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Sunflower Sector Market Development Strategy

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RLDC intends to facilitate market development on the sunflower sector by incorporating lessons from Phase One and testing the experience for dissemination and replication to the wider sector. To achieve this goal RLDC carried out a market system analysis in the sector and the following is the summary of the findings of the assessment. Market and production analysis: National demand for edible oil is huge compared to national supply, which has forced the country to largely rely on imported palm oils. This has the impact on country foreign exchange reserve as well as the suppression of local production of oilseeds like sunflower
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Sunflower Sector
Market Development Strategy






















November 2008

TABLE OF CONTENTS

ACRONYMS AND ABBREVIATIONS ---------------------------------------------------------------------------------- - 2 -
EXECUTIVE SUMMARY---------------------------------------------------------------------------------------------------- - 3 -
1.0 INTRODUCTION AND BACKGROUND ------------------------------------------------------------------------- - 4 -
2.0 MARKET AND PRODUCTION ANALYSIS---------------------------------------------------------------------- - 4 -
2.1 NATIONAL DEMAND AND SUPPLY-------------------------------------------------------------------------------------------- - 4 -
2.2 ANALYSIS OF MARKET SYSTEM ---------------------------------------------------------------------------------------------- - 6 -
2.2.1 Input Supply ------------------------------------------------------------------------------------------------------ - 6 -
2.2.2 Production --------------------------------------------------------------------------------------------------------- - 7 -
2.2.3 Bulking ------------------------------------------------------------------------------------------------------------- - 8 -
2.2.4 Seed Crushing ---------------------------------------------------------------------------------------------------- - 9 -
2.2.5 Refining ------------------------------------------------------------------------------------------------------------ - 9 -
2.2.6 Wholesaling / Exporting---------------------------------------------------------------------------------------- - 9 -
2.2.7 Retailing------------------------------------------------------------------------------------------------------------ - 9 -
3.0 CHALLENGES AND OPPORTUNITIES -------------------------------------------------------------------------- 11 -
3.1 PRODUCTION CHALLENGES--------------------------------------------------------------------------------------------------- 11 -
3.1.1 Quality Seeds ----------------------------------------------------------------------------------------------------- 11 -
3.1.2 Agronomic Practices -------------------------------------------------------------------------------------------- 11 -
3.1.3 Sales Practice ----------------------------------------------------------------------------------------------------- 11 -
3.2 PROCESSING CHALLENGES --------------------------------------------------------------------------------------------------- 12 -
3.2.1 Capacity and Supply Mismatch ------------------------------------------------------------------------------- 12 -
3.2.2 Oil Quality --------------------------------------------------------------------------------------------------------- 12 -
3.2.3 Marketing ---------------------------------------------------------------------------------------------------------- 13 -
3.3 OPPORTUNITIES --------------------------------------------------------------------------------------------------------------- 13 -
4.0 PROPOSED PROJECT ------------------------------------------------------------------------------------------------ 14 -
4.1 LESSONS LEARNT FROM PHASE ONE ---------------------------------------------------------------------------------------- 14 -
4.2 PROJECT OBJECTIVE ---------------------------------------------------------------------------------------------------------- 14 -
4.3 PROPOSED INTERVENTIONS-------------------------------------------------------------------------------------------------- 15 -
4.3.1 Seed Production and Marketing ------------------------------------------------------------------------------ 15 -
4.3.2 Improvement of Production and Sales through Contract Farming ---------------------------------- 16 -
4.3.3 Pollination for Increased Yield -------------------------------------------------------------------------------- 17 -
4.3.4 Business Plan for Refinery ------------------------------------------------------------------------------------- 18 -
4.3.5 Improvement of Oil Branding and Marketing ------------------------------------------------------------- 18 -
4.4 EXPECTED INCOME FROM INTERVENTIONS --------------------------------------------------------------------------------- 19 -
4.5 PROJECT PARTNERS----------------------------------------------------------------------------------------------------------- 19 -
4.6 RISK ANALYSIS ---------------------------------------------------------------------------------------------------------------- 20 -
4.6.1 Unfavourable Government Intervention-------------------------------------------------------------------- 20 -
4.6.2 Unfavourable Weather Conditions --------------------------------------------------------------------------- 21 -
4.7 PROJECT BUDGET ------------------------------------------------------------------------------------------------------------- 21 -







- 1 -


ACRONYMS AND ABBREVIATIONS

ARI



Agricultural Research Institute
CEZOSOPA

Central Zone Sunflower Processors Association
CTI



Confederation of Tanzanian Industries
DALDO
District Agricultural and Livestock Development Officer

ESRF


Economic and Social Research Foundation
EU



European Union
FAO


Food and Agricultural Organization
FGD


Focus Group Discussion
HCT


Honey Care Tanzania



MAFSC
Ministry of Agriculture, Food Security and Cooperative
MITM


Ministry of Industries, Trade and Marketing
NGOs


Non-Government Organizations
QDS


Quality Declared Seeds
R & D


Research and Development


RFA


Radio Free Africa
RLDC


Rural Livelihoods Development Company
SACCO’s


Savings and Credit Cooperative Organizations
SUA


Sokoine University of Agriculture
TASO


Tanzania Agricultural Society Organization
TBS


Tanzania Bureau of Standards
TCCIA
Tanzania Chamber of Commerce, Industry and
Agriculture
TFDA


Tanzania Food and Drug Association
TOSCI


Tanzania Official Seed Certification Institute
USA


United States of America

- 2 -


EXECUTIVE SUMMARY
RLDC intends to facilitate market development on the sunflower sector by incorporating lessons
from Phase One and testing the experience for dissemination and replication to the wider
sector. To achieve this goal RLDC carried out a market system analysis in the sector and the
following is the summary of the findings of the assessment.
Market and production analysis: National demand for edible oil is huge compared to
national supply, which has forced the country to largely rely on imported palm oils. This has the
impact on country foreign exchange reserve as well as the suppression of local production of
oilseeds like sunflower.
Market system analysis: The value chain in sunflower sector, that is from input usage,
through production and processing to marketing is compounded by a lot of technical and
institutional impediments due to the fact that, the sector is dominated by small producers and
processors who lack technical and financial capability to run it efficiently and profitable.
In order to improve the sector, RLDC has come forward with the following five areas of
intervention.
i.
Seed production and marketing – RLDC intends to provide soft grants through a
Challenge Fund of Tshs 150 Mill to seed producers. This will be used to establish
seed production farms, training of farmers in seed production and establishment of
extension services for seed production.
ii.
Improvement of production and sales through contract farming – RLDC
intends to take a proactive role in facilitating contract farming scheme by working
out the content of such contracts, securing agreements, and implementing the
contract. It is expected that the successful model will be disseminated to other
processors in a replication phase.
iii.
Pollination for increased yield – RLDC is planning to work with one partner to
increase the sunflower yields through improved pollination by bees. , A total of 40
colonised beehives will be installed in 10 acres and compared with other 10 normally
pollinated acres.
iv.
Business plan for oil refinery - In order to attain its vision of starting an edible oil
processing plant in the Central Corridor in the next two years, RLDC intends to help
interested investors build their capacity through training and advisory services.
v.
Improvement of oil packaging, branding and marketing – Since small
processors in Central Corridor lack marketing know how, RLDC intends to build their
capacity through training and implementation of marketing measures.
Project Budget-The project is envisaged to cost more than Tshs 500 Million,
where RLDC will contribute about 70 percent of the budget and our partners will
contribute the remaining 30 percent.


- 3 -


1.0 INTRODUCTION AND BACKGROUND
In its first program phase, RLDC supported 8 market linkage projects between small
sunflower farmers and processors/buyers. Experience from the first phase has shown
that sunflower is one of the largest agricultural sub-sectors in the Central Corridor and
consequently RLDC selected it for a sector-wide approach of facilitating market
development in the second phase.
Sunflower oil makes about 13% of the world edible oil production. The sunflower
(Helianthus annuus) originated from America and was brought by the Spanish to
Europe. It was later introduced in Russia, Ukraine, and Turkey which are the main
production countries apart from the USA and Argentina. Sunflower was introduced in
Tanzania during colonial times and it was found to grow in almost all parts of the
country. Interestingly, the crop grows well in the dry weather conditions of the Central
Corridor compared to other crops like maize and wheat. Sunflower in the Central
Corridor is also interesting from a pro-poor or welfare perspective as most of the
sunflower is grown by small farmers.
The project document at hand focuses on the testing and demonstration phase of the
sunflower market development. Although RLDC learnt a lot of lessons from the
supported projects in the first phase, there was not enough well-tested experience that
could be straight away disseminated and replicated. This is the main reason that this
project re-visits some of the issues that have already been addressed in the first phase
but now much more from a perspective of developing the entire sector.

2.0 MARKET AND PRODUCTION ANALYSIS

2.1 National Demand and Supply

FAO recommends a minimum annual per capita consumption of 5 kg of vegetable oil.
With a population of about 37 million people, Tanzania’s minimum national demand for
edible oil is expected to be about 185,000 tons per year, but the actual national
demand is probably much higher, although there are no reliable figures available.
Demand for vegetable oil is at least growing with the rate of population growth.

The production of oilseeds in Tanzania mainly focuses on ground nuts (40%), sunflower
(36%), sesame (15%), cotton (8%), and palm oil (1%). The palm tree nuts have the
highest oil content (46% – 67%) than its counterpart; however the palm tree requires
specific climatic conditions which are only found in some parts of Tanzania.
Nevertheless palm oil production is grown in Kigoma. While there is a large production
of other oilseeds such as groundnuts and sesame, there has been no substantial oil
- 4 -


production from these seeds, thus making sunflower oil the most important vegetable
oil produced in Tanzania.

While the production of sunflower oil seeds was varying between 75,000 to 100,000
tons from year 2001 to 2005, it increased in the last two seasons dramatically to more
than 350,000 tons (source MAFSC). The corresponding sunflower oil production
increased to almost 90,000 tons of oil per year (source MAFSC).

Year
Sunflower oil
(tons)
1999 / 2000
11,560
2000 / 2001
19,409
2001 / 2002
25,056
2002 / 2003
26,986
2003 / 2004
25,515
2004 / 2005
21,325
2005 / 2006
89,614
2006 / 2007
88,753

Although there has been a significant increase in edible oil production (sunflower, palm,
ground nuts, and sesame) in recent years, this increase has never exceeded 100,000
tons which in turn has forced the country to import vegetable oil in order to meet its
domestic demand. The import is mainly palm oil from Malaysia and Indonesia. These
imports are in form of crude, semi-refined, and refined qualities.

Year
Edible oil imports
Palm oil imports
2001
187,000
177,000
2002
157,000
147,000
2003
185,000
167,000
2004
160,000
155,000
2005
258,000
250,000
2006
282,000
268,000


Source MA-POTS, 2007

Based on the figures above, it can be concluded that annual national consumption of
vegetable oil is much higher than the FAO minimum consumption and / or there are
significant exports of vegetable oil to neighbouring countries. Whatever the case,
Tanzania is a net importer of vegetable oil which is a considerable drain on foreign
currency. Due to the high palm oil prices last year, the importation of vegetable oil has
become the second largest import item for Tanzania (after petroleum).

Although Tanzania is a net importer of vegetable oil, there are significant exports of
sunflower seeds and oil, mainly to neighbouring countries like Burundi, Rwanda, and
- 5 -


Kenya. There are a few exporters who managed to even sell small quantities of oil to
the EU, mainly based on their good quality.

A good proportion of the Tanzanian consumers prefer local sunflower oil to imported
oils (source ESRF study). This is noteworthy as local oil is often not refined and more
expensive than imported palm oil.

An important by-product of seed crushing is the sunflower cake. The cake
constitutes the rest of the input materials after the oil has been extracted. It makes
therefore about 45 kg in every bag of crushed sunflower seeds. As there is no
substantial animal feed industry in Tanzania, the cake is mainly bought by
individual livestock keepers and traders. Export of sunflower cake fluctuates
considerably.
2.2 Analysis of Market System

The Sector Map of sunflower production and marketing indicates the most important
actors in the sector.

EXPORT
NATIONAL
ANIMAL FEED
MARKET
MARKET
MARKET
MARKET
RETAILING
RETAILERS
SUPERMARKETS
WHOLESALERS
WHOLESELLING
EXPORTERS
REFINING
LARGE
PROCESSORS
REFINERIES
SEED CRUSHING
SMALL
EXTRACTION
PROCESSORS
BULKING
COLLECTION
TRANSPORT
POINTS
SMALL SCALE
MEDIUM SCALE
PRODUCTION
PRODUCERS
PRODUCERS
INPUT SUPPLY
SEEDS
FERTILIZER



2.2.1 Input Supply

Main inputs in sunflower production are seeds and fertilizer. The majority of small
farmers use traditional or recycled seeds whose germination rate is rather low. The
- 6 -


recent outbreak of fungus disease is also attributed to the use of recycled seeds.
Fertilizer, i.e. manure is not commonly used as it is expensive or not available.

Seed production and certification in Tanzania is governed by the Seed Production Act
2003, amended in 2007, and administered by the Ministry of Agriculture, Food Security,
and Cooperatives. There are currently 20 registered entities in Tanzania whose work is
being monitored by TOSCI. The process of seed production goes through three different
levels:
Breeder Seeds: They are produced in very small quantities by research centres,
like Ilonga
Foundation/Basic Seeds are produced by the Agricultural Seed Agency based
on the breeder seeds. These farms are Msimba farm in Kilosa and Naliendele
farm in Mtwara.
Certified Quality Seeds are then produced on the basis of foundation seeds by
other registered seed producers. In the Central Corridor producers licensed for
production of certified quality seeds are STRAD, a former project partner of
RLDC, and TANSEED.

As there are only two seed producers in the Central Corridor, the Ministry has
encouraged selected small farmers to produce Quality Declared Seeds (QDS) in
collaboration with the local District Councils.

There is a general shortage of quality sunflower seeds country wide. In the Central
Corridor it is estimated that only 35% of sunflower farmers use Certified Quality Seeds.
It is therefore important to increase the production and distribution of quality seeds so
that more farmers can improve the germination rate and subsequently the yield of
sunflower. From experience in previous projects and from the FGD’s, RLDC has learnt
that the use of quality seeds increases yield from 3 bags to 12 – 15 bags per acre. In
addition the oil processors prefer to buy the quality seeds because of the higher oil
content and pay therefore higher prices for these seeds. Altogether the higher yield and
the better prices result in a tenfold income increase for the small farmers (source RLDC
FGD’s in six regions).

QDS seeds have been sold to farmers for about Tshs 2,500 to Tshs 3,000 per kg and
about 4 to 5 kg of seeds are recommended per acre.

Many small farmers do not use fertilizer in sunflower production. This is mainly
attributed to the high cost or even non-availability of manure. However farmers who
used manure, reported higher yields per acre (source RLDC FGD’s in six regions).

2.2.2 Production

Sunflower production is predominantly done by small farmers with one to three acres.
There are however also medium or large scale farmers with more than a thousand
- 7 -


acres of sunflower. Based on the annual production of 2006 / 2007 and an assumed
yield of about 0.6 tons per hectare, it is estimated that an area of about 600,000
hectares has been cultivated with sunflower last season. The crop is grown all over
Tanzania but over 50% of sunflower is planted in four regions: Dodoma (22.5%),
Kilimanjaro (13.2%), Arusha / Manyara (13.1%) and Singida (8.9%). Other major
growing areas are Mbeya, Mtwara, and Rufiji. As the majority of sunflower farmers are
small scale farmers who grow one to three acres sunflower, it is estimated that about
150,000 to 200,000 small scale farmers are involved in sunflower farming.

The process of sunflower farming includes land preparation (ploughing), planting,
regular weeding, and harvesting. While medium and large scale farmers use tractors for
ploughing, such services are only available for very few small scale farmers. As
smallholder farmers use only hand tools they can only work on a maximum of two to
three acres.

Small sunflower farmers do not have storage facilities and are interested to sell their
crop soon after the harvest. Last season the price for one bag of sunflower seeds was
at that time about Tshs 25,000 while later increased to about Tshs 35,000 per bag. The
net income of farmers varies considerably depending on the yield. The RLDC FGD’s
revealed that the net income ranged from Tshs 11,000 per acre for farmers who did not
use quality seeds and apply modern agronomic practices to an amount of Tshs 110,000
per acre for those farmers who made the necessary investments. In some cases the net
income even reached Tshs 150,000 per acre

2.2.3 Bulking

Bulking is normally done by packing the oilseeds into sacks/bags and then storing them
in a warehouse or collection centre ready for selling. If farmers are not organized the
bulking is often done by middlemen who sell the crop later to the processors. This
practice normally results into low prices for farmers as their potential bargaining power
is not fully utilized.

In case farmers are organized and / or operate a collection point, they will do the
bulking themselves and claim back the price differential from the middlemen. The
collection point may be owned and managed by the farmer groups or the buyer. In the
last phase RLDC in collaboration with processors established about 15 collection points
in its sunflower projects. These centres are equipped with weighing scales in order to
minimize sales basing on volumes for better prices. Furthermore, each centre was
equipped with 500 -700 sunflower collection bags depending on the size of the centre
in order to reduce transaction costs to both farmers and buyers.

- 8 -


2.2.4 Seed Crushing

Most of the seed crushing is done by small oil mills that are able to crush 30 to 50 bags
of sunflower seeds per day. Medium scale mills can crush about 150 to 200 bags per
day. Based on sunflower seed and oil production in 2006 / 2007 and assuming 250
working days, it is estimated that all oil mills together crushed about 17,000 bags of
sunflower seeds on the average per day. The installed capacity of mills is higher but
unknown.

The process of crushing includes wheening and removing of foreign particles, crushing,
filtering, and oil storing. In many small crushing units the oil is then filled into plastic
containers and sold to the market. The sales price of the sunflower varies but it is about
Tshs 2,000 per litre if the oil is packed in a five litre container.

There are only few chemical extraction facilities in the country. In the Central Corridor
only the ABOOD group owns an extraction plant but does not operate it due to
insufficient input supply.

2.2.5 Refining

Refining includes neutralizing the oil with alkali, washing with water, dewaxing or
dewinterizing, bleaching with bleaching earth or activated carbon, and deodorizing with
steam or by heating. Only Murzah and Mount Meru oil millers do currently refine
sunflower oil.

2.2.6 Wholesaling / Exporting

Wholesaling is mainly done if the oil is taken up-country, to urban centres, or to
neighbouring countries. Normally the wholesaler places his orders directly with the
small or medium scale seed crushing company.

2.2.7 Retailing

Only well-packaged and labelled sunflower oil is sold in kiosks. Most supermarkets in
Dar es Salaam and Arusha do only stock refined sunflower oil. They also sell imported
sunflower oil. The average retail price for refined sunflower oil is between Tshs 3000 for
local oil and Tshs 5,000 or more per litre for imported oil.

In the centre of the market system of support services and business environment is the
core transaction along the value chain as described above. There is in summary a
mismatch between producers, processors, and consumers in the sunflower sector.
- 9 -


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