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Food trade

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Maize being prepared for export in Busia.  INDEPENDENT/ JIMMY SIYAHandsome rewards drive Uganda’s food exporters into the region

Alex Sejjuta, acting head of marketing at the cereal foods company Maganjo Grain Millers Ltd, is overseeing a delicate balancing of the company’s marketing strategy.

As regional demand for common staple foods competes with local consumption – the company’s traditional market – Maganjo has to weigh the benefits of the cash-flush regional food market willing to pay higher prices, against the comfort of selling at home.

In the three months between October and December 2011, about 49,000 metric tonnes of cereals (maize, rice, wheat, and sorghum) was recorded across 26 monitored cross-border markets, accounting for 39 per cent of total food commodities traded in the region.

 

Traditionally 80 percent of Maganjo’s output of maize, rice, millet, soya and other grain-based foods, is sold locally. 20 percent is exported, mostly to neighbouring countries like South Sudan, Rwanda, Tanzania and the Democratic Republic of Congo, but also to far-off countries like the United Kingdom, where Ugandans pay highly to taste a staple from home.

But growing regional demand for food is changing those dynamics.

With neighbouring countries paying higher prices for food, many traders are chasing higher returns and abandoning the local market.

Sejjuta said a tonne (1,000kgs) of maize that goes for Shs 620,000 when exported to neighbouring countries, in Uganda fetches Shs 580,000, Shs 40,000 less. But the trade-off is not worth it for Maganjo to abandon the local market, he said.

“Sometimes there is high demand from foreign markets and our exports may increase to about 25 percent,” Sejjuta said. “But we can’t really neglect our local market because they are the producers of the commodities we process. What we do is balance all the markets and cause no harm.”

Maganjo also remains sensitive to its small but delicate market outside Uganda’s borders, and some sort of patriotic pride.

“Ugandans abroad would love to buy a product originating from their mother country,” Sejjuta told The Independent.

“But also, just like other countries export to Uganda, we also want to show them that we can export our products to their countries,” he said.

Speculators

Higher prices in regional export markets are attracting food out of Uganda, causing prices in local markets to rise even when harvests recover.

For instance, Maganjo buys a kilogramme of unprocessed maize from farmers at Shs 500 today compared to Shs 300 at the beginning of last year.

“Prices fluctuate any time,” Sejjuta said. “Farmers have little or no control over factors like changes in weather.”

The company doesn’t plant its own produce, but buys mostly from farmers’ groups and middlemen. Sometimes its own team also finds itself driving from farm to farm, buying commodities.

But it is not all the regional market.

George Semakula, a trader dealing in maize and millet in Kampala, said speculators, especially brokers who buy most crops from rural farmers, were part of the problem driving up prices.

“Brokers convince farmers that prices of certain commodities would fall rapidly,” Semakula said; “The farmers panic and end up selling at lower prices, which soon results in scarcity and higher prices.”

“Traders then come to the market sell at higher prices,” Semakula said.

Semakula trades in cereals in Arua, Lira, Mbarara, and Tanzania. He currently buys a kilo of unprocessed millet at Shs 1,200 and sells at about Shs 1,700.

Relief needs

Food aid organisations like the World Food Programme (WFP) deny the blame for spiking prices, and instead argue that they need even more than Uganda provides.

“The agency is careful not to buy too much in seasons of scarcity to avoid disrupting local markets,” WFP Public Relations Officer Lydia Wamala told The Independent.

“We want to double the amount of food we are currently buying annually to more than US$100 million worth of purchases every year,” she said.

Wamala said the amount of grain produced in Uganda fell short of WFP’s needs in the region, hence the agency’s new tack to boost production by renovating and equipping warehouses for farmers’ groups, to improve storage.

WFP has renovated six communal warehouses between 1500 – 18,000 tonnes since last year, in Gulu, Soroti, Kasese, Tororo and Kapchorwa.

Uganda is one WFP’s main sources of food for famine-prone communities in the region - notably Somalia, Northern Kenya and Southern Sudan – but Wamala said that contrary to popular belief, most of the food the agency buys in Uganda (up to 80 percent) is distributed in the country, particularly the food-stressed Karamoja region.

Only 20 percent goes to countries like Burundi, DRC, Kenya, Tanzania, Somalia and Sudan.

Between 1994 and 2009, WFP bought an estimated 1,360,000 metric tonnes of food in Uganda at the cost of about US$376 million - US$53 million in 2008, US$50 million in 2009 and US$43 million in 2010.

Wamala said WFP uses local purchases to boost Uganda’s economy and deploy donor resources for production.

The Uganda Bureau of Statistics concurs that demand for Uganda’s food is growing, with agricultural exports contributing 46 percent of total export earnings.

According to UBOS, formal export of cereals (maize, millet, soya, etc) more than doubled between 2006 and2010, due to steadily increasing demand from foreign markets. Uganda exported 36,689,000 tonnes in 2006, 40,736,000 in 2007, 49,587,000 in 2008, 55,387,000 in 2009 and 76,674,000 in 2010.

Formal exports of maize - considered one of the most highly consumed staples in Uganda and the most traded commodity in the region - rose from 24,114,000 tonnes in 2007 to 38,206,000 in 2010.

Another item that saw increased regional demand was sugar, whose export rose from 11,760,000 tonnes in 2006 to 60, 172,000 tonnes, also with consequences to local prices and supply.

Cost of drought

Unstable climatic conditions – in combination with civil conflict – are undermining food supply, leading to heavy losses in the field and fomenting farmer apathy, leaving almost 10 million people in the East African region food insecure as a result.

The World Bank recently estimated the cost of drought in Uganda at US$831.1 million, due to crop and crop input loss.

The bank’s February 10, 2012 report said the damage was overwhelming for the private sector – especially household farms - which accounted for 98 percent of the losses.

More investments are needed in food production, which currently contributes only about 24 percent of GDP and 75 percent of agricultural production. The European Union Ambassador to Uganda, Dr. Roberto Ridolfi, said improvements in food safety will open more of the EU – Uganda’s largest export market outside Africa – to Ugandan products.

“This market [EU] is very important for Uganda. Unlike the rather large deficit that Uganda has in its trading relationships with other countries or blocs, it enjoys rather a balanced relationship with the EU,” Ridolfi said. He said the EU represents 22 percent of Uganda’s exports, compared with Asia with only 8.4 and North America/ Caribbean with 1.8 percent.

Driving inflation

While some neighbours - notably Tanzania - contained food exports at the height of a food-driven inflation crisis last year, Uganda did not. Geofrey Okoboi (PhD) a research fellow at the Economic Policy Research Centre, Makerere University, says the income gains by some Ugandan farmers from the open-border policy on food were outweighed by resulting pressure on local prices of food, raising inflation and undermining Uganda’s economy.

“These countries offer good prices but in turn we pay higher than we sell ours when scarcity hits the local market,” Okoboi told The Independent.

UBOS Director of Macroeconomic Statistics, Chris Ndatira Mukiza, said between December and February, all components of the Consumer Price Index - except food - had registered slight reduction in prices.

Food prices in February this year rose to 21.3 percent, from 13.5 in January, explaining the only marginal drop in inflation to 25.4% from 25.7% in January 2012. According to the International Monetary Fund, 60 per cent of Uganda’s headline inflation is made up of food prices.

Experts have shouted themselves hoarse urging government to increase investments in agriculture.

“Our population is growing at a high rate. So without quick government intervention and strong policy measures and investments, food prices are likely to stay up,” Okoboi said.

In the 2011/12 budget of Shs 9.8 trillion, Finance Minister Maria Kiwanuka allocated Shs437 billion to agriculture, but most of this went to the National Agricultural Advisory Services (NAADS) [Shs 133 billion], which many critics argue has failed to improve productivity, its operations reportedly mirred in mismanagement, corruption and incompetence.

Market experts Fews Net East Africa predicts that cross-border trade in food commodities will most likely increase in the first quarter of 2012, following good harvests in Ethiopia and Uganda, and a corresponding shortfall of production in Kenya, South Sudan, and Sudan.

“Trade in livestock will most likely remain stable as livestock keepers restock following losses that accompanied the 2011 drought in the eastern Horn,” the agency’s February 2012 report said.

But conflict – especially in Somalia – will limit this trade. But so will lack of stock as drought and inadequate investment undermine the region’s robust food market. This may be why companies like Maganjo are more cautious taking on the regional market.


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