2.2.1 Preview
As e<!rl ier mentioned, coffee is a major sub-sector in the economy accounting for a large share of export earnings and
-ï predominant type constituting about 94 percent of the economy's total coffee production. This is mostly grown in the central Lake
in international coffee priees, Uganda tailed to tully benefit from it due to transport difficulties, temporary closure of the border w i th Kenya and l ack of foreign exchange to pu re hase bags for packag i ng. This re sul ted in large stock pi les of coffee 1 n the economy. After the 1979 war, production was believed to have been hi ghe r th an wh at appeared in export vol urnes due to 1 ack ot transport and smuggling sorne of the produce into Kenya (for arabica) and Zaire (for robusta) . Table 2.2 below shows the marketed production of coffee from 1980/81 to 1991/92.
TABLE 2.2: MARKETED PRODUCTION OF COFFEE IN THOUSAND METRIC TONNES (1980/81-1991/92)
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Season Robusta Arabica . Total 1 1
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1980/81 97. 16 -·- ---0.39 - --- 97.55 1
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---1981/82 163.20 3.30 166.50 Il 1
- - - ------- ---- -------- ·
1982/83 153.24 4. 18 - - - ------ ---157.42 -- Il 1!
1983/84 150.95 - - -- - - -- --7.75 --- --- - - --158.70 ----- Il Il
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1984/85 142.42 10.58 153.00
- ----- -------- .. .1
1985/86 134.73 8.56 143.29 li
- --· ------ ---. -- . -
--1986/87 151.25 9.75 --···- ·--------161 ---. 00
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Il1! 1987/88 144. 1 8 1 1 . 9 2 -···- 156.10 ----------- ·- il 1988/89 166.31 7.70 -- --· ------174.01 ------·-· --··· . . ii li
1989/90 - 120.80 8.61 - ----- ---- - - -·-129.41 Il Il Il 1990/91 - 133.88 6.42 -- -- ·- ------140.30 ---- . -. Il
1991/92 90. 15 5.88 96.03 Il 1
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SOURCE: Coffee Marketing Board Files
From the tab 1 e above, i t can be observed th at the 1 96 9 peak was not reached at all during the period 1980-92. The highest production level recorded for this period, 174.01 thousand tonnes, attained in 1988/89, was about 31 percent lower than the 1969 peak.
Information on total prod~ction varies widely. The only reliable indicator are the purchases made by the Coffee Marketing Board and, after 1990, the other marketing agencies/individuals.
As noted earlier however, these figures on production do not tal<e into account the possible leakages due particularly to smuggl1ng and also the stocks held by farmers and hulleries.
2.2.2 Review of Policies in the Coffee Sub-Sector
a) Coffee Production Policies
Policy on any aspect of development is never static. Cotfee poli cy in Uganda has al so un de rgone changes as ci rcumstances changed with time. The early 1950s and 1960s witnessed the expansion of coffee cu 1 ti vat ion because the market for robusta coffee genera ll y tended to expand wi th the i ncreased usage of soluble coffees in the manufacture of wh i ch robustas we re used extensively. Some robustas were a 1 so used in roast.ed and gr·ound
blends but witlî the preference placed on neutrRI-fiF.Ivoun:ci, pulpPL1
and washed coffee.
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Under the 1962 International Coffee Agreement (ICA), Ugan(ja was allocated a basic annual export quota of about 1.8 mill1on bags of 60 kilos each equivalent to about 3% of global production wh1ch was about 65 million bags at that time. During that period, the country enjoyed good trading relations with the tradit1onal markets 1 and greatly increased the volume of its experts to those markets and thereby avoided a situation of bullding up retainable stocks. Recognizing the dangers of mounting competition everywhere, howeve r, Uganda dec i ded to 1 i mit the p roduct 1 on of coffee. The policy encouraged the production of alternative crops tor exrort which was a positive step but it suspended replanting more cottee which could be taken as a negative stepL. ~
The late 1960s and early 1970s policies supported the ear11er ones. Four related approaches were employed in this per1od. These were:
Improvement of robusta coffee quality and diversiticat,lon.
Quality was to be achieved through a number of actions including the emphasis on proper husbandry pract1ces, application of the recommended nitrogenous fertilizers, subsidy on drying trays and other equipment, increased wet processing and pulping, demonstration and farmer
~hese were, United Kingdom, Canada, Australia Germany and Israel.
2This policy taken in tl1e 1960s is reflected in the çurrent status nt Uganda's coffee. Production and even quality has started declining because of ageing trees. Most of the coffee trees were planted in 1950s and eat·iy 1Yb0s.
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education, quality tests and use 0f p~emia and penalties
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on g~ade. On the othe~ hand, dive~sification was to be ach i eved th ~ough the app 1 i cati on and encouragement of alternative ente~p~ises which we~e expected to fetch hi ghe ~, o~ at 1 east equa 1 , re tu ~ns to coffee su ch as dairy fa~ming, cocoa, tea, sugarcane and horticultural crops. The main objective of this last app~oach was to discourage further robusta coffee expansion and to replace i t where possible.Development of Mount Elgon a~abica. This app~oach emphas1zed the replacement of old and low-yielding va~ieties with
new, high yielding va~ieties, p~ovision of effective extension servi ces and estab 1 i shment of an arabi ca coffee research station in the area.
Development of western arabica. The programme here involved progressive ~eplacement of ~obusta with arabica and
expansion of arabi ca coffee ac rea ge, spray i ng aga i nst major coffee diseases like antesia and coffee berry disease and the construction of pulpe~ies to imp~ove
processing capacity and coffee quality.
The effects of previous policies we~e beginning to show up by 1980. Some of these we~e:
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'•as government coffee nurseries were abolished due to the no-replanting pol icy, ageing coffee trees could not be biologically replaced implying an anticipated disappearance of the industry;
use of inferior materials for ·planting by the farmers;
increased productivity (more yield from the same area) could not be achieved as inputs were not easi ly avai lable
especially nitrogenous fertilizers due to the economie cri sis;
free spraying against pest and disease was not sustained; and
subsidies disappeared as the re tai ned earn i ngs from coffee ex ports were used to finance other government
parastatal s.
The 1980s prompted a wave of change. The government real1zed that production had dropped sharply from an annual average ot about 185 thousand met ri c tons to about 100 thousand met ri c tons by 1·980 with a corresponding drop in revenues. To subdue the problem, a US$
27 million projeci known as Coffee Rehabilitation Programme (CRPJ was started with three major objectives, namely: to arrest the decline in coffee production, to restore production to normal, and
to increase and surpass previous levels of production.
This meant the restoration of nurseries, provision of inputs, spraying against pests and diseases, rehabilitation of major coffee factor i es, and the re activation of research and extension. The po 1 i cy on research emphas i zed the conti nu at ion of selection of better quality coffee trees from the old coffee trees. This project expired in 1985.
b) Coffee Pricing Policies
The pricing of agricultural products is a continuous exerc1se and priee policy is a dynamic management tool to monitor and constantly update priees payable to farmers in arder to protect their real incarnes. The government policy framework as set out in the Rehabilitation and Development Plan 1987/88-1991/92 recognized the importance of mai nt ain i ng adequate p roducer i nee nt iv es by regularly adjusting minimum producer priees. Before then there was no expl icit pricing pol icy. The priees were autonomously determined by government. In 1987, the Agricultural Secretariat of the Central Bank, in accord ance w i th i ts terms of re fe renee, carr i ed out a priee review exercise for the ten major crops. 3 The main purpose of the review was to assess the adequacy of the then official producer
pr i ces and marg i ns for processors and marketing boards aga i nst
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current domestic inflation and world market priee fluctuations.
3coffee, cotton, tea, cocoa, tobacco, maize, beans, groundnuts, simsim and soyabeans.
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Following the recommendations of the Agricultural Priee Review Committee (June, 1988), the coffee pricing and taxation po licy was1.
-changed in the 1990s. During the first half of the 1990/91 coffee season, the priee paid to farmers and the margins allowed to the primary buyers, processors and the exporters were predetermined and fixed by the government. However, as from 2nd July 1991, the po licy on pricing was revised. Producer priees were also increased from Shs.120 per kilo to Shs.210 per kilo for robusta. The margins for primary buyers, processors and exporters were also to be negotiated
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,_ between the exporters and the processors.The taxation system was also revised from the residual to a marginal system with the following elements:
no export tax if the total cost·of exporting, processing and production was equal or higher th an the expor-t
realization;
whe re the export real i zat ion exceeded the total costs o t·
production, processing and marketing, an export tax of 5 percent on robusta and 20 percent on arabica would be
levied on the FOB priee; and
the threshold priee representing total costs of product1on, processing and ex~orts w~s set at US$ 1.05 per kilo.
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However, the policy of fixing reference priee by government attracted criticisms from various circles for its inadequacy 1n p rov id i ng i nee nt iv es to the exporters to i ne rease the export ot good quality coffee and also to maximize the unit price.4
In addition to this, fixing the reference priee in United States dollars had the weakness of passing over virtually all the benefits of any depreciation in the local currency to the exporter, whi le
the government would receive only 5 percent of these benet1ts and the primary producer would receive none. It was, therefore, agreed that thresholds should be adjusted periodically or at best whenever a significant depreciation of the local currency occurred.
Following the criticisms, the following were agreed on:
the tax was to be levied on 70 percent of the taxable surplus (the difference between the export realized priee and the
computed threshold) -this was dictated by projections on priees, export volumes and go~ernment's budgetary requirements;
the threshold was to reflect the cast of production, processing and marketing with a 2 percent physical
contingency;
4For example an exporter realizing US$ 1.06 per kilo wou Id be worse ott, after taxation, than one realizing US$ 1.02 per kilo untaxed.
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there would be different threshold priees for arabica and robusta coffee reflecting differences in costs ot
production, processing and marketing; and
the Uganda Coffee Deve 1 opme nt Author i ty wou l d re vi ew the threshold priee quarterly ·and seek authority for
implementation from the Ministry of Finance and Economie Planning.
In August 1 9 91 ' new guidel ines pertaining to the liberalization of internal coffee marketing were issued. The major elements of the guidelines were as follows:
The original coffee bu yi ng, process i ng and f ac tory li censes were reduced to a requirement of only one license - the
coffee buying license to be issued by the Coffee Development Authority. This license would be valid for
only the coffee season for which it was issued and would allow for buying/processing of coffee from/in any
district without restrictions.
Anyone intending to erect a coffee processing factory was tree to do so if in his opinion it would be profitable.
The government would only fix minimum priees for- cottee payable to the farmers. The commission and transport
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Il"-margins would be negotiated between the primary societies/buyers, coffee processors and exporters.
Following the guidelines, the government was committed to license more exporters in the new coffee year 1991/92. In May 19~2, the government moved away from the policy of announcing minimum coffee pri ces and deci ded that they wou l d be determi ned as a function of market forces. Only an indicative priee would be set on recommendat ion of the Coffee Deve l opme nt Author i ty. The i mp 1 i cat 1 on of this policy was that i t exposed the farmers to the fluctuations in wor l d pr i ces, just as the ex porters had be en. Howeve r, as a result of the introduction of new exportera and the liberalization of the margins for processors and exporters, farmers had alreaoy started getting competitive priees for their coffee. Despite this, priee variations were expected to occur for the producers due to the following:
distance from the processing and/or export point wh1ch would lead to a difference in transport costs;
quality of coffee delivered which was a function of age ot trees and harvesting practices among others; and
terms of payment (cash or credit) for the coftee negot1ated between the sellers and the buyers.
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The coffee marketing liberalization process came with a reduction in the taxation of the coffee industry. Fixed margins were paid to the various market intermediaries and the difference went to government. However, this system was replaced in July 1991, by a marginal taxation system. In April 1992, another revision of the tax rate was made. This time the government decided that a flat rate of 5 percent on the FOB coffee proceeds would be levied. The flat rate was recognized as more efficient, straight forward, easy to compute and administratively convenient.5 Periodic reviews in the coffee taxation system have been carried out in an effort to make the coffee export tax rate more reasonab 1 e over ti me. The climax of the taxation policy occurred in July 1992 when the government decided to abolish virtually all forms of taxation· on coffee experts effective from the fiscal year 1992/93. This removed one of the key obstacles to increased profitability in the export of coffee. It was, therefore, believed that this would encourage more exporters to join the business. Meanwhile, with the increasing purchasing competition at farm level, this would eventually lead to improvement in the quality produced because each buyer would aim at obtaining the best quality possible.
5rn the previous system, the tax was levied on the surpluses over thé threshold priee. This meant that when the surplus was zero or negative, no tax would be levied.This was prone ta manipulation and abuse, and with the persistently falling priees, the government would not be assured of any revenue from the industry.
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• 2.2.3 Strategy for Research and Quality Control .
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For a long time, there was no collaboration between the different actors in the coffee i ndustry in Uganda. This 1 ed to unco-ordinated policies within the sector. Pri or to the liberalization and restructuring of the coffee sub-sector, a process that is hardly three y~ars old, the sub-sector was• characterized by the following:
1 ow p roduce r pri ces, us ua ll y l ess th an 20 percent of the world priees even during the coffee boom of the late
1970s;
high stock levels with the Coffee Marketing Board and even more at the farm level resulting from marketing
rigidities and crop finance constraints;
limited funding for research and development programmes including promotional activities and extension. Donor
funds were the main source but were of limited lifespan;
the Coffee Marketing Board had the monopoly of exporting the coffee and the Ministry of Agriculture had the monopoly
for research and extension programmes and shared regulatory tunctions with the Ministry of Market,ing.
However, often the researchers at the government
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~·l restructuring policy implemented between July 1990 and July 1992 was the creation of a central authority, the Uganda Coffee Oevelopment Authority (UCDA) to oversee the entire sub-sector withsustainable funding from the sub-sector itself through retained earnings from the coffee exports.
In the area of research, UCDA in conjunction with Makerere Uni vers i ty and the Ag ri cul tu ra 1 Research Station, estab li shed a technical committee that played a key role in defining priority research themes and advising on funding requirements (UCDA, 1992).
The researchers in this approach were directly involved not only in conducting research projects but also in research po 1 i cy formulation. The research programmes UCDA is currently undertaking include, among ethers, the following:
assessment of low cast tarrn technologies for the production of planting materials;
6This is a scientific name for a certain variety of coffee with high y1eld potential.
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intercropping studies and analysis of comparative costs
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returns to coffee production relative to competing crops;
screening of new hybrids of arabica;
coffee bi-product utilization including the production ot charcoal, biogas and tertilizers; and
assessment of the impact of tarrn leve\ harvesting and processing techniques on coftee quality.