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Middle East & Africa
The Economist January 1st 2022
Africa’s economy
Bean counters
MITYANA
Uganda’s coff ee trade shows why middlemen matter
A
s a child Sowedi Lwanga used to col lect and sell the loose coff ee that had fallen outside the hulling factory where he lived in Mityana, central Uganda. He start ed a trading business when he was still in secondary school. Coff ee is a “common man’s charter”, he says. “You jump out from your bed, you [pick up] your weigh ing scales and money, and you go.” He has come a long way: last year he bought and processed 27 tonnes of coff ee, which he sold to an exporter. Middlemen like Mr Lwanga are the hu man infrastructure of African economies. Big cash crops, such as coff ee, cocoa and cashew nuts, are grown on small, scattered farms, often far from any tarmac. Some how they must reach the warehouses of a few giant companies, before being shipped abroad. By solving this conundrum, mid dlemen help turn the harvest of a million gardens into cappuccinos and chocolate bars enjoyed thousands of miles away. In the colonial era, and for a long time afterwards, the state dominated. In many African countries export monopolies for cash crops were granted to state marketing boards, which bought from farmer coop eratives. That system acted like a heavy tax on farmers, who were paid poorly for their produce and were often barred from sell ing to anyone else. It was also prone to cor ruption. In the 1980s, as a condition for loans, the World Bank and imf pushed Af rican governments to stop acting as over mighty agricultural middlemen.
From here to your local Starbucks
Few countries embraced the new ortho doxy as enthusiastically as Uganda. The coff ee marketing board was stripped of its export monopoly, cooperatives collapsed and multinational fi rms rushed in. The share of the coff ee export price that went to farmers rose from just 20% in 1989 to around 75% today, though they were no longer insulated from wild swings in the price itself. The reforms also restructured rural life. The reign of the bureaucrat was over; the rise of the middleman had begun. The Ugandan coff ee trade is now a free forall, built on trust and treachery. More than a million farmers keep coff ee trees, typically grown alongside other crops in plots smaller than a football fi eld. They usually sell to middlemen on motorcycles, who sell to larger traders with trucks, in a chain that stretches to the foreignowned fi rms which dominate exports. Stories of fraud abound. Middlemen of ten mix welldried coff ee with moister beans, which are less desirable. Another trick is to cheat the exporters by bulking out sacks with waste husks, then bribing testers to look the other way. Mr Lwanga says that he used to prise open his weigh ing scales and slip a coin into the mecha nism, so that he could take more coff ee from farmers than he paid them for. These days he has forsaken such deceit. “In busi ness you have to be trustworthy,” he says. Reputation matters because middle men seal deals with little more than a handshake. In the absence of strong agri
cultural banks, they often double as mon eylenders, paying cash in advance. Some times a middleman will prebuy an entire fi eld at a knockdown price when the trees have only just fl owered. That refl ects fi erce competition for coff ee. But the relation ships thus established may also keep cli ents loyal. Joseph Kisitu, a farmer, says that he usually goes to the same trader, even if others off er a better price, because the man has always been there with instant cash when he needs to sell in a hurry. And farmers do need money quickly, for emergencies like hospital bills. That weakens their bargaining power. By con trast, big traders can obtain credit from ex porters, which cascades down the chain to the smallest of middlemen. This fl ow of capital only partly “fi lls the gap” in rural fi nance, says Michael Mugisha, a researcher who previously worked at a coff ee export er. It also traps farmers in a “pervasive pro cess of indebtedness”, leaving them with little surplus at the end of the season to in vest in improving productivity. Middlemen are driven by volumes, not quality. Some buy coff ee before it is ready, says Apollo Kamugisha, an offi cial at the coff ee regulator, which is trying to impose stricter sanctions on traders who deal in unripe cherries. A similar challenge arises in many countries, notes Paul Stewart of TechnoServe, a nonprofi t that works across Africa. Farmers need incentives to deliver good coff ee, “and often the only way to do that is to shorten the chain”. One solution is to organise farmers into groups. The Uganda Coff ee Farmers Alli ance, a producer body, is trying to revive cooperatives. But the leaders of a group in Mityana district complain that traders slightly outbid them for their members’ coff ee, and thus reap the rewards of the fer tiliser and training the cooperative has provided. It takes cooperatives a fortnight or more to pay for the coff ee they receive. Some are poorly managed. An alternative model is for big export ers to buy directly from farmers. They increasingly source Arabica coff ee this way, because the premium for certifi ed, singleorigin beans more than covers the transaction costs. But for cheaper Robusta varieties, which make up 78% of Ugandan coff ee, cutting out the middleman is usual ly more trouble than it’s worth. “You can’t be everywhere,” says an executive at one foreignowned exporter. Traders themselves feel they deserve recognition as the lifeblood of a system which, if nothing else, is unusually effi cient. More than 3,000 of them are now members of an association which aims to raise standards and eliminate sharp prac tice. “We are not here to spoil the game,” ar gues Amos Kasigi, its chairman. “It is the middleman who has been supporting the farmers to keep the industry running.” n
