Why is Uganda’s leading economic sector lagging?

Development in agriculture, which requires greater productivity, is traditionally seen as a prerequisite for economic growth. But low investment in agriculture in Uganda seems to be holding back the sector, writes Evelyn Lirri:-

Uganda has fertile soils and flat lands favourable for farming, but agricultural production in the country remains low, threatening the government’s entire plan to transform the nation into a middle-income country.

Why? Although Uganda should be a land of plenty, analysts say inefficient production, bad infrastructure, poor access to markets and a lack of capital investment all have kept Uganda’s agriculture predominantly rudimentary. But one other factor appears to play a key role as well: lack of government support.

The Comprehensive Africa Agriculture Development Programme (CAADP), a programme of the African Union proposes that for poverty to be reduced in African countries including Uganda, its agriculture sector must grow six per cent per year. That would require an investment of at least 10 per cent of the total national budget in the sector.

Uganda falls far short of those goals. The national budget for the agricultural sector has fluctuated between just 1.7 and 5 per cent in recent years. Not surprisingly, output has been disappointing: It climbed just 2.6 per cent during fiscal year 2008/09. While better than the 1.7 percent increase the previous year, that still is unimpressive compared to gains in Asia and other areas that have achieved stronger economic growth. And it is less than the experts believe necessary for Uganda to climb out of its economic trouble.

The State Minister for Agriculture, Henry Bagiire, says the government’s commitment to agriculture is not as small as it looks. He says some agricultural programmes are being implemented through sectors like water and environment. He cites the water and irrigation programme, for instance.

“When you look at this trend, one would think we don’t prioritise agriculture but in fact we do,” he says. Still, he acknowledges that there is a problem. “Of course we need more money to be able to achieve our plans,” he observes.

More is at stake than the well-being of the farm sector. Many economists believe a strong agricultural sector is a prerequisite for economic growth. They say it is hard to develop strong manufacturing and service sectors unless a country can produce all the food it needs – ideally, even more so that it can export – with fewer people.

In this view, rapid growth in farm output should be accompanied by a declining portion of the population employed in agriculture. But Uganda has failed to achieve that. In fact, its slow growth in agricultural output has come even as the share of labour force engaged in the agricultural sector has actually increased from 66.4 per cent in 2002/3 to 75.1 per cent in 2005/6.

This worrisome trend threatens the government’s hope to strengthen manufacturing and services sectors. While government officials point to the declining share of agriculture in the overall economy – it dropped from 51 per cent of Gross Domestic Product in 1988 to 15 per cent by 2008 – as evidence that policies to boost these sectors are paying off; the failure to boost farm efficiency raises concerns about whether long-term growth will be sustainable.

Officials say the challenge remains to ensure that the shift away from agriculture is accompanied by rising productivity in the agricultural sector and value addition in the industry and service sectors in order to absorb excess labour from agriculture.

Government’s farm strategy
The government’s strategy for the farm sector rests in large part on its grandly named “Plan for Modernisation of Agriculture” programme, which aims to transform Uganda’s predominantly subsistence farming into a market-oriented, commercial sector. One of the key pillars of this plan is the National Agricultural Advisory Services (Naads), created in 2001 and largely funded by international donors, through which the government hopes to ensure that every family earns at least Shs20 million per year.

Unfortunately, analysts say that despite multi-billion shilling budgets-government is spending Shs116 billion this financial year under the programme - it has failed to bring about a structural transformation of the sector through increased mechanisation, water catchment and irrigation.

“The plan says a model farmer should be a model in a particular enterprise, with the capacity to earn Shs20 million annually and able to teach others,” says Mr Roland Muwanika, a research fellow at the Economic Policy Research Centre.

“When you go to the ground, such farmers don’t exist. Farmers are picked randomly to be models for others.” Mr Muwanika says most farmers are poor at adopting the new technologies such as improved seed varieties. “Most of the farmers are given seeds in the first season. But later, when these farmers are told to purchase the same seeds in the next season, many find it too expensive. Such a venture turns out to be costly for government if farmers are not going to take up and adapt them,” he notes.

The plan’s focus on training, according to its critics, doesn’t offer much value to small holders, who usually lack time for training. What most of the farmers lack are things like inputs,” “That is what should be addressed.”

Mr Edward Kisembo, 39, a farmer in Katende Village in Mpigi District, illustrates the government’s challenge. He is one of millions of Ugandans who farm to feed themselves and their families, and sell any surplus in local markets. Mr Kisembo has been farming on an eight-acre piece of land where he practices mixed farming, engaging in anything from crop cultivation to animal rearing.

About 80 per cent of the population in Uganda lives off the land this way, a majority of them on family land. Most of his farming is labour-intensive and manually done.
Years of value-addition rhetoric have not translated into significant changes in the lives of farmers like Mr Kisembo.

Mr Kisembo laments that the escalating cost of fertilisers is too high for him to afford, given that the returns he gets from selling excess surplus is not very big.
“I would want to increase my production, but I cannot do that without using huge amount of fertilisers. They are very expensive and I can’t afford (them),” he says.

The unavailability of machinery like tractors and combine harvesters makes it harder for small scale farmers to increase their production and or transform into full commercial farmers, he adds.

Despite such problems, Minister Bagiire says the programme will eventually reach everyone. “Agriculture is largely a private sector led economy so we are working through the local governments to ensure that farmers have access to inputs like fertilisers, irrigation facilities and hybrid crops that are disease and drought resistant. This way we shall be reaching everyone,” Mr Bagiire says.

Not everyone shares Mr Bagiire’s optimism. Indeed, in many ways, the outlook for agriculture is worse today than it was a half-century ago – not only in Uganda but throughout Africa.
At the turn of independence, agriculture was the mainstay of many African economies, which depended on the export of cash crops. But a combination of falling world prices of those exports, political instability that eroded the production infrastructure, and deliberate policies to build industry-based economies have left many countries growing only enough to feed the population.

A report by the Institute of Food and Resource Economics at the University of Copenhagen on the agricultural situation in Sub-Saharan Africa notes that Africa has lagged behind Asia in increasing agriculture productivity because it hasn’t invested as much in technology, which includes everything from irrigation to fertiliser use.

“The Southern Asian experience with substantial productivity progress shows that focus on investment and introducing modern techniques in agriculture are major sources behind the growth,” the report reads.

Up to 39 per cent of the crop area in Southern Asia is irrigated, for instance, compared to 4 per cent in Sub Saharan Africa. Mr Bagiire says government’s policy of promoting value addition and agro processing is one of the means it hopes to secure better financial returns to farmers.

However, a number of bottlenecks still impede this plan. Because most of the farmers are still at the subsistence level, they don’t have the financial and technological capacity to process their produce.

Government policy questioned
Civil society groups say the government has failed to invest sufficiently in agriculture.
“The government recognises the role of agriculture in growth and poverty reduction, but still pays it lip service,” says Mr Julius Mukunda of the Forum for Women in Development, a civil society budget advocacy group. He says the planned allocation of around 5 per cent of the total national budget to this sector between now and the 2012/13 fiscal year represents “a gross under investment” that will make it difficult to reduce poverty.

A 2001 World Bank report, Uganda’s Recovery, the Role of Farms, Firms and the Government, said it was “critical” for Uganda to increase agricultural productivity and rural nonfarm employment if it is to achieve sustainable growth and poverty.

Uganda is not alone in failing to meet this objective. Despite the commitment by African countries to increase public investment in agriculture by 10 per cent and raise sector growth, most African countries have fallen short of that target.

Civil society groups blame this under funding for the failure to modernise the sector. They argue that transforming agriculture will require substantial increases in its share of the budget and putting more focus on small irrigation schemes where majority of the small holder farmers are.

Development experts, on the other hand, say carrying out plans to modernise agriculture in Uganda remains difficult because the sector is so complex and entangled with everything from lack of finance to illiteracy.

With most subsistence farmers living on less than a dollar a day, it is hard for them to borrow for meaningful investment in agricultural production. “Access to agricultural finance is a major problem because not enough financial institutions are willing to offer long-term loans to farmers. With farming you need to be patient because a longer grace period is needed for the crops to grow and be harvested,” explains Prof. Augustus Nuwagaba from Makerere University.

Addressing this problem, he said, will require banks to be able to offer long-term agricultural loans at much lower interest rates. But Mr Kenneth Mugambe, the commissioner for budget policy in the Ministry of Finance, said an agricultural credit facility amounting to Shs30 billion will be made available in the next budget to help farmers access loans. This money, he said, will be lent to borrowers at an interest rate of less than 10 per cent.
Another area that Prof. Nuwagaba said has slowed efforts to transform the sector to a modern one, is the land tenure system.

“You can have the machines and capital, but the land tenure system may constrain you from accessing more land for expansion,” Prof. Nuwagaba contends. He argues that developing agriculture to ensure people make money out of it will require a fundamental transformation of the sector. Huge investments will be required in technology, land reforms and market penetration for the export market.

Noting that Ugandan agriculture is still rudimentary and subsistence-based, he concludes: “If you want to make it more productive, then you have to transform it, not reform it. You can transform it into agricultural investment plans which can then change small holder farmers to commercial producers. This remains a tall order. The question remains whether transformation is possible on a thin budget that reaches only five per cent of total government spending.