Western subsidies and their effect on agriculture in Uganda

By Odrek Rwabwogo

In this instalment, we will shed light on a dark part of Europe and the US agricultural policies — that of subsidies and their destabilising effect on farmers' incomes in the agriculture sector in developing countries.

As an example, at Tomosi's farm in Kiruhura district, it costs sh543 to produce a litre of raw milk. The elements that go into this cost include production of cattle feeds called silage.

This is a mixture of four-month old sorghum with its tufts and leaves, maize including its stalk, leaves and the milky cob and molasses from sugarcane.

The costs also include fuel for cultivation and land preparation, the harvesting and baling of hay (from clover, alfalfa and other grasses), cultivation and harvesting of napier (pennisetum purpureum), a quick yielding leafy grass that provides fodder for cows in the dry season. We also add the cost of cattle drugs for ticks and worms, electricity for water pumping, labour and other incidentals.

To take this raw milk to a nearby processing plant, the transporter adds sh50, making the cost sh593. When we add capital cost charges at 15%, even on a monthly interest calculated on a receding basis, the cost of our raw milk shoots to an astronomical sh682 high.  Tomosi's farm is struggling to grow beyond an average dairy farm and, therefore, one can argue we have a higher unit cost per litre. But our farmers group, about 200, in good season needs a demonstration farm in their neighbourhood to learn the growing of feeds, treatment of animals and keep a consistent production level even in a dry season.

At this prohibitive cost of production, however, with little or no extension service available to them, low infrastructural support available to them and no availability of low interest credit, the uptake curve for them is so steep and continues to discourage many from going into modern production. These costs keep many in peasantry. The farm-gate price of milk from February to July 2016 was only sh350 in my area. If you take this base, our farm, together with our neighbours, makes a daily loss of sh332 per litre. This is one of the major disincentives against investment in agriculture by many of the elite in Uganda.

Even when one has chosen to accept early business losses to build scale over time, prices in the dairy and beef industry seem to have an inverse relationship with improved production for a significant period of time.

This further sends people away from the land to speculative ventures in towns. Over time, I have come to consider farming in Uganda in terms best expressed by the words of the British Essayist, T.S Eliot (1888-1965). He said, "If you aren't in over your head, how do you know how tall you are?"

There are not many support structures, if you are investing in farming; you are left alone for a long time with a horribly low level of skilled labour force, expensive commercial loans, no fertilisers or standard enforced guidelines for treatment of animals against vectors.

The Movement government has been slow in enforcing standards where we need them most that is, in agriculture, a strategic sector by far when you are developing country.

I should add that at the factory when our milk arrives, the processor who produces ultra-heat treated milk (which is the killing of both bad and good microbes, much like chemotherapy does to a cancer patient, just to save the milk for a longer shelf period; milk that had previously been fresh in its three hours of milking on arrival to the plant. The purpose is to keep it longer for an urban elite consuming community raised on deep fears of fresh milk because of the history of milk going bad and being ‘re-boiled' by unscrupulous traders and resold — a subject I will return to another time) adds his cost.

When he considers the cost of production that is water, electricity, labour and taxes (Uganda processors pay 25% excise duty on milk packaging material largely from Kenya where this tax does not apply and 18% VAT on final products making our milk uncompetitive), the cost of a litre of UHT shoots to a colossal sh5,000, way above many Ugandans' affordability. This further depresses production at the farm.

Let us now consider the case of a similar farmer in the US, with a farm the size of Tomosi's farm or more. The total number of people involved in agriculture in the US is only 2%, but strangely 60% of the American families own a pet.

These are dogs, cats, fish, rabbits and some strange ones; own such things as snakes and lizards. A huge pets food industry has grown alongside this, on account of subsidies for cereal farmers with the US market hitting $24b in pet foods in 2015, while Europe spent $20b.

This negligible 2% farming category, however, own about 90 million cows (Ugandans own 14 million cows) with a disproportionate government subsidy of $4.5b in 2014 alone. The top 1% of the US farmers, about 36,551 people, received between 1995-2011, $57m or each about $1.5m at their farms.

This expenditure was not meant to increase production. As we indicated in the instalment last week on seeds production, the US has now reached sophisticated farm production technology levels that every dollar spent gives only very marginal returns.

Rather this level of expenditure is for keeping farmers of Uganda and other developing nations out of the lucrative US food market. This is abnormal considering that the demand for animal protein in sub-Saharan Africa alone, is expected to grow by about 43% until 2030 while in all industrialised countries, this demand will only grow 13%.

This is a case of putting good resources in a wrong place in the developed world. It is akin to producing grain and dumping it on the seashore just to keep the incomes of farmers in the developed world, artificially high, all in the middle of a world that goes to bed hungry with poor people who cannot sell their crops at descent prices.

Overall,  Organisation for Economic Co-operation and Development (OECD) countries spend $374b a year ($1b a day, which is the collective income of one third of the world's poor) on agricultural subsidies. Of the above sum total subsidies, $227b accounts for 20% of farm profits. These funds are given directly to farmers across the OECD countries with an average pay per cow per day of $2.6, which is $1.6 more than the poor farmers in the South earn per day.

And what more: 80% of direct farm support goes to the wealthiest 20% farms or large commodity processing companies. For example, Arla foods of Denmark, which exports powdered milk worth over $100m to sub-Saharan Africa annually, received a direct $205m subsidy in 2003. Tate & Lyle (sugar) received about $40m, Nestle receives an annual $20m in support from the EU. In Germany, 136 dairy companies receive export subsidies of up to $78m annually.

Certainly the lack of a collective voice from Africa is one of the major reasons we are unable to marshal capacity to oppose these corporations dumping subsidised products onto our market in the name of free trade.

If united, Africa could even force the removal of agriculture from WTO agreements. How do we make this case for Uganda and Africa when our own government offices are full of Nestle products? Just show up at any of the offices of government and you will be served tasteless Nescafe instant coffee with accompanying NIDO powder milk. In the homes of the elite in Kampala, Nestle baby foods fill the fridges.

The supermarket shelves are full of foreign milk products yet the local companies struggle to sell milk and the farmers are faced with dwindling margins and low prices. In all this, the cost of inputs such as tractors, fertilisers, seeds, irrigation keeps rising.

And it does not get more ironical, when you listen to President Yoweri Museveni on this specific issue. "I even saw a Nestle factory in Israel, once when I was there" he says. Imagine Nestlé's factories everywhere except in Uganda.

I cornered them into a meeting in Davos and they told me point they will never build a factory in Uganda. They did not need to do so and they had no reason to do so.

Why would we continue to allow importation of products that destroy the production capabilities of our farmers from a company that has no reciprocal relationship with the country's growing need for factories or the farmers directly? Is this not the ideological disconnectedness of the people who implement policies that are anti-people? Doesn't the President know this is happening? How can the Movement say one thing and what is implemented is the opposite?

Subsidies have two more effects

Because Ugandan smallholder farmers lack structured organisations that aggregate milk production and supplies and give a voice to farmers (our elite has left this process to uneducated people in rural areas to provide leadership).

They have an inherently weak market position relative to their counterparts in the West. The lack of investment in the dairy value chain and a disproportionate deep focus on urban consumers means that we do not promote consumption beyond towns. As a result, we now are witnessing an unparalleled consolidation of the large European dairy processors with the strong ones in Africa such as that between French dairy products giant, Danone and Kenya's Brookside.

The smallholder farm groups and their processors that reach areas the big ones cannot or those boutique type that are able to process smaller amounts of milk and are deeply linked to our traditional grasses and seeds, are facing danger. For example, if you want to produce eshabwe (a ghee and rock salt paste eaten across Uganda) or enzhuba (a cheese type of curd made of animal blood), where do you go? The corporatisation of the dairy industry has begun and with it, the setting of pricing structures in which farmers have very little say, will be on the rise.

The second effect is the emptiness of Uganda's emerging retail supermarket shelves in terms of local content. There are 35 retail stores/outlets in Kampala alone of the category of Nakumatt, Tuskys, Shoprite, Woolworths, Quality, Capital Shoppers, Kenjoy, etc. A sample of products from local farmers on the shelves will make your day miserable, if you are farmer. From fruits and vegetables, wines, eggs to meats, fish, flowers and dairy products, Ugandan farmers have a very low shelf presence.

This is partly due to high import tariffs in the West disallowing our goods in their markets yet they flood ours with their cheap products. If you take an example of aloe vera, growing well in Uganda and able to provide juices, cough syrups, creams and soaps, the US, Chinese and South African products (GLND Forever Living and Tianshi products) have fought off our own aloe vera products raised by Kayunga, Mukono, Iganga and Luwero farmers.

The French agricultural economist, Jacques Berthelot, says the European Union (EU) milk-dumping programme, affects 900 million people who make a living at the farm level, a majority below the poverty line in Sub Saharan markets.

This is true when you consider a country with a large population such as Nigeria consuming in one year (2013) over 27.2 million litres of milk from EU alone. The US Food Aid budget is an annual $1.2b and in 2003, America shipped 100,000 tonnes of maize grain to northern Uganda worth $57m. It costs an average $447 per tonne of maize shipped to Uganda from the US yet it would have been only $180 per tonne had this maize been purchased locally and more money left in the country. How does this happen? Large subsidised grain companies such as Cargill lobbied the US senate agriculture committee to stop the ‘cash-for-food' aid legislation. The grain companies strengthened the US position that 75% of the food aid should come from the US farms and must be transported by US flag carrying ships. This raises the cost of aid by an extra 40% in processing, packaging and transportation costs.

Uganda and Africa can do two things to change this situation:

We must co-operate with other Africans at a deeper level to stop this humiliation and poverty substance programme of the West. We must increase the tax on all imported food products that we are able to produce in Uganda to a rate equal or above that of alcohol and spirits such as whisky, charged beyond 100% of price. Whisky is currently charged at 70% as tax component. Perhaps these drinks, wigs, cosmetics and imported food should be charged about 120% for a start. This would discourage unwarranted imports of food that destroy our agriculture sector and stifle the innovation of young people.

Secondly, because our market is very aspirational, we must dissuade and eventually if needed, force government officers to purchase local products. They have an explosion of appetite for foreign products. They do not care much about local content since most of their children's education and shopping is done in the West. They are producing westward looking generations ahead that will keep our people glued to the western eating and consumption habits. Once they are forced to make an about turn together with our elite, the market will follow them and we will increase production. If civil servants are complaining of quality, standards, tastes and preferences, what did it take for the developed markets to build quality? Did these nations give away their valued markets in order to build quality? We must force them to build the tastes and preferences of the majority till they have it right and consumption of local products will be strengthened.

Next week, we will handle taxation without representation as we see it in Uganda today.

The writer is a farmer and an entrepreneur