The rise of middlemen, limited capital and diminished trust among members have crippled growth in the co-operatives sector in Uganda.
This is despite co-operatives enjoying an environment of widespread liberalisation that has, however, also led to the advent of aggressive, bulk commodity buyers.
Middlemen in the commodities business, which largely depends on the agricultural sector, have eroded the role of co-operatives in the farming industry in recent years as co-operatives struggle to increase their capital base, overhaul their structures and improve corporate governance.
While comprehensive data on the activities of such middlemen remains scarce, ample capital, higher bargaining power over individual farmers and lack of regulatory controls over middlemen have boosted their role in farming at the expense of small-scale farmers.
Agricultural commodities popular among local middlemen include matooke, maize, simsim, rice, groundnuts and millet.
Commodities popular among foreign middlemen, particularly Kenyan traders, include eggs, oranges, pineapples and watermelons.
Many of these traders prefer to deal directly with farmers, which ensures quick payment for farm produce but also locks out scrutiny from other players in the industry such as trained agricultural extension staff.
Mistrust among members in co-operative organisations, a consequence of weak administration and financial scandals witnessed in the past, has similarly affected growth in this segment, leading to fairly low membership and savings alongside lowered bargaining power.
Faced with these factors, only 55 per cent of an estimated 80,000 co-operatives in Uganda are reported to be active currently, according to data compiled by Uhuru Institute, a local NGO. But details on these financial performance of the active co-operatives were not available by press time.
“If we do not eliminate the middlemen, then we should not deceive ourselves that co-operatives will survive under this environment. The middleman comes with lots of cheap capital and finds it easy to shut out local co-operatives from the commodities market. Consequently, Uganda’s ambition to attain middle-income country status will dim,” said Nandala Mafabi, a Ugandan lawmaker and outgoing chairman of the Bugisu Co-operative Union.
The emergence of aggressive, bulk commodity buyers such as Nile Breweries Ltd, one of Uganda’s top beer companies that has invested in local sorghum and barley production in the past, has also overshadowed the role of co-operatives in farming.
These players engage farmers directly through provision of lucrative farm contracts that offer farmers fixed prices for their produce, agricultural extension services, high quality seedlings and bulk orders for their output.
The beer maker has over the years mobilised more than 10,000 farmers in eastern and western Uganda, invested more than Ush30 billion ($7.88 million) in its farmers’ programme and harvested hundreds of tonnes of local sorghum and barley for its manufacturing operation.
Despite criticism surrounding the rigid contract terms offered to local farmers, these initiatives have reduced poverty levels and increased farm output in communities.
“There is a lot of dirty money in the economy, some of which is fuelling the middleman business. Member consultations in some co-operatives is shallow, with leaders often choosing to mobilise a few people in trading centres, buy them food and drinks, pay them small sitting allowances and pass quick resolutions instead of reaching out to grassroots members in villages,” David Mayeku, a retired banker and rice farmer said.