanzania, Zambia and China) to commercialize it, but progress is
slow and uncertain.
District roads are managed by local government under the supervision of the District Engineer.
Evidence suggests that this is working well, again using finance from the Roads Fund. However
50% of rural district roads remain in poor condition. This is due to insufficient development
funding from the Road Fund and GoT at this time. This will need to be addressed in the medium
to long term but stakeholders did not currently feel that these roads represented the most
significant constraint on access to market. DFID Tanzania is currently funding work on drafting
the second phase of the Local Government Transport Programme. This will provide the
framework for improving the district road network through existing (and functioning) systems.
The Kilombero and Ihemi clusters are considered the first order priority clusters for SAGCOT.
While the Ihemi (and the Mbarali cluster further on) lie adjacent to the Tanzam Highway, the
Kilombero cluster (and its extension to Ulanga) can only be reached by a branch to the Tanzam
Highway, namely the 102 kilometres Mikumi to Ifakara road. This road is the only access to the
cluster and it has two unpaved sections in poor condition, namely Kidatu to Kiberege (38km) and
Signali - Kibaoni (18km). These sections cause high vehicle operation costs and pose risks of
23
interruptions. The upgrading of the road is planned under the current national Transport Sector
Investment Program (TSIP). However it is unlikely that GoT can finance the road prior to 2016/7
due to its current over-commitment on other roads. Upgrading of this road is considered the
highest priority infrastructure investment in the SAGCOT area. It is expected to trigger
increased interest of commercial farmers in the cluster.
To satisfy the access needs of the cluster further interventions will be necessary in future beyond
this road. In particular these are the planned bridge across the Kilombero River and the
improvement of the Ifakara to Mlimba road. The bridge across the Kilombero River will be the
only access to Ulanga District, providing access to an extension of the Kilombero cluster. There,
particularly along the Lupiro to Malinyi road, lies another agricultural area with huge potential.
TANROADS has prepared design documents for the Kilombero bridge and has recently
advertised for its construction. However, due to GoT funding shortages it is still unclear how this
bridge will be financed and its construction will take several years. In the meantime a commercial
forestry operator in Ulanga plans to procure, finance and operate a new, larger ferry until the
bridge is built. On the Ifakara to Mikumi road USAID plans to finance a US$ 2.5 million
intervention to improve blackspots along this road.
TANROADS, the Tanzania National Road Agency, has shown, over the past ten years of its
existence that it has the capacity to properly implement this component. It is currently executing
an annual investment programme of about US$ 500 million and an additional maintenance
programme of about US$ 150 million.
Cost: The standard for this road is proposed to be the lowest level trunk road standard. Based on
recent bids for similar roads and taking into account the many drainage structures needed,
TANROADS estimates the per kilometre cost at US$ 0.75 million. Hence the total cost for the
works would be US$ 42 million. The actual cost will only be determined once detailed designs
have been done (see below) and final design options chosen. For the purpose of cost benefit
analysis $0.75 million is deemed conservative. A full appraisal of the infrastructure component
was undertaken and is attached as Annex B.
Implementation: The detailed design for the Signali to Kibaoni Section was prepared in 2009
based on a feasibility study of 2006. USAID has agreed to finance the cost of the missing design
documents for the Kidatu to Kiberege section and updating the 2006 study, while the EC and
DFID plan to share the cost of the works and supervision, with DFID contributing £10
million/US$16 million. The EC have currently earmarked approximately €12 million/US$15.4
million. This gives a total of US$ 31.4 million. Depending on the outcome of the design we will
either need to compromise on design standard or seek additional funds. It is proposed that
TANROADS would be the contracting agency on the government side, while the EC would be the
lead agency on the side of the development partners. DFID, the EC and USAID signed a
memorandum of agreement regarding the construction of the road in September 2012.
TANROADS should commence the procurement of a design consultant for the Kidatu to Kiberege
section as soon as possible. The selected consultant should also carry out a review of the
existing design for the Signali to Kibaoni section. This should be done in first priority so that a
contractor can be selected as early as possible for the paving of this section. Given this the
construction of the Signali to Kibaoni section could begin at the earliest in the first quarter of
2013, but more likely in the second quarter. The implication is that the road will not be finished
until the second half of 2015 at the earliest, but most likely in 2016. The positive impact of this
intervention will therefore only start to flow in 2016.
Component 2D: Invest in value chain interventions in key agricultural sectors in the corridor
(pillars 5 and 6).
The three options identified above will each make an essential contribution to the growth of
agriculture in the southern corridor and increasing incomes for rural households. However, all
three are longer-term in implementation and are unlikely to yield impact within the next 2-3 years.
Should DFID confine itself to these three options it will embark on a relatively high risk
24
programme which is unlikely to deliver a substantial or satisfactory contribution to its target of
reaching 563 500 rural households by April 2015. The enabling environment constraints at
national level as well as the obstacles facing foreign investment into agriculture would suggest
that commercial agriculture in the southern corridor will for the foreseeable future grow primarily
out of existing Tanzanian farmers - both enterprising smallholder and budding commercial
farmers, and agribusinesses. To grow they need support from within the markets they operate –
the type of support delivered by the M4P approach.
The objective of an M4P component supporting SAGCOT would be to work directly with
smallholder farmers to improve their application of agricultural technology and access to input
and output markets. Its focus would not be direct large-scale foreign investment into agricultural
opportunities in the corridor, but indeed the investment opportunity the SAGCOT Investment
Blueprint (p.9) refers to as “smallholder commercialisation and agro-dealer programme”. Such a
component would work with two categories of farmers. Firstly, those entrepreneurial smallholder
farmers to be found in all communities in the corridor who wish to expand and improve their
farming operations, but are constrained by various market failures from doing so. Secondly, it will
work with the few commercial farmers operating at industrial scale (or aspiring to operate at
industrial scale) and who are operating out grower schemes or developing such schemes. The
component should also work with agribusinesses and other suppliers serving these farmers.
DFID can either design and implement its own M4P intervention for one or more value chains, or
it can support existing interventions enabling them to enlarge their scope of activities and/or to
reach more beneficiaries. Due to the strict timelines within which DFID has to deliver impact, the
preferred option is to work through existing interventions and delivery partners. A process was
therefore undertaken to identify the most promising interventions.
Selection process: To identify the most promising set of value chain interventions to reach
maximum impact within the available timeframe, a two-stage selection process was used. In the
first stage two identification criteria were used: geography and agricultural sector. Having
identified the most preferable geographic clusters and sectors to work in, a second stage sought
to identify potential implementing partners operating within these clusters and sectors utilising a
number of selection criteria.
Geographic selection: SAGCOT identified three clusters with the highest immediate potential for
their stage one implementation: Kilombero, Ihemi (with Iringa as centre) and Mbarali (with Mbeya
as centre). Of these three clusters, Kilombero received significant investment from development
partners in 2011 and 2012, most notably from the USAID’s Feed the Future (FTF) Initiative.
Active FTF projects in the Kilombero cluster focus on rice production and processing. In addition,
the Tanzania Agriculture Productivity Program (TAPP) is engaged in several horticulture value
chains within the Kilombero cluster. This program is also funded by USAID. Those areas viable
for large scale investment by development partners within the Kilombero cluster are thus already
served by other development partners. To provide DFID with opportunities of sufficient scale and
to prevent duplication, it is therefore recommended that DFID invest in the other Stage One
clusters: Ihemi and Mbarali.
Ihemi cluster: The Ihemi cluster officially includes three districts within the Iringa region: Iringa
Rural, Kilolo, and Mufindi. Major commodities being cultivated include maize, rice, pulses,
sunflower, potato, tomatoes, onions, cattle/dairy, tea, and timber/commercial forestry. The cluster
population for 2010 is projected to be 814,000 people (approx 163,000 households). Several
districts are not included in the cluster as demarcated by the SAGCOT Investment Blueprint.
Neither is the newly formed Njombe region to the southwest which links the Iringa and Mbeya
regions. The combined 2010 population projection for Iringa and Njombe regions is 1,700,000
(approx 340,000 households). Large commercial enterprises in the cluster include Norwegian
owned Green Resources, a forestry plantation and processing operation, Unilever Tea Tanzania,
the Mufindi Tea Company, Dadaga (a horticultural processor) Asas Diary and Mtanga Farms (a
commercial mixed farming operation).
25
Mbarali cluster: This cluster officially includes only the Mbarali district which gives it an estimated
2010 population figure of 192,000 (approx 38,400 households). A key factor in its favour is that
Mbarali has multiple large and small scale irrigation schemes specifically targeted at rice
cultivation. It has 4 times the amount of irrigated land than the three districts in the Ihemi cluster.
However, despite the large amount of irrigated land, the population does not provide the type of
scale necessary to meet DFID’s beneficiary targets. It was therefore decided to include other
districts within the Mbeya region to achieve larger scale interventions. The regional population for
2010 is projected to be 2,700,000 (approximately 540,000 households). By including the entire
region, there is also expanded opportunity for export since the full region directly borders both
Zambia and Malawi. The larger region also includes the Ministry of Agriculture, Food Security,
and Cooperatives (MAFSC)-supported Uyole Research Institute. Major commodities being
cultivated include paddy, maize, beans, cocoa and coffee. Major commercial agribusiness
enterprises include the Kapunga Rice Project (a 3000 ha irrigated commercial rice farm),
Highland Estates (a 3200 ha irrigated commercial rice farm) and Rafa Enterprises (a 60 MT per
day polished rice processor and warehouse).
Sector selection: The potential of commodity sectors within the extended Ihemi and Mbarali
clusters were evaluated utilising three criteria: (1) the number of rural households currently
engaged in the sector, used as a proxy for the maximum number of potential beneficiaries from
an engagement in that sector; (2) the responsiveness of the sector and its value chain to potential
programme interventions – for example its potential to grow and the presence or absence of
strong vested interests able to undermine any proposed changes that would favour smallholder
farmers; (3) the potential of farmers engaged in the sector to capture value and increase their
incomes.
An analysis of specific the agricultural sectors with the highest potential utilising the three criteria
outlined above is contained in Annex C. Table 2 below summarises the findings for the material
sectors in the two clusters.
Table 2: Evaluation of sector potential for intervention
Sector
Rank No
of
Households
in
sector (national)
Maize
1
3 492 000
Rice
2
916 273
Forestry
3
n/a
Tea
4
62 000
Cocoa
5
25 000
Onion
6
10 035
Potatoes 6
n/a
Tomatoes 6
135 687
Sunflower 7
482 501
No of Households
in sector (Ihemi &
Mbarali)
774 000
72 000
53 000
28 000
20 000
6 100
105 000
15 000
111 000
Responsiveness Opportunities
for
income
increases
High
High
High
High/medium
High
High
Medium
High/medium
High
Low
Medium
Low
Medium
Low
Medium
Low
Medium
Low
Potential implementing partners: The second stage of the selection process involved an
evaluation of potential partners able to implement interventions in the selected clusters and
sectors. Six criteria, set out in Table 3 below, were utilised to identify feasible partner options.
Table 3: Criteria for evaluating potential partner projects
Criteria
1. Location
Description
Partners with active operations in the target clusters were preferred based on
the increased speed with which mobilization could happen based on a preestablished local network, including the ability to leverage existing office
infrastructure.
2. Mandate and Does the potential partner’s mandate align with DFID’s? If the partner isn’t
governance
currently operating in the target geography, would they be willing to expand to
26
3. Timing and
ease
of
procurement
4. Expertise and
performance
5. Capacity
scale up
to
6. Alignment with
M4P approach
a new geography? If current operations only focused on one part of the value
chain (e.g. production), would the partner be willing to expand into other parts
such as marketing? In some cases, the partner’s mandate included multiple
sectors which were also considered in the overall evaluation of whether to work
with that partner.
How long would the procurement process take, and what would DFID’s
required involvement be? Is it a partner that DFID has worked with before
successfully? Which contracting mechanisms would be required in order to
award any funds?
For the partner’s (or the donor’s) recent projects, how did they perform relative
to the established goals? What was the cost per unit of that performance? If
the partner needs to expand into a new area (e.g., seed production), do they
have some demonstrated capacity to adapt?
Is there room to expand operations of an existing program that aligns with
DFID’s priorities? Can the organization effectively handle an increase in
funding? Is there already a plan in place to address expansion opportunities?
What is the timing and scale of impact to the target beneficiaries?
Does the partner’s implementation approach address key value chain issues
that will help the most socio-economically challenged Tanzanians unlock value
within the sector and improve the lives of their families? Is that value being
unlocked in a way that catalyzes commercial enterprises by farmers?
The second stage of the evaluation yielded four discrete interventions within the target clusters
and target sectors that DFID could potentially invest in:
Figure 6 Geographic location of Value Chain Interventions
Forestry
Horticulture
Sapphire (maize)
Chai (tea)
(1) Invest in AGRA-funded SAPPHIRE program
The first potential intervention is to invest in the extension and expansion of the SAPPHIRE
program currently being implemented by Technoserve in the Mbeya region with funding from
AGRA. The program focuses on post-harvest handling and grain storage for smallholder farmers
in the maize and rice sectors.
The Alliance for a Green Revolution in Africa (AGRA) has several active programs in the
Southern Highlands, including programs by RUDI and TechnoServe, several seed company
grants, as well as research grants with Uyole Research Institute. The bulk of AGRA’s funding
comes from the Bill & Melinda Gates Foundation, the most recent grant of US$400 million being
awarded earlier in 2012. AGRA is the host organization for the AECF and as such a current
27
recipient of a DFID Tanzania accountable grant for the implementation of the TZAW.
One of the interventions funded by AGRA in the southern highlands is the Storage and Proper
Post Harvest Improvement for Resource Efficiency (SAPPHIRE) project, implemented by
TechnoServe in Mbeya. It is a three year pilot project (February 2011 – January 2014, grant
value US$1.3m) whose goal is to increase returns by 25% to smallholder maize and rice farmers
through access to storage and warehouse receipts systems. In most cases, farmers can achieve
higher net returns by waiting to sell their produce. Warehouses help them wait by providing
access to short term financing until the produce can be sold against warehouse receipts.
TechnoServe works through a Training of Trainer model to help local farmer groups rehabilitate
and manage warehouses, as well as facilitate market linkages that help farmers sell for the
highest price possible.
TechnoServe is a 501(c)(3) non-profit company registered in the United States, and is a
chartered non-profit in Tanzania. It has had a permanent presence in Tanzania since 1991.
The project uses a “lead farmer” model, where key farmers in a community are trained in
“Farming as a Business”, post-harvest handling, and marketing. The lead farmer is then
supported in deployment of the same training throughout the community or association. In other
sectors, TechnoServe has experience providing agronomy support (cotton, coffee, horticulture)
as well as value-added processing training (coffee, maize, rice). Export bans on maize or rice
and a lack of export permits would be a risk for the success of this project. However,
TechnoServe has been able to work with local government officials to obtain exemptions to the
ban, which allowed farmers in three warehouses to export all of their produce to Kenya in early
2012. After covering distribution and storage costs, farmers made an average of 23% more
revenue from their maize than they would have selling through traditional channels.
The project’s beneficiary target until 2014 is 20 000 farmers. As at July 2012, it has already
reached 16 000 farmers and is ahead of schedule. AGRA has indicated an interest in expanding
the program after the completion of an evaluation. The scope of the pilot was limited due to
funding constraints, not the number of viable warehouses. There is a list of prioritized
warehouses identified during a previous scoping activity that, given additional resources, could
join the SAPPHIRE program. It is estimated that an additional 20 000 smallholders can be
reached through such an extension of warehouses. In addition, farmers have requested
agronomy support through the program (which up till this point had been outside of the mandate).
TechnoServe has expressed interest in adding this type of support – which would target all
40 000 farmers engaged in the original and extended program. A combined expansion of
warehouses and agronomy trainings in Kyela is especially appealing given the strong demand for
the district’s aromatic rice. Finally, other commodities such as beans and sunflower are
amenable to the benefits of warehouse receipts.
DFID should therefore consider investing £2.9m in the extension and enlargement of the
SAPPHIRE program. The funding could be channeled via AGRA, or directly to Technoserve,
given its non-profit nature. DFID has not previously given accountable grants directly to
Technoserve.
(2) Invest in the Gatsby-funded Forestry Development Trust
The second potential intervention is to invest in the Forestry Development Trust currently being
set up by the Gatsby Charitable Foundation (Gatsby) to support the development of commercial
forestry in Tanzania.
Gatsby is an endowed, grant-making charitable trust based in the United Kingdom. Gatsby has
funded and implemented programmes in Africa since 1985 with the overall objective of creating
jobs and improving incomes for the poor. They are now focusing on achieving this through a
small number of sector development programmes across East Africa. To facilitate their work in
28
Tanzania the Tanzania Gatsby Trust (TGT), a local charitable trust, was established in 1992. The
larger foundation implements projects locally with the assistance of TGT.
Gatsby currently implements DFID’s support for the cotton value chain in Tanzania. Since 2007,
Gatsby has worked in the cotton sector to raise yields and incomes for 400,000 Tanzanian cotton
farmers. The program is being implemented through multiple local partners, including the private
ginneries. Cotton is a politically active area, so Gatsby has worked hand in hand with the
Tanzanian Cotton Board to address regulatory issues that were constraining contract farming and
promoting low quality practices. The program is also working with local research stations and an
international private sector seed company to develop and distribute improved seed.
Gatsby’s long-term interest in the forestry sector in East Africa originates from involvement in a
set of tree biotechnology projects in Kenya, Tanzania and Uganda. The programme was started
in 1997 in partnership with Mondi Forests Ltd of South Africa to select and introduce Eucalyptus
hybrids that are well suited for large scale production by smallholder farmers in East Africa.
These varieties mature quickly and have growth characteristics that make them suitable for both
wood energy and higher value markets such as transmission poles. The selection was
implemented through trials (in 40 sites) conducted by the relevant national forestry research
institutes in the three countries and nurseries have been set up in strategic locations around East
Africa to propagate the material. In Tanzania a nursery established with TAFORI in Tanga
produces up to 1 million seedlings per year.
There is general acceptance that these nurseries have developed the best clonal varieties in the
region and have the greatest expertise in clonal technology. To varying degrees over the years,
the projects have also extended their remit to provide training and extension services for growers
and have used their close ties with the public sector to influence the policy environment
surrounding the growth and propagation of eucalypts. This is particularly the case in Kenya where
the project benefits from being registered as a Trust (the Tree Biotechnology Programme Trust)
with both public and private sector representation on the board of Trustees. This model has
significant advantages, and potential, as an independent institution embedded in the sector able
to influence policy makers and the private sector. The fact that it is independent, locally owned
and managed, with a long-term mandate confers a legitimacy that is usually lacking in short-term
donor funded projects. This has led to consideration of whether this public-private Trust model
can be developed and transferred to other countries in the region, as an institution to house
critical functions to underpin the sector.
Building on the success of the Kenya model, Gatsby has decided to convert their Tanzania Tree
Biotechnology Project into a trust (the Forestry Development Trust or FDT) to support the wider
scale development of the forestry sector in Tanzania. Given their experience in other sectors with
complex stakeholder management, Gatsby believes that both the public and private sector
stakeholders are ready to constructively engage, as well as donors who have a renewed focus on
climate change and natural resources. The FDT would be locally owned and managed, with a
long term mandate (and funding structure) to assist with legitimacy. While assisting with publicprivate partnerships and R&D activities, the trust should have a private sector market-based
culture with clear financial accountability. The true opportunity with this project lies in creating a
thought leader to guide the sector where none has existed before.
Establishment process: The FDT’s deed has been reviewed and approved by TAFORI (June
2012). Gatsby is currently working with the Ministry of Natural Resources to secure additional
political support. Gatsby is already searching for a top manager to run the trust. They will
commission an industry analysis for the second half of 2012 to better understand R&D, nurseries,
and private sector players so that a factual base for strategy development is ready as soon as the
trust is active. Based on progress to date, the FDT should be up and running in early 2013.
Activities: As part of the FDT, Gatsby plans to establish an R&D nursery in Mufindi (within the
SAGCOT region where the heart of Tanzania’s forestry sector is located) that serves both large
29
and small scale growers, as well as refresh local nurseries with new types of trees for East Africa
that are more competitive. In an effort to promote the new breeds, improved distribution and
sales strategies will be used for the nurseries so they are closer to the smallholders (perhaps
using a franchise model). Gatsby has also engaged with the Finnish government regarding a
Tanzanian replication of the successful Ugandan Sawlog Production Grant Scheme (SPGS). The
SPGS provided performance-based matching grants to farmers/groups meeting certain minimum
lot size conditions. In Tanzania, the programme would be known as the Tree Farming Grant
Scheme (TFGS) and the Finnish government, who will fund the scheme to the tune of €15 – 20
million over five years, has indicated that they would be prepared, given further discussions, to
bring the TFGS under the umbrella of the FDT. Gatsby is funding the initial very limited
overheads for the trust, as well as the nursery.
The high probability target for the FDT represents 2585 farmers who would benefit directly from
the Finnish TFGS if implemented by the FDT. The lower probability, longer-term target is 2.5
million people (500 000 households) in especially Dar es Salaam for whom charcoal prices would
be kept at constant or reduced levels as a result of programme activities intended to increase the
productivity of charcoal production through improved technologies. The additional benefits of
preventing deforestation would be substantial.
It is recommended that DFID considers an investment of £2.5m in the FDT, channeled through
Gatsby. It will provide DFID with a short-term dividend in respect of rural households directly
engaged in the commercial forestry sector, but also a long-term foothold in Tanzania’s critical
energy sector.
(3) Invest in the Wood Family Trust (and Gatsby) – funded Chai Project in the tea sector
The third potential intervention is to invest in the Chai Project, a programme jointly funded by the
Wood Family Trust (WFT) and Gatsby to enhance the competitiveness of the tea sector in
Tanzania by sustainably raising the yields, quality, and net income of farmers, as well as increase
the throughput, quality, and profitability of factories.
The WFT is a Scottish-based private charitable trust formed in 2007. It aims to create
employment, wealth, and prosperity in East Africa by supporting sustainable growth of key
sectors. DFID has not yet partnered with the WFT.
The Chai Project is a 6-year program (September 2009 – August 2015) funded in equal amounts
– US$3 million each – by the WFT and Gatsby. The program focuses on the entire tea value
chain including production, processing, marketing, as well as research and policy advocacy. It
uses a variety of instruments, including technical assistance, matching grants, no interest loans
and equity investments to support the sector. The target beneficiaries of the program are
smallholder tea farmers as well as pluckers (tea pickers) working for smallholder tea farmers. Due
to the structure of the tea industry (see Annex C) the best option to engage with smallholder tea
farmers is through tea factories. The Chai Project currently works with four factories that are
linked to 20 000 tea farmers (total tea farmers in Tanzania are 29 500) building strong farmerfactory relationships.
The program does not have a separate legal personality and each of the two funding partners
channel program-related expenditure through their normal procurement processes and financial
controls. The program is staffed by three persons based in Dar es Salaam.
Current activities include working through tea factories with their associated farmer associations
to improve production. The local processing factory is best placed to oversee the provision of
extension services, fertilisers and herbicides, as well as to ensure efficient collection and
payments. Each of these services provided through the factory is mutually reinforcing, for
example there is no point finding a means of providing fertilisers on credit to the farmer if there is
no extension officer overseeing farmers’ requirements, as well as the distribution and the
30
application of these fertilisers.
In parts of Tanzania, farmers are making a very low $170 per hectare in profits from their tea,
while in others, especially where the Chai Project has started to support improved services,
farmers are earning over $400 per hectare. In Kenya, where farmers own well-managed
processing factories and as such benefit from optimal service provision, strong quality incentives
and a profit share, they can earn around $3,000 per hectare. Hence, where it is feasible and
when the quality of management and governance can be ensured, the optimal arrangement is for
farmers (the bulk of whom are smallholders) to own the processing units themselves.
In some areas of Tanzania the critical factory-farmer relationships have broken down, in part due
to the weak regulation of the industry by the Tea Board, but also due to a lack of interest in longterm smallholder development among certain factories and the existence of multiple farmer
organisations not focused on farmers’ needs. To tackle these fundamental challenges the Chai
Project has already started work on:
 Reinforcing the government’s regulatory capacity through the creation of a green leaf pricing
mechanism, support for the introduction of an inspection regime and support for a land titling
pilot.
 Directly working with willing factories to strengthen their out grower relationships through
matching grants to support improved extension services, weighing and collection systems, as
well as the introduction of sustainable agricultural practices and improved harvesting
techniques.
 Working with farmers associations to raise their capacity to actively support their members’
interests.
These activities are already enhancing the sustainability and profitability of tea farming in
Tanzania following an approach similar to that being pursued by WFT and Gatsby-supported
programs in Rwanda. However, there is an opportunity to expand this impact by taking a more
ambitious and structurally transformational approach, focused on developing opportunities for
smallholder ownership. Additional funding from DFID could enable the Chai Project to tackle
some of the large-scale investments required to make such opportunities happen, while also
delivering on further matching grants and regulatory strengthening. In particular, DFID funding
can:
1) Make it possible to move forward with plans to buy out one or two tea factories on behalf
of smallholder farmers following a similar model recently applied in Rwanda when the
WFT/Gatsby support program purchased two tea factories on behalf of smallholder tea
farmers. The benefits of this model have been demonstrated in Kenya and Chai would
seek to contract the Kenya Tea Development Agency Limited (KTDA) to manage the
factories. KTDA already manages 63 factories in the Kenya small-scale tea sector. Not
only does factory ownership directly increase yields from existing production, but it
increases farmer incentives to maximize quality and yields.
2) Expand Chai’s current national and international programs to improve the pricing
mechanism for tea in Tanzania leading to better prices for tea farmers and improved
incentives to produce better teas.
3) Extend matching grants to tea factories to assist tea farmers to grow additional cash crops
on currently unused land to increase incomes. This intervention would utilise
infrastructure, extension and distribution systems already built by Chai and could therefore
be delivered within the short term.
(4) Invest in the USAID-funded TAPP program in horticulture
The fourth potential intervention is to co-fund the implementation of a hitherto pilot project to
create farmer service centres (FSCs) which is part of the USAID-funded Tanzania Agricultural
31
Productivity Programme (TAPP).
TAPP is a five year (2009 -2014) US$35.5m agricultural value chain programme with a broad
mandate to increase smallholder farmer incomes through enhanced productivity and improved
domestic and export marketing of agricultural products. The program’s 2014 target is 19 000
farmers. To date the project has worked primarily in horticulture value chains, due to its focus on
the export market. TAPP works in over 20 different types of crops, including many high value
vegetables for export to Europe. In addition, they work in tomatoes, mangoes, avocadoes, and
increasingly potatoes and onions.
Originally focused on the northern and coastal highlands, TAPP recently took over support to
5000 Southern Highlands farmers from TechnoServe’s Sustainable Horticulture for Incomes &
Food Security in Tanzania (SHIFT) project. With the addition of those farmers, TAPP now has a
foothold with existing groups focused primarily on tomato and avocado.
TAPP’s current activities consist mainly of training packages delivered to groups of farmers that
focus on agronomy practices. In addition, TAPP uses grants to different local NGOs and private
sector partners across the value chain in order to spur development. For example, TAPP was
instrumental in supporting the development of the Tanzanian Horticultural Association (TAHA) so
it could coordinate international export of horticultural products through the Kilimanjaro Airport.
These grants, while expensive, have served to strengthen the value chain locally. Questions,
however, remain about the sustainability of interventions, especially agronomy training.
TAPP currently has adequate funding from USAID (as of the beginning of 2012, they had only
spent 20% of their budget while being 40% through the project timeline). However, TAPP has
indicated an opportunity for additional funding for an ambitious project to create farmer service
centres (FSCs) which can provide market linkage and input supply services, key areas which
TAPP has not been able to fully address until this point. These farmer service centres would sell
inputs (especially genuine improved seeds, fertilizers, and other chemicals), provide agronomy
training and access to demonstration plots, as well as access to finance through a SACCOS-type
support mechanism or local bank. FSCs could also serve as a central location for the marketing
functions of local associations. After time, processing services can also be built up around the
FSCs. DFID will work closely with USAID to assess whether these centres can contribute to
improving nutritional standards in their communities.
TAPP has already started building partnerships with the private sector to partially finance the
start-up of these service centres (especially the input provision and some infrastructure). The
rest of the funding requirements for agronomy extension and demo plots must come from
development partners in order to offset some of the initial risk of the venture. TAPPs initial
suggestion was 5 FSCs. However commercial partners would like to see at least 20 FSCs to
justify the auditing overheads their staff will have to perform. Rough estimates for DFID to
support the establishment and operations of 20 FSCs over a five year period would be USD 4.5
million. Each FSC would serve 1000 farmers.
B. Assessing the strength of the evidence base for each feasible option
In Table 4 below the quality of evidence for each option is rated as either Strong, Medium or Limited
Table 4: Strength of evidence for options
Option/Component Evidence rating
1
Medium evidence based on results to date. Some investments have better
evidence of results and for some the evidence is mixed.
2A: Support to the Medium evidence: The SAGCOT Centre represents a new form of PPP which
SAGCOT Centre
has not previously been established in Tanzania. Evidence of the
Government’s willingness and ability to reform the enabling environment is
32
more mixed. See reviews of BESTxv and BEST-ACxvi programs.
2B: Investment in
SAGCOT Catalytic
Trust Fund
2C: Investment in
rural roads
2D(1) SAPPHIRE
program
2D(2) Forestry
Development
Trust
2D(3) Tea industry
Chai Project
2D(4) Extension of
TAPP program
Medium evidence. There is strong evidence of agriculture profitability and
models of inclusive business models in Tanzania, particularly through the
TZAW. However, there is no evidence on how a more venture capital
orientated instrument targeting smaller and start-up enterprises will do.
Strong evidence. The TANROADS impact model is well established and
tested in Tanzania.
Strong evidence. Evaluation of existing program as well as comprehensive
evaluation of adoption rates for agricultural practices in various regions in
Tanzania.
Medium evidence: Strong and direct evidence of comparable tree planting
programs in Uganda and Kenya are available. No evidence to date of impact
on charcoal market, although the market has been comprehensively scoped
in Tanzania, providing good baseline information.
Strong evidence: Evaluation of impact of existing interventions. Evidence for
comparable smallholder ownership programs in Kenya.
Medium evidence: Evidence of impact on farmer aggregation schemes in
other sectors, especially grains, but not yet direct evidence for horticulture.
What is the likely impact (positive and negative) on climate change and environment for each
feasible option?
Categorise as A, high potential risk / opportunity; B, medium / manageable potential risk / opportunity;
C, low / no risk / opportunity; or D, core contribution to a multilateral organisation.
The SAGCOT Programme is classified A – high risk and high opportunity, and has triggered a
full strategic environmental assessment.
In October 2011, DFID and the World Bankxvii supported the Government of Tanzania to
undertake a full ESMF of SAGCOT. The Draft ESMF was released in July 2012 and has provided
the basis of this screening. The final report will be released in November 2012.
In addition, in 2011-2012, DFID, the World Bank, Denmark and Norway co-funded a US based
consultancy; Eco-Agriculture to develop a ‘Green Growth Investment Framework’ (GGIF) for
SAGCOT. The GGIF aims to provide investors with the right evidence and policy context to make
sustainable investment decisions in SAGCOT.
DFID support to the SAGCOT programme consists of four components:
1. Policy coordination
2. Access to finance
3. Infrastructure; Road
4. Value chain interventions
This Climate and Environment Assessment is broken down into 5 sections to cover each of these
components, plus an overarching assessment.
Categorisation of the SAGCOT Programme
Categorise as A, high potential risk / opportunity; B, medium / manageable potential risk / opportunity;
C, low / no risk / opportunity; or D, core contribution to a multilateral organisation.
Table 5: Climate and Environment rating for the programme components
Components
2A SAGCOT Centre
Climate change and environment Climate change and environment
risks and impacts
opportunities
B (C if not doing ESMF)
B (C if not doing ESMF)
33
2B Catalytic Fund
2C Infrastructure
2D Forestry
Chai
SAPPHIRE
TAPP
A
A
B
B
B
C
B
A
B
B
C
C
A full oversight of key environment and climate issues in SAGCOT is provided at Annex D.
Tanzania’s Southern corridor contains some of the country’s most valuable and vulnerable natural
resources and ecosystems. The corridor is already being impacted by climate change; intensification
of natural disasters, changes to precipitation patterns and levels. Key environmental features of the
corridor are the Rufiji river basin, a RAMSAR site, World Heritage Site, four National Parks and the
forest mountain massifs of the Eastern Arc.
Key poverty / environment issues which require careful consideration are:
 Poverty eradication, Population growth, Land and land tenure
 Access to sustainable sources of energy
 Water management;
 Climate variability and intensification of droughts and floods
 Biodiversity and ecosystem services
 Distribution and use of pesticides and fertilisers
Recognising the strong environmental and climate context, the SAGCOT Programme is committed to
integrating sustainability across its planning and implementation, focusing on six pillars (i) balancing
agricultural production and expansion with wise water use, (ii) developing land use and land
capability across the Corridor with attention to continued ecosystem services, (iii) maintaining and
enhancing the important protected areas in the region, (iv) improving soil and water management, (v)
incorporating low-greenhouse-gas emission investments and other climate mitigation and adaptation
management options whenever possible, and (vi) ensuring investments are undertaken in a manner
that minimizes environmental impacts through the application of several environmental assessment
tools
Climate, Environment and Social Safeguards for SAGCOT
1. An independent Environment and Social Management Framework has been undertaken by
ERM on behalf of the Government of Tanzania. It is being quality assured by an independent
consultant, the World Bank and DFID. DFID has confidence in the Environmental and Social
Management Framework (ESMF) in managing climate and environment risks and identifying
opportunities to achieve co-benefits and win-win outcomes.
2. A Strategic Regional Environmental and Social Assessment (SRESA) of the SAGCOT
Program is also being prepared with supporting safeguard products and tools. The SRESA
includes preparation of (i) a Scoping Report; (ii) Stakeholder Analysis, Participation and
Consultation Plan; (iii) ESMF; and (iv) a Resettlement Policy Framework (RPF).
3. The overarching objective of the SAGCOT SRESA is to improve the investment decisions of
all the different stakeholders by identifying environmental and social issues (both
opportunities and constraints) and mainstreaming them into the development planning
process. DFID has been deeply involved in the development of the ESMF and the SRESA
and has confidence that climate and environment risks will be well managed.
Table 6 below lists the key environment and climate risks and opportunities, and what actions are
required to mitigate these risks and maximise the opportunities. See Annex D for full list of risks,
opportunities and mitigating actions.
34
Table 6: Key environment and climate risks, mitigation and opportunities
SAGCOT
Risks and opportunities
Mitigation actions required
Component
2A: Policy
Capacity of SAGCOT Centre
DFID support includes specific element focused on
coherence:
to ensure compliance with the
function compliance with SREA implementation
SAGCOT Centre SREA
Performance based incentive and / or break-clause
SAGCOT Centre receiving
SAGCOT Secretariat included within DFIDs Antibribes to alter EIAs and
Corruption Strategy.
compliance by investors
Strong accountability and institutional arrangements
developed
Spot check development and compliance with the
EIAs.
Capacity of NEMC to
Review NEMCs ability to undertake and ensure
undertake EIAs
compliance with EIAs
SAGCOT Centre is a point of
Maintain strong policy dialogue with the SAGCOT
influence and leverage in
Centre in taking forward the Green Growth Investment
driving forward a
Framework.
transformative no-regrets
development agenda.
2B: SAGCOT
Catalytic Fund All investments
will undergo an
environmental
screening
process, which
meets agreed
Government of
Tanzania and
World Bank
standards. DFID
has confidence in
the mechanisms
for screening
spend
2C – Road
On balance, this
investment is
likely to result in
net benefits for
climate
mitigation,
resilience and
environmental
degradation
rather than
contributing to
Current ESMF and SREA do
not sufficiently address climate
change risks and
opportunities.
ESMF and SREA do not
influence investment decisions
and implementation
Fund Manager lacks capacity /
incentive to undertake SREA
screening
DFID will work with the World Bank in the finalisation
of ESMF and SREA.
Recommendations from the Green Growth Investment
Framework are mainstreamed in the Catalytic Fund.
Monitor impact of SREA on annual basis.
Mechanism for addressing non-compliance with SREA
agreed between DFID/World Bank and GoT.
DFID includes a break-clause for Catalytic Fund if
SREA no adhered to.
Training provided to Fund Manager on ESMF.
Lack of investor awareness of
climate change and
environmental issues
SAGCOT centre develop investor information sheets
and hosts investor seminars, where practical.
Compliance with SREA is
deprioritised against broader
legislation and policy
frameworks.
DFID publically maintains focus on climate and
environment
Develop a no regrets, climate
resilient model of agricultural
development
Build climate vulnerability assessments into all
investment decisions.
Integrate Green Growth Investment Framework into
the Catalytic Fund
All SAGCOT programmes developed under a ‘no
regrets model’ and have climate resilience and
mitigation as stipulated investment criteria.
Category A requires the
following actions:
1)Strategy Environmental
Assessment
2) MoU with DP must stipulate
the need for climate resilience
and mitigation and
environmental safeguards to
be built into the programme
design and implementation.
DFIDs should liaise with other development partners,
including the World Bank to facilitate this.
DFIDs will need to be satisfied that the ECs climate
and environment safeguards are consistent with
DFID’s own policies.
35
them.
Not upgrading the road will
hinder development in the
region, reducing economic
growth and poverty eradication
Increased levels of traffic:
Paving of the 56km road will
have negligible impact on
traffic levels.
Traffic levels and associated emissions included in
M&E framework.
Opening up forests and other
vulnerable ecosystems to
unsustainable and / or illegal
use.
Build the capacity of Check Points to identify and stop
haulage of illegally logged timber, trade in endangered
and protected animal species and trade in illegally
manufactured charcoal.
6 monthly monitoring of haulage loads of
environmental goods to monitor changes
Enforce an appropriate speed restriction and install
least noise generating speed humps where used
Impact of traffic flows on
wildlife (low risk)
Paving will reduce CO2
emissions and environmental
degradation and will build
resilience to climate change in
the region
Build climate resilience into the design and
implementation of the upgrade programme
Commercialisation of the
TAZARA railway could provide
a viable, lower carbon
transport option for SAGCOT.
Proactively engage in the commercialisation of the
TAZARA
2D Forestry
A Climate and
Environment
Assessment
cannot be carried
out until full
proposal
submitted.
Key issues
 Climate vulnerability
assessments
 Drought and temperature
resilience
 Soil stability and fertility
 Water availability and use
 Energy use
 Market standards
 Sustainable Forestry
 Biodiversity and ecosystem
service safe guards
 Land use and land use
change
 Mitigation of illegal logging
 REDD+
Key actions
 Require Gatsby to develop and implement a
Climate and Environmental Assessment as part of
the project preparation process.
 Stipulate that the programme adopts a no regrets
approach.
 Request Gatsby to assess the feasibility of using
the forestry programme to provide fuel wood for tea
processing.
Chai
A Climate and
Environment
Assessment
cannot be carried
out until full
proposal
submitted.
Key issues
 Climate vulnerability
assessments
 Drought and temperature
resilience
 Soil stability and fertility
 Water availability and use
 Market standards
 Biodiversity and ecosystem
service safe guards
 Land use and land use
change
Key actions
 Require the Wood Family Trust to develop and
implement a Climate and Environmental
Assessment as part of the project preparation
process.
 Stipulate that the programme adopts a no regrets
approach.
 Request the Wood Family Trust to assess the
feasibility of using the forestry programme to
provide fuel wood for tea processing.
SAPPHIRE
AGRA, the current funder has
DFID to build climate and environmental monitoring
36
A Climate and
Environment
Assessment
cannot be carried
out until full
proposal
submitted.
a strong track record in
achieving climate smart
agriculture. DFID is confident
that this additional funding will
be managed in a way which
mitigates risks and avoids
vulnerability.
into the M&E framework with Technoserve.
TAPP
A Climate and
Environment
Assessment
cannot be carried
out until full
proposal
submitted.
USAID – the current funder
has a strong track record in
achieving climate smart
agriculture. DFID is confident
that this additional funding will
be managed in a way which
mitigates risks and avoids
vulnerability.
DFID to build climate and environmental monitoring
into the M&E framework with USAID
C. What are the costs and benefits of each feasible option?
The anticipated costs and benefits of 6 of the 7 interventions are set out in this section – at
nominal and not discounted value. A full cost benefit analysis of the SAGCOT Centre could not
be completed at this point. However, the potential benefits as well as the projected costs are set
out. The full cost benefit analysis for all the interventions, including assumptions and evidence
relied on, is set out in Annex E.
The program will run for five years - from January 2013 until December 2017. The DFID
contribution to the various interventions will therefore be disbursed over this period of five years
unless otherwise stated. However, the costs of the full intervention will in some cases run over a
longer period, and so will the benefits. The total costs and benefits were therefore calculated for a
period of 10 years as from January 2013, with the exception of the infrastructure component
which was calculated for 24 years using the standard TANROADS model. Beneficiaries that only
gain benefits after December 2022 are excluded even if they are direct beneficiaries from the
program. The costs and benefits for each intervention are set out below. In each case the costs
and benefits are summarised in a table. The costs drivers as well as benefits that are either
indirect or difficult to quantify, are then described in the narrative. Material assumptions are
mentioned and the most sensitive assumptions are pointed out as well as their impact on the
overall outcome.
Option 2A: Invest in the policy and coordination function – Support for the SAGCOT Centre
The SAGCOT Centre has not completed its strategic plan and thus the expected results have not
been agreed. Once completed and agreed a full CBA will be done and included in the submission
to the Head of Office requesting release of funds to the Centre.
Costs: It is proposed that DFID makes a contribution of £1.5m to the SAGCOT Centre spread out
in equal annual contributions of £300 000 over the duration of the program. Based on the
approved 2012 budget for the Centre, it is estimated that the total cost of the Centre over 5 years
will amount to £13.188m. At present value, DFID will contribute 14.3% of the total cost of the
Centre over the period.
Benefits: The Centre will provide coordination services for the SAGCOT Initiative and specifically
focus on enabling environment improvements. It will also promote specific investments into the
corridor. Although the Centre is still in the process of finalising its medium and long-term
planning, potential benefits will include (1) a growing and strengthening partnership between
public and private institutions without which commercial agriculture cannot grow in Tanzania; (2)
37
developing a strong communication hub for commercial agriculture and working closely with the
TIC to attract private sector investment into Tanzanian agribusiness; (3) a strong focus on
environmentally responsible agriculture and inculcating green growth practices in the southern
corridor; (4) interaction with government and public agencies to improve the enabling
environment for agriculture and foreign investment into agribusiness; and (5) applying a sound
monitoring and evaluation framework across the interventions to be implemented under the
initiative and undertaking monitoring and evaluation for the entire initiative. These benefits will
contribute to increased incomes for not only smallholder farmers, but also other agribusinesses
and their employees. Since most of the enabling environment interventions should benefit not
only agriculture in the southern corridor, but more broadly across Tanzania, benefits are expected
to accrue to smallholders and agribusinesses throughout the country. However, until the capacity
of the Centre and its program are more certain, it is difficult to quantify these.
Option 2B: Invest in SAGCOT Catalytic Trust Fund or other provider of patient capital
It is proposed that DFID invests £10m in the SVCF of the CTF or another provider of patient
capital. Since discussions with other potential providers are not yet advanced, only the
contribution to the SVCF is assessed here.
Costs: The costs are based on a comprehensive financial model developed by the design team
of the SVCF. DFID’s contribution is pegged at £10m over five years. The financial model
developed assumed a DFID contribution of US$10m. It is proposed that DFID makes an initial
contribution of £5m, with an additional contribution of £5m should the fund perform to
expectations and an adequate pipeline is available. The full lifespan of the SVCF is anticipated to
be 10 years and the financial model assumes that the fund will raise additional capital of £12 m
from private investors. However, the higher than modelled DFID contribution will reduce the need
for external capital to £7m. This capital has to be repaid with a return. The private capital as well
as the own contribution by investees (assumed to be 30% of the investment by the SVCF) is
included in the total costs. It is assumed that 30% of projects would fail and that technical
assistance would be provided to investee firms for the first 7 years of the active lifespan of the
fund. The average size of investment is estimated at £300 000.
Benefits: Benefits flowing from investments would normally be threefold in nature: (1) increased
net revenue for the primary recipient of the investment, (2) increased revenue for smallholder
farmers who are linked to the investee and benefit from the implementation of the project, and (3)
incremental employment (and thus wage income) generated by the investment – both at firm and
smallholder level. Due to the targeted outcome for this program, the first benefit is not quantified.
The SVCF will carefully select projects based on predetermined criteria including the potential for
commercial viability, size of potential benefits and number of beneficiaries. To project benefits an
actual evaluation (the only one done to date) of a project funded by the TZAW was used (Tanga
Fresh). To ensure comparability the number of beneficiaries was downscaled by a factor of 2.15
which is the ratio between the total investment (TZAW and own contribution) in Tanga Fresh and
the total project investment in the average SVCF project. The net benefit accruing to contract
farmers was further reduced by 30% to compensate for Tanga Fresh potentially being an above
average performer or in a sector with higher cash returns.
Table 7: CBA: Support for SVCF of SAGCOT Catalytic Trust Fund
BENEFITS
Benefit 1
Benefit 2
Increase in net revenue for Increased wages due to new jobs
smallholder farmers benefiting from created by the project/investment
the project
Beneficiaries
Smallholder farmers within the New employees of smallholder
SAGCOT region
farmers
Total beneficiaries 18 486
2017
Description
38
Benefit timeframe
First disbursements in April 2014; Same
benefits flow only from 2015
value £68.9m
£3.5m
Nominal
2022
Present value
£37.6m for both benefits
DFID Portion (PV)
£19.8
COSTS
Total costs
£23.1m
DFID contribution £10m
NPV
£22.6m
BCR
2.52
EVIDENCE
Medium to strong. Evidence is based on an evaluation of the impact of one of the Tanzanian
recipients of grant funding from the TZAW. Benefits were reduced by 60% and in line with
anticipated smaller size of investments due to the smaller and start-up nature of grantees.
RISKS
Delays in establishment of SCF and appointment of fund manager.
Insufficient fundable projects within the SAGCOT region.
Sensitivity analysis: The benefit calculations are particularly sensitive to the assumption
regarding the size of the incremental revenue for smallholders (the benefit flowing to new
employees is based on the minimum wage for Tanzania). If the Tanga Fresh revenue is scaled
down by 40% rather than 30%, NPV changes to £17.5m and the BCR to 2.17.
Option 2C: Investment in rural roads within the corridor
DFID, the EC and USAID have agreed to jointly fund the paving of 56 km of unpaved sections on
the Mikumi to Ifakara road that provides the only road access to the Kilombero cluster. The costs
and benefits for the project are calculated by using the standard HDM-4xviii model utilised by
TANROADS.
Costs: The total cost of the project, including design, works, supervision and project
management, is estimated to be £22.14m. This amount is the one used in the TANROADS model
and is lower than the amount mentioned earlier. Final cost will be determined once the project is
fully scoped.
Benefits: Two kinds of benefits are modelled: reduced vehicle operating costs due to the
improved condition of the road and savings in travel time measured in time cost of labour. These
are aggregated in the standard model. The most sensitive assumption relates to when the
benefits will start flowing, since no benefits will flow until the road is completed. In fact, the costs
for road users will deteriorate during the construction of the road. Construction is likely to take
three years and will start in 2013 at the earliest. Benefits are calculated for the lifespan of the
road – which is assumed to be 23 years based on the standard model. An important assumption
is that 80% of vehicle savings accrue to residents due to the competitive nature of the transport
market in Tanzania.
Table 8: CBA: Investment in rural roads
BENEFITS
Benefits
Description
Reduced vehicle operating costs due to the improved condition of the road
and savings in travel time measured in time cost of labour.
Beneficiaries
Residents of Kilombero cluster and Ulanga region
Total beneficiaries 100 000
2017
Benefit timeframe Full benefits accrue as from 2016 at the earliest
39
Nominal 2022
£m 109.1
Present value
£28.5m
DFID Portion (PV)
£11.7m
COSTS
Total costs
£22.14 m
DFID contribution £10m
NPV
£6.5m
BCR
1.3
EVIDENCE
Strong. Based on established Tanzania-specific TANROADS impact model
RISKS
Delays in commencement of construction
Sensitivity analysis: If the assumption that 80% of vehicle savings accrue to residents is reduced to
70%, the NPV reduces to £3m and the CBR to 1.14.
Option 2D: Investments in value chain interventions in key agricultural sectors in the corridor
The projected costs and benefits for 4 potential interventions that can be funded by DFID were
calculated.
Investment in SAPPHIRE program implemented by Technoserve
The SAPPHIRE program is currently funded by AGRA under a grant to the value of US$1.3m.
The grant will terminate in January 2014. DFID considers funding an extension of the current
activities as well as an enlargement of the scope of the program from the current warehouse
receipt system to include agronomy support channelled through the warehouse system that has
been set up.
Costs: The proposal is to double the warehouse receipt component of the program which will
cost £900 000 over a period of three years starting 2013. The agronomy support is projected to
cost an additional £2m, spread over 5 years.
Benefits: The warehouse receipt component yields two distinct benefits: firstly, revenue increase
for famers due to higher prices for maize and rice as a result of their being able to sell their
produce after the season when prices are not depressed due to an oversupply during harvest
time. The second benefit is a reduction in post-harvest losses due to better storage and handling
facilities and practices. Both benefits have been quantified based on experience in the current
program which have already reached 16 000 of its intended 20 000 beneficiaries. It is proposed
that an additional 20 000 farmers could be reached through the extension of the programme.
Agronomy support, in respect of those farmers that apply the practices taught and demonstrated,
leads to an increase in farming production and thus in revenue. The size of this benefit is driven
by the likely percentage of farmers that will adopt the practices (the adoption rate), as well as the
likely income increase flowing from the adoption of particular practices. The adoption rate for
various practices in the southern highlands was comprehensively surveyed in a study on the
impact of maize research and extension throughout Tanzaniaxix. Based on the findings of the
study, it was decided to work on the assumption that only 43.5% of farmers who receive
agronomy support will adopt improved practices. Whereas income increases for households
starting to use high-yielding maize seeds were measured in a study using Household Survey
Dataxx - the study found that the use of high-yielding seeds result in a per capita income increase
of 12%. The benefit calculation is very sensitive to these two rates. For the purposes of
assessment, the two benefits for the warehouse receipt system are combined in Table 9 below.
An important assumption is that the DFID-supported intervention will provide agronomy support to
all the farmers reached through the current AGRA-support project (20 000) as well as the farmers
that will be incorporated in the warehouse receipt system under the DFID-funded extension
40
(another 20 000).
Table 9: CBA: Contribution to SAPPHIRE project (Technoserve)
BENEFITS
Location: Mbeya region – Mbozi, Kyela, and Ileje districts
Benefit 1: Warehouse receipt system
Description
Beneficiaries
Benefit
2:
Agronomy
support
Increased revenue from
increased production due to
farmers
using
improved
agronomy practices
Two benefits: (1) increase in revenue due to
higher prices obtained when produce sold few
months after harvest; (2) reduction in postharvest losses due to better storage and
handling practices.
Smallholder farmers within the SAGCOT region
Smallholder farmers within
the SAGCOT region
20 000
15 225
Total
beneficiaries
2017
Benefit
Benefits start to flow from 2014 and is phased in Same
timeframe
over 4 years
Nominal value £6.5m
£2.7m
2022
Present value
£3.7m
£1.6m
DFID Portion £3.7m
£1.6m
(PV)
COSTS
Total costs
£2.9m
DFID
£2.9m
contribution
NPV
£2.8m
BCR
2.15 (1 for agronomy support & 4.55 for WRS)
EVIDENCE
Strong.
RISKS
Imposition of export bans on staple crops remains a high risk.
Sensitivity analysis: If the adoption rate of new agronomy practices reduces from 43.5 % to
33.5%, the NPV of the entire intervention reduces to £2.4m and the BCR to 2.0. However, the
NPV for the agronomy intervention would then reduce to negative. If the adoption rate increases
to 53.5%, the NPV increases to £3.2m and the BCR for the entire intervention to 2.3. If the
incremental income increase for the agronomy intervention reduces from 12% to 6%, the NPV
reduces to £2.0m and the BCR to 1.8 with the BCR for the agronomy intervention only being
negative.
Investment in newly established Forest Development Trust via Gatsby Charitable Foundation
The costs and benefits of the FDT currently being established by Gatsby in Tanzania is strongly
influenced by the potential partners to be included in the trust as well as the programs to be
undertaken. The analysis can however draw on comparable programs being implemented
elsewhere in East Africa, notably in Uganda and Kenya. The largest other potential partner (in
terms of funding) is the Finnish government who is considering implementing their Tree Farming
Grant Scheme, which has been extensively scoped, via the FDT. For the purposes of the costbenefit analysis, both the costs and the benefits of the Tree Farming Grant Scheme are
included. A main driver of a program in forestry is the substantial delay between the planting of
trees and their harvesting – which can be on average 8 – 9 years for fast growing varieties. On
the other hand, due to the dominant usage of wood products for energy consumption in
Tanzania, a program in forestry can potentially have vast impact if it can succeed to influence
41
energy prices.
Costs: The total costs of the FDT over 10 years are estimated to be £13m, most of which will be
front loaded over the first 5 years. Of this £9.66m will be for the Tree Farming Grant Scheme
and the balance for the FDT overheads and other programme interventions.
Benefits: Three benefits are quantified:
1. The first benefit is the incremental income for 2585 smallholders projected to participate in
the Tree Farming Grant Scheme. The assumption is that the trees are only felled after 9
years. Further, the scheme is designed for a planting of 10 000 hectares of trees. It is
assumed that the trees are planted over three years in batches of 3000 ha, 4000 ha and
3000 ha respectively. The calculation thus completely excludes any benefit from the last
planting which is projected to happen only in 2015.The income figures are in 2010 prices
and not adjusted for inflation. However, the benefits are discounted. Given the 2022 benefit
horizon, when the trees are planted (and thus harvested) is a major driver of the calculation.
2. The second benefit is the incremental income from more efficient charcoal production for
half of the current farmers producing charcoal. The assumption is that more efficient
technologies are phased in over 5 years and that only half the farmers producing charcoal
is impacted.
3. The third benefit is the stabilisation in price for charcoal consumers in Dar es Salaam due
the stabilisation (not reduction in price, but only stabilisation) in the price of charcoal due to
the cumulative interventions of the program. This intervention does not assume any new
stock of planted forests being used for charcoal production. It simply calculates the impact
of more efficient production technology utilising existing wood. The benefit flowing from the
price stabilisation for households outside Dar es Salaam is not taken into account. The
assumption is that stabilisation will only be realised from 2017 onwards.
Note that potential direct and indirect benefits from either carbon trading or limiting the pace of
deforestation are not included.
Table 10: CBA: Contribution to Forestry Development Trust (Gatsby)
Location: Tanga, Mufindi (Iringa)
BENEFITS
Benefit 1: Revenue from Benefit 2: Revenue
tree planing
from
charcoal
production
Description
Increase in income for Incremental income from
farmers due to the planting more efficient charcoal
of fast growing trees under production for current
Tree
Farming
Grant farmers
producing
Scheme
charcoal
Beneficiaries
Tree farmers – mostly Charcoal producers –
smallholders
mostly farmers
Total
None. Benefits only flow 30 000
beneficiaries
from
2021
(2585
2017
beneficiaries by 2022)
Benefit
No benefits flow until 2021 Benefits start to flow
timeframe
when first trees are felled.
from 2015
Nominal value £124m
2022
£16.6m
42
Benefit
3:
Cost
savings from stable
charcoal prices
Cost
savings
for
charcoal
consumers
due
to
increased
production of charcoal
Charcoal consumers in
Dar es Salaam
None.
Assumption is that
benefit only realised as
from
2018
when
500 000
households
impacted.
£524m
Present value £51m
£8.6m
£226m
DFID Portion £53m
(PV)
COSTS
Total costs
£13m
DFID
£2.5m
contribution
EVIDENCE
Medium – Tree Farming Grant Scheme evidence from comparable
scheme in Uganda
Low – impact on charcoal scoped in Kenya, but not yet assessed due to
early stages of implementation
RISKS
Fire a major risk for forestry.
Sensitivity analysis: The benefits are most sensitive to the assumption as to when the
charcoal price starts to stabilise. If the assumption is changed that it only starts to stabilise in
2019, rather than 2018, the NPV reduces to £192m and the BCR reduces to 18.56. If the prices
stabilise a year earlier, the NPV increases to £905m and the BCR to 83.70. This clearly
illustrates the high risk high return nature of this intervention.
Investment in the Chai Project through the Wood Family Trust
The Chai Project has been on-going since 2009. The cost-benefit analysis for DFID’s potential
contribution to this project draws heavily on extensive data already collected through this project
as well as a sister project in Rwanda – also jointly funded by the Wood Family Trust and Gatsby.
The tea industry in Kenya also provides valuable data and institutional examples.
Costs: The Chai Project as it currently stands is a US$6m program being implemented over 6
years. The interventions being scoped here are discrete from current interventions and therefore
only a proportion of current projected expenditure that can be attributed to the incremental
interventions to be funded by DFID is taken into account. The total costs for the two proposed
DFID-funded interventions to be expended over 3 – 5 years will be £5.55 m of which DFID will
contribute £5.29m. The bulk of this expenditure is projected loan capital for the purchase of two
tea factories on behalf of smallholders. The purchase of these factories will be conditional to
satisfactory due diligence being undertaken and business plans prepared. These preparatory
steps may reveal that one or both of these opportunities is not financially viable – leading to the
cancellation of a proposed purchase. This will obviously change both costs and benefits.
Benefits: Two benefits are scoped: increased revenue from existing production for smallholder
tea farmers due to an increase in the price of green leaf tea paid by tea factories and, secondly,
increased revenue from tea processing for smallholder farmers flowing from purchasing the tea
factories on behalf of tea smallholders. The latter also incentivises tea farmers to produce more
and higher quality tea. It is assumed that tea prices will start to improve for all tea farmers within
12 months of the start of the program.
Table 11: CBA: Contribution to Chai Project (Wood Family Trust)
Location: Mufindi, Njombe, Usambaras, Kagera
BENEFITS
Benefit 1: National price
increase
Description
Increase in price of green tea
leaves
lead
to
revenue
increase for smallholder tea
farmers
Benefit 2: Benefits from purchasing
factories
Factories are purchased on behalf of
smallholder tea farmers increasing their
revenue from tea processing as well as
improved tea production due to incentive
changes
43
Beneficiaries
All existing smallholder tea About 20 000 farmers will benefit from the
farmers in Tanzania
purchase of two factories.
39 500 (of which 10 000 are 20 000
pluckers)
Total
beneficiaries
2017
Benefit
Benefits will start to flow after Benefits start to flow 2 years after the
timeframe
one year of implementation
purchase of the factory
Nominal value £8.9m
£9.7m
2022
Present value
£5.5m
£5.2m
DFID Portion £4.7m
£5.1m
(PV)
COSTS
Total costs
£5.55m
DFID
£5.29m
contribution
NPV
£5.9m
BCR
2.21 (6.42 for national intervention and 1.31 for factory purchase)
EVIDENCE
Medium – comparable experience from neighbouring Rwanda and Kenya
RISKS
Current owners are not prepared to sell factories.
Inference by the government in the operation of the tea market.
Sensitivity analysis: The sensitive drivers for this intervention are the assumptions regarding
the level of price increases from the improved price mechanisms and improved income from
factory purchases respectively. If we reduce the assumed price increases from 10% to 5%, the
NPV reduces to £3.1m and the BCR to 1.64. If we reduce the assumed income increase from
the factory purchase by half, the NPV reduces to £3.2m and the BCR to 1.67.
Investment in USAID-funded TAPP program to establish farmer service centres – implemented by
Fintrac
The current TAPP program has a total allocation of U$35.5 m over five years (up to 2014). The
proposed DFID intervention does not strictly seek to add to this, but to fund an entirely new
component of the program, i.e. to establish farmer service centres.
Costs: the cost to establish 20 new farmer service centres and operate them over a period of
10 years is estimated to be £6.87 m. This will include financing costs for private input supply
companies who propose to stock the farmer service centres.
Benefits: Two benefits are included in the analysis. Firstly, increased revenues due to better
prices for produce as a result of improved market linkages and, secondly, increased revenue
from increased production due to the use of quality inputs and agronomy support. Key drivers
are the number of farmers that will benefit from any single farmer service centre, the adoption
rate for agronomy training and the revenue impact from improved market linkages.
Table 12: CBA: Contribution to USAID-funded TAPP program for farmer service centre
Location: Morogoro, Njombe, Iringa, Mbeya
BENEFITS
Benefit 1:
Benefit 2:
Description
Increased revenue from Revenue from increased production due to
improved market access
improved agronomy and use of better inputs
Beneficiaries
Smallholder farmers, particularly in horticulture
Total
20 000
13 000 (but subset of benefit 1 beneficiaries)
44
beneficiaries
2017
Benefit timeframe
Benefits start to flow in Same
2014
value £10.4m
£6.2m
Nominal
2022
Present value
£6.2m
£3.7m
DFID Portion (PV) £4.9m
COSTS
Total costs
£6.9m
DFID contribution £2.7m
NPV
£5.4m
BCR
2.21
EVIDENCE
Medium – no formal evaluation of pilots done already.
RISKS
Sensitivity analysis: If the number of farmers per farmer service centre increase by 10%, the
NPV increases to £6.4m and the BCR to 2.44. If the price increase due to improved market
linkages reduces from the assumed 15% to 7.5%, the NPV decreases to £2.1m and the BCR
to 1.47. Finally, if the adoption rate for agronomy practices reduce from the assumed 65% to
55%, the NPV reduces to £4.9m and the BCR to 2.09.
D. What measures can be used to assess Value for Money for the intervention?
The proposed programme’s purpose is to increase incomes for rural households in Tanzania. Thus
the number of rural households benefitting in terms of net income and the scale of increase in
incomes are key indicators of programme effectiveness. In addition, in order to evaluate efficiency
between interventions and of the interventions themselves, the programme cost per household
benefitting and overall benefit to cost ratio are important indicators. Similar measuring the economy
for each will mean assessing key unit costs.
Table 13 below sets out the VFM indicators for each intervention. These will be developed further
once proposals are received from each implementing agent.
Table 13: VfM indicators by component
VFM Indicators
Economy
SAGCOT centre
Administrative costs
compared to similar
institutions
SAGCOT catalytic
fund
Fund management
expenses
Technical assistance
expenses
Road
Cost per km of road
Efficiency
–
benefit to cost
ratio for each
Timeliness of
organisations
strategy and
plans
Program cost per
household
benefitting
Time taken to
make investment
decisions
Time taken to
disburse funds
Private sector
investment
leveraged
Time taken to
build road
45
Effectiveness
Policy changes that are facilitated by the
SC
Quality of M&E strategy
Number of rural households benefitting in
terms of increases in net income per
investment made
Commercial viability of businesses after
year 3
Transport cost savings
SAPPHIRE
programme
Forestry
Chai Project
TAPP programme
Programme
administrative fees
Extension service
expenses
Management fees
Administrative costs
of FDT
Ext service costs
Management fees
Tea processing plant
costs
Ext service costs
Management fees
Program cost per
household
benefitting
Number of rural households benefiting in
terms of increases in net income
Adoption rate of new agronomy practices
Value of credit extended
Program cost per
household
benefitting
Management fees
Costs associated
with farmer service
centres
Program cost per
household
benefitting
Number of rural households benefiting in
terms of increases in net income
Adoption rate of new agronomy practices
Charcoal prices
Number of rural households benefiting in
terms of increases in net income
Adoption rate of new agronomy practices
Changes to marketing dividend for
farmers
Number of rural households benefiting in
terms of increases in net income
Adoption rate of new agronomy practices
Changes to marketing dividend for
farmers
Program cost per
household
benefitting
The provisional cost-benefit analysis reveals a wide divergence in the benefit to cost ratio for
interventions targeting the marketing dividend (see section on theory of change) vs interventions
targeting a production dividend, with the former yielding significantly higher benefit to cost ratios. The
difference between the value for money indicators (efficiency) for these two categories of
interventions as well as the potential that an enhanced production dividend is more likely to follow
upon an already accrued marketing dividend, must be carefully monitored since such a finding can
provide critical learning for the design of future interventions in agricultural value chains as well as a
changed emphasis in the components of the current program.
The other indicator to monitor closely is the adoption rate for new agronomy practices and how this
differs across different value chains and agricultural technologies. Although the adoption rate is not
included in the logframe as an indicator, it will be a major value for money driver.
46
E. Summary Value for Money Statement for the preferred option
Table 14 below summarises the cost-benefit analysis and value for money indicators for the various components with the number of the
component in brackets in the heading for each.
Table 14: CBA by Component
DFID contribution
PV DFID contribution
Total costs PV
% costs from DFID PV
Total Benefits PV
Benefits attributable to DFID
Benefit to Cost Ratio
NPV
IRR
Households benefiting March
2015
Households benefiting Dec 2017
Households benefiting Dec 2022
Catalytic
Fund (2B)
£10.0m
£7.8m
£15m
52.6%
Infrastructure
(2C)
£10.0m
£9.0m
£22.0m
41.2%
SAPPHIRE
(2D(1))
£2.9m
£2.5m
£2.5m
100%
Forestry Dev Trust
(2D(2))
£2.5m
£2.1m
£10.9m
18.8%
Chai Project
(2D(3))
£5.3m
£4.6m
£4.9m
95.2%
USAID –
TAPP (2D(4))
£2.7m
£2.2m
£4.5m
49.4%
£37.6m
£19.8m
2.52
£22.7m
64%
6 162
£28.5m
£11.7m
1.3
£6.5m
18.9 –19.2%
-
£5.3m
£5.3m
2.15
£2.8m
43%
20 875
£286.1m
£53.6m
26.15
£275m
83%
15 000
£10.7m
£10.2m
2.21
£5.8m
51%
39 500
£9.9m
£4.9m
2.21
£5.4m
120%
20000
18 486
36 972
100 000
100 000
28 700
28 700
30 000
532 585
39 500
39 500
20 000
20 000
The comparative CBA of the components reveal divergent returns to investment. As can be expected, the analysis reveals that the lower risk
investments, such as the infrastructure investment and the continuation of the SAPPHIRE project, tend to have lower CBRs. The high risk and
longer term investments, such as the Forestry Development Trust, have higher CBRs. Within the value chain interventions, there is usually a
higher CBR for the market linkage components than for the agronomy practices. This divergence is highly sensitive to the adoption rates about
which there is very limited and dated information. A key part of the monitoring and evaluation would be to gather more reliable information on this
driver.
47
Commercial Case
Indirect procurement
A. Why is the proposed funding mechanism/form of arrangement the right one for this
intervention, with this development partner?
For each intervention DFID’s funds will be provided to the implementing agent against a detailed and
agreed budget under terms set out in an Accountable Grant letter, Trust Agreement letter or
Memorandum of Understanding. All interventions in this program, apart from the M&E component will
require some form of indirect procurement. Measures to ensure value for money in these activities
include:
 DFID will carry out a review of each organisation’s procurement and financial procedures and
policies;
 Where appropriate, insist the organisation undertakes a competitive tender process for
contracts to deliver the programme; and
 Ensure that the administration and management costs are kept to a minimum.
For the SAGCOT centre, SAGCOT catalytic fund, and infrastructure investment the Government of
Tanzania’s procurement policies and procedures will be followed. Public procurement in Tanzania is
governed by the PPA, Cap. 410. Over the last decade, the procurement system has undergone
tremendous reform including the enactment of the new Public Procurement Act - PPA 2004. The law
provides for competitive tendering procedures as the preferred method of procurement. The
regulations set out thresholds (in monetary terms) for various methods of procurement, with
international competitive tendering conforming to international standards and ensuring value for
money to the public. The law also defines clearly circumstances under which single source
procurement or direct purchasing may be permitted. The use of such methods is subject to approval
by respective tender boards. Overall it is of the required international standard, and is rated as one of
the best in the region, but there are gaps in implementation including lack of enough competent
procurement professionals in the country. The recent ACT PPA 2011 has given more powers to
PPRA – Public Procurement Regulatory Authority and Public Procurement Appeals Authority to
manage the procurement system in the country and is expected to improve the public procurement.
Development partners are continuing to work closely with the Government to strengthen these
procedures.
Component 2A. The SAGCOT centre is set up as a non-profit making company limited by guarantee
and an accountable grant mechanism will be used. Ernest & Young consultants are in the process of
preparing the policies and procedures manual and Accenture are developing a 5 year business plan
framework. The final business plan will be in place in the first quarter of 2013. Before DFID Tanzania
provides any funding to the centre, a number of steps need to be undertaken. Firstly the Centre
needs to develop a credible plan which includes clear indicators and results, and the organisational
systems need to be established and will be closely scrutinised to ensure adequate safeguards are in
place and VFM. Once these have been established a submission will be sent up to the DFID
Tanzania Head of Office to approve the release of funds to the centre. The SAGCOT Centre will use
the Government of Tanzania’s procurement policies and procedures, see above for an assessment
of these.
Component 2B. The SAGCOT Catalytic Trust Fund is set up as a Trust. A trust agreement
mechanism will be used.
There are two tranches of funding proposed for this component, an initial £5 million and a further £5
million should the Fund prove successful in targeting agribusinesses that increase incomes and
create jobs for smallholder farmers. Before the second £5 million is committed approval will be
48
sought through a submission to the DFID Tanzania Head of Office. The precise indicators of success
will be agreed with the Fund Manager once they are in place.
There is a risk of financial mismanagement within the fund itself. To mitigate this, the Board of
Trustees, Investment Committee and the fund manager will be selected through a competitive
international procurement process overseen by the SAGCOT Executive Committee, of which DFID is
a member. The fund manager with the approval of the board will develop policies and procedures
that meet international standards; these will include mandatory independent audits. In addition the
World Bank will provide a no objection service for each investment the Trust Fund makes. Thus the
risk is deemed low.
There is a risk of financial mismanagement within the investments made. The World Bank’s no
objection policy, the expertise of the Investment Committee and fund management due diligence will
go some way to mitigating this risk. The Fund manager will also consider providing funding in
tranches as an additional safeguard measure.
The procurement procedures will be aligned to those of the Government of Tanzania, see above for
assessment of these.
Component 2C. Infrastructure investment. DFID has entered into a MOU with the EC and USAID to
govern the contributions of the development partners to this project. Under the terms of the MOU
USAID will finance the feasibility study, project design and environmental impact assessment for the
project and will delegate the procurement and implementation to TANROADS. The EU and DFID will
co-finance project implementation through funding of works contracts and supervision services.
TANROADS will contract out the construction work and the EU’s national authorising officer based in
the Ministry of Finance will manage the payments to the contractor.
DFID funds will be transferred to the EU which will manage the programme for no fee; they have
significant experience in the road sector in Tanzania. DFID will participate in the review meetings and
quarterly progress meetings whereby the work plans and budgets will be discussed and approved.
TANROADS will use the Government of Tanzania’s procurement policies and procedures; see above
for an assessment of these.
The Value Chain Programmes were selected following a thorough analysis of different investment
options in the corridor as well as expenditure risks faced. See Annex F for a detailed explanation of
the process. In its choice of value chain programmes, DFID has two options – either to design its own
programme, or to support the extension of existing programmes. From a cost perspective, the design
and procurement of a new program involves substantial costs as well as the risk of unproven delivery
and impact. It was therefore decided to investigate whether there were existing interventions within
the target geography and target sectors that could accommodate additional funding to expand
existing activities. A total of 9 interventions (see Annex F) were identified. These were evaluated
based on demonstrated impact (both in the existing program as well as other related programs in
Tanzania, where available), whether they could be funded by DFID with substantially reduced
transaction costs than a normal tender process, whether their procurement policies satisfied DFID
requirements (and where these are not yet known, contributions will be conditional on proof of
satisfactory procurement arrangements), and whether they had ready capacity to scale up. In respect
of each potential partner, the cost per unit of impact (rural household with increased income) was
calculated. Out of the 9 current projects, four that suited the criteria were identified.
Component 2D (1): The SAPPHIRE program is currently implemented by Technoserve in terms of a
grant provided by AGRA. An extension of the program will be implemented through an accountable
grant to Technoserve which is a locally incorporated non-profit entity in Tanzania. Technoserve has
had a permanent presence in Tanzania since 1991, and has had significant experience facilitating
agricultural development. Technoserve is currently delivering this programme and is in the best
49
position to deliver additional results within the timeframe required.
Component 2D (2): The Forestry Development Trust is being registered under Tanzanian law as an
independent trust similar to the FSDT. The main driver for this process is the Gatsby Charitable Trust
who also implements DFID’s Cotton Program in Tanzania. An accountable grant to the GCF is thus
the most likely funding instrument to be used for this intervention.
DFID Tanzania already has an existing accountable grant with GCF. Their procurement and financial
systems are sound and robust.
Component 2D (3): Support for the Chai Project would be channelled through the Wood Family Trust,
a charitable trust registered in the UK, in the form of an accountable grant. This will be the first time
DFID has funded the work of the Wood Family Trust. All the necessary checks will be conducted,
including on WFT’s procurement policies, before any funding is provided. In addition DFID’s reporting
and monitoring requirements will be clearly outlined and agreed.
The Chai Project is already delivering results with agronomy practice improvements in Tanzania. This
funding will allow the programme to explore models for capturing a greater share of the marketing
dividend for smallholder farmers, a step change in the benefits smallholders could capture. The
Wood Family Trust has significant experience in delivering these results in Rwanda.
Component 2D (4): Funding for the extension of the TAPP program to establish farmer service
centres would be channelled through USAID through an MOU. DFID Tanzania has a similar
arrangement with USAID for the delivery of a family planning programme and this arrangement has
proven effective.
The TAPP programme is delivering good results for horticultural farmers and other agribusinesses in
the current value chains. The proposed funding from DFID will allow the programme to establish
more farmer service centres and explore additional value added products and services for these
hubs including extension services, nutrition information, input sales points and importantly
sustainability options. A number of private agri-input suppliers have agreed to provide stock for the
farmer service centres to be established.
USAID will continue to provide the day to day management function and will ensure all procurement
and financial procedures are adhered to. It is likely USAID will charge DFID a management fee of
0.04% which is approximately £10,000 to provide DFID with progress reports and to oversee the
financial management arrangements.
B. Value for money through procurement
In all of the options DFID will work through the management controls and procurement policies of its
partners to deliver value for money. In each case, DFID will scrutinise the procurement policies and
financial controls of its partners before the funding is issued. In the case of the SAGCOT Centre and
the Catalytic Trust Fund, governing boards of directors or trustees will be in place to oversee
spending. Individual funding decisions in the Catalytic Fund will further be overseen by an
independent Investment Committee, with a further no objection by the World Bank. In the case of the
value chain programmes DFID will rely on the procurement practices of the WFT, GCF, Technoserve
and USAID respectively.
Direct procurement
A. Clearly state the procurement/commercial requirements for intervention
50
As set out above, each component of this programme will make use of indirect procurement apart
from the monitoring and evaluation component. For the overall SAGCOT initiative, the SAGCOT
Centre will be responsible for defining indicators and monitoring progress. For each discrete
intervention funded by this programme, DFID Tanzania will as far as possible make use of the
expertise of DFID staff to assess progress against each logframe, and will only seek external
consultants where the expertise cannot be found within the organisation.
For the third area of the M&E strategy, that of impact assessments, the DFID Tanzania office will let
out a contract for these longer term in-depth assessments of key areas, see M&E section below for
more details. While they will require specialist expertise that is not available within DFID, it is also
important for these assessments to be independent. Four likely evaluation questions are:
i)
An impact assessment of the investment in the road.
ii)
An evaluation of the assumption that farmers will adopt new agronomy practices with the
support of extension services. This will look at both what factors lead to behaviour change and
how long this process takes.
iii)
The relative impact on smallholder farmer incomes of interventions that improve their revenue
from existing production (marketing dividend) and interventions that seek to improve their
actual agricultural production (production dividend).
iv)
The impact on nutritional outcomes in selected communities that are beneficiaries of DFIDfunded support.
This component is 4 per cent of the programme’s budget.
B. How does the intervention design use competition to drive commercial advantage
for DFID?
Use of a competitive tender process will facilitate competition in the supply of the M&E services. To
ensure sufficient competition, a minimum number of shortlisted bidders will be required, as will a
minimum number of technical proposals that pass a scoring threshold. Bidders will be required to
demonstrate how VfM measures have been incorporated throughout their proposed methodologies
for each evaluation question.
C. How do we expect the market place will respond to this opportunity?
DFID has good experience of contracting expert M&E services from a pool of competent service
providers, including a number of academic institutions. The market place is expected to respond
positively to this opportunity.
D. What are the key cost elements that affect overall price? How is value added and
how will we measure and improve this?
The key cost elements include the consultant time taken to: design the evaluation questions; collect
data in the field for each evaluation question; and analyse and report on an annual basis.
Requirements to demonstrate VfM in bids will be incorporated into the tender process as per DFID
procurement procedures. Value will be added through the technical expertise the contractor will bring
to these evaluation questions. The output from this analysis will shape DFID’s investment decisions
during the life of the programme.
E. What is the intended Procurement Process to support contract award?
The two stages PQQ and full proposal from qualified tenderers will be used for this contract.
F. How will contract & supplier performance be managed through the life of the
intervention?
The contractor will report to the DFID Tanzania Private Sector Adviser and Results Adviser. The
contractor will work closely with DFID to agree the final evaluation questions and methodology. An
annual evaluation report will be submitted to DFID for each of the agreed areas, starting with the
baseline report and ending with the final evaluation report.
51
Financial Case
A. What are the costs, how are they profiled and how will you ensure accurate
forecasting?
DFID will provide a total of £36.392 m over a period of 5 years from 2013 – 2017. The projected
expenditure profile is set out in Table 15 below. A rolling forecast will be used to update projections
and monitor their accuracy.
Table 15: Expenditure profile for the SAGCOT programme
SAGCOT Centre
Catalytic Fund
Infrastructure
SAPPHIRE
Forestry
Development
Trust
Chai Project
USAID TAPP
M&E
Total
2013
300 000
1 000 000
3 333 333
700 000
500 000
2014
300 000
1 000 000
3 333 333
700 000
500 000
2015
300 000
3 000 000
3 333 333
700 000
500 000
624 000
540 000
400 000
7 397 333
2 424 000
540 000
230 000
9 027 333
2 244 000
540 000
230 000
10 847 334
2016
300 000
3 000 000
2017
300 000
2 000 000
400 000
500 000
400 000
500 000
Total
1 500 000
10 000 000
10 000 000
2 900 000
2 500 000
540 000
240,000
4 980 000
540 000
400 000
4 140 000
5 292 000
2 700 000
1 500 000
36 392 000
The programme extends beyond the current spending round. Africa Directorate has been informed.
Should this programme be approved detailed plans and budgets will be negotiated between DFID
Tanzania and each implementing agent.
The SAGCOT centre will produce a five year strategy and budget, and annual and quarterly work
plans and budget. Discrepancies of actual spend to that forecast will be thoroughly interrogated and
lessons integrated into future forecasts.
The SAGCOT catalytic fund: once the fund management team is in place, an Investment Policy will
be drawn up setting out the fund parameters. This will dictate demand and the funding profile. A trust
agreement between DFID and the trust will set out in detail how the funding will be forecasted,
reported and disbursed. The AECF provides a good example. An initial £5 million has been proposed
for this component, should the Fund prove successful an additional £5 million can be allocated to it
with the approval of the DFID Tanzania Head of Office. The total sum is included in the table above.
Infrastructure: An initial MOU between the DFID, EU and USAID sets out the agreement to jointly
invest in this component. A separate financing agreement between DFID and the EU will specify how
financing will be forecast, spent and reported on. All funds will be channelled through the EU.
For all the M4P components detailed budgets will be prepared for the full five year period and then on
an annual and quarterly basis. Discrepancies of actual spend to that forecast will be thoroughly
interrogated and lessons integrated into future forecasts.
B. How will it be funded: capital/programme/admin?
All the funding will be programme funding. Road investment will be programme capital and the rest will
be programme resource.
C. How will funds be paid out?
52
For all the accountable grants, funds will be paid to partners quarterly, in arrears, based on annual
budgets and quarterly reports. Two of the interventions will have tailored arrangements:
i)
The funding for the infrastructure component will be paid to the EC who takes responsibility on
behalf of contributing development partners for the implementation of the works contracts and
supervision services. Under the terms of the MOU entered into by the contributing development
partners, the final provisions regarding implementation will be governed by the financing
agreement to be signed between the EU and the GoT. It is expected the EU will pay the
contractors directly through their national authorising officer based in the Ministry of Finance.
ii)
The funding to the catalytic fund will be paid in instalments based on rate of spend. The catalytic
fund will disburse funds based on the grant terms incorporated in the agreement for each
intervention. Individual grant terms will set out the milestones to be achieved and how funds will
be paid.
D. What is the assessment of financial risk and fraud?
Overall the risk is considered low; however sound financial management procedures, including
reporting requirements and regular audits will be followed to safeguard against any potential
mismanagement. With respect to those partners for which DFID has not yet conducted due diligence,
this will be completed before any disbursement is made. The management of the programme will
follow the guidelines as set out in DFID Tanzania’s anti-corruption strategy.
E. How will expenditure be monitored, reported, and accounted for?
DFID will sign Accountable Grant letters, Trust Agreements or Memorandum of Understanding
agreements with each of its partners, which will provide the basis for monitoring and reporting for the
funding. As part of these funding agreements DFID will review the audited accounts of its partners.
DFID will also review other independent information as to the adequacy of the internal controls and
financial records of the implementing partners.
All payments will be made in arrears unless proper justification can be made. At the time of each
payment each implementing partner will provide information accounting for the payments over the last
three months and a budget for the coming three months. DFID will reserve the right to undertake
occasional spot check audits. The governance structure of each partner will approve a yearly budget
going forward. It will also approve the audited accounts against the previous year and check spending
against the work plan. DFID will receive a copy of these independent audited accounts and will make
sure that accountable grant spending is in line with the budget approved by the governing structure
committee.
For those projects where a local governing board is not in place, i.e. the infrastructure component,
SAPPHIRE and USAID, the following will apply: DFID will approve annual budgets, review quarterly
reports and conduct annual reviews of the programme including reviewing programme spend.
If assets are purchased as part of the programme, the accountable grant agreement will set out how
these will be monitored and managed, and the end of the programme asset policy.
53
Management Case
A. What are the Management Arrangements for implementing the intervention?
Overall management arrangements
Seven separate contractual arrangements constitute the SAGCOT programme. There are two options
for the overall management. It could be overseen and managed by a contracted management agent or
an additional DFID Deputy Programme Manager could be employed.
Option 1: Under existing programmes funded by DFID Tanzania the average management fee is 14
per cent of the value of the programme - the range is wide 22 per cent to 0.4 per cent depending on the
required support. A contract to manage the SAGCOT programme would be on the lower end of the
spectrum. So if assuming a 1 per cent fee, this will cost approximately £350,000 over 5 years or
£70,000 per year.
Option 2 would cost approximately £25,000/year. Dependent on future DFID Tanzania requirements
the office could recruit to fill a five year fixed term contract or a permanent position. A five year fixed
term position will cost approximately 10 per cent more.
Recruiting a DFID staff member presents better value for money and will ensure that programme
management expertise is built and retained within the organisation. This is the preferred option.
Individual component management arrangements
The management arrangements will differ between the different components
SAGCOT Centre
The SAGCOT Centre is a company limited by guarantee. As such it is overseen by a board of
directors. The current board consisting of five members was appointed by the GoT. Two additional
board members representing the international private sector partners have been appointed. The
policies and procedures are currently being developed by independent consultants; including sound
financial management and governance arrangements. Each donor has also specified reporting
requirements - DFID’s include a costed five year plan, annual work plans and budgets, quarterly
progress reports and annual reviews. These are expected to be in place by the end of the year.
The Centre is managed by a CEO appointed by the GoT, assisted by a deputy-CEO seconded by the
WEF. The CEO was recently replaced and the new CEO is settling into the position. The Centre has
struggled with inadequate resources, both human and financial, to perform its functions. Should DFID
be of the view that the Centre is unable to implement its functions with the necessary economy and
efficiency, it retains the option to fund discrete projects without contributing to the overall costs of the
Centre.
DFID’s legal experts have reviewed governance documents and are comfortable with the
arrangements. The structure is not yet completely finalised, once this has been done formal sign off will
be requested.
Catalytic Fund
The Catalytic Trust Fund will be governed by a board of trustees whose selection was made by the
SAGCOT Executive Committee.
The five-member Board of Trustees has ultimate fiduciary responsibility and accountability for the
performance of the CTF and the sub-funds. It is responsible for overseeing the operations of the CTF
54
and its compliance with the underlying Trust Deed. It is also responsible for the engagement of the
Fund Manager, including negotiating the Fund Management Services Agreement and overseeing the
Fund Manager’s performance.
An independent, three-member Investment Committee is delegated the responsibility by the Board to
evaluate, shortlist and select the project applications recommended by the Fund Manager. The Fund
Manager will be recruited through an international tender and will manage the day-to-day operations of
the fund.
The role of funders within the governance structure is still under debate. It is likely that a representative
of the funders will sit on a five person partnership council which will have the right to approve any
changes to the Trust Deed. DFID’s legal experts and FCPD have reviewed and commented on
numerous iterations of the Trust Deed and proposed governance structure. This process of review will
continue until the Trust Deed is finalised. To date the opinion has been positive as to the governance
structure.
Infrastructure component
The infrastructure component will be implemented through two separate arrangements, set out in the
MOU between the participating development partners. The feasibility study, project design and
environmental impact assessment will be funded by USAID who is expected to delegate the
procurement and implementation to TANROADS. The works contracts and supervision services will be
jointly funded by the EU and DFID. The EU will take the lead in this process. An initial MOU between
the EU, USAID and DFID has been agreed, setting out the intention to jointly invest in this component,
A further MOU will be signed between the EU and DFID, setting out the Financing Agreement. It is
expected that implementation of road construction will also be delegated to TANROADS with EU
oversight.
SAPPHIRE
Assuming that DFID will fund Technoserve directly for the extension of the SAPPHIRE program, the
program will be managed directly by Technoserve under the terms of the accountable grant. DFID will
provide direct oversight of the program through its Private Sector Advisor. Programme management
support will be provided by the dedicated DFID Tanzania Deputy Programme Manager. Both will liaise
closely with AGRA, the programme’s initial and continuing funder.
Forestry
Gatsby is currently in the process of establishing the FDT as an independent trust. DFID will fund
Gatsby directly and Gatsby will be accountable to DFID under the accountable grant. Gatsby in turn will
channel funding through the FDT and will exercise governance and oversight through its grant
agreement with the FDT. Oversight of the activities of the trust will be provided by the board of trustees.
The board will also appoint the management, including a senior person to act as director. Gatsby has
already commenced the process of searching for an appropriate person to fill the director’s position and
will take the leading role in appointing the director. Gatsby is also undertaking the search for suitable
trustees.
Chai Project
The Chai Project is governed through a joint steering committee of the WFT and Gatsby Charitable
Foundation, being equal partners in the current project. Each partner manages its own spending on
Chai Project activities, including utilising its own procurement rules. The three current staff members
are employed by the WFT. It was agreed that DFID’s contribution would be channelled through the
WFT, which will utilise its own policies and procedures to manage expenditure. DFID will consider
joining the project’s steering committee.
55
USAID TAPP
DFID will channel its funding through USAID to the TAPP programme. The TAPP programme is
implemented on behalf of USAID by Fintrac, a for-profit company. Fintrac was recruited through
international tender. USAID Tanzania has indicated that the DFID funding could be channelled through
them which will require a contract modification to Fintrac’s existing contract. USAID has indicated that
they will oversee the implementation of the programme enhancement funded by DFID.
B. What are the risks and how these will be managed?
This section focuses on large scale cross cutting risks to the programme that might result in
underachievement. Detailed implementation risks to each output are managed by the implementing
partners as part of their project management.
1. Political and regulatory risk
SAGCOT is a high profile initiative which enjoys the support of the President and has attracted much
attention. With this has come substantial political risk, especially since the development of commercial
agriculture requires material changes in current social and production structures in rural areas. There
has accordingly already been resistance against the initiative, including in Parliamentary circles. In line
with previous experience, there can also be disruption at grassroots level, including occupation of land
destined for commercial agriculture.
At a generic level, the GoT has in the past intervened extensively in the marketing structures for
agricultural produce. This includes setting up marketing boards, requiring export permits for agricultural
products (for which multiple public agencies must grant their approval) and imposing export bans on
particular commodities, especially maize. Though export bans were lifted earlier this year, there is no
guarantee that they will not be imposed again or that other market interferences will not occur.
At an institutional level, it is uncertain to what extent the GoT would prefer to exercise direct control
over the SAGCOT structures rather than permitting a true PPP to develop. Similarly it remains to be
seen to what extent the GoT will reform ingrained policy practices and institutions to facilitate
commercial agriculture.
Likelihood: High
Impact: High
Mitigating measures:



The interventions proposed in this programme focus primarily on smallholder agriculture rather
than large commercial agriculture driven by foreign investment;
The selection criteria for the M4P programmes included the political economy of the specific
sectors to assess the likelihood of success of an intervention within the sector. In particular,
each sector was assessed as to the extent of it being “locked-in”. Locked-in sectors occur when
industry players (public and private) have vested interests against changing the status quo for
the industry and those players have a disproportionate amount of power relative to other
members of the sector. Locked-in sectors were avoided.
DFID will give preference to channelling the bulk of its funding through non-SAGCOT
institutions where the political risk is lower.
2. Pipeline and institutional risk
At the heart of SAGCOT is the development of commercial agriculture. Yet, the current base of primary
56
commercial agriculture is very narrow and the institutions that aggregate smallholder farmers are weak.
Developing enough fundable projects and institutions capable of aggregating farmers for the purposes
of marketing support and the delivery of new technologies is therefore not a given.
Likelihood: High
Impact: High
Mitigating actions:



Spreading interventions across multiple sectors to capitalise on multiple institutions
Working with established programs that have already developed institutional infrastructure and
relationships
Investing in infrastructure which is less prone to institutional risks
3. Market risk
Agricultural markets are usually fragmented, especially at the production side –which is where this
program seeks to add value. This makes these markets vulnerable to fluctuations in national and
international market conditions leading to potentially lower prices and thus returns. At the same time
smallholder cost and revenue is vulnerable to changes in macroeconomic conditions influencing
inflation rates.
Likelihood: High
Impact: High
Mitigating measures:



Focusing interventions more on creating a marketing dividend than a production dividend;
Supporting interventions that create aggregation opportunities for smallholder farmers;
Supporting a portfolio that includes longer term interventions that are not that vulnerable to
short term price fluctuations.
4. Production/agronomy risk
Although many agricultural value chain interventions focus on improving agricultural production
through, amongst others, improved agronomy practices, there is limited evidence that smallholder
agricultural productivity in Tanzania has indeed increased significantly or on a widespread basis over
the past decade (despite sector growth which is largely due to price changes and a few large
producers). The only thorough analysis done of the adoption of new agronomy practices in Tanzania is
more than twelve years old and indicates great variation in adoption rates. The risk of low adoption
rates for agronomy interventions is exacerbated by the demise of traditional public extension services
in agriculture. New privately driven extension services are evolving in a piecemeal and ad hoc manner.
Likelihood: Medium
Impact: High
Mitigating measures:


Placing a strong focus on interventions targeting the marketing dividend rather than the
production dividend, and at least combining all interventions targeting the production dividend
with a component designed to yield a marketing dividend;
Placing indicators that measure the adoption rate as well as the relative impact of interventions
targeting production and marketing dividends respectively, at the core of the monitoring and
evaluation approach of the programme.
5. Climate and Environment risk
57
Agriculture and infrastructure are both classified as climate sensitive sectors. Both are vulnerable to the
impacts of climate change and environmental degradation and can present negative impacts on the
climate and environment. If well managed, both also present the opportunity to build resilience and to
achieve sound environmental management. This business case is designed to achieve the latter.
Likelihood: High
Impact: High
Mitigating measures:
 Undertake a full SREA of SAGCOT
 Adopt a climate smart approach to SAGCOT, ensuring a no-regrets agenda.
 Work with partners to develop and ensure compliance to stringent environment and climate
safeguards and assessments.
6. Social impact risk
Growth in the agriculture sector has the potential to greatly improve the livelihoods of rural Tanzanians;
however this impact will not be uniform across all stakeholders. There is a risk that the most vulnerable
may not benefit as much as the more well off, and may even lose in some areas.
Likelihood: Low
Impact: High
Mitigating measures:
 Complete the Strategic Regional Environmental and Social Impact Assessment of SAGCOT,
led by the World Bank and implement recommendations.
 Implementing agencies will be required to develop detailed impact chains showing linkages to
social impact, continually updating these and using them to guide monitoring and evaluation.
 Work with partners to develop and ensure compliance to stringent social safeguards and
assessments.
 Undertake an assessment of the impact of selected M4P interventions on nutritional outcomes
C. What conditions apply (for financial aid only)?
No conditions apply.
D. How will progress and results be monitored, measured and evaluated?
This programme will be monitored at three levels
1. At the overall SAGCOT initiative level
2. At the level of each intervention, against a dedicated logframe
3. More in depth impact assessment will be undertaken by an independent contractor
Monitoring and evaluating the SAGCOT initiative
The SAGCOT Centre is responsible for undertaking the monitoring and evaluation of the SAGCOT
initiative. The Centre has started the process for procuring M&E specialists with the support of the
World Bank to design an M&E plan, including establishing what indicators should be tracked, how the
baseline will be collected and the frequency of this collection. Although the indicators are not yet
defined, examples include: incomes, jobs, private investment leveraged, access to electricity, travel
times, productivity, scale of produce sold, and business environment indicators. DFID will continue to
play an active role in M&E consultations.
Monitoring and evaluating the DFID-supported interventions
A full evaluation plan will be developed once formal proposals are received from each partner
58
organisation. This will be approved within three months of BC approval. A separate budget of £1.5m
has been set aside, from which DFID can commission evaluations.
A key indicator across the whole programme will be the impact on incomes as this is an operational
plan target that DFID Tanzania is obligated to report against. Each implementing partner will be
responsible for collecting net income data. The most likely source for this data will be field surveys.
A tentative logframe has been designed for each intervention. These will be finalised once formal
proposals are received from each implementing partner. As far as possible these will align with current
monitoring tools. DFID will undertake an annual review against this logframe for each investment. DFID
will utilise the monitoring and evaluation systems of partners for data collection. In addition DFID will
select two individual areas to undertake a more in-depth evaluation.
A. As noted above the SAGCOT Centre will have its own dedicated M&E framework. This will include
tracking indicators for the Centre’s own work.
B. The Fund manager who wins the tender to manage the Catalytic Fund will design an M&E
framework. DFID will share the M&E framework from the Tanzanian agribusiness window of the
African Enterprise Challenge Fund.
C. DFID together with the EU will jointly design a monitoring and evaluation plan for the investment in
the road. The EU will be responsible for collecting the data for monitoring. An independent
evaluation will also be undertaken. The funding for this will come out of the separate M&E line in
the budget.
D.
i)
ii)
iii)
iv)
Value chain programmes
Forestry value chain – DFID will rely on the M&E currently undertaken by the Gatsby
Charitable Foundation. The Forestry Development Trust will also implement its own M&E
approach and process.
Wood Family Trust – The Chai project has an existing M&E framework. DFID will work closely
with the Wood Family Trust to design an M&E plan that suitable tracks indicators linked to the
specific DFID contribution.
USAID - DFID will rely on USAID’s M&E framework
Technoserve – DFID will design an M&E framework with Technoserve for the additional
investment in the programme to adopt new agronomy practices.
Independent evaluations
For each evaluation DFID Tanzania will ensure
 Independence – the evaluation should be undertaken independently (of both the implementing
partner and DFID staff working on the project).
 Systematic Approach – They follow a systematic approach using DAC evaluation criteria
(relevance, effectiveness, sustainability, etc).
 Meet international standards – as set out in the DAC Quality Standards for Development
Evaluation.
Four likely evaluation questions are:
 An impact assessment of the investment in the road. An attempt will be made to undertake a full
impact evaluation. This will be assessed once the BC is approved.
 An evaluation of the assumption that farmers will adopt new agronomy practices with the support
of extension services. This will look at both what factors lead to behaviour change and how long
this process takes. This is likely to be a programme process evaluation.
 The relative impact on smallholder farmer incomes of interventions that improve their revenue
from existing production (marketing dividend) and interventions that seek to improve their actual
agricultural production (production dividend).
59
 The impact on nutritional outcomes in selected communities that are beneficiaries of DFIDfunded support. An attempt will be made to undertake a full impact evaluation. This will be
assessed once the BC is approved.
The first evaluation is selected because it constitutes the single biggest investment in the SAGCOT
programme. The second evaluation is selected because the behaviour change process does not have
good evidence and is key to increasing incomes in a number of these interventions and in a number of
other DFID Tanzania programmes. The third evaluation will allow us to understand the relative impact
on incomes from targeting different parts of the value chain. The fourth evaluation question will help
DFID understand how best to address nutritional outcomes in Tanzania.
The timing of the assessment is still to be determined.
Lograme: 3750955
Quest No of logframe for this intervention:
60
End notes:
i)
Household Budget Survey 2000/1 and 2007, NBS, showed a million more Tanzanians fell into poverty. Data from
the recent panel survey indicates poverty levels to date remain stagnant.
ii)
Household Budget Survey 2000/1 and 2007, NBS
iii)
Growth has centred around capital intensive sectors and in urban areas.
iv)
Delgado, C. L., et al. (1998). Agriculture Growth Linkages in Sub-Saharan Africa. Washington, DC: IFPRI.
Compared links between agriculture and the wider economy in a number of countries in Africa, and demonstrate that
$1 increase in agricultural output yields $1.88 in Burkina Faso and $1.48 in Zambia; $1.24-$1.48 in Senegal and
$0.96 in Niger a non-agriculture economy.
v)
Fan, S., T. Mogues, and S. Benin (2009).
vi)
Delgado, C. L., et al. (1998). Agriculture Growth Linkages in Sub-Saharan Africa. Washington, DC: IFPRI.
vii)
Pinstrup-Andersen and Pandya-Lorch 1995 Agricultural Growth is the Key to Poverty Alleviation in Low-Income
Developing Countries, 2020 Brief 15. Washington, DC. : International Food Policy Research Institute.
viii)
http://agriculture.gouv.fr/G20-agriculture
ix)
UKaid (2011). Changing lives, delivering results
x)
AgFiMS Tanzania 2011
xi)
Ernst and Young, Tanzania Banking Sector Performance Review: Year Ended 31 December 2009
xii)
G8 Camp David declaration, May 2012.
xiii)
Dr. R. Willy Tenga and Prof J.M. Lusugga Kironde, Study of Policy, Legal and Institutional Issues related to Land in
the Project Area, Draft Report, June 2012.
xiv)
Agricultural Finance Market Scoping (AgFiMS) Tanzania 2011. Launch presentation by Dr Andrew Temu.
xv)
DFID Tanzania, BEST Annual Review, November 2008
xvi)
MacCarthy, M.A., Review of the business environment strengthening for Tanzania – advocacy component (BESTAC) covering the period July 2009 TO December 2010, Final Report.
xvii)
Highway Design and Management Model – Version 4.
xviii)
Bisanda, S., W. Mwangi, H. Verkuijl, A.J. Moshi, and P. Anandajayasekeram. 1998. Adoption
of Maize Production Technologies in the Southern Highlands of Tanzania. Mexico, D.F.: International Maize and
Wheat Improvement Center (CIMMYT), the United Republic of Tanzania, and the Southern Africa Centre for
Cooperation in Agricultural Research (SACCAR)
xix)
Fan, S., Nyange, D. & Rao, N. 2005. Public Investment and Poverty Reduction in Tanzania: Evidence from
Household Survey Data. Development Strategy and Governance Division (DSGD) Discussion Paper no 18.
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