Coffee in the economy of Tanzania and the implications of membership In the international coffee agreement

Abstract

We seek in this work to develop recommendations for policies that will enable Tanzania to enhance her gains from trade in coffee, in of the changing environment O’- orally. in the world coffee and economic scene We start in the first chapter with an introduction to the O/j^anian economy and identification of the place of coffee in this - z/r-omy. In the second chapter we review literature relating to the structure of the international coffee market, the commodity problem and justification for international market intervention in the form of the International Coffee Agreement (ICA). The third chapter is an attempt to assess, empirically, the effectiveness of the ICA on Tanzania’s gains, defined in terms of the agreement’s objectives as increased stability and progressively increasing trend in the real value and purchasing power of income derived from trade in coffee. We devote chapter four to a review of Tanzania’s fortunes in the ICA and the trends in world coffee production and consumption. Finally, in chapter five we review ongoing coffee programs and practices in Tanzania and develop the said policy recommendations based on the country’s experience as well as the current and expected market environ­ ment . Two sets of factors determine the extent to which Tanzania gains from its involvement in the world trade in coffee. First is the group of factors which, for purposes of the present study, we term endogenous factors. Within this group fall such factors as production policies, quality controls and management efficiency, all 1.2. of which factors are largely a function of voluntary actions of agents within the country’s economy. These factors could be government, industry, or grower-determined or - effected. The distinguishing trait is that they are to a large degree within the willful control of agents within the country’s economy. Distinct from this category of tors is the second set of factors, which we refer to as exogenous factors. In this category we include all factors, geographically domestic jr foreign to Tanzania, that are largely beyond the willful control of agents within the country’s economy. Under this category fall such factors as market prices, export quotas, changes in consumer demand and adverse weather conditions (be they domestic or foreign to the country). This second set of factors is further sub-divided into: (a) Exogenous factors that originate from man-made decisions and as such are subject to negotiations within the ICA or other multi­ lateral or bilateral framework, as would, for example, be the case with coffee export quotas within the ICA, and preferential market arrange­ ments between the European Economic Community (EEC) and the associated African countries, of which Tanzania is one. (b) Exogenous factors that originate from man-made decisions but whose occurrence is not negotiable. In this category are included such factors as changes in consumer demand, long-term changes in world production patterns, and technological advances affecting either or both production and consumption. (c) Phenomenal occurrences that may have their origins in man-3- made decisions or natural circumstances. Examples of these occurrences include extreme weather conditions such as serious frosts in Brazil, extreme monetary instability such as occurred at the beginning of this decide, and labor strikes affecting a major aspect of the world coffee - omy such as an extended longshoreman strike in major United SlsgU-.es coffee ports of entry. Before we start the intended discussion and analyses of the factors of concern in the present study, it is in order to outline some aspects of the historical and structural background to the Tanzanian economy and the way in which coffee and the commodity’s world trade fit into this economic framework. That is the subject of the first chapter.