A controversial decision by the Tanzania government last year to stop coffee farmers from selling their produce to middlemen who then deliver to auction houses has led to a boom in cross-border coffee exports between Tanzania and Uganda this year as Tanzanian farmers seek a less cumbersome market for their produce.

The regulation, which came into force in May, require farmers to send their beans to the auction house only through co-operative societies, putting a stop to farm-gate buying of coffee beans by middlemen.

The new regulation is intended to improve profits for farmers and extend their role in the supply chain and to reduce exploitation.

“The change in Tanzania’s trade laws was intended to eliminate middlemen but this is unattainable because coffee farmers are generally small-scale players and cannot afford to market their coffee at the auction houses.

“The sharp growth in Tanzanian coffee imports to Uganda resonates with trading patterns witnessed over the past three years but is mainly driven by pure market behaviour and not regional integration opportunities.

“A similar response was witnessed sometime ago when Kenya introduced a 16 per cent value added tax on fuel and some motorists opted to buy their fuel from Ugandan border towns.

“Despite the hurdles involved, this situation clearly offers a win-win scenario for Uganda’s economy and its coffee industry,” observed Richard Kamajugo, a senior executive at Trademark EastAfrica.

Despite the good intentions of the new regulation, the inability of local farmers to meet trading expenses incurred between the farm and auction houses has forced them to sell their coffee beans cheaply to Ugandan buyers in border areas.

Traditional costs incurred before the beans are sent to the auction house include cleaning, processing and grading for compliance with quality standards set by local and foreign regulators.

A significant amount of Tanzania’s coffee is grown in the Karagwe area, an agricultural hub located near the country’s northeastern border with Uganda. Robusta is the dominant coffee variety grown in this area.

Coffee season

Tanzania’s coffee buying season starts in May and ends in September annually, while Uganda’s coffee season commences in September and closes in November, a scenario that highlights spillover benefits for Ugandan coffee buyers engaged in cross-border trade with its southern neighbour.

Dramatic growth witnessed in coffee export volumes on the Tanzania-Uganda border has triggered an increase in the number of coffee milling factories located in the common border areas, increasing production turnover and stronger export forecasts for Uganda’s coffee industry this year.

Around 300 tonnes of raw coffee beans were delivered on average per day in Kikagati, a border town located in western Uganda during Tanzania’s latest coffee season, a pattern that translates into roughly 1,800 tonnes per week, according to local industry sources.

The average selling price for Tanzanian coffee grossed Ush1,800($0.47)-Ush2,000($0.53) per kilogramme of dried coffee beans, commonly referred to as Kiboko.

In comparison, a kilo of Fair Average Quality (FAQ) robusta coffee is currently selling at Ush4,900 ($1.28) on the Ugandan market while FAQ Arabica goes for Ush4,700 ($1.23) per kilo, according to industry data.

The unit transport cost incurred on coffee beans exported from Tanzania is estimated at Ush100 ($0.03) per kilogramme.
At the peak of Tanzania’s coffee season, some coffee millers located in Ugandan border towns saw their daily turnover rise to Ush30 million ($7,877) as some local players commenced preparations for this year’s buying season.

As a result, the number of coffee millers operating in towns such as Masaka located in central Uganda has reportedly increased from less than 20 in the recent past to more than 200 to date, inspite of modest local coffee output.

Total cross border coffee exports sourced from Tanzania are projected to account for 15 per cent of overall robusta coffee output from western Uganda, a region that contributes roughly 40 per cent of the country’s robusta beans, according to Robert Byaruhanga, a trade and purchasing manager at Kyagalanyi Coffee Ltd, Uganda’s largest coffee buyer and exporter with annual earning in excess of $200 million.

“The change in Tanzania’s coffee sector laws has created a big boom for Uganda's coffee industry this year. This dramatic twist in the business environment has attracted many new players of late, particularly coffee millers located close to the Uganda-Tanzania border areas like Isingiro district in western Uganda.

The qualities of Ugandan and Tanzanian coffee are fairly uniform largely because of the blending value that both offer to international roasters.

But we have experienced a few quality-related problems with washed coffee brought from Tanzania due to delays by some transporters hired to deliver to Uganda.

However, policy uncertainty remains a big challenge for local and foreign players in Tanzania’s coffee industry,” said Byaruhanga.

“We have not yet received any samples of Tanzanian coffee. Most of our coffee beans are supplied by farmers in eastern Uganda and are of high grade standard suitable for production of roasted fine coffee.

“But the cost of coffee milling equipment on the local market depends more on design features than the source of production,” said Aziz Kasirye, an employee of Star Café Ltd, a coffee roasting and packaging company.

The price of coffee milling equipment sold on the local market lies in the range of Ush3 million ($788)-Ush7million ($1,838) per unit.

Uganda’s coffee exports grew from around 3.3 million 60-kilogramme bags in 2015/16 to 4.6 million 60-kilogramme bags in 2016/17.

Total coffee exports increased to 4.8 million bags between February 2017 and February 2018 and are forecast to hit five million bags at the end of this year, according to industry players.

The country’s coffee exports are valued at roughly $500 million per year.

Robusta coffee, a variety traditionally grown on flat land, accounts for more than 60 per cent of Uganda’s coffee output.

Rising coffee production are partly attributed to the introduction of new varieties and improved weather noticed in some key growing areas.

Consequently, crop yields registered in some areas of central Uganda have risen from three kilogrammes per tree in 2008 to 15 kilogrammes per tree today.