Expert on Cooperatives, Financial Inclusion and Renewable Energy Investment (PHOTO/Courtesy).
KAMPALA – The Cobweb theory is the idea that price fluctuations can lead to fluctuations in supply which cause a cycle of rising and falling prices. It is assumed that, there is an agricultural market where supply can vary due to variable factors. The assumption in Ugandan’s real-life experience for a coffee farmer has been ignored over years. It is assumed that in an agricultural market, farmers have to decide how much to produce a year in advance before they know what the market price will be and the supply is price inelastic in short-term. It is practically impossible for farmers in Uganda to decide in advance on how much to produce for the future market because farmers are scattered across the country, nor organized and their decisions are based on the current prices. A key determinant of supply is always the prices from the previous years and this is a true reflection of the 2024 coffee price that hit a record high since time in the history of coffee farming in Uganda. The motivation for farmers due to better coffee price has forced some farmers to be irrational in making decisions into coffee growing investment. Some existing coffee farmers especially from western Uganda are currently making the same mistakes they did in 1994, The surge in coffee prices in 1994 was believed to have been caused by bad weather in Brazil which was by the biggest coffee producing country globally. In response to surging coffee price, farmers rushed to cut banana plantations, tea plantations and reduced land for dairy farming to invest in coffee growing.
By and large, in 2004 Marely after 10 years, farmers started cutting coffee to plant bananas and this was because the price for matooke was becoming more stable compared to coffee as Brazil stabilized its coffee production. Currently coffee growing has attracted new entrants and you find 2 out of 10 Ugandans have entered into coffee farming. Existing farmers have expanded their coffee production space and due to limited land, the alternative foregone are banana and tea plantations but still some farmers are reducing the size of their dairy farms to coffee growing and subsequently a section of farmers are going to lose alternative sources of income as this will create food shortage and financial instability. Coffee is harvested once a year and hence a farmer receives cash flow once a year. Alternative crops and Diary that is at stake due to
surge in coffee prices can guarantee a farmer daily or weekly income. Let us re think about the opportunity cost! Coffee farmers are advised to use high coffee yielding technologies for a greater output while using available land space and with out encroaching on forests, banana plantations, team plantations and diary farm lands.
The coffee price trend in Uganda will soon see a price curve getting stable and subsequently drop. The excessive coffee production will guarantee low price and this means some farmers will go out of business. Also, a low price will discourage farmers from growing coffee crop in the coming years as the demand for agricultural goods is usually price inelastic, a fall in price only causes a smaller % increase in demand.
Finally, the coffee price surge in Uganda has not been backed by quality and according to International Coffee Organization, you all know Ugandan Coffee had quality challenges with the same organization and hence a pullout by Uganda Coffee Development Authority. The price surge is an effect of previous agricultural shocks in Brazil and Vietnam which are the leading coffee producers globally. From 2021 to 2024 Brazil has been facing the driest weather and coffee production has reduced by 25%, in Vietnam the robusta coffee decreased production and this has been underpinned by fears of excessive dryness and new coffee wilt which will be no more, but still coffee production in Vietnam has dropped by 20% during the 2023/2024 financial year as the country exported 27.9 million bags in 2023/2024 from 28 million bags in 2022/2023 as compared to Uganda that exported 6.7 million bags.
Uganda’s biggest export market, the EU has come up with tight regulation on coffee production and export, ranging from e-mobility which is the use of electronic Vehicles in coffee business, the EU deforestation regulation and traceability requirements and this restricts farmers to plant coffee on an area previously occupied by a forest, the legal production requirements on complying with local environmental and sustainable development and all these requirements shall take effect first, July 2025. The registration of Coffee farmers has caused debate and still more requirements on carbon print are underway. The Dutch auction system that kicked Ugandan tea out of market will also affect our coffee prices once implemented in EU Market. The rationalization of Uganda Coffee development Authority has attracted one of the most civilized debates ever by members of Parliament, Cultural Institutions, Private sector, Farmers and Civil society and as matter of fact, rationalization of UCDA will lead to deteriorating coffee production, quality and prices to some extent but however this will not bring an end to coffee growing in Uganda. Enough has been spoken about UCDA rationalization and thank you whoever contributed to this debate.
Finally, when it comes to Coffee trade, Uganda must deal with EU market with caution as by 2027 a clause on political and human rights will be added on deforestation, trade regulation, traceability and carbon print clauses, as a country we must increase our participation in existing markets outside the EU but still we must explore new markets in Africa, the Arab world and Asia. Uganda must also prioritize investment into Climate finance as we all believe climate change is real.
The author, Denis Tukahikaho Ph.D. is an expert on Cooperatives, Financial Inclusion and Renewable Energy Investment
