MARKETING MANUAL FOR THE UGANDA COFFEE FARMERS ALLIANCE

MARKETING MANUAL FOR THE UGANDA COFFEE FARMERS ALLIANCE By Tony M. Mugoya EXECUTIVE MANAGER UGANDA COFFEE FARMERS ALLIANCE P.O BOX 72723 KAMPALA, UGANDA TEL: +256 772 2 707 903 / +256 772 309 599 EMAIL: tony.mugoya@ucfa.or.ug June 2010

Table of Contents Table of Contents... 1 JUSTIFICATION FOR A MARKET-LED EXTENSION... 2 THE UGANDA COFFEE FARMERS ALLIANCE... 4 GEOGRAPHICAL DETAILS... 5 HISTORIC PERSPECTIVE... 6 ORGANIZATIONAL STRUCTURE... 7 COFFEE VALUE CHAIN... 8 REFERENCES... 14 APPENDICES... 15 Appendix i: Map of the Republic of Uganda... 15 Appendix ii: Map of Central Uganda... 16 Appendix iii: UCFA/Apex Structure... 17 Appendix iii: UCFA/Apex Structure... 17 Appendix iv: Organization Structure of a Depot Committee... 18 Appendix v: Organization Structure of a Producer Organization... 19 1

JUSTIFICATION FOR A MARKET-LED EXTENSION Globally, there is a growing demand for high value agricultural products which offer important market and employment opportunities for rural farm households. However, if smallholder farmers are to produce these high value products, then they must first learn about new production, processing and marketing systems to determine whether they can successfully pursue these enterprises (Swanson, 2008). There is a growing recognition that markets have become a primary driver for agricultural development. Given the growing demand for agricultural products in worldwide economies, all types of farmers but especially small scale, subsistence farmers, need new or additional skills and knowledge so as to assess these various options and learn how to successfully produce and market high value crops and products. In making the transition from a technology-driven extension system to one that is more marketdriven, extension priorities and procedures need to change dramatically. First, economic variables become central to the program planning process (Swanson, 2008). Aspects like analysis of cost benefit effects, minimization of operational costs and maximization of profits, become important. Organizing farmers into specific producer groups can also directly improve effectiveness and efficiency of agricultural extension systems supplying relevant commodity or product specific information and training directly to farmer groups who are producing particular crops or products. In developing a market-driven extension system, one of the first requisites is for farmers to have access to current and reliable market information (Swanson, 2008). Viable farmer organizations must be business oriented and should have a strong focus on marketing. 2

There is increased emphasis on promoting cooperation among farmers organizations to realize benefits of economies of scale in areas such as joint transportation, processing and marketing. This cooperation also improves the farmers collective bargaining power. By farmers organizations adopting best practices, they can improve the efficiency of service delivery to their members. These farmers organizations should translate their comparative advantage into market competitiveness. The ideal extension model should be farmer centered with necessary linkages to markets, researchers, subject matter specialists, inputs providers, credit facilities, and other support services. An appropriate extension system should focus on farmer groups rather than individuals with an emphasis on group extension methods. Thus a sustainable extension model which is farmer-owned with a strong market focus should be promoted (Mugoya, 2010). The traditional view of extension in Africa was very much focused on increasing production, improving yields, training farmers, and transferring technology. Today s understanding of extension goes beyond technology transfer to facilitation; beyond training to learning, and includes assisting farmer groups to form, dealing with marketing issues, and partnering with a broad range of service providers and other agencies (Davis, 2009). In Uganda, the government has adopted a policy to modernize agriculture. This is often referred to as the Plan for Modernization of Agriculture (PMA). The PMA aims to achieve a transformation of the currently predominant subsistence farming into a dynamic and profitable commercial agriculture where farmers produce for the market (Kazibwe, 2001). The inadequate growth of the agriculture sector has been as a result of the continued reliance on the weather and the insufficient linkages to value addition and market opportunities (Museveni, 2010). 3

The market plays a key role in determining the success of agricultural extension efforts. For example the recent improvement in coffee prices and the steady demand for coffee has led to renewed interest in farmers to increase their coffee outputs. This affected the farmers responsiveness to agricultural extension training (Mugoya, 2010). Many smallholder farmers would like to use the opportunities that increased prices offer to increase their production and get access to markets with favorable prices. With current improved coffee prices in the world market there are renewed efforts to increase production (Anon, 2008). According to the Uganda Coffee Development Authority (UCDA), coffee volumes jumped 18.8 % to 3.2 million 60-bags in the 2007/08 coffee year from 2.7 million bags in 2006/07. The overall increase in performance was more to Robusta which went up in volume on the account of improved husbandry practices (Food Industry News, 2008). THE UGANDA COFFEE FARMERS ALLIANCE The primary objective of the Uganda Coffee Farmers Alliance (UCFA) is to increase farmer incomes through supporting the development of competitiveness of farmer organizations through efficient market linkages. UCFA is a farmer owned apex organization of various producer organizations. UCFA serves as a marketing agent for its constituent farmer organizations. UCFA acts as their principal Support Unit at regional and country level. In addition to acting as a marketing agent and assisting in the establishment of direct commercial contact with exporters and traders, UCFA facilitates cooperation and strategic exchange with local support structures as well as providing coaching of farmer organizations to strengthen performance in their operations. UCFA also supports communication about the work of farmer organizations on national and international level. 4

The participating farmer organizations are supported in enforcing the UCFA members code of conduct highlighting these principles in their operations and governance. The code is aligned with international standards and codes of roasters and traders active in coffee business. Compliance with the code shall be assessed by way of third party audits recognizing efforts and giving comfort to members of farmer organizations as well as both sellers of agricultural inputs and downstream supply chain partners who might grant them a preferred supplier status (HRNS, 2009). UCFA also raises the interest of financial institutions and other service providers to cooperate. The code is applicable to all interested farmer organizations and corresponding processes for the implementation shall be supported by UCFA which acts as the support unit potentially in cooperation with local strategic partners. UCFA seeks to continue creating opportunities for smallholder coffee farmers to process and trade their coffee more competitively by promoting cooperation among their farmer organizations. The ultimate goal for the UCFA is to sustainably increase net farm incomes of dedicated coffee farmers by creating an efficient market channel for their organizations. GEOGRAPHICAL DETAILS Uganda is a country located in East Africa along the Equator (refer to appendix i). Uganda is well endowed with natural resources and a good climate, and is a natural home of Robusta coffee. Robusta coffee is native to Uganda. Wild Robusta still grows in natural forests around the Lake Victoria Basin and in Kibaale and Zooka forests where it is estimated between 150-400 hectares are still under wild Robusta coffee (Anon, 2008). 5

Robusta coffee is more tolerant to heat and flourishes at low altitudes, where temperature rarely falls below 18 0 C and the average is around 26 0 C. The ideal Robusta growing area, range from 1,100 to 1,300 metres above sea level (Musoli et al., 2001). The principal Robustaproducing areas of Uganda lie in the peripheral lands around Lake Victoria between 1200-1500 metres in altitude in the districts of Mubende, Mukono, Mpigi, Masaka and the adjacent Kamuli, Iganga and Jinja. Robusta coffee is also found in Luwero, Hoima, Masindi, Kiboga, Kibale, Bushenyi, Mbarara, Kabarole and Rukungiri (Musoli et al., 2001). The Alliance farmers have coffee gardens within the most fertile parts of Uganda which are located along the fertile crescent of the northern shores of Lake Victoria in the districts of Mubende, Mityana, Luwero and Masaka, which are traditional Robusta coffee growing areas. These districts are found in the central region of the Republic of Uganda (refer to appendix ii) just near the Equator. Mubende district coordinates are 00 o 30 N, 31 o 40 E and lies at an altitude of 1307 meters (4288 feet) above sea level (http://en.wikipedia.org/wiki/mubende_district). Mityana district coordinates are 00 o 27 N, 32 o 03 E and lies at an altitude of 1160 meters (3806 feet) above sea level (http://en.wikipedia.org/wiki/mityana_district). Masaka district coordinates are 00 o 30 S, 31 o 40 E and has an elevation of 1115 meters (3660 feet) above sea level (http://en.wikipedia.org/wiki/masaka_district). Luwero district coordinates are 00 o 50N, 32 o 30E and has an elevation of 1086 meters (3566 feet) above sea level (http://www.fallingrain.com/world/ug/70/luwero.html). HISTORIC PERSPECTIVE UCFA was established after the success of the Kaweri Coffee Farmers Alliance (KCFA) in forming farmer organizations. KCFA was established in 2005 after the identification of problems that hindered economic growth and competitiveness of smallholder coffee farmers within Mubende and Mityana districts. 6

These problems included low coffee productivity and quality, lack of agricultural finance to invest in inputs and other income generating activities, severely reduced coffee tree population due to the devastating effects of Coffee Wilt Disease (CWD), poor and inefficient market access due to lack of organizational structure and market information, and strong dependency on middlemen preventing a move up the value chain (Andersen, 2009). In short, smallholder coffee farmers in the project area had not yet achieved the full economic potential in their coffee enterprises. Before KCFA started in 2004, local Kiboko coffee prices were extremely low. They ranged from 150/= to 600/= per kg. However, after the interventions of UCFA and other factors, prices have continued to increase steadily (Mugoya, 2009). The KCFA baseline survey report published in 2006 indicated that dried cherry coffee prices increased significantly between 2004 and 2005 thereby presenting an opportunity for farmers to improve their incomes. The farmers limiting factor at that time was low coffee yields. The rise in coffee prices was attributed to, among others, increased awareness among coffee farmers as a result of dissemination of market and price information, increased competition between KCFA and local buyers, improved coffee quality as a result of trainings and bulk marketing with its accompanying collective bargaining power (Mugoya, 2009). ORGANIZATIONAL STRUCTURE Project farmers belong to small producer organizations (POs) which have an average of 35 members (refer to appendix iii). In KCFA, there were 443 such groups. Another 570 POs are anticipated in LCFA and BCFA. Several of these POs, ranging from 15 to 20, aggregated into bigger units called Depot Committees (DCs) which carry out bulk marketing (refer to appendix iv). 7

Ideally, one DC comprises of about 15-20 POs. Consequently, UCFA aims to work with many DCs or farmer organizations which operate as business units. Preferably these farmer organizations should be registered as companies limited by guarantee. UCFA has many members who are essentially farmer organizations from various areas. These include those farmer organizations originating from Kaweri Coffee Farmers Alliance (KCFA) and others from Luweero Coffee Farmers Alliance (LCFA) and Bigasa Coffee Farmers Alliance (BCFA); as is shown in appendix v. KCFA has about 15,000 members; LCFA has 15,000 while BCFA has 5,000. This implies that currently, UCFA has a potential 35,000 producers who are coffee growers. In the long run, even more members are expected to join this apex organization because of the obvious advantages it offers to coffee farmers. COFFEE VALUE CHAIN A value chain is defined as the sequence of steps and actors involved in the process from production to delivery of a product to the market. The value chain is a supply chain consisting of producers, processers and buyers that brings a product from its conception to its end use. A value chain approach to development seeks to address the major constraints at each level of the supply chain, rather than concentrating on just one level. For example, right from production up to marketing. Taking a value chain approach is often essential to achieving successful economic development since smallholder farmers will only benefit when they attain competitiveness by adding value to their products. Within this value chain approach, particular emphasis must be placed on strengthening cooperation among smallholder farmers as well as farmer organizations to achieve economies of scale needed to reach better markets. This is illustrated in Figure 1 below. 8

Figure 1: UCFA Coffee Value Chain INTERNATIONAL COFFEE MARKETS/BUYERS End Market NATIONAL COFFEE MARKETS/BUYERS SUPPORT SERVICES Extension UCFA/APEX Market Channels Inputs DCs DCs Coffee Processing Banking Processing POs POs POs POs Coffee Collection PRODUCERS Coffee Production In short, the end goal of UCFA is to improve competitiveness of farmer organizations so as to maximize returns from their members coffee. UCFA seeks to facilitate market linkages through engagement with relevant stakeholders in the coffee industry. 9

UCFA aims to work with strategic partners in Uganda to promote improvement of production, processing and export procedures so as to develop a highly efficient market channel which is beneficial to the producers. This is in line with UCFA s overall goal of promoting viable farmer organizations that contribute to a sustainable improvement in the livelihoods and wellbeing of their members. Before initiation of the Centralized Marketing System involving selling directly to exporters in Kampala, the coffee supply chain structure in the KCFA was working much below its maximum potential. Only about 5-10% of the coffee produced by member farmers reached the exporter through the PO/DCs. The majority of the coffee (between 60-70%) was lost at the farm gate to bike traders. At the PO collection point an additional 5-10% was lost, typically because lead farmers got tempted to sell to truck traders who passed by and offered a reasonable price. Traders were willing to pay a premium at the PO collection point, compared to bike traders at the farm gate, because at this stage the coffee was already in large volumes (Andersen, 2009). Another 5-10% was lost by company managers who sold coffee they had picked up from the PO collection point to a truck trader instead of taking it to a hulling factory. The hulling factory was another critical point where about 10-15% of the coffee was lost. When the coffee was hulled, the DC manager had a choice between the trader and re-loading the coffee and taking it to the exporter s upcountry warehouse. Traders would wait outside the hulling factory and offer quite competitive prices compared to those at exporter s upcountry warehouse. This is summarized in Figure 2 below (Andersen, 2009). 10

Figure 2: Coffee lost to traders in the old value chain In the ideal scenario, producer organizations market their farmers coffee at the highest possible level of the value chain. Farmers in producer organizations after properly picking and drying their coffee take it to the producer organization s collection centers. The producer organization s management after accumulating a sufficient volume informs the depot committee s marketing manager to pick and transport this coffee to the depot committee bulking centre. The marketing manager collects coffee from different producer organizations. Once a reasonable volume has been bulked, the manager transports it to a hulling factory. After hulling the coffee, he informs the Zonal Marketing Committee and the Commercial Coordinator who organize transportation to exporters in Kampala. This type of coffee supply chain is shown in Figure 3 below. The Zonal Marketing Committee and the Commercial Coordinator make weekly coffee delivery programs with depot committee managers. This program depends on the amounts of coffee available. Once sufficient volumes of coffee have been got, then a truck is sourced to transport 11

this coffee to Kampala. However, the transport cost per kilogram must be minimal so as to maximize profits. This is in line with UCFA s business strategy of operational costs minimization by maximizing the benefits of economies of scale. Figure 3: Coffee supply chain MEMBER FARMERS PO COLLECTION CENTRE DC BULKING CENTRE HULLING FACTORY EXPORTER IN KAMPALA By the end of 2009, the exporter in Kampala was at the end of the coffee market supply chain for UCFA members. However, other opportunities for further value addition are being pursued. These opportunities include grading and selling graded coffee, and also exporting directly to roasters. This is shown in the Figure 4 below. 12

Figure 4: Value addition in the UCFA coffee supply chain Graded coffee to International Buyers Graded coffee to National Buyers/ Exporters FAQ to National Buyers/Exporters FAQ to Local Buyers/Traders Dry Cherries (Kiboko) to Local Buyers/Traders Dry Cherries (Kiboko) to Farmgate Buyers Furthermore, differentiation of coffee in the market through certification can add value to farmers production. Certification programs include Fair trade, Utz Certified, Rainforest Alliance, 4Cs and Organic. UCFA will seek to explore all available options to add value to its members coffee and increase their overall incomes. 13

REFERENCES ANDERSEN, C. V. (2009) Uganda Natural Coffee Farmers Alliance Business Plan 2009-2012. Mityana. ANON (2008) Robusta Coffee Production Handbook. Uganda Coffee Development Authority, Ministry of Agriculture, Animal Industry and Fisheries, Kampala, Uganda. DAVIS, E. K. (2009) Extension in Sub-Saharan Africa. In: Rural Development News, Volume 1/2009 [Online]. Available at: http://www.agridea.ch.internatt [Accessed: 30 October 2009]. FOOD INDUSTRY NEWS (2008) Uganda s coffee earnings jump 52 percent [Online]. Available at: http://www.flex-news-food.com/page/19694/coffee/uganda.html [Accessed: 8 October 2009]. HANNS R. NEUMANN STIFTUNG (2009) Coffee Farmers Alliances in Uganda. Main Document Review. KAZIBWE, S.W. (2001) Foreword. In: MUKIIBI, J. K. (editor) Agriculture in Uganda Volume II Crops, National Agricultural Research Organization, Fountain Publishers Limited, Kampala. MUGOYA, A.M. (2009) Coffee Marketing Presentation, Marketing Guidelines for 2009 Fly Crop Season. Kaweri Coffee Farmers Alliance, Mityana. MUGOYA, A.M. (2010) The Role of Agricultural Extension Training on Smallholder Coffee Farmers Output in Central Uganda. MA Research Thesis. MUSEVENI, Y.K. (2010) State of the Nation Address. In: The Daily Monitor Newspaper, Thursday, 3 rd June 2010, No.154. Monitor Publication Limited, Kampala. MUSOLI, P.C., HAKIZA, G.J., BIRIKUNZIRA, J.B., KIBIRIGE-SEBUNYA, I. and KUCEL, P. (2001) Coffee (Coffea spp). In: MUKIIBI, J.K. (editor) Agriculture in Uganda Volume II Crops, National Agricultural Research Organization, Fountain Publishers Limited, Kampala. SWANSON, E.S. (2008) Global Review of Good Agricultural Extension and Advisory Practices. Food and Agricultural Organization, Rome. 14

APPENDICES Appendix i: Map of the Republic of Uganda 15

Appendix ii: Map of Central Uganda 16

Appendix iii: UCFA/Apex Structure APEX KCFA LCFA BCFA DC DC DC DC DC DC PO PO PO PO PO PO PO PO PO PO PO PO 17

Appendix iv: Organization Structure of a Depot Committee Board of Directors Chairperson Vice Chairperson Secretary Treasurer Committees Workers Finances Business Disciplinary Audit Marketing Manager Extensionist Facilitators Lead Farmers Member Farmers 18

Appendix v: Organization Structure of a Producer Organization PO CHAIRPERSON PO VICE CHAIRPERSON SECRETARY TREASURER 2 LEAD FARMERS 2 REPRESENTATIVES MEMBER FARMERS 19