Tanzanian Agri-business to grow: Foreign bonded warehouses to increase sales

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The government of Tanzania is working on a blue print to increase sell of the country’s agro-produce by setting up bonded warehouses in foreign markets in a bid to boost sells.

The bonded warehouses will for starters be piloted in China and Saudi Arabia and are expected to ease access to markets for agro-produce.

Well first things first. What is a bonded warehouse? These are building or other secured areas in which dutiable goods may be stored or even manufacturing without payment of duty.

Agricultural storage silos aim to enable storage facilities for Tanzanian produce when exported abroad.

Bonded warehouses provide specialized storage services such as deep freezers for perishables as well as bulk liquid storage. They also allow for commodity processing and make up an integral part of the global supply chain by giving the importer opportunity to bring in raw goods, process, package and then sell the final product all under one roof with no duty charged.

Further still, bonded warehouses may be managed by the government or by private sector in which case, a customs bond must be posted with the government. The customs bond here refers to a contract between three parties (government, the importer and a surety) to ensure that all the duties and fees associated with the rules and regulations of importing or other Customs activities are paid to Customs by the importer.

So by setting up a bonded warehouse say in China for instance, the government of Tanzania will in effect be opening a cost-effective mall. With less costs to incur compared to opening a shopping area in the traditional way, the government will be able to take the agro-products close to the market allowing for easy access and as such increase sales.

Detailing about the plan recently in the country’s capital Dodoma, the Deputy Minister for Agriculture, Hussein Bashe told legislators that the plan will serve to increase market reach for small-scale farmers.

He explained that currently, Tanzania products are facing high competition from cheaper imports in these target markets. So by finding this cost-effective option, the government can sell the produce at lower prices and still reel in top dollar.

He also cited other countries where the bonded warehouse will be set up to include but not limited to in Vietnam, Democratic Republic of Congo and South Sudan. Notably, between July and December 2020 Tanzanian farmers were able to sell some 89,725.35 tonnes of maize to Kenya, Burundi and the DRC and it is expected these figures will double with the establishment of the bonded warehouse system.

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Setting Precedence: The warehouse receipt system

It is also expected that by setting bonded warehouses for farm produce, Tanzania will be able to increase exports and that way increase sell of produce that would otherwise be stuck in warehouses back at home. The main hurdle to expanding farming in Tanzania is a limited market, not that demand is small but rather the ability to reach that market and be competitive.

To ensure small-scale farmers sell their produce as soon as they harvest (and even while the crop is still in the field) Tanzania also uses what is referred to as the Warehouse Receipt System. This is a setting where by, the small scale farmer can take his produce to a registered warehouse (within the country) and deposit their produce and in turn get a receipt which bares the monetary value of the produce that he or she has deposited at the warehouse.

The receipts are accepted by banks to secure loans and are also transferable from person to person. This is to say, the farmers are immediately empowered to secure bank loans or if they choose, to sell the produce in the warehouse to a third party by transferring ownership of their receipt.

The receipt that is issued by the warehouse serves as evidence that specified commodities of a stated quantity and quality, have been deposited at particular locations by named depositors. Another key part with the warehouse receipt system is that it accepts produce deposit not only from farmer but also from farmers’ groups, traders, exporters, processors or any individual who so chooses to deposit produce that is in their possession.

Also, the warehouse operator is liable for any loss of value of the goods deposited at the warehouse. This guarantees no loss of value for the depositor. In other words the warehouse is legally liable to make good any value lost through theft or damage.

The Warehouse Receipt System in Tanzania was introduced in September 2000 in the horticulture hub of Arusha. A project was signed between the then Ministry of Agriculture and Cooperatives and the United Nations Office for Project Services (UNOPS) for the trade of coffee and cotton as pilot products to try out the system.

Serving as a pilot project, with the two main cash crops (coffee and cotton) the WHS was run for a period of 36 months in which only the said cash crops were accepted by the registered warehouses. Since then, the system has expanded to accommodate almost any, other cash crop.

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Liftoff: Tanzania’s top agro exports

In Tanzania, coffee remains the number one agro-produce for export and at 16.3 percent of total exports, cotton comes in second as the top export cash crop. These two are followed by cashew nuts (12.7 percent), tobacco (6.4 percent), tea (2.9 percent), and sisal (0.7 percent).

In Zanzibar, the major cash crop remains to be cloves, 90 percent of which are produced on the island of Pemba; it is no wonder the archipelago is referred to as the Spice Islands.

The sector’s contribution to GDP has more than tripled in the last 10 years, supported by rising cash crop production, an emerging agro-processing segment and strong domestic demand for processed food.

Coffee is the largest export crop in Tanzania, producing Robusta and Arabica with the latter accounting for 70 percent of the country’s production. As of October last year, Tanzania coffee exports were valued at 17.6 million U.S. dollars, a considerable increase compared to the previous month.

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Giza Mdoe is an experienced journalist with 10 plus years. He's been a Creative Director on various brand awareness campaigns and a former Copy Editor for some of Tanzania's leading newspapers. He's a graduate with a BA in Journalism from the University of San Jose.

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