the number of households involved in farming is reduced mainly as a result of households who have moved to a different area. Second, the production system is mainly based on the duality between food and cash crops. Almost all households involved in farming activities produce food crops while a high percentage, around 65%, produce coffee. The agricultural system is characterized by smallholder producers with an average amount of land cultivated of four acres with a small decrease between 1991 and 2004.
Table 1.2 presents some indicators of the performance of the agricultural sector. While these figure need to be taken with caution, being simple descriptive statistics of a very complex phenomenon as the agricultural sector, they still can provide some broad picture that we will explore more deeply in the following chapters.
The first thing to notice is a general decline of the importance of agriculture for households in the area. The value of output per-capita has significantly decreased in the period by more than 30%, reducing the share of consumption financed by agricultural production from 66% in 1991 to 45% in 2004.
Table 1.2 : Evolution of the agricultural sector 1991/2004
1991 2004
Agricultural output per-capita (TZS)
67427 44714
Yields per acre 102787.9 64324
Share of production
Note: All the figures are simple averages over households. Agricultural output is the sum of the value of all the crops cultivated. Yields are calculated as agricultural output per acre of land cultivated. The share of production in total expenditure is agricultural output over total expenditure. The share of production in total output for coffee, food and other crops respectively is the value of each crop output over total agricultural output. The Herfindahl index is calculated as
2 aggregates considered and X is total agricultural output. Openness is calculated as s p
X
+ where s and p
are respectively total crop sales and purchases. The expenditure share of sales and purchases is the value of sales and purchases over total expenditure. The Normalized Trade Balance is calculated as s p
s p
− + and
ranges between -1 and 1.
This is a significant shift away from agricultural production which signals that households have diversified their sources of income. The value of output per acre also
decreases by 37% showing that productivity per acre has declined in the period. In terms of input use the figure show an increase in the percentage of households which hire labor in same stage of the agricultural season while there is a substantial reduction in the proportion of households applying other inputs such as fertilizers and pesticides.
The trend of agricultural output, yields and input use are consistent with a decline of agricultural activity in the region and a diversification of households’ income activities.
Figure 1.4 : Evolution of agriculture
Figure 1.4 shows the distribution of agricultural output per-capita and yields in both periods and (bottom panels) plots the relationship between consumption per-capita and respectively agricultural output per-capita and the share of agricultural output in total consumption. There is a leftward shift in the distribution of yields and output per capita and a marked reduction in the share of consumption accounted by agricultural output.
This reflects a diversification strategy out of agriculture during the period and in general a decline of the importance of agricultural as an income generating activity.
The fact that the share of agricultural production in total expenditures for higher income households is identifiably lower and also declines faster in between the two periods can be an indicator that higher income households are the ones that are able to diversify out of agriculture and into different income generating activities. The literature on income diversification strategies of rural households has identified different motives for diversification. Diversification can be a reaction to excessive risk, or high transaction costs or liquidity constraints. In these cases diversification is a matter of necessity and it is the poorest households that are most likely to diversify their incomes. On the other hand, income diversification can be also undertaken by richer households who have the necessary level of income and assets to make the transition into nonfarm activities where there are high entry costs.
In the first case, policies facilitating the movement of poor households out of high risk and low return agricultural activities into the non-farm wage employment, and self-employment along with easier access to urban jobs, seem to be the most appropriate.
In the second case, it may be more important from a policy point of view to stress public investments in agricultural activities such as roads, electricity and agricultural extension services in order to foster the growth of incomes in agriculture, especially among poorer households, so that they too can generate the necessary capital to move out of agriculture.
Figure 1.5 looks at the crop mix and shows the share of total agricultural production coming from coffee, food and other crops respectively as a function of consumption per-capita. The most obvious trend seems to be a reduction in the weight of coffee in the
crop mix in favor of food and other corps. This could reflect the reduction in the coffee international prices experienced in the nineties.
Figure 1.5: Crop mix and specialization
The bottom-right panel of figure 1.5 shows the Herfindhal index of production specialization as a function of consumption per-capita. This index captures the degree of diversification in cropping strategies. It is bounded between 1/n (being n the number of crops cultivated) and 1. In this calculation we take into account ten crop aggregates so that a household cultivating all the ten crops with equal weight would have a value of the index of 0.1. The average index value is of 0.31 in 1991 and 0.32 in 2004 showing first that the crop mix is not very specialized (i.e. households tend to produce several different crops simultaneously). The second thing to notice is that there is no important movement from 1991 to 2004 in the within crops specialization pattern.
.64.66.68.7.72.74Share of food
Figure 1.6 : Commercialization patterns
Figure 1.6 looks at the commercialization patterns and shows in the top two panels the share of agricultural sales on total expenditures and the share of total purchases on total expenditures. The share of sales of crops is quite low and decreasing in 2004 from 1991 across the whole of the income distribution except for the bottom part. The share of purchases accounts for around 50% of total consumption in 1991 and it increases along the income distribution. In 2004 market purchases accounted on average to around 60%
of total expenditures with a significant increase from the previous period. As a result of these trends openness computed as the sum of market sales and purchases over total expenditures increases between 1991 and 2004 and is increasing in total consumption with households at the bottom of the distribution relying less on the market than higher
.02.04.06.08.1Share of sales
8 9 10 11 12 13
Consumption per-capita (log)
1991 2004
.5.6.7.8Share of purchases
8 9 10 11 12 13
Consumption per-capita (log)
1991 2004
.55.6.65.7.75.8Openness
8 9 10 11 12 13
Consumption per-capita (log)
1991 2004
-.95-.9-.85-.8Net trade balance
8 9 10 11 12 13
Consumption per-capita (log)
1991 2004
income households. The net trade balance, calculates as the ratio of the difference between households’ sales and purchases over their sum, is instead decreasing in 2004 from 1991 reflecting the increase in purchases and the reduction in sales.
These statistics seem to show that households in the region rely on a traditional semi-subsistence agriculture characterized by a low level of specialization and commercialization. Moreover, there is no sign of a significant improvement in this respect in the 15 years period taken into account. The only significant trend coming out from the data is a reduction of the importance of farming as income generating activity, in particular for households at the top of the distribution. With these insights we move in the following chapters to an analysis of the constraints facing households in the area looking in particular at the role of transaction costs.