AGRICULTURAL FINANCE YEARBOOK 2011
AGRICULTURAL FINANCE: 20COPING WITH01 ECONOMIC REALITIES11 Bank of Uganda and the Plan for Modernisation of Agriculture Secretariat Sorghum grown with 30kg N and 10kg P per ha. Table of Contents
Foreword 4 Uganda Day Statement 5
Policy 7
1.1 Trends in Lending and Leasing in 2011 8 1.2 Agricultural Credit Facility (ACF) 14 1 1.3 Economic Realities Impacting the Agricultural Sector in 2011 18 1.4 Food Supplies and Prices: Crisis, Opportunity or Both? 27 1.5 International Dimension: The Kampala Principles for Agricultural Finance Policy 34
The aBi Trust Support to Key Value Chains 43
2.1 Boosting Investment in the Maize Value Chain 44 2.2 Boosting Investment in the Coffee Value Chain 51 2 2.3 Boosting Investment in the Oilseeds Value Chain 59
The Issues with Inputs/Market Information 67
3.1 Seed Supply: The Role of Financial Services in Ensuring the Required Varieties, 68 Quality and Volume are Produced for Sale in the Ugandan Market 3 3.2 The 1 Kg Challenge: Can Financial Services Help Increase the Use of Fertiliser in 78 Ugandan Farming? 3.3 What is the Role of Market Information and Related Services in Improving the 86 Returns to Investments in Agricultural Value Chains in Uganda? 3.4 The Effects of Favourable International Prices on Investment along the Coffee Value 97 Chain in Uganda
Regulated Financial Institutions – Highlights for 2011 107
4.1 Opportunity Bank and its Involvement in Financing the Coffee Value Chain 108 4.2 Housing Finance Bank Financing of Grain Storage using Warehouse Receipts as 114 4 Collateral 4.3 Centenary Bank - World Bank AgriFin Project 122
SACCOs and MFIs 127
5.1 Mateete: - an Agricultural SACCO Achieving Solid Performance 128 5.2 SACCOs and MFIs: How a Focus on Gender can Improve SACCOs’ Services to their 136 5 Members 5.3 Savings Groups Filling an Important Gap in Financial Services 146
Innovations 155 3 6.1 Micro-factoring: Kenyan Example of using this Product to Improve Agricultural Value 156 Chain Financing 6 6.2 Linkages between SACCOs and the Central Finance Facility Promoted by the Uganda 162 Cooperative Alliance 6.3 Human Resources for Agricultural Banking 168 YEARBOOK 2011
List of Abbreviations and Acronyms 176
Inprint 181 AGRICULTURAL FINANCE AGRICULTURAL Foreword
The Agricultural Finance Yearbook, of which this is the fifth edition, reviews developments pertaining to the modernization of the agricultural sector in Uganda, particularly those which have relevance for investment in, and the financing of, agriculture and agricultural marketing. The modernization of agriculture is a key development priority for Uganda but this will not be possible without improving the provision of a wide range of financial services to farmers, agro processors and traders.
One of the most striking features of agricultural finance in 2011 was the very rapid growth of loans and advances to agriculture by supervised financial institutions (banks, credit institutions and deposit taking microfinance institutions). New advances to agriculture grew by 60 percent in 2011, albeit from a relatively small base. Much of this increase was a result of a substantial expansion in post –harvest lending by commercial banks, with loans secured by warehouse receipts, which is testament to the fact that the efforts made in recent years to reform policy and legislation related to warehouse receipts and to undertake capacity building in this area have begun to bear fruit.
Food prices in Uganda were driven up sharply in 2011 by a combination of domestic and regional supply shocks and higher global food prices. The Yearbook analyses the recent food price shocks in Uganda and discusses policy measures to improve food security. Higher global food prices are likely to be a feature of the global economy over the long term, which will provide Uganda with an opportunity to exploit its comparative advantage in agriculture and boost agricultural exports.
The Yearbook explores in detail various issues pertaining to investment in value chains in agriculture, including the role of market information and the need to encourage greater utilisation of high quality seeds, fertiliser and other modern inputs. The Yearbook also discusses some important innovations pertaining to agricultural finance, including micro-factoring in Kenya and new approaches to the challenge of training agricultural bankers.
We recommend the Yearbook to everyone interested in agricultural finance and the modernization of agriculture in Uganda.
Hon. Tress Bucyanayandi M.P. Prof. Emmanuel Tumusiime-Mutebile 4 Minister of Agriculture, Governor, Animal Industry and Fisheries Bank of Uganda YEARBOOK 2011
AGRICULTURAL FINANCE AGRICULTURAL UGANDA DAY STATEMENT ON b) Demand better flow ofinformation AGRICULTURAL FINANCE from government and other sources on improved crop and animal husbandry, Preamble and the role of investment in raising Uganda Day was focused on ‘Resolving the productivity of resources on the farm. Challenges of Agricultural Finance in Uganda’. This consultative meeting, on 28th June 2011, c) Utilize savings opportunities offered by was a precursor to the Making Finance Work financial institutions to provide an ‘own for Africa (MFW4A) Conference titled contribution’ for significant investments Zipping Finance and Farming in Africa from e.g. in irrigation and motive power; at the 29th to 30th June 2011. It was aimed at enabling same time address framework conditions Uganda to resolve its own challenges and including SACCO regulatory issues and identify opportunities prior to hosting the enforce the law regarding non-deposit MFW4A Conference. taking MFIs; these measures are to safeguard the deposits of rural people. The Uganda Day brought together approximately 350 stakeholders from public d) Understand the disconnect between and private sector institutions, including farmers and banks. Embrace opportunities policy makers, researchers, regulators, for better exchange of information in the bankers, farmers, agriculture and agribusiness business of agriculture. promotion agencies, international, regional and local development partners and e) Alert the appropriate Ministries to the representatives of apex institutions in the reality that research and training on agriculture and finance sectors. market and product development towards adding value to agricultural This Statement summarizes the key commodities is a public good and requires resolutions that came out of the extensive, action. lively and focused discussion on the challenges and opportunities facing Uganda’s f) Seize opportunities to work with farmers efforts to provide agricultural financing. and farmer groups to smoothen supply Fundamental to the discussion is the reality of commodities by staggered production, that agricultural finance policy is an orphan, within the scope of agro-climatic realities with no recognised parentage. and address the difficulty of volatile pricing. KEY RESOLUTIONS a) Embrace commodity value chain g) Develop financing technology to take approach to farming development, account of the over-riding need to select following examples set in Uganda by the borrowers on the basis of both motivation more efficient chains such as those for and competence in using purchased coffee. inputs and equipment. 5 h) Aggressively seek term liabilities in order to be able to meet the effective demand for term investment finance all along YEARBOOK 2011
agricultural value chains. AGRICULTURAL FINANCE AGRICULTURAL i) Build on the promising examples of irrigated crop production and livestock cooperative developments and farmers’ farming, infrastructure for weather index groups to establish societies providing insurance, rural energy and roads. inputs, collective marketing for improved farm incomes and clustering for advisory m) Address the need for concrete action to services. improve financial literacy and deepen financial inclusion in rural areas. j) Address the current need for effective linkages within the financial sector. n) Address women’s rights as regards implementation of land ownership k) Focus on standards of inputs and legislation. machinery and give teeth to regulations governing these requirements in order o) Develop an Agricultural Finance to safeguard the productivity of these Strategy (AFS) by means of an effective investments, many of which will be credit- coordination framework involving key financed. Similarly address enforcement ministries and the central bank. of standards of farm produce. The above recommendations will form the l) Increase public sector investment in basis for development of an Agricultural crop and livestock research, water for Finance Action Plan (AFAP).
6 YEARBOOK 2011
AGRICULTURAL FINANCE AGRICULTURAL 01 Policy In the warehouses, hundreds of ladies sort coffee.
1.1 Trends in Lending and Leasing in 20111
Section 1: Background
s shown in Diagram 1, agricultural in the coffee value chain - with two financial lending by regulated commercial institutions accounting for much of this banks, credit institutions and increase. The warehouse receipt product in microfinance deposit-takingthese two financial institutions contributed Ainstitutions (MDI’s) increased substantially over 26 percent of total agricultural lending. in 2011 - by over 60 percent. The overall Without this business, the increase in contribution of agricultural lending to total agricultural lending in 2011 would have been 8 formal lending also increased, from 7 percent substantially less than the 60 percent noted in 2010 to 9 percent in 20112. above.
The significant increase in agricultural It is believed that borrowing for speculation lending was mainly a result of increased on food may have also contributed to the YEARBOOK 2011 volume of warehouse receipt products mainly increase in agricultural lending in 2011,
1 Author: Irene Sekamwa Kajoro, BoU/GIZ FSD Programme 2 As in the 2010 Yearbook a caveat is in order. Despite strenuous efforts, there is still reason to believe that some scope exists for improvement in the quality of data being collected in this area. It is hoped that as the situation improves, the future will see more reliable time series and comparative analyses, for publication in subsequent editions of the Yearbook. AGRICULTURAL FINANCE AGRICULTURAL given the opportunities for this type of Diagram 1 below shows the pattern on activity prompted by the soaring food prices a quarterly basis. It reveals a generally experienced in mid-2011. downward trend of agricultural lending from 2007 to 2009, until 2010 and 2011 when the The information on advances to agriculture trend reversed. That is, total agricultural by regulated financial institutions was lending increased from UShs 353 bn in 2010 first compiled for and presented in the to UShs 566 bn in 2011. Although the increase 2007 Agricultural Finance Yearbook and in 2010 (22 percent) did not match up to the subsequently followed in the 2008, 2009 and decrease in 2009 (32 percent), the increase in 2010 editions. This, the 2011 Agricultural 2011 (60 percent) significantly surpassed the Finance Yearbook, is the 5th edition and increase in 2010 (22 percent). Policy builds on the previous work. The format used for the compilation of the data has not Agricultural lending significantly and 01 changed. That is, it tracks the new advances continuously declined from 2007 to 2009, as to the agricultural sector rather than the shown in Table 1. However, in 2010 it picked outstanding portfolio. This approach provides up, increasing by UShs 62 bn from UShs 291 a more dynamic view of movements in bn in 2009 to UShs 353 bn in 2010. In 2011 it lending to the agricultural sector. As with the increased further, by 213 bn from UShs 353 bn 2010 Yearbook, the information on leases to in 2010 to UShs 566 bn in 2011. As in the 2010 the agricultural sector has also been captured. Yearbook, the figures in the Annual Totals column also include leases to the agricultural sector.
Diagram 1: Total Agricultural Lending
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Advances in Billions of UShs of in Billions Advances 50
9 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2007 2008 2009 2010 2011 Period in Quarters YEARBOOK 2011
Source: Bank of Uganda Supervision Function AGRICULTURAL FINANCE AGRICULTURAL Table 1: Agricultural Lending by Regulated FIs and MDIs between 2007 and 2010 in bn of UShs.
1st 2nd 3rd 4th Annual Quarter Quarter Quarter Quarter Totals Agricultural lending in 2007 86 84 108 172 450 Agricultural lending in 2008 92 73 118 142 425 Agricultural lending in 2009 69 57 86 79 291 Agricultural lending in 2010 69 72 73 139 353 Agricultural lending in 2011 97 104 191 174 566 Source: Bank of Uganda Supervision Function The increase could be attributed to a number Section 2: of reasons some of which have already been institutions in Uganda by category mentioned in the 1st paragraph. Other reasons could include: Commercial banks still constitute the biggest percentage of the total number of regulated t "O JODSFBTF JO PQFSBUJPOT PG UIF OFX financial institutions in Uganda. The numbers regulated financial institutions which within the 3 tiers are as shown in Table 2 acquired licenses in 2008, 2010 and 2011, below. as a result of the lifting of the moratorium on new banking licenses. The total number of regulated financial institutions increased from 28 in 2010 to 30 t ćF DPOUJOVFE JODSFBTF JO HPWFSONFOU in 2011. There were 2 new entrants: Imperial investment to the agricultural sector in Bank which gained a licence at the end of 2011 through provision of the Ushs 30 bn 2010 to operate as a Tier 1 institution, and Agricultural Credit Facility, the objective UGAFODE Microfinance Ltd., which was of which was to increase agricultural granted a licence at the end of 2011 to operate productivity and incomes, and thereby as a Tier 3 institution (MDI). stimulate lending to the agricultural sector.
Table 2: Regulated Financial Institutions in Uganda
Year Tier 1 Tier 2 Tier 3 Total 2007 14 5 4 23 2008 20 5 4 29 2009 21 4 3 28 2010 22 3 3 28 2011 23 3 4 30 10 Note: Tier 1: Commercial Banks; Tier 2: Credit Institutions; Tier 3: Microfinance Deposit taking Institutions Source: Bank of Uganda Supervision Function YEARBOOK 2011
AGRICULTURAL FINANCE AGRICULTURAL Section 3: Agricultural lending by 2007 and 2009, it increased in 2010 and even more significantly in 2011. A divergence to this trend was noted in lending to agricultural As shown clearly in Diagram 2, commercial processing, which went up already in 2008. banks remain the biggest contributors to From 2009 to 2011, lending to agricultural agricultural lending, accounting for 95 processing continued to steadily increase. percent of the total amount lent out for agriculture in 2011 (as in 2010, 2009, 2008 Diagram 3 indicates that in 2011 lending and 2007). They are followed by Tier 3 MDIs across the value chain significantly increased. and Tier 2 credit institutions, in that order. The increase in lending to agricultural Policy Diagram 2: Agricultural Lending by Category of Institution 01
2% 3%
Commercial Banks Credit Institutions Micro Finance 95% Deposit Taking Institutions
Source: Bank of Uganda Supervision Function Lending in agricultural value chains It is noted from Diagram 3 that although production was more evident than that lending to agricultural production and for other value chain stages. Lending to marketing steadily declined between the year agricultural production increased by over 100 percent in 2011 for reasons already explained in Section 1.
Diagram 3: Agricultural Finance Lending by Activity
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200 Agricultural Production Agricultural Processing 150 Agricultural Marketing 11 100 Agricultural Leases Total Advances in Billions of UShs of in Billions Advances Total 50
- 2007 2008 2009 2010 2011 YEARBOOK 2011
Source: Bank of Uganda Supervision Function AGRICULTURAL FINANCE AGRICULTURAL Lending to agricultural processing increased lending contributed 44 percent of the total by almost 1 percent while lending to agricultural lending to the sector, short term agricultural marketing increased by over 37 lending contributed 43 percent while long percent. term lending (3+ years) contributed the least.
In terms of contribution of each stage of Section 5: Total agricultural the value chain to total agricultural lending, lending agricultural production contributed the highest (50 percent). Agricultural marketing From Diagram 5, agricultural lending in 2011 contributed over 23 percent, while agricultural progressively increased from the 1st to the processing this year contributed the least 3rd Quarter and decreased slightly in the 4th (over 22 percent). Quarter.
Although leases for agricultural machinery It is important to note that regulated increased by over 21 percent in 2011, they institutions are among the many other contributed only 3 percent to total agricultural providers of credit to the sector. Many agro- lending, indicating a reduced contribution of based individuals access credit from informal 1 percent from 4 percent in 2010. sources like individual money lenders, and many agro-based industries also access credit from their overseas head offices or lending by repayment period from cheaper capital markets abroad, as mentioned in the 2009 and 2010 editions of Diagram 4 illustrates that as was in 2009 the Yearbook. For obvious reasons, data on and 2010, most of the lending was medium these advances from outside of the regulated term (1-3 years) with short term lending (< Ugandan financial sector are not presented in 1 year) also following closely. Medium term this article.
Diagram 4: Agricultural Finance Lending by Repayment Period
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200 Agricultural Production Agricultural Processing 150 Agricultural Marketing 100 Agricultural Leases Advances in Billions of UShs of in Billions Advances 50 12 - Short Term Medium Term Long Term Totals
Source: Bank of Uganda Supervision Function YEARBOOK 2011
AGRICULTURAL FINANCE AGRICULTURAL Diagram 5: Total Agricultural Lending Compared
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150 1st Quarter
2nd Quarter Policy 100 3rd Quarter 4th Quarter 01
Lending in Billions of UShs of Lending in Billions 50
0
2007 2008 2009 2010 2011
Source: Bank of Uganda Supervision Function
Section 6: Conclusion the Government. It also underlines the role of innovation in bridging the gap between the From the 2011 statistics, there has been a very financial and agricultural sectors, so that both substantial increase in formal advances to sides see profitable business opportunities agricultural value chains. Agricultural lending through new types of banking products, as a percentage of total financial institution coupled with access on both sides to better lending has also increased – up from 7 to 9 information. percent. Though significant, the 9 percent figure is still low in relation to the importance The Yearbook series is clearly one important and size of the sector in the national economy. tool in making worthwhile innovations better So there is some way to go. known and in furnishing information about investment opportunities to the financial Given the very positive effect on lending of sector, while at the same time explaining the Warehouse Receipts legislation, this has financial products to farmers and others who to be noted as a significant policy success for earn their living in agricultural value chains.
13 YEARBOOK 2011
AGRICULTURAL FINANCE AGRICULTURAL Coffee farmers during a consultative meeting.
1.2 Agricultural Credit Facility (ACF)1 Section 1: Introduction The main objective of the ACF is to promote the commercialization of agriculture through he Agricultural Credit Facility the provision of medium and long term (ACF) was operationalised in financing of capital investments in agriculture October 2009 and disbursements and agro-processing. The ACF enables loans commenced in March 2010. The to be extended to farmers and agro-processors TACF was set up by the Government in on more favourable terms (e.g. lower interest partnership with commercial banks, the rates) than are available through normal Uganda Development Bank, microfinance market channels, because the Government subsidises the scheme through the provision 14 deposit taking institutions (MDIs) and credit institutions; the financial institutions involved of interest free loans to the participating are referred to as participating financial financial institutions and through its bearing institutions (PFIs). of some of the credit risk. The Bank of Uganda plays a purely administrative role in the ACF. YEARBOOK 2011
1 Author: ACF Section, Accounts Dept., Bank of Uganda AGRICULTURAL FINANCE AGRICULTURAL Section 2: Loan terms and Under ACF I, almost all of the funds available conditions were fully utilized, enabling loans of UShs 58.6 billion to be made to final borrowers. Projects which are eligible for ACF loans In contrast only a small fraction of the include acquisition of agricultural machinery, funds available under ACF II were utilized, post-harvest handling equipment, storage with loans to final borrowers falling to facilities, agro-processing and any other UShs 8 billion (less than 10 percent of the machinery and equipment used for maximum). Disbursements have picked up agriculture and agro-processing. A maximum slightly under ACF III, with loans to final of 20 percent of each loan can be used to borrowers amounting to UShs 15 billion, but only a quarter of the available funds have been finance the purchase of material inputs used Policy 2 in production. utilized . 01 The ACF has been implemented in three ACF I was popular with PFIs because the level phases: ACF I from October 2009 to June of Government subsidy was high (50 percent 2010, ACF II from July 2010 to June 2011 and of both the cost of funds and the credit risk) ACF III from July 2011 to date. Each phase and the effective interest rate earned by the was partially funded by the Government. In PFIs on their 50 percent contribution to the ACF I and III, Government contributed 50 scheme was 20 percent per annum, which was percent of the total funds to the ACF and bears in line with prevailing market rates at the time 50 percent of the credit risk, whereas in ACF (the average lending rate for agricultural loans II the Government contribution and share in the second half of 2009/10 was 21 percent of the credit risk is one third. Government’s per annum). contribution to the ACF is interest free to the participating financial institutions. The ACF II was much less attractive to the banks interest rate charged to the final borrower because the level of Government subsidy was in ACF I and III was fixed at 10 percent per cut to 33.3 percent and the increase in the annum whereas in ACF II it was fixed at 12 interest rate which PFIs were allowed to charge percent per annum. The loans funded from the final lenders was not sufficient to offset the the ACF have a maximum maturity of 8 years higher effective cost of funds and the increase and minimum of 6 months, with a grace in risk borne by the PFIs. In effect, under ACF period of up to a maximum of 3 years. II, the PFIs could earn an interest rate of only 18 percent on their own contribution to the Section 3: Disbursements under scheme yet at the same time they bore a larger share of the credit risk than was the case under the ACF ACF I. This explains why the utilization rate of funds available under ACF II was so poor. In each of the three phases of the ACF, Government made available UShs 30 billion Although the terms of ACF III reverted as its contribution to the financing of the to those of ACF I in terms of the level of 15 scheme, which would have allowed total Government subsidy, ACF III has become less lending to the eligible borrowers of Shs 60 attractive to the PFIs because of the sharp rise billion in each of ACF I and III and Shs 90 in market interest rates in 2011. Under ACF billion in ACF II. III the effective interest rate earned by the PFIs YEARBOOK 2011 is 20 percent, the same as under ACF 1, but
2 ! AGRICULTURAL FINANCE AGRICULTURAL the average lending rate for agricultural loans than Shilling denominated bank lending to rose from 22 percent in June 2011 to nearly 29 all sectors of the economy, which increased percent in February 2012. Consequently, ACF by 59 percent in this period. All of the ACF III is potentially very attractive for borrowers, lending was denominated in Shillings. Bank because the lending rate is barely a third of loans to agriculture denominated in foreign the prevailing market rate, but it is not very currency increased by 177 percent in this attractive for the PFIs who are facing much period, but this was a slightly slower increase higher costs of mobilising funds than they than that of all foreign currency denominated were in 20103. bank lending which was 211 percent. Of course it is possible that agricultural lending Section 4: Investments funded would still have grown as fast even without under ACF I, II & III the ACF, but that seems unlikely because there are no obvious reasons, other than the The bulk of the ACF funds have gone to subsidy afforded by Government through acquisition of machinery and equipment for the ACF, why Shilling denominated bank agro-processing, tractors and heavy machinery lending to agriculture should have been much for land opening and commercialisation of more buoyant than lending to the rest of the 2 agriculture. The chart below gives the details economy . of the various areas funded.
Investments funded under the ACF Processing Machinery (Tea, coffee, seed oil, cotton) 4% Milk Cooling Equipment 7% 18% 10% Poultry Units, Hatcheries and Feedmill 10% Total Storage Facilities Other 29% 10% Farm Improvement 12% (Modernisation and Expansion) Food & Milk processing machinery and Equipment Tractors and Heavy duty machinery
Section 5: Evaluation of the The loans extended under the ACF have performance of the ACF mainly been extended to larger commercial farmers and agro-processors, many of which The ACF appears to have contributed to an are well established companies that already expansion of bank lending to the agricultural have access to bank finance. Nevertheless, the 16 sector. Between September 2009 (the month ACF was designed to try and ensure that the immediately preceding the inception of funds available were not monopolised by large the ACF) and March 2012, total Shilling borrowers. Accordingly a ceiling of Shs 2.1 denominated lending by the commercial billion was imposed on the amount that could banks to the agricultural sector has increased be extended to any single borrower or group YEARBOOK 2011
by 118 percent. This is a faster rate of increase of related borrowers. However, to date 13
3 Editors’ Note: One reason could be the more widespread use of Warehouse Receipt modalities in lending (see Articles 1.1 and 4.2 in this Yearbook). AGRICULTURAL FINANCE AGRICULTURAL borrowers, which include companies involved Smallholder farmers comprise 96 percent in grain milling, sugar processing, poultry, tea of all farmers in Uganda, but the level growing and dairy farming, obtained loans of commercialisation among this sector which exceeded this ceiling; these loans in is very low. Very few if any of the loans total amounted to UShs 45 billion, which extended under the ACF have been made is 56 percent of the entire amount of credit to smallholder farmers. This is because the disbursed under the ACF to date. Another modalities of accessing loans under the ACF 5 borrowers have obtained loans which are are not suitable for this group. For example, either equal to the ceiling of UShs 2.1 billion the PFIs require borrowers to provide land or slightly less than it; these loans amount to titles as loan security, but many smallholder UShs 10.4 billion. farmers lack these titles. Policy
Hence almost 70 percent of the credit The MDIs are better suited to lending to 01 disbursed under the ACF to date has gone to smallholder farmers than commercial banks large borrowers with loans of UShs 2 billion and development banks, because they can use or above. Many of these borrowers, who have innovative lending technologies such as group benefitted from the low market interest rates lending, which obviate the need for physical available under the ACF, could probably have loan securities. afforded to pay market interest rates for the investments, though admittedly this is not However, the MDIs have not participated known for certain in each case. Hence whether in the ACF, because the cost structure of there is a strong public policy rationale for the scheme is not suited to them. Because subsidising their borrowing is debatable. they incur much higher transactions costs of administering loans than banks, the In contrast, there is a much stronger case fixed interest rate which can be charged to for supporting the commercialisation of borrowers is a much more serious constraint smallholder farmers, by improving their for MDIs than it is for banks. access to credit4.
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4 This is one of the conclusions of the World Bank report: Uganda Promoting Inclusive Growth, released in February 2012. AGRICULTURAL FINANCE AGRICULTURAL A farmer harvests from his garden.
1.3 Economic Realities Impacting the Agricultural Sector in 20111
Section 1: What were the determine whether life continues (ability to feed and afford life’s basics). ‘realities’? Thus, as the professionals sit in the air Introduction conditioned seminars and offices to discuss the magnitude and impact of economic conomic effects and impacts are real phenomena, average people are reeling from to the persons who feel them, but the effect of such phenomena – sleeping 18 to some in society they are more hungry, contracting diseases they are unable of an academic issue. Whereas for to treat, closing businesses, losing jobs and Ethe brilliant scholar and dignified corporate living in constant fear of tomorrow. Quite executive, inflation is an object for scholarship often, the unspoken and unreported aspects and slight discomfort, to the wider population of economic changes are more impactful than YEARBOOK 2011 it is a serious personal challenge that can statistics tell us.
1 Author: Andrew Obara, Friends’ Consult AGRICULTURAL FINANCE AGRICULTURAL This article therefore intends to engage the for seasonality variations or for exceptional reader in empathizing with realities of various items that usually show price volatilities. people in agricultural value chains and how economic changes in the year 2011 affected Food crop inflation – Rise in the prices of them. It is not based on any grand national representative food items survey, but on interpretation of facts in view of the impact of economic changes. The article Core inflation – General price rises in goods takes changes in two phenomena – inflation and services excluding those items that usually and interest rate changes – and discusses face volatile price movements (like food and their impact on the different people in the fuel/ petroleum products) agricultural value chain. Energy, fuel & utilities (EFU) inflation – Policy
Economic realities are many and they General rise in the prices of fuel, energy and 01 all impact on people. For this article, we utilities shall examine two: inflation (general rises in prices of goods and services) and After years of low and fairly stable inflation, currency depreciation (weakening of the 2011 saw inflationary shocks in Uganda. It Uganda Shilling against major international is difficult to say that anyone in the private currencies). For both aspects, the year 2011 sector was prepared for these shocks. Table 1 was full of drastic changes and challenges. below presents inflation rates for the selected months of the years 2010 and 2011. Inflation The figures below and their likely impact on In its simplest definition, inflation is the rate different agricultural value chain actors are of general rise in prices of goods and services discussed under Section 3 of this article. The in an economy (and subsequently the rate of box below presents an extract of the private decline in purchasing power of the currency). sector perspective on the 2011 inflation from The commonly used measures of inflation in an article posted by PSFU (Private Sector Uganda are the ones we shall examine here. Foundation Uganda) on its website. From They are: PSFU’s viewpoint, the main reasons for the high inflation were: Annual headline/ national inflation – This is the raw inflation figure as reported through the t Rising fuel prices on the international Consumer Price Index (CPI) monthly by the market (up to 50 percent since June 2010 Uganda Bureau of Statistics. It is not adjusted due to very strong demand growth and,