Policy Brief

Opportunities and Challenges in

Tanzania’s Sugar Industry:
Lessons for SAGCOT and the
New Alliance
Executive summary to the economy and to the household, a policy,
legal and institutional framework is needed that
Sugarcane outgrower schemes are central to provides greater efficiency, accountability and
several policy and donor strategies for driving transparency, as well as greater security for all
agricultural growth and reducing poverty, participating stakeholders. There are lessons
including the Southern Agricultural Growth for the sugar industry, as well as donors and
Corridor project in Tanzania (SAGCOT). But investors of ongoing and future agribusiness
field research into the outgrower component developments in Tanzania.
of Kilombero Sugar Company, Tanzania’s
largest and best regarded sugar producer, The strategic context
demonstrates a pressing need for change.
Sugarcane production in Kilombero has had Kilombero Sugar Company is often
benefits for farming households as well as mentioned as a success story in Tanzania’s
the local and national economy. However, sugar sector. Its model combining estate with
unsustainable expansion and governance issues small-scale outgrower production is set to be
in the outgrower scheme have created new risks. replicated, as increasing sugarcane production
There are pressures on food security as a result of using outgrowers is a core component of the
a decline in land for food crops, and on incomes, Southern Agricultural Growth Corridor project
particularly when outgrowers’ cane remains (SAGCOT), a public – private partnership focused
unharvested and farmers’payments are delayed. on Tanzania’s south-central region. Large-scale
These problems have been aggravated by the sugar investments are also planned under
importation of foreign sugar into the country. Tanzania’s Big Results Now strategy. Under
For this industry to provide its maximum benefits both initiatives, new greenfield developments

Policy Brief 76 | July 2014 www.future-agricultures.org

 Box 1. Links to the G8’s ‘New Alliance’

Developing SAGCOT is the focus of the strategy for Tanzania within the New Alliance for Food
Security and Nutrition. The New Alliance is an initiative crafted by the G8 to reduce hunger and poverty
in 10 African countries by increasing private sector investment in agriculture and scaling up innovation.
Under Tanzania’s New Alliance framework, at least 19 companies have made investment commitments,
mostly in the SAGCOT region; G8 members, such as the UK, have committed funds and matching
grants; and the Tanzanian government has committed to 12 policy actions. Most of the policy actions
relate to seeds, but the government also agreed to demarcate and certify village land in Kilombero
District and the wider SAGCOT region to facilitate land acquisition and investment.ii

in sugar, as well as rice and other crops, are food security, poverty alleviation, inclusive
envisaged for Kilombero District, where private sector development and national sugar
Kilombero Sugar Company already operates. self-sufficiency can be met. Presenting the
results of fieldwork and building on findings
Given that the government is proceeding with and recommendations of other studiesi, this
new sugar investments supported by foreign policy brief suggests priority actions to address
donors (see Box 1), it is crucial that lessons are a number of identified problems.
learned from Kilombero so that objectives of

© R. Smalley

Horizontal expansion is limited by the presence of the Udzungwa mountain range.

Policy Brief 76 |July 2014

Tanzania’s sugar industry SBT activities are overseen by a board of
directors representing the Tanzania Sugar
Tanzania has only four companies which Producers’ Association (TSPA), the Tanzania
commercially produce sugarcane: Kilombero Sugarcane Growers Association (TASGA), the
Sugar Company (KSCL) and Mtibwa Sugar consumer sector, the government and industry.
Estates in Morogoro region, Tanganyika Planting Following growing tension between large and
Company (TPC) in Kilimanjaro region and Kagera small growers’ associations, a new body – the
Sugar in Kagera region. All the companies Council of Cane Growers Association – has been
were privatised between 1998 and 2001. The formed.
government retained 25 percent stakes in two of
them: KSCL, whose majority owner is the South Kilombero Sugar Company
African company Illovo Sugar (itself a subsidiary
of Associated British Foods); and TPC, now KSCL runs two irrigated estates totalling
majority owned by the Mauritian sugar group 8,022ha and two factories at its base at Kidatu
Alteo. Mtibwa Sugar Estates was acquired by the in Kilombero District. The largest of Tanzania's
Tanzanian company Super Group, which also millers, it produced 116,495t of sugar in 2013/14,
owns Kagera Sugar. down from126,737t in 2012/13 and well below
its annual target agreed with the government of
Since privatisation the industry has made 200,000t.v It generates its own electricity from
significant gains in terms of capital investments, bagasse and an ethanol distillery is being built.
area under cane and revenue generated for
the Treasury. Total production by the four While KSCL has made some efforts to expand
companies climbed from a pre-privatisation vertically, potential for horizontal estate
level of 112,903t of sugar in 1995/96 to reach a expansion is limited. It has therefore strongly
peak of 304,135t in 2010/11.iii encouraged outgrower production. The number
of outgrowers increased from about 2,000 in
Despite these strides, Tanzania still has an 1998 to 8,000 in 2013. With about 15,000ha
estimated annual sugar deficit of 220,000- under cane, outgrowers supply 43 percent of
300,000t. The factories do not operate at full the cane crushed by the two mills.
capacity, but even if production were increased
through efficiency gains and agronomic KSCL outgrowers must join a cane growers’
improvements, the four companies would be association and register with the TSB. Rather than
unlikely to meet domestic demand.iv To address outgrowers having individual contracts, a Cane
the deficit, the government waives or reduces Supply Agreement (CSA) is signed between the
tax on some imported sugar each year, has company and the farmers’associations, of which
encouraged the millers to increase production there are 15. Farmers face starting costs such as
and is attracting further investors into the sector. seedcane and inputs, and some villagers do not
have the necessary capital or land to participate,
As per the Tanzania Sugar Industry Act of but it is a relatively inclusive scheme. Donors and
2001, the sugar industry is regulated by the funding agencies such as the EU and the World
Sugar Board of Tanzania (SBT), under the Ministry Bank have financed roads, capacity-building and
of Agriculture, Food Security and Cooperatives. other initiatives.

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 © Jan Willem van Roessel via Flickr

Outgrowers' cane is cut by largely seasonal, migrant workers recruited by contractors. The South
African firm Unitrans supplies cane-cutters for KSCL's estates.

Policy Brief 76 |July 2014

The deal for outgrowers since KSCL was privatised in 1998. Expansion
has allowed many more farming households
Under the CSA for the 2013–2016 period, to benefit from the proceeds of sugarcane.
KSCL pays outgrowers for the weight and Farmers have used sugarcane payments to
sucrose content of their delivered cane, minus build better houses, finance other crops and
the costs of harvesting, transport, processing, educate their children. Well-off outgrowers
marketing and distribution. The price per tonne have reinvested in businesses and there have
paid to farmers is estimated at the start of each been benefits at village level from collective
season and adjusted if necessary at season’s farms and infrastructural improvements. The
end in light of actual sale prices achieved for growth of subcontractors, ancillary businesses
sugar and molasses. Outgrowers are paid a and outgrowers hiring farm workers has created
57 percent cut of these sale profits through a positive economic linkages.
division of proceeds system. For the 2013/14
season, the provisional price for farmers’ cane, However, the situation for outgrowers has
before adjustment for sucrose level and actual deteriorated in recent years. Incomes from
sales, was TZS 58,000/tonne (US$35.6/tonne). sugarcane have declined owing to a drop in
the producer price, low sucrose levels and
Association members cannot grow sugarcane some sugarcane remaining unharvested,
for any buyer other than KSCL. The outgrowers leading in many cases to financial losses and
own or rent their cane fields mostly under indebtedness. Grievances with the current
customary tenure, with few holding title system are contributing to a splintering of the
deeds. Recently the SBT, in collaboration outgrowers’ representative associations.
with Mkurabita, has begun formalising land
farmed by outgrowers by issuing certificates Sucrose and governance issues
of customary rights of occupancy as part of
a programme to formalise people’s property The decline in sucrose content of cane
assets to enable them to access loans which also is the major complaint among outgrowers.
supports Tanzania’s land certification objectives Farmers are regularly recording levels below
under the New Alliance. the benchmark of ten percent. This negatively
affects their payments, as the producer price is
Research findings: positive gains, adjusted for sucrose, and so deductions take a
but growing challenges proportionally larger slice of farmers’ incomes.
Cane quality is being affected by ‘smut’ disease,
Fieldwork was undertaken among outgrowers white scale pest, harvesting taking place during
and other residents of three villages in Kilombero the short rainy season and delays in cane being
District in 2013 and 2014. The research project crushed after burning. Outgrowers also allege
also included a document review and interviews inaccuracy and bribery in measurement of
with industry representatives and other key sucrose at the factories. There is a serious lack
stakeholders. of trust and transparency in the system; not only
for sucrose measurement, but also in weighing
The most significant trend observed is the cane deliveries and in calculating farmers’
dramatic expansion of the outgrower scheme payments.

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Figure 1: State of sugar imports and exports in Tanzania

Source: Massimba et al. 2013ix

Not enough guidance is being provided to been introduced to offer a more collective and
help outgrowers raise sucrose levels and to systematic system for small outgrowers, but
oversee harvesting and crop management. there have been leadership problems and poor
Under the CSA, the company has no obligation to returns for participants.
provide extension services. Some extension staff
are employed by the company, the government Further issues in the governance of the
and associations, but the coverage is insufficient. outgrower scheme include a proliferation
A 2012 study of outgrowers revealed a lack of of outgrower associations, which could be
training and access to extension officers.vi Thus, contributing to a lack of organisation of
the premise that private investors will provide harvesting. Associations lobby for large delivery
technology and extension services (e.g. through quotas, which encourages over-production
SAGCOT)vii does not necessary hold true. Public of cane, and there are signs of a lack of
services may be better provided by the state.viii cooperation among them over, for example,
road improvements.
Another widespread problem is outgrowers’
cane not being harvested in time, or failing Excessive importation of duty-free
to be harvested at all. A major reason is that sugar
outgrower production has overshot the capacity
of KSCL’s factories. Harvesting schedules and Owing to Tanzania’s sugar deficit, some
haulage are disrupted by rains and cane fires, importers are permitted to bring sugar into the
and the smallest outgrowers find themselves country without paying the full duty. Exemptions
low down the pecking order. Farmers whose are awarded after the Ministry of Agriculture,
cane is not harvested during the season as Food Security and Cooperatives, in collaboration
expected experience a shortfall in income, with the SBT, has established the shortfall in
which has consequences for the household domestic sugar production. Studies suggest a
and encourages indebtedness. Block farms have lack of control over the amount of foreign sugar

Policy Brief 76 |July 2014

 Box 2. Stakeholder initiatives

In early 2010, SBT commissioned Research on Poverty Alleviation (REPOA) to undertake a diagnostic
study of the organizational structure of sugarcane outgrowers in Tanzania and make proposals for
improvements. Among REPOA’s recommendations was the establishment of effective and robust
area-based trusts. These trusts would perform the functions of the currently considered weak associations,
from cultivation to transport, in more coherent geographical areas. Trust members would have business
and agronomic knowledge. REPOA’s suggested reforms have not been implemented.

KSCL has been sourcing donor funding to finance outgrower infrastructure and capacity-building
of associations. In collaboration with the Dutch NGO Solidaridad, it has recently contracted the outgrower
development consultants RMI to provide industry support and capacity-building. Solidaridad also
aims to redraft the Cane Supply Agreement into more accessible language and translate it into Swahili.

that is being licensed for import and the timing food crops. Households have responded by
of its distribution within Tanzania, resulting in acquiring farmland in other villages outside
over-supply when the domestic crushing season the sugarcane zone. This creates opportunities
begins. Further alleged problems are that cheap for farm labourers and individuals hiring out
sugar imported for industrial use has been tractors in those distant villages, but it also
entering the domestic consumption market, presents challenges for families travelling to
and that traders are creating artificial scarcity and from the farms. In some families, household
by hoarding supplies or illegally exporting sugar. members are spending substantial time at the
The problem of disproportionate importation distant farms to do manual farm work, and
was severe in 2011/12, as indicated in Figure 1. many schoolchildren are being left home alone,
unsupervised. Problems such as truancy and
The importation of sugar causes frustration teenage pregnancy are reported.
among the domestic millers and association
leaders, and badly hurts smallholder cane There have been concurrent challenges in
growers. During 2013, KSCL delayed payments the rice market. Many outgrowers cultivate
to outgrowers because, it said, imports had paddy in addition to sugarcane for household
affected its sugar sales in Tanzania and therefore consumption and for sale. And for those villagers
its cash flow. Downward pressure on domestic who are unable to participate in outgrowing,
sugar prices from cheap imports has also led the paddy farming can be a major livelihood.
company to reduce the price paid to outgrowers Villagers reported a rise in the cost of paddy
for their cane. farming (especially inputs) and a dramatic fall
in the market price of rice, related to a lack
Land and livelihood issues of government support over marketing and
exports at the national level. During 2013, the
Outgrower expansion and in-migration have price that farmers in the local area received for
contributed to land scarcity in the Kilombero one sack of rice fell from TZS 100,000 (US$61)
area. Villagers complained that it is difficult to in 2012 to TZS 40,000–50,000 (US$25–30). The
acquire farmland and that the predominance poor returns from alternative crops means that
of sugarcane creates obstacles to cultivating outgrowers can feel trapped, as one woman

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 © Jan Willem van Roessel via Flickr
Private contractors' trucks deliver outgrowers' sugarcane for crushing at KSCL's two mills.

commented: ‘We continue [with sugarcane] — country's laws pertaining to the sugar
there’s no way out. We just hope that one day industry are enforced and other programmes
things will improve.’ implemented. Parliamentarians are
responsible for checking the performance of
In recent years, SBT and the company have the government at both national and local
started to seek solutions to emerging outgrower levels, while councilors can play a significant
problems (see Box 2). role in monitoring the performance
of district officials such as agricultural
What needs to be done in the sugar extension officers.
industry?
2. Increase the provision of extension
There are many ways of improving the services and training to outgrowers,
current situation. Responding to the urgent ensuring that all registered outgrowers
need for reforms, this briefing offers priority can be reached. Smut disease should be
actions for the Kilombero area (applicable to one of the topics covered. In Kilombero, the
the sugar industry at large), as well as possible current piecemeal provision of extension
implications for future developments under services by the company, the government
SAGCOT and Big Results Now. and individual associations should be
streamlined and strengthened.
1. Improve the oversight functions of
parliament and district and village 3. Establish transparent and participatory
councils in order to increase accountability systems for weighing outgrowers’
from national to village level and throughout deliveries, measuring sucrose content and
the supply chain and to ensure that the calculating payments. Clarify risk-sharing

Policy Brief 76 |July 2014

 and liability regarding payment delays, force 5. Provide sufficient public and private
majeure events, factory disruptions and the investment under strict and transparent
failure to harvest growers’ cane. Implement management. Core investments could
the proposal to simplify cane supply include construction and maintenance of
agreements (CSAs) and translate them roads, water irrigation canals and water
into Swahili, the national language. State drainage systems. The donor support for
clearly all the sugar products from which the development of infrastructure is critical,
the outgrowers are entitled payments (e.g. but its sustainability is unclear given the
sugar, molasses, bagasse, ethanol, etc). CSAs dwindling donor contribution on national
should be distributed to all outgrowers and budget. The current arrangement for KSCL
the clarity of outgrowers’ pay slips should outgrowers to pay two sets of deductions
also be improved. This may be done through for infrastructure, one to cover roads in
discussions and negotiations between their association’s locality and the other to
millers, TASGA/Cane Growers Council and contribute to all supporting roads, is fueling
independent legal advisers acting on behalf conflicts and mistrust among them. It is thus
of outgrowers. ideal for this to remain mainly the function
of the state through cane growers’taxes and
4. Enhance accountability, responsibility other state resources.
and transparency of the SBT, the millers
and outgrowers’ leadership. Parties that 6. Improve the planning, management and
fail to fulfil their responsibilities should be monitoring of outgrower production.
penalised according to existing laws and Conduct research into the viability of block
agreements; new penalties or incentives farms as a means of supporting small-
may be introduced to ensure fairness and scale outgrowers and protecting their
sustainability of the sugar business. In participation within schemes. In addition,
Kilombero, enforce provisions in the CSA multi-stakeholder consultations should
regarding the condition of haulage trucks take place on long-term solutions to the
and discuss possible measures to prevent problem of over-production at Kilombero
harvesting schedules being disrupted by and prevent it occurring elsewhere. Options
cane fires and alleged bribery. Increase may include decreasing associations’quotas
the capacity of associations to carry out and introducing incentives, assurances
the scheduling process and their overall and penalties to increase the efficiency
responsibility for delivering the cane of and capacity of milling factories. Carry out
their members. Associations should employ initiatives to raise local awareness of the
qualified managers to run the operational production risks of sugarcane outgrowing
parts of their mandates. Ensure that the and plan for zones for both cane and food
donor community, particularly the EU, does crops in the supply areas. Provide multi-
thorough monitoring of funded projects stakeholder planning and support for small-
(road improvements and block farms) as scale farmers who wish to exit sugarcane
part of its accompanying measures for and transition to another crop, and consider
former Sugar Protocol countries. measures to bolster small-scale rice and

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 other food-crop production and marketing 2. Ensure that outgrower contracts give small
more generally, including beyond the producers adequate protection from force
outgrower zones. majeure events, cane fires and other shocks
and that these contracts are translated into
7. Put in place an effective, participatory a locally understood language (Swahili).
and transparent framework for issuing
sugar import licences and permits with 3. Create thorough and participatory land-use
or without tax remissions, to be adhered plans which identify and protect land for
to by all stakeholders in the industry. Any staple food crop cultivation, grazing and
firm or individual that imports above the other activities in addition to sugarcane
agreed quota, whether legally or illegally, production. To protect resource access and
must be prosecuted and the excess sugar local food production, put limits in place if
should be deported to avoid market necessary in terms of acreage under cane
distortion. Establish a more thorough or absolute numbers of outgrowers.
auditing mechanism to determine domestic
supply needs and available stocks before 4. Ensure that an adequate road network
import permits are issued. Make public will be in place to ensure all-season access
any deviations from audit findings and to farmers’ fields, factories and market
improve the coordination and timeliness of destinations.
distribution. Given the likely continuation
of the national sugar deficit, introduce 5. Reconsider the proportion of funding
measures to manage millers’ cash flow allocated under SAGCOT and Big Results
problems related to importation and prevent Now for supporting large-scale commercial
costs being passed on to outgrowers and agribusinesses and nucleus–outgrower
other vulnerable members of the supply schemes. In the KSCL case, it is clear that
chain such as cane-cutters. support for paddy farming is needed
alongside specific measures for sugarcane
What should be done under outgrowers. Given that the very smallest
SAGCOT and Big Results Now? and poorest farmers are often unable to
participate in outgrower schemes, and that
Lessons can be drawn from the research outgrower schemes are in any case limited
for investors, planners and other stakeholders in the numbers of farmers that they can
of future sugarcane outgrower schemes and include, it may be more effective to allocate
other large-scale agribusiness developments more effort and funding into broader
under SAGCOT and Big Results Now. The key sectoral development of rural economies
recommendations are: through provision of storage, marketing and
price support, affordable credit and so on.
1. Emulate and improve on successful
elements of the KSCL outgrower scheme. 6. Carefully consider the share of responsibilities
These include: the division of sugar proceeds and risks among firms, associations or
payment structure; relatively low barriers to cooperatives, subcontractors and farmers.
entry for poor and women farmers; a fluid Through theory-based planning and
land rental market; and the entrepreneurial stakeholder engagement, ensure that
spirit among the residents. capacity is in place for the provision of

Policy Brief 76 |July 2014

 services and that the business model gov.uk/government/publications/the-new-alliance-
for-food-security-and-nutrition-tanzania-cooperation-
will not engender corruption or perverse framework ;
incentives. Cooksey, B. (2013) What Differences has CAADP Made to
Tanzanian Agriculture? FAC Working Paper 074, Brighton,
7. In public–private partnerships, make UK: Future Agricultures Consortium / www.future-
agricultures.org/publications/research-and-analysis/
explicit the roles for the state, firms and working-papers/doc_download/1815-what-difference-
donors, particularly in regard to provision has-caadp-made-to-tanzanian-agriculture ;
of extension services, credit and inputs, DFID (2014) Annual Review: Southern Agricultural Growth
Corridor in Tanzania (SAGCOT). Annual review (2) 202844,
provision and maintenance of infrastructure, London, UK: Department for International Development/
and farmer representation. devtracker.dfid.gov.uk/projects/GB-1-202844/documents

Nkonya, N. and Barreiro-Hurle, J. (2012) Analysis of

iii
Without understanding and acknowledging
Incentives and Disincentives for Sugar in the United Republic
capacity constraints, the interplay between of Tanzania. Technical Notes Series, MAFAP, Rome, Italy:
actors and the political-economic context, the Food and Agriculture Organization;
potential of initiatives such as the expansion of SBT Production data, www.sbt.go.tz/index.php/
production-data
Tanzania’s sugar industry to reach food security
and poverty reduction goals is limited. It is crucial iv
Rabobank (2013);
that plans are grounded in existing experience. SAGCOT (2012) SAGCOT Investment Partnership Program:
Opportunities for Investors in the Sugar Sector, Dar es Salaam,
We kindly thank Ruth Hall and Ian Scoones for their constructive Tanzania: SAGCOT Centre Limited
comments on the earlier version of this policy brief.
v
SBT Imports and Exports data, http://www.sbt.go.tz/index.
End Notes php/datas

i
Studies include:
vi
Siyao, P.O. (2012) ‘Barriers in Accessing Agricultural
Sugeco (2014) Enhancing the Sugar Industry Regulatory Information in Tanzania with a Gender Perspective: The
Framework of Tanzania. Policy brief, Dar es Salaam, Case Study of Small-Scale Sugar Cane Growers in Kilombero
Tanzania: BEST-AC / www.best-ac.org/wp-content/ District’, The Electronic Journal of Information Systems in
uploads/Sugeco-Policy-Brief.pdf ; Developing Countries, 51(6):1-19
REPOA (2012) Transformation of the Organizational
Structures for Sugarcane Outgrowers in Tanzania: Final vii
SAGCOT (2012)
Report, Dar es Salaam, Tanzania: Policy Research for
Development; viii
López, R. (2004) Effect of the Structure of Rural Public
Rabobank (2013) Tanzania Sugar. Rabobank Industry Note Expenditures on Agricultural Growth and Rural Poverty in
#386, Utrecht, The Netherlands: Rabobank International/ Latin America, Washington, DC: The World Bank
www.nmbtz.com/indexphp?option=com_joomdoc&
task=doc_details&gid=55 ix
Massimba J., Malaki, C.& Waized, B. 2013.Consultancy
Services for Collecting Policy Based Evidence for Enhancing
ii
G8 (2012) G8 Cooperation Framework to Support the “New Sugar Industry Regulatory Framework of Tanzania.
Alliance for Food Security and Nutrition” in Tanzania / www. Morogoro: SUGECO.

www.future-agricultures.org
Acknowledgements:

This Policy Brief was written by Emmanuel Sulle, Rebecca Smalley and Lameck Malale for the Future Agricultures Consortium
and the Institute for Poverty, Land and Agrarian Studies (PLAAS). The series editors are Paul Cox and Beatrice Ouma.
Further information about this series of Policy Briefs at: www. future-agricultures.org

The Future Agricultures Consortium aims to encourage critical debate and policy dialogue on the future of agriculture in
Africa. The Consortium is a partnership between research-based organisations across Africa and in the UK.
Future Agricultures Consortium Secretariat at the University of Sussex, Brighton BN1 9RE UK T +44 (0) 1273 915670
E [email protected]

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