Introduction
Agricultural-based enterprises have higher risks and can be influenced by a variety of socio-economic factors. Kimango Farms is an organization which consists of two organic farms located in Morogoro, Tanzania. They grow a number of crops, teas, and spices which are sold locally and exported to European markets. Kimango Farms is an investment into the country’s agricultural sectors, as well as ecology and tourism as the owners have introduced water conservation technology and expanded eco-tourism on the farms (Kimango Farms, n.d.). This report will investigate the business environment influencing operations of Kimango Farms in Tanzania.
Economic
The agricultural sector is Tanzania’s primary economic driver. It contributes nearly 30 percent of the country’s GDP at 13.9 billion USD and represents 67% of the total employment. Meanwhile, crop production has risen by 44% and represents over 318 million USD worth of exports annually (Tanzania Invest, n.d.). Tanzania has prominently exceeded other countries in the region in agricultural production. Some main crops of export include tobacco, tea, coffee, cotton, and nuts. Many of these are grown on Kimango Farms.
The agricultural sector has continued to demonstrate value-added output in the last decade as new crops are being added. Furthermore, economic agreements such as the Southern Agricultural Growth Corridor of Tanzania (SAGGOT) and the East African Economic Union, both of which contribute to the free movement of agricultural goods and provides financial support for the sector. It is particularly relevant for small farmers such as owners of Kimango Farms that can use these opportunities to strengthen foothold in the area and acquire necessary boosts for income and job-led growth.
Some economic issues that can affect the agricultural sector is a high production price volatility and a limitation on incentives to invest. Price volatility strongly affects export crops as domestic prices fluctuate based on international prices of the commodities. However, this impacts supply chain segments that are largely underdeveloped and unstable to volatility in Tanzania, creating sufficient risks (Arce & Caballero, 2015).
Political
Recognizing the importance of agriculture in Tanzania, the government is strongly supporting the sector, both small and larger farms alike. In 2015, the government established the Tanzania Agriculture Development Bank (TADB) which is focused on assisting in developing the agricultural sector and assisting in the implementation of policies. One aspect is the mobilization of financial resource to provide low-interest loans to small-scale farmers (Tanzania Invest, n.d.). Overall, the Tanzanian domestic politics are stable and demonstrate an interest in the country’s growth and ensuring food security is assured for the population.
The current presidential administration is attempting to curb corruption, reform public service, and ensure government efficiency as well as provide infrastructure. While these reforms are potentially beneficial, the government has indicated intentions to industrialize the country. This may result in loss of workforce, increased prices, and a shortage of food for farmers. Nevertheless, significant progress is made in regard to agricultural policy instruments including liberalization of the market, the introduction of non-traditional crops, and removal of state enterprises while encouraging private farms. The primary objective is to transition to export agriculture.
Social
Most of the social aspects are indirectly related to the agricultural sector, but rather serve as the consequences of the ongoing factors in the country. Some of the major shocks to household consumption patterns are based on the agricultural sectors struggling with drought and plant diseases or pests. This often results in high food prices. There are many vulnerable populations affected by high food prices including many daily workers and small-scale farmers growing the crops.
Farmers are affected by lack of material well-being and poverty due to farmers often hemorrhaging money and expenses of land and farming gear. Kimango Farms is facing social risks because the general population may lack the funds to purchase organic crops that the farm produces. Furthermore, there may be little interest in the farms expanding eco-tourism initiative. Socially, the country is stable but not affluent that makes it a priority for Kimango to seek international importers which would import the crops.
Ecology and Technology
Ecology and environmental factors impacting the agricultural sector in Tasmania are largely dependent on climate. Rainfall is unreliable, occurring mostly during the months of October through December which is one the primary crop production occurs.
Drought is a severe risk in the region, although it is infrequent that water scarcity is evident at high levels. Other environmental factors are pests which can cause lower yields and begin crop disease outbreaks which cause extensive damage. The country is divided into seven agricultural zones which are utilized for different crops depending on weather patterns. The agro-ecological adverse events can cause significant impacts on yields, ranging from 15 to 56 percent depending on region and year, but pose a definite risk for farms (Arce & Caballero, 2015).
Small-scale farmers in Tanzania utilize low and purchased-input technology that often results in small yields and production problems. The small-scale farms lack the necessary infrastructure and reliable access to information. Furthermore, many are not granted financial credits or services necessary to stabilize or expand their growth and operations (Misaki, Apiola, & Gaiani, 2016). This results in food insecurity as decision-making and productivity are compromised without proper access to information and infrastructure.
Recommendations
Kimango Farms as a small to intermediate scale agricultural entity will face both benefits and challenges investing in Tanzania. On the one hand, strong government support, possibilities of funding from the TADB, and other tax incentives make the business environment welcoming from a political and economic perspective. However, challenges of price volatility, lack of infrastructure, limited internal market, agro-ecological challenges, and increasing costs of operations all create an uncomfortable level of risk. While some risks can be mitigated, others such as drought cannot be influenced.
Even aspects such as price drop, exchange rates, and price variations are difficult to manage in the context of the Tanzanian economy, particularly for the agricultural sector. There is little room for risk transfer or diversification for Kimango Farms, while other stakeholders will most likely delay payments to farmers in case of any arising problems. Overall, Tanzania creates a better environment for investing in the agricultural sector than most other countries in the East African region.
In the long-term proper risk management for key export crops should be implemented to ensure the supply chains are organized and protected against any adverse events. As the economy develops with an appropriate understanding of macroeconomic fluctuations, policies, and infrastructure development, it is possible that there would be the necessary stability. Currently, investing in Tanzania for Kimango Farms is a high-risk enterprise that should be approached with great consideration.
Conclusion
Kimango Farms is an eco-friendly farm in Tanzania that is focused on export crops and eco-tourism. The economic, political, and social factors indicate a minor level of stability and support for the agricultural sector in the country. However, there are a number of barriers and challenges with mitigating risk. Investment for Kimango Farms is a high-risk endeavor since the business environment in the country faces so many challenges in this sector.
References
Arce, C. E., & Caballero, J. (2015). Tanzania: Agricultural sector risk assessment. Web.
Kimango Farms. (n.d.). About us. Web.
Misaki, E., Apiola, M., & Gaiani, S. (2016). Technology for small scale farmers in Tanzania: A design science research approach. The Electronic Journal of Information Systems in Developing Countries, 74(4), 1-15.
Tanzania Invest. (n.d.). Tanzania agriculture. Web.