SNV Uganda's Senior Investment Advsior - Joseph shares his opinion on why it is important to integrate private sector actors if growth is to be achieved in the agricultural sector.
June is celebrated the world over as the dairy month. The event was first celebrated in 1937 as a way to promote drinking milk during the months of surplus and has now become an annual celebration. The dairy sector should be of particular interest to policymakers as it highlights opportunities of a private sector-led approach to growth. Uganda’s dairy exports have been increasing from $30M (2014) to $130M (2017), making it the third largest agricultural export earner. This is largely attributed to proper infrastructure development and a vibrant private sector.
Following encouragement from the World Bank and the IMF, Uganda in the early 1990s decided to transfer business, industry/service from public to private ownership and control. Requirements for their engagement in agriculture was relaxed to enable them make a profit and add value through processing for export. The government successfully created this enabling environment.
Today, there are fully functional agricultural research organisations with sound competencies to offer advice based on substantial analysis of technical, and operational requirements. The financial sector though vibrant is not providing the capital needed for both on-farm and off-farm agricultural investments. In 2015, SNV with funding from the Netherlands Embassy in Uganda started implementing The Inclusive Dairy Enterprise (TIDE) Project. The project’s primary objective is to work through private sector companies to support farmers in Southwestern Uganda increase quantity and quality of milk produced. Farmers who for long had chosen to invest in other enterprises have embraced commercial dairy farming.
Why? Because sector transformation happens as soon as farming communities start making the transition from (low input, low output) to (high input, high output). This requires a blend of private sector market actors, finance, and extension services. To a dairy farmer, it is being able to have the right products and services provided by the right private sector company, which if invested in by a farmer will lead to a direct increase in milk production. These may include; water for production, proper paddocking and fencing for better pasture management, appropriate on-farm infrastructure like a feeding or milk shade, and good farm management practices. Private sector promotion however without the right products and services necessary for productivity improvement is a waste of time.
There is therefore a need for proper identification of local private sector companies that are willing and interested in providing the required products and services to farmers. This requires significant effort to make them see farmers as crucial business partners and not to act as procurement agents who only approach farmers with a “take it or leave it” price-based negotiation without consideration for the farmer’s wellbeing.
Once this is achieved, market creation becomes critical. Rightly applied subsidies have proved a useful tool for facilitating market creation. A promise to cost-share on the total price of a kilogram of quality seed from a pre-qualified seed company is a better option than handing the same kilogram of seed directly to farmers. Initially, high subsidy rates may be set for priority products and services so long as there is a set criteria for gradually decreasing them as more farmers start seeing the benefits of using improved seeds for instance. The TIDE project has used this approach and in 2018 alone, farmers through their partner private sector companies invested an equivalent of UGX. 8.9 billion (Euro 2.1) of their own money either to purchase productivity improvement products (water system, spray race, etc.) or to pay for a farm service. It's, therefore, no coincidence that southwestern Uganda contributed 42% of the total milk produced in the country. The right private sector companies with the right products and services but without efforts that create and strengthen the market is useless.
Because for profit private market actors tend to look out for farmers/partners with the ready cash to pay for their products and services, additional effort is required to develop the right financial mechanisms where farmers without available money can easily access funding from financial institutions. Financial institutions need to be supported to develop the right agricultural products accessible at fair interest rates. Sadly, most financial institutions prefer to lend to agricultural businesses with regular cashflows like milk traders and disregard primary producers both of whom are necessary in driving commercialisation of the agriculture sector.
Agriculture is rightly Uganda’s economic powerhouse, and farmers are willing to divert resources meant for other businesses to farming if the right products/services with an immediate positive impact on productivity are made available. Private sector efforts left on their own will achieve little! The Government of Uganda should re-focus agricultural effort to private sector enterprises/businesses whose successes are directly related to farmers’ successes.
By Joseph Kiirya, Senior Investment Advisor
The Inclusive Dairy Enterprise (TIDE) project, SNV