New Promise and Problems for Tanzanian Agro-dealers

Five years ago when Ramadhani Kiombile was raising vegetables on a small plot near the central Tanzanian town of Ifakara, he took a bus to Dar es Salaam, the country’s commercial capital 450 kilometers (270 miles) to the east on the Indian Ocean, to attend an agricultural trade fair. While there he learned that the price of the pesticide he used on his produce was five times higher back home.

“The difference in the price was so high that it encouraged me to open my own shop,” the 32-year-old farmer-turned-agro-dealer said. Today he has two successful shops that sell improved seeds, fertilizer, pesticides and herbicides to hundreds of small-scale farmers. One is in Ifakara, and the other, opened just last year, is in the rice-farming village of Mkula, 50 kilometers (30 miles) north on a dirt road that resembles a washboard.

Initially, Ramadhani had hoped to attend university after completing secondary school, but his father, a sugar cane farmer, died, and his mother had no money to pay the school fees so he grew vegetables for sale while struggling to get a loan to open his first shop.

Banks in Tanzania have been reluctant to grant loans to small-scale farmers, many of whom operate at the subsistence level and are not considered businessmen. Their one-to-two acre plots are not accepted as collateral, and most lack the education, skills and money to advance. But Ramadhani Kiombile is not a man who gives up easily. And, the Kilombero district chairman of the 35-member UWAPEKI, an association of agro-dealers, is always eager to seize new opportunities.

Such an opportunity arrived about a year and a half ago, and Ramadhani became one of 15 agro-dealers to receive intensive training in business skills.  The program was set up by the Tanzania Agro-dealers Strengthening Program (TASP), which seeks to build a robust and efficient system of distributing agricultural inputs to smallholder farmers. TASP also prepares the agro-dealers for certification to obtain overdraft loans from the National Micro-Finance Bank (NMB) of up to 15 million Tanzanian shillings ($12,000), which they can use to buy supplies for their shops.  The arrangement was made possible by an innovative financing program spearheaded and partly financed by the Alliance for a Green Revolution in Africa (AGRA). 

By December 31, 2008, the NMB had approved the applications of 114 agro-dealers valued at 1,491,200,000 Tanzanian shillings ($1,192,960).

“Before the training, I sold products without keeping proper records,” Ramadhani said. He and his colleagues made no distinctions between sales and profits and did not factor in their expenses or labor. Initially he only dealt in seasonal products—what was needed at a particular moment in the farming cycle and moved fast off the shelves. He was advised to sell all products, but it was impossible to obtain the capital to purchase them. The overdraft facility, and a related voucher program—were designed to resolve that issue.

Funded by the Government of Tanzania, the National Agricultural Input Voucher Scheme (NAIVS) discounts the cost of agricultural inputs to smallholder farmers through vouchers.  Farmers turn the vouchers in to the agro-dealers, in exchange for their farm inputs.  Agro-dealers are then set to exchange the vouchers for cash at the local branch of the NMB—obtaining vital working capital which can also be used to pay off the overdraft loans.

But it doesn’t always work that way.

Ramadhani opened his shop in Mkula in 2008 as the voucher system was being introduced through a pilot project for small-scale rice farmers; his sales went up by 80 per cent, but he has had problems cashing in the vouchers.

Back in Ifakara, Ramadhani and five other agro-dealers met to discuss the teething problems of the program designed to make them more efficient—and prosperous. Salum Bohari, Hiyari Mwinyimvua, Elizabeth Bakari, Sudi Mindu and Sylvester Kasunga Idete, a former clinical officer at a local mission hospital, were all enthusiastic about the benefits of the intensive training.

But they had misgivings about the overdraft system, and how it would affect them if they had difficulty cashing in the vouchers: they are charged 15 per cent interest on the overdraft, which is compounded daily—whether or not the bank is willing or able to honor the vouchers.

As of the second week in February, Ramadhani was holding 32 million shillings ($25,600) in unredeemed vouchers that he had accepted in just one week from farmers in five villages as the rice-planting season moved into full swing. Parliament needed to approve the release of billions of shillings to fund the overdraft and voucher programs.

“I can’t take the vouchers if there is no money,” the young businessman said.

AGRA program officer Fred Muhhuku later explained the underlying problems, and the efforts to solve them.  According to Muhhuku, at the start of the program, there was a delay in releasing funds to the bank for voucher redemption. This was brought to the attention of government, and rectified.

The second problem causing delays was the need to manually input thousands of vouchers into the bank’s computers before they could be cashed.

“This is an operational problem within the bank,” Muhhuku said. One solution being considered is for the government to design “master vouchers” which could be issued to agro-dealers in exchange for perhaps one thousand single vouchers.  That would cut back considerably on the time needed to enter vouchers into the computer, but could cause other delays in the exchange process.  The pros and cons of this approach are now being weighed.  In the meantime, Muhhuku emphasizes that “there is a strong desire by the government and all partners to ensure the success of the voucher program.”