COVID-19 Challenges to Grain and Oilseed Systems in Uganda
Following its examination of COVID-19 and the new risks to food security and nutrition, the Feed the Future Enabling Environment for Food Security (EEFS) project will look into how practical challenges currently facing the private sector could negatively impact food systems in developing countries.
Throughout the series, EEFS will present feedback from its remote survey of private sector partners operating in Feed the Future countries. This first installment of the series shares insights from two of the largest grain and oilseed companies operating in Uganda.
Agilis Partners is the largest producer of maize and soybean in Uganda. In addition to 5,000 hectares of its own production, Agilis sources from a network of 15,000 smallholder outgrowers. They also process flours, edible oils, and animal feedstuffs. The company employs 675 people and recently reached 550,000 consumers annually across East Africa. Ben Prinz, Co-Founder and Co-Managing Partner of Agilis, detailed for EEFS the practical impacts they are seeing as a result of the COVID-19 crisis.
Prinz explains the knock-on effects of liquidity constraints at various points in the grain and oilseed market system as a result of the general economic slowdown. While end-market demand for maize flour remains high, limited liquidity at the processing level could affect volumes sourced and/or prices. Upstream input suppliers are also feeling a liquidity pinch, which has resulted in new purchase terms for smallholder customers. Rather than previous credit terms, smallholders are now required to pay cash for inputs. Since many smallholders lack the liquidity to fund input investments prior to harvest, these supplier credit constraints could result in lower on-farm yields and reduced aggregate supply.
Prinz also describes how the closure of hospitality businesses will impact the grain and oilseed market. Since hotels, restaurants, and catering businesses are a major consumer of meat products in Uganda, the shutdown is naturally expected to reduce aggregate domestic demand for meat. This weak demand for animal products would subsequently decrease demand for animal feed, impacting feed processors and feedstuff suppliers which include soybean meal processors as well as grain and oilseed producers.
Divine Masters Limited
Divine Masters Limited (DML) is a producer, buyer, and distributor of maize, rice, and soybean in Uganda. They operate their own 5,200-acre farm and also source from a wide network of smallholder farmers under forward contract purchase arrangements. Rafael Jawino, Managing Director of DML, also spoke to EEFS about the impacts they are seeing as a result of the COVID-19 crisis.
So far, Jawino has not observed a sustained increase in retail grain prices as a result of panic buying. While there was an initial increase in retail demand, once household food stocks increased, retail grain prices have generally moderated. Nonetheless, supply and price risks may still be on the horizon as a result of impacts related to labor, logistics, and access to inputs.
In Uganda, it is time to begin planting grain and oilseed crops, but farm labor availability is low which increases labor costs dramatically. Rising farm labor costs with reduced labor supply overall means producers may not be able to meet seasonal planting needs which will effectively reduce expected harvest volumes this season.
Consistent with Agilis’ observations, DML’s outgrowers are also facing limited access to critical production inputs. Jawino estimates one main cause is reduced availability of imported inputs. Only about 25 percent of seed demand in Uganda is met through domestic production, which means the remaining 75 percent is imported. Since input importers are unsure how the crisis will affect producer demand, they are increasing operational liquidity with a cash position rather than importing seed and other agri-inputs. As a result, DML’s outgrowers and other smallholders in Uganda have limited access to seed and agrochemicals. Smallholders accustomed to utilizing improved seed varieties will now be forced to reuse last season’s grain as seed, which will undoubtedly reduce their yields this season.
Logistics and transportation costs for grain and oilseed output are also being impacted. While DML’s core staff continue to work remotely, the firm will need to increase their IT investments to enable remote logistics management. And although domestic grain flows are permitted to continue, restrictions on movement generally remain, which has increased transportation costs associated with sourcing and distributing grain and oilseed. Each of these challenges adds to operational costs, which will reduce margins and/or be transmitted into grain and oilseed prices.
Anecdotal evidence from two of the largest grain and oilseed producers/distributors in Uganda provides insights into the real challenges facing staple food systems in Uganda. These companies have tangible positive impacts on their smallholder suppliers as well as countless consumers, and the impacts from the COVID-19 crisis could be palpable to both.
Constraints on supply chain liquidity, labor, logistics, and access to inputs will have negative consequences that reverberate across Uganda’s food supply. In the season ahead, the risks to smallholder livelihoods, aggregate food supply, and rising food prices need to be well understood. Generating empirical evidence and raising awareness of these risks before they materialize is needed now, so that policymakers and development agencies can prepare accordingly.
The Feed the Future Enabling Environment for Food Security (EEFS) project is a pre-competed Blanket Purchase Agreement (BPA) for USAID Missions and Operating Units to access evidence-based analysis of how legal/regulatory and institutional factors influence agricultural market system performance, food security, and nutritional outcomes. For further information on how USAID can access EEFS expertise, please contact the Chief of Party, Adam Keatts, at [email protected].