By Enoth Mbeine
IN Uganda, the majority of agricultural commodities are marketed in their raw forms, hence losing the opportunities for higher earnings and generating employment.
According to a World Bank Report (2012), the value of Uganda’s value added products in 2011 was standing at $3,870,911,000, while that of Tanzania stood at $5,780,320,210. In the East African region, Kenya has the highest agricultural value added standing at $8,346,408,890 in 2011.
The main constraints that face Uganda’s agro processing industry include among others, the high operational costs mainly due to the high prices of imported fuel and spare parts, unavailability of appropriate processing machines and spare parts, and the limited knowledge in operation of the machines.
However, despite these constraints, agro processing has a tremendous potential for increasing income through value addition and increasing shelf life and access to food security through the establishment of small scale agro processing enterprises and rural based industries.
Once these commercial agro industries are efficiently run and are responsive to the ever-changing market demands, this will be a precursor for overall economic growth of the country.
Value addition is the process of changing or transforming a product from its original state to a more valuable state. Value addition also is simply the act of adding value to a product, whether you have grown the initial product or not. It involves taking any product from one level to the next.
For farmers in Uganda, value addition has a particular importance in that it offers a strategy for transforming an unprofitable enterprise into a profitable one. In fact, there are very few items that a Ugandan small holder farmer can produce and sell profitably at the first level (that is, on the open wholesale market).
Therefore, a value-addition strategy is critical to the long-term survival of most small farms in Uganda.
A good example is say, a coffee farmer who simply grows and harvest coffee cherries, and then sell them “as is” to a local processor. Here, they usually sell at a price below the cost of production. This marketing strategy may be viable in the short run, because it may cover the cash costs involved in producing the crops.
This is, however, a poor strategy because it usually does not cover the total costs of production, and, therefore, the coffee enterprises will not be sustainable.
Coffee cherries and inset, coffee beans.
This coffee farmer, however, has a range of options other than immediately selling to a processor. The farmer can remove the cherry pulp and wash and dry the coffee beans to create “parchment”. The coffee parchment can then be either sold or stored for some time in this form.
The farmer will now have added value to the coffee he/she initially harvested. By choosing to sell at this next level of parchment, the grower can often obtain enough extra income to make coffee production an economically feasible enterprise.
Many coffee farmers are now choosing to hold on to their parchment longer and add further value to it. They are now increasingly getting involved in milling the parchment; this in turn is being sold to roasters or is roasted and packaged at the farm for retail sales.
The coffee farmer can also add more value by opening the farm to visitors who can tour the farm and learn about the whole process of growing, harvesting, pulping, drying, milling, grading, roasting, packaging and, ultimately, tasting the coffee.
Taking the coffee enterprise to the agricultural tourism level allows those farmers that are entrepreneurial to operate a retail shop and sell over the internet to those who have already visited the farm. Once the small holder farmer has added value than just coffee- he or she is also selling a visitor experience.
The amount of value to be added to a farm product is limited only by imagination. Still using the example of coffee, a coffee farmer could produce or market coffee in a fundamentally different way.
Currently, while organic production is the most obvious method of differentiating a product, many other methods can be effective. Coffee, in addition to being labelled as “organic” can be marketed as “shade tree coffee”, bird-friendly coffee or “fair trade coffee”.
These different methods of branding usually have extra costs associated, so they must be more than offset by increased prices. The fact that coffee is grown in a particular region e.g. Mbale, Kasese etc. can also add enormous value.
The example of coffee has been heavily used here, but other key value addition strategies can be highlighted and these include, among others;
- Changing the physical state of the product.
- Producing enhanced value products.
- Differentiating products
- Bundling products
- Producing more products that improve efficiency up the supply chain.
These value addition strategies could also be easily drawn from the production of tropical fruits, vegetables, livestock, grains and other commodities.
Many small holder farmers should be encouraged to increase their profitability by vertically integrating their operations rather than simply expanding horizontally to increase their volume of production.
Here, there are adding value to their crops by taking their product one or more steps up the vertical ladder of processing and marketing rather than staying at the same level and trying to increase quantity.
Agribusiness support agencies should be seen to support the promotion of rural agro industries. This is mainly crucial because of the following reasons;
- Agro –industrial products, unlike the basic commodities, do not exhibit a long-term real-price decline so they are more effective in increasing local incomes.
- Value addition activities in the rural areas tend to increase local employment and income and usually have a positive impact on the local economy mainly due to forward and backward linkages.
- Product differentiation as a value addition strategy is easier for goods that have been processed, transformed, packaged and labelled.
- The agro-industrial products where value has been added tend to enjoy a higher profit margin than basic commodities.
In conclusion, for those in agribusiness, as markets become more competitive, it is important for mainly small holder farmers and other value chain actors to seek ways of taking advantage of the value adding opportunities to be able to increase the incomes of the rural producers.
Deliberate efforts should be put in place in establishing market research teams to help in investigating both fresh and processed markets.
The value added products can be those that are traditional or those that already exist in the rural areas, or can also be new products, which can be processed using new, low cost technologies.
Writer is a senior consultant, Business Development Services, FIT Uganda Ltd
Value-Addition: A way of taking agricultural products to the next level