Abstract:

The Ugandan coffee industry is facing some serious challenges, including low international prices in the
international coffee market, aging coffee trees and declining productivity, and, more recently, the
appearance of coffee-wilt disease, which have all contributed to the decline in both the quantity and value
of coffee exports.
The government of Uganda, through the Uganda Coffee Development Authority (UCDA), in
1993/94 started a coffee-replanting program to both replace coffee trees that were old or affected by
coffee-wilt and expand coffee production into other suitable areas in northern and eastern Uganda. This
program seems to be helping to both combat the industry’s problems and reverse the declining trends.
However, the UCDA announced in 2004 that it was withdrawing from the replanting program in the
2004/05 season (it had supported nursery operators and purchased and distributed free seedlings to
farmers), so the program’s achievements may not last.
This paper estimates the economic returns (benefit–cost ratio) of the coffee-replanting program,
particularly replanting with clonal varieties, and analyzes the welfare implications of the decision to
withdraw. We find that the internal rate of return (IRR) and benefit–cost ratio are very high, about 50
percent and 3.7 respectively, suggesting that the replanting program in Uganda is very beneficial to the
livelihoods of coffee farmers, the coffee sub-sector, and the economy as a whole. The largest benefits
occur in the central region, where the bulk of coffee is grown, followed by the eastern and western
regions. The largest return on investment occurs in the eastern region, followed by the central and western
regions. Sensitivity analyses show that the results (that is, the net benefits) are robust with respect to the
assumptions made, including demand and supply elasticities and level of domestic consumption.
Although the results are sensitive to farm production costs and coffee yields, the program still improves
welfare. Taken all together, the results suggest that if the government withdraws from the replanting
program without putting place adequate alternative measures to ensure the program’s sustainability,
welfare will be severely reduced in coffee-growing areas.