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publication June 19, 2018

Closing the Potential-Performance Divide in Ugandan Agriculture: Fact Sheet

Latest Issue: 
  • June 2018

1.      What is the current state of agriculture in Uganda?

Agriculture contributes 25% of national GDP and employs 70% of the population. The sector provides great avenues for economic growth and economic inclusion, particularly from women and youth. Women make up 55% of the economically active population, contribute more than 75% of the total farm labour and over 90% to farm-level primary processing operations. Almost half (45%) of the heads of smallholder farming households are under the age of 40.

But the sector has grown very slowly. Over the last five years, Uganda’s population has grown 3.3% per annum while output in agriculture has grown at only 2% per annum. In comparison, other East African countries have had up to 5% annual output growth in agriculture.

There is great potential for faster growth because more cropland has opened up, peace in previous conflict areas means more people can farm and Uganda got a new independent trading partner in South Sudan. The East African Community has also opened more avenues for regional agricultural trade.

2.      How can Uganda harness these opportunities for growth in the sector?

The opportunities provide quick growth in the short term, but sector reforms to mitigate structural challenges can help position for longer-term sustained growth.

There is need to increase the resilience of agroecosystems and of rural livelihoods. Most rural households have very few alternatives in terms of finance and other safety nets, making them more susceptible to climate-related hazards. And yet as in other parts of the world, Uganda is experiencing less predictable weather patterns, more crop and animal pests and diseases and higher temperatures.

Private sector value addition would support inclusive business models to improve linkages among smallholders and firms of all sizes. To reduce the private investment risk, public resources must prioritise complementary public goods and services like agricultural research and roads in rural areas. Public agencies should work together in a more coordinated fashion to produce more and better data including some district-level statistics, public expenditure reviews, policy analysis and policy monitoring.

3.      What can extension services do to help productivity?

The government should consider focusing on production means rather than input distribution to achieve its goals. An alternative example could be the use of social protection linked to climate-smart soil and water management practices. The rural areas, which produce most of Uganda’s agriculture, are unable to adapt quickly to climate change and that hinders the growth of agriculture under present climate trends. The country is estimated to be losing from 4 to 12% of GDP annually mostly due to soil erosion.

So, agencies can work together to re-focus and play a critical role in fostering the adoption of climate-smart land, gender-sensitive and water management soil practices to enhance the resilience of smallholders to climatic and market-related risks. The provision of inputs alone without transferring knowledge can create unintended consequences like depletion of soil health and poor incentives for the private sector which reduces the competitiveness of agribusinesses.

4.      How would the involvement of the private sector help?

Private sector investment would enable access to financing to a sector that has little access to finance. Reports show us that rural residents are twice as less likely to access finance from formal financial institutions than their urban counterparts and end up relying on informal and non-bank formal institutions.

Financial institutions are reluctant to extend credit to agriculture because of lack of usable collateral, high transaction costs due to the remoteness of clients, dispersed demand for financial services, small size of farms and of individual transactions, underdeveloped communication and transportation infrastructure and high covariant risks due to variable rainfall, price risks and recurrent incidences of pests and diseases. Combined with poorly developed agri-food value chains and added transaction costs associated with the absence of physical banking facilities in rural areas, most institutions are unwilling to lend.

Warehouse receipt systems and credit guarantees can work as an alternative solution to address lack of collateral and poor credit. Farmer groups and small enterprises can establish good repayment reputation and benefit from lower transaction costs and access to more finance.

5.      How can ICT be leveraged to increase productivity?

Mobile phones are the main conduit for accessing ICT services in rural areas. Diffusion of technology is however hindered by poor telecommunications infrastructure, unstable power supply, lack of ICT skills, high costs of acquiring and maintaining equipment, lack of property rights and difficulties in making information available in local languages.

New technologies present large opportunity to increase total factor productivity of agriculture (the efficiency and utilisation of inputs in production) which has been negative since 2000. Technology reduces transaction costs and increases information access resulting in higher income for farmers, especially women. Among coffee farmers, households using mobile money also receive better prices and sell more coffee.

Investment will vary from smaller cost interventions like radio broadcasts about good practices and technologies to higher cost ones like connectivity to undersea fibre optic cables to simplify mode and speed of service delivery to the public.