The dilemma of private investments in agro-processing
Nov 10, 2009
I have watched and listened to President Museveni’s passionate appeals to investors to go for agro-processing.
By Stephen Mugeni
I have watched and listened to President Museveni’s passionate appeals to investors to go for agro-processing.
The only way forward for our farmers is value addition through crop agro-processing. However, the critical issue which has not attracted the required level of debate is: Should the agro-processing factories be owned by middlemen with no vast farmlands or owned by the farmers collectively?
Why do companies like Bidco, Mehta, Madhvani, Tilda, Toro tea growers which are involved in crop- processing, first establish huge farms before setting up the means to agro-process?
The ownership of farmland and the ownership of the means of crop agro-processing cannot be successfully separated and production sustainably boosted and maintained. It would be a form of gambling to expect a farmer to continuously produce the raw farm products and then faithfully pass that over to a certain middleman who happens to be the processor.
The processor would be taking all the processing profits with no obligation to share anything with the farmer. Historical experience shows that this has been the genesis of the feelings of foreign exploitation. Whether by a European, Asian or an African tycoon, exploitation remains detestable.
On the economics side, if for instance, Madhvani was to grow modern varieties of sugarcane on that huge piece of land using the modern tractors and he was to pass over the raw sugarcane to a separate agro-processor, he would have long closed down due to losses.
Madhvani and that private processor would continuously be involved in endless price conflicts and feelings of exploitation.
The present day big agro-processors like Tilda, Bidco and Madhvani who have been successful have done so because they are both farmers and processors at the same time. They own the means of production (land) and the means of agro-processing (the factory). The profits of the processing activity comes back to finance the losses involved in farming. The principle of agro-counter and self-subsidy is ably demonstrated under such a setting and sustainability is, therefore, achieved.
From the above principles of successful and sustainable commercial farming, our Ugandan peasant farmers should, themselves collectively own the means of agro-processing. They should have a share of the agro-processing profits which should subsidise their direct farming and production losses. The assets for specific crop agro-processing should be bought by the Government, but owned by the respective co-operative society involved in the production of that specific crop.
Taking the example of Soroti fruit farmers, the Government should buy the most modern fruit processing and packaging facility and give it to them.
The fruit farmers should then know that they can receive agro-processing profits based on the kilograms of fruits they each sold to the factory. The argument of not leaving economic investments entirely to the private sector has already been settled by what is going on in America and Europe.
These principles are further demonstrated by what is going on in a cotton ginning factory in Busia district. The factory is owned by a private investor who does not own any vast cotton farmland. The investor has tried his best to promote cotton farming in Busia to the extent of distributing free cotton seeds to peasants who own the land.
The cotton ginning factory is currently operating at 20% capacity because of no cotton, yet the farmers continue to watch their idle land, ignoring the free cotton seeds.
If that factory was owned by a co-operative society of cotton farmers who knew that they could earn about sh2,000 per kilogram of cotton delivered and processed by them, the factory would be operating at a different capacity.
In terms of the general principles, agro-processing is assured when farmers have marketing security with fairly predictable prices for their produce.
The resultant marketing security for the farmers would act as the required production incentive. The process would become self-expansive because the farmers would not wish to see their factory close down or operate at low levels when they still have some combined huge idle farmland. If the farmers owned the agro-processing means, they would look for ways of earning more money from their individual small land holdings. They would be the ones to ask for ways of doubling the output from their land.
Questions of which one should come first between establishing vast processing capacity and vast production capacity have also arisen. But like the biblical saying “seek ye first the means of agro-processing and the rest shall be added unto youâ€.
The present form of farm subsidy as designed under the National Agricultural Advisory Services is bound to fail miserably. The Government subsidies to the farmers should take the form of setting up means of crop agro-processing followed by expanding production capacities through availing a tractor per parish and later, water for production.
The problems in the farming sector partly explain why investors responded to the call for private investment in agro-processing and they bought the Lira Cotton Mill, Mbale Textile Mill and Nytil then later made a U-turn and abandoned the projects. Their research on how they would have a continuous and sustainable source of raw materials must have highlighted the gaps, with no soultion.
Our land holding and history greatly limits the likes of Bidco as the strategy for agriculture expansion. When the reserves are over, there will be no more means of expanding production and the peasants will continue to languish in poverty. The Government is morally obliged to act in the most appropriate way.
The writer is the former Member of Parliament for Samia-Bugwe North, Busia district
I have watched and listened to President Museveni’s passionate appeals to investors to go for agro-processing.
The only way forward for our farmers is value addition through crop agro-processing. However, the critical issue which has not attracted the required level of debate is: Should the agro-processing factories be owned by middlemen with no vast farmlands or owned by the farmers collectively?
Why do companies like Bidco, Mehta, Madhvani, Tilda, Toro tea growers which are involved in crop- processing, first establish huge farms before setting up the means to agro-process?
The ownership of farmland and the ownership of the means of crop agro-processing cannot be successfully separated and production sustainably boosted and maintained. It would be a form of gambling to expect a farmer to continuously produce the raw farm products and then faithfully pass that over to a certain middleman who happens to be the processor.
The processor would be taking all the processing profits with no obligation to share anything with the farmer. Historical experience shows that this has been the genesis of the feelings of foreign exploitation. Whether by a European, Asian or an African tycoon, exploitation remains detestable.
On the economics side, if for instance, Madhvani was to grow modern varieties of sugarcane on that huge piece of land using the modern tractors and he was to pass over the raw sugarcane to a separate agro-processor, he would have long closed down due to losses.
Madhvani and that private processor would continuously be involved in endless price conflicts and feelings of exploitation.
The present day big agro-processors like Tilda, Bidco and Madhvani who have been successful have done so because they are both farmers and processors at the same time. They own the means of production (land) and the means of agro-processing (the factory). The profits of the processing activity comes back to finance the losses involved in farming. The principle of agro-counter and self-subsidy is ably demonstrated under such a setting and sustainability is, therefore, achieved.
From the above principles of successful and sustainable commercial farming, our Ugandan peasant farmers should, themselves collectively own the means of agro-processing. They should have a share of the agro-processing profits which should subsidise their direct farming and production losses. The assets for specific crop agro-processing should be bought by the Government, but owned by the respective co-operative society involved in the production of that specific crop.
Taking the example of Soroti fruit farmers, the Government should buy the most modern fruit processing and packaging facility and give it to them.
The fruit farmers should then know that they can receive agro-processing profits based on the kilograms of fruits they each sold to the factory. The argument of not leaving economic investments entirely to the private sector has already been settled by what is going on in America and Europe.
These principles are further demonstrated by what is going on in a cotton ginning factory in Busia district. The factory is owned by a private investor who does not own any vast cotton farmland. The investor has tried his best to promote cotton farming in Busia to the extent of distributing free cotton seeds to peasants who own the land.
The cotton ginning factory is currently operating at 20% capacity because of no cotton, yet the farmers continue to watch their idle land, ignoring the free cotton seeds.
If that factory was owned by a co-operative society of cotton farmers who knew that they could earn about sh2,000 per kilogram of cotton delivered and processed by them, the factory would be operating at a different capacity.
In terms of the general principles, agro-processing is assured when farmers have marketing security with fairly predictable prices for their produce.
The resultant marketing security for the farmers would act as the required production incentive. The process would become self-expansive because the farmers would not wish to see their factory close down or operate at low levels when they still have some combined huge idle farmland. If the farmers owned the agro-processing means, they would look for ways of earning more money from their individual small land holdings. They would be the ones to ask for ways of doubling the output from their land.
Questions of which one should come first between establishing vast processing capacity and vast production capacity have also arisen. But like the biblical saying “seek ye first the means of agro-processing and the rest shall be added unto youâ€.
The present form of farm subsidy as designed under the National Agricultural Advisory Services is bound to fail miserably. The Government subsidies to the farmers should take the form of setting up means of crop agro-processing followed by expanding production capacities through availing a tractor per parish and later, water for production.
The problems in the farming sector partly explain why investors responded to the call for private investment in agro-processing and they bought the Lira Cotton Mill, Mbale Textile Mill and Nytil then later made a U-turn and abandoned the projects. Their research on how they would have a continuous and sustainable source of raw materials must have highlighted the gaps, with no soultion.
Our land holding and history greatly limits the likes of Bidco as the strategy for agriculture expansion. When the reserves are over, there will be no more means of expanding production and the peasants will continue to languish in poverty. The Government is morally obliged to act in the most appropriate way.
The writer is the former Member of Parliament for Samia-Bugwe North, Busia district