Impact of maize tax cut on Uganda

Thursday June 16, 2011

YOHANA Lugya, a farmer in Kayunga said that his dirty maize has cost him many customers.

He was forced to move to Mukono town to clean his maize, but it cost him over sh70,000 on transport and other services.

Lugya lamented that last month out of 40 sacks of maize, 15 were purchased and the rest rejected because the produce was dirty.

Ugandan grain farmers face stiffer competition for the lucrative Kenyan market from countries outside the East Africa Community (EAC) that calls for new sustainable approaches to handling the grain industry.

This follows Kenya's scrapping of maize import duty in the 2011/12 budget. Previously maize from other non-EAC nations attracted 50% import duty.

And under the EAC common external tariff, Uganda has been exporting maize to Kenya tax free which made imports from Uganda more attractive despite the low quality.

But with the Kenyan new tax regime, Ugandan maize farmers will brace for tough competition from giant maize producing nations like South Africa, Zambia and Malawi.

Maize is the main staple food in Kenya. Its consumption is estimated at 98 kgs per person per year, which translates to roughly 30 to 34 million bags (2.7 to 3.1 million metric tons), research indicates.

Maize is also important in Kenya’s crop production patterns, accounting for roughly 28% of gross farm output from the small-scale farming sector.

But to exploit the Kenyan maize market, Uganda now has to compete with Malawi, which is the leading producer of maize in the east and central region on the same tariff structures.

Last season alone, Malawi produced a surplus of 1.3 million metric tonnes of maize. It has contracts to export 800,000 metric tonnes of maize to Kenya, and effectively this would edge out Uganda.

Why Ugandan farmers may lose out

Although Uganda has the advantage of proximity to the Kenyan market, it has serious challenges with quality.

According to the United States’ department of agriculture, Uganda last year produced 1,550 metric tonnes of maize.

But farmers lost out on market for their maize produce because of poor post-harvest handling. Farmers lack machines to clean, dry and store their maize harvest which compromises quality.

It is estimated that about 15% is lost to harvest, while 20% is retained at household level for consumption and planting.

Majority of the farmers dry their maize on bare ground and dirty surfaces exposing it to dust and stones. They also store their maize in their living rooms which are not aerated.

In major maize growing districts like Kasese, Masindi, Kapchorwa, Mbale, Mbarara, Gulu, Lira, Kyenjojo and Mubende, there are few maize cleaning machines.

Charles Ogwal, a farmer in Lira district stores sacks of maize on the cold floor in his two roomed house which is not aerated and makes the maize get wet.

He said the maize is stored in the house for three or four months and when he gets market, part of the maize is wet and is rejected by customers.

Although farmers are encouraged to register with the warehouse system, they are let down by the high costs charged by the warehouse.

Farms are managed in a typical traditional system. The only inputs are family labour and local seed varieties, saved from previous harvests.

Uganda is predominantly an agricultural economy, with the sector accounting for about 70% of the total employment.

But according to this financial year, agriculture’s contribution to gross domestic product (GDP) declined to 13.9% from 14.7% in 2009/10.

Every season, farmers replant local maize varieties from the previous harvest season, leading to low yields. The maize also looks red due to the poor soils.

Although there is an active maize research programme and many improved varieties on the market, many farmers cannot afford them.

If maize is not well stored, its grade deteriorates. That is why inter-trade in the region is very low. And Kenya imports the bulk of its maize from South Africa because Uganda’s standards are low.

Solution to increase maize exports to Kenya

Maria Kiwanuka, the newly-appointed finance minister in her maiden budget speech last week, agreed that last year’s “bumper harvest of largely maize caused challenges of post-harvest handling.

During a post budget meeting convened by PriceWaterHouse Coopers (PWC), Patrick Bitature the Uganda Investment Authority chairman called for increased budgetary allocation for post-harvest handling.

“Post-harvest loses is still high, a lot more investments are required in warehousing,” Bitature said.

Experts have said there is need to look at the standards right from buying inputs, agronomic practices, harvesting, post-harvest drying, packaging, storage and transport.

“It has not attracted attention it deserves, Prof Augustus Nuwagaba, a poverty eradication consultant, observed. “Agriculture financing is the thorn of flesh here and it is underfinanced.”

According to Hakim Baliraine, the Eastern and Southern Africa Small scale Farmers’ Forum (ESAFF)-Uganda Chapter chairman, investment in agriculture has been found to contribute to growth and poverty reduction.

Unfortunately, he noted, Uganda’s agricultural sector budget has not exceeded 4% a year since 2000/2001.

“This level of spending on the sector is grossly insufficient for sustaining any major substantial investment that can create the necessary institutional and physical infrastructure required to transform the economy,” Baliraine said recently.

Improving maize standards requires value-addition to increase the grain’s shelf life.

Without adding value, Uganda shall continue to be faced with food insecurity and poor interstate trade.

The other major grain, rice equally faces challenges, yet Uganda’s exports of rice compares quite well with major traders like South Africa and Zambia.

Kenya’s budget announced importation of all types of rice at the rate of 35% instead of 75% for a period of one year. Uganda exported 20 metric tonnes in 2010 compared to South Africa’s 30 metric tonnes in the same year.

A further improvement in post-harvest handling and investment in the sector would position Uganda further in the rice industry.

By Ibrahim Kasita, David Mugabe and Samuel Sanya : The New Vision Newspaper