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Beyond the Farmgate Local & Regional Trade Policy - Uganda. John Magnay – Vice Chairman [email protected] Uganda Grain Traders Ltd. UGANDA. Consistent Surplus Food Producer Two Seasons per Year Internal Market driven by informal Processing & Consumption with no large millers

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beyond the farmgate local regional trade policy uganda

Beyond the FarmgateLocal & Regional Trade Policy - Uganda

John Magnay – Vice Chairman

[email protected]

Uganda Grain Traders Ltd

uganda
UGANDA
  • Consistent Surplus Food Producer
  • Two Seasons per Year
  • Internal Market driven by informal Processing & Consumption with no large millers
  • Maize is not the major staple food

Market Driven by

  • Informal Regional Trade
  • Relief Food / WFP purchases

Uganda Grain Traders Ltd

the positive internal initiatives
The Positive Internal Initiatives
  • Establishing Farmers’ Organisations & Primary Societies for training, inputs and marketing
  • Market Information systems – mobile phone, email, internet, newspapers, radio
  • Direct Market Links for specific crops – Sunflower, Dried Cassava, Barley & Sorghum for brewing
  • Improved Input Distribution & Micro Finance
  • Diversifying production to Import Substitution – Rice, Oil seeds, Barley
  • Establishment of Warehouse Receipt legislation

Uganda Grain Traders Ltd

the positive regional initiatives
The Positive Regional Initiatives
  • Regional meetings to “discuss” regional trade
  • Establishment of EAC Standards for Crops
  • “Maize without Borders” – nil taxes
  • Regional Market Information

Uganda Grain Traders Ltd

the issues internal
The Issues - Internal
  • Producers only have 60 days to harvest / dry / sell before the next season
  • Wet harvests / poor on farm storage
  • Lack of Input finance for producers due to uncertain Output market prices
  • No focus on Quality / Storable Grain
  • Banks reluctant to finance WRS stocks

Price & Market Risk!

Uganda Grain Traders Ltd

the issues regional
The Issues - Regional
  • In the absence of the Relief Food market, the regional market only provides a “spot” market signal and opportunity
  • No regional mechanism for “futures”, therefore “no stocks”
  • Regional shortages occur out of Uganda harvest season.

The Catch 22

Uganda Grain Traders Ltd

finance within the grain trade
Finance within the Grain Trade
  • The Relief Market trade is currently financed by $ 25million-worth of orders creating $ 20million worth of finance with the grain processors. Processors use the WFP contracts to borrow the working capital to execute the contract. Typical financing period is 2 months
  • The Informal Trade market is driven by finance from the Kenyan buyers. Typical financing period is 7 days.

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

Uganda Grain Traders Ltd

4 grain crashes in uganda in 20 years
4 Grain Crashes in Uganda in 20 years
  • 1987-8 – Govt sponsored increases in production – the Grow more Food Campaign – typical of input intervention scenario.
  • 1995 – dramatic increase in demand for Relief food in 1994 for Rwanda led to increased production in ’95 with no demand for Rwanda.
  • 2001 – loss of Kenya informal trade market, due a seasonal surplus in Kenya (despite an annual deficit).
  • 2005 – wet harvest / large surplus / unsympathetic purchase by WFP / short term surplus in Kenya – a short term problems with an impact on 2006 Food Security

Uganda Grain Traders Ltd

regional markets
Regional Markets
  • AFRICA has got to accept the climatic effect on regional production.
  • Surplus and Deficit production are compounded into market-exaggerated-spot markets – highs and lows
  • Potential shortages in any market provide very little financial signal until they become actual shortages
  • Short-term surpluses normally lead to immediate market collapse
  • Banks consider financing stocks a huge price risk in the absence of hedging mechanisms.

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

Uganda Grain Traders Ltd

the way forward
The Way Forward
  • East Africa needs to recognise the importance of inter-dependancy to achieve food security and market stability.
  • The Region should move to Standardised Quality Grain trade which can be stored, collateralised and traded through a (regional) Commodity Exchange.
  • As a food deficit country, Kenya should take the lead on development of the formal market.
  • Regional Govt. should recognise the distortions of national Govt. intervention on stocks and pricing – increasing Price Risk to commercially stored grain.

Uganda Grain Traders Ltd

the way forward uganda
The Way Forward - Uganda
  • As an interim measure to promote:-
    • Investment in Cleaning, Drying & Storage facilities
    • Standardised Quality Grain
    • Use of Warehouse Receipts
    • Bank finance for production, processing and stored grain
  • There is a need for Output Market support to remove the perceived price risk.

Uganda Grain Traders Ltd

use of a price risk fund
Use of a Price Risk Fund
  • Establish pre-planting price for Quality Grains to be purchased or warehoused at harvest.
  • Build stocks for trading, out-of-season, to the regional markets
  • Provide the Stocks – Storage – Finance precursors for a Regional Commodity Exchange

Uganda Grain Traders Ltd

the end game
The End Game
  • Regional Commodity Exchange with spot and future trading options to support
    • Production
    • Investment
    • Warehoused stocks
    • Commercial Finance
    • Increased Food Security through increased commercial stocks

Uganda Grain Traders Ltd

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