Factors Affecting Coffee Export Earnings in Uganda

Abstract

Uganda is one of the largest producing and exporting countries of coffee in Africa. Coffee production significantly contributes to both domestic and foreign earnings in the country, besides being a fundamental and primary source of labour, especially for the rural smallholder farmers. However, the coffee export earnings keep fluctuating, affecting farmers and the country’s economy, yet the causing factors have not been well investigated. This study was conducted to find out the effect of an increase of real gross domestic product of the coffee major trading partner the European Union (EU), gross capital formation, foreign direct investment, trade openness, effect of the coffee export index, increase in the world coffee price, effect of the non-traditional agricultural exports, improved liberalization policy, and good coffee replanting programs on coffee export earnings. Annual time series data (1975-2016) and the autoregressive distributive lag (ARDL) model augmented by the bounds test were used for estimation. The results reveal that the coffee export index has a significant positive effect on coffee export earnings in the long run. This implies that over time, relative increase in the coffee exports has favoured the coffee export earnings. In order to improve the coffee export earnings and benefit from policy changes, Uganda has to focus on increasing relative coffee exports, increase the gross capital formation and aim at getting the best world coffee prices.