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Uganda needs a caffeine fix

Insights from Vietnam’s coffee market success

By: Astrid R.N. Haas

Until recently Vietnam and Uganda shared a similar trajectory in the development of their coffee sectors. Today, Vietnam has emerged as the second largest coffee producer in the world. In Uganda, poor agricultural inputs and a failing institutional environment have resulted in low yields and slower development of the sector.

In January 2017, world coffee exports already amounted to 9.84 million bags. As one of the most extensively traded agricultural commodities, coffee trade has an interesting structure given the fact that it is exclusively produced in developing and emerging markets. In fact, it’s estimated that 25 million small holder farmers are responsible for 80% of overall coffee production. But nearly all the 2.25 billion cups of coffee consumed every day are drunk in the developed world.

In the 1980s, Uganda was one of the largest exporters of coffee, responsible for about 2% of the world’s coffee supplies. In 1980 it was producing approximately 2.1 million bags compared to Vietnam’s 77 thousand bags. At this time Vietnam hardly exported any of its produce.

Now the tables have turned. Vietnam is one of the world’s top coffee exporters, accounting for over 18% of global coffee exports, while Uganda’s has stagnated to between 2% and 3%.

What’s interesting is that since the 1980s the development of the sectors in both countries followed similar trajectories – from heavy regulation through various policy reforms in the 1990s, to being relatively deregulated today.

But one fundamental difference stands out – productivity. Vietnam has far outperformed Uganda over the past two decades due to its levels of productivity. This is down to the use of agricultural inputs for production, particularly the quality and quantity of fertiliser and machinery.

Uganda’s low yields

Coffee has been an important export for Uganda since it was introduced to the country in the 1900s. In 2015 it contributed 17.76% of Uganda’s total value of exports.

The Coffee Marketing Board, established in 1930 to regulate the coffee sector, steadily gained powers until it eventually held a state monopoly over the coffee industry following Uganda’s independence in 1962.

Between independence and the early 1990s the heavily regulated industry faced numerous challenges as a result of poor governance. It was eventually dismantled in the 1980s and 1990s and the sector became fully liberalised.

Today the coffee industry in Uganda is dominated by a large number of smallholder farmers, each with about 0.5 – 2.5 hectares of land. It’s estimated that about 1.7 million households are engaged in coffee production. In 2010 this amounted to a total of around 182,875 hectares under production, compared to 549,100 hectares in Vietnam. Middlemen are needed to collect the small quantities of coffee produced by the multitude of farmers.

The large number of smallholder farmers is not a problem in itself. The challenge is that they produce very low yields per hectare. This coupled with relatively high transportation and processing costs are the main reasons that Uganda’s coffee production has stagnated.

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