The sustainability of the HIT credit scheme in Tanga, Tanzania.

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HIT cows; have we been trying to plant tulips in the desert?

The sustainability of the HIT credit scheme in Tanga, Tanzania.

Wies van ‘t Slot

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HIT cows; have we been trying to plant tulips in the desert?

The sustainability of the HIT credit scheme in Tanga, Tanzania.

Groningen februari 2004 Wies van ‘t Slot

Student number: 1009842

First accompanist: Niels Hermes

Second accompanist: Heico van der Blonk

An assignment of: COS Frysland

Groningen, May 2004 Wies van ‘t Slot

Student number: 1009842 First supervisor: Niels Hermes

Second supervisor: Heico van der Blonk An assignment of: COS Friesland

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Preface

The “Wetenschapswinkel” of the faculty of Economics of the University of Groningen has been the link with my research. Elise Kamphuis has contacts with the COS Friesland who were looking for a student to conduct a research in Tanga, Tanzania. They were interested in this research because farmers from Friesland have been setting up several projects in Tanzania since 1997 in order to help the farmers in the Tanga region. These projects are all some how related to the HIT credit scheme system set up by the Dutch government in 1985. The results of the private Dutch initiatives are directly or indirectly dependant on the success of the HIT credit schemes. The link with the COS is that they are helping the investors behind the scenes with promotional activities and they are sharing their knowledge on funding with the farmers.

Johannes de Goede of the COS got me in contact with Lut Zylstra who was my connection in Tanga. He is the motor behind the HIT credit scheme system as well as behind the related projects funded by Dutch farmers.

The first of April 2003, the actual research started and from that point onwards, Lut Zylstra and Alnoor Hussein from the Tanga Fresh milk factory were a constant support for me. The milk factory is one of the private Dutch initiatives. They gave me a lot of background information and shared their knowledge gathered through years of experience with me. Apart from this we spend quite some nice evenings and had interesting discussions, which have been a great learning experience for me. Saskia van der Mast joined me to Tanga to do her own research for her thesis on dumping of milk powder. We had a more than wonderful time together and were of great support for each other during moments of insecurity about our work.

I kept in contact with my supervisor, Mr. Niels Hermes, by e-mail while I was in Tanzania. He has always been supportive about my own ideas, clear in his comments and his advice made me think and create my own solutions. My other supervisor has been Mr. Heico van der Blonk who I also have to thank for his efforts during the end of my thesis.

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Abstract

The subject of my research is the sustainability of the Heifer In Trust (HIT) credit scheme in the Tanga region in Tanzania. And in addition, what should change on the institutional level to better this sustainability. HIT credit schemes provide crossbred cows, on a small-scale basis, to poor farmers. The crossbred cows are a mix between Tanzanian Zebu cows and Frysian cows; Zebu cows get inseminated with sperm from Frysian cows. Every farmer receives one pregnant cow from the system and, the special characteristic of the HIT credit scheme is, that the farmers do not have to pay back in cash but in kind. They have to pay back their first female calf to the project. The advantage of a crossbred cow is that it provides more milk but on the other hand it is less well adapted to the harsh conditions in Tanzania than an indigenous cow. The institutional level in my research embodies the screening, monitoring and enforcement activities of the Tanga Dairy Trust (TADAT); TADAT is the trust that governs the HIT credit schemes at the moment.

The sustainability of the HIT credit schemes should be the focus point of TADAT from now on, instead of outreach, since the project should be sustainable from 2006 onwards when the Dutch government stops their financial support. The performance of the farmers determines the sustainability of the project because an improved performance results in higher pay-back and lower drop-out rates, which would make the project more sustainable. I have performed a financial (short-term) and a biological (long-term) performance analysis in order to determine the current sustainability.

The financial analysis enabled me to subdivide the farmers into unstable, stable and growth entrepreneurs. Unstable survivors have a very unstable enterprise for only a limited amount of time. Stable survivors have an enterprise that does provide the entrepreneur a modest living but the enterprise is rarely growing. The last group, growth entrepreneurs have managed to grow and own more than one dairy cow now. The outcome of the research is that 45% of the farmers are unstable survivors and have a very unstable enterprise for a limited time. In addition, 37% of the farmers earn enough to provide the necessary inputs at the moment and can be labelled as stable survivors. But they do remain in a vulnerable position since they have not accomplished to grow until now and sudden diseases (and veterinary costs) or death can interfere any moment. The resting 18% had achieved to own a growth enterprise; they own more than one dairy cow now. Furthermore, according to a performed correlation analysis the only way to make the HIT credit schemes more profitable appears to be taking it to a larger scale. Because as soon as a farmer gets more cows his profit will rise.

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This snapshot situation has been completed with a biological analysis, which determines the long-term performance. It indicates that 65% of the farmers will have stopped dairying in seven years. This means that in general, there is a downward negative spiral. So, farmers who are in group two now according to the financial analysis will degrade to group one and in the end will also stop dairying.

The conclusion of the analysis of the institutional factors is that the screening process should focus on farmers with more savings and the ambition to grow since these will be more able to use a crossbred cow to its full potential. Farmers with more reserves should be attracted since they can also support their vulnerable cow in difficult times and he will be more willing to invest and thus use the cow to its full potential. Most of the farmers who get a crossbred cow now are too poor to support it, they cannot bare the fluctuating costs and revenues. Second, as soon as a well performing farmer gets more cows he diversifies his risk and his profit will rise according to the financial performance analysis. One advantage of a more medium-scale farmer is that he has relatively lower costs per cow because of advantages of scope and scale. Another advantage is that by being a serious medium-scale dairy farmer the quantity and especially the quality of management will improve. It is true that the schemes, at first sight, will help less people but the farmers who do receive cow(s) will hire poorer farmers in return. In this way the poor people who may not make it as a dairy farmer, may still participate in dairy farming as a labourer. One way to achieve this is by donating two or more cows to one good farmer instead of donating every one cow to every farmer. The current monitoring process (the co-existence of DFG and PCS) is creating confusion, denying economies of scope and it is weakening the credit scheme system. The groups should co- operate in order to serve the farmers in an optimal way. Finally, regarding the enforcement activities, penalties are a good instrument to improve repayment rates, to motivate and to screen out less serious applicants.

My conclusion is that the focus of TADAT should shift to sustainability now instead of focusing on outreach. Furthermore a more medium-scale approach is necessary. In order to let the smallholders grow and get them out of their marginal position a more economic viable situation should be created. One where the farmer is not operating on the edge of profitability but one where the farmer can commercialise more seriously by owning more cows. The general conclusion is that you do not structurally improve a poor men’s life by giving him one vulnerable, expensive crossbred. The cow will only give minimal profits and the farmer will only be able to maintain it for a short period of time. We can not jump over some steps of economic development by giving a smallholder a costly asset, if you directly want to reach the

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poor you should use loans that fit the financial situation of the recipient. Thus the combination of a vulnerable crossbred and a medium-scale, “richer” farmer would be more profitable and would therefore make the project more sustainable.

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List of tables

Table 1: Percentage of population in poverty ...18

Table 2: Milk production estimates (1971 to 1999) in thousand tonnes ...20

Table 3: Projected production, demand (‘000 tonnes) and per capita consumption (kg)...21

Table 4: Dutch support to the Tanga region in Dutch guilders in millions ...24

Table 5: Prices of cows purchased by TADAT including transportation costs ...28

Table 6: Annual mortality rates recorded by SDSP in Tanga ...29

Table 7: Gross margin per cow per year in Tsh. ...32

Table 8: Calculations by J.T. de Wolff ...33

Table 9: Costs and revenues of a dairy cow...53

Table 10: Classification of the farmers ...53

Table 11: Fertility rates 2002 ...55

Table 12: Annual mortality rates recorded by SDSP in Tanga ...55

Table 13: Chance on raising a second heifer calf before the initial one dies or is too old. ...56

Table 10: Result of the classification in groups ...58

List of figures

Figure 1: The performance model of a farmer ...48

Figure 2: Frequency distribution of the profitability of HIT cows...58

Figure 3: Relation between project time and profitability ...60

Figure 4: Relation between amount of cows and profitability ...61

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Acronyms

AI Artificial Insemination

BFC Basic Farmer course

CAHW Community Animal Health Worker

DFG Dairy Farmer Group

HBU Heifer Breeding Unit

HIT Heifer In-Trust

KALIDEP Kagera Livestock Development Programme PCS Primary Co-operative Society

SDSP Smallholder Dairy Support Programme

TADAT Tanga Dairy Trust

TDCU Tanga Dairy Co-operative Union TDDP Tanga Dairy Development Program

TSDEP Tanga Small-holder Dairy Extension Program

Tsh. Tanzanian shilling

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Currency equivalents

1 Euro = 1030 Tanzanian shilling (April 2003) 1 Dollar = 980 Tanzanian Shilling (April 2003)

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Introduction

In 1985 the Dutch government started working with the Heifer In Trust (HIT) credit schemes in the Tanga region in Tanzania. HIT credit schemes provide crossbred cows, on a small-scale basis, to poor farmers. The crossbred cows are a mix between Tanzanian Zebu cows and Frysian cows; Zebu cows get inseminated with sperm from Frysian cows. Every farmer receives one pregnant cow from the system and, the special characteristic of the HIT credit scheme is, that the farmers do not have to pay back in cash but in kind. They have to pay back their first female calf to the project. The advantage of a crossbred cow is that it provides more milk but on the other hand it is less well adapted to the harsh conditions in Tanzania than an indigenous cow. Over the years, the project has grown from 5 farmers to 3479 reporting farmers in 2002 with a total of 9809 dairy cattle. Before 2001 the HIT credit schemes were governed and managed by the Tanga Dairy Development Programme (TDDP) of the Dutch government. But after the Dutch government decided to stop agricultural aid to Tanzania the project came under auspices of the Tanga Dairy Trust (TADAT), which is a trust that has to lead the project to its financial independence in 2006.

My intention with this thesis is to describe how sustainable the HIT credit scheme system is in Tanga. Therefore, my research objective is:

To determine the sustainability of the HIT credit scheme system in Tanga, Tanzania and in addition give suggestions on how to improve this sustainability.

The rational behind this objective is that the project has to function financially independent from 2006 onwards. Thus, from that point onwards the project has to continue without constant injections of new cows into the system. The farmers themselves have to raise their own cow, give their first female calf to the project and grow another female calf in order to replace the initial heifer. This breeding of cows is the basis of the project, the farmers have to be able to continue this cycle of returning heifers to the project in order to let the project continue with the same number of cows. If not, the project will shrink continuously and at the end, disappear.

I have measured the sustainability of the HIT credit scheme with a financial and a biological analysis. The financial performance analysis is a snapshot analysis; it determines whether the cow is profitable enough to be able to provide the necessary inputs for the next

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month. This analysis shows how sustainable the cow is in the short term. The analysis is based on the monthly revenues of a farmer based on his milk income and his constant costs.

Subtracting these two I have calculated a cow’s profitability per farmer. Furthermore, I have determined a minimal profitability, which a farmer needs in order to pay for the necessary expenses of the next month. This outcome states how many farmers will be able to continue providing the necessary inputs when their cow does not provide any profit for one month.

This issue is relevant because of the financial status of the recipients of the cows, they are poor smallholders without any savings, which means that they cannot rely on savings when the cow gets sick or does not give any milk during the end of its pregnancy.

The biological performance analysis determines the long-term sustainability: it determines whether the farmer is still dairying seven years from now. I will do this by determining whether, under the current circumstances, a farmer is able to guarantee the reproduction of its cow.

The next step is to determine what should change on the institutional level to improve the sustainability of the HIT credit scheme system. The institutional level in my research embodies screening, monitoring and enforcement activities, which are at the moment conducted by TADAT. The way these institutional activities are performed influences the performance of the farmers. I will give suggestions on how to adjust these activities but will also give some general recommendations that can improve the sustainability.

Summarising the previous discussion, the following points give an overview of the questions I will answer in this thesis:

o How sustainable is the HIT credit scheme project according to the financial and biological performance analyses?

o What are the current monitoring, screening and enforcement activities and how can these be adjusted in order to improve the sustainability of the project?

There are several reasons from different angels for this research. First, groups of Dutch private investors from Friesland are interested in this research objective. They have supported projects in Tanga, a milk factory and a Heifer Breeding Unit (HBU) that are dependent on the performance of the farmers. The milk factory is operating on the edge of profitability since the amount of milk the farmers bring is not growing although this was expected. Furthermore the amount of cows bought from the HBU by TADAT is minimal which also indicates that the

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enterprises of the farmers are not growing. Since I focus on the sustainability of the HIT credit scheme these two initiatives of the Dutch farmers are not specifically included in my research.

But during my research I got confronted with these issues and with their possible causes.

Therefore, I shortly mention the issue of the HBU in chapter two (p.20), while the issue of the milk factory comes forward in chapter six (p.58).

The second angle is that from 2006 onwards the project does not receive any donor aid anymore from the Dutch government since agriculture is no longer a priority. By then the project should have been completely privatised and thus financially independent. Up to now the main objective of the HIT credit scheme system has been outreach. This means that the project wants to help as many farmers as possible by providing them all one cow, instead of more cows to one farmer. As a result of the coming independence, the project should start focusing more on sustainability instead of on outreach. By focusing more on sustainability the financial viability improves and the project could continue, also without donor help. One solution to create a more sustainable project is to improve the financial and biological performance of the smallholders. Since with a better performance of the farmers the project will experience less capital erosion by farmers not paying back their initial heifer and possibly less monitoring and enforcement costs. In addition the sustainability of the farmers will become more important for the project itself and for the whole dairy infrastructure in Tanga.

The whole dairy infrastructure needs a certain critical mass of amount of cows and farmers, which is at the moment realised through constant injections of new cows into the system.

Because of donor support these constant injections have been possible until now but they will stop in 2006. Thus for the project itself as well as for the whole dairy sector it is necessary to improve the performance of the farmers and thereby the sustainability of the project.

My report starts with some background information on Tanzania, including a presentation of the dairy sector. This first chapter gives the reader a mindset to put the project in a context.

The next chapter gives an overview of the agricultural aid history of the country including the current situation of the project in Tanzania. The third chapter elaborates on the subject of HIT credit schemes in general. It gives an overview of other studies that were done on the financial and biological performance of smallholders that have received a crossbred. After these chapters I will discuss the related theoretical concepts of HIT credit schemes: microcredit and smallholders. The microcredit section starts with the reasons of existence of microcredit and it elaborates on the objectives and the main activities of microfinance institutions. Furthermore it determines the differences between microcredit and the HIT credit schemes and it

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elaborates on the lessons the HIT credit scheme project can learn from the microcredit experience. The smallholder section provides a framework around the recipients of the HIT credit scheme; the farmers in Tanga. The last section of this chapter is a discussion of the conceptual model of this research named: “Performance model of a farmer”. This theoretical chapter is followed by the methodology of my research. Finally, I present my results after which I am able to form a conclusion and present my recommendations.

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Chapter 1: Tanzania

This chapter provides a context to the research. It gives an idea of the place, time and agricultural situation in which the development project is functioning. The first part of the chapter is a general country profile while the second part presents a description of the dairy sector in Tanzania.

1.1. Country profile

History

In 1890 Tanganyika was divided between the English and the German. The sultan of Zanzibar cedes the lease of the Tanganyika mainland to Germany and Great Britain but claims a protectorate over Zanzibar and Pemba¹. But, unlike in Kenya’s fertile highlands, much of the country was said to be unsuitable for colonial settlements and only a few German settlers tried to make a living on mainland Tanzania. The so-called ice-cream war between the English and the German during WOI was not ended yet when the Germans surrendered in 1918 in Europe.

After their surrender Tanganyika came under English authority. In 1961 it became independent and was renamed Tanzania. One year later, in 1962, Julius Nyerere became president of the United Republic of Tanzania. At that time Tanzania was a country that had been ignored by the English, it had only one major export crop (sisal) and a failing education system.

Nyere is well known for his philosophy of socialism and self-reliance. These philosophies were later embodied in the declaration of Arusha², signed by the Tanganyika African National Union (TANU) in 1967 of which Nyerere was the president. One philosophy was that there could be no justification for social or economic inequities in Tanzania given the value placed by traditional African culture on community and family. The term “ujamaa” was chosen to describe his program of economic co-operation, harmony and self-sacrifice. People were re- organised out of their villages into “ujamaa” communities. Many peasants regarded this as nothing more than a compulsory resettlement and refused. But the government’s response to opposition was sometimes heavy-handed.

1 Ofcansky, T. P., R. Yeager, 1997, Historical dictionary of Tanzania, p.xx.

2 Hoebink, P., 1988, Geven is nemen. Nederlandse ontwikkelingshulp aan Tanzania en Sri Lanka, p. 75.

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Since 1986 Tanzania has been implementing a Structural Adjustment Program that, besides other things, lead to the liberalisation of markets. This started the transition period from being a centrally planned, state dominated system to an economy led mainly by market forces and operated largely by private enterprise.

Demographics

The majority of the population has a Bantu background, although a lot of mixing has taken place with Arabs and Persians. There are more than 130 Bantu tribes. But since none of them is extraordinary bigger or more powerful than the rest no tribe has succeeded in dominating politically or culturally.

The national language, Swahili, originates from African tribal languages like Bantu but also Arab, English and German influences are clearly recognisable. A word like “shikamoo”

(a greet with respect towards elderly people) shows Arabic influences while “schule” (school) shows the relation of Swahili with German. And “steshen” (station) is clearly subtracted from English. As the most important common language among Tanzania’s ethnic groups, Swahili has played a major role in unifying the people and solidifying national identity.

About 35% to 40% of Tanzanians are Muslim and between 40% and 45% is Christian.

The rest of the population follows traditional religions or are part of the small Hindu, Sikh or Ismailis communities. On Zanzibar 99% of the population is Muslim. Tanzania has an estimated population of 37 million people (2002) and an annual population growth rate of 2.6%³. This is one of the highest population growth rates worldwide.

Economics

The Tanzanian economy depends mainly on agriculture, 63% of the adults work in this sector⁴. The average annual income a person earned in 2002 was 280 USD⁵. As normal in poor families, 65 per cent of household expenditure was on food. Education and medical expenses each represent about only two per cent of the average household expenditure⁶.

3 http://www.landenweb.com/bevolking.cfm?LandID=183&TANZANIA, 15-09-2003.

4 National bureau of statistics Tanzania, 2002, Household budget survey, p. 4.

5 http://www.worldbank.org/data/countrydata/aag/tza_aag.pdf, 03-03-2004.

6 National bureau of statistics Tanzania, 2002, Household budget survey, p. 16.

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Table 1: Percentage of population in poverty

Dar Es Salaam Other Urban areas Rural areas

91/92 00/01 91/92 00/01 91/92 00/01

% of population under food poverty line

13,6% 7,5% 15,0% 13,2% 23,1% 20,4%

% of population under basic needs poverty line

28,1% 17,6% 28,7% 25,8% 40,8% 38,7%

Source: National bureau of statistics Tanzania, 2002, Household budget survey, p. 19

The poverty lines mentioned in table 1 define the minimum expenditure necessary to meet basic human needs. The food poverty line represents the expenditure necessary to eat sufficient calories. It is based on the food basket consumed by the poorest 50 % of all Tanzanians. The level is set so that the sum of calories is 2,200 per day, the minimum necessary for survival. The basic needs poverty line is higher than the food poverty line. It includes the cost of other essential items of expenditure, such as clothes and other non-food consumption. Although the percentages of poor people have decreased the absolute number of individuals living in poverty increased during the 1990s because of population growth. There are now 11.4 million Tanzanians below the basic needs poverty line compared with 9.5 million in 1991/92.

1.2. The dairy sector

In this sub-section I will give an overview of the dairy sector in Tanzania. The first part informs the reader on the subjects of livestock in general, crossbred cows and the importance of livestock for Tanzanians. The second part of this section is about the current milk production and demand in the country.

Livestock

Livestock production is one of the major agricultural activities. It provides about 30 per cent of the Agricultural GDP⁷. Approximately 99 percent of all livestock animals belong to

7 P. Chilonda, J. Otte & H. Steinfield, The use of national livestock statistics in sector planning: the case of Tanzania, In: NEI, 1999, Tanzanian livestock sub-sector study, Draft final report, p. 49.

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traditional smallholders, while professional bigger ranches and dairy farms only represent the remaining 1 percent⁸.

The traditional, indigenous, herd is Zebu. They are small, hardy and well adapted to local conditions, but milk yields are relatively low, therefore milk off take from this sub sector is very small. A crossbred (or improved cattle) is a mix between an indigenous race like Zebu or Boran and a European race like the Holstein Friesian, Jersey, Ayrshire or the Braun Schwiss⁹. The European races produce more milk but are less well adapted to Tanzanian characteristics. In fact a Zebu cow produces about 1-2 litres per day in her lactation period, a crossbred cow has an average of 5-6 litres while a Holstein Friesian in Holland can produce 26 litres¹⁰ per day.

Livestock makes a major contribution to rural development in developing countries. It produces food by converting rangelands resources (by eating grass) into products suitable for human consumption like milk and meat. Furthermore, it enhances crop production with its manure and it possibly provides cash income if a farmer sells his products suitable for human consumption. Sales of livestock products provide funds for purchasing crop inputs and for financing farm investments and livestock often forms the major, inflation-free, capital reserve of a farming household. Thus animals have an important asset function, which means that many smallholders prefer the flow products (milk, draught, manure) rather than the end products (meat, hides and skins) since selling their animals for slaughter entails the permanent loss of flow products.

Despite these positive contributions to agriculture and economic development, many formal livestock projects have failed to meet their objectives, with the result that donors are becoming more and more reluctant to support such projects. Given the perishable nature of animal products like milk and meat, development beyond household consumption requires processing facilities and a marketing structure that may not be readily available. By processing the animal products they can be kept for a longer period of time and the possibilities of where to market them and when to consume them expand. A marketing structure needs to be in place since as soon as, for example, the milk is processed it needs to be sold within a certain amount of time before it becomes sour. For other agricultural products like vegetables, tea or coffee the processing facilities are less important. Thus for agricultural

8 Wolff, J.T., 1997, A history of 25 years of livestock development in Tanzania, p. 87

9 Mdoe, N., S. Wiggins, 1997, Returns to smallholder dairying in the Kilimanjaro region, p. 80.

10 Interview Lut Zylstra.

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products like milk a whole dairy infrastructure should be developed by a donor otherwise a project where commercialisation is desired will not work. A complicating aspect of milk production is that there are significant discrepancies between demand and supply at specific times and locations, with a great problem being posed by the annual flush of milk from the Zebu herd during the wet season, when milk prices tend to crash and formal marketing channels become saturated¹¹.

In conclusion, the overall attitude of donors towards livestock projects is becoming less positive although the next paragraph will show that stimulation of this sector is important for the population of Tanzania.

Milk production

The traditional dairy sector, the sector where traditional races are used, forms an important source of milk for human consumption. According to table 2, nearly 75% of the milk was produced in the traditional mixed-farming system in 1999. Farmers in the traditional sector own Zebu cows on a subsistence level, they do not commercialise, while farmers in the dairy sector are producing milk on a commercial basis. The increasing relative importance of the dairy sector, where crossbred cows are used, can be observed from the fact that in 1984 only 11% of the milk production came from this sector while in 1999 it was already contributing 25%, representing growth in relative importance of 5.7% per annum. Furthermore it states that the importation of milk powder is decreasing, which is positive since import is draining away foreign exchange. In conclusion, table 2 shows that the growth of the dairy sector is diminishing the need for import which is stimulating the Tanzanian economy.

Table 2: Milk production estimates (1971 to 1999) in thousand tonnes

1971 1978 1984 1993 1999 Growth rate

‘84-‘99 (%)

Total milk production 292.0 441.0 491.5 596.0 715.5 2.5

Milk from traditional sector 280.0 420.0 437.5 476.0 535.5 1.4

Milk from dairy sector 12.0 21.0 54.0 120.0 180.0 8.4

% from dairy sector 4.1 4.8 11.0 20.1 25.2

Milk importation 73.0 89.0 35.0 15.0 5.0 - 12.2

Source: NEI, 1999, Tanzanian Livestock sub-sector study, Draft final report, p. 50

11 SDSP, 2002, Mid Term Review Mission, p. 5.

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Milk availability is one of the major contributors to the alleviation of malnutrition among the more vulnerable sections of society, most notably children. The excessive consumption of animal products, which is now recognised as a serious health hazard, is primarily a concern in affluent societies, while in developing countries consumption levels remain low.

Table 3: Projected production, demand (‘000 tonnes) and per capita consumption (kg) Production Demand¹² Deficit Per Capita cons.

2000 2015 2015 2015 1996 2015

Cow milk 680 965 1,209 244 22,2 22,9

Source: ¹ P. Chilonda, J. Otte & H. Steinfield, The use of national livestock statistics in sector planning: the case of Tanzania, In: NEI, 1999, Tanzanian livestock sub-sector study, Draft final report, p. 51.

The nutritional level, only in terms of litres of milk consumed, will slightly grow between 1996 and 2015. In 1996 the capita consumption was 22,2 litre while it will be 22,9 in 2015 according to the projections in table 3. In order to achieve a substantial better nutritional level of the population the production of livestock products would not only have to keep pace with human population growth, which is assumed to be 3% in the model used for table 3, but should grow with even a higher percentage. The objective of the Tanzanian government, with respect to milk production, is to improve the nutritional level to the level of 26 litres per person per annum and to eliminate imports¹³. These prospects will not be met if the production grows like projected in table 3. In conclusion the production of fresh milk needs to grow relatively faster than the population grows in order to improve the level of nutrition of the Tanzanians.

12 Authors estimation based on the projected per capita consumption and assuming that human population continues to grow at 3% per annum.

13 NEI, 1999, Tanzanian Livestock sub-sector study, Draft final report, p. 52.

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Chapter 2: Aid

In order to provide more context to this research the history of aid between The Netherlands and Tanzania will be shortly presented. Aid is an international operation channelling tens of billions of dollars to developing countries each year and employing large numbers of people in a multitude of organisations¹⁴. Major aid activities originate out of two major happenings in our history. The first one is the ending of the colonial period. The colonial powers, especially Britain and France, continued supporting their colonies after their independence. Second, during and after the Second World War, several important development institutions were created. The UN (in 1943), Oxfam and also the World Bank began with loans for war reconstruction to European countries.

The first paragraph of this chapter describes the Dutch agricultural aid flows towards Tanzania. The next paragraph presents the history of the HIT credit scheme system in Tanga and it describes the system itself. At the end of this chapter a status quo of the credit scheme system in Tanga is given.

2.1 Agricultural aid to Tanzania

The aid relation with Tanzania dates back from the 1960’s. During this period aid was on an ad hoc basis in the form of loans for the purchase of capital goods or grants for technical assistance. Tanzania was selected as a priority country when the Netherlands decided to focus their aid on a limited amount of countries in 1969. In the following years the flow of Dutch aid to Tanzania rose significantly. In the beginning of the seventies funding was around 15 million guilders per year, in the mid seventies it had risen to 50 million and in the end of the decade to almost 100 million guilders per year. During the eighties this level of aid continued growing until around 150 million at the end of the decade¹⁵. During the nineties the key words in Dutch bilateral development co-operation were "poverty alleviation" and "economic self- reliance". The amount of aid rose exponential, during the period of 1992 until 1997 the Dutch government spent 329.3 million guilders on aid to Tanzania¹⁶.

14 Hjertholm, P., H. White, 2000, Foreign aid in historical perspectiv, Backgrounds and trends, p. 80.

15 IOV, 1992, Sector aid and structural adjustment: The case of sugar in Tanzania, p. 82.

16 http://www.jica.go.jp/english/evaluation/report/pdf/2001_06_02.pdf , 20-02-2004.

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In 1975 The Tanzanian Government started an ambitious dairy program with the help of the World Bank; the Dairy Development Program¹⁷. The goals of the program were to substitute the import of milk powder by stimulating milk production, and by stimulating the milk production also improve the level of nutrition and create income-generating opportunities. The Dutch government followed the plans of the World Bank and donated more than 25 million Euro to the Tanzanian dairy sector from 1976 until 1985¹⁸. The Dutch support in this period consisted mainly of management assistance, investments in large farms (parastatals), heifer breeding units, a training institute and recurrent cost financing¹⁹. During the large-scale period which lasted from 1975 until 1985, 87% of the investments went to 2%

of the cows on the state owned enterprises, although only 10% of the marketed dairy products came from these parastatals and almost all of these parastatals worked with huge losses. There are several reasons for these losses. First, they performed far below capacity because of low milk production per cow, inadequate fodder supply and low selling prices of milk, set by the government, which led to an income that was too low to meet production costs. Furthermore the machinery was too advanced, which resulted in many operational problems, and there was a shortage of crossbred dairy animals and poor management in general²⁰. As soon as subsidies were reduced or withdrawn, the plants failed.

Advantages for the donors of large-scale projects are that they are easier to manage than small-scale projects. Furthermore they have fast spending possibilities and they have a larger delivery component, of which Dutch producers of machinery could benefit²¹. After the failure of the large-scale approach focus started shifting towards small-scale projects. The new policy emphasized the production of crossbred heifers for distribution to small-scale dairy farmers. In table 4 the difference between the amount of support to the large-scale projects (1975-1985) and for the small-scale projects (from 1985 onwards) is obvious; the large-scale projects were much more demanding.

17 Kurwijla, L. R., J. Henriksen, 1995, Milk supply to urban centres in Tanzania with particular reference to the city of Dar Es Salaam, p. 2.

18 Hoebink, P., 1988, Geven is nemen. Nederlandse ontwikkelingshulp aan Tanzania en Sri Lanka, p. 103.

19 Tinga, E., 1997, Development cooperation and poverty reduction, four case studies in Tanzania, p. 66.

20 Ibidem, p.66.

21 Hoebink, P., 1988, Geven is nemen, p. 104.

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Table 4: Dutch support to the Tanga region in Dutch guilders in millions

1975-1985 1985-1991 1992-1996 1997-2001 2001-2003

27 8 4.78 5.88 4.7

1975-2001: Source: Tinga, E., 1997, Development cooperation and poverty reduction, p. 66-72 2001-2003: Source: TADAT/TDDP, Annual Progress reports 2001, 2002 & 2003

2.2 Aid to the Tanga region

In 1985 the Dutch started with their small-scale approach in Tanzania. A rural development program was established, named “livestock assistance program”. The project in Tanga was named Tanga Smallholder Dairy Extension Program (TSDEP). Another project in Tanzania was started in Kagera and named Kagera Livestock Development Project (KALIDEP).

The smallholder approach is characterized by zero grazing dairy farming, which means that the cattle is confined to a relatively simple cow shed and the farmer has to bring food and water to the cow. An advantage of this approach is that it prevents environmental degradation through over-grazing. The requirements for the farmer were that he had to establish an acre of fodder, build a shed, buy some necessary drugs and attend a two-week training course²². In this first period the provision of crossbred cows was on cash basis, meaning that the farmers had to pay for the cows. This implied that only farmers with a certain level of welfare could afford a cow. The focus was on the farmers themselves. The activities were mainly recruiting and educating the farmers.

In 1990 this approach changed into a more sectoral approach and was renamed the Tanga Dairy Development Program (TDDP). The difference is that the project had a wider focus now. First of all the project started with the HIT credit schemes, which enabled farmers with less capital to also own improved dairy cattle since no cash was involved anymore. HIT schemes generally distribute female dairy animals to farmers on the condition that they repay to the project the first heifer (female) calf born. The animals returned to the project are

"passed on" to additional farmers who must also repay the loan in the same manner. Thus the heifer could be spreading wealth along a chain of rural farmers.

Furthermore the sectoral approach wanted to support and strengthen the whole dairy sector instead of only the farmers themselves. The project started to provide artificial insemination, veterinary services and it started to organise the milk processing and marketing

22 Tinga, E., 1997, Development cooperation and poverty reduction, p .67.

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process²³. The idea behind this approach was that without a farmer being able to sell his milk or without the farmer being able to feed his cow all other initiatives are worthless. In order to organise the farmers primary co-operative societies (PCS’s) were set up. The PCS’s organised the farmers into groups and the farmers themselves governed them. Furthermore they organised the local collection of milk from the farmers into one depot and they gave the farmers a voice by organising them. Currently there are nine societies with over 2500 members.

End of TDDP, beginning of SDSP

In 2000 the continuation of the TDDP program started to become unsure. On initiative of the Dutch embassy in Dar Es Salaam negotiations between the Tanzanian and the Dutch government started regarding the choice of sectors that would receive future aid from the Netherlands. The Tanzanians asked that it, among others, should be given to the agricultural sector. The Dutch, however, declared that not all sectors proposed by Tanzania could be given aid: ultimately, the ‘roads’ and ‘agriculture’ sectors were rejected. The sectors education;

local governance; health and water supply; and private sector development were the new focus areas. With regard to the livestock breeding projects, the Dutch Embassy suggested that these should be temporarily continued under the name of aid provided to the private sector.

This was done to give these projects a chance of survival after the ending of donor support. In Tanga the project was named Tanga Dairy Trust (TADAT). The transition period should last until 2006. The whole initiative is under auspices of the Smallholder Dairy Support Program (SDSP) that started operations in January 2001²⁴. The objective of the SDSP is “the reduction of poverty in regions of intervention on (Tanga and Kagera) through the creation of additional income and improved diet generated by a sustained/increased smallholder production and consumption of milk and milk produces”²⁵.

A substantial part of the budget of the SDSP goes to the attracted consultancy company. In 2000 the Dutch embassy started a tendering process to attract a consultancy company in order to assist the SDSP during the privatisation process. Arcadis BMB, a Dutch- based consultancy company, won the tendering process and signed a contract for USD

23 SDSP, 2002, Report of the mid term review mission, p. 5.

24 Idem, p. i.

25 TDDP, 2001, Annual Progress report, p. 1.

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1.248.922 with the Ministry of Foreign Affairs of the Netherlands²⁶. The contract was supposed to terminate at the end of 2003 but currently there are negotiations between Arcadis BMB and the Dutch embassy on extending the contract for another two years²⁷. The total budget of the SDSP was 4.7 million Euros of which TADAT receives 325.019 Euro²⁸, but TADAT has requested substantial deficit support for the coming two years. The distribution of the budget between the SDSP itself, the consultancy company and TADAT means that a big part of the Dutch aid money stays in Dar Es Salaam for the higher management instead of actually using it to strengthen the whole credit system structure in Tanga or Kagera.

2.3. Situation in Tanga

Until the end of 2005 TADAT is organising the HIT credit scheme system in Tanga. By then it has to hand over its development activities to a regional farmer-based organisation, with the ownership and assets of the credit schemes having been transferred to dairy farmer groups or their representative bodies²⁹. In this sub-section the structure of TADAT, its goal, the status of the dairy sector and the aspect of milk marketing in Tanga are presented.

New dairy farmer groups³⁰ (DFG’s) have been set up next to the already existing PCS’s, which were formed under TDDP and which consequently also are an outcome of the Dutch aid. The PCS were formed since 1990, their initial task was to organise the local collecting of milk from the farmers into depots. Later on the variety of their tasks expanded, they also became involved in the selection of farmers. The DFG, on the other hand, have been set up since 2000. These groups actually perform the same activities as the PCS, except the fact that the DFG’s do not collect and sell any milk. In reality, every village has one dominant group, either the PCS or the DFG. The dominant group is performing all tasks with the exception of milk collection; this task is only performed by the PCS’s. An overview of the tasks of TADAT and the DFG and also the differences with the PCS’s can be found in appendix 2. At the end of 2002 there were 193 DFG’s at different stages of formation, compared to 148 at the beginning of the year. During this period 14 groups died and 59 new ones were formed³¹. These figures show the current stability of the DFG concept; around 25%

26 ARCADIS BMB, Assignment document, p.1.

27 Interview Dhr. Tempelman, RDE.

28 SDSP, 2002, Report of the mid term review mission, p. IV.

29 Idem, p. 11.

30 Appendix 2.

31 TADAT, 2002, Annual Progress Report, p. 4.

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of the newly formed groups die within a year. This means that a lot of money and time is being put in creating groups of which 25% die within the first year.

As an umbrella concept 15 divisional networks have been established to govern the DFG’s. These divisional networks should provide dairy animals, training, extension services, breeding services, animal health and veterinary services and dairy inputs to the DFG’s as soon as TADAT finalises its activities. The plan is to develop the divisional network structure first to a district level and later to a regional level, where links with national bodies such as the Tanzania National Dairy Development Board will be established. At present, there have been some meetings to give shape to the organisation at district level but no concrete improvements have been made. No activities have been undertaken yet to structure the organisation at the regional level.

TADAT’s focus: outreach

The current focus of TADAT is outreach. By focusing on outreach an organisation wants to reach as many people as possible which, in reality, results in the need to constantly attract new farmers and buy more cows. Before being able to distribute the cows to the selected farmers TADAT needs to buy its cows somewhere since is does not have its own Heifer Breeding Unit (HBU). In Tanga there is a private Dutch HBU, named Holland Dairies, which has been set up on request of the Dutch embassy in 1998. TADAT could buy its cows here but it seems like TADAT is ignoring the possibilities of this initiative. Since, during the past years TADAT has purchased heifers from Mzeri ranch, which is situated inside the Tanga region, but they also purchased cows from ranches in Iringa and Sumbawanga. Because of transportation problems, only 15 of the purchased animals had been collected in 2002. This is no surprise looking at the quality of the roads and the huge distances; Iringa is around 600 kilometres of Tanga and Sumbawanga more than 1000. The argument of TADAT is that the cows of Holland Dairies are too expensive. But as can be seen in table 5 the prices are the same and Iringa is even more expensive. Mzeri is cheaper but these cows are only 8-12 months while the other purchased cows are three years old and pregnant.

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Table 5: Prices of cows purchased by TADAT including transportation costs

HBU Price for one cow

Holland Dairies 400.000

Mzeri 280.000 Iringa 450.000 Sumbawanga 400.000

Arumeru 400.000

Source: Documents of TADAT and Holland Dairies

The incoherence of this situation lays in the fact that first the Royal Dutch Embassy stimulates private development by asking for the setting up of a privately owned HBU, Holland Dairies in Tanga. But two years later TADAT does not buy any heifers from this private initiative and instead travels around whole Tanzania to buy the heifers. The reasons behind this policy are unclear but the damaged relation between the policy makers of TADAT and the policy makers of Holland Dairies could be one reason. Anyway this situation is not serving the farmers in an optimal way. Part of the last Dutch aid money is spend on the transportation of cows with a genuine risk that they do not arrive instead of buying them in Tanga.

Status of the dairy sector

The long-term sustainability of the crossbred population depends upon sufficient quality heifers being available to replace culls, expand existing herds and initiate herds by new farmers entering the system. In Tanga long calving intervals are reported and high mortality rates, which is giving cause for serious concern. Reasons for these are diseases (in relation with the tropical climate), lack of breeding bulls and lack of managerial expertise. The managerial expertise is important in the case of crossbred cows since they require special attention because they are not completely adapted to African circumstances. Furthermore the calving interval as a whole is still increasing. In 2001/2002 it increased from 490 to 517 days³². But anyway TADAT predicts that the mortality rates and calving intervals can be strongly reduced as can be seen in table 6. But the differences between the projections of

32 This, although the extent of the problem is being artificially reduced by the practice of the elimination of all data sets with a calving interval of more than 730 days. Although this is the case for almost 12% of the farmers studied in Tanga (SDSP, 2002, Report of the mid term review mission, p. 19).

33 SDSP, 2002, Report of the mid term review mission, p. 21.

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TADAT and the current situation according to the SDSP given in table 6 bring into question the reliability of the projections of TADAT.

Table 6: Annual mortality rates recorded by SDSP in Tanga

2001/2002^a TADAT projections 2005

Cows 3.5 4.0

In-calf heifers 2.5 4.0

Bulling heifers 4.4 -

Female calves 14.7 6.0

Bull calves 22.4 -

Calving rate 71 % 48%

a. Mortality rates established at farmer group level during SAS conducted by SDSP, May 2002 Source: SDSP, Report of the mid term review mission, p. 19.

In addition, 15% of the heifer calves were undernourished in 2001/2002 according to the SDSP. The underfeeding of calves affects growth, future milk production and the potential of female calves to qualify as pass-on heifers, which means that also this figure is a major concern for the dairy sector.

As mentioned before, one reason for the long calving intervals is the lack of breeding bulls or the availability of artificial insemination (AI). TADAT relies heavily on AI for breeding high quality heifers and generally imported semen is used. But in Tanga there are only five semi-private AI service providers. The use of homebred bulls is not widespread;

there are only 85 farmers in Tanga owning bulls, although TADAT projected an output of 263 breeding bulls in 2002. This means a bull: cow ratio of 1:31 in 1999, which has worsened to 1:37 in 2002³³. As a result of this ratio, breeding bulls or AI materials are not always available when wanted. Prices are reasonable low now since they are partly subsidized. When taking into account that the mentioned calving rates, mortality rates, the percentage of undernourished calves and the lack of breeding bulls is the situation after almost 20 years of Dutch aid, it can be doubted that this will improve when aid ends in 2006. It is more a question of whether certain services can continue in the same way they do now. The

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inseminators are not completely privatised yet and whether the market demand will be big enough to make their business profitable is still the question.

Milk marketing

In 1997 a milk factory in Tanga was built with the help of a group of private Dutch investors, Frisiana Invest. The project was named Tanga Fresh Limited. The goal of Tanga Fresh is to support the farmers in the Tanga region by stimulating the dairy industry. The group has chosen to do this by building a milk factory so that the farmers can always sell their milk.

Their opinion is that it is no use to provide crossbred cows to farmers without organising the marketing side. Thus, the milk factory is a necessary private extension of the credit scheme system. Because of the factory and the organised structure of the region, the PCS’s and the Union (TDCU), farmers have a secured market for their milk. Tanga Fresh never refuses milk and offers reasonable prices. Since 2002 they achieved to buy the milk for a fixed price.

Before this prices were fluctuating depending on the availability of milk and on market demand³⁴. Prices per PCS differ, depending on distance and amount of milk delivered. By now about 2500 farmers owing 12,000 dairy cattle deliver their milk to Tanga Fresh, together they produce over 4 million litres of milk per year in 2002³⁵. The position of Tanga Fresh is an exceptional one since it is a commercial factory but on the other hand the only reason it was created was to support the farmers in the region. This explains why it picks up small amounts of milk from remote places and guarantees the take-off of milk from the PCS. These principles make Tanga Fresh a high turnover factory, 1.000.000 Tsh. per year, but with only a small profit margin because of their high transportation costs.

34 TDDP, 2001, Annual Progress report, p. 13.

35 Tanga Fresh, 2002, Fact sheets.

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Chapter 3: The HIT credit scheme

Heifer-in-Trust credit schemes are credit schemes that spread out pregnant heifers to smallholders as a loan. The farmers have to repay by returning their first female calf to the project. Raising the calf before returning it can be seen as interest on the loan. The mother becomes theirs as soon as they have repaid.

HIT schemes, theoretically, seek both to protect and to increase income by providing low-income farmers with access to relatively high value female livestock³⁶. Some positive reflections on HIT schemes are that they can improve a person's endowment by owning an animal that can contribute to improved nutrition and provide valuable by-products such as manure. Second, the schemes can increase income through the production and sale of dairy products and meat and the use of animal draught (in the case of cattle)³⁷. Finally, during difficult times such as drought, surplus animals can be sold to avoid starvation or debt³⁸. Besides the receiving farmer the credit scheme also has a positive spin off for the region by creating employment opportunities³⁹.

Also more critical reflections on HIT are widespread. A qualitative research of Swai (2000) mentions poor feed availability, poor milk marketing, diseases, high input costs, infertility and low production as major constraints for the profitability of a cow⁴⁰. Also the TSDDP Evaluation report (1996) views the initial investments and the continuous maintenance requirements, the constant flow of inputs a crossbred cow needs and the extra attention when the cow gets sick, as obstacles⁴¹. These pitfalls appear to be the cause of the low payback and high dropout rates the project suffers. The point of view of the management level of the project is that high monitor and extensions costs are a drawback; in Tanga one farmer costs about Tsh. 60.000 per year on monitoring and extension⁴². In 2002 335 new farmers were attracted but also 151 dropped-out. In addition, 35 farmers dropped out before

36 Afifi-Affat, K.A., 1998, Heifer-in-Trust: a model for sustainable livestock development?, p.1.

37 Rutamu, I.B., 1996, The features and future of Heifer In Trust credit schemes in Tanzania, p. 95.

38 Afifi-Affat, K.A., 1998, Heifer-in-Trust: a model for sustainable livestock development?, p. 1.

39 Swai, E.S., 2000, Social economic aspects of Tanga small-holder dairy farming system, p. 13.

40 Ibidem, p. 12.

41 TSDDP, 1996, Evaluation report, p. 8.

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passing on their repayment heifer, which is a failure rate of over 10%⁴³. Thus, to continue the scheme at a certain level, a periodic injection of pregnant heifers from outside the system is necessary to compensate for non-repayment due to death, diseases or infertility or for losses in quality due to stunted growth⁴⁴. The previous actually states that the project is not sustainable at the moment. This erosion of invested capital is one of the major drawbacks of the system from the management’s point of view⁴⁵. In summary, the results of the project are far from satisfying.

Profitability of smallholder dairying

Since the nineties some studies started investigating the profitability of smallholder dairying.

In the following paragraph I will give a short overview of some studies and their outcome. I will start with comparing two studies that both calculate the gross margin per cow. These studies define gross margin as the difference between the costs made for the cow and the amount he brings in, thus the profit per cow per year.

Table 7: Gross margin per cow per year in Tsh.

Gross margin per cow per year 1. MOAC, SUA & ILRI 455.983

2. J.T. de Wolff 175.000*

Source: MOAC, SUA, ILRI, 1998, The Tanzanian dairy sub-sector, A rapid appraisal, vol. 3, p. 27. (data from 1995) & Wolff, de, J.T., 1997, A history of 25 years of livestock development in Tanzania, from the late 60’s till the mid 90’s, p. 253.

The first study in table 7 calculates a high gross margin of 455,983 Tsh. per year⁴⁶. This research also values manure and increase in herd value as a revenue. By increase in herd value the author means the value of the herd is increasing in a year because of growth or newborns.

My opinion is that this research overvalues these revenues since manure does not get sold but is maybe used to enhance the crop production. Increase in herd value is mentioned besides the revenue “sale of animals”, which is a true revenue. Increase in herd value would suggest that the value of the herd increases throughout the years, but if increase in herd value exists it is

43 TADAT, 2002, Annual Progress Report, p. 12.

45 Wolff, de, J.T., 1996, Some reflections on HIT, Proceedings of the Dairy Development Conference, p. 84.

46 MOAC, SUA, ILRI, 1998, The Tanzanian dairy sub-sector, A rapid appraisal, vol. 3, p. 27.

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not a revenue. Farmers cannot use this for the maintenance costs of his cow. And in addition the question is whether increase in herd value exists. Other authors assume that increase in herd value is minimal since they assume that herd numbers and value will remain constant⁴⁷. Another critique on this research is that it uses assumptions on milk production per cow (7.5 litre per cow per day) although this variable could be the major fluctuating obstacle for the profitability of a cow. The second research of table 8 shows a much lower gross margin per cow. Here the only variables influencing the cow-related income are milk income and sale of offspring, which is more realistic than the previous research. But also these data are based on theoretical models and not on real farm data. The author does realise that in reality there is a big difference from farm to farm and he mentions that especially fertility and diseases are important factors influencing the profitability of the dairy farm⁴⁸.

Another study by de Wolff (1997) does not calculate gross margin per cow but it calculates the cost price of a cow per litre; his outcomes are presented in table 8. He acknowledges that these are costs and incomes from dairy farmers in a rather commercial environment (producing 10 to 50 litres per day). His own remark is that not an easy estimation can be given of the cost price per litre and amount of litres produced and indeed his outcome shows wide ranges of costs prices per production system. One reason for this is that the author does not use real farm data but instead bases his calculations on a number of different researches using differing assumptions and survey methodologies, which causes different outcomes. Because of these wide ranges it is hard to base profit calculations on them.

Table 8: Calculations by J.T. de Wolff

Milk production system Estimated cost price per litre Estimated amount of milk in litres per manday

Pastoralist system 24 to 40 Tsh. 5 to 15 litre Dairy farming integrated with

coffee and bananas

50 to 100 Tsh. 5 to 15 litre Dairy farming integrated with

maize and other annual cash crops

75 to 150 Tsh. 5 to 15 litre

Commercial dairy farming 80 to 200 Tsh. 10 to 50 litre

Source: Wolff, de, J.T. 2002, Economics of dairy farming for the various categories of dairy farmers, together with their most important requirements and their providers for a profitable dairying, p. 6.

47 Wolff, de, J.T., 1997, A history of 25 years of livestock development in Tanzania, p. 254.

48 Ibidem, p. 254.

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TDDP itself calculated the cost price of one litre of milk to be 129 Tsh. while a research of De Jong (1999) concluded the cost price to be 219 Tsh. Also the TDDP and De Jong used quite a number of assumptions in their calculations⁴⁹. They, for example, make assumptions regarding milk production. Yet, fluctuations in milk production are quite often the main reason for the low profitability of farmers.

The last research I want to refer to is a research of K.A. Afifi-Affat⁵⁰. He presents a model that calculates whether a HIT scheme can be sustainable or not. According to the article the scheme can only be sustainable on project level if by the time all initial heifers have died, the project has received the same amount of heifers in repayment. At participant level a scheme is sustainable when all participants who have repaid their loan have also raised an additional heifer calf with which to replace the foundation heifer when it dies or is culled. The two major control variables are calving rate and mortality rate. His conclusion is that HIT schemes will be unsustainable on project level when only one heifer calf is repaid since some heifers die before giving birth to a heifer calf. Yet, if the project demands more than one heifer calf the scheme gets less attractive on participant level.

Conclusion

Some researches have investigated the profitability of a dairy cow for a smallholder, yet, these studies do not use real farm data is used. Moreover, unrealistic assumptions determine the outcome. And since the results of the different researches give a wide variety of answers on the question of what could be the cost price per litre of milk or the gross margin per cow no sensible average can be taken. This average would help me determine the profitability of a cow for a smallholder. This research is therefore using its own financial performance analysis in order to determine the profitability of a cow for smallholders. The reality is that TADAT has to deal with low payback rates and high dropout rates. So the question rises why are cows dying, getting sick and not reproducing themselves? Could it be that a crossbred is not profitable enough for a smallholder, could it be that the profit is not enough to secure the necessary inputs a crossbred needs? Since other studies do not give an answer on the profitability of a crossbred for a smallholder I have conducted a financial performance analysis in chapter six.

49 Wolff, de, J.T. 2002, Economics of dairy farming for the various categories of dairy farmers, together with their most important requirements and their providers for a profitable dairying, p.7.

50Afifi-Affat, K.A., 1998, Heifer-in-Trust: a model for sustainable livestock development?, p. 7

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Chapter 4: Theoretical Framework

In this chapter I present the theoretical framework that supports my research subject. In the first section a framework around microcredit is presented since HIT credit schemes fall under the bigger name of microcredit, they are microcredit in-kind. The next section is on the related concept of smallholders. In the last section I present my conceptual model.

4.1. Microcredit

In this sub-section I will relate HIT credit schemes to microcredit and determine what the HIT credit schemes can learn from the microcredit experience.

Traditional banking

In general, a borrower has more information on his situation and intentions than the lender has which makes lending money risky. This inequality of information between the lender and the borrower is called asymmetric information. A situation of asymmetric information can result in two problems: adverse selection and moral hazard. Adverse selection occurs when potential borrowers who are the most likely to not repay their loan due to their intentions or weak financial situation are most active in trying to get credit, which makes them most likely to be selected⁵¹. The other problem created by the asymmetric information issue is moral hazard.

Moral hazard is the risk (hazard) that a borrower engages in activities that are immoral from the lenders point of view since these activities reduce the chance of the borrower paying back his credit⁵².

Screening and monitoring activities produce information on the applicant and can help banks to overcome the problems of adverse selection and moral hazard. Banks try to screen out high-risk borrowers by gaining information on their financial situation and intentions.

During the screening process the applicant has to fill out standardized forms, which will provide clearness on the financial and personal situation of the applicant. For example, a determinant is often that an applicant has to have a steady income. The screening process of traditional banks screen out the poor since their relative transaction costs and risk are too high.

51 Mishkin, F.S., 2000, Financial markets & Institutions, p. 22 & 395.

52 Ibidem, p.22 & 395.

The sustainability of the HIT credit scheme in Tanga, Tanzania.

HIT cows; have we been trying to plant tulips in the desert?

The sustainability of the HIT credit scheme in Tanga, Tanzania.

Wies van ‘t Slot

HIT cows; have we been trying to plant tulips in the desert?

The sustainability of the HIT credit scheme in Tanga, Tanzania.

Preface

Table of contents

List of tables

List of figures

Acronyms

Currency equivalents

Introduction

Chapter 1: Tanzania

Chapter 2: Aid

Chapter 3: The HIT credit scheme

Chapter 4: Theoretical Framework