Price Risk and Production Decision Among Ugandan Coffee Farmers

Ruth Hill

In Uganda, liberalization of the coffee market has resulted in farmers receiving a higher share of the export price for their coffee – both increasing the average price they receive for their produce (from 40% to 75% of the export price), and the extent to which the prices they face fluctuate. Given the highly variable international price for coffee, the fluctuations farmers face are significant – the price doubling or halving within months (See graph below). 

The majority of coffee producers in Uganda are small holders that increasingly sell their coffee to private traders. The aim of this research is to examine the extent to which coffee traders pass on price fluctuations to coffee farmers; and in this context to look at the production and investment decisions of coffee farmers, with particular reference to the effects of risk and risk preferences on these decisions.  It will also examine the scope and demand for the use of hedging instruments in this environment.

Survey data has been collected on over 100 hundred coffee traders and 300 coffee producing household (revisiting households contained in the 1999 / 2000 Uganda National Household survey to create a small panel) in order to answer these questions. A census of coffee exporters was also conducted.

The work has been funded by the World Bank and data was collected in collaboration with the Ugandan Bureau of Statistics.