Is govt trying to repackage coffee deal?

When President Museveni and his ruling National Resistance Movement (NRM) party lost crushingly in the central region—Buganda—and parts of eastern Uganda—Busoga during the last general election, pundits and a few regime acolytes pointed to the government’s fading halo in these constituencies on the account of poor service delivery.

The widespread income inequality and poverty, swelling youth unemployment, dysfunctional education and health systems played a role in the defeat.

In Buganda Sub-region, more than a dozen NRM top shots were dropped by the electorate.

While traversing the central region districts to monitor the monarch’s development projects in the months leading to the January 14, 2021 election campaigns that were marred by unprecedented violence and state impunity, the Katikkiro of Buganda, Mr Charles Peter Mayiga, implored coffee farmers to “harvest red coffee beans”.

This appeal, according to insiders at Mengo, seat of the Buganda monarch, and government circles, was misconstrued to mean support for Mr Robert Kyagulanyi’s National Unity Platform (NUP) whose red beret swept the last yellow flag posts precariously hanging across Buganda during the polls.

President Museveni, insiders told this newspaper, was jolted. He raised the matter during meetings with the Buganda King (Kabaka) Ronald Mutebi.

In several public addresses, Mr Mayiga routinely dismissed the accusation as “cheap talk” .

The anticipated carrot and stick responses after the polls, some thought, would be dusting the controversial Land Amendment Bill long rejected by the monarch or side-lining Buganda during Cabinet appointments. For the last 30 years, the government offered a coveted position to a Muganda—from ministerial appointments—to prime ministers Kintu Musoke and Apollo Nsibambi— and vice presidents Samson Kisekka, Gilbert Bukenya, and Edward Ssekandi in attempt to placate the monarchy.

Coffee is Uganda’s second foreign exchange earner as it is the mainstay of Buganda’s economy.

Of the 7.7 million—60kg—bags harvested in the country between July 2019 and June 2020, according to Uganda Coffee Development Authority (UCDA), 2.6 million bags were culled from Buganda. Mid-western Uganda produced 1.8 million bags, 1.7 million bags from eastern—Bugisu/Sebei sub-regions, one million bags from south western Uganda, and 424,026 bags from Northern Uganda.

Brewing a bitter cup

Inside Mengo, according to insiders, suspicion is rife that the regime’s attempt to create a monopsony—a market situation in which there is only one buyer and one which comes with imperfect market conditions—is rooted in ulterior motives, including crippling the monarch’s economy or to use the cash-crop as a bargaining chip.

In 2016, Mengo sounded a clarion call to its residents in Buganda under the theme “emwanyi terimba” to eradicate poverty through growing coffee. Data held by the kingdom indicates a drop in poverty indices in precincts where the campaign was embraced.

“It doesn’t take rocket science to see through what they are planning. The good thing here is there is a lot at stake not just for Buganda, but the entire country,” a senior kingdom official told this newspaper on condition of anonymity owing to the sensitivity of the matter.

“That is how they crippled Busoga. They created a cartel around sugarcane growing, everyone jumped in, now they control prices of sugarcane. The sub-region with fertile soils and minerals is now the poster child of poverty and malnutrition.”

Other coffee growing sub-regions too have rejected the executive’s maneuverers nursed through the Ministry of Finance and UCDA. Industry players too, one after another, while appearing before the parliamentary Committee on Trade hearings into the controversial deal between Ministry of Finance and Uganda Vinci Coffee Company Limited (UVCCL), poured scorn on the proposed monopsony.

Coffee, according to the UN’s Food and Agricultural Organisation, is one of the most widely consumed beverages in the world and one of the most traded commodities globally. The leading producing country for the crop is Brazil, which holds about 35 percent of the export market followed by Vietnam and Colombia.

A June 2022 forecast by the Brazilian Coffee Exporters Council details that the South American country exported 39.5 million—60kg bags—to more than 121 destinations between the FY2021/June 2022, which fetched an estimated $8.1 billion (Shs30.3 trillion).

Vietnam, according to the country’s Ministry of Agriculture and Rural Development, during the first months of 2022, exported some 889,900 tonnes of coffee and raked in $2 billion (Shs7.2 trillion).

Nearly all the world’s largest coffee producing countries export more than 80 percent of their top-quality grade coffee beans ostensibly for foreign exchange earnings, and then import under grade coffee beans from all around the world including for processing at home. Vietnam and India, the seventh largest coffee producer, according to UCDA, are among the export destinations in Asia for Uganda’s coffee.

Uganda is the top exporting country in Africa and whose total coffee production represents about five percent of the global production.

President Museveni and policy experts in the Finance ministry and UCDA are convinced that the country could earn more money by processing all its coffee and either consume it locally or sell processed coffee to the international market.

The government is yet to publish a detailed study on empirical evidence in regard to such a scheme. This also requires exporting rights, cost of processing and packing for the different international markets, and the onerous cost of doing business locally, which means the processed coffee would have to be sold for a top dollar for the scheme to make economic sense.

Too good to be true

Coffee farming has been integral to Uganda’s economy since colonial times, according to the UN’s International Coffee Organisation (ICO), employing about 12 million farming families by 2019. Earnings from the crop—export of 6.26 million bags in FY2021/2022 fetched $862m (Shs3.2 trillion) up from $559m (Shs2 trillion) from export of 6.1 million bags in FY2020/2021.

After harvesting, sorting and milling, the green coffee beans are graded and classified for export. In Uganda’s case there are both small-scale, some who sell to middle-men or directly to milling plants, and large-scale farmers who sell to milling plants.

The country’s top coffee grades are organic robusta and screen 18 fair, which according to UCDA, trade at $2.02 (Shs7,000) per kg and $2.23 (Shs8,300) per kg, respectively, the conversion not adjusted for inflation

Mr Hadad Mulindwa, a model robusta coffee farmer in Rakai District and the Kkooki chiefdom’s minister for agriculture, who farms 30 acres, explained that after sorting the large coffee beans, screen 18 goes for Shs8,800 per kg at the factory, screen 17 (Shs8,500), screen 15 (Shs7,500), Screen 12 (Shs6,500) and the lowest grade BHP at Shs6,000.

“I understand that screen 18 would fetch a bigger price, but this business of one person controlling the coffee industry is absolutely wrong. Once they create the monopoly, it means they can determine the prices, take or leave it,” Mr Mulinda argued.

“If the argument is to create a soluble plant to make our coffee profitable, then there should be several plants so farmers have a choice of a buyer.”

Mr Leo Mpagiyaki, a resident of Kikata Village in Rakai, shares the same view. Last month, Mr Mpagiyaki harvested 910 bags of robusta coffee, which he sold through the village cooperative society under the National Union of Coffee Agribusinesses and Farm Enterprises (NUCAFE), an umbrella of coffee farmers formed in 2003 to bargain for better prices, which then sells to any of the coffee exporters.

“I don’t support the idea of one person having control over coffee…it gives them leverage over so many things. Competition is a healthy thing,” Mr Mpagiyaki said.

According to the 2019/2020 UCDA report, there are 753 coffee milling factories in the country; 136 in central, 59 in eastern, 373 in south western, and103 in mid-western. These work or deal with the exporters such as Kyagalanyi Coffee, which commands 18 percent market share, Ugacofe, Ideal Quality, Olam Uganda Ltd, and Kawacom, among others.  There are fears that the proposed monopsony would pose an existential threat to these firms.

The Finance ministry and UCDA, the statutory body mandated to regulate and oversee coffee growing, justify the current plan as “economics of value addition” in line with government’s agro-industrialisation. However, many of these nascent government projects such as the Soroti Fruit Factory, aimed at spurring inclusive growth, have resulted into still-births.

While agro-industrialisation is noted as a blueprint for economic transformation, in Uganda’s case, a 2019 paper titled “Agro-industrialisation in Uganda; current status, future prospects and possible solutions to pressing challenges” by the research think tank, International Growth Centre, pointed to lack of policy co-ordination, an ineffective enabling environment, significant underutilisation of agro-processing units and a lack of agricultural statistics which hamper government and private sector planning of the sector.

Flawed Process?

The ongoing manoeuvres around coffee started in February with the country withdrawing from the UN’s ICO that brings together coffee exporting and importing governments, citing unreasonable articles in a new two-year draft agreement. UCDA’s managing director Emmanuel Iyamulemye revealed during a presidential address on July 23 that the processing coffee would fetch the country “revenues 13 times we are earning now.”

“So, we are now getting $800m, but we could get $10b?” President Museveni argued. Mr Iyamulemye responded: “Assuming we could transform all our coffee hear and drink it.”

However, the ICO’s unfair rules of engagement are reinforced in a 2020 study titled “Misery at the Farm: Africa’s Coffee Farmers are Losing Billions to Exploitation” by Selina Wamucii, an agricultural research enterprise, which detailed that the lost amounts for African coffee farmers from unfair producer prices are estimated to be $1.47b (Shs5trillion) but fixing the gap lay only by changing the coffee trading rules within the World Trade Organization (WTO).

The President has often defended the Vinci deal and labelled this newspaper, which lifted the lid on the Finance-UVCCL deal, “an agent newspaper.”

On February 10, the Finance ministry had signed an MoU with UVCCL, to among others, establish a coffee processing plant worth $80m (Shs290b) as the sole buyer of superior quality coffee beans. The same company, the Trade committee established, had failed to construct a $440m (Shs1.6 trillion) coffee factory after it was allocated 25 acres of land in Namanve Industrial Park.

As soon as parliament on May 18 voted unanimously, based on the recommendation of the Trade committee to terminate the Finance-UVCCL deal on grounds that it “infringes and reverses the National Coffee Policy specifically the principle that coffee production, processing, marketing shall be undertaken by the private sector as individual farmers, farmer organisations”, the scheme was re-packaged.

On July 14, UCDA published an advert calling for expression of interest for the provision of transaction advisory services for the establishment of a soluble coffee processing plant in Uganda under a public-private partnership. The deadline for bid submission is August 25.

Such things, the Shadow Finance minister, Mr Muwanga Kivumbi, told Daily Monitor, “only happen in a banana republic”.

“Parliament was categorical that the Vinci deal was dead on arrival and it was not only illegal, but was also not legally tenable nor enforceable. What we hear is that the accounting officer here (of Parliament) in their communication to the executive wrote that we recommended for a review and yet we all agreed for a cancellation,” Mr Kivumbi said.

“You know we have a big crisis in this country when Parliament that is supposed to be the firewall of other arms has its resolutions altered for the pleasure of individuals, and not reflecting the will of the broader parliament,” he added. After the storm over the UVCCL deal linked to the controversial Italian investor, Enrica Pinetti, President Museveni in his State of Nation address on June 7 went public as having initiated the deal.

 “When I met madam Pinetti, she had no idea about coffee. I, however, could see she had a wide network of contacts and I asked her to look into coffee. After some time, she came back with a positive report- that it was doable. I am the one who told her,” Mr Museveni said.

The parliamentary Trade Committee, however, opined that the neo-liberal agenda of Structural Adjustment Programme (SAPs) including liberalisation that the current government adopted in the late 1980s loosened state control over the coffee industry the UVCCL venture was seeking to return.

Coffee sector at crossroads

In the same vein, while the Finance ministry had granted incentives to UVCCL including all tax exemptions available under the laws of Uganda, highly placed sources in the ministry told this newspaper that they have not levelled the playing field for local investors who are yet to receive any incentives.

 One senior official cited Star Café Ltd, which has been seeking to add value addition to coffee, which has written to the ministry’s leadership, but never got a response. The parliamentary Trade Committee recommended that the ministry considers extending appropriate incentives to the already existing 47 local companies that are doing value addition or alternatively, fast-track the capitalisation of Uganda Development Corporation to invest in a soluble coffee plant.

Mr Sarah Bireete, the executive director of the Centre for Constitutional Governance, an NGO, told Daily Monitor that “Coffee is the second highest forex earner and when you have a country run by mafias, they are always scheming where the money is. Now they are looking at coffee”.

“First, there is no merit at all in the reasons government gave for withdrawing from ICO. It is until we got to know about details of the Vinci (UVCCL) deal that everything we have been hearing started making sense. We should only try to be wise not to kill this industry because some people want to eat because it has been here even before independence,” she added.

Mr Mayiga said while governments across the world are charged with regulating economic activity, adequate consultation of all stakeholders must be at the forefront.

“When they (Executive) introduced the Coffee Bill, the Ministry of Agriculture hadn’t even talked to us about it; they only came here after I had raised the matter in another forum about some of the proposals to imprison people for abandoning coffee farms which is ridiculous. The way they do their things, even if they are not motivated by bad intentions, can compel people to think as such,’’ he said.

“I am not aware of any coffee exporter who was consulted on the Vinci deal. Of course, as Buganda, we were not talked to yet we are big stakeholders. But you bring a company and give them all sorts of incentives and control over the crop, how will other players compete?  You cannot blame people who question their motives.”

Court ruling

 Court has set December 15 as the ruling date in the case in which the agreement between the government and Uganda Vinci Coffee Company Limited was challenged.

  A section of lawyers who included Mr Henry Byansi and Mr Michael Aboneka asked the court to declare unlawful the agreement signed between government and coffee exporter.

The respondents in the case are the Attorney General, Mr Kiryowa Kiwanuka, and Uganda Vinci Coffee Company Limited.

Vinci deal

“First, there is no merit at all in the reasons government gave for withdrawing from ICO. It is until we got to know about details of the Vinci (UVCCL) deal that everything we have been hearing started making sense. We should only try to be wise not to kill this industry because some people want to eat because it has been here even before independence,” Mr Sarah Bireete, the executive director of Centre for Constitutional GovernanceHidden motive

“When they (Executive) introduced the Coffee Bill, the Ministry of Agriculture hadn’t even talked to us about it; they only came here after I had raised the matter in another forum about some of the proposals to imprison people for abandoning coffee farms which is ridiculous. The way they do their things, even if they are not motivated by bad intentions, can compel people to think as such,’ Mr Charles Peter Mayiga, Katikkiro of Buganda

fmusisi @ug.nationmedia.com