Beyond the Farmgate Local & Regional Trade Policy - Uganda John Magnay – Vice Chairman [email protected] Uganda Grain Traders Ltd

Beyond the FarmgateBeyond the Farmgate

Local & Regional Local & Regional Trade Policy - UgandaTrade Policy - Uganda

John Magnay – John Magnay – Vice ChairmanVice Chairman

[email protected]@infocom.co.ug

Uganda Grain Traders LtdUganda Grain Traders Ltd

mailto:[email protected]

Uganda Grain Traders LtdUganda Grain Traders Ltd 22

UGANDAUGANDA• Consistent Surplus Food ProducerConsistent Surplus Food Producer

• Two Seasons per YearTwo Seasons per Year

• Internal Market driven by informal Processing Internal Market driven by informal Processing & Consumption with no large millers& Consumption with no large millers

• Maize is not the major staple foodMaize is not the major staple food

Market Driven byMarket Driven by

• Informal Regional TradeInformal Regional Trade

• Relief Food / WFP purchasesRelief Food / WFP purchases


The Positive Internal The Positive Internal InitiativesInitiatives

• Establishing Establishing Farmers’ Organisations & Primary SocietiesFarmers’ Organisations & Primary Societies for for training, inputs and marketingtraining, inputs and marketing

• Market InformationMarket Information systems – mobile phone, email, systems – mobile phone, email, internet, newspapers, radiointernet, newspapers, radio

• Direct Market LinksDirect Market Links for specific crops – Sunflower, Dried for specific crops – Sunflower, Dried Cassava, Barley & Sorghum for brewingCassava, Barley & Sorghum for brewing

• Improved Improved Input DistributionInput Distribution & & Micro FinanceMicro Finance

• Diversifying production to Diversifying production to Import SubstitutionImport Substitution – Rice, Oil – Rice, Oil seeds, Barleyseeds, Barley

• Establishment of Establishment of Warehouse ReceiptWarehouse Receipt legislation legislation


The Positive Regional The Positive Regional InitiativesInitiatives

• Regional meetingsRegional meetings to “discuss” regional to “discuss” regional tradetrade

• Establishment of Establishment of EAC StandardsEAC Standards for for CropsCrops

• ““Maize without Borders” – nil taxesMaize without Borders” – nil taxes

• Regional Regional Market InformationMarket Information


The Issues - InternalThe Issues - Internal

• Producers only have 60 days to Producers only have 60 days to harvest / dry / sell before the next harvest / dry / sell before the next seasonseason

• Wet harvests / poor on farm storageWet harvests / poor on farm storage• Lack of Input finance for producers due Lack of Input finance for producers due

to uncertain Output market pricesto uncertain Output market prices• No focus on Quality / Storable GrainNo focus on Quality / Storable Grain• Banks reluctant to finance WRS stocksBanks reluctant to finance WRS stocks

Price & Market Risk!Price & Market Risk!


The Issues - RegionalThe Issues - Regional

• In the absence of the Relief Food In the absence of the Relief Food market, the regional market only market, the regional market only provides a “spot” market signal and provides a “spot” market signal and opportunityopportunity

• No regional mechanism for “futures”, No regional mechanism for “futures”, therefore “no stocks”therefore “no stocks”

• Regional shortages occur out of Regional shortages occur out of Uganda harvest season.Uganda harvest season.

The Catch 22The Catch 22


Finance within the Grain Finance within the Grain TradeTrade

• The Relief Market trade is currently financed by $ The Relief Market trade is currently financed by $ 25million-worth of orders 25million-worth of orders creating creating $ 20million worth of $ 20million worth of finance with the grain processors. Processors use the finance with the grain processors. Processors use the WFP contracts to borrow the working capital to execute WFP contracts to borrow the working capital to execute the contract. Typical financing period is 2 monthsthe contract. Typical financing period is 2 months

• The Informal Trade market is driven by finance from The Informal Trade market is driven by finance from the Kenyan buyers. Typical financing period is 7 days.the Kenyan buyers. Typical financing period is 7 days.

Loss of the Relief Market and Spot sales to Kenya Loss of the Relief Market and Spot sales to Kenya causes immediate crisis in the Uganda Marketcauses immediate crisis in the Uganda Market


4 Grain Crashes in Uganda in 20 4 Grain Crashes in Uganda in 20 yearsyears

• 1987-8 – Govt sponsored increases in production – 1987-8 – Govt sponsored increases in production – the the Grow more Food Campaign Grow more Food Campaign – typical of input – typical of input intervention scenario.intervention scenario.

• 1995 – dramatic increase in demand for Relief food 1995 – dramatic increase in demand for Relief food in 1994 for Rwanda led to increased production in in 1994 for Rwanda led to increased production in ’95 with no demand for Rwanda.’95 with no demand for Rwanda.

• 2001 – loss of Kenya informal trade market, due a 2001 – loss of Kenya informal trade market, due a seasonal surplus in Kenya (despite an annual seasonal surplus in Kenya (despite an annual deficit).deficit).

• 2005 – wet harvest / large surplus / unsympathetic 2005 – wet harvest / large surplus / unsympathetic purchase by WFP / short term surplus in Kenya – a purchase by WFP / short term surplus in Kenya – a short term problems with an impact on 2006 Food short term problems with an impact on 2006 Food SecuritySecurity


Regional Markets Regional Markets • AFRICAAFRICA has got to accept the climatic effect on has got to accept the climatic effect on

regional production.regional production.• Surplus and Deficit production are compounded into Surplus and Deficit production are compounded into

market-exaggerated-spot markets – highs and lowsmarket-exaggerated-spot markets – highs and lows• PotentialPotential shortages in any market provide very little shortages in any market provide very little

financial signal financial signal untiluntil they become actual shortages they become actual shortages• Short-term surpluses normally lead to immediate Short-term surpluses normally lead to immediate

market collapsemarket collapse• Banks consider financing stocks a huge Banks consider financing stocks a huge price riskprice risk in in

the absence of the absence of hedging mechanismshedging mechanisms..

The usual outcome of surpluses is to leave the problem The usual outcome of surpluses is to leave the problem with the producers – with a knock on effect micro-with the producers – with a knock on effect micro-finance and input supply and further perception of finance and input supply and further perception of

increased price riskincreased price risk


The Way ForwardThe Way Forward• East Africa needs to recognise the importance of East Africa needs to recognise the importance of

inter-dependancy inter-dependancy to achieve to achieve food security and food security and market stability.market stability.

• The Region should move to The Region should move to Standardised Quality Standardised Quality GrainGrain trade which can be stored, collateralised trade which can be stored, collateralised and traded through a (regional) Commodity and traded through a (regional) Commodity Exchange.Exchange.

• As a food deficit country, Kenya should take the As a food deficit country, Kenya should take the lead on development of the lead on development of the formal marketformal market..

• Regional Govt. should recognise Regional Govt. should recognise the distortions of the distortions of national Govt. interventionnational Govt. intervention on stocks and pricing – on stocks and pricing – increasing Price Risk to commercially stored grain.increasing Price Risk to commercially stored grain.


The Way Forward - UgandaThe Way Forward - Uganda• As an As an interim measureinterim measure to promote:- to promote:-

– Investment in Cleaning, Drying & Investment in Cleaning, Drying & Storage facilitiesStorage facilities

– Standardised Quality GrainStandardised Quality Grain– Use of Warehouse ReceiptsUse of Warehouse Receipts– Bank finance for production, processing Bank finance for production, processing

and stored grainand stored grain

• There is a need for Output Market There is a need for Output Market support to remove the perceived support to remove the perceived price risk.price risk.


Use of a Price Risk FundUse of a Price Risk Fund

• Establish pre-planting price for Establish pre-planting price for Quality Grains to be purchased or Quality Grains to be purchased or warehoused at harvest.warehoused at harvest.

• Build stocks for trading, out-of-Build stocks for trading, out-of-season, to the regional marketsseason, to the regional markets

• Provide the Stocks – Storage – Provide the Stocks – Storage – Finance precursors for a Regional Finance precursors for a Regional Commodity ExchangeCommodity Exchange


The End GameThe End Game

• Regional Commodity Exchange with Regional Commodity Exchange with spot and future trading options to spot and future trading options to supportsupport– ProductionProduction– InvestmentInvestment– Warehoused stocksWarehoused stocks– Commercial FinanceCommercial Finance– Increased Food Security through increased Increased Food Security through increased

commercial stockscommercial stocks

Documents

Beyond the Farmgate Local & Regional Trade Policy - Uganda John Magnay – Vice Chairman [email protected] Uganda Grain Traders Ltd