11nf-5694 - Mobilizing working capital to lift off future investment plans

NUCAFE, National Union of Coffee Agribusinesses and Farm Enterprises, in existence since 1995, is a Ugandan cooperative involved in coffee procurement and marketing. It has a membership of 160 Ugandan primary societies spread over 5 main coffee growing regions in Uganda representing more than 150.000 coffee farming households. NUCAFE’s system of operation is premised on the Farmer Ownership Model (FOM), which is designed to help small-scale coffee farmers to adopt a business view of farming and organize themselves to assume as many roles in the value chain as possible. Members’ needs assessment and strategic planning carried out in 2003 showed that members’ needs extended beyond production and they wished to be involved in the downstream activities of the coffee value chain like coffee processing and marketing. In order to realise more added value for the farmers of its member societies, NUCAFE is currently in the phase of setting up a sustainable marketing organization, which will be able to generate enough funds to internally meet its basic business development services and advocacy activities. In order to reach enough funds, NUCAFE aims to procure and market the coffee of its members itself. In buying the coffee from the farmers of their member societies, NUCAFE needs to compete with private buyers active on the market, so called middlemen. NUCAFE’s biggest competitive disadvantage towards the middlemen is their lack of working capital to buy the coffee from the farmers. Due to various reasons the majority of Uganda coffee farmers are extremely reluctant to selling their coffee without receiving immediate payment. In order to tackle this challenge, NUCAFE has recently obtained a credit line facility at Centenary bank and a bank loan at Oiko Credit for the procurement and marketing of the coffee of their member societies. The two mentioned credit facilities together represent a value of 400 million Ugandan Shillings, which is only a fraction of the value of the total coffee available by all members of NUCAFE. Furthermore, the credit line at Centenary is based on collateral in the form of coffee in the warehouse in Kampala. This means that the farmers are still unable to receive immediate cash at delivery, because their coffee first has to be transported to the warehouse in Kampala. A possible solution to pay immediate cash at delivery is to obtain credit facilities at the Hub level or primary society level. However, a major challenge is the fact that most banks are reluctant to provide credit facilities on this level, due to (amongst others) weak business plans, weak financial bookkeeping and weak legal structures. Once the financial institutions are willing to provide credit to the Hubs or primary societies, the possibility for NUCAFE to extend its marketing activities is enormous, since most farmers indicated that they prefer to sell through NUCAFE instead of the middlemen.

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