Contractual governance in agro-industry institutions in Tanzania. A case study analysis

PhD ceremony: Ms. A.N. Kamuzora, 13.15 uur, Academiegebouw, Broerstraat 5, Groningen

Title: Contractual governance in agro-industry institutions in Tanzania. A case study analysis

Promotor(s): prof. O. Couwenberg, prof. J.A. Kuzilwa

Faculty: Law

Although Tanzanian policies are focusing on a green productive revolution, there are still various inefficiencies in the agro-industry value chains. This study reveals some causes of these inefficiencies and it offers possible solutions to mitigate them. The study employs property rights, agency and transaction cost theories to explore, describe, and explain these inefficiencies.

Using case study methodology, the findings from four case studies show that the factory owners and the smallholder farmers interact in the market through contracts, which are regulated by semi-governmental crop boards. To facilitate the production of high quality farm produce, the factory owners or the cooperative society of the farmers acts among others as loan guarantors or credit service providers. The relationship between factory owner and farmer is characterized by agency problems of which moral hazard, adverse selection, holdout, and collective action problems manifest themselves. To abate these governance problems, the factory owners employ various instruments such as screening devices, incentives schemes, monitoring and bonding. However, these instruments are costly which impede efficiency. In one case, a fair trade organisation enforces rules on the factory owner and farmers to mitigate these costs and attain a better, i.e. more efficiently, governed agro-industry. In all four cases, the factory owners and the cooperative societies help developing the capacity of the smallholder farmers through training with the objective to transform them into more efficient producers. The training also equips farmers with the skills to handle contractual obligations. The research also reveals that the promotion of cooperative societies in Tanzania is still important as they transform the short term mindset of farmers to a long(er)-term one. The training, the transformation of the mindset, and the mitigation of the governance problems are all necessary to increase the productivity of the Tanzanian agro-industry.