A trade dispute between Rwanda and Tanzania has intensified, with Kigali accusing Dodoma of blocking its dairy exports despite a memorandum of understanding signed earlier this year. This row surfaced during a roundtable discussion held by the East African Business Council (EABC) with the Secretary-General of the East African Community (EAC), where the private sector highlighted several non-tariff barriers (NTBs) impeding regional trade.

According to Rwandan transporters and dairy producers, these barriers have severely hampered the free movement of milk and other goods between Rwanda and Tanzania. While this issue has been brewing for some time, it represents a broader regional concern, with neighboring countries like Uganda and Kenya also locked in similar disputes over milk exports.

The Trade Dispute Over Milk

The dispute stems from Tanzania’s decision to impose new tariffs and regulations on imported dairy products. Despite the signing of an agreement in January aimed at fostering trade cooperation, Tanzania has continued to levy what Rwandan officials call excessive charges on milk imports. This, according to Rwanda’s dairy industry leaders, makes it economically unfeasible to export their products to the southern neighbor.

“Tanzania has imposed a levy that is higher than the cost of the milk itself,” said Abdoul Ndarubogoye, president of the Long Distance Truckers Association, during the roundtable discussion. According to Ndarubogoye, the various agencies involved in collecting fees from milk importers have created a significant hurdle to trade. Some of the agencies involved include the Tanzania Bureau of Standards, the Tanzania Food and Drugs Authority, and the Tanzania Dairy Board.

Under the Animal Diseases and Animal Products Movement Control Regulations published by Tanzania in August 2018, the cost to import a kilogram of milk was increased from Tsh150 ($0.055) to Tsh2,000 ($0.73)—a 1,233 percent hike. This drastic increase has not only raised concerns in Rwanda but also stirred frustration across the region, where free trade under the EAC’s Customs Union and Common Market protocols is supposed to be the norm.

Impact on Rwanda’s Dairy Sector

Rwanda’s dairy industry, which produced over one billion metric tonnes of milk in 2023, has found it increasingly difficult to access neighboring markets like Tanzania. This is particularly problematic given Rwanda’s aim to boost its exports in the agricultural sector, especially dairy, which is seen as a growth area for the country.

The dairy sector in Rwanda has been a vital source of income for many smallholder farmers, and trade restrictions by Tanzania are seen as detrimental to the livelihoods of these farmers. While Rwanda has made significant strides in increasing its milk production, the restrictions imposed by its neighbor create a major bottleneck for expanding market reach. The country has long been reliant on exporting surplus milk to neighboring countries to sustain its dairy sector.

With Tanzania increasing its milk production from 3.4 billion liters in 2021/2022 to 3.6 billion liters in 2022/2023, its local dairy industry is also facing significant challenges. However, Tanzania’s demand for milk far outstrips its production capacity, with a national requirement of 12 billion liters per year. This demand gap should logically present an opportunity for Rwandan and Ugandan exporters, but the trade barriers in place are preventing the smooth flow of dairy products across the border.

Uganda and Kenya’s Milk Dispute

While Rwanda and Tanzania are embroiled in their own trade conflict, Uganda and Kenya have also been entangled in a prolonged trade dispute over milk exports. Uganda’s Brookside milk brand, owned by the Kenyatta family, has faced restrictions from Kenya’s Dairy Board, which has selectively denied the permits required for Brookside milk to enter the Kenyan market.

This restriction has caused significant friction between the two nations, as Uganda seeks to tap into Kenya’s growing dairy market. Uganda’s dairy industry has grown considerably in recent years, with major brands such as Lato and Dairy Top successfully entering Kenya. However, the restrictions on Brookside products have led to accusations of unfair practices by the Kenyan Dairy Board.

The Kenyan dairy industry has traditionally been dominated by domestic producers, but Uganda’s ability to produce milk more efficiently has led to increased competition, and in some cases, protectionist policies have been enacted to shield local producers from external competition. Bilateral talks between Uganda and Kenya have so far failed to resolve the issue, and similar to the Rwanda-Tanzania dispute, the matter has been escalated to the EAC.

Corruption and Non-Tariff Barriers on East African Roads

Beyond the dairy sector, Rwandan transporters have raised concerns about widespread corruption and unfair levies imposed on the roads, which further complicate cross-border trade. Rwanda, a landlocked country, heavily relies on its road networks to transport goods to and from the coastal regions of Tanzania and Kenya. However, corruption at border posts and along the roads, coupled with discriminatory charges, have significantly increased the cost of doing business.

Ndarubogoye lamented that the road tolls were not uniform across the region, adding that Rwanda’s trucks face arbitrary charges, including unnecessary certificates and permits, particularly when using the Mombasa-Taita Taveta route and the Central Corridor. These charges not only inflate the cost of transport but also discourage businesses from engaging in cross-border trade.

According to traders, the need for multiple certificates for both trucks and their contents exacerbates the difficulty of navigating the regional market. Corruption among border officials has also been cited as a major issue that continues to hinder the smooth movement of goods.

Calls for Greater Regional Cooperation

During the roundtable discussion, Secretary-General Veronica Nduva of the EAC urged the private sector to promote the region as a unified trade bloc and to work together to address these barriers to trade. She called for the strengthening of intra-EAC trade by addressing NTBs, improving infrastructure, and creating more transparent and fair regulations.

The EAC was established with the goal of promoting economic integration and cooperation among its member states, but the persistence of NTBs like those highlighted in the dairy trade dispute shows that there is still a long way to go in realizing this vision. In addition to the dairy sector, other industries such as manufacturing, transport, and tourism have been impacted by the lack of uniformity in regional policies.

The liberalization of air transport services, the digital economy, and the upgrading of transport networks were also among the topics discussed at the EABC meeting. Participants stressed the need to improve the region’s infrastructure, both physical and digital, to support greater trade and investment among the EAC partner states. They also called for better coordination in areas such as road-user charges, discriminatory levies, and the issuing of work permits.

Looking Ahead

As Rwanda and Tanzania continue to navigate their dairy trade dispute, the broader issue of non-tariff barriers remains a significant challenge for the EAC. The resolution of these disputes will require not only bilateral talks but also regional cooperation to ensure that the principles of the Customs Union and the Common Market are upheld.

The EAC has the potential to be a powerful economic bloc, but its success depends on the willingness of member states to work together to remove the barriers that currently hinder trade and investment. As Rwanda and Tanzania seek to resolve their differences, the rest of the region will be watching closely, hoping that a resolution will set a positive precedent for future trade disputes.

For Rwanda’s dairy farmers, resolving this issue could mean the difference between growth and stagnation, while for Tanzania, addressing the domestic demand for milk while balancing regional trade interests will require careful diplomacy. Both countries stand to benefit from increased cooperation, but only if they can overcome the current challenges that threaten to derail their trade relationship.

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Photo source: Google

By: Montel Kamau

Serrari Financial Analyst

22nd October, 2024