Uganda Commodity Exchange

Commodity Markets and Trading, MBA CM, 2nd Year, NMIMS (2012 14)

Group 6
A054 Bhavna Singh A055 Kaushal Singh A056 Jasdeep Singh A057 Sambhavi Singh A058 Ravi Srikant A059 Mohit Sud A061 Piyush Upadhyay A062 Anish Wadhwa A064 Ram Khandwala

Agenda
Traded Commodities Agriculture Sector in Uganda Contract Farming & its Issues Commercialization Areas in Uganda History of Uganda Commodity Exchange Commodity Dependence in International Trade Derivative Market in Commodities in Uganda Role of Uganda Commodity Exchange Warehouse Receipt System & its Benefits to Farming Community Tariff Structure at a Warehouse Warehouse Receipt Document & its features Trading Hours

Traded Commodities
Contribution of Agriculture in GDP is around 24%. Maize Beans Paddy Rice Coffee Predominantly Maize is traded and the reasons are : - Favorable climatic conditions mean temperature of around 25C and moisture, soil conditions - Major staple food in the region

Agriculture in Uganda (1/2)

Agriculture most important sector 23.9% contribution to Ugandas GDP 82% of Uganda Population depends on Agriculture Around 50% contribution to the total Exports Agriculture led growth is key for Ugandas Development Major Export Products

Agriculture in Uganda (2/2)

Prime Products : Tea, Coffee and Horticulture Other products
Food crops: Plantains, cassava, sweet potatoes, millet, sorghum, maize, beans, groundnuts and sesame Live stock Export Crops: Coffee, cotton, tea and tobacco High Value Crops: cut flowers, certain fruits and vegetables

Coffee exports contribute to 80% of the total export revenue Largest producer of coffee in Africa Uganda is normally self-sufficient in food production Crop marketing is handled by co-operatives, marketing boards and private companies

Contract Farming in Uganda (1/2)

Traditionally restricted to plantation crops Products Sugarcane Tea Major Players: Kakira Sugar Works Sugar Corporation of Uganda Limited Kinyara Sugar Works Kasaku Tea Estate Extension of contracts with Agribusiness Firms Products Cotton, tobacco, sunflower, maize (quality protein maize) Sorghum, organic products (cotton, coffee, sesame etc.) Oilseeds, rice, honey, and poultry

Contract Farming in Uganda (2/2)

Major players
British American Tobacco Nile Breweries Uganda Breweries Outspan Enterprises Limited Mukwano Industries Bee Natural Products Ugachick Co-operative unions

Contract farming schemes credited for

Increasing the profitability of crop farming Reducing marketing risks Opening up new markets for non traditional cash (domestic/international)

crops

Issues with Contract Farming in Uganda

Smallholder farmers experiencing contractual problems in dealing with large agribusiness firms

Farmers End up giving up contract

Leading to failure of either agribusiness firm or smallholder farmer Inadequate contractual laws Weak Enforcement of prevailing contractual laws

Inadequate trade policies

Lack of poverty reduction approach

Invest in the Ugandan agricultural sector?

Rising domestic, regional and international markets for agricultural commodities Rising global demand for food; an opportunity for increased production

Renewed support of agriculture at national, continental and global levels Membership to bigger market, EAC, COMESA, EU, AGOA, etc

Commercialization Areas in Ugandan Agriculture (1/4)

Dairy and Dairy Products

Meat and meat products

Beef exports; (12 m cattle, 13 m Goats, 38m poultry, all with potential to more than double) Modern abattoirs Leather processing Small ruminant production Goats and chicken Animal feeds processing and distribution Commercial breeding and production of semen for local and export market

(1.5 bn litres annually with potential to more than double)

Powdered milk production Flavoured and UHT Milk Production of butter and ghee Cheese production Cream and ice-cream Establishment of collection centres and distribution facilities, etc.

Commercialization Areas in Ugandan Agriculture (2/4)

Fisheries sub sector Cotton and textiles

Manufacture of value added fish products e.g. canned fish, fish sausages, fish soups, etc Aquaculture development premium species e.g. cage fish, eel fish, etc Leather processing for export Dry/smoked fish for local and regional markets

High class textile manufacture especially for regional markets (Potential of 500,000 bales annually) Mixed fibre production e.g. fibre yarn and fabrics Tailoring and designing school on large scale and commercial basis

Commercialization Areas in Ugandan Agriculture (3/4)

Fruits and Vegetables Floriculture

Processing of organic fruits and vegetables for export Processing of fruit and vegetables Export of dehydrated fruits Export of fruit concentrates

Industry growing at a fast rate of 25% in a year Expansion of Rose industry Growing of other floriculture plants other than roses Manufacture of green house plastics Manufacture of packing materials

Commercialization Areas in Ugandan Agriculture (4/4)

Cocoa, Coffee, Tea Agribusiness services

Establishment of high Coffee processing plants

value

Uganda 9th in the World and 2nd in Common Wealth Cocoa 15,000 MT with potential to double Branding of Ugandan tea

Cold chain Packaging Cargo freight Inputs manufacture; e.g. tractors, vaccines, chemicals Agricultural Insurance Establishment of agricultural bank Construction of warehouse chain facilities across the country

Uganda Commodity Exchange(UCE) History

Earlier commodity market was controlled by Co-operatives and Marketing Boards Liberalization came in 1990s Creation of an entirely new agricultural chain It Lead to the formulation of the Warehouse Receipt System(WRS) UCE was formed in 1998 UCE is a corporate entity duly registered under the companies act of Uganda and limited by guarantee UCE was mandated by the Govt. of Uganda to regulate the warehouse receipts system act 2006 Management consists of the Board of Directors who are the governing body and responsible for overseeing all activities. The day-to-day management is by hired personnel

Commodity dependence in International Trade (1/2)

Item Total export (MLN US$) 1979-81 344 1989-91 2000-04 228 563

Agricultural export (MLN US$)

Total import (MLN US$) Agricultural import (MLN US$)

341
322 36 98

207
611 31

226
1497 171 54

Percent share of major exports in agriculture (coffee, sesame seed, hides and skins, dryslated sheep)
Percent share of major imports in agriculture (wheat, vegetable oil, maize flour)

85

13

17

39

Commodity dependence in International Trade (2/2)

Traded Commodities as on 2013
Currently, commodities such as maize, beans, paddy rice, and coffee are tradable on the exchange floor To trade at the exchange floor, one needs to appoint a broker to represent him or her

Listed Commodity as on 2013

Commodity Grade Price (Ush) Quantity (tonnes)

MAIZE-AGROWAYS Jinja
MAIZE-MASGGA Masindi MAIZE-WFP Gulu MAIZE-Kasese ELSHADAY MAIZE-WFP Gulu

EAC 2
EAC 2 EAC 1 EAC 1 EAC 2

900
1000 1000 1000 800

600000
454000 55700 315000 462750

Derivative Market in Commodities in Uganda

Most African countries have no derivative markets, with the exception of South Africa and the North African economies of Morocco, Egypt and Tunisia, where the volume of derivative transactions is small but growing

Where derivative markets exist, they are largely in their infancy and mostly focused on foreign-exchange derivative contracts.

Traded Commodities

Receipt Commodity
100212 100160 420080 300025 420081 MAIZE Maize MAIZE Maize MAIZE

Location
AGROWAYS Jinja MASGGA Masindi WFP Gulu Kasese ELSHADAY WFP Gulu

Grade
EAC 2 EAC 2 EAC 1 EAC 1 EAC 2

Quantity
600000 454000 55700 315000 462750

Bid
0 0 0 0 0

Offer
900 1000 1000 1000 800

Status
SOLD SOLD OPEN OPEN OPEN

Role of Uganda Commodity Exchange

Developing the trade of agricultural produce

Facilitating the procurement and marketing of produce through the operation of the exchange trading floor and the provision of reliable and timely market information Enabling producers and buyers /user of commodities to keep themselves informed of market volumes and availability of supply of a market for graded produce
Regulating the Warehouse Receipt System through its position as Authority to license warehouses under the Act

Warehouse Receipt Systems (WRS)

WRS in Uganda is implemented on an ICX supported electronic platform called eWRS and has been instrumental in facilitating trade and financing in agricultural commodities A Warehouse Receipt is a legal document of title that shows you the quality and quantity of a commodity that is stored in a licensed warehouse The licensed warehouses are regulated by the UCE under WRS Act 2006 These receipts can be used as collateral for bank borrowing and/or traded at the UCE trading floor Private transactions of receipts is also possible

Benefits of WRS to Farming Community

Provides storage facilities that are professionally run and secure WRS exposes farmers to markets like WFP, large grain traders and the regional markets WRS exposes farmers to buyers that they would have never met Allow farmers access to finance through the banks. Farmers can get 60% of the value of their commodity in order to defer its sale Allows farmers to sell when the price is right rather than right after the harvest In summary it allows farmers better control over the sale of their agricultural commodities

How are Warehouse Receipts Transacted?

It can be Directly sold to World Food Programme (WFP)

On the commodity exchange trading floor using a set of registered brokers who represent buyers and sellers of agro commodities It can be directly sold to a buyer of the farmers choice
This makes a farmer a price maker instead of a price taker

Tariff Structure at Nyakatonzi Warehouse

Warehouse Receipt Document

Characteristics of the exchange in terms of trading hours

Trading takes place twice a week and the dates are communicated in advance in the news page Trading opens at 9:00 am and closes at 12:00 noon Trading is done using the out cry method No international brokerage house on the exchange as member.

References
http://www.uce.co.ug/ http://www.competeafrica.org/Files/Case_Study_Uganda_Com modity_Exchange_IG.pdf http://www.itfcidb.org/files/Uganda_Commodity_Exchange.pdf