Uganda - Agricultural sector memorandum : the challenge beyond rehabilitation

Rteport No. 5044-UG Uganda Agricultural Sector Memorandum The Challenge Beyond Rehabilitation July 30,1984 Eastem Africa Projects Department Northem Agriculture Division FOR OFFICIAL USE ONLY Documesat of the World Bank This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS (June 22, 1984) Currency Unit: Ugandan Shilling (USh) US$1.00 : UShs318.0 (Second Window) On June 22, 1984, the Bank of Uganda introduced an auction-determined unified exchange rate system. FISCAL YEARS Uganda's fiscal year runs from July to June. Crop years for coffee and cotton run from October to September. WEIGHTS AND MEASURES 1 Meter (m) = 3.28 feet 1 Square meter (m2) = 10.76 square feet 1 Kilometer (km) = 0.62 miles 1 Hectare (ha) = 2.47 acres 1 Metric Ton (ton) = 2,205 pounds OUT-TURNS 1 kg of made tea = 5 kg of green leaf 1 kg of coffee = 1.92 kg of green coffee 1 kg of lint = 3 kg of seed cotton 1 bale of cotton lint= 185 kg ABBREVIATIONS AND ACRONYMS AEL = Agricultural Enterprises Limited APC = Agricultural Policy Committee CEM = World Bank "Country Economic Memorandum" CMB = Coffee Marketing Board ICO = International Coffee Organization IDA = International Development Association IMF = International Monetary Fund LMB = Lint Marketing Board NTC = National Tobacco Corporation UTA = Uganda Tea Authority UTGC = Uganda Tea Growers' Corporation  FOR OMCIAL USE ONLY CHRONOLOGY OF THE MEMORANDUM September 1982 - Request from Government to launch an Agricultural Sector Mission in early 1983 February 15, 1983 - Initiating Memoraadum Discussion March 9-31, 1983 - Mission in Uganda September 19 to October 21, 1983 - Working Draft discussed with Government in Uganda April 16, 1984 - Yellow Cover Review June 25-29, 1984 - Green Cover discussed with Government in Uganda July 30, 1984 - Grey Cover This document has a restricted distnbution and may be used by recipients only in the performance of their offrl duties. Its contents may not otherwise be discdosed without World Bank authorizadon.  UGANDA AGRICULTURAL SECTOR NEMORANDUM CThe Challenge Beyond Rehabilitation) Table of Contents Page No. SUIMAR AND CON'.jSIONS ............................. i - ix I. PERSPECTIVE TO 1984 ..*................ 1.......... 1 A. Role of Agriculture in the Economy .............. 1 B. The Historical Growth Pattern ................... 2 Co Recent Policy Responses ..06........... see...... ... 2 D. Internal Security ............ ................... 6 II. THE CHALLENGE BEYOND REHABILITATION ................. i III. STRATEGIES FOR ACHIEVING SECTOR OBJECTIVES ........o.. 14 A. Overcoming Sector-wide Constraints .............. 14 B. Regional Agricultural Development Strategies .... 35 C. The Traditional Exports Subsector ............... 40 D. Prospects for New Agricultural Exports ..o........ 44 E. The Foodcrops Subsector ......................... 47 F. The Forestry Subsector ....... ................... 53 Go The Livestock Subsector ......................... 54 H. The Fisheries Subsector ......................... 59 IV. INVESTMENT PRIORITIES ............................... 61 A. The Government's Investment Plan ................ 61 B. A Suggested Investment Program .................. 61 ANNEXES AND STATISTICAL APPENDICES Annex 1 - Background to the Agricultural Sector Annex 2 - Animal Health Annex 3 - Project Summaries Statistical Appendix (including List of Tables) - BIBLIOGRAPHY This memorandum is the result of a mission which visited Uganda in March 1983. The members of the mission included: J.N. Wambia (Economist - Mission Leader and principal author of this report), R.L.P. Harris (formerly Deputy Chief, Northern Agriculture Division), H.J.S. Marples (Sr. Livestock Specialist), and S. Carr (formerly Sr. Agriculturalist, RNEA).  MAPS Annual Rainfall (IBRD No. 16793) Farming System. (IBRD No. 16789) Coffee Growing Areas (IRD No. 16790) Cotton Growing Areas (IBRD No. 16791) Tea Growing Areas (IBRD No. 16792) Ilt of Tet Tables Chapter I 1.1 Agriculture's Contribution to Real GDP Growth ............ 1 1.2 Revised Recovery Program Investment Allocation by Sector 3 Chapter II 2.1 Projected Agricultural GDP, Population and Per Capita InCOuum *eee@.eseesm........e..s.....s @@@e*@@@............ .. 8 2.2 Actual and Projected Receipts from Agricultural Exports .. 10 2.3 Share of Agricultural Raw Material. in the Value Added of Salected Manufacturing Industries In 1971 ............. 12 2.4 Projected Trends in Demand for Charcoal and Fuelwood ..... 13 Chapter III 3.1 Exports by Selected ICO Members to Non-quota Marketts....... 24 3.2 Producer and Export Price Changes for Traditional Agricultural Exports in Uganda ............................ 31 3.3 Agricultural Price Indices for Traditional Exports in Ugro ... . . ..... ..a ... . 32 3.4 Ratio of Producer to Export Prices for Principal Crops .... 33 3.5 Agricultural Exports' Term of Trade . ...................... 33 3.b Export Taxes on Agricultural Production ................... 34 3.7 Ratio of Agricultural Processing and Marketing Costs to FOB Prices ........,,,....,. 34 Chapter IV 4.1 Agriculture in the Ten-Year Development Plan ..... . . . . 61 4.2 Revised aecovery Program Proj wcted Phasing of Agricultural Expenditure ........ ..... 62 4.3 Suggested Investment Program . . .. ..... . 64 4.4 Projected Production and Exports (1990) ................... 65  - I - SUMNARY AND CONCLUSIONS Prospects for Agricultural Development Role and Potential of the Sector 1. Agriculture is the most important sector in the Ugandan economy. It accounts for 58Z of GDP, 99% of exports and provides employment for about 93% of the worklag population. Most of the country's industrial activity is agro-based, and around a quarter of the Governmuent's tax revenue comes from the agricultural sector. After a decade of neglect, the agricultural sector Is beginning to recover along with the rest of the economy. Agricultural GDP grew by 10.2% in 1981/82, but Indications are that this recovery slowed down slightly in 1982/83 to 9.8Z. The estimate for the 1983/84 agricultural GDP growth rate Is 4.4X. Food production for both cash and subsistence has also grown considerably, as have official purchases of all major export crops. The major factors contributing to this recovery are the exchange rate adjustments and significant increases in producer prices, which resulted, for the first time since 1973, in net returns to agricultural export production being positive for all major crops in 1983. Despite this progress, the recovery is far from complete and, production of both food and export crops remains well below the peak levels of the 19600 and early 1970e. 2. The agricultural sector in Uganda has the potential to become one of the strongest in Sub-Saharan Africa, as indeed it was during the 1960s. The challenge ahead is to rehabilitate the sector, and beyond that, to embark on a development path which maximizes sectoral growth, contributes to export earnings from an increasingly diverse base, improves rural Incomes, and promotes the country's food security objectives. This is a difficult and challenging task. As this report shows, even assuming an agricultural growth rate of 5% per annum (the 1965-70 historical average), rural per capita incomes would not be restored to real 1970 levels until the end of the century. Our projections do, however, indicate that Uganda has the potential to expand and diversify her agricultural export base and to sustain a 3.8Z average real annual growth rate in export earnings over the years 1985-90, including a 10% average real annual growth rate in non-coffee exports leading to a reduction of the share of coffee in total export earnings from 95% in 1983 to 77% in 1990. Prospects for Agricultural Development 3. For agriculture to realize its considerable potential, efforts must be focussed on : (1) rehabilitating the traditional export subsector of coffee, cotton, tea and tobacco; (ii) developing non-traditional exports; and (iII) removing the technical, institutional and labor constraints to the sector's development. 4. Prospectm for traditional agricultural exports. Traditional agr'cultural exports comprise one of the molt important subsectors in Uganda's econosy. Current production levels, however, are well below previous peak levels, and the rehabilitation of the subsector, which io crucial to growth in the sector as a whole as well as to tho rest of the economw, in the principal focus of the Revised Recovery Program.  - ii - 5. Coffee is the most important cash crop in Uganda. In 1983, it aecounted for 95% of export receipts and 30% of tax revenue. The rehabilitation of the coffee sector is under way with donor assistance. Coffee production has grown sharply in response to higher producer prices and higher yields. Despite Uganda's potential to produce considerably more coffee, its export prospects are constrained by an export quota of 2.3 million bags, well below Uganda's historical production level of 3.3 million bags. Uganda's response to this limitation should be to persist in its demand for an enlargement of its quota from the current 138,000 tons to at least 168,000 tons in 1990, to increase the share of higher-valued arabicas in its quota exports, to improve the overall quality of coffee exports and thereby increase its unit value, and develop sales to non-quota markets. The non-quota market is growing rapidly, and includes most developing country consumers, Eastern European, as well as the Middle Eastern countries. The price differential between non-quota and quota sales has narrowed significantly in recent years with the non-quota price averaging 70% of quota prices, compared with 50% a few years ago. Since Uganda is one of the world's lowest cost producers of robusta coffee, non-quota sales could be increased substantially and still be profitable, especially if domestic processing and marketing margins are reduced. 6. Cotton represents the second largest export crop and has the greatest potential for increasing Uganda's export earnings. Uganda's technology and skills for cotton production are well developed. There are few external market limitations, and price prospects are more favorable than for coffee or tea. Uganda's cotton production in 1983 was 9,700 tons, and is projected to increase to 27,700 tons (150,000 bales) by 1985/86 and to 64,700 tons (350,000 bales) by 1989/90. For this to happen, however, would require an increase in cotton yields through use of pesticides and earlier planting, completion of ginning rehabilitation projects now under way, and a reduction in ginning and marketing costs through improved efficiency in the Lint Marketing Board (LMB) and cooperative unions, by encouraging alternative processing and marketing entities, and most importantly by maintaining price incentives for growing cotton at the farm level. 7. Tea: Uganda has a strong comparative advantage as a tea producer, and the medium-term strategy should be to rehabilitate the existing tea areas of 9,OOU ha of smallholder tea and 11,000 ha of estate tea. This should enable Uganda to produce 17,500 tons of made tea by 1990, still below the previous peak production of 23,100 tons in 1973, but a vast improvement on the 1983 output of only 3,100 tons. For this to be achieved, however, the following actions are necessary: (a) resolution of the ownership disputes of the abandoned tea estates. This is essential before many of the private tea estates can be rehabilitated; (b) rehabilitation of tea factories, roads, tea collection facilities and equipment; (c) restoring a reliable and efficient power service to the factories and over the medium-term, to convert the energy base from oil to fuelwood; and  - iii - (d) amending the UTGC and UTA Acts so as to increase their operational autonomy, accountability and efficiency, eliminate UTA's export marketing monopoly, and strengthen UTA's role as industry coordinator responsible for statistics, publicity and research. 8. Tobacco. The fourfold increase in production in 1982/83 has been in response to higher real producer prices, improved security in the West Nile region (the main producing area) and better availability of farm inputs. Prospects for further increases in production are good, and output could grow from the current level of 1,600 tons to 11-12,000 tons by 1990 provided that: (i) the security situation in the West Nile continues to improve; (ii) tractors are more readily available for hire from the private sector; (iii) NTC's extension services are improved; and (iv) the proportion of higher value flue-cured tobacco in Uganda's total production is increased. In all areas where increases in production are expected, tobacco acreage should be accompanied by increased plantings of eucalyptus trees to provide fuelwood for tobacco fire-curing. Current export marketing procedures used by NTC are consistent with normal commercial practices and require no major changes. However, many of NTC's factory machines are over 30 years old and require replacement. Tobacco processing costs take 65% of the value of the crop ex-factory in Kampala compared with only 44% of the equivalent value in Zimbabwe, indicating that there is probably scope for increasing prices to farmers by reducing unit processing costs. Such improvements in operating efficiency would best be realized if NTC were reconstituted as a joint venture company with a suitable foreign technical and financial partner. The Government concluded such an agreement with the British American Tobacco Company (BAT) in May 1984. 9. Prospects for non-traditional exports. Because of the market constraints on the expansion of coffee and tea exports, it is extremely important that over the medium term, Uganda diversify Its agricultural exports into non-traditional crops. In view of the country's varied ecol- ogical conditions and considerable technical expertise, there are good prospects for such diversification. The livestock subsector provides particularly promising prospects for increasing rural incomes and for generating foreign exchange. Development of this subsector would also help improve the nutrition and income of the less developed parts of the country, since livestock is frequently the dominant economic activity in the poorer and drier regions. However, to be efficient in milk marketing, more control should be given to the milk producers. The Dairy Corporation's functions should be taken over by cooperatives and commercial companies which could, in addition, assume responsibility for providing artificial insemination services. Uganda Meat Packers (UMP) should continue to provide a slaughtering service but not renew its loss-making canning operations. It may also be advisable for Government to sell or lease the tannery at Jinja or form a suitable joint venture company to run  - iv - it. The tannery should process hides and skins for export to "wet blue" stage or finished leather rather than exporting them raw, which nets Uganda 80Z less foreign exchange. The most serious animal health problem is the disease ECF, and there can be little improvement in herd productivity as long as this disease is so prevalent. To help eradicate this and other diseases, emphasis should continue to be on smallholder animal health, with preventive disease control measures having priority. Increasing the availability of vaccines and acaricides, valley tanks and cattle dips and reimposing effective stock movement controls are particularly important. The continued development of small cattle ranches offers an attractive investment opportunity in the livestock subsector. It already has a success record, in terms of incremental production, profitability and institutional effectiveness that is in itself unique in Eastern Africa. The first priority should be to rehabilitate the existing 400 ranches (including the sale or lease of all but a few Government ranches), and thereafter to pursue ranch development in unused tsetse-free areas already demarcated by the Ministry of Animal Industry and Fisheries (MAIF). With these steps, Uganda could realize an exportable surplus of 15,000-20,000 tons of beef by 1990 valued at US$60-80 million in 1984 prices. Eventually, it is anticipated that beef ranches would become dairy ranches or mixed crop/livestock farms. 10. There is also a range of horticultural development possibilities, under consideration by the Ministry of Agriculture and Forestry (MAF), particularly in the Fertile Crescent. The production of fresh vegetables, fruits and flowers for export, particularly in the vicinity of Entebbe airport could become important as a source of income and foreign exchange. However, this would need to be preceded by a major improvement in infrastructure. Cocoa development in the Fertile Crescent is being considered by MAF, but inadequate rainfall in this area and poor yields compared to other countries restricts this possibility. Before additional resources are spent on further cocoa development, the mission recommends that the Government commission a study by consultant experts to review Uganda's suitability for growing cocoa as an export crop. Prospects are better for exporting cottonseed by-products (animal feedstuffs, margarine and shortening, cottonseed oil), once cotton production recovers. The export of other oilseeds, such as sesame, sunflower, soybeans and groundnuts also deserves serious attention. There are also good possibilities for forestry, and the Government has adopted programs to replenish the forest resources. A previous Bank reportl/concluded that there is considerable scope for saving fuel costs in agro-industries by substituting fuelwood for fuel oil. 11. The Foodcrops Subsector. Uganda is potentially self-sufficient in its overall food requirements. However, there are some imports of milk powder, sugar, rice and wheat in small quantities and these are increasing. The Government 's concern about food security is understandable, but the country strategy should not be to achieve self-sufficiency in all food crops, some of which Uganda does not have a comparative advantage in producing. Strategic grain reserves should be approached with care if they are not to become a major drain on the budget. Uganda cannot hope to achieve complete self-sufficiency in wheat, but an intensification and resettlement program in Kapchorwa can be  -v - expected to increase wheat production significantly. Even after the rehabilitation of the only three sugar factories in Uganda, the country will still need to import 15,000 tons of sugar in 1990. Until a rehabilitation program is in place for them, Kakira and Kinyala sugar factories should be shut down. They currently produce insignificant amounts of sugar, but their continued operation depends heavily on Government subsidies and credit guarantees, and they absorb considerable amounts of foreign exchange. Taxes on domestic sugar production (which were suspended for one year from July 1984) should not be set so high that rehabilitated factories cannot earn a return on investment which would enable them to meet their maintenance and operations requirements. 12. Uganda could increase its production of rice if certain tech- nical (high irrigation investment costs, poor taste, and blast disease) and labor constraints could be overcome. Production could match consumption at 26,000 tons of milled rice by 1990. Maize is Uganda's most promising new export crop. There is a potential for maize cultivation in all regions, but particularly in the west. Total production in 1983 is estimated at 450,000 tons, almost twice the previous year's production, but below the peak production of 1975. HAF estimates that Uganda has the capacity to produce annually 1.2 million tons of maize, which after meeting domestic needs, would provide between 100,000 to 200,000 tons for export. Improved public seed development and marketing are essential prerequisites for such an increase in production, and a more dynamic marketing organization would facilitate developing export markets. Constraints to Agricultural Development 13. Agriculture in Uganda clearly has considerable potential, but there are significant constraints which could hinder its development. These are as follows: (a) Institutional constraints to developing the sector's potential. The inefficiency of the agricultural parastatals and cooperatives, which have legal or de facto monopoly in processing and marketing of most agricultural produce is one of the most serious contraints to agricultural development. Most of these institutions suffer from poor financial management, overstaffing, underpaid staff and high operating costs and margins. Moreover, in recent years, the share of the export price absorbed by many of the parastatals and cooperatives has grown sharply. Closely related to the parastatal and cooperative marketing inefficiency problem is the shortage of crop-finance, which reflects both the tight liquidity situation prevailing in the banking system since 1980 and the poor creditworthiness of agricultural marketing institutions. In June 1984, the Government commissioned the Agricultural Secretariat to conduct a study to recommend an improved crop finance system. The failure of the seed and input distribution system which is dominated by the three agricultural ministries, marketing parastatals and cooperatives has also hampered agricultural growth, particularly in relation to annual crops such as cotton. The Government has begun the process of breaking the monopoly of these institutions, particularly in the tea and cotton subsectors, and the mission recommends that Government should continue to decontrol the processing and  - vi - marketing of all agricultural produce, as well as seek ways to improve the efficiency of the parastatals. The availability to farmers of alternative outlets for processing and marketing their produce, would provide competition for the parastatals. At the same time, however, the administrative convenience and efficiency of collecting tax revenue and foreign exchange earnings through one parastatal body is recognized, and any changes which are made should consider this important function. The agricultural public service suffers from many of the same shortcomings of parastatals and cooperatives cited above and also needs major reforms in order to be able to provide more effective services to farmers. Meanwhile, the output from agricultural training institutions continues to be high, and with an implicit employment guarantee in the public sector for new graduates, the agricultural public sector continues to grow. Essential services such as extension and research have limited impact due to severe organizational, policy and resource constraints. Some policy and institutional initiatives are already underway in the tea and sugar sub-sectors. The Government has therefore decided to establish three task forces on Cotton, Foodcrops and Livestock sub-sectors with participation from major donors in the respective sub-sectors, in order to enlist their financial and technical support for initiatives recommended by the task forces. The task forces would recommend the appropriate scope of Government services, cost-recovery measures, institutional means of delivery, and prepare projects through which some of the task forces' recommendations might be implemented. Cb) Technical constraints include the paucity of suitable farm :<ple- ments, the lack of attractive high-yielding seed varieties, and widespread occurrence of crop and animal diseases. These con- straints can only be resolved through long-term efforts to improve the effectiveness of research, and increased use of agro- chemicals and extension. This will require Government to place more emphasis on fostering the development, testing and wide- spread adaptation of farm implements and wider application of purchased inputs and high-yielding seeds than it has done hither- to. Government research and extension agencies charged with these duties need to be more effective. In this regard, the introduction of the Training and Visit System of extension in the Northern Region is an important first step. Another technical constraint is the frequent power failures which hamper agro-processing, especially in remote areas. Rehabilitation efforts in this sub-sector must therefore include the installation of supplementary power sources, while the Uganda Electricity Board (UEB) needs to improve its ability to supply reliable electricity to enterprises in rural areas. (c) Labor constraints are particularly important in the Fertile Crescent on sugar estates, tea, banana and coffee plantations. These plantations used to depend on migrant labor from neighboring countries, but these migrants have since returned home. To help alleviate this problem, labor-saving and higher- yielding technologies should be adopted. Where mechanization can help, all types of subsidies should be avoided, and attention  - vii - should be paid to the organizational framework to ensure that mechanization programs will succeed. The need for, and implications of, mechanization in tea and sugar estates should be studied in detail. Pricing Policies 14. Prices for producers are administered for the major export crops of coffee, tea, cotton, cocoa and tobacco. Since 1980 these producer prices have been increased sharply, and this has been a main factor behind the improvement in agricultural production. While in general, agricultural pricing policy has been an effective stimulus for production, there are two areas of concern. First, the price setting procedures could be improved, in terms of methodology, data base, and the timeliness and appropriateness of the pricing proposals. An agricultural Secretariat has been set up, to coordinate and strengthen the price determination process and detailed pricing proposals formulated. The success with which the Government has been able to judge the appropriate level of producer prices is remarkable considering the absence of meaningful statistics. The Government has taken steps to improve the data base, including conducting a study on costs of production, processing and marketing of major crops. An agricultural Census is planned for 1985. Second, while producer prices have been sharply increased, the farmer's share of the export proceeds has fallen since 1980 for all the four major export crops. Processing and marketing costs for these exports, on the other hand, have grown as a share of export proceeds. This has happened despite an increase in the volume of produce handled by the processors and marketing boards. Over the medium-term, it is vital that measures be undertaken to reduce the margins of the processing and marketing intermediaries. Third, Government receipts from the export tax on coffee have continued to increase, from USh4 billion in 1980-81 to USh 31 billion in 1982-83 and an estimated USh6O billion in 1983-84. These receipts are a major source of Government revenue. Producer prices will continue to be an important policy tool for the Government. The right balance must be sought between maintaining Government revenues and encouraging production. Since the dual exchange rates were merged in June 1984, efforts must now be made to ensure that changes in the exchange rate are fully reflected in the producer prices through quarterly price adjustments. Regional Development Strategies 15. Development strategies for six ecological regions in Uganda are recommended by the mission. They are as follows: (a) In densely populated highlands (Mount Elgon, Kabale and Ruwenzori foothills), intensification through greater use of manure, soil conservation and more effective research and extension is recom- mended, with emphasis on arabica coffee production, high-value horticulture, foodgrains, and dairy farming based on European breeds; (b) The long-term strategy for the Fertile Crescent should be to develop alternative cash crops to coffee. Possibilities exist for re-introducing cotton in the northern and eastern margins of  - viii - the Fertile Crescent, expanding horticultural production for export in areas with good transport and communications networks, and dairy production aimed at the Kampala market. In addition,the development of horticulture, edible oilseeds and the necessary industry would create alternative income opportunities in the Fertile Crescent around Kampala; (c) Medium potential areas with medium population densities (75-150 persons per sq. km.) are found in most regions of Uganda. Research is needed to develop appropriate farming systems for these areas. Cotton production could be expanded in the northern Buganda, Kasese and Busoga areas. Additional crops need to be identified for areas where coffee is the main crop; (d) High potential areas with low population densities (less than 60 persons per sq. km.) include Kabarole, Masindi, Mubende and Hoima districts. They offer suitable opportunities as resettlement areas to absorb population from more densely settled areas, and as sites for large-scale farming using capital-intensive methods. The most likely crops for production under a mechanized system would be maize, groundnuts, sorghum and soya beans . These areas can also help meet Kampala's food needs, particularly bananas, and, once cleared of tsetse fly, could be opened up to large-scale ranching; Ce) Low potential areas with high population densities include only a few areas such as Kumi and other parts of the Eastern Region. These areas include large tracts of swampland, and as population density increases, there will be a growing justification for utilizing such swamps for intensive crop production, rather than applying labor to low potential soils. Rice production schemes have been initiated and can be expanded with primary drainage done mechanically. Individual plot development should be left to farming families so that the overall cost is at a level which is economic and can be widely applied; and (f) Low potential areas with low population density (less than 30 persons per sq. km.) are mostly in the Northern Region and Karamoja. Research and innovation are required to: (i) develop viable livestock and crop production techniques to augment subsistence farming; (ii) improve oxen-based farming systems; (iii) look into the viability of tractor-powered farming in the better areas; and (iv) develop irrigation to support crop and livestock production. Investment Priorities 16. An average annual real rate of agricultural GDP growth of 5% appears feasible during the 1985-90 period. Associated with this rate of growth, an investment program of US$515 million (US$395 million in foreign exchange) is recommended for the period. The program consists of 18 projects, about half the number of projects in the Revised Recovery Program which covers a two-year period. The investment plan supports an export diversification strategy based on food products and livestock, while also  - ix - providing for the rehabilitation of the traditional export crops. From -.-se 18 projects, a core program of 10 projects has been identified, and it is recommended that priority be given to these. The core program, which amounts to $355 million, emphasizes: (i) the development of the tea, cotton and tobacco subsectors in order to increase export earnings; (ii) sugar rehabilitation for reasons of efficient import substitution, promoting rural employment, and providing industrial raw materials; (iii) maize development to help diversify exports, improve food security and promote regional equity; (iv) livestock marketing and ranch development, to improve rural incomes and help the diversification of exports; and (v) agricultural services (extension and research for crops and livestock) and animal health to improve agricultural productivity.  CHAPTER I PRECTIVE TO 1984 A. Role of Agriculture in the Economyl/ 1.01 Role: Agriculture is the dominant sector in Uganda's economy and currently contributes 58% of GDP, 99% of the country's exports, and provides employment to about 93% of the working population. Agricultural export taxes accounted for 27% and 22% of the Government's tax revenues in fiscal year 1981/82 and 1982/83 respectively. The estimate for 1983/84 is 42X. Industrial activity is largely agro-based: cotton ginning, cigarettes textiles and leather products manufacture, sugar refining, grain milling, and coffee and tea processing. Agriculture's contribution to GDP growth is very significant (see Table 1.1). Table 1.1: Agriculture's Contribution to Real GDP Growth (. per annum at 1966 prices) 1979/80 1980/81 1981/82 1982/83 Monetary economy -1.4 0 9.1 6.5 Agriculture a/ -6.0 -1.7 14.4 10.5 Other 1.8 0.6 6.1 4.2 Subsistence Economy -9.3 10.3 6.9 b.5 Agriculture bl -9.4 12.0 7.6 9.4 Other -7.4 14.6 -11.5 2.8 Total GDP -3.3 3.4 8.2 7.3 Total Agriculture a/ -6.0 6.1 10.4 9.8 a/ Includes agriculture and livestock, agro-processing, forestry, fishing and hunting. b/ Includes agriculture, forestry, fishing and hunting and livestock. Source: Computed from Government of Uganda: Background to the Budget 1984-1985 Table 1, Ministry of Planning and Economic Development, June 1984. 1/ Readers who are unfamilIar with background details of the agricultural sector are referred to Annex 1.  - 2 - 1.02 Cotton production, which expanded rapidly during the 1920s and 1930s, initially dominated Uganda's exports. However, in response to favorable prizes, robusta coffee became increasingly important during the 1950s and had become Uganda's major export by 1962. Successful efforts were also made to promote smallholder tea and tobacco production during the 1960s, although their export earnings never rivalled earnings from cotton or coffee. B. The Historical Growth Pattern 1.03 Performance: Given the favorable natural agricultural conditions over most of the country (except northern Karamoja where droughts are frequent), Uganda has been able to produce adequate food in most years. The performance of the agricultural sector deteriorated dramatically during the 1970s (see Appendix 1.1). Production of export crops was the most adversely affected, reflecting increasingly unreainerative producer prices and the general deterioration in capital assets and infrastructure for processing, transport and marketing. Smuggling also increased and caused further reductions in official export earnings. Except during the price booms which occurred in 1976 and 1977, coffee exports were reduced by 47Z between 1969 and 1980, while exports of other crops virtually ceased. Food production is reported to have declined sharply during 1979 and 1980. This was due to the impact of the war and subsequent security problems, and the two successive droughts in the annual crops zone. Regional food shortages, especially in Karamoja, were made more severe by failures in the internal distribution system. Although overall production recovered in 1981, food shortages are still reported in Karamoja and disturbed areas in Central, Southern and North-Western Regions. 1.04 Many problems in the agricultural sector are the results of economic mismanagement in the 1970s and a legacy of economic policies pursued before and during the military regime. The effects of the deteriorated external economic environment were accentuated by the war of 1979 and the ensuing insecurity. In 1980, agricultural export volumes were estimated at 33% of their previous peak, and import volumes were 53% of their 1973 levels. C. Recent Policy Responses 1.05 Introduction. In 1981 the present Government adopted a comprehensive packsge of policy reforms intended to stabilize the economy. Government drew up a rehabilitation program, with support from the World Bank, and the International Monetary Fund (IMF). The responses to the collapse of the economy were essentially two-fold: (i) a three-year public investment program expressed in the Recovery Program 1982-84 which has  - 3 - since been revised2/, and (ii) a series of Stabilization Programs in collaboration witlrthe IMF. 1.06 The Revised Recovery Program earmarked USS 433.2 million for agriculture (see Table 1.Z). The foreign exchange component of the agricultural investment program is estimated at US$ 227.8 million. The Program's main objective in the agricultural sector is to increase Uganda's export earnings by (i) periodically increasing producer prices of major export crops; (ii) decontrolling food prices and markets; (iii) rehabilitating agricultural processing facilities; (iv) improving the availability of agricultural recurrent imports; and (v) improving the operational efficiency of major agricultural parastatals through technical assistance, strengthening financial management and in some cases, allowing competition with the private sector. Table 1.2: Revised Recovery Program Investment Allocation by Sector (US$ million) Actual Balance to Sector Total 1982-83 1983-84 1984-85 Complete Agriculture 433.18 55.90 64.78 94.60 217.90 Industry & Tourism 620.57 55.57 103.25 122.70 339.05 Minerals & Energy 104.85 1.49 12.27 13.53 77.56 Transport & Communication 316.10 7.30 38.10 68.40 202.30 Social Infrastructure 247.72 31.79 52.18 76.78 86.97 TOTAL 1,747.42 152.05 270.58 376.01 923.78 Source: Ministry of Planning and Economic Development, (MPED), The Revised Recovery Program, October 19b3. 1.07 To date, allocations to agriculture of resources under the Government's control have not been as favorable or productive as was expected, given the critical role assigned to it in the Program's objectives and resource requirements. For example, according to records maintained by the Bank of Uganda Exchange Control Department, the proportion of directly identifiable agricultural import allocations out of total imports declined, from 25% in 1981 to 12% in 1982. Total agricultural import allocations were equivalent to US$33.8 million in 1981, 2/ Ministry of Planning and Economic Development, Uganda - Revised Recovery Program 1983184, September 1983. For more comment about the Revised Recovery Program and its earlier version, the Recovery Program, see the World Bank, Uganda - Country Economic Memorandum (December 1983).  - 4 - but only US$20.9 million in 1982.3/ Allocations for export-oriented agriculture declined even more shirply from US$20.2 million in 1981 to US$10.3 million in 1982. Data for early 1983 suggest a continuation of this trend. The regularity of import allocations has also deteriorated; and the share of parastatals in total agricultural sector foreign exchange allocations remained above 65% between 1981 and 1982. Moreover, foreign exchange allocations to export-oriented agriculture were more erratic than for the sector as a whole (Appendix 2.1). This trend is also confirmed from data on changes in the economy-wide import structure, where the share of productive inputs and machinery in total imports declined from 33% of total in 1980 to 14% in 1983. 1.08 While the overall sector implementation record has been good, the Recovery Program has encountered a number of hitches in the agricultural secto-. Donors are spread very thinly over a wide number of projects. In many cases, the coverage of their assistance is such that it is incomplete relative to the requirements of that subsector or project, but the assistance has often not been packaged in such a way as to make the left- over assumable by another donor. In other instances, donors have provided assistance without Government addressing important policy or institutional questions, with the result that opportunities for resolving urgent policy or institutional issues have been lost. 1.09 Another problem is that too few funds have been allocated sporadically to agricultural enterprises to be of any productive use. These funds are sometimes quite substantial in aggregate terms (the sugar industry is the prime example of this problem). The problem can be solved partially by denying funding (where possible) to such enterprises until proper appraisal is done, and then providing for their needs fully. The allocation of foreign exchange to agricultural enterprises has favored financially liquid or important tax revenue generating enterprises (e.g. breweries, NTC, or the sugar companies - see Appendix 2.1), perhaps at the partial expense of less liquid or tax revenue generating enterprises e.g. tea exporters. 1.1U Finally, given the limited implementation capacity of institu- tions in the agricultural sector, the Revised Recovery Program contains too many projects (33) in the sector, some of which appear to be low priority. At the same time, proposed funding appears to be inadequate for implement- ing all these projects, since the RRP is a resource-constrained program. Among the projects that appear to be of low priority in the 1982-84 time- frame given that the stated prime objective of the Recovery Program is the rehabilitation of agricultural exports, and in view of the inadequate mobilization of foreign exchange for the rehabilitation of the exports sub-sector, the limited institutional capacity and availability of counter- part funds for project implementation are: manufacture of agricultural equipment for small farms by MAF (US$2.0 million); rehabilitation of the dairy industry, (US$18.2 million); rehabilitation of the poultry industry (US$4.5 million); rehabilitation of the pig industry (US$1.5 million); 3/ Allocations do not necessarily reflect actual import values. Complete data for 1983 was not available in sufficient detail at the time of this writing.  integrated food production and rural development in South-Western Uganda (US$16.1 million); beekeeping rehabilitation and development (US$1.7 million); rehabilitation of the Veterinary and Fisheries Training Institute (US$2.0 million). If these projects were deleted from the Revised Recovery Program, they would free US$46.3 million which could be spent on other priority projects. 1.11 The Stabilization and Adjustment Program. Producer prices of traditional agricultural exports have been increased substantially and in real terms since 1980 (see Table 3.5),. and this increase, together with the increased availability of production and consumer imports, has been associated with a rapid growth in agricultural production. The price increases between 1980 and 1984, however, were only a quarter of the exchange rate adjustments. The main beneficiary was Government, whose revenues have increased, while farmers' share in the US dollar value of exports has declined (see Tables 3.3 and 3.4). Producer prices must be closely watched, however, to ensure that the incentive to producer is maintained. 1.12 Agricultural export volumes increased by 43% between calendar 1980 and 1983 (Appendix 1.1). A part of the recorded increase may have been due to a reduction in smuggling. Uganda exported 20,000 tons of maize to Tanzania in 1982, the bulk of which was shipped in 1983, and a further 30,304 tons in 1983. New agricultural exports have also emerged as a result of the exchange rate adjustments, but except for maize, the volumes are still insignificant when compared with coffee, cotton, tea and tobacco exports, which are Uganda's traditional exports. Despite the recovery, production of both food and export crops remains substantially below the peak levels achieved in early 1970s, and sugar production continues to decline. Agricultural GDP growth rate declined from an estimated 10.2% in 1981/82 to an estimated 9.8% in 1982/83. Overall GDP growth rate is projected to slow down from an estimated 8.2% in 1981/82 to 5% in 1983/84. 1.13 Institutional reforms in the agricultural sector have received a low priority so far, although the need for such reforms is recognized by the Government. The inefficiency of the agricultural public sector, especially of marketing parastatals, is a critical constraint to sustained agricultural recovery. The shortage of qualified and motivated financial management expertise in the agricultural sector is a major barrier to its effective operation and to the Government's ability to formulate and implement agricultural policy and institutional reform. Unlike its other economic reforms to date, Government has only recently began to take a systematic and comprehensive approach to resolving the institutional weakness of the agricultural sector, and much remains to be done. Government has taken three major steps in liberalizing the marketing of agricultural produce: (i) in 1981, Government revoked the domestic buying monopoly of the Produce Marketing Board in foodgrains; (ii) in 1982, Government revoked the Lint Marketing Board's monopoly in domestic trade In cotton lint and cottonseed; (iii) in 1983, Government allowed the Toro and Mityana Tea Co. to market its own tea overseas in the name of the Uganda Tea Authority, the export monopoly parastatal. In addition, the MAIF has removed all subsidies on acaricides (except for those mandated under an EEC funded project) and will withdraw by end of 1984 from the sale of veterinary drugs and inputs except those which are required for mass  vaccination campaigns or controlled for safety reasons. Government has also removed the subsidy on its Tractor Hire Service which now charges market rates to users. In an effort to improve the operational efficiency of its agricultural parastatals, the Government has formed joint venture companies with foreign firms to manage Kakira Sugar works (with Madhvani S.A.), National Tobacco Corporation (with B.A.T.), Toro Mityana Tea Company (with Mitchell Cotts). Government has also transferred all its agricultural companies, except the Dairy Corporation, from the direct control and supervision of their parent ministries to the Uganda Development Corporation and instituted several measures designed to improve the availability of agricultural credit. These measures include periodic increases in deposit interest rates, providing partial guarantees to banks for crop finance loans to parastatals and cooperatives, a study by the Agricultural Secretariat in May 1984 to recommend a new crop finance system, and provided tax incentives for banks to open rural branches. 1. Internal Security 1.14 The present Government inherited a very difficult security situation, and further progress is required in restoring law and order in some regions crucial to agricultural recovery (particularly in Central, Southern and West Nile Regions). Apart from diverting resources from productive to security expenditures, insecurity discourages long-term investment and disrupts agricultural economic activities. One indication of the impact of security problems is the substantial decline in coffee deliveries to the Coffee Marketing 16oard from some insecure districts in Fertile Crescent since 1982. High prices for foodstuffs in Kampala partly reflect the adverse impact of security problems in surrounding areas, necessitating the importation of foodstuffs from outlying districts in the Western and South-Western Regions.  CHAPTER II THE CHALLENGE BEYOND RRIARLITATION objectives for the Agricultural Sector 2.01 The Government's development objectives for the economy and the agricultural sector beyond 1984 are outlined in the Ten-Year Development Plan 1981-1990. Several major objectives or themes for the agricultural sector can be identified from both the Ten-Year Development Plan and the Revised Recovery Program: (i) increase rural incomes and welfare (including food security), (ii) increase agriculture's contribution to the balance of payments, (iii) increase agriculture's contribution to public revenues, (iv) diversify Uganda's export base, (v) promote equity (regional and rural-urban), (vi) promote rural employment opportunities, (vii) provide increased raw materials, labor and markets to support Uganda's industrial development, and (viii) provide the country's fuelwood and timber requirements. These general objectives are translated into quantitative projections and targets in the rest of this chapter so as to provide more practical interpretations for agricultural planners in Uganda. The projections and targets are also intended to illustrate the magnitude of the challenge facing the Government in the agricultural sector. Many of the projections derive from the World Bank's most recent Country Economic Memorandum on Uganda. 2.02 Increase Rural Incomes and Welfare. About 91% of Uganda's population of 14.1 million (1984 estimate) live in rural areas. Agricultural gross domestic product (GDP) at 19b6 prices was estimated at USh 3.9 billion in 1970, or UShs 418 per capita, assuming a rural population of 9.1 million. By 1980, rural population had increased to an estimated 11.5 million, agricultural GDP was UShs 3.3 billion (at 1966 prices), and rural per capita incomes had declined to UShs 287. Assuming an average agricultural GDP growing at 5% per annum for the 1985-90 period, which is feasible but slightly higher than Uganda's highest recorded average annual agricultural GDP growth rate over a similar period (4.7% during 1965-70), it would take 18 years from 1980 (i.e. until 1998) to testore rural per capita GDP to its real 1970 levels, assuming a constant rural population (and urban) growth rate (see Table 2.1).  - 8 - Table 2.1 - Projected Agricultural GDP, Population and Per Capita Incomes a/ Agricultural Population GDP Growing at 2.9Z p.a. Rural from 1983 from 1980 Per Capita Growing at 5Z p.a. Total Rural Income Year (UShs Billion) Millions Millions UShs (at 1966 prices) (at 1966 prices) 1970 3.8 9.8 9.1 418 1980 3.3 12.6 11.5 287 1985 4.2 14.5 13.2 318 1990 5.4 16.8 15.2 355 1995 6.9 19.3 17.4 397 1998 7.9 21.1 18.9 420 2000 8.8 22.3 20.0 440 Source: Mission estimates. A/ Population growth rate in Uganda is estimated at 2.9% p.a. The growth rate of the urban population is assumed to remain constant at 3.8% p.a. Agricultural GDP is measured in 1966 prices, and includes monetary and subsistence agriculture, cotton ginning, coffee curing and sugar manufacture, forestry, fishing and hunting. 2.03 Increase Agriculture's Contribution to the Balance of Payments. To support a projected 3.6% annual growth in overall GDP during the period 1985-90,4/ Uganda's annual import requirements (visibles and invisibles) will incr"ease from a projected US$664 million in 1985 at 1984 constant prices to US$812 million in 1990, representing a 4% annual growth rate. Agricultural exports in 1983 were US$366.6 million. Agricultural exports would have to Increase from a projected US$438 million in 1985 (at 1984 constant prices) to US$523 million in 1990 (a 3.8% annual growth rate) to help meet part of the import requirement.4/ Since world market prices at 1982 real levels for most of Uganda's exports are expected to stagnate or decline throughout the late 1980s and early 1990s, the annual growth rate postulated above implies a substantial growth in the volure of exports. While the trend over the past three years suggests that such a growth rate may well be achievable, and all 1990 export volumes would still be substantially below their previous peaks, the rate is nonetheless ambitious. At the minimum, such an increase in export earnings would require an increase in Uganda's ICO coffee export quota by 30,000 tons by 1990 (see Table 2.2). 4/ Mission estimates partly derived from CEM projections, December 1983.  -9- 2.04 Contribution to Tax Revenue. The Government's revenue at 1984 constant prices is projected to increase from an estimated UShs83.3 billion in 1985 to UShsl22.7 billion in 1990, an 8% annual growth rate.4/ Agriculture has traditionally been an important source of Government tax revenue. Agricultural export taxes and foreign exchange profits (which derive from agricultural exports) alone accounted for UShs33.6 billion (56.4%) of Government tax revenues in the first nine-month period of fiscal 1983/84. In 1Y90, the CEM projects export duties alone to be UShs25.9 billion at 1984 constant prices (21% of total revenue) as other revenue sources become more prominent. Import duties, exchange profits and export duties accounted for 65% of Government revenues in FY83, but are projected to decline to 59% in 1985 and 39% in 1990.4/ The sharp decline is predicated on projected increases in revenue from other sources (see Table 2.2). Total tax revenues from agriculture (financed through export and import duties) are projected to decrease from UShs49.4 billion in 1985 to USh44.4 billion in 1990 at 1984 constant prices, representing a 2% annual reduction in real rerms.5/ The profitability, level of operational efficiency, and production of all non-coffee expdrts (actual and potential) is so low that the disincentive effects of any taxes on production imposed on them are likely to exceed the revenue generated by such taxes. The agricultural sector's tax revenue contribution should therefore be projected on the assumption that taxes on production, processing or marketing of agricultural exports will be limited to coffee. Coffee taxes, on the other hand, should not exceed current levels of 51% of FOB prices, otherwise Uganda may loose its export market shares through production shortfalls. Higher coffee tax levels are likely to have strong disincentive effects on production. Already, the low ICO export quota allotted to Uganda partially reflects other members' doubts about Uganda's ability to fulfill her export quota obligations, especially after the 15,000 ton shortfall in fulfilling her 1981/82 quota. 2.05 Export Diversification. Coffce exports accounted for 95% of Uganda's exports in 1983 compared to only 51% in 1970. The mission projects that the share of coffee in total exports will decrease from 83% in 1985 to 77% in 1990 (see Table 2.2) while coffee earnings are expected to increase from US$364.4 million in 1985 to US$403.0 million in 1990 at 1984 constant prices (Table 2.2). This suggests that the value of non-coffee exports will increase from US$27.2 million in 1983 to US$73.8 million in 1965 and US$119.6 million in 1990, a 10% annual increase between 1985-90. Except for projected maize exports, all other export targets are well below previous peak levels, and are achievable (see Table 4.4 and the discussion on prospects for new agricultural exports in Chapter III). Nevertheless, redressing the over-reliance on coffee for export revenues poses a major challenge to Uganda's export strategists. 4/ Mission estimates partly derived from CEM projections, December 1983. 5/ Imputed from CEM projections.  - 10 - Table 2.2: Actual and Projected Receipts from Agricultural Exports Actual 1983 1985 1990 - Voluness Values Volumes Values Volun Values ('000 tons) (USS ndmiion) ('000 tcos) (USe =iWion) ('000 tnoR) (US$ miflicc) Coffee 144.3 339.4 183.0 b/ 364.4 185.0 403.0 - Quota Sales 144.3 339.4 (168.0f (349.7) (168.0) (388.0) - N7iQUota Sales - - (15.0) (19.0) (15.0) (15.0) CDCtto 7.0 11.7 21.5 52.6 40.5 80.2 Tea 1.3 1.2 3.0 5.5 9.0 17.8 Tobacco 0.7 0.9 1.6 3.6 2.4 5.1 Kai ze 30.3 11.4 50.0 9.1 58.0 11.5 Other - 2.0 - 3.0 - 5.0 Total 366.6 438.2 522.6 a/ In 1984 costant prices. As.mes that internatianal inflatica rates will be 9.5% p.a. betwem 1983-85, and 6.4% p.a. between 1986-90. b/ Aswss that Uganda's IC0 eport quota will be increased to 168,000 tons. Source: Mission estimates 2.06 Regional Equity. There are no published income distribution statistics in Uganda. However, it is commonly believed that regional income distribution follows closely the agricultural productivity. Thus, the areas north of Lake Kyoga have lower incomes than areas south of the lake and the wetter western regions have higher incomes than the drier eastern regions. The area south and south-west of Lake Kyoga is the coffee-banana zone (the "Fertile Crescent"). Therefore, an export diversification strategy which promotes non-coffee exports such as cotton, maize and livestock products, most of which would originate from the northern areas, would also support regional equity. 2.07 Another key determinant of rural income distribution is the distribution of land. In Uganda, this is generally equal, especially when productive potentials are taken into account. Substantial land pressure above 200 persons per sq km now exists only in four districts (Jinja, Mbale, Bundibuygo and Rukungiri). By projecting from the historical trend over the past 20 years into 1990, it becomes apparent that eleven districts will reach the point of using up all available arable land at 1960s levels of per capita land use. This represents only 20% of Uganda's total land area but 56% of the highest potential areas and this factor therefore becomes an important consideration for planning future strategy for equitable agricultural growth. Uganda has a tradition of population movement and in the 1969 census, about one million people in the rural areas were recorded as living outside the district in which they were born without the benefit of publicly-funded settlement schemes. Most of these movements have been from Central Region to Southern Region, and from South-Western Region to northern parts of the Western Region.  - 11 - 2.08 Rural Employment. In the 1970s, agriculture provided employment to many immigrants (most of them employed in Central Region) in addition to over 2 million Ugandan rural households. Currently, agriculture provides employment to an estimated 1.8 million rural households in Uganda.6/ By the turn of the century, the number of agricultural households will have increased to 4 million, assuming a constant household size of five children and two adults. Agriculture will need to provide employment to a projected 1.9 million households by 1985 and 2.2 million in 1990. Judging from past trends, it is most likely that the employment needs of the increased rural households will largely be met through an expansion of cultivated area and from a reduction in the average farm holding from 6.0 ha in 1985 to 5.2 ha in 1990. In areas with already high population densities, out-migration to lower density areas (from Mbale and Kumi to Kyoga Basin and from Kigezi to Bunyoro) can be expected to continue at a faster pace. These trends would in turn require an increase in the proportion of cultivable land used from 29Z in 1985 to 33% in 1990. To enhance the capacity of the rural sector to provide employment to the projected rural population, it is important that, as a long-term objective, the development of the non-farm rural sector be seen as an essential part of the development of the agricultural sector, improving rural incomes and maintaining some equity between rural-urban income levels. 2.09 Provide Raw Materials and Markets for the Industrial Sector. One other important objective for the agricultural sector is to provide industrial raw materials. Principal among them are tobacco for cigarettes; lint for textiles; oilseeds for soap, cooking oil and animal feeds; sugarcane for sugar manufacture; hides and skins for the leather industry; bananas and sorghum for beer brewing; and timber for wood products. The agricultural sector also provides a domestic market for manufactured products. Principal among them are consumer goods (food and clothing); steel and metal goods (e.g. hoes and roofing sheets); production inputs (chemical, gunny bags, fishnets etc). Demand for agricultural raw materials by the industrial sector is projected to grow at the same rate as industrial production i.e. 5% p.a. between 1985-90. Table 2.3 shows the share of raw materials (most of which are agricultural) in the total value of Uganda's agro-based industrial production in 1971. 6/ based on an estimated average household size of five children and two adults, from a rural population of 12.5 million.  - 12 - Table 2.3: Uganda - Share of Agricultural Raw Materials in the Value Added of Selected Manufacturing Industries in 1971 Industry Percentage Food Manufacturing 85 Beverages 70 Textiles 92 Leather Products 83 Footwear 86 Wood and Wood Poducts 68 Paper and Paper Products 92 Source: Calculated from UN 1973 World Programme on Industrial Statistics, Because industrial machinery prices have increased, and agricultural raw material prices have declined, these shares may be somewhat lower than suggested in the table above. 2.1U Meet the Contry's Fuelwood and Timber Requirements. As a renewable resource, the country's forests have to be managed in such a way as to optimize demand and supply while preserving the environment and soils. Fuelwood requirements are mainly for cooking but also for industrial uses, such as tobacco curing, tea drying, fish smoking, coffee roasting, sugar manufacturing. The demand for fuelwood and charcoal is projected to increase at 2.8X p.a. between 1985-90, about 79.4% of it for household purposes. This would represent a 50.6Z increase in commercial woodfuel and charcoal demand and a 22Z increase over 1982 in non-commercial woodfuel demand by 1990 (see Table 2.4).  - 13 - Table 2.4: Projected Trends in Demand for Charcoal and Fuelwood Growth Cumulative 2 Rate Increase Over (X p.a.) 1982 Level by 1985-90 1990 A. Commercial Energy 4.7 59.9 By S-urce - Fuelwood 4.7 - Charcoal 4.7 50.6 B. Non-Commercial Energy a/ 2.4 22.0 By 2nd Use - kiousehold 2.4 - Commerce 3.0 - Industry 2.9 C. Total Energy 2.9 26.8 By Source - Fuelwood 2.7 - Charcoal 4.7 Source: The World Bank/UNDP: LTganda - Issues and Options in the Energy Sector, July 1983, Table 2.1. a/ All fuelwood. 2.11 Whereas most of the rural household fuelvood and charcoal demand will be met from natural vegetation and on-farm trees and biomass, most of commercial and urban household fuelwood and charcoal demand will be met from forest plantations (natural, peri-urban or industrial) and industrial residues, such as baggasse. In addition to meeting woodfuel and charcoal energy requirements, the forestry sub-sector has an important role to play in conserving soil through reducing water runoff and wind erosion, protecting rainfall catchments, and providing building poles and commercial timber, shelters in tea plantations etc. Although it is difficult to assess the extent of this demand, it seems safe to assume that it may be at least equal to that for fuelwood and charcoal purposes. The Ministry of Cooperatives and Marketing has an on-going project at the Namulesa Coffee Factory of the Busoga Growers' Cooperative Union using coffee husks to produce charcoal, the demand for which is already more than the project can meet. The project will also use rice and groundnut residues (husks and shells) and maize cobs in a similar way, and is expected to be reilicated in other agro-processing units throughout Uganda.  - 14 - CHAPTER III SIRAIEGIES FOR ACHIEVING SECTOR OBJECTIVES A. Overcoming Sector-wide Constraints Technical Constraints 3.01 One of the main features of Uganda's agricultural economy is the low level of technology available and applied, with the obvious result that productivity is low. The low level of technology is reflected in the extensive use of crude implements (basically the hoe and matchette), limited use of purchased inputs, unimproved foodcrop varieties and livestock breeds, and low yields per unit of land and labor applied. In the cotton sub-sector, frequent cloudy and humid conditions provide sub-optimal conditions for high yields. The cotton crop is also frequently infested with insect pests which reduce yields by as much as 30%. Widespread occurrence of coffee berry disease in Bugisu arabica coffee growing areas reduces yields significantly. Livestock production is also adversely affected by the widespread occurrence of many diseases. 3.02 The solutions to these problems generally fall into three categories: more effective research, extension, and increased use of agro- chemicals. Over the next twenty years there will be a growing distinction in the country between those districts in which increases in crop production will only be possible through intensifying land use, and the other districts where land will not be a constraint and where farmers will look mainly to an expansion of area per person to achieve increased per capita income and output. Consequently there will be a need to develop technologies for both sets of circumstances. 3.03 Reliance on rainfall as the main source of water also hinders production, especially where the rainfall is inadequate, its timing inconvenient or unreliable. Frequent causes of crop failure are the delay in rain after crops have germinated, the arrival of rain earlier than expected, droughts or heavy rains during harvesting periods. The country has only isolated areas in which rainfall is inadequate for satisfactory single crop production. A Government study in 19557/ on the possibilities for groundwater irrigation and swamp reclamation concluded that: (i) the total extent of irrigable areas in Uganda using surface water was 45,738 haB/; 7/ Sir Alexander Gibb and Partners: Water Resource Survey of Uganda, September 1955. 8/ Subsequent studies raised the irrigable area to 297,000 ha. 'ee Land Resources Division, Directorate of Overseas Surveys (LRD/DOS) of the British Government: A Survey of the Water Requirements of Uganda, 1970.  - 15 - (ii) the probable areas of swamp land suitable for reclamation are: (a) 4,500 ha in fertile peat swamps in Kigezi; (b) 89,200 ha in clay swamps in the rest of Uganda; (iii) at full development the irrigable areas would require 534.6 million cubic meters of water per annum; and (iv) much field experimentation was required before extensive irrigation and swamp reclamation schemes could be intitiated (six such schemes were recommended). The Government has used the results of that study as the blue-print for its efforts to develop irrigated and land reclamation agricultural projects. The existing irrigated area in Uganda is estimated at about 6,000 ha, most of it (3,480 ha) located at Kakira and Lugazi sugar estates and at rice schemes. In the South-Western Region, swamp reclamation in valley bottoms and in the Kagera Valley has opened up new fertile land for intensive crop and livestock production. Because of the high capital and operating costs normally associated with irrigation, it will only be a viable option in very few instances where very substantial yield increases can be obtained through irrigation. Any plans for irrigation need to be viewed in this context and must therefore be modest. 3.04 Research and Extension. The research and extension services have contributed greatly to Uganda's agricultural development. Both services have experienced a sharp deterioration in their capabilities and effectiveness since the mid-1970s along with the general decline of the economy. With more peaceful conditions and growing economic stability, these services can be expected to improve. However, certain basic improvements are needed in their methods and oranization. Agricultural research needs to receive more reliable funding than it does now, and the quality of research staff needs to be improved. A major limit to the effectiveness of extension and research in Uganda is the absence of an appropriate interface between farmers and extension staff on the one hand, and between extension and research staff on the other. Among several possible solutions to this problem, consideration should be given to the introduction of a Training and Visit (T&V) system of extension in suitable areas of Uganda, such as the more densely populated districts which have many of the conditions necessary for its successful introduction. The T&V extension system will be tested in parts of northeastern Uganda under the proposed Agricultural Development Project. 3.05 Sometimes, the continued use of labor intensive implements reflects a lack of affordable or suitable alternatives. Where intermediate inputs and implements are available (such as ox-ploughs), they are not fully utilized because of other constraints which are not yet resolved (e.g. labor shortages during weeding and harvesting seasons). For example, more research is needed to develop suitable implements that will save labor requirements during periods of high demand, and farmers are understandably reluctant to purchase inputs where the returns are not adequate for the risk. Institutional constraints to the adoption of higher yielding technologies also exist and need to be studied; these include heavy reliance on agencies which are underfunded and have inadequately motivated staff.  - 16 - Labor Constraints 3.06 Until the early 1970s, the Fertile C.escent depended on migrants from neighboring countries for much of its labor supplies, especially on sugarcane, banana, coffee and tea plantations. Most of these migrants have since returned to their countries and are unlikely to return until the economic and security situation in Uganda improves further. Low producer prices for exports have also lowered i.eal wages and are likely to have discouraged local labor from entering the market, encouraging farm workers to concentrate rather, on subsistence agriculture. Shortages of labor are especially severe on the large coffee, tea and sugar estates which previously relied on immigrant labor. Poor weed control due to labor shortages especially on farms infested by the perennial couch grass digitaria scalarum", can reduce yields by 50%. Late planting due to competition for labor for foodcrops during the optimal planting period, April, also substantially reduces cotton yields, but this has been a problem since cotton was introduced to Uganda. It is not clear whether or not certain labor shortages will persist once the economic and security situation improves. Some labor-saving devices are already being used (herbicides on large coffee farms, automation of certain cotton ginning processes). A thorough analysis of the labor market in Uganda is needed, however, before predictions can be made regarding long-term labor scarcity on abundance. Recommendations cannot be made at present regarding the appropriate level, if any of mechanization. 3.07 Since early 1960s, the Government has promoted subsidized tractors as one way by which it can quickly raise the productivity of farmers, and instituted the Group Farms Scheme and the Tractor Hire Service for this purpose. The tractorization programs have been expensive failures budget-wise and in terms of effectiveness, and should not be reactivated without major modifications. Whereas the Group Farms Scheme was abandoned in late 19bUs due to farmers' pressure, the Tractor Hire Service continues to operate today, albeit on a much smaller scale without direct subsidy. The removal of the subsidy is a step in the right direction, and the private ownership of ox-ploughs, power tillers and more tractors for hire should be vigorously encouraged. Financial Constraints 3.ub Foreign exchange is one of the key constraints to the rehabilitation of Uganda's economy, and the agricultural sector is no exception. This constraint is expected to persist well into the 1980s. The agricultural sector requires imports for production, processing and marketing, although the import intensity varies widely between subsectors and depending on the level of technology applied. The limited availability of consumer goods imported or locally manufactured also lowers the incentive for producing cash crops. The agricultural sector was reported to have experienced considerable difficulty in bidding successfully for foreign exchange through Window II. This difficulty reflects the sector's institutional weaknesses, relatively low profitability and severe liquidity problems. For the agricultural sector to be able to compete with the rest of the economy under a unified auction-determined exchange regime, it will be essential to link producer prices to changes in the exchange rate more closely than has been the case so far, and to institute measures to  - 17 - substantially increase competition, efficiency and creditworthiness within the sector. 3.09 Credit. The most pressing agricultural credit problem in Uganda now and for the next few years is crop finance for procuring and processing export crops; notably coffee and cotton. Until the Government introduced its stabilization program in 1981, there was excessive liquidity in the economy which was exerting pressures on the balance of payments and on domestic price levels. The introduction of limits on Government credit from the banking system since 1981, accompanied by improved fiscal discipline and other measures created a tight liquidity situation for the entire economy, but most notably the agricultural exports sub-sector which relies heavily on the banking system for crop finance. In 1983, the gross crop procurement finance requirement was estimated at UShs52 billion (compared with total domestic credit estimated at UShs75.9 billion) and banks have experienced considerable difficulty in mobilizing and disbursing these huge amounts of credit. As producer prices are raised, and the vcLume of agricultural exports increases, so must the outlays for agricultural credit for crop financing be increased in overall credit ceilings. The liquidity problem is further complicated by the poor creditworthiness of most agricultural borrowers. The Government has commissioned the Agricultural Secretariat to conduct a study to propose improvements in the crop finance system. 3.10 There is also a need for an effective production and development credit system in Uganda. Currently, production credit is largely provided by the Uganda Commercial Bank and Cooperative Bank through the cooperative system, while the Uganda Development Bank provides the bulk of long-term agricultural development credit. These institutions require considerable strengthening in order to become effective agricultural lending institutions, but especially the Cooperative Bank. Apart from the lack of effective credit institutions, there is also the constraint imposed by the lack of land title deeds to offer as loan security, especially in northern and eastern regions. Moreover, prices of agricultural inputs (which are often bought on credit) are often too high relative to the profitability of their intended uses so that farmers do not find it profitable to use them. The high exchange risk assumed by importers of agricultural inputs under existing trading systems, in addition to shipping delays, means that credit issues in agriculture in Uganda are closely related to foreign exchange issues. One short-term solution is to increase the producer prices of export products through tax reduction (for coffee and tobacco) or reduction of marketing costs (cotton and tea). Such increases in profitability should increase farmers' liquidity and the affordability of purchased inputs. In the long run, profitability will be increased only through yield improvements or cost reduction. 3.11 The Government estimates that around 46% of the currency in circulation is outside the banking system. Part of the reason for this large sum of money being outside the banking system is the lack of banking facilities in the rural areas. More efforts are needed to mobilize more rural savings to be redeployed at the farm level as production credit to farmers. This can be done primarily by encouraging commercial barks, cooperatives and the Post Office Savings to open more rural branches, allowing them to pay competitive deposit interest rates and to lend at  - 18 - commercial interest rates, and by encouraging them to develop a wide variety of flexible deposit schemes that appeal to small savers. The Post Office Savings rural network is still in place but rauld require reactivating if it is to play an important role in mobilizing rural savings. The Uganda Commercial Bank has 52 rural branches and plans to open more in the near future, as do other commercial banks. In order to encourage commercial banks to open more branches in rural areas, in his Budget Speech in June 1984, the President/Minister of Finance announced the Government's decision to grant a corporation tax exemption for two years to any commercial bank which opens at least two new branches in a year outside Kampala, Jinja, Entebbe and Mbale. To attract into the banking system the large sums of money presently outside the system, interest rates on Treasury Bills, Government stocks and savings deposits were increased by 5-8Z in June. For example, Treasury Bills of 44 days maturity now earn 20% (up from 12x). 3.12 At the processing and marketing level, the agricultural sector will gain more access to commercial credit, not by continued reliance on Government guarantees, but by increasing the creditworthiness of the borrowing entities through revaluing their fixed assets for use as loan collateral, more disciplined financial management, autonomy and accountability. Many agricultural cooperatives and parastatals have poor loan repayment records. Therefore, commercial banks in Uganda view lending to agriculture as very risky. Loan security which farmers can offer for their loans is generally inadequate, and land title deeds are not widely held in Uganda. Since Uganda became independent in 1962, the Government has initiated or supported various schemes to provide additional credit to farmers than would have been available to them otherwise.9/ To reduce the perceived agricultural lending risk to commercial lenders7and thereby increase the flow of agricultural credit, Government is contemplating starting an Agricultural Refinance Bank, one of whose functions may be to rediscount agricultural loans of commercial banks. USAID is also assisting the Government in re-launching the Cooperative Credit Scheme. Meanwhile, Government is looking into ways to reorganize the Cooperative Bank and is strengthening the Uganda Commercial Bank's and Uganda Development Bank's capability in agricultural lending. The Bank of Uganda's new Development Finance Department has an Agro-Credit Advisor from FAO to advise on the evolution of the proposed Agricultural Refinance Bank. 3.13 Experience with agricultural credit worldwide (including East Africa) and Uganda's own experience with credit suggests that a cautious approach is warranted in re-introducing new agricultural credit programs in Uganda outside existing banking and cooperative channels. Perhaps the most important lesson on agricultural credit over the past twenty years has been that a strong, relatively independent institution charging commercial interest rates will serve borrowers better than a weak one, so that it pays to place the objective of strengthening agricultural credit institutions above all other considerations. Instead of creating a new agricultural credit institution, more emphasis should probably be placed on 9/ Among them, the Cooperative Credit Scheme, Progressive Farmers' Loans Scheme, Ankole/Masaka Ranching Scheme, Master Tobacco Growers Scheme and the Tea Outgrowers Scheme.  - 19 - strengthening the existing banks and on creating a policy environment which will mobilize rural savings, increase profitability and reduce the risks in agricultural lending, i.e. maintain positive real deposit and lending rates, encourage a more rapid increase in the number of farmers with land title deeds which lenders can accept as loan security, and maintain or increase the share of farmer's price in the domestic or export value of their produce. The history of agricultural credit in Uganda provides a number of lessons which should be taken into account in designing and implementing future agro-credit programs, especially those directed at smallholders. An evaluation of past credit schemes in Uganda suggests that for future schemes to succeed; (i) they should only be designed for profitable enterprises on the basis of costed farm plans or models. Profitable enterprises for the 1980s appear to be in traditional export crops, bananas, maize, groundnuts, ranching, dairy and poultry farming; (ii) to the extent possible, general mixed purpose or -farm development- loans with uniform repayment terms should be avoided; (iii) adequate supervision by experienced (often specailized) and motivated field and supervisory staff in sufficient numbers to ensure proper coverage is essential. This also implies increased staff mobility or extensive branch representation for staff; and (iv) loans should preferably be made in kind rather than cash, for income-earning and appreciating rather than depreciating assets, and repayment discipline strictly enforced from the beginning. 3.14 Budgetary Resources: The Government's services to the agricultural sector such as research, extension and livestock disease control have also deteriorated as a result of Government's shortage of budgetary funds to support the operations. The situation can be expected to worsen as Government undertakes more capital development projects which have large local capital and recurrent expenditure implications. This problem should be addressed in four ways: (1) reduce sharply the scope of Government and parastatal services only to those which are essential and can be fully financed, and only expand them gradually thereafter as resources allow; (2) maintain a steady reasonable balance between recurrent and development expenditure; and (3) more vigorous full cost recovery from the beneficiaries of Government services whenever possible. Along with these measures, Government should make an even greater effort to improve the level of financial management in the Government agricultural sector. Institutional Constraints 3.15 Agricultural Services. A World Bank Public Administration Study mission in February 1983 concluded that the Ugandan public service is in a state of crisis. The mission noted that the Government does not have the resources to provide all the services previously provided, and in attempting to provide too wide a range of services, meets few satisfactorily. The mission recommended many steps to improve the public service, among which were efficiency audits to determine the scope for  - 20 - reducing the size of the public service to affordable levels. The limited effectiveness of certain agricultural services such as research, extension, land survey registration and export marketing, explains in part the lac of rapid improvement in cultural practices, yields and marketed production. Until the military coup in 1971, Uganda had one of Africa's most qualified cadres of civil servants, and enjoyed an overabundance of trained agricultural personnel. Having put in place numerous training programs, Government has felt obliged to employ all the graduates of these programs in order to reap the benefits of its investment. As a result of changed economic circumstances, the three agricultural ministries now spend over W0X of their budgets on staff costs compared to 40. only 15 years ago. Despite this, staff salaries are less than 10% of their previous values, while operating funds at 10-15% of ministries' budgets have effectively vanished. Payments for authorized travelling allowances are over three years in arrears in each of the three agricultural ministries. At the same time, the ministries have assumed added responsibilities such as input distribution, product marketing, etc. They have the staff to handle the extra work, but no operating funds and certainly no motivation to do so. 3.16 Une of the essential steps in the necessary reform of the agricultural public service is to divest ministries from all functions and services other than those which are essential (e.g. regulatory), or will not be carried out otherwise (e.g. mass vaccination campaigns for the public good). The next step is to conduct a manpower audit to establish the number of employees required to carry out essential tasks efficiently and for whom the necessary back-up support (equipment, allowances, vehicles etc) can be provided.lo/ Manpower audits have now been initiated by Government. The thiri7-step is to enable and encourage professionals with skills demanded in the private sector (e.g. land surveyors, agronomists specialized in certain cash crops and veterinarians) to leave government service and go into private business. Another requirement is to change the curriculum of professional agricultural training in order to orientate agricultural graduates of colleges and the University for self-employment. Where land availability permits, a qualification in these disciplines could be made a stepping stone to a leasehold land tenancy. In the meantime, it will be necessary to discontinue recruiting agricultural, livestock production and veterinary graduates into the civil service. 3.17 The quality and effectiveness of agricultural research would probably improve if the funding and organizational responsibilities are relegated to the respective subsectors. This has been done successfully for coffee and tea in Kenya, sugarcane in Uganda and Mauritius, and for cotton in Uganda in earlier years. The MAP and and Ministry of Animal Industry and Fisheries (MAIF) could lease or sell their many commercial large scale farms and ranches to the private sector (including cooperatives), and thereby limit the annual budgetary drain caused by these farms to the Government, and terminate their role in distributing farm inputs, while reducing their staff accordingly. In any case, most Government distribution activities are carried out from the district 10/ Similar recommendations were made in a study for the Agricultural Secretariat by Winrock International: Uganda Livestock Sector Study, April 1984.  - 21 - headquarters, and therefore their true coverage is small since the shortage of transport is pervasive everywhere. 3.18 One of the Government's main operating expenses in running the agricultural service is for operating vehicles but nevertheless, lack of adequate transportation for its staff renders them office-bound. Government-owned vehicles typically have very high operating costs. In the 1960s, Government had a policy whereby qualified officers were granted bicycle, motorcycle and car loans equivalent to a maximum of one year's salary which they repaid over a 4-year period. They received a mileage allowance in exchange for using their vehicle for official duty. This system reportedly operated at less than 40% the cost of operating a Government fleet, besides providing more incentives to staff and flexibility to Government at the same time. It is widely applied inL many parts of the world. Consideration should be given to re-introducing it. What is clear is that without vehicles, certain essential servics such as controlling livestock epidemic diseases becomes physically impossible (e.g. it is not possible to maintain rinderpest vaccines in cold storage across the country on a bicycle). 3.19 The decision as to how many ministries should serve the agricultural sector, and whether or not to reduce the size of the agricultural public service, is of course based on partly political and economic considerations. The report focuses mostly on economic considerations, although suggestions are also made to increase the political acceptability of the proposed reforms. For many staff, retirement even with compensation would mean loss of security of a "job" and future prospects. While measures for the agricultural sector can be initiated ahead of other Government ministries, they should be made within the wider framework of an overall public administration reform. The reforms are however necessary in order to reduce the burden of the bloated agricultural public service on the economy. The possible areas for action cited need further review and would form part of the tasks of the Agricultural Task Forces (para 3.21). 3.20 The financial costs involved in instituting some of the reforms proposed above are modest in comparison with the benefits, as the illustration below suggests. The Veterinary Department currently has about 500 professionals (up from 25 in 1960). In 1982, salaries alone accounted for 80%. of the Department's budget. In early 1983, the average annual salary of a Veterinary Department professional was about US$500, compared with US$3,000 p.a. in late 1960s and in Kenya. The normal ratio of support staff to professionals was previously 4:1 (compared with 10:1 today), and average salaries of support staff were about half those of professionals (now one-sixth). The Department's 1982 budget may be re-stated as follows: (1) Professional staff salaries (500 x $500) US$ 250,000 Support staff salaries (5,000 x $120) 600,000 Operating Expenses (estimated) 188,000 US$1,038,000 If the service is reduced to 150 professionals with 500 support staff, salaries could be increased by 3 and operating expenses per professional  - 22 - raised to US$3,200 (8.5 times) for about the same annual budget as illustrated below.ll/ (2) Professional salaries (150 x U$1,500) $225,000 Support salaries (500 x US$750) 375,000 Operating Expenses (US$3,200 per professional) 480,000 U$1,080,000 3.21 Reforms in the agricultural civil service are probably the most difficult of the recommended strategies for the Government to implement. In recognition of the need for some institutional reforms to meet the challenge of the 1980s, the Ministry of Agriculture and Forestry (MAF) reviewed its structure in a brief committee report in 1982.12/ Critical institutional reforms in the agricultural sector will be required in agricultural ministries and will require a long time to redress. Policy and institutional initiatlves are already underway in the tea and sugar sub-sectors within the context of two proposed rehabilitation projects, and major initiatives in the coffee sub-sector would need to be tied closely to an expansion of the coffee export quota. Therefore, the Government has decided to constitute three Agricultural Task Forces covering the cotton, foodcrops and livestock sub-sectors to: o delineate the affordable and necessary scope for Government services and how these will be funded; o recommend the most appropriate method of organizing and delivering this priority range of services; o delineate the range of agricultural services which should be provided by parastatals, cooperatives, and the private sector; and o outline a program for the implementation of the recommendations. Major donors in the respective sub-sectors would be invited to participate in the task forces in order to enlist their financial and technical support for initiatives recommended by the task forces. Work is expected to start in September-October 1984. The MAF would chair the cotton and foodcrops task forces, and MAIF the livestock one. The Agricultural Secretariat, which is expected to finalize the terms of reference for the task forces by end-July, would provide a staff member for each task force who would be responsible for arranging and preparing for meetings and missions. The task forces may also recommend consultancy studies or project preparation work. 11/ A 4-6 fold increase in civil service salaries was announced in June 1984. Details were not available at the time of printing. The percentage of the Department's expenditure devoted to salaries is likely to increase further. Retirement schemes with compensation are necessary in order to avoid a continuing drain on the Government budget, and use remaining staff more effectively. 12/ Ministry of Agriculture and Forestry, Proposals of the Staff Development Committee for the Reorganization of the Ministry of Agriculture and Forestry, Confidential draft, June 1982.  - 23 - 3.22 Agricultural Parastatals and Cooperatives. The inefficiency of the agricultural parastatalsl3/, which have legal or de facto monopolies in the processing and marketTEg of most agricultural produce, is a serious constraint to increasing agricultural production. While the volume of produce handled by these institutions has declined sharply over the past decade, they have maintained or increased their employees. Their share of the export value of Uganda's main crops increased sharply between 1980 and 1983, but declined in 1984 (see Table 3.7). Their inefficiency is manifested in increasingly higher operating costs, weak financial managements, frequent delays in distribution of seeds and purchased inputs to farmers, and delays in paying farmers for delivered crops. Many agricultural parastatals now rely on Government subsidies to stay afloat and Government will have to assume responsibility for billions of shillings owed to UCB and the Cooperative Bank by cooperatives. This inefficiency is also reflected in the widespread lack of published audited accounts since 1979, alleged misappropriation of funds, and inadequate procurement procedures. The mission recommends that Government should take measures to reduce institutional and legal restrictions to the entry of the private sector in the processing and marketing of all agricultural products (especially cotton), so as to improve cooperative and parastatal operating efficiency through competition with the private sector. Those parastatals or cooperatives which fail to compete successfully with the private sector without Government support could then be dissolved. Market and Transport Constraints 3.23 Markets. For Uganda's non-coffee exports, there is no restraint on production due to quotas. For the time being at least, there are no international quotas on tea exports, but these may well be introduced within the decade. Export quotas are not foreseen for other products, notably cotton and tobacco. Uganda's export quota under the current Incernational Coffee Agreement (ICA) is limited to 2.3 million bags (equivalent to 138,U0U tons) a year which is considerably less than Uganda's historical production levels of 3.3 million bags (200,000 tons). The quota, established in 1Y81, was based on a conservative estimate of likely production in Uganda during a time of extreme political instability and insecurity. In 1982-83, Uganda exported 166,000 tons of coffee. Uganda has four avenues for its coffee export policy (para 3.48): (i) increase the share of higher valued arabicas in its coffee exports, since the ICA quota does not discriminate between the types of coffee Uganda exports; (ii) increase the overall quality of its coffee by better harvesting, grading and marketing techniques so as to arrest the slide in the unit value of her exports relative to that of other basically similar coffees; 13/ Principal ones are: Coffee Marketing Board (CMB), Lint Marketing Board (LMB), Uganda Tea Authority (UTA), Uganda Tea Growers' Corporation (UTGC), Agricultural Enterprises Limited (AEL), National Tobacco Corporation (NTC), Produce Marketing Board (PMB), Dairy Corporation (DC) and Uganda Meat Packers (UMP).  - 24 - (iii) seek an increase in its ICA export quota allocation, to at least 168,000 tons a year, still below its historical average production of 200,000 tons; and (iv) increase coffee sales to non-quota markets. 3.24 Many ICO members who are economically better off have maintained or increased their non-quota coffee export sales over the period 1977-82 (see Table 3.1). Moreover, with the possible exception of the Ivory Coast, they are higher cost producers of coffee than Uganda. In the meantime, Uganda has been reducing its share of the non-quota export market from a historical average of b% to almost zero (see Table 3.1), while increasing its net opening coffee stocks from 57,000 bags (60 kg each) in 1981/82 to 1,554,000 in 1983/84. The non-quota market is growing rapidly, and includes most developing country consumers as well as Eastern European and the Middle Eastern countries. While the price differential between non-quota and quota sales is volatile, it has narrowed significantly with non-quota prices averaging 70. of quota prices, compared with 50% a few years ago. Table 3.1 Exports by Selected ICO Members to Non-Quota Markets ('OUO of 60 kg bags) 1979 1982 Non-Quota X Non-Quota % ':arkets Share Markets Share Robusta Coffee Total 1,482 33 2,705 30 Indonesia 9 - 1,497 17 Ivory Coast 340 8 588 6 Uganda 247 6 62 - Other Coffees 2,911 65 6,191 68 Colombia 375 8 902 10 Kenya 99 2 366 4 Total Non-Quota Sales 4,486 100 9,047 100 Source: Quarterly Statistical Bulletin on Coffee, July-September 1981, I.C.0. 3.25 Uganda should increase its non-quota coffee exports by as much as the market can absorb, at least to regain its past 6% share of the market, which dwindled to zero in 1983. Assuming that other countries did not likewise increase their non-quota sales or that the ICA did not break down, Uganda could have sold up to 60,000 tons in non-quota coffee markets and  - 25 - realized US$110 million from such sales in 1983.14/ If all such coffee had entered the quota market as "tourist coffee"-,-thereby increasing quota sales from 56 to 57 million bags, the quota market price for robusta would probably have declined by 5% from USS2.7 per kg to US$2.6 per kg. Due to its low quality and perhaps poor marketing abilities or techniques of the CMB, Uganda's quota market prices are often as much as 20% below the market average, and its 1983 export price would thus have been reduced to around US$2.1 per kg. Therefore, its quota market revenues would have been US$303 million (compared with actual receipts of US$339.4 million). The total (quota and non-quota) coffee export revenues would have been US$413 million. Unless the non-quota export sales depress total net export earnings, which seems unlikely in Uganda's case, the policy of restraint not only denies Uganda more foreign exchange earnings from its most efficient source, but more importantly, it also weakens its case for an increased export quota since it reinforces doubts among other ICO members about Uganda's ability to fulfill higher export quota allocations. Therefore, Uganda's current policy of restraining its non-quota market coffee exports is probably difficult to justify. in strategic terms, and should be abandoned. 3.26 Transport. The continued availability of railway transport, both within Uganda, and between Malaba and Mombasa in Kenya is essential for the agricultural sector. Road transport is more expensive than railway transport. The Uganda Railway Corporation's capacity to handle internal agricultural traffic should also be improved, as currently the bulk of agricultural long-haul traffic in Uganda is handled by lorry transport. For example, the unreliability of the Kasese-Kampala railway is apparently the main reason why most bananas to Kampala are transported by truck and partly why all coffee westward of Kampala is first brought to Kampala by truck and then re-loaded (on truck or railway) for shipment to Mombasa. The impact of security problems on transport costs is obvious. Along the Kampala-Mbarara road for example, truckers report that in 1983 they regularly had to pay "road-block fees" to soldiers of about UShs3,000 at every road-block if they were transporting bananas or coffee. On the Masaka-Kampala route (approximately 130 km), there are usually as many as ten road-blocks. In the case of bananas, tr.ckers often have to give away a few bunches to soldiers, in lieu of, or in addition to, money. Naturally, truckers' costs are very high, since they have to hire enough turn-boys to off-load and re-load entire lorry loads at security checks if they should be suspected of carrying weapons. An improvement in the security situation would reduce internal agricultural transport costs greatly. Pricing Policy 3.27 The Price Systej,: Producer prices for all agricultural products other than coffee, cotton, tea, cocoa and tobacco are market determined. There are official producer and market prices for milk sold by the Dairy 14/ Mission estimates. At the time of writing, non-quota market coffee prices were 7U% of the quota market price, suggesting that the revenues from non-quota sales would have been considerably higher than the above estimate.  - 20 - Corporation, but its market share for milk is insignificant even in urban areas. There are no official prices for agricultural inputs except those sold by Government or parastatals. For some products produced by parastatals or companies with Government equity participation (e.g. cigarettes, sugar, rice, beef), factory prices are fixed by Government on the basis of cost of production/processing plus a profit mark-up, but market prices are not controlled. These products are often sold through Government trading parastatals, notably the Food and Beverage Corporation. 3.28 The Price Fixing Procedure: The Government, often with the involvement of IMF and the World Bank has used the following procedures for determining producer prices for coffee, cotton, tea, tobacco and cocoa: Ci) At the beginning of every calendar year, the MAF's Planning Division and the Agricultural Secretariat prepare hectare budgets for each crop in order to determine if the net return will be adequate using projected mid-year input prices and wages. Until 1982, the data used by MAF for inputs and labor were official prices which had no relevance to prevailing market and labor rates, with the result that crop enterprises appeared to be more profitable than they really were, and price adjustments were inadequate to elicit the required production response. This practice has abated since the decontrol of official input prices and limitation of the role of official agencies (ministries, parastatals and cooperatives) in the supply and distribution of inputs. Due to insecurity in some areas of the country, lack of transport, staff and operating budgets, the hectare budgets are not prepared using statistically valid methods, nor is the data always collected through field visits, but rather from unreliable returns filed by extension field assistants. (ii) The MAF's Planning Division and the Agricultural Secretariat also prepare hectare budgets for competing crops and estimate available alternative wage incomes in each area dominated by a price-controlled crop: bananas and urban wage incomes in coffee and cocoa areas; cereals and legumes in the re.-t of the country. These return differentials are then reviewed in the light of individual crop peculiarities such as perishability, ease of marketing, the role ot the crop in the rotation pattern, demand for labor, edibility, and gestation period. As with the crop budgets for price-controlled crops, this exerc. e is not done in a statistically valid manner. (iii) The crop year's border prices for price-controlled crops are estimated using data from World Bank, FAQ, trade publications and other sources, and are adjusted for type or quality differentials for Ugandan exports. Usually Ugandan cotton and flue-cured tobacco exports enjoy a 10% quality premium over equivalent grades on the world market, but cocoa, coffee and tea exports are subject to discounting due to lower than average quality. These border price estimates have usually turned out to have been conservative at year-end. The Ministry of Cooperatives and Marketing (MCM) makes the projections for coffee and cotton prices, and the Ministry of Agriculture for tea, cocoa and  - 27 - tobacco. These projections are corraborated by the Agricultural Secretariat. The prices of barter exports of maize to Tanzania (the only official market so far) have been fixed through negotiations between the two countries annually since 1982. (iv) The average costs of processing and marketing price-controlled products are estimated for the previous year using accounting data collected from cooperatives and rmi keting parastatals. All the five price-controlled products ar. handled exclusively by cooperatives or parastatals. The MCM prepares cost estimates for coffee and cotton, and the MAF prepares cost estimates for tea and cocoa. Cost estimates for cigarettes are prepared by the Ministry of Industry. The Agricultural Secretariat confirms or amends these cost estimates. These cost estimates are adjusted for inflation using expected mid-year prices or a manufacturing price index. Once again, the data base for this exercise is weak since most cooperatives and parastatals do not keep reliable accounts. (v) The Agricultural Secretariat prepares final recommendations for prices to be paid to farmers, processors and marketing boards for coffee, cotton, tea, tobacco and cocoa and submits these to the Agricultural Policy Committee (APC), which passes these to the President's Economic Advisory Committee (PEAC) upoa approval. (vi) After review by a Cabinet Sub-committee on Agriculture, the expected earnings from exporting the five price-controlled products are then apportioned, usually between four claimants: Go-vernment (as export taxes), marketing parastatal, processing cooperative, and farmer. This final step has since 1981 been taken in May as part of negotiations with the IMF for Standby Programs. Usually, these calculations involve projections of the exchange rate, public and private sector credit ceilings and crop finance requirements, public sector wage hikes, adjustments to prices of key inputs such as gasoline and diesel, electricity tariffs etc. The Bank's role so far has been to assist the MAF with new estimates of hectare budgets, and then to advise the IMF on minimum levels of producer prices at the farm level. The final prices are announced by the President in May or in June during his Budget Speech to Parliament. (vi) The above price setting procedure does nGt include tea produced by large estate companies who also market their own produce. Due to the recent volatility in the price regime in Uganda, it has often been necessary to increase producer prices in October so as to maintain the real level of incentives. 3.29 A number of weaknesses with this system have been recognized and are now being dealt with. Prices have often been set too low (e.g. cotton, tobacco and, until 1982, tea), too high (e.g. tea in 1983); or too late (e.g. cotton and tobacco in 1981, 1982 and 1983); views of concerned institutions (especially the marketing parastatals) have usually been overshadowed or ignored. Furthermore, there are inadequate incentives for quality production at all levels, and cost-plus pricing methods have been  - 28 - used to shelter inefficient cooperative and parastatal operations, since the practice has been to cover the costs of the least efficient operators. Cost-plus pricing methods also run the risk of encouraging excessive production of certain crops, e.g. coffee. Other weaknesses, and the measures taken or necesssary to resolve them, are described below. 3.30 Unreliable Data: The success with which the Government has been able to estimate the correct levels of producer prices in general over the past three years is remarkable in view of the virtual absence of any meaningful statistics. The fact that there were major distortions in the exchange rate and producer price regimes greatly reduced the need for very accurate data in order to establish c-rrect levels of price changes. The Government has taken the following steps to improve the availability of data: (i) Goverment is planning and seeking external assistance for a desperately required Agricultural Census as soon as funds are available, hopefully before the end of 1985. (ii) Under the IDA Agricultural Rehabilitation Credit, the Agricultural Secretariat has engaged consultants (Coda [U] Inc) to conduct a one-year Study of Costs of Production, Processing and Marketing of Major Crops. The study commenced in November 1983 and an Interim Report was completed in April 1984. When completed, the study is expected to provide a sampling methodology and input-output coefficients for price determination. The study covers all price-controlled and competing products. A major objective of the study is to address the efficiency of the production, processing and marketing process. It should also assess the foreign exchange requirements for imported crop inputs. The study is expected to be repeated every three years using consultants or staff of the Agricultural Secretariat. (iii) Subsector studies using consultants hired by the Secretariat are near completion covering cotton, livestock, tea, tobacco and non-traditional exports which have addressed or are expected to address issues such as crop comparative advantage, long-term subsector development strategies, aggregate capital requirements for processing factory rehabilitation and policy issues such as the appropriate levels of taxation, suitable institutional set-up, and to identify the need for further study. (iv) The Government has engaged a consortium of economic and accounting consultants to conduct a Parastatals Accounting Study encompassing CMB, LMB, PMB, UTA and ULL with financial assistance from IDA under the Second Reconstruction Credit. This study is expected to be completed in calendar 1985, and will provide more current and reliable data on the cost structure of these agricultural marketing parastatals. (v) MCM, with assistance from USAID, is conducting a program to update the accounts of cooperative unions. This should result in better availability of cost data from cooperatives.  - 29 - (vi) Government merged the two exchange rates in June 1984, thereby removing a major source of distortions in the input-output price structure of price-controlled products. More meaningful cost data wiLl then be available without having to adjust for exchange rate distortions. 3.31 Institutional Weakness: Government has initiated several steps to improve the situation, but it is still too early to tell whether or not these measures will be successful: (i) With assistance from IDA under the Agricultural Rehabilitation Credit, USS1.2 million has been earmarked for strengthening the Planning Division of MAF. Government has requested CFTC to be the implementing agency, and rapid progress is expected. (ii) IDA and other aid agencies are assisting the Ministry of Planning and Economic Development (MPEIJ) to strengthen its Statistics Department. This will support the efforts of MAF in data collection and processing. (iii) With IDA assistance under the Agricultural Rehabilitation Credit, Government has established an Agricultural Secretariat in the Bank of Uganda (BOU) to coordinate and strengthen the price determination process. The CFTC is the implementing agency for the sub-project, and has recruited five expatriate staff, including the Director. The Secretariat has a total of 12 professional staff. Its location in the Bank of Uganda will hopefully increase its participation and that of the APC in Government-I24F negotiations relating to agricultural producer prices. The Deputy Director of the Secretariat was the Commissioner for Marketing in MCM prior to his appointment, and some staff of the Secretariat have transferred from MAF's Planning Division, Makerere University faculty and FAO. (iv) Through various projects (e.g. IDA Agricultural Rehabilitation Credit and the proposed IDA Tea Rehabilitation Project), the accounting capabilities of various parastatals and cooperatives will be or are being strengthened. (v) Government decontrolled the domestic market and prices for cotton lint and seed in October 1982, and is now strengthening its capacity for implementing this decision. (vi) Government is reviewing proposals for amendments to the UTGC Act which will revert the responsibility for setting producer prices for smallholder tea to a farmer-dominated Board of Directors of UTGC. 3.32 Quality and Efficiency Incentives: Government has initiated the following steps to improve incentives for quality and efficiency: Ci) GB will soon recruit coffee liquoring and marketing specialists with funding from the Agricultural Rehabilitation Credit to look into the possibilities and methods for introducing quality premiums for arabica coffee.  - 30 - (ii) Processing equipment for all traditional export crops are being rehabilitated with assistance from IDA and other donors. This should result in higher quality produce which would make rewards for quality improvements more meaningful. (iii) Government is reviewing proposals for amendments to the UTGC and UTA Acts/Decre-'s which will revoke UTA's export marketing monopoly on tea, thereby improving incentives for efficiency in the marketing of tea by reverting this responsibility to producers. The amendments would also enable the Board of Directors of UTGC to introduce a two-payment system which will reward producers for higher-quality teas. 3.33 Declines in marketed production in Uganda have more often been associated with low official producer prices than with the inefficiency costs of selling through monopoly marketing parastatals. Low producer prices have long been the rule in Uganda for almost all cash crops, but especially since the 1970s. Between November 1970 and December 1981, prices of eight consumer goods important to farmersl5/ increased about 3.4 times faster than prices of agricultural products as a group. Meanwhile, prices as measured by the GDP deflator increased b5.4 times. Producer prices for non-controlled agricultural produce (mainly foodcrops) increased almost comparably with prices of those eight consumer items, and were only 15X lower in real terms by December 1981 compared to November 1970. Prices of traditional export crops were severely depressed in comparison to their 1970 levels. For the first time since 1973, increases in producer prices for traditional export crops restored returns to positive levels in 1983. However, returns to cotton, tea and tobacco are not only lower than those obtainable from growing bananas, groundnuts and maize, which compete with these traditional export crops as cashcrops, but are now in fact negative (except for fire-cured tobacco), while returns to coffee and fire-cured tobacco are lower in 1984 than they were in 1983. Returns to coffee production have been competitive with those obtainable from competing crops (see Table 1.3). Predictably, the response in marketed production from coffee growers has been very encouraging in spite ot the relatively bad security situation, while that from tobacco, tea and cotton growers has been below expectations. 3.34 The Government has increased producer prices substantially since 1981. Table 3.2 below compares the increases in producer prices with FOB values for traditional exports. 15/ These are salt, sugar, soap, kerosene, cotton fabrics, cigarettes, meat and bread.  - 31 - Table 3.2 - Producer and Export Price Changes for Traditional Agricultural Exports in Uganda May July 1980 1981 1982 1983 1984 1984 Producer Prices (USh/kg) Coffee (Robusta) 7.0 35.0 50.0 80.0 100.0 130.0 Cotton (safi) 6.0 30.0 40.0 60.0 90.0 120.0 Tea (green leaf) 2.6 6.0 10.0 25.0 40.0 45.0 Tobacco (flue-cured) 14.0 79.3 100.0 150.0 200.0 220.0 FOB Export Prices (USn/kg) Coffee (Robusta) 22.9 95.4 189.0 600.0 720.0 720.0 Cotton (safi) 13.3 95.4 170.1 425.0 570.0 570.0 Tea 4.4 30.1 66.2 225.0 420.0 420.0 Tobacco (flue-cured) 17.0 118.0 227.7 325.0 720.0 720.0 Source: MAF and Mission Estimates These increases have been less than the rate of devaluation of the Uganda shilling. The increases have also been less than would have been warranted by the the combined effects of the increase in export prices of the principal commodities - coffee, cotton, tea and tobacco and devaluation (see Table 3.3 below). Similar indices are depicted for each of these crops in Appendix 2.1.  - 32 - Table 3.3 - Agricultural Price Indices for Traditinal Exports in Ugandaif May 198O 1981 1982 1983 1984 Exchange Rate Depreciation (ERD) USh/US$ 7.4 5U.2 94.5 250.U 300.0 Index 100.0 678.4 1,277.0 3,378.4 4,054.2 Weighted Praducer2/ Price (WPP) USh/ig 6.6 19.2 96.2 154.4 199.1 Index 100.0 282.1 1,414.1 2,271.2 2,927.9 Weighted FOB Export2/ Price (WEP) UShs/kg 12.2 73.0 196.4 672.6 778.2 Index 100.0 598.4 1,609.8 5,513.1 6,378.7 Index Ratios ERD to WPP 1.0 2.4 0.9 1.5 1.4 WEP to ERD 1.0- 0.9 1.3 1.6 1.6 WPP to WEP 1.0 0.5 0.9 0.4 0.5 I/ Producer prices relate to coffee, cotton, tea and tobacco. / Weighted by the volumetric share of coffee, cotton, tea and tobacco in total exports. Source: Mission estimates. 3.35 Several conclusions can be drawn from Table 3.3: (a) for farmers to be fully compensated for the devaluation of the Uganda shilling, producer prices would need to be increased by 38% from their April 1984 levels (b) external prices of Uganda's principal exports in local currency equivalents increased 57X faster than the rate of Uganda currency devaluation and (c) the share of producer to export (FOB) prices in 1984 was 54% lower than in 1980. The last conclusion is depicted for each crop in Table 3.4 below. The lower than expected rate of recovery in marketed production of non-coffee exports so far suggests that substantially higher producer prices may be required to stimulate significant production increases. This recommendation is, however, limited in the case of smallholder tea, where there is a severe temporary constraint on processing capacity, and unless UTGC's tea factories are first rehabilitated, substantially higher producer prices will result in UTGC incurring more financial losses as it would purchase green leaf which it cannot process.  - 33 - Table 3.4 - Ratio of Producer to Export Prices for Principal Crops May 1980 1981 1982 1983 1984 Coffee 0.57 0.26 0.48 0.22 0.24 Cotton 1.31 0.32 0.64 0.38 0.48 Tea 2.17 0.37 0.55 0.28 0.48 Tobacco 0.72 0.29 0.52 0.20 0.23 Source: Mission estimates. 3.36 The table indicates that farmers are now receiving a lower proportion of the export value of all the four traditional export crops then they did in 1980. However, it must also be noted that agricultural exports' terms of trade improved significantly over the 1980-84 period (see Table 3.5 below). Table 3.5 - Agricultural Exports' Terms of Tradel/ May 1980 1981 1982 1983 1984 WPP2/ Index 100.0 282.1 1,414.1 2,271.2 2,927.9 Middle Income cpI3/ 100.0 181.2 373.6 473.4 568.0 Terms of Trade 1.0 1.6 3.8 4.8 5.2 1/ Covers coffee, cotton, tea and tobacco. 2/ Weighted Producer Price. 3/ Iizflation rates derived from IMF reports. Middle income price indices are used because complete low income price indices for the equivalent period were not available at the time. Source: Mission estimates. 3.37 Even as farmers were receiving a lower proportion of the export proceeds of the four major crops, Government increased its taxes on such exports only marginally, mainly from profits of the dual exchange rate system (Table 3.6).  - 34 - Table 3.6 - Export Taxes on Agricultural Production (Z FOB values) May 1980 1981 1982 1983 1984 Coffee Robusta 26 32 20 33 50.9 Cotton - - n.s. 7 2.2 Tea n.s. 2 n.s. Tobacco - 2 8 n.s. = not significant. Source: Mission estimates, World Bank data and Agricultural Secretariat for 1984 estimates. 3.38 Processing and marketing costs for these exports, derived by deducting the proportions calculated in Tables 3.4 and 3.6 from total export proceeds, appear to be unusually high but yet show an increasing rather than decreasing trend between 1980 and 1983, even though the volume of produce handled by the processors and marketing boards increased (see Table 3.7). The data for 1984 suggests a welcome reduction in processing and marketing margins. Table 3.7 Ratio of Agricultural Processing and Marketing Costs to FOB Prices May 1980 1981 1982 1983 1984 Coffee Robusta 0.17 0.42 0.32 0.45 0.20 Cotton - a/ 0.68 0.36 0.55 0.33 Tea (UTGC) - a! 0.03 0.45 0.70 0.49 Tobacco 0.28 0.71 0.46 0.72 0.35 a/ Producer prices were higher than FOB values, therefore meaningful ratios could not be derived. Source: Mission estimates and Agricultural Secretariat for 1984 estimates. 3.39 Since the dual exchange rate system was introduced, and until the merger of the two exchange rates in June 1984, transactions were gradually shifted from the first to the second window, and of the major agricultural export crops, proceeds from tea and tobacco had been transferred to window two. The Government allowed the value of the Ugandan shilling at window  - 35 - one to depreciate steadily, and the first window rate was finally merged with the second window in June 198416/. The unified rate is about 20-30 percent lower than the reported rateiin the parallel market. 3.40 The unified regime has the following features: (a) all cash inflows of foreign exchange in excess of the total amount required for obligatory public debt service payments and external arrears reduction is auctioned on a weekly basis; and (b) all foreign exchange transactions are conducted at the unified auction-determined rate. The unified rate is thus determined by the market. While the expected exchange rate depreciation is likely to be more moderate than over the previous two years, it is vital that, through quarterly adjustments, producer prices reflect the depreciated rate to maintain adequate incentives for the farmers. 3.41 The most effective policy tool for Government in agriculture will continue to be producer prices. Throughout the 1980s, concerted efforts must be made to raise producer prices in real terms to compensate farmers fully for the shilling devaluation and inflation, and to force a reduction in marketing costs of parastatals. The Agricultural Secretariat has prepared a paper on a methodology for establishing producer prices for various export cropsl7/ which institutionalizes and refines the current ad hoc procedures descriTed in para 3.28. The Secretariat's recommendations take into account tax revenue objectives, domestic and international comparative advantage as measured by net farm returns and border prices, domestic resource costs, the exchange rate and inflation, and international and domestic terms of trade. The paper calls for the Secretariat to prepare detailed analyses on the impact of given producer, processor and marketing board price levels on crop finance requirements, farm incomes, the implied exchange rate, transport requirements, and tax revenues or production subsidies. The major weakness of the recommended methodology is its essentially cost-plus price setting approach which is bound to encourage inefficient production, processing and marketing, especially for those activities where competition is restricted legally or in practice. B. Regional Agricultural Development Strategies 3.42 The Densely Populated Highlands: There are three major highland areas in Uganda: Mount Elgon, the Ruwenzori foothills, and the extreme southwest (Kigezi). All have high population densities and are already intensively cultivated. There is little land left for further expansion in the Mount Elgon area and increases in production will have to derive from intensified labor use for weeding and mulching, soil conservation, the integration of cattle into the farming system and improved pest and disease control in both coffee and bananas. There is no reason to limit the growth of arabica coffee output, given its higher value than robusta and the non-selective nature of Uganda's coffee quota. There is certainly scope for improving the quantity and quality of arabica coffee output from this 16/ The unified exchange rate opened at UShs318 per US dollar on June 22, 1984. 17/ Agricultural Secretariat, Working Paper on Agricultural Price Policy - Methodologies and Issues in Price Determination, December 1983.  - 36 - area, which justifies intensified research at the local station on the mountain and a more clearly defined extension program which focuses on proven and applicable techniques. The Mount Elgon area also includes Uganda's main wheat growing scheme, but the area is cultivated at a very low intensity (27% of cultivable area in 1980). As Uganda's demand for wheat increases, the area will likely be more intensively cultivated. 3.43 The southwest (Kabale) and the Ruwenzori Mountains pose a more difficult development problem especially as soil erosion has now reached alarming proportions in Kabale. Although many of these areas are good for growing arabica coffee, Kabale district has only some 600 hectares of coffee recorded, they are remote from major urban markets and have in the past been largely subsistence food producing areas with low per capita incomes. In recent years there has been an increase in trade across the border into neighboring countries and to Kampala based on local foods (peas, potatoes, sorghum) and tobacco. The Kigezi Vegetable Production Scheme had a peak membership of 4,500 families and brought much revenue to the district. Valley botton swamp reclamation undertaken in recent years has led to increased production of horticultural crops and dairy products from exotic cattle. Future policies should focus on research which leads to intensified food production, and high value horticultural products. Two research substations (Karengyere and Nyabwishenya) exist in this area which should focus on the considerable technical problems which require resolution before effective extension work can be initiated. Soil conservation poses serious problems in this area and will require continuing attention. 3.44 Because of their temperate climate, these areas are ideal for pure Bos Taurus cattle. Ayrshire and/or Brown Swiss would be the cattle breeds of choice in these areas because of their adaptation to mountain regions. These areas are ideal for production of very high milk yields from units with 1-5 cows. The Ruwenzori highlands face similar problems to Kigezi but with a much smaller overall population. There is more scope for dairy development, adjacent high potential land into which the population can move, and the railway to Kasese carries the potential for lower cost transport of food, including milk to the Kampala market. Strategies for the area should focus on the same basic factors as for Kigezi. 3.45 The Fertile Crescent: The high potential area adjacent to Lake Victoria is at present the main source of Uganda's foreign exchange and Government revenue. In the past it also produced the bulk of Kampala's food supply. Migrant labor from Rwanda and Western Uganda helped make possible the area's food surpluses and rapidly expanding coffee production of the 195Us and 60s. Much of that migrait labor is no longer available with the result that: (a) there has been a fall in the standard of banana garden maintenance with a consequent decline in productivity; (b) the larger coffee farms with pure stands of coffee have suffered a fall in standards of maintenance and in some cases been abandoned;  - 37 - (c) the area no longer provides an adequate surplus of food to supply all of Kampala's needs; and (d) the shortfall noted in (c), together with the area's security problems, have pushed food production westward providing employment opportunities in their home areas or country for the people who used to supply the Fertile Crescent labor force, thereby reinforcing these trends. 3.46 These developments are now combining with a situation in which the population growth rate can be expected to bring about densities of almost 300 to the square kilometer over much of the area by the end of the century. The major impact of this growth is likely to be a sharp decli;e in the proportion of family income deriving from robusta coffee. The level of output required to restore coffee-derived incomes to 1969 levels would be far beyond any likely market that Uganda might find for its coffee crop. In the face of a relatively static coffee market and a growing population it is likely that farmers will at first extend and then intensify banana production for the Kampala market. Given that the urban population is growing much faster than the rural population, this would help to slow the decline in family incomes. At the same time there are wider implications which are not altogether favorable. The per capita foreign exchange and revenue earning capacity of Uganda's highest potential area would decline; and the most favorably sited production area (in terms of ecology and infrastructure) would be used for domestic food production which can be conducted equally well, and in some cases more efficiently, in other parts of the country with a lower export production potential. 3.47 In the face of this situation three technological changes will be called for: (a) intensification of coffeee production to release land for alternative uses, including better use of manure in coffee gardens; (b) intensification of banana production to meet the needs of a growing population, requiring a greater focus on weevil and nematode control; and (c) identification of major new crops to take the place of coffee that fit into the banana farming system. High value horticultural crops for export could have a role to play in areas with reasonable access to Entebbe airport, but for remoter areas non-perishable crops will have to be found with a large enough potential market to make up the shortfall in income and foreign exchange earning capability. One such crop could be cotton, which was cultivated extensively in the Fertile Crescent before mid 1960s. Its production could be successfully increased in the more marginal northern and eastern areas of the Fertile Crescent. 3.48 High Potential Areas with Low Population Densities: There are a number of high potential areas in Uganda which still have low population densities of less than 60 to the square kilometer (e.g. Hoima, Masindi, Mubende, and Kabarole) and in which population pressure will be still low  - 38 - over the next 2u -tears. These areas have offered two alternative attractions in the past: as settlement areas to absorb population from uore densely settled areas, but the numbers involved have not made a significant impact on population denslty and some of the areas lack basic infrastructure and services and are therefore unattractive to settlers moving in small family groups; and as sites for large scale farming using capital intensive methods. 3.49 A number of capital intensive mechanized schemes have been tried in these areas, but there have been few successes. The major effort came through the Group Farms schemes, which were a complete failure. One of the reasons for the failure was that cotton was selected as a major crop and mechanization was only applied to seedbed preparation and planting while the main labor bottlenecks were in weeding and harvesting. Much of this underutilized land is infested with tsetse fly so is not suited to ox cultivation. Any expansion in cultivation must therefore follow tsetse control, increased population, or the use of tractors. There are individual farmers in Uganda prepared to embark upon large scale farming in underutilized areas. The following factors will require attention if such people are to be encouraged: (a) the identification of cropping systems which do not require large amounts of hand labor for any critical operation; (b) the identification of land preparation systems which minimize expenditure in view of the high cost of fuel and equipment in remote areas far from the source of supply and from support services; (c) the identification of a farming pattern which will maintain soil fertility over time, in view of the heavy cost of initial land clearing in many of these wooded and tsetse-infested areas; (d) a policy which avoids all subsidies, overt or hidden, to mechanized farming. This is essential in view of the high opportunity cost of foreign exchange to the farming community as a whole. 3.50 The most likely crops for production under such a mechanized system are maize, groundnuts, sorghum and soya beans. At the samae time such areas can be expected to supply part of Kampala's food needs (especially bananas) and release land near Kampala for intensive horticulture. Most of the underutilized areas are well suited to livestock production and many of the areas cleared o' tsetse fly have been opened up for large scale ranching in the past. This development is entirely logical and necessary as an interim measure to help cleared areas remain free of fly. The better land will ultimately be required by a growing population for intensive livestock and crop production. 3.51 Areas of Medium Potential and Population Density: Areas of medium potential land, with populations of 75 to 150 per square kilometer are found in most regions of Uganda under different agro-ecological zones. No uniform formula can be provided for the technology which will be required In these disparate areas, but broad guidelines can be established. Among these are:  - 39 - (a) intensification of production will become of increasing importance and acceptability to farmers, and research should focus on intensifying techniques for the future; (b) with growing population pressure, increasing numbers of people will be forced into less favorable areas within these districts (now happening in Rakai and Mbarara) and research will be needed to identify farming systems suited to these areas; (c) the integration of livestock and crop farming is already taking place in these areas and extensive communal grazing is declining (e.g. Bushenyi district); and (d) in areas where coffee is the major cash crop additional crops will require identification to offset the slow growth in market prospects. 3.52 Low Potential Areas with High Population Density: There are few areas in Uganda which fall into this category, but Kumi in Eastern Region is one and other parts of the east will reach this point over the next twenty years. These districts include large areas of swampland, and as population density increases there will be a growing justification for utilizing such swamps for intensive crop production, rather than applying labor to low potential upland soils. The swamps' main economic use currently is for dry-weather cattle grazing. Swamp development at present is polarized between low cost single family plots on swamp margins and high cost, sophisticated intensive rice production schemes. The latter have high unit costs and the former only make use of a fraction of the available land. Technology is required which will initiate primary drainage by mechanical means, but leave individual plot development to farming families so that the overall cost is at a level which can be widely applied. Progress has been made with the techniques of smallholder rice growing but these should continue to be the focus of ongoing adaptive research. 3.53 Low Potential Areas with Low Population Density: The term 'low potential' as applied in Uganda must be seen in comparative terms in that much of the area so described has good rainfall and soils which are of moderate fertility. These areas, mostly in the Northern Region and Karamoja, do not have the exceptional potential of the Fertile Crescent, require more careful handling than western Ugandan conditions but are still a considerable national asset. With population densities below 30 to the square kilometer there will be no overall population pressure in these areas for some years, although there are pockets of pressure in the most favored areas and widespread livestock pressure in those districts (in the northeast) in which people keep livestock as their main source of subsistence. There are four lines of technological research and innovation which are called for in these areas: (a) the development of livestock production techniques and crop introductions which will augment income from subsistence farming; (b) improvement to oxen-based systems of farming to enable families to make better use of available land in the tsetse free areas;  - 40 - (c) investigations into the viability of tractor-powered farming in the more favored areas; care should be taken to make sure that erosion or land deterioration does not follow such cultivation; and (d) further development ot surface and underground water supplies to support crop and livestock production. C. The Traditional Exports Subsector Introduction 3.54 This is one of the most important subsectors in Uganda's economy. The term is generally applied in Uganda to refer to coffee, cotton, tea and tobacco exports. Sugar was once a "traditional export", but Uganda will be a net importer throughout the 1980s. No program for the recovery or sustained growth of Uganda's economy will succeed without having a special focus on the traditional exports subsector. Indeed, its rehabilitation is the principal focus of the Revised Recovery Program, since the Government rightly perceives it as the engine of growth (para 1.06). Coffee 3.55 Coffee is the most important cash crop in Uganda's economy. Most of Uganda's arabica coffee is produced in Mbale district, which has about 16,000 ha planted under coffee, whereas the Central and Southern Regions produce about bb/ of Uganda's robusta coffee. The prospects for increasing Uganda's coffee export sales beyond 185,000 tons by 1990 are limited by quotas, and domestic consumption is negligible. Four broad strategies are recommended for coffee growing areas: (i) increasing the production of higher value arabica coffee; (ii) replacing low-yielding coffee trees with available higher yielding varieties; (iii) increasing the unit value of Uganda's coffee exports through quality improvement, better grading, and improved marketing techniques; and (iv) improving yields through better weed control and pruning. The immediate priority however for the coffee sector is for Government to seek an increase in its ICO export quota from 13d,OU0 tons to at least ltb,UUU tons by 1990, which would still be below its normal coffee production. In view of the fact that Uganda's current quota was established in 1981 on the basis of faulty production estimates clouded by then precarious internal security situation, Uganda has a valid case for an increased export quota. Cotton 3.56 Much of Uganda's cotton In the 1940s and 1950s was produced in the Fertile Crescent (Buganda/Busoga/Bukedi), but production moved northwards as coffee prices improved relative to cotton prices. The growth in cotton production in the 195Us and 1960s was the result of area expansion as yields remained static at an average of 300 kg seed cotton per hectare despite the movement of production from the Fertile Crescent to the less suitable areas in the East and North. This low yield in part reflects Uganda's lack of strong ecological advantage as a cotton producer and in  - 41 - part the low level of technology used in growing cotton in Uganda.18/ Despite less than ideal climatic factors, yields of 1,000 kg per hectare can be achieved under field conditions using the varieties now available to farmers. Cotton is also well suited as the first crop in the rotation after land-clearing. The technical factors involved in raising yields are early planting; proper plant populations, spacing and weed control; and insect control. Proper weed control and early planting are both constrained by seasonal shortages of labor. 3.57 Future Production Prospects. Expanded cotton production would be desirable for Uganda because the technology and skills are well developed, there are few exLernal market limitations and the price prospects are more favorable than for coffee or tea. A number of farmers in the more favored areas could achieve yields of 1,000 zg of seed cotton per hectare, particularly from timely planting and good pest control. Future increases in productivity will come from the limited number of farmers in the most favored growing areas who are prepared to adapt their whole farm plan to the needs of the cotton crop, most probably through contract farming arrangements whereby farmers are supplied with inputs and extension services on credit by their cooperative union which buys the cotton crop from them. Increases in overall production will be related closely to the area planted and this in turn will depend on the availability of ox-ploughs and profitability of cotton relative to alternative cash crops (millet, sorghum, maize, groundnuts, cassava). Attention would also need to be paid to other related aspects of production and marketing such as reliable electric power supply, crop finance, road and rail transport and warehouses. Uganda's cotton production in 1983 was 9,700 tons, is projected to increase to 27,700 tons in 1985/86 and to about 64,700 tons in 1989/90 (mission projections). Uganda is unlikely to match the per capita cotton production levels of the mid 1930s when a population of 25% of the current size produced a crop seven times greater than the 1982/83 crop. In the 1969 population census, the Northern and Eastern Regions produced 15.78 kg of lint per person. To achieve a similar level in 1983 would have involved a national crop of 587,000 bales of lint (as compared with an estimated output of 52,400 bales). If cotton were to make the same contribution to per capita incomes in 1990 in the two Regions as it did in 1969 (given that the present projected constant lint price for 1990 is the same for 19b9) then total national production would have to be 693,515 bales. The projected production level of 350,000 tons in 1990 represents a regional per capita production of 8.0 kg, a sharp reduction from the 1969 level. Tea 3.58 Western Uganda has considerable natural advantage as a tea producing area and by 1972 some of the best managed estates were achieving yields of 12,000 kg green leaf per ha, which were amongst the highest in the world. In 1974, despite the shortage of inputs and a high proportion of immature tea, smallholders in Ankole district averaged 4,700 kg of green leaf per ha which is higher than smallholder averages in Kenya. The quality of tea is moderate to good and in 1972 the price of Ugandan tea was 18/ However, the yield estimate is based on doubtful area records.  - 42 - only 4Z below that of Kenya at the Mombasa auctions. Unfortunately, the tea boom of the late 1970s and late 1983 came at a time when the Ugandan tea industry was falling into a state of almost complete abandonment and was thus unable to use the high returns of that period to build its tea estates and infrastructure. In consequence, field and factory rehabilitation must now take place at a time of lower long term tea price prospects. It also means that opportunities to expand the area of tea at a time of relatively high prices has been lost and the viability of any future planting at anticipated price levels is uncertain. As a result it appears that Uganda's strong comparative advantage as a tea producer will be underutilized since, at projected tea prices,it is no longer economic to plant new tea bushes in many suitable areas. 3.59 The existing tea resource consists of some 9,000 ha of smallholder tea and 11,000 ha of estate tea. The smallholder sector reached its peak production in 1974 with sales of 24 million kg of green leaf. In 1983 the figure was 1.3 million kg from tea bushes which should have reached maturity and entered a more productive phase. The estate sector has been equally hard-hit and production is recovering slowly, but this recovery is hampered by labor shortages. Policies for the coming decade should focus on the rehabilitation of the existing asset (fields, factories and infrastructure) and there is no justification for any expansion of the area under tea until such time as the infrastructure and processing capacity has been restored to a level capable of dealing with the production from existing plantings. This should be preceeded by a fuelwood planting program to enable tea factories to convert their energy source from oil to fuelwood firing.19/ 3.60 The strategy for the tea industry should be geared towards restoring the production capacity of the current asset by: (a) provid-ng an adequate and regularly paid producer price to cover rehabilitation, fertilizer, weed control and labor for plucking; (b) restoring the manufacturing capacity of the factories and the leaf collection service to smallholders; (c) restoring a reliable power service to the factories and where possible replacing oil-fired for wood-fired equipment; (d) amending the UTGC Act so as to increase the operational autonomy of UTGC and farmer's representation on its board and that of its companies; (e) strengthening the financial management and engineering capabilities of UTGC and AEL; (f) fuelwood planting; 19/ A Tea Rehabilitation Project covering the needs of UTGC, UTA and AEL is under preparation ro be financed by IDA. The IFC has also financed two tea rehabilitation projects in the private sector since 1982.  - 43 - (g) restoring financial viability for the tea parastatals, especially the tea estates AEL and UTGC; (h) improving the export marketing arrangements for tea, including eliminating the export monopoly role of the Uganda Tea Authority (UTA), making it instead a licensing agency; and (i) reorganizing the UTA to give it a more industry-representative structure and accountability, and strengthen its role as industry coordinator responsible for planning and policy, statistics and research. Because of the short -shelf life- of green leaf it is essential that reliable manufacturing capacity be restored at the same time as favorable price signals are given to farmers. The promise of a high price which stimulates leaf production which the farmer cannot sell would do more harm than good. 3.61 Production Prospects: An integrated program to upgrade processing, collection, input supplies and pricing over a two year period could be expected to result in a crop of 17 million kg of green leaf from the smallholder sector compared to 3.1 million kg in 1983. It should be possible to achieve a crop of 30 million kg from the smallholder tea within five years if prices and services are maintained. Estate tea poses problems of ownership in the private sector and of management and a lack of liquidity in the public sector. It is unlikely that more than 9,000 ha of estate tea will be brought back into production, and it will require at least 5 years of favorable circumstances to restore a national yield level of 6,0O0 Yg of green leaf per ha, giving an overall production of 54 million kg. The total combined output would then be of the order of 17,500 tons of made tea annually from both sectors. Tobacco 3.62 Tobacco is grown in four main areas in Uganda which are gazetted by the Government. Farmers tend co grow larger areas of fire-cured than flue-cured leaf. Flue-curing requires greater skill and labor input than fire-curing. While fire cured tobacco is purchased directly from farmers by NTC, flue-cured tobacco is purchased by NTC from farmers through cooperative societies. The domestic cigarette tax policy and the impact of an overvalued exchange rate are such that imported cigarettes cost less in Kampala than locally manufactured cigarettes. Current export marketing procedures used by NTC are consistent with normal world practices and require no major changes. Some of NTC's factory machines (especially rollers, air-conditioning cylinders and tobacco cutters) are over thirty years old and will require replacement if they are not to be a constraint to expanded production. Likewise, the cigarette manufacLuring plant, of an init4al thirteen machines, now has only four working, the others having been cannibalized to keep the four operating. The rest of NTC's tobacco processing and cigarette manufacturing and packing ecuipment also need urgent overhaul. Tobacco processing costs take 65% of the return on the value of crop ex-factory in Kampala against only 44% of the equivalent value in Zimbabwe, indicating that the major scope for a price increase which will yield a marked incentive to growers for added production must  - 44 - lie in reduced unit processing costs. No doubt these will occur to some degree as a matter of course, and as throughput of tobacco increases, which should allow a greater use of existing machinery and a spreading of amortization and interest charges over a larger output. However, this will be limited by the fixed costs on already depreciated machinery which may not be a large proportion of current processing costs. Substantial economies will probably only arise with improvement in management activities. These improvements are likely to come through a joint venture with a foreign technical partner in a reconstituted NTC. In recognition of this fact, the Government concluded a joint venture and management agreement with the British American Tobacco (BAT) Co. in May 1984 to jointly own and run NTC. 3.63 M4uch of Uganda's tobacco production is consumed by the domestic cigarette industry. Uganda's policy is to export higher value flue-cured tobacco and import cheaper tobacco for domestic use. Security has been a problem in Uganda's main tobacco farming district (West Nile) for many years now, and this has adversely affected the country's tobacco production. The importance of depth and timeliness of ploughing for tobacco cultivation is such that ox-drawn or tractor-powered implements have to be used. The strategy for increased tobacco production in Uganda should revolve around improving the cultural practices, early planting, improving the availability of tractors for hire from the private sector, improved extension from the NTC, and increasing the proportion of the higher value flue-cured tobacco in Uganda's total production. This would require higher producer prices, further investmencs by farmers in curing barns, light tractors and improving the operational efficier-y of the NTC. Considerable potential exists for expanding flue-cured tobacco production in Lango, East and West Acholi, West Nile, Madi, and Kabale districts to produce 6 - 7,000 tons per year. Up to about 5,000 tons of fire-cured tobacco can be produced in Bunyoro, Mubeade, Central Teso and North Busoga districts. In all these areas, acreage expansion should be accompanied by increased plantings of eucalyptus trees to provide fuelwood for tobacco fire-curing. Current NTC plans to plant only 1,400 hectares are grossly inadequately for the requirement. D. Prospects for New Agricultural Exports 3.64 The limit placed on the expansion of coffee and tea by market prospects provides an urgent stimulus for investigating the potential of alternative crops and animal products (e.g. hides and skins). At the same time the growth of possible new markets for food crops in neighboring countries could also form the basis of an export strategy for the future. The potential for new agricultural exports is indicated by the fact that in 1982, Uganda earned US$10.7 million from 26 such exports including US$7.9 million from 20,120 tons of maize and USS1.8 million from hides and skins exports. This amount exceeded earnings from cotton, tea, and tobacco exports combined. In 1983, the value of these new agricultural exports amounted to US$13.4 million (including US$11.4 million from maize exports).  - 45 - 3.65 The Need for Alternative Crops: From the national point of view the most pressing need for identifying alternative crops is to offset the slow growth in the international coffee market. The Committee on Policies and Strategies of MAF has proposed a wide range of horticultural crops for the Fertile Crescent.2o/ There is little doubt that some of these are well adapted to the ecology of Central Region but two factors have to be considered: (a) the export of fresh vegetables, fruits and flowers will have to be preceded by a major improvement in infrastructure. Entry in to this specialized and highly competitive market will not be possible on any substantial scale when roads are in a poor state of repair, telephone and telegraphic services are substandard, and when aircraft movements do not have the reliability which is essential for this type of operation; and (b) even if a successful horticultural industry is established it is unlikely to be on an adequate scale to offer a livelihood to the million or so adults who will be entering the labor market in the fertile crescent before the year 2000. Kenya's highly developed horticultural sector, based on many years of experience and marketing expertise does not involve a work force of that size. A range of horticultural possibilities require active investigation, particularly with regard to marketing. A number of these may make a significant contribution to communities within a fifty mile radius of Entebbe airport but are likely to be of declining importance outside that zone, in wnich less perishable products will have to be considered. 3.66 MAF is anxious to press forward with cocoa development in this zone, but many years of effort have resulted in a peak export volume of only 260 tons in 1978 (mostly to HLolland) from a reputed 14,000 ha of plantings with a potential for producing 6,300 tons. There is a fundamental problem that most of the Fertile Crescent appears to have inadequate rainfall to be ideal for cocoa growing and it cannot be considered as having comparative advantage in relation to the major producers. The costs of introducing irrigation in the Fertile Cresceat would not be covered by the benefit of increased production. Cocoa would not be more profitable to farmers or the country than the robusta coffee it would replace. Yields of 1.1 tons/ha are poor compared to other cocoa producing countries, and even these are realized only in a few good farms in Buganda. Cocoa in Uganda also suffers from infestation by various pests. Furthermore, world market prospects are poor. Before additional resources are spent on further cocoa development, the mission recommends that the Government commission a study by consultant experts to review Uganda's suitability for growing cocoa as an export crop. 3.67 Spices and condiments are a possibly better focus of attention. The area is well suited to their production, but the extent of the market 20/ Ministry of Agriculture and Forestry, Report of the Committee on Policies and Strategies for Agricultural and Forestry Development, Confidential draft, June 1982.  - 46 - is likely to be the major limitation. Areas near Lake Victoria are well suited to sugar production but the potential for export is hampered by Uganda's long supply line to the sea. The Fertile Crescent is well suited to intensive dairy production, for whose products a ready domestic market exists, and this could certainly serve to offset the loss of coffee incomes for significant numbers of families when the security situation has stabilized and input supplies, particularly acaricides, can be guaranteed. Any initiatives for new enterprises must be assessed in relation to their place in a banana-based farming system as it is unlikely that this crop will diminish in importance as a staple subsistence food. 3.68 In the major cotton growing areas of the north and east, there is not the same external limitation on the cotton market, and in this zone, and in parts of Western Uganda, farmers should have an increasing choice between cotton and other crops for which no market used to exist, but for which there are opportunities for sales to neighboring countries. Maize, millet, cassava, groundnuts, beans and rice all have a potential in this respect. Once again there are three major factors which should be considered: (a) the ability and willingness of Kenya and Tanzania to pay the equivalent of delivered prices at international rates when much of their present supply of imported cereals is obtained on concessionary terms; (b) whilst Tanzania and Kenya have both had occasional grain deficits over the past two decades, they do in fact have the potential for food self-sufficiency and changes in policy in those countries could reduce Uganda's market prospects; and (c) Uganda, Kenya and Tanzania tend to have droughts and crop failures concurrently. However, the more reliable rainfall pattern of Uganda suggests that the impact of such droughts is less in Uganda than in Kenya or Tanzania. For the time being, Uganda should press forward with market research and investigations into the possibility of obtaining an open market agreement with her neighbors, particularly following the launching in June 1984 of the operational phase of the Eastern Africa Preferential Trade Agreement (PTA) of which Uganda is a member, and then allow farmers to choose between food crops and cotton as a source of export earnings with a minimum of price distortion from taxes or subsidies on any crops. 3.69 From the livestock sector, Uganda already exports small quantities of hides and skins (wet-blues) which represent a tiny proportion of the potential export; Uganda could export up to 500,000 hides and 1,30U,000 pieces of goat and sheep skins. Uganda could also export beef once the animal disease situation is under control. Finally, Uganda could resume exporting cottonseed by-products (animal feedstuffs, margarine and shortening, cottonseed oil) when cotton production returns to its previous levels. In 1971, cottonseed by-product exports earned Uganda about US$ 4.2 million compared to US$40.1 million from cotton lint. The potential export value of cottonseed by-products is equal to about 10% of that of cotton lint itself, and therefore cottonseed and related oilseeds (sesame,  - 47 - groundnuts, sunflower, soybeans) deserve serious attention as part of diversification efforts, particularly groundnuts which used to be exported until the early l97Us. E. The Foodcrops Subsector 3.70 The foodcrop subsector is important because few governments can survive the social pressures that would result from persistent food shortages. Government is keen on maintaining food security, and has initiated a number of measures designed to ensure that the food shortages of 1980 do not reoccur. Among these measures are: (i) a Food Security Study/Plan with support from the EEC; (ii) consideration for creating a national grain reserve, with funding assistance from West Germany; and (iii) partial decontrol of domestic food marketing and pricing. The Government's objective of food security is laudable, but is not synonymous with self-sufficiency for all food crops, for some of which Uganda may have no comparative advantage. Strategic grain reserves should be approached with caution since they are known to be sources of considerable drain on financial resources in many countries in which they have been established. A better and possibly cheaper food security strategy for Uganda seems to be to encourage on-farm rather than centralized storage. For most of Uganda south of Lake Kyoga, plantains are the most crucial element of food security while millet occupies a similar position north of Lake Kyoga. 3.71 Uganda has the good fortune to be potentially self-sufficient in its overall food requirements, although it still imports wheat, rice, milk powder and sugar in small but increasing quantities.21/ Government is making efforts to reinstate Uganda's self-sufficiencTyin sugar through the rehabilitation of Uganda's three main sugar factories. The importation of milk powder through World Food Program Assistance to the Dairy Corporation is expected to stop soon when the local milk supply situation improves as a result of increased availability of animal drugs and feedstuffs. Uganda produces a surplus of most other food products, and currently exports maize to Tanzania. The value of future maize exports is projected to exceed that of tobacco. 3.72 Wheat. Uganda's wheat producing areas are in Kapchorwa district around Mount Elgon, Kabale, Arua, Nebbi and Mbarara. Yields vary greatly, but average about 1,750 kg/ha which is low. The most commonly planted variety is the Kenyan Durum which is susceptible to stem rust disease. There is apparently very lirtle farmer interest in growing wheat in Uganda, and the acreage has reportedly declined steadily since the early 1960s. Uganda produced 9,000 tons of wheat in 1982. MAF estimates that wheat production could be increased to 18,000 tons in five years from 1b,800 ha of available suitable land. This compares unfavorably with Uganda's projected minimum demand for wheat in 1985 at 46,000 tons and at 60,000 tons in 1990. Uganda cannot therefore hope to achicve complete self-sufficiency in wheat. Kapchorwa district is estimated to have 1,064 21/ Import data are hard to obtain since significant amounts of wheat products and sugar are imported through "magendo". However, official statistics indicate that Uganda's imports of food during the nine-month period July 1983-March 1984 amounted to US$19.5 million.  - 48 - km2 of cultivable land suitable for wheat, of which only 287 km2 (27%) is under cultivation. An intensification and resettlement program is likely to increase Uganda's wheat production as well as relieve land pressure in other parts of the country. Given Kapchorwa's physical proximity to the Kenyan border, it is important that producer prices for wheat and the necessary inputs and equipment should discourage illegal cross-border trade. 3.73 Rice. Uganda produces small quantities of upland rice and paddy in a number of swamps around the country, notably around Lake Kyoga. The potential for the country to become self-sufficient and a net-exporter in rice using the extensive swamps around Lake Kyoga and its other numerous river basins is enormous. Government is conducting a feasibility study and a pilot project with Chinese technical assistance into appropriate means by which the Kyoga Basin resource can best be exploited. Acreage of rice in Uganda reportedly decreased from 24,000 ha in 1978 to only 11,000 ha in 1980. The Department of Agriculture Annual Reports indicate that in 1945, the total rice acreage was as high as 25,000 ha. The amount of rice produced domestically is reported officially to have been 17,000 tons in 1980, but other Government estimates range from 3,000 to 10,000 tons. Imports of rice were estimated at about 7,000 toas in 1980, but again there are no realible statistics. The projected minimum demand for rice is estimated at 22,000 tons in 1985 and 28,000 tons in 1990. Uganda has plans to increase its rice production to 65,840 tons of milled rice from irrig.ted rice schemes. Successful smallholder rice development in the Kyoga swamps would not only increase farm incomes, but would also support the country's equity, rural employment, food self-sufficiency and export diversification objectives. As a high income consumer product in Uganda, rice has the potential to be a useful tax revenue source for the Government. If the Government succeeds in developing some its rice schemes to produce 40,000 tons by 1990, Uganda could have an exportable surplus of rice amounting to 10,UU0 tons, with a Mombasa FOB value of US$ 3-4 million. However, due largely to resource constraints, domestic production is only expected to keep pace with demand during the 1980s, and surplus production will be available for export only in the mid-1990s. Such a development would promote regional trade and food self-sufficiency, since much of Uganda's potential rice exports would be to neighboring African countries. 3.74 Plans to expand rice production in Uganda have to contend with the fact that its demands for manual labor are likely to prove extremely unpopular with farmers who are not used to them. Waterlogged land must be cleared specially, and reportedly will only give worthwhile yields for 2-3 years in succession, and scaring birds when the ears start to develop (i.e. just before maturity) is a considerable task. One of the major problems with rice so far produced in Uganda is its poor quality and taste, since less than 20% is of the popular "Sindano" and "Bugalla" varieties. Moreover, much of Uganda's rice suffers from blast disease, especially upland Sindano. However, the most limiting factor to rainfed rice production is water supply. According to the MAF, unirrigated rice production in Uganda requires a minimum of 50 inches of rainfall under favorable conditions. In most parts of Uganda, rainfall tends to be bimodal with two dry seasons. The amounts for the two seasons are approximately equal and neither amount is sufficient for the optimum growth  - 49 - of paddy rice, necessitating irrigation for all rice production. At the Kibimba Rice Scheme in Busoga built with Chinese aid, estate yields are low, and average about 1,587 kg/ha. Smallholder yields at the Doho Rice Scheme in Bukedi are yet lower, averaging 500 kg/ha. Yields of up to 7 tons/ha have been recorded at Kawanda Research Station. Since enough irrigation water is available, both wet and dry season planting can be carried out, enabling double cropping. Uganda also has favorable temperatures for rice growing throughout the year. 3.75 Rice development sites have been identified at Nyamugasani (Kasese)22/, Kibonda-Bulema (Mubende), Omunyal (Soroti), Olweny (Apac), Ora (AruaiT, Awalek (Apac). The Government's policy is to develop nucleus rice schemes surrounded by outgrowers. The nucleus estates should subsequently be let to tenant farmers under the supervision of a central water management agency. The FAO/CP conducted an identification study for an irrigated rice project in the Kyoga swamps in October 1983 which concluded that large-scale capital-intensive irrigated rice schemes are not economically or financially viable in Uganda. Instead, the FAO/CP report recommends that smallholder rice schemes in which capital costs do not exceed USS1,000 per ha be the focus of further rice development efforts.23/ 3.76 Maize is grown in most parts of Uganda as a subsistence crop, and in Bunyoro on large scale farms as a cash crop. Yields on farms using improved husbandry average 1,50U kg/ha, which is very low. Total acreage under maize varies between 0.28 - 0.45 million ha, depending on the level of producer prices. It is gradually replacing millet and sorghum as the most important foodcrop in the northern parts of Uganda. This is an important development for Uganda's cotton industry since persistent traditional methods of millet cultivation (broadcasting) have hindered early planting of cotton through the former's heavy demands for labor in April when cotton should ideally be planted. While maize does not require nearly as much labor for weeding as cotton, it is an alternative host to the American bollworm cotton pest, and may thus cause problems to cotton in this respect. Apparently, more farmers now cultivate maize than millet in the northern parts of Uganda. Uganda has a large potential for maize cultivation in all its Regions, but particularly the Western Region around Masindi. Total production in 1983 is estimated at 450,000 tons, up from 282,000 tons in 1982 but less than the peak production of 475,000 tons in 1975. MAF estimates that Uganda has at least 1.2 million ha of suitable land capable of producing annually 1.2 million tons of maize. This compares favorably with the projected minimum demand of 708,000 tons in 1985 and 916,000 tons in 1990, suggetsting that self-sufficiency in maize is a realistic quantitative objective for Uganda, and annual exports of 100 - 200,000 tons are also possible. The experience of Kenya where a private sector company led a successful effort to develop and market commercial 22/ The name in brsckets refers to the district. 23/ FAO/CP, Project Brief on the Uganda Rice Development Project, March 1984.  - 50 - maize seeds 24/ (especially for hybrid maize) may be more applicable to Uganda than tie current set-up in the MAF which is not very effective. An efficient seed development and marketing agency would be a prerequisite for substantially increased maize production for export markets and should be the focus of future efforts in expanding maize production. For the domestic market, further liberalization of the foodgrains trade would also be necessary. Like rice, maize is a potentially important new food export for Uganda which meets most of the country's development objectives. Uganda earned US$11.4 million in foreign exchange from maize exports to Tanzania in 1983. Exports of 55,000 to bO,UOO tons of maize by 1990 could earn Uganda US$15 million to US$20 million per year. 3.77 Groundnuts and Other Oilseeds: Over 50% of Uganda's groundnuts are grown in the Eastern and Northern Regions, in Acholi, Teso, Tororo, Lango districts, but particularly in Busoga. Until the mid 1970s, Uganda produced significant quantities of groundnuts but due to the widespread occurrence of rosette disease in the 1970s, groundnut production declined substantially. Yields on smallholder farms using improved husbandry average a low 960 kg/ha. Intensified efforts are now required to find appropriate means to control rosette disease or develop suitable resistant groundnut varieties. Like maize and rice, exports of groundnuts are likely to meet multiple objectives of the agricultural sector, and therefore groundnut production deserves increased priority attention especially in view of the favorable export price prospects for groundnuts. The minimum domestic demand for groundnuts in 1990 is estimated at 162,000 tons. If the forecast is accurate, it compares extremely favorably with the maximum production of 265,000 tons in 1969. Earlier in 1973, the MAF projected that groundnut production could be increased from 141,900 tons in that year to 495,800 tons in five years. Because of the adverse environment which prevailed in Uganda immediately after that forecast, it is not possible to determine its accuracy; but an increase in production following the implementation of the recommendated strategy to 250,000 tons appears to be more realistic. An export of only 20,000 tons at a estimated FOB Mombasa price of US$400 per ton would earn Uganda about US$8 million in foreign exchange. A feasibility study into producing groundnuts for export thus appears to be warranted. Uganda could also increase its production of soybeans and sunflowers which have a high potential as a source of vegetable oils and animal feeds. The development of intensive livestock production, especially dairy, poulty and pigs will be influenced by the availability of suitable livestock feeds of which soybean could be a major component. 3.78 Bananas: The main foodcrop grown in Uganda is bananas (plantains), which is the staple food for much of the country's southern half. There are no pressing issues relating to banana cultivation except for a recent increase in nematodes which now calls for more widespread availability and use of fumigants or, because of the latter's high unit 24/ The Kenya Seed Company in Kitale is reputed to be one of the world's most successful seed development and marketing companies catering for the needs of smallholder farmers. Until the late 1970s, it was entirely privately owned, but now operates as a public-private joint venture with the Kenya Government as a shareholder.  - 51 - cost relative to the market value of bananas, the maintainance of a high level of plantations hygiene to keep the weevil/nematode population down. A cheaper but long-term strategy is the propagation and widespread planting of nematode and weevil resistant cultivars. Due to its bulk, low unit value, perishable nature, and distan.e from potential export markets, there is no reasonable prospect that Uganda r-an utilize its very considerable banana productive potential to earn foraign exchange. However, small quantities of specialty banana fruits ("bogoya") are air-freighted to European and Middle Eastern markets from Uganda, and this trade may well lead to the development of a potentially significant new export crop. 3.79 Sugar. The sugar industry in Uganda has an installed production capacity of 208,000 tons per annum (tpa) of sugar and consists of four sugar factories/escates: Madhvani Sugar Works at Kakira with a production capacity of 80,000 tpa; the Sugar Corporation of Uganda (SCU) at Lugazi (6U,000 tpa); National Sugar Works at Kinyala (45,000 tpa); and Sango Bay Sugar Company (22,500 tpa). Sango Bay Sugar Company was closed down in 1973, and there are currently no plans to reactivate it, leaving a potential production capacity of 185,000 tpa. Sugarcane yields at Kakira and Lugazi are good, ranging from 170 tons/ha at Kakira and Lugazi under sprinkler irrigation to 60 tons/ha under rainfed conditions at Kinyala. SCU is being rehabilitated with support from IFC, but Kakira and Kinyala have yet to secure the necessary financing for rehabilitation. The Government has therefore requested IDA to assist it with the rehabilitation of Kakira and Kinyala sugar factories. Despite significant allocations of foreign exchange from IDA Reconstruction and other credits to the three sugar factories (approximately US$8 million in 1981/82' production has actually declined since 1980. 3.80 During 1966-72, apparent sugar consumption in Uganda varied between 107,000 and 165,000 tons per year. This was equivalent to an average per capita consumption of 14.3 kg, and ranked as one of the highest in Africa. Most of the sugar was supplied from local production. Beginning in 1973, sugar production started to decline precipitously as the country's political problems deepened and by 1983, it had fallen to a mere 1,600 tons. In addition, real GOP per capita fell by an estimated 3.5% per annum during the period 1970-80. Thus, with supply shortages and reduced Income, the level of sugar consumption dropped, although the extent of the drop is unknown since much sugar is believed to have been smuggled in from neighboring countries. It is known, however, that many consumers switched to other forms of sweeteners, such as jaggery. 3.81 Sugar is imported into Uganda by Foods and Beverages Limited, (a Government agency) and its delivered cost (including 30% duty plus 30% sales tax) in April 1983 was UShs92.2 per lb (equivalent of 38 cents per lb). The market price of sugar has averaged UShs200 per kg over the past two years (approximately 67 cents per kg at Window II). In 1982, sugar consumption was estimated to be 75,000 tons although transportation difficulties and other disruptions prevented distribution to some segments of the market. Officially recorded imports for the six-month period June-December 1983 amounted to 20,373 tons at a cost of US$8.4 million implying annual imports of about 40,000 tons or slightly more. Without distribution constraints, total consumption may well be in excess of 100,OO tons assuming per capita consumption of only 7 kg. In 1990, when  - 52 - the population is expected to be 16.3 million, demand will likely be 20U,O0U tons if per capita consumption recovers to 10 kg. Thus even after the completion of the ongoing rehabilitation of SCU in 1986, Uganda will probably be a significant net importer of sugar into the late 1980s and early 1990s. A high income elasticity of demand for sugar is expected because of the present low per capita consumption (5.9 kg) and the fact that Ugandans have previously been accustomed to a much higher level of consumption. The demand for sugar is therefore projected to grow at about 8% p.a. to about 200,000 tons in 1990, compared to a production potential of 185,000 tons. 3.82 The reasons for the underutilization of Uganda's sugar production are not unlike those for other agricultural enterprises: (i) lack of spare parts and equipment occasioned by the shortage of foreign exchange; (ii) poor management; (iii) shortages of unskilled wage labor; (iv) the lack of comprehensive and adequately financed rehabilitation programs for the Kakira and Kinyala complexes; and (v) poor and/or incomplete installation of equipment at the Kinyala complex. 3.b3 As Government embarks on the rehabilitation of the sugar industry, the following issues have to be considered. The three sugar factories currently operate with severe financial losses since production is virtually zero. In the case of Kinyala and Kakira, continued operation causes further deterioration to the factory and to the agricultural productivity of the estates. The ownership dispute within the Madhvani family at Kakira (their equity stake in the complex is 49Z; Government owns 51%) continues to scare many potential investors or donors interested in assisting with the rehabilitation process. Because of Uganda's limited ability to service external debt obligations, the sugar rehabilitation program needs to be financed from concessionary sources. Given the heavy and increasing indebtedness of the sugar complexes, and the erosion of their capital, it will be necessary to restructure their equity through new capital injections and conversion of some debts into equity. Taxes on domestic sugar production should not be set so high that rehabilitated factories do not earn a sufficient return on investment to enable them to meet their maintenance and operations requirements. Government suspended taxes on domestic sugar production for a one-year period from July 1984. The level to which mechanized sugarcane cultivation and harvesting should be encouraged is also an issue. This will necessitate making judgements as to whether current labor shortages at the sugar complexes are real, and if so, whether they are transient or permanent. When the three factories are rehabilitated and functioning to capacity, Uganda can expect to save  - 53 - US$60-70 million in sugar imports.25/ In addition, Government can expect to collect considerable tax revenue from a revived sugar industry. The three factories could also provide wage employment to over 23,000 households. F. The Forestry Subsector 3.84 The recommendations of the World Bank/UNDP Energy Assessment Report26/ which relate to the agricultural sector are summarized here. The Report concludes that agro-industrial plants (ginneries, hulleries, tea-drying plants, tobacco curing barns etc) can save energy and costs by instituting relatively simple and cheap management, instrumentation and equipment improvements. Another major recommendation is that in many agro-industrial plants, there appears to be strong economic justification and financial incentives for the substitution of fuel oil by fuelwood, especially in coffee roasting, and tea drying. Many other industrial complexes (cement, textile etc) are also urged to convert to fuelwood, and to establish industrial fuelwood plantations for commercial management. Agricultural wastes such as coffee husks and bagasse are also recognized as having promising use as fuel sources. The Report further states that there is evidence that Uganda's wood capital is being eroded. In certain areas where population densities are high or the avialable land is being converted to agricultural uses, the accessibility of woodfuels has already been seriously reduced and there is danger that local fuelwood supplies will soon be depleted. The Report recommends that the Forestry Department undertakes an inventory of tree stocks for each district, complemented by a survey of consumption trends and projections for all wood products to help pinpoint areas of potential shortages. This forestry inventory is already underway. Measures can then be pursued to correct the situation. In particular, the Report recommends that the Government should: (a) encourage farmers to introduce trees into the cropping system, appropriate agro-foresty practices should be taught in agricultural and forestry colleges and at Makerere University, and that extension workers should be trained in agro-forestry and farm tree management so that they can provide practical advice to farmers; (b) assist in the planning and execution of urban and peri-urban plantations by introducting legislation to permit plantation development, and by encouraging private individuals to invest in woodfuel plantations; (c) assist industries to establish industrial plantations and woodlots near factories as an alternative energy source by providing technical assistance and leasing areas of forest reserves; 25/ This projection assumes a CIF sugar import price in 1990 of US$350 per ton. 26/ The World Bank/UNDP: Uganda - Issues and Options in the Energy Sector, July 1983. The discussion on forestry draws heavily from this Report.  - 54 - (d) expand forest plantations to provide raw materials for sawnwood and panel products and, most importantly, for woodfuels and poles, noting that the output per unit area could be increased fivefold by converting natural forests to plantations; (e) improve the management of natural forest and woodlands, by cutting out unwanted trees for charcoal production or fuelwood and controlling the legal and illegal use of commercially valuable trees, re-introducting line planting to boost natural regeneration and including more forest areari within the management plans; and (f) give special emphasis to the needs of low-potential agricultural areas, such as Karamoja, where there is an _-ute shortage of wood and ecological conditions are fragile. Sufficient seeds, cuttings and seedlings must be available in the right place at the right time to undertake an expanded planting program as proposed above. Related back-up requirements include trials on tree species, seed stores and nurseries, the development of seed orchards and a tree-breeding program. The Report concludes by recommending a US$20 million investment program mainly for fuelwood production which would aim at strengthening the Forestry Department's planting and management program. In view of the rapid deforestation of much forest and bush cover now taking plact in Uganda, there is an urgent need for a nationwide afforestation pioject aimed especially at smallholder farmers. G. The Livestock Subsector lntroduction 3.85 the livestock subsector provides particularly promising prospects for increasing rural incomes both from marketed livestock products, and by Improving soil fertility and hence crop yields. The development of the livestock subsector is consistent with all the objectives identified in Chapter II, but in particular nutritional and regional equity considerations, since quite often livestock keeping is the dominant economic activity in the poorer (drier) regions of Uganda. Uganda's environment, in particular its well distributed rainfall, provides good quality pasture and grazing. The main cause of the decline in livestock populations in the later 1970s was shortage of foreign exchange which led to a widespread upsurge of animal diseases, both epidemic and endemic, notably Rinderpest, Contageous Bovine Pleuropneumonia (CBPP), East Coast Fever (ECF) and Trypanosomiasis. 3.8b The livestock subsector is distinguished from other agricultural subsectors by the relatively high profitability and high income elasticity of demand of livestock enterprises because of high domestic prices of livestock products and by-products relative to crop production. Thus the strategy recommendations in this memorandum are justified primarily on the basis of their potential income effects on farmers, rather than on their quite substantial nutritional contributions to the Ugandan population. Historically in U&anda, there have been few effective price and marketing controls on livestock products which would have depressed profitability.  - 55 - Ineffective meat and milk price controls have operated around urban markets for short periods. Government has initiated steps to aecontrol markets and prices of livestock inputs and products by the end of 1984. Institutional Recommendations 3.87 Currently, the Dairy Corporation uses World Food Program materials to reconstitute milk for the urban supply and hardly deals in fresh milk. It is dissipating the funds generated from these free materials on an overmanned and inefficient organization. The funds so generated should instead be used to construct a marketing organization with facilities to collect, process and market fresh milk. In order to achieve efficiency in milk marketing, control should be moved into the hands of milk producers, the Dairy Corporation should preferably be disbanded, and its functions taken over by cooperatives or commercial companies. This has been the experience of most developing countries which have a successful dairy industry, including Kenya, and, until the Dairy Corporation's creation, Uganda. 3.88 Uganda Meat Packers (UMP) currently acts partly as a service organization to Kampala butchers for whom it slaughters animals and dresses carcasses for fees. As such it performs a useful function but is involved on the fringe of the meat trade only and in very limited volume. Its original function was to can meat for export at the Soroti meat factory. Then as now, meat can be sold fresh at a far higher price than its value canned on the world market. UMP should continue to provide a slaughtering service to butchers. 3.d8 Until five years ago, hides and skins were exported either green (wet salted) or dried but unprocessed. The new government tannery at Jinja can process them either to 'wet blue' stage or at least some, to finished leather. These processes could increase the export value up to five times that obtained for raw hides and skins. However, the operation of such a factory requires commercial acumen and would be best done by the private sector. Government should sell, rent the factory to a private operator, or form a joint venture company with a suitable technical partner. 3.90 There is a short-term role for at least one Departmental station in producing commercial day old poultry and replacement breeding pigs for sale to farmers. These functions should be taken over either by private farmers or by producers' cooperatives in the medium term. It is recommended that other Departmental farms and ranches be sold or leased to the privace sector and cooperatives. They are currently making no contribution to research or to availability of breeding stock and they absorb a major share of the Department's budget. Government should study ways and means for research to be funded increasingly from direct taxes on livestock sales. Technical Recommendations 3.91 Genetic Improvement: The best way to achieve a rapid improvement in the genetic potential of the dairy herd is by use of artificial insemination (A.I.), which has never been sufficiently well run to be effective, reliable and attractive to farmers. Using semen from imported  - 56 - dairy breeds, A.I. could only be used in traditional communal herds where a secure level of tick control has been achieved, but it is not a practical technique for use in commercial beef herds. Beef ranches should continue to rely on purchasing bulls from registered pedigree breeders such as Uganda Livestock Industries, a relatively successful ranching parastatal. The best equipped organization to operate a successful A.I. service would be the milk marketing organization proposed above (para 3.88). Such an organization could also have an interest in livestock feed compounding and marketing when it is thoroughly established in its primary functions. 3.92 Disease Control: Much work is ongoing elsewhere which, if successful, will have enormous bearing on livestock productivity in Uganda. The work program of the International Laboratory for Research into Animal Disease (ILRAD), based in Nairobi, is focussed on the two endemic diseases of livestock of most economic importance in Uganda, East Coast Fever and Trypanosomiasis. There has been marked technical progress with both diseases, and it now seems likely that an immunizing procedure and/or a curative drug for ECF will be available for general release within the next couple of years. Research into trypanosomiasis at ILRAD has focussed on the trypanotolerance of several breeds of West African cattle and how that trait can be used to protect cattle throughout the continent. 3.93 Recent advances in USA in research into Foot and Mouth Disease could lead to the production of much better and cheaper vaccines, which could make blanket vaccination of the cattle population economically possible in Uganda. Such an advance would not only improve productivity but would also make export marketing worldwide technically feasible. Animal disease research within Uganda is not a high priority but the laboratory facilities at Entebbe do warrant most urgent rehabilitation for diagnostic services. These services are completely run down from lack of chemicals, glassware, equipment, vehicles and operating funds. The Animal Health Research Centre (AHRC) is located very close to the Entebbe International Airport. It is, therefore, recommended that the AHRC should be relocated to another site. However, relocation will be very costly, and meantime, the present unit merits returning to active service by the provision of laboratory equipment, glassware, reagents, transport and specialized personnel. No major structural rehabilitation of buildings at Entebbe is recommended. Animal health strategy for the livestock subsector during the 1985-90 period should continue to focus on smallholder animal health. To this end, preventive disease control measures should have first priority. Achievable Objectives 3.94 Dairy Products: The rate at which the dairy industry can be expected to recover and expand is very difficult to forecast, particularly as much of the experience in dairying was in Buganda where the marketing problems associated with security are complex and impossible to foresee. However, if farmers can buy farm inputs and market their milk through an efficient organization, a large measure of tick control is achieved in the most productive pasture locations, and artificial insemination is successful, then the potential for quick incremental production is high. If only an additinnal 250,000 indigenous breeding cows were upgraded to give the modest average yields of 12,000 litres per lactation, the  - 57 - incremental annual milk production would amount to 240,000 tons, and if average yields could be increased to 2,500 liters per lactation from just that number of cows, the milk produced in the country would be doubled and the milk available for sale increased by a factor of 5 to 10. Such yields are quite possible considering that average yields of 5,000 liters per lactation were achieved at Government stations in the 1960s and early 1970s and that many good farmers already achieve that level of production today. 3.95 Beef: The continued development of small cattle ranches offers an attractive investment opportunity in the livestock sector with a success record, in incremental production, profitability and institutional effectiveness that is in itself unique in Eastern Africa. The first priority should be to rehabilitate the existing 400 ranches, which will hopefully be completed by 1986. Thereafter, further ranch development should be pursued in the unused tsetse free areas alTeady demarcated by HAIF. Ranchers should be granted long-term leases so as to encourage them to invest capital on their ranches. Eventually, beef ranches will intensify to become dairy ranches and mixed crop/livestock farms. This trend is already apparent in some of the older ranches in Western and South-Western Regions. 3.96 The build up of Uganda's meat production over the next decade from the traditional and commercial sectors can be foreseen in several stages: (a) The Short-Term (Next 1-2 Years) i) To rehabilitate and lease all but two or three Government ranches to the private sector. This would make facilities available now which when fully stocked would yield about 2,500 breeding heifers and 4,000 slaughter cattle for sale annually. (ii) Rehabilitation of ranches previously fully developed in ranching schemes and those developed privately would enable them when fully stocked and operational to yield about 45,000 slaughter stock and 1b,000 breeding heifers annually incremental to present production. (iii) From the traditional sector the main objectives should be to provide reliable animal health services and in some areas water supplies by rehabilitating surface catchments and boreholes, and reconstructing stock routes and holding grounds. These measures would permit the traditional cattle population to rebuild by annual increases of about 2.5% of animal numbers while maintaining an offtake of about 12%. (b) The Medium-Term (Next 3-5 Years) (i) Some 30 ranches in ranching schemes and about 220 ranches outside the schemes on which development had started prior to the mid 1970s should be completed to yield a further 40,000 slaughter animals and 15,000 breeding heifers anrually by 1990.  - 58 - (ii) About 70 ranches could be developed adjacent to existing schemes during this period to add a further 12,000 slaughter cattle and 5,000 heifers to the yield from ranches. (c) The Long-Term (Next 5-10 Years) (i) Assuming an achievable steady 2.5% annual increase in the traditional sector cattle population (the 1960-70 annual growth rate) numbers would reach 4.8 million in 1985 and 5.4 million by 1990. Asssuming further a 12X offtake with a carcass yield of 165 kg per animal, beef production from 576,000 carcasses in 1985 would amount to 95,000 tons and from 648,000 carcasses would amount to 107,000 tons in 1990. (ii) Commercial ranches would yield additionally 75,000 slaughter cattle and 30,000 breeding cattle annually by 1990, carcass weights averaging 225 kg. The 30,000 breeding animals for sale from ranches would release a further 30,000 animals for slaughter from the traditional herd at an average carcass weight of 165 kg. The ranch contribution to total offtake in 1990 would be about 22,000 tons of beef. Total traditional plus ranch beef yield would, therefore, be about 130,000 tons. (iii) Uganda's 2-1/2 million goats and 1 million sheep with offtakes of 25% and carcass yields of about 14 kg now produce about 12,250 tons of meat which could rise to about 14,000 tons by 1990. (iv) If Uganda's per capita meat consumption is 8 kg in 1990 (the same as estimated in 1972 but higher than the 1982 estimate of 6.5 kg) domestic meat consumption in 1990 would be 144,000 tons. The 130,000 tons from beef and 14,000 tons for goat and sheep meat would come close to satisfying that demand. (v) Government has plans to develop about 150 ranches in addition to those mentioned above in the longer term but they would be unlikely to make a major contribution by 1990. (vi) In order to maintain the economic and financial attractiveness of modern poultry and pig meat production, it is essential that the feeding stuffs industry be based largely on domestic supplies. The imporEaice of rehabilitating the livestock feeding stuffs industry to make provision for both poultry and pig feeding stuffs cannot therefore be overstated. 3.97 Assuming that beef production projected above is supplemented by 5,000 tons of poultry meat from an indigenous stock of 10-12 million, 3,000 tons of poultry meat from a stockLof 2 million birds in the modern sector, and 7,000 tons of pig meat from 150,000 pigs slaughtered annually, there is the possibility to have 15-20,000 tons of meat available for export within the decade, which at 1984 prices would be worth US$39-52 million. Because of the pressing need to earn foreign exchange there is good reason to look closely at the possibility of beef as an export. If the tsetse fly can be overcome, and tsetse infested areas progressively reduced, then fairly large acreages of highly productive land could become available and the  - 59 - only practical way to settle and use that land quickly would be by ranching. Farmers' experience and ability provide a very real advantage in beef production. This should be viewed against the disadvantage of the long overland route to potential markets and the present economic climate when few African countries can pay for meat imports. However, the Middle East market and the market potential in Eastern Africa, particularly Zaire, warrant further study. Consideration should be given to the possibility of developing an export trade to the Middle East in high value beef cuts and goat meat by airfreight. New Zealand, which does not enjoy a comparative advantage in terms of proximity to the European or Middle East market, has been successful in developing such a trade. 3.98 It is through livestock marketing development that Uganda can hope to harness the considerable export potential she has in meat and other livestock products. Whereas hides and skins exports are ongoing and can be readily increased with modest investment, meat exports (carcass or on hoof) offer more distant but not remote prospects, judging by the successes of less well favored exporters (e.g., Kenya, Somalia, Zambia, Sudan and Botswana) to the major European and Middle Eastern markets. But in order to realize this potential in the 1990s, animal health, genetic stock improvement, and marketing development, all have to take hold in the 195Os. Above all, MAIF needs to strengthen its management capacity both for recurrent operations and for development planning. H. The Fisheries Subsector background: 3.99 The importance of the fisheries sub-sector in Uganda is amply demonstrated by the fact that an estimated 50% of the country's animal protein comes from fish. Uganda's fishing industry is based on inland waters (lakes, swamps and rivers). Lake Victoria, with its intricate submerged northern coastline and elevated western plains of sand bar and lagoon, is not only rich in shallow water fish but also offers great potential for both offshore and deep water fisheries development. Other lakes with considerable increased fishing opportunities include Lakes Albert, Edward, George, Kyoga, the Koki lakes in Ankole, and minor lakes in Kabale and Toro. Fisheries resources in River Nile, its tributaries and numerous other inland drainage rivers, water impoundments and swamps remain under-exploited. 3.100 Fishing at the moment is carried out almost exclusively in the inshore waters by some 200,000 artisanal fishermen. The fish catch in 1983 was estimated at 172,100 tons with a reported value of US$25.5 million. Lakes Kyoga and Victoria accounted for 80% and 10% of the total catch, respectively. There is tremendous scope for increased production through systematic development, improved fishing techniques, aquaculture as well as deep water fishing. With the fishing techniques still at artisanal stage, the type of boat widely used is the traditional dug-out canoe, and gill netting is the major fishing method used. Because of transportation and marketing infrastructural deficiencies (especially lack of cold storage), the area of distribution for fresh fish is limited to higher priced urban markets.  - 60 - 3.101 The private sector (in the form of individuals rather than companies or cooperatives) is the dominant participant in the fisheries subsector. The Uganda Fish Marketing Corporation (TUFMAC) which was established in 1945 as a public corporation is not operational due to gross mismanagement. Government intends to study various options to revitalize its operations. Nearly all the fishing vessels are built by private traditional boat builders. Trained boat builders have set up successful ventures north of Lake Albert, and their products are especially popular and of good quality. The supply of engines, spare parts and other fishing gear was originally dominated by the private sector, but due to the erratic supply of inputs over the past few years, coupled by the recent role of Government in distributing limited supplies funded by donor agencies, the private sector has effectively been replaced by Government. Development Strategy 3.102 The Government's development strategy for fisheries development in Uganda is well articulated in a recent publication.27/ The Government's articulated strategy appears to be appropriate for the needs and capabilities of the sub-sector over the 1985-90 period. The primary objectives of the Government during the rehabilitation period are to increase, the domestic fish supply to the population by increasing production and by reorganization of the marketing system. In pursuit of these objectives, Government has initiated projects aimed at improving boat building, fishing techniques, fish marketing, landing sites, the quality of fisheries statistics and its monitoring capability. The Government intends to continue encouraging the dominant role of the private sector in fisheries development and marketing, but with competition from the proposed Uganda Fisheries Corporation (a Government-owned fish marketing company to be formed as a successor to TUFMAC). In view of the dismal performance of TUFMAC, the mission recommends that this new corporation be a joint venture with the fisheries private sector. This would be consistent with the current policy of limiting the role of Government in actual commercial activities. Large scale investments in ice plants, cold storage and transport of fish and fish products should be avoided unless they have been thoroughly appraised. In order to explore the best means of exploiting the various fisheries development opportunities available through deep fishing and aquaculture, the mission recommends that Government should first conduct a Fisheries Pilot Project as soon as funds allow. However, before the pilot project is initiated, it would be essential for Government to undertake a comprehensive survey of the country's fisheries resources and to strengthen Government's capability to monitor the exploitation of the fisheries resources. 27/ Ministry of Animal Industry and Fisheries, Blue Print for Fisheries Development in Uganda, June 1984.  - 61 - CHAPTER IV IVESThEN PRIORITIES A. The Government's Investment Plan 4.01 The strategies recommended in the previous chapters are intended to maximize the growth potential of the agricultural sector through policy and institutional reforms with minimal public sector investment. However, even modest success will require substantial injections of investments. The Government's investment program for the agricultural sector have been outlined in two major documents: the Revised Recovery Program 1982-84 (short-term priorities), and the Ten-Year Development Plan 1981-1990 (long-term priorities) which was written in 1981. The Ten-Year Plan does not include the sugar industry as part of the agricultural sector. Table 4.1 - Agriculture in the Ten-Year Development Plan Total Total Agriculture Economy-wide ---- US$ million 1/-- Short-term (1981-82) 1,808.2 4,158.6 Medium-term (1983-85) 3,440.0 7,245.4 Long-term (1986-90) 6,972.6 16,071.8 Total 12,220.8 27,475.8 i/ Costs detailed in UShs converted at US$1.0 - UShs 7.4 (the 1980 exchange rate). Source: Ministry of Planning and Economic Development: Uganda - Ten Year Development Plan 1981-90, Sept. 1981, Table 3.3 4.0Z The Plan was clearly unrealistic and was promptly abandoned in favor of the Recovery Program (1982-84) which has since been revised. At the expiration of the Recovery Program period, Government is expected to prepare a new investment plan. B. A Suggested Investment Program 4.03 To achieve the rural income objectives identified in Chapter II, an agricultural GDP growth rate of 5% p.a. would be required, which is equal to the growth rate objective in the Government's Ten Year Plan. The above agricultural GDP growth rate is feasible, given the low starting base and the high degree to which it depends on policy initiatives (especially pricing) rather than foreign exchange intensive investment. The 1982-84 actual disbursements for agriculture under the Revised Recovery Program provide a reasonable basis for projecting the sector's absorptive capacity  - 62 - for public investment. From Table 4.2, it is apparent that the sector's investment absorptive capacity can he expected to be about US$100 million in 1985. Assuming only a modest increase in investment absorptive capacity, an agricultural public sector investment program for the period 1985-90 drawn from the list of projects in Table 4.3 amounting to US$515 million seems reasonable. The additional administrative capacity that would be required to implement the proposed investment program is only marginally above the current level efficiency. If implemented, the cost recovery and Government spending measures recommended in para 3.21 would significantly limit the budgetary constraint to the Government's ability to implement the recommended level of public investment. Table 4.2 - Kevised Recovery Program Projected Phasing of Agricultural Expenditure (US$ million at current prices) Actual Projected Total 1982/83 1983/84 1984/85 55.9 64.8 95.6 160.4 Source: Ministry of Planning and Economic Development, Uganda - Revised Recovery Program, Volume 1, Table 5.10. 4.04 A number of public sector projects have been identified (see Table 4.3) which appear to fulfill the objectives outlined in Chapter II and support the strategies recommended in Chapter III. These projects are listed in order of their recommpnded priority. Whereas the mission considers its suggested investment program essential in its entirety, it is nonetheless useful to rank the projects in an indicative order of priority. The list consists of 18 projects amounting to US$515 million (US$395 million in foreign exchange), to be implemented over a five-year period 1985-90. The cost estimates are only preliminary, and should be used only as indicative of the relative sizes of the projects. The proportional distribution is 44% for foodcrops and forestry, 30% for livestock, 16% for traditional exports, and 10% for agricultural services. The projects are described briefly in Annex II. Many of the projects and their cost estimates have been suggested in discussions with Government officials, and some have been suggested in subsector reports prepared by consultants. The core program consists of the first 10 projects amounting to US$355 million (US$278 million in foreign exchange). One important feature about the investment program is that it consists of only 18 projects over a five-year period, compared with 33 projects in the Revised Recovery Program over a two-year period. The mission considers the lower number of projects to be more in line with the expected availability of human, financial and institutional resources. Many of the foodcrop subsector projects are geared toward import substitution or developing nascent or potential export crops, while many livestock subsector projects hope to generate domestic surpluses of livestock products for export. The  - 63 - investment plan thus suports an export diversification strategy based on food products, rather than the pre-1985 strategy which relies almost exclusively on non-food exports (the traditional exports subsector). Table 4.3 lists the projects in order of priority, the estimated or suggested project costs (in total and foreign), ordinal ranking of primary objectives subserved, ordinal ranking of major constraints to be addressed, the regional or subsector strategy supported by the project and a suggested Implementing agency or medium.  - AL - Ll 4-.3t too wsm oa d _ _: Sr Oad aniw dtm rmlity t,.a l bJ Ibst b tsiuurA 'tin _aui e Uow lmulatl _~ 1su , i a kUm br_ Sta - 1m tldiat 43 35 (1) bn tSdI (1) i.utltlsA (1) hdittmsl lwm -T. V1 ad CZ) _wm mea.in- CZ) _I.l (2) 14h ulsuii NW 'Ieis S. mu l_icy Ano (3) 4aul OW3qia C) tilty I swpi goalei 90 so (1) hisd1 Farm" - 1I) nasal (I) had As. thtu. 4e Sadtla (a, inUntal lir l1wr adil' v2 mlmtoLK tie (3) flttcy (2) bkaSIc As) tS ( sl (3) gst Sadie (5) low Smutty (A) Ihdwni'l am 3 Cuts tuptsm 20 15 (1) tt ats Cl) NAtal (1) 1Al haati _ rhtpdes IiV _d (2) t 0 9sut- (2) lstmvi-l fetty ArO. u_i cAts, (2) tan Fesal 55 lI* F.is1u C3) Y.ul ltty Smity Arm. 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