Uganda Agribusiness Report Q2 2012

BMI View: We hold a positive outlook for the coffee sector, which has developed in recent years on the back of government support and as high global prices encouraged investment into new trees and fertilisers. Although weather problems are expected to hamper production in 2011/12, we remain optimistic that output will come in around expectations. We forecast expansion of the sector over the long term and believe tree yields will improve, as will crop resistance to disease. We are more cautious on the grains sector, expecting production to increase only slightly in the long term, mainly because of increased export demand.

Key Views

Coffee production growth to 2015/16: 17.7% to 2.7mn tonnes. The Uganda Coffee Production Campaign has developed new disease-resistant coffee trees; this is expected to boost yields over our forecast period. Also, high coffee prices should encourage greater fertiliser use.

Corn consumption growth to 2016: 12.6% to 2.0mn tonnes. Corn is not considered a staple food in Uganda and we therefore expect slow consumption growth through our forecast period.

Growth in demand for corn will more likely come from the country's livestock sector, which is growing in response to higher demand.

2012 real GDP growth: 6.2% (down from 6.3% in 2011; predicted to average 7.7% from 2011 until 2016).

Consumer price inflation: 18.6% year-on-year (y-o-y) annual average in 2012 (up from 18.6% y-o-y in 2011).

Industry Developments We expect output for the coffee sector to be roughly the same in 2011/12 as 2010/11 and have a relatively optimistic view for output in the coming years. This is mainly a function of programs created to combat value chain bottlenecks. For example, coffee laboratories have been launched in eastern Kapchorwa and regional farmers co-operative Coffee A Cup delegated six local wash stations and 1.0mn coffee trees to local producers in Bududa, Manafwa and Sironko. Ultimately, we see production growing slowly out to 2015/16 to reach 2.7mn bags, as high prices in recent years have spurred crop output. However, given the relative fragmentation of the sector, good weather will be required to ensure output growth remains on track.

Although BMI does not foresee significant production growth over the long term, we highlight the importance of Uganda's grain crop, particularly maize. Since maize is not a domestic staple good, the country is a net exporter and a key supplier for East Africa. The sector has had difficulty in previous years, particularly after the Ugandan civil war, but high grain prices and relatively stable weather have contributed to its improvement. Over the long term, the Ugandan (along with the South African) maize crop will be important for maintaining regional food security, particularly in the context of the recent establishment of the East African Common Market.