The link between professional agribusinesses and living income in Tanzania
Agriculture can play a significant role in reducing poverty in developing countries like Tanzania, especially with the help of cooperatives and agribusinesses. By professionalizing Tanzanian agribusinesses, we can help them provide a living income to their members.
Agriculture and poverty reduction
The potential to change rural livelihoods is immense
Research suggests that agriculture could be a formidable approach for addressing rural poverty in Tanzania. In fact, lessons learned from Malaysia and Vietnam – both of which had similar agricultural productivity profiles as Tanzania prior to the 1990s – have demonstrated that agricultural led development can be a success. With agriculture contributing to nearly 27% of Tanzania’s GDP in 2020 and nearly 80% of households involved in the sector, it is fathomable that positive changes in the sector can have a massive macro-economic impact. Yet, issues of low productivity and poor market connection are pervasive in Tanzania. For example, in 2019, 26% of all farmers did not sell any of their crop production, and only 25% of maize production is sold on the market. So long as these challenges persist, it will be difficult for rural Tanzanian farmers to escape poverty, even if the general agricultural sector is strengthened.
From rural smallholders to organized agribusiness
Lessons in agricultural growth seem to point to a need to be more organized. Smallholder farmers are often subsistence farmers who struggle to make ends meet. As they become more organized – forming cooperatives, for example – they become increasingly more linked to markets.
Even more, as cooperatives, themselves, organize into producer organizations, they are better able to access services and develop important business relationships. Well-organized, professional agribusinesses can have a major positive impact on the lives of rural smallholder farmers. According to a World Bank report:
Agribusiness can play a critical role in jump-starting economic transformation through the development of agro-based industries that bring much-needed jobs and incomes. Successful agribusiness investments in turn stimulate agricultural growth through the provision of new markets and the development of a vibrant input supply sector.Growing Africa: Unlocking the Potential of Agribusinesses
If agricultural development projects focus on agribusinesses, they can also improve the lives of individual farmers. Strengthening markets and input supply sectors not only helps the agribusinesses that run them but also the farmers who utilize them. Agribusinesses can also support farmers through jobs and partnerships. A strong agribusiness can work with individual farmers, who can often earn a better income by selling their produce through the agribusiness than they would by selling it on their own.
Better incomes are within our control
A goal for many development organizations working with smallholder farmers is to provide them with a living income. A living income is defined as: “The net annual income required for a household in a particular place to afford a decent standard of living for all members of that household.” Along with NewForesight Consulting, we have created a model to determine the main drivers of living income for farmers (as shown below). We have found that the main drivers of living income are the price of the crop, the farmer’s yield, the size of the farm, the cost of production, and the farmer’s level of diversification.
We have found that agribusinesses can influence most of these drivers. In fact, we have found that, through strengthening their business practices, agribusinesses can influence up to 75% of three key drivers: yield, cost of production, and diversification. Professional agribusinesses are thus able to create circumstances that give farmers a better chance of earning a living income.
By using agribusinesses as an entry point instead of individual farmers, programs can take a more scalable approach. Supporting a single agribusiness leads to gains for all of its members, including all the farmers that supply it. It can also lead to growth across the entire agricultural sector (see above). Thus, supporting agribusinesses also supports individual farmers, but with a larger, more scalable overall impact.
The Tanzanian Cooperative Sector
Many cooperatives, but most lacking business skills
Agriculture accounts for approximately one third of Tanzania’s GDP and employs nearly 75% of its workforce. Tanzania has over 16,000 registered cooperatives, with the top types being Savings and Credit Cooperatives (SACCOs) and Agricultural Marking Cooperatives (AMCOs). Overall, these cooperatives provide direct employment for over 90,000 people.
Since 2015, we have assessed nearly 300 agribusinesses throughout Tanzania. Based on their SCOPE scores, almost two-thirds of these agribusinesses are classified as “maturing.” Maturing agribusinesses are often characterized by rudimentary policies and processes, a lack of technology, and low access to finance. As a result, they tend to be vulnerable to external risks and environmentally unsustainable in their practices.
Living income in Tanzania
Cooperatives have enormous potential
According to a report by the Global Living Wage Coalition, the living income for a family in rural Tanzania is TZS 458,092 per month (approximately USD 200). However, the average Tanzanian family working in agriculture earns TZS 274, 293 per month, or just under 60% of the living income.
Earlier, we mentioned that the drivers of living income are the price of the crop, the farmer’s yield, the size of the farm, the cost of production, and the farmer’s level of diversification. SCOPEinsight’s SCOPE Basic Assessment Tool measures these drivers under the following dimensions: internal management, operations, sustainability, production base, market, and enabling environment. Keep in mind that the SCOPE Basic is diagnostic for emerging farmer organizations and that a score of 1 indicates that the entity is a novice and a score of 5 means that the business is strong in the class of emerging farmer organizations. For Tanzania, agribusinesses score a 3 or lower on the main drivers of living income.
A Reason for Optimism
Although the average Tanzanian agribusiness is not yet professional, improvement is still very possible. If efforts are made to focus on the aspects of these agribusinesses that most require support, then the agribusinesses will be able to professionalize. SCOPE assessments provide a detailed view of the strengths and weaknesses of the assessed organizations. This information can be used to tailor training to make it as effective as possible, which increases the impact on an agribusiness’s professionalism.
While not all of the factors which influence farmers earning a living wage can be addressed through working with agribusinesses, many can. If projects would focus on strengthening the drivers of living income at the agribusinesses level, such as the dimensions discussed on the previous page, then there could be more impact than simply working at the individual smallholder level.
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