3 July 2009

7 minute read

Background and Context

FELISA Ltd is based in Kigoma town on the shores of Lake Tanganyika in western Tanzania. The company cultivates oil palm trees (Elaeis guineensis) and processes fresh fruit bunches (FFB) to produce crude palm oil (CPO), an edible oil used for cooking, cosmetics and pharmaceuticals. FELISA is presently 100% self-financing, funded by equity contributions from 24 (majority Belgian) shareholders.

FELISA has a 100 hectare oil palm plantation 75km from Kigoma town. They have recently obtained another 4,258 hectares of land 150km from Kigoma, where they plan to also plant oil palm. A first crop of seedlings was planted in December 2005, and a second in January 2007. Oil palm trees take four to five years to mature to fruition, and the production of CPO is planned to begin in 2009. FELISA also aims to purchase FFB from local small-scale farmers as part of a proposed outgrower scheme. They calculate that a total of 500 hectares under local cultivation will meet demand once their own plantations bear fruit.

An influx of refugees from conflicts in Burundi and the Democratic Republic of Congo has placed great pressure in the Kigoma area, but this trend is now reducing with repatriations. The refugee camps absorbed many natural resources regionally, as evidenced in mass deforestation for firewood and a large reduction of water. Investment in western Tanzania, especially Kigoma region, is low, and there is sparse allocation of funds in the agricultural sector. Many people in the region are subsistence farmers and, according to FELISA, do not notice economic shocks as profoundly as those with stronger ties to the wider economy.

Crops are harvested and planted during the rainy seasons of October-January and March-June, and prices decline during these times of peak production. During off-peak periods farmers owning palm oil harvest the few ripe FFB and prune and weed. Between January-February farmers harvest maize and plant fast crops, such as beans and sunflower. The planting of palm oil trees takes place at the onset of the rainy season because the oil palm requires much water. Although malaria is present all year, infection rates increase during these wet periods.

The company’s initial strategic choice was to grow and process palm oil for biodiesel production for the domestic market, targeting the national utility TANESCO back-up generators and possible transport fuel blending markets. However with the world market price of CPO having risen sharply, from $0.25/litre in 2005 (when their first planting took place) to a high of US$1.35) in 2008, FELISA are considering additional non-energy market options.

The Initiative Market Map

The market map below is currently in an emerging state and FELISA are still considering which market segments to target. The map illustrates the various existing market options that FELISA will be joining and developing further.

With respect to the Enabling Environment, FELISA have sought to influence the Ministry of Energy’s biofuel policy so that they and other domestic biodiesel producers can operate in a known environment when negotiating with foreign buyers. One call is for a policy that stipulates the blending ratio between biodiesel and fossil diesel used in Tanzania. Ideally this policy would also ensure that a certain percentage of biodiesel is produced internally. Primary producers and processors have not made similar efforts to engage with the policymaking process. Contract enforcement issues have not affected any Kigoma-based actors, nor have bodies that monitor trade standards. There are reported cases of product adulteration, with incidents of waste water being added to CPO (apparently by middlemen who, in one case, paid farmers to bring waste water to be added to the oil). The effect has been that some buyers avoid Kigoma and now purchase instead in Mbeya. While FELISA has not experienced corruption, employees recognise that any process that involves government officials can run the risk of delay due to institutional bureaucracy which may impact on the timely accessing of services. In registering their new land, for example, FELISA had to wait close to an entire year for the process to be completed. This is due to the fact that only one person is authorised to make declarations about land and their services are in high demand. FELISA currently enjoys a five year tax holiday, along with a capital goods import duty exemption. Local farmers, however, are frequently levied to pay various taxes, including a tax for goods going to market. Accessing loans or grants for agricultural and agri-related industries is difficult. Banks in particular perceive the sector to be high-risk, and rarely provide loans, especially for perennial crops. FELISA have recently applied to Private Agricultural Sector Support for assistance in obtaining a loan and, if successful, this should have positive knock-on effects for primary producers working with FELISA.

Of the Supporting Services, inputs and finance are sourced by FELISA themselves. All linkages are created and maintained by FELISA’s own efforts, although they have benefited from some outside influences, in particular training received from specialists from Costa Rica. Research relating to market information is self-initiated, and lessons are learnt within the company from their exposure to the domestic and international production markets. FELISA’s proposed outgrower scheme, for example, bears some resemblance to the agreement between Prokon, a German private company in Rukwa that sources its Jatropha from local farmers in the region. The Ministry of Agriculture sends investors interested in palm oil production to FELISA, and one of the Directors is regularly invited to present at international conferences. FELISA regard themselves as a learning institution.

Before the emergence of FELISA relationships between market actors were purely commercial, with palm farmers existing in a state of dependency on a few buyers who dictated prices and offered no other support. In Simbo village, some 18km from Kigoma, for example, palm farmers have calculated that there are many risks in processing their crop themselves, and the profit margin from their few drums of oil is small. The disadvantage of allowing others to process their crop, however, is that the farmers do not retain ownership of by-products such as kernel cake which can also be sold.

FELISA wants to support palm farmers by offering technical support in farming methods through conducting extension services together with the government. A rural development policy exists, but it is not always implemented. FELISA’s solution is to introduce an outgrower scheme based on demonstration plots where an extension officer will train small-scale suppliers on modern oil palm production and provide palm farmers with high yield hybrid seedlings. In the long run they hope to help palm farmers establish their own processing plants. The intended result is to improve the quality of FFB that farmers bring to FELISA, thereby helping meet demand. Palm farmers are under no obligation to sell only to FELISA, and the price is negotiable; although there would be a contractual agreement that binds the farmer to supply a certain amount of a crop at a specified quality over a given period of time.

Farmers’ groups share information on farming methods and markets. They provide an opportunity to FELISA, to engage with many farmers at once, and a channel for lobbying decision makers in favour of FELISA’s planned actions. The largest group is Wabango, who have their own savings co-operative, and a leadership committee who have conducted a palm oil study tour in Malaysia. Wabango have expressed an interest in selling their oil directly to FELISA, but price negotiations are yet to be finalised. FELISA are distributing hybrid seedlings to 29 farmers’ groups (about 990 farmers) in Kigoma region, and to date they have given away 10,000 seedlings. The value of hybrid seedlings is slowly being realised and Care International and Red Cross are asking FELISA to supply them. FELISA employ around 60 people for weeding on their farm, and they employ permanent nursery staff.

Farmers find out the local market price by asking those returning from the market. Daily markets occur in some villages where between ten and twenty local sellers walk or cycle with the FFB or, more usually, the CPO that they wish to sell. Bulk buyers come from towns such as Bukoba, Mwanza, Kasulu, and Tabora and, as outsiders, are not well known by the sellers. The bulk buyers purchase CPO from the market or from local machines in the villages and use their own vehicles to take away the CPO. They do not provide any support to the producers, and are variously described as ‘ordinary traders’, ‘middlemen’ or ‘profiteers’. Other buyers— often Tanzanian Indians, or those working for them— work directly for businesses that produce edible oil, pharmaceuticals or cosmetics, such as the Dar es Salaam-based Mohammed Enterprises, or VOil from Mwanza. Those producing margarine and soap come to the markets themselves, as do fish fryers from Mwanza, Bukoba and Nguruka (near Tabora) who purchase the oil for frying their fish for sale. Small quantities of CPO are also sold for household consumption.

Further Reading

-

You can view the full report by clicking here.

June 2009