Financing the agriculture sector in Uganda: Trends and implications

By Philemon Okillong

For several years, agriculture has formed the backbone of several African economies. In Sub-Saharan Africa, agriculture contributes nearly 23 per cent of the gross domestic product (GDP), with smallholder farmers constituting more than 60 per cent of the population.ⁱ Furthermore, it employs nearly 52.3 per cent of the workforce, mainly women and youth.ⁱⁱ However, Sub-Saharan Africa’s full agricultural potential remains unexploited, as food insecurity and undernourishment continue to pose a great development change across the region. In Uganda’s context, according to the Uganda Bureau of Statistics (UBOS), the agricultural sector continues to remain the most important sector employing over 68 per cent of the population and contributing to over 32 per cent of the GDP and Approximately 33 per cent of the country’s export earnings.

In an attempt to eradicate hunger and improve food security in Africa, the African Union adopted the New Partnership for Africa's Development (NEPAD) in 2001, making the agriculture sector’s growth one of its central pillars. This laid a foundation for the development of the Comprehensive African Agricultural Development Programme (CAADP), as an initiative to eliminate hunger and reduce poverty through agriculture-led development. CAADP was prioritized in the Maputo Declaration on Agriculture and Food Security (2003), where all member states made commitments to allocate at least 10 per cent of their national budgets towards agriculture to enable them to achieve a 6 per cent annual growth of the agricultural sector. These commitments were later reaffirmed in the Malabo declaration (2014), which pledged to eradicate hunger in Africa by 2025. Despite these commitments to prioritize the agricultural sector, not more than 20 per cent of the SSAs have achieved the 10 per cent threshold on their national agricultural expenditure.ⁱⁱⁱ The government of Uganda (GoU) is yet to fulfil this commitment.^iv For instance, this commitment would imply allocating nearly Ush. 5 trillion towards Agriculture in the proposed FY2023/24 budget. According to FAO’s Monitoring and Analyzing Food and Agricultural Policies (MAFAP) programme 2013 study, ten (10) SSA countries including Uganda have experienced a declining trend in the share of resources allocated towards Agriculture.^v

To boost the agriculture sector and ensure food security, the GoU has increased its focus on agriculture industrialization by increasing commercialization and competitiveness of agricultural production and Agro-processing. Through the Agro-industrialization program, the government seeks to increase the growth rate of agriculture from 3.8 per cent in FY 2017/18 to 6.0 per cent in FY 2024/25 and reduce the proportion of households dependent on subsistence from 68 per cent to 39 per cent in the same period. Furthermore, the AGI program mainly intends to improve rural incomes by engaging women and youth agriculture and agri-businesses (SMEs) to bring about inclusive and equitable growth. Its major objectives include; i) to increase agricultural production and productivity; ii) to improve post-harvest handling and storage; iii) to improve Agro-processing and value addition; iv) to increase market access and competitiveness of agricultural products in domestic and international markets; v) to increase the mobilization and equitable access and utilization of agricultural finance; and vi) to strengthen the institutional coordination for improved service delivery.

The Agro-Industrialization Programme intends to provide backward and forward linkages for agribusiness entrepreneurs at different levels of the production value chain (between agriculture and Agro-industries). As the leading agency, the Ministry of Agriculture, Animal Industry and Fisheries (MAAIF) formulated the Agricultural Value Chain Development Strategy (AVCDS) as a guide for the planning and implementation of activities across the entire agriculture value chain under the AGI Programme. This strategy is embedded within the National Development Plan III and the Parish Development Model Frameworks (Pillar l: Production, Storage, Processing & Value Addition). In addition, it attempts to reduce Uganda’s negative trade balance through value addition on agricultural raw materials to enhance the export growth and expansion of high-value products while supporting the country’s import substitution strategy, which has a high potential for creating jobs along the agricultural value chain.

Therefore, this article seeks to explore the financing trends of the agriculture sector and the AGI Programme and its implications on the economy. The remaining sections of this article provide insight into the agriculture financing trend, the socio-economic implications, and policy recommendations.

Trends in Agriculture Financing in Uganda

Funding for the agriculture sector and subsequently the Agro-industrialization program has stagnated and declined over the past few years. Besides the budget cuts and late releases, the budgetary allocations have been inadequate.^vi Notably, even before embracing the programme-based budgeting approach (and subsequently the adoption of the AGI Programme), the budgetary allocation to the agricultural sector as a proportion of the national budget experienced a declining trend (for a review, see figure 1). Despite an increase in the overall government budget between 2015/16 and 2019/20, the financial resources allocated to the agriculture sector experienced a gradual decline as shown by the attenuating percentage share of the agriculture sector budget to the total approved budget as indicated in figure 1.

Encoded PNG image — Figure 1: Trends in the budgetary allocations to the agriculture sector

Similarly, the National Budget Framework Paper for FY 2023/24 - FY 2027/28 reveals a diminishing trend in the resource allocation towards the AGI Programme. Figure 2 provides a trend analysis of the government expenditure on the AGI Programme from FY 2020/21, as well as the projected resource allocation in the medium term.

Table 1 provides a disaggregation of the AGI Programme budgetary allocation by sub-programmes. It shows an increase in the AGI Programme’s total budget from Ush. 1449.811 billion in the FY2022/23 to Ush. 1499.329 as proposed for the FY2023/24. Despite this increase, the AGI Programme will experience budgetary cuts in resources essential for the effective implementation of interventions/activities under crucial AGI sub-programmes (including Institutional Strengthening and Coordination; Storage, Agro-Processing and Value addition; Agricultural Market Access and Competitiveness).

According to the AGI Programme Semi-Annual Budget Monitoring Report for FY2021/22, the underperformance of the AGI Programme is attributed to the poor performance of the Institutional Strengthening & Coordination and Agricultural Financing sub-programmes as a result of inadequate financing.

Policy Implications

The declining trend in resource allocation for the agriculture sector has greatly affected the planning and implementation of activities as well as service delivery under the AGI Programme. More succinctly, it has increased technical staff gaps (in comparison to the tasks required to effectively undertake the AGI Programme implementation at the national and sub-national levels). According to the budget committee of parliament, the agriculture sector has a wide staffing gap of nearly 4,908 extension workers at the lower local governments in comparison to the required 8,698 staff. In Mbale district, for instance, the extension worker to farmer ratio under the local government extension system is at 1: 30,000 contrary to the appropriate 1:500 (MoFPED, 2022). Extension workers are crucial for providing planning and regulatory services, obtaining statistics, and agricultural quality assurance for food security.

Furthermore, the declining trend in agriculture financing has left the implementing government ministries departments and agencies (MDAs) with inadequate critical facilities including analytical and diagnostic laboratories, office space and utilities, and motor vehicles (cars, motorcycles) for field activities.

According to the AGI Programme Semi-Annual Budget Monitoring Report for FY2021/22 by MoFPED’s Budget Monitoring and Accountability Unit, the functionality of existing previously constructed agricultural infrastructure remains low due to inadequate equipment, maintenance budgets, power connections, furniture, and funding to pay utility bills.^viii In addition, several agricultural infrastructures established (especially for research & technology development and animal breeding) have remained incomplete and unequipped for many years. This has formed a weak linkage between agriculture research and value-addition interventions under the AGI Programme. This has immensely constrained the effective implementation of activities and interventions under the AGI Programme.

Conclusion and recommendations

In conclusion, the underperformance of the agricultural sector (and/or AGI Programme) is largely attributed to inadequate financing (including budgetary cuts and delays) that has resulted in staffing gaps, particularly among extension workers, delays and low fund absorption by implementing agencies, and a weak link between agriculture research and value-added activities.

This article recommends the following policy options:

MAAIF and other implementing MDAs should reallocate and prioritize resources to strengthen the agricultural extension systems at the lower local government. The staffing levels of extension workers continue to remain below the recommended averages thus affecting the effective provision of extension services and implementation of value-addition interventions. Therefore, the MAAIF, MoPS, MoFPED and LGs should prioritize recruiting and equipping more agricultural extension workers under the Agricultural production and productivity sub-programme.
Due to resource constraints, the MAAIF and implementing agencies should reprioritize resources towards investments in agricultural research and development, completion and operationalization of agricultural infrastructure (with a keen focus on providing enabling equipment & furniture, power, water and internet connectivity, and enhancing the maintenance budgets). In addition, MAAIF should reprioritize resources to ensure that the farm and market access roads are completed and maintained.
The government through MAAIF and other MDAs should prioritize resources to strengthen the policy and regulatory environment to stimulate private sector investment in Agro-industrialisation. The world bank’s Enabling the Business of Agriculture 2017 report identifies eight common indicators (Including seed, fertilizer, machinery, finance, markets, transport, water and ICT) that are essential for providing and enabling an environment for agribusinesses.^ix
The MAAIF and implementing agencies should avail more funds to support agro-industrial ventures through the provision of affordable loanable funds to the private sector. These resources will be able to support the expansion of agro-industrial capacity, capacity utilization, and the upgrading of the commodity value chains by the Private sector.

References

ⁱGoedde, L., Ooko-Ombaka, A., & Pais, G. (2019). Private-sector companies can find practical solutions to enter and grow in Africa’s agricultural market.
ⁱⁱHousehold participation in agriculture on the rise since the outbreak of COVID-19.
ⁱⁱⁱOECD/FAO. (2016). Agriculture in Sub-Saharan Africa: Prospects and challenges for the next decade. OECD-FAO agricultural outlook 2016–2025, 59-95.
^ivRepublic of Uganda: Agriculture Sector Public Expenditure Review
^vThe countries in the 2013 MAFAP study include; Burkina Faso, Ethiopia, Ghana, Kenya, Malawi, Mali, Mozambique, Nigeria, Uganda and the United Republic of Tanzania
^viMAAIF. (2021). Agro-Industrialization Programme Annual Performance Report FY 2020/21.
^viiNew Vision publishing newspaper article. Retrieved on January 26, 2023
^viiiMoFPED. (2022). Agro-Industrialisation Programme Semi-Annual Budget Monitoring Report FY2021/22.
^ixWorld Bank, 2017. Enabling the Business of Agriculture.

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