Traders bag profits at expense of farmers

By Francis Kagolo

Vincent Mpoza, 48, stoops out of his two-roomed hut - slowly enough to ensure the door does not come off the hinges; for the house is sagging and he is yet to get the funds to fix it.

Despite growing maize and tomatoes for over 15 years and choosing monogamy, Mpoza, a resident of Malungu, Bamunanika sub county, Luweero district, remains financially incapacitated. 

Last year, he sold off half of his arable land to raise just sh1m for medication. 

"Unlike traders who make instant profits, we farmers work on probabilities. Even if you work hard, it's the traders to decide which prices to give us. During bumper harvests, we sell a kilo of maize grain at just sh150," Mpoza laments. "Apart from saving my family from starvation, I can hardly show a major achievement from farming." 

Mpoza is not alone; for his lamentation is identical of most smallholder farmers in Uganda. 

Dr. Paul Kibwika, the head of Extensions Education at Makerere University College of Agriculture, agrees that smallholder farmers hardly benefit from their sweat because of inefficiencies in the value-chain system. 

"Agricultural value-chains in Uganda are not coordinated. There are many actors whose relationship is that of exploitation. Everyone tries to exploit the other instead of having a mutual relationship where everyone can benefit," Kibwika explains. 

"Farmers, being at the extreme end of the production side of the chain, are always the most disadvantaged because they are at the mercy of other actors, mainly traders."

Citing the matooke business where a trader may buy a bunch at about sh5,000 from  a farmer in Masaka and sells it at sh25,000 in Kampala, Kibwika argues that traders and transporters are the best beneficiaries in the agricultural value chains. 

"Traders set only prices which can give them profit. It takes a farmer almost two years of planting and weeding to earn sh5,000 from a bunch of matooke yet the trader earns more than six times in just a few hours," Kibwika explains. 

However, as Mpoza cries foul, Robinah Ssenga, the proprietor of Mukama Ye Musumba Wange General Store in Wobulenzi town, one of the produce dealers who buy maize grain from farmers in Luweero and neighbouring districts, passed for a contented woman. 

For the 20 years she has been in business, Ssenga, as she is fondly called in Wobulenzi, has recorded great successes. 

Educating her 14 children up to university is the only achievement she can confidently disclose in the media though. 

Ssenga explains that she buys 20 tonnes of maize grain at about sh400 per kilo from middlemen during harvesting season. 

"I store it for about two months before milling and sell the maize flour at a profit," she says. 

When there are food shortages, the price of maize flour may go up to sh2,000 a kilo. "Schools provide us with ready market for maize flour although some take long to pay," she says.

And, the trader-farmer profit difference is not only about maize. A 2008 report on diary value chains in Uganda by TechnoServe, a local development firm, indicates that processors capture more than half of the profits in the case of higher value-added milk products like milk powder and UHT milk. 

Traders (middlemen) also make quick profits when they buy each litre at sh600 at farm gate and sell at sh1,200  a few hours later. On the other hand, a farmer who spent over three years looking after the cow, remains the lower beneficiary. 

Indeed, the report shows that notwithstanding similar cost structures, Ugandan processors' average profit margins are much higher than both international benchmarks and Kenyan processors' ones. The average profit margin for a Ugandan processor is 22% per litre (before taxes), whereas it is only 10% for a Kenyan processor and the international benchmark which is 16%.

According to the report, the critical difference resides in the milk purchase price. Whereas in Kenya at the bulking and chilling level the price is $0.34, in Uganda the price (excluding transportation costs that, however, are included in processing costs) is as low as $0.23.  

"At current market prices, small farmers live below the poverty line, making improvement in farming practices challenging," the report asserts. 

Dr. Okasai Opolot, the director of crop production in the ministry of agriculture, agrees that smallholder farmers are disadvantaged yet they make up over 23 million or 68% of the population.

"There's no doubt small farmers are being cheated," says Okasai. "But we are currently devising ways of (reviving) producer and marketing cooperatives to help them produce the quality desired in the market and reduce middlemen."

Other slightly big commercial farmers have joined the league of middlemen/traders through buying produce from smallholder farmers at a low price to enhance their quantities. Then they hire trucks and transport the produce to markets in the city and other urban centres where they can make good profit.   

Efficient value chains would help curb poverty and excessive income inequalities. However, in Uganda, the inefficiency of value chains has deterred the efficacy of most anti-poverty agricultural programmes.  "Currently the Government gives free seeds and other inputs to hundreds of smallholder farmers under the NAADS programme.  But they are likely to continue languishing in poverty because they are cheated when selling their produce," says Kibwika. 

Collapse of cooperative unions a big blow 

Indeed, the viability of smallholder farming in Uganda is curtailed by lack of effective value chains, a problem Dr Kibwika attributes to the collapse of farmers' cooperative unions in the late 1980s. 

"In the 1960s and 1970s cooperative unions supplied inputs and bought produce from farmers before processing it to add value. They had their own transport system and a bank (Uganda Cooperative Bank) which provided low-interest loans to farmers," he explains. "At the end of the day, each farmer would get a fair share of the profit that would accrue from the entire chain which is no longer the case."

Kibwika argues that smallholder farmers' bargaining power died with the cooperative unions. Besides, the value chain problem is also attributable to the consistent poor funding of the agricultural sector which has left market systems ill-developed. "Agriculture employs over 80% of Ugandans but it is allocated just about 4% of the annual budget year after year! This the highest level of being unserious," says Kibwika.  

Way forward 

Nonetheless, not all hope is lost! There are areas where smallholder farmers' profitability has improved after linking them to markets, thanks to NGOs like Volunteer Efforts for Development Concerns (VEDCO) which supports about 500 farmers in northern and central Uganda. 

VEDCO subscribes for market information from companies like AgriNet which it distributes to farmers through SMS and radio to keep them abreast with the prevailing prices to avoid being cheated by middlemen. The organisation has also set up farmers' groups which collect members' produce in one centre to negotiate for better prices. Smallholder farmers would improve their standards of living is such efforts are replicated across the country. 

Dr Kibwika argues that smallholder farmers can only benefit from the value chains if they are organised into associations that can offer them the benefits of collective bargaining. 

Most importantly however, Kibwika says it is high time Uganda adopted the Warehouse Receipt system. The system enables farmers to store their grain in a common warehouse whose receipts are acceptable by banks as collateral for loans to farmers. In countries like Kenya where it is operational, the system is credited for improving price-risk management by providing more secure basis for forward transactions.

"Every actor in the agricultural sector needs a profit, but the margin should be comparable to have a win-win situation. If the trader is to make a profit, it should not be at the expense of the farmer as this will not favour sustainable economic development," said Kibwika.

Collapse of co-operatives a big blow 
The viability of smallholder farming in Uganda is curtailed by lack of effective value chains, a problem Dr Kibwika attributes to the collapse of farmers’ cooperative unions in the late 1980s. 

“In the 1960s and 1970s, cooperative unions supplied inputs and bought produce from farmers before processing it to add-value. They had their own transport system and a bank (Uganda Cooperative Bank), which provided low-interest loans to farmers,” he explains.

“At the end of the day, each farmer would get a fair share of the profit that would accrue from the entire chain.” He argues that smallholder farmers’ bargaining power died with the cooperative unions. Besides, the value-chain problem, is also attributable to the consistent poor funding of the agricultural sector, which has left market systems ill-developed.

“Agriculture employs over 80% of Ugandans, but it is allocated just about 4% of the annual budget year-after-year. This the highest level of being unserious,” says Kibwika.