Keeping a record of your costs of coffee production

A kilogramme of roasted ground Arabica coffee costs an average of Shs45,000 around most of the supermarkets in Kampala.

Yet a cup of coffee, be it Americano, espresso, or macchiato, costs nearly Shs10,000 in most cafés around town.

Other perfected coffees such as cappuccino and mocha, go for a cool Shs10,000 and Shs13,000 a cup. But how much did the green coffee required to make it cost – both to buy and to produce?

There is demand for fairer prices and better-quality coffee, however, without knowing how much farmers need to spend to produce a kilogramme of coffee, farmers will always feel cheated, a case that sometimes leads them to compromise the quality.

When aBi partnered with Ugacof to consolidate the economic viability and sustainability of smallholder farmers in Buikwe District, the major objective was to increase productivity by meeting market demands through quality coffee.

ABi worked with Ugacof to develop a two-year, Shs2.28b project aimed at increasing the incomes of 8,000 smallholder farmers in the Buikwe, Kamuli and Kayunga Districts. About a third of the project costs are provided by Ugacof.

The project was designed to increase coffee productivity and the overall production of smallholder farmers through good agricultural practices, improve post-harvest handling to ensure quality and enable farmers to earn higher prices; improve market access for the coffee produced by smallholders through value addition and wet mill processing and increase the participation of women and youth in coffee production and marketing.

Initiated in mid-2013, the project was completed by mid-2015. For the project sustainability, Ugacof is involved in training, good agricultural practices, post-harvest handling, produce certification, and the establishment of Village Savings and Loan Associations (VSLAs) in order to diversify sources of financing.

An additional 8,000 coffee farmers were added and to keep producing for the international market, keeping farmers aware of the business side of their activity is key.

As part of their ambition to improve coffee production, Ugacof teaches farmers in Ngogwe Sub-county, Nkokonjeru Town Council and Ssi Sub-county, all in Mukono District, how much coffee really costs. Joseph Ruyombo, an agronomist and a field officer of Ugacof, spoke about the math involved such that they can afford to give farmers top dollar.

Understanding coffee costs
Ugacof, an agro-processing and value-addition business is bent towards exporting high quality coffee.

Ruyombo, an agronomist and field officer states: “The sustainability of the coffee industry starts by understanding costs of production. Until farmers know this, sustainability is impossible.”

Small-scale farmers make up most of the coffee growers in Uganda. Ruyombo says that the majority of coffee producers are not aware of how much it costs exactly to produce a kilogramme of coffee.

“This can leave them unable to allocate resources throughout the year, putting them in a vulnerable position,” Ruyombo says.
Ugacof’s aim is to consolidate the economic viability and sustainability of smallholder farmers in Buikwe by creating guides that help farmers track their individual expenses and budget accordingly.

According to Ruyombo, knowing the costs of production helps to determine whether the farmers are benefitting or simply a routine. It also keeps a farmer abreast with activities done at the farm.
“But it is key when seeking financing from banks and other financial institutions,” he says.

The guides which are equipped with each of the field officers to use during the off season, take into consideration all the financial implications to the farmers to be able to determine how much they can get from their coffee. The two main harvest seasons in Uganda for both Arabica and Robusta coffee are between March-June and September-November.

Ruyombo says that it is worth noting that costs per acre always decrease as farm size increases. He assumes that an average farmer can produce between 25–30 bags of parchment coffee per hectare.
Ruyombo adds that the fluctuation of the exchange rate affects the producers when the payment is made in dollars – which is what happens.

The average exchange rate for the dollar in 2017, for instance, was at Shs3,500 yet it is now averaging Shs3,800 for each dollar. “This directly affects the total amount of money that the farmer gets.”
The other change that affects farmers’ income involves wages given for farm labour.

Ruyombo says that it is important that everyone in the coffee industry – farmer, trader, roaster, and others remain aware of the impact of local changes.

Ruyombo says that although costs vary, the main ones a farmer should consider are administration costs, labour (at weeding stage and harvesting), supplies and renovation.
Harvest labour generally refers to payments made to pickers in case of big plantations.

Factoring labour
“But even when a farmer uses his family, that labour must be accounted for,” he says.
Ugacof only buys red cherries from farmers and Ruyombo says the pickers are paid handsomely under such circumstances.

“Picking is harder and more time consuming, so the costs of pickers is going to be higher before coffee is taken for wet processing,” he says.
Areas that have the advantage of migrant labour have low costs of labour, he notes.

Farmers should also be in position to take note of infrastructure costs such as drying facilities.
But areas in highlands pose another challenge of transport. According to Ruyombo, since they are hard to reach, the eventual costs of production are higher.
“Harvest-time labour are low because most farmers use family labour,” Ruyombo says.

But to Ruyombo, knowing costs is not important if farmers cannot understand how it affects quality, profitability and sustainability.
Ruyombo says that in coffee production, up to 70 per cent of costs are spent on labour. “Farmers need to keep labour costs low.”

Profit and cost margins
To determine the estimate profit available to farmers, Ruyombo says that a simple formula can be applied.
When you divide your harvest costs by the number of kilogrammes of dry parchment produced and sold to the market, you will know the cost of harvesting one kilogramme of dry parchment coffee, and the same for each activity of the farm.

For instance, when a farmer buys fertilisers, pays for transporting them to the farm and then pays his workers for cleaning the garden and add on money for pickers.

When he harvests, for instance, 500 kilogrammes of red cherries and sells each at Shs4,400, the accruing costs are deducted from the sales to determine the cost of producing the 500 kilogrammes.
Ruyombo says that farmers must be vigilant and record all costs incurred on a weekly basis until the whole year is over.

This data helps the farmer to know whether they are being efficient or not, as well as know the profit margin of your business and your productivity per area of unit. But most importantly, they will be able to make better decisions regarding the farm’s future.
“Coffee farmers must know that it is a business rather than a hobby,” Ruyombo says.