Uganda's Coffee Sector: A Shining Star with Unexplored Potential

Uganda's position along the equator offers favourable weather and fertile soils that support agriculture, poised to rival the productivity of Africa's valuable resource, oil, in the coming decade. One of Uganda's shining stars is its renowned product: Uganda coffee, often celebrated as "the sweet aroma from the source of the Nile." Uganda stands as a coffee titan, offering a compelling case study for competitors eyeing entry into the coffee market.

Presently, coffee contributes nearly a third of the country’s export earnings, playing a critical role in paying for critical infrastructure like roads, hospitals, and schools. A report by the Ministry of Finance, Planning, and Economic Development, coffee exports earned the country about US$ 494 million in the 2019/2020 financial year, marking an 18.25% increase from 2018/2019, pointing to the crucial role the sector plays in the economy.

As the sweet aroma wafts through our nostrils, prompting us to reach for one more cup, there is a need to understand why coffee ranks as the most preferred beverage among millions. Interestingly, coffee lovers consume it to alleviate fatigue, increase mental alertness, and enhance concentration and focus.

A study conducted by nutrition experts at Johns Hopkins University School of Medicine suggests that drinking the proper amount of coffee can help lower the occurrence of Parkinson's disease and inhibit the development of colorectal cancer and Alzheimer's disease. The research further notes improved glucose processing, leading to a reduced risk of developing type 2 diabetes and fewer incidences of stroke, owing to its high caffeine content and antioxidant properties when compared to most naturally produced beverages.

While coffee holds a significant place in the lives of Ugandans, much remains unexplored regarding how it sustains their traditions, culture, and livelihoods. According to the state minister for Agriculture, Hon. Fred Bwino Kyakulaga, coffee in Uganda supports over 1.8 million households, and approximately 12 million Ugandans derive their livelihoods from coffee. However, there is growing concern as most coffee farmers do not consume what they produce, thereby giving rise to lost opportunities in value addition, job creation, and low incomes for farmers.

Making Strides to Boost Domestic Consumption

Coffee has been the most important cash crop throughout the years, making it the top export business earner since the 1980s. Uganda’s coffee sub-sector has a historical background intertwined with the country’s political economy. With British colonial influence in the 19th century, tea was introduced. Even though coffee was grown and exported from Uganda, little to none was left for internal consumption, and ever since, tea has been the beverage of choice. For this reason, Uganda is known for low consumption as compared to Ethiopia.

To support the domestic coffee campaign, the Uganda Coffee Development Authority (UCDA) has partnered with universities by providing espresso machines and grinders to promote coffee consumption and create avenues for skill development among youth. UCDA also engages the youth with coffee clubs in training on coffee agronomy, brewing skills, and quality control in the coffee value chain. With these initiatives, domestic consumption is projected to rise to an estimated 325,000 bags, up from 300,000, due to the spread of coffee cafes in Kampala and other urban areas, according to the local daily, The EastAfrican.

The USDA's report for the 2021/22 financial year indicates that Uganda's coffee exports reached a total of 6.3 million 60-kg bags, valued at US$862 million. These exports account for approximately 22% of the country's total export earnings, underscoring the significant contribution of the coffee industry to Uganda's economy. Uganda holds the position of Africa's leading coffee exporter and ranks sixth globally in Robusta coffee production by volume and third in quality, according to the Uganda Coffee Development Authority (UCDA).

Robusta coffee which is native to Uganda, is cultivated in two main varieties: the 'Nganda' and 'Erecta'. This further solidifies Uganda's status as a key player in the global coffee market. Alongside Uganda, other major coffee-producing countries include Brazil, Vietnam, Colombia, Indonesia, Honduras, India, Peru, and Kenya, as reported by the USDA.

Uganda's top export destinations for coffee include Italy, Sudan, Germany, India, the United States, and Morocco, according to the UCDA. Additionally, within Uganda, several exporting companies play a crucial role in facilitating the coffee trade. Some notable entities include UGACOF (U) Ltd, Ideal Quality Ltd, Olam Uganda Ltd, Kyalanyi Coffee, Touton Uganda, KUWACOM (U) Ltd, JBER Coffee Ltd, and Ibero Coffee.

Ethiopia's Coffee Culture and Value Addition: A Lesson for Uganda

As per the USDA, Ethiopia stands as Africa's primary coffee producer and the fifth-largest exporter of Arabica coffee globally. The coffee sector in Ethiopia serves as the foremost source of export revenue, contributing approximately 30–35 per cent to the nation's total export earnings. Notably, all coffee cultivated in Ethiopia belongs to the Arabica variety.

Ethiopia's coffee production for the 2023–24 period is projected to reach 8.35 million 60-kg bags, and exports are expected to reach 4.83 million 60-kg bags, while the rest is consumed locally. The coffee industry remains the driving force of the country's economy, socio-cultural life, and spiritual life, with about 25 percent of the country's population depending on the coffee value chain directly or indirectly.

Some of the key players in the Ethiopian coffee market are Klatch Coffee, Nestle SA, Enjoy Better Coffee (Mokate), Wild Coffee Company, and Hadero Coffee, according to Mordor Intelligence.

One critical lesson Uganda should learn from this titan lies deep in its culture. Coffee forms an essential component of Ethiopian culture and society. For this reason, an invitation to drink coffee is considered a symbol of friendship, respect, and great hospitality. Additionally, Ethiopian coffee is considered special due to its complex taste and vibrant fruity and flowery characteristics. Learning tips on the techniques they use could boost value addition, thus contributing to more coffee consumption.

With this in mind, Uganda has been taking steps to promote the historically under-invested Arabica variety through the development of new high-yielding and disease-resistant Arabica varieties by the National Coffee Research Institute (NaCORI) under the European Union-East African Community Market Access Upgrade Programme (EU-EAC MARKUP).

Secondly, the Economic Policy Research Centre (EPRC) and UCDA have been keen on implementing public investment programs to sensitize the youth that they can derive a decent livelihood by engaging in coffee production, aimed at expanding coffee production in the country and earning a living.

Furthermore, under MARKUP, the Uganda Coffee Farmers Alliance (UCFA) has been able to train 50 cooperatives out of 124 on value addition and post-harvest handling, aimed at improving the quality of coffee often compromised at the farm level.

Lastly, UCDA has been keen on providing espresso machines and equipment to learning institutions and government organizations to drive up coffee consumption, promote value addition, and support the ongoing coffee rehabilitation program.

A Leading African Coffee Exporter with Unexplored Opportunities

Although Ethiopia is Africa's leading coffee producer, Uganda, which produces both Arabica and Robusta coffee, holds the title of the continent's top exporter. Ethiopia primarily consumes most of its coffee domestically, leaving fewer quantities available for export. According to the March 2023 UCDA report, Uganda accounted for 21% of African coffee exports, while Sudan consumed 17.66% and Morocco consumed 1.39%.

According to Mordor Intelligence, the African ready-to-drink (RTD) coffee market is projected to grow at a CAGR of 1.3% for the period 2018–2028. Starbucks Corporation, The Coca-Cola Company, Nestle SA, DD IP Holder LLC (Dunkin' Brands), and Fit Brewing Company are the market leaders. The increase in demand for RTD beverages is attributed to the busy lifestyle and the availability of RTD coffee, which serves as a substitute for carbonated drinks associated with obesity and hypertension.

The surge in coffee consumption, both domestically and globally, presents an exciting opportunity for the promotion and adoption of African-produced coffee. This trend is particularly evident in urban centers such as Nairobi, Kampala, Pretoria, and Cairo, where shifting consumer preferences are reshaping the coffee market landscape.

One key driver of this transformation is the rise in middle-class income, coupled with a growing preference for specialty and premium coffee varieties among consumers. This evolving taste reflects a desire for higher-quality coffee experiences, opening up new avenues for African coffee producers to showcase their products.

Moreover, the packaging of ready-to-drink (RTD) coffee beverages in attractive glass or PET bottles has played a significant role in driving sales. Brands like Coca-Cola's Costa Coffee, Chameleon Cold Brew, Dunkin Donuts Iced Coffee, Nescafe Black Ice, Starbucks Doubleshot, and Starbucks Frappuccino have leveraged this trend, catering to consumers' desire for convenience and aesthetics.

Riding the Wave of Global Coffee Growth

While the economy of Uganda as a whole has expanded and improved in recent years, coffee remains of vital importance on the global stage. According to Coherent Market Insights, the global coffee market was valued at US$127 billion in 2022 and is predicted to witness a CAGR of 4.72% from 2023 to 2030. Coffee consumption worldwide is also rising by 2.0–2.5% annually. according to S&P Global Commodity Insights. In 2018, approximately 65 million bags of green coffee beans were harvested, with Brazil producing 37%, while Uganda came in third with 7% of this produce.

Europe is a leading destination for Uganda's coffee, accounting for 64% of Uganda's coffee exports. Italy has the largest market share (34.57%), followed by Germany (13.11%). Germany imported 48,879 60-kg bags of coffee from Uganda in December 2022, according to the UCDA.

Based on data from Mordor Intelligence, Europe's coffee pods and capsules market is the largest, with a market size projected to expand from US$26.80 billion in 2023 to US$37.43 billion by 2028, at a CAGR of 6.91%, since most people in Europe choose instant non-alcoholic beverages.

However, high product innovations, large distribution networks, the launch of limited-edition coffee pods, and better supply chains have consolidated the coffee pods and capsules market, with Nestle (Nespresso and Dolce Gusto) and JAB Holdings (Senseo, Tassimo, and Keurig) dominating the market.

Functional coffee is another segment whose market size is projected to rise from US$3.95 billion in 2023 to US$4.36 billion by 2028, at a CAGR of 2.03%. It is considered a healthy option and offers drinks containing properties perceived as better and healthier.

Coffee infused with cannabinoids (CBD) is gaining popularity among consumers due to its health benefits, such as pain and anxiety relief. Additionally, the rise in obese and diabetic populations in the United States, China, India, Australia, and the United Kingdom has influenced consumer behaviour, shifting their focus from regular caffeinated drinks to functional caffeinated beverages. The key global players in the functional coffee market include Tata Coffee Limited, Nestle SA, Starbucks Corporation, Bulletproof 360 Inc., and Strauss.

Asia-Pacific is becoming a market leader for instant coffee and is projected to record a CAGR of 5.28% over the next five years. Its unique, authentic flavours and various functional properties of coffee have aided its premiumization in the coffee market. With a huge demand for in-home coffee consumption among the middle-class population in developing countries, Nestle SA, Starbucks Corporation, Kraft Foods Inc., Tata Consumer Products Ltd., and Unilever PLC are actively investing in online distribution channels, targeting consumers who seek convenience.

Owing to the increasing demand for organically and sustainably cultivated whole-bean coffee and growing awareness of the health benefits associated with coffee consumption, the coffee market is expected to witness significant growth. Several coffee companies, such as Nestle, JM Smucker Company, Kraft Heinz Company, and Starbucks Coffee Company, are working hard to develop their products and promote them as healthy beverages. Additionally, the increasing wealthy and millennial population, rising e-commerce retail sales, and the fortification of coffee with antioxidants promise to increase coffee consumption demand.

Addressing Challenges for Sustainable Growth

Amidst its tremendous achievements, Uganda's coffee subsector faces numerous challenges, such as pests, diseases, poor-yielding varieties, and undifferentiated market demand. However, the government, farmers, and private sector are working together to address these challenges and ensure the sustainable growth of the sector.

Pests and diseases, notably coffee wilt disease and the Black Coffee Twig Borer (BCTB), have posed significant challenges for Uganda's coffee sub-sector, impeding its growth and productivity. To tackle these issues, concerted efforts have been made to equip farmers with effective solutions.

One approach involves promoting the use of pest-free planting materials sourced from UCDA-certified coffee nurseries. These nurseries ensure that farmers have access to healthy and disease-resistant seedlings, thereby mitigating the spread of pests and diseases from the onset.

Furthermore, in combating the Black Coffee Twig Borer specifically, innovative measures have been developed by the National Coffee Research Institute (NaCORI), including beetle traps. These traps serve as effective tools for monitoring and managing the population of the BCTB, helping to curb its impact on coffee plantations.

In addition to pest management strategies, NaCORI has spearheaded efforts to develop new high-yielding Arabica varieties resistant to diseases, with support from initiatives like the EU-EAC MARKUP. These new varieties exhibit enhanced resilience against common coffee diseases such as leaf rust and coffee berry disease, surpassing older varieties in terms of productivity and disease resistance.

Marketing also presents a challenge to Uganda's undifferentiated market demand. Despite the growth in exports, the majority of coffee is sold as a commodity to traditional markets such as Italy, Belgium, and Sudan. Non-traditional markets such as China, Russia, Algeria, and Morocco have offered untapped marketing opportunities.

While Ugandan coffee has been unable to command a price premium in the global market due to a lack of brand identity, local retail coffee companies that produce brands such as Omukago, Ankole Robusta Coffee, Kibinge Coffee, Elgon Pride, Great Lakes, Masaba, Savannah, Zigoti Coffee, and Star Café have developed brands for both the local and global markets. Other options, such as large-scale marketing deals with roasters like Nestle, Mondelez, Tchibo, or Starbucks, can enhance Uganda's reputation in coffee sales worldwide.

Lack of access to value addition facilities has been a major challenge for the Uganda Coffee Farmers Alliance (UCFA). To address this, UCFA extension officers train farmers in agroforestry and good agronomic practices. Additionally, UCFA has partnered with the National Coffee Research Institute (NaCORI) and the National Forestry Resources Research Institute (NaFORRI) to develop agroforestry coffee, which commands a premium price.

Despite these challenges, the Ugandan coffee sector is poised for continued growth. The government is committed to supporting the sector through investments in research, extension, and marketing. Coffee farmers are also increasingly adopting sustainable coffee practices. With the support of the private sector, Uganda can become a global leader in the production and marketing of high-quality coffee.

Uganda's Coffee Sector to Boom with AfCFTA and Coffee Roadmap

The gathering of African coffee-producing countries for the first G25 Coffee Summit under the theme "Sustainable Development and Economic Growth in the African Coffee Sector" in Nairobi has set the stage for Uganda to benefit from the African Continental Free Trade Area (AfCFTA). The AfCFTA provides for the free movement of persons, capital, goods, and services to deepen economic integration and promote agricultural development among African Union states.

Furthermore, Uganda's withdrawal from the International Coffee Organization (ICO) Agreement has given it the flexibility to add value to its coffee to attract premium prices. Uganda justified its withdrawal by citing unfair tariffs, restrictions on exporting processed coffee, and an "unjust and outdated" coffee classification system that does not recognize 'Ugandan Coffee,' as the reasons for withdrawal, according to the local daily, The Independent.

Uganda's coffee sector is poised to boom as it begins to implement the Coffee Roadmap initiated by President Museveni in 2017. This roadmap aims to increase coffee production from 3.5 million bags to 20 million bags by 2030 and generate up to US$2.2 million in foreign exchange annually, according to projections by UCDA.

The roadmap provides for branding Uganda's coffee, establishing structured demand through country-to-country deals, and supporting local coffee businesses to promote demand and value addition. Additionally, strengthening farmers' organizations and producer cooperatives, as well as supporting joint ventures, will enhance production. With all these initiatives, farmers, exporters, and the government are set for instant gains.