Tea Growers’ Factory Successes Make a Case for Cooperatives

Within a period of six years, Herbert Musinguzi of Kayonza sub-county in Kanungu district has purchased four acres of land in his village.

Yet the 40-year-old Musinguzi is not really affluent, even by the standards of his locality. Musinguzi works at the nearby Kayonza growers’ tea factory as an office assistant. More than that, however, the father of four holds a much bigger stake at the tea factory as one of its 6,200 shareholders.

Musinguzi’s role as a shareholder is largely to supply the factory with green leaf, which is processed into tea. In exchange, he receives farm implements and inputs, as well as a stable price for the tea green leaf.

“We get fertilisers and weed master on credit, then we pay back the money through the green leaf that the factory buys from us,” Musinguzi tells The Observer in an interview near the factory premises.

When he started supplying Kayonza growers’ tea factory with green leaf in 2008, Musinguzi had only one acre of land and was working as a casual labourer at the factory. Today, Musinguzi supplies 700 kilogrammes of green leaf each month, from which he earns a net income of Shs 380 per kilogramme after deductions.

Marcel Asiimwe, the chief executive officer of Kayonza growers’ tea factory, says they pay out an average of Shs 354m to farmers on a monthly basis for the green leaf.

Strength in numbers

The latest available financial results, captured in the 2013 chairman’s report, show that Kayonza’s turnover grew in 12 months by Shs 2.4bn to Shs 14bn, the shareholders’ interest grew by 6.2 per cent to Shs 8.6bn, and the net profit grew to Shs 608m from Shs 449m.

The Kayonza growers’ tea estate, which was founded in 1964, formerly belonged to the defunct Uganda Tea Growers Corporation. However, as government withdrew from running business in the 1990s, locals in Kanungu formed an association that negotiated for the rights to take over the running of the factory in Kayonza.

According to Asiimwe, the Kayonza supremo, the government initially offered the factory to the tea growers in 1999 on credit. Eventually, the farmers claimed total ownership of it in 2008 after they paid Shs 580m to the government. Today, Asiimwe says, the currency for purchasing shares in the factory is simply green leaf, of which they now receive nearly 15,000,000 kilogrammes from farmers annually.

“You just cannot walk in to buy shares from whomever and become a shareholder. You have to be growing tea and supplying to the factory,” he said, adding that about 85 per cent of the green leaf that they processed was supplied by the local farmers while the other 15 per cent was from the factory-owned estates.

The large number of farmers operating under the Kayonza tea growers’ umbrella has not only resulted in the increased growth of Kanungu district, it has also compelled the government to provide social services in the area.

“Tea has driven road construction because when the tea factory was put here, there were no roads,” Asiimwe said. “Getting the national grid here was also almost ahead of rural electrification. We had to engage the government because we were failing to operate the factory without power.”

The level of organisation in Kayonza also enabled the government to supply locals with seeds and other inputs through the National Agricultural Aisory Services (Naads).

“We entered into a partnership with government to promote further tea growing among the people of Kanungu and government has in the last two years and a half distributed about 40 million seedlings to farmers,” says Asiimwe, adding that the increased tea output has necessitated that the factory improves its processing capacity.

A case for cooperatives?

The success of a farmers-owned factory such as that of the tea growers of Kayonza is not a one-off. A similar model has been replicated several kilometres away in Bushenyi district, where farmers run the Igara growers’ tea factory.

Anthony Ndyanabangi, who owns shares in Igara and has supplied the factory green leaf for the last nine years, says such an arrangement props up many farmers who would otherwise not have been able to do some things on their own.

“If you are on your own, you get difficulties in obtaining inputs like fertilizers, and herbicides. But in this respect, you find that the company brings them and gives them to you on credit and you find it’s simpler to produce more,” says Ndyanabangi, who is also a production manager at Kayonza.

With no specific government-specific agency tasked to improve efficiency in tea production, Igara and Kayonza decided to form the Uganda Tea Development Limited, a farmer-owned management agency that is filling that vacuum.

Asiimwe says because their market is largely foreign, with much of the tea auctioned in Mombasa, Kenya, there is a need to have a level of organisation that ensures adherence to specific standards and sufficient marketing for the tea if the farmers are to get a good return on their investment. According to Asiimwe, it is the government that should be playing such roles, not private entities.

“You know Ugandans are not serious tea drinkers, which means we are competing for the available tea drinkers with other brands. So, we need support maybe from the value-addition programme from the government because that way, we hope to have more money when we add value,” he said.

The dearth of cooperatives has affected productivity across many of Uganda’s major agricultural foreign exchange earners of yesteryears such as coffee and cotton. Despite the problem, the exports have continued to grow, underlining the untapped trade opportunities on the international market.

Over the last six years, according to available statistics from the Uganda Export Promotion Board, tea export volumes grew from 46 tonnes in 2008 to 49.9 tonnes in 2010 and to 55.6 tonnes in 2011.

International hurdle

Some international trade analysts say that without concerted government effort, Ugandan entities stand a slim chance of wrestling substantial market share from countries whose farmers enjoy subsidies and other forms of support.

Uganda’s ambassador to China, Charles Wagidoso, is one g aocate of government intervention to support agriculture. In a recent interview, Wagidoso said, “Anything to do with agriculture, you cannot leave it to the private sector. It requires public sector intervention.”

Wagidoso, who represents Uganda in the world’s second largest economy, offered the example of Ethiopia, which he says captured the sim sim market in China after a deliberate effort by its government to support farmers and ensure that what they produced was of a similar standard.

“Ethiopia is the biggest exporter of sim sim to China [but] it was not left to the farmers to produce and export sim sim to China. There was intervention by the ministry of agriculture and the government,” he explained.

Asiimwe says the model that has served Igara and Kayonza well can be replicated in other parts of the country, but emphasises that such initiatives need government support to succeed.

“It is something that should be emulated elsewhere but it needs a big organisation,” he said, adding sceptically: “I do not know whether the government can support the construction of a factory like this and provide materials and put in place the necessary infrastructure.”

Source : The Observer

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