by Esther Nakkazi
– Uganda –
Coffee exporters in developing countries are bracing themselves for higher unit export prices.Triggered by speculative buying from a supply shortage from Vietnam, one of the world’s biggest coffee producers, current conditions are fueling an increase in demand.
Robusta coffee exporters like Uganda continue to enjoy premium prices from their recent sales. The average export price of coffee in Uganda for the month of June alone grew by 2.4 percent from the previous month, largely driven by speculative demand developments in the world markets.
Uganda is dubbed as having the best Robusta beans in the world. Indigenous to Uganda and the Congo , Robusta (coffea robusta) is a specialty coffee grown at high altitudes in volcanic soil and wet climates. Grown in the Lake Victoria basin, Robusta beans account for 85 percent of the country’s annual production and are harvested from October to December and May to July. It accounts for 25% of the coffee grown worldwide and produces beans in 2-3 years versus the 4-5 years necessary for Arabica, which is also grown in Uganda. Well-suited to a greater variety of growing environments, Robusta also contains more caffeine than Arabica (about 40–50%). Much cheaper than Arabica, Robusta beans are mild and frothing and are often mixed with harsher commercial coffee blends. Robusta is only grown elsewhere in Southeast Asia and Brazil.
Minister of Finance, Dr. Ezra Suruma projected in a recent budget that coffee exports would fetch the economy $224 million (USD), a 29 percent increase from 2006/07. But Moses Kabanda, an official from the Ministry now says that Dr. Suruma offered this figure before anyone could possibly know that Vietnam would be hard hit by climate change.
As a result of the continued, consistent rise in prices over the last four months, coupled with scanty supply from Vietnam, coffee earnings for the last financial year amounted to $229 million (USD), a 32 percent increase compared to the same period the previous year.
Agriculture is the backbone of Uganda’s economy; 50 percent of farmers in the country grow coffee. The potential increase in the country’s production will invariably improve the livelihoods of both the farmers as well as Uganda’s economy overall.
Uganda’s strategy is to follow Vietnam’s model of coffee production where farmers were enticed by a price surge after a severe frost hit Brazil in 1997 greatly diminishing supply. Subsequently helping the country to increase its coffee-producing acreage to more than a million acres from 1990 to 2000, Vietnam’s annual production grew from 84,000 to 950,000 tons enabling the country to become the world’s second biggest coffee producer after Brazil. Motivated by premium prices, Vietnam’s farmers surpassed even Columbia’s production.
Ugandan officials in the coffee sector think the same could happen for its own coffee production since the conditions seem similar. Uganda is a leading world producer of Robusta and has been historically dogged by low prices due to over supply.
According to the Uganda Coffee Development Authority (UCDA), the government body that regulates the country’s coffee production and export, average export prices have increased over the last year from $1.38 (USD) per kilo for 2005/06 to $1.50 (USD) per kilo in 2006/07. Annual export volumes increased by 21 percent.
Managing director of the UCDA, Henry Ngabirano, said the agency expects Uganda to see increases in the country’s coffee-producing acreage, export volumes and average annual production rates. Induced by the higher unit export prices, these developments will enable the country to surpass its coffee production and export targets for 2007/08.
Currently, about 65% of Uganda’s exports are coffee products, and 3.5 million families (1 in 8 Ugandans) are said employed in coffee production. However, because of past low prices, only 20-30% of Uganda’s foreign exchange earnings derive from coffee. About 500,000 small farmers are responsible for coffee growing, with the average plot being .5 – 2.5 hectares (.25-5.0 acres approximately). About 30% of coffee farmers are organized into cooperatives to leverage sale potential.
Due to demand, the average coffee export price for June in Uganda was $1.66 (USD) per kilo compared to $1.62 (USD) per kilo in May. Robusta producers continued to enjoy premiums prices of up to $1,918 (USD) per ton, up from $1,100 (USD) per ton last year. In May, the prices grew by 63 percent compared to the same month last year.
According to the UCDA Uganda had only 58,000 hectares of coffee crops at the beginning of the First World War but by 2005 had grown to 272,000 hectares. Good prices should drive an expected 30 percent increase by next year.
UCDA records show that cumulatively, coffee export earnings from July 2006 to May 2007 amount to $204 million (USD), representing 28 percent increase from last year.
Export volumes have also been steadily climbing to 2.5 million bags of 60-kgs of coffee, driven by favorable weather conditions for coffee bean maturation as well as good crop husbandry prices, says the UCDA June report.
The increase in volume to 2.5 million bags for $ 229 million (USD) in 2006/07 while an improvement in production versus export earnings, is a far cry from what the country earned in the 1970s. Uganda earned a whopping $588.5 million (USD) from 2.45 million bags in 1976/77, the highest ever.
Since then the country has been producing more volume but earning less from its production largely due to a market that was plagued by oversupply from Vietnam and Brazil.
But now that the Vietnam coffee industry has been hit by dry weather, Uganda is well-positioned to take advantage of the shrinking global supply, step up production and see earnings like those of the 70’s.
Uganda may be forgetting the lessons of history, however. Vietnam’s burgeoning coffee production (950,000 tons) in 2001 created both the greatest oversupply and the lowest price of coffee in 30 years. The US-based “Big Four” (Nestle, Sara Lee, Kraft and Proctor & Gamble) took advantage of the profits Vietnam sought to gain from Brazil’s poor crop yield in the late ‘90s and invested heavily in production, eventually leading to the creation of Fair Trade practices. Oxfam worked with Vietnam to encourage farmers to not grow coffee on marginal land, teaching them to focus on quality not quantity. Vietnam cut back its coffee production to it most recent 500,000 hectares, converting the land to more profitable crops. This lead to a more diversified economy and better prices until this most recent climate setback.
The question is:
Will Uganda’s increasing output of Robusta beans set it up for the same market conditions that Vietnam created in 2001 that eventually caused the market to collapse? And will Vietnam recover in time to only flood the market again with an over-supply after Uganda takes advantage of the market’s need? Only time will tell if this new strategy will prove beneficial for Uganda. – Ed.
About the Author
Esther Nakkazi is a science journalist currently reporting for the regional, weekly newspaper The EastAfrican, published in Nairobi, Kenya and distributed in Uganda, Kenya, Tanzania and Rwanda. She is also a volunteer editor for oneworld and contributes to Islamonline in Egypt and Realheath in the UK.
In 2006, Esther received the Economic Commission for Africa (UNECA)’s award for Africa on Information Society. She is also the 2007 winner of the African Network for Prevention and Protection Against Child Abuse and Neglect’s (ANPPCAN) “Tunza Watoto wa Africa” Journalism Award for her work on children and HIV/AIDS. She is a member of the World Federation of Science Journalists’ peer-to-peer mentoring forum for science writers.
Esther is currently based in Kampala, Uganda.