Why the new coffee law complicates sector growth

Uganda, which is one of the world’s leading coffee exporters, finds itself at a crossroads with some stakeholders in the industry over the National Coffee Act, 2021, as they believe the law could mark the collapse of the sector.
According to the government, the legislation aims to facilitate development of a competitive, participatory and sustainable coffee sub-sector in accordance with the National Coffee Policy, 2013. The Uganda Coffee Development Authority will be responsible for the regulation and promotion of the sub-sector.

However, since it was gazetted into an Act in September last year, the legislation has divided farmers and policy makers, especially on provisions that allow penalties regarding licensing, quality, and storage, among others.
Notably, the enforcement of the Act comes at a time when farmers exported 6.49 million 60-kilogram bags of coffee for the 2020/2021 season compared to 5.36 million 60-kilogram bags in the 2019/2020 season, according to UCDA statistics. The farmers earned $629.8 million in the 2020/2021 coffee season (October –September), recording a 23% growth in earnings up from the $512.22 million in the previous year.

Despite this positive trend, critics wonder why such legislation is necessary, especially when the sector is performing considerably well.

One of the contested provisions of the Act states that: “a person shall not operate a pulpery, buy coffee, grade coffee, roast coffee, brew coffee, operate a coffee shop or coffee store, a warehouse of coffee huller or process or export coffee on a commercial basis without a license issued by UCDA.”

“Coffee is a beverage and should conform to required health/safety standards. The quality of coffee, machines used by the processors/brewers/baristas must not compromise the health of a consumer,” the Act further states.
Farmers argue that they can self-regulate and maintain quality standards. They fear that the bureaucratic tendencies in acquiring licenses, and increased cost of doing business will frustrate them.

Section 53 of the Act provides a list of offences which are punishable, including operating an unregistered coffee nursery or seed garden and selling substandard or diseased planting materials. These will be punished by “a fine not exceeding one hundred currency points or a term of imprisonment not exceeding four years, or both,” according to the Act.

These penalties will also apply to harvesting while being in possession of immature cherries, poorly storied wet cherries or heaping coffee leading to molding. Coffee processors and operators of hullers who have no licenses will also be penalized.

While this will improve the quality of the produce, small-scale farmers are likely to be left out in the face of such penalties because they lack the means necessary to immediately implement some of the requirements. Farmers rely on their own associations and unions to improve their produce, as government assistance could be a long range.
However, Mr Morrison Rwakakamba, the CEO at Agency for Transformation – a think tank on agricultural, environmental and energy policy, argues that small-scale farmers should have institutionalised informal collective marketing arrangements to increase their profits. “Cooperatives that want to survive must understand such new realities. We should support old cooperatives if they are willing to re-invent themselves to align with new realities,” he says in response to government’s support of cooperative unions.

As a result, those that are unable to embrace these developments are pushed out and eventually miss out on government deals despite the latter’s stance on supporting the local industry.

Even as the law takes shape, the government should ensure due diligence in regard to supporting the sector. For instance, it drew criticism last week when it signed a project implementation agreement with the board chairman of Uganda Vinci Coffee Company Limited Enrica Pinetti to establish a coffee processing plant at Kampala Industrial and Business Park, Namanve.

The project, expected to commence in a year, is linked to the controversial investor who was behind the construction of the international specialized hospital in Lubowa, which has since hit a stalemate.

According to the Ministry of Finance, the coffee plant is expected to process 60,000 tonnes of coffee per annum at full capacity but will start with processing 27,000 tonnes. The company is expected to create 246 jobs for employees and skilled labourers.

“This project is crucial and will help coffee farmers get better prices. Middlemen have been taking much of our money. We will earn more money from our sweat,” Mr Matia Kasaija, the Finance Minister, said.

Following the development, Wabuyi James tweeted: “This is a good development for the coffee growing communities especially Bugisu, Buganda, Busoga, Ankole and West Nile.”

But Mr Robert Kabushenga, a coffee farmer, believes otherwise: “And the Ugandan coffee story just gets worse.”
One of the provisions that the Act is keen on is registration. It states that registration supports the creation of a traceability system that ensures even small holder farmers with microlots can earn premiums from well managed gardens. Microlots are special lots of coffee, selected for their high quality and unique flavour profiles, which Ugandan coffee is known for.

“Coffee buyers and consumers want to know where the coffee they consume comes from, who produces it and what farming practices they employ,” says UCDA in a response to the concerns.

While this is commendable, the pullout from the International Coffee Agreement 2007 for four years raises market concerns for Uganda’s coffee. According to UCDA, the extension of the ICA came into effect on 2 February 2022 and will be in effect until 1 February 2024 to give more time for negotiation of a new agreement.

The regulatory authority argues that Uganda has raised key issues that the agreement has not addressed, including barriers to trade imposed through high tariffs on processed coffee by developed/importing countries which disadvantage producer countries like Uganda resulting in farmers getting low prices, and promotion of value addition.

UCDA argues that Uganda needs unconditional market access that allows for export of value-added coffee not only green coffee.

These are valid demands but considering the new coffee law, farmers are likely to hit a dead end even if they follow the legislation because the four-year suspension locks them out. On the one hand, the new coffee law is capable of achieving its objectives but can do better if the government addresses the key concerns of stakeholders and keeps the international market open.