Beyond the Farmgate Local & Regional Trade Policy - Uganda John Magnay – Vice Chairman Uganda Grain Traders Ltd

2 UGANDA Consistent Surplus Food Producer Consistent Surplus Food Producer Two Seasons per Year Two Seasons per Year Internal Market driven by informal Processing & Consumption with no large millers Internal Market driven by informal Processing & Consumption with no large millers Maize is not the major staple food Maize is not the major staple food Market Driven by Informal Regional Trade Informal Regional Trade Relief Food / WFP purchases Relief Food / WFP purchases

Uganda Grain Traders Ltd3 The Positive Internal Initiatives Establishing Farmers’ Organisations & Primary Societies for training, inputs and marketing Establishing Farmers’ Organisations & Primary Societies for training, inputs and marketing Market Information systems – mobile phone, , internet, newspapers, radio Market Information systems – mobile phone, , internet, newspapers, radio Direct Market Links for specific crops – Sunflower, Dried Cassava, Barley & Sorghum for brewing Direct Market Links for specific crops – Sunflower, Dried Cassava, Barley & Sorghum for brewing Improved Input Distribution & Micro Finance Improved Input Distribution & Micro Finance Diversifying production to Import Substitution – Rice, Oil seeds, Barley Diversifying production to Import Substitution – Rice, Oil seeds, Barley Establishment of Warehouse Receipt legislation Establishment of Warehouse Receipt legislation

Uganda Grain Traders Ltd4 The Positive Regional Initiatives Regional meetings to “discuss” regional trade Regional meetings to “discuss” regional trade Establishment of EAC Standards for Crops Establishment of EAC Standards for Crops “Maize without Borders” – nil taxes “Maize without Borders” – nil taxes Regional Market Information Regional Market Information

Uganda Grain Traders Ltd5 The Issues - Internal Producers only have 60 days to harvest / dry / sell before the next season Producers only have 60 days to harvest / dry / sell before the next season Wet harvests / poor on farm storage Wet harvests / poor on farm storage Lack of Input finance for producers due to uncertain Output market prices Lack of Input finance for producers due to uncertain Output market prices No focus on Quality / Storable Grain No focus on Quality / Storable Grain Banks reluctant to finance WRS stocks Banks reluctant to finance WRS stocks Price & Market Risk!

Uganda Grain Traders Ltd6 The Issues - Regional In the absence of the Relief Food market, the regional market only provides a “spot” market signal and opportunity 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” No regional mechanism for “futures”, therefore “no stocks” Regional shortages occur out of Uganda harvest season. Regional shortages occur out of Uganda harvest season. The Catch 22

Uganda Grain Traders Ltd7 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 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. 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 Ltd8 4 Grain Crashes in Uganda in 20 years – Govt sponsored increases in production – the Grow more Food Campaign – typical of input intervention scenario – Govt sponsored increases in production – the Grow more Food Campaign – typical of input intervention scenario – dramatic increase in demand for Relief food in 1994 for Rwanda led to increased production in ’95 with no demand for Rwanda – dramatic increase in demand for Relief food in 1994 for Rwanda led to increased production in ’95 with no demand for Rwanda – loss of Kenya informal trade market, due a seasonal surplus in Kenya (despite an annual deficit) – loss of Kenya informal trade market, due a seasonal surplus in Kenya (despite an annual deficit) – wet harvest / large surplus / unsympathetic purchase by WFP / short term surplus in Kenya – a short term problems with an impact on 2006 Food Security 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 Ltd9 Regional Markets AFRICA has got to accept the climatic effect on regional production. 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 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 Potential shortages in any market provide very little financial signal until they become actual shortages Short-term surpluses normally lead to immediate market collapse Short-term surpluses normally lead to immediate market collapse Banks consider financing stocks a huge price risk in the absence of hedging mechanisms. 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 Ltd10 The Way Forward East Africa needs to recognise the importance of inter- dependancy to achieve food security and market stability. 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. 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. 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. Regional Govt. should recognise the distortions of national Govt. intervention on stocks and pricing – increasing Price Risk to commercially stored grain.

Uganda Grain Traders Ltd11 The Way Forward - Uganda As an interim measure to promote:- 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. There is a need for Output Market support to remove the perceived price risk.

Uganda Grain Traders Ltd12 Use of a Price Risk Fund Establish pre-planting price for Quality Grains to be purchased or warehoused at harvest. 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 Build stocks for trading, out-of-season, to the regional markets Provide the Stocks – Storage – Finance precursors for a Regional Commodity Exchange Provide the Stocks – Storage – Finance precursors for a Regional Commodity Exchange

Uganda Grain Traders Ltd13 The End Game Regional Commodity Exchange with spot and future trading options to support Regional Commodity Exchange with spot and future trading options to support –Production –Investment –Warehoused stocks –Commercial Finance –Increased Food Security through increased commercial stocks