MZUMBE UNIVERSITY

DAR ES SALAAM CAMPUS

PROGRAM: MASTERS OF PUBLIC ADMINISTRATION - EVINING

SUBJECT : Management of Social and Economic Services

SUBJECT CODE : PUB 610

SUBMITTED TO : Dr. Derlene

SUBMISSION DATE: 13 January,2020

TERM PAPER:

SN NAME REG NUMBER

1 Christopher Salvatory Mabada 230050069/T.18

Tanzania's cashew nut traders are staring at huge losses following the government's move to confiscate the produce of those who fail to show
proof that they are farmers.The government has launched the verification exercise to rid the sector of middlemen who have dominated the cashew
nut trade for years.In southern Mtwara and Lindi regions, where the army was deployed to collect cashews bought by the government, the
authorities have been confiscating thousands of tonnes of nuts.Cooperatives have warned that they would be left saddled with huge debts after
bankrolling farmers to prepare the farms and purchase inputs following the government decision to pay farmers directly for the produce. As the
verification continues, it has become apparent that most of the cashews bought by the government had already been sold to traders at lower prices
than the Tanzania Agricultural Bank's price of Tsh3,300 ($1.4) per kilogramme.On Monday, Mtwara Regional Commissioner Geldius Bykanywa
confirmed that the government was only paying farmers after verification. “We normally assess the amount supposed to be paid to the farmer in
relation to the size of their farms,” he told reporters.He added: “If we find out that there is a discrepancy, we cancel the payment.”Mr Bykanywa
said farmers were at the mercy of these individuals who provided them with loans which they repay using their harvests. “The traders take
advantage to negotiate with the vulnerable growers who cannot afford to buy agricultural inputs, in which the growers are conditioned to equally
share the sales,” he said.He added that the middlemen have been buying the produce even before the harvest.Mr Byakanwa also claimed
executives of cooperative unions were lining up to benefit through payments to “ghost farmers.”So far, the government has bought about 300
tonnes of cashew nuts, according to the Mtwara Region chief. [ Source: The East African 2018]

Citing relevant examples from the above case to support your analysis and arguments

Discuss two theories covered by your lecturer

1 INTRODUCTION

1.1 OVERVIEW OF CASHEW NUTS PRODUCTION IN TANZANIA

Tanzania is among the largest cashew nuts producer in Africa whereby most of its cashew nuts is
produced in southern part of the country. Data shows that in 2017/2018 Lindi and Mtwara has
produces about 270,767.46 tons of cashew nuts out of 313,826.386 tones which was produced
in the entire country. 1 Most of the production is dominated by small farmers who operating at
subsistence level. Large amount of Tanzania raw cashew nuts in Lindi and Mtwara is exported to
India, Although the country is still enjoying market from other part of the world. The regions is
endowed with huge fertile and arable land where large plantations can be established to feed into
processing factories and export markets.

2 ANALYSIS OF CASHEW NUTS SAGA IN TANZANIA

Although cashew nuts production in Lindi and Mtwara seems to be flourished recent its
experiencing different challenges which professionally can be analyzed through two major
theories which are

i. Market Failure theory and

ii. Government Failure theory

2.1 Market Failure Theory

According to B.Dollery & J.WallisIn (2001) Market failure is the inability of a market or system
of markets to provide goods and services either at all or in an economically optimal manner.
market failure occurs when market prices do not equate with marginal social costs. This means
that market prices as signaling devices will not accurately reflect the full social costs of
producing the economic good in question and so producers will either under- or over-produce the
good.

Initially Tanzania cashew nuts production was operated under some principle of free market
economy where by buyer and seller were free in conducting business in competitive way. But the
market environment was disrupted due to several factors which cause inequalities in business
environment as described better by market failure theory as follows:-
1
Cashew nut Board Of Tanzania - https://cashew.go.tz/cbt_home/documents/Cashewnut_Production_Trend
%20_2004_2018.pdf
2
2.1.1 Asymmetric Information
This refers to existence of lack of inappropriate information among the buyers or sellers. This
means the price of demand or supply does not reflect all the benefits or opportunity cost of a
good. Cashew nuts small producer does not have enough information about the price of cashew
nuts in the world. They are ignorant about the demand and behavior of world market. Example in
2019 small farmers expected the price will increase for more than Tsh 3,000/= but the price
drastically falls to Tsh 2000/=, together with the increase of 17% charge from Tanzania Cashew
nuts Board.2 This lead a huge loss to farmers because the price of the market does not cover their
cost of production.

2.1.2 Market Control

This occur when a buyer or seller possesses the power to determine the price of the market. This
type of monopoly prevents natural forces of demand and supply from equating the supply of
goods and services to their demand. In Lindi and Mtwara buyer exercise their dominance by
colluding to set the price of cashew nuts at which they are willing to buy from farmers. Cashews
was sold below the Agriculture bank price of 3,300 per Kg which lead small farmers to fall into
huge loss due to small price of their crops.

2.1.3 Externalities
An externalities occur when benefits does not in-cooperated in the demand price or supply price.
This means the demand price does not reflect the value and the cost of produced price. Thus
market equilibrium does not achieve an efficient allocation. In Lindi and Mtwara huge
companies (buyer) give loans to small farmers who have land but lack financial muscle in
maintaining their farms. During harvesting time these companies buy cashewnuts in low price
because of the amount of money they invest to these small farmers during preparation time. This
cause most of the farmers to not acquire profit in their crops.

2.2 Government Failure theory

Government failure refers to problems that arise when one actor in the economy (the state) monopolizes
the legitimate use of force. This occurs when government intervention in the economy causes an
inefficient allocation of resources and a decline in economic welfare. J. Grand (2014).

2
United Republic of Tanzania President's Official Website State House – President speech on 28th October,2019
addressing cashew nuts stakeholders
3
As market fail to create fair business environment in cashew nuts production government of Tanzania
decide to intervene with the aim of correcting the discrepancy caused by market whereby the business
environment was not in favor of small farmers. Giant company (buyers) were cooperated to lower the
price of cashew nuts with the aim of maximizing much profit.

Government arises with different initiative with an attempt correct market discrepancy as follows: -

i. Suspension of all cashewnuts auction and order Tanzania Agricultural Development Bank
(TADB) to buy all nuts at rate of 3,300 per kg.
ii. Burn all cashew nuts transportation companies and order Tanzania People Defense Force (TPDF)
take over all transportation activities
iii. Find better market of all cashewnuts from small farmers and
iv. To reduce cashewnuts charges from Cashew nut Board of Tanzania (CBT) from 17% to 10%.

Although government intervene with good intention, unfortunately government intervention cause series
of problems which can be analyzed through government failure theory follows: -

2.2.1 Political interference

The government decision of buying all cashew nuts for Tsh 3,300/= per Kg is a political decision
made for short term political gain rather than sound economics. The decision lack consistence
since the government cannot be a buyer of cashew nuts for the coming years. Example Prime
minister announce in last parliament seccion that this year (2020) government will not buy small
farmers cashew nuts as was done in last year.

2.2.2 Unemployment
Government decision of buying all cashew nuts and use army to transport cashew created
unemployment since many people get temporary employments during cashew selling seasons.
Most of cashew nuts deller complained that the president decision affects them financially since
they have dependents.3 Also different transport companies reported to be suffered since they
have already incurred initial preparation cost of transporting cashew nuts but over suddenly their
position was filled by army. This cause most of these companies to reduce number of their
workers. Example Hawte Investment Limited was forced to terminate 300,000 labor in Mtwara.

2.2.3 Delay in payment

On process of buying all cashew nuts from small farmers Government has launched verification
exercise where by government want to identify valid farmers and verify the quality of cashews.
3
The citizen, Dealers suffer after gov’t decides to buy cashew nuts, Tuesday November 13 2018
4
the verification exercise was very complicated and lead delay in payment to farmers. Most of the
farmers left unpaid for more than three (3) months after selling their crops to government. The
situation was negatively impacts their social economic plans.4

2.2.4 Scarcity of cashew nuts to local industries

On December 2015 government was already bought 160,000 tons of cashew nuts direct from the
farmers.5 This created scarcity of raw cashew nuts to small local industries who already incur
initial preparation cost including recruiting labors and taking loans from different banks.
Example Hawte Investment Limited was forced to terminate 300,000 labor in Mtwara as the
industry lack raw material for production.6

3 CONCLUSION
Although government intervention created different problems when trying to correct market
discrepancy, government succeed in the adding values of cashew nuts to small farmers
Government was entered in agreement with with six large and small scale factories in Lindi and
Mtwara with aim of increasing the value of cashew nuts before exported outside the countries.
Example of these factories are Amama farmers, perfect cashew, Microx and Korosho Africa.
These industries process cause Lindi and Mtwara to have a capacity of processing more than
3,917.39 tons of cashew for 7 months. 7

REFERENCES

- B.Dollery & J.WallisIn (2001). The Theory of Market Failure and Policy Making in
Contemporary Local Government. University of New England.

4
The citizen, Fresh concern over cashew payments, Thursday December 12 2019
5
The United Republic of Tanzania Ministry of Agriculture press release December 2018
6
https://www.youtube.com/watch?v=MtsNTv4qsOQ
7
The citizen, Domestic plants process 4,000 tonnes of cashews thursday October, 3 2019

5
- . Grand (2014). The Theory of Government Failure, British Journal of Political Science,
Vol. 21, No. 4 (Oct., 1991), pp. 423-442. Cambridge University Press
- Cashew nut Board Of Tanzania -
https://cashew.go.tz/cbt_home/documents/Cashewnut_Production_Trend
%20_2004_2018.pdf
- United Republic of Tanzania President's Official Website State House – President speech
on 28th October,2019 addressing cashew nuts stakeholders
- The citizen, Dealers suffer after gov’t decides to buy cashew nuts, Tuesday November 13
2018
- The citizen, Fresh concern over cashew payments, Thursday December 12 2019
- The United Republic of Tanzania Ministry of Agriculture press release December 2018
https://www.youtube.com/watch?v=MtsNTv4qsOQ
- The citizen, Domestic plants process 4,000 tonnes of cashews thursday October, 3 2019