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ANALYSIS OF COFFEE EXPORTS IN UGANDA (1991–2010)

CHAPTER ONE

1.0 Introduction

This chapter outlines the study’s background, problem statement, objectives, research questions, scope, significance, and key term definitions.

1.1 Background of the Study

Exporting is a crucial pathway for developing countries to integrate into the global economy (World Bank, 2001). It enables firms in these nations to expand their markets and achieve economies of scale. Additionally, scholars highlight exports as a means of technology transfer (Pack, 1993). Therefore, identifying key determinants of export supply is essential for enhancing economic performance. Understanding these factors helps policymakers design trade and industrial strategies that promote exports.

Redding and Venables (2004) examined factors influencing export performance and found that internal supply capacity—such as geography and institutional quality—played a significant role. Their study revealed that African and Middle Eastern countries experienced declining export performance in the 1980s and 1990s due to weak supply capacity. Meanwhile, East Asian and Pacific nations benefited from improved market access, coinciding with successful diversification efforts. Exchange rate movements also significantly impacted export performance, particularly in low-performing economies.

Coffee is one of the world’s most traded commodities. Roasted coffee beans yield a flavorful, aromatic, and caffeinated beverage consumed globally, with over 600 billion cups sold annually (ICO, 2014). Two primary coffee varieties exist: Arabica, grown at higher altitudes with a milder taste, and Robusta, which is hardier and more bitter. Many developing countries rely heavily on coffee exports, with some deriving over 50% of their export earnings from coffee.

In countries like Brazil, Colombia, Guatemala, and Honduras, coffee significantly contributes to GDP and agricultural GDP. For instance, in Honduras, coffee accounts for 7.37% of GDP and 48.17% of agricultural GDP (ICE, 2014).

In Sub-Saharan Africa (SSA), agriculture remains a primary economic driver, contributing 34% to GDP and 64% to employment. However, reliance on agricultural exports like coffee exposes economies to price volatility, affecting household welfare and export stability.

Uganda’s export sector is dominated by primary products (74.1%), including coffee, cotton, flowers, fish, and minerals (Roberta, 2004). At independence (1962), Uganda’s exports consisted mainly of agricultural goods and raw minerals. By the 1970s, coffee emerged as the top foreign exchange earner, contributing 51% of export revenues (Musinguzi, 2002).

Despite government efforts to diversify the economy, coffee remains vital, contributing 18% of export earnings between 2000 and 2010. The sector relies on approximately 500,000 smallholder farmers, with 90% cultivating plots of 0.5–2.5 hectares (UCDA, 2012). Coffee-related activities support over 3.5 million families, though domestic consumption remains low (4–10% of production).

Uganda ranks fourth globally in coffee export dependence (after Burundi, Ethiopia, and Honduras), with coffee contributing 18% of total exports from 2000–2010 (ICO, 2012). However, export volumes have fluctuated, declining from 200,640 tons in 2008 to 159,433 tons in 2010. Earnings dropped from $400 mi ll i o nin t h e mi d - 1990 s t o$ 280 million in 2010 (MAAIF, 2011).

The European Union is Uganda’s largest coffee market (70% of exports), followed by Sudan (10%) and the USA (3%) (UCDA, 2011). The export sector is dominated by 29 firms, with the top ten controlling 85% of the market.

1.2 Problem Statement

Uganda’s coffee exports have been unstable, peaking at 200,640 tons in 2008 before declining to 159,433 tons in 2010. Despite government interventions, export earnings fell from $400 mi ll i o nin t h e 1990 s t o$ 280 million in 2010. This volatility raises concerns, necessitating an analysis of factors influencing coffee exports from 1991–2010.

1.3 Objectives of the Study

1.3.1 General Objective

To analyze coffee export trends in Uganda from 1991 to 2010.

1.3.2 Specific Objectives

To examine the impact of real exchange rates on coffee exports.
To assess the influence of coffee prices on export volumes.
To evaluate how coffee quality affects exports.

1.4 Hypotheses

Real exchange rates significantly affect Uganda’s coffee exports.
Coffee prices influence export performance.
Coffee quality impacts export demand.

1.5 Scope of the Study

1.5.1 Content Scope

The study focuses on:

The effect of exchange rates on coffee exports.
The role of coffee prices in export trends.
The impact of coffee quality on export performance.

1.5.2 Time Scope

The research will be conducted from February to October 2017.

1.6 Significance of the Study

The findings will:

Provide insights into how exchange rates affect coffee exports.
Enhance understanding of price influences on coffee trade.
Contribute to existing literature on coffee quality and export demand.