POLICY RECOMMENDATIONS

6.2.1 The Setting of Coffee Producer Priees and Inflation

The period 1987-92 experienced a positive and significant effect of coffee real producer p ri ces on the gene ra l leve 1 ot

priees. The implication is that the more immediate the producer receives the payment for his coffee, the more will be the eftect on the general level of priees. However, this does not imply that, farmers should be paid late. One of the ways through which pr1ces increase is the excess of aggregate demand over aggregate supply.

If supply rigidities such as poor ;·nfrastructure, controlled i mports and l ack of production i ncent ives, among others, can be eliminated, then as the aggregate demand increases result1ng from an increase in the producer priee ot cottee, the Rggregate supp ly will a lso increase almost, imml''!diately. Equi l·ibr·ltllllW·il l, t.rH=~rP.tor·P.,

be re-established.

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The liberalization of internal marKet1ng and export of coffee in the economy, although not well covered in the study because it came into torce in 1992, is one of the factors that would lead to the producer getting his pay immediat81Y after the sale ot h1s i mport, This should be marched with, for example,

crop.

liberalization and removal of supply rigidities such that as coftee is sold for cash, either the supply of local goods and services will increase or imports wi l1 be obtained easi ly and qu1ck \y to

counterbalance the increase in aggregate demand.

6.2.2 Developing the Coffee Sub-Sector

The re i s need to arrest the genera 11 y dec 1 in i ng trend in coffee supply. This was evident from the trend variable 1n the coffee su pp 1 y funct ion wh i ch had a negative coefficient. Un ^·1 ess this decline is arrested, the prospects for increasing exror--t,s significantly are blurred. Gi ven the rea ¹ i ty th at cottee consti tutes such a dominant share of export earni ngs, any rr-ogramme

aimed at increasing export earnings cannat succeed if the volume of coffee experts cannat be sustained. A successtul programme should at least, in the initial years, aim at increasing or maintain1ng the volume of coffee experts and then developing and diversifying

into ether experts subsequently.

The issue before the country new is, therefore, not how to rehabilitate agriculture physically (as is t,he case

for-infrastructure, industry and services) but how to restore keY and

r:

essent i a 1 servi ces th at are needed by ag ri cul t,u re. Th 1 s can he achieved main·ly through input supp.lies, priority research and

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-extension, access to markets and remotivating farmers to resume production of surpluses for the domestic and foreign markets. Most of what needs to be done to ·restore agriculture (and the

cotte~

sub-sector in parti cul ar) and put i t, on a growth path thnt, generates surpluses, needs to be done outside agriculture

1tsel~.

This includes rehabilitation of vital infrastructure, removal of i mport restrictions so th at inputs can be obt,a i ned er:ts i 1 y f.l nd cheaply, and selective elimination of ether government controls, among ethers. What seems to stand out most about agrl cu 1 t,ura 1 performance in Uganda in the past 20 years i s t,hat sorne of t.he government interventions in the sector, especially its

att~mpts ~o

contra 1 market, i ng and set pr i ces to i ne rease gove rnment, revenue, have contributed to the stagnation of the sector.

6.2.3 Reducing the National Debt

The significance of the incarne terms of trade tor cottee 1n the nation a 1 debt funct ion, even though not very hi gh, has some implications. For incarne terms of trade to irnf1rove, e1H1e1· ·r.11e export values slîould improve or the imf1ort, values shou.ld dec11ne.

However, given the indust.rialization t.r-nc-:1< thnt. Uganda 1s <>Il nnw, it is difticult tor import values to decline. Hence, U1e only strategy i s to i ncrease export va 1 ues. On the othe r ha nd, t.he

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An appropriate policy option is the diversification of experts.

Under the diversification drive, Uganda should aim at reduc1ng the dependance on developed nations. The development of a capacity to manufacture and export simple technology products would reverse the

trend of the incarne terms of trade and hence reverse the trend in the national debt.

The high significance of the interest rate hasan implicAtion on the meas~res that can be used to reduce the debt problem. One ot the measures that has often been uséd by the ¹ ess lieve ¹ ope(J countries involves close cooperation between the lending banks, the creditor countries and the debtor countries. This has elements such as debt rescheduling, debt forgiveness, debt-equity swaps and the reduction in the debt and debt servi ce co nd i ti oned on a de bt.o

t-country's willingness to adopt an approved programme of adJustment.

These measu res are not 1 i ke l y to be more th an pa 1 1 i at 1 v es, g 1 ven that crediter countries have also got to serve their own interests.

49only the variables which had negative coefficients were signlflcnnt And in addition the priee elasticity of demand for coffee is low. Tl1is 1mpt1es tt1at in arder to increase the volume of Axpot·t.s signit1cnntly, thP. rt·icP. siH1tJI!1 tH'

reduced significantly also.

Debt res che du ¹ i ng wh i ch has t)een wi del y adopted p rov ides temporary relief for debtor countries. This strategy leads to the postponement of the debt problem but at a higher cost s1nce most often, the ev i denee shows th at reschedu ling 1 s contracted ^{i'lt. A}

higher interest rate. However, according to the results, this wi Il worsen the future debt the m6re. Debt forgiveness 1s an e~sy wAy but what must be borne in mind is that crediter countries are not charitable organizations. Debt-equity swaps and structural retnrms have also evidently created problems for the less developAd economies. Howeve r, if the cu r rent structura 1 ret orrns bei ng ^flll r stJeti by most deve l op i ng cou nt ri es, Uganda i ne lus ive, cou 1 ci p romot,e producer incentives, rehabilitate infrastructure and remove otner supply bottlenecks, then it would be a desirable option. This woulrl increase the economy's capacity to repay the debts accumulated 1n the long run and hence lead to a general reduction in the outstanding debt.

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ANNEX 1

TABLE 2A.2: THE SHARE OF AGRICULTURE IN GDP (1970-91)

T- r:

Source: Handbook of International Trade and Development Stat1st1cs;

Background to the Budget;

TABLE 2A.4: COFFEE INCOME TERMS OF TRADE AND THE INDEX

TABLE 2A.5: CALCULATION OF THE RATIO OF COFFEE TO BANANA PRICE

11_1_9_9_1_t--_2_1_o_o_o_o_o__,I--_8_0_1_3_1_6__,_2_7_6_3_1_._6 _ ___ _!_6 _ __ _?~-- __ --~-·~2

Il

1992 2400000 2065823 30379.7 79 68 1. 16 ¹

Source: Coffee Market1ng Board F1les; Bacl<ground to the 8udget, Various Issues; and Data Bank for the Depar-trnent nt Agricu"l t.ura 1 Economies, Mal<erer·e Universit.y.

PCN = Nominal Produeer Priee of Coffee per Kg;

TABLE 2A.6: SHARE OF CROP FINANCE IN TOTAL CREDIT AND INFLATION

...

Source: International Financial Statistics, 1993;

: Background to the Bud8et, Various Issues.

Note: All the Variables are as defined in the text .

1rm

Source: Direction ot Trade Statistics, Various Issues.

NETH. = NethP.rlands

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TABLE 4A.4:THE GROSS NATIONAL PRODUCTS OF THE IMPORTING COUNTRIES AND THE COMBINED FOREIGN INCOME VARIABLE

Source: International Financial Statistics Yearbook.

*- Author's Calr.ulation us1ng TBhle 3A.~ anc1 the t 1rst part. ot t.h1s t.nhle tsee t.he lormula 1n t.h~ t.P.\11.

125

ANN E X 3

tor the Department of Agricultural Economies, Makerere University.

m

_ _ 19_8_4_+-_1_3_3_. 5_-1_1_6_1_3_._6_8_1-3_0_4_7_._0_1-_1_._7_4_8 __ ---~-~---- _________ 1 .Il

1985 151.5 1961.49 2672.0 1.211 16 1 Il

1 - - - - + - - - 1 - - - 1 - - - 1- ·-- - - ----- .... ---- - Il

11 __ _ 1_9_8_6_1-_1_4_o_._8_1-2_o_o_6_._7_2--J_3_2_6_7_._o_t _ _ 1_. _o __ 5_? ______

~_I

^{_____________}

o Il

1r--_1_9_8_7_t--_1_4_8_._2_1--1_9_1_1_._3_4-t __ 2_2_5_5_. _o-t __ 1_._o~ ---~----______ ~-- 11

_ _ 1_9_8_8_-l-_1_4_4_._2 _ _,__1_7_3_5_._2_2---JI--2_0_9_6_._0_,_1_. 8 7 7 ______ 1 __

9. · -- -- - --

1 Il

Source: Coffee Marketing Board; Handbook of International Trade and Development Statistics and Inernational Financial Stat1st1r.s Yearbook.

127

TABLE 5A.3: DATA USED IN THE NATIONAL DEBT FUNCTION

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TABLE 5A.5: DATA FOR VARIABLES USED IN THE INFLATION

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Dans le document The impact of coffee prices on inflation and the national debt in Uganda Mungyereza Ben Paul (Page 121-149)