Closing the Potential-Performance Divide in Ugandan Agriculture © 2018 International Bank for Reconstruction and Development / The World Bank. 1818 H Street NW, Washington, DC 20433, USA. Telephone: 202-473-1000; Internet: www.worldbank.org. Some rights reserved This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. 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Examples of components can include, but are not limited to, tables, figures, or images. All images are the property of the World Bank Group, with the following exceptions: p. 2, 7 and 32 © Neil Palmer (CIAT) p. 16 and 56 © USAID p. 68 © Climatetracker.org All queries on rights and licenses should be addressed to World Bank Publications, The World Bank Group, 1818 H Street NW, Washington, DC 20433, USA; fax: 202-522-2625; e-mail: pubrights@worldbank.org. Acknowledgements T his report has been produced as part of the partnership between the Government of Uganda and the World Bank Group for the development of the agriculture sector. The report is the result of close collaboration between the Ministry of Agriculture, Animal Industry and Fisheries (MAAIF) and associated agencies, thematic experts from the World Bank and the Alliance for a Green Revolution in Africa (AGRA). The task team at the World Bank was led by Holger A. Kray and Kevin J. Crockford, under the supervision of Dina Umali-Deininger and Christina Malmberg Calvo. This synthesis report was written by Friederike Mikulcak and Christopher Delgado. The report builds on the dialogue between Ugandan governmental agencies and the World Bank Group; the invaluable feedback received from participants of consultation workshop in June 2017; the review of a wide range of literature, including policy documents, scientific journal articles; and the household surveys from the Uganda National Panel Surveys (UNPS) in collaboration with the World Bank Living Standards Measurement Study (LSMS). The report further draws on discussions with research institutions, farmers’ organizations, private sector entities, and development partners in Uganda, whose contributions are gratefully acknowledged. During field visits and interviews with agricultural entrepreneurs in Eastern and Northern Uganda, successful agribusiness models across multiple agriculture value chains were identified whose work informed this report. Moreover, a range of background notes were commissioned that are either incorporated directly in this report, or cited as unpublished. We would especially like to thank the Permanent Secretary of MAAIF, Mr. Pius Wakabi Kasajja and his staff for their support and inputs to this work. Contributions of the following people to the background notes are gratefully acknowledged: Larry Adupa; Maureen Agena; John Herbert Ainembabazi; Stephen Anderson; George Bigirwa; Joe Devries; Marguerite Duponchel; Klaus W. Deininger; Colleagues of the FAO-Monitoring and Analyzing Food and Agricultural Policies (MAFAP) Program (FAO-MAFAP); Verena Maria Fritz; Ruth Hill; John Ilukor; John Jagwe; James Joughin; Boaz B. Keizire; Talip Kilic and the wider LSMS team; Jeehye Kim; Augustine Sangson Langyintuo; Xiaokai Li; John Macharia; Carolina Mejia-Mantilla; Tom Mugisa; Fred Muhhuku; Barbara Kasura Magezi Ndamira; Eng. Emmanuel Olet; Joseph Oryokot; Joseph Rusike; Himanshu Sharma; Berina Uwimbabazi; Katya Vasilaky; Farbod Youssefi and the wider Enabling the Business of Agriculture (EBA) team; and Gianni Zanini. We would like to thank Adesimi Freeman, Madhur Gautam, Danielle Resnick, Tihomir Stucka and Richard Ancrum Walker who kindly served as peer reviewers. We further wish to thank Janet Christine Atiang, Clare Busingye, Sheila Kulubya, Damalie Evalyne Nyanja, Sophie Nelly Rabuku, Srilatha Shankar, and Marie Lolo Sow who facilitated the production and the launch of this report. Closing the Potential-Performance Divide in Ugandan Agriculture I Table of Contents Executive Summary VI The key issue VI Stronger institutions and policies VIII Commercialization and opportunities for value-addition and trade X Promoting Resilience and Climate-Smart Agriculture XIV I. Introduction 1 A core question for agriculture in Uganda 1 Exploring a theory of change for agriculture in Uganda 2 Outline of sections 5 II. Key Elements and Trends Confronting Uganda’s Agri-Food System 7 Demographics and agrarian structure 7 Poverty and malnutrition 11 Agricultural production, productivity, and technology adoption 11 Vulnerability and resilience of farm household livelihoods to climate change 15 Trade developments affecting agriculture 17 III. Institutional Developments Shaping Ugandan Agri-Food Production 23 Diffusion of institutional responsibilities 23 The agricultural R and D system 25 Extension, NAADS, and OWC 26 Farm groups, traders, and development partners 27 IV. Commercialization of Ugandan Agriculture in Response to Rising Demand 29 Consumer demand for food in East Africa is rising rapidly and changing in nature 30 Regional and global demand shifts are creating opportunities 32 Commercialization through agribusiness 33 Private investment and agricultural finance 34 Strengthening land rights to encourage investment 36 Regulatory issues in promoting commercialization 38 Value addition through vertical coordination with the private sector 41 Case studies of the maize, dairy and coffee value chains 43 Information and communications technology and commercialization 47 A changing role for government under private-sector led commercialization of 49 smallholder agriculture II Closing the Potential-Performance Divide in Ugandan Agriculture V. Resilience Challenges to Agricultural Livelihoods and Production Systems 51 Poverty and resilience 51 Agricultural water management and irrigation 53 Climate-smart agriculture 54 Monitoring vulnerability 58 VI. Agricultural Policy, Policy Implementation and Public Finance 61 Stated agricultural policies 61 Policy implementation and public finance 63 Incentives in the agri-food sector 65 VII. Conclusions: The Big Picture 71 VII. Recommendations for Sector Reforms, Investment, and Policy Action 77 1) Strengthening the renewal of the institutional base 77 2) Removing distortions of incentives and implementing improved regulations for 80 inputs 3) Enhancing Total Factor Productivity growth, including through innovation in 81 ICTs 4) High-level engagement in facilitating regional agricultural trade 81 5) Greater public attention to the linked threats of climate change and soil 82 degradation References 85 Closing the Potential-Performance Divide in Ugandan Agriculture III Executive Summary 1. Agriculture accounts for 70% of employment, overwhelmingly on small farms; occupies half of all land area, and provides half of all exports and one-quarter of GDP in Uganda. It is considered a leading sector for future economic growth and economic inclusion in the current National Development Plan. Yet despite having very favorable natural resource and climate conditions for production of a wide variety of crops and livestock, average Total Factor Productivity (TFP) growth--the difference between aggregate output growth and the growth of all inputs and factors of production that produced it--in Ugandan agriculture has been negative for the last two decades. This suggests that on balance the country is now getting less for equal or greater effort. While drought and pest issues likely have played a harmful role, other plausible explanations are a combination of the following: weakening over time of the public institutional base for promoting agricultural productivity at the level of small farms, inefficiencies in agricultural public expenditures, inadequate agricultural regulation and policies, and a lack of collateralizable farm assets. National agricultural output has grown at only 2% per annum over the last five years, compared to agricultural output growth of 3 to 5% in other EAC members and 3.3% per annum growth in Uganda’s population over the same period. 2. Food insecurity, poverty, and nutritional quality remain major challenges in rural areas of Uganda, and the prevalence of national Agriculture accounts for food imports has increased in the last decade. Underlying issues include continued high rural population growth and youth unemployment 70% of employment, rates, despite rapid outmigration to towns, consequent rapid urbanization overwhelmingly on exceeding absorptive capacity. This has led to increasing rural population small farms; occupies density on arable land and continued land and water degradation in the absence of adequate on-farm investments in soil and water management. half of all land area, The latter is due in some part due to the low quality of agricultural inputs and provides half of available to smallholders. Exposure to climate-related hazards is especially all exports and one- high in Uganda, and the danger to rural resilience is exacerbated by low levels of adaptive capacity of rural communities. This stems from having quarter of GDP in few assets, few alternatives due to low educational levels, and little access Uganda. to financial or other safety nets. The key issue 3. One-shot stimuli to growth in the last decade have helped Ugandan agriculture and promoted significant poverty alleviation, but likely will not be able to provide the same level of continued stimulus for new growth. Examples are: higher relative food prices for a number of years in the region after 2008, cropland expansion into dwindling forests and wetlands, a peace dividend after the Lord’s Resistance Army was pushed back from the North, a new independent trading partner in the form of South Sudan, the opening up of EAC to freer regional agricultural trade, and a change to local procurement and processing of food aid in Uganda by the World Food Program for its operations in South Sudan. Taking longer-term advantage of these time-bound opportunities requires a change in public processes and policies, faster growth in private sector capacity in agriculture in Uganda than at present, and a strengthening of institutions to support smallholder inclusion in market-led agricultural growth. 4. Under these circumstances, it is reasonable to worry whether agriculture under present trends can continue to drive future overall growth. Yet Uganda currently has relatively few alternatives at comparable scale to agriculture for providing jobs, widespread growth in domestic consumer incomes capable of stimulating growth in local services and manufactures, and foreign exchange. Fortunately, there is concrete evidence on things that need to be addressed in Ugandan agriculture, and success stories to draw on. The issue is how to achieve scale commensurate with need. IV Closing the Potential-Performance Divide in Ugandan Agriculture 5. The main report starts by looking at the key structural factors shaping outcomes for Ugandan agriculture. It then looks at the main sets of actors and institutions in the sector, and how they have evolved in the last two decades. This sets the stage for better understanding the status, constraints, and opportunities for promoting agricultural commercialization along market-led lines, the priority of the Government. The report then looks at agriculture in the broader context of ecological change and especially climate change, which risks having severe consequences down the road if proactive investments and policies are not put into place to promote greater resilience of rural livelihoods and agriculture systems. An examination of public spending trends and policies on agriculture finds a lack of congruence between what is vital to do for growth and resilience, and what is being done. 6. The report generates multiple explanatory insights and ends with a series of specific recommendations. These are summarized in Box ES.1 and discussed in the remainder of the Executive Summary in terms of three main themes requiring action: (1) promoting stronger institutions and policies for agriculture transformation; (2) choosing market-led and inclusive commercialization through actions that permit benefiting from growing opportunities in value-addition and trade; and (3) increasing resilience in agroecosystems and rural livelihoods. A detailed listing of priorities and recommendations is given at end of the Executive Summary in Table ES.1, highlighting 10 priorities for action spread over these three areas. Closing the Potential-Performance Divide in Ugandan Agriculture V BOX ES.1: THREE PRIORITY AREAS FOR ACTION There is relatively little in Uganda’s economy and society that is not relevant to agricultural outcomes, but this deep dive suggests that three areas are especially critical for taking agricultural growth forward. Strengthening public institutions and policies for agricultural productivity 1 Uganda needs a rapid turnaround in agricultural productivity growth, where it lags behind other countries in the region despite having a better agricultural resource endowment. This is a necessary precondition of sustainable agricultural growth and arguably of any inclusive economic growth in the country. It is vital to increase both the efficiency and amount of domestic public spending in Uganda going to agricultural research and extension for this purpose, especially with respect to smallholder farmers. The primary means should be through re-purposing of presently extensive public funds spent on procurement of agricultural inputs for redistribution on a free or subsidized basis by agents other than qualified extension personnel. Second, MAAIF, NAADS, and NARO need to be able to work in a more coordinated fashion, and to have the capacity to generate and use policy analyses, monitor programs, and to carry out credible technical evaluations. Without this capacity they will always be at a disadvantage in dealing with domestic and external funding sources, and will find it difficult to lead effectively. Third, regulatory reform is essential to ensuring consistent quality of inputs and outputs without undue compliance burdens. Promote commercialization of agriculture through private sector value-addition and trade 2 Within an improved public framework of research, extension, regulation of input quality, rule of law, infrastructure, and access to regional markets, the private sector is central for taking agriculture forward in a market-led economy, whether through input supply, production in those cases where plantation or other large-scale agriculture makes sense, market development, processing, or export. To date, private sector successes are modest in Ugandan agriculture, except in processing driven by urban and regional demand. There is a need to: (a) improve access to agricultural finance along whole value chains (through land titling and enforcement, warehouse receipt programs, banking reforms, and the rule of law in commercial matters); and (b) improve inclusion and access to market knowledge and skills though expanded and transparent vertical coordination, and through better access to ICT services. Increase resilience in agroecosystems and of rural livelihoods 3 Average temperatures in Uganda have increased by 1.3°C since 1960, and could rise by up to 2.5° by 2050. Seasonal rainfall has become more variable and less predictable, with consequences for fluctuating yields. Crop and animal pests and diseases linked to climate change have become an increasing problem. While most countries in the same tropical latitudes as Uganda face similar dangers from climate change, Uganda is one of the least adapted agroeconomic systems of all, and thus one of the most vulnerable to what is sure to come. It is vital that the job of increasing the resilience of agroecological systems and of rural livelihoods start as soon as possible. On the one hand, ongoing efforts to foster irrigation from its currently low level should be continued. Yet the breadth and urgency of the low resilience problem requires a much broader multi- stakeholder approach. This should be under the auspices of national leadership, to achieve widespread consensus on the dangers going forward, evolve a workable and coordinated plan of attack for increasing resilience through enhanced early warning mechanisms and better land and water management from the farm to the landscape level. Stronger institutions and policies Public spending on agricultural research and extension other than input subsidies 7. While the record of written agricultural strategies and policies is impressive, there has been a weakening of the institutional base for agriculture in Uganda over the last decade, and also disconnects between policy formulation and actual implementation. Institutional weaknesses and a lack of coordination among agriculture- related ministries and agencies have been important bottlenecks for translating policy plans into effective action. VI Closing the Potential-Performance Divide in Ugandan Agriculture Other institutional challenges are inefficiencies in staffing patterns; weak data collection and monitoring of sector trends; as well as poor absorption capacity of public institutions. The public extension Achieving positive total agency (NAADS) and the public agricultural research agency (NARO), both nominally under MAAIF but functionally independent, are at factor productivity growth critical turning points. NAADS has been largely sidetracked by the over a number of years free input distribution mandate. NARO has prospered under donor requires better technology funding, which however is now running out. from agricultural research, 8. Agricultural growth in Uganda can only be sustained if and dissemination of productivity is steadily increasing. The agricultural productivity increases required to sustain overall economic growth need to be that technology through based on increased technical or financial efficiency of use of inputs qualified extension and factors such as fertilizer, labor, and land, or technological services focused primarily progress that allows producing more with less, or all three. Such productivity enhancement is the definition of total factor on knowledge transfer. productivity growth (or TFP), or the residual extra value created by output growing faster than the growth of all inputs and factors going into production combined. The existing data on Uganda—as will be shown—suggest that TFP in Uganda has been negative on average since around 2000, and that this has been getting worse over time. Achieving positive TFP growth over a number of years requires better technology from agricultural research, and dissemination of that technology through qualified extension services focused primarily on knowledge transfer. 9. While policy documents emphasize the importance of agriculture, de facto budget allocations to the sector have remained modest. At the same time, inefficiencies in spending are high. Up to half the total agricultural budget has been devoted to purchasing and disseminating subsidized inputs through the military in recent years, rather than to critically needed public goods such as training on when and how to use those inputs, to better roads and communications infrastructure, or to improving the inputs and input distribution systems themselves. 10. The free distribution of subsidized inputs has undermined quality seed production by agribusinesses and led to the crowding out of the private sector from distribution. Providing inputs alone without knowledge transfer can further create unintended consequences such as the depletion of soils and biodiversity. More generally, subsidies and other policy distortions tend to alter the output mix of agriculture away from what the free flow of inputs and outputs would have produced at market prices, and thus have the potential for creating allocative inefficiencies that are manifested in lower TFP growth. Recommendations The current extension system should move away from the free distribution of sub-standard inputs, and should be rebuilt to increase its efficiency and effectiveness. The Government may want to consider achieving its equity support goals through means other than inputs distribution, for example using social protection linked to climate-smart soil and water management practices. • Extension should be supported by adequate staffing, data collection systems and capacities, and could be amended by non-governmental approaches, investments in radio programs, and farmer field schools. • MAAIF, if it is to fulfill its role as the Government’s representative to agriculture, needs to be able to coordinate public activities in the sector and stay on top of public spending and funding, including donor funding. To this end, it will be vital to improve the coordination between MAAIF and subordinate agencies such as NAADS and NARO, as well as between MAAIF, MoFPED and the Presidency. This requires deliberate institutional and human capacity building in MAAIF to play this role effectively, including carrying out activities such as agricultural public expenditure reviews, policy analysis, and policy monitoring. Closing the Potential-Performance Divide in Ugandan Agriculture VII Regulatory challenges 11. Drought, disease, and pests likely have played a role in producing negative Only three of eight growth for the last two decades in total factor productivity in agriculture, as they have in other countries. Yet Uganda’s TFP record is substantially regulatory elements worse than that of other countries in the East African Community (EAC), for a strong and the inability to respond to such challenges is partly an institutional one. Low technology adoption and commercialization levels surely are also plant protection explained in part by low quality inputs, poor input distribution and control framework are in systems, and inadequate quality-assurance processes. Low-quality seeds place in Uganda. and fertilizers being sold or otherwise distributed discourage investment by producers, but also directly harm productivity. Only three of eight regulatory elements for a strong plant protection framework are in place in Uganda. The pre-emption of most of the domestic market for inputs by a public sector distributing often low-quality inputs free of charge to producers hurts targeting of subsidies and discourages Ugandan private sector firms from filling the need of a quality-based and reliable agricultural input system. For agriculture to promote high growth and rapidly alleviate poverty, quality seeds and fertilizers are needed that are aligned with incentives for farmers and traders and backed by adequate extension. Recommendations • To improve input quality, the regulatory burden should be shifted from controlling registration (such as licensing of traders), to controlling actual operations through random sampling, in addition to regular controls of seed companies. • Successful quality-certification initiatives such as AgVerify should be supported, and the potential for expanding its procedures from seeds to fertilizer assessed. • Licensing procedures and import processing for improved inputs and new seed varieties should be enhanced to reduce delays and to foster agribusiness development at the input level. Commercialization and opportunities for value-addition and trade Supporting regional trade and value addition 12. Income growth, urbanization, and dietary shifts into higher value and more processed foods lead to high domestic demand for higher value agriculture and food in Uganda, and in the aggregate offer substantial income opportunities for farmers and for value addition beyond farm production. Population growth in the 3.3% range adds to further demand increases for basic food staples. Similar trends throughout the East African region scale up the opportunities, but also the potential competition. Uganda needs to continue to promote its areas of comparative advantage and specialization in agriculture. Present trends help indicate where these lie; examples are traditional export commodities such as coffee or tea, and there is even faster growth for non-traditional products such as fish, cocoa, spices, and flowers. Other trends are also encouraging, such as a rapid growth of the confectionary and the baked goods industry for both the domestic and regional export markets. 13. Reaping the full advantage of these demand shifts will however require strengthening institutional processes and public investments already underway. Transport and other transfer costs for Ugandan agricultural commodities entering regional and global trade are high relative to EAC norms, and highly variable across locations. Analysis of price incentives identified massive gaps between reasonable and actual transfer costs for agricultural commodities. Farmgate price incentives, for instance for coffee and tea, are often not well correlated with world VIII Closing the Potential-Performance Divide in Ugandan Agriculture market prices. Trade liberalization and reforms since the early 1990s resulted in big gains, increasing Uganda’s openness, diversifying products and markets, and increasing foreign direct investment. Yet, while Uganda faces a relatively open market in terms of tariffs for agriculture commodity exports, non-tariff barriers (NTBs) in destination markets continue to pose a big challenge. Short-term expediencies, such as allowing provincial governments to close borders to food exports, can kill long-term national prospects. An example would be Rwanda’s continued attempt to be self-sufficient in maize at high cost, following temporary closure by Uganda and Tanzania of maize exports a decade ago. 14. Agriculture needs to be embedded in national policy dialogue dealing with overall economic issues, such as regional trade, fiscal and taxation policy, and potential unintended incentive impacts of a domestic petroleum boom on agriculture. This need is also apparent in other areas below. The institutional capacity within MAAIF to do policy analysis, monitoring and evaluation is presently weaker than it was 30 years ago, a time when agriculture was also at the center of structural adjustment concerns and hopes for a re-birth of economic growth from agricultural growth. Recommendations • Border closures and other administrative hinderances to agricultural trade, including arbitrary ones imposed at short notice by local officials, urgently need to be contained. Leadership from the top is needed to build mutually beneficial trade relationships with neighbors that can endure weather shocks, local shortages, and electoral cycles. • Transport and other transfer costs for agricultural commodities entering regional trade need to be assessed through policy review and investment in information systems. Costs for transporters such as expensively taxed fuel and equipment should be reduced with the associated fiscal drag dealt with through measures that do not discourage production of exports. Better market information including agricultural transport flows and costs for producers by radio and cell will help illustrate least-cost pathways and target areas needing attention. • It will be critical for MAAIF and its attached agencies to regain capability to design and carry out agricultural policy and economics analysis, monitoring, and evaluation, especially under a shifting macroeconomic environment. This has implications for staffing and institutional roles. Development partners should assist with start-up costs. Land tenure 15. Property rights over land are central for agriculture development and commercialization in Uganda. Property rights provide the authority to decide on land use and investments, and incentives for sustainable resource management. The distribution of property rights also affects food security, social cohesion and resilience, providing people with a source of livelihood and fallback Currently, about options that reduce vulnerability. 80% of land is 16. Yet, alongside land size, limited tenure security and land-related disputes have under customary shown to be critical bottlenecks hampering agribusiness development and tenure that is commercialization in Uganda. Currently, about 80% of land is under customary undocumented. tenure that is undocumented. The guaranteed market for quality maize provided by long-term World Food Program (WFP) procurement, coupled with sudden availability of larger plots of land from peace in the North, has enabled private sector supply in response to the government’s liberalization of maize markets. Yet even here, insecurity of use rights has limited this response. Closing the Potential-Performance Divide in Ugandan Agriculture IX 17. Increasing land values and a growing population aggravate the situation over time. Increasing land values in principle involve increasing land rents that should be paid to owners, while continuing divisions multiply the number of boundaries. Issuing individual land titles could result in increased landlessness and the exclusion of those with less power and influence, including women. Land tenure is hence a critical area where the public sector must lead. This includes simplifying the procedures for land registration, titling, and administration, as well as to reduce the costs. Recommendations • Multiple initiatives are ongoing to foster tenure security through better land demarcation or the delivery of adequate documentation to land owners. These should be further supported and upscaled. Examples include the Systematic Land Adjudication and Certification (SLAAC) program or the GIZ-partnership with the Ministry of Lands, Housing and Urban Development (MLHUD). • One way to support faster resolution of land disputes would be to support relevant courts. Greater use could be made of GPS-data, and of technologies such as drones to reduce the time and costs for data collection of field boundaries. New technological breakthroughs are already transforming the digitization and securization of land records in neighboring countries. Access to finance 18. Access to finance is critical along all parts of value chains from inputs to final retail. The right way to encourage expansion of activity depends on how the producers and market agents in question are presently participating in the market and what constrains them. In Uganda, much of the non- agricultural economy is run along private sector lines with a policy environment to match. However, curiously, the policy and regulatory environment for agricultural inputs, production, and marketing from the farm level, and the effects of agricultural public spending policies, tend to be discouraging to private sector investment. This by itself makes access to finance in agriculture more difficult than in most other sectors. X Closing the Potential-Performance Divide in Ugandan Agriculture 19. Furthermore, finance is critical for smallholders to invest in better farming equipment and practices, but also to improve their livelihoods more generally. Yet, financial inclusion of smallholders has remained limited. Key challenges for financial institutions to serve Uganda’s agriculture sector include a lack of usable collateral; high transaction costs due to the remoteness of a dispersed set of clients; small size of farms and of individual transactions; weak communication and transportation infrastructure, high covariant risks due to variable rainfalls and price risks; and the physical absence of banking facilities in rural areas. Recommendations • Mobile money transfers, value-chain financing, digitizing land titles, and warehouse receipt systems (WRS) are promising approaches to de-risk the sector, to overcome the lack of collateralizable land titles for loans, and to increase farmers’ access to finance. • The 5000+ Savings and Credit Cooperatives (SACCOs) currently registered in Uganda could be better supported through the inclusion in legal banking frameworks, governance, and supervision mechanisms. Vertical Coordination 20. Capitalizing on demand-driven opportunities for Ugandan food and agriculture will require good connectivity between suppliers and integrators for passing market and technical information in both directions in near real time, as well as for building trust amongst different supply chain actors. Branding is the preferred market tool for quality assurance, aligning incentives along supply chains, and for helping producers be remunerated for extra efforts resulting in quality. Uganda, however, is confronted with a multitude of diverse smallholders as primary suppliers. Branding of smallholder products in Uganda requires vertical coordination with aggregating processors or other industrial entities that Branding is the preferred can vouch for the quality of the final product and be held market tool for quality accountable by consumers when they fall short. Several assurance, aligning incentives private business models along different agriculture value chains in Uganda are shown to successfully link smallholders along supply chains, and to growing domestic and international market opportunities for helping producers be for value-added products, to improve their incomes, capacities, and productivity; and to foster their resilience to remunerated for extra efforts climate and market-related fluctuations and shocks. resulting in quality. Recommendations • The public sector should seek to improve vertical coordination outcomes for both smallholders and aggregating firms though a three-pronged approach. The first is an informational one consisting of creating a knowledge platform for recording and diffusing good practice in agricultural vertical coordination arrangements that are multiplying rapidly. The second is clarification of the legal status of vertical coordination agreements and obligations such as under contract farming. The third is identification and empowerment of a public authority with primary responsibility and the tools for oversight of a level playing field in vertical coordination of agriculture (between farmer groups and aggregators, and across firms), and assistance in enforcement of contracts. All three prongs can help with the recruitment to Uganda of the sorts of multi-national investors in agriculture that are willing and able to foster inclusive growth. Closing the Potential-Performance Divide in Ugandan Agriculture XI • Policies limiting the development of farmer cooperatives as economic actors should be reviewed and revised. The development of rural cooperatives has been limited to date as a matter of policy seeking to avoid economic groups straying into politics, but the economic role of cooperatives needs to be further supported. Independent rural coops can be essential parts of strengthening the bargaining power of smallholders under vertical coordination. They also spread the costs and simplify the governance of ownership and maintenance of technical equipment that is too expensive for individual smallholders, such as electronic soil scanners. Role of ICT 21. ICT technologies are critical to cutting the costs of uncertainty, asymmetries of information, and securization of information on transactions amongst large numbers of small, widely dispersed players. Relatively cheap and easy to use devices such as smartphones and tablets can connect a wide mass of “low tech” enterprises to a few very “high tech” solutions such as specialized big databases and software capable of sending customized responses back to individual devices at low cost. Such networks also greatly reduce the unit cost of diffusing market and technical information. This has direct benefits for enhanced productivity and resilience, market access, and financial inclusion of smallholders, as well as for data collection and monitoring. Having the ICT infrastructure in place for a public-led program also encourages the development of private communications that promote the development of agricultural commerce. Recommendations • The definition and implementation of a set of investments and policies specific to rural ICT with agricultural uses is critical. There is a need to build and sustain a modern infrastructure that can support emerging technologies and services.Suggested measures include the optimization of the connectivity of rural users to the potential made available by international undersea fiber optic cables arriving in the interior of East Africa; encouraging participation of the private sector in ICT infrastructure development; and hastening enforcement and awareness of ICT related (property) laws. • Public databases on key household level data and agricultural variables such as market prices are further critical for boosting national competitiveness, food security, and for decision makers to steer policies in a pragmatic and evidence-based way. There is a need for high-level consideration of what data pertaining to food and agriculture are most relevant, how they can be collected cost-effectively, and analyzed in near real time. MAAIF should provide leadership in data collection (e.g. about inputs used, yields, post-harvest losses, soil quality etc.), management, and use to be accessed by a range of stakeholders. Promoting Resilience and Climate-Smart Agriculture 22. Uganda is among the world’s most vulnerable and simultaneously least adapted countries to climate change. Increasingly frequent climatic shocks pose a heavy toll on rural livelihoods and the economy. Limited access to financial resources, to social safety, and to meteorological and disaster risk-related information are among the main challenges to smallholders. 23. Continued unsustainable mining of soil and biomass, coupled with rapid population growth in rural areas and low adaptive capacity to climate variability, will prevent the transformation of Ugandan agriculture for shared prosperity under present trends. Unsustainable land use drives soil erosion, the loss of soil nutrients and hence of biological, productive, and soil water retention capacity. This lowers the resilience to climatic shocks, and leads to carbon emissions which foster climate change Unsustainable land use comes at high economic costs as well. Uganda is thought to be losing on the order of 4 to 12% of GDP annually due to soil erosion, compaction and nutrient loss. XII Closing the Potential-Performance Divide in Ugandan Agriculture 24. To enhance productivity, while limiting emissions from land or livestock management and enhancing climate resilience at the same time, climate-smart agriculture (CSA) practices – from the farm to the landscape or watershed level – are critical. Promising examples in Uganda at the field level might include silage production, rotational grazing, more timely transplanting of rice, and integrated soil fertility management for maize. At the landscape level, themes might include contour bunding on slopes and reforestation or conservation of trees on ridge lines. Successful adoption of CSA requires an enabling environment characterized by functional institutions, regulations and coordination, as well as financial and other incentives. Besides, physical (e.g. land, human resources, infrastructure) and non-physical (e.g. skills, policies) barriers need to be overcome. 25. Improved water management and storage is central to building the resilience of Uganda’s agriculture. The country is far behind its neighbors in this regard. The new National Irrigation Policy (NIP) promulgated at the end of 2017 (GoU /MAAIF-MWE 2017) is a start, but will face many issues in implementation. Public-Private partnerships for funding new, large-scale irrigation schemes can foster productivity in commercialized farming enterprises for higher value outputs. NIP’s call to expand smallholder systems will also be more difficult in view of existing cost levels. Rehabilitation and improved management and operation of existing schemes will need to be prioritized, and likely a broader definition of improved water management will be called for in many cases, including small- scale water catchments, selective reforestation, and small-scale drip irrigation for high value crops. Setup or reinforcement of local-level irrigation management institutions will be key. NIP laudably calls for deeper inter-ministerial cooperation in planning, more rigorously enforcing existing land and water use regulations, and better cost recovery in irrigation infrastructure development and management, all of which are critically needed. Recommendations • Increased collaboration is needed between climate and agriculture-related ministries, research institutes, civil society and farmers’ groups, development partners, private sector actors, for instance through the setup of a multi-stakeholder platform. This can help to identify and prioritize the most cost-efficient CSA practices for a given agroecological zone and local context, and to improve coordination across actors. CSA implementation likely requires dealing with market failures and thus will need novel financial instruments such as climate and value-chain finance or climate-smart certification schemes. These can help foster agricultural technology adoption, and should be harnessed to deliver CSA benefits to smallholders. • The government is advised to develop implementation pathways for the New National Irrigation Plan in broad consultation with stakeholders; to build the capacity of water user groups, and to adapt planning to economic feedback from users and value-chain participants upstream and downstream. • Extension services should disseminate gender-sensitive and climate-smart technologies and practices aligned with farmers’ needs. Communication with farmers could further be improved through radio broadcasts about good agriculture practices, technologies, and disease outbreaks. School teachers should be engaged in outreach efforts. • Smallholders across all gender and age groups need adequate and timely access to credible meteorological, price or disease-related information and early warning information. Here, it will be critical to coordinate the provision of user-friendly messages across government authorities, private sector entities such as telecommunication companies, academia and civil society; and to support vulnerable communities in developing local-level emergency response mechanisms that are aligned with national-level institutions. In this regard, it will be necessary to better align technical and financial capacities across national and local governments. • The government is further advised to relaunch the search for viable financial instruments to underpin whole landscape (watershed) restoration plans foreseen in the 2010 national Strategic Framework for Sustainable Land Management. 26. These recommendations are summarized in Table ES.1 along with subjective judgements by the report authors as to the likely impact of each recommendation on closing the performance-potential gap for agriculture, the timeframe required, and the cost of action. Closing the Potential-Performance Divide in Ugandan Agriculture XIII TABLE ES.1: CLOSING THE POTENTIAL-PERFORMANCE DIVIDE IN UGANDAN AGRICULTURE—10 PRIORITIES OVER 3 AREAS PRIORITIES AND MEASURES: Impact on narrowing Timeframe Cost XIV the gap Low Short Low Medium High Medium Moderate AREA I: REFORM OF INSTITUTIONS AND POLICIES Long High PRIORITY 1: Renew the public institutional base for supporting agriculture i) Reform the agricultural extension system • Review the NAADS Act and the role of NAADS in input distribution Medium Medium Low • Support the new agricultural extension strategy and budget to provide sufficient technical personnel High Short High • Reduce % of public expenditure used for input procurement for subsidized distribution High Short Low • Replace targeted subsidies with targeted e-vouchers usable for purchase of certified inputs from private dealers Medium Medium Moderate PRIORITY 2: Improve agricultural regulation ii) Reduce disincentives to private sector agricultural input businesses • Streamline licewnsing procedures and import processing for inputs and improved seeds High Short Low • Finalize, approve, and implement the National Seed Policy Medium Short Low iii) Implement measures to improve quality of agricultural inputs • Shift implementation of regulation from licensing traders to random sampling of actual transactions and regular inspections of seed Medium Medium Moderate companies Closing the Potential-Performance Divide in Ugandan Agriculture REFORM OF INSTITUTIONS AND POLICIES • Successful quality-certification initiatives such as AgVerify should be scaled-up and extended from seeds to other inputs on a trial basis High Medium Moderate PRIORITY 3: Improve MAAIF’s capacity to manage itself and promote good agricultural policies i) Assist MAAIF to create a first-class Policy Analysis, Monitoring, and Evaluation Unit • Create staffing and mandate to carry out regular expenditure reviews, analyses, and evaluations High Medium Moderate • Ensure access to top level staff and regular interaction on analytical/briefing needs High Short Low AREA II: PROMOTE COMMERCIALIZATION AND VALUE-ADDITION PRIORITY 4: Promote regional trade and value-addition i) Rebuild trust in market availability of regional food staples High Long Moderate • High-level cross border political engagement to ban export bans for cereals credibly and transparently ii) Seek market-led ways to lower spatial transfer costs for agricultural commodities in peak seasons Medium Medium Moderate • Assess price formation in key value chains to derive options for transfer cost-cutting PRIORITY 5: Expand farm access to finance i) Land titling High Long High • Expand present efforts to clarify legal status of rural customary land and issue collateralizable rural land titles (most currently are urban) ii) Include Uganda’s 5,000 SACCOs in formal banking system frameworks, including governance and supervision iii) Enhancing access to finance through warehouse receipt systems Medium Long High iv) De-risk formal lending to agribusiness firms to leverage private finance High Medium Moderate • Promote use of partial credit guarantees by formal agribusiness where justified Medium Medium Moderate PRIORITY 6: Expanding farm access to markets through vertical coordination i) Add transparency to contracts and make details on good practice easy to access • Create and maintain knowledge platform/database on commercial aggregation arrangements with smallholders Medium Medium Moderate ii) Clarify legal status of contracting arrangements, obligations, and recourse available • Hold consultations with stakeholders on all sides (domestic & intl firms, coops, farmers, govt) Low Medium Low • Promulgate law covering formal aggregation arrangements with smallholders Medium Medium Low PRIORITY 7: Expanding farm access to ICT for increased productivity i) Boost performance of data networks in rural areas High Medium Moderate • Formalize ICT property and governance laws, also addressing privacy, data protection, security from cybercrime Medium Medium Low • Engage private sector investors, internet service providers Low Medium Low • Create mechanism for quality assurance in ICT infrastructure development High Medium Low • Elaborate de-risking plan for private investors in consultation with stakeholders Medium Medium Moderate • Build infrastructure and connect to undersea cable from South Africa High Long High ii) Boost farmer and policy-maker returns to connectivity • Develop school curriculum on ICT use Medium Medium Moderate • Develop incentive plan for expanding national postal infrastructure related to ICT High Medium Low PROMOTE COMMERCIALIZATION AND VALUE-ADDITION • Construct and maintain public database on agricultural input and output prices, inputs, suppliers, and buyers Medium Low Low • Add pages for extension advice High Medium Moderate AREA III: PROMOTE RESILIENCE AND CLIMATE-SMART AGRICULTURE PRIORITY 8: Provide policy and institutional support to the promotion of Climate-Smart Agriculture (CSA) i) Improve the institutional environment through creation of a multi-stakeholder platform to identify and promote cost-effective CSA High Medium Moderate interventions and pathways for implementation in Uganda. Steps include: • Chair selected by MAAIF, representation from other relevant ministries such as environment and entities tasked with food security monitoring and rural communications • Provide for representation of research organizations, farmer groups, CSOs, private sector development partners • Identify technologies, technical themes, and implementation pathways • Commission and review reports on design of cost-effective financial incentives for adoption • Provide better coordination of activities and promote synergies • Make recommendations to Government PRIORITY 9: Improve access to agricultural water i) Develop detailed implementation pathways for the new National Irrigation Policy under deeper inter- ministerial cooperation in planning High Medium Low and with private sector involvement. ii) Develop farmer water user groups and irrigation management institutions; Include the private sector with user groups in consultations on High Medium Moderate Closing the Potential-Performance Divide in Ugandan Agriculture input supply, extension needs, and post-harvest handling. PRIORITY 10: Address ongoing soil degradation XV PROMOTE RESILIENCE AND CLIMATE-SMART AGRICULTURE i) Relaunch the search for viable financial instruments to underpin whole landscape (watershed) restoration objectives of the 2010 national High Medium Moderate Strategic Framework for Sustainable Land Management I. XVI Closing the Potential-Performance Divide in Ugandan Agriculture Introduction • Agriculture is mentioned in Ugandan strategic documents as the key growth opportunity for driving economic transformation. But can it realistically do this under present policies, investment levels and its present structure? • Or will agriculture in Uganda gradually retreat into a not very dynamic holding action occupying a large sector of the population under increasingly low relative returns? • Addressing these questions can be done by examining how the structural context of agriculture is evolving in Uganda, the main actors, and the changing opportunities and constraints they face. • Key themes include how best to leverage private sector investment with public funding and policy, and how to make agricultural development more inclusive of the mass of smallholder farmers. A core question for agriculture in Uganda 27. Uganda’s Vision 2040 and National Development Plan (NDP) II and the new Agriculture Sector Strategic Investment Plan (ASSP) prioritize agriculture as a growth opportunity that will spur socio- economic transformation into a middle-income country by 2040. This view is based on the predominance of the sector in the economy, examples of Agriculture generates good past performance, and a view that the Government will be central to promoting achievement of the underlying potential of the sector at roughly one-quarter broader scale. It is intended to be advanced through the Government of of GDP, employs Uganda’s (GoU) strategic investments in agriculture that: (i) increase on- 70% of the labor farm productivity to at least 50% of the yields at research stations; (ii) transform subsistence farmers into enterprise farmers, and smallholder force, and accounts farmers into commercial farmers; (iii) increase food security and food for about half of availability in all parts of the country; (iv) increase agriculture exports; and (v) increase efficiency and effectiveness of agricultural services such as national land area. research, extension and regulatory bodies. In addition, the Government of Uganda aims to increase the resilience of rural livelihoods and national income to climate change impacts. 28. Agriculture is indeed still a leading economic sector in Uganda, and until now has served as the main engine of sustainable and inclusive growth. It generates roughly one-quarter of GDP, employs 70% of the labor force, and accounts for about half of national land area (UBOS 2016— data through 2015). There is also little doubt about the existence of future potential. Growth in agriculture, particularly export agriculture, still has a Closing the Potential-Performance Divide in Ugandan Agriculture 1 relatively high multiplier effect on growth in the rest peace in the countryside and provide a minimum of of the economy (Diao et al. 2007; Deloitte 2016). Land staple foods for growing urban areas. Alternatively, and water resources for agriculture in in Uganda are if some or all parts of Ugandan agriculture can amongst the best in Africa, due to its diverse agro- stimulate widespread and significant value addition ecological zones, rich volcanic soils, and two rainy in both agriculture and non-agriculture, the strategic seasons in most of the country (CCAFS 2017). At the issues would then focus on how to promote growth, same time, Uganda is one of the ten most biodiverse inclusion in growth, and scaling-up of success. This countries globally. Biodiversity is recovering in would require a quite different policy and investment areas devastated by conflict in the 1970s and 1980s stance to close the potential-performance divide. (Pomeroy et al. 2017). For example, Uganda is host Thus, the stakes are high in assessing the prospects to 18,783 recorded species of fauna and flora (NEMA for agricultural growth, and not just for rural areas. 2016), and produces crops as diverse in their growing Uganda presently has relatively few alternatives profiles as mountain tea and dryland millet. at comparable scale to agriculture for providing foreign exchange, jobs, widespread growth in 29. Despite high natural potential for agriculture, domestic consumer incomes, and domestic capital average agricultural growth in Ugandan accumulation. Whether or not agriculture can evolve agriculture has been below potential, and in the ways needed to meet the above challenges is a erratic across years and locations. National core but open question. agricultural output has grown at only 2% per annum over the last five years (UBOS 2017a). This can be compared to agricultural output growth of 3 to 5% in other EAC members (World Bank World Exploring a theory of change Development Indicators). In addition, low rates of for agriculture in Uganda commercialization, and a lack of adaptation capacity with respect to climate-related hazards are major 31. The present study approaches the core question ongoing threats. Food security and nutrition also by starting from a closer examination of the remain major issues in Uganda, and the prevalence structural context of agriculture in the country. of food imports has increased. The outlook for This context is determined by many factors, but agricultural growth is further overshadowed by rapid demographic and historical trends, agrarian urbanization, continued high rural population growth structures that are creaking under population rates, high rural unemployment among educated pressure in many parts of the country, widespread young people, increasing climate variability, and rural poverty, low technology uptake rooted in the continued land and water degradation. previous factors, vulnerability of rural populations to climate shocks, and a rapidly evolving set of opportunities and challenges for agricultural trade based on Uganda’s location and resource endowment are all key aspects of context for present National agricultural output has purposes. grown at only 2% per annum 32. Within these contextual elements, it is vital over the last five years. to understand the main groups of actors and institutions shaping agricultural outcomes in 30. Under these present trends, it is reasonable to Uganda. There has been considerable evolution of worry whether agriculture can continue to drive the public sector institutional base for supporting future overall growth, or whether it will gradually agriculture over recent decades. New actors on the retreat into a not very dynamic holding action civil society and private sector side have emerged occupying a large sector of the population under in response to new opportunities and challenges. increasingly low relative returns. Under that view, the Development partners and events in neighboring real business of development would necessarily be countries have also played important roles in sought elsewhere. Public investments and policies shaping agricultural outcomes in the country. Not all would then presumably try to minimize overall public of these forces have pulled in the same direction, and expenditures on agriculture, emphasize immediate not all have been positive for growth. Understanding transfers over long-term capital accumulation, and the state of play is important for finding solutions for spread funds widely to do just enough to maintain increased growth. 2 Closing the Potential-Performance Divide in Ugandan Agriculture 33. Going forward, the Government of Uganda 35. A particular issue in Uganda stems from the need has been clear that it wishes to promote the to extend viable pathways and technologies commercialization of the agricultural sector, to more small farmers for them to participate and that it sees the private sector as being key fully in rapidly growing market opportunities, to this outcome. A look at rapidly evolving demand primarily in association with private aggregators. opportunities for Ugandan agriculture, some of them The report will illustrate significant case studies of perhaps unexpected, most involving value-added success in Uganda for different products. The study products, provides strong support for this view. will draw the link to the need for an expanded role The rapid rise in absolute and relative importance for improved information and communication of regional agricultural trade and in the domestic technologies and the advantages of Big Data for market for processed foods are cases in point. cutting the overhead cost of having so many small The study will illustrate these trends, and assess farms. The main problem of small farms wishing to significant constraints that must be overcome to borrow from or sell into growing high value markets allow a market-led development strategy to work are the high unit costs for firms that transact with better. them: costs of search, evaluation, quality control, monitoring, enforcement and so forth. ICT is evolving 34. Foremost among these are solving the puzzle of to help meet these challenges. agricultural finance under Ugandan conditions, improving the regulatory system to build trust, 36. Yet the encouraging trends and possible means and reduce high transaction costs. Finance is an of better availing of opportunities suggested issue at all levels of agricultural value chains. As shown in the previous section are overshadowed by in Box 1, The Maximizing Finance for Development the looming threat to all agricultural producers (MFD) approach in these cases focuses on what in Uganda posed by climate change. No other private actors are currently doing, what they are not industry or set of livelihoods in Uganda—and doing, understanding why, and addressing the policy perhaps anywhere—is more sensitive to climate distortions or lack of conducive environment that outcomes than are densely settled smallholder hinder private sector responses (World Bank 2018c). farmers in tropical areas. Whatever solutions are The present study will highlight regulatory issues adopted for promoting growth of agriculture will also and public investment changes that will encourage need to address resilience of the livelihoods of rural private investment at different levels of agricultural people in Uganda to climate change. Fortunately, the value chains through recommendations consistent knowledge base on how to do this is growing and with the MFD approach of Box 1. implementable solutions that help can be defined. Closing the Potential-Performance Divide in Ugandan Agriculture 3 BOX 1: MAXIMIZING FINANCE FOR DEVELOPMENT IN AGRICULTURAL VALUE CHAINS Is the private sector doing it? Yes: Spectrum of potential actions to promote responsible food & agriculture investments • Strengthen country capacity to assess and mitigate/regulate environmental and social risks • Promote private sector alignment with the principles of responsible investment • Support inclusive business models to improve linkages among smallholders and firms of all sizes No? Is this because of limited space for private sector activity? Yes: Spectrum of potential actions to increase space for private sector investments • Support competition and associated policy reform, including of state owned enterprises • Strengthen investment policy and dialogue to open space for global investment • Reduce government intervention in agricultural financial markets to open space for private financial service providers No? Is this because of policy and regulatory gaps or weaknesses? Yes: Spectrum of potential actions to improve the policy and regulatory environment for private sector investments and to reduce the distortionary effects of public spending • Reduce distortionary effects of public spending policies • Improve incentives and reduce transaction costs • Reduce private sector investment risk No? Can public investment help crowd-in private investment? Yes: Spectrum of potential public investments to reduce private sector transaction costs and risk • Improve incentives and reduce transaction costs (e.g. quality assurance, vertical coordination) • Reduce private sector investment risk (e.g. warehouse receipts, risk insurance). No? Pursue purely public financing where there is no viable private sector return. Use public resources to invest in public or quasi-public goods and services • Invest agricultural public spending in public goods and services (e.g. agricultural research) • Support complementary public investment in other sectors (e.g. rural roads). Source: World Bank (2018c) 37. Public investments and policies cannot solve all agricultural productivity in Uganda has lagged, far these issues on their own, but their efficiency more so than in neighboring states. Turmoil in the in promoting solutions at scale is critical to public sector institutional base for agriculture and success under Ugandan conditions. The study on occasion unfortunate policies are likely a big part will examine the congruence of stated agricultural of the story. The good news is that effective actions policies with actual practice, including through the can be identified to address the main needs for implementation of public expenditures in agriculture. getting to a positive answer to the core question. It will also look at the net impacts of policies on These are: dealing with the underlying constraints agricultural incentives, which in some notable cases to increased agricultural finance such as widespread are likely to be discouraging to growth that would absence of collateralizable assets and absence otherwise be beneficial for the country. of data; improving the robustness of regulations; moving public expenditures and policies away from 38. A big picture with respect to the core question subsidies for private input use towards promoting emerges from these seemingly separate—but in critical public goods such as research, extension, and fact inter-acting—elements. On the positive side, infrastructure; engaging at the highest levels with agricultural growth over past decades has been neighbors to promote long term regional agricultural critical to poverty alleviation. Yet despite having trade; and addressing the looming dangers of land all the elements for a booming agriculture, overall degradation and improving climate resilience. 4 Closing the Potential-Performance Divide in Ugandan Agriculture Outline of sections 40. Following the above logic, the study is structured into seven parts. First, it looks at the most significant 39. In a predominantly rural country such as Uganda, elements and trends confronting Uganda’s agri-food everything matters to agricultural growth and system, many of which can be seen more broadly the resilience of rural people whose main living is in the region. Second, it examines developments from agriculture. There is little in the country that is in Uganda’s public-sector institutional base for not relevant in some fashion to agricultural outcomes. agriculture, many of which arguably contributed to Apparently non-agricultural issues are in fact vital to the potential -performance divide in recent years, agriculture, such as roads and energy. Agriculture and which only now are beginning to be addressed. also impacts on and is impacted by fiscal policy Third, it looks at barriers to commercialization and social protection. Agricultural incentives can be of agriculture despite surging opportunities and strongly affected by political and macroeconomic desirable ways to overcome hindrances. Fourth, it events that are well outside the agricultural purview. analyzes the main challenges from climate change The strategy pursued in the present study was hence and other environmental factors such as soil to reach out widely for inputs from a wide array of depletion to the resilience of agricultural livelihoods Global Practices at the World Bank representing and agroeconomic systems in Uganda, and suggests insights across multiple agriculture-related sectors. pathways to foster resilience. Fifth, it assesses policy However, the discussion in the text itself is focused issues in promoting sustainable commercialization primarily on issues of policy relevance to government of agriculture. Sixth, the component parts are agencies and private sector enterprises (including woven into a “big picture” narrative. The seventh small farms) that deal directly with agricultural and and final section gives specific recommendations livestock activities as well as the end products that for investment and policy action suggested by that come from agricultural raw materials, principally narrative. foods. In a predominantly rural country such as Uganda, everything matters to agricultural growth and the resilience of rural people whose main living is from agriculture. Closing the Potential-Performance Divide in Ugandan Agriculture 5 II. 6 Closing the Potential-Performance Divide in Ugandan Agriculture Key Elements and Trends Confronting Uganda’s Agri-Food System • Agriculture is the economic sector most critical to the majority of Ugandans, and vital to overall growth. But it is confronted with multiple structural challenges such as a predominance of smallholdings practicing rainfed, low-yielding agriculture; growing population density on arable land; tenure insecurity; a lack of access to financial resources; poverty; poor infrastructure, and low levels of educational attainment. • Agriculture sector growth is well below population growth, and adoption rates of improved technologies have remained low. Total Factor Productivity growth has been negative for the past 2 decades. Main reasons include low connectivity; low access to finance, reliable inputs, extension or market information, and a lack of reliable outlets for products. • Uganda is among the most vulnerable and simultaneously least adapted countries to climate change, and increasingly frequent climatic shocks pose a heavy toll on rural livelihoods and the economy. Limited access to financial resources, social safety nets, and climate-smart practices are among the main barriers to smallholders being able to cope with and adapt to shocks. • Alongside traditional commodities such as coffee, Uganda is rapidly expanding regional and global trade into non-traditional exports such as fish fillets, confectionary, sugar, and vegetable oils. While regional trade of agricultural commodities could stimulate growth, and improve the living conditions of many Ugandans, export performance is still well below its potential. Demographics and agrarian structure 41. Agriculture still employs over 70 per cent of the labor force, with a somewhat lower share among youths (>60 per cent). Due to the expansion in access to education, literacy has spread also to rural areas (72 per cent of adults being literate), but the overall quality of education has remained poor for most. Poverty declined significantly from over 50% Agriculture still to around 20% of the population between the early 1990s and 2012/13, employs over but remains higher in rural areas and includes substantial food insecurity 70 percent among the poor. The poverty level in rural areas is 27% compared to 9% in urban areas. It is geographically concentrated in the North and the East of the labor force, (World Bank 2016a). with a somewhat 42. Population density, the road network, location, soils, rainfall, lower share traditions, and a relatively peaceful status tend to favor Uganda’s among youths agriculture compared to its neighbors. Population density is relatively high, and the road network is denser than in several of the comparator (>60 per cent). countries. Road density was already 29.3 km of road per 100 square km of land area in 2003 (latest comparative figures available), compared to 7 km in Ethiopia (2007), and 7 km in SSA on average (2000). Population density was 173 persons per km2 according to the 2014 census (UBOS 2017), compared to about 100 in Ethiopia, 85 in Kenya, and 60 in Tanzania. Soils are relatively Closing the Potential-Performance Divide in Ugandan Agriculture 7 fertile, and mostly benefit from adequate rainfall. 44. Few young people in Uganda wish to become Agricultural production is regionally distinct, with farmers. A survey among young Ugandans from some regions being predominantly farmland, and both urban and rural areas revealed that youths are others engaging in mixed pastoral and farming very entrepreneurial, with the majority aspiring to activities. Fishing also plays an important role given start their own business rather than pursuing careers large freshwater lakes. Bananas/matooke is the main in teaching, medicine or engineering. Although food staple, with maize, cassava, beans, millet, sweet agriculture is one of the leading sectors in Uganda, potatoes, and sorghum as secondary staples. Coffee only 12% of survey respondents wanted to become has been grown as the main cash/export crop, as farmers (Aga Khan University 2016). Food value chains well as tea and cotton. Agricultural traditions are beyond the farm provide substantial opportunities strong in the country; and agricultural topics are for entrepreneurship and good jobs with a bright widely discussed in the media. Moreover, Uganda future for career development. has good opportunities for regional agricultural exports to South Sudan and Kenya, but also to other 45. Nonetheless, the agricultural production share neighboring countries; which is facilitated by growing of overall employment increased from 69 to trade linkages within the East African Community 72% over the last two decades (UBOS 2016). (EAC). Not least, the country has experienced a Major factors were rapid rural population growth period of peace, and even in the North where conflict and limited employment opportunities outside continued in the 1990s and early 2000s, peace has agriculture. Population density of 173 persons/ been restored over the past decade (Joughin and km2 in 2014 had grown from half that in 1991 (85 Adupa 2017). persons per km2) In consequence, land has been (further) fragmented, particularly in highland areas. In lowland areas, the land-to-labor ratio is often reversed due to relatively abundant land leading to lower population pressure. Both areas, however, are Uganda has good opportunities gradually experiencing rising labor shortages due to for regional agricultural exports to youth migration to urban areas. South Sudan and Kenya, but also to 46. Uganda’s agricultural production sector is other neighboring countries; which dominated by smallholdings, with average farm is facilitated by growing trade sizes in the range from 0.8 to 1.6 ha (Anderson et al. 2016). Farm sizes vary across regions, and are linkages within the East African mainly a factor of population density, farming system, Community (EAC). available arable land and economic development. The greatest density of smallholders is concentrated in the Western and Eastern regions. Less than one- 43. Yet Uganda has one of the highest birth rates quarter (23%) are found in the Northern region, where in Sub-Saharan Africa (SSA), and one of the national statistics show the highest poverty levels. fastest population growth rates (3.3%), which The smallest share of smallholders is in the Central puts enormous pressure on already strained region (16%), which is Uganda’s most economically natural resources (World Development Indicators thriving part (Anderson et al. 2016). On a national 2018). By 2050, Uganda’s population is expected basis, average plot size was 0.51 ha/worker in 2011 to rise to 102 million people, with cereal demand (Deininger et al. 2017). This is considerably larger projected to increase by 396% compared to 2010 (van than neighboring densely- populated countries Ittersum et al. 2016). Uganda also has the youngest like Rwanda (0.12 ha/worker), but still is relatively population of any country in the world, with a median small. Land expansion and unsustainable land age of 16 years; roughly 80% of the population is use practices have come at the price of reducing below the age of 35 years (Aga Khan University 2016). available, fertile farmland, but have also led to This potentially yields a tremendous demographic conflicts with other land uses such as pastoral areas dividend. However, 64% of youth (national definition: and forest ecosystems. 18-30 years) were unemployed in 2012 (UBOS cited in Ahaibwe and Mbowa 2014). 8 Closing the Potential-Performance Divide in Ugandan Agriculture TABLE 1: DECREASING AVERAGE HOUSEHOLD OPERATED FARM LAND IN ALL PARTS OF UGANDA 2005/06 TO 2015/161 Net Land Operated2 Gross Area Operated3 Unit 2005/06 2015/16 2005/06 2015/16 Share of HH < 2 ha % 74.7% 82.8% 54.1% 65.4% Mean Operated Farm Size < 2 ha ha 0.80 0.73 1.0 0.9 Mean Operated Farm Size > 2 ha ha 4.5 3.3 5.4 3.9 National Mean Farm Size All HH ha 1.7 1.2 3.0 2.0 Central Region rural mean farm size ha 1.5 1.1 2.8 2.1 Eastern (ditto) ha 1.8 1.0 3.1 1.7 Northern (ditto) ha 2.4 1.9 3.7 2.8 Western (ditto) ha 1.5 1.0 2.8 1.8 Urban based farm HH (ditto) ha 1.3 0.9 2.2 1.5 Source: Uganda National Household Survey (UNHS) and Uganda National Panel Surveys (UNPS) years indicated. UNPS is a national, multi-topic panel household survey with a strong focus on agriculture, implemented by the Uganda Bureau of Statistics (UBOS) since 2009/10, with technical and financial support from the World Bank Living Standards Measurement Study – Integrated Surveys on Agriculture (LSMS-ISA) initiative. The UNPS started in 2009/10 as a direct follow-up to a national sub-sample of approximately 3,200 households that had been interviewed by the Uganda National Household Survey (UNHS) 2005/06. UNPS/UNHS are representative at the national and regional levels. Intermediate UNPS rounds between these two endpoints confirm the trends shown. Notes: (1) The UNHS/UNPS surveys are representative of the household sector, but not the large, commercial farm domain, for which recurrent surveys in Uganda currently do not exist. (2) “Net” land is actual farm size, counted only once even if cropped more than once a year. (3) “Gross” land is area operated (typically harvested), so a given 1 ha farm with crops grown separately twice a year would be counted as 2 ha gross land operated per year. 47. A worrying trend is that average household 49. Finally, a few large-scale commercial farms have operated farm land has declined substantially in been established in recent years, especially in all parts of Uganda since the start of systematic Northern Uganda. This followed the re-establishment national household sample surveying in 2005/06. of peace in the region. Foreign as well as domestic As shown in Table 1, the data in question are investors were involved. These farms are not included representative of rural Ugandan households, but do in Table 1. Land use disputes remain an issue for the not capture the effect of the rise of large commercial commercial farms. The commercial farm AGRISERV, farms established primarily in the North in recent for instance, has legal access to 1,400 ha, but has years. Over the decade from 2006 to 2016, the share only been able to farm 150 ha. The rest of the land in of all household farms that were less than 2 ha in size question is arguably occupied by squatters. AGRISERV rose from 75% to 83%. The average amount of net has been involved in several court cases, but land land operated fell from 1.7 ha per household to 1.2 rights could not be clearly attributed to date. Similar ha. Although not shown, rural population density has problems affect other commercial farms such as AFGRI grown over the same period in absolute if not in relative or AMATHEON (Joughin and Adupa 2017). terms (UBOS 2017a). It is likely that land operated per adult resident on the farm has fallen even faster than 50. A man is three times as likely to be the head of a the 3.4% per annum compounded rate of decline in smallholder farming household as is a woman average farm size 2005/06 to 2015/16 suggested by the (77% men vs. 23% women; Anderson et al. 2016). data in the table. While households are male-dominated, women make up 55% of the economically active population 48. The trend of declining average farm size holds in agriculture, and contribute more than 75% to for all major regions of Uganda, as also shown total farm labour as well as over 90% to farm-level in Table 1. The effect is especially large in the primary processing operations (UBOS 2016). This has Eastern region, with average net land operated per implications for development in other areas including household falling from 1.8 ha to 1.0 ha over a decade. education, extension, inputs and credit provision, land Reasonable hypotheses are that these trends are due tenure. among others. Almost half (45%) of heads of to insufficient job opportunities outside family farming households are under the age of 40, and one in five is and inheritance customs that split farms over time older than 60 years. among successive heirs. Closing the Potential-Performance Divide in Ugandan Agriculture 9 51. Farmers in Uganda largely use small-scale, labor- intensive technologies, dependent on rainfall that is distributed in two rainy seasons in most of the The hand hoe is the main country. The hand hoe is the main production tool. Roughly 10% of farmers use animal traction, and 1.2% production tool. Roughly 10% use tractors. Irrigated agriculture comprises 1.3% of of farmers use animal traction, total cultivated land (Olet 2017). The dependence of most smallholders on rain-fed agriculture without and 1.2% use tractors. adequate water management is especially concerning Irrigated agriculture comprises in light of increasing climate variability and soil degradation that lowers the water retention of fields. 1.3% of total cultivated land. 52. Over 80% of land is held under customary 53. Under freehold tenure, owners have an indefinite tenure as suggested in Table 2; that is, land deed to their land and complete rights to use, governed by customs, rules, and regulations of lease, transfer, subdivide, or mortgage their the community. While not being officially registered, land in compliance with Ugandan laws. Freehold customary tenure and hence legal pluralism is interests are not widespread, and were formerly recognized by Uganda’s land law. However, since limited to a small category of individuals such as kings, customary land rights are of trusteeship rather chiefs, large-scale agricultural estate developers or than ownership, they are particularly vulnerable to special interest groups such as churches. expropriation (Doss et al. 2014). TABLE 2: EVOLUTION OF SHARE OF AGRICULTURAL LAND WITH DIFFERENT TYPES OF TENURE 2009-2014 2009/10 2011/12 2013/14 % land = freehold 2 13% 10% 12% % land = leasehold 2 1% 2% 1% % land = “mailo”3 4% 4% 2% Share documented 18% 16% 15% Share customary 4 82% 84% 84% Source: Calculated from the three rounds indicated of the Uganda National Panel Surveys (LSMS) (Duponchel 2017). Notes: (1) These area figures pertain to documented parcels only (18% to 15% of total land operated). Average land operated in Uganda as a whole is larger, implying that land sizes operated under customary rights are typically larger than documented plots. Deininger et al. (2017) report the average farm area operated from the 2010/2011 LSMS survey in Uganda as 1.4 ha. The same farmers with documented plots might also operate undocumented ones as well, although (2) Freehold and leasehold both include land use rights conducive to use as collateral. (3) Mailo is a very small category of essentially rental land that includes long-term use rights, but generally is not land that can be independently sold by the user or used as alienable collateral to secure loans. (4) Customary land here is almost all undocumented in the same sense that the other categories are documented. Shares may not sum to 100% due to rounding. 54. Mailo is a system found in Central and central usually pays an annual rent or provides service under Western Uganda that was established by the specified conditions. Since leaseholders may not hold British colonial government. Most of this land formal contracts with the owner, they can be evicted is occupied by long-term tenants who do not hold without legal recourse, although there is the risk of full ownership rights, face some restrictions to land conflict. use, and must pay rent to the mailo owner. While recent reforms have aimed to strengthen tenant 56. Uganda’s customary land law is patrilineal, and rights, landlord–tenant relations have degenerated usually accords women fewer land rights. While and tenure insecurity increased due to increased women have the legal right to ownership, spousal commercialization of land and improved land markets co-ownership and inheritance, they rarely inherit (Doss et al. 2014). land but rather receive only secondary usage rights through husbands, sons, or other male relatives. 55. Finally, a landowner – in practice often government Hence despite legal ground for the recognition of bodies – may grant a tenant use of ‘leasehold female land rights, these continue to be determined land’, usually for a specific period, which could by cultural norms and practices, leaving women be used as collateral for loans. In return, the tenant highly vulnerable (Doss et al. 2014). 10 Closing the Potential-Performance Divide in Ugandan Agriculture Poverty and malnutrition (IFPRI 2015). Stunting in children under the age of five is a key indicator of chronic undernutrition because 57. Poverty rates in rural Uganda are high, it captures the effects of long-term deprivation and with roughly one-quarter of all smallholder disease, and is a powerful predictor of the life-long households living on less than US$ 1.25 per day burden of undernutrition. A study by the African (Anderson et al. 2016). Uganda’s impressive progress Union Commission estimated the annual economic in reducing poverty was mainly driven by forces losses from child undernutrition through health, within agriculture and not by productivity gains education and productivity costs and losses to be from migration from lower productivity rural areas 5.6% of Uganda’s GDP (FAO et al. 2017). The situation to higher productivity urban areas (Hill et al. 2017). is also urgent amongst Uganda’s neighbors in Eastern Between 2002-2013, the share of people living below Africa, where one-third of people are estimated the national poverty line more than halved, from to be undernourished, and aggravated by conflict 40% to 19.7%. Agricultural households accounted in Southern Sudan and in DRC. The sub-region’s for 79% of poverty reduction in this period (World prevalence of undernourishment increased from Bank 2016a). A major driver was a high rate of growth 31.1% in 2015 to 33.9% in 2016 (FAO et al. 2017a). in household agricultural income, at roughly 6% 60. Even as agricultural-led poverty reduction has per year from 2006-2012 (Ibid.). Yet, smallholder taken place, regional inequality has become worse. income growth from agriculture was largely driven by Eighty-four percent of the poor lived in the northern favorable weather conditions and higher crop prices, and eastern regions in 2013, compared to 64% in 2006 rather than by improved agriculture practices or new (Hill et al. 2017). Access to services such as cell phone technology (Sheahan and Barrett 2014). service, electricity and piped water is much higher in the Central Region than elsewhere (Ibid.). Poverty rates in rural Uganda are Agricultural production, high, with roughly one-quarter of all smallholder households living on productivity, and technology less than US$ 1.25 per day. adoption 61. While the number of people employed in 58. Although Uganda has made progress in reducing agriculture has increased, labor productivity poverty, it still faces widespread deprivation on remains lower than in the rest of the economy. several human development dimensions. These Labor productivity per agricultural worker per year is not only reduce human welfare directly, but also estimated at 13% of workers in other sectors. However, have major negative effects on efforts to boost labor labor productivity per person per hour is not much productivity in agriculture. Only 14% of the population different, with 1,850 hrs/yr in non-agriculture (7h/day) have adequate sanitation, leading to an increased vs. 700 hrs/yr (2.7h/day) in agriculture (McCullough burden of disease, and only one in seven households 2017). The apparent disparity in labor productivity use electricity for lighting. Despite improved primary largely results from the seasonality of agriculture labor school enrollment, completion remains a challenge calendars. Rural households often have insufficient with a rate of 53% (Hill et al. 2017). The majority of opportunities to access wage employment in the Ugandan pupils lack basic literacy and numeracy non-agriculture business to smoothen out labor skills, questioning the quality of education (World calendars. In contrast, urban households have better Bank 2016a). Education quality needs to improve for access to countercyclical work, resulting in smoother dropout rates to fall. Higher educational attainment labor calendars and lower poverty rates overall (ibid.). levels have been shown to help households diversify income sources, to access wage employment, and 62. Traditional food staples such as plantain and to enhance their coping capacity with respect to cassava have lost ground since the 2008 food agriculture-related risks. crisis, whereas maize, Irish potatoes, and especially oil seed production have grown. This 59. Between one-quarter and one-third of the is shown in Table 3. The 2016 harvest was especially population (depending on the estimate) are poor for field crops such as maize and potatoes. So under- nourished in Uganda (Hill, Mejia and Vasilaky the figures in Table 3, if anything, under-emphasize 2017; FAO 2017a). Thirty-four percent of Ugandan the extent to which the latter have out-performed children under the age of five were stunted in 2012 plantain and cassava. Closing the Potential-Performance Divide in Ugandan Agriculture 11 TABLE 3: PRODUCTION OF MAIN STAPLE CROPS 2008/09 TO 2015/16 (000 metric tons) Crop 2008/2009 2015/20161 Annual Avg % change Plantain 4,297 4,010 -1.0 Cassava 2,894 2,728 -0.8 Maize 2,362 2,648 1.6 Irish Potatoes 1,819 1,978 1.2 Beans 929 945 0.2 Cereals excl maize 2 844 852 0.1 Groundnuts 245 286 2.2 Other oilseeds 3 125 408 18.4 Source: Data are from 2008/2009 Uganda Census of Agriculture; 2015/2016 annual average of 2015 and 2016 from 2017 UBOS Statistical Abstract. Average annual growth rates are compounded annual averages over the period. Notes: (1) 2016 was a disastrous drought year with sharply lowered production of most items. (2) In declining order of importance in 2015/16: sorghum, rice, millet, wheat. (3) In declining order of importance in 2015/16: sunflower seed, simsim, soybean. 63. Agricultural production growth has been low and erratic since 1961, but has picked up in recent years, with the exception of 2016. Figure 1 decomposes agricultural growth into components due to area expansion (in orange), increased use of inputs (including labour) other than land (in grey) and total factor productivity growth (TFP). TFP is calculated as a residual obtained by netting out from output growth all other measurable sources of growth at this level of data aggregation: examples are growth in agricultural land expansion, increased numbers of workers living on farms, and increased use of purchased inputs such as fertilizer.1 Growth in the TFP residual is thought to reflect some combination of increased technical efficiency, increased allocative efficiency, and (or) technological progress. Improved technical efficiency comes from redeploying existing inputs, land, and labor regardless of prices in a way that leads to net physical gains using existing technologies.2 Informally, gains Greater allocative efficiency here can be thought of as coming from catching-up arises from taking into to good practice elsewhere under similar conditions. Greater allocative efficiency arises from taking into account in resource allocation account in resource allocation the costs of using the costs of using different different inputs and factors in addition to technical issues, in order to maximize profitability. Gains here inputs and factors in addition can be thought of as the art of business, since private to technical issues, in order to sector gains stem from using inputs and choosing maximize profitability. outputs more profitably. Finally, technological change embodies scientific and technical innovation to get more from less. 1 This approach using national level data implicitly calculates a weighted average (by field area) of data for all fields in the country, and assumes that the stock workers living on farms is a reasonable proxy for the flow of labor to agriculture and that this relationship is constant over time. While the latter assumption in particular is questionable, only panel data at the level of individual farms would allow escaping these limitations. The results are sufficient for present uses. 2 Conversely, it could also reflect losses from systematic decreases over time in the average quality of inputs, such as land degradation or declining quality of fertilizer used, but this is not measured in the data. 12 Closing the Potential-Performance Divide in Ugandan Agriculture FIGURE 1. DECOMPOSITION OF SOURCES OF AGRICULTURAL GROWTH IN UGANDA 1961-2014 (% PER ANNUM) (Net agricultural output growth in % per annum at top of column in period indicated) Notes: (1) The three sources of growth listed sum to output growth in the period in question. Output growth may be different than column height because of negative contributions to growth in the period in question. Growth not explained by area expansion or increased use per ha of inputs (including labor) is attributed to TFP. TFP is a combination of increased allocative and technical efficiency, and technological change. Source: Compiled from the USDA International Agricultural Productivity database, available at: https://www.ers.usda.gov/data-products/ international-agricultural-productivity/ 64. Agricultural growth was robust in the years yields stagnated (FAO 2017a). Within Sub- Saharan immediately after independence in 1962, but the Africa, Uganda has one of the lowest adoption late 1960s until the mid-1980s were characterized levels of improved seeds, inputs, or mechanized by disruption and conflict, and most particularly traction (Sheahan and Barrett 2014). In 2014, only during all of the 1970s when agricultural output 16% of farmers used purchased inputs of fertilizer or fell at an average rate of 2.5% per annum. During pesticide (Adjognon et al. 2017). the 1980s, output grew at 2.7% on average, largely due to area expansion, most of which was late in the 66. The bottom line suggested by the data in Figure 1 period as peace allowed the population displaced is that total factor productivity (TFP) growth has by war to return to abandoned areas north of been largely absent from Ugandan agriculture on Kampala. During the 1980s, input use fell overall, as an overall basis for the last three decades. This is it did in most of Africa due to the shrinking of input illustrated by the blue bars in Figure 1. It also seems subsidies. Growth continued at a modest pace in the that the problem has been getting worse over time, 1990s, now mostly due to increased use of inputs especially after 2010. It is not clear at this point what such as fertilizer. After 2000, agricultural growth was underlies Uganda’s massive losses in TFP since 2000 low, implying substantially decreasing per capita shown in Figure 1. However, it seems that these losses agricultural output. Food crops fared better than are particularly large outside the cereals sector, are export crops, especially after the one- time major related to growing pest and disease incidence, and price hikes for food of 2008. Uganda also began to are very likely related to policy distortions that harm produce large amounts of grain for export to South allocative efficiency. They may also likely reflect Sudan. Fertilizer use has been increasing slowly in insufficient public priority to maintaining innovation Uganda in recent years, but at an average application in Ugandan agriculture. Since TFP is a residual, this level still below 2 kg/ha in 2014 remain well below the data serves primarily to make the case that there already low average for Sub-Saharan Africa of 16 kg/ is a problem big enough to show up on a very large ha (Joughin and Adupa 2107). canvas. Studies using data from individual farms and districts would be necessary to say exactly what the 65. Between 2010 and 2014, overall agricultural source of the problem is. growth averaged 2.2% per year, but was still lower than average annual population growth of 67. In any event, market participation and 3.3% in the same period. Although crop estimates technology adoption by smallholders have for 2005-2014 show that cereal yields improved remained low. An observed increase in smallholder steadily from 1.6 to 2.0 metric tons per hectare (mt/ sales and agriculture household cash incomes in ha), root crop yields halved during this period. Cash 2005-2013 was largely driven by higher crop prices crops also performed poorly. For example, tobacco and favorable weather (Sheahan and Barrett 2014). yields declined on average by 3.2% p.a. while coffee The adoption rate of new technologies such as Closing the Potential-Performance Divide in Ugandan Agriculture 13 improved seeds, inputs or mechanized traction with high population growth and ethnically diverse has remained low. For instance, by 2011 only 7% of communities. Mwesigye and Matsumoto (2016) farmers rented, and 8% owned, ox-ploughs (Ibid.). The found that yields were 22% lower on land parcels use of inorganic fertilizers remains concentrated on a associated with disputes, compared to parcels few farms, mostly the larger and more commercially without. Land disputes not only affect productivity, oriented ones in the Central region on which cash but also overstretch legal institutions, as in taking on crops such as tea, coffee, and increasingly sugarcane average roughly 32 months to settle (Justice Law and or oil palms are grown. Only 8% of small farms apply Order Sector 2016). Besides, disputes have shown to inorganic fertilizer, with access to major output negatively impact the viability of commercial farming markets positively affecting its use rate (Okoboi and investments, in particular in Northern Uganda where Barungi 2012; Suri 2011). The least commercialized 93% of land is under customary tenure and where 25% of farmers sell 4% of their produce and purchase refugee influx is most pronounced (Joughin and inputs worth 1% of the value of their production Adupa 2017). (Nivievskyi et al. 2010). 71. Fifteen percent of surface area of Uganda is fresh 68. Low technology adoption and commercialization water, and there is also adequate to abundant levels result from small farm sizes as well as a lack rainfall in most parts of the country. Yet water of connectivity and access to assets. Assessing storage capacity and sustainable irrigation the factors driving commercialization in Uganda, schemes have remained limited (GoU/MAAIF-MWE Nivievskyi et al. (2010) found that a main determinant 2017). Currently only about 7,000 ha of cultivated land was access to physical, human, and financial is under formal irrigation, about 1.2% of an estimated capitals. Larger farm holdings were more eager to irrigation potential of 600,000 ha. However, most commercialize since they could realize economies of existing irrigation schemes face difficulties to scale by adopting modern technologies. Farmers with surmount financial and organizational constraints. access to assets and connectivity to markets actively Furthermore, the adoption of sustainable water engaged in markets. The geographic dispersion of management and conservation practices such as smallholder farmers and poor infrastructure quality, bunding, small catchments, and water retention via in turn, are barriers to commercialization. Poor rural selective reforestation has remained limited. roads and road maintenance hamper the access of smallholders to input and output markets, drive up 72. The unreliable quality of agricultural inputs is transaction costs, and lead many to pursue more a major problem, as will be seen in more detail subsistence-oriented practices (Oryokot 2017). High below. Fake, adulterated, and mislabeled inputs transportation costs are moreover a significant significantly lower returns and adoption rates barrier to trade, and lead to lower farm gate prices in Uganda. Bold et al. (2017), for instance, showed or higher market prices since traders exploit their that hybrid maize seeds on Ugandan markets were market power over farmers (FAO 2017b). equivalent to a mix of 50% hybrid and 50% landrace varieties, while the average nitrogen content of 69. The productivity of both female-headed farms fertilizer was 30% lower than it should be. The sub- and female-managed plots is lower compared standard quality of (inauthentic) inputs reduced to farms and plots managed by men, apparently yield gains from using hybrid seeds and nitrogen due to lower access to and application of (alongside other plant micronutrients) to 75-87% of improved inputs. Using data from the Uganda expected outcomes. (Hill, Mejia and Vasilaky 2017). National Panel Survey, Ali et al. (2016) found that Estimates in 2015 suggested that less than 10% of the land productivity of female-managed plots was planted seed was purchased from formal sources, about 30% lower than for men within the same and 30 to 40% of this seed purchased from formal household. Male-managed plots were on average sources was counterfeit (PARM 2015). 60% larger in size, and 11% more likely to be planted with cash crops. While the use of improved seeds and 73. Using quality inputs will increase agriculture chemicals is generally low in Uganda, both use and productivity best if they are accompanied by applied quantities were lower on female-managed improved farming practices. Current yields for plots than the overall national average. maize, millet, rice and sorghum are estimated to be only 20-33% of the potential yield for rain-fed 70. Agriculture productivity is also lower in conflict agriculture, and even less for irrigated agriculture areas. Land conflicts are more prevalent in districts (PARM 2015). Hill et al. (2017) found that yields of 14 Closing the Potential-Performance Divide in Ugandan Agriculture pests such as the armyworm. According to the latest Uganda National Panel Survey (UBOS 2017b), poverty Hybrid maize seeds on Ugandan rates rose to 27% by September 2017. Average temperatures have increased by 1.3°C since 1960, markets were equivalent to a mix and could rise by up to 2.5° by 2050 (CCAFS 2017) of 50% hybrid and 50% landrace – an alarming trend observed across the African continent. Seasonal rainfalls have become more varieties, while the average variable and less predictable, and in combination nitrogen content of fertilizer was with higher temperatures are likely to reduce cereal 30% lower than it should be. crop productivity. Extreme events such as droughts, floods or landslides are projected to become both more frequent and intense, and are exacerbated by four analyzed crops (maize, beans, matooke, coffee) unsustainable land use practices and the expansion increased in response to nitrogen application, with of agricultural land into other ecosystems such as beans and maize yields being most responsive. forests (Ibid.). Increased input use should however be accompanied by enhanced water and soil conservation practices 76. Uganda is among the most vulnerable and for both greater efficiency of input use and less simultaneously least adapted countries to potential for damage to the environment. Improved climate change, ranking 155 out of 181 countries farm tools and equipment have also been found to on the ND-GAIN Country Index.3 Increasing climate enhance the productive utilization of inputs (FAO variations and extreme events such as droughts or 2016a). floods lead to massive economic losses, reductions in food production, and increases in food prices, heavily 74. Compounding productivity problems, natural affecting the country’s already fragile food security resource degradation in agriculture is rampant. situation particularly in the Northeastern regions. Human encroachment into protected areas, land Due to the 2010/11 drought, for instance, Uganda use change due to agriculture expansion and rapid lost ca. US$470 million in food crops, cash crops and population growth severely threaten the country’s livestock – an equivalent of ~16% of the total annual ecosystems and biodiversity. Uganda’s natural forest value of these crops in 2011 (OPM 2012). By 2050, the cover shrank from 54% in 1950 to less than 10% of production of Arabica and Robusta coffee could fall total land area in 2015, while cropland increased by 50%, and areas suitable for growing tea and beans by 35% (CCAFS 2017). Agriculture is also the main could be severely affected, resulting in a massive loss driver for soil erosion, that is, soil nutrient and soil of market opportunities (ReliefWeb 2015). As of July productivity loss. 4 to 12% of Uganda’s GDP could 2017, the fall armyworm has affected more than 1.3 be lost annually due to land degradation (MWE 2016). million hectares, destroyed up to 40% of maize in Intensifying the production process sustainably, that Western and Central Uganda, and could cause up to is, obtaining more output from the same amount of US$ 193 million on medium predictions (Abrahams et land without negative environmental impacts, will al. 2017). be critical for reversing the declining growth in land productivity. Vulnerability and resilience As of July 2017, the fall of farm household livelihoods armyworm has affected more to climate change than 1.3 million hectares, 75. The agriculture sector – and smallholders in destroyed up to 40% of maize particular – are very vulnerable to increasing in Western and Central Uganda, climate variability and shocks. In 2016, agricultural and could cause up to US$ 193 output plummeted and resulted in widespread food insecurity, largely a result of drought spells and million on medium predictions. Closing the Potential-Performance Divide in Ugandan Agriculture 15 FIGURE 2. AGRICULTURE AS PART OF THE LARGER ECOSYSTEM Figure 2a. The visible and invisible flows of agricultural Figure 2b. Services provided by ecosystems and biological production (TEEB 2015) diversity (TEEB 2015) 77. The comparably low resilience of rural livelihoods to known impending climate hazards, and also in Uganda to climatic and other shocks stems constrained planning for long-term climate changes largely from the absence of financial resources in economic development and risk reduction efforts and other livelihood assets that underpin the (Braimoh et al. 2018). capacity to cope with and adapt to shocks. Resilience can be described as the ability of 79. Rapid population growth particularly in rural (agricultural) systems and people to anticipate or areas drive ecosystem service degradation recover from shocks that impact agriculture and and biodiversity loss, ultimately affecting food security in a timely manner, and thereby avoid agriculture productivity and human wellbeing. disasters and crises (FAO 2014b). In Uganda however, Agriculture is essential to feed Uganda’s rapidly as in most of the surrounding region, farmers usually growing population. However, cropping and grazing work on a small-scale or subsistence level and have (or mixed) systems do not only provide food, fiber limited financial resources as well as access to or skins, but a wide range of ecosystem services infrastructure, information and knowledge, making and functions which benefit humans and are not them highly vulnerable to climate and market-related immediately ‘visible’ (Fig. 2a). These include nutrient risks (Pereira 2017).3 cycling, local climate regulation or freshwater purification, among others (Fig. 2b). Unsustainable 78. Although Uganda is highly vulnerable to climatic land use and landscape simplification, often resulting shocks, information on weather and climate as from increasingly homogenous land use and the loss well as disaster management has often focused of non- crop habitats, reduce these services on which on relief and rehabilitation. El Niño-induced food agriculture production critically depends (TEEB insecurity and famine risk in northern Uganda, 2015). Land use intensification, that is, the application or the outbreak of the fall armyworm (FAW) have of synthetic fertilizers and pesticides, can further demonstrated that responses were largely reactive reduce soil health through the reduction of critical rather than proactive. Limited availability of weather soil organisms or insect and bird species necessary observing infrastructure and communications for pollination and biological pest control. This can equipment, as well as low capacity to utilize weather increase the fragility of agriculture systems to pest forecasting and analysis technologies have resulted outbreaks and other climate-related shocks (Landis in inadequate monitoring and forecasting of weather 2017). hazards. This has likely led to restricted responses 3 The Notre Dame Global Adaptation Initiative (ND-GAIN) Country Index summarizes a country’s vulnerability to climate change and other global challenges in combination with its readiness to improve resilience. More information can be found at https://gain.nd.edu/our-work/country-index/ 16 Closing the Potential-Performance Divide in Ugandan Agriculture 80. The replacement of local varieties and landraces of livelihoods (at roughly 70% of employment in 2016), by genetically uniform, high-yielding commercial the share of agriculture in GDP in Uganda declined varieties needs to be matched by efforts to from 55 to about 23 percent between 1990 and 2016, maintain biodiversity within crops. Crop genetic as the share of services jumped from 31 to 47 percent, diversity is critical to provide for pest control and and the share of industry rose from 14 percent to 31 pollination. Decreasing genetic variety lowers the percent (UBOS 2017a). The core inflation rate since number of traits and thus response options to pests 2013 has been in the range of 5 to 6 % per annum. and disease vectors, reduces adaptation to changing Food is a critical part of this, and food inflation biotic and environmental conditions, and enhances actually decreased significantly in 2016 (at a level of the susceptibility of farmers to price shocks. For 3.1% for the year) compared to 2015 (at a level of 6.7% Ugandan rural livelihoods to better cope with and for the year) (UBOS 2017a). adapt to increasing climate variations and shocks, the resilience of agriculture systems needs to be enhanced 82. Agriculture is also very sensitive to the global while productivity increased at the same time. trade economy. Agricultural products (primary and processed) have accounted over the last decade for about 54 percent of total exports and for 49 percent Trade developments affecting in 2016. The latter year was one of commodity trade compression globally, and represents a low point. agriculture While on a gradual downward trend long-term as a share of total exports, they have nonetheless 81. Agriculture as a sector is highly sensitive to displayed solid growth in nominal value and unlike the overall economic climate and the trade its share of GDP, the role of agriculture in exports opportunities and challenges resulting from remains high (Table 4). As of 2016, total agricultural it. Overall economic growth, both domestically exports are more than fourfold their early 1990s level and amongst trading partners, determines the in nominal terms, and more than threefold their early demand for agricultural output; determines fiscal 2000s level. They also represent about 20 percent of space available; can influence exchange rates, and the country’s total foreign exchange earnings from influences the opportunity cost of labor and capital exports of goods and services and transfers. Note used in agriculture. The dependence of agriculture that the figures below are only recorded (formal) on growth in non-agriculture sectors increases as exports. UBOS estimates informal (unrecorded) the share of agriculture in the economy slips. In exports overall to be in the range of 15% of all exports, Uganda as elsewhere, the overall role of agriculture but no disaggregated data is available (UBOS 2017a). is shrinking over time in the economy, as is to be Unrecorded exports are primarily regional. expected. Despite remaining by far the largest source Agricultural products (primary and processed) have accounted over the last decade for about 54 percent of total exports and for 49 percent in 2016. TABLE 4: EXPORTS FROM UGANDA BY VALUE (NOMINAL US$ MILLION), 2001-2016 2001-2005 2006-2010 2011-2015 2016 Agricultural Exports 375.0 777.2 1,235.7 1,211.0 % Period Growth -11% 107% 59% -2% % Share of All Exports 63% 54% 54% 49% All Exports 593.6 1,441.9 2,290.7 2,482.3 Source: Uganda Bureau of Statistics, http://www.ubos.org/statistics/macro-economic/trade-2/ Note: The cumulative rate of inflation of the United States consumer prices in US$ was 35.6% from 2001 to 2016 (U.S. Bureau of Labor Statistics Consumer Price Index). Therefore, the inflation-adjusted growth in US$ terms of agricultural exports from 2001/05 to 2016 was +138% or a multiplicative factor of 2.38. Also note that the figures for agricultural exports in 2016 were marginally lower than the average for 2011 to 2015. Closing the Potential-Performance Divide in Ugandan Agriculture 17 83. Uganda continues as a traditional exporter to world markets of coffee (which remains the country’s main export), tea, tobacco and cotton, The country has also become a with aggregate exports of these four crops tripling in nominal value and substantially more major supplier of non-traditional than doubling (X 2.4) in real US$ terms between agricultural products, including fish the early 2000s and the early 2010s (see Table 5). and fish products, which have grown Coffee exports almost doubled, while exports of the other three traditional commodities rose between nine-fold in nominal terms during 5 and 10 times. Compared to the same baseline, the past two decades and have traditional exports in 2016 are still more than double, even with coffee exports recording a level 11% lower become the largest non-traditional than the previous five-year average. After an export agricultural export category. boom in the first decade for the other three traditional commodities, with a peak of a 476% increase for tobacco, their export growth has continued but at a second largest non-traditional agricultural export, more moderate pace in the recent decade, ranging around $100 million. Over the same baseline, maize from 98 percent increase for tobacco to 126% for tea. exports had tripled by the early 2010s, and have risen four-fold by 2016. 84. The country has also become a major supplier of non-traditional agricultural products, including 86. The growth in these other nontraditional fish and fish products, which have grown nine- exports, save for cocoa beans, hides and skins, fold in nominal terms during the past two and flowers that are mostly shipped to OECD decades and have become the largest non- countries and China (as are traditional exports), traditional agricultural export category (Table 5). have been driven mostly by increasing demand Traditional agricultural exports as a whole were larger in neighboring countries. The largest markets in value terms than non-traditional ones through the for Uganda’s cereal exports in 2016, for example, 2000s, but by a steadily to diminishing amount. After are South Sudan ($70 million), Kenya ($38 million), 2010, non-traditional agricultural exports began to followed by Rwanda ($18 million) and the DRC ($12 dominate and this trend is only likely to grow. There million). Other smaller markets are Burundi, Tanzania, was a significant concern about decline in export and Sudan (ranging from $3 million to $1.5million) volumes in the late 2000s, seen as a consequence (ITC 2018a). of declining catches, falling stocks and overfishing (Mwijagye 2009). The latter are undoubted issues in 87. In recent years, the most significant causes of Lake Victoria at least. Ugandan exports of fish and distress to Uganda’s regional export performance fish products in fact leveled off in the early and mid- has been the South Sudan crisis. By 2013, South 2010s. This recent leveling is consistent however with Sudan had become the largest destination for an observed stable overall catch from the country’s Ugandan exports. However, this market has since open fresh water bodies during the last five years. become extremely unpredictable as a result of the The largest markets for Uganda’s exports of fish and outbreak of serious unrest in that country, and of fish products are Hong Kong, OECD countries, Gulf the resulting intermittent blocking of trade routes countries, Israel, and the U.S.A. They increasingly to Uganda. In addition, severe drought in Uganda in include neighboring countries such as Rwanda, 2016 had an impact on the production of agricultural Kenya and DRC. commodities for export, particularly maize and beans (World Bank 2017b). 85. Other rapidly expanding non-traditional exports include sugar and sugar confectionary, cocoa 88. Uganda is also a large importer of processed beans, vegetable oils and sesame seeds, cereals foods and a growing one for fresh food, including (maize, sorghum and rice and their flours), cereals. Processed foods accounted for 9.3% of hides and skins, beans and other legumes, all Ugandan recorded imports over the 2012-2016 flowers, and vegetables (Table 5). In some cases, period; fresh (i.e. unprocessed) food accounted for the cumulative growth of these exports is in the 3.4% (ITC 2018a). While imports of processed food thousands, as they rose from a very small level to declined by 5 percent per annum during 2012-2016, significant levels in recent years. An example is sugar imports of fresh food increased at an annual rate of and sugar confectionary, which now represents the 21 percent. In particular, wheat imports, mostly from 18 Closing the Potential-Performance Divide in Ugandan Agriculture Russia, peaked at $165 million in 2014, ten times as reached almost 13 percent by 2016 (ITC 2018a). This much as was recorded in 2012. Rice imports also can increase Uganda’s vulnerability to global price peaked in 2014 at $72 million and remain high as of fluctuations, and its ability to generate foreign 2016 at $47 million. Rising food import dependency exchange (Olet 2017). TABLE 5: RECORDED ANNUAL AGRICULTURAL AND FOOD EXPORTS IN NOMINAL US$ MILLIONS 1990 - 2016 1991-1995 1996-2000 2001-2005 2006-2010 2011-2015 2016 Traditional Export Crops 225.2 331.4 191.3 398.3 569.3 507.2 Coffee 209.2 285.7 118.3 284.6 415.4 371.7 Tea 9.2 28.3 34.2 54.7 77.3 71.5 Tobacco 6.7 17.4 38.7 59.0 76.6 64.1 Cotton 7.7 18.9 21.7 19.2 47.1 31.6 Non-Traditional Agric/Food Exports 56.6 88.0 183.7 378.8 666.4 703.8 Fish and products 12.8 35.0 100.1 128.0 128.7 121.5 Sugar and Confectionary 0.1 5.8 2.3 38.0 84.9 100.3 Cocoa Beans 0.5 1.3 5.5 22.3 50.8 75.0 Maize 16.6 10.4 16.2 26.7 52.1 70.3 Animal/Veg Fats and Oils 0.1 2.3 5.5 46.2 98.6 62.1 Sorghum 0.0 0.1 0.1 1.5 20.2 55.3 Hides and Skins 7.1 8.6 10.5 12.3 55.2 51.4 Beans and other Legumes 9.7 9.5 5.6 12.3 28.9 50.5 Flowers 1.1 6.0 21.5 24.3 25.8 24.6 Other Non-Trad Agric and Food Exports1 8.5 8.9 16.4 67.2 121.2 93.0 Total Agricultural and Food Exports 2 281.7 419.4 375.0 777.2 1,235.7 1,211.0 Source: COMTRADE database accessed via WITS Note: (1) In declining order of importance in 2016: rice, vegetables, sesame seeds, beer, mineral water, soybeans, fruits, pepper, vanilla, groundnuts, live animals, bananas (2) The cumulative rate of inflation of United States consumer prices in US$ was 76.2% from 1991 to 2016 (U.S. Bureau of Labor Statistics Consumer Price Index). Therefore, the inflation-adjusted growth in US$ terms of agricultural exports from 1991 to 2016 was +176% or a multiplicative factor of 2.76. This implies that in US$ inflation-adjusted terms, non-traditional agricultural and food exports grew by a factor of 7 from 1991 to 2016, while total agricultural and food exports grew by a factor of 2.4 over the same period. Closing the Potential-Performance Divide in Ugandan Agriculture 19 and North America that traditionally were the sought- after outlets for Uganda’s traditional agricultural exports According to the ITC Trade (Ibid.). Furthermore, the income elasticities of demand for higher priced and more processed foods and beverages Performance Index that provides are much larger in East Africa than in the OECD, as the a global performance ranking dietary transition is only just beginning to get underway in Africa. This illustrates the stakes Ugandan agriculture among all countries exporting has in contesting regional and other emerging country the same category of products, markets for agricultural products that increase in demand Uganda is ranked 44 in fresh with income. food and 68 in processed food. 91. Regional trade, particularly the trade of agricultural commodities, has the potential to stimulate growth and to improve the living 89. Uganda’s agricultural export performance is conditions of the many people employed in the likely well below its potential. According to the agricultural sector. At the same time, net buyers of ITC Trade Performance Index that provides a global food in Uganda, who are mainly residents of urban performance ranking among all countries exporting areas, may lose out as consumers of higher value food the same category of products, Uganda is ranked 44 in items that are increasingly exported, at least in the fresh food and 68 in processed food. The comparable short term, due to domestic price increases (World rankings for Kenya are 37 and 94, respectively; for Bank 2013). The balance of overall costs and benefits Rwanda, 94 and 119; and for Tanzania, 40 and 99. is expected to be positive for Uganda. However, there Thus, vis-à-vis its neighbors, Uganda’s performance is will most likely be adjustment costs for some, at average to better than average. However, significant least initially. Over time the added national income export potential for most traditional and non- going to rural producers and urban processors and traditional agricultural products is left unrealized. shippers will generate growth that adds broadly to To traditional destinations such as the OECD, ITC income opportunities. This means that it is vital to primarily sees substantial underutilized potential engage in dialogue with all relevant actors in Uganda, for unroasted coffee, and to a small extent for cocoa for which the recently revived public- private dialogue beans. To both Sub- Saharan Africa and other Non- mechanism offers an appropriate framework. OECD destinations, ITC calculates underuse of export potential in the high 40’s to the 80 percent ranges by commodity (ITC 2018b). 90. Overall, both domestic and regional trends in While oil production has the overall economic growth in the last year have potential to boost overall growth, been very positive for Uganda after a difficult period in 2016. Growth in all of Sub-Saharan Africa a key risk is that it could damage is estimated to have rebounded to 2.4 percent in 2017, agricultural production and after slowing sharply to 1.3 percent in 2016, because commodity prices recovered, global financing exports due to an appreciating conditions remained favorable, and slowing inflation exchange rate. lifted household demand (World Bank 2018a). This trend has been especially pronounced in Uganda, where real GDP growth was estimated at 2.5% in CY 92. Another important structural factor for the 2016, but is likely to be more than twice as much in future that could affect agricultural trade CY 2017 when Q4 data are in, and to be well above 5 % competitiveness is the beginning of oil p.a. in the next two calendar years (World Bank 2018b). In production, and its repercussions for agriculture. contrast, Uganda’s neighbors (Kenya, Ethiopia, Rwanda, While oil production has the potential to boost overall and Tanzania) are projected to have real GDP growth rates growth, a key risk is that it could damage agricultural ranging from 5 to 8 % p.a. in 2017 when the numbers are production and exports due to an appreciating all available, well above the figures for all of Sub-Saharan exchange rate (World Bank 2015a). Food imports Africa. These rates are likely at least twice as high as what could become cheaper and exports become less can be expected in the industrialized countries of Europe competitive. An indirect negative effect could occur 20 Closing the Potential-Performance Divide in Ugandan Agriculture through a deterioration of governance. Exploration rents becoming available and policy neglect of activities have been intensifying since the early agriculture. This has sadly been true in several other 2000s and major discoveries were made since 2006. petroleum exporting countries in the region (Bates Following the decline in global oil prices since 2014, 2014). While coffee and other agricultural exports are development plans were delayed. As of mid-2017, oil currently critical to Uganda for generating foreign production and exports are expected to commence exchange, exporting oil could rapidly overtake the in 2020. importance of such exports, and correspondingly reduce attention by policy makers. On the positive 93. Natural resource booms harbor significant risks side, oil production and exports should increase the of deteriorating governance and increased Government’s fiscal space which could be used to focus on the distribution of the expanding boost agricultural productivity and performance. Closing the Potential-Performance Divide in Ugandan Agriculture 21 III. 22 Closing the Potential-Performance Divide in Ugandan Agriculture Institutional Developments Shaping Ugandan Agri-Food Production • Institutional weaknesses and a lack of coordination among agriculture-related ministries and agencies have been an important bottleneck for translating policy plans into effective action. • The extension system has steadily moved away from its core function in terms of knowledge transfer and has increasingly taken the role of distributing free or highly subsidized agricultural inputs, sometimes of low quality. • While Uganda’s agricultural research spending has in recent years been among the highest in the region, and research capacity within higher education has increased, it has been very dependent on development partners that are scaling back support. • Alongside private sector processors and large-scale commercial farms, farmer cooperatives have the potential to aggregate the output of a multitude of smallholders and to foster commercialization. Their development has however been limited to date. Diffusion of institutional responsibilities 94. Uganda combines decentralization with strong political control from the center.4 Service delivery responsibilities have been devolved through a decentralization process in progress since the 1990s. However, fiscal allocations as well as sub-national capacities and other factors such as the continuous increase in the number of districts and associated administrative overhead costs have restrained development and service delivery results (e.g. Lambright 2010, Maractho 2017). Furthermore, central Fiscal allocations as political influence over sub-national level and units continues to be an important aspect (Ssemogerere 2011). well as sub-national capacities and other 95. Institutional weaknesses among the set of responsible ministries and agencies have been an important bottleneck for translating factors have restrained policy plans into effective actions. The main national level institution development and is the Ministry of Agriculture, Animal Industries and Fisheries (MAAIF), service delivery results. including its main directorates and departments. Several assessments of MAAIF and reform proposals have been developed since 2001, but have largely not been implemented (see Box 2). The ministry has come to be seen by development partners as not very interested in internal reforms or in moving the sector forward. At the same time, it is perceived as being fragmented as a result of numerous development projects being pursued without effective coordination (Joughin and Adupa 2017). 4 This and other governance-related sections of the present paper draw heavily from Joughin and Adupa (2017), which was funded through the present study. Closing the Potential-Performance Divide in Ugandan Agriculture 23 BOX 2: PROPOSALS TO REFORM MAAIF GOING BACK TO 2001 2001: Reform proposals at MAAIF go back to the Plan for Modernization of Agriculture (PMA) and the “Core Functional Analysis” (CFA) of MAAIF undertaken in 2001. This identified three priorities: policy and planning, regulatory services, and agricultural promotion services. It proposed a structure aligned to these priorities. It was not implemented, reportedly “because of lack of consensus within MAAIF and other key ministries” (Agricultural Sector Development Strategy and Investment Plan (DSIP), 2010). 2002: A Reorganization of MAAIF study followed on and included additional proposals for re-organization and emphasis on Results Oriented Management (ROM) and Output Oriented Budgeting (OOB); this was not implemented. However, PMA led to the splitting away of the extension function of MAAIF to the National Agricultural Advisory Services Organization (NAADS), a semi-autonomous agency under MAAIF. 2009: A MAAIF Restructuring Report was undertaken as part of the DSIP approval process. In dialogue with MoPS, a further study (the Review of the MAAIF Restructuring and Reform Process--MRR) was undertaken and the conclusions presented in the published DSIP (2010). This advocated a four Directorate structure, with two new Directorates being created. One of the proposed new Directorates was Planning and Policy. The proposals were approved by MAAIF senior management team (with support from development partners) and Cabinet in March 2010, along with a plan for how to transition to the new structure. This was likely the closest MAAIF got to actual reform, but was not implemented. 2011: MAAIF commissioned another consultancy to review institutional linkages “and make proposals for facilitating effective cooperation and collaboration in the implementation of the DSIP between MAAIF, the sector agencies, local government authorities and other key stakeholders”. The main findings of the report were that there was no single or common institutional and regulatory framework and this detracted from achieving coordinated DSIP implementation; there was no specific outcome. 2012: MoPS initiated a Functional Review of MAAIF by Adam Smith International, “to consolidate past public service reform initiatives dating back to early 1990s”. The report proposed similar but modified structures to the MRR described above. The report affirmed the necessity for a directorate of crop, animal resources, fisheries and agriculture support services. It however recommended the creation of an additional directorate of Regulatory and Quality Assurance Services to bring together the regulatory services that are “scattered” in different departments and to promote economies of scale and interdependencies; not implemented. 2013: Launch of the National Agricultural Policy; but no mention of MAAIF reform in the document. 2015 to present: A Directorate of Extension was created (again) in MAAIF in 2015, possibly in response to sensitivities emerging around the creation of NAADS as an agency largely independent of MAAIF under PMA. Under the Agriculture Cluster Development Project funded by the World Bank, there is IDA financing of US$15 million for a component on Project Management and Capacity Building for Policy, Regulatory, and ICT functions of MAAIF. The component is targeted at strengthening MAAIF’s effectiveness in assessing policy and regulations affecting agricultural input and output markets, and developing and implementing an ICT-based Agricultural Information Platform. There is presently associated discussion within the Government and stakeholders to: (a) update the 2006 Seed Act and associated regulations to make them consistent with the East African Community (EAC) harmonization protocols; (b) develop plant variety protection laws and regulations to promote private investment in genetic improvement; and (c) develop plans for strengthening the inspectorate division of MAAIF to effectively implement the revised seed law and regulations. 96. Further relevant institutions under MAAIF structures established for aid coordination – such as include: the network of research institutes sector working groups and a Joint Agricultural Sector (NARO/NARS), the National Seed Certification Annual Review process; and finally, ‘commodity Service, regulatory bodies for three main platforms’ for seeds, maize and oilseeds established commodities – coffee, cotton, and dairy – and in recent years. The latter are a consultation the National Animal Genetic Resources Centre. mechanism for stakeholders along the value chains Other agriculture-related institutions include the of these commodities, called for in the DSIP and ASSP, Parliamentary Committee on Agriculture, as well as and supported by development partners engaged in development partners engaged in the sector, and the sector such as USAID and the World Bank. 24 Closing the Potential-Performance Divide in Ugandan Agriculture 97. Moreover, there are challenges concerning decision- making and implementation both within MAAIF The agricultural R & D system structures and at the interfaces between MAAIF and 100. Agricultural R & D in Uganda under the National other institutions. A first aspect is that the Ministry, Agricultural Research Organization (NARO) while having a central role, is neither the main decider on has had a re-birth after falling by the wayside policies, nor is it the sole implementer. Important policy, in the years leading up to the 2008 global food as well as other ad hoc decisions are made by the State price crisis.5 In 2014, annual research spending House, i.e. the Presidency (Joughin and Adupa 2017). by NARO at US$ 152.5 million (2011 constant PPP$) Attached to the Presidency are several sector advisers. was mid-way between the regional leader (Kenya at Secondly, an important part of implementation was set US$ 274.1 million) and laggard (Rwanda at US$ 39.6 up as a semi-autonomous agency when the National million) (Beintema et al. 2016). At 1 % of agricultural Agricultural Advisory Services (NAADS) system was GDP, Uganda’s agricultural research spending was first established as the provider of extension services the highest amongst its neighbors in 2014 and had in 2002. Currently, just under half of all spending on the reached the level recommended by the African agricultural sector goes to NAADS (see the Policies and Union and United Nations. This level of spending was Public Finance Section). Third, an important agency three times higher in inflation-adjusted terms than it under MAAIF is the National Seed Certification Service was in 2000 (Ibid.). (NSCS), which in principle is responsible for licensing and controlling the availability of genuine improved seeds. 101. Increased development partner funding to NARO has had a role in NARO’s growth. NARO 98. However, as discussed below, the NSCS has released a total of 198 technologies, innovations struggled to fulfil this role effectively, especially in and management practices (or “TIMPS”) under terms of controlling the presence of fake improved the Agricultural Technology and Agribusiness seeds. Weak data collection and associated weak Advisory Services (ATAAS) project funded by monitoring and evaluation are a further important the World Bank between 2013 and 2017 based institutional weakness, involving the interface between on an ATAAS project implementation status MAAIF and Uganda’s Bureau of Statistics (UBOS). Further assessment of December 2017.6 Development challenges include coordination problems between partner support amounted to just under two-thirds of MAAIF and MAAIF subordinated structures and other total NARO spending in 2014, making the organization relevant ministries, such as: Office of the Prime Minister; vulnerable to any variation in development partner the Ministry of Water and Environment (responsible for support. Under the World Bank’s Eastern Africa irrigation); the Ministry of Land, Urban Development Agricultural Productivity Project (EAAPP), Uganda and Housing; the Ministry of Trade, Industry and was selected as home to the sub-region’s center of Cooperatives and others. excellence in cassava research, receiving a US$30 million loan under Phase I, the majority of which 99. Further important institutional aspects and was allocated to technology generation, researcher constraints concern other ministries, as well as training, and the rehabilitation of NARO’s cassava subnational governments. Ministries for water, research facilities. Phase I was completed in 2015, and roads and transport, and for lands all affect specific a successor project is planned for 2018. NARO also aspects that matter for agricultural performance. With received funding from a wide range of development regards to sub-national governments, Uganda has partners, enabling improvements in infrastructure pursued extensive decentralization, and decentralized and investment in high-quality equipment (Beintema governments have had or currently have responsibilities et al. 2016). related to agricultural extension, land management, as well as support (or hindrance) of farmers’ groups. While 102. Capacity strengthening has been taking place decentralization has progressed, the number of sub- at NARO. In addition, through the EAAPP and national entities has continuously increased. Some of the World Bank project ‘Agricultural Technology the institutions that are meant to exist at sub-national and Agribusiness Advisory Services’ (ATAAS), 42 levels have either not been established, or have had researchers received, or are currently undertaking, insufficient funding. This was for example the case MSc- and PhD-level training in Uganda or abroad when extension services were meant to be run by local (31 and 11 researchers, respectively). With these councils. 5 Insights on the agricultural innovation system presented in this section draw heavily on IFPRI/ASTI (2016). 6 The component in question of ATAAS was costed at US$43 million effective CY 2012 to 2017. See the ATAAS Implementation Status Report of December 2017, available at: http://documents.worldbank.org/curated/en/227681514424909847/pdf/Disclosable-Version-of-the-ISR-Agricultural-Technology-and-Ag- ribusiness-Advisory-Services-P109224-Sequence-No-14.pdf Closing the Potential-Performance Divide in Ugandan Agriculture 25 and other improvements, NARO can now provide remained unpopular with the Ministry, which felt that it a more competitive and incentive-driven working had lost control over important business (ibid.). MAAIF environment (Ibid.). proposed to re-integrate this responsibility as a line department during 2013 discussions as part of a next 103. New universities have been established. Rising generation of external support to extension services. demand for higher education has prompted a significant increase in the number of (mainly private) universities in 106. Then, in mid-2014, the executive announced Uganda since the 1990s, although only a minority offer that NAADS coordinators would be dismissed agricultural programs. Those that do include four public and that instead, the military would take on the universities (Makerere University being one), four private responsibility to distribute subsidized inputs under universities, two colleges, and one training institute. The the banner of ‘Operation Wealth Creation’ (OWC)7. establishment of these entities from the late 1990s has This represented a further step in changing the role of resulted in increased research capacity within the higher the extension services – by combining an appeal to education sector (Ibid.). rural voters with offering a new role and associated opportunities to the military. As of 2017, the NAADS secretariat is limited to a smaller core staff whose main Extension, NAADS, and OWC task is to support management of the agricultural input distribution chains (largely through input procurement) 104. The organization (and re-organization) of the plus strategic interventions for vale chain development. extension services has been at the center of public A MAAIF Directorate for Extension was re-created – with sector agricultural interventions in Uganda, and a new National Agricultural Extension Policy (2016) has become increasingly politicized over time. In and strategy – and is hiring extension workers at the the 1990s, the government established an agricultural local government level. Some of the impacts of OWC, extension service directly under the Ministry of especially on the availability and use of quality seeds, Agriculture, supported by a World Bank project since are discussed further below. 1993. However, as part of the decentralization reforms, it was decided that MAAIF should no longer have a 107. The situation was further aggravated by the direct implementing responsibility and focus instead procurement practices for seed, which have on a policy and regulatory role. As part of this change, undermined private sector seed production and MAAIF’s staff was reduced by 80 per cent. Inevitably, reduced seed quality. Seeds and seedlings were such a radical reduction in staff was considered centrally purchased for OWC on a large scale: 4.5 million disruptive by those working in the Ministry (Joughin kilos of maize seeds and 61 million coffee seedlings. and Adupa 2017). Several interlocutors interviewed in 2017 (Joughin and Adupa 2017) raised the issue that these large-scale 105. Extension services were then provided by the purchases of low quality seeds with public money were National Agricultural Advisory Service (NAADS), at above-market prices. At the same time, with free with a secretariat separate from the Ministry. seeds being available to many smaller scale farmers, NAADS management is physically located in Kampala, seed companies seeking to produce quality seeds for while the Ministry remains located in Entebbe. Whereas private sale to farmers have seen their market share the previous extension service had been conceived as a and their ability to expand negatively affected. The public service, the extension service as delivered through cost of the ‘OWC distortion’ and of distorting public NAADS was contracted out and expected to be more seed interventions generally are substantial, and have demand-driven. Initially limited to pilot districts and generated increasing public concern since publicly- expected to roll out gradually, in the run-up to the 2006 distributed seeds often seem to have been of low quality. elections it was decided that extension services must The cost of OWC input purchases and distribution is cover the entire country, as part of the campaign pledge borne by all taxpayers in the country, including any cost of the ruling party (National Resistance Movement) of of excessive payments if this was the case. Moreover, as bringing ‘Prosperity for All’. Subsequently, and contrary suggested by a Ugandan Parliamentary hearing held to the original design, Government decided to add the in May 2017, some small farmers who relied on the free distribution of state subsidized inputs to the tasks of inputs distributed have faced large-scale failures of NAADS. This component rapidly increased in terms of seeds and seedlings (Ibid.). resources allocated. In parallel, the NAADS secretariat 7 The component in question of ATAAS was costed at US$43 million effective CY 2012 to 2017. See the ATAAS Implementation Status Report of December 2017, available at: http://documents.worldbank.org/curated/en/227681514424909847/pdf/Disclosable-Version-of-the-ISR-Agricultural-Technology-and-Ag- ribusiness-Advisory-Services-P109224-Sequence-No-14.pdf 26 Closing the Potential-Performance Divide in Ugandan Agriculture Farm groups, traders, and issues other than agriculture. Accordingly, the Uganda Cooperative Alliance (existing since the 1960s) remained development partners rather inactive, despite some support by development partners. More recently, this situation is beginning to 108. Beyond the set of institutions and individuals change, with currently around 10,000 cooperatives involved in running them, a range of other being registered, and agricultural cooperatives being stakeholders shape the sector, most notably formed in various regions and for various products individual farmers, farmers’ associations or (e.g. Ankole Coffee Producers Cooperative Union, Mt cooperatives, and traders involved in supplying Rwenzori Coffee Farmers’ Cooperative Union, Doho inputs and marketing of outputs. As noted above, Cooperative for rice, and others in the maize, sorghum, the vast majority of farmers in Uganda remain small in livestock, dairy, beef, and beans areas). One group scale. Larger farmers are mainly engaged in coffee and of cooperatives are Savings and Credit Cooperative tea, as well as increasingly in sugarcane, maize, and Organizations (SACCO) which constitute 23 per cent palm oil. Like other countries, Uganda has a National of all cooperatives. These are groupings for financial Farmers’ Federation (UNFF), which is, however, not support and not explicitly for investment in agriculture. seen as very effective in representing the interests of smallholders. 110. On the trading side, there are around 30 to 40 larger companies involved in importing and wholesaling 109. In principle, farmers’ groups and cooperatives agricultural inputs, and hundreds of small traders have an important role to play, but their actual who re-sell to individual farmers (1,992 agro-input development has been limited, in part due to dealers according to a 2008 census). The Uganda Government concern about possible political National Agro-lnput Dealers Association (UNADA) has motives in rural organizations presented as being 1,300 members, including 48 larger scale ones. A further economic actors. One of the key challenges of having important stakeholder are seed traders, organized myriad small farmers is how to organize access to in the Uganda Seed Trade Association (USTA), with markets for inputs and outputs, and associations can 18 ordinary members. As is discussed further below, play a role in addressing this. Despite their potentially ensuring the quality of traded seeds, fertilizers and important role, cooperatives were sidelined in the other inputs is a key bottleneck for increasing sector 1990s and 2000s, arguably out of fear that organized performance. farmers would exert greater political influence on FIGURE 3: ODA COMMITMENTS FOR UGANDA’S AGRICULTURAL SECTOR, 2005-2015 Source: OECD Query Wizard for International Development (QWIDS) 111. In addition, the recently established large-scale of a highly reliable market in the form of large commercial farms mentioned above, especially annual procurement from the World Food Program, in Northern Uganda, are typically developed by regularly funded from external sources. foreign investors, while farms of 10-200 ha are being developed by domestic investors. These 112. Along with relatively high national policy domestic commercial farms mostly came into attention accorded to the sector, engagement being in the past decade, and did so quite rapidly by development partners has also been once the business case became clear. The business substantial. Between 2005 and 2015, development case was clearly helped by a long-term bump up in partners captured by OECD databases contributed domestic food prices in 2008. At least some of the US$1.7bn to the agricultural sector, and nearly clarity came from the relatively recent development US$200m per year since 2009 (Figure 3). Closing the Potential-Performance Divide in Ugandan Agriculture 27 IV. 28 Closing the Potential-Performance Divide in Ugandan Agriculture Commercialization of Ugandan Agriculture in Response to Rising Demand • Income growth and urbanization lead to high domestic demand for food in Uganda, including higher value, higher quality, and more processed products. • Similar trends are at work throughout the broader region. Rising regional demand for value-added food offer massive opportunities for Ugandan farmers, for value chains beyond farm production, and for better jobs in agriculture. • While finance is central to commercialization, financial inclusion of smallholders has remained limited. Mobile money transfers, value-chain financing, and warehouse receipt systems (WRS) are promising approaches to increase farmers’ access to finance. • Plot sizes, absence of documentation or absence of consensus on rights, and limited tenure security are critical bottlenecks hampering finance, agribusiness development, and commercialization. Several land registration and administration initiatives are underway to foster tenure security and ultimately agriculture development. • Low technology adoption levels are also in part explained by weak regulatory measures and poor- quality control systems. Best-practice plant protection measures and input registration procedures are not used. Improvements in regulatory enforcement, input registration and quality control would help foster agribusiness development. • Smallholders producing higher-value, quality-sensitive, or perishable commodities often suffer from a low ability to brand and market their products. Vertical coordination between smallholders and formal sector aggregators can help to overcome high transaction costs and to foster value addition. • Several private business models along different agriculture value chains in Uganda have been shown to successfully link smallholders to international market opportunities for value-added products; to improve their incomes, capacities, and productivity; and to foster their adaptive capacity to climate and market-related risks and shocks. • Information and communications technologies (ICTs) involving cell phones and tablets are particularly relevant for enhanced productivity and resilience, for market access, and for financial inclusion of smallholders, as well as for data collection and monitoring. ICT-based startups and app developers can be supported through better property rights protection, access to finance, and low- cost, speedy and reliable internet connection. Closing the Potential-Performance Divide in Ugandan Agriculture 29 Consumer demand for food in East Africa is rising rapidly In stark opposition to the supply- and changing in nature side constraints to agricultural 113. In stark opposition to the supply-side productivity and resilience constraints to agricultural productivity and outlined in the previous section, resilience outlined in the previous section, demand-side opportunities for demand-side opportunities for agriculture and food in Uganda and its neighbors are the agriculture and food in Uganda strongest they have ever been. This demand and its neighbors are the is both domestic and regional. Domestically, it strongest they have ever been. is certainly pushed by the high population and urbanization rates discussed above. It is also promoted by urban income growth that is leading responses are higher for the poorest quintile of to a rapidly expanding middle class. Similar households than for the richest, and on average processes are occurring in most countries in the are higher in rural areas than urban ones. However, region (Tschirley et al. 2015b). Table 6 cites results it is striking how high (>1 or elastic) mean urban from analysis of the 2013 household panels for consumption responses with respect to income are rural and urban areas in Uganda in 2012/13 to show in both urban and rural areas with respect to meat, the responsiveness of household consumption fish, milk and fruits. Demand for these items will patterns to income growth, proxied as changes likely continue to grow more quickly than income, in total expenditures across households (Boysen and that growth will be widespread in both rural 2016). As expected, the results show that income and urban areas. TABLE 6. DEMAND (CONSUMPTION EXPENDITURE) RESPONSE TO A ONE PERCENT INCREASE IN HOUSEHOLD INCOME (TOTAL EXPENDITURE) IN UGANDA FOR RURAL AND URBAN AREAS IN 2012/13 Rural Urban Mean Lowest Middle Highest Mean Lowest Middle Highest Rural Quintile Quintile Quintile Urban Quintile Quintile Quintile Maize 1.01 1.42 1.05 0.76 0.60 0.81 0.63 0.33 Cereals 0.95 1.37 1.01 0.59 0.49 0.69 0.52 0.34 Potatoes 1.03 1.83 1.08 0.63 0.67 0.85 0.70 0.40 Cassava 0.55 0.86 0.59 0.13* 0.58 0.65 0.58 0.45* Matooke 1.53 2.86 1.62 0.91 0.95 1.73* 0.95 0.61 Vegetables 0.05ns 0.37 0.05ns -0.24ns 0.33 0.52 0.34 0.16 Fruits 1.24 1.71 1.28 0.95 0.97 1.16 1.00 0.77 Meat 1.92 2.83 2.05 1.43 1.37 2.36 1.47 0.89 Fish 1.62 2.22 1.69 1.23 1.25 1.75 1.30 0.90 Legumes 0.66 0.80 0.67 0.61 0.51 0.70 0.53 0.26 Milk 1.55 2.28 1.64 1.11 1.02 1.78 1.07 0.61 Fats 0.77 1.18 0.82 0.52 0.53 0.87 0.58 0.27 Sugar 1.17 1.97 1.24 0.81 0.63 0.88 0.65 0.48 Other 1.08 0.87 1.10 1.05 1.32 1.18 1.38 0.97 Source: Boysen, O. (2016). “Food demand characteristics in Uganda: estimation and policy relevance”, South African Journal of Economics (84) 2, June. 260-293. Notes: The table shows unconditional household expenditure responses in response to an increase in household total expenditures, proxying income response elasticities. Data are from the Ugandan National Household Survey 2012/13, a nationally representative sample of 6,887 households. Estimation is from a state-of-the-art two step procedure that factors a large number of household characteristics into the estimation, in addition to total and commodity- specific expenditures and prices. Quintiles refer to 20% segments of the income distribution as proxied by household quintiles with respect to total expenditures. All parameters are statistically significant at 1% unless indicated as follows: *signifies significant at 5%, “ns” conveys that the parameter is not statistically different from zero at 10% confidence. 30 Closing the Potential-Performance Divide in Ugandan Agriculture 114. This evidence is consistent with the view that neighboring countries such as Kenya, Rwanda and Uganda is entering into the dietary transition Tanzania suggest that this will continue to develop towards higher priced animal-sourced calories in Uganda in the next decade and to spread widely as incomes increase, that these changes are to secondary and even tertiary towns, even as it widespread across both urban and rural continues to spread throughout the rest of East areas, and even across income groups. The and Southern Africa. Supermarket procurement associated demand increases are likely to persist systems involve purchase consolidation, a shift to for the foreseeable future. Similar trends have been specialized wholesalers, and tough quality and observed in neighboring countries. In Rwanda for safety standards. To meet these requirements, example, similar household expenditure elasticities producers need to invest and adopt new practices. for meat, poultry, and eggs were recently found to This is hardest for small producers, who risk range from 1.13 to 1.71 across rural and urban areas exclusion from dynamic urban markets increasingly of different types (Diao et al. 2017). This suggests dominated by supermarkets. Smallholders will that countries such as Uganda with considerable need to address these difficulties through collective livestock resources and potential have marked action (Weatherspoon and Reardon, 2003; Jaffee and growing regional trade opportunities in these et al. 2011). The rise of supermarket procurement commodities, assuming that domestic demand can in Uganda is likely to further specialization and be met and production costs be kept competitive. regional trade, as supermarket chains will seek to source products in least-cost countries in the region. 117. Urban and rural income elasticities for Contrary to the norm for formally processed (manufactured) foods wealthy countries, demand are also impressive: urban income growth for carbohydrates continues to favors growth of formal food processing and packaging. Results are broadly as expected from increase in tandem with income work in other countries with income levels similar in rural Uganda, and much faster to Uganda. Research using household data in 5 than income for the poorest countries of East and Southern Africa estimates for instance that demand for processed foods in quintile of the income distribution. urban areas will increase by a factor of 8 over the next three decades (Tschirley et al. 2015b). These patterns augur well for value-addition strategies 115. The high (>1) mean consumption elasticities based both on diversifying production patterns in rural areas for matooke (plantain), sugar, into higher valued commodities such as animal potatoes, and maize are also striking. Contrary and horticultural products, and through processing to the norm for wealthy countries, demand for of cereals and other starches into products more carbohydrates continues to increase in tandem convenient to use and of more consistent quality. with income in rural Uganda, and much faster They also illustrate the value regionally of being the than income for the poorest quintile of the income first player to cut unit costs of production. distribution. This is consistent with the view that household consumption of even the most basic 118. The trends in demand for processed foods in starchy food staples is still constrained by low recent years can be seen in Table 7. Several incomes in rural areas. For the lowest quintile of striking results emerge here. First, food and drink the income distribution, it seems likely (although processing represent 56.8% of all manufacturing this data cannot show) that per capita household value added in Uganda in the 2011/12 to 2015/16 consumption of basic staples is inadequate to begin period. Less than 16% of total manufacturing with, and that this is one of the first things households value added came from traditional coffee and tea; deal with when they receive extra income. if processing of the other main traditional export crops (cotton ginning and textiles) were added 116. Income growth and urbanization are also (not shown) this would rise to about 19%. This driving changes in the quality of products illustrates that the contribution of agriculture to required and in wholesale and retail market manufacturing value added is not driven by the structures. Kampala has already begun to traditional export crops, but by domestic demand experience the “Supermarket Revolution”. Events in for processed food and drink. Closing the Potential-Performance Divide in Ugandan Agriculture 31 TABLE 7: CHANGES IN REAL VALUE ADDED OF FOOD AND DRINK PROCESSING IN UGANDA 2011/12 TO 2015/16 Item Weight in total 2011/12 2015/16 Average annual % Average annual % manufacturing (2002 = (2002 = compound growth compound growth value added over 100) 100) over 2002 to over 2011/2012 to period 2011/2012 period 2015/2016 period All food and drink 56.8% 176 218 6.5% 5.5% processing1 Sugar processing 13.9% 124 216 2.4% 14.9% Beer 9.9% 282 216 12.2% -6.5% Coffee processing 8.9% 84 112 -1.9% 7.5% Soft drinks and bottled 6.9% 362 509 15.3% 9.0% water Tea processing 6.8% 122 131 2.2% 1.8% Edible oils and fats 4.2% 275 349 11.9% 6.1% Total manufacturing all 100% 186 224 7.1% 4.8% sectors Source: Calculated from data in UBOS Statistical Abstract 2017 Note: (1) Weighted index that excludes tobacco. The sub-categories below this are the main sub-components in terms of weight of this entry. Only sub-categories that had a weight of at least 4% of total manufacturing are shown here. 119. Food and drink processing value added grew from 2002 to 2011 at a slightly lower rate (by Regional and global about 0.6% p.a. less) compared to overall demand shifts are creating manufacturing value added, but about 0.7% p.a. faster from 2012 to 2016, as shown by the opportunities index numbers in Table 7. The change is due to 121. As suggested by Uganda and Rwanda, rising the fact that whereas both overall manufacturing regional demand for food and dietary shifts growth and food processing growth fell a bit in the into higher value and more processed foods later period compared to the earlier one, overall offer massive opportunities for Ugandan manufacturing growth fell more in relative terms. If farmers and for Ugandan value chains beyond the more recent trends continue, the weight of food farm production. Unlike domestic demand, which and drink processing in total manufacturing will will always be constrained by the relatively small continue to grow, as it has since at least 2011. size of domestic markets, regional and global demands are huge and growing. Africa’s demand 120. Finally, the stars of processing value-added in for food is projected to more than double by 2050, the food and drink sector in the 2002 to 2011 driven by population growth, rising incomes, rapid period were beer, soft drinks and bottled water, urbanization, and more open intra-regional trade and edible oils. Since 2011, beer has fallen off into policies. The value of the African food market is negative growth, sugar processing has come into predicted to rise to US$ 1 trillion by 2030, from US$ its own (almost 15% growth per annum), soft drinks 300 billion currently, with rapid growth of both the and bottled water have continued to be strong growers (9% per annum growth), as has processing of edible oils (6.1% annual growth). And coffee processing has also made a growing contribution to manufacturing value added in the later period (7.5% Africa’s demand for food is projected p.a.), compared to negative growth in the earlier period. Sugar, soft drinks, coffee, and edible oils to more than double by 2050, driven appear to be the most likely candidates presently by population growth, rising incomes, for increased private investment, to the extent rapid urbanization, and more open that supply response continues to follow apparent demand trends. intra-regional trade policies. 32 Closing the Potential-Performance Divide in Ugandan Agriculture urban and rural middle class (AGRA 2017). Diets 125. Agriculture in Uganda is no longer synonymous increasingly move away from cereal and tuber with farming, but includes rapidly expanding staples towards greater consumption of animal and lengthening value chains. Some 40-70% of protein, fruits and vegetables (ibid.). food costs to urban Africans are now incurred in the post-farm gate segments of the supply chain, such 122. Uganda has subscribed to a growing number of as processing, wholesale, transport, wholesale, regional treatises and commitments concerning and retail (AGRA 2017). Large numbers of SMEs agriculture. Regional treatises and commitments invest in agriculture value chains, but also larger include those linked to the EAC and to the Common African and foreign firms. Private agro-dealers Market for Eastern and Southern Africa (COMESA): have expanded into the marketing of modern farm the East African Common Market Protocol (CMP) inputs like seeds, fertilizers, veterinary medicines, 2010; the East African Community’s Agriculture and agricultural machines. An inclusive agricultural and Rural Development Strategy (2005-2030), and transformation calls for efforts to promote SMEs the COMESA Seed Harmonization Implementation and larger agribusinesses all along the value chain Plan (COMSHIP), which was validated by as an integral part of the development agenda. The COMESA Member States in 2014. These regional public role is in overseeing truth-in-labeling to deal commitments reflect the fact that agriculture has with adulterated inputs and outputs, including food become a priority among many African countries. safety issues. However, the implementation of such regional commitments tends to lag among most members. 126. Fostering agribusiness development could not only increase farm productivity, but also create 123. Current trade patterns as examined in detail better job opportunities for the predominantly above underline the current expansion of young African population further along supply regional agricultural trade. The examination of chains. Dietary change is driving structural changes agricultural incentives that will be undertaken in in labor demand, a critical issue in current African the policy section below will show Uganda’s as yet policy debates given that over 700 million youth unused potential for further expansion of regional are predicted to enter the labor market over the agricultural trade. Uganda benefits from both a next three decades (AGRA 2017). Yeboah and Jayne very favorable resource endowment and a terrific (2016) estimate that about 60% of the agricultural location for meeting the rapidly expanding demand labor force in Africa is already between 15 and of inland neighbors like South Sudan and DRC. 35 years of age, and the share of this age group Uganda is especially well placed for meeting rapidly is rapidly growing. An analysis of six Sub-Sahara rising regional demands for processed foods, maize, African countries showed that transforming their dairy, fish, and animal products. food systems could add more jobs than the rest of the economy between 2010 and 2025 (Townsend et al. 2017). Tschirley et al. (2015a) found that already in Commercialization through 2010, the number of jobs in agribusiness amounted to 10% of the number of jobs in agriculture. Labor agribusiness productivity in agribusiness was up to seven times higher than in agriculture, depending on 124. Faced with these opportunities, agricultural the type of activity. Context-specific agribusiness commercialization has become the centerpiece development should thus be leveraged to foster of Ugandan development strategy in recent youth employment. years. Agricultural commercialization is attained when households separate production and consumption decisions, and participate in the markets for both staple and industrial products to maximize their profits (Jaleta et al. 2009). Both About 60% of the agricultural the new National Development Plan II and the labor force in Africa is already Development Strategy and Investment Priorities for the Agriculture Sector emphasize the need to between 15 and 35 years of break the vicious cycle of subsistence farming and age, and the share of this age low productivity, and promote greater market group is rapidly growing. participation by farmers. Closing the Potential-Performance Divide in Ugandan Agriculture 33 127. The private sector can help foster the access of smallholders to finance, as well as to information about land use practices, climate-related risks, Uganda has had remarkable and market prices. While the financial inclusion of Ugandans in general has improved markedly improvement in financial inclusion, over the past years, agriculture-related finance from 70% in 2009 to 85% has remained low. Access to finance is critical for smallholders, however, to invest in better farming in 2013, but agriculture is only equipment and practices, but also to improve a small share. their livelihoods more generally. Savings and credit cooperatives (SACCOs) that serve their members— often smallholders - need to be included in the legal 95% of all agricultural finance in Uganda in 2013 banking framework and supervision mechanisms (World Bank 2015). Since the 2008 food crisis, formal (Nivievskyi et al. 2010). financing for marketing has tended to grow more quickly than for production or processing; however, production loans more than doubled in 2013 and Private investment and processing loans in 2014. As of 2014, formal loans for agricultural finance production, processing and marketing accounted for about one third each of agricultural finance 128. Finance is central to commercialization, (Bank of Uganda 2015). This is unusual in East Africa, but financial institutions in Africa are often where the production share (but not amount) of reluctant to finance agriculture. This is due to: formal sector agricultural finance has tended to lack of usable collateral, high transaction costs lessen over time due to the rise of agribusiness post- due to the remoteness of the clients, dispersed harvest value chain lending (Meyer 2015; World Bank demand for financial services, the lag between 2016b), and in the Ugandan case may be explained investment needs and expected revenues, lack by the surge of new commercial production of of irrigation, recurrent incidences of pests and maize in the North after the peace agreement. diseases, small size of farms and of individual transactions, underdeveloped communication and 130. The role of non-bank formal financial services transportation infrastructure, and high covariant increased from 7% in 2009 to 34% by 2013, risks due to variable rainfall and price risks. Other mainly through the use of mobile money challenges include poorly developed agri-food transfers. FinScope (2013) reports that rural value chains which significantly increase risks and residents by virtue of their remoteness from formal exposure for banks, and the added transaction financial institutions are twice as less likely to access cost associated with physical absence of banking finance from such institutions than their urban facilities in rural areas (World Bank 2007; World counterparts (17% compared to 36%), and hence Bank 2015). mostly rely on informal institutions (%) and non- bank formal institutions (32%). The financing gap 129. Overall, Uganda has had remarkable in agriculture can be closed by exploring various improvement in financial inclusion, from 70% options including credit guarantees, interlocked in 2009 to 85% in 2013, but agriculture is only markets for finance, and warehouse receipts a small share (FinScope, 2013). The combined systems. exposure of financial institutions in Uganda increased from UGX 626 billion in 2001 (US$ 361 131. Impact investment funds are a relatively new million) to UGX 8,618 billion in 2013 (US$ 3,329 entrant to financing agriculture in Uganda. As million)8 (Bank of Uganda, 2015). This implies a real of mid-2015, impact investors (mainly foreign) had increase in 2013 compared to 2001 in US$ terms financed 40 deals in agriculture in Uganda worth of nearly a factor of seven. 9Agricultural finance US$60 million (Box 3). Although the amount is small represented only 8.4 percent of commercial bank in the scheme of things, it represents a promising lending in 2013 (up from 7.1% in 2011) (Bank of tool for expanding agricultural lending going Uganda, 2015). And commercial banks provided forward. 8 All values are in nominal terms; UGX to US$ annual exchange rates are median rates found at: https://www.facebook.com/notes/kampala-express/ median-exchange-rate-of-uganda-shilling-to-us-dollar-1998-2016/840793532717628/ 9 For simplicity, using the U.S. Bureau of Labor Statistics Consumer Price deflator. 34 Closing the Potential-Performance Divide in Ugandan Agriculture BOX 3: IMPACT INVESTING IN UGANDAN AGRICULTURE Impact investment capital (IIC) is typically seen as distinct from Direct Foreign Investment (DFI). In Uganda, DFI overwhelmingly involves oil and gas exploration and has exceeded US$1 billion per annum since 2012. By comparison, IIC, which also comes largely from external sources, is more modest. In 2015, there were at least 119 IIC vehicles active in Uganda, managed by 82 impact investor general partners. At that time, there had been 139 IIC deals in Uganda that had disbursed US$300 million, more than 20% of all impact investment activity in East Africa overall. By comparison, Ugandan domestic banks lent US$3.3 billion in 2015. Impact investment typically refers to a partnership structure where a general partner (the impact investor) raises funds from limited partners that seek both an investment return and evidence that their investment has had positive social or environmental impact. Limited partners cover a wide variety of entities from public development organizations (like the Commonwealth Development Corporation), Banks, pension funds, and wealthy individuals. Limited partners of impact investors are typically far more involved in following investments than is the case in other financial partnerships. Although capital structures vary, a common form for impact investment in land use in developing countries has been debt (paid first, a lower but fixed and relatively sure amount), covered by general equity (potentially more profitable but subject to depletion in the case of loss and thus riskier), the latter often further de-risked by a cover of first-loss equity held by a development partner or philanthropic organization. In the case of loss, the public or philanthropic investor loses first, the general equity investor next, and the debt investor only last. In return for financial support, impact investors need to put considerable effort into demonstrating the planned impacts to their limited partners. In Uganda, agriculture and financial services are the two sectors most favored by impact investors. As of mid- 2015, US$60 million had been disbursed in 40 deals involving agriculture. Twelve impact investors had local offices in Kampala in 2015, compared to 48 in Nairobi. Investors surveyed complained of too few bankable investment opportunities and insufficient numbers of suitable local candidates for staffing investments. These complaints mirror results of world-wide surveys of impact investment across all sectors. Even so, impact investment is growing rapidly from a small start. In 2015, US$2.5 billion was impact invested in East Africa, compared to only a very small fraction of that amount ten years earlier. Source: GIIN (2015); Delgado et al. (2015) 132. Credit guarantees have been used successfully sector agricultural integrators using contract in Uganda since the mid-2000s to cover part of farming with smallholder suppliers, vertically the default risk ensuring secure repayment of integrated operations, or out-grower schemes that all or part of formal sector agribusiness loans provide inputs credit for farmers are the vehicles in case of default. An example is the Agribusiness used. A Bank finances off-takers’ suppliers, while Loan Guarantee Company, started in 2006 as an the off-takers assemble credit documentation and off-shoot of the Agribusiness Initiative Trust, a wider handle disbursement and collection of repayments, multinational venture supported by development and de facto assume a degree of credit risk. This partner funding in Uganda with the objective of form of financing is increasing in Uganda for tea, promoting agribusiness development (FAO 2013). sugar, coffee, dairy, barley and sorghum (Ibid.). Besides covering default risk, credit guarantees are useful in addressing the issue of lack of collateral 134. Warehouse receipts systems (WRS) are a and poor credit history faced by small agribusiness proposed solution to the lack of collateralizable and hence improve loan terms. Additionally, by land titles for loans. The absence of land titles allowing loans to be made to borrowers that and other encumbered fixed assets that could be otherwise would have been excluded from the used as collateral as well as the lack of indemnity lending market, farmers groups and SMEs are able for product quality deterioration and storage to establish a repayment reputation in future and losses diminish banks’ willingness to lend to the allow them to benefit from lower transaction costs agricultural sector. A WRS can potentially be used and help raise productivity. to unlock the collateral value of inventories that farmers, traders and processors manage through 133. Interlocked markets for credit and value-chain warehouse receipt financing and help relieve part financing have demonstrated their usefulness of the existing access to credit constraints. WRS for promoting smallholder inclusion in India, have been promoted for some time in Uganda, Mexico and Turkey (World Bank 2015). Formal notably with a pilot involving coffee and cotton Closing the Potential-Performance Divide in Ugandan Agriculture 35 since 2004, with mixed results. The Government 137. Uganda’s land tenure system is rooted in has more recently been promoting improvements patriarchy, with customary law usually to product grading and information technology in according women fewer land rights. While the system, and extended it to maize in the north, women have the legal right to ownership, spousal with seemingly more promising results (Katunze et co-ownership and inheritance, they rarely inherit al. 2017). land but rather receive only secondary usage rights through husbands, sons, or other male relatives. Hence despite legal ground for the recognition of Strengthening land rights to female land rights, these continue to be determined by cultural norms and practices, leaving women encourage investment highly vulnerable (Doss et al. 2014). 135. Land tenure issues are a critical bottleneck hampering finance, agribusiness development and commercialization. Property rights provide the authority to decide on land use and According to the 1995 Constitution investments, as well as incentives for sustainable resource management. Fourteen percent of farmers and the 1998 Land Act, land surveyed on access to finance in 2013 cited lack is managed under four basic of collateralizable land as their primary constraint land tenure regimes: customary, in securing financing. Yet, Uganda’s land tenure system is very complex and largely undocumented. mailo, freehold, and leasehold According to the 1995 Constitution and the 1998 as discussed above. Each regime Land Act, land is managed under four basic land tenure regimes: customary, mailo, freehold, and confers different land rights to leasehold as discussed above. Each regime confers the users and thus has different different land rights to the users and thus has implications on tenure security. different implications on tenure security. 136. Many rural households participate in land markets. Nineteen percent of households rent 138. Land ownership, size, and tenure security affect land, while less than 1% report renting out land. both land investments and collective action. Land sales are less frequent. In Northern Uganda, Deininger et al. (2008) estimate that shifting a plot for instance, only 5% of parcels are acquired through from occupancy to full ownership would more purchase. Overall rental market performance is than double incentives for soil conservation, and low, which could be related to the high amount of increase tree investment almost five-fold. Women’s undocumented land and hence the greater risk landownership increased the probability of joining of expropriation. With plots averaging only 0.5 a women’s coffee cooperative in Western Uganda, ha per adult, the land used for crop cultivation with land size positively affecting participation remains small, posing challenges to sustainable (Selhausen 2015). intensification (Deininger et al. 2017). Of all the land parcels enumerated in UNPS/LSMS 2013/14 139. Tenure security is hard to achieve given (both documented and undocumented), only 7 % traditional legacies and weak governance. The were reported as having been purchased, with the share of total arable land used for farming is high, remainder acquired through inheritance or grants most of which being undocumented and often of some form (Deininger et al. 2017). with overlapping land rights. Furthermore, policies and legal processes are not well established to adjudicate when disputes over land tenure arise. The Justice Law and Order Sector (JLOS) reports Nineteen percent of households 18,000 land disputes pending (as of Dec. 2015; rent land, while less than 1% Duponchel 2017). report renting out land. 36 Closing the Potential-Performance Divide in Ugandan Agriculture 140. Improving clarity of land tenure is both difficult 144. Multiple policies and legislations underline the and politically unattractive. Once multiple importance accorded by the Government to claims over land exist – e.g. between squatters and clarifying rights and tenure security. From 1995, investors or between former internally displaced the GoU embarked on a suite of legislative reforms populations (IDPs) and those who settled the land including a land chapter in the 1995 Constitution. during conflict periods – it becomes difficult to The 1998 Land Act had the objective to establish establish rights that accommodate the interests a new land system to develop agriculture and land and livelihoods of all parties involved. Besides, the markets. Implementation, however, remained government is challenged to appeal to all voter weak. In 2002, the GoU launched a 10-year Land groups including elites and rural households. The Sector Strategic Plan (LSSP 2002-2012) which was default of political non-action, however, could followed by the National Land Use Policy (NLP) aggravate tenure conflicts. and a suite of legal acts, inter alia to reduce illegal evictions. Land has also been recognized as central 141. Increasing land values and a growing population in support of Uganda’s Vision 2040 and the National aggravate the situation over time. Increasing Development Plan II. land values in principle involve increasing land rents that should be paid to owners, while continuing divisions multiply the number of boundaries. Issuing individual land titles could result in increased Land has also been recognized landlessness and the exclusion of those with less as central in support of Uganda’s power and influence, including women. Vision 2040 and the National 142. Lack of secure property rights also fuels Development Plan II. conflicts, which have shown to be higher in districts with high population growth and ethnically diverse communities. Disputes have 145. Uganda has made progress in fostering land also shown to negatively impact the viability administration, supported among others by the of commercial farming investments, mainly in World Bank Competitiveness and Enterprise Northern Uganda where 93% of land is under Development Project (CEDP) (2015-2020). CEDP customary tenure and where refugee influx is most aims to improve land administration, registration pronounced (Joughin and Adupa 2017). Should land and management, and to strengthen mechanisms tenure challenges remain unresolved, commercial for land dispute resolution. Key activities include farms could not only be forced to leave the region, the digitalization of existing land titles and the but also be incentivized to overuse land, rather development of a decentralized Land Information than improving farming practices and generating System (LIS). As of March 2017, over 500,000 titles both positive spill-overs for the economy. Initiatives were registered in LIS, largely in urban areas. strengthening land administration and registration Further benefits include reduced time to register to foster tenure security are ongoing and should be land transactions, and significant increase in further supported. revenues through tax collection (Duponchel 2017). The newly built infrastructure will be an important tool to monitor land governance and progress of 143. The prospective continuation and further implementing the NLP. increase of land disputes is an important barrier to the adoption of improved technologies and 146. Multiple initiatives are ongoing to foster tenure the creation and development of agribusinesses security through the delivery of adequate and commercial farms. Small-scale farmers documentation to land owners. The Systematic who experience tenure conflicts or insecurity are Land Adjudication and Certification (SLAAC) likely to have fewer resources available to invest in program under CEDP, among others, aims to technology adoption. With regards to agribusiness secure rights of land owners through the delivery and commercial farms, possible effects could of freehold titles for ca. 50,000 and 25,000 parcels include limiting their profitability and ability to in rural and peri-urban settings, respectively. It also grow, and/or the concentration of a powerful few targets the voluntary registration of 800 Communal that can overcome existing challenges. Land Associations. Lessons learnt from these initiatives will be important to maximize benefits of land registration exercises. Closing the Potential-Performance Divide in Ugandan Agriculture 37 147. The low level of documentation is being EBA has so far developed scores for 8 topics actively tackled by government, which is in Uganda, namely, seed, fertilizer, machinery, investing heavily in building the infrastructure markets, transport, finance, water, and information for sound land governance with setting up the and communication technology (ICT), defining Land Information System (LIS) at decentralized regulatory good practices to assign scores. Scores level. A pilot systematic land adjudication and are assigned based on a methodology which certification exercise will be launched to expand compares countries’ laws, norms, regulations further the coverage of the existing registry, with and certain processes to a set of globally-relevant the aim to eventually provide documented titles regulatory good practices. to all Ugandans, under the various type of tenure recognized by the law. Impact evaluations will play 150. While most of Uganda’s indicators are close a critical role in shedding light on the impacts of to the global EBA average, a rank of 31 out obtaining documented rights on perceived security, of 62 countries suggests that a number of land related investments, agricultural productivity, improvements should be made in terms of the land markets, access to credit, land conflicts, seed regulatory framework, seed registration, but also on potential risks associated with such and seed quality control. First, plant breeders are programs such as distress sales (Duponchel 2017). not required to ensure traceability or retain records of their plant reproductive material. Second, an official fee schedule for seed certification activities Regulatory issues in carried out by the National Seed Certification Services is not publicly available, unlike in several promoting commercialization other countries in the region. Third, National Seed Certification Services are not required to perform 148. Another reason for low technology adoption post-control tests on certified seed, nor is there a and commercialization levels relates to weak percentage of certified seed subject to such testing. regulatory measures and poor-quality control And fourth, even though private seed companies systems. The Agricultural Chemicals Board (ACB) in or other third parties can legally be accredited to charge of fertilizer quality control and registration, perform part or all of the activities required during for instance, has few resources to test fertilizers the certification process, this is not happening found in markets, and to impose fines to deter in practice in Uganda. For plant breeding, a legal the sale of fake bags. This leads to high levels of mechanism could be implemented for materials adulteration at multiple stages of the supply chain, protected by plant breeder’s rights to be licensed affecting smallholders the most (Luswata and to other parties for production and sale. The Mbowa 2015). Unregulated entry of international variety registration process is relatively efficient; buyers into Uganda’s grain market can discourage nonetheless, Distinctness, Uniformity and Stability agribusinesses that are providing quality agro- (DUS) Testing data issued by other countries is not inputs and guaranteed output market structures accepted by the testing authority as official data (AGRA 2017b). Finally, licensing procedures and in Uganda, nor can newly registered varieties be import processing for fertilizers and new seed commercialized immediately after their approval varieties are restrictive and involve significant (World Bank 2017). delays, further hindering agribusiness development at the farming input level (Benson et al 2013). 149. Uganda’s regulatory environment for agribusiness development has been ranked While most of Uganda’s indicators by the Enabling the Business of Agriculture (EBA) Initiative (Figure 4). Enabling the Business are close to the global EBA of Agriculture (EBA) measures and monitors key average, a rank of 31 out of 62 elements of countries’ regulatory framework that impact the enabling environment for agribusiness. countries suggests that a number It provides indicators that can be used to compare of improvements should be made the regulatory environment of different countries; in terms of the seed regulatory to identify strengths and areas for improvement, and to monitor progress in this area. EBA currently framework, seed registration, and covers Uganda alongside 61 other countries. seed quality control. 38 Closing the Potential-Performance Divide in Ugandan Agriculture FIGURE 4: ENABLING THE BUSINESS OF AGRICULTURE SCORES FOR UGANDA Source: World Bank. (2017), Enabling the Business of Agriculture 2017 Note: The “Distance -to-Frontier” (DTF) score is a measure of how close the national score is to the best practice score across countries. The higher the DTF, the better the country is doing. 151. A new plant protection law (Plant Protection important for prompt management of endemic and Health Act) was adopted in February 2015 pest populations. Growers/producers also cannot and entered into force in 2016 (the previous obtain information on plant pests and disease dated from 1962). Strong plant protection present in Uganda on a government website. (2) frameworks protect crops from pests and diseases Even though a specific government agency is by regulating the processes and practices to which designated by law to conduct pest risk analysis agricultural products may be subjected during (PRA) for imports of plant products, PRA reports are production, processing and trade. They allow not publicly available online. Publishing PRA reports governments to regulate cross-border agricultural online can help create a transparent phytosanitary trade more effectively and in a cost-efficient policy environment, as PRAs provide the technical manner; to negotiate access to foreign markets justification for phytosanitary legislation, and are for their producers, and to issue valid and reliable often used by government agencies to determine phytosanitary certificates for exports. Producers and the frequency and strengths of import inspections exporters rely on the guarantees of phytosanitary (IPPC 2003). certificates to show that their products comply with the plant health requirements in destination 153. Fertilizer registration in Uganda is highly markets. The new law streamlines imports of plant- burdensome, and ranks 40th amongst the set based products by allowing officials to target border of 62 countries studied by EBA in terms of the inspections and controls, and facilitates trade with time and cost involved. In Uganda, they include trusted exporters and trading partners. In addition, limited opportunities for economies of scale for a government agency has been clearly designated the procurement and transportation of fertilizers, to conduct pest surveillance in the country and the high costs of their transport and distribution, carry out pest risk analysis. foreign exchange shortages and fluctuations, a stringent control of standard high-analysis inorganic 152. However, Uganda has in place only 3 of the fertilizers used in Uganda, and the high costs of 8 regulatory good practices captured by the securing import permits and trading licenses. On plant protection indicator, as shown in Figure average, it takes the equivalent of 215% of income 5. Even though it scores better than some other per capita and 663 days to submit a completed countries studied by the EBA 2017 report in the fertilizer registration application. In addition, the East African Community, Uganda’s performance is prevalence of fake or expired fertilizers has eroded relatively weak globally. Two regulatory practices the confidence of farmers in fertilizer purchase and of note that are missing are: (1) land users/ use. EBA data indicates that the sale of fertilizer owners are not required to report pest outbreaks products from open bags is neither prohibited to the Government. The reporting obligation is nor penalized, increasing the risk of tampering or Closing the Potential-Performance Divide in Ugandan Agriculture 39 counterfeiting products. Other issues of relevance under the Crop Protection Department in MAAIF is include: non-governmental organizations are not the Government agency responsible for ensuring allowed to import fertilizer; companies are required that fertilizers are registered and are efficacious, to renew their registration every two years; and safe, and of good quality. One challenge is that the private companies are required to obtain an import Agricultural Chemicals (Control) Act 2006 treats all permit for each fertilizer shipment, not available agricultural chemicals (fertilizers and pesticides) online, and the latter have a validity of only 3 the same, without distinction as to their relative months (World Bank 2017). risks to public health and/or farming systems. Licensing procedures and import processing are 154. Just like for seeds, the regulatory system seen as restrictive and as involving significant for fertilizer is ineffective. Studies by Luswata delays (Benson et al 2013). At the same time, the and Mbowa (2015) and by Bold et al. (2015) have ACB has few resources to actually test fertilizers documented that the contents of fertilizer bags do found in markets, and to impose fines to deter the not match statements on the label.10 Adulteration selling of sub-standard bags. appears to happen at multiple stages of the supply chain, possibly already starting during the importing 156. With regard to inorganic fertilizers, Uganda and shipment stage through transit countries, has one of the lowest levels of use across Sub- and then continues when wholesale and retail Saharan Africa, at under 2kg/ha. Data based on traders break large 50kg bags into smaller bags for household surveys confirm a very low level of use sale to smaller farmers. Large-scale commercial compared to a set of five other countries (1.2kg/ farms purchase the fertilizer they use directly from ha in Uganda compared to 45 in Ethiopia, 146 in international suppliers and hence can circumvent Malawi, 4.5 in Niger, 128.2 in Nigeria, and 16.2 in issues of poor regulation, while smaller farmers are Tanzania; Sheahan and Batter 2017).11 Moreover, most affected. the actual use of inorganic fertilizers is concentrated on a small share of farms, mostly larger and more 155. Similar to seeds, policies and licensing commercially oriented farms, with only 8 per cent requirements are rather restrictive, while of small farms purchasing and applying fertilizers actual controls of fertilizers in markets is (Okoboi and Barungi 2012). ineffective. The Agricultural Chemicals Board (ACB) FIGURE 5: ONLY 3 OUT OF 8 REGULATORY ELEMENTS FOR A STRONG PLANT PROTECTION FRAMEWORK ARE PRESENT IN UGANDA Source: World Bank. (2017), Enabling the Business of Agriculture 2017 10 Bold et al. 2015 tested urea/nitrogen fertilizer purchased in 360 randomly selected locations. None of the bags had the complete level of nitrogen content expected as per the label. 40 Closing the Potential-Performance Divide in Ugandan Agriculture 157. A consequence of uncertain quality of improved chain is “profitable throughout all of its stages; has inputs is that the likely returns for a small broad-based benefits for society; and has a positive farmer are negative. When Bold et al. (2015) used or neutral impact on the natural environment” (FAO the actual seed and fertilizer purchased as well as 2014). The shift from primary production to modern, alternatives at NARO research stations in Uganda, integrated agribusiness through commercialized they found a negative 12.2 per cent return. Volatility agricultural value chains and enhanced linkages and significant periods with very limited presence between farm-gate and consumers would provide of extension services in the country compound the lucrative job opportunities to smallholders and problem of low adoption of improved inputs, as generate higher and more predictable incomes. farmers receive little advise, e.g. on when and how To date, the proportion of processed agricultural to apply fertilizer most effectively.11 commodities and products in Uganda is however less than 5% (GoU/MAAIF 2011; Tatwangire 2014). 158. Development partners have sought to support greater industry self-regulation through the 161. In Uganda as in many other places, there has introduction of an AgVerify label since early long been the perception that smallholders 2016.12 The label is attached to sacks of seeds, lack market power and that public sector led and includes a scratch code and a phone number. cooperative movements can help smallholder Farmers can call the number and enter the code economic inclusion through better farmer to check if the seed is genuine. This has shown organization. As mentioned above, agricultural some initial results. However, the wide-spread cooperatives were long sidelined out of concern distribution of free seeds and the distortions in for their potential political role. EBA ranks Uganda’s profitability of seed companies created by large- regulatory practices for cooperatives significantly scale input purchases has limited the demand. below other countries in East Africa (World Bank 2017). However, more recent developments 159. Sugar-processing companies have been fairly such as increased formation and registration successful in Uganda, as shown in Table 6, but of (nearly 10,000) cooperatives across Uganda, the expansion of sugar growing raises concern and the appointment of a new State Minister about the effectiveness of land use regulations for Cooperatives (in the Ministry of Trade and designed to reduce emissions and ecosystem Cooperatives) suggest that there is now political will service losses more generally. While the sector has to take up this challenge (Joughin and Adupa 2017). been comparably successful economically, there have been repeated disputes and environmental 162. In this context, it should be considered that concerns over plans to expand sugar production various private business models have been into protected forest areas. These include the years shown to be successful in linking smallholder 200713 and 2011 about plans to allow the growing of farmers better to international market sugarcane in a quarter to a third of the Mabira forest opportunities for value-added products, reserve, and 2016 about a possible revocation of the improving farmers’ incomes, capacities, protection of the Zoka forest in Northern Uganda productivity, and resilience. Both multi-national (Joughin and Adupa 2017). and increasingly larger domestic firms bring managerial skills, capital, extension of knowledge to farmers, and entree into commercial networks Value addition through outside the country. They have the expertise and the scale to achieve cost-effective global vertical coordination with the certifications in desirable traits. Key issues from the private sector integrators’ standpoint include the ability to enforce agreements—especially regarding recouping 160. Increasing private sector involvement in value input credits given by companies to farmers and addition and fostering the development of most especially securing adequate supplies of sustainable food value chains will increase raw materials at pre-defined and generally high- agricultural productivity and create much quality levels. From the farmers’ standpoint, these needed employment. A sustainable food value arrangements can finance improved inputs and extension for the use of those inputs; provide 11 The household surveys used were mostly collected in 2010-12. 12 http://www.aginputsuganda.org/Pages/home.aspx. The initiative was sponsored by USAID (Feed the Future). 13 http://www.reuters.com/article/environment-uganda-forest-dc-idUSL1723990720071017 (Mehta Group seeking land in Mabira forest); these plans were revived in 2011 -- http://www.redd-monitor.org/2011/08/31/can-redd-protect-the-mabira-forest-in-uganda/ Closing the Potential-Performance Divide in Ugandan Agriculture 41 some reliability in outlets and prices received, and through grading and the better traceability of raw materials supplied, allow farmers to garner premia Maize production in Uganda for quality. has been steadily growing from 163. In Uganda as in other parts of the developing 1.3 million metric tons of world, smallholders producing higher value, production in 2003 to about 2.6 quality sensitive, or perishable commodities suffer from a major disadvantage relative to million metric tons in 2015/16. large-scale operations in regard to the absence of ability to brand. Very small producers living sell to roasters in a position to achieve and share amongst a very large number of competitors in retail premia for known quality, in an industry areas far from final markets essentially cannot where lots of small batches are lumped together for brand reliably. Their product is only available in processing, and where the default outlet is a bulk small quantities once a year, is soon mixed in with trader paying a bulk price. batches from other - possibly less careful - farmers, and gets the lowest bulk price prevailing. Branding 165. The root issue here is that as agriculture evolves is critical to commercialization: it is essential to into a value-added and increasingly anonymous building market reputation and to monetizing in industry, smallholder farmers need to work the marketplace otherwise difficult to monitor with formal sector aggregators in the value product quality differences. The solution to this chains they contribute to in order to reap a share issue typically involves organization of production of increased final value-added from reputation and facilitation of quality grading by an integrating and quality. This creates a space for aggregators— processing firm (Delgado 1999). Honey production whether intermediaries, coops, or final processors— in Uganda provides a nice example of a solution to to make or save money from vertical coordination the branding problem along these lines (Lynch et al. operations with known groups of farmers. Such 2014). aggregators are increasing all over East Africa, including in Uganda. The key asymmetries between 164. Firms processing, trading and retailing farmers’ and processors’ information (about how products made from smallholder produced raw the product has been treated prior to the sale to materials have a similar problem. Of course, it is processors) that create the issues above in the first possible—in theory at least - for a firm producing place are different in the three chains. For maize, processed rations for children to test every small the main issues are cleanliness and dryness (to batch of maize procured for aflatoxin contamination prevent aflatoxin). For dairy, the main issues are (or less satisfactorily rely on a bulking trader to freshness, hygiene, and lack of adulteration. For do this). However, costs mount, the danger of not coffee, the issue is taste which stems from a long list catching a bad batch are real, and not being able of production and handling issues such as varieties, to procure enough satisfactory raw material at the soils, altitude, humidity, ripeness, and handling end of the day is not an option. Dairies face a similar post-harvest, including washing. The differences set of issues, having to go to considerable lengths across chains in asymmetries of information (or to know the freshness and adulteration of small “transaction cost”) suggest desirable differences batches of milk from different farms that they will in industrial organization of each chain. This is mix together. For dairy, issues are amplified by the illustrated in the Ugandan examples in the 3 boxes fact that market power is in the hands of farmers in that follow, involving Afgri-Kai Ltd. (maize), UCCCU the dry season when milk is scarce, and in the hands (dairy), and NUCAFE (coffee). While all these chains of dairies in the rainy season when milk is surplus, have domestic and regional demand growth behind adding to the mutual advantage of year-round trust them—and coffee has global demand growth as and cooperation amongst the same actors. High a driver as well—the major changes and lessons value export crop processors like coffee roasters portrayed here for maize are primarily with regard can only get top prices for their product if they have to regional markets; for dairy they are primarily consistent quality of raw material and in sufficient domestic, and for coffee they are primarily global. quantity. Farmers, on the other hand, would like to 42 Closing the Potential-Performance Divide in Ugandan Agriculture Case studies of the maize, the Ugandan market in 2012, and is portrayed in Box 4. dairy and coffee value chains 168. The dairy sector in Uganda has been actively 166. Maize production in Uganda has been steadily promoted by government, development growing from 1.3 million metric tons of partners, and the private sector, with production in 2003 to about 2.6 million metric liberalization of private entry into processing tons in 2015/16 (FAOStat 2017 and Table 3).14 starting with the Dairy Industry Act of 1998 and the While domestic market demand is responsive to launch in 2000 of the Dairy Development Authority urbanization, demand for maize by neighboring (DDA), a parastatal that regulates the private-sector countries is very much on the rise due to drought industry (Box 5). DDA is also tasked with supporting and especially to political crisis, as in neighboring smallholder cooperatives, extension, research on South Sudan. Both disrupt food production, and breeding, product development, and promotion of are the basis of requests for aid shipments from the exports. Underlying this has been steady increase World Food Program. For instance, maize exports in domestic demand for milk since the late 1990s. from Uganda to neighboring countries rose from The national cattle herd was over 11 million 400,000 Mt in 2004 to about 1,100,000 Mt per annum head in the last full count in 2008 and small-scale in 2015. The private sector has responded by setting farmers accounted for about 90% of this. Annual up grain buying companies that do cleaning, drying, milk output however has steadily grown from 1.5 and storage. Off-farm grain storage capacity in billion liters in 2010 to 1.8 billion in 2012, and to 2.2 Uganda is estimated for 2017 at 350,000 – 400,000Mt, billion liters in 2016. Regulations on the acquisition of which formal warehousing storage capacity is of milk transporting vehicles have been made 151,520 Mt; the World Food Program (WFP) alone easier, and regulations on acceptable modes of accounts for one-third of this. transporting milk have been enforced. Large private and cooperative investments have been made in 167. A number of medium and small-scale grain setting up coolers throughout the milk producing traders, handling of the order of 100,000 to areas. Private sector investment in setting up milk 150,000 Mt of grain annually in total, have processing plants has increased very significantly. entered the market in recent years to take Milk processing has grown from 5 processors in advantage of the rising trade opportunities, 2003 to 76 milk processors in 2017, of which 15 are including selling to the WFP, which regularly large-scale. Eight of the latter export milk and milk procures grain in Uganda for shipping to South products. Milk processing capacity is estimated at Sudan. An example is Afgri-Kai Ltd, which entered about 1.3 – 1.5 million liters per day. 14 The three cases that follow draw heavily on Jagwe (2017), which was commissioned for the present study. Closing the Potential-Performance Divide in Ugandan Agriculture 43 BOX 4: GROWING REGIONAL DEMAND FOR CLEAN MAIZE: EXAMPLE OF AFGRI-KAI LTD. Afgri-Kai Ltd. entered Uganda in 2012. Its core business is to purchase grain; to clean and store maize for sale to WFP, and also directly within the region (60% to Kenya and the rest to South Sudan and Rwanda). The Afgri-Kai story illustrates how a private sector firm can open the potential of a major regional demand shift for the benefit of smallholders and traders that individually would not be able to meet the quality and reliability of shipment needs of the clients. Approximately 90% of grain purchases are from traders, while the remainder is from approximately 5,000 farmers. Afgri pays a premium of up to 20% higher than the spot market price to farmers and traders who comply with strict EAC quality standards, such as the absence of foreign materials (such as stones), excess humidity, and pests. Afgri supports the formation of new and the strengthening of existing farmer groups with training in production, primary processing and handling. Farmers under this arrangement can access high-quality inputs of seed and fertilizer as well as support services such as spraying and maize shelling equipment. Farmers under this arrangement have been able to increase their yields from 600kg/ha to about 2Mt/ha due to using good quality inputs. Currently, Afgri-Kai moves volumes of grain estimated at 22,000 metric tons; up from 10,000 metric tons when they entered the Ugandan market in 2012. The lesson drawn from this experience is that in the presence of strong and reliable multi-year demand for grain of a given quality level, private sector actors can make appropriate investments that enable the commodity to be bulked, collected, handled and stored well, while ensuring observance of quality standards through price incentives to farmers and traders. And this despite both having many smallholder suppliers and the absence of a public regulating authority. Source: Jagwe (2017) Coffee value chains support over 3.5 million households and contribute roughly one-quarter of the foreign exchange earnings of Uganda (UCDA, 2016). Robusta accounts for about 80% of the harvest, Arabica the rest 169. Coffee value chains support over 3.5 million its “Operation Wealth Creation” (OWC) has been households and contribute roughly one- actively promoting coffee growing and distributing quarter of the foreign exchange earnings of seedlings to households, especially in the Central Uganda (UCDA, 2016). Robusta accounts for part of the country. about 80% of the harvest, Arabica the rest. Coffee is produced on land holdings ranging between 0.25 170. Since liberalization of the sector in the late acres and 30 acres. About 6% of coffee produced 1980s, multinational companies such as Ibero, is consumed locally, while the rest is exported. Kyagalanyi, Armajaro and Olam have come in Coffee exports in 2015 accounted for 17.8% of that mostly export dried graded beans. The total exports by value (UCDA 2017). Coffee exports firms have started to invest in the production and are estimated at 254,000Mt, with approximately primary processing components of the value chains 94% of total production with a value of about to ensure good quality and boosting the volume of US$400 million (Jagwe 2017). Current production beans supplied to them. They have set up processing of coffee in Uganda has grown from 189,000 metric plants and organizing coffee growers into groups, tons in 2010/2011 to 270,000 metric tons of Fair associations and cooperatives through which Average Quality grade dried beans in 2015/2016, extension services, access to high quality inputs and worth US$422 million. The government through credit or advanced payments can be provided. 44 Closing the Potential-Performance Divide in Ugandan Agriculture BOX 5: DOMESTIC DAIRY DEMAND AND THE UGANDA CRANE COOPERATIVE CREAMERIES UNION (UCCCU) The Uganda Crane Cooperative Creameries Union (UCCCU) is an innovative farmer-owned tertiary cooperative union registered in 2005 after sector liberalization. It epitomizes the rise of the sector and illustrates a good approach to including smallholders meaningfully in rapidly expanding and increasingly demanding markets for a high value and perishable item. UCCCU currently comprises 10 district unions, involving 140 primary cooperative societies, mostly located in the mid and southwestern parts of Uganda, with a consolidated membership of almost 20,000 households. Altogether, UCCCU members produce 700,000 liters of milk daily, of which 300,000 liters are sold formally through UCCCU. UCCCU renders services to its members in terms of building their capacity in milk handling, collection and processing, while organizing its member cooperatives for collective marketing of their products. UCCCU also trains farmers on how to do farming as a business and on developing a saving culture as well as conducting some basic research especially on market issues. UCCCU farmers are able to access drugs, credit, insemination services and other inputs through their cooperatives as well as advice on how to improve the quality of their breeds. UCCCU makes its money as a dairy on a private sector basis, but in parallel serves as a quasi-rural development authority for it members. Some of its successful farmer interventions have been: (1) animal nutrition, herd health, improved genetics, milk quality assurance, and farm management; (2) facilitation of partnerships with service providers and suppliers of farm inputs; (3) a 100,000 liter capacity dairy processing plant, 100 milk cooling tanks, and 10 road tankers; (4) facilitating contractual arrangements with buyers of milk through the installed UCCCU milk cooling tanks and road tankers, with substantial price premia to farmers; strengthening the financial management capacity of member cooperative societies; according youth and women special attention for skills development and access to investment credit through all its programs; actively promoting the consumption of milk through a school milk program; and establishing a savings and credit cooperative for its members (UCCCU Community SACCO). The latter gives advances to farmers against potential milk sales, provides credit, and pools savings of farmers for future investment. Source: Jagwe (2017); UBOS (2008) Livestock Census Report; FAOStat; Uganda Dairy Development Authority (various); Mbowa et al. (2012) 171. Local investors such as Good African Coffee, include Kyagalanyi, NUCAFE, Good African Coffee, Savannah Commodities and NUCAFE have Star Coffee, Ban café, Café PAP and a few others. also emerged to compete in the same space. Box 6 gives additional information on Kyagalanyi. They too have come up with similar structures that organize producers and render them services such as extension while ensuring steady supply of commodity to designated processing plants. Both local and foreign companies Furthermore, both local and foreign companies have ventured into adding more value to exported have ventured into adding more coffee by investing into grinding and roasting to value to exported coffee by investing make branded shelf-ready products for export into grinding and roasting to make and also for the local market. Currently there are twelve domestic roasters registered with Uganda branded shelf-ready products for Coffee Development Authority (UCDA) and these export and also for the local market. Closing the Potential-Performance Divide in Ugandan Agriculture 45 BOX 6: THE GLOBAL DEMAND FOR HIGHER QUALITY COFFEE AND KYAGALANYI COFFEE LTD. Kyagalanyi Coffee Ltd was founded in 1992 when the Ugandan coffee industry was liberalized, and is the oldest licensed coffee exporter in Uganda. The firm is one of the ten companies controlling over 80% of coffee exported from Uganda. It mainly exports graded green beans and is currently working with 15,000 coffee farming households. It provides knowledge and training in coffee husbandry and access to inputs. Local interventions are built around one or more primary processing sites. The latter are professionally managed to produce the best quality parchment, Fair Average Quality grade beans, and to ensure traceability. Each scheme is headed by a manager in charge of day-to-day certification and training operations. Overall guidance and development of the schemes is provided by Kyagalanyi’s Sustainability Manager. The field teams consist of 60 staff in total, of which 14 are agronomists and seven are nursery operators. Farmers are organized in producer organizations of 20 to 40 members. Kyagalanyi has established washing stations—critical to quality - across Mount Elgon, West Nile and Rwenzori regions to enable proximity to the farmers they serve. Most of the stations are equipped with eco-pulpers, waste water treatment systems, nurseries and agro-input stores. Farmers are taken through an intensive agronomy training program that includes business skills. They are eligible for annual cash and fertilizer bonuses, access to quality agro-inputs (although even the company has had trouble sourcing these on occasion, as discussed more generally under regulatory issues), farm tools and good quality seedlings. Personalized advisory services are also rendered. Farmers are also able to use mobile phone technology to gather geo-tracked data on coffee traceability, adoption of Good Agricultural Practices, and use of good socio-economic practices. Coffee yields have improved tremendously as has the quality of coffee marketed. Premia are paid for better quality Arabica beans. Some participating farmers under have been able to register yields of 1 mt/ha for Arabica, compared to a norm of 0.4 mt/ha. The use of mobile money systems to provide payments to farmers has greatly reduced risks associated with transacting in cash. Source: Jagwe (2017) 172. Several lessons emerge from the three otherwise 174. Third, more reliable quality control of raw material, very diverse examples of vertical coordination of combined with a higher degree of processing, was smallholders into changing markets for maize, essential to meeting changing market demands. dairy, and coffee. First, rapid demand growth is Being able to serve the needs of the processed food key to creating the conditions under which private “revolution” will be essential to the economic welfare aggregators and smallholder farmers can work well of smallholders, and this will be difficult without together. This was true whether it was primarily in local vertical coordination. markets (dairy), regional markets (maize), or global markets (coffee). The demand growth in question was 175. Fourth, in each case, aggregation provided for known and consistent qualities of products which economies of scale in collection, input supply have undergone a significant amount of industrial and finance that would be very difficult to processing that smallholders could not meet on achieve through any other form of organization, their own. The vertical coordination arrangements including parastatal activities. In addition, allowed smallholders to get a share of the benefits farmers had a strong incentive to provide the from branding and better access to inputs and advice; monitoring of their own production practices and and the aggregators were able to secure, expand, and the care of their own parcels that would have been improve their supply chains for raw material. lacking for laborers on large commercial farms. This was especially important for items where quality is 173. Second, all three cases underline the central role very sensitive to both high and careful labor inputs, of building trust through coordination to reduce such as dairy and coffee. the costs of search, bargaining, contracting, monitoring and enforcement that are net losses 176. Fifth, the three cases above are all success borne by both farmers and aggregators. The stories, and a key to each one of them is the more that commodity quality is hard to observe in fact that the aggregator shared the benefits of spot markets, the greater the savings to both buyers success with producers in the form of significant and sellers from coordination. Whether it is the premia (of the order of 20%) for improved quality absence of aflatoxin in maize, bacteria in raw milk, or of deliveries. Business is a mutual benefit activity, off-tastes in coffee, creating the conditions where all or it will not last long. can be sure that these aspects are not in the product is the key to achieving value addition. 46 Closing the Potential-Performance Divide in Ugandan Agriculture Information and 180. In Uganda, the internet plays an increasingly important role. In 2015/16, the number of internet communications technology subscribers and users grew respectively by 30.2% and commercialization and 19.6%, resulting in a 42.5% aggregate internet penetration as of June 2016. Total mobile phone subscriptions stand at over 22 million. Almost 177. Ugandan agriculture is largely traditional, 124.000 new mobile subscribers were added in practiced by smallholders and pastoralists, the FY ending June 2016 – with a 0.6% growth rate predominantly rain-fed, and low-yielding; it almost negligible compared to a 14.6% growth in lacks access to critical information, market 2014/2015 (UCC 2016). This is concerning as mobile facilitation, and financial intermediation phones are the main conduit for accessing ICT services. The role that Information and services in rural areas. Poor telecommunications Communications Technology (ICT) can play in infrastructure, unstable power supply, lack of ICT addressing these challenges is increasing as skills, high costs of acquiring and maintaining ICT personal ICT devices – such as mobile phones or equipment, lack of property rights, and difficulties tablet PCs – are becoming more widely available in making information available in local languages (World Bank 2012). all hamper diffusion of ICT in rural areas. 178. ICTs involving cell phones and tablets have particular relevance for productivity and resilience, market access, and financial inclusion. Adoption of ICT solutions can improve In Uganda, the internet plays an short-term and long-term productivity; minimize increasingly important role. In the negative effects of crisis events (for example, by informing on how to protect crops from inclement 2015/16, the number of internet weather in the short term); and improve field-based subscribers and users grew respectively by 30.2% and 19.6%, resulting risk management, for example, by guiding the implementation of crop rotation to preserve the soil in the long term. ICT services can provide farmers in a 42.5% aggregate internet with access to information on pricing of agricultural penetration as of June 2016. products (both inputs and outputs), and on finding and connecting to suppliers, buyers or logistics 181. Innovations such as digital payment offer providers, such as storage facilities and transport significant opportunities for farmers, providing companies. Such services include simple pricing them with a safer and more efficient way to services, virtual trading floors (matching services transfer money at lower costs than traditional or full commodity exchanges) and holistic trading cash-based transactions. One example is services. SmartMoney, a savings and payment system 179. Market access services also cover ICT solutions operating in Tanzania and Uganda (AGRA 2017). that typically help larger downstream firms, Information and Communications Technology can such as processors or exporters, to better help farmers along the farming cycle, for instance manage their operations and the quality of in terms of input management, pest control, post- their produce. With regard to financial inclusion, harvest handling or marketing. Enhancing the ICT solutions for transfers and payments, credit, regulatory environment for both ICT development savings, insurance and financial derivatives and agriculture finance mechanisms such as can help improve rural communities’ access to branchless banking are critical measures to boost finance by creating viable business opportunities agriculture productivity and for commercialization for financial institutions to enter potential rural in Uganda. markets. ICT services combine the advantages of 182. Mobile money (MM)-using households in Uganda informal financial services: convenience (e.g., door- sell more coffee produce as shelled beans, receive step service), and flexibility (e.g., ability to save and better prices for their shelled beans, and earn withdraw small amounts) with another key criterion higher off-farm incomes (Sekbira and Qaim 2016). – security. Thus, ICT enhancements for financial Use of MM-services allowed households to receive inclusion services can either entail making informal remittances that smoothen consumption and relieve providers more secure, or making formal players consumption-based pressure on selling coffee, more convenient or more flexible. Closing the Potential-Performance Divide in Ugandan Agriculture 47 enabling households to save and process coffee for sale in high value form for better prices. Better prices boost investment in off-farm employment, thus higher off-farm incomes for MM-users. 183. Gender disaggregation of effects of mobile phones in rural Uganda further revealed that women benefit over-proportionally from mobile phone technologies, which is consistent with the view that women are more constrained than men in their access to markets and information. Hence, a new technology that helps reduce transaction costs and allows new forms of communication can be particularly advantageous for women. Higher incomes and better access to accessible for farmers in Uganda. MUIIS deliver a information for women influence their bargaining bundled service with products including accurate position within the household, thus also improving satellite weather information, agricultural advice, gender equality (Sekbira and Qaim 2016). trend analysis for soil, water evapotranspiration, insurance, and market information for farmers. 184. There are many applications and ICT-enabled tools for data collection purposes currently 185. The spread of ICT capabilities has particular available in Uganda; some significant ones are: power when paired with advances in Big Data • The Jaguza Livestock App is an e-Agriculture technologies. Especially BlockChain technology — App developed to improve livestock which enables the keeping of a widely distributed, production and productivity in Uganda and collaborative, and tamper-proof electronic ledger other developing countries. It includes a mobile of transactions—offers tremendous potential for online and offline monitoring system for farmers situations like Ugandan agriculture.15 It has the to detect individual movements of cattle, detect potential for lowering the costs of small financial strays, and keep track of health and fertility status transactions involving smallholders that require of cattle. The innovation helps access veterinary secure record-keeping and periodic decentralized services, and enhances better treatment of input, such as land registration and mortgages. livestock after early detection. Rwanda is already moving in this regard to digitize its land registry. The technology enables secure • Ensubiko is a solution designed specifically for transactions, digital authentication, and legally enhancing financial inclusion. One of the offered binding signatures. services, “Mobis”, is a core-banking software that enables rural-based financial institutions 186. The combination of a very high-tech centralized to manage information and reporting, while technology and large database with easy-to-use delivering financial services on a mobile wallet. field data entry points offers great potential for • The M-Voucher (Mobile Voucher) system uses overcoming the twin tyrannies of distance and the USSD (Unstructured Supplementary multiplicity of small independent farms. This Service Data) platform to enable agro-input excluded so many in rural Uganda from services that dealers to redeem electronic vouchers using were not economic to provide on an individualized basic mobile phones. Through the USSD basis previously, but now can be much more cheaply interface, input agents redeem vouchers, collect by electronic means. An example of the latter with basic data on beneficiaries, and receive instant relevance for climate-resilient agriculture would be payments for each voucher redeemed. M-Voucher the use of hand-held soil scanners on individual is integrated directly with MTN mobile money, farms for soil diagnosis, through intermediation enabling fast payments to input agents and other cooperatives that could own the field equipment, suppliers participating in the voucher activity. combined with wireless transmission of results to a large centralized regional database, and receipt a few • MUIIS is a satellite based market and data minutes later of a detailed individualized electronic service project to make markets more soil amendment recommendation for a small farm.16 15 See: https://www.wisekey.com/press/wisekey-and-microsoft-collaborate-to-support-rwandan-government-make-secure-transactions-using-block- chain-technology/ 16 An example already in use in developing countries is detailed at: http://www.soilcares.com/en/products/scanner/. 48 Closing the Potential-Performance Divide in Ugandan Agriculture work best for addressing specific industrial organization problems in Uganda’s smallholder The combination of a very high-tech context. The platform can provide reliable data on vertical coordination, finance, prices, costs, and centralized technology and large weather. This information will be critical to reducing database with easy-to-use field data uncertainties and risks for investors, and should entry points offers great potential encourage competition among them. Documenting and publicizing the impact of different private, for overcoming the twin tyrannies public, and public-private experiences with vertical of distance and multiplicity of small coordination can help share experiences across commodities. It will also facilitate a key policy role independent farms. of Government to promote a level playing field of knowledge and regulation that encourages formal sector private investment while advancing the A changing role for interests of the farming population. government under private- 189. One of the main ways that Government can sector led commercialization help smallholders become better integrated of smallholder agriculture into private-sector led commercialization and to improve their market power is through strengthening their independent access to 187. The economic need for vertical coordination credit. The most effective way to do this is through to overcome transaction costs which to date improving their ability to borrow on their own exclude smallholders from high value markets within the developing private financial system, as (asymmetries of information as discussed opposed to having the public sector become the above) is best served by private aggregators. direct lender of last resort. The public sector can However, as value-addition and globalization be of best assistance by establishing registering in agriculture heat up, there are a number of land titles in rural areas, an area where Uganda is critical functions that also need to be met by far behind other members of EAC. Rural farmers the public sector. Government needs to play a will continue to fall behind urban inhabitants under role in ensuring the enforcement of agreements, market-led development if they continue to be especially regarding recouping input credits given without collateralizable assets. by companies to farmers and securing adequate supplies from zones where extension investments 190. Government must play a lead role in re- have been made; and in ensuring the traceability of establishing farmer confidence in the integrity supplies of raw materials, allowing farmers to garner and accuracy of the regulatory system for premia for quality. In many cases, multinationals agriculture, in concertation with producer also seek active financial involvement by the and marketing interest groups of the private government through Public-Private Partnerships, sector. These issues are critical for agricultural which can be highly beneficial for the promotion operations large and small. However, they are of high-value specialized crops. Government especially important for smallholders that obtain should ensure clarity on goals and a definition agricultural inputs such as seeds and fertilizer in of satisfactory performance, coupled with an small quantities on spot markets. Unit costs are institutional structure to follow up transparently often high and quality much different than what is at regular intervals, and redeploy public resources claimed on the label. where performance has fallen short. This system is highly developed for PPPs for infrastructure 191. Finally, implementation of national programs in Korea, for example. Government financial of the Government such as the Poverty participation should likely be limited to a very small Eradication Action Plan (PEAP), the Plan for number of activities that have compelling cases for Modernization of Agriculture (PMA), Vision 2040, the need for public participation. among others, would increasingly benefit from interactions with beneficiaries through ICT 188. Allowing for the diversity of aggregation needs apps. Issues slowing down increasing connectivity across different commodities, Government are priority items for consideration in the policy should seek to develop a knowledge platform issues section below. on which forms of industrial organization Closing the Potential-Performance Divide in Ugandan Agriculture 49 V. 50 Closing the Potential-Performance Divide in Ugandan Agriculture Resilience Challenges to Agricultural Livelihoods and Production Systems • Poverty and food insecurity in rural areas are compounded by the impacts of climate change that are already visible, and are predicted to worsen in the future. • Rapid population growth and unsustainable land use drive soil erosion. This leads to a loss of biodiversity and agriculture productivity, and to a reduction in ecosystem resilience to climatic shocks through lower capacity to hold rainwater and poorer soil structure. • Climate-smart land and livestock management practices as part of the climate-smart agriculture (CSA) concept are needed to enhance productivity and smallholder incomes while limiting agriculture emissions and enhancing resilience to climate-related risks and shocks. • Successful adoption of CSA requires an enabling environment of functional institutions, regulations and coordination. The dissemination of CSA technologies and knowledge often requires specific financial incentives to internalize market externalities. • Improved water storage capacity, irrigation systems, and sustainable water management and conservation practices are further critical to fostering the resilience of farmers to climate variability and change. • Long-term preparedness and prevention of climate-related hazards require more robust Early Warning (EW) mechanisms than presently available in Uganda. Technical and financial discussions should be aligned across national and local governments, and user-friendly messages coordinated across authorities. Vulnerable communities need to be supported in the development of local-level emergency response mechanisms. Poverty and resilience 192. Poverty and food insecurity are among the greatest challenges for Uganda, and especially for rural livelihoods. While the share While the share of the of the population living in poverty more than halved between 1993 population living in and 2013, poverty is still widespread particularly in rural areas. These comprise 85% of the population and 94.4% of the country’s poor (CCAFS poverty more than halved 2017). Although agricultural households accounted for 79% of poverty between 1993 and 2013, reduction in 2006-2013, the relation between poverty and agriculture is poverty is still widespread highly vulnerable to climatic factors. According to Sheahan and Barrett (2014), poverty reduction in this period was driven by favorable weather particularly in rural areas. conditions and comparably high crop and livestock incomes, rather These comprise 85% than by the adoption of technologies that could buffer against climate- related risks. The reliance of farmers on good weather and markets was of the population and pronounced in 2016/2017 when agricultural output plummeted, food 94.4% of the insecurity soared, and poverty rates rose to 27% (UBOS 2017b) – largely a result of drought spells and pests such as the armyworm. country’s poor. Closing the Potential-Performance Divide in Ugandan Agriculture 51 193. To reduce food insecurity and poverty especially ability of (agricultural) systems and people to in rural areas, Uganda’s agri-food systems need anticipate or recover from shocks that impact to become resilient to climatic and market- agriculture and food security in a timely manner, related shocks. Smallholders, which make up the and thereby avoid disasters and crises (FAO 2014b). vast majority of farmers in Uganda, are particularly A precondition for climate-resilient agriculture vulnerable to agriculture-related risks such as systems and livelihoods are healthy ecosystems, market price fluctuations or climate change impacts which have been described as ‘the wealth of the because they are disproportionately dependent poor’ (WRI 2005). Cropping and grazing (or mixed) on rainfed agriculture and usually possess limited systems do not only provide food, fiber or skins, livelihood assets such as financial capital, physical but a wide range of services which benefit humans, infrastructure, or information about adequate and which are not immediately ‘visible’ (see Figure adaptive and coping strategies. At the same, 2a). These include nutrient cycling, pollination, poverty and food insecurity or insufficient dietary freshwater purification, pest control and landscape energy consumption, respectively, are particularly aesthetics, among others. Ecosystem services and pronounced in rural areas, fostering vulnerability other non-marketed goods provide 50-90% of total to shocks. Many households suffer from high levels livelihoods among poor rural households (TEEB of malnutrition, with 34% of children under 5 years 2010). Unsustainable land use, climate shocks such being stunted (IFPRI 2015). In Northern Uganda, as droughts and the loss of non-crop habitats 59% of households often consume only one meal reduce ecosystem services on which agriculture per day. The number of food-insecure people is production critically depends (TEEB 2015). projected to rise from 7 million (2015) to 30 million by 2025 (CCAFS 2017). 196. Rapid population growth particularly in rural areas and unsustainable land use also drive 194. Poverty and food insecurity are compounded soil erosion, that is, soil nutrient and soil by the impacts of climate change that are productivity loss. Population growth rates are already visible today, and predicted to worsen relatively high at 3.3 percent per annum, which in the future. Uganda has been described as accelerates agriculture expansion and forest one of the world’s most vulnerable countries clearing due to increased demand for food and to climate change, with increasingly unreliable energy (largely fuelwood), land fragmentation (see rainfall, drought, seasonal fires, precarious water Table 1), soil nutrient depletion, and unsustainable supply, and endemic poverty characterizing major production. While highland ecosystems are climate-related hazards. Since 1960, temperatures predominantly affected by population pressure, it have increased by 1.3°C. In the next 50 years, near- is overgrazing that degrades marginal lands such surface temperatures are expected to increase as the semi-arid ecosystem of the cattle corridor by 2-2.5°C, and by up to 4.5° until 2100. Rainfall that stretches from Rakai in southern Uganda to patterns are becoming increasingly unpredictable, Karamoja in the northeast of the country (FAO and floods and droughts are predicted to become 2016b). The cattle corridor accounts for over 90% of more frequent and intense. Between 1900 and the national cattle herd and livestock production, 2000, the frequency of years with significantly which contributes about 7.5% to Uganda’s GDP below normal rainfall increased from once every 20 (ELD 2015). Here, soil compaction, erosion, and years to once every five years, with severe impacts the emergence of low-value grass species have on agricultural production (FAO 2016b). Climate subdued the land’s productive capacity and lead variability particularly affects Uganda’s Northern to desertification, wreaking havoc on Uganda’s and Northeastern areas, that is, those which are economy and escalating poverty (ibid). Estimates already impoverished and less food secure. Rain scarcity and the belated onset of rainfalls during land preparation and planting months in 2016/17 led to high food prices, and forced families to sell off Estimates of the loss to Uganda’s GDP their assets, take children out of school or resort to environmentally harming practices to secure food due to environmental degradation (FEWS Net 2017). range from 4 to 12%, with 85% of 195. Human well-being and resilience in rural this from soil erosion. Over 80% of areas disproportionately depend on healthy Uganda’s total surface area could be ecosystems. Resilience can be described as the prone to erosion. 52 Closing the Potential-Performance Divide in Ugandan Agriculture of the loss to Uganda’s GDP due to environmental ha. At an assumed market price of US$ 0.50/kg, the degradation range from 4 to 12%, with 85% of net financial increment due to irrigation was US$ this from soil erosion (NEMA 2016). Over 80% of 1,667/ha. Uganda’s total surface area could be prone to erosion (Karamage et al. 2017). 200. The Government recognizes the critical role of improved water management for agriculture 197. Agricultural commercialization and related land in broad strategy documents such as its Vision use intensification often entail the increased 2040 and NDP II (2016-2020), in addition to the use of pesticides, synthetic fertilizers, and new National Irrigation Policy (NIP). According to herbicides, all of which can reduce soil organisms the 2017 NIP, total irrigated area should be expanded critical for nutrient cycling and the number of insect to 400,000 ha by 2040. This is ambitious insofar as and bird species necessary for pollination and currently only about 15,000 ha of cultivated land is biological pest control. This increases the fragility under irrigation countrywide, out of a potential area of agri-food systems to pest and disease outbreaks of 3.03 million hectares (Oketch 2018; GoU/ MAAIF- and other climate-related shocks (Landis 2017). MWE 2017). Irrigation potentials and rainfall patterns Similarly, reducing crop genetic diversity lowers are unevenly distributed across the country. About the number of traits and response options to pests half of the country has bimodal rainfall distribution and disease vectors, and thus the adaptation to that allows for two harvests per year, with annual changing biotic and environmental conditions rainfall reaching up to 1200 mm. Only the north- (Kansiime and Mastenbroek 2016). The role of public east of Uganda has one rainy season and low annual research and extension will need to increase in rainfall with less than 900 mm. Out of its total area helping promote sustainable farming systems and of 241,559 km2, around 37,000 km2 or 15% of Uganda production. is occupied by open water (GoU/ MAAIF-MWE 2017). 201. Given the poor performance of many larger- Agricultural water scale irrigation systems in Uganda, priority should be given to rehabilitation and improved management and irrigation management of existing schemes. While performance varies temporally and spatially, the 198. Agriculture in Uganda is largely dependent Ministry of Water and Environment (MWE) estimates on rainfall, which creates an increasing water use efficiency of existing schemes at 60-70% challenge for agricultural production in light in average, with other sources speaking of 50% of rising climate variability. Most of Uganda has at best (Olet 2017). One reason is the reliance on traditionally experienced at least one long rainy surface water sources associated with high water season sufficient for farmers to produce at least losses through seepage and evaporation. Further, one crop per year. Irrigation was mainly practiced most schemes possess inadequate mechanisms during the dry season and at a small-scale, informal for cost recovery, for beneficiary empowerment level, along the fringes of lowlands (Olet 2017). and engagement in irrigation system management, However, rainfall has become less reliable, and or for operations and maintenance (O&M). These damaging drought events more frequent in recent factors have resulted in low returns on investments, years. Resulting yield and price volatility affect rural costing in the range of US$6,000 to US$12,000/ livelihoods, leading to high levels of food insecurity ha (ibid.). In the Mubuku scheme, for instance, in years of below-average rainfall (CCAFS 2017). average yields for milled rice could be as high as Expanded or supplementary irrigation as well as 6t/ha under optimal conditions. Yet due to water improved water management more generally are delivery and distribution constraints and a lack of needed to increase resilience to higher and more adequate water management practices on the side extreme climate variability. of farmers, average yields currently do not exceed 2.5 t/ha of milled rice/maize (ibid.). 199. Robust irrigation schemes can boost agriculture productivity dramatically. Bastiaanssen and 202. The poor performance of existing schemes Perry (2009) compared biomass production of has further been attributed to institutional irrigated land with cereal yields from rainfed inefficiencies and weak law enforcement. To agriculture. In Uganda, average cereal yield for date, there is no dedicated irrigation management rainfed agriculture was 1,539 kg/ha, while yields authority, and management capacity at the under irrigated agriculture were as high as 7,064 kg/ national, district and scheme levels is limited. The Closing the Potential-Performance Divide in Ugandan Agriculture 53 division of water-related responsibilities and lack of 204. For non-commercialized smallholders, low-cost coordination between MWE (off-farm water storage irrigation and water storage options should be dams and delivery infrastructure to the farm gate) supported, in addition to the transfer of water- and MAAIF (on-farm irrigation) is a major challenge smart management practices. Rainwater storage for overall sector planning and investments in or harvesting systems through farm ponds, valley multi-purpose infrastructure. Another challenge is dams or community tanks that trap rainfall or runoff weak governmental capacity to enforce land use water in high-rainfall areas can build resilience and planning regulations and to regulate water while providing clean water to rural households. abstractions effectively in the face of increasing Drip irrigation systems, either solar-powered or demand (Olet 2017). Given the severe constraints on through manual pumps (Miti 2011) can more than public sector resources and capacity, tapping into double incomes and boost agriculture production, private sector capital and management skills, for especially when tied to microfinancing mechanisms instance through public-private partnerships, will (Awulachew et al. 2005). There are low-cost be essential to upgrading irrigation infrastructure alternatives such as the “bucket and drip” system at and drainage services in Uganda. To this end, prices that smallholder farmers can afford (Nicol et the government should create incentives for the al. 2015). Other ‘water-smart’ management options private sector by lowering investment risks and by such as the introduction of more drought-tolerant rigorously enforcing land and water use regulations. crops or water conservation practices such as terracing and mulching can help foster soil moisture 203. While yield increases through well managed retention and maintain cropping intensity while schemes can be dramatic, the average costs for providing opportunities to diversify into high-value irrigation infrastructure and services are often crop production at the same time (ibid.). Monitoring too high for non-commercialized smallholders. soil moisture through technological advances can In neighboring Rwanda, medium and small-scale be used to mitigate adverse weather patterns, and irrigation solutions including sprinklers and fuel- to provide forecasting and early drought warnings powered pumps are currently deployed. Average (Fiala and Apell 2017). irrigation costs have been estimated at US$ 1,500 per hectare arising from the terrain’s hilly topography and low accessibility. To increase affordability, the government provides subsidies of up to 50% of the Climate-smart agriculture costs for individuals and cooperatives (Fiala and 205. To enhance productivity while fostering low- Apell 2017). The sustainability of irrigation hence emissions and climate-resilient agriculture, often depends on farmers’ ability to pay, which climate-smart land and livestock management is presumably enhanced through higher income. practices are needed. The climate-smart agriculture Kondylis et al. (2017) demonstrated that combining (CSA) concept aims to sustainably enhance irrigation with agriculture training, facilitation, and agricultural production and rural livelihoods, to better market access can increase crop yields and increase resilience to climate variability, and to lower foster the cultivation of high-value crops while agriculture emissions or foster carbon sequestration raising farmers’ incomes. (mitigation) at the same time. For each of Uganda’s key crop and livestock production systems, CSA measures are summarized in CCAFS (2017). Crop rotation, integrated soil fertility management (ISFM; e.g. cover crops, mulching), or intercropping staples with nitrogen-fixing plants or trees such as Faidherbia Combining irrigation with albida are some of the most promising CSA practices agriculture training, facilitation, and which, in addition, provide a vast array of ecosystem services. Adopting ISFM for maize, for instance, better market access can increase increased yields of Rwandan smallholders by 86%, crop yields and foster the cultivation and by 260% in DRC. Net returns per hectare increased of high-value crops while raising by US$ 700 and US$ 600 respectively (Winterbottom et al. 2013). Maize yields on experimental plots in farmers’ incomes. Malawi increased by 116% when intercropped with legumes (Gilbert 2012). 54 Closing the Potential-Performance Divide in Ugandan Agriculture Community seed banks can help access, multiply and conserve seeds of local varieties that are rare and unique, and that possess different functional traits such as early maturity or drought tolerance. 206. CSA measures can further entail the application impact of Push-Pull (PPT) adoption on the welfare of organic fertilizers, strategies for integrated of smallholders in Uganda, Chepchirchir et al. (2017) pest management, and seed banks. The organic found that average maize productivity was nearly fertilizer Safi Sarvi® as developed in Kenya, for three times higher for adopters compared to non- instance, is a mixture of biochar (charcoal made PPT plots. To protect crop genetic diversity and from crop residues), crushed limestone and reduce farmers’ dependency on external inputs, other plant waste, and has shown to increase community seed banks are key. Community seed crop yields by 30% while simultaneously limiting banks can help access, multiply and conserve carbon emissions. The fertilizer also lowers soil seeds of local varieties that are rare and unique, and acidity and aids retention of soil nutrients and that possess different functional traits such as early moisture, reducing irrigation needs by 15% (safi. maturity or drought tolerance. They can further strikingly.com). Push-pull is a strategy for integrated enhance related indigenous knowledge and skills management of pests (e.g. stemborers), weeds such in plant management, including seed selection, as striga, and poor soil fertility by using a natural storage, and distribution (Vernooy et al. 2017). repellent (push) and an attractant (pull). Testing the Closing the Potential-Performance Divide in Ugandan Agriculture 55 FIGURE 6: SELECTED CSA PRACTICES FOR KEY PRODUCTION SYSTEMS IN UGANDA Source: CCAFS 2017 207. Albeit Uganda has one of the lowest greenhouse systems can be promoted for the sustainable gas (GHG) emissions per capita in the world, management of rangelands and pastures. There emissions grew by 50% between 1990 and 2012. is also a high potential for emissions mitigation The agricultural sector has the highest emissions, through zero grazing and the use of feces for contributing about 46.25% to the country’s total household biogas production in intensive livestock GHG emissions (CCAFS 2017). Livestock (enteric systems. From pastoralism, methane emissions can fermentation, manure left on pasture) is the highest be reduced by improving pastoral livestock keeping contributor, followed by burning savanna and the practices, such as the use of improved breeds and cultivation of organic soils. To reduce emissions feeding regimes. from livestock, opportunities such silvo-pastoral 56 Closing the Potential-Performance Divide in Ugandan Agriculture 208. The introduction of CSA practices should agricultural extension system and ensuring its staff account for differences in terms of risk have adequate technical capacity and knowledge perception, adaptation capacity, and to disseminate tailored, gender-sensitive and information levels between men and women. climate-smart technologies will be a key action A study by Kristjanson et al. (2015), for instance, area. Moreover, the GoU could promote greater revealed that women are more likely to perceive coherence, coordination and integration among climate change and to experience related shocks. food security, poverty reduction, economic However, they usually had access to less types and development, social security and climate change sources of targeted, timely and credible information adaptation/mitigation efforts as well as related on the nature of changes and appropriate response strategies, and mainstream climate-smart options. Besides, women typically had less agriculture into broader public policy, expenditures, knowledge of feasible adaptation practices. and planning processes (Harvey et al. 2014). 209. While Uganda specifically mentions the 211. To foster CSA adoption across Uganda, the expansion of CSA as main area for action dissemination of CSA technologies and in its Nationally Determined Contribution knowledge needs to be accompanied by (NDC), several barriers to adoption need to be innovative business models, financial, and overcome. Alongside its NDC, Uganda developed other incentives. CSA provides opportunities for climate change mainstreaming guidelines and a 10- novel financial instruments to foster agricultural year Climate Smart Agriculture Program (2015-2025) technology adoption, including climate and value- which have the potential to foster the adoption of chain finance, both of which can be harnessed to CSA on a community or even landscape level. Yet, deliver CSA benefits to smallholders. In Ghana, several barriers need to be overcome which entail, Nicaragua and Peru, for instance, voluntary among others, physical inputs such as land, human certification schemes were tested in coffee and resources, equipment, infrastructure and finances, cocoa producing smallholder organizations as well non-physical barriers such as policy and (Vermeulen and Dinesh 2016). Resulting from the regulatory environments; knowledge and skills; or collaboration between the research center IITA, technologies and innovations (James et al. 2015). the certification agency Rainforest Alliance and For instance, there is limited knowledge of key CSA the impact investor Root Capital, as well as public practices among farmers and particularly women, and civil society actors, smallholders incorporated as well as a lack of access to assets. Many CSA site-specific CSA practices, received a ‘climate- practices require special equipment or materialize smart certification’, and are now producing economically only after a few years and some initial in commercially viable and climate-resilient investment. A lack of secure land rights often inhibits agriculture systems. long-term investments in sustainable agriculture. Since perceptions of risks and adaptation strategies 212. Multi-stakeholder platforms can help to identify differ across gender, approaches to CSA and and prioritize the most cost-efficient CSA information transfer are required which are gender- practices for a given agroecological context, to sensitive and tailored to the needs and knowledge develop ‘farmer friendly’ financial incentives, levels of smallholders (van Campenhout 2017). and to channel investments effectively. The Climate-smart Lending Platform, for instance, 210. Successful practice of CSA further requires helps lenders incorporate climate risk in their an enabling environment characterized loan portfolios while incentivizing the adoption of by functional institutions, regulations and climate-smart farming methods by smallholders. coordination; as well as governance structures The Platform helps to mainstream CSA metrics into favoring the generation, dissemination, the credit scoring systems of financial institutions and use of CSA. Uganda’s National Agricultural to improve their agricultural lending portfolio, as Advisory Service (NAADS) and research network well as to develop climate-smart loan products for (NARO/NARS), for instance, currently do not seem traditional and non-traditional lenders. The GoU geared towards CSA promotion. To this end, it will could explore such collaboration opportunities be important to raise investment in sustainable with various stakeholders towards a coordinated agriculture research and development. Besides, approach to CSA in the country, for instance through many CSA-related projects and policies in Uganda the National Climate-Smart Agriculture Task Force. are implemented in a fragmented manner with An overview of CSA-related stakeholders, programs limited coordination, hampering the awareness and projects in Uganda is provided in FAO (2016b). and success of CSA more broadly. Improving the Closing the Potential-Performance Divide in Ugandan Agriculture 57 Monitoring vulnerability function is the generation of EW information and their dissemination by appropriate media to 213. Although Uganda is highly vulnerable to members of the National Platform for Disaster increasingly frequent and severe droughts, Risk Management, District Disaster Management floods and pest outbreaks which endanger Committees, and communities. Alongside NECOC, the country’s already fragile food security main actors entail the Ministry of Agriculture Animal situation, information on weather and climate Industries Fisheries (MAAIF), Agency for Technical as well as disaster management has often Cooperation and Development (ACTED), Famine focused on relief and rehabilitation. El Niño- Early Warning Systems Network (FEWS NET), induced food insecurity and famine risk in northern Uganda National Meteorological Authority (UNMA), Uganda in 2016 as well as the outbreak of the fall and the Ministry of Health (Atyang 2014). armyworm (FAW) demonstrate that responses 216. Uganda’s National Disaster Preparedness were still largely reactive than proactive. Limited and Management Policy of 2011 details the hard (e.g. weather/climate observing infrastructure collection and dissemination of EW information and communications equipment) and soft (e.g. as well as activities such as risk mapping weather forecasting and analysis) technologies as and vulnerability assessments by mandated well as human capacity to utilize these tools have institutions. However, there is no clear channel resulted in inadequate monitoring and forecasting through which collected information should flow of climate hazards; insufficient communication to the coordination center (National Emergency and restricted responses to impending climate Coordination and Operations Centre; NECOC), in hazards; and constrained planning for long-term the Department of Relief, Disaster Preparedness climate changes in economic development and risk and Management. Besides, standardized protocols reduction efforts (UNDP n.d). are lacking for warning communication and 214. To build public awareness of the threats of dissemination, effective coordination and data climate-related hazards and to mitigate their exchange among the actors in the EW process. The impacts on food security and livelihoods, policy stipulates that the Uganda Broadcasting the Government of Uganda is refocusing Council and Uganda Telecommunications its disaster risk management strategy to Commission establish memoranda of proactive preparedness and prevention. understanding (MoUs) with FM radio stations and Early warning systems are an important element mobile phone companies to send out early warning of this strategy. An Early Warning System (EWS) messages through their facilities (Braimoh et al. generates information that allows individuals 2018). Currently, the electronic media and FM radio and communities exposed to hazards to act in system disseminate EW information upon release a timely manner, and to prevent or reduce their of weather forecasts through talk shows. To provide reliable and accurate early warning messages in a exposure to climate and disaster risks. For EWS to timely manner, better coordination among agencies function properly and to ensure that the needs of involved in EWS and private sector companies such as both decision-makers and primary users are met, broadcasters is needed. it is critical that countries, regional organizations, development partners, and private sector entities 217. To strengthen Early Warning (EW) mechanisms collaborate closely. Moreover, EWS for food security in Uganda, several barriers need to be overcome. should not be perceived as emergency response This entails institutional, financial, sustainability, mechanisms, but they should become a critical and technical challenges. For instance, there is part of an expanded food security information and poor coordination of response and accountability, analysis system that can produce relevant, viable and a lack of adequate policies supporting disaster and credible information necessary to respond risk management. Early warning information to short-term emergencies, and to contribute to is transmitted to relevant ministries and other longer-term development programming at the agencies, which however are not well aligned, same time (Braimoh et al. 2018). making it hard to arrive at a coordinated action. 215. There are several organizations and agencies Moreover, funding is inadequate and non-constant, implementing EWS in Uganda, with varying leading to insufficient equipment, knowledge spatial and temporal responsibilities. Uganda and capacity levels as well as threatening the has established a National Emergency Coordination sustainability of existing early warning systems. Due and Operations Centre (NECOC) whose primary to limited technical capacity, most of the country’s 58 Closing the Potential-Performance Divide in Ugandan Agriculture EWSs do not have a forecasting element to them, built to better downscale information to the making it hard to engender early action. Existing subnational level. EWS messages should be user forecasts regarding climatic factors, food security or friendly and include risk information that link threat commodity prices face challenges to downscaling levels to response actions. They should be provided to local levels such as districts or villages. Finally, by a single or coordinated authoritative source. EW methodologies, tools, and techniques are often Technical and financial capacities should be better inadequate or poorly integrated, threatening the aligned across national and local governments reliability and timeliness of EW information. to facilitate the out-scaling of relevant EWSs and tools. In addition, vulnerable households and 218. To improve early warning mechanisms in communities should be supported in developing Uganda and ultimately foster food security emergency response mechanisms at the local level. and resilience, several measures can be A national early warning committee or secretariat undertaken. The incorporation of climate could be established to coordinate across forecasts into nationally available EWSs and tools jurisdictional levels. Finally, the government should should be supported to foster timely action. To be supported in developing a comprehensive law this end, specialized training on the use of forecast on disaster risk management and food security- models and tools should be provided, and capacity related emergencies (Braimoh et al. 2018). Closing the Potential-Performance Divide in Ugandan Agriculture 59 VI. 60 Closing the Potential-Performance Divide in Ugandan Agriculture Agricultural Policy, Policy Implementation and Public Finance • There is a disconnect between stated agricultural policies and actual implementation. This gap is partly related to a lack of coordination among responsible institutions. • While policy documents emphasize the importance of the agriculture sector, de facto budget allocations have remained modest. • At the same time, inefficiencies in spending are high. The major share of funds allocated to the NAADS budget line (70-80 per cent) has been used for purchasing and disseminating subsidized inputs, especially since the creation of OWC in 2013. • Other institutional challenges are inefficiencies in staffing patterns, weak data collection and monitoring of sector trends, and a lack of monitoring and evaluation capacity by the Government. • The free distribution of subsidized inputs has undermined quality seed production by the private sector, and led to the crowding out of the private sector from distribution. • Producer price incentives for traditional exports such as coffee and tea are often not well correlated with world market prices. Domestic transfer costs can be very high. • Trade liberalization and reforms since the early 1990s resulted in big gains for agricultural GDP as a whole, diversifying products and markets, and increasing FDI. Yet, while Uganda faces a relatively open market for agriculture commodity exports, non-tariff barriers (NTBs) continue to pose a big challenge. Stated agricultural policies 219. Agriculture has been a key area of policy attention at least since the 1990s, including in the national development plans and sector development policies.17 Today, the most important plans for agriculture Today, the most are the National Development Plan (NDP) 2 and the Agriculture Sector important plans for Strategic Plan. In addition, multiple agriculture-specific policies have agriculture are the been adopted or are under consideration. Main recent policies include a National Coffee Policy (2013), which sets ambitious targets for increasing National Development coffee output; a National Fertilizer Policy (2017); the National Agricultural Plan (NDP) 2 and Extension Policy (2016), a draft National Seed Policy (under consideration), the Agriculture Sector and a National Irrigation Policy that has been presented for cabinet approval. Uganda has further subscribed to multiple regional treatises Strategic Plan. and commitments including those linked to the EAC and to COMESA, such as the Seed Harmonization Implementation Plan (COMSHIP; see above) 17 This section draws heavily on FAO (2017b), which was commissioned for present paper. Closing the Potential-Performance Divide in Ugandan Agriculture 61 220. The government of Uganda’s long-term vision is to transform the agricultural sector from a predominantly subsistence to a commercial one. This vision has served as the motivation for programs such as the Plan for Modernization of Agriculture (PMA), implemented in 2001, and designed to address the factors that undermine agricultural productivity, such as limited access to credit, weak transport, communication and marketing infrastructure, and land tenure insecurity (EPRC 2009). PMA was structured around seven areas of policy and institutional reform, of which MAAIF took particular responsibility for the first two areas, namely: (i) agricultural research and technology development, operationalized through the National Agricultural Research System (NARS); and (ii) agricultural advisory services, implemented 2015/16–2019/20, which identifies agriculture as one by NAADS (EPRC 2009; Benin et al. 2011). NAADS was of five priority investment areas and is designed to centered around the role of farmer institutions in propel Uganda towards middle income status by empowering farmers to procure advisory services 2020, provides the overarching framework for the and to conduct demand-driven monitoring and ASSP. The ASSP proposes the introduction of a new evaluation of advisory services (Benin et al. 2011). Agriculture Extension directorate. Moreover, the PMA Secretariat, which supported the development 221. The Agricultural Sector Development Strategy of the DSIP and ASSP, was closed as the PMA had and Investment Plan (ASDSIP or DSIP 1) been superseded by the current sector strategies. 2010/11–2014/15 was formulated with a view to The revised list of semi-autonomous MAAIF operationalize and prioritize investment in the agencies still includes NAADS, NARO, the National agricultural sector, as a precondition to the signing Animal Genetic Resources Center and Data Bank of the CAADP Compact. PMA, NAADS, and NARS (NAGRC&DB), and various sector authorities (e.g. for (NARO) remained at the core of implementing the coffee, cotton and dairy sectors). the strategy. ASDSIP had four program areas of implementation, namely: (i) enhancing agricultural 223. The ASSP has the same four “program areas of production and productivity; (ii) improving access implementation” as did its predecessor ASDSIP, to and sustainability of agricultural markets; (iii) with the important addition of Operation Wealth creating an enabling environment for investment Creation (OWC), established in 2013. As discussed in agriculture; and (iv) institutional strengthening above, OWC is a Presidential initiative that provides in the agricultural sector. However, a NAADS review a variety of agricultural and non-agricultural undertaken around the time of the launch of services to rural populations, such as agricultural ASDSIP highlighted the weak relationship between support, housing and rural infrastructure. At the research institutions and extension agents. The core of its agricultural program is the provision of consensus was that agents lacked access to quality farming inputs and credit to farmers. As such, OWC technologies and were therefore unable to provide appears to have replaced some of the functions sound, research-based advice to farmers. As a previously performed by NAADS. Already the OWC result, the Agricultural Technology and Agribusiness budget is substantial in comparison to that of MAAIF, Advisory Services (ATAAS) project was launched in and there are concerns that OWC is crowding out 2010—ostensibly as a reformed “NAADS II”—and co- investment in important areas, especially extension implemented by NARO and NAADS. services. Current uncertainty about MAAIF’s future role in OWC and the budgetary implications of the 222. A new Agriculture Sector Strategic Plan (ASSP) scaling up of OWC follows more than a decade of 2015/16–2019/20 has been designed, following developing, adopting and reforming a plethora the adoption of the National Agricultural Policy of major policies, strategies and initiatives for (NAP) in 2013 and an evaluation of the now expired agricultural transformation. This makes for a highly ASDSIP. The ASSP was approved by Cabinet in uncertain and complex policy environment. 2016 although the final version has not yet been published. The National Development Plan (NDP II) 62 Closing the Potential-Performance Divide in Ugandan Agriculture Policy implementation and groups, but they are constrained in their functioning through a lack funding, alongside other challenges public finance (Joughin and Adupa 2017). 224. While the record of written agricultural policies 226. While budget allocations to agriculture have is impressive in Uganda, there has been a remained modest, inefficiencies in spending disconnect between policy formulation and are high from the standpoint of increasing actual implementation (World Bank 2015c). For agricultural value-added. For instance, most example, while policy documents emphasize that funds allocated to the NAADS budget line (70-80%) agriculture is a critical sector, de facto budget have been used for purchasing and disseminating allocations have been limited, and are far from the subsidized inputs, especially since the creation of 10 per cent of total expenditures that the CAADP OWC in 2013 (Joughin and Adupa 2017). Alongside compact recommends. Moreover, the funds that its core mission to provide farming inputs and credit are allocated have been used inefficiently, not least to farmers, OWC also provides non-agricultural due to significant ad hoc decisions not aligned with services to rural populations, such as housing policy documents. Data collection, monitoring and and rural infrastructure. Importantly, members of follow-up to understand ‘what works’ and to update Uganda’s Armed Forces distribute farming inputs policies accordingly have likewise been neglected. without necessarily transferring knowledge of their MAAIF spending declined in nominal terms by 15% application or other relevant extension services. between 2006/2007 and 2012/2013, from US$ 436 The role of MAAIF/NAADS has been largely reduced million to US$ 244.5 million (Joughin and Adupa 2017). to the procurement of inputs and technologies (FAO 2017b). While a detailed assessment is lacking, news reports and an OWC review by the Ugandan Parliament suggests that the level of waste of resources is high, inter alia due to poor input MAAIF spending declined in nominal purchasing and handling, and misallocation of terms by 15% between 2006/2007 distributed inputs (Joughin and Adupa 2017). and 2012/2013, from US$ 436 227. Key budget allocation decisions are seen million to US$ 244.5 million. as being made by the Presidency rather than by the Ministry itself, or through consultations between MAAIF and MoFPED. 225. The gap between policy formulation and actual As a consequence of limited budget allocations, implementation can partly be related to a lack and reinforced by significant variations during of coordination among responsible institutions. budget implementation, as well as the relatively While the main national level institution, MAAIF, has a high importance of external funding, Ministry staff central role, it is neither the main decider on policies, are perceived by development partners and other nor the sole implementer. Multiple stakeholders stakeholders as paying only limited attention to the engage in the agriculture sector, some of which preparation of budgets and their correspondence are under the guidance by the Presidency and with sector policies. agriculture advisors. These comprise the network of research institutes (NARO/NARS), regulatory 228. Staffing patterns suggest institutional bodies for three main commodities (coffee, cotton, inefficiencies. MAAIF has a substantial discrepancy dairy), and ‘commodity platforms’ for seeds, maize between allocated positions (411) and actual and oilseeds. Besides, coordination with other staff (279) as of April 2017. In particular, critical ministries with impact on agriculture (e.g. water regulatory functions such as the National Seed resources, local government, roads and transport, Certification Service (NSCS) remain weak. Re-hiring land, trade and cooperatives) has remained weak. of extension workers has started, and nearly 2,000 Decentralized governments continue to have were recruited. However, as of the first half of 2017, responsibilities related to agricultural extension, they did not have sufficient operating budgets to land management, and the support of farmers’ undertake extension services. Closing the Potential-Performance Divide in Ugandan Agriculture 63 FIGURE 7: DOMESTIC FISCAL ALLOCATIONS TO AGRICULTURE AND WITHIN AGRICULTURE: averages for FY2016/17-FY2018/19 (approved and projected budgets, in billions of Ugandan Shillings) Source: Joughin and Adupa (2017) 229. Data collection and timely monitoring of sector of total spending, due to a decline in development trends has also remained weak. For example, the partner funding (the national budget share is most recent statistics published by UBOS and MAAIF projected to increase slightly, by 0.2%). The budget are the ‘Uganda Census of Agriculture’, published in share going to NAADS (largely for input procurement late 2010, and reflecting 2008/09 data (UBOS 2010). for OWC) will drop from 45% of agricultural funding Generally, data collection for the sector is relatively to 41% (GOU/MoFPED 2018). 19 costly, since it requires visiting a range of localities. Thus, data on yields is not considered to be very reliable. Data remains unavailable in a number of other critical areas, such as on mapping soil With development partner funds qualities and changes. Several initiatives are under way to improve this situation, including a National fully added, agriculture is estimated Agricultural Sector Statistics Committee (NASCC) to account for 4.2% of total established in early 2015, and a Statistics Division established in MAAIF. public expenditures in 2017/2018. 230. Recent trends in funding show both movement 231. Actual expenditures were well below budgeted in the right direction and the difficulties in amounts in most years, reflecting issues in the doing what is needed. The 2017/18 sector overall implementation of projects and programs, “approved” budget for agriculture had an allocation and the poor absorption capacity of the to MAAIF of ~US$ 227 million18, making up ~3.6% of public institutions involved. MAAIF has regularly the national budget and a 5% increase compared to come under fire after internal audits revealed 2016/17. The largest shares of agricultural resources unsatisfactory levels of service delivery (MoFPED are allocated to MAAIF and to NAADS. However, 2014). Figure 8 tracks both broad (“PEA”) and development partner funds make up ~80% of narrow (“PEA narrow”) definitions of agricultural public allocations to agriculture, and are only expenditure over the 200607 to 2015/16 period. PEA partially reflected in the national budget, and are does a better job than PEA narrow of capturing the difficult to project (Joughin and Adupa 2017). With true public spending effort to support agriculture in development partner funds fully added, agriculture Uganda, since the PEA narrow definition is unduly is estimated to account for 4.2% of total public restrictive (see notes to Figure 8). expenditures in 2017/2018. Projections for 2018/2019 are that agriculture will get less in 2018/2019 at 3.9% 18 At the mid-March 2018 exchange rate of UGX 3,638 = US$ 1.00 19 The source for 2018/2019 projections is the MAAIF budget contained in the MoFPED Second Budget Call Circular of February 15, 2018, as shared with the March meeting of the Agriculture Sector Working Group. 64 Closing the Potential-Performance Divide in Ugandan Agriculture FIGURE 8: ALLOCATED VS. ACTUAL AGRICULTURAL EXPENDITURE IN UGANDA 2006-2015 Source: FAO (2017b) Notes: PEA is Public Expenditure on Agriculture, composed of MAAIF spending plus all other non-MAAIF government spending in direct support of agriculture, such as agricultural infrastructure, estimates of Government agricultural spending supported by development partners off the MAAIF budget, or inputs purchased by Government outside the MAAIF budget. “PEA narrow” is the less expansive Africa Union Commission definition of PEA, which adheres more closely to the UN Classification of Functions of Government (COFOG) definition of PEA. See http://www.fao.org/mafap for discussion of PEA categories. The dotted blue line in the figure is the CAADP commitment of 10%. 232. However, whether broad or narrow, actual PEA and an actual 26% decline in NARO’s annual funding spending was far below budgeted spending in (GoU/MoFPED 2018).21 Other major development 2012/2013 and 2013/14, contrary to the earlier partners have preferred to keep their assistance off and later periods where actual spending was in line budget, which makes tracking public expenditures with or exceeded budgeted spending. Declining especially difficult. allocations to agriculture from the Ministry of Finance, Planning and Economic Development (MoFPED) after 2012/13 may in part be a response Incentives in the agri-food to weakening absorption capacity in MAAIF and its related agencies (FAO 2017b). In any event, it is clear sector that MAAIF and its associated agencies have difficulty 234. The free distribution of subsidized inputs has in matching actual to planned expenditures. undermined quality seed production by the private sector and led to the crowding out of 233. The large development partner role in financing the private sector from distribution. To operate agriculture may also hinder fiscal management OWC, seeds and seedlings are centrally purchased and agency continuity. For example, the on a large scale at above-market prices. The Government allocation to NARO, the Ugandan availability of free seeds has dramatically reduced NARS, which has benefitted commendably from the market share of companies that seek to produce increasing funding in recent years as set out above, quality seeds. Combined with the 2016 drought, was increased by UGXs 24 billion (US$ 6.6 million) in the crowding out of private seed companies from the 2018/2019 projected MoFPED budget. However, distribution seems to have resulted in even less with the closure of a large externally financed quality seeds available in the market (Joughin and project in mid-201820 current projections are for no Adupa 2017). Promising initiatives such as AgVerify, development partner funding after then for NARO 20 The World Bank funded Agricultural Technology and Agribusiness Advisory Services (ATAAS), a US$ 127.2 million project approved in 2010 and closing June 30, 2018. 21 The source for 2018/2019 projections is the MAAIF budget contained in the MoFPED Second Budget Call Circular of February 15, 2018, as shared with the March meeting of the Agriculture Sector Working Group. Closing the Potential-Performance Divide in Ugandan Agriculture 65 a scratch code label scannable and transmissible generally much lower. The Ugandan government by cell phones and used to improve traceability could consider some measures to better promote and seed quality control, have increasingly been exports, particularly in the context of a growing sidelined. Finally, the cost of OWC is substantial and regional market and Uganda’s favorable agronomic borne by all Ugandan taxpayers. Some small farmers conditions to truly become a “bread basket” in the who relied on the free inputs distributed have faced region (see section IV). large-scale failures of seeds and seedlings, creating increasing criticism of government action (ibid.). 237. In at least some important instances, producer prices are not highly correlated with world 235. Producer price incentives are often not well market prices. This may reflect either a situation correlated with world market prices. The where indicative minimum farm gate prices are not Monitoring and Analyzing Food and Agricultural directly informed by international market signals, Policies (MAFAP) program of the FAO undertook price or simply where price transmission effects are incentive analyses in key value chains in Uganda weak in the value chain as a result of poor market (FAO 2017b).22 MAFAP analyzed the effect of Ugandan information available to farmers. Or transport policy and market distortions on incentives (or costs are so high that local prices (especially for disincentives) received by producers or wholesalers bulky starchy staples) can in some cases respond in coffee, tea and cotton, rice and maize to highlight substantially to local market conditions before sector-specific features and to draw general being affected by export or import parity price conclusions about the distorting effects of Ugandan movements. The former may allow intermediaries policies on the agricultural sector. along the value chain to exploit producers. In the latter case, an effort is required to reduce transfer 236. Producers’ price incentives and their driving costs. A related problem is the perceived large factors vary significantly across the different number of intermediaries in some value chains, value chains. In the case of rice, a net-imported which further removes producers from world commodity, there are substantial incentives for markets in terms of the share of the domestic retail farmers to engage in production mainly due to the or export price they can command at the farm gate. adoption of the 75% CET on rice imports. However, Of course, extreme volatility in international prices despite this protection, the sector remains may create both the conditions and an incentive for relatively small. Incentives for export crops— lags in domestic price transmission (see Muratori including maize, which has emerged as a highly 2016), particularly in instances where government sought-after commodity in regional markets—are policies are aimed at stabilizing domestic prices. TABLE 8: PRICE INCENTIVES FOR MAJOR CROPS IN UGANDA 2005-2016 (in percent) Observed Nominal Adjusted Nominal Market Development % years NRP < 0 Rate of Protection Rate of Protection Gap (MDG) (NRP) Coffee -14.3 -17.9 -5 83 Tea -6.3 -24.1 -17.2 50 Cotton 42.7 27.5 -8.1 8 Rice 60 60 0.0 17 Maize 24 23 -1 25 Source: MAFAP in FAO (2017b) Notes: Definitions of the variables are in the text and the methodology is laid out in FAO (2017c). Further elaboration of the approach is found at: www.fao.org/mafap. 22 The MAFAP work in FAO (2017b) was funded by the present study and is used heavily in this section. 66 Closing the Potential-Performance Divide in Ugandan Agriculture 238. In Uganda, high transportation costs caused by 239. A summary of policy-induced price effects poor infrastructure remain a significant barrier (incentives or disincentives) is given in Table 8. to trade. This can mean that it is not profitable to The “Adjusted Nominal Rate of Protection at the trade at all in some years for commodities that have Farm Gate” measures (in %, respectively positive or local outlets, like maize, as remote areas become negative) the extent to which actual farmer producer economically isolated from larger markets, at prices exceed or are under what is estimated they least in the rainy seasons. For commodities grown would be at the farm gate (as part of a global market) – primarily for export and with limited long-term in the absence of major policy distortions in exchange storage potential, like coffee, remoteness can make rates, international, or domestic markets. The “Market farmers even more vulnerable to intermediaries Development Gap” is the estimated share of the gap (Muratori 2016). Besides the uneven quality of between undistorted international prices at the farm transport infrastructure, taxes on fuel play a major gate and actual prices due to “excessive” or inefficient role in determining transportation costs (FAO access costs within the value chain in question. 2017b). Investments in rural roads and other market These may stem from poor infrastructure, high infrastructure have demonstrated advantages processing costs due to old technology, government and should be prioritized as part of the agricultural taxes, excess profit margins of intermediaries, bribes transformation strategy for the country (Benin et al. and other non-tariff barriers. In effect, adjusted 2012). NRP roughly measures the effects of deliberate governmental policy incentives (positive) or taxation (negative), while MDG is a measure of inefficiencies to be addressed in the market chain itself. 240. For coffee, farmers are receiving less than they Investments in rural roads and should, despite the liberalization of the coffee other market infrastructure have sector. International coffee prices are more volatile demonstrated advantages and than domestic ones, so low international prices in 2010-2011 saw positive adjusted NRPs for coffee. should be prioritized as part of However, since then, NRP’s have fallen on trend the agricultural transformation (except briefly in 2014), and exceeded 30% by 2016. Coffee farmers are saddled with poor infrastructure, strategy for the country. high domestic transport costs, and high processing costs in getting their product to market. Closing the Potential-Performance Divide in Ugandan Agriculture 67 241. Tea farmers are in even worse shape in terms of and high tariffs and restrictions on imports, incentives. Tea is produced both for the substantial and especially on agricultural commodities. domestic market and export. Tea processors in By the early 2000s, however, a more liberal trade Uganda receive international price premia for regime was put in place for agriculture. Direct taxes exports, but these are not passed back to farmers. on exports, including on coffee, were eliminated. The good news is that increased efficiency along To correct the remaining anti-export bias of the the tea value chain should allow farmers to receive trade regime, there were also (inefficient) incentives a premium for quality, which they presently do not under which import duties on certain raw materials get and hence do not always do the necessary could be refunded under VAT and a duty drawback actions to produce the quality needed. Relief for scheme. Under the Fixed Duty Drawback (FDD) farmers and likely processors in the longer run scheme introduced in 2000 and which applies also would come through farmers being in a better to exporters of agricultural and fishery products, position to garner quality premia for tea, which will duties paid on inputs that went into production of require organizational forms to provide traceability exports are refunded. back to the farm. 246. By the end of the 2000s, the average simple 242. For cotton, the world market price is highly MFN tariff on non-agricultural imports was volatile, but on average domestic producers are 12.6 percent, but the agricultural sector was protected by the system in place. Profitability for afforded a higher degree of tariff protection at farmers is low, so protection helps keep marginal 19.9 percent. In trade-weighted terms, the applied producers in business. The present system however average tariff for non-agricultural imports was 8 and does not encourage investment in either cotton that for agricultural imports was 23.7 percent (World production or in processing, as domestic cotton is Bank 2010). By 2015, the average simple MFN tariff expensive. had dropped only slightly further to 11.7 percent and the trade-weighted applied tariff (including 243. Rice is an import-substitute and is highly preferences) to 7.9 percent, while that applying to protected in Uganda, as in most members food imports had decreased to 14.2, from 22.2 in of the EAC with the Common External Tariff of 1990 (World Bank WITS query). 75% in place. The Uganda adjusted NRP in 2016 is approaching 90 percent. At the same time, there 247. Uganda also faces a relatively open market for is a rise of (presumably subsidized) rice exports its exports, with the trade-weighted average from virtually none in the early 2000s to an annual tariff applied by the rest of the world at the average approaching US$ 30 million in the 2011- end of the 2000s at only 3.1 percent for its non- 2015 period (COMTRADE via WITS). The high policy- agricultural exports and only 4.5 percent for its induced rice price is a significant tax on domestic agricultural exports. Following implementation rice consumers in Uganda. This combined with the of further trade liberalization within COMESA rise of rice exports makes it difficult to view rice and within the EAC, average tariff rates faced by protection as justifiable by food security concerns. Uganda’s agricultural exports are likely to drop further. 244. Maize prices in Uganda and thus NRPs calculated with respect to maize imported from outside the region are significantly dependent on regional demand for Ugandan maize. The output market for maize in Uganda is completely liberalized. There has been no significant government incentives Uganda also faces a relatively intervention (other than input subsidies) since the 1990s. Strong regional and national demand open market for its exports, with for maize since the 2008 global food price crisis the trade-weighted average tariff (except in 2012) have kept Ugandan and EAC prices applied by the rest of the world at high relative to world prices without protection, especially given high transport costs. the end of the 2000s at only 3.1 percent for its non-agricultural 245. In sum, in the early 1990s, Uganda had a strongly protectionist and distorted agricultural trade exports and only 4.5 percent regime, with taxes on coffee (the major export) for its agricultural exports. 68 Closing the Potential-Performance Divide in Ugandan Agriculture 248. Non-tariff barriers (NTBs) continue to pose a non-agricultural products, particularly non- big challenge to Uganda’s exports. For example, traditional service exports. Uganda’s goods in markets, where Uganda’s products enjoy and services became more diversified as local preferential treatment, such as the US Africa Growth firms became more competitive, particularly in and Opportunity Act market, entry remains very non-traditional exports, such as processed fish, difficult on grounds of quality, packaging, handling flowers and foodstuffs such as grains. and so forth. Even at the regional level, NTBs • Uganda has more diversified markets, mostly continue to affect negatively Uganda’s exports among its neighbors: Uganda has increased its in the form of delayed procedures, unwarranted share of the world export market, while at the excuses for rejection at entry, and deliberate same time, Kenya’s and Burundi’s share declined. misinterpretation of COMESA and other trade While trade beyond the continent remains very provisions (Government of Uganda 2010). important, trade within Africa has grown at a considerably faster rate. The share of exports to 249. Overall, the liberalization and reform process the EU, the main destination for Uganda’s exports, that began in 1993 resulted in big gains, declined, mostly due to increased trade with the increasing the country’s openness, diversifying Great Lakes regional economies. As the terms of products and markets, and increasing FDI trade became favorable to Uganda in the 2000s, (World Bank 2013). As a result of a liberalized trade exporters diversified into new, mostly regional environment: markets. While Uganda runs a trade deficit with • Uganda trades in a greater range of products: its two biggest neighbors, Tanzania and Kenya, it This is particularly true for agricultural products, enjoys a trade surplus with Rwanda and Burundi. although trade diversification has extended into VII. 70 Closing the Potential-Performance Divide in Ugandan Agriculture Conclusions: The Big Picture • Although Uganda is launched on a private-sector-friendly growth path for manufacturing and services, the same does not apply to the large mass of farmers. • Agricultural public investment and policies are presently largely devoted to distributive rather than productive ends. • A concerning picture emerges of agricultural production challenges unmet, declining productivity, increasing natural resource degradation, and looming climate change. • Yet there is considerable hope from booming demand, new agricultural technology in the ICT and data spheres, a growing skills base, and enhanced understanding of how to better include large numbers of smallholders in increasingly more demanding high-value agricultural markets. • The present report identifies key issues for strengthening the institutional base of agriculture, removing distortions of incentives, increasing total factor productivity growth, facilitating trade, and dealing with resource degradation and climate change. • Ultimately these are national choices and both the decision to address them and the precise pathways for doing so are best discussed in multi-stakeholder fora under national coordination. 250. The history of Ugandan agriculture has been mixed over the past 5 decades, despite the country’s endowment with high quality natural resources for agriculture and a growing rural population. As shown above, total factor productivity (TFP) growth has been poor since the 1970s, and even quite negative on an average annual basis since 2000. Overall aggregate agricultural output growth has been modest over the Overall aggregate period, at best of the order of 2.5 % p.a. in the 1980s and 1990s, and 1 to agricultural output -1.5 % p.a. since then. Some of the decline in measured TFP in recent years likely is due to technical issues such as drought, crop pests or diseases, growth has been and declining quality of inputs and land. However, it seems equally modest over the period, likely that a large part is due to falling allocative efficiency due to input at best of the order of subsidies and other government interventions, especially since 2008. 2.5% p.a. in the Fiscal expenditure on agriculture has until very recently been increasingly devoted to distributive ends, such as input subsidies handed out for 1980s and 1990s, and largely non-economic reasons, rather than much needed public goods of 1 to -1.5% p.a. benefit to all, such as better roads, communications, skills development, agricultural research, and extension services (other than distribution of since then. subsidized inputs). Furthermore, what net agricultural growth there has been is predominantly driven by cropland expansion into other land use areas, higher commodity prices after 2008, and a peace dividend after the Lord’s Resistance Army was pushed back from the North. These factors are not likely to be able to add new growth much into the future. Closing the Potential-Performance Divide in Ugandan Agriculture 71 251. The global commodity boom after 2000 and 253. Relatedly, the institutional base for public until 2014 percolated through to Uganda in engagement in stimulating agricultural terms of higher returns measured at the border development in Uganda has gone through to its traditional exports of coffee, tea, and considerable volatility and wide swings in cotton, and to non-traditional exports of items approaches over the past 20 years, as set out like fish and food crops after 2008. Close to above. This was manifested in a fragmented set home, South Sudan and DRC provided considerable of agricultural institutions with overlapping and and sustained outlets for Ugandan agricultural unclear responsibilities. This has been particularly commodities similar to those consumed at home true of extension services, which in recent years have and unlike what was traditionally exported to accounted for up to half of all public agricultural Europe or Asia. However, the end of the global expenditure, but primarily for subsidized inputs boom in 2014 and heightened civil conflict in South distributed by the military. Some form of extension Sudan and DRC were not kind to Ugandan farmers is likely to remain an important factor that can in 2015 and especially 2016. Fortunately, 2017 and contribute to increased and effective adoption early 2018 have been more encouraging, as regional of improved technologies by medium and small demand for highly processed food and more farmers. It is widely recognized amongst agricultural expensive calories such as animal sourced foods is stakeholders at all levels, including key parts of once more growing rapidly. The same has been true the government, that the public role needs to shift for traditional agricultural exports such as coffee away from the distributive one of providing private and tea, increasingly exported to the emerging goods (inputs) with public money. Instead there is a economies of Asia, and where quality premia are need to use scarce funds to provide non-capturable rising, at least at the level of the exporting firms. public goods such as improved research, extension, and institutional development that facilitates 252. As seen above, agriculture accounted for investment in the sector. Uganda is already heading nearly four-fifths of the very substantial in the right direction here with higher budgets poverty reduction from 53% to around 20% dedicated to research and extension other than of the national population as assessed in a inputs, but there is much more to be done. comprehensive review from 2005 to 2013 ($1.90/day 2011 constant PPP $). However regional 254. Private sector investment in Uganda inequality also worsened, with the Northern and agriculture—whether by smallholders on their Eastern districts not growing as fast. This has likely own plots or by large-scale investors—has helped encourage the metamorphosis of significant been modest compared to Kenya, Tanzania, agricultural programs from ones mainly focused or Ethiopia. On the smallholder side, this appears on productivity objectives to ones concerned to be linked to difficulties in securing finance and with equity or distributive ones, with unfortunate uncertainties about whether land invested in can consequences for continued productivity growth be retained. As was seen above, less than 20% and sustainable poverty reduction going forward. of land can be said to have secure tenure of the The fact that apparent equity transfers through type required as collateral for formal loans. The input subsidies also appear to have not been very guaranteed market for quality maize provided by effective at fostering incomes among intended long-term World Food Program (WFP) procurement poor farmer targets has worsened matters. in Uganda, coupled with sudden availability of contiguous larger plots of land from peace in the North has enabled significant private sector supply response to the governments liberalization of maize markets, but insecurity of usufruct rights has limited Agriculture accounted for nearly four- this expansion as well. fifths of the very substantial poverty 255. The combination of Uganda’s natural resources reduction from 53% to around and agricultural skills place it in a strong 20% of the national population as position to expand rural incomes widely and to stimulate overall economic growth by selling assessed in a comprehensive review into a new commodity boom taking place from 2005 to 2013. based on regional demand (for products such as confectionary, fish, maize, animal feed, vegetable 72 Closing the Potential-Performance Divide in Ugandan Agriculture oil, and dairy), and perhaps globally in the case smallholder supplier can benefit directly from. The of high value traditional (coffee, tea) and non- Government on the other hand needs to support traditional (for example fish, cocoa, spices, flowers). vertical coordination efforts through ensuring a level Even domestically, but especially regionally and playing field, promoting the formation of farmer definitely globally, agricultural value chains are groups and producer organizations, facilitating rapidly becoming higher value, more processed, information flows, improving infrastructure, and longer, wider, and more anonymous. They are also removing regional barriers to trade. becoming more demanding in terms of quality and reliability of shipments. Private firms in Uganda 257. The analysis above identified in some detail as well as elsewhere in the region have serious serious issues with the regulatory system problems securing reliable supplies of raw material. applied to agriculture. The quality of agricultural Farmers on the other hand have increasing difficulty inputs available in smaller quantities to smallholders achieving market recognition for their products is a particular problem. Evidence shows that this sold on spot markets. includes but is not limited to inputs distributed for free to farmers by Operation Wealth Creation. 256. Capitalizing on this opportunity will require Doubts about the quality of seed and fertilizers securing supply chains through more extensive being sold or otherwise distributed are a serious vertical coordination of smallholders into barrier to encouraging investment by producers. higher value supply chains in a way that they They also directly harm productivity and explain have both the incentive to produce more and why Uganda has one of the lowest inorganic better, and the tools to do so. Examples in fertilizer use rates in the world. In large, part the Uganda and around the world show that the private weakness of the regulatory system is directly sector working in collaboration with producer related to the state of the public institution base in organizations and individual smallholders is the agriculture. Even if this is solved—and that seems to best way to show progress here. This also supports be the way things are headed—agricultural quality, better post-harvest handling, particularly storage, safety, grading and labeling activities will need to at smallholder and aggregation/warehouse levels be seriously overhauled and expanded before the that would reduce post-harvest losses and improve label “Made in Uganda” will strengthen sales of the prices received by smallholders. There is a need for items in question. skills and capital transfers, and for branding that the Closing the Potential-Performance Divide in Ugandan Agriculture 73 258. ICT development and its extension to rural areas (UNPS) supported by the World Bank’s Living is critical to overcoming the twin tyrannies Standards Measurement Surveys were a step in for business growth of general remoteness the right direction in providing household level and having a multitude of very diverse, and data from sample surveys. Even information as widespread small farms as suppliers. These basic as average farm size and how it was changing tyrannies create high transaction costs for firms was missing before these. However, the surveys attempting to work with smallholders, and vice are aging, and they do not have sufficiently broad versa. Rapidly expanding high value agricultural coverage for all purposes. For example, Uganda supply chains require good connectivity between now possesses a reliable system to supply maize suppliers and integrators for passing market and to the WFP for shipping to alleviate hunger in technical information in both directions in near real South Sudan, but people can die of starvation in time. It also requires building trust amongst different the Northeast of the country without the warning actors along the supply chain, in a fundamentally signs that could have prevented this showing up distrustful world. Vertical coordination works best in any official database. Undertaking regular IPC over time for all parties when market incentives are assessments, strengthening Early Warning Systems transparent, competition reigns, and both side have and ensuring resources for action are available recourse in the case of non-performance. sufficiently in advance of crises is needed. The technology for collecting, collating, and analyzing big data has moved on considerably in recent years, and it is far more feasible to implement under Ugandan conditions. ICT development and its extension to 261. The critical threats of climate change and soil rural areas is critical to overcoming degradation require much greater attention. the twin tyrannies for business growth While countries such as Uganda may not have of general remoteness and having created the problem of climate change, they are in the group likely to be most affected. The a multitude of very diverse, and analysis above reviewed the compelling evidence widespread small farms as suppliers. of the centrality of agricultural incomes directly and indirectly to poverty alleviation. Continued mining of soil and biomass, coupled with rural population expansion, can by themselves prevent 259. In this context, ICT technology, including frontier the transformation of Ugandan agriculture for technologies like BlockChain, are critical to shared prosperity. Estimates of the economic cutting the costs of uncertainty, asymmetries losses from soil erosion, compaction, and plant of information, search, monitoring, nutrient loss in the last decade range from about 4 enforcement, and securization of information to 12% of GDP annually, and the problem has been on transactions amongst large numbers of getting worse (GoU MAAIF et al 2010; Nkonya et al. small, widely dispersed players. Countries and 2016). A big part of the problem lies in the fact that supply chains that move first from a “zero-sum- greater agricultural productivity, greater resilience game” model of industrial organization to one of of household livelihoods to climate change, and “mutual benefit” will have a leg up in competing more successful adaptation of farming systems for one of the main prizes in contested global food rarely result from a technology or other intervention markets at present, which are Africa’s own major applied to a single farm. cities. The combination of public databases on key agricultural variables and solutions, and greatly 262. Rather, climate smartness tends to be a expanded private connectivity, will be at the center landscape-level issue, requiring those up- of boosting national competitiveness. slope to do one thing, and those down-slope something else, and for a way for the collectivity 260. There is an urgent need for high-level to compensate those who have to work more for consideration of what data pertaining to food the benefit of others. Climate-smart agricultural and agriculture is most needed, how it can be systems also have to take into account how livestock collected cost-effectively, and analyzed in near systems need to change; which is especially real time. The Uganda National Panel Surveys important for Uganda. As in the food security case 74 Closing the Potential-Performance Divide in Ugandan Agriculture outlined above, big data advances will be critical Investment Framework for Sustainable Land to attacking climate change and sustainability Management 2010 – 2020 (MAAIF et al 2010). This issues. Advances here in implementation at both set out a series of commendable goals and specific the central level (the databases) and the field level target indicators, including having land use plans in (engagement and reporting) will be central to place for 75% of the surface area of the country by monitoring vulnerability, to identifying issues, and 2020 and 15 micro-watershed management plans to bringing knowledge to bear in specific cases. funded and in place. It is presently not clear that all the objectives set out in the national Framework 263. Uganda appeared to be making progress on will come near to being met, in large part due to a dealing with degradation of the productive lack of a viable overall financing mechanism to bear landscape for agriculture after the elaboration the substantial cost. in 2010 of the comprehensive national Strategic Closing the Potential-Performance Divide in Ugandan Agriculture 75 VIII. 76 Closing the Potential-Performance Divide in Ugandan Agriculture Recommendations for Sector Reforms, Investment, and Policy Action 1. Strengthening the renewal of the institutional base 264. Supporting the re-emerging extension service is key. Support for making the current system functional should be linked to close monitoring of what is being achieved. Continued volatility in approaches to agricultural extension and the distribution of free inputs pose a systemic risk to the sector. The 2016 NRM Manifesto suggests that extension services are an important political ‘project’ that is expected to deliver by the 2021 elections. There appears to be a commitment to develop agricultural extension through the newly established Directorate of Extension that is directly under MAAIF. However, during earlier periods, the respective responsibilities of MAAIF and of sub-national governments for government extension services remained unclear, and financing Continued volatility remained insufficient. Problems of insufficient operating funds appear to in approaches to repeat themselves. agricultural extension 265. The current extension system should move away from the subsidized and the distribution distribution of sub-standard inputs, and should be rebuilt to increase of free inputs pose its efficiency and effectiveness. Extension services can play a critical role in fostering the adoption of gender-sensitive, climate-smart land and a systemic risk to the water management practices, and thus in enhancing the resilience of sector. The 2016 NRM smallholders to climatic and market-related risks. The provision of inputs Manifesto suggests alone without transferring knowledge, however, can create unintended consequences such as the depletion of soil health and biodiversity. This that extension services practice also creates poor incentives for the private sector, and reduces are an important the competitiveness of much needed small and medium agribusinesses. political ‘project’ that is 266. Extension should be supported by adequate staffing, data expected to deliver by collection systems and capacities, and could be amended by non- governmental approaches, investments in radio programs, and the 2021 elections. farmer field schools. Improving the extension system should also entail enhancing the linkages between farmers’ demands, agricultural research and advisory services, which to date have constrained the development and provision of technologies tailored to farmers’ needs. Besides, since key policy and fiscal decisions are often not taken by the MAAIF, but rather the State House, it is critical to foster the engagement with its advisers and other stakeholders such as local governments. In its early days, NAADS was a model extension agency on a continental scale that used producer group feedback to design its community-specific interventions. There is a need to explore institutional memory and to get back to basics, in partnership with the recently established Directorate of Extension and Closing the Potential-Performance Divide in Ugandan Agriculture 77 the research and innovation function provided for agricultural statistics, including the DAES by NARO. Specific recommendations in this area UBOS and MAAIF’s statistics division. District include to: level agricultural statistics are scant or unavailable. • Review the NAADS Act, as the core mandate Having better data about ‘what works’ can help of NAADS has changed from the provision of to build demand for effective and sustainable agricultural advisory services to the management government policies in the sector. Investments of Uganda’s agricultural input distribution chains, are likely to be needed both into generating/ agri-business development, and strategic collecting data (e.g. about inputs used, yields, interventions in value chain development; post-harvest losses, soil quality etc.), data analysis, and generating statistical products that can be • Support the new agricultural extension strategy accessed and used by a range of stakeholders. through ensuring that there is sufficient For policy makers seeking renewal in the sector, it operational budget for the newly recruited will be critical to have timely information to steer extension staff in the directorate and at local policies in a pragmatic and evidence-based way. A government level, and encouraging non-state specific recommendation here is to: agricultural extension as provided for in the National Agricultural Extension Policy. Reducing • Establish a core minimum set of statistics based on the Global Strategy for Agricultural Statistics, the percentage of public expenditure that is used and include this in the set of official agricultural for the procurement and free distribution of inputs statistics; delineate the responsibilities between should release the much-needed resources to agencies for collecting the core minimum set of build an effective agricultural extension system. statistics; develop a coordination committee for 267. There could be an opportunity to emphasize agencies that produce agricultural statistics; and and support better data collection for the develop a calendar of statistical releases. sector. MAAIF leadership and indeed the whole 269. Analysis also identified the very large gaps Ugandan senior leadership team may welcome (in some years of the order of 50%) between having more and better data that can help to gauge budget allocations and actual spending. The emerging progress. The results on increasingly agricultural sector and its institutional base needs negative TFP above likely reflect real problems in to be able to stay on top of actual funding, most the sector, but may also reflect serious ambiguities particularly development partner funding that is in the data. The same data source as for Figure 1 frequently off-budget, and spending. (FAO) shows aggregate annual TFP growth for all of East Africa for 2000 to 2014 to be of the order of 270. It will be vital to improve coordination based 0.1%, or very low. This implies agricultural output on evidence and analysis between MAAIF and growing at almost the same rate as inputs and land, subordinate agencies such as NAADS and which corresponds with casual impressions. But NARO, and the coordination of the sector with Uganda’s measured decline in TFP of the order of the MoFPED and the Presidency. This will require 3% per annum in the 2000-2014 period is relatively deliberate institutional and human capacity building unique. Getting to the bottom of this should be a in MAAIF to carry out activities such as agricultural national priority. Similarly, the national agricultural public expenditure reviews, policy analysis, policy data reported by FAO and UBOS show the growth monitoring and policy evaluations. Lessons can of agricultural output in constant 2004-2006 prices be learned from past experience with the World to be essentially stagnant between 2000 and 2014, rising slightly early in the period and declining after 2008 (see data source for Figure 1). This is hard to reconcile with the field-data based poverty survey results reported above showing substantial poverty alleviation based on a 6% p.a. increase in rural It will be vital to improve incomes in the 2006 to 2012 period (World Bank coordination based on evidence 2016a). and analysis between MAAIF 268. Supporting data collection, management, and subordinate agencies such and use requires investments that go beyond as NAADS and NARO, and the projectized support, and hence also more coordination of development partners and coordination of the sector with between the core institutions responsible the MoFPED and the Presidency. 78 Closing the Potential-Performance Divide in Ugandan Agriculture Bank-funded Agricultural Support and Monitoring emphasis could be to support faster resolution of Projects in the 1980s and 1990s, which worked well land disputes through support for relevant courts. in Tanzania and not so well in Uganda. A follow up Third, greater use could be made of GPS-data, activity to the present report will be undertaken and of technologies such as drones to reduce the to look in more depth at the nature, distribution, time and cost for field visits and to generate data impact, efficiency, and effectiveness of agricultural evidence about boundaries (especially where these public expenditures in Uganda. are marked by live plants or stones that are subject to tampering). Faster adjudication would reduce 271. Agriculture is also more likely in the future the duration for which pieces of land are used less to need to be able to deal with a variety of productively. economic issues going beyond simple crop budgets, such as regional trade negotiations 273. Land rights in rural areas are critical to rural and the unintended impacts of a domestic finance for collateral purposes, but how the natural resource boom from petroleum. digitization of land registries is handled is Although MAAIF arguably had the institutional fundamental to financial inclusion as well. capacity to analyze such issues on a day-to-day Uganda currently has one-half million titles basis and to advise management on brokering registered, but the overwhelming majority of these solutions over two decades ago, that is no longer are urban. As titling is expanded to rural areas true today. This need is only partially met by (the former six land registration offices around external research institutions such as the excellent the country are now 13 and will soon be 21), more think-tank Economic Policy Research Center (EPRC) attention needs to be given both to digitalization that dates from the Structural Adjustment Era of (as is being done now) and how the system can be the 1990s and which traditionally maintains close maintained as a living one with transactions around contact with the Ministry of Finance, Planning and specific titles easy to update from anywhere in the Economic Development (MoFPED). It will be critical country, and in a form that is tamper proof. Rwanda going forward for MAAIF to regain capability in has made considerable progress in digitizing its partnership with its attached agencies to design and already fairly complete rural land titling using carry out agricultural policy analyses, monitoring BlockChain technology, as laid out above. This will and evaluations, and to dialog more effectively on radically cut the unit costs of smallholder loans these with its Government stakeholders. and mortgages, in addition to building confidence in property rights. Rwanda is building a credible • MAAIF should establish a unit within the Ministry Center of Excellence in BlockChain technology in charged with agricultural policy analysis, Kigali. monitoring and evaluation. The unit should have direct access to the top management of the Ministry. It would need to be staffed by personnel with graduate training in economics and related disciplines, and be directed by a national who would be competitive for a senior Uganda currently has one-half position in international organizations dealing million titles registered, but the with agricultural policy. Development partners should consider ways to help with the high setup overwhelming majority of these costs, including graduate scholarships, and with are urban. initial running costs. 274. Uganda should explore options for accelerating 272. Land tenure is another critical area for the transition from undocumented customary land action where the public sector must lead. tenure in rural areas to a digitized system of land Commendable efforts involving mainly urban areas records facilitated and protected by up-to-date ICT need to be more effectively extended to registering technology in this area. This should cut overall costs agricultural property rights. One way would be by leapfrogging infrastructure and paper intensive to address land tenure in pilot areas, using the intermediate steps. It is recommended that a fact that Uganda has a patchwork of legal and Ugandan technical delegation travel to Rwanda to customary rules, norms, and mechanisms as an explore how that country is managing the transition. opportunity for such piloting. Second, one area of Closing the Potential-Performance Divide in Ugandan Agriculture 79 2. Removing distortions 277. The regulatory burden should be shifted from controlling registration (such as licensing of of incentives and traders), to controlling actual operations through implementing improved random sampling, in addition to regular controls of seed companies. Successful initiatives such regulations for inputs as AgVerify should be supported. Recommended actions include to: 275. There is widespread recognition that using up to • Enhance licensing procedures and import half the total agricultural budget for procuring processing for improved inputs and new agricultural inputs, often of very low quality at seed varieties to reduce delays and to foster high prices, and then distributing them free of agribusiness development at the farming input charge is both an ineffective and harmful practice. level. Importation of fertilizers and their registration Low quality inputs create dissatisfaction among is highly burdensome, and clear reforms have been recipients, and lack of willingness to adopt offered identified (EBA 2017) that could reduce the time and technologies. The pre-emption of the domestic cost involved; market for inputs discourages Ugandan private sector firms from filling the need to have a quality-based and • Finalize the National Seed Policy that has been reliable agricultural input system. An agriculture that drafted but not yet been approved. promotes overall high growth and rapidly alleviates 278. The assessment of trade incentives above shows poverty in Uganda in the coming decades will need both the success of Uganda’s trade liberalization to use improved seeds and quality fertilizers. It is hard for items like maize and coffee, and the extent of to see how this can occur outside a system where the work still to do. In the current world environment for incentives of input suppliers are rigorously aligned cotton, price supports and high protection is likely with those of farmers and traders. This will require a an inefficient use of resources that will not be able to private sector approach, supported by more effective turn things around. On the other hand, countries such public effort at defining what quality is, how it should as Mozambique demonstrate how non-traditional be labeled, and enforcing regulations. It is advisable crops such as sesame and pigeon pea—which thrive that the government considers: on cotton lands—have major growing markets in Asia. • Reducing the proportion of the agriculture budget Tea farmers produce a quality crop, but are not getting that is used to finance the free distribution of the full benefit from it. Rice is a particularly important agricultural inputs. Alternative approaches to issue. The impact of high rice protection (90%) on promote increased adoption of inputs amongst urban consumers is a matter for the Government to smallholder farmers include the use of smart consider. The fact that so much of it is re-exported subsidies and e-Voucher systems that encourage outside EAC also suggests that both input subsidies purchase of quality inputs from registered agro- and the implicit tax on urban consumers is neither a input dealers rather than through centralized food security policy, nor an efficient use of resources. procurement and distribution. Overall, the analysis shows that Uganda has much to gain by repurposing transfer payments like input 276. The Government might also consider achieving its subsidies to road and communications activities that equity support objectives through social protection cut the cost of agricultural trade, especially in the linked to desirable soil and water management Northern and Eastern regions. behaviors, or perhaps the distribution of inputs that improve longer-term sustainability, such as basic 279. Finally, while the development of energy micro-irrigation equipment, rather than seeds and exports from Uganda offers great promise, fertilizers. Accurate monitoring of how inputs are used experience world-wide shows the importance and their impact on farmers’ incomes would improve for agriculture—and thus the great majority of targeting, strengthen governance, and help discourage the population—in how mineral revenues are the distribution of sub-standard items. Should a handled, especially with regard to impacts on decision be made to move to social protection, modern the real exchange rate. The specifics of this issue go practice offers good examples of using transfers to beyond the remit of this report, but it should be clear encourage more climate-smart uses of agricultural that the “how” is as important as the “whether” in productive landscapes, such as contour bunds and tree assessing the likely impact on agriculture. Expanded planting or assisted natural regeneration. fiscal spending can be of great benefit, but it is also possible to handle increases in spending in a way that creates impossible disincentives to agriculture. 80 Closing the Potential-Performance Divide in Ugandan Agriculture • Develop rural investment incentives to facilitate 3. Enhancing Total Factor the expansion of the national postal infrastructure. Productivity growth, • Put in place mechanisms for bringing all regulatory including through functions under one roof; develop legislation that addresses privacy and data protection as innovation in ICTs well as intellectual property rights; and review existing legislation to cater for the ever-increasing 280. Growth in agricultural production has been sophistication of cyber-crime and other forms of largely driven by an increase in the area under information security. production, peace and security, and some increase in the use of inputs. There has not been • Advocate for curriculum review to include ICT much change in labor productivity in agriculture, related laws; and hasten enforcement and and this is largely due to the seasonal nature of awareness of ICT related laws. agricultural activities and limited opportunities for non-farm employment and enterprise. 282. Three immediate options seem promising Intensification and diversification of agriculture for improving communications with farmers. along with an expansion of sustainable agri-food First, radio broadcasts about good practices and systems could result in improved labor productivity. technologies are far cheaper than sending out The aggregation of farmers into producer staff, and can more easily reach large numbers. organizations will improve their access to inputs Such programming can be regionally targeted to and markets, and increase their opportunities for different production zones. Other features could vertical integration in the value chain. There has also be added, including targeting female farmers, call- been negligible growth in total factor productivity in programs to allow farmers to raise questions (i.e. excluding labor, land and inputs) of agriculture and problems – including disease outbreaks, and in Uganda. The promotion and adoption of new others. Programs could also be used to inform technologies and improved farming practices could farmers when extension workers are planning to make a major impact on productivity growth. visit a particular area. A second option could be to involve schools and school teachers in outreach 281. On the public investment side, a pivotal efforts. School teachers are in principle present area of intervention is the definition and in all localities as ‘agents of the state’. Third, the implementation of a set of policies on Central Government could set performance targets Infrastructure and ICT Emerging Technologies. for local governments with regard to reducing On top of this, the effective functioning of the post-harvest losses or effectively addressing land market depends on modern infrastructure that disputes. This would incentivize local governments is capable of supporting emerging technologies to be more pro-active in addressing local collective and services. It is imperative that Uganda builds action challenges. and sustains such an infrastructure. It is important that responsible policymakers understand the link between ICT, trust building in markets, and growth. 4. High-level engagement Some specific initiatives identified by the World Bank’s ICT team include: in facilitating regional • Optimize the connectivity to the undersea fiber agricultural trade optic cables and scale up the National Backbone Infrastructure (NBI) to cover the whole country to 283. The rapid growth of regional agricultural trade simplify the mode and speed of service delivery over the past two decades, as shown above, to the public. highlights the potential for agriculture to continue to provide significant contributions to • Encourage participation of the private sector growth, in addition to its more usual roles of rural in ICT infrastructure development, put in poverty alleviation and food security. The analysis place mechanisms for quality assurance in suggested that Uganda’s current agricultural infrastructure development and encourage trade, although growing, remains well below its Internet Service Providers (ISPs) to provide access fundamental potential. Further progress will require to the network-based services to even the most three initiatives in particular, beyond the general remote locations in the country. improvements from better communications discussed above. Closing the Potential-Performance Divide in Ugandan Agriculture 81 284. First, while regional trade has allowed are not only a thing of the past, and happen in beneficial diversification of agricultural both Uganda and its neighbors. The region is now exports away from over-dependence on a few at a turning point where countries have a new traditional commodities, to date it has not opportunity to build trust to go ahead together widely promoted the benefits of specialization more quickly than separately. However, this will not and division of labor normally associated happen without leadership from the top in regional with trade. The one notable exception to this engagement to promote trade. amongst non-traditional exports may be the development of the trade in aflatoxin-controlled maize built around WFP procurement practices 5. Greater public attention in Uganda. More policy attention in concertation with private sector and farmer organization to the linked threats of stakeholders would be beneficial to identifying synergies amongst research, extension, transport climate change and soil infrastructure, fiscal, grading, and other policy degradation issues for attention, and regional consultations to credibly support non-traditional agricultural 287. Rapid population growth particularly in rural export industries. Furthermore, the current boom areas, climate change and unsustainable and even more so the anticipated further growth is land use drive soil erosion, that is, the loss related to more highly processed food items. This of soil nutrients and hence of biological and raises questions about what foods are beneficial productive capacity. The degradation of soils to import for processing and sending on as higher arising from agriculture expansion into other land value exports, especially given Uganda’s strategic uses such as forests or pastureland, unsustainable location between East and Central Africa. Cereals, land use practices and overgrazing on Uganda’s starches, and animal source foods in particular are cattle corridor are wreaking havoc on Uganda’s important inputs to food processing, including for economy and escalate poverty. Soil degradation is export, but are often protected either naturally by not only a challenge for sustainable development poor infrastructure or as a matter of policy vis-à-vis and biodiversity conservation, but also to climate domestic producers. change mitigation and adaption. When soil is degraded, soil carbon can be released into the 285. Second, more specific attention needs to atmosphere, making land degradation one of the be devoted to reducing transport and other biggest contributors to climate change. If the GoU transfer costs for agricultural commodities is to meet its ambitious climate change targets as entering regional trade. The analysis of price manifested in its INDC, the interlinkage between incentives above identified pervasively high gaps unsustainable land use, soil erosion, biodiversity between what reasonable transportation and loss and climate change needs to be understood other transfer costs should be for agricultural and measures undertaken to reverse this alarming commodities and what they actually are in many trend. cases. The best solution to this is better market information for producers and a reduction of 288. Improving agricultural water management unnecessarily high costs for transporters, such in Uganda is vital to increasing the resilience as expensively taxed fuel and equipment, and of agriculture. The following measures should unofficial road taxes. be considered: (a) integrate institutions for policy-making, regulation of irrigation services 286. Third, reliability and trust are critical to and development investment planning, and market development, and arbitrary trade support of service provision; (b) undertake policy actions destroy this capital. During the 2008 and institutional development to improve the global food price crisis, Uganda closed its borders enabling environment for the implementation of to its neighbors with respect to exporting maize. the 2017 National Irrigation Policy; (c) incorporate This is still vividly remembered in countries such pertinent global and regional lessons from good as Rwanda that are net maize importers and are practice irrigation and ‘water-smart’ agriculture trying to become self-sufficient in maize at relatively investments; (d) pursue large-scale irrigation high cost. Border closures and hinderances to management reform by exploring and piloting agricultural trade, including arbitrary ones imposed different management options (building on at short notice by local officials, unfortunately pilots within the country and beyond) involving 82 Closing the Potential-Performance Divide in Ugandan Agriculture beneficiary communities and the private sector as to develop ‘farmer friendly’ financial incentives. in irrigation infrastructure and service delivery; CSA provides opportunities for novel financial (e) balance large-scale irrigation development for instruments to foster agricultural technology commercial agriculture with rehabilitation and adoption, including climate and value-chain modernization of existing schemes, as well as the finance, both of which can be harnessed to deliver improvement of irrigation system management CSA benefits to smallholders. To attract funding involving beneficiaries; (f) scale up low-cost pressure and to create synergies between CSA-related pipes, drip or solar pump irrigation, and other actors, coordination between ministries and with sustainable water management and conservation institutions like the Climate Change Department of technologies and practices to enhance agricultural MWE should be fostered. Besides, the private sector water productivity and achieve multiple-win results and financial institutions could be more involved for smallholder farmers; (g) scale up the use of ICT in the design, implementation and incentivization for weather forecasting and early warning as well as of CSA, for instance through the development of soil moisture measurement and monitoring. climate-smart loan products for traditional and non-traditional lenders, as well as of climate-smart 289. To enhance productivity while fostering low- value chains and certification schemes. emissions and climate-resilient agriculture, climate-smart land and livestock management 292. Ensuring adequate and timely access to practices are needed. To date, CSA adoption credible weather information as well as early at scale is confronted with various challenges, warning messages for smallholders across spanning from physical inputs such as land, gender is critical to foster food security and human resources, equipment, infrastructure and resilience. This requires enhanced linkages and finances, to non-physical barriers such as policy better coordination among the National Emergency and regulatory environments; knowledge and skills; Coordination and Operations Centre (NECOC), or technologies and innovations. Since, moreover, private sector entities such as telecommunication perceptions of climate risks and adaptation companies, the government, extension agents, strategies differ across gender, gender-sensitive academia and civil society – for instance through approaches to CSA are required. Finally, a lack of the setup of a national early warning committee. The coordination among CSA-related entities such as incorporation of climate forecasts into nationally research institutions and line ministries, as well available EWSs and tools should be supported, as a focus on the subsidized distribution of sub- which requires specialized training on the use of standard inputs on the side of the current extension forecast models and tools. Technical and financial system currently hamper the upscaling of CSA. capacities should be better aligned across national and local governments to facilitate the out-scaling 290. The extension system should move away from of relevant EWSs and tools. In addition, vulnerable subsidized input provision, and focus on the households and communities should be supported dissemination of context-specific, gender- in developing emergency response mechanisms at sensitive and climate-smart technologies. the local level. To this end, ensuring that extension staff have adequate capacity and knowledge of CSA is critical. The existence of a strong agricultural research Recommendations sector in Uganda presents an opportunity for more • Create a multi-stakeholder platform including extensive research on relevant and cost-effective relevant Government ministries, regions, research CSA practices. In addition, there is a plethora of civil organizations, farmer groups, private sector firms, society and religious groups such as Farming God’s and development partners, to identify technical Way who could help in scaling up CSA to the millions themes and viable pathways for implementation of of farmers who have firm religious values (FAO 2016). climate-smart agriculture at scale. 291. The GoU could further explore more • Roll out the draft National Irrigation Policy and collaboration opportunities with various detailed implementation requirements and promote stakeholders towards a coordinated approach deeper inter-ministerial cooperation in planning. to CSA for the country. This could entail the • Develop farmer water user groups and irrigation setup of a multi-stakeholder platform to identify management institutions; and include the private and prioritize the most cost-efficient CSA practices sector in consultations with user groups on input – at the farm and at the landscape level – as well supply, extension needs, and post-harvest handling. Closing the Potential-Performance Divide in Ugandan Agriculture 83 • Improve diffusion of regional food price information international researchers as well as development and early warning alerts to a much wider audience of partners, it seems that the institutional and policy stakeholders and more closely to real time. dimensions of Ugandan agricultural development have been covered to a significantly lesser extent. • Relaunch the search for viable financial instruments It appears that especially analyses on agri-food- to underpin whole landscape (watershed) restoration related public and sector expenditure would inform plans as foreseen in the 2010 national Strategic future decisions on the efficacy and efficiency Framework for Sustainable Land Management. of spending towards Uganda’s strategic sector 293. 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