The Future of Smallholder Farming in Eastern Africa - Uganda ...

Table 2.14: Buyers’ methods for influencing grain prices
Method Yes (%) No (%)
Postponing purchase
52.2 47.8
decisions
Reducing quantity of
53.7 46.3
purchase
Bargaining for lower prices 85.1 14.9
Seeking for other brokers 50.7 49.3
Buyers forming a group to 48.5 51.5
set prices
Source: Survey, 2002.
A large buyer (e.g., the DPPC, hospitals, universities) could influence grain prices using open
bids. Since the quantity involved is relatively large, brokers are tempted to lower prices and
win the bid. Moreover, brokers use different mechanisms to attract buyers, such as offering
better-quality grain, providing credit services, and improving services (Table 2.15). The
pressure to get buyers is very high, especially at times of excess supply. In recent years credit
sales are becoming the dominant sales strategy at the central market. For example, 66 percent,
40 percent and 68 percent of Adda teff, Wollenkomi teff and Bechena teff were sold on credit,
respectively, during the month of February 2002. Credit sales require consulting the owner of
the grain (regional trader) in most cases.
About 36 percent of brokers reported that they charge a price 5–13 percent higher when they
sell on credit. Credit sales involve high risk for brokers, however. Defaults are common due
to lack of enforcement mechanisms. In fact, about 78 percent of the sample brokers
confirmed that they had lost money over the preceding three years because some of their
clients defaulted on their loans. Brokers, on average, had lost birr 21,763 over the preceding
three years, and none of them had ever taken defaulters to court (Table 2.16). This is because
the transaction is essentially based on mutual trust with no written contract to enforce
repayment. Those who lost money as a result of such incidents are likely to lose their clients
as they fail to pay them. Some of the better-off brokers do not sell on credit; they can store
grain for some time and pay regional traders from their own money.
Table 2.15: Brokers’ strategies for attracting buyers
Method Yes (%) No (%)
Offer lower prices 19.4 80.6
Offer better-quality grain 92.5 7.5
Offer credit services 73.1 26.9
Use agents to bring buyers 34.3 66.7
Provide reliable services 86.6 13.4
Source: Survey, 2002.