Uganda Vinci faces tall order to win hearts and minds

by Business Times
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coffee

In February last year (2022), Uganda’s coffee industry was thrown into confusion by an announcement that the country had suspended its membership of the International Coffee Organisation (ICO) for a period of two years.

It was then later revealed that the government was babysitting a new venture called the Uganda Vinci Coffee Company Limited. When the issue came up in parliament, a host of legislators complained about being ambushed, resulting in a round of heated debates and recriminations.

Given the importance of coffee to the country’s economy, the uproar was not unexpected. After crude oil, coffee is the most traded commodity in the global market and one of the leading sources of foreign exchange for Uganda. However, the inequalities of this business are also cause for real concern. Starbucks, the world’s leader in over-the-counter branded coffee sales, owns only one farm located in Costa Rica. In the 12 months ending December 2022 the American company made a profit of $22 billion.

In comparison during the same period, Uganda which ranks among the top 10 coffee producing countries worldwide, earned a mere $900 million. That is just four percent of Starbucks’ profits.

A 2021 study published under the auspices of MDPI, a Swiss research consultancy, showed that despite the increase in consumption and production of coffee, producing countries are losing power to importing countries. This is causing wealth and added value to remain in developed countries, and therefore inequalities between developed, and developing countries continue to increase.

Even though the world market for green coffee is growing and generating more economic value, this is not reflected in the producing countries, as most of the wealth it provides remains in the importing countries and not in the producers.

For years, this situation has caused President Yoweri Museveni a deep sense of indignation. Sometime in 2015, he even tried to convince Nestle Group, the owners of Nescafe, to build a soluble coffee plant in Uganda. Instead, the Swiss company chose to expand their instant coffee manufacturing operations in South Africa, probably because of the superior logistics and other support infrastructure.

While giving the State of the Nation address to Parliament in June 2022, Museveni told legislators and Ugandans as a whole, of the urgent need to forcefully give the value- addition agenda a big push.

Uganda Vinci
President of Uganda HE Yoweri Kaguta Museveni(PHOTO/Courtesy)

He said: “The total value of coffee in the world is $460 billion. However, of this figure, the coffee-growing countries only take $25 billion. The African coffee-growing countries only take $2.4billion. When we de-hust, roast, grind, and pack here, Uganda will get more dollars and we shall also pay higher prices to our farmers. The farmers are now cheated because the biggest beneficiaries from our coffee are the external roaster. The story about blending is nonsense. That blending can be done here.”

In off-the-cuff remarks, the President then confirmed his backing of the new venture, adding that it was him who had invited Italian business woman, Enrica Pinetti as a partner to help get things moving.

There was a perception however that Uganda Vinci Coffee Company was set up in an underhanded manner. Nor were there any efforts made to consult widely with other major players in the industry. The most contentious issue being the tax incentives and preferential treatment the company would enjoy as well as the mystery surrounding Pinetti herself.

There was also some anxiety that this was a rebooted version of the defunct Coffee Marketing Board monopoly, 30 years after the government liberalized the coffee industry.

Museveni did later concede some ground, accepting to have a review of the company’s status, but just before the New Year celebrations, he reminded one and all: “I will not tolerate anybody who stands in my way of adding value to Ugandan coffee. When I bring an idea as Yoweri Museveni, I know what I am doing and I will not allow anybody to divert me unless you want problems.”

Uganda Vinci Company operations will involve the roasting, manufacturing and packaging of instant coffee for both local and international markets. Museveni’s impatience with those who refuse to smell the beans of coffee value-addition is understandable. However, the skepticism felt among several quarters in the industry is also well founded.

In the face of a deeply rooted collection of powerful special interests, forging ahead with Uganda Vinci Coffee Company is going to be a tall order. For one thing, the start-up costs are going to be prohibitive. Secondly, you will need plenty of domestic goodwill and thirdly, a major external collaborator of far greater status or prestige than Pinetti would be preferable.

Put simply, the ‘Ugandan component’ of our coffee beans disappears completely in all various blending and roasting that takes place in the major coffee hubs of Europe and North America. Here is where you will find the massive warehouses and silos stocked with green coffee beans from all over the world.

Uganda ranks among the top 10 coffee producing countries worldwide(PHOTO/Courtesy)

From here on, it is the brands that derive the most value, coming up with a myriad of finished products that end up on supermarket shelves. These are huge enterprises with plenty of cash and political influence and who have operated behind the ‘Do not disturb’ sign for several long decades.

They are the gatekeepers to major consumer markets, especially in North America and Europe. This is something Andrew Rugasira and Good African Coffee painfully found out 10 years ago.

ALSO READ: Behind the rise in Uganda’s coffee exports

Apart from Starbucks, we have brands like Keung Dr. Pepper (United States); Nescafe (Switzerland); Peet’s Coffee (United States); Gloria Juan’s Coffee (Australia); Tim Horton’s (Canada); Costa Coffee (United Kingdom); Folgers (United States) and Lavazza (Italy) and Dunkin (United States). A Uganda in or out of the ICO makes no difference to them, because eventually most of the beans end up with them.

Museveni’s choice of an Italian partner may not be so farfetched although there still remains a long list of questions about her credibility in an area of business just as new to the Uganda government as it is to her.

According to PRODCOM, a Dutch data and statistics agency, in 2020, Italy had the largest coffee-roasting industry in Europe, with a production volume of 595,000 tonnes of non-decaffeinated roasted coffee 2020. Germany came in second with 555,000 tonnes, followed by France, the Netherlands, Spain and Sweden. The two biggest end markets for Ugandan coffee in Europe are Germany and Italy.

Europe is the world’s largest exporter of roasted and ground coffee. Europeans accounted for about 85% of the total global volume of roasted coffee exports (excluding decaffeinated) in 2021, amounting to an estimated 1.1 million tonnes.

In the mass retail business, to break into an existing market, you’ll need to take on entrenched competitors — and you’ll have to demonstrate a compelling value proposition that appeals to consumers.

This is the challenge Uganda Vinci Coffee Company is going to face besides also navigating the sanitary and phyto-sanitary standards that frequently inhibit newcomers from entering established lucrative markets. Finally, getting shelf space in supermarkets will be another bruising and expensive battle when the top brands decide to gang up against you.

For all the aims and ambitions being attached to Uganda Vinci Company, Uganda’s modest specialty coffee producers are rapidly earning a growing international reputation for excellence. Credit must also go to the Uganda Coffee Development Authority for their campaign on the need for quality.

More support for these enterprises may prove to be more cost effective for the government than setting up a new instant coffee venture. Due to the increasing popularity of premium coffee around the world and especially amongst the millennial generation, the specialty coffee market is growing fast.

Although Starbucks is exploiting this area as well, there are far more opportunities for domestic producers to market and profit from the distinct taste, aroma and flavour given off by a variety of specialty Arabica Ugandan coffee brands.

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