Premium (2006) Production Response (Final Report)

UPTOPUGANDAPROGRAMMEOFTRADEOPPORTUNITIESANDPOLICY
Production Response of Uganda’s Key
Agricultural Commodities to Trade
Liberalization
FINAL REPORT
Prepared by:
Premium Consulting Limited
4th
Floor, Impala House
13/15 Kimathi Avenue
P. O. Box 3068 Kampala, Uganda
Tel: 256 (041) 253 783
Fax: 256 (041) 253 783
E-mail: premium@spacenet.co.ug
Contract Number: SX93/06/04/TRF 2
August 2006
This study was commissioned by the Uganda Programme for Trade Opportunities & Policy
(UPTOP) and funded by the European Union through the European Union Development
Fund (STABEX 93). The views expressed in the report are those of the authors and do not
necessarily reflect the position of the European Union or UPTOP

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TABLE OF CONTENTS
____________________________________________________________________________
ABSTRACT .........................................................................................................................................................v
ACKNOWLEDGEMENTS .......................................................................................................................................vi
LIST OF TABLES.......................................................................................................................................................vii
LIST OF FIGURES....................................................................................................................................................viii
ACRONYMS AND ABBREVIATIONS ...............................................................................................................ix
EXECUTIVE SUMMARY.......................................................................................................................................xi
I THE STUDY ASSIGNMENT ................................................................................................1
1.1 INTRODUCTION .........................................................................................................1
1.2 OBJECTIVES AND SIGNIFICANCE OF THE STUDY.............................................1
1.3 RESEARCH QUESTIONS ............................................................................................1
1.4 RESEARCH DESIGN AND METHODOLOGY..........................................................2
1.5 THE STRUCTURE OF THE REPORT .......................................................................3
II BACKGROUND TO TRADE LIBERALIZATION..............................................................4
2.1 THE CONCEPT OF ECONOMIC LIBERALIZATION ............................................4
2.1.1 Economic Liberalization Defined ......................................................................................... 4
2.2 TRADE LIBERALIZATION.........................................................................................5
2.2.1 The Content of Trade Liberalization .................................................................................... 5
2.2.2 The Benefits of Trade Liberalization .................................................................................... 6
2.3 CONCLUSIONS.............................................................................................................7
III AGRICULTURAL TRADE LIBERALIZATION IN UGANDA ..........................................8
3.1 AN OVERVIEW OF UGANDA’S AGRICULTURE SECTOR.....................................8
3.1.1 The Structure of Uganda’s Agriculture Sector..................................................................... 8
3.1.2 The Importance of Agriculture in Uganda’s Economy ..................................................... 8
3.2 FACTORS INFLUENCING AGRICULTURAL SECTOR GROWTH .......................9
3.3 THE AGRICULTURAL TRADE LIBERALIZATION POLICY FRAMEWORK ....10
3.3.1 Agricultural Policy Reforms under the Economic Recovery Programme.................... 10
3.3.2 Agricultural Policy Reforms under the Poverty Eradication Action Plan..................... 12
3.4 MAIN RESPONSES OF THE AGRICULTURE SECTOR TO THE REFORMS ...14
3.4.1 Increased Output.................................................................................................................... 14
3.4.2 Growth of Agricultural Exports .......................................................................................... 14
3.5 CONCLUSIONS...........................................................................................................15
IV COMMODITY ANALYSIS..................................................................................................17
SECTION I: THE TRADITIONAL COMMODITIES..........................................................17
4.1 THE COFFEE SUB-SECTOR.....................................................................................17
4.1.1 The Significance of the Coffee Sub-sector......................................................................... 17
4.1.2 Liberalization of the Coffee Sub-sector.............................................................................. 17
4.1.3 The Observed Responses to the Reforms.......................................................................... 19
4.1.4 Conclusions............................................................................................................................. 23

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4.2 THE COTTON SUB-SECTOR..........................................................................25
4.2.1 The Significance of the Cotton Sub-sector ........................................................................ 25
4.2.2 Liberalization of the Cotton Sub-sector ............................................................................. 25
4.2.4 Conclusions............................................................................................................................. 32
4.3 THE TOBBACO SUB-SECTOR..................................................................................33
4.3.1 The Significance of the Tobacco Sub-sector in Uganda.................................................. 33
4.3.2 The Performance of the Tobacco Sub-sector ................................................................... 33
4.3.3 Other Observed Responses to the Reforms...................................................................... 35
4.3.4 Conclusions............................................................................................................................. 37
4.4 THE TEA SUB-SECTOR.............................................................................................38
4.4.1 The Significance of the Tea Sub-sector in Uganda........................................................... 39
4.4.2 Liberalization of the Tea Sector........................................................................................... 39
4.4.4 Conclusions............................................................................................................................. 41
SECTION II: THE NON-TRADITIONAL COMMODITIES...............................................43
4.5 UGANDA’S EXPORT DIVERSIFICATION PROGRAMME....................................43
4.6 THE FISH SUB-SECTOR ...........................................................................................44
4.6.1 The Significance of the Fish Sub-sector............................................................................. 44
4.6.2 Policy Framework for the Fish Sub-sector ........................................................................ 44
4.6.4 Conclusions............................................................................................................................. 48
4.7 THE FLOWERS SUB-SECTOR..................................................................................49
4.7.1 The Significance of the Flowers Sub-sector....................................................................... 49
4.7.2 The Policy Framework for the Flower Sub-sector ........................................................... 49
4.7.3 The Observed Responses...................................................................................................... 50
4.7.4 Conclusions............................................................................................................................. 52
4.8 THE MAIZE SUB-SECTOR........................................................................................53
4.8.1 The Significance of the Maize Sub-sector .......................................................................... 53
4.8.2 The Liberalization of the Maize Sub-sector....................................................................... 54
4.8.3 The Observed Responses...................................................................................................... 55
4.8.4 Conclusions............................................................................................................................. 57

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4.9 THE HIDES AND SKINS SUB-SECTOR.........................................................58
4.9.1 The Significance of the Hides and Skins Sub-sector........................................................ 58
4.9.2 Performance of the sub-sector............................................................................................. 58
4.9.3 Interventions in the Hides and Skins Sub-sector.............................................................. 62
4.9.5 Conclusions............................................................................................................................. 64
5.1 THE MAIN FINDINGS AND POLICY IMPLICATIONS........................................65
5.1.1 Lack of Production Response at the Secondary Level..................................................... 65
5.1.2 Lack of Sub-sector Strategies ............................................................................................... 65
5.1.3 Deterioration of Quality........................................................................................................ 65
5.1.4 The Influence of External Factors ...................................................................................... 66
5.1.5 Price Instability of Commodities ......................................................................................... 66
5.1.6 Limitations of Uganda’s Agricultural Exports................................................................... 66
5.1.7 Supply Constraints ................................................................................................................. 66
5.1.8 Limited Funding of the Agricultural Sector....................................................................... 67
5.1.9 Lack of a National Agricultural Policy................................................................................ 68
5.1.10 Deficiencies in the Agricultural Statistical System ............................................................ 68
5.1.11 Underdevelopment of Commercial Agriculture................................................................ 69
5.1.12 Land Tenure System .............................................................................................................. 69
5.1.13 Lack of Effective Coordination Frameworks.................................................................... 70
5.1.14 Breakdown of the Marketing Infrastructure...................................................................... 70
VI CONCLUSIONS AND RECOMMENDATIONS...............................................................71
6.1 CONCLUSIONS...........................................................................................................71
6.2 RECOMMENDATIONS..............................................................................................72
BIBLIOGRAPHY ...................................................................................................................................................... 75
APPENDICES ...................................................................................................................................................... 78

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ABSTRACT
This study examines the response of agricultural products to trade liberalization. It focuses on
Uganda’s four traditional and four non-traditional commodities. The analysis is premised on the
assumption that the introduction of trade liberalization was expected to trigger a positive response in
the production of these commodities, because of the perceived benefits brought about by liberalization
The study looks at the conceptual aspects of trade liberalization and how they relate to Uganda’s
agricultural sector in general. The analysis of the eight commodities examines their significance in the
economy, their performance over a number of years, including production dynamics, constraints,
government, policy reforms and their impact. The study also identifies findings of a general nature as
well as those that are specific to the commodity sub-sectors.

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ACKNOWLEDGEMENTS
A great many people contributed to the production of this study report. While it is not possible to list all
of them, we are nonetheless greatly indebted to them. Some of them deserve special mention. They
include the European Union through the UPTOP project, whose financial support made the project
possible; officials from the MTTI and other Government ministries, members of Parliament, the donors,
representatives of the private sector and civil society that provided invaluable information and answers
to questions and queries in the process of consultations and others who provided feedback on the draft.
This report was prepared by a team of consultants from Premium Consulting Limited led by Dr. Evarist
Mugisa. Their effort is greatly appreciated.

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LIST OF TABLES
Table 3.1: The Share of Agriculture in the Economy, 1988 – 2005
Table 3.2: Agricultural Exports by Value, 1998 – 2005 (in Millions of US Dollars)
Table 3.3: Agricultural and related Imports by value (US $ ‘000) by SITC grouping, 2000 - 2004
Table 3.4: Recurrent Expenditure of the MAAIF, 1999/00 – 1005/06 (in Shs ‘000’)
Table 4.1: Investment in the Coffee Sub-sector, 2000 - 2006
Table 4.2: Incidence of Coffee Wilt in some districts of Uganda (%)
Table 4.3: Sales of Organic Coffee (in 60-kilo bags)
Table 4.4: Cotton Production and Earnings
Table 4.5: Organic Cotton Production in Uganda in 2000/01 – 2005/06
Table 4.6: Uganda’s Fish Exports, 1992 – 2005
Table 4.7: Primary destinations of Ugandan formal exports of fishery products in 2004
Table 4.8: National Impact Targets of Uganda’s Floricultural Strategy 2005 – 2010
Table 4.9: The Main Investors in the Flower Sub-sector
Table 4.10: Maize Exports by Market Segment, 1997 – 2002
Table 4.11: Exports of Hides & Skins by Commodity Category and Contribution to the Sectors
(1997-2000)

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LIST OF FIGURES
Figure 4.1: The Coffee Marketing Chain before Liberalization
Figure 4.2: The Coffee Marketing Chain after Liberalization
Figure 4.3: Exports of Coffee in 1965/66 – 2004/05
Figure 4.4: Cotton Marketing Chain before Liberalization
Figure 4.5: Tobacco Production Trends (in Metric Tonnes)
Figure 4.6: Tea Production and Area Planted (1970 – 2003)
Figure 4.7: Tea Exports in Values and Volumes (1970 – 2002)
Figure 4.8: Volume and Value of Flower Exports, 1994-2003
Figure 4.9: Maize Production (MT), Acreage (ha) and Yield (mt/ha), 1980 -2004
Figure 4.10: Hides and Skins Production Trends
Figure 4.11: Export Trends of Wet Salted Hides (MT)
Figure 4.12: Hides and Skins Export Trends
Figure 4.13: The Leather Supply Chain

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ACRONYMS AND ABBREVIATIONS
AEP Agricultural Extension Project
AOA Agreement on Agriculture
ASAC Agriculture Sector Adjustment Credit
BATU British American Tobacco Uganda Limited
BPA Bukalasa Pedigree Albar
CAP Common Agricultural Policy
CDO Cotton Development Organization
CET Common External Tariff
CMB Coffee Marketing Board Limited
COMESA Common Market for East and Southern Africa
CSDP Cotton Sub-sector Development Project
CWD Coffee Wilt Disease
DFR Department of Fisheries Resources
EBA Everything-But-Arms
ECRP Emergency Cotton Rehabilitation Programme
EPA Economic Partnership Agreements
ERA Electricity Regulatory Authority
EU European Union
FCTC Framework Convention on Tobacco Control
FHL Fresh Handling Limited
FSSP Fisheries Sector Strategic Plan
FTZ Free-trade Zones
GATT General Agreement on Tariffs and Trade
GDP Gross Domestic Product
HACCP Hazard Analysis Critical Control Point
ICA International Coffee Agreement
IDA International Development Association
IFAD International Fund for Agriculture Development
ILO International Labor Organization
LDC Least Developed Countries
LMB Lint Marketing Board
MAAIF Ministry of Agriculture Animal Industry and Fisheries
MFN Most Favored Nation
MFPED Ministry of Finance, Planning and Economic Development
MSY Maximum Sustainable Yield
MTCS Medium Term Competitiveness Strategy
NAADS National Agricultural Advisory Services
NARO National Agricultural Research Organization
NCC National Cotton Council
NTAE Non Traditional Agricultural Exports
NURP Northern Uganda Reconstruction Programme
PEAP Poverty Eradication Action Plan
PMA Plan for Modernization of Agriculture
PTA Preferential Trade Area for Eastern and Southern Africa
SEP Strategic Exports Programme
TRIMS Trade-related Investment Measures
TRIPS Trade-Related Intellectual Property Rights

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UBOS Uganda Bureau of Statistics
UCDA Uganda Coffee Development Authority
UDC Uganda Development Cooperation
UIA Uganda Investment Authority
ULAIA Uganda Leather and Allied Industries Association
UNBS Uganda National Bureau of Standards
UNCTAD United Nations Conference on Trade and Development
UNIDO United Nations Industrial Development Organization
UR Uruguay Round
UTA Uganda Tea Authority
UTGC Uganda Tea Growers Corporation
WHO World Health Organization
WRS Warehouse Receipt System
WTO World Trade Organization

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EXECUTIVE SUMMARY
1. This report is a result of a call for research proposals made in October 2005 by the EU-funded
Uganda Program for Trade Opportunities & Policy (UPTOP) under the Ministry of Tourism, Trade
and Industry (MTTI). As the title of the study - “Production Response of Key Agricultural
Commodities to Trade Liberalization” – suggests the study focuses on a number of agricultural
commodities. Four of these are Uganda’s traditional export commodities (coffee, cotton, tea and
tobacco), and the other four (fish, flowers, maize and hides and skins) are non-traditional export
commodities.
2. The report analyses conceptual issues relating to liberalization in general and trade liberalization
in particular, as it relates to agriculture sector in Uganda. It analyses the conditions that existed
before liberalization in the eight commodities, the reform measures that were introduced and the
observed response to these reforms. It also discusses of the findings that are not necessarily
responses in themselves, but which have a direct bearing to production and draws some lessons
for consideration. The report makes conclusions and recommendations on the way forward.
3. The report is premised on the concept of economic liberalization which has been accepted and
implemented in many countries in the world. It examines its pitfalls and benefits and looks at its
application in Uganda and in the agricultural sector in particular. The study argues that the
process of liberalization has gained momentum and is irreversible and can only intensify and
accelerate. The process of growing openness of national economies will continue with or without
Uganda’s involvement.
4. The main challenge for Uganda, which is a predominantly agricultural economy, is to ensure she
maximize the benefits of agricultural trade liberalization. These include attaining increased
market access opportunities for her agricultural products, increased competitiveness of her
products in global markets, access to low to low-cost and competitively priced inputs, etc.
5. The study notes that reforms introduced by the Government in the agricultural sector were
responsible for restoring it (agriculture) given the formidable challenges it was facing, not least
the drop in coffee earnings. Through macroeconomic and pricing policies Government was able to
prevent the collapse of the coffee and cotton sectors. The reforms in agriculture which began
with agricultural rehabilitation credit in 1983 were successful in rehabilitating the export crop
processing facilities (coffee, cotton, and tobacco).

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6. The introduction of liberalization as a policy in the coffee sub-sector coincided with the sharp
decline in the world coffee prices. Although introduced at a rather difficult time, nonetheless,
this policy has contributed greatly to the growth of the sub-sector, including exporting under
adverse conditions. At the same time, the liberalization of the sector seems to be geared towards
the external market with no focus on the domestic market. Currently domestic consumption
remains quite low with preference given to tea instead of coffee. Domestic coffee consumption
must be seen as a growth opportunity area for Uganda’s coffee industry.
7. The liberalization of the marketing chain prompted a proliferation of players, especially
exporters, primary level buyers, hullers and processors. These were attracted mostly by the
favourable trade margins especially in the mid 1990s. The report notes that liberalization has
brought about important changes in most of the commodities analyzed including improvement in
the quality of the products, the increase in the farmer’s share of the international price,
introduction of more players in the sub sectors, increase in the area cultivated, etc.
8. In spite of the liberalization measures, cotton production remains generally low (at 254,000 bales
compared to China’s 29 million bales). Thus, Uganda is and will be for a long time to come a
small producer. A number internal supply constraints as well as external factors (domestic
support in the major producing countries, competition from synthetic fibres, etc) are working
against increased production in Uganda. However, liberalization has helped to create an
environment conducive to the growth of the sub-sector and indeed has brought about some
changes in the system of purchase, ginning, marketing of cotton in Uganda.
9. The future prospects for fish exports looks good on account of the increasing demand for specific
fish products, as is the case for the white fish species, the Nile perch of which its demand has
increased following the decline in traditional white fish species in Uganda’s main fish export
market due to over exploitation. In addition, to capture more fish markets Uganda has diversified
most of her fish exports; a case is point is the tilapia species which is now exported to the USA.
10. The main findings of the study include: lack of a comprehensive agricultural policy, poor state of
agricultural statistics, limited funding of the agricultural sector, under-development of
commercial agriculture, deficiencies in the land tenure system, serious supply constraints, lack of
production response at secondary level, influence of external factors, etc.
11. The main recommendation of the study include development of a comprehensive agricultural
policy, increase of the share of agricultural funding by the Government, improvement of the
agricultural statistical system, promotion of large scale agriculture, value addition, etc.

I THE STUDY ASSIGNMENT
1.1 INTRODUCTION
This report is a result of a call for research proposals made in October 2005 by the EU-funded Uganda
Program for Trade Opportunities & Policy (UPTOP) under the Ministry of Tourism, Trade and
Industry (MTTI). Premium Consulting Limited (PCL), the author of the report, was among the
successful respondents to that call and prepared a proposal which went through a rigorous and
thorough vetting process. As the title of the study - “Production Response of Key Agricultural
Commodities to Trade Liberalization” – suggests the study focuses on a number of agricultural
commodities. Four of these are Uganda’s traditional export commodities (coffee, cotton, tea and
tobacco), and the other four (fish, flowers, maize and hides and skins) are non-traditional export
commodities.
The essence behind the study is that policy reforms, especially agricultural trade liberalization, are
supposed to induce some positive response in production or supply. Ideally, supply response for any
operation should be measured by the growth of production before and after the reforms. Supply
response is symmetrical. There has been a tendency to expect increased production as an inevitable
consequence of agricultural policy reforms. But where there has been heavy agricultural reform,
liberalization leads to contraction – accelerated movement of resources out of agriculture and re-
allocation within the sector to the more profitable crops.
This report is a product of a two-and-a-half month intensive work on the assignment. It contains the
consultant’s key findings, observations, and recommendations for future action by the concerned
parties - government agencies, donor agencies, farmer associations, private sector operators, etc.
1.2 OBJECTIVES AND SIGNIFICANCE OF THE STUDY
The main objective of the study is to analyze the production response of selected agricultural
commodities to trade liberalization as a government policy. The specific objectives of the study are:
• To contribute to capacity building for policy makers, negotiators in multilateral trade negotiations
and practitioners in agricultural trade.
• To assess the extent to which different social groups are benefiting from agriculture due to trade
liberalization.
• To discover gaps in the area of trade liberalization and production response of key agricultural
commodities and propose policy measures to address them.
• To make recommendations for improving production response of key agricultural commodities to
trade liberalization.
1.3 RESEARCH QUESTIONS
The research was guided by the following research questions:
• What was the performance of agricultural sector before the implementation of trade liberalization?
• What has been the production response of the key agricultural commodities to trade liberalization?

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• What are the sub-sector constraints that have impeded the growth and responsiveness of key
agricultural commodities in the face of trade liberalization?
• What measures have been designed to overcome these constraints to boost the productivity of the
agricultural sector?
• What emerging challenges have been brought about by trade liberalization in the production and
export of key agricultural commodities?
• What recommendations can be made for enhancing the responsiveness of key agricultural
commodities to trade liberalization?
1.4 RESEARCH DESIGN AND METHODOLOGY
In carrying out this assignment, the Consultant adopted an approach, which was distinguished by three
principles, namely:
• the strategy and solutions proposed would directly contribute to increased competitiveness of
Uganda’s agricultural commodities in the current liberalized trade environment;
• any proposals for change or reform would build on the capacity already built; and
• all stakeholders would be consulted for their views and lessons learned from the experience to-
date.
1.4.1 Conceptual Framework and Roadmap
The conceptual framework is presented in Figure 1.1 below. As can be seen from the Figure, there are
independent variables on the left representing the causal factors – trade liberalization measures (such
as the exchange rate reforms, balance of payments reforms, removal of price controls, etc). On the
other hand, we have the dependent variables such as the production of export commodities, income
growth, the balance of payments position, the terms of trade, etc represented as outcomes. The
intermediate effects such as prices, production volumes, the trade balance, etc, are the parameters
which measure the impact of trade liberalization and other reforms on the outcomes.
Figure 1.1: The Analytical Framework
INTERMEDIATE EFFECTS
Prices
Production Quantities
Export/Import Volumes
OUTCOMES
Increased production of the
commodities
Increased investment
Improved value addition
New products and markets
CAUSAL FACTORS
Trade Liberalization
Other Reforms
External Factors
Ideally, trade liberalization and other causal factors are supposed to lead to increased production of
key agricultural commodities, export growth, rise in incomes of practitioners notably the farmers, agro
processors and exporters. From economic theory, trade liberalization increases competition arising
from the emergence of new market players. Competition in this case is based on price, production
volume and the trade balance. Increases in competition forces farmers and firms to adopt leaner
production techniques leading to improvements in quality and ultimately productivity. Assuming there
are no production and supply bottlenecks and macroeconomic environment is stable such as inflation,
exchange rate and no external barriers to trade. Assuming there are no production and supply
bottlenecks, such as inflation, exchange rate appreciation, and external barriers to trade, etc, trade
liberalization should translate into increased exports, growth in income for producers and exporters.

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Sustained growth over a period of time should lead to a fall in poverty levels. Furthermore, under a
properly functioning trade regime, increases in a country’s exports should lead to an increase in export
revenues, which can be channeled into capital investments, thus increasing the country’s capital
account. This improves the BOP position over time. At the same time, when a country’s exports
grow, this increases its leverage in international markets.
On the basis of this conceptual framework, the research investigated the various sources of
information – primary and secondary – using various techniques. The starting point in this research
was thorough investigation of the relevant literature on the subject (reports, policy documents, journals
etc), Internet search (of recognized bodies such as the WTO, World Bank, FAO, UNECA, EAC,
COMESA, etc) which helped to conceptualize the problem. The study adopted a data collection
approach that emphasized trend analysis and validation through interviews with key persons involved
in the production of the commodities in question. The trend analysis using time series of secondary
data highlights the dynamics of the output volumes, yields, export volumes and price changes across
the pre and post liberalization period. The purpose of this approach was to highlight the implications
of the changing policy environment on output, yields, exports and prices. The observed changes in the
policy environment were then mapped on the trend of these quantitative dimensions.
In order to validate the observed trend changes, stakeholders involved in the production of the
commodities under investigation were then asked to describe the challenges, opportunities and threats
experienced in the pre and post-liberalization era. Those interviewed included policy makers, farmer
groups, agro-processing firms such as BATU and ULAIA, sub-sector organizations such CDO,
UCDA, UFEA, UFPEA, UTA), relevant government ministries, donor agencies, etc. The views and
information from the interviewees constituted the qualitative aspects of the report.
1.5 THE STRUCTURE OF THE REPORT
This report is organized in six chapters. It starts with an abstract, acknowledgement and an Executive
Summary. The first chapter gives the context of the assignment. The second chapter deals with
background issues to liberalization. The third chapter discusses trade liberalization as it relates to
agriculture sector in the broader context. The fourth chapter gives a commodity analysis, dividing
them into sections on the traditional commodities and the non-traditional commodities. The fifth
chapter is a discussion of the findings and the main lessons learned from the analysis. The sixth and
last chapter gives the main conclusions and recommendations on the way forward.

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II BACKGROUND TO TRADE LIBERALIZATION
2.1 THE CONCEPT OF ECONOMIC LIBERALIZATION
Over the last two decades, economic liberalization (also known as “neo-liberalism”) has been an
influential model of development in many countries. The World Bank and International Monetary
Fund (IMF) adopted the neo-liberal development philosophy by 1979 (Dawson, 2005). With this
endorsement by the international financial institutions, economic liberalization has emerged as a
central component in the development debate. The shift to economic liberalization followed the failure
of state-centred development strategies of the post-war period. Other factors that in the international
environment, most notably the second oil crisis, the declining terms of trade for developing countries,
low export demand for primary products, high global interest rates and the debt crisis.
2.1.1 Economic Liberalization Defined
But what is economic liberalization? There is no clearly accepted definition of the concept of
economic liberalization. What is agreed on, however, is that it covers the questions of macro-economic
stabilization, structural market liberalization, social policy reform and institutional building to lower
transaction costs of market exchange. These questions, in turn, cover an undefined set of more specific
operational policies.
According to Dawson (2005), economic liberalization refers to government policies that involve
promotion of free trade, deregulation, the downsizing or privatization of public services, and the
reduction or elimination of subsidies, price controls and rationing systems. Put differently, these
policies follow a non-interventionist (or laissez-faire) approach to economic activity that relies on
market forces for the distribution of resources. Apart from discouraging intervention in the domestic
economy, economic liberalization also encourages unrestricted international trade. Consistent with the
law of comparative advantage, all countries mutually benefit from free trade. A country that is less
productive than its counterparts stands to benefit from the removal of tariffs and other trade barriers, as
market forces induce it to move resources (within the country) from industries with a comparative
disadvantage to those with a comparative advantage.
Neo-liberalism also proposes some advantages for social welfare. Regarding distributive issues and
social justice, neo-liberalism claims that these matters are managed by a trickle-down effect.
Originating in supply-side theory, the trickle-down effect maintains that economic growth will
eventually benefit all members of a society. Even if wealth creation is not initially equally distributed,
in a free market it will nonetheless bring about expansion through activities such as employment
creation and increased demand for skilled labour, which will ultimately improve both the income and
general well-being of the entire society.
A. Economic Liberalization in Uganda
Uganda adopted market-oriented economic policies in 1987. The adjustment process began with a
stabilization programme to reduce the level of inflation and regain control over economic policy. This
was followed by the liberalization of prices and markets (allowing free market prices and removing
institutional constraints) and the corresponding rationalization of institutions (including the
streamlining of the public sector and the financial sector). Only such a transformed economy was
capable of sustaining economic development the engine of the private sector.

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The main objective of the reforms in Uganda was to weaken the effects of the factors that inhibit
productive efficiency and export development. These had arisen earlier either through taxation,
protectionism or the over-valuation of the currency exchange rate. In the area of tax policy, reforms
were directed at licensing, rationalization of the tax structure, exemptions and other quantitative
restrictions. At the level of industrial policy, the Government targeted the elimination of price
controls, loss-making enterprises, the entry and exit restrictions on private enterprises, discretionary
tax and subsidy policies as well as soft budget constraints on state-owned enterprises. Public
enterprises were lined up for privatization in order to improve efficiency.
Following the stabilization phase in which inflation was controlled, budgetary reforms implemented
and government expenditure curtailed, Government set out to liberalize the markets. Consequently,
Government embarked on removal of price controls and other artificial barriers to commerce and
allowing investment to operate in a fairly free market environment. Maintaining such free markets
meant that the Government would have to steer clear of commercial sector activities. Its main
economic roles would be to enforce market roles, collect taxes, and only be involved in the provision
of “public goods”. Consistent with this thinking, Government abolished the monopoly hitherto
enjoyed by public enterprises and marketing boards. The coffee sector was liberalized, which not only
saved the industry but was also the single greatest contribution to the reduction of rural poverty.
Government started a programme of privatizing public enterprises. It returned dispossessed properties
to their former Asian owners; in 1991 it created the UIA to encourage foreign investors.
As the process of trade liberalization gained momentum, Government eliminated all restrictions to
foreign trade, including all non-tariff barriers to importing and rationalized the structure of customs.
On the export side, Government eliminated all export taxes, simplified the hitherto bureaucratic
procedures for exporting and introduced a duty-drawback scheme for exporters. Along with the
import and reforms, the Government introduced a more realistic exchange rate and a more transparent
system of foreign exchange allocation, thus eliminating the “black market” on foreign exchange. In
July 1990, a foreign exchange bureau system was established, and in 1993 an inter-bank system that
unified the foreign exchange market was introduced.
2.2 TRADE LIBERALIZATION
There is no single and universal definition of trade liberalization. The literature on trade policy
(Kruegger (1986), Bhagwati (1998), Papageourgiou and Choski (1991), Thomas and Nash (1991), etc)
includes various definitions and concepts on liberalization. In general, trade liberalization has been
equated with becoming more “outward-oriented”. Countries are considered more outward-oriented if
their trade reforms imply a move toward (a) neutrality, (b) liberality, and (c) openness. Neutrality is
about equalizing incentives, on average, between the exporting countries and import-competing
sectors. Liberality involves a more liberal regime where the level of intervention has been reduced.
Finally, an increase in openness is equated with an increase in the importance of trade in the economy
as a percentage of GDP.
2.2.1 The Content of Trade Liberalization
Trade liberalization includes not only a reduction in the anti-export bias of the trade policy regime and
an increase in the reliance on the price mechanism, but also a reduction in the level of intervention.
The policy changes that come with trade liberalization include: the lowering of average nominal
tariffs, narrowing the range of nominal and effective tariffs, a shift from quantitative restrictions to
tariffs, a real devaluation of the currency, a unification of multiple exchange rates, removal of export
taxes, introduction of export subsidies, rebates or compensation schemes, etc.

6
Trade liberalization has two closely inter-related sides, namely “import liberalization” and “export
promotion” (Oyejide, 2004). The former is associated with movement away from complete control
over imports and foreign exchange towards a modes and mostly tariff-based protection. In SSA this
movement has occurred in several stages, i.e. rationalization of the tariff structure, reduction of tariff
dispersion, and finally reduction of tariffs. Through a combination of unilateral and regional
modalities, import liberalization has progressed quite rapidly in many African countries, particularly in
the 1990s. In Eastern and much of Southern Africa, for example, most countries are still in the process
of implementing the CET of the EAC and the COMESA. A number of countries have achieved low
simple average tariffs that are well within the COMESA CET. They include Madagascar (5.7%),
Malawi (13.4%), Rwanda (9.9%), Uganda (9%), and Zambia (14%).
The other side of trade liberalization involves promotion of export diversification and growth as part
of an outward-oriented development strategy. Until the beginning of trade policy reforms in many
African countries, exports suffered high duties (which amounted to indirect taxes on exports), export
licensing, export taxes, below-market producer prices paid by monopoly marketing boards, and
overvalued currencies. Policy reforms have eliminated most of these barriers in the majority of African
countries. In addition, trade liberalization presupposes an appropriate outward-oriented development
strategy to ensure that producers for external markets have access to imported inputs at world prices.
For this reason, mechanisms such as duty drawbacks/rebates, bonded warehouses, free-trade zones
(FTZ), etc, may be used as a means of granting free trade status to such exporters. Many African
countries, including Uganda, Kenya, Madagascar, Mauritius, Senegal, Zimbabwe, etc have used duty
exemptions/drawback schemes. However, these have not worked well in several countries due to poor
management and poor funding in some cases. Similarly, FTZ and bonded warehouses have been tried
in many African countries, but with limited success. The most successful African FTZ (such as in
Mauritius) have been supported by adequate infrastructure and good quality labour force.
2.2.2 The Benefits of Trade Liberalization
The economic benefits of trade and trade liberalization are widely recognized. By improving the
allocation of factors of production, trade is an important contributor to economic welfare. Trade allows
countries to move beyond domestic production possibilities and constraints and in so doing provide a
higher standard of living than would otherwise be the case. The reduction or elimination of barriers
among countries encourages firms to produce and trade goods and services in which they have a
comparative advantage. Economies will concentrate on goods and services that they produce
efficiently and trade these with what they produce less efficiently.
♣ Exploitation of economies of scale: Trade liberalization allows for the greater exploitation of
economies of scale. By providing domestic producers increased market access opportunities, the
freer market conditions enable firms to undertake specialized production runs and reduce the unit
costs of production. For countries with small domestic markets, like Uganda, economies of scale
may be extremely important (Shranks, 1999).
♣ Promotion of competition: Trade liberalization also increases competition in both the foreign and
domestic markets. This implies that firms will need to respond faster to changing market
conditions. Greater competition is likely to provide an incentive to firms to improve their
economic performance through cost-saving innovations and to enhance the quality of their
products. More competition also leads to lower prices for consumers.

7
♣ Access to imports: Trade liberalization influences trade by allowing access to low-cost imports,
thus playing an important role in enhancing consumers’ well-being as well as allowing domestic
firms to have access to competitively-priced domestic inputs.
♣ Reduction of uncertainty: Finally, trade liberalization, undertaken in a bilateral or multilateral
context and which establishes clear trading rules, will reduce uncertainty. Without such rules, a
country may face unilateral, often damaging, actions from its trade partners. The reduction of
uncertainty, while providing more table access, also allows firms to make more informed business
decisions.
2.3 CONCLUSION
From the above analysis it can be argued that there are potential benefits arising from liberalization.
Agricultural trade liberalization, as indicated above, is intended to induce positive response in
production or supply. Ideally, supply response for any operation should be measured by the growth of
production before and after the reforms. However, there are also other dimensions of production
response other than increased output. A change in the organization of production, for example, in
order to promote the competitiveness of the products or emergence of a new product in response to
opportunities created by liberalization is a case in point. Against this background, in examining the
production response of the selected products under review, it is important to take not of the other
forms of response that emerge in relation to production.

8
III AGRICULTURAL TRADE LIBERALIZATION IN UGANDA
3.1 AN OVERVIEW OF UGANDA’S AGRICULTURE SECTOR
3.1.1 The Structure of Uganda’s Agriculture Sector
Uganda’s economy is dominated by the agricultural sector. It is concentrated in the southern part of
the country where weather patterns provide two growing seasons. Agricultural production comes
almost exclusively from 2.2 million smallholders, mostly working 2 to 3 hectares of land, using
traditional methods of cultivation and family labour.
With a favorable climate year-round and some of the best agricultural land in Africa, Uganda produces
a wide variety of tropical and sub-tropical agricultural products throughout the year. There are four
major sub-sectors in Uganda’s agricultural sector: crops, livestock, fisheries, and the forestry. Of the
four, the crops sub-sector is by far the largest in terms of area and contribution to GDP. Much of this
is food crops for subsistence by smallholder households, with only a third sold to domestic and export
markets (World Bank, 2005). Less than 1% of the food crops produced is processed beyond farm gate.
The main food crops are tubers and roots, (cassava, sweet potatoes, yams, etc) bananas, maize, millet,
sorghum, beans, oil seeds, fruits (pineapples, papaya, bananas, avocadoes, mangoes, oranges, etc)
vegetables, spices (vanilla, cardamom, pepper) and flowers. About 49% of the food crops are
marketed or bartered for subsistence consumption outside the market system.
The livestock sub-sector is also another important agricultural sub-sector, accounting for 17% of the
agricultural GDP. Livestock includes dairy cattle1
, goats, sheep, pigs, and poultry. Livestock products
include meat, hides and skins, as well as dairy products. Livestock production potential is high year-
round with good quality pastures and there is a growing feed industry. In recent years there has been
growing production of apiculture products. With about 17% of the country’s surface area covered by
water (lakes, rivers, and swamps), the fisheries sub-sector accounted for about 5% of agricultural GDP
in 1996/97 and has been one of the leading earners of foreign exchange after coffee. Almost all
produce is marketed. Fish farming is beginning to take root and expand. The forestry sub-sector
accounts for about 4% of Uganda’s agricultural GDP. Natural and plantation forests are widely
distributed throughout the country. Many areas also feature agro-forestry activities and community
forests are developing.
3.1.2 The Importance of Agriculture in Uganda’s Economy
Agriculture has an important role to play in Uganda’s economic development. It is a source of food
supply and raw materials, a supplier of foreign exchange, a supplier of labour for industrial
employment, a market for non-agricultural output and a source of surplus for investment (Townsend,
1999). Agriculture is central to Uganda’s economic growth and the reduction of poverty, accounting
for large share of GDP, exports, and providing employment to a large section of the rural population.
The agricultural sector is also a major source of foreign exchange earnings, accounting for 48% of
total export revenues (MFPED, 2004) and was the main reason for successive current account
1
In 2000 Uganda’s dairy herd stood at 285,000 animals (both exotic and crossbreeds) compared to 209,000 in
1994. By year 2002, the total cattle herd had reached 6.3 million, including 5.9 million indigenous and 0.3
million exotic crosses.

9
surpluses over the years. Table 3.2 shows the contribution of the agricultural sector to Uganda’s
exports. It is also a major source of a large proportion of raw materials for the country’s agro-
processing industrial sector (coffee hulling, cotton-ginning, grain milling, dairy processing, etc). As
source of income and employment, agriculture accounts for about 69% of total employment. Crop
farming is the main source of household income contributing just over 30% of all household income in
Uganda. Other incomes include farm enterprises such as animal husbandry, poultry and cottage
industries such as brewing. According to the Poverty Status Report (MFPED, 1999), households
engaged in the traditional cash crop sector are better off than those in the traditional food crop sector
and to that extent, areas and farmers growing coffee have benefited more from price liberalization
policies and increased access to markets than areas growing mainly food crops.
3.2 FACTORS INFLUENCING AGRICULTURAL SECTOR GROWTH
With fertile soil and good climate (abundant rainfall and excellent temperatures), the country is
endowed with the best agricultural potential within the Eastern and Central African region. Of the
country’s total area of 241,039 km2
(24.1 million hectares), 18 million hectares are arable land, but
only 5 m hectares (less than 28%) are under cultivation (UNIDO, 2000). During the 1970-1980s
growth in the agricultural sector in Uganda was hampered by a series of policy and structural
constraints which are well articulated in the PMA. The factors as articulated in the PMA can be
summarized as follows:
• Poor infrastructure: Inadequacy of physical infrastructure such as feeder roads, communication
facilities, power supply, education and health facilities, water supply and market infrastructure
continue to constrain marketing of agricultural produce and investments in rural areas and are
responsible for the high market transaction costs.
• Technology dissemination: Non-availability of efficient and cost-effective cultivation technology,
low adoption rates of appropriate technology due to weak research, extension and farmer linkages,
absence of effective delivery of extension services to farmers.
• Lack of finance: Availability of cheap investment finance and working capital are serious
bottlenecks for smallholder agricultural production. Farmers have almost no access to credit to
improve their productivity or to begin micro-enterprises. Formal banks are reluctant to lend to
small farmers because they view them as too risky and expensive.
• Land tenure and policy: Although a fairly comprehensive Land Act was enacted in 1998, it still
remains to be implemented to bring about the desired changes in land tenure systems, land policy
and land registration as well as land administration improvements. Thus, the constraints of the
land tenure systems that are not conducive to the emergence of land markets persist. Also the
issue of land ownership and inheritance by women who are key stakeholders in agricultural
production has not yet been resolved.
• Farmers’ organisations: There are no effective grassroots/village-based, commercially-oriented
institutions, capable of mobilising small producers for the production of income-generating
commodities. The cooperative movement, which was effective in mobilising farmers in this
fashion, has not been able to perform this function in the past decade.
• Human resource constraints: The majority of Ugandan farmers is illiterate and cannot easily adopt
modern agricultural practices. They lack knowledge and skills related to modern production
(harvesting, handling, storage, packaging, etc), negotiation and execution of export orders, marketing,

10
etc, to be able to meet the standards of the markets. Many of them have limited or no knowledge of
the market requirements in terms of quality, the rules governing it, packaging, costing, timely
delivery, etc.
• Information constraints: There lack of accurate and reliable agricultural statistical data. Many
agencies involved in the collection and dissemination of agricultural data are not well coordinated.
These agencies are bedevilled by organisational, financial and managerial deficiencies. At the
same time, the potential users are not aware of the work of the various agencies.
• On-farm and off-farm storage: Post-harvest losses, particularly for food crops, are very high,
aggravating the food insecurity problem. In addition to timely harvesting, proper drying,
protection from infestation with diseases and pests and storage are critically important and should
be introduced. Today, few farmers in rural areas have well-constructed storage facilities. Off-farm
storage facilities owned by traders, millers, processors, and exporters are generally lacking and
need to be addressed.
• Environmental degradation: Increase in population pressure, intensive utilization of land
including restricted grazing, soil erosion, deforestation and the drainage of swamps have resulted
in considerable environmental degradation and low productivity in many areas of the country.
• Effects of HIV infection: The AIDS epidemic continues to impact negatively on agricultural
production. The loss of labour as a result of AIDS has reduced the amount of time, care and cash
required to effectively carry out farming activities by small farmers, leading to declines in crop
yields. The sickness and/or death of an adult as a result of HIV/AIDS can result in the inability of
the household to cultivate the land at its disposal. In order to adapt to factors caused by AIDS,
farmers have responded by changing their cropping patterns. In some farming systems this has
resulted in a shift away from cultivation of cash crops such as coffee, in order to concentrate all
available labour on the production of subsistence crops like sweet potatoes and cassava.
3.3 THE AGRICULTURAL TRADE LIBERALIZATION POLICY FRAMEWORK
3.3.1 Agricultural Policy Reforms under the Economic Recovery Programme
A. Main Developments in the Agricultural Sector before the ERP
Before the mid-1980s, the agricultural sector was dominated by central government structures,
particularly in the following areas:
• Financing and delivery of research and extension services to farmers: In this respect, the bias was
towards supporting traditional export crops, while constraining the traditional food crop sector due
to lack of technical attention and inputs. It also tended to neglect the poor the farmers making
them even poorer. Research was scattered in the different ministries and departments. The main
problem was the most of these departments had limited capacity to carry out research and farmer
participation in research was marginalized.
• Marketing and pricing of agricultural inputs and produce: As noted earlier, the marketing and
pricing of agricultural inputs and produce was mainly through the marketing boards and a limited
number of licensed traders – CMB for coffee, Lint Marketing Board (LMB) for Cotton and
Uganda Tea Authority (UTA) for Tea. Producer prices for these traditional export commodities
were determined by the Government and almost all exports were sold after minimal processing.

11
This situation created monopoly and related production and marketing problems. Agricultural
export proceeds were controlled by the government and gains from agricultural marketing and
trade were lost through government bureaucracies. Some goods became scarce leading to the
emergence of parallel markets corruption.
• Production and marketing finance/subsidies: While this was intended as an incentive to promote
increased agricultural production, it tended to benefit the so-called large-scale or commercial
farmers as well as large-scale traders, hence widening the gap between the rich and the poor. In
the long run, however, the subsidy programme was not sustainable because it increased the
Government budget deficit.
• Development of irrigation infrastructure: This programme did not receive high priority and the
infrastructure did not expand as desirable. In some areas, it broke down instead. A case in point is
the irrigation scheme in Kasese. As a result, agricultural production was severely restrained by the
erratic rainfall, even in areas with relatively sufficient water supply.
There were a number of structural constraints that hampered agriculture. They included low
productivity, inadequate transport infrastructure, lack of agricultural research an inefficient extension
services, lack of credit, non-incentive pricing policies, inefficient markets for capital and agricultural
inputs; shortage of foreign exchange for the importation of agricultural inputs; government monopoly
over food and export markets. Annual growth in the agricultural sector was about 1.2% between 1965
and 1980 and 2.3% between 1980 and 1985 (ILO, 2000).
B. The Economic Recovery Programme
In 1987 the Government introduced the Economic Recovery Programme (ERP). Government policy in
the agricultural sector aimed at the following key areas:
• rehabilitation of traditional export commodities (coffee, cotton, tea and tobacco) in order to
increase export earnings and thereby improve the country’s balance of payments position;
• diversification of the export base through the development of non-traditional exports; and
• removal of constraints (physical, technical and institutional) to the development of sustainable
agriculture.
In order to achieve these objectives, the Government designed and adopted the so-called agricultural
Sector Policy Agenda which was implemented in 19912
. The agenda had six major objectives for the
agricultural sector:
• intensification of agricultural production and processing;
• increase of agricultural producer prices;
• restructuring the finance of production cooperatives;
• liberalization and promotion of agricultural trade;
• reorganizing agricultural marketing institutions; and
• improvement of agricultural research and advisory services.
In the course of implementation of the Agenda, emphasis was put on prevention of the erosion of
farmers’ price incentives, increased efficiencies in the processing of crops and livestock products,
2
The agenda was implemented with financial support from the International Development Agency (IDA) and
technical support from the Agricultural Secretariat, IDA missions, and Working Group Task Forces.

12
improvements in the marketing arrangements for agricultural products, removal of the monopoly of
marketing boards, and strengthening of agricultural services (including provision of agricultural
inputs, research and extension services). Export promotion and diversification focused on the
development of non-traditional export crops. Liberalization of agricultural markets included the
removal of the monopoly of marketing boards and price controls. The main objective was to correct
the market failures, leading to better farm-gate prices and an increase in the number of marketing
outlets3
. Regulatory and promotion agencies were set up for key export crops, for promotion, quality
control and dissemination of market information. The National Agricultural Research Organization
(NARO) was created in 1992 to strengthen research services in agriculture, among others.
The impact of these measures was positive. In 1990-1993, for example, the real price of Robusta
coffee rose from Ushs 90 per kilogram to Ushs 196; Arabica coffee from Ushs 263 to Ushs 504 and
maize from Ushs 23 to Ushs 126. Specific sub-sector reforms were introduced for the coffee, cotton,
tea, and non-traditional commodities. The removal of the monopoly of marketing boards and the
freeing of producer prices from Government control liberalized the market for agricultural produce,
including export crops. The removal of export taxes and other market distortions provided incentives
for producers. On account of the various policy and institutional reforms under the Agenda, the
agricultural sector recorded significant recovery achieving annual GDP growth rates of 4-10% in
1986-1999 (MAAIF/MFPED, 2000).
3.3.2 Agricultural Policy Reforms under the Poverty Eradication Action Plan
The reforms under the ERP were subsequently revised and consolidated into an all-inclusive
government development framework – the Poverty Eradication Action Plan (PEAP). The main
objective of the PEAP is to reduce the level of poverty in Uganda from about 35% in 2000 to less than
10% in year 2017. To this extent, the main PEAP recognizes three important conditions which are
essential for broad-based economic growth. These are:
• modernization of the agricultural sector by taking into account its comparative advantage at home,
regionally and globally;
• maximization of economic growth and reduction of income inequality through active participation
of the poor in the economy; and
• promotion of sustainable economic growth by ensuring macroeconomic stability.
The PEAP is implemented through the Plan for Modernization of Agriculture (PMA) and the Medium
Term Competitiveness Strategy for private sector (MTCS).
A. The Plan for Modernization of Agriculture
The PMA is a strategic and operational framework for the transformation and structural change of
agricultural sector. It seeks to re-orient the subsistence farmers from producing predominantly for
consumption, to producing more for the market. The overall objective of the PMA is to increase the
incomes and the quality of life of the poor subsistence farmers, improve household food security,
improve the productivity of the subsistence farmers (who form the backbone of the economy), expand
by 6% annually the area under crops, and adopt modern farming practices, with emphasis on
specialization and production for targeted markets.
3
However, most farmers in areas with poor or no feeder roads were disadvantaged. They had limited access to
markets, had inadequate market information, received unattractive prices and experienced high post-harvest
losses due to unsold stock.

13
One of the priority areas of the PMA is agro-processing and
marketing and improved market access (Box 3.1). The PMA
recognises that market access is a function of both domestic
and external factors. Domestically there is need to address
constraints (infrastructure, information, etc) and ensure an
environment which is conducive to trade. External issues
include international trade rules and policies, comparative
advantages and market opportunities. Government has
committed itself to address the issue of international market
access. To this end, efforts have been made to align the
country’s trade policies to take full advantage international
trade rules.
Box 3.1: PMA Priority Areas of Action
♣ Research and technology
development
♣ Agricultural advisory services
♣ Improved access to rural finance
♣ Better physical infrastructure
♣ Agricultural marketing and agro-
processing
♣ Sustainable natural resource
utilization and management
Measures have also been taken to ensure the country benefits from intentional markets. They include:
• Building capacity in terms of competent personnel for international trade negotiations (for policy
formulation, monitoring, and enforcement especially in the area of the WTO Agreement on
Agriculture and trade related intellectual property rights (TRIPS);
• Restructuring and strengthening of existing trade-related institutions so that they can effectively
perform their functions;
• Establishment of a warehouse receipt system (WRS) and an agricultural commodity exchange.
These are now already in place and functioning; and
• Promoting regional trade in order to exploit existing opportunities. To this end, emphasis is put on
trade in local foodstuffs and newer high-value agricultural products.
B. The Strategic Exports Programme
In September 2001, the Government introduced the Strategic Exports Programme (SEP), which was
an initiative to promote exports. The SEP identified nine sectors and commodities which were
perceived to be strategic exports. They included coffee, cotton, tea, livestock, fish, horticulture, Irish
potatoes4
. In order to ensure implementation of the SEP, Government provided a total of Shs. 52.5
billion to promote the production, processing and marketing of these strategic exports. A total 46
million coffee seedlings were distributed to 200,000 households, while 16 wet coffee-processing
machines with the capacity to process 20,000 tonnes of coffee per annum were imported. In addition,
Government initiated the organic coffee certification scheme for 16,000 farmers.
In the tea sub-sector, 300,000 improved clones were imported for multiplication and five million
seedlings distributed to 1,300 farmers. Furthermore, over 100 nursery operators were trained, 150
nurseries with capacity of 9 million seedlings were brought into operation, and 500 hectares of tea
estates were rehabilitated. In the horticulture sub-sector, Government trained 315 farmers in nursery
management, 35 farmers in export marketing, and 10 exporters on how to access the EU market. In the
fisheries sector Government intensified lake surveillance, control, monitoring and enforcement of
regulations to curb the use of illegal fishing gear and the catching of immature fish. Efforts were made
to promote fish-farming and to this end 20 water sources were stocked with 3 million fish fry.
4
Other non-agricultural commodities included ICT and commodity trading and risk management.

14
3.4 THE MAIN RESPONSES OF THE AGRICULTURE SECTOR TO THE REFORMS
The above reforms triggered of positive responses in the agriculture sector in terms of increased output
and export earnings.
3.4.1 Increased Output
In response to the reforms, there was a marked increase in food production, although this was achieved
through increased acreage in cultivated land rather than an improvement in yields overall. The most
important cash crops for the economy are: coffee (accounting for 272,000 ha and generating about
$300 million per annum), cotton (previously the main export crop, earning up to US$ 30 million a
year), tea (grown on 20,570 ha, but mostly for export markets earning about $30 million a year),
tobacco (grown on 11,590 ha and now earning over $10 million a year), sugar cane (grown almost
exclusively for the local market) and cocoa (which is a relatively new crop).
As recently as 1990, agriculture accounted for
53% of total real GDP. Since that time,
however, the share has been declining reaching
34% in 2003. However, its actual share of GDP
value (both monetary and non-monetary) has
been growing as shown in Table 3.1. The
agricultural sector has also become more
diversified. Coffee has dropped from about
60% of total exports, but export revenues have
fluctuated very widely since the collapse of the
International Coffee Organization in 1989
(FAO, 1998).
The traditional food crop sub-sector has the
biggest influence on overall agricultural GDP
accounting for well over 65% of overall
agricultural production. In 1999, the sub-sector
contributed 27.1% of total GDP, 50% of
agricultural monetary GDP and 83% of the non-monetary GDP (MFPED, 2000). The livestock sub-
sector also contributed 17% of agricultural GDP, while forestry and fishing accounted for 4.3% and
4.6%, respectively. The share of the traditional cash crops sub-sector in GDP was lower than that of
traditional food crops (3.9% in total GDP and 17.2% in agricultural GDP in 1999).
Table 3.1: The Share of Agriculture in the Economy, 1988 - 2003
Source: MAAIF
Calendar
Year
Total
GDP
Agricultural
GDP
Share in
Economy (%)
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
1,769
1,881
1,985
2,088
2,182
2,320
2,555
2,768
2,906
6,470
7,114
7,998
8,643
9,313
9,892
11,597
964
1,019
1,061
1,086
1,116
1,170
1,246
1,291
1,299
2,671
2,835
3,065
3,186
3,134
3,076
3,901
54
54
53
52
51
50
49
47
45
41
40
38
37
34
31
34
3.4.2 Growth of Agricultural Exports
There has also been a thriving trade in agricultural commodities internally as well. To that extent, the
distinction between “food crops” and “cash crops” is misleading. The situation is complicated by the
lack of an efficient system of records of all such transactions even within government agencies.
Uganda’s exports are predominantly agricultural commodities. Major export commodities are coffee,
cotton, tea, and tobacco – the traditional export commodities. They contribute over 50% of the
country’s export revenues, with coffee alone accounting for the largest share of total export earnings.
(Table 3.2) Their share has fallen in recent years due to the decline in world market prices and the
growth of non-traditional exports (NTEs). Although coffee remained the main foreign exchange
earner, its share in total export earnings fell from 31.2% in 2000 to 18.7% in 2004 (UBOS, 2005).

15
Table 3.2: Agricultural Exports by Value, 1998 – 2005 (in Millions of US Dollars)
Commodity 1998 1999 2000 2001 2002 2003 2004 2005
Traditional Export Crops
Coffee
Cotton
Tea
Tobacco
295,666
7,691
28,181
22,332
287,958
17,408
21,425
14,673
125,316
22,088
37,050
26,889
97,652
13,434
30,031
32,096
96,626
9,519
31,293
45,262
100,233
17,755
38,314
43,042
124,237
42,758
37,258
40,702
172,942
28,821
34,274
31,486
Sub total 353,870 341,464 211,343 173,213 182,700 199,344 244,955 267,523
As percentage of total 83 86 76 54 57 56 58 53
Non Traditional Exports
Maize
Beans & other legumes
Fish and fish products
Cattle hides
Sesame seeds
Soya beans
Cocoa beans
Pepper
Vanilla
Live animals
Fruits
Groundnuts
Bananas
Roses and cut flowers
Ginger
9,359
6,451
39,879
6,088
11
40
1,429
117
1,260
75
386
118
257
7,502
21
5,291
8,754
24,837
2,967
1420
-
1,474
692
-
58
111
228
473
7,328
-
2,437
4,454
30,818
12,893
747
12
1,191
354
781
21
733
14
983
9,912
77
18,339
2,354
78,150
25,532
796
91
1,921
397
2,417
199
68
26
672
14,750
26
10,609
3,284
87,945
9,810
510
74
2,023
111
6,898
80
670
75
225
17,828
462
13,724
5,235
88,113
4,925
2,183
87
7,001
176
13,546
61
436
7
110
22,080
15
17,896
8,968
103,309
5,409
2,788
118
6,801
368
6,120
130
917
1
850
26,424
-
21,261
8,693
142,691
7,064
4,779
126
9,638
594
6,135
29
1,158
23
806
24,128
78
Sub total 72,993 53,633 65,427 145,738 140,604 157,699 180,099 227,203
As percentage of total 17 14 24 46 43 44 42 47
Total Agricultural Exports 426,863 395,097 276,770 318,951 323,304 357,043 425,054 494,726
Source: UBOS
Uganda has since the early 1990s been increasingly selling abroad commodities which have come to
be known as “non-traditional exports” (NTEs). As Table 3.2 shows, the share of NTEs has been
growing over the years, with the highest of 47% recorded in 2005. It is worth noting, however, that
while non-traditional exports have grown faster than traditional exports, they have not replaced
traditional exports as the main sources of export revenue. Coffee, for example, takes the lead in terms
of earnings, followed by tobacco, and tea. Among the NTEs, fish is becoming Uganda’s major export
commodity, accounting for 18.5% of the country’s export revenue in 2003 before falling to 15.5% in
2004. Earnings from the export of fish rose from US$ 1 million in the early 1990s to about US$ 88
million in 2002, but declined slightly to US$ 87.5 million (MFPED, 2004).
3.5 CONCLUSIONS
1. The reforms introduced by the Government in the agricultural sector were responsible for its
recovery, given the formidable challenges it was facing, not least the drop in coffee earnings.
Through macroeconomic and pricing policies Government was able to prevent the collapse of the
coffee and cotton sectors. The reforms in agriculture which began with agricultural rehabilitation
credit in 1983 were successful in rehabilitating the export crop processing facilities (coffee, cotton,
and tobacco).
2. Although agricultural trade liberalization as a policy was introduced in the early 1990s, this has
not stemmed the progressive decline in overall export volumes. As can be seen from the figures in

16
Table 3.2, from the mid-1990s to 2000 there was a general decline in total agricultural exports
(from US$ 426.8 million in 1998 to US$ 277 million in 2000). This decline was due to a number
of factors, including the El Nino effect, the EU ban on fish exports, the fluctuations of commodity
prices on the international market (especially the sharp decline in coffee prices), etc. From 2000 to
2004, exports started recovering, albeit at a slow pace, rising from US$452 million in 2001 to US$
665 million in 2004 (UBOS.
3. In spite of agricultural liberalization, there has been a significant shift in the volumes and values of
Uganda’s traditional export commodities. Specifically, the volume of Uganda’s major export –
coffee – has remained relatively stable over the years, but the earnings from coffee have shown a
progressive decline – from US$ 343 million in 1994 to US$ 288 million in 1998, and a mere US$
96 million in 2003. Cotton recorded a drastic fall in both volume and value and has recovered
rather slowly, although it is attracting a new level of support from both government and donors.
Tea has not fully recovered to its level of the 1970’s, but it is improving faster than cotton.
4. Export earnings from NTEs have been growing – from US$ 208.7 million in 1995 to a peak of
US$ 321 million in 2003. As Worth et al (2005) note, the share of NTEs over this period has
recorded a growth of 6.8 percentage points, reflecting the impact of the Government policy of
trade liberalization and diversification of the export base. Also, the NTEs have a higher value
added, because most of the traditional export products are exported in raw form.

17
IV COMMODITY ANALYSIS
SECTION I: THE TRADITIONAL COMMODITIES
Uganda’s traditional commodities include coffee, cotton, tea, and tobacco. These commodities
contribute significantly to the country’s export revenues, (50-60%) with coffee alone accounting for
over 40% of total export earnings. The share of traditional commodities in total export revenues has
been declining over the past years due to the fall in world market prices and the increase in the share
of non-traditional exports. Although coffee maintained its position as the main foreign exchange
earner, its share in total export earnings fell from 55% in 2001 to 20.7% in 2002 (UBOS, 2003).
4.1 THE COFFEE SUB-SECTOR
4.1.1 The Significance of the Coffee Sub-sector
The coffee sub-sector is important for the economy of Uganda. It is a major source of employment and
income for a large proportion of Uganda’s population. It is estimated that over 3.5 million people
especially in the rural areas are employed in the coffee sub-sector and related support activities. In
addition, there are over 2 million people in off-farm employment related to the coffee industry. About
500,000 households, distributed over two-thirds of the country, depend on coffee for their livelihood.
For many of these households, coffee is the only source of cash income. There is an estimated 500,000
- 600,000 small coffee farms in the country with an average size of less than one hectare. The coffee
sub-sector contributes greatly to the country’s GDP. The share of the agricultural sector in total GDP
stands at 38%, with coffee alone contributing about 80% of monetary agricultural GDP (UBOS,
2005). This is a substantial proportion of the country’s monetary sector and demonstrates the
importance of the coffee sub-sector in the economy. But perhaps the coffee sub-sector’s importance to
Uganda’s economy is its leading role as a source of export revenues. When the world coffee prices
were high in 1994 – 1997, the sector earned over US$ 400 million annually. However, in subsequent
years, following the decline in world coffee prices, export revenues tended to fall as well.
Against this background, the liberalization of the coffee sub-sector is expected, through increased
production response, to have a significant impact on employment and incomes, poverty levels, foreign
exchange earnings (balance of payments position), and GDP growth in general.
4.1.2 Liberalization of the Coffee Sub-sector
For a long time, the marketing of coffee was not conducive to increased production. Figure 4.1 shows
the coffee marketing chain before liberalization.
As can be seen, the coffee farmers sold their produce to primary cooperative societies and private
hullers. The cooperative societies and unions competed with the private buyers/hullers for the
procurement of the dry cherry from the farmers. The hullers and buyers were often local companies of
small size. There was no formal involvement of foreign companies, even at the export level, since the
CMB was the sole exporter. Both the cooperatives and private operators operated under fixed producer
prices and fixed margins. All the hulled coffee was sold to the CMB, which enjoyed the monopoly of
exporting.

18
Figure 4.1: The Coffee Marketing Chain before Liberalization
SMALLHOLDER
COFFEE
FARMERS
PRIMARY
COOPERATIVE
SOCIETIES
PRIVATE
TRADERS
COOPERATIVE
UNIONS
COOPERATIVE/
GOV’T CURING
PLANTS
COFFEE
MARKETING BOARD
(CMB)
PRIVATE
HULLERS
Direct
exports by
the CMB
COOPERATIVE
UNIONS
COOPERATIVE/
GOV’T CURING
PLANTS
COFFEE
MARKETING BOARD
(CMB)
Direct
exports by
the CMB
The farmers received payment for their coffee according to the quality of the coffee delivered and
often with considerable delays. As Ponte (2001) points out, the handling and payment systems were
fairly laborious and often slowed down the flow of coffee to the importer. The overhead costs
associated with these transactions were high, which meant the farmers received a lower proportion of
the export price than they would have in a more efficient system (quality considerations being equal).
The inefficiencies and inequities of the above monopolistic system were compounded by the abolition
of the quota system under the International Coffee Agreement (ICA) in 1969, leading to the collapse
of coffee prices. The steady slide of the international prices had a negative impact on producer prices,
rendering the marketing system in Uganda unsustainable.
In 1990, the Government made a thorough review of the coffee sub-sector following, which it
approved the liberalization of both internal and external marketing of coffee (GOU, 2003). In
liberalizing the coffee sub-sector, Government sought (i) to expand Uganda’s share of the international
market by increasing the volume of export to both traditional and non-traditional markets; (ii) to
minimize the unit cost of export by improving the efficiency at every stage of the marketing chain,
through the introduction of competition; (iii) to increase the unit value of export by making the pricing
system transparent, improving quality and initiating an aggressive market strategy; and (iv) To create
an independent body – the Uganda Coffee Development Authority (UCDA) - to coordinate, regulate
and monitor the performance of the country’s coffee industry.
In order to achieve these objectives, Government introduced the following policy measures:
(a) Separation of the regulatory and marketing/trading functions of the defunct Coffee Marketing
Board: The Coffee Marketing Board (CMB) was split into two new institutions, namely the
Uganda Coffee Development Authority and Coffee Marketing Board Limited (CMBL).
Government injected additional equity capital of Shs 9 billion into CMBL.

19
(b) Removal of CMB monopoly in export: Hitherto, the CMB enjoyed the sole monopoly in the
export of coffee. Under the new arrangement, this monopoly was removed and a new marketing
structure, made up of 1 parastatal, 6 cooperative unions, and 14 private companies, was created.
All these were licensed to export coffee. At the same time, joint ventures with foreign companies
were allowed.
(c) Transfer of crop finance from Bank of Uganda: Effective November 1991, all crop financing
functions for the coffee sub-sector were transferred from the Bank of Uganda to commercial
banks.
(d) Lifting of price controls: Effective November 1991, all control of producer prices, processors
and export margins was lifted. All prices and margins were left to be determined by market
forces. Government, however, continued to announce indicative producer prices in order to
improve farmers’ bargaining positions.
(e) Removal of the coffee export tax: In July 1992, the export tax on coffee proceeds was removed.
However, a withholding tax of 2% was introduced at producer level.
4.1.3 The Observed Responses to the Reforms
The process of liberalization of the coffee sub-sector in Uganda is well in advanced stages. Observers
have, however, noted that it is still more regulated than in other coffee producing countries, where
there are no formal export certification requirements (Ponte, 2001). Nonetheless, as a result of the
above measures, there have been important supply responses as both production and profits of the
farmers have increased, although there were setbacks in recent years.
A. Increase in Production
Coffee has increasingly become Uganda’s core business. Uganda is now second among Africa’s top
producers of coffee and ranks ninth globally, producing about 3.5 million bags per annum. Although
Robusta coffee dominates production (85%), a sizeable amount of fine Arabica (15%) is also
produced. Uganda’s Robusta coffee is concentrated in a broad belt around the shores of Lake Victoria.
Districts with the highest output are Masaka, Mpigi and Mukono, followed by Luwero, Rakai, Jinja,
and Iganga also produce large quantities. Production spreads as far as Masindi in the West and
Rukungiri in the South West. Arabica coffee is concentrated in highland areas of the East (Mbale and
Kapchorwa), to the North-West, (Nebbi) and the South-West (Bundibugyo, Kasese and Kabale).
Uganda started production of organic coffee on a small-scale in the late 1990s.
Some insight on coffee production can be got from the export data (Table 4.1). As can be seen from
the figures, before the liberalization of the sub-sector, production stood at over 2 million bags between
1965/66 and 1990/91. After liberalization, it rose from 2.03 million bags in 1991/92 to 4.2 million
bags in 1995/1996 but it then fell to about 2.5 million bags in 2003/2004. This fluctuation has been
attributed to instabilities in overall supply and prices on the world market. Internationally, Uganda
surpassed Cote d’Ivoire as the leading coffee producer in Africa with 4.2 million 60-kg bags exported
in 1996/97. Uganda ranked 5th
overall in Robusta output after Indonesia, Brazil, Vietnam, and Cote
d’Ivoire. Unfortunately, the CWD has reversed these positive trends with potentially dangerous
consequences for the economy.

20
Table 4.1: Coffee Exports in 1965/66 – 2004/05
Coffee
Season
Quantity
(60 Kg Bags)
Value
US $
Unit Value
US $/Kg
1965/66 2,855,621 106,126,982 0.62
1970/71 3,032,609 130,818,018 0.72
1975/76 2,431,524 245,222,753 1.68
1980/81 1,973,458 230,463,637 1.95
1985/86 2,392,198 390,362,568 2.72
1990/91 2,085,004 121,343,113 0.97
1991/92 2,030,829 101,442,768 0.83
1992/93 2,088,642 108,873,991 0.87
1993/94 3,005,205 273,658,850 1.52
1994/95 2,792,753 432,651,034 2.58
1995/96 4,148,803 388,916,157 1.56
1996/97 4,237,114 355,126,641 1.4
1997/98 3,032,338 276,476,134 1.52
1998/99 3,647,989 282,995,511 1.29
1999/00 2,917,257 164,763,789 0.94
2000/01 3,074,773 104,776,424 0.57
2001/02 3,146,381 83,936,951 0.44
2002/03 2,663,888 104,787,094 0.66
2003/04 2,523,042 115,705,844 0.76
2004/05 2,495,094 162,146,235 1.08
Note: Quantity is in 60 kg bags
Source: Uganda Coffee Development Authority
B. Proliferation of Players
The liberalization of the marketing chain prompted a proliferation of players, especially exporters,
primary level buyers, hullers and processors (Figure 4.3). These were attracted mostly by the
favourable trade margins especially in the mid 1990s. Specifically, the number of active exporters
increased dramatically – from 12 to 117 between 1991 and 1995 (Ssemogerere, 2004). Many of these
were joint ventures with foreign companies. At the same time, a number of international companies
(e.g. Kaweeri Coffee) attempted to enter production by setting up large plantations in order to gain
market share and internalize the profits. However, the upsurge in the number of players was short-
lived (Akiyama et al (2003), Ponte (2001), NRI/IITA (2002), Sayer (2002)). As soon as the
international prices began to fall in the late 1990s, the number of exporters decreased substantially.
Only a small number of exporters with foreign connections which enabled them to borrow crop-
finance off-shore at lower interest rates (4-7%) were left. By 2000/01 only 26 exporters remained with
10 of these controlling 87% of the export business (Semogerere, 2004). Since that time, the
procurement, processing and marketing of coffee have become concentrated into the hands of firms
with foreign connections. By and large, however, increase in players in the market led to a substantial
increase in the real producer price and increased the farmer’s share of the FOB price.

21
Figure 4.2: The Coffee Marketing Chain after Liberalization
Source: Adopted from Ponte (2001)
C. Increase in Export Volumes and Values
Figure 4.3 below shows Uganda’s coffee exports over the years (1965/66 – 2004/05). As can be seen,
after stagnating in part due to low international prices, production was on the decline from 1970/71 to
1990/91 due to a combination of factors, including the civil strife in the country and lack of incentives
to the farmers. Exports of coffee began to grow steadily in the early 1990s partly in response to good
international prices on the world market in the wake of the failure of the crop of the major competitors
(Brazil and Argentina) as well as efforts by the major producers to cut down on supply. However,
volumes began to decline again from the mid-1990s due to a number of supply constraints such as the
coffee wilt disease. The main external factor was the decline in world coffee prices due to oversupply
which in turn resulted in declines in foreign exchange earnings. Exports of Arabica coffee also
increased in the early 1990s and although had fluctuations, in the second half of the 1990s, they
recovered somewhat and have been rising slowly.
As the figure also shows, the value of exports also fluctuated over the years following the pattern of
quantities. It is worthy to note that although there was a decline in volumes in the early years (1965/66
– 1990/91), this was offset by the increase in value due in part to high prices on the world market. The
improvement in value was an incentive to farmers to continue coffee production. In spite of this,
though, earnings continued to decline, again due to internal political strife particularly in the 1980s.

22
Figure 4.3: Coffee Exports in 1965/66 – 2004/05
0
50
100
150
200
250
300
350
400
450
500
1965/66
1970/71
1975/76
1980/11
1985/86
1990/91
1991/92
1992/93
1993/94
1994/95
1995/96
1996/97
1997/98
1998/99
1999/00
2000/01
2001/02
2002/03
2003/04
2004/05
Years
$0.0
$0.5
$1.0
$1.5
$2.0
$2.5
$3.0
$3.5
$4.0
$4.5
Millions
Value (US $) Quantity (60 Kg Bags)
D. Investment in the Sub-sector
As noted earlier, coffee in Uganda is grown and produced predominantly by smallholder peasant
farmers on small plots of land. However, following the liberalization of the coffee sub-sector, a
number of investors have been attracted into it. Many of these are predominantly involved in buying
and exporting although a few, such as Kaweeri Coffee have also ventured into production5
.
Table 4.2: Investment in the Coffee Sub-sector, 2000 - 2006
Investor Total
Investment
(US$)
Year of
Investment
1. Pan Afric Impex (U) Limited 3,186,000 2000
2. Nanga Farm Limited 710,000 2000
3. Kaweeri Coffee Plantation Limited 6,869,000 2001
4. Clanita Coffee (U) Limited 1,891,000 2002
5. Norcoffe Limited 580,000 2003
6. Olam Uganda Limited 575,000 2003
7. Karobwa Company Limited 552,000 2004
8. CCL Products 17,545,000 2004
9. Ankole Coffee Processors Limited 744,000 2005
10. Star Café Limited 120,000 2005
11. Savannah Commodities Company 530,000 2005
12. Sinoway Development Limited 625,000 2005
Total 33,927,000
Source: Uganda Investment Authority
5
The leading investors in the coffee sub-sector are: Bakwanye Trading Co. Ltd, Great Lakes Coffee, Gumutindo
Coffee Coop. Ent., Ibero (U) Ltd, Job Coffee Ltd, Kampala Domestic Store, Kawacom (U) Ltd, Kyagalanyi
Coffee Factory, Mbale Importers & Exporters Ltd, Nakana Coffee Factory, Olam (U) Ltd, Pan Afric Impex (U)
Ltd, Savannah Commodities Ltd, Ugacof Ltd, Union Exporter Services, Wabulungu Multi-purpose

23
E. Decline in Quality of Coffee Sold
The process of liberalization opened up the coffee sub-sector for entry of new players at all levels –
production, processing and marketing/ export. Thus, the liberalization triggered off a free-for-all rush
to enter the coffee sub-sector, including inexperienced and opportunistic local traders looking for
short-term gains with little or no concern for quality. The number of exporters, for example, rose to
120. In the first few years of liberalization, there was intensive competition among buyers to establish
a market share in Uganda (Ponte, 2001). This created incentives to “buy fast” without proper quality
monitoring. The effect of all this was deterioration in the quality because of increased trade in cherry
and hulled coffee that was not dry enough. The proportion of the “clean cup” tests on export
consignments rose and remained fairly constant at around 90-93% (Ibid). As Sayer (2002) notes, while
Uganda’s Robusta coffee still fetches a small premium on the world market, “the days when its
“standard” screen 15 was seen as a world benchmark have passed. Bugisu’s Arabica which used to
trade at a premium to the global indicator price now sells at a discount”.
F. Emergence of Niche Markets
Liberalization of the coffee sub-sector has led to the emergence of niche markets. Some farmers have
turned to the production of certain types of coffee on account of low labour costs and specific agro-
ecological conditions. Thus, apart from traditional coffee varieties like Robusta and Arabica, farmers
in some parts of the country are increasingly producing “organic” and “fair trade”, “specialty” and
“gourmet” coffees (Kappel et al, 2004). The production of these coffees requires quality standards that
include environmental parameters.
According to the UCDA, the production of organic coffee has continued in the districts of Kapchorwa,
Sironko, Mbale, Nebbi, (for organic Arabica) in Bushenyi, Luweero, Masaka, and Mpigi (for organic
Robusta). Organic Arabica and Robusta fetched US$ 110 and US$ 30 per tonne respectively in
2003/04, which was an incentive for increased production. Table 4.3 shows the exports of organic
coffee over the years,
with a reduction in total
sales in 2003/04
compared to the previous
years. The fall represents
a reduction in premiums
fetched during the year
on account of fluctuation
of premiums consistent
with global market trends.
Table 4.3: Sales of Organic Coffee (in 60-kilo bags)
Source: Uganda Coffee Development Authority
GRADE 2001/01 2001/02 2002/03 2003/04 2004/05
Organic Arabica 1,069 4,180 4,380 2,070 2,380
Organic Robusta 5,020 1,440 2,500 1,828 5,793
Total 6,085 5,620 6,880 2,928 8,173
4.1.4 Conclusions
The foregoing analysis allows us to make the following conclusions in respect of the coffee sub-
sector:
1. The coffee sub-sector will continue to play a major role in Uganda’s economic development,
playing its traditional role as a source of incomes, export revenues, contribution to GDP growth,
and a vehicle for rural economic and social transformation. Given its significance in the economy,
the sub-sector’s long term sustainability, in the face of the many challenges it is facing, is an issue
of utmost importance. Its response to the liberalization measures introduced by Government over
the years is being threatened by factors both internal as well as external and this poses a major
challenge for both the industry players as well as the Government.

24
2. The introduction of liberalization as a policy in the coffee sub-sector coincided with the sharp
decline in the world coffee prices. Although introduced at a rather difficult time, nonetheless, this
policy has contributed greatly to the growth of the sub-sector, including exporting under adverse
conditions. At the same time, the liberalization of the sector seems to be geared towards the
external market with no focus on the domestic market. Currently domestic consumption remains
quite low with preference given to tea instead of coffee. Domestic coffee consumption must be
seen as a growth opportunity area for Uganda’s coffee industry.
3. In spite of the efforts made so far in the coffee sub-sector, it remains largely uncompetitive. Part of
the explanation is in the lack of a sub-sector strategy that builds on the industry’s comparative
advantages and addresses all issues, including supply chain inefficiencies, value addition, etc all at
the same time. Most initiatives in the sub-sector (for example the opening of coffee shops in
external markets, developing market-specific brands, encouraging investment in roasting and
soluble coffee production facilities, etc) have all been spearheaded by Government. Without doubt
these efforts will pay off in the long term, but still the industry lacks a strategy for guiding its
players at all levels of the value chain. This is an issue of concern for all stakeholders.
4. Uganda’s coffee has unique quality attributes which can enable it to continue to play a key role in
the country’s economic development. As noted earlier, Ugandan Robusta is valued highly in the
global market for its neutral flavour and high quality compared to Robusta grown elsewhere. On
account of its superior quality, Ugandan Robusta coffee has traditionally commanded a premium
in the London futures market. This quality attribute represents a niche market in itself, which
other Robusta coffees do not have. In spite these quality endowments, however, Ugandan coffee
ends up anonymously in instant coffee blends marketed by the large roasters such as Nestle SA.
Other countries – Kenya, Jamaica, Colombia, etc – have branded and advertised their coffee. It is
unfortunate that no effort has been made to exploit this advantage as other countries have done
theirs.

25
4.2 THE COTTON SUB-SECTOR
4.2.1 The Significance of the Cotton Sub-sector
Cotton was introduced into Uganda, along with coffee and tea, in 1903 by the British colonial masters
as part of their drive to ensure supply of raw materials for their developing industries. The colonial
authorities encouraged cotton production and investment in the ginning industry. Cotton rapidly
became one of Uganda’s leading export commodities accounting for 25% of all agricultural exports in
the 1960 – early 1970s. At that time, it was produced mainly by smallholder farmers, purchased and
ginned in the predominantly Asian-owned ginneries, and subsequently exported as cotton lint.
Cotton is an important cash crop for the Ugandan economy. It is also major source of employment and
incomes. It is estimated that that the sector currently employs about 10% of the population in the East,
North, and West of the country, numbering about 2.5 million people (NRI, IITA, 2002). The viability
of cotton in some areas is marginal, but there is often no readily available substitute cash crop. Cotton
therefore has an important role to play in the transition from subsistence to commercial agriculture for
many small-scale producers. The cotton crop has also been the basis for raw material supplies to a
modest processing industry in ginning and textiles.
As an almost exclusively export-oriented crop, cotton is a major source of foreign exchange for the
country. Cotton lint is currently Uganda’s fourth largest agricultural foreign exchange earner after
coffee, tea, and tobacco. An estimated 90% of the cotton produced is exported and more than half goes
to Europe, followed by the USA and Asia. Table 4.4 below shows the production of cotton and
earnings in the period 1994/95 – 2003/04. As the figures in the table indicate, earnings from cotton
exports rose from US$ 12.8 million in 1994/04 to US$ 44.4 million in 2003/04 (CDO, 2004). Cotton
has the potential to increase dramatically its contribution to the economy through increased foreign
exchange earnings, value addition and rural and urban employment creation.
4.2.2 Liberalization of the Cotton Sub-sector
For a very long time before liberalization, the cotton sub-sector was governed by the Cotton Act. The
Act provided (i) zoning of cotton production, (ii) setting of fixed seed and cotton lint prices, (iii)
restrictions on the importation of (or trade in) cotton, and (iv) setting up of ginneries. Under this
arrangement, the cooperative unions enjoyed a monopoly of cotton ginning and marketing. Their
members depended on them for the marketing of their produce.
Similarly, before liberalization each party had a well defined role in the marketing chain (Fig. 4.7).
The marketing of cotton was in the hands of the primary societies, the cooperative unions and the
Government-owned Lint Marketing Board (LMB). In this arrangement, farmers sold their cotton to the
primary societies at a fixed price which was announced by Government. The farmers were often not
paid cash on delivery; instead they received promissory notes for payment at a future date – usually
after the primary societies had sold the cotton to the cooperative unions (which also ginned the cotton
before selling it to the LMB). This was a very unfair and inefficient marketing system because (a) the
prices paid to the farmers for the seed cotton were low, and (b) the long delays in receiving payment
forced many farmers to switch to other commodities, leading to a significant decline in the production
of cotton. In addition, government agencies had a virtual monopoly over the marketing of agricultural
inputs. They provided different levels of price subsidies for inputs based on the exchange rate margins
between the official and parallel market rate.

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