TRENDS AND IMPACTS OF FOREIGN INVESTMENT IN DEVELOPING COUNTRY AGRICULTURE

UGANDA
Trends and impacts of foreign investment in
developing country agriculture
regional/international presence. This avenue is
employed by Kyagalanyi Coffee Ltd and IFTRA (U)
Ltd.
Avenue 3: From TNCs in Uganda to the
Ugandan market
The third avenue pertains to TNCs that engage in
agricultural production in Uganda and then sell
their output on the Ugandan market. Most of the
companies in the selected sectors are exclusively
export-oriented. From the field interviews, only
three out of eight companies sell on the domestic
market. Not surprisingly, domestic sales are a
very small portion of total sales (less than 1
percent for the flower companies, and less than
5 percent for the fish processing company). The
TNCs in other sectors that sell on the Ugandan
market are mainly motivated by the potential for
import substitution and usually receive strong
government support, for example, Tilda (U) Ltd in
the rice sector.
Avenue 4: From local farmers direct to TNC
in Uganda
Transnational corporations in Uganda serve
as a market for farmers’ agricultural produce.
Farmers produce under contract and then supply
to the TNC after harvest. Such arrangements
usually require the farmers to undergo training
to produce the specific type of product that is
required as a raw material by the TNC. In this
case, the TNC is not engaged in production, but
instead induces production.
Negative impacts of market access
Over-reliance on one commodity: Markets induced
by TNC involvement could also have negative
effects. There are two main negative aspects that
are both related to price risk. Access to markets
induces farmers to produce the marketable
commodities. However, there may be an overreliance
on these commodities, at the expense of
other agricultural products. This over-reliance can
be risky: when the price of the commodity drops,
farmers are at risk of incurring heavy losses, and are
discouraged from producing in subsequent seasons.
This situation occurred during the coffee boom of
1994/95 during which farmers increased production,
and the subsequent decline in prices resulted in
148
FIGURE 11
Relationship between number of coffee
processing factories and FAQ price for coffee
in Uganda, 1991–2007
USh per kg Number of factories
2 000
1 500
1 000
500
0
1991/92
1994/95
1997/98
2000/01
Robusta FAQ Price Coffee Processing Factories
Source: UCDA (2003); UCDA (2007); UCDA (2008: 11)
the neglect of coffee farms and contributed to the
spread of the coffee wilt disease 19 .
Impact of the global economic crisis: Although
the long-term impacts of the global financial crisis
on commercial agriculture in Uganda are not yet
known, there is evidence suggesting that some
sectors are being affected even in the short term.
For example, since 2008, sales in the flowers
and cuttings sector have dropped by nearly 20
percent. However, it is important to recognize
that the industry was already going through a
series of economic problems such as increased
production costs – especially freight costs
(increasing by 15 per cent in three years) – and
increased competition from neighbouring Kenya
and Ethiopia. Flower exporters in both countries
incur lower freight charges of US$1.67 per kg,
compared to US$2.20 per kg for flowers from
Uganda going to the same destination.
Conversely, according to the East African Fine
Coffee Association (EAFCA), the coffee industry,
thus far, appears to have escaped the effects
of the economic crisis. Indeed, overall coffee
exports in the 2007/2008 coffee season were
19 Interview with Kyagalanyi Coffee Limited.
2003/04
20
15
10
5
0
2006/07