Tuesday May 22 2012

More emphasis on value addition needed to spur economy

A woman assembles Splash juice made out of mangoes at the factory.  Uganda is endowed with natural fruits that can be processed and exported, earning the farmers premium prices internationally. File Photo

A woman assembles Splash juice made out of mangoes at the factory. Uganda is endowed with natural fruits that can be processed and exported, earning the farmers premium prices internationally. File Photo  

By Dorothy Nakaweesi

Every year, trucks laden with millions of bags of raw coffee, beans, maize and other agriculture products are shipped out of Uganda to different export markets. But when you walk around supermarkets, shelves are filled with the same imported commodities, well packaged and branded as specialties commanding high prices.

Yet if they were processed locally, more jobs would be created right from the firm all through the value chain till they are consumed. Although there are no actual figures of how much Uganda loses from exporting raw commodities, experts say millions are lost. So are the jobs that would have been created within the value chain.

For coffee — the country’s leading export earner; recent statistics from the Uganda Coffee Development Authority show that Uganda exported 3.2 million bags of coffee (red beans each 60kg) earning the country $266 million.

However, experts say if just 20 per cent of the exported coffee had undergone the full value addition process of roasting and grinding, it would earn the country a mind boggling $443 million.
Mr Daniel Joloba, Project Manager – Inclusive Markets in Agriculture and Trade at Enterprise Uganda explains: “This implies that if all our coffee, using the 2009/10 figures, was fully processed and exported, it would earn the country a tidy sum of $2.2 billion. But because we export our coffee in raw form, the country is earning only a paltry 12 per cent of the potential earnings from its coffee.”

Globally, the total value of coffee drank annually contributes over $100 billion. But out of this, Uganda and other coffee producing countries get about $12 billion in revenue. When unprocessed coffee is sold internationally, it earns only $2 per Kilogramme compared to $10-$70 per Kilogramme for the processed one. Coffee is just a representative of other commodities that Uganda can add value to and be able to earn a premium price.

Processing milk into yoghurt, cream, ghee, powdered milk and butter would stem milk wastage, creating a ‘creamy’ future for dairy farmers. Ditching the export of raw cotton for finished fabrics/clothes or tanning hides and skins into leather and eventually make shoes, bags and other accessories would earn them higher profit.

Value addition has remained a song on many people’s lips with government and the private sector discussing how the country can earn a premium price, create more jobs and earn the country international recognition.

Uganda Export Promotion Board, Executive Director, Ms Florence Kata, says the country is still lagging behind in value addition especially in agricultural products. “We can’t do much and this is rendering us less competitive even in the regional markets where we have a comparative advantage,” Ms Kata said.

However, this doesn’t mean that Uganda is disaster-prone. Some private companies have gone out of their way to follow the value chain approach from the farm to processing coffee and packaging it to UK supermarkets like Waitrose, the US, Asia, South Africa and within the region.
Good African Coffee (GAC)and Star Café are some of the companies which have seen coffee value addition become a reality. Both companies have established processing plants and manage a well-established command of farmers along the value chain.

“We as a new generation of African entrepreneurs believe that we can bring quality products to the global market. We believe we have what the consumer in the North Atlantic market is looking for in coffee; … we have the capacity to design the packaging to make it attractive,” said Andrew Rugasira, CEO Good African Coffee, as quoted in the New York Times magazine in April.
Fish, one of Uganda’s lead exports, has reached the European, US and Asian market not as whole fish but with value added into fillets and packaged to make fish sausages.

Ms Ovia Matovu, Chief Executive Officer, Uganda Fish Processors Association (UFPEA) shares their experience: “Our members have been able to penetrate these markets because we consider value addition very vital right from the resource (lake)-handling, cutting and packaging and these command a good price.”

Jesa Dairies and Sameer Agriculture and Livestock Limited, are the other companies adding value to Uganda’s milk through processing it into different products which are now sold regionally and in India.

SALL’s Chief Executive Officer, Mr Anoop Sharma said that the company is trying to be more innovative by bringing new products on the market, but adds that there is still a gap which needs to be filled.

Ms Kata said: “For Uganda to be competitive, government has to avail more resources to what it has allocated so far.”

Action plan
In the financial year 2012/13, Budget Framework-Ministry of Finance has placed agriculture as one of its priority funding areas. In its entirety, the framework mentions that unlocking value chains in agricultural produce by extending credit facilities to agro-processors to increase access to sustainable markets will be done.

Secondly, developing the seed industry, agricultural mechanisation and post harvesting management and storage is another value addition approach. Speaking to Prosper, State Minister for Industry, Mr James Shinyabulo Mutende, asserts that government is yet to get involved throughout the process.

“We are targeting everything produced both for export and the local market to ensure that right from the farm- is it maize or rice-is it the quality seed planted, when harvesting-how are they handled-what about the packaging before the product reaches the final market destination,” Mr Mutende said.
Mutende adds that they will achieve this through boosting agricultural extension officers by re-training the NAADs officers.

“This will help us encourage value addition even at the grassroots. We are looking at a situation where people will be able to use millers and haulers in villages and sub-counties to produce maize into flour, make fertilizers or animal feeds,” Mutende added.

Governments also assigned Uganda Industrial Research Institute (UIRI) to research and develop the appropriate technology to strengthen the industrial sector by making it competitive.
Already UIRI is training and encouraging crop scientists to develop their products through processing fruits and vegetables and packaging them, for instance, juices, jams, sauces, pickles, nectars, wine, starch and dried fruit and vegetable products.

Well, all these are seen to be good proposals on paper and putting them into practice is another story. Mutende said that they will be doing this but not forgetting partnering with the private sector players especially in areas of research and standardisation.

“Because the cost of these initiatives can be huge, we are both looking at co-investment with the private sector, borrow or invest and sell shares,” he said.

Improving the value chain
So given the scarcity of resources, how then can peasant farmers carry out value addition with their resources? Mr Joloba says: “Value addition starts at the production stage where proper agronomical practices should be cultivated.”

He adds that if a coffee bean has poor quality from production, its value will obviously be low in the subsequent value chain nodes. Related to the above, is proper post-harvest handling. “Farmers need to understand that the way they handle the farm produce right from the garden has a huge bearing on the quality of the product”.

So, use of tarpaulins minimises the contact with the bare ground and the dirt and stones are virtually eliminated. Proper storage in barns with a raised ground, made from local materials minimises the contact coffee has with vermin like rats, cockroaches, birds and chicken.

“All these things are within the reach of most farmers in Uganda. The only thing they have to do is to try it out. Mixing coffee with other produce during storage greatly compromises its quality and price subsequently,” he advices.

Bulking is another low cost value addition activity that most farmers can carry out; given the nature of agricultural production in Uganda which is predominantly subsistence. Most farmers cannot produce economically viable quantities that can attract premium buyers.

Consequently, they are then left to the village traders who offer the bare minimum price for every little product they put on sale. “However with proper organisation through small holder associations, farmers can designate bulk collection centres where all their produce can be collectively marketed,” Mr Joloba explains.
The advantage is that buyers are guaranteed viable quantities in one place and this minimises their transaction costs greatly. Therefore, they are inclined to pass on their transaction savings in form of relatively higher prices.

Using appropriate technology, may relate to using simple implements like hand driers to carry out primary processing. These implements can be locally made and cost as little as Shs20, 000. The moisture content of the coffee bean has largely determined its final price.
Moving the products closer to the buyers is another value addition activity that can elicit higher prices for farmers.

“Selling on the farm has more disadvantages than advantages. The little effort expended in selling the product is subdued by the low process offered,” Mr Joloba advises.

Collective marketing, investment and processing
For most farmers, individually up-scaling to higher value addition activities is out of their reach. However, with a little co-ordination, and collective effort, they can mobilise economically viable quantities, resources and collectively invest in machinery and equipment that will add value to their products.

Mr Joloba says that adding value can be accomplished in a number of ways but generally falls under two main categories – innovation and coordination. Value addition is not an answer for all the farming problems in the country but a precursor to transforming livelihoods of most farming communities countrywide. It should be viewed from a long term perspective rather than a quick fire measure.