Weakening of the Uganda shilling against the US dollar not good for Uganda’s agriculture

The weakening of the Uganda shilling against the US dollar cannot be good for Uganda’s agriculture. This is because most of the inputs that are used throughout Uganda’s agricultural value chains are imported. This means that whatever gains that farmers make in an increase in farm-gate prices are eroded when the farmers need to purchase…

Norah Owaraga

03/09/2015

1–2 minutes

Agriculture, Economics, Fiscal Policy

“Onzivua (not real name), a honey processor from West Nile, whose inputs are all locally acquired, has not experienced a big change in costs of production. His interaction with the dollar is minimal.” http://www.monitor.co.ug/Magazines/Farming/Dollar-rise-is-good-for-Uganda-s-agriculture-/-/689860/2854396/-/item/0/-/10ipjkg/-/index.html

If Onzivua wants to export his honey he will most likely need to use glass or plastic containers which are either imported into Uganda or are made in Uganda with imported inputs. That is one of the reason why imported honey, coffee, rice, juice, etc., and more over of less quality dominate Uganda supermarket shelves. why, because often farmers such as Onzivua are unable to compete when it comes to packaging, for example.

Excellent packaging processes often require reliable access to electricity, which many farmers in Uganda do not have access to. Then there is the cost of transport from farm to urban centers of Uganda for consumption by Uganda’s elite urban dwellers and/or for onward export. The vehicles which form Uganda’s transportation are all imported. The fuel they run on is imported. The spare parts to repair them are imported. Even bicycles or bicycle parts are imported.

The value of farm-gate price gains is further eroded when farmers have to purchase other goods and services that are heavily dependent on imports, for example health care services. As the Uganda shilling value of agricultural produce increases so does the Uganda shilling value of imported medications increase.

Uganda

6 responses to “Weakening of the Uganda shilling against the US dollar not good for Uganda’s agriculture”

Weakening of the Uganda shilling against the US dollar not good for Uganda’s agriculture | cpar uganda

Sep 3, 2015 at 11:55 am

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skaheru

Sep 3, 2015 at 7:50 pm

Thanks, Norah. You state a truth and also point out an additional opportunity; Onzivua should not package his honey in those imported jars; instead, WE should create a home made packaging solution or recycle something so that the impact of the dollar is not negative to his investment. <—My 200 shillings (see – cents are expensive…)

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James Wire

Sep 8, 2015 at 10:57 am

I have a breakdown of the inputs required for rice growing by a peasant farmer and the only import is the chemical used to spray the plants which contributes less than 1% of the costs of production. At farmgate level, these farmers will without doubt experience a net rise in their income, as to whether that rise is negated by the inflationary pressures, that is another issue altogether.

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1. Norah Owaraga
  
  Sep 8, 2015 at 11:40 am
  
  Which farm implements do they use to prepare rice fields? What implements/tools do they use to weed and harvest the rice? What packaging materials do they use for storing the harvested rice? What means of transport do they use to move the rice from field home/stores for storage and from home/stores to the market? Are they not imported and are made in Uganda?
  
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  1. James Wire
    
    Sep 9, 2015 at 5:41 am
    
    A farmer can own a hoe and bicycle for over ten years so don’t look at such as recurrent expenses. Threshing is done using sticks and the ‘tarpaulin’ used even when imported is of an insignificant cost Vs money spent on harvesting. I have the maths and believe me even if those minimal inputs went up by 50%, I don’t see it matching a 20% gain in the price per kilo of rice. BTW am also growing rice and will be ready to share with you my costs as the season goes along.
    
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bedsidereadings

Sep 12, 2015 at 4:58 pm

First of all, the title – “Dollar rise is good for Uganda’s agriculture” is premised on a false impression that (a). Uganda is a net exporter; (b). Only prices for agricultural commodities will rise; (c). Dollar rise affects only Uganda and not our major trading partners like S. Sudan and Kenya, Rwanda, DRC. etc.

The fact that Uganda is an agricultural country, and the fact she earns the most revenue by exporting coffee, it is grossly erroneous to therefore conclude that “Dollar rise is good for Uganda’s agriculture” since.”

A weakening local currency is only good for a nation in a few cases such as: #1. For a country that is a net exporter e.g, (1). in agricultural commodities; (2). in manufacturing like China, which means higher generated revenue from exports; Or, (3). A country that depends on tourism from U.S. tourists, since one would expect rise in tourism if other factors remain constant; Or, (4). The currencies of those countries one is trading with are not equally affected by the Dollar rise.

Case in point: (i). Products exported by UgandaTotal Country Trade: $2.68B
(ii). Products imported by UgandaTotal Country Trade: $5.71B

https://atlas.media.mit.edu/en/profile/country/uga/

A simple maths would reveal that the ratio of import to export is 2:1. But to get a better picture on how the rise in Dollar would affect those in Agriculture, let us break it down further:

Coffee contributed to the highest revenue which was $451,847,820 (17% of exports), the next agricultural product was Raw Tobacco $96,337,286 (3.6%), while in the same year, the highest expense on imports was Refined Petroleum at $1,177,518,951.49 (21%) and Packaged Medicaments $216,918,753 (3.8%).

As you can see, our 2 top export agricultural commodities generated a total of $548M, while money spent on importing 2 top products was was over $1.3B. A ratio of money spent on imports to exports is more than 2.5:1. But even then with 70% of Ugandans depending on agriculture for their livelihood, of that, what percentage grows Coffee and Tea?

So the bottom line is to factor other variables into the equation to find out how depreciation of Ugandan currency against a U.S. currency affects 70% of Ugandans who depend on agriculture for their livelihood and most of whom don’t even grow agricultural commodities.

How does a Banana agriculturist benefit from a depreciated local currency when prices of transporting his goods to the market by vehicles are dependent on imported Petroleum price that is bought on the world market in Dollars? How about the same farmer sending his/her children? How about getting medical treatment?

Besides the imported medicine becoming more expensive because it is imported, there will be indirect effect on other services such as doctor consultation, since the doctor will be paying higher prices for fuel one way or another therefore has to pass it on to his customers.

I don’t think our our agribusiness and ICT consultant has presented a convincing argument for his assertion that Dollar rise is good for Uganda’s agriculture. On the contrary, with the above reasons presented, I do beg to differ.

(There is so much that goes into controlling agricultural commodity prices on the world market in some developed countries that make it impossible for developing nations to ever be able to compete in that arena. http://www.downsizinggovernment.org/agriculture/subsidies ; http://www.economist.com/news/united-states/21643191-crop-prices-fall-farmers-grow-subsidies-instead-milking-taxpayers )

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Humanist