The impact of exchange rate policy on export performance of agricultural crops in Tanzania

Abstract

The economic crisis in Tanzania has been characterized by shortage of foreign exchange as the result of declining exports, particularly agricultural exports, which account for over 65.0 percent of total export earnings. In order to improve export performance, the government conducted massive exchange rate adjustments since 1986 to enable improvements in relative producer prices of export crops. In that regard this study aimed to analyse the effectiveness of the exchange rate policy on export performance of agricultural crops. The crops covered are cashewnuts, coffee, cotton, tobacco and tea. These crops account for about 50.0 percent of total export earnings over the period under review (1970-91). The specific objectives of this study were to investigate the influence of exchange rate policy on determination of producer prices of export crops; to determine price elasticity of supply of export crops; and to determine the impact of exchange rate adjustments as measured by changes in the real exchange rate on the country's degree of competitiveness, as well as their influence on export supply of agricultural crops. The study therefore recommends that depreciation of the real exchange rate, supplemented by incentives for agricultural production are important for promoting agricultural exports which are necessary for economic growth.