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Tanzania Coffee Farmers and Traders Face Stark New Regulatory Reality

Tanzania coffee

On January 14, 2018, Tanzania’s Prime Minister Kassim Majaliwa dissolved the Tanzania Coffee Development Trust Fund, claiming it was redundant and depriving farmers of their money.

At the same time, he directed the revocation of all licenses for traders purchasing coffee directly from farmers, reinstated cooperatives, and mandated all coffee be purchased by exporters through the auction, effectively eliminating the possibility of direct trade from farmer to exporter.

As this year’s harvest approaches, Tanzania coffee farmers and traders are facing a stark new reality, and it remains to be seen how the market and the actors involved will navigate the new regulations, or what effect the new system will have on the specialty market. It’s the latest chapter in the long, complex history of Tanzania’s coffee sector.  

The Modern Auction

The Tanzania Coffee Board (TCB) Auction held in Moshi, in the far northeastern part of the country, takes place weekly during the harvest season. Bidders are licensed by the government to participate as exporters to the international market.

Prior to liberalization in the 1990s, payment to farmers would occur in three stages: parchment delivery, premium for cup quality, and a third payment if the auction price had been underestimated. In the old system, auction prices were reflective of quality and demand, and created a degree of price transparency to the farmer. However, until the auction was completed, the entire market risk also rested on the farmers shoulders; they bore the brunt of unpredictable swings in market prices and inefficient export logistics.

By the mid-1990s, much of Tanzania’s coffee, particularly that produced by smallholders, was purchased in full by independent brokers and exporters prior to auction. In this liberalized market climate, the auction no longer served as an efficient price discovery mechanism. Growers faced the double-edged sword of lack of market knowledge and the resulting unevenly balanced negotiations on the one hand, with immediate cash payment for product on the other — an unsavory situation to be sure.

Interestingly, this coffee — even when purchased directly — still moved through the auction in Moshi. Exporters bid on their own coffees, repossessing what was already theirs. In the rare bidding war between exporters, the high prices didn’t matter because the exporter was simply going to be paying themselves for their own coffee. The auction was effectively broken.

As failing cooperatives disbanded, farmers formed loose Farmer-Producer Groups (FPGs) to sell their harvest to whomever came to call. Without a reliable auction price, distrust for parchment payments was rampant and loyalty to a trader more or less non-existent.

All this changed in the blink of an eye in January. Over 90 percent of Tanzania’s coffee is grown by smallholders, and as of 2018 all smallholders are required to be cooperative members who contribute their coffee directly to the auction.

Native Robusta, Introduced Arabica

Tanzania’s history with coffee production predates written history. In the country’s far northwestern coffeelands, the Haya people of what is now the Kagera region, bordering Rwanda and Burundi, cultivated indigenous Robusta. The berries were boiled and smoked, or used as gifts and a form of currency.

Arabica first arrived from the French-held island of Réunion, where the local Spiritan bishop resided. Zanzibar’s Sultan gave the European missionaries his blessing, and shortly there after the Spiritans made their way to Bagamoyo on Tanzania’s central coast, as early as 1868. The local leadership offered the Catholic sect some land, purportedly to aid the survivors of slavery. By 1877 Bagamoyo’s Catholic population was booming and the school had a garden where coffee from Réunion, Madagascar, and India was grown.

Colonial governments like the Germans, beginning in 1885, and the British after them, attempted to force Arabica production as a cash crop on the Haya and other regional ethnic groups. The Haya offered the strongest resistance — they disliked Arabica and they definitely disliked European-instigated commercial cultivation.

Commercial coffee took root more easily near Kilimanjaro, spread by the Spiritan missionaries in the early 1890s. Arabica was planted in 1902 in Moshi and cultivated by the local Chagga ethnic group under duress. This established a local economy that eventually organized into an Arabica auction system, still in place in Moshi today.

The British absorbed German Tanganyika after World War I in 1918 and accelerated coffee cultivation. In 1925, the first Tanzanian coffee farmer cooperative was established, and by 1950 there were more than 400 such groups in the country.

Tanzania earned its independence from Great Britain in 1977, nationalizing and redistributing former estates. Cooperatives dissolved under the weight of a collapsing socialist economy that created massive bureaucratic government that was rife with corruption. For half a decade, until 1982 when cooperatives reorganized under governmental control, the Tanzania Coffee Authority bought and sold all coffee in the country. As subsidized government-controlled cooperatives sank deeper into debt, independent parties were able to step in where cooperatives lacked assets and began to purchase coffee directly.

Reforms in the government and coffee sectors allowed increased privatization beginning in 1990 and culminated with the formation of the Tanzania Coffee Research Institute (TaCRI) and the Tanzania Coffee Board (TCB) in 2000-2001.

Tanzania’s coffee crop has struggled in recent years, however. Productivity has been down and farmer access to credit hard to come by. The TCB, working on a strategic coffee development plan lasting from 2011 to 2021 to double production, missed its 2017 target by 41 percent.

It remains to be seen what effect the reorganized auction and cooperative systems in Tanzania will have to offer traders and farmers in the coming months as we approach the peak of harvest.

Comment

2 Comments

Tionico

Thanks, Chris, for this fine article. It is always interesting to learn “how things work” in other areas.

Its also “interesting” to see how in nearly every instance, government regulations, restrictions, requirements, mandates, etc, can mung up a functioning system and/or remove or ban existing options that have value to both producers and consumers. Too bad governments so rarely involve people who understand whatever it is the producers are dealing. In this case, eliminating direct trade and consistent relationships will hurt the industry overall. Sad…..

Concerned stakeholder

Hi Chris,

Very interesting piece on the current scenario of the Tanzania coffee sector against a backdrop of the previous system.

Having worked in the Tanzania Coffee value chain in the past almost 10 years I believe that in as much as the new system might be beneficial to farmers, it’s implementation was rushed.

All commodities have a value chain and numerous players offering varied services to the final product.

Typical, most value chain players (intermediaries)are wrongly vilified for the role they play. This is primarily due to misinformation with regard to their input and their share of the input. In most cases most studies rush to point out the supposedly “immoral” share of the output without considering their immense input.

The new system tasks the farmer (through the Co-ops) to cater for all costs of transforming the red ripe cherries to green beans ready for sale at the auction.

Unfortunately very few co-ops are in place and these also lack capacity, expertise and finances to manage the processing of the coffee.

As it were, most of the infrastructure for primary wet processing was owned or operated by private players.

This leaves the farmers with no option but to process their own coffee at home. Consequently this will result in lower quality coffee that if not traceable.

All certified coffee supply chains that had been set up by the private players collapsed in a blink of an eye! These certified supply chains guaranteed farmers agronomist support, input credit an potential a higher return compared to conventional channels.

As it stands, only large estates in the north will supply certified coffees.

For now we can only adopt a wait and see attitude but the outcome is more than obvious.

Asante (Thank you)

Concerned stakeholder

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