A question puzzling many is how more money can be put into the coffee farmers' pockets. The answer to this is found in the evolution of the liberalisation policy of the coffee sector and the distortions this has caused. The proponents of the liberalisation of the coffee sector were happy with the development where the coffee farmers' earnings were boosted from about 18% of the price on the world market prior to the liberalisation to a position where the farmer enjoyed up to 85% of the export price leaving exporters with a 15% margin.
The high price earned by the coffee farmer may be rightly referred to as "a mess of competition the traders have put themselves in" hence eventually making great losses - (the reason why the weak ones have had to quit the business). Unfortunately, the drive to "madly" buy farmers' coffee has done a dis - service to the quality of the coffee and representatives of the coffee exporters have been on a big drive to buy whatever coffee is available - a situation that has tempted a number of farmers to harvest coffee when it is not ripe with the eventual result as lowering the quality of coffee offered for export hence the drop in the price offered in the export market. (It is sad that a coffee farmer is getting about Shs. 100/= per Kg of Kiboko!!).
The abnormal development of very high farmer margins led to the likes of Mr Olle Otteby to resign as Managing Director of Kyagalanyi Coffee Limited to growing coffee on estate. In his own words he said, "I am leaving so I can concentrate on the numerous small private projects I have started during the last four years, including cofee farms. I am simply drawing from the consequences of developments within the coffee industry and realise that it is probably more profitable to grow coffee compared to marketing it."
Source: Coffee Year Book 1998/99 by Uganda Coffee Trade Federation.
Otteby is not the only one who has ventured into growing coffee on estates, other investors have including the farm that was commissioned by President Museveni in Mubende district in 2001.
The question posed is, how come foreign investors are venturing into estates farming as the price on the international market is falling, and the small holders are contemplating pulling out?
The answer may partly lie in economies of scale where the large operator uses lower cost of production per unit output, and secondly, these investors are very knowledgeable as regards coffee markets and meeting the required standards for the said markets. It is also a fact that as many exporters have left coffee export business, there has been the tendency of leaving few players in the market who have the potential of influencing the price offered to the coffee farmer to the farmers' detriment.
The wayforward given the "peanuts" being offered to the coffee farmers may be Government intervention in the coffee sector. This intervention should see the ammending of the law so that Uganda Coffee Development Authority (UCDA), Union Export Services (UNEX), and Coffee Marketing Board Ltd (CMBL) are brought under one roof - (Management). The new organ created should co - exist with the private buyers with the objective of coming up with "nationalistic" measures to see to the betterment of the farmers as coffee remains a major foreign exchange earner for the country.
The organ created would ensure the continuity of the objectives of UCDA, in fact the three bodies would operate as departments within the new establishment. UNEX would have the responsibility among other things of seeing to the revitalisation of cooperative societies which have ado with coffee growing and marketing; while Coffee Marketing Board Ltd would undertake the marketing of coffee via the channel of the cooperator farmers who may opt to market through that channel as compared to the private operators.
The graveness of the matter which justifies the innovation is reflected in the costing below:-
• A farmer with Clonal coffee on average expects to harvest 5 kgs of Kiboko per coffee tree. A hectare has 1,110 trees, and a farmer would approximately get Shs (5x600/- =3,000/-) per coffee tree.
• The establishment cost is estimated at about Shs. 2,000,000 and when spread over 40 years, this gives Shs. 50.000/- per year.
1. The labour costs - (weeding - 60,000/-; manuring - 75,000/-; pruning - 60,000/-; processing - 45,000/-; supervision - 150,000/-; cost of tools - 150,000/-).
2. The required inputs - (chemicals - 100,000/-; manure - 200,000/-).
The total cost (1)+(2) = 890,000/-; plus 10% contigency = 89,000/- = 979,000/-.
The Net profit from one hectare of coffee:-
(3,330,000/- -979,000/-) = 2,351,000/-.
In a situation where the farmer gets Shs 100/- per kg of Kiboko, a case in many areas of Uganda today, from one hectare in one year the farmer would earn:-
(100/-x 5x 1,110) = 555,000/-.
Given the total cost as above; after suming 1& 2, Shs. 979,000/-, the farmer would make a loss of (979,000/- - 555,000/-) = 424,000/-.
NB The Costing was Sourced from UCDA.
The above situation calls for the salvation of the coffee sector, and hence it is the justification for the new law for the sector.
To improve on the quality of the coffee the new organ may enforce a measure where the farmers would be required to sell their coffee immediately after picking it. This measure can ensure that all the coffee realised is red ripe beans. And secondly, given that many farmers have poor methods of handling the drying process, this would ensure that the dirt and other impurities are not given chance hence keep the coffee clean.
It is a fact that primary societies in a number of localities have stores which are not operational as of now, this infrastructure can be revitalised to handle the drying process of the coffee as well as storage and eventual dispatch for processing. As regards the payment to the farmers, the created organ could issue promissory notes in instances where cash may not readily be available and plans could be made with Uganda Commercial Bank Ltd to discount such promissory notes in the event that a farmer needs cash before such cash is available at the store.
The organ being sought would ensure that it ventures into value creation for Uganda coffee by getting it processed into marketable products that can generate higher value like the case of Bancafe (a local coffee processing firm), or the making of Instant coffee and those other products that may be got from coffee, plus the promotion and marketing of Specialty and Gourmet coffees.
The organ being sought can help in the implementation of the ideas as advanced below which are seen as crucial in the betterment of the sector. These are:-
Mr Tress Bucyanayandi former Managing director, Uganda Coffee development Authority (UCDA) said, "The coffee industry in Uganda is as important as the oil is to the Arab world." The industry employs about 2.5 million people directly as farmers or indirectly in the marketing chain. Bucyanayandi said coffee research today is characterised by poor staff incentives, lack of adequate facilities and limited influence from coffee sector stakeholders by way of funding. "Multidisciplinary research should be emphasised. Presently there is limited application of market research and consumer behaviour being built into biological research. Varieties are selected based on yield, disease and pest resistance with less consideration for consumer preferences. The growing trends in gourmet and specialty markets must be built into research agendas, " says Bucyanayandi.
This state of affairs must change if the coffee sector is to continue playing a key role in the economy of Uganda in this millennium and also stay competitive in the world market.
"At the processing and marketing level, modern technology must be adopted ensuring quality, timely delivery and low cost operations. Risk management tools and modern lending through international borrowing have to be developed to maintain competitive business," says Bucyanayandi.
Mr Yerokamu K Abainenamar, President, Uganda Coffee Trade Federation (UCTF) and General Manager Union Export Services Ltd (UNEX) said, with increased globalisation of the coffee industry, the marketing of coffee by developing countries has been complicated by the risk of exposure. Whereas the consuming countries have developed appropriate instruments to avert the market price risks, the small medium producers remain largely exposed and vulnerable to the vagaries of the market. This increases for coffee dependent countries like Uganda.
To the final consumer, coffee is just a general name of a beverage, hence the consumer buys a brand name. Roasters who are able to put different brands of coffee tend to benefit alot from product differentiation. At the sametime, different consumers feel they have got the "best value' for their money by purchasing a certain brand, says Abainenamar.
"By employing the various communication platforms that the Internet offers, Uganda can ably mobilise the world's estimated 600 million coffee drinkers to appreciate and drink Uganda's coffee. As the level of awareness is raised about Uganda coffee, the dealers can set up online systems that will enablle global distribution of Uganda haulage of both small and large quantities of Uganda coffee to the drinkers of the world, which is possible by employing electronic commerce," says Edward Baliddawa.
Source: Papers presented by Tress Bucyanayandi; Yerokamu K Abainenamar and Edward Baliddawa during the Uganda Coffee Conference and Exhibition 2000.
Tuesday, July 6, 2010
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