Determinants of Uganda's organic export supply: The case of coffee and cotton

Abstract

Although Uganda has a high comparative advantage for Organic Agriculture in Africa, it is still faced with challenges which include; uncertain price premiums and uncontrolled exchange rate variations, production and export constraints, limited institutional support and the absence of organic policy in Uganda. These challenges are hypothesised to be part of the determinants of organic export growth. Hence the study attempted to understand evolution of Uganda's organic export growth and its determinants in the context of international competition and in line with government strategic export program to promote export diversification and competitiveness. The study used secondary annual and quarterly data sets for the period 1996 to 2007; to establish the major organic products exported by Uganda; to estimate the share and growth rate of organic export volumes; to assess the impact of Premium price volatility and Exchange rate volatility on export growth of Uganda's organic coffee and cotton exports. In order to achieve the above objectives the study employed descriptive methods, log-linear growth model, a single equation autoregressive model and Error Correction Mechanism. Results indicate that the growth rates of Uganda's organic exports are 65%. Secondly, in the short run Uganda's organic coffee and cotton exports are determined by; real exchange rate volatility, Price of organic exports, prices of conventional exports, lagged prices of organic exports, real exchange rate misalignment and Terms of Trade. On the other hand, Uganda's organic coffee and cotton exports are mostly determined by premium price volatility, real exchange rate volatility, prices of conventional exports, Price of organic exports, lagged price of organic exports, real exchange rate , real exchange rate misalignment ,Terms of trade and lagged volumes of organic exports in the long run. Basis on the results above, own price and cross price elasticity play a key role in organic export growth of coffee and cotton and that premium price and exchange rate volatility may be significant negative factors for Ugandan organic exporters. The Uganda government within certain limits can control exchange rate volatility of organic coffee and cotton while the premium price volatility of organic coffee and cotton is exogenous to government action, which could be addressed through partnerships with Fair Trade organizations in the EU, USA. Addition to the development of long term goals for production to enhance increased productivity and domestic use of organic products.