Substantial progress has, however, been made in achieving project objectives in Uganda, including successfully piloting the WRS for the coffee sector in two regions (Western Uganda in July 2005 and Eastern Uganda beginning from September 2005).

Achievements

The major achievements are detailed below by project activity component.

Component 1 - Developing a framework for privately run Warehouses:

Warehousing standards and regulations have been adopted. These warehousing standards formed the basis for selecting warehouses and warehouse operators for the pilot WRS.  Warehouse receipts were prepared in a format acceptable to the banks.

The warehouse legislation was debated and passed by Parliament in April 2006. Prior to this, three sensitization workshops were organised for parliamentarians, the second in conjunction with the Plan for the Modernisation of Agriculture (PMA), which funded it.  A study tour to Tanzania was also organised for members of the Select Committee of Parliament for Tourism, Trade and Industry and two officials of the Ministry of Justice, who were directly responsible for drafting the bill.

The tour offered the MPs and the legislation draftsmen the opportunity to familiarize themselves with the operations of a functional WRS in the region.

Component 2 – Developing a Market Information System:

A market information system (MIS) has been developed, which allows dissemination of prices from international and key domestic markets. The system relies on existing network of field staff collecting domestic market information and on the current international information sources. The dissemination channels instituted include free newspaper/radio publication of price information; use of the designated warehouse operators as information channels; and text messages via mobile phones (which does not entail any cost but rather offers a share of revenue from paying users). The MIS, developed for the coffee sector, is therefore sustainable.

Component 3 - Developing a Quality Assurance System:

Based on a review of quality issues in the commodity markets, training materials and programs for farmers covering pre- and post-harvest management practices to improve deliveries of coffee quality to the warehouses have been developed. Feedback from participants indicated that the training was appropriate and beneficial. Training manuals on coffee quality assurance are currently being prepared by the technical team and will be completed and circulated by April 2006. The manuals will be used for training during the remaining pilot areas and after completion of the project.

Component 4 – Developing a System for Accessing Inventory based credit:

All pre-deposit activities planned for the coffee sector were completed before the first pilot in July 2005. The first deposits of coffee were receipted at the designated warehouse at Mbarara (Western Uganda). Five (5) smallholder farmer groups deposited 25 tonnes of Robusta coffee, which was sold by auction at the Uganda Commodity Exchange (UCE). The farmer groups who deposited were more interested in using the system to market their crop than in inventory finance. They sold the crop within two weeks of depositing and obtained significant premiums, of between Ugandan Shillings 250 and 400 above the UCDA indicative prices (i.e. between 18% and 28% respectively above prices that the farmers would otherwise have obtained).

The pilot for Arabica in Eastern Uganda was initiated in September 2005 for the October-December harvest. Over 30 farmer groups from Mbale, Sironko, Manafa and Kapchorwa comprising 20-30 farmers each participated.  The quality of coffee deposited was exceptionally good and prices realized were on average Ugandan Shillings 200 above the UCDA indicative prices.

Following negotiations with Allied Bank a low cost inventory credit facility was sanctioned to benefit coffee farmer groups depositing 5MT or more in the warehouse at Mbale.  The facility which was provided without upfront fees required was priced at 2% per annum, all in and available to any farmer group that presented a warehouse receipt to the bank.  No forward contract was required and the farmers were allowed to sell the coffee within a month at the Uganda Commodity Exchange.  In order to mitigate the price risk the value which was to be based on UCDA indicative prices provided daily would be discounted by the bank at 50% for semi processed coffee and 80% for graded coffee.

During this process, the project has contributed significantly to building the capacity of private warehouse managers to operate a negotiable warehouse receipt system, through their practical involvement in the pilots based on a structured approach outlined under the project. This has demonstrated that the risks involved in issuing a negotiable warehouse receipts within the Uganda commodity system can effectively be mitigated, making that business attractive.

By so doing, the project team has created an opportunity for credible warehouse operators to participate in a sustainable WRS, especially if breakeven volumes can be assured.