In 2014, Uganda was named the ninth largest coffee exporters in the world and among top five in Africa. There are about 500,000 smallholder coffee farmers in Uganda, 90 percent of whose farm sizes range between 0.5 to 2.5 hectares.
According to 2015 Agricultural Financial Year Book, 50 percent of coffee farmers in Uganda sell their coffee through intermediaries or else called middlemen. The middlemen buy farmers coffee for intermediate cash at the farm-gate. Sometimes, they offer loans to farmers whose coffee is still pre-mature, which farmers pay repay with all or parts of their harvest.
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This practice is known as pre-selling. According to report, the price that farmers pay for receiving immediate cash through pre-selling is very high. According to the report, the average price for dry, unprocessed Robusta coffee is almost three times higher than the average price paid by a pre-buying intermediary and more than four times higher for Arabica coffee.
Taken together, pre-selling farmers lose on average 65 to 78 percent of their possible income from the coffee sales to pre-buying traders. The author of research paper entitled Pre-selling of Coffee at farm Gate, Oliver Schmidt , the Dean School of Business and Management Mountains of the Moon University, Fort Portal, notes that considering that farmers pre-sell their coffee 2.5 months before maturity, the cost they incur can only be compared to a loan with 73 to 139 percent fixed monthly interest rate. That is huge loss to farmers. It is little wonder, farmers in Uganda continue to live in viscous circle of poverty as middle live luxurious life- their children go to top schools, stay in upscale places and have fat bank accounts.
These shocking findings are based on research conducted with 300 farmers from three main coffee growing districts of Mityana, Mubende and Kasese. Out of the 300 farmers (sample study), 172 farmers were engaged in pre-selling. On average, 76 percent pre-selling farmers sold all their total coffee produce to intermediaries before coffee reached maturity while 85 percent of pre-selling farmers sold half of their produce before maturity.
The farmers revealed that they pre-sell their coffee to solve immediate problems such as school fees, health expenses and as well as basic household needs.
The farmers say, as soon as coffee cherries near maturity, intermediaries who are mostly their friends or nearby traders approach them with immediate cash.
Low prices given by pre-buying traders is not the only problem faced by smallholder coffee farmers in Uganda. According to the report, farmers stated that pre-buying traders hire people who carelessly harvest the coffee causing damage to their coffee trees. This includes breaking coffee branches, which negatively affects their next harvest.
In some cases, pre-selling farmers are responsible for harvesting coffee, yet the cost of harvesting the coffee is relatively high compared to the low prices given to the pre-sold coffee.
That is not all; farmers noted that in case of disaster or disease outbreak, after the coffee is pre-sold, the farmer is supposed to incur the resulting loss. It sounds weird. You may ask yourself, what is if price shoot up ten fold, will pre-buying traders add some money to the farmer? Never! To, hell with the poor farmer.
Some farmers reported that some intermediaries do not allow them to enter their own garden after pre-selling, until they harvest the coffee. It should be remembered that many farmers intercrop coffee with other crops.
It is important to note that farmers who pre-sell their coffee are those who are not members of any kind of farmer organization. This is mainly because coffee farmers who belong to farmer groups are entitled to some benefits.
Majority of the pre-selling farmers are un-Banked. Majority of them save at home or informal savings groups. Only 19 out of 177 farmers saved with a semi-formal group, 23 with a formal financial institution.
From the report, majority farmers with outstanding loans are obtained from informal sources, with savings groups, with family and friends being the most relevant providers of these loans.
The authors of the report urge that increasing access to financial services could provide a suitable solution to problem of pre-selling which has turned coffee farmers into beggars. They urge that financial services need to take farmer’s motives for pre-selling into account. The financial services need to be easily accessible, flexible and provide for expenditures such as school fees, medical care and basic household needs-conditions that many formal financial products currently fail to meet.