VALUE CHAIN ANALYSIS FOR ORGANIC COTTON SUBSECTOR IN

TANZANIA

OCHIENG JUSTUS
Department of Agricultural Economics and Agribusiness Management, Egerton
University,Kenya.P.O Box 536, Egerton, Kenya. Email:jastopheli@yahoo.com

ABSTRACT
Organic cotton production began in 1994 and Tanzania is currently the largest
producer of organic cotton fibre in Sub-Saharan Africa ahead of Uganda. Besides, the
cotton sector sustains directly or indirectly nearly 48% of the Tanzanian population
for their source of income and livelihoods. This has led to growing interest by
farmers, government, NGOs, private stakeholders in organic cotton supply chain since
it act as a means to poverty alleviation. The export market is expanding rapidly and
destinations for organic cotton include; Switzerland, Germany, USA, United
Kingdom, Netherlands and Italy. The small-scale farmers has greatly benefited
through ready markets, receive premium prices unlike conventional producers as well
as training and extension services from government ,NGOs and private company
buyers. However, a lot of inefficiencies exist in the organic cotton supply chain
activities; production, processing, marketing thus making sustainability is a matter of
concern to the players in the sector. Organic cotton producing areas are characterised
by poor infrastructure, information asymmetry, lack of awareness of cotton products
by consumers and poor market intelligence by traders among others. Interestingly
organic cotton from small scale farmers have been certified by bioRe Ltd but niche
international and regional markets opportunities have not been fully exploited and
local consumers organic cotton products. This paper highlights the major
opportunities, strengths; weakness and threats in organic cotton sector in Tanzania
towards efforts of increasing production efficiency and competitiveness in this sector.
This will lead to sustainable organic cotton production and marketing regionally and
globally.
Key words: Small scale farmers, Poverty alleviation, Value chain.

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1.0. INTRODUCTION.
1.1. History of organic cotton in Tanzania.
Cotton is very important to Tanzania economy and was introduced around 1904 by
German settlers as a plantation crop. Production of cotton on a commercial scale
started at Ukiriguru, South of Lake Victoria (Baffes, 2002). Organic cotton in
Tanzania production began in 1994. Tanzania is currently the largest producer of
cotton fibre in Sub-Saharan Africa ahead of Uganda (Ferragno et al, 2005).Organic
cotton farmers generally receive 20% higher prices than their conventional
counterparts (Baffes, 2002). The organic cotton buyers, government and policy
makers add fair trading commitments to organic farming by addressing some of
cotton’s economic problems while organic farmer’s organisational structures
strengthen rural communities and marginalised groups, including women.

Tanzania is well suited for the production of organic cotton, because of the low
reliance on pesticides and inorganic fertilizer, inspection and certification are still not
well developed or advanced (Ratter, 2002). This has made many farmers especially
small-scale farmers to readily accept to produce organic cotton, but with the challenge
of poorly organized supply and marketing chains.

In Sub-Saharan Africa (SSA) organic cotton is grown to basic standards set by the
International Federation of Organic Agriculture Movements (IFOAM) and certified
by private agencies (Ferrigno et al, 2005). Organic production is based on sound soil
management using indigenous knowledge and research to improve techniques. Pest
control combines indigenous systems and botanical pesticides, particularly those
using neem. Fertilisation uses a combination of animal and green manuring,
sometimes adding ingredients such as oil palm processing residue.

Most organic cotton projects in Tanzania are NGO and private sector led which put a
lot of effort into capacity building for farmers and communities. With similar labour
costs, the reduction in inputs and high yields compared to conventional cotton make
organic cotton an economic and attractive option for farmers with much potential to
increase production (Ton, 2002a).Growing organic cotton affords premium prices and
reduces debt vulnerability for smallholders.

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1.2. Importance of the sector to the economy.
Cotton, both conventional and organic cotton plays an important role in the economy
specifically rural development in Tanzania. Besides, sector sustains directly or
indirectly nearly 48% of the Tanzanian population for their source of income and
livelihoods (Ratter, 2002).It’s the second largest export earner after coffee (TCB,
2008). This sector has been a major source of employment and income for many
farmers as well as foreign exchange earnings with Mwanza and Shinyanga being the
largest producers followed by Mara region (Rates, 2003). It contributed 24.5% of the
country's total export earnings. Over 80% of all cotton produced is meant for export
and only between 10-20% is consumed locally (TCB, 2008)

In Tanzania, average organic yields equal those of conventional production, 700kg/ha

and 600kg/ha respectively (Ferrigno et al 2005). The demand for organic cotton is
increasing rapidly, which Tanzania is capable to supply due its well position to serve
these new sources of global demand and it also has competitive advantage over other
producers since its organic cotton is regarded to be of high quality. Less than 1% of
current global cotton consumption, demand for organic cotton is growing particularly
fast, with several US and European retailers and brand-owners targeting minimum 5%
organic content (Ferrigno, 2006).
2.0 . ORGANISATION OF SUPPLY CHAIN.
2.1. Production.
Most organic cotton grown in Tanzania is project-based and donor supported. Farmers
producing organic cotton generally receive higher prices than their conventional
counterparts. Generally, cotton is produced by smalls-scale farmers on a total
estimated area of about 300,000 to 400,000 hectares (Ratter, 2005) and only about
145,000 acres are organically certified (bioRe, 2008). Furthermore, this sector in
characterized by low yields because some farms are still converting to full organic
growing and climatic conditions (Ratter, 2002). Low production in 2007/2008 was
mainly because of drought that affected cotton producing areas during cotton sowing
season (TCB, 2008).

Organic production tends to occur initially through substitution of synthetic chemical

pesticides with preparations based on locally available biological products, usually
neem, combined with ingredients such as cow urine, chilli pepper, garlic, natural
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soaps and pawpaw leaves. Intercropping and trap plants (such as maize and gombo)
are also used. The most common problem pest in all regions is the bollworm; the
preferred organic technique for dealing with these is to encourage predator
populations (Ton, 2002a).

Majority of the small-scale farmers also lack necessary tools for production and their
vulnerability in the conventional sector has led to their over representation in organic
cotton production. With the help of environmental experts and self help initiatives,
organic cotton farmers attract beneficial insects to their cotton plots to counter
harmful pests (Rates, 2003).

The organic cotton farmers are contracted by the local company bioRe Tanzania Ltd.
There has been a major growth in organic cotton production since its inception in
1994 as indicated in the Table 1, because many farmers are shifting from conventional
cotton.
Table 1: Tanzania Organic cotton production from 1994-2006(Metric Tonnes)
Year Production(MT)
1994-1995 -
1995-1996 10
1996-1997 100
1997-1998 100
1998-1999 100
1999-2000 200
2000-2001 250
2004-2005 1223
2005-2006 1336
Source: Ferrigno, 2006
Conversion Note: 2,200 pounds are in a metric tonne, and 480 pounds in a bale.

Organic cotton production in Tanzania continues to be strong and is over 5 times

higher now than in 2000/2001. Table 2, below shows that all the organic cotton
produced in 2004-2005 and 2005-2006, was all sold indicating that there is ready

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 market for the product in the world market. The percentage of production indicates
that the potential has not been fully utilized.

Table 2: Organic fibre production 2004-05 and 2005-06, cropping season.

Year Beginni Production/ Sales/ Ending Percentage Fiber
ng stock Harvest commitments stock production type.
2004- 0 1213 1213 0 57% Medium
05
2005- 0 1336 1336 0 54% Medium
06
Source: Ferrigno, 2006
Conversion Note: 2,200 pounds are in a metric tonne, and 480 pounds in a bale.

2.2. Processing.
Cotton processing in Tanzania involves majorly primary processing of lint to yarn for
sale to other textile mill industries or exported. The textile processing involves the
following activities: ginning or purchase of lint, spinning, weaving, bleaching of the
fabric, dyeing and printing of the fabric and knitting of the fabrics and apparels.
Cotton seed produced during ginning process is used for extraction of cooking oil.
The cotton oil production process involves delinting, decortications, extraction,
filtration, neutralization, deodorization and bleaching. This product is sold locally for
human consumption. Organic cotton seed and lint exported for production of cotton
wool balls, organic cotton buds and organic cotton wool pads.

2.3. Marketing
There is increasing demand by global consumers about safety and how the product
has been produced gives organic cotton farmers a competitive advantage over
conventional cotton producers. This is because better crop management replaces
chemical inputs, the production costs is reduced and increased yield per acre. Organic
cotton products are sold in local and export markets.

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2.3.1. Local Market.
Domestic consumption is significantly low nevertheless lint consumption has
increased from 20% in 2003 to about 25 and 30% in 2007(TCB, 2008). This is mainly
contributed by lack of enough textile and spinning industries to process organic cotton
despite the increased global demand for organic cotton products.
1. Fabrics
Most textile mills produce African print (Kitenge and Kanga) for local buyers.
2. Apparels
Market for locally made garment is low or almost non existent thus exported
3. Cotton seed /bale
This product is produced by ginneries and sold locally and exported.
2.3.2. Export market
The export market for organic cotton is growing rapidly. The market destination for
organic textile products, cotton seed and bale include: Switzerland, Germany, USA,
United Kingdom, Netherlands and Italy. The structural difficulties in Tanzania have
discouraged many foreign investors from the region. Small scale farmers in this sector
have a guarantee of market for their organic cotton at a premium price and are paid in
cash upon delivery of their cotton by bioRe Tanzania Limited which is a sourcing
company for certified organic cotton.
2.3.3 Pricing.
Smallholder farmers growing organic cotton are paid premium prices (Ferrigno et al
2005) which reduce their debt vulnerability. The prices for cotton lint and seed is
based on the prevailing world prices and applicable levies and marketing costs and
price for cotton lint is pegged on CIF western Europe Lint price (Rates, 2003).
However, prices paid to the farmer are sometimes determined by the buyers who may
have opportunism to exploit farmers due to information asymmetry among organic
small scale famers.

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 Figure 1: Marketing and Value Chain of organic cotton in Tanzania.

FARMERS

PRIVATE PRIVATE PRIMARY

GINNERS BUYERS SOCIETIES/
AGENTS ASSOCIATIONS

PRIVATE GINNERS COOPERATIVE

Release cotton seed and bale GINNERS-Release cotton seed and
bale

TEXTILE
EXPORT LOCAL PROCESSING
MARKET MARKET PLANT

SEED EXPORT
EXPORT YARN COTTON/ MARKET
MARKET LINT

FABRIC

EXPORT MARKET APPAREL LOCAL MARKET

MANUFACTURING

Source: Own; Adapted from Rates, 2003

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2.4. Institutional Support System.
Cotton growing in the country is project based targeting poverty alleviation.
Tanzanian government through its privatisation programmes is actively involved in
promoting organic cotton production (TCB, 2008). Major stakeholders providing
support services in organic cotton include:
Tanzania Cotton Board (TCB)
TCB is a government owned corporation that promote the growth of production,
processing and marketing of cotton. It plays a major role in regulating the quality,
marketing and export of cotton and advice the government on all matters affecting the
conventional cotton and organic cotton industry. In organic cotton sector it facilitates
the establishment of associations of stakeholders such as farmers, processors and
ginners besides stimulating research and extension services to farmers. TCB also
permits and license buyers, exporters of cotton products, operators of ginneries as
well as protecting the interests of farmers against syndicate of buyers or exporters of
organic cotton.
Research Stations
Two research centers namely Ukiriguru and Ilonga. Ukiriguru caters for Western
Cotton growing Areas (WCGA) ((i.e Mwanza, Shinyanga, Mara ,Tabora, Singida,
Kigoma and Kagera) while Ilonga caters for Eastern Cotton Growing Areas (
Morogoro, Iringa, Coast Region, Tanga, Kilimanjaro and Arusha) (TCB, 2008).
Private buyers.
Private buyers of organic cotton in the supply chain are bio Re Tanzania Limited,
Pan Germany organic cotton circular and Coop Switzerland that are involved
organic cotton projects.
Non-Governmental Organisations (NGOs), CBOs and Other development
partners.
Local and international organisations backing organic cotton convince companies and
international donors and policy makers of the viability of organic cotton by
encouraging them to invest in organic cotton growing projects. These include;
Busangwa Organic cotton assoction (BOFA), Care Tanzania, National Environment
Management Council (NEMC), Sokoine University of Agriculture, Envirocare,
INADES Formation, TanCert, Tanzania Organic Agriculture Movement (TOAM),
Kilimo Hai Tanzania (KIHATA), Export Promotion of Organic Products from Africa
(EPOPA), Sida, International Trade Centre (ITC) etc.
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2.5. Key Success Factors
Organic cotton farming began with only 45 farmers in 1994, consequently, the
number of registered farmers increased to 134 in the 1996/97 season, with the area
planted rising to 778 hectares (Baffes, 2002). Today, the number of registered farmers
in bioRe project has grown to 1700 in the north of Tanzania (bioRE, 2008). Organic
cotton supply chain is dominated by a number of key players which include farmers,
traders, ginners, textile millers exporting companies and spinners. The following
strengths and weaknesses have been attributed to the organic cotton supply chain:
2.5.1. Strengths.
The number of farmers who are willing to participate in the current organic cotton
projects increases day by day (Ton 2002) because it offers opportunities to get higher
prices than conventional cotton in the international markets.
The major buying companies in collaboration with research stations train farmers in
associations on compost making, biodynamic preparations and social aspects of life.
Besides, high-quality yarns and textiles are produced to satisfy the changing demands
of consumers in the global market. As a result, bioRe have certified organic cotton
from the farmers thus makes its products preferred by consumers particularly in
Switzerland. As cotton seeds move from the farm to ginneries and textile mills until
the final product is exported there is transparency of information throughout all
supply chain stages as well as providing dignified production conditions for farmers
and textile and ginners workers.
2.5.2. Weaknesses.
Despite a promising organic cotton supply chain, there are some challenges facing all
the actors who promote economic development through efficient production and
marketing activities. Many small scale farmers are constrained by lack of input and
output markets in marginal organic cotton producing areas and increased price risk
and volatility due to withdrawal of the state from price determination (Rates, 2003).

In addition, they face regional competition from Uganda, the second largest producer
of organic cotton in Sub-Saharan Africa (Ferrigno et al 2005). The level of
competition is likely to increase due to efforts being made in Kenya by the
government, NGOs and other stake-holders to produce organic cotton. The organic
cotton products from Africa are required by the consumers in the European markets to
meet very high quality standards, higher labour standards and minimum wages than
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many competing regions (Organic Exchange, 2004). However, creation of an
‘‘Organic Cotton from Africa’’ brand and a strong production and marketing
standards pose as a potential avenue of overcoming this constraint.

There is lack of awareness on organic agriculture among small scale farmers making
it difficult for organic cotton farming to grow at a high speed in spite of of trainings
conducted by buying companies and government extension officers. Small scale
farmers are not access to adequate market information on current prices, market
opportunities and potential buyers. Most local consumers are not aware of the
products made from organic cotton due to lack of adequate publicity of organic cotton
products in the country.
3.0. CURRENT SITUATION AND FUTURE PROSPECTS.
3.1. Growth potential.
Even though Tanzanian’s organic cotton being in infant stage, there is a chance for
growth as global demand for organic cotton continues to increase and farmers’ shift
from conventional cotton. The sector has attracted the attention of many global
investors, Government, Research stations and NGOs promoting sustainable
agriculture in the region. With the increasing demands of the consumer to know how
his or her products have been produced, gives an opportunity for heavy investment in
organic cotton farming. Although, development of organic cotton requires serious
promotional efforts at all levels from producers to consumers for an effective supply
and value chain.
3.2. Market Opportunities and Threats.
3.2.1. Opportunities
To start with, there are many niche markets that have not been exploited. The Meatu
biRE project exports to Switzerland and there are other potential markets that have
not been fully perceived. These markets include: Germany, USA, United Kingdom,
Netherlands and Italy where there is high demand for organic fiber, organic lint and
organic cotton seed and apparels.

Currently, the world market demand for organic cotton exceeds supply of
20000tonnes per annum (Organic Exchange, 2004) but the main producers still
remain Turkey, India and USA. As result, Tanzania is capable of expanding its
production to meet the world excess demand.
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The producers, processors, traders have not fully utilized regional opportunities.
Tanzania is a member of EAC, COMESA and SADC that promote regional trade
among member states as well as advocating for reduced tariff rates. Tanzania organic
cotton traders have not also exploited AGOA market due to low production and low
quality standards hence, it is up to the farmers, traders and processors to increase
production and improve international quality standards.

The low domestic consumption can be reverted by taking corrective measures like
educating local consumers on the benefit of organic fibre and apparels, by local
campaigns and charging affordable prices for the Kitenge, Kanga and Apparels.
The government under the privatisation policy is looking for individuals or companies
to buy off the industries which are not operating now, the industries which will
eventually consume cotton and hence produce value added products with relatively
higher producer price for export.

3.2.2 Threats.
The risk is that larger companies now entering the market could squeeze prices paid to
farmers, particularly premiums. Most farmers are not organically certified due to high
certification costs. There is high dependence on limited number of buyers of organic
cotton. The major buyers of cotton are bioRE Ltd who export them to Switzerland and
other countries in Europe (bioRe, 2008).Organic farmers face competition from West
Africa (Benin, Mali), Uganda, Turkey, and India among others and competition from
Pakistan which is a newcomer to the organic cotton production (Ferrigno, 2006).

By focusing on higher-end textiles, Tanzania can gain from competitive advantage in

specialised areas, rather than trying to compete against cheaper volume production.
Lack of adequate infrastructure in producing areas like roads, communication and
storage facilities makes transportation of harvest from the fields to ginneries and
textiles mills very difficult and costly.

Many farmers lack capital, lack of awareness on organic agriculture, and information
asymmetry pose a threat to the future of organic cotton production. Besides,
agricultural research and dissemination of research findings is still minimal in most
developing countries including Tanzania. Therefore, new research and policies are
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needed that give priority to producer and consumer interests and support improved
field production.
3.3. Benefits to the smallholder farmers.
The smallholder farmers are capable of getting ready markets and higher prices for
their produce. Organic cotton farmers generally receive 20% higher prices than their
conventional counterparts (Ferrigno et al 2005). The quote from farmers shows
indicates the value they attach to organic cotton 'We are paid immediately with no
long delays like in conventional.”(Organic Exchange, 2004) Farmers benefit through
guarantee markets for their organic cotton at a premium price and paid in cash upon
delivery of their cotton by bioRe Tanzania Limited which export cotton Switzerland.

They also receive production support and training. Field agents from projects help
elected farmers representatives with training and certification documentation, which
uses an internal control system (ICS) to recommend a group for training. For instance,
bioRe trains farmers by demonstrations on making of compost and biodynamic
preparations, spraying of the preparations in the morning, contract farming, and social
aspects (bioRe, 2008). Other organic cotton project run by GTA-IPM project provides
extension and training services to farmers in WCGA.

Besides, farmers have been able to organise themselves into groups, associations, or
cooperatives to enhance delivery of essential services such as group certification,
marketing of produce, solving logistical problems like transport, bargaining power
etc. By farmers being in contract farming arrangements, they have guaranteed markets
for their output. Successful associations or cooperatives with ginneries are contracted
to do ginning of the seed cotton which is later exported or processed further before
exported.

Finally, there is less health risk to the small scale farmer. This is because of
avoidance of toxic chemicals from insecticides, pesticides and inorganic fertilizers
which may have adverse effect to farmer’s health and even affects his or her
livestock. Organic production means less environmental pollution of soil and water by
avoiding use of chemical insecticides and inorganic fertilizers.

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3.4. Sustainability of the supply chain.
For this supply chain to be sustainable there is a need for determination to support
sustainable expansion of organic cotton by all players. Developing dedicated supply
chains with higher levels of communication, planning and support between
manufacturers and retailers, their business partners and farmers will help existing
projects and new projects to develop in a more sustainable manner. This ensures the
right qualities and quantities of fibre are produced to meet the needs of specific brands
and retailers.

The stakeholders including the government explore innovative ways of associating

with farm projects and farmers, through profit sharing, joint ownership with farmers
in the supply chain, forward contracting with pre-financing arrangements to ensure
farmers enjoy fair prices, incomes and returns in the organic cotton sector. They
should also finance development and production growth on their own terms and
develop general market where higher prices for the products would be paid to farmers
through forward contract arrangement in organic cotton projects.
In well organised and transparent contract arrangements transactions would result to
fair returns to farmers. Consequently, reducing market risk brought about by merchant
and brokers and eventually making supply chain sustainable.
With the increased investments from financial institutions, government, Non-
Governmental Organisations, Private sector and Research institutions new organic
cotton projects are being implemented to ensure farmers are competitive in the world
market and expand production in a sustainable way.

4.0. CONCLUSION
Considering the growing interest first by farmers, government of Tanzania (GOT),
NGOs, private stakeholders in organic cotton supply chain, organic cotton has
become an important export crop in the international markets. Organic cotton
products are exported to Switzerland, Germany, USA, United Kingdom, Netherlands
and Italy where there is high demand. However, a lot of inefficiencies exist in the
organic cotton supply chain activities; production, processing, marketing making
sustainability is a matter of concern to the actors in the sector. Therefore, knowledge
of key strengths, weaknesses and growth potential of the supply chain is fundamental

13
for finding sustainable solutions to increase the efficiency, competitiveness and
maximise overall economic benefits from organic cotton production.
5.0 RECOMMENDATIONS
The government should encourage farmers to utilize their growth potential to counter
the promising competition from Uganda and Kenya. Tanzania is capable of expanding
its production to meet the world excess demand through serious promotional efforts at
all levels from producers to consumers for an effective supply and value chain.

Besides, utilize regional opportunities existing from the membership of EAC,

COMESA and SADC that promote regional trade among member states as well as
advocating for reduced tariff rates. These opportunities can only be utilized by
increasing production and meeting international quality standards.

In order to gain from organic cotton sector the government should embark on
developing infrastructure in producing areas like roads, communication and storage
facilities that facilitate transportation of harvest from the fields to ginneries and
textiles mills.

Finally, provision of institutional support services will help to improve the

performance of organic cotton sector. This is possible through increased provision of
affordable capital, extension services, awareness campaigns, research and
development and designing agricultural policies that encourage production rather than
discourage farmers from adopting organic cotton production.

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Rates (2003): Cotton – Textile – Apparel. Value Chain Report Tanzania. The RATES
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TCB(2008):Webpage Tanzania Cotton Board. Accessed on 6th November 2008.

http://www.tancotton.co.tz/production.html

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http://www.remei.ch/en/home.html

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