1

CHAPTER ONE 1.0: INTRODUCTION 1.1: Background information Rice is one of the important staple foods in Tanzania. Its per capita consumption is about 16Kg, contributing 8% of caloric intake among Tanzanians (Minot, 2010). The per capita consumption of maize and cassava are estimated at 73Kg and 157Kg respectively. According to Kadigi (2003), the bulky of paddy consumed in Tanzania is produced from five regions namely Mbeya, Shinyanga, Mwanza, Morogoro and Tabora. Morogoro town is located nearly 200Km west of Dar-es-salaam city. It is a good supplier of rice to Dar-es-salaam markets which receive even rice imported from outside countries such as Thailand and Vietnam as well. 1.1.1: Characteristics of rice/paddy producers 1.1.1.1: Small farmers Small rice farmers can further be classified into small tradition farmers and small irrigation farmers. i. Small tradition farmers They cultivate 1-5 acres using tradition methods. Use hand hoes or hire oxen with a plough. In some cases (rarely) they hire tractors. Hire local labour (for planting, weeding, and harvesting/threshing).

ii.

Earns 150,000 TSH per acre (Assuming all rice is sold). Small irrigation farmers Grow about 1ha of rice in an irrigation scheme often controlled by the government.

Rents the land from the scheme. Also they rent out their services. Gross margin can be 175,000 TSH per acre.

1.1.1.2: Larger rice farmers Grow more than 5 ha of rice in irrigation scheme. Hires labours to involve in various field operations. They are cash intensive. They enjoy economies of scale as a result of operating in large scale cultivation

In addition, both small and large farmers involve in irrigation schemes of paddy. However, larger farmers are the ones who involve mainly in irrigation schemes than small farmers. 1.2: PRODUCTION OF PADDY/RICE IN TANZANIA In general, rice involves about 281,000 rice growing households (Ebony Consulting International, 2003). Moreover, rice is mainly grown by smallholders under rain fed

conditions, where about 74% of total rice area is rain fed lowland rice, 20% is upland rice and 6% is irrigated. According to Hamilton and DAI (2010) rice production in Tanzania is taken by small scale farmers where less than 1% of the rice crop is produced by large scale farmers. Although more than 99% is produced by smallholder farmers, some of them are part of large scale rice irrigation schemes that were formerly state managed farms (NBS, 2006). Paddy production is estimated at 1.2 million metric tones annually or 750,000 metric tone of milled rice (Hamilton and DAI, 2010). 1.3: STATEMENT OF THE PROBLEM AND JUSTIFICATION Prices of staple foods in Tanzania have been fluctuating a lot due to various reasons such as poor harvests leading to shortage of food relative to the demand by the people. This fluctuation tends to affect the spatial price difference of staple foods between regions. This is due to the fact that once there is a change in price at one market, usually a surplus market; this change must be shifted into the deficit region especially if they are well integrated. Furthermore, this price fluctuation affects the welfare of both producers and consumers. Producers are affected once there is a decrease in prices of their produce mainly during a bumper season while consumers especially those in a deficit region are affected when there is an increase in prices of those produce (Dawe and Opazo, 2009). According to Gjolberg et al (2004), the wholesale prices of rice over 1992-2002 were consistently higher in Dar-es-salaam city than in Morogoro municipality, with the

average difference being 4000Tsh/100KG. This suggests that Dar-es-salaam is a deficit region having higher prices while Morogoro is the surplus region experiencing relatively lower prices. In addition, this fluctuation of rice prices depicts an upward trend. A more recent study by Minot (2010) also indicates fluctuation in wholesale prices of staple foods. Wholesale prices of maize in Dar-es-salaam were falling in 2006 while they started to increase sharply in September 2007 and eventually decreased in March 2008. For rice, wholesale price in Dar-es-salaam started to rise in August 2007 and falling sharply in April 2008. This shows to what extent the staple food prices fluctuate over time. While the above two studies have indicated fluctuation of prices of the two staple foods (rice and maize) no attempt has been made to carry out a detailed spatial price analysis to show how prices in the two markets are related and factors influencing the difference in prices between Morogoro and Dar-es-salaam. This study was intended to analyze spatial price differences of rice between Morogoro municipality and Dar-essalaam city. 2.0: OBJECTIVES OF THE STUDY 2.1: GENERAL OBJECTIVE To analyze the spatial price difference of rice between Morogoro and Dar-essalaam so as to check to what extent prices of rice in these regions are related. 2.2: SPECIFIC OBJECTIVES a) To examine the trend of rice prices in Morogoro and Dar-es-salaam.

b) To identify determinants of rice price differences between these regions. 3.0: HYPOTHESES a) There is no significant difference between the average wholesale prices/Kg charged in these two regions (Average wholesale price/Kg in both regions are statistically equal). b) Marketing costs are not the major determinants of price differences in these regions. 4.0: LIMITATIONS/ASSUMPTIONS OF THE STUDY 1. All rice is of the same type and quality. It was assumed that all rice traded by traders had the same quality and of the same type. Therefore the differences in quality and type of rice were not captured in this study. 2. Morogoro and Dar-es-Salaam were assumed to have equal variances. Samples of wholesale monthly rice prices for three years i.e. 2001, 2002 and 2003 in these regions were assumed to be collected in the population having equal variances. 3. Marketing costs were assumed to be the same in all three situations.

CHAPTER TWO 2.0: LITERATURE REVIEW 2.1: Staple food prices variation World food prices have been varying dramatically in recent years due to number of reasons such as fluctuation in world fuel prices. This is also the case in Tanzania for the case of major staple foods namely maize, rice and cassava. Therefore, this part is going to make a review about the variation of staple food prices.

According to the quarterly bulletin on food prices in Africa by FAO regional office for Africa (2009), region prices remain higher than 2007 levels. For example, price of maize in Tanzania was 68% higher in October than two years earlier. However, in Dares-salaam the wholesale price of maize dropped to $419/tonne.

Food retail price series were collected and showed seasonal fluctuations as well as a considerable variation across a large sample of markets in Tanzania (Delgado et al., 2003). The overview in staple food prices trends by WFP (2009) shows that prices in Tanzania experience an upward trend relatively to the past five years. Another study by WFP (2009) on trends in staple food prices in selected vulnerable countries shows that maize prices in Tanzania increased by 17%.

The shortage of food due to failure of rainfall in 2009, left about 280,000 people in Tanzania food insecure (FEWSNET, 2009). Another factor that contributed to the

shortage of food in some of the areas in Tanzania in 2009 is the increase in maize, rice and bean prices to 40%-60% above their five year averages (FEWSNET, 2009).

According to the latest edition of Food price watch, the World Banks food price index rose by 15% between October 2010 and January 2011. Moreover, this is 29% above its level a year earlier and it is only 30% below its 2008 peak.

A more recent study by Falcon and Naylor (2010) reveals an upheaval of staple food prices in the world in 2008. This sharp rise captured the interest of Economists, creating some questions about the state of food security, the nature of price variability and the appropriate strategies for international agricultural development.

Rice prices have been increased in all markets as the case on prices of other staple foods in Tanzania (USAID, 2008; FEWS NET, 2009). The trend in 2009 shows that prices of staple food are higher than the last year as well as above the five year averages. This rise in prices was probably due to increased transportation costs and traders speculation during the hunger season.

According to Minot (2010) wholesale prices of maize tend to move together in the late 2003 and late 2005 in almost all markets in Tanzania. Furthermore, this increase in price was due to poor harvests in 2003 and 2005 when output fell by 42% and 33% respectively.

A recent study by Dawe and Opazo (2009) using data from new FAO price database shows that domestic staple food prices in developing countries typically increased by 48% in real terms during the world food crisis in 2008.

In recent years, food prices have increased throughout the world (USAID, 2008; FAO 2008). These reports indicate that during the first three months of 2008, international nominal prices of all major food commodities reached their highest levels in nearly 50 years while for the case of real prices it is nearly 30 years.

Global food prices started rising sharply in 2006 and reached record levels in the second quarter of 2008 (Macharia et al., 2009). However, in June 2008 it started to decline even though it was different in some of the east African countries which experienced increasing prices in June 2008 and Early 2009. For example, Tanzania experienced a sharp increase in its food price index (FPI) between the last quarter of 2007 and the first quarter of 2008 i.e. about 9% increase. Eventually, prices dropped down following a bumper harvest for maize and rice in May 2008.

According to a recent discussion paper by Minot (2011) staple food prices in Tanzanian markets tend to move with the world staple food prices. For example, Arusha showed to have a long-run relationship with the world price of maize. For rice, four of the height rice markets in Tanzania appeared to be linked to world rice markets. Furthermore, the elasticity of price transmission ranges from 0.24 to 0.54 implies that 24% to 54% of the world rice prices changes are transmitted to the Tanzanian markets.

A report by USAID (2008) shows that regions in Tanzania such as Mbeya, Iringa and Morogoro have shown increased prices of major food crops. In addition, there are various reasons for this increase in prices such as poor harvests of major food crops, higher transport cost of major food, increased demand for food by consumers, Oil and energy supplies and rising cost in energy which contribute to the increasing of agricultural production cost which is eventually reflected into food prices. 2.2: Determinants of staple food prices variation According to Nyange and Wobst (2005), the price volatility is determined by market forces i.e. demand and supply of a product. This implies once there is an imbalance between demand and supply of a product, and then prices are likely to fluctuate in the process of re-gaining an equilibrium point. The demand side factors (rising incomes, increasing world population and urbanization) and supply side factors (high agricultural input prices and declining agricultural input resources) influence the price increase of the product (ILRI, 2009).

The behavior of the domestic food prices depends highly on the degree of tradability of the commodity (Delgado et al., 2004; Haggblade and Dewina, 2010; Minot, 2010). For international commodities, domestic prices are expected to follow the world prices of the same commodities unless otherwise there are significant barriers to trade. Conversely, if not, it is likely to be determined by domestic supply and demand of that particular commodity.

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Naylor and Falcon (2010) argues that weather variability, changes on population, fluctuation of Petroleum prices, speculation and stockholding and changes on exchange rates are the major determinants of staple food price variation. They insist that any changes in these factors are likely to be shifted into the staple food price and hence its variation.

A recent report by a Central Bank of Lesotho (2010) also suggests that the increasing demand on food along with the world population growth is one among the determinants of variation of staple food prices. This increase in demand on food due to an increase in world population may result to an imbalance between demand and supply of food, the former being relatively higher. This might be compensated by the price increase as it is the case since July 2010.

According to the report by FEWS NET (2009) on the Tanzania food security, it is postulated that increased demand at the markets and increased transportation costs caused by high fuel prices are likely to contribute to high food prices. This report suggests that variability in food prices may be caused by changes in demand and transport costs . Agricultural prices vary because production and consumption are variable (Gilbert and Morgan, 2010). However, predictable and unpredictable should be distinguished from the economic point of view because the latter is characterized by the elements of shocks. This implies that, shocks in production and consumption are transmitted into

11

price variability. Furthermore, it postulates that speculation and stockholding or purchase currently and sell in future at relatively higher prices also determine the degree of food price variability.

A more recent study by Rashid and Minot (2010) suggests that the variation of commodity prices between locations and over time is a natural market phenomenon and, in addition, excessive variability of staple food prices to a large extent is a reflection of a lack of market integration across space.

Kilima et al (2008) studies changes in the variability of maize prices using monthly maize wholesale price data from seven regions of Tanzania between 1983 and 1998. The results revealed that market liberalization increased both the level and the variability in the maize prices. This suggests that market forces namely demand and supply are major determinants of price variability.

According to Jayne et al (2005) government intervention contributes potentially to the staple food prices variability particularly in maize market. These interventions are maize export bans as what is the case in recent years in Tanzania, unexpected changes on import tariffs and government importation and sell to selected buyers. Once there are changes in at least one of these mentioned interventions, it is likely that changes to be shifted into prices resulting to its variability.

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Schlosser (2006) applied regression models using the actual spatial price variation so as to determine the causes of spatial price variation over time. He used mean price, standard deviation and coefficient of variation as the tools to measure price variations. In addition, coefficient of variation for each item was regressed against a dummy variable commodity (good or service) so as to determine whether an item is a good or service while assigning 1 to a good and 0 for service. In this study, he mentioned supply and demand, transport costs and market characteristics as the major determinants of price variation. For the case of market characteristics, the study describes that characteristics such as monopoly situation in the industry leads to higher price variation and conversely if there are relatively many competitors in the industry, then price variability is likely to be relatively low since there is a stiff competition. 2.3: Analysis of spatial prices variation The major economic approaches that are used to measure the degree of spatial price integration are the Law of One Price (LOP), Co-integration (regression analysis), Ravallion model and Granger-Causality (Baulch, 1997).

Nyange and Wobst (2005) applied Autoregressive Conditional Heteroskedastic (ARCH) regression to analyse the monthly price data over the period of 1992-2000 in predominantly consumer, producer and border markets of Dar-es-salaam, Dodoma and Arusha respectively. The essence of this analysis was to examine changes in maize price levels and variability in Tanzania so as to evaluate effects of Strategic Grain Reserve on stabilizing domestic market prices against alternative food security policies such as regional food stock and trade.

13

Rashid and Minot (2010) suggested Cointegration analysis, Threshold Autoregressive (TAR) and Parity Bound Model as the suitable methods in analyzing spatial arbitration. Cointegration takes non-stationary into account and allows long-run relationship as well as the speed of adjustment; however, it does not distinguish between lack of integration because of market inefficiency and lack of integration because the difference is too small. Karfakis and Rapsomanikis (2008) used threshold co-integration to examine the relationship between prices in a number of well connected and remote markets in Tanzania. In addition, this approach was used to approximate the magnitude of transport and other transaction costs between the markets. The threshold co-integration suggested that regional markets in Tanzania are integrated.

Brempong and Asare (2007) also used co-integration to study the monthly time series price data from January 1996 to December 2003 so as to measure the extent to which the rice prices in spatially markets are integrated or co-move. This study suggests that prices of imported rice in Ghana do not share the common properties with the local prices trends in the central market.

Separate regressions were used by Minot (2010) to study the relationship between domestic staple foods prices as well as the transmission of changes in international food price to domestic markets in Tanzania.

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Campenhout (2007) used Threshold Auto-regressive (TAR) model and Parity Bound Model (PBM) to analyze the relationship between maize prices in Iringa and other six markets in Tanzania. Weekly price data over the period of 1989 to 2000 were used in this analysis.

Korir, et al (2003) applied Cointegration analysis in analyzing the average monthly wholesale bean prices (secondary data) from four markets namely Arusha, Moshi, Taveta and Nairobi. In addition, Augmented Dickey Fuller (ADF) test, Granger causality test and Pearsons bivariate correlation coefficient were used to test the stationarity of prices and first difference, capturing the direction of causality in price changes and analysig the market integration respectively.

Boysen (2009) used descriptive statistics and regression methods to assess the spatial variability and transmission of prices in Uganda. Time series data were used and classified into two datasets namely time series of retail prices for six major local markets in Uganda and national household survey 2002/2003 which includes detailed information on expenditure and unit value data for 9711 households.

Standard Vector Error Correlation Model and Threshold Vector Error Correlation Model (TVECM) were used by Amikuzuno (2010) to estimate the speed of price adjustments between the net producer and net consumer market pairs. Two datasets were used in this analysis namely High Frequency Data (HFD) and Low Frequency Data (LFD) in five major Tomato markets in Ghana.

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Barry and Piggot (2001) applied Threshold Cointegration models to analyze and evaluate the spatial price dynamics among regional corn and Soybean markets in North Carolina. They found that Threshold reflecting the influences of transaction costs is confirmed and markets are strongly spatially integrated.

It is important to note that two spatially separated markets are said to work efficiently if and only if the price difference between them is not larger than the transaction costs required to move the good from surplus market to deficit market (Rapsomanikis, 2003).

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CHAPTER THREE 3.0: METHODOLOGY 3.1: Description of the research design The design of the research was a case study of two regions i.e. Dar-es-salaam city and Morogoro municipality and the item concerned was rice. These two regions are located almost 200Km apart, Morogoro being located at the western side of Dar-es-salaam. Morogoro is one among the surplus regions that produce rice in Tanzania. 3.1.1: Ifakara town Ifakara is a small rural town in Kilombero district, Morogoro region, south central Tanzania. It is the headquarter of the Kilombero district administration and the main trading centre for Kilombero and Ulanga districts. The town is located near the Tanzania-Zambia Railway (TAZARA) line, at the edge of the Kilombero valley, a vast swampland flooded by the mighty Kilombero River. 3.2: Sampling methods Methods that were used to select sample are simple random sampling and purposive sampling methods. The sample was selected randomly from the groups of traders who are involved in rice trade in these two regions particularly those who transport rice from Ifakara to different markets in Dar-es-Salaam. 3.3: Sample size Total of 21 traders who transport rice from Morogoro (Ifakara) to Dar-es-Salaam city were interviewed in order to get data which were later used to estimate rice prices in

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both good and bad seasons. In addition, these data were also used to estimate average prices of buying and selling rice for both traders and farmers. 3.4: Data collection Both primary and secondary data were collected for the study as described below. 3.4.1: Primary data collection Structured questionnaires as well as face to face interviews were used to collect primary data from traders who transport rice from Morogoro (Ifakara) to Dar-es-salaam city. 3.4.2: Secondary data collection Secondary data on wholesale monthly prices of rice in both regions for the period of time 2001, 2002 and 2003 were collected from the Ministry of Industry, Trade and Marketing of Tanzania located in Dar-es-Salaam. In addition, secondary data on the trends of fuels prices in Tanzania were collected from various previous studies so as to ensure critical analysis of the rice prices patterns in these two regions as far as fuels prices trends are concern. 3.5: Survey and questionnaire administration A survey was conducted by the researcher himself for two days in the mid-May 2011. The data were collected at market place and at milling machines by using structured questionnaires prepared in English but translated in Kiswahili during the data collection. In addition, face to face interviews with traders using Kiswahili was also done since Kiswahili is understood better by all respondents and was therefore a useful language for the purpose of the study. This helped in making the response rate from the

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traders more useful and, indeed, they seemed to be aware about the research on their business. Respondents were asked on the following important variables: a) Traders were asked on the quantities of rice they purchase from farmers as well as whether they resale all of them or not. Also they were asked to mention the buying and selling prices of the rice they purchase from farmers. b) Also traders were asked to to mention the buying and selling prices during good and bad season regarding the availability of rice(supply). c) Moreover, they were asked to specify the cost for each marketing function they incur namely packaging, storage, processing, loading, transportation and unloading. d) Eventually they were asked to mention taxes and/or market charge they pay if any. 3.6: Data analysis 3.6.1: Software Data from the questionnaire survey were analyzed using Excel software computer program. Excel was used to simplify the analysis of quantitative secondary data on wholesale monthly prices of rice in 2001, 2002 and 2003 for both regions. Also it was used to calculate percentages and averages for primary data on different cost elements of the marketing costs. In addition, it displayed quantitative statistics which were tstatistics.

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3.6.2: Descriptive analysis Descriptive statistics were used in the analysis of the study data. It included deduction of means and percentages of marketing costs during different situations of rice availability. 3.6.3: Quantitative analysis The mean difference t-test was used to test the hypothesis that there is no significant difference in wholesale monthly rice prices charged in Morogoro Municipality and in Dar-es-Salaam city. 3.7: Tools of testing hypotheses 1. T-test was used to test the significance of hypothesis that there is no significant difference in wholesale monthly prices of rice charged in these regions. 2. Percentages and pie chart were used to show the proportion of marketing costs to the average price difference. 3.8: Decision rule For T-test, the rule of thumb was to reject the null hypothesis if and only if the corresponding P value is less than the predetermined significant level of 5%, and fail to reject if p value is greater than the predetermined significant level of 5%.

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CHAPTER FOUR 4.0: RESULTS AND DISCUSSION 4.1: Gender of the respondents. All 21 respondents who were interviewed were males i.e. 100% of the respondents. This suggests that males dominate this trade by being more involved directly in this trade rather than females. However, this does not conclude that males are the owners of the businesses since they might be sent on behalf of the owners who are probably females. 4.2: Statistical significance of price gap between Morogoro and Dar-es-Salaam regions. Results from Table 1 on the T-test show that the price gap of rice per 100KG between these two regions is statistically significant, (P<0.05). This can be explained by the fact that the profit margin attached by the rice traders as well as marketing costs incurred are expected to contribute substantially in the price difference in these regions.

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Table 1: T-test of wholesale prices of rice for Morogoro and Dar-es-Salaam refions Mean Wholesale price Morogoro Price TSH/100KG 33321.56 38588.56 70 0.0000* -4.174 Mean Wholesale df Sig. (2-tailed) t-value

price for Dar-esfor Salaam

* Implies statistically significant at 5%. 4.3: Trend of wholesale monthly rice prices in Morogoro town and Dar-es-salaam city for the year 2001, 2002 and 2003. Figure 1 of this report shows that wholesale monthly prices of rice in both regions are almost moving together. However, prices in Morogoro are relatively lower throughout the specified period of time i.e. 2001, 2002 and 2003 even though there are some occasions whereby the prices in Morogoro are higher than that of Dar-es-Salaam. The tendency of wholesale prices of rice in Dar-es-Salaam being higher than that of Morogoro helps us to explain the fact that the former is the deficit region relatively to the latter. In addition, the average gap is 5,267 TSH per 100KG. This result is the same to what was concluded by Gjolberg et al (2004) who studied the movement of the prices of maize, beans, and rice over 1992-2002 between Dar es Salaam and Morogoro

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(a rice surplus region).Their study showed that monthly wholesale prices in Dar-esSalaam is relatively higher than that in Morogoro and the average gap was 4,000TSH per 100 KG. Therefore from this comparison, it can be concluded that the average gap of rice prices in these regions increased from 4,000TSH per bag over 1992-2002 to 5,267 TSH per bag over 2001 and 2003. Also from figure 2 of this report, it depicts that the gap of monthly wholesale rice prices between these regions fluctuate a lot due to various reasons such as seasonality due to rainfall. Indeed, it should be noted that Dar-es-Salaam is a deficit region, hence we expect it to have higher prices than Morogoro town. However, this is not always the case since the gaps in some months are negative following the fact that prices in Morogoro being higher than that in Dar-es-Salaam because the latter is also receiving rice from other surplus regions in the country as well as rice from outside the country. This makes supply of rice in Dar-es-Salaam to increase and hence lowering the price of rice and sometimes become relatively lower comparing to that prevail in Morogoro. Table 2: Wholesale monthly rice prices in Morogoro town and Dar-es-salaam city S/N TIME WHOLESALE PRICES IN (TSH/100KG) MOROGORO RICE WHOLESALE RICE PRICES IN DAR-ES-SALAAM (TSH/100KG)

1.

Jan/2001

36,833

43,500

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2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23.

Feb/2001 Mar/2001 Apr/2001 May/2001 Jun/2001 July/2001 Aug/2001 Sept/2001 Oct/2001 Nov/2001 Dec/2001 Jan/2002 Feb/2002 Mar/2002 Apr/2002 May/2002 Jun/2002 July/2002 Aug/2002 Sept/2002 Oct/2002 Nov/2002

35,500 35,400 35,564 38,125 29,167 29,875 27,722 25,357 27,667 28,143 28,500 31,714 32,333 34,455 32,875 28,500 25,727 23,750 23,000 39,021 24,396 24,667

45,250 37,692 38,410 38,542 40,000 35,583 33,796 36,750 36,250 38,000 38,000 38,917 37,542 35,925 35,063 36,385 37,000 33,000 32,500 41,211 33,889 33,000

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24. 25. 26. 27. 28. 29. 30. 31. 32. 33. 34. 35. 36.

Dec/2002 Jan/2003 Feb/2003 Mar/2003 Apr/2003 May/2003 Jun/2003 July/2003 Aug/2003 Sept/2003 Oct/2003 Nov/2003 Dec/2003

36,000 28,900 31,773 32,318 34,132 39,667 39,729 39,200 38,688 41,667 43,607 45,375 50,229

40,000 39,542 37,136 39,273 39,447 37,200 38,667 37,883 40,091 45,000 46,286 46,125 46,333

SOURCE: Ministry of Trade, Industry and Marketing of Tanzania. 4.4. Average quantity of rice purchased and sold, purchasing and selling prices of rice/KG (A case of traders). According to the analyzed data on prices of rice per KG during good and bad seasons with respect to the availability of rice from the farmers, it showed that the average prices per KG paid by traders during good and bad seasons are 597.9TSH/KG and 832.5TSH/KG respectively. In addition, normal average buying and selling price of rice by rice traders under normal situation are 575.7TSH/KG and 1162.7TSH/KG respectively. However, it should be noted that the research was not able to capture the

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type and quality attributes of rice which are among the factors that differentiate prices of rice classified in different grades. Therefore, this study assumed that all rice purchased by different traders was the same as far as their types and qualities are concern, and the major emphasis was given in estimating the averages prices of rice in three situations namely normal situation whereby rice is neither shortage nor plenty, good season whereby rice is available in abundance and bad season whereby rice is available not in abundance. Also results show that quantities of rice purchased by rice traders are all sold. This can be explained by the fact that majority of rice traders who purchase rice from Ifakara to Dar-es-Salaam markets are small traders i.e. majority purchase on average between 1-3 tones while few of them purchase between 4-7 tones. This difference in quantities purchased from one trader to another is due to their difference level of their capital. Therefore, the quantity purchased on average by each trader is about 1.82 tones. Table 3: Prices, quantities of rice purchased and sold by rice traders at Ifakara Item Average quantity of rice purchased by rice traders (Tone) Value 1.83

Average quantity of rice sold by rice traders (Tone)

1.83

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Average price of rice paid by rice traders under Normal situation (TSH/KG)

575.7

Average price of rice received by rice traders under normal season 1162.7 (TSH/KG) (TSH/KG)

Average price of rice paid by traders during bad season (TSH/KG)

832.5

Average price of rice paid by rice traders during good season (TSH/KG)

597.9

Average price of rice received by rice traders during good season (TSH/KG) 1169.05

Average price of rice received by rice traders during bad season (TSH/KG)

1359.5

SOURCE: Own calculations from the data collected.

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From Table 4, Storage services are offered free of charge by the owners of the processing (milling) machines and that is why it is not included in estimating marketing costs. However, for the case of processing costs, it is not included in Table 4 since it is paid by farmers themselves before selling their rice to traders. Table 4: Estimation for marketing costs incurred by traders
LOADING (TSH/KG) PACKAGING (TSH/KG) TRANSPORT (TSH/KG) UNLOADING (TSH/KG) TOTAL MARKETING COSTS (TSH/KG)

4.01

6.31

61.11

3.756

75.186

SOURCE: Own calculations from the data collected. Table 5: Marketing margin, costs and proportion of marketing costs in the price gap between Morogoro and Dar-es-Salaam. Duration Marketing margin(Farmer Trader, TSH/KG) Normal season Bad season 587 571.11 75.186 75.186 Marketing costs(TSH/KG) Proportion of

Marketing costs in price gap (%) 12.8 13.164

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Good season

526.98

75.186

14.267

Figure 3. 4.5. Determinants of staple food prices variation From the results presented in the Table 6, it shows that prices of rice vary according to the variation in availability of rice i.e. supply of rice. This can be evidenced by the variation of both buying and selling prices of rice by traders during good and bad seasons. These variations of rice prices are also the results of weather variation. In addition, prices are lower in good season whereby supply of rice is relatively higher than demand while prices are higher during bad season from October to January (offseason) whereby supply of rice is relatively low comparing to demand. The results are

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comparable with other studies on the same topic. Variation of staple food prices is due to forces of demand and supply in the domestic markets and variation in weather conditions (Nyange and Wobst, 2005; Naylor and Falcon, 2010; Delgado et al., 2004; Haggblade and Dewina, 2010; Minot, 2010). Moreover, the analysis done from the prices of fuel collected from other studies show that prices of rice in both regions tend to move together with the variation in the prices of fuel in Tanzania. These results are the same to the results by Naylor and Falcon (2010) and FEWS NET (2009) whereby in both studies, it was found that prices of fuels play a significant role in determining prices of staple foods. Consider the Movement of rice prices in both regions and the movement of prices for Diesel and Gasoline.

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Trends of avearage annual wholesale rice prices

60000 50000

PRICES(TSH/100KG)

40000 30000 20000 10000 0 56 Morogoro Dar-es-Salaam

Figure 4.

19 95 19 97 20 00 20 01 20 02 20 03 20 04
YEAR

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Trends of fuels prices

100 90 80 70 60 50 40 30 20 10 0

PRICES (US CENTS/LITRE)

Gasoline Diesel

Figure 5.

19 95 19 97 20 00 20 01 20 02 20 03 20 04
YEAR

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CHAPTER FIVE 5.0: CONCLUSION AND RECOMMENDATIONS 5.1: Conclusion The conclusion made is based on the statistical significance of the gap between these two regions, trend of wholesale rice prices, marketing margin during different situations of regarding availability of rice and determinants of staple food prices variation. 5.1.1: significance of the gap between these two regions The critical question of whether average wholesale rice prices in these regions are statistically the same was one among the important issues covered in this study. It was shown that the price gap between these regions is statistically significant at 5% using ttest tool. 5.1.2: Trend of wholesale rice prices between these regions It was shown that monthly wholesale prices in these regions tend to move together throughout the specified period of time i.e. 2001, 2002 and 2003. However, there are some occasions whereby prices in Morogoro are higher than that of Dar-es-Salaam. This may be the result of importation of rice from outside countries into the latter which increases supply of rice and hence relative lower prices than the former. 5.1.3: Marketing margin Marketing margin between farmers and traders differ in different situations regarding the availability/supply of rice. The marketing margin normal, good and bad situations are 587TSH/KG, 571.11TSH/KG and 526.98TSH/KG respectively. In addition, the

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proportion of marketing costs in the marketing margin for the three mentioned situations are 12.85, 13.164% and 14.267% respectively. 5.1.4: Determinants of staple food prices variation. The study revealed that the major determinants of staple food prices variation are supply and demand of the product regarding the climatic conditions and on-season as well as off-season (October to January), variation in the fuels prices. 5.2: Recommendations The government should make an effort to reduce prices of fuels because are the essential element of transport for commodities particularly rice. As we have seen in the results and discussion part, transport costs account about 81.28% in the marketing costs incurred by rice traders. The government can achieve this strategy through reducing taxation on fuels imported in our country. This will reduce cost burden which is usually shifted to final consumers by traders involving in fuels industry in our country. Also the government should improve its monitoring system on provision of farm inputs particularly to small holder farmers so as to make sure that the targeted farmers get these inputs at lower prices as planned. This will help to increase number of those who get these inputs which will help to reduce costs of production and eventually reduction in prices of rice to the final consumers of rice as well as its volatility. Indeed, in depth research should further be done to capture the attributes of quality and type of rice and how they affect the prices of rice due to the fact that this study ended assuming all rice are the same as far as quality and type attributes are concern.

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