Contract farming boom from Ugandan beverage makers

Saturday September 13 2014

By BERNARD BUSUULWA, The EastAfrican

Rural communities engaged in contract farming for some Ugandan manufacturers are making good returns in turn stimulating local economies.

The beverages sector has significantly increased the number of farmers on seasonal contracts that guarantee purchase of crop harvests, offering fixed prices.
Transactions negotiated between middlemen and ordinary farmers are often characterised  by exploitation of farmers.

Leading firms engaged in contract farming schemes include Nile Breweries Ltd, Century Bottling Company Ltd and Uganda Breweries Ltd.

Nile Breweries, an SABMiller Group subsidiary, pioneered contract farming programmes about six years ago.

Similar schemes rolled out by other manufacturers have boosted farmers’ incomes, social welfare levels, increased land under cultivation, and accelerated demand for basic goods and services previously considered beyond their means.

Nile Breweries’ contract farming programme is focused on cultivation of a local sorghum variety known as epuripur, currently grown in parts of eastern Uganda, and production of barley in western Uganda.

This programme currently covers more than 16,000 farmers organised into groups based in eastern and western Uganda.

Some Ush30 billion ($11.3 million) is paid to farmers every season. Though big farmers enrolled in these schemes have registered incomes in excess of Ush50 million ($18,914) per season, small farmers reportedly earn around Ush5 million ($1,891) per season, an amount that provides income to upgrade their farms over the medium term.

The average output recorded by small sorghum farmers is estimated at under 500 kg per season, and large farmers produce more than one tonne per season.
Other food items procured through contract farming include mangoes, sunflower, simsim and maize.

“Contract farming has helped increase acreage under cultivation, improved farmer’s bargaining power and also widened access to credit for farmers organised in groups. Steady incomes from contract farming have enabled some farmers to build better houses, buy motor vehicles and invest in value adding facilities like food warehouses.

“However, limited land for cultivation has affected smallholder farmers’ ability to meet production targets set by local buyers. This challenge could be resolved through the use of high grade fertilisers that stimulate higher yields,” said Asaph Besigye, a financial services development consultant attached to Abi Trust, an organisation that promotes better access to credit in the agricultural sector.

Higher disposable incomes enjoyed by farmers in key growing areas like Eastern Uganda have led to an increase in demand for local products, especially fast moving consumer goods and building materials.

Paint makers have registered faster growth in sales outside the central region; the east of the country has seen large sales volumes attributed to high demand from the farming community.

“The average share of total sales from the central region calculated against overall sales volumes has dropped from 60 per cent to 40 per cent because of faster growth experienced outside Kampala, with the eastern region posting very impressive returns.

“This trend is mainly driven by rising demand from local farming communities. As a result, we have increased our sales outlets to 450, with two-thirds of these located outside Kampala,” said Chris Nugent, managing director of Sadolin Uganda, the country’s leading paint manufacturer.

Arrangements between local investors with capital and farmers willing to manage farms for a negotiated monthly fee have also boosted incomes. This trend has also gained momentum in the agro-forestry sector, which has attracted busy corporate executives willing to make long term personal investments.

“I have invested in 100 hectares of cultivated forest in western Uganda, composed of eucalyptus and pine trees. I employ 30 farmers to look after the trees, with each of them earning Ush6 million ($2,269) every six months,” said Isaac Ampeire, a lawyer and member of the Uganda Timber Growers Association.