Farmers continue wallowing in poverty as traders bag profits

By Francis Kagolo

Vincent Mpoza, 48, stoops out of his two-roomed hut – slowly enough to ensure the door does off the hinges; for the house is sagging and he is yet to get 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 painfully 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 a kilo of maize grain at just sh150,” Mpoza laments. “Apart from saving my family from starvation, I 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 Agricultural Sciences, approves 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 on 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 about sh25,000 in Kampala, Kibwika rightly argues that traders and transporters are the top beneficiaries in the agricultural value chains. “Traders set prices which can give them profit. It takes a farmer almost two years of planting and constant weeding to earn sh5,000 from a bunch of Matooke yet the trader earns more than six times in just a few hours,” he explains.

Truly, as Mpoza cries foul, Robinah Ssenga, proprietor of Mukama Ye Musumba Wange General Store in Wobulenzi town, one of the produce dealers in Luweero, passed for a contented woman.

For the 20 years she has been in business, Ssenga, as she is fondly called, has recorded great successes. Educating her 14 children up to university is the only achievement she can confidently disclose in the media.

Ssenga explains that she normally buys 20 tonnes of maize grain at about sh400 a kilo from village-based middlemen during harvesting season. “I store it for about two months before milling and sell 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.

The trader-farmer profit difference is not only affecting 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, the farmer, who spent over three years looking after the cow, remains the lower beneficiary.

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 16% international benchmark.

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 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.

A 2009 analysis of value chains in sunflower by the ministry of agriculture also disclosed that middlemen and processors make excessive profits at the expense of smallholder farmers.

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.”

Efficient value chains would guarantee farmers ready market and good prices and consequently stimulate production and quality of produce. In turn, this would curb poverty and extreme income inequalities, spur rural transformation and economic development. However, their inefficiency has deterred efficacy of most anti-poverty agricultural programmes in Uganda.

“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 Dr. Kibwika.

But how exactly did the problem come? Dr. Kibwika attributes it to politicking that killed 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 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. “Smallholder farmers produce small quantities and since they market individually, each one is squeezed individually by the traders and processors,” he explains.

Besides, the value chain problem is also attributable to poor funding of the agricultural sector which has left the country’s market infrastructure ill-developed. “Agriculture employs over 80% of Ugandans but it is allocated just about 4% of the annual budget year after year! This is being unserious,” says Kibwika.

Nonetheless, not all hope is lost. There are areas where smallholder farmers’ profitability 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 and distribute it 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. VEDCO programmes director, Nancy Rapando, is optimistic that smallholder farmers’ standards of living would improve if such efforts are replicated across the country.

Information technology (ICT) has also eased the situation. AgriNet, for instance uses the short messages (SMS) platform on mobile phones to distribute trade alerts, directing farmers to interested buyers and vice versa.

Other companies also supply price news and analyses on the internet. But illiteracy among smallholder farmers and some inaccuracies in market prices continue to hamper the efficacy of ICTs.

“Not all farmers have phones and many of those who have, can only use them for calling not reading SMSs. There’s also no internet usage in villages,” says Paul Nyende, AgriNet’s managing director. However, VEDCO has addressed ICT-illiteracy by putting price boards in strategic areas in villages and trading centres.

AgriNet has also devised a cost-effective way of collecting prices from markets to avoid guessing which gives inaccuracies. Instead of hiring permanent staff, the company depends on trustworthy market vendors who feed them with daily prices through cost-free SMSs. “Vendors are not paid because we also provide them with price information from other markets which would otherwise cost them money to get,” Nyende explains.

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 Uganda should make use of 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.

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.