BMI View: This quarter we have extended our supply and demand forecasts for Tanzania's agricultural industries through to the end of 2016. Positive production growth is envisaged for all of Tanzania's agricultural sectors over the next few years. Growth will be particularly strong in the case of sugar and coffee. Growth within these subsectors will reflect the increased investment that is coming from both public and private-sector sources. Positive production growth will also benefit from the creation and opening-up of new markets for key export crops. In the five years to 2016, we also envisage a steady expansion in output for Tanzania's main grain corn. The main downside risks to our corn production forecasts include the subsector's continued vulnerability to variable rainfall and associated problems such as drought and flooding. Meanwhile, the biggest downside risks for cash crops such as coffee and sugar are fluctuating commodity prices and access to markets. Our five-year forecasts also envisage strong demand growth for the consumption of all agribusiness produce; growth will be underpinned by rising incomes and by an expanding population.
Key Forecasts
?? Coffee Production Growth to 2015/16: 29.5% to 1.19mn 60kg bags. A slightly revised forecast envisages a 17.5% fall in coffee output in 2011/12; this will see production drop to 756,000 60kg bags. The fall in output for this major cash crop and key export will be due to the drought which has affected several key growing areas. Despite this, long-term production will benefit from export-driven demand and efforts to boost output.
?? Sugar Production Growth to 2015/16: 21% to 373,000 tonnes. Due to drought, sugar production will contract by 4% in 2011/12. Despite this, we expect long-term growth to be driven by efforts to expand the amount of land under cultivation, as well as the country's sugarprocessing capacity.
?? Sugar Consumption Growth to 2016: 15% to 550,000 tonnes. We maintain that higher sugar prices are expected to result in negative consumption growth in 2012. Over the longer-term, increased consumption will be supported by population growth and improved living standards.
?? Rice Production Growth to 2015/16: 18% to 1.08mn tonnes. We continue to envisage flat production in 2011/12. However, long-term production will be influenced by healthy macroeconomics, as well as by major new investments that are aimed at boosting output and improving production in key regions.
?? Rice Consumption Growth to 2016: 12% to 1.13mn tonnes. Rice consumption continues to be greater in the diets of high-income consumers in urban areas. However, rising income levels over the next four years will stimulate increased rice consumption among a wider segment of the population.
?? Corn Production Growth to 2015/16: 23% to 4.05mn tonnes. Although drought had a negative impact on production in 2011, we now anticipate positive corn production growth in the 2011/12 crop year (ending June 2011). Over the long term, we expect the production of Tanzania's most widely produced and consumed grain to be negatively affected by climate change. However, in response to this development, the next few years will see a move among farmers to embrace more drought-resistant crops.
Key Macroeconomic Forecasts
?? Tanzania Real GDP Growth 2012: 5.9%, down from 6.2% in 2011; predicted to average 6.6% between 2011 and 2020.
?? Tanzania Consumer Price Inflation 2012: predicted to average at 12.4% year-on-year in 2012, down only slightly from 12.6% in 2011 (predicted to fall to an average of 7.0% by 2014.
Key Views
Agriculture is hugely significant to Tanzania's economy and is therefore poised to become a major driver for economic growth. The sector accounts for up to 40% of Tanzania's GDP, employs more than 80% of the population and makes up 60% of the country's exports. The relative importance of agriculture to Tanzania's economy means that it is vulnerable to major disruptions to agricultural productivity.
However, investments aimed at boosting productivity and promoting adaptation also have potential to greatly improve economic growth and living standards. Specific areas that will continue to receive attention include the development of new seed varieties, the improvement of soils, the development of irrigation, the promotion of better access to markets and the enhancement of rural financial services for farmers. Both public and private sector investors are expected to continue targeting these areas in 2012 and beyond.
Tanzania is facing increasing pressure to introduce clearly defined policies which address the question of legal rights vis-à-vis agricultural land. Calls for clearly-defined land rights have grown in response to the unprecedented spread of land acquisition deals between the Tanzanian government and foreign companies. In August 2011, it was announced that India's Karuturi Global, the world's largest rose grower, may invest as much as US$500mn to acquire land in Tanzania for food production and processing. Karuturi is reportedly seeking 200,000 hectares of land for palm oil, 150,000 hectares for cereals and 20,000 hectares for sugarcane. Although land lease deals with foreign companies provide the government with a potential source of income, the country's authorities will also need to ensure that food security strategies are not jeopardised as a consequence of such deals.
Tough policies are needed to ensure that sugar smuggling and hoarding do not spiral out of control. High sugar prices in neighbouring Kenya have been blamed for encouraging traders from across the region to smuggle sugar in an effort to cash-in on the lucrative Kenyan market. However, the high price of sugar has potential to negatively affect both the consumption and production of sugar in Tanzania. According to officials from the East African Community (EAC) secretariat, farmers throughout the region have been abandoning cane production because it is no longer considered profitable. This is because the higher prices consumers pay for sugar and the huge profit margins made by traders do not trickle down to the cane producers. In order to stop sugar smuggling across their borders, the governments of Kenya, Tanzania and Uganda have reportedly vowed to deploy their armies. Meanwhile, in September, the Tanzanian prime minister reportedly ordered state authorities in the Mara region to force producers found to be hoarding sugar to sell their sugar to retailers. Retailers will, in turn, be compelled to sell sugar to consumers at a price designated by the government.
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