Hill et al MIFIRA Uganda Draft Report 2011.doc

Purchasing agents being given funds by larger traders

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purchasing agents being given funds by larger traders have narrower scope for increasing their margins. In examining the margins in Table 8 it is telling that for wholesalers and brokers the margin is larger for those who bear transportation costs than for those who don’t. However, this difference is not consistent among aggregators. Similarly, the difference between these margins is more consistent in markets further away from farmers (Table 10). While in Kampala, Mbale, Jinja, and Soroti the margin for those who pay transport is between 7 and 30 shillings per kilogram higher than for those who don’t, this margin nearly disappears (or goes in the other direction) in Lira, Dokolo, and Iganga. We elicited that entry into the market at most levels in the market chain is relatively easy. But across all the markets it appears that becoming a broker is not an easy task; if it were we would expect entry, since there are profits to be made. The barriers to entry relate to the need to build contacts, networks, and trust. An Mbale broker reported that while there had been a brokers’ association before and it was not currently very active, one still needed “approval” to become a broker. When asked if they were all of the same ethnic group he didn’t answer the question directly but replied that they had all “taken the same roads” to get here. The Jinja brokers explicitly said that you have to become a member of and be approved by the association to work in the market. The Kampala brokers were, as pointed out by one of the enumerators, predominantly Lusoga and Muslim 3 . They also emphasized that the trust of their suppliers was the key, and according to some the only, constraint on the size of their operation; they could fill as many contracts with buyers as they had sellers who trusted them. It is notable in Table 9 that trust was the primary factor for a choice of supplier for more brokers than for any other trader. A couple in Kampala clarified specifically that this trust was more a factor for their suppliers of them than the other way around. For the most part, competition does not appear to be an issue in the markets of Uganda. With this observation, any sourcing in Uganda is not likely to raise prices unnecessarily without some distortion in the market. Maize is chosen by agencies based on quality, not price and so there may be an implicit increase in costs with the procurement of maize in Uganda, but this increase would not stem from a lack of competition in these source markets. i. Record Low Prices Maize prices in Uganda during the summer of 2010 hit a record low. Most traders who we spoke to stated that their lowest selling price in the last year was the price at which they 3 This is consistent with findings of strong ethnic trader networks that generate significant barriers to entry in Northern Kenya (Mahmoud, 2001).
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