Beyond the Farmgate Local & Regional Trade Policy - Uganda

1. Beyond the FarmgateLocal & Regional Trade Policy - Uganda John Magnay – Vice Chairman Jmagnay@infocom.co.ug Uganda Grain Traders Ltd

2. 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

3. 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

4. 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

5. 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

6. 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

7. 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

8. 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

9. 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

10. 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

11. 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

12. 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

13. 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