IJERD – International Journal of Environmental and Rural Development (2022) 13-1

Research article
erd

Economic Assessment of Tea Smallholder Farmers underContract Farming in Rungwe District, Tanzania
ISSA ABRAHAMAN KACHENJE*
Graduate School of Agriculture, Tokyo University of Agriculture, Japan*
Email: 13822001@nodai.ac.jp

NINA N. SHIMOGUCHI
Faculty of International Agriculture and Food Studies, Tokyo University of Agriculture, JapanKATSUMORI HATANAKA
Faculty of International Agriculture and Food Studies, Tokyo University of Agriculture, Japan

RAMADHONA SAVILLE
Faculty of International Agriculture and Food Studies, Tokyo University of Agriculture, Japan
Received 31 January 2022Accepted 22 April 2022(*Corresponding Author)

Abstract In Tanzania, tea is considered as one of the most exported crops. The mainstakeholders of the tea industry are smallholder farmers and estates. Smallholder tea
farmers are required to engage in contract farming, as stipulated in the Tea Regulation of2010. This study attempted to assess contract farming and its impact to production andincome of tea smallholder farmers in Rungwe District, Tanzania. A total of 48 randomly
selected smallholder farmers were interviewed using a semi-structured questionnaire inSeptember 2020 and October 2021. Agribusiness company officials, government officials
and extension officers were also interviewed to clarify the condition and issues of thecontract farming scheme. Descriptive analysis and cost and return analysis were utilized.
Results show that yield, income, and profitability increased from 2016-2019. These can be
attributed to steady supply of inputs, easy access to technical assistance, and early adoptionof new technology under contract farming scheme. Moreover, the price of smallholder
green leaf has improved, with farmers receiving a second payment hence improve theiroverall revenue returns.
Keywords: contract farming, smallholder farmers, tea, profitability, Tanzania

INTRODUCTION
Tea is a globally manufactured and widely consumed beverage (Hicks, 2009; Onduru et al., 2012).
Kenya, Malawi, Uganda, Tanzania, Zimbabwe, South Africa, and Rwanda are the principal teaproducing countries in Africa, with tea contributing considerably to their economy (FAO, 2014).
By the year 2023, the continent's export volume is expected to reach 743,384 metric tons
(FAOSTAT, 2015).
Tea is the fifth most exported crop in Tanzania, the tea sector accounts for an average ofapproximately USD 50 million every year, when it comes to foreign exchange earnings. Tea
industry also contribute to the huge amount of employment opportunities as it employs more than
50,000 families and indirectly it affects to as many as 2 million Tanzanian citizens (Baffes, 2004).
Moreover, the nature of tea production necessitates a significant amount of labor, implying that thesector can employ a large number of people. Tea can be harvested all year round, making it one ofthe few crops that can generate a relatively consistent income when compared to seasonal crops
like maize.
Tea cultivation was only done on a large scale under the supervision of several tea estates
during colonial and early post-colonial times, which meant that smallholder farmers were nonⒸ ISERD62

IJERD – International Journal of Environmental and Rural Development (2022) 13-1

existent. Smallholder tea production legally began only after the independence in 1960s. At thattime the government had actively pushed smallholders’ involvement in the tea sector (Maghimbi etal., 2011; Gibbon, 2011). This marked the starting point for the co-existence and relationshipbetween the smallholders and estates in the tea sector. The relationship was later on cemented with
the introduction of programs such as contract farming and sales agreements. Further, smallholders
are required by law to have at least a one-year sales agreement in place. This is due to a number offactors: Firstly, the tea leaves' perishable nature; green leaves can only be stored for around six
hours before they must be processed. Secondly, tea processing also demands complex and costlymachinery, which is why the majority of tea processing firms are owned by large corporations. Asa result, smallholders are reliant on tea processing plants owned by large tea companies. Thismandates close collaboration between smallholder farmers and estates that possess processing
plants, hence makes sales agreements and contract farming necessary in Tanzania tea sector.
OBJECTIVE
The main goal of the study was to assess contract farming and its impact to production, income,and profitability of tea smallholder farmers in Rungwe District, Tanzania.
METHODOLOGY
Study Area
This study was conducted in Rungwe district (see Fig. 1) located in the Southern tea growing zone.
Two villages from the Rungwe district namely Katumba and Lugombo village were purposively
selected because these villages large concentration of smallholder farmers operating under acontract system. A total of 48 randomly selected smallholder farmers were interviewed using asemi-structured questionnaire in September 2020 and October 2021. Agribusiness company
officials, government officials and extension officers were also interviewed to clarify the condition
and issues of the contract farming scheme.

Fig. 1 Map of the study area
Source: Google map

Methods of Study
For evaluating the impact of these Contract Farming schemes on yield, income, and profitability oftea per unit area, cost and return analysis was utilized. Furthermore, the study compared the yield,
income, and profitability of smallholder tea farmers from the year 2016 to 2019.
Fixed costs, such as family labor and land charges, were separated from variable costs, such as
herbicides, chemical fertilizers, pesticides, and hired labor. The gross return was then obtained bymultiplying the marketable produce by the year's average price per kilogram. The profit was thencalculated by subtracting the total cost from the gross return.
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RESULTS AND DISCUSSION
This study estimated the cost of producing green tea leaves for smallholder tea producers in theRungwe district of Mbeya, Tanzania, as well as the revenue generated. In the study area, Pesticides,
herbicides, and farm labor both family and hired labor are among the inputs used by smallholder
tea farmers. On the other hand, Chemical fertilizers, such as NPK fertilizers, Glyphosate, Urea, andSA fertilizer, are also used. Additionally, other farm inputs include safety Goggles, Gloves, Gum
Boots, Raincoat, Mouth Mask, Shears, and Spray Pump are often used by smallholders in the study
area. This section analyzed the production costs and profitability of smallholder farmers
participating in Contract Farming in greater detail. Most of these inputs are provided on credit tosmallholder tea farmers in the study area by their contracting estates. The inputs are distributed
according to a well-established process that is overseen by smallholder association leaders andextension officers. The loaned inputs are paid for by deducting from the overall earnings that
smallholder farmers are expected to gain without any interest.
Yield of Green Tea Leaves Produced by Smallholder Tea Farmers
The yield of a crop is calculated by dividing the amount of crop harvested by the harvested area ofthat crop. Mathematically, the yield can be calculated by dividing production data by harvested
area data.
According to the findings, the marketable yield for smallholder tea leaves in 2016, 2017, 2018,and 2019 was 1,093 kg/ha, 1,175 kg/ha, 1,247 kg/ha, and 1,347 kg/ha, respectively. This is
attributable to a steady supply of inputs, easy access to technical assistance, and the adoption of
new technologies in the study area's contract farming scheme. Similarly, the contracting company
has stepped up its efforts to provide smallholder farmers with inputs such as fertilizers andherbicides at significantly lower prices than market prices, allowing them to have easy access tosupplies at a reasonable price.
Table 1 Comparison of the average yield for smallholder tea farmers
2016

2017

2018

n=(kg/ha)2019

National814

1,082

1,203

1,035

Study area

1,093

1,175

1,247

1,347

Items

Source: Field survey in 2020

The Costs of the Inputs for Green Leaf Tea Production
The overall production cost was estimated, which included not only the cash payment but also theestimation of the opportunity cost for smallholder farmers. There are two types of costs inagriculture: variable and fixed. In general, variable costs fluctuate according to the degree ofproduction. Fixed costs, on the other hand, are expenses that do not change regardless ofproduction level. According to Mamun et al. (2018), the total cost (TC) can be obtained by adding
the total variable cost (TVC) to the total fixed cost (TFC), as illustrated in the equation below.
TC = TVC +TFC

(1)

Where TC is total costs, TVC is total variable cost and TFC is total fixed cost.
In this study, the total cost was calculated by adding the costs of chemical fertilizers,
herbicides, farm equipment, and labor used by smallholder farmers for producing green tea leaves
in the study area.
Moreover, in an effort to improve green tea leaves production volume and quality in the study
area, the amount and frequency of provision of various farm inputs such as herbicides, chemicalⒸ ISERD

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fertilizers and other equipment were increased which resulted into the increased cost of production
as shown in the table 6.1. According to the findings, the total production cost of green tea leaves
per hectare was 65.65 TZS/ha, 73.32 TZS/ha, 102.13 TZS/ha, and 112.07 TZS/ha in 2016, 2017,2018, and 2019 respectively.
Green Tea Leaves Price in the Study Area
In the study area, for the years 2016, 2017, 2018, and 2019, the contracting company's green tea
leaves price per Kg in the research region was 231 TZS/Kg, 240 TZS/Kg, 315 TZS/Kg, and 320
TZS/Kg, respectively. These prices offered to smallholders in the study area are higher than thegovernment's recommended price (basal price), implying that farmers in the study area benefit
more than green tea leaf growers in other tea producing areas, such as the Korogwe district in thenortheast zone, where smallholder tea producers receive no more than the government'srecommended price.
Table 2 Total production cost and profitability of smallholder tea production(Unit: 000’ TZS/ha)
Items
Observed smallholders

2016

2017

2018

2019

(n=48)(n=48)(n=48)(n=48)

0.3

0.3

0.3

0.3

Average cultivated area (ha)Yield (Kg/ha) (AA)

1,093

1,175

1,247

1,347

Chemical fertilizer costs (C1)

8.14

9.09

12.66

13.90

Herbicide’s cost (C2)

10.80

12.34

18.10

20.09

Farm Instruments (C3)

2.04

2.28

3.18

3.49

Hired labor cost (C4)

15.62

17.45

24.31

26.67

Total variable cost (TVC)=(C1+C2+C3+C4)

36.61

40.89

56.96

62.50

Family labor cost (C5)

27.77

31.02

43.21

47.42

Total labor cost (C6) = C4+C5

43.39

48.46

67.51

74.08

Total production cost (C7)=TVC+C5

65.65

73.32

102.13112.07Gross revenue (GR) = (AA*Farm gate price)

252.48282.00392.81431.04Gross income (GI) = (GR-TVC)

215.87241.11335.85368.54Gross profit (GP) = (GI-C5)

188.10210.09292.64321.12

Smallholder Tea Farmers’ Revenue, Income and Profitability in the Study Area
The gross income (GI), gross revenue (GR) and Gross profit (GP) were estimated using data fromthe field survey 2020 and 2021 to better understand the impact of tea leaves production on thesmallholders’ livelihood. The study then simulated the comparative profitability of growing green
tea leaves in various years from 2016 to 2019. This will help to determine the trend of grossincome, gross revenue, and profitability received by smallholder tea farmers each year, as well as
ranking the profitability received over this period of time.
Gross revenue (GR) means the amount received by farmers presumably that their entire
volume of marketable yield is sold at the farm gate price. Dammert and Mohan (2015) support thatthe concept of Gross Revenue is calculated as yield multiplied by farm gate price. Further, Gross
income (GI) is computed by subtracting total production costs from Gross Revenue, excluding
family labor costs. Finally, gross profit is derived by subtracting family labor costs from grossincome.
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The results showed that in 2016, 2017, 2018, and 2019, the gross revenue for smallholder tea
leaves production was 252.48 TZS/ha, 282 TZS/ha, 392 TZS/ha, and 431.04 TZS/ha, respectively.
Likewise, the results showed that in 2016, 2017, 2018, and 2019, the gross Income for smallholder
tea leaves production was 215.87 TZS/ha, 241.11 TZS/ha, 335.85 TZS/ha, and 368.54 TZS/ha,respectively.
Table 3 Price of green tea leaves in TZS
Items
Tea leaves price/kg

2016

2017

2018

2019

231

240

315

320

Source: Field survey in 2020.

CONCLUSIONFirstly, land ownership of smallholder tea farmers was overwhelmingly male dominated,suggesting that land ownership for women is a major issue in African traditions and culture as aresult of gender biased traditions. As a result, women's ability to participate in Contract Farming(CF) in Africa is compromised. Also, low level of education among the smallholder tea farmers
was also observed. in terms of farm size, smallholder tea farms were relatively small (averaging0.30 hectares). Inadequate farm size, on the other hand, may limit households' ability to expand
their cultivation and fully exploit the benefits provided by Contract Farming programs in order tomaximize productivity while utilizing the far more advanced technologies. Finally, the findings
revealed that farming is the principal economic activity of the entire sample of respondents in thestudy area.
In the study area, smallholder tea farmers received prices higher than the government'srecommended price, implying that farmers in the study area benefit more than green tea leaf
growers in other tea-producing areas, such as the northeast zone's Korogwe district, where
smallholder tea producers receive no more than the government's recommended price. Furthermore,
smallholder farmers in the study area benefited not only from the higher price than the government
recommended, but also from the introduction of a first and second payment system after thecompany's sales of the made tea, based on cost sharing and final market price, which improved
their overall revenue returns.
Over the four years for which data were gathered, the trend of Marketable Yield has risen. As
a result, in 2019 the highest marketable yield was obtained, whereas in 2016 the lowest yield wasobtained. Furthermore, data obtained shows that smallholder farmers in the study area produced
higher yields than the country's average yield for each of the four years examined. This is owing toa steady supply of inputs, easy access to technical assistance, and the adoption of innovativetechnology in the study area's contract farming scheme. Similarly, the contracting company has
stepped up its efforts to provide smallholder farmers with inputs such as fertilizers and herbicides
at much cheaper prices than market prices, allowing them to have easy access to supplies at anaffordable price. And because of the higher price and yield, smallholders in the Contract scheme
were able to generate more gross revenue, gross income, and profit compared to national averagefor smallholder tea farmers. In general, contract farming in the tea sector appears to be profitable
for respondent smallholder tea farmers in the study area.
However, the need for a higher price for their tea leaves, difficulty adapting to newtechnologies, insufficient input supplies, insufficient funds to hire extra farm labor, and insufficient
farm equipment were shown to be the challenges that smallholders experience.
Generally, the contract farming system in the study area has a positive impact on production,
income, and profitability of tea smallholder farmers, despite the existence of some constraints. In
light of the findings and conclusions, the study recommends that the government, agribusinesscompanies, smallholder famers association and other stakeholders develop a common strategy andways for smallholder tea farmers to have better access to capital in order to boost their adaptabilityⒸ ISERD

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to new technologies, buy sufficient farm input and farm equipment, and have sufficient funds tohire extra farm labor to further improve their profitability.
ACKNOWLEDGEMENTS
We are grateful to the Tokyo Nodai Foundation and the More Job Better Life [MJBL] Foundation
for funding this study.
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