- 1 - Economic Reforms and Rural Livelihood Diversification in Tanzania

ABOUT LADDER LADDER is a research project funded by the Policy Research Programme of the UK Department for International Development (DFID) that seeks to identify alternative routes by which the rural poor can climb out of poverty. LADDER is working with nearly 40 villages and 1,200 households in Uganda, Tanzania, Malawi and Kenya to discover the blocking and enabling agencies in the institutional environment facing rural people that hinder or help their quest for better standards of living for themselves and their families. This working paper represents work-in-progress and the reader is advised that it has not been subjected to academic quality control, nor edited for errors of fact or interpretation. The paper forms part of a mosaic of research findings that will contribute towards an overall picture of rural livelihoods and micro-macro links to poverty policies in the case-study countries. The findings and views expressed here are solely the responsibility of the authors and are not attributable to DFID. Summary This paper examines the impact of the economic reform programme initiated in Tanzania since 1986 on rural livelihoods. The macro-level data suggests that there has been little diversification in the Tanzanian economy since the mid-1980s both with respect to composition of output and exports. Analysing the behaviour of producer prices, the terms of trade and the producers' share of export value, the paper finds that the impact of economic reforms on the agricultural sector has been uneven, with favourable movements in the terms of trade for export crops offset by unfavourable movements in the terms of trade for food crops. Trends in the producer's share of export/retail prices in the post-reform suggest an improvement in the returns to farmers growing cashew nuts and food crops such as maize, rice and sorghum, though there seems to be no such improvement in export crops such as coffee, cotton, tea and tobacco. The paper argues that this apparent stagnancy in the Tanzanian rural economy in spite of almost a decade and a half of liberal economic policies can be linked to slippages in macroeconomic policy in the early 1990s and to the lack of an enabling environment for rural households to pursue dynamic strategies of income diversification. Key issues relating to the latter are 'government failures' in the provision of rural infrastructure, agricultural extension services, the local taxation regime, and the setting up of an institutional structure for private sector involvement in …