Republic of Uganda Agriculture Sector Public Expenditure Review September 2019 STANDARD DISCLAIMER CURRENCY EQUIVALENT This Report is a product of the staff of the International Bank for Exchange rate effective as of May 11, 2018 Reconstruction and Development/ The World Bank. The findings, interpretations, and conclusions expressed in this Interim Report Currency unit = Ugandan shilling (USh) do not necessarily reflect the views of the Executive Directors of US$1.00 = USh3,700 The World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Republic of Uganda: Agriculture Sector Public Expenditure Review ACKNOWLEDGMENTS This report was produced by a team from the World Bank Group, led by Ladisy Komba Chengula (Lead Agriculture Economist) and comprising Holger A. Kray (Lead Agriculture Economist), Kevin John Crockford (Sr. Rural Development Specialist), Joseph Oryokot (Sr. Agriculture Specialist), Irina Schuman (Sr. Agriculture Economist), Friederike Mikulcak (Jr. Professional Officer), Barbara Kasura Magezi Ndamira (Senior Public Sector Specialis), and Christopher Paul Jackson (Senior Public Sector Specialist). Agnes Yvonne Masaka (Team Assistant), with Janet Christine Atiang and Srilatha Shankar (Program Assistants), provided administrative and logistical support. A team of consultants led by Christian Derlagen and including Alban Mas Aparisi, Leopold Ghins, Paul Cathala, and Lucile Hummel undertook the expenditure analysis from the BOOST database. Other consultants included James Joughin (institutional analysis) and Charles Owuor (private sector analysis). Diego Arias Carballo (Lead Agriculture Economist), Michael Morris (Lead Agriculture Economist), Philip Schuler (Lead Economist), Elliot Mghenyi (Sr. Agriculture Economist), and Tihomir Stucka (Sr. Economist) contributed useful insights as peer reviewers, while Antony Thompson (Country Manager) provided additional guidance at various stages of the report’s preparation. Dina Umali-Deininger (Practice Manager) provided oversight for the work. The team would like to thank the leadership of the Ministry of Finance, Planning and Economic Development (MoFPED) and the Ministry of Agriculture, Animal Industries and Fisheries (MAAIF) for excellent collaboration, including organization of the various missions and meetings, and provision of the information and inputs requested. Special thanks go to Mr. Pius Wakabi Kasajja (Permanent Secretary, MAAIF) for support and oversight. Finally, the team would like to thank all the contacts in the various public ministries, departments, agencies, non-governmental agencies, and donor organizations who have contributed to and otherwise supported the development of this review. I Republic of Uganda: Agriculture Sector Public Expenditure Review ACRONYMS & ABBREVIATIONS AgGDP Agricultural Gross Domestic Product AgSER Agriculture Sector Expenditure Review ARUD Agriculture, Rural, and Urban Development Program ASSP Agriculture Sector Strategic Plan AU African Union AUGN African Union Guidance Note BFP Budget Framework Paper CAADP Comprehensive Africa Agriculture Development Programme CBA Commodity-based approach CDO Cotton Development Organization COCTU Coordinating Office for the Control of Trypanosomiasis in Uganda COFOG Classification of the Functions of Government DDA Dairy Development Authority DFID Department for International Development (United Kingdom) DSIP [Agriculture Sector] Development Strategy and Investment Plan EAC East African Community GDP Gross domestic product GoU Government of Uganda ICT Information and communication technology IFAD International Fund for Agricultural Development IFMS Integrated Financial Management System IMF International Monetary Fund KSW Kakira Sugar Works MAFAP Monitoring and Analyzing Food and Agricultural Policies MAAIF Ministry of Agriculture, Animal Industry, and Fisheries MoFPED Ministry of Finance, Planning, and Economic Development MoLG Ministry of Local Government MoLHUD Ministry of Lands, Housing, and Urban Development II Republic of Uganda: Agriculture Sector Public Expenditure Review MoPS Ministry of Public Services MTEF Medium-Term Expenditure Frameworks MWE Ministry of Water and Environment NAADS National Agricultural Advisory Services NAEP National Agricultural Extension Policy NAGRC&DB National Animal Genetic Resource Centre and Data Bank NAP National Agriculture Policy NARO National Agricultural Research Organization NBFP National Budget Framework Paper NDP National Development Plan NPA National Planning Authority OPUL Oil Palm Uganda Limited OWC Operation Wealth Creation PE Public expenditure PEAS Public expenditure in support of the agriculture sector PMA Plan for Modernization of Agriculture PPP Public-private partnership R&D Research and development SAGA Semi-autonomous government agency SSA Sub-Saharan Africa SWG Sector Working Group TFP Total factor productivity U-PACT Uganda Platform for Agricultural Coordination and Transformation UCDA Uganda Coffee Development Authority USAID United States Agency for International Development VAT Value added tax WHT Withholding tax III Republic of Uganda: Agriculture Sector Public Expenditure Review GLOSSARY OF KEY TERMS Analysis that permits one to understand priorities and balance of Allocative efficiency of public expenditures. It consists of the analysis of economic and public expenditures functional compositions Budget allocation approved by the Ugandan Parliament at the Budget estimates beginning of each fiscal year Investments where the benefit continues over a long period rather than being exhausted in a short period. Such expenditure is of Capital expenditures a non-recurring nature and results in acquisition of permanent assets Economic composition of Assessment of balance between wages, non-wage recurrent, and public expenditures capital expenditures Assessment of allocation of public expenditures by main functions and Functional composition of alignment of this composition with policies, strategies, growth public expenditures diagnostics, and other priorities Non-wage recurrent Recurrent expenditures less expenditure on wages, salaries, and expenditures supplements Expenditure that does not result in the creation or acquisition of fixed assets. It consists mainly of expenditure on wages, salaries and Recurrent expenditures supplements, purchase of goods and services, operations and maintenance of fixed assets, interest payments, subsidies, and transfers Revised budget allocation approved by the Ugandan Parliament during Revised estimates mid-term review Wage expenditures Recurrent expenditure on wages, salaries, and supplements IV TABLE OF CONTENTS ACKNOWLEDGMENTS I ACRONYMS AND ABBREVIATIONS II GLOSSARY OF KEY TERMS IV EXECUTIVE SUMMARY 1 1.0 UGANDAN AGRICULTURE AND THE OBJECTIVES OF THE PUBLIC EXPENDITURE REVIEW 11 1.1 Objectives of the Agriculture Public Expenditure Review 11 1.2 The Macroeconomic and Fiscal Environment 15 1.3 The Growth Potential for the Agriculture Sector in Uganda 15 2.0 SYNTHESIS OF PUBLIC SPENDING ON AGRICULTURE IN AFRICA 2.1 Rationale for Public Spending on Agriculture 20 2.2 Level and Trends of Public Spending on Agriculture in Africa 21 2.3 Improving the Quality of Public Spending to Maximize Returns 26 2.4 Improving Budget Management Processes 32 2.5 Conclusions 33 3.0 UGANDAN AGRICULTURAL PUBLIC EXPENDITURES: LEVEL, COMPOSITION AND EFFICIENCY 35 3.1 Data Sources and Methodology 36 3.2 Level of Public Expenditure in Agriculture 38 3.3 Efficiency of Public Expenditure in Agriculture 40 3.4 Conclusions 60 4.0 UGANDAN INSTITUTIONAL ENVIRONMENT AND BARRIERS TO IMPROVING AGRICULTURE 61 PUBLIC EXPENDITURE 4.1 The Policy and Institutional Framework for Agriculture 61 4.2 Institutional Barriers to Improving Public Expenditure in Agriculture 67 4.3 Conclusions 74 5.0 THE ROLE OF THE PRIVATE SECTOR IN PROVIDING AGRICULTURAL SERVICES 75 5.1 The Private Sector and Agricultural Services in Uganda: Background and Context 75 5.2 The Private Sector in Uganda 77 5.3 Private Sector Approaches to Providing Agricultural Services 78 5.4 Main Constraints Facing Agribusiness 79 5.5 Incentives for Attracting Private Investment in Agriculture 81 5.6 Models Used by the Private Sector to Provide Agricultural Services 82 5.7 Conclusions 88 6.0 CONCLUSIONS AND RECOMMENDATIONS 90 6.1 Public Expenditure on Agriculture: Level, Composition, and Efficiency 90 6.2 Institutional Environment and Barriers to Improving Public Expenditures on Agriculture in Uganda 92 6.3 Role of Private Sector in Providing Agricultural Services 94 REFERENCES 98 ANNEX 1: SUMMARY OF POLICY RECOMMENDATIONS 105 ANNEX 2: DATA SOURCES AND METHODOLOGY 107 ANNEX 3: LEVEL OF PUBLIC EXPENDITURE IN AGRICULTURE 115 TABLES Table 2.1. Trends in public spending on agriculture in Africa 24 Table 2.2. Returns to agricultural research in sub-Saharan Africa 25 Table 2.3. Impacts of different types of public spending on agriculture in Africa 26 Table 2.4. Drivers of agricultural productivity in sub-Saharan Africa 29 Table 2.5. Factors affecting agricultural productivity 31 Table 3.1. Main PEAS indicators (nominal USh billions) 39 Table 3.2. Main PEAS indicators (constant 2013 USh) 39 Table 3.3. Percentage share of final PEAS in national budgets across countries of the East African 40 Community and developing regions Table 3.4. Distribution of PEAS across various national ministries and agencies (% of total final 42 expenditure) Table 3.5. Share of external financing in budgeted PEAS across votes 50 Table 3.6. Shares of recurrent and development spending within budgeted and final PEAS 51 Table 3.7. Budgeted and final PE and PEAS, recurrent (wage and non-wage) and development, 51 2013/14–2017/18 average (%) Table 3.8. Target shares for commodity groups in the ASSP budget 52 Table 3.9. ASSP budget targets mapped to major agricultural subfunctions 55 Table 3.10. Final PEAS, disaggregated by agricultural subfunction (USh billion) 56 Table 5.1. Annual output and market share of sugar manufacturers in Uganda 85 ANNEX TABLES Table A1.1. Policy coherence assessment for selected PEAS indicators 105 Table A2.1. Data gaps and implications for PEAS indicators 108 Table A2.2. Subfunction perimeter for this AgPER, based on selected categories from the MAFAP 109 methodology of FAO (covers COFOG categories 70421, 70422, 70423, 7084) Table A2.3. AUGN enhanced COFOG functions included in the scope of this AgPER 111 Table A2.4. Administrative disaggregation of PEAS, final expenditure (USh billions) 114 Table A3.1. Reference budget allocations across agriculture sector agencies from the ASSP 115 2015/16–2019/20 Table A3.2. Disaggregation of final PEAS across commodities 116 FIGURES Figure 3.1. Estimated budget allocations for agriculture sector agencies in the ASSP 2015/16– 41 2019/20 (USh billions) (in the table, left) and relative proportions (in the figure, right) Figure 3.2. Gaps between observed (final) PEAS allocations and ASSP targets for selected 43 agriculture sector agencies (deviations from relative shares) Figure 3.3. Disaggregation of decentralized PEAS (final) by region (left); per capita PEAS (final) by 45 region (USh) (right) Figure 3.4. Distribution of budgeted external financing in support of the agriculture sector across 48 votes Figure 3.5. Distribution of budgeted, national (non-donor) PEAS across votes 49 Figure 3.6. PEAS final expenditure, disaggregated by identified subsector 53 Figure 3.7. Gaps between observed (final) PEAS allocations and ASSP targets for commodity target 54 groups (deviations from relative shares) Figure 3.8. Gaps between observed (final) PEAS allocations and ASSP targets for agricultural 59 subfunctions (deviations from relative shares) Figure 3.9. Relative size of agricultural subfunctions that could be assumed by the private sector 59 within budgeted PEAS Figure 4.1. Structure of the Ministry of Agriculture, Animal Industry and Fisheries 63 ANNEX FIGURES Figure A2.1. Perimeters of functions and subfunctions for this AgPER 110 Figure A3.1. Administrative composition of PEAS 116 BOXES Box 3.1. Geographic disaggregation of PEAS 46 Box 3.2. Operation Wealth Creation, the National Agricultural Advisory Services, and the Ministry 58 of Agriculture, Animal Industry, and Fisheries Box 4.1. The budget preparation process 65 Box 4.2: Reform initiatives of the Ministry of Agriculture, Animal Industry, and Fisheries since 2000 71 Republic of Uganda: Agriculture Sector Public Expenditure Review 1 Republic of Uganda: Agriculture Sector Public Expenditure Review KEY MESSAGES Geographic distribution of Public Expenditure in support of Agricultural Services (PEAS) shows high inefficiency in addressing inequality. The Northern and Eastern Regions require targeted spending to address inequality, end extreme poverty, and boost shared prosperity. The geographic disaggregation of PEAS shows that spending favors the Northern Region. This region is emerging from conflict, has much lower levels of human capital, is the least populous, and has poor infrastructure. Per capita PEAS is also persistently higher in the Northern Region but is relatively the same in the Western, Central, and Eastern Regions. In 2016, about 47 percent of the poor lived in the Northern Region and another 37 percent in the Eastern Region. National decentralization objectives are not fully matched by the allocation of resources. Local governments receive a much lower share of final PEAS than agriculture- related ministries. The allocations to local governments declined from 37 percent in 2013/14 to about 7 percent in 2017/18, falling slightly short of the Agriculture Sector Strategic Plan (ASSP) target of 10 percent. Given that local governments provide frontline agricultural services such as extension and advisory services, market information services, and rural infrastructure, their budget allocations need to be increased. Further, the balance and efficiency of central and local government spending must improve. Institutional setup and budget architecture constrain efficient spending in the agriculture sector. A comprehensive functional review of MAAIF and its SAGAs as well as other agriculture-related ministries is required to clarify their mandates. Budget allocations and spending should strictly follow the assigned functional mandates and strategic objectives. The agriculture Sector Working Group (SWG) should be more proactive in providing feedback on budget planning, execution, and monitoring and evaluation of impacts. MAAIF must further improve technical efficiency by aligning donor funding with ASSP targets, so that external resources finance the national priorities necessary for achieving the ASSP objectives. " 2 Republic of Uganda: Agriculture Sector Public Expenditure Review The government’s outsized role in the agriculture sector leaves little room for private sector participation. The government seems more enamored of transforming subsistence farming into modern, commercially oriented farming with the free distribution of inputs than with the exigencies of supporting policies that: (1) enhance the capacity of MAAIF to efficiently and effectively deliver on its mandates; (2) increase public investments in infrastructure (such as irrigation and rural roads); and (3) crowd in private sector investment in agribusiness, such as firms that market inputs and outputs and provide agricultural services (for instance, mechanization and financial services). For agriculture to act as a key economic driver of Uganda’s Vision 2040 and the transition to middle-income status, private sector investment must be leveraged. The constraints to private investment in agriculture are well known, particularly within those value chains in which small-scale producers can participate fully. For the private sector, the motive is obviously to facilitate business development and to earn a profit. Yet the large-scale agricultural services required for agribusiness development are costly, and the associated risks are too high to be mitigated by individual firms. To leverage private sector investment in agriculture, the government must implement policies that will help to reduce the cost of doing business, and it must also co-finance some of the services provided by agribusinesses to smallholders. To achieve this, strengthening farmer organizations to integrate smallholders into agri-food value chains is key. When producers are organized into associations or cooperative societies, they can gain access to knowledge and technologies, aggregate produce to achieve scale economies, and connect with agro-processors for value addition to further increase farm incomes and reduce poverty. Reforming the policy on public spending for agriculture in Uganda should be a priority. The importance of agriculture for inclusive growth is reiterated in various national development strategies but has not translated into public expenditures for the sector. It should be a priority of the government to steer public investments in agriculture toward the provision of public goods, such as R&D, extension and advisory services, and rural infrastructure. Input and output marketing should be left in the hands of the private sector. The government should focus on creating the enabling environment for private sector participation (market and policy reforms) and on regulating input quality and standards. 3 Republic of Uganda: Agriculture Sector Public Expenditure Review EXECUTIVE SUMMARY 01 The Government of Uganda (GoU) regards agriculture as a key economic sector to support Uganda’s Vision 2040 and the transition to middle-income status. It recognizes that public spending on agriculture has a pivotal role in equipping the sector to fulfil its potential to drive economic growth, create employment for a rapidly growing and predominantly young population, and ultimately reduce poverty. 02 To improve the quality and effectiveness of public expenditures in agriculture, Uganda has conducted its second Agriculture Public Expenditure Review (AgPER) since 2010. This effort— undertaken by the World Bank at the behest of the Ministry of Finance, Planning and Economic Development (MoFPED)—has entailed analyses of financial data as well as institutional relationships to understand the processes of budget formulation, execution, and management as they relate to agriculture. It has also relied on analytical work showing how domestic policies influence incentives to enhance productivity, resilience, and private sector engagement in Ugandan agriculture. The results will help the Ministry of Agriculture, Animal Industries and Fisheries (MAAIF) and MoFPED to improve the technical and allocative efficiency of agriculture-related spending in the future. 03 Overall, the performance in implementing policy recommendations from the 2010 AgPER has been mixed. "Between 2013/14 and 2017/18, the development budget in the agriculture sector declined from an average of 80 percent to 67 percent". Consequently, less was invested in the capital expenditures that are necessary for spurring inclusive growth. The share of PEAS going to input subsidies increased from about 19 percent in 2013/14 to about 25 percent in 2017/18 (with a high of 33 percent in 2015/16). This increased spending on inputs largely occurred at the expense of the extension and advisory services, which saw its share of PEAS decline from about 37 percent in 2013/14 to 10 percent in 2017/18. Other important functions such as inspection and quality control, feeder roads, and storage had a combined share of only about 4 percent of total PEAS. Spending on research was starting to increase, but it was cut from 17 percent of the total budget in 2013/14 to 11 percent in 2017/18. On a positive note, the share of spending on processing and marketing continued to grow (to about 21 percent in 2017/18), and the irrigation budget more than doubled in 2017/18 to about 12 percent of the total. These public expenditures are critical for leveraging private investments in the agriculture sector, as they contribute to improving access to markets, increasing value addition, and enhancing resilience to climate change and variability.  04 The expenditure analysis explores four major thematic areas identified by MAAIF and MoFPED: (1) gaps between policy formulation and implementation; (2) the political economy and institutional landscape for agriculture; (3) institutional barriers at the national and local level that impede improvements in public spending on agriculture; and (4) the role of the private sector in providing public goods and services in the agriculture sector. These themes reflect the holistic perspective adopted for this review, which extends beyond issues of budget allocation and distribution to develop policy guidance and recommendations to increase the quality and effectiveness of public spending on agriculture. 4 Republic of Uganda: Agriculture Sector Public Expenditure Review 05 The analysis focuses on public expenditure in the agriculture sector (PEAS) of Uganda over 2013/14–2017/18. Spending on agriculture occurs under the purview of many central and local government agencies. At the national level, MAAIF is the lead ministry responsible for the agricultural expenditures, along with six semi-autonomous government agencies (SAGAs): (1) the National Agricultural Research Organization (NARO), (2) the National Agricultural Advisory Services (NAADS) Secretariat, (3) the Uganda Cotton Development Organization (UCDO), (4) the Uganda Coffee Development Agency (UCDA), (5) the Dairy Development Authority (DDA), and (6) the National Animal Genetic Resource Centre and Data Bank (NAGRC&DB). But agriculture-related expenditures also occur under the Office of the Prime Minister (OPM); the Ministry of Local Government (MoLG); the Ministry of Water and Environment (MWE); the Ministry of Lands, Housing and Urban Development; the Ministry of Trade, Industry and Cooperatives; the National Forestry Authority (NFA); and the Uganda Exports Promotion Board (UEPB). At the local level, the District Production Offices also spend on agricultural activities. 06 This summary presents the key messages emerging from the review and recommends policy and strategic actions for improving the efficiency and effectiveness of spending on agriculture in Uganda. To provide some context for the results, a brief overview of the global experience with public spending on agriculture initiates the discussion. The main part of the analysis looks at administrative efficiency by examining the distribution of sector spending across administrative units (central and local governments) and different geographic (regional) levels; it looks at technical efficiency by considering the institutional capacity to plan, manage and execute the budget; it explores economic efficiency by analyzing trends in recurrent (wage bill and non-wage bill) and development spending (current and capital outlays); and it examines functional efficiency by looking at the composition of spending across various functions (infrastructure, research and development, extension and regulatory services). Global Experience With Public Expenditure On Agriculture As A Benchmark For Uganda 07 Global experience reveals important lessons on how public spending on agriculture can enhance productivity growth and sector transformation. "Worldwide it is evident that public expenditures matter a lot for agricultural growth", as they are needed to address inefficiencies caused by market failures and inequalities in the distribution of public goods and services. An increase in public spending on agriculture needs to be undertaken in a fiscally responsible manner, however, to avoid macroeconomic distortions that could undermine growth. Analysis of 12 East and South Asian countries during their periods of high agricultural growth—the Green Revolution—shows that, on average, these countries devoted around 10 percent of total public spending to agriculture. 08 An important lesson from global experience is that the level of public spending matters less for growth than whether that spending is efficient and effective. For example, in a number of settings an increase in capital expenditures on irrigation, drainage, and rural/feeder roads (under the development budget) has achieved higher impacts than focusing spending on wages and other operational expenses (under the recurrent budget). Similarly, spending more on public goods is more productive than spending on subsidies. In the recurrent budget, a good balance between wage and non-wage expenditures is essential. Allocating adequate recurrent budget to non-wage spending can enhance the sustainability of assets created through capital expenditures by providing operational and maintenance budget. 5 Republic of Uganda: Agriculture Sector Public Expenditure Review 09 Public spending in agricultural research and complementary services (irrigation, extension and advisory services) has generated the highest rates of return around the world. Most high- income countries spend around 1 percent of their agricultural gross domestic product (GDP) on research, as does Brazil, a country widely regarded to have an effective research agency, Embrapa. Over the last decade, spending on agricultural research constituted about 0.4 percent of agricultural GDP in sub-Saharan Africa (SSA), compared with 1.3 percent in Latin America and the Caribbean, 0.6 percent in East Asia and the Pacific, and 0.9 percent in South Asia. Large countries in Africa have earned higher returns to research and development (R&D) (43 percent) than small countries (17 percent), but even in small countries, returns were still high enough (higher than the discount rate of 10 percent) to justify the investments. 10 There is considerable scope for financing investments that have higher impact on reducing poverty. Rural roads and irrigation infrastructure can be geographically targeted at areas where poverty is concentrated. Research can be aimed at crops, livestock, and technologies that are likely to be most useful to the poor rather than plantation export crops. Efforts to connect farmers to markets can focus on smallholders. Analysis shows that such investments have a large payoff in both economic growth and poverty reduction. 11 Globally, public spending must remain flexible to cope with future challenges, and for agriculture, probably no challenge is more urgent than climate change. Climate change threatens agriculture worldwide, but the lack of resilience of poor farmers makes it particularly serious in SSA. Projections show yields falling by 5 percent in the near term and perhaps by 15–20 percent across all crops and regions of SSA by the end of the century. Agriculture is also an important contributor to greenhouse gas emissions, particularly from deforestation, and Africa is the only region where the majority of production increases have come from expanding cultivated area, rather than increasing productivity, at the expense of forests. 12 Evidence from the periods of high agricultural growth in South Asia shows that fertilizer subsidies played little or no role in that growth. Studies in four Asian countries—Bangladesh, India, Indonesia, and Pakistan—conclude that fertilizer subsidies were not significant in farmers’ adoption of technology. They instead identify R&D of new technologies, irrigation expansion, and other investments, such as roads, as the main drivers. At the height of the Green Revolution, farmers in three of the four countries (although not Bangladesh) were net-taxed for fertilizer (that is, domestic prices for fertilizers were higher than the world market price), indicating that it was profitability and not subsidies that drove technology adoption during this era. In India, the relative performance of subsidies evolved over time, with higher returns occurring in the early years of the Green Revolution and declining rapidly thereafter. Fertilizer, power, and irrigation subsidies were among the least significant contributors to productivity growth over the four decades. 13 A key strategy to maximize impacts of public spending in agriculture is to ensure that the budgetary process supports efficient implementation. Efficient allocation of resources for greater impact begins with improvements in budget management. Reviews of public expenditure in 20 African countries highlight the importance of aligning agriculture sector policies and strategies with the investment plans, Medium-Term Expenditure Frameworks (MTEFs), and annual budgets as the first step to technical efficiency in spending. Budgeting needs to start from a stronger foundation of sector strategies and national agricultural investment plans. The investment plans need to be accompanied by a monitorable results framework. In many SSA countries, the rate of budget 6 Republic of Uganda: Agriculture Sector Public Expenditure Review execution is dismal. Improving budget execution rates is essential for demonstrating that the sector can make good use of additional public resources, and for persuading ministries of finance that their budgets must be increased. 14 Finally, public spending brings better results when combined with better policies and institutions. Many parts of Asia have achieved impressive gains in agricultural productivity and poverty reduction over the past half-century due to policy reforms. Recent research has quantified the potential improvement in productivity from policy reforms and several kinds of spending on agriculture. While comprehensive development of Africa’s agriculture sector requires investments across multiple areas, a total factor productivity (TFP) decomposition shows that productivity improvements in Africa have been led by investments in development of new technologies (contributing 51 percent of TFP), policy reforms that improve terms of trade and provide economic incentives to farmers (20 percent of TFP), and wider adoption of new technologies (proxied by farmer education) (8 percent of TFP). Allocative Efficiency Of Public Expenditure In The Agriculture Sector In Uganda 15 Analysis of the allocative efficiency of public expenditure provides an understanding of spending priorities and the balance of spending. Although the final share of public spending on agriculture (PEAS) more than doubled in real terms between 2013/14 and 2016/17, the share of PEAS in total public expenditure (PE) remained low throughout the period, averaging 3.6 percent. Uganda’s share is also low compared to that of its East African neighbors (Kenya, Tanzania, and Rwanda) and the Maputo/Malabo Declaration target of 10 percent. "To justify an increase in budget allocation to move toward the 10 percent target" (which is aspirational, as only a few African countries have achieved or are close to achieving it), MAAIF first needs to improve the quality and effectiveness of spending in the sector. 16 Allocative efficiency, which consists of the economic and functional decomposition of public spending, needs to improve. An economic decomposition of public spending on agriculture in Uganda depicts that development expenditures dominate both budgeted and final PEAS. Development and recurrent expenditures represented about 66 and 34 percent of budgeted PEAS, respectively. There were no significant differences between budgeted and final PEAS in terms of the relative sizes of development (50 percent) and recurrent (25 percent) spending. Given that budget execution rates are high (around 90 percent), this means that about 15 percent of the budgeted PEAS was not disbursed by MoFPED to the agriculture-related ministries and SAGAs. 17 The economic efficiency is mixes because although development expenditures averaged 66 percent, they were heavily oriented to non-wage recurrent expenditure rather than to capital expenditures. As a result, too little was invested in irrigation, rural access roads, wholesale and livestock markets, and veterinary, sanitary, and phytosanitary laboratories and equipment, which are critical for increasing agricultural productivity and building resilience to climate change risks. The low level of capital expenditure is reflected in the poor condition of rural infrastructure and has adversely affected farmers’ productivity and access to input and output markets. Similarly, the underfunded regulatory functions (sanitary and phytosanitary services) has impacted regional and international agricultural trade, and ultimately poverty reduction efforts. MAAIF therefore needs to increase the share of capital expenditure in its development budget, which is essential for productive investments. 7 Republic of Uganda: Agriculture Sector Public Expenditure Review 18 The high share of development expenditures in PEAS could to some extent be due to misclassification. Many items reported as development expenditures serve to fund recurrent activities or are used to purchase goods and services that are redistributed to farmers. For example, 96 percent of the NAADS budget was classified as development spending, even though much of this budget serves to buy inputs for free distribution to farmers. Making inputs accessible was integral to raising agricultural productivity, but the approach used for distributing inputs is unlikely to achieve this objective, since it is not fiscally sustainable. Where input subsidies continue to be used, they should at least be reduced to a modest share of PEAS. Input procurement and distribution should not distort the market for inputs and crowd out the private sector. Finally, subsidies for inputs should be coupled with other services (irrigation, mechanization, and extension services), targeted to farmers who can increase productivity and generate a marketable surplus, and have a clear exit strategy. 19 National decentralization objectives are not fully matched by the allocation of resources. Local governments receive a much lower share of final PEAS than agriculture-related ministries. Collectively, MAAIF, NAADS, NARO, and other SAGAs capture the bulk of the allocations in the sector (approximately 92 percent). The allocations to local governments declined from 37 percent in 2013/14 to about 7 percent in 2017/18, falling slightly short of the Agriculture Sector Strategic Plan (ASSP) target of 10 percent. Given that local governments provide frontline agricultural services such as extension and advisory services, market information services, and rural infrastructure, their budget allocations need to be increased. MAAIF should find ways of reducing its headquarters operating costs and retain a modest budget for its policy, strategy, and regulatory functions. 20 Geographic distribution of PEAS shows high efficiency in addressing inequality. Although the ASSP does not provide precise spatial targets, the geographic disaggregation of PEAS shows that spending favors the Northern Region. This region is emerging from conflict, has much lower levels of human capital, is the least populous, and has poor infrastructure. Per capita PEAS is also persistently higher in the Northern Region but is relatively the same in the Western, Central, and Eastern Regions. In 2006, approximately 68 percent of the poor lived in the Northern and Eastern Regions. By 2013, this proportion increased to 84 percent. In 2016, about 47 percent of the poor lived in the Northern Region and another 37 percent in the Eastern Region. In the northeast, almost three in four residents (74 percent) live below the national poverty line. The Northern and Eastern Regions require targeted spending to address inequality, end extreme poverty, and boost shared prosperity. 21 The functional efficiency of public expenditure on agriculture in Uganda has improved. An increasing share of PEAS was allocated to areas that can generate the highest returns on investment: R&D, extension and advisory services, and irrigation. But other critical public goods remained underfunded, undermining the potential impact of research, extension and advisory services, and irrigation on productivity growth and resilience. The underfunded public goods included inspection and quality control services and feeder roads and other infrastructure. Although the private sector cannot invest in these core public goods, they are critical for crowding in private investment in agricultural production and agribusiness. 22 Reforming the policy on public spending for agriculture in Uganda should be a priority. The importance of agriculture for inclusive growth is reiterated in various national development strategies but has not translated into public expenditures for the sector. It should be a priority of the government to steer public investments in agriculture toward the provision of public goods, such as 8 Republic of Uganda: Agriculture Sector Public Expenditure Review R&D, extension and advisory services, and rural infrastructure. Input and output marketing should be left in the hands of the private sector. The government should focus on creating the enabling environment for private sector participation (market and policy reforms) and on regulating input quality and standards. In addition, it should fully implement extension reforms by allowing public goods and services for agriculture to be delivered by both public and non-state actors (including agribusinesses), and it should crowd in the private sector by directly offsetting or defraying the costs to agribusiness of delivering those services, through public-private partnership (PPP) arrangements. Technical Efficiency Of Public Expenditure In The Agriculture Sector In Uganda 23 Technical efficiency (doing things well) in public spending involves making the best use of inputs to provide outputs in the form of public services. Most donor funded projects in Uganda are implemented inefficiently, for various reasons. But not all of the blame for technical inefficiency rests with MAAIF. Delayed budget ratification by Parliament, untimely and insufficient release of counterpart funds by MoFPED are beyond the purview of MAAIF, yet these constraints cause several years to pass before a donor-funded project can be launched in Uganda. Other constraints, including weak procurement and financial management capacity, improper appraisal and feasibility work, poor coordination of project preparation and implementation between MAAIF and local governments, and inadequate operating budgets for technical staff are within the mandates of the ministry itself. These result in high cost overruns, low-quality work, and other kinds of wastage. 24 The institutional setup and budget architecture constrain efficient spending in the agriculture sector. A comprehensive functional review of MAAIF and its SAGAs as well as other agriculture-related ministries is required to clarify their mandates. Budget allocations and spending should strictly follow the assigned functional mandates and strategic objectives. The respective roles of the MAAIF and NAADS (along with Operation Wealth Creation—OWC) regarding the provision of public good and services must be clarified. The agriculture Sector Working Group (SWG) should be more proactive in providing feedback on budget planning, execution, and monitoring and evaluation of impacts. MAAIF must further improve technical efficiency by aligning donor funding with ASSP targets, so that external resources finance the national priorities necessary for achieving the ASSP objectives. "Better coordination of the central and local governments in budget processes and management is essential". MAAIF should also develop an effective framework for capturing off-budget spending by donors, because the ministry needs to be able to track off-budget spending in the sector and assess its impacts. 25 Technical inefficiencies pervade the delivery of subsidized inputs to farmers. Considerable volumes of inputs have been procured by the NAADS and distributed by the OWC, ranging from seed (maize, beans, soybeans, rice, sorghum, groundnuts, and Irish potatoes) to banana plantlets, heifers, layers and broilers, and tilapia and catfish fingerlings. These inputs are not costed in the National Budget Framework Paper, but they have averaged US$100 million equivalent per year. The unit costs of some inputs procured were 20–50 percent higher than comparable market prices. The inputs often were of poor quality, distributed late without communication or consultation with districts, without extension services, and rarely with complementary inputs such as fertilizers and pesticides. Results were not monitored. Wastage was unavoidable. Giving free inputs to farmers is not sustainable and in the long run breeds dependency or entitlement. The government should address these inherent technical inefficiencies. 9 Republic of Uganda: Agriculture Sector Public Expenditure Review The Policy And Institutional Landscape For Agricultural Expenditures In Uganda 26 The government’s outsized role in the agriculture sector leaves little room for private sector participation. The government seems more enamored of transforming subsistence farming into modern, commercially oriented farming with the free distribution of inputs than with the exigencies of supporting policies that: (1) enhance the capacity of MAAIF to efficiently and effectively deliver on its mandates; (2) increase public investments in infrastructure (such as irrigation and rural roads); and (3) crowd in private sector investment in agribusiness, such as firms that market inputs and outputs and provide agricultural services (for instance, mechanization and financial services). 27 A review of the agricultural policy and institutional environment clearly shows that MAAIF’s role in developing policy for the agriculture sector has diminished over time. Some sector policies have emanated from the National Planning Authority (an agency of MoFPED). The ASSP, which currently provides strategic direction to sector development, is not adhered to strictly. The links between the ASSP, the MTEF for agriculture, and the budget are not obvious. Although the SWG provides a platform for stakeholders to participate in the budget process and for monitoring budget execution, its effectiveness has been less than required. Finally, the roles and responsibilities of various MAAIF agencies in budget planning and execution are unclear, let alone the interface between MAAIF and local governments in the budget process. 28 Public expenditures on agriculture underperform because of structural deficiencies and capacity constraints—but even so, MAAIF has ample scope to improve the technical and economic allocation of public resources to spur growth in the sector. To achieve this improvement, MAAIF must continue with radical institutional reforms to reflect its new roles, including its role in delivering extension services (transferred from NAADS), and reinforce its role in policy and planning. Champions are needed from within MAAIF, at the senior leadership level, to articulate the rationale, significance, and outcomes of the reforms. 29 More specifically, to improve PEAS from an institutional point of view: • MAAIF should identify, agree, and target the highest priorities to ensure that limited resources are used as efficiently and effectively as possible. • In line with the widely accepted principles of good governance, MAAIF should ensure transparency, accountability, and participation in its service delivery to maximize the efficiency and effectiveness of its expenditures. • Public expenditures should address the roots, not the results, of market failures. Rather than spending the bulk of PEAS on free distribution of inputs, develop incentives (an enabling environment) for private sector participation in input markets, and strengthen the regulatory functions of MAAIF to ensure the quality of inputs. • The provision of free inputs is fiscally unsustainable, creates dependency, and constrains private investment in input distribution. Targeted input subsidies should be directed to producers who have the potential to transition from subsistence (producing for domestic consumption) to commercial farming (producing surplus for the market). • Integrate projects into the strategy for agricultural growth and development (ASSP and the 10 Republic of Uganda: Agriculture Sector Public Expenditure Review National Development Plan). A programmatic approach to sector development could reduce the number of projects, and the establishment of a Single Project Implementing Unit should reduce transaction costs and help MAAIF and local governments to deliver on their mandates. • Strategic improvements in public spending on agriculture must begin by making much greater use of the Budget Framework Paper (BFP) to provide feedback to MoFPED, and by enforcing the technical assistance, oversight, and monitoring roles of the SWG. • To develop a much more credible, robust planning process, MAAIF requires a Directorate of Planning with capacity, authority, and influence. Planning should devote greater attention to the criteria used for prioritization, expected outcomes, detailed expenditure estimates, and linking investment plans closely to anticipated MTEF ceilings (and indicating how plans will change if ceilings increase or decrease). • Much better impact evaluation and expenditure tracking systems are required to place policy makers and planners in a better position to guide budget allocations across subsectors and address operational constraints in the portfolio. 30 The balance and efficiency of central and local government spending must improve. Local governments should get a bigger share of PEAS than the current average of less than 10 percent. District fragmentation, underfunding, and low capacity at the local government level have caused the quality of services to fall across the board, even though the total number of people with ostensible access to some services may have grown. Measures to reverse the negative trend in service delivery under local governments include: • Strengthen local government capacity for planning and budgeting, financial management, and procurement to improve the efficiency and effectiveness of spending, and most important, to increase the quality and impact of agricultural services. • Develop a framework to engage citizens in planning, budgeting, and performance evaluation to ensure transparency and accountability. Sustained improvements in service delivery depend, at least to some degree, on the ability to hold local governments accountable. • Where possible, shift procurement from the central to the district level to reduce transaction costs, minimize wastage and leakage, improve the quality of supervision, and empower the people of the district. • Discontinue the fragmentation of districts (if possible, consolidate to reduce administrative costs), and strengthen governance and service delivery capacity in existing districts. • Explore other sources of local revenue for local governments to fill the gap left behind by the abolished graduated tax. • Address the vacuum in human resource capacity at the local government level to ensure adequate staff numbers and skill sets for planning production interventions, implementing them, and monitoring and evaluating their performance. 11 Republic of Uganda: Agriculture Sector Public Expenditure Review The Role Of The Private Sector In The Provision Of Public Goods And Services 31 For agriculture to act as a key economic driver of Uganda’s Vision 2040 and the transition to middle-income status, private sector investment must be leveraged. Agriculture by nature is a private sector activity, in which commercial firms are in the best position to understand market potential and to engage within their specific value chains. "Moreover, the scarce public resources should be focused on those core public goods and services for which private financing is unlikely". A rigorous analysis will help to identify investments that generate largely public goods in which the private sector cannot invest, and investments that yield private goods that will attract private sector financing. Public-private partnerships could be promoted in the case of relatively large investments. 32 At the same time, the constraints to private investment in agriculture are well known, particularly within those value chains in which small-scale producers can participate fully. For the private sector, the motive is obviously to facilitate business development and to earn a profit. Yet the large-scale agricultural services required for agribusiness development are costly, and the associated risks are too high to be mitigated by individual firms. The financial markets are equally hesitant to develop products for financing agriculture, which to a large extent has limited the operations of even relatively larger agribusinesses. Consequently, they have restricted their businesses to certain geographical areas and specific value chains. To further leverage private sector investment in agriculture, the government must implement policies that will help to reduce the cost of doing business, and it must also co-finance some of the services provided by agribusinesses to smallholders. Specific steps include: • Strengthening farmer organizations to integrate smallholders into agri-food value chains. When producers are organized into associations or cooperative societies, they can gain access to knowledge and technologies, aggregate produce to achieve scale economies, and connect with agroprocessors for value addition to further increase farm incomes and reduce poverty. Federated producer organizations (such as cooperative unions) can form productive alliances to commercially produce and supply agreed quantities and quality of a specific commodity to a specific market – taking advantage of growing population and urbanization in Uganda. • Supporting vertical integration of farmer organizations with larger producers and processors. It is necessary to foster the competitiveness of Uganda’s agri-food system and the economic inclusion and market power of smallholders. Vertical integration is important for smallholders to commercialize their production and access credit and markets. For larger producers (nucleus estates and agroprocessors), vertical integration enables quantity and quality assurance, and value addition. • Increasing access to agricultural finance for all parts of agri-food systems. Savings and credit cooperatives and warehouse receipt systems are promising vehicles for fostering financial inclusion of smallholders and addressing the lack of collateralizable land titles for loans. Other options for smallholder financial inclusion are value-chain financing and smartphone-based financial technologies (FinTech). • Strengthening the policy and regulatory framework. To foster private sector participation in Uganda’s agri-food systems, a range of policy and institutional challenges must be addressed, particularly in regard to input regulations and quality controls. The prevalence of low-quality inputs in the market significantly reduces returns and adoption rates. MAAIF needs to beef up 12 Republic of Uganda: Agriculture Sector Public Expenditure Review its capacity to regulate the input market. A strong plant protection framework is also needed to protect crops from pests and diseases and allow the government to regulate cross-border agricultural trade more effectively. There is an urgent need for the government to clarify the role of the private sector (agribusinesses) in providing agricultural services under public-private partnership arrangements as well as contract farming. • Addressing land tenure issues. Rising pressure on land reduces the productivity of smallholder farming systems, dimming prospects for future generations to expand cultivated area, and increasing the number of landless young people in rural areas. Secure property rights over land are central for attracting private investment—by smallholders and large commercial operations alike—in agricultural development and commercialization. Conclusions 33 This review has identified the critical policy and institutional opportunities for Uganda to transform its agriculture sector as envisioned. Reaping the full benefit of the opportunities indicated by sectoral trends will require an enabling policy environment, efficient institutional processes, and sector stakeholder coordination. In addition, public spending on agriculture must be directed to the provision of “public goods” such as research, extension, and infrastructure rather than to “private goods” like subsidized or free inputs. Growth in agricultural productivity cannot be achieved without better access to and adoption of high-quality agricultural inputs by smallholder farmers. Better access to technologies and more widespread technology adoption will require stronger regulatory measures, more secure land tenure, enhanced input quality controls, and full implementation of the ongoing extension reforms to sharpen the focus on knowledge transfer. 34 Given that climate variability and pest outbreaks are on the rise, Uganda’s agricultural systems and rural livelihoods must become more resilient. Farmers should be equipped with climate-smart land, water, and livestock management practices, irrigation infrastructure, and access to information about climate and disaster risks. Producer arrangements and integration into agri- food value chains should be supported to increase farmers’ access to finance and markets, and the competitiveness of the sector more broadly. As diverse agribusinesses develop in a range of value chains, they will link greater numbers of farmers to sources of inputs, markets, and finance and improve rural livelihoods. 35 The growing budget deficit means it is unlikely that GoU will increase spending on agriculture to reach the Malabo–CAADP target of 10 percent in the near future. It is, therefore, prudent that MAAIF and other agriculture-related ministries and SAGAs as well as local governments improve the allocative and technical efficiency to increase the effectiveness (results or impacts) of their current budget allocations. At 3.6 percent of the public expenditure (PE), Uganda’s PEAS is still above the SSA average of 2.0 percent. And although a real GDP growth rate of 6.0 percent or more is projected over the next few years, the competition for scarce resources from other key sectors such as human development (health and education) and infrastructure (energy, roads and water) is also growing. 13 01 UGANDAN AGRICULTURE AND THE OBJECTIVES OF THE PUBLIC EXPENDITURE REVIEW Republic of Uganda: Agriculture Sector Public Expenditure Review spur inclusive growth, increase food security, 1.1 Objectives of the Agriculture and reduce poverty. Public Expenditure Review 01 This Agriculture Public Expenditure Review (AgPER) analyzes the efficiency 03 Additional justification for the AgPER comes from the New Partnership for Africa’s Development (NEPAD). Under and effectiveness of public expenditures NEPAD, Africa’s Heads of State committed to on the agriculture sector in Uganda. allocate 10 percent of their national budgets The main objective was to identify practical to the agriculture sector each year. Ever measures for improving the quality of public since, assisting countries to increase the expenditures on agriculture. This effort quantity and quality of public agricultural entailed analyses of financial data as well spending has been a major objective of the as institutional relationships to understand NEPAD’s Comprehensive Africa Agriculture the processes of budget formulation and Development Programme (CAADP). Under execution as they relate to agriculture. The CAADP, each country is to undertake a results will help the Ministry of Agriculture, public expenditure review that documents Animal Industries and Fisheries (MAAIF) the level, composition, and quality of and the Ministry of Finance, Planning expenditures in the agriculture sector. This and Economic Development (MoFPED) information is also useful to development to improve the technical and allocative partners supporting the sector in Uganda, efficiency of agriculture-related spending. the private sector (agribusinesses), and the Regional Strategic Analysis and Knowledge 02 The AgPER was undertaken in response to the MoFPED’s request to the World Bank to analyze the level and composition of Support System (ReSAKSS) for Eastern and Central Africa, which is mandated by the Common Market for Eastern and Southern expenditures in the agriculture sector; Africa (COMESA) to monitor government a further objective was to assess the spending on agriculture in the region. impact of that expenditure on overall sector growth and transformation. The review emanated as well from discussions by the agriculture Sector Working Group 04 The last AgPER in Uganda was undertaken in 2010. Since then very little analytical information has been available to ensure (SWG), especially during the budget that public expenditures are prioritized process, which consistently raised concerns to support the objectives of transforming about seemingly low budget allocations Ugandan agriculture. Such information is to the sector, as well as the failure to align critical in an environment where the national limited resources with sector policy and budget is increasingly stressed by limited strategies. In addition to providing a better domestic revenue generation, declining aid understanding of the level and composition inflows, and competing demands of priority of expenditure, the AgPER aimed to identify sectors. the types of expenditures that would promote agricultural transformation in Uganda. Such expenditures include those that can (1) help smallholder farmers produce for the market and add value, so that they can transition from subsistence to commercially oriented production, and (2) leverage private investments in the sector to 15 Republic of Uganda: Agriculture Sector Public Expenditure Review sector budget in Uganda was still about twice 1.1.1 Findings of the Agriculture Public as low as necessary to meet the Maputo and Expenditure Review 2010 Malabo pledge to allocate 10 percent of the national budget to agriculture. 05 The Uganda AgPER (2010) concluded that between 2001/02 and 2008/09, agriculture sector expenditures could be 07 According Expenditure to the Framework Medium-Term (MTEF), divided into two distinct phases. During agriculture sector expenditures were not the first phase, from 2001/02 to 2003/04, projected to grow but to keep declining. In the budget for agriculture fell sharply in 2012/13, the agriculture sector expenditures both nominal and real terms. It began to were expected to be 3.2 percent of national recover after 2004/05. In nominal terms, expenditures, compared to 3.8 percent in cumulative growth in the sector budget 2008/09 and 4.6 percent in 2001/02. Given was 46 percent higher in 2008/09 than in this outlook, it was more critical than ever 2001/02. Despite this seemingly spectacular to ensure that scarce budgetary resources increase, in real terms the 2008/09 sector were used in a highly efficient and effective budget was about the same as it was in way at the central level (MAAIF and its SAGAs, 2001/02. Real expenditures were 38 percent and agriculture-related ministries) and at higher in 2008/09 than at their low point in the local government level. 2004/05. As a share of the national budget, the agriculture sector budget had fallen to 3.8 percent in 2008/09 from 5.7 percent 08 Compared to spending on agriculture in high- and middle-income countries, spending on agriculture in Uganda in 2001/02. In terms of share of gross domestic product (GDP), the sector budget (adjusted by the size of the sector) was low, remained stable, albeit low, at 1.6 percent. but comparable to spending in selected These were data for the approved budget, countries of sub-Saharan African (SSA). but the released budget was on average 10 The AgPER 2010 also concluded that three percent lower, reducing the share of sector conditions needed to be met to maximize expenditure in GDP to 1.2 percent. the impact of public spending on agriculture in Uganda. First, public expenditures on 06 The agriculture sector budget was not much larger when defined according to the United Nations Classification agriculture would need to be supported through an enabling environment in which agricultural prices were subject to few of Functions of Government (COFOG). distortions. It would be counterproductive to Under the COFOG classification, which raise the public expenditure on agriculture is recommended by NEPAD/CAADP for when farm-gate prices were depressed. comparing agricultural expenditures across Second, the mix of spending needed to be African countries, the sector budget as a efficient (allocative efficiency). Spending that percentage of the national budget was about does not contribute (or does not contribute 1 percent higher (for example, increasing as much) to growth and poverty reduction, to 5.4 percent for the released budget in relative to alternative goals, is allocatively 2005/06). Donors accounted for substantial inefficient or unproductive. Third, technical off-budget spending; although information efficiency needed to be high. Technical on these expenditures was difficult to efficiency in the public sector involves making obtain, it was estimated to account for 10–20 the best use of inputs to provide outputs percent of the total sector budget. Overall, in the form of public services. Put simply, even with off-budget funds, the agriculture technical efficiency is doing things well, 16 Republic of Uganda: Agriculture Sector Public Expenditure Review while allocative efficiency is doing the right things. According to the AgPER 2010, when those three conditions are met, even small 11 The second drawback identified through the economic decomposition was that agriculture sector expenditures were budgets are well positioned to generate increasingly dominated by non-wage growth and encourage more private recurrent expenditures, mainly subsidized investment in the sector, and the scaling up farm inputs and other goods. Between of agriculture sector expenditure in Uganda 2005/06 and 2008/09, non-wage recurrent will bring the highest rates of return. In light spending, mainly for farm inputs, comprised of these findings, the AgPER 2010 made 65 percent of MAAIF’s development budget some key policy recommendations on the on average. The share of non-wage recurrent allocative and technical efficiency of public spending in MAAIF’s total budget grew from expenditure, as well as budget processes, 49 percent in 2005/06 to 80 percent in which are summarized below. 2008/09. Making inputs accessible is integral to raising agricultural productivity, but the approach taken—distributing inputs—was 1.1.2 Policy recommendations unlikely to achieve this objective, because it from the Agriculture Public favored the wealthiest farmers, who could Expenditure Review 2010 already afford the inputs. This approach did not strengthen private input suppliers, 09 Allocative efficiency. Allocative efficiency improve the targeting of subsidies (through (economic and functional decomposition) the use of e-vouchers, for example), or was found to be low, and the report called invest in rural infrastructure to ensure for its improvement. that farmers could obtain inputs easily. The report recommended that resources should be shifted from spending on private goods (subsidized inputs) to public goods 10 The first drawback identified through the economic decomposition was the small share of capital expenditure in the (extension services, regulatory functions, and rural infrastructure), which also have potential for increasing productivity and agriculture sector budget. Development reducing poverty. expenditure was not synonymous with capital expenditure, as usually assumed. Although the development expenditure 12 The third problem identified through the economic decomposition was the larger share of wage and operational made up about 80 percent of the agriculture budget, it was heavily oriented to non-wage expenditures going to MAAIF recurrent expenditures, at the expense of Headquarters relative to other MAAIF capital expenditures. The share of capital departments. MAAIF Headquarters outlays in the 2008/09 approved budget absorbed 35 percent of the recurrent was 6 percent, down from an already low budget. The report recommended that the level of 11 percent in 2005/06. The report headquarters operating costs should be recommended that development budget reduced, and more operating funds shifted should be directed to capital expenditures to other departments of MAAIF and local (for example, to research and development, governments (districts and sub-counties), and to rural infrastructure such as irrigation where recurrent expenditures are dominated and feeder roads), which generate higher by wages, leaving little operational funding returns to investment, rather than current for the technical staff to deliver on their expenditures. mandates—public agricultural services. 17 Republic of Uganda: Agriculture Sector Public Expenditure Review 13 At first glance, the functional composition looked quite efficient, given that the largest share of the budget was allocated 15 Price distortions. Uganda had successfully addressed one important component of the efficiency of public expenditure, which is to advisory services and agricultural agricultural price distortions. Most farm-gate research. Between 2005/06 and 2007/08, prices were at the level of reference border these categories with the highest potential prices adjusted for marketing costs. In 2001– for enhancing pro-poor growth absorbed 04, the rate of assistance to agriculture was 57 percent of the sector budget. Even so, estimated at 1 percent, with no taxation to many other core public goods remained export commodities and about 13 percent underfinanced, undermining the potential support to imports, such as rice. The non- impact of research and advisory services. agricultural rate of assistance had also The critically underinvested areas were notably decreased, reducing the prices of irrigation, rural or feeder roads, livestock and farm inputs and stimulating resource flows plant pest and disease control, regulatory to agriculture. The policy environment in services, and institutional development. Uganda was described as quite conducive These are the core public goods that the for public expenditure to have a lasting private sector will not invest in providing, impact. but they are essential for catalyzing private investment in agricultural production and agribusiness. 1.1.3 Agriculture Public Expenditure Review 2019 14 Technical efficiency. Most of MAAIF’s 16 development projects had low technical The intervening years since the AgPER efficiency for various reasons, some of which 2010 have reinforced the view that public were within the purview of the ministry itself. spending on agriculture has a pivotal role The report recommended that technical to play in Uganda. Efficient and effective efficiency should be improved for MAAIF spending on agriculture would help the to make a convincing case for substantially sector to achieve its potential to contribute to scaling up funding for agriculture. Many inclusive growth, create employment for the institutional factors prevented projects from country’s rapidly growing and predominantly being implemented efficiently and generating young population, and ultimately to reduce the intended results, including delayed poverty. Accordingly, this new AgPER aims budget ratification by Parliament, untimely to identify how public spending can best and insufficient release of government support agriculture to deliver growth counterpart funds, weak procurement through increased productivity, stronger and fiduciary capacity (at MAAIF and the resilience to climate change and other local government level), and insecurity production risks, and more effective private in northern Uganda. These constraints sector engagement in the provision of public increased transaction costs and adversely goods in the sector. affected the viability of projects. MAAIF was 17 advised to keep raising these important MoFPED has challenged line ministries issues with MoFPED and to actively seek to produce value-for-money analyses concerted remedies at the national and local of their expenditures to provide a basis government levels. for considering increased budgetary allocation. Line ministries, including MAAIF, often complain to MoFPED about insufficient budget allocations. Due to inadequate 18 Republic of Uganda: Agriculture Sector Public Expenditure Review expenditure information, the sector Budget 1.2 The Macroeconomic and Framework Papers (BFPs) contain insufficient information on expenditures in the previous Fiscal Environment year and on what they achieved. Without this information, it is difficult to develop and justify a more evidence-based budget 19 In Uganda, the fiscal deficit, including arrears 4.8  repayments, widened percent of GDP in 2017/18 from to allocation for the coming year. Thus, except for few cases, annual budgets and MTEF 3.8 percent the previous year.2 At an ceilings represent only incremental changes, estimated 15  percent of GDP in 2017/18, irrespective of strategic and emerging total revenue collections were weaker than priorities. in the previous year. Overall, collected revenues were below the level projected in 18 AgPER 2019 also places a strong emphasis on the relationship between public expenditure and policy. It builds the government budget, which assumed that total revenues would be around 16.6  percent of GDP. In other words, tax revenues on prior analytical work by the World Bank1 undershot government plans by 1.6 percent that highlights the role of domestic policies of GDP, or roughly USh1.4 trillion. Due to the in limiting the incentives for producers to wider fiscal deficit, the government increased enhance productivity and resilience and its borrowing. External project financing, in curbing private sector engagement in rather than budget support, continued to Ugandan agriculture. That work also finds be the primary source of foreign borrowing. growing deficiencies in budget formulation, This contributed to the rising external debt allocations, and execution in MAAIF and interest and principal payments. In the agriculture-related ministries. MAAIF domestic market, the government borrowed is deeply concerned about inadequate to finance the emergency supplementary resources and limited potential for realigning budget in the fourth quarter of 2017/18. expenditures to high priority activities set Consequently, the total public debt stock forth in its Agriculture Sector Strategic Plan accelerated and reached 41  percent of (ASSP). Currently, the bulk of MAAIF’s budget GDP at end-2017/18, of which 28  percent is allocated to specific activities, either for of GDP represented external public debt, the core autonomous organizations—the while domestic public debt stabilized at National Agricultural Research Organization 13 percent of GDP. (NARO) and the National Agricultural Advisory Services (NAADS)—or for activities to which the Government of Uganda (GoU) 20 The expenditure mix deteriorated further in 2017/18, with excessive current spending and sizable under-execution in has committed under various projects. Therefore, MAAIF has strong interest in capital spending. Overall, national current conducting a comprehensive AgPER to spending in 2017/18 exceeded the budgeted tailor its future expenditures to its priorities amount by 32 percent (or by 3.6 percent of identified under the ASSP to improve the GDP). This overshooting was due to higher quality of public service delivery; and make purchases of goods and services, transfers to a compelling case to appropriate levels of government agencies, and employee costs. funding for agriculture. Excess current spending was offset by a fall in 1 “Closing the Potential-Performance Divide in Uganda Agriculture” (the AgGAP ASA) and a closely aligned study, “Uganda: Governance and Public Expenditure Aspects of Agriculture for Shared Growth.” 2 World Bank (2018d). 19 Republic of Uganda: Agriculture Sector Public Expenditure Review capital spending to an estimated 4.4 percent of GDP (or 0.6 percent of GDP). Compared to its peers, Uganda’s capital spending is 23 "To capture the expanding markets for its products in the future, Ugandan agriculture must start to grow more less than half the size of Rwanda’s capital rapidly". Agriculture has traditionally been outlays at 10.3 percent of GDP, and only an important component in Uganda’s 60 percent of Kenya’s at 7 percent of GDP. economy and a major driver of growth. In Reining in excessive current spending will the last couple of decades, it has provided therefore be pivotal in keeping public debt about one-quarter of national GDP. under control, while also allowing capital Agriculture’s share in the overall economy is spending to be executed as planned (World slowly diminishing because the information Bank 2018d). The decline in capital spending and communication services, as well as is driven by lower externally financed capital construction, have been major sources of outlays, which are associated with land economic dynamism in recent years. In real acquisition issues and a lack of government terms, agriculture has been growing at 2.5 co-financing.  percent annually since 1995, even as GDP growth at 6.3 percent per year has made Uganda one of the fastest-growing African 1.3 The Growth Potential for the economies. Agriculture Sector in Uganda 24 The good news is that the agriculture 21 The agri-food system in Uganda stands sector has tremendous natural potential to benefit from enormous opportunities for additional growth. Land and water created by population growth and resources for agriculture in Uganda are urbanization. Domestic and regional among the best in Africa, due to the rich demand for agricultural commodities is volcanic soils and the occurrence of two rising rapidly as increasing numbers of wet seasons across most of the country urban dwellers demand more processed (CCAFS 2017). Uganda is also one of the 10 food and protein-rich diets. By 2050 about most biodiverse countries globally. It is host 102 million people will live in Uganda, more to 18,783 recorded species of fauna and than double its current population. About flora, and farmers in its varied agroecologies one-third of them will probably live in cities, cultivate crops as distinct in their growing compared to only about 17 percent now. profiles as mountain tea and dryland millet. There is immense potential as well for 22 Uganda already has a strong competitive developing the livestock value chains. position in agri-food trade. The country is a net exporter of agri-food products, and in the last decade it has maintained a positive 25 The agri-food system also exhibits strong prospects for value-addition. Because Uganda has two wet seasons, it can produce trade balance for most agri-food products. Agri-food products account for more than food at a relatively lower cost and in more half of national exports. Cash crops like stable volumes than neighboring countries. coffee and tea are by far the dominant When food processing is considered export commodities, generating around alongside primary production, the Ugandan one-fifth of all export earnings. Other key agri-food sector has higher potential to create products include maize, beans, bananas, jobs than the services or industrial sectors. and some livestock and fish. The share of services in GDP increased to 57 percent in 2018, but the services sector has less of a socioeconomic (poverty reduction) 20 Republic of Uganda: Agriculture Sector Public Expenditure Review impact than agriculture, which remains largely informal, with relatively low labor productivity. As diverse agribusinesses— 27 Improvements in productivity are critical because food insecurity and malnutrition are still important threats in Uganda. particularly in the dairy, maize, and coffee Food insecurity in Uganda is classified as value chains—have developed over recent “serious” by the 2018 Global Hunger Index. years, they have linked greater numbers of The northern and eastern areas are the farmers to sources of inputs, markets, and most vulnerable to food insecurity and finance, and have improved rural livelihoods. malnutrition, and they are also receiving large numbers of refugees from neighboring 26 Continued low growth in agricultural productivity will significantly diminish these prospects. Agricultural productivity countries affected by conflict, including the Democratic Republic of Congo and South Sudan. Overall, and despite clear growth is based on increased technical (or improvements in recent years, 13 percent financial) efficiency of input use, combined of the population is stressed regarding food with technological innovation (knowledge), security (IPC Phase 2), and 1 percent of the which together allow farmers to produce population is experiencing a food security more with less. Productivity enhancements crisis (IPC Phase 3).3 are measured by total factor productivity (TFP), or the ratio of output produced to the amount of all inputs used. For Uganda, average TFP has been negative since around 28 The presence of food insecurity and malnutrition reflects the high vulnerability to climate change in Ugandan agriculture 2000 (World Bank 2018a), primarily because and among the rural poor. The effects input use and technology adoption in of the 2016 La Niña (which resulted in Uganda remain among the lowest in SSA. severe drought) as well as outbreaks of For example, on average Ugandan farmers fall armyworm have worsened poverty apply 1.2 kilograms per hectare of inorganic and food insecurity. Although the share of fertilizer each year, compared to 45 kilograms people living below the national poverty line in Ethiopia and 146 kilograms in Malawi more than halved between 2002 and 2013, (Sheahan and Barrett 2014). Only about 4 falling from 40 percent to 19.7 percent, in percent of Ugandan farmers use a package 2016/17 the national poverty rate had risen of production-enhancing technologies, to about 27 percent. At the same time, the defined as a combination of fertilizer, food-secure proportion of the population improved seed, and supportive extension (IPC Phase 1) dropped to 69 percent, while services (Bategeka, Kiiza, and Kasirye 2013). the stressed population (Phase 2) rose to 25 Consequently, yields for maize, millet, rice, percent and the population in crisis (Phase and sorghum, for instance, are estimated to 3) rose to 6 percent. be only 20–33 percent of the potential yields for these crops under rainfed conditions, and even less under irrigated conditions (PARM 2015). 3 The Integrated Phase Classification (IPC), widely accepted by the international community, describes the severity of food emergencies. Based on common standards and language, this five-phase scale helps governments and other humanitarian actors to quickly understand a crisis (or potential crisis) and act. IPC Phase 2 households have minimally adequate food consumption but cannot afford some essential non-food expenditures without engaging in stress-coping strategies. IPC Phase 3 households either have food consumption gaps that are reflected by high or above-usual acute malnutrition, or they are marginally able to meet minimum food needs, but only by depleting essential livelihood assets or through crisis-coping strategies. 21 Republic of Uganda: Agriculture Sector Public Expenditure Review 29 "Uganda is among the countries that are most vulnerable but least adapted to climate change". It scores 155 of 188 the country’s labor force, it is critical for household income growth and consumption. The performance of agriculture has been countries on the ND-GAIN index,4 meaning closely linked to household income growth that while its exposure to agriculture-related and subsequent poverty reduction (Hill and risks is high, the capacity of its producers Mejia 2016). Indeed, agricultural households and agricultural systems to mitigate risks is accounted for 79 percent of the poverty low. Crop and livestock pests and diseases, reduction that occurred between 2002 and as well as drought spells, are among the 2013. top six agricultural risks in Uganda (PARM 2015), and their occurrence is projected to increase under climate change (CCAFS 32 Uganda’s agri-food system play a significant role in enhancing employment opportunities for the can 2017). These circumstances indicate that improved inputs alone will not sustainably country’s predominantly young and enhance agricultural productivity if they rural population. The agriculture sector is are not accompanied by knowledge and particularly important for young Ugandans, technology for climate-smart agriculture, who are the majority of the population: as well as sustainable land and water 80  percent of Ugandans are below the age management practices, to build resilience to of 35 and, with a median age of 16 years, climate change. Uganda has the youngest population of any country in the world (Aga Khan University 30 Uganda’s agricultural systems are also vulnerable because they depend heavily on rainfall. Less than 1 percent 2016). More than three quarters of people aged 15–24 engage in agriculture as their first job, mostly in primary production of smallholder producers use irrigation (Yeboah and Jayne 2018). An analysis of (Bategeka, Kiiza, and Kasirye 2013). The six SSA countries shows that transforming government is committed to increasing their food systems from a focus on primary investments in irrigation and drainage production to market-oriented agri-food systems to support smallholders who are value chains could create more jobs between making the transition from subsistence 2010 and 2025 than the rest of the economy agriculture to market-oriented commercial (Townsend et al. 2017). By 2010, the number production. Since irrigation may be of jobs in agribusiness amounted to 10 unaffordable for subsistence farmers, percent of all jobs in agriculture in Eastern the adoption of other measures, such as and Southern Africa (Tschirley et al. 2015). rainwater harvesting, water pans, valley tanks, and water conservation technologies, should be encouraged (World Bank 2018a). 33 The Government of Uganda’s Vision 2040 and Second National Development Plan (NDP II) give priority to agriculture 31 Productive and sustainable agriculture is a proven pathway out of poverty and food insecurity. Uganda is still a predominantly because of its capacity to spur Uganda’s socioeconomic transformation a middle-income country by 2040. In into rural country, with over three-quarters of the response, the ASSP (2015/16–2019/20) population residing in rural areas. Because prioritizes investments that: (1) increase agriculture employs about 70 percent of on-farm productivity to at least 50 percent 4 The ND-GAIN Country Index “summarizes a country’s vulnerability to climate change and other global challenges in combination with its readiness to improve resilience.” See https://gain.nd.edu/our-work/country-index/. 22 Republic of Uganda: Agriculture Sector Public Expenditure Review of the yields obtained on research stations; (2) transform subsistence farmers into enterprise farmers, and smallholder farmers 35 Finally, reaping the full benefit of the growth opportunities indicated by sectoral trends will require stronger into commercial farmers; (3) increase food institutional processes and stakeholder security and food availability in all parts of coordination, as well as public investments the country; (4) increase agricultural exports; in agriculture that are directed to the (5) increase the efficiency and effectiveness provision of public goods such as research, of agricultural services; and (6)  increase extension, and infrastructure rather than the sector’s resilience to the impacts of private goods like free inputs through climate change. To achieve the envisaged subsidies. Global experience shows that agricultural transformation, the sector public expenditures matter for increasing must address the underlying constraints, agricultural productivity growth. But not which will lead to: (1) enhancing agricultural all public expenditures are productive—so productivity and building resilience to sector- what matters most is the allocative efficiency related risks; (2) increasing competitiveness (quality of spending) and technical efficiency of key agricultural value chains and access (effectiveness of spending). Coupled with an to markets by smallholder producers; and improved policy environment that crowds in (3) strengthening institutional capacity and private sector actors, the impact of public improving the regulatory environment. expenditures on agricultural productivity growth in Uganda would be even greater. 34 To speed the transformation of Uganda’s agri-food sector, critical policy weaknesses must be addressed. Primary 36 The analysis that follows explores major thematic areas identified by MAAIF and production cannot become more productive MoFPED. These thematic areas reflect the without better access to and adoption holistic perspective adopted for this review, of high-quality agricultural inputs. Better which extends beyond analyses of trends in access and adoption will require stronger budget allocation and distribution (Chapter regulatory measures, more secure land 3) to focus on the policy environment. For tenure, enhanced input quality controls, and that reason, the analysis entails a synthesis full implementation of the ongoing extension of trends in public spending on agriculture in reforms to sharpen the focus on knowledge Africa (Chapter 2), a review of gaps between transfer. Given increasing climate variability policy formulation and implementation, and pest outbreaks in Uganda, it is vital to along with an assessment of the institutional increase the resilience of agricultural systems environment and barriers to improving and rural livelihoods. To this end, farmers public spending in agriculture (Chapter should be equipped with climate-smart land, 4), and an examination of the role of the water and livestock management practices, private sector in providing public goods and irrigation infrastructure, and access to services (Chapter 5). Based on that analysis, climate and disaster-risk information. Chapter 6 provides conclusions and policy Productive Alliances and the integration of recommendations for improving the quality smallholder producers into agri-food value and effectiveness of public spending on chains should be supported to increase agriculture in Uganda. farmers’ access to finance and markets, and the competitiveness of the sector more broadly. 23 02 SYNTHESIS OF PUBLIC SPENDING ON AGRICULTURE IN AFRICA Republic of Uganda: Agriculture Sector Public Expenditure Review generating knowledge (often in the form 2.1 Rationale for Public Spending of technology), disseminating knowledge on Agriculture (technology), reducing transaction costs, and attracting private capital. These types of 01 The rationale for public investments derives from two fundamental sources— economic inefficiencies caused by spending tend to provide goods or services that have public good characteristics and that are crucial for fostering robust growth market failures and inequalities in in agricultural productivity and poverty the distribution of goods and services. reduction in rural contexts. Agricultural production is essentially a private enterprise, but production • Generating knowledge. Technology- requires public goods and services that the advancing effects are associated with private sector cannot provide efficiently. public spending on agricultural research One characteristic of public goods and and development (R&D) to create basic services is that they are non-excludable—if knowledge, which is both non-excludable provided to one consumer, other potential and non-rivalrous. Sometimes the beneficiaries cannot be prevented from knowledge can be embodied in a enjoying them. A second is that they are commercial product (as with hybrid non-rivalrous—meaning that consumption seeds and chemicals), with benefits that by one does not reduce the consumption are excludable and rivalrous, but the of another. Non-excludability implies that basic knowledge itself is not. Therefore, potential beneficiaries cannot be charged investments in R&D are among the for the goods or services, so the producer most important public goods and a cannot capture their full social value. Non- critical component of public agricultural rivalry implies that it is inefficient to charge spending. anything for the goods or services, since the cost of supplying an additional unit (letting • Disseminating knowledge and building another consumer enjoy the benefits) is human capital. Effects that enhance zero. These characteristics cause social and human capital can be associated with private returns to diverge, leading private public spending on extension, training, investments to remain below the social and information services that transfer optimum (Goyal and Nash 2017). That is why knowledge and skills to those engaged the public sector worldwide needs to play a in agricultural production. These pivotal role in the provision of public goods investments create significant positive and services. externalities through demonstration effects and peer-to-peer learning of benefits from adopting new productivity- 2.1.1 Correcting economic inefficiencies enhancing technology. As agricultural caused by market failures production processes become increasingly knowledge intensive, with 02 To guide decisions on areas appropriate higher demand for precise and timely for government spending, it helps information, such investments become to consider what kinds of goods and more important. services are necessary to catalyze • Reducing transaction costs. Similarly, agricultural growth, and to what extent effects that reduce transaction costs can each is a “public good.” Public spending on derive from public spending on soft and agriculture is efficient if it is directed toward 25 Republic of Uganda: Agriculture Sector Public Expenditure Review hard infrastructure that might improve as progressive as those from several kinds access to input and output markets. of social spending (safety net programs), Transaction costs are an important and they are far superior to spending on determinant of market integration, subsidies. and investments that lower the costs of searching for and exchanging information—and of bargaining, decision 2.2 Level and Trends of Public Spending making, and enforcing contracts— on Agriculture in Africa tend to enhance market participation. 04 Investments in rural roads, market This section summarizes the key findings information dissemination, and land of the agriculture public expenditure market development, for example, are reviews done in the last decade in 20 important in reducing transaction costs. African countries.5 By using a common methodology for compiling expenditure • Attracting private capital. The crowding- data, consistent with the CAADP guidance, in effects of public agricultural spending the studies aimed to establish trends on private capital occurs when in spending and in the effectiveness of public and private investments are implementation. Although most of the complements in production. An example studies were basic diagnostic analyses, the is public investment in large irrigation lessons have enriched technical discussions infrastructure, such as dams and canals, among practitioners and are being which then make it profitable for farmers adopted by policy makers in many African to make small on-farm investments in governments. water management and a wider range of production technologies. 2.2.1 The Malabo Declaration 2.1.2 Reducing inequality and poverty 05 The Malabo Declaration (2014) on Accelerated Agricultural Growth and 03 Public spending on agriculture is also justified on equity grounds, especially given the concentration of the poor in Transformation for Shared Prosperity and Improved Livelihoods reaffirms the central commitment of the Maputo Declaration rural areas, most of whom rely primarily (2003) to allocate 10 percent of public on agriculture for their livelihoods. One resources to agriculture. As discussed, argument for fertilizer subsidies is that in 2003 and again in 2014, African heads they could potentially help poor farmers of state and government agreed that break out of a low-productivity poverty trap. spending was far too low in agriculture. But The equity justification for spending on in contrast to the Maputo Declaration, the agriculture is stronger for programs that can Malabo Declaration contains many more be targeted at the poor and for programs commitments in areas like infrastructure, that demonstrate a high income-multiplier natural resources, land tenure, trade, and effect. For instance, impacts of spending nutrition. It also specifies more clearly a on extension and advisory services are just range of commitments in agriculture, such 5 Botswana, Burkina Faso, Cameroon, Chad, Côte d’Ivoire, Democratic Republic of Congo, Ghana, Guinea, Liberia, Madagascar, Malawi, Mozambique, Nigeria, Rwanda, Senegal, Sierra Leone, South Africa, Togo, Uganda, and Zambia. These countries account for about 70 percent of agricultural value added in SSA. 26 Republic of Uganda: Agriculture Sector Public Expenditure Review as (1) doubling productivity by increasing private investment in the sector. It was also irrigation and mechanization or curtailing assumed that the 10 percent allocation post-harvest losses, among others; (2) would take the form of public investment, sustaining at least 6 percent annual growth but in practice most public agriculture in agricultural GDP;6 (3) establishing and/ expenditure has continued to be in the form or strengthening inclusive public-private of recurrent expenditure (on salaries, rent, partnerships for at least five priority fuel, electricity, and telecommunications, agricultural commodity value chains with for instance) and not investments (in post- strong linkage to smallholder agriculture; harvest storage, feeder roads, and market (4) creating job opportunities for at least and irrigation infrastructure, for example). To 30 percent of the youth in agricultural create conditions necessary for the private value chains; (5) tripling intra-Africa trade in sector to invest in agriculture, the quality of agricultural commodities; (6) reducing child public expenditure is of critical importance. stunting to 10 percent; and (7) ensuring One metric that is telling is the large ratio that by 2025, at least 30 percent of farm/ of recurrent to investment expenditure in pastoral households are resilient to shocks. the agriculture budget. Therefore, instead These areas are important to agriculture, of arguing for increased budget allocation but they are not (or not completely) under to agriculture (most of the countries still the mandate of the Ministry of Agriculture. are below 10 percent), countries should first strive to increase the proportion of 06 While the Malabo-CAADP continues to focus on the agriculture sector, it also considers interventions in related sectors investment expenditure in their sector budgets. that are necessary for agricultural growth. More inter-sectoral cooperation and coordination is seen as necessary 08 Given the objective of getting the biggest increase in the national budget, nothing is special about the 10 percent and must be fostered through suitable CAADP target for the agriculture sector. and effective coordination frameworks, in However, the optimal distribution of public particular with the Ministries of Finance spending among sectors largely depends and Economic Planning, National Planning on many country-specific factors, including Commissions, and other agriculture-related the share of the sector in the national GDP ministries (water, natural resources and and its multiplier effects. To the extent that environment, rural development). The ministries of agriculture can demonstrate National Agriculture Investment Plan (NAIP) that their programs are an efficient and remains the key vehicle for achieving the high-impact use of public funds, they can Malabo Declaration targets. The emphasis make a stronger case to ministries of finance on implementation, delivery, results, and and planning for increasing their budgets. In impact is increased. this case, enhancing the quality of spending is the first order of business. Nonetheless, 07 Under the Maputo-CAADP, the 10 percent allocation would be core funds in the NAIP, to be complemented the quantity of spending is a meaningful indicator of government commitment to agriculture. Therefore, it is worth considering by private investment. However, this how Africa compares to other regions, and required the public expenditure to attract to the Maputo and Malabo targets. 6 In Uganda, agricultural output has grown at only 2 percent per annum over the last five years, which is well below the population growth rate and below the 3-5 percent growth rates in other East African countries. 27 Republic of Uganda: Agriculture Sector Public Expenditure Review share of spending is its share of national 2.2.2 Public Spending on Agriculture GDP. This index—the share of spending on agriculture relative to agriculture’s share in 09 The fundamental question is how much of the government budget should be devoted to the agriculture sector. In the economy—is calculated for several Latin American countries over time to analyze whether there has been a systematic under- principle, to maximize welfare on a given allocation or “anti-agricultural bias” in public budget, spending should be distributed spending, with the general conclusion that such that the marginal dollar in each activity no such bias is present in Latin America. yields the same increase in national welfare 11 (however “welfare” is defined). If this were An alternative approach is to examine not true—if, for example, an additional the experiences of countries that have dollar devoted to agriculture increased undergone successful agricultural welfare more than the incremental dollar to transformation. Analysis of 12 East and non-agriculture spending—overall welfare South Asian countries during their periods could be increased by taking a dollar of high agricultural growth—the Green from non-agriculture and spending it on Revolution—shows that, on average, these agriculture. How much welfare is increased countries devoted around 10 percent of by an incremental public dollar spent in total public spending to agriculture. The agriculture depends on how much that dollar Maputo-CAADP target is like what the Asian will increase agricultural production, as well countries were spending on agriculture in as how much the additional production will that period. Likewise, the NEPAD’s target of increase welfare. This optimal allocation spending 1 percent of agricultural GDP on condition can be expressed in a ratio of research is quite like the level that Brazil spending in each sector. The optimal ratio devoted to its successful research agency, of public spending on agriculture versus Embrapa, as well as the level of spending on non-agriculture is equal to the ratio of the research in some high-income countries. welfare elasticity of each sector’s production times the ratio of each sector’s elasticity of production with respect to public spending in the sector. The problem in 12 Countries differ greatly in the contribution of the agriculture sector to national GDP. A 1 percent increase in agricultural operationalizing this allocation condition to production will therefore generally result provide practical guidance to policy makers in a smaller percentage increase in overall is that it would require empirical estimation GDP in a country in which agriculture is 10 of all these elasticities (in every sector) for a percent of the economy than in a country given country. in which it is 30 percent. Thus, the elasticity of agricultural production with respect 10 In the absence of a practical way to rigorously answer the question of how much public spending should be allocated to spending in the sector will be higher in countries with high agricultural potential because of favorable natural endowments to agriculture, there have been some and if the overall policy environment is efforts to provide rules of thumb, which conducive to a positive supply response— may seem intuitive and reasonable. and where the spending is “smarter.” In such For example, De Ferranti et al. (2005) countries, agriculture’s share of spending show that with some special (and quite should be higher. restrictive) simplifying assumptions, the optimal allocation is such that each sector’s 28 Republic of Uganda: Agriculture Sector Public Expenditure Review 13 Overall, Africa’s level of spending on agriculture is lagging other regions based on several metrics. Agricultural spending Botswana, which have relatively small shares of agricultural GDP in the overall economy. An alternative indicator of the public budgetary as a share of overall public spending—the commitment to agriculture—the Agriculture metric used in the Maputo Declaration—is Orientation Index (AOI)—accounts for substantially lower in Africa than in other sector size to determine agriculture’s share regions, particularly East Asia and the Pacific of public spending relative to its share in the and South Asia. In 2014, only Burkina Faso, economy. An AOI value of 1 would indicate Malawi, Mozambique, and Zimbabwe had that the government spends a share of its barely met or surpassed the 10 percent budget on agriculture exactly proportional target (Malawi and Mozambique consistently to agriculture’s contribution to GDP. Rarely surpassed it). Three countries—Niger, would spending be allocated exactly in Rwanda, and Zambia—were close behind at proportion to each sector’s contribution to 9 percent. Overall, the annual average share the economy. At the very least, however, of agriculture in total spending in Africa is large deviations would suggest the need for about 4.0 percent, and its annual growth rate a deeper inquiry by policy makers. is 0.8 percent (Table 2.1). Public spending on agriculture as a share of agricultural GDP in Africa is about 5.18 percent, substantially 15 Analysis indicates that no country in Africa has an AOI of 1, although some come close. There is a strong tendency for lower than in other regions. Spending per capita was on average US$19, almost a third the countries with small agriculture sectors lower than that in the next lowest region, to devote proportionately more of the South Asia. budget to supporting it (higher AOIs). Most African countries, however, spend much Table 2.1. Trends in public spending on smaller proportions of the public budget agriculture in Africa on agriculture than the sector’s share in the economy. Of the 47 countries for which Main trends in spending Estimate the AOI has been computed, it is less than Total agriculture spending in constant 2005 0.3 in 31 countries. While the numerical -- PPP$, 1980 -2012 goal of 10 percent is somewhat arbitrary Annual average growth rate (%) 0.8 and failure to meet this target is arguably Annual average share in total spending (%) 4.0 not so worrisome, the AOI also appears to Annual average share in agriculture value added (%) 4.7 demonstrate underspending in most African Research spending in constant 2011 PPP$, 1981 countries. What is more worrying is that -- - 2011 over the last three decades there has been Annual average growth rate (%) -0.1 a persistent negative trend in spending on Annual average share in agriculture value added 1.1 agriculture in SSA. (%) Source: Benin 2015. Note: PPP = purchasing power parity; -- = not available. 16 Agricultural R&D activities have high returns but are severely underfunded in most African countries. Large countries in 14 While almost all African countries are spending below the 10 percent target, country conditions and spending contexts Africa have earned higher returns to R&D (an internal rate of return of 43 percent) than small countries (an internal rate of return differ widely across SSA. For instance, the of 17 percent), but even in small countries, spending target is arguably less meaningful returns were still high enough (higher than for such countries as South Africa and discount rate of 10 percent) to justify the 29 Republic of Uganda: Agriculture Sector Public Expenditure Review investments (Table 2.2). In 2006, the NEPAD agricultural research, with their collective set an additional target to increase public share in developing country public spending spending on agricultural R&D to at least 1 on agricultural R&D rising from one-third in percent of agricultural GDP, a target that 1981 to almost half in 2000 (Alston et al. 2000; few African countries have met. Most high- Pardey et al. 2007). In SSA as well, investments income countries spend around 1 percent of in national and international agricultural their agricultural GDP on research, as does research have been demonstrated to be Brazil, a country widely regarded to have an among the most important determinants of effective research agency, Embrapa. Over long-term productivity growth. For example, the last decade, spending on agricultural the Consultative Group on International research constituted about 0.4 percent of Agricultural Research (CGIAR) has played agricultural GDP in SSA, compared with 1.3 an important role in raising agricultural percent in Latin America and the Caribbean, productivity growth in SSA. Spending by the 0.6 percent in East Asia and the Pacific, and CGIAR in the region has generated US$6 in 0.9 percent in South Asia. Africa was the only benefits for every dollar spent on research region where agricultural research spending in Africa. Returns to spending by national fell on average over this period. agricultural R&D agencies have been relatively lower but still significant, averaging 17 Spending on R&D has driven agricultural transformation in the rest of the world. For example, during periods of rapid growth, about US$3 in benefits for every US$1 spent. Brazil, China, and India invested heavily in Table 2.2. Returns to agricultural research in sub-Saharan Africa Returns to agricultural research Countries Benefit-cost IRR (%) without IRR (%) ratio CGIAR Large countries 4.4 43 36 Côte d’Ivoire, Ethiopia, Ghana, Kenya, Nigeria, Sudan Midsize countries 2.6 29 23 Madagascar, Mali, Mozambique, Senegal, Uganda Small countries 1.6 17 13 Botswana, Burundi, Gabon, The Gambia, Swaziland Source: Fuglie and Rada 2013. Note: The benefit-cost ratio discounts future benefits at a yearly rate of 10 percent. CGIAR = Consultative Group on International Agricultural Research; IRR = internal rate of return. 18 Following the public expenditure reviews, some countries have increased public expenditures, at least in nominal the investments. All along, the reviews have emphasized the need to improve the quality of spending (allocative efficiency) and impact terms. Where the effort to increase (effectiveness) at any level of resource public investment in agriculture has been allocation to the sector. The next section successful, an emerging concern is whether discusses some of the recommended current expenditure has grown in tandem to measures to improve the quality and impact ensure that the operations and maintenance of public spending in agriculture. of the assets created are adequate to sustain 30 Republic of Uganda: Agriculture Sector Public Expenditure Review 2.3 Improving the Quality of Public 2.3.1 Investing In Land Governance Spending to Maximize Returns 20 One key public good that is greatly 19 Not all public spending on agriculture undersupplied across Africa is the legal is productive—that is, efficient and and institutional framework for land effective. Public spending on agriculture governance. Only about 10 percent of may be unproductive or even reduce rural land in Africa is registered. The rest the productivity of other spending for is undocumented or held under informal two basic reasons. First, governments arrangements that make it vulnerable to sometimes spend on things that are not “land grabbing” or expropriation, a particular public goods, such as subsidies. In such problem for women. It takes twice as long (65 cases, governments tend to be inefficient days) and costs twice as much (9.4 percent suppliers of private goods, and when they of the property value) to transfer land in enter these markets, there is a serious risk SSA than in Organization for Economic of displacing the private sector. Second, Co-operation and Development (OECD) even when there are clear market failures, countries (31 days; 4.4 percent). Ghana, government spending will not necessarily Kenya, and Uganda, for example, all have improve the situation. Empirically, public fewer than 10 land surveyors per million spending on public goods has typically been people, compared with 197 in Malaysia much more productive than public spending and 150 in Sri Lanka (Byamugisha 2013). on private goods (López and Galinato These conditions undermine land market 2007). To maximize returns on agricultural development and secure tenure, weakening investments, Africa should spend its incentives to make on-farm investments and relatively meager resources efficiently and impeding rural credit market development. effectively. Essentially, this means investing Because significant investments in land in areas that generate higher impacts, such quality are needed to reverse soil degradation as R&D, irrigation, and extension services and depletion, improving land security is (Table 2.3). hugely important to create conditions for sustainably boosting productivity. Many SSA Table 2.3. Impacts of different types of public countries either have legislation in place or spending on agriculture in Africa initiatives underway to address communal land rights and gender equality, the basis for Estimated sound land administration. Estimated impacts of spending impact Total agriculture elasticity 0.1–0.3 National and CGIAR research, ROR (%) 22–55 2.3.2 Strengthening Extension Services Irrigation, ROR (%) 11–22 21 Extension, ROR (%) 8–49 Another crucial element in making Extension, benefit-cost ratio 6.8–14.2 spending decisions to encourage greater Rural roads, benefit-cost ratio 7.2 adoption of modern technologies is to Source: Benin 2015. improve the effectiveness of extension Note: CGIAR = Consultative Group on International Agricultural services. Particularly where information Research; ROR = rate of return. constraints are a major bottleneck in the uptake of modern inputs and production techniques, public funding (although not necessarily provision) of extension can be a 31 Republic of Uganda: Agriculture Sector Public Expenditure Review cost-effective use of public funds. Moreover, estimated at 6 percent for Africa, compared higher returns to investments in agricultural with 37 percent for Asia and 14 percent for extension are expected if the rate of Latin America. Food production in Africa developing new technologies for SSA is remains almost entirely rainfed, despite increasing, enabling farmers to adjust more highly variable and in many cases insufficient quickly to changing circumstances. rainfall, together with an increasingly high incidence of severe drought. The potential 22 Extension services are coming back onto the development agenda, and in a few countries, they now receive for profitable irrigation development for SSA remains large, given the existing water resources, the high value of irrigated substantial shares of the budget. The agriculture on the continent, and the large rapid adoption of digital technologies in number of rural-poor, who could benefit rural areas promises to revive some aspects from the productivity improvements that of extension services and consequently to result from irrigation. improve productivity. Innovative models are being implemented in SSA, led by Kenya and Nigeria. New tools and approaches have helped overcome information problems 24 The returns to many irrigation projects in the past were relatively low in Africa, and the negative externalities were that hinder market access for many small- high. But recent advances in planning scale farmers, promote knowledge and skill and design techniques have provided the development, and stimulate opportunities ability to minimize adverse environmental for agricultural supply chain management and social consequences of large irrigation (Deichmann, Goyal, and Mishra 2016). In infrastructure. Recent studies show that funding the new generation of extension irrigated land can be expanded from 13 programs, lessons from the past need to million hectares to 24 million hectares be considered to achieve a better balance in economically viable ways, with returns in spending across subcategories (wages ranging from 17 percent for large-scale and non-wage recurrent expenditure) and irrigation to 43 percent for small-scale make extension more effective, particularly irrigation (You et al. 2011). Africa has in reaping the benefits from irrigation and significant unexploited potential to develop water harvesting technologies. both large- and small-scale irrigation, but economic viability depends on keeping costs down. Although there is significant potential 2.3.3 Increasing Infrastructure for rehabilitating existing irrigated areas in For Irrigation, Post-Harvest SSA, the expertise, knowledge, and capacity Management, And Marketing to manage irrigation investments are low (Rosegrant, Ringler, and Zhu 2009). 23 To transform African agriculture, it is critical to invest in irrigation, post- harvest management, processing, rural 25 Spending on rural roads has significant effects on poverty and agricultural productivity overall. Reduction in roads, and market infrastructure. A large transport costs reduces both trade costs literature on the impacts of investments and interregional price gaps (Casaburi, to improve market access for farmers has Glennerster, and Suri 2013). The spillover found that benefits are significant, come in effects are that farmers pay less for their different forms, and can be realized. Irrigated inputs and get more for their outputs, area as a share of total cultivated area is increasing incomes (Chamberlin et al. 32 Republic of Uganda: Agriculture Sector Public Expenditure Review 2007; Stifel and Minten 2008). This type of 2.3.5 Implementing Policy Reforms infrastructure investment is particularly critical in Africa, where less than half of the Necessary For Agricultural rural population lives close to an all-season Transformation road. Trader surveys in Benin, Madagascar, and Malawi find that transport costs account for 50–60 percent of total marketing costs (Dercon et al. 2008; World Bank 2008). 27 Agricultural transformation and poverty reduction in Africa will also require policy reforms. Many parts of Asia have achieved Higher profitability from road access also impressive gains in agricultural productivity increases the value of farmers’ land. Not and poverty reduction over the past half- surprisingly, access to markets facilitates century due to policy reforms. By contrast, economic diversification in rural areas and sustained productivity growth remains creates incentives for smallholder farmers elusive in most African countries. Spending to adopt modern production technologies. on productive investments related to the development and diffusion of technological improvements, greater connectivity in rural 2.3.4 Shifting Government Spending areas, and irrigation development has done From Private To Public Goods the most to reduce poverty. In India, the relative performance of subsidies evolved 26 Research from Latin America and the over time—returns were higher in the early Caribbean finds that it is crucial to shift years of the Green Revolution and declined public spending away from providing rapidly thereafter. Fertilizer, power, and goods and services (to specific groups irrigation subsidies were among the least of producers) and toward the increased significant contributors of poverty reduction provision of public goods. A reallocation of over the four decades. These findings 10 percentage points of public expenditures provide potentially important implications from subsidies to public goods would for enhancing agricultural growth and increase per capita agricultural income by poverty reduction in Africa. There are strong about 2.3 percent without increasing total reasons to believe that the policy reforms spending (López and Galinato 2007; Valdes and investments that generated high payoffs 2008). These findings from cross-country in Asia can drive growth and reduce poverty analysis for Latin America are consistent in Africa as well. with the analysis for Asia, where spending on rural infrastructure, agricultural research, and dissemination had large poverty 28 Recent research has quantified the potential improvement in productivity from policy reforms and several kinds alleviation effects. Governments in Africa and other developing regions have invested of spending on agriculture. While heavily in state-owned enterprises (SOEs), comprehensive development of Africa’s or parastatals, to perform commercial agriculture sector requires investments functions that the private sector generally across multiple areas, a TFP decomposition performs more efficiently, which has (Table 2.4) shows that productivity crowded out private investment and dragged improvements in Africa have been led down overall sector performance. While this by investments in development of new situation has improved over time, SOEs are technologies (contributing 51 percent of still more involved than they should be in the TFP), policy reforms that improve terms agriculture sector, particularly in marketing of trade and provide economic incentives inputs and outputs. to farmers (20 percent of TFP), and wider 33 Republic of Uganda: Agriculture Sector Public Expenditure Review adoption of new technologies (proxied by poor farmers makes it particularly serious in farmer education—8 percent of TFP). SSA. Projections show yield decreases in the near term of 5 percent, potentially growing Table 2.4. Drivers of agricultural productivity in to 15–20 percent across all crops in SSA by sub-Saharan Africa the end of the century (World Bank 2014). Agriculture is also an important contributor Contribution to Type of investment cumulative TFP to greenhouse gas emissions, particularly growth (%) from deforestation, and Africa is the only Agricultural research and development 51 region where the majority of production Improvement in agriculture’s terms increases have come from expanding of trade with market and trade policy 20 cultivated area, generally at the expense of reform forests. Reduction in conflict 18 31 Increase in farmer education 8 In Africa, as around the world, a more HIV/AIDS therapy to adult population infected 2 climate-resilient agriculture is needed to achieve the triple win of enhancing Source: Fuglie and Rada 2013. agricultural productivity, mitigating Note: HIV/AIDS = human immunodeficiency virus/acquired immune deficiency syndrome; TFP = total factor productivity emissions of greenhouse gases, and helping farmers adapt to climate change. Most investments to mitigate climate change 2.3.6 Targeting Spending To Reduce Poverty (promoting low-carbon growth) and adapt to it (building resilience) will need to be made 29 There is considerable scope for financing by farmers and other private agents. Even investments that have higher impact on so, proactive government policies, planning, reducing poverty. Rural roads and irrigation and investments are required to provide infrastructure can be geographically targeted information, incentives, and an enabling at areas where there are concentrations of environment to encourage communities, poverty. Research can be aimed at crops, households, and the private sector to livestock, and technologies that are likely to change their behaviors and investment be most useful to the poor rather than to choices. Many climate-resilient investments plantation export crops. Efforts to connect will not be very different from productive farmers to markets can be focused on investment choices. smallholders. Analysis shows that such investments have a large payoff in both economic growth and poverty reduction. 32 For public spending priorities, climate- smart agriculture entails landscape-scale approaches to invest in using managing climate risks. Such approaches 2.3.7 Addressing Emerging Priorities could include developing drought or flood- Arising From Climate Change resistant technologies, understanding and planning for transitions to new adapted cropping and livestock systems and livelihood 30 Public spending will need to remain flexible to cope with future challenges, and for agriculture, probably no options, and reducing greenhouse gas emissions from livestock practices and land use changes that cause deforestation and emerging challenge is more urgent than losses of biomass and soil carbon. Increasing climate change. It is a threat for agriculture resilience, restoring degraded lands, and across the world, but the lack of resilience of managing ecosystem services better will play 34 Republic of Uganda: Agriculture Sector Public Expenditure Review key roles in all of these options. Efforts to conditions much closer to optimal than in craft budgetary and policy choices to create most farmers’ fields, with better soil and a more climate-smart agriculture will have to more plentiful water. In much of Africa, cope with special challenges rooted in many however, water management is scarce, and uncertainties, distributional issues, and the soil has been degraded, greatly reducing the long-term nature of the problem. responsiveness of crops to higher chemical fertilizer use (Christiaensen and Kaminski 2015). The policy discussions of low 2.3.8 Reducing The Current Excessive Focus productivity in Africa tend to overemphasize On Unproductive Fertilizer Subsidies fertilizer use and underemphasize the poor farming practices (agronomic) and rainfed 33 The resurgence of input subsidy conditions that limit African farmers’ ability programs in Africa has arguably been to use fertilizer as profitably as in other the region’s most important policy regions (Jayne et al. 2016). But analysis development for public agricultural indicates that economic policy reforms spending in recent years. For example, 10 (which can increase TFP by 4.7 percent) and African governments7 spend roughly a total investments in R&D (which can increase TFP of US$1.2 billion annually on input subsidies, by 3.4–4.1 percent) have the greatest impact primarily on fertilizers. These programs were in raising agricultural TFP in SSA (Table 2.5). almost phased out in the 1990s, during a period of structural adjustment in Africa, but they have made a strong comeback. Their 35 The evidence from the high agricultural growth periods in South Asia shows that fertilizer subsidies played little or no role in return is partly due to residual support for subsidies among African leaders, even while substantially boosting productivity (Fan, pressured to phase them out, and partly to Gulati, and Thorat 2008; Gautam 2015). the uncertainties about food supply during Studies in four Asian countries—Bangladesh, the 2007–08 global food and fertilizer price India, Indonesia, and Pakistan—conclude instability. Input subsidies continue to be that fertilizer subsidies were not significant vastly popular among African politicians as a in farmers’ adoption of technology. They way to support their constituents. instead identify R&D of new technologies, irrigation expansion, and other investments, 34 The economic rationale for fertilizer such as roads, as the main drivers (Rashid et subsidies comes mainly from the al. 2013; Smith and Urey 2002). At the height motivation that, because of credit and of the Green Revolution, farmers in three of information constraints, fertilizer use is the four countries (not in Bangladesh) were suboptimal in most of Africa. The subsidies net-taxed for fertilizer (that is, domestic could overcome these problems by reducing prices for fertilizers were higher than the the costs that farmers incur and the barriers world market price), indicating that it was of affordability, access, and learning. This profitability and not subsidies that drove justification is often based on the fact that technology adoption during this era (Rashid fertilizer is used much less intensively in et al. 2013). Africa than in other regions, particularly Asia, and that fertilizer use in demonstration plots provides high returns. But on the demonstration plots, crops are grown under 7 Burkina Faso, Ethiopia, Ghana, Kenya, Malawi, Mali, Nigeria, Senegal, Tanzania, and Zambia. 35 Republic of Uganda: Agriculture Sector Public Expenditure Review Table 2.5. Factors affecting agricultural 2.3.9 Deploying Alternative And productivity Complementary Investments To Simulated Complement Policy Reforms Type of investment increase in TFP (%) Doubling spending on international research Doubling spending on national research 4.1 3.4 37 In areas where fertilizer or other modern production technologies are actually underused, many alternative investments Economic policy reforms 4.7 can be used to encourage greater uptake. Doubling irrigation investments 2.9 Alternative policy options can be deployed Improving labor force schooling 1.3 depending on the prevailing constraint. If Stopping the spread of HIV/AIDS 2.1 the main bottleneck is that farmers have few Stopping armed conflicts 0.5 choices of appropriate input technologies for the main agroecological systems in Source: Fuglie and Rada 2013. a country, the best solution may be to 36 Several SSA countries have recently focus on regulatory reform to encourage implemented changes (or input subsidy spillovers from abroad and investment policy reforms) to improve the efficiency in domestic research. If the problem is a and effectiveness of their input subsidy lack of information on the part of farmers, programs. Countries have replaced public extension services may be the best policy with private procurement and delivery lever. If one of the underlying causes for mechanisms, and even put in place low fertilizer use is insufficient cash flow electronic delivery systems for subsidies for farmers to buy inputs, then efficiently (as in Nigeria). These appear to be steps in promoting the emergence and growth of the right direction. But there is no rigorous rural credit markets would address this empirical evidence to assess whether these constraint. Much can be done by using changes have significantly improved the innovative ways of providing credit that take performance of the programs. Even “smart” advantage of new applications of digital input subsidies have seldom produced information technologies. benefits commensurate with their fiscal costs, but they remain politically attractive. Where subsidies continue to be used, they 38 In terms of complementary investments, creating demand for fertilizers in Africa will require lowering the farm gate prices, should at least be reduced to a modest where they are higher relative to other amount in national agriculture budgets, with regions. This has clear implications for a clear exit strategy. In the longer term, no government spending priorities: spending program will sustainably raise fertilizer use needs to be aimed at streamlining logistics until it becomes profitable for farmers to and reducing costs and risks in fertilizer buy fertilizer on commercial markets after supply chains (Jayne et al. 2013). Much of they graduate from the subsidy program. this investment is most appropriate for the private sector, but governments can support the effort by improving the infrastructure for fertilizer distribution, reducing regulatory barriers, and improving profitability through reduced transport costs. 36 Republic of Uganda: Agriculture Sector Public Expenditure Review 39 Other steps required to stimulate demand for fertilizer are to enhance research and extension, and to invest in soil analysis 2.4.1 Improving Budget Planning And Management and mapping (to improve soil fertility management to raise fertilizer response rates). Input promotion during the high 42 Budgeting needs to start from a stronger foundation of sector strategies and national agricultural investment plans, agricultural productivity periods in Asia and South America, for example, addressed few of which currently provide much systemic constraints to productivity through guidance on budget preparation. The integrated investments in new technologies, investment plans need to give more extension support, irrigation, and market detailed and quantitative guidance on linkages. Countries in SSA could get a bigger translating recommendations into spending impact within the existing expenditure priorities, and adjustments from the most envelope by moving away from a heavy focus recent implementation period need to on fertilizer subsidies toward a package of be accompanied by a monitorable results complementary investments. Reforming the framework. In many countries, the rate design and implementation of these subsidy of budget execution is dismal. Improving programs while rebalancing government budget execution rates is essential for spending in favor of high-return core public demonstrating that the sector can make goods (Table 2.3) and policies (Table 2.4) good use of additional public resources, could produce massive dividends. and for persuading ministries of finance that their budgets must be increased. For 40 Efficient allocation of for greater impact begins with the improvement of budget management resources resources to be used effectively, the focus must to be on improving the implementation of development expenditures, the processes. The reviews of public expenditure predictability of releases from ministries in the 20 African countries highlighted the of finance, the procurement planning and importance of aligning agriculture sector implementation system, and the budget policies and strategies with the investment information management systems to inform plans, MTEFs and annual budgets as the within-year budget implementation. first step to technical efficiency in spending. The next section summarizes the key recommendations on improving budget 2.4.2 Strengthening Budget management processes in African countries. Monitoring And Evaluation 2.4 Improving Budget Management Processes 43 Countries need to strengthen monitoring and evaluation (M&E) capacity as part of accountability systems that shift resources toward effective spending. 41 Another dimension of a strategy to maximize impacts of public spending in agriculture is ensuring that the Ministries of agriculture need more resources and staff doing M&E, and in exchange they need to be held accountable budgetary process supports efficient for demonstrating that budgets are implementation. There is considerable efficiently and effectively spent. Ministries variance in budget preparation and of agriculture need to increase recurrent execution capacity among countries, but spending for this purpose. Budget analysis there is undoubtedly scope for improvement. capacity has to be established in the sector 37 Republic of Uganda: Agriculture Sector Public Expenditure Review ministries for expenditure monitoring and of decentralization, of expenditure planning adjustment within the budget year. Budget capacity as well. Where the momentum of information systems appear to be improving decentralization and deconcentration is with the expanded rollout of computerized accelerating, budget information systems systems by ministries of finance and and information sharing need to be accountant general offices. developed across all levels of government, to enable budget planning that leverages potential synergies and avoids duplication in 2.4.3 Capturing Off-Budget Financing sector spending. 44 Ministries of finance need to put in place budget information systems that, in some form, capture off-budget external 2.4.5 Rationalizing Recurrent Spending partner financing of projects that deliver public goods and services, which in some countries is a significant share of the 46 Some countries seem to be underfunding certain categories of recurrent expenditures. In some countries, despite budget. Two fiscal management reforms a significant scaling-up of public spending that can significantly improve the technical on the sector, there has been no or little efficiency of expenditure management are increase in some core administrative implementing a treasury single account functions. Examples of public functions that system and a centralized civil service involve mainly recurrent expenditures and information system. appear to be underfunded are maintenance, core budget planning and implementation, M&E, and sector regulatory functions. 2.4.4 Shifting To Program Budgeting Underfunding budget planning and M&E And Building Local Capacity capacity in ministries reduces the quality and impact of public spending on agriculture. 45 Two other aspects of budget processes Inadequate support to undertake project are likely to grow in priority but require M&E reduces the ability to track results attention over several years to build and adjust to improve impacts or reorient the capacity for improving the quality approaches. Similarly, underfunding of budget outcomes. The first is a shift recurrent goods and services that are to program budgeting, as some countries necessary to maintain capital investments have committed to do. Backward-looking can adversely impact sector performance. reconfiguration of sector public spending Recurrent budget planning is typically by program categories to provide the recent conducted as an incremental adjustment history of composition and trends helps to prior year levels. Yet significant policy benchmark the programs and the specifics shifts, such as expanding reliance on private of their expenditure foundation. The second markets for input provision, do not appear aspect of budget processes that is likely to to be accompanied by funding regulatory grow in priority is the decentralization and capacity for input quality in markets, a deconcentration of government functions recurrent function. in terms of the administration and fiscal management. This trend flags the importance of building expenditure implementation capacity at the local level, and in the case 38 Republic of Uganda: Agriculture Sector Public Expenditure Review 2.5 Conclusions 47 Irrespective of spending targets, the evidence shows that countries in SSA have consistently lagged countries in other developing regions in the quantity and quality of public agricultural spending. Nevertheless, raising the volume of spending requires political consensus— among development partners, government decision makers (particularly ministries of finance), and above all electorates—that money invested in agriculture will be well spent. Measures to raise the efficiency of existing spending in agriculture—and demonstrating that it has a high impact on growth and poverty reduction—will make the case for higher levels of spending much more persuasive. 48 The key recommendations to (1) improve the quality of spending, and (2) strengthen the institutional capacity for better management of budget processes, together with the foregoing conclusions, are relevant for Uganda. The analysis in the next chapter focuses directly on Uganda, highlighting the trends in levels, composition, and efficiency of spending in the agriculture sector. The analysis attempts as far as possible to benchmark the Uganda’s performance with the NEPAD/CAADP targets and in relation to selected African countries. Additionally, where possible, Uganda’s performance will be compared with the performance of other developing countries in Latin America, East Asia, and the Pacific. 39 03 UGANDAN AGRICULTURAL PUBLIC EXPENDITURES: LEVEL, COMPOSITION AND EFFICIENCY Republic of Uganda: Agriculture Sector Public Expenditure Review 01 This chapter examines public expenditure in the agriculture sector (PEAS) in Uganda between 2013/14 and 2017/18. The analysis Development; the Ministry of Trade, Industry and Cooperatives; the National Forestry Authority (NFA); and the Uganda Exports delves into the level and composition of Promotion Board (UEPB). At the local level, strictly on-budget (domestic and donor or the District Production Offices spend on external sources of funds) expenditures agriculture activities as well. using the World Bank Agriculture Sector Expenditure Public Expenditure Review Methodological Note (World Bank 2018a). 03 A crucial element in enhancing agricultural productivity growth is improving the provision of productive investments Section 3.1 summarizes the data sources and methodology. Note that donors through more and better public spending account for substantial off-budget spending in the sector. The expectations that high- in the agriculture sector in Uganda, which quality public spending can bolster growth is not captured in this analysis, because have been recognized by MAAIF and information on off-budget expenditures MoFPED, and over the years they have (estimated to be 10–20 percent of the total intensified efforts to improve both the sector budget) is fragmented, difficult to level (quantity) and quality (effectiveness) obtain, and largely ignored by planners and of public spending. There are significant policy makers. Another type of spending differences in the rates of return to different that is not captured in the analysis is the categories of agricultural spending. Many significant spending by non-governmental studies find quite low returns to aggregate organizations and the private sector spending in agriculture. But almost all find (agribusinesses), conservatively estimated at high returns to specific types of spending, about 10 percent of the total sector budget. such as investments in core public goods That spending poses additional problems related to technology generation, diffusion, for coordinating and harmonizing the market links and infrastructure (Goyal and agriculture sector budget. Nash 2017). In some countries, a large part of the public spending in agriculture goes to 02 The analysis focuses on public resources expended on the agriculture sector by a number of agencies at the central and low-return activities, dragging down overall returns relative to what they could have been if resources were allocated to the local government levels. At the national higher-return activities. level, MAAIF is the lead ministry responsible for the agricultural expenditures, along with six semi-autonomous government agencies 04 Although additional public spending is required for agriculture in Uganda, two important points must be borne in (SAGAs): (1) NARO, (2) the NAADS Secretariat, (3) the Uganda Cotton Development mind. First, the current level of spending Organization (UCDO), (4) the Uganda Coffee is consistent with Uganda’s narrower fiscal Development Agency (UCDA), (5) the Dairy space (as discussed in Section 3.1) and its Development Authority (DDA), and (6) the greater need to invest in infrastructure and National Animal Genetic Resource Centre human development. Second, international and Data Bank (NAGRC&DB). But there are experience shows that lower public also agriculture-related expenditures under spending does not necessarily amount to the Office of the Prime Minister (OPM); the lower agricultural competitiveness, but Ministry of Local Government (MoLG); the inefficient spending does. For example, Ministry of Water and Environment (MWE); the large farm subsidies (spending on the Ministry of Lands, Housing and Urban private goods) in the United States and 41 Republic of Uganda: Agriculture Sector Public Expenditure Review European Union have failed to keep farmers discussed in Chapter 2, public spending on competitive internationally, while the modest agriculture is efficient if it is directed toward public expenditures (spending on public generating knowledge (often in the form goods such as research and development, of technology), disseminating knowledge extension and advisory services, as well (technology), reducing transaction costs, as regulatory aspects) on agriculture in and attracting private capital. Deliberate Brazil, Australia, and New Zealand have not actions are therefore needed to improve prevented farmers in those countries from the efficiency and effectiveness (quality or being highly competitive on world markets. impact) of public spending. 05 The importance of getting the greatest impact from public spending in agriculture is further amplified by 07 This analysis examines the efficiency (making the best use of inputs to provide outputs in the form of public services) competing national priorities. Increasingly of public spending in agriculture from there is competition for budgetary allocation several angles. It investigates administrative between agriculture and other key sectors efficiency by looking at the distribution of of the economy, including education, health, sector spending across administrative units and infrastructure (energy, transport, (central and local governments) at different water), which are also critical for the overall geographic (regional) levels; it looks at growth, national development, and poverty technical efficiency (doing things well) by reduction. Even though budget will shift considering institutional aspects (capacity to other areas, notably infrastructure and to better plan, manage and execute the human development, these shifts will budget); it explores economic efficiency indirectly benefit the agriculture sector (by by analyzing trends in recurrent (wage helping to reduce transportation costs, bill and non-wage bill) and development increase access to markets, reduce post- (current and capital outlays) spending; and it harvest losses, and increase value addition examines functional efficiency by looking at through agro-processing). Under the the composition of spending across various decentralization policy, within the agriculture functions (infrastructure, R&D, extension sector budget itself, resources are expected and advisory services, regulatory services). to continue to shift from the central (MAAIF and its agencies) to the local government level. "Given this outlook, it is more critical 3.1 Data Sources and Methodology than ever to ensure that scarce budgetary resources are used in a highly efficient and effective way at all levels in the sector". 08 The analysis for this Uganda AgPER relied on data provided by MoFPED and drew on two sources: 06 MAAIF and MoFPED recognize that increasing the volume of public spending in agriculture will be necessary but not i. The MoFPED/World Bank BOOST public expenditure database, April 2018 sufficient to spur sector transformation version, which covers 2003/04–2016/17. and poverty reduction. Spending is For 2016/17, only budgeted amounts are allocated efficiently when it is used to available in the database. support the delivery of public goods (instead of private goods, such as subsidies) that are ii. IFMS budget data from MoFPED for most capable of spurring inclusive agriculture 2016/17 (includes both budgeted sector growth (doing the right things). As amounts and expenditures) and 2017/18 (includes budgeted amounts only). 42 Republic of Uganda: Agriculture Sector Public Expenditure Review 09 These two data sources were combined to compute the PEAS indicators for 2013/14–2017/18. The combination of the 12 The analysis draws on an approach to reviewing PEAS that builds on previous work done by African governments BOOST and MoFPED datasets resulted in a in collaboration with the World Bank, single Excel raw data file containing about the Food and Agriculture Organization 127,000 lines of budget data. The analysis (FAO), and the African Union (AU) (World used 20 core variables extracted directly Bank 2011; MAFAP 2015; AU 2015). In this from the BOOST and MoFPED database.8 analysis, the perimeters of expenditure considered as PEAS are delineated 10 Four more variables were constructed, as follows: and defined by four characteristics: time, functions, administrative units, and economic categories. According to i. Scope: a variable that specifies whether the International Monetary Fund (IMF) the expenditure line is considered as Government Finance Statistics (GFS) manual, PEAS or not (included/excluded). a functional classification of expense “provides information on the purpose ii. Subfunction: all expenditure lines that for which an expense was incurred” (IMF qualify as PEAS are mapped to a set of 2014). The functional core perimeter of categories describing subfunctions, agriculture thus defines what is considered such as subsidies, research, extension, as an expenditure whose function is to infrastructure, and so on. support agriculture directly. Expenditures iii. Subsector: all expenditure lines that that support agriculture indirectly (through qualify as PEAS are mapped to a set of positive externalities or long-term impact) subsector categories, namely livestock, are not included in the functional perimeter. cash crops, crops (general), forestry, and fisheries. 13 The functional perimeter is based on the Classification of the Functions of Government (COFOG). The COFOG is a iv. Commodity: all expenditure lines that qualify as PEAS are mapped either to functional accounting system developed by single commodities, commodity groups, the Organization of Economic Co-operation or “all commodities.” and Development (OECD) and the United Nations Statistics Division. It classifies public 11 Data gaps and implications summarized in Table A2.1 in Annex 2. The most critical data gaps are: (1) the are expenditure by “functions or socioeconomic objectives that general government units aim to achieve” (IMF 2014). This perimeter is geographical mapping of expenditures in further disaggregated into a sub-functional the data sources was not fit for the purposes perimeter, using the methodology for of the analysis; and (2) no disaggregated analysis of public expenditure on food and expenditure data were available for agriculture of the Food and Agriculture Operation Wealth Creation (OWC). Organization (FAO). The methodology developed by FAO’s Monitoring and Analyzing Food and Agricultural Policies (MAFAP) program offers sub-functional categories which are labelled “COFOG- compatible”; that is, they can fall within 8 The whole set of variables can be found in Uganda’s BOOST database at boost.worldbank.org/country/Uganda. 43 Republic of Uganda: Agriculture Sector Public Expenditure Review the COFOG perimeter (MAFAP 2015). The (growing at an average of 20 percent per detailed description of the data sources and annum), both in absolute values and in methodology for analyzing the levels and per capita terms. The spike observed in composition of public expenditures in the 2016/17, an electoral year, also coincides agriculture sector in Uganda are provided in with the end of the Agriculture Sector Annex 2. Development Strategy and Investment Plan (DSIP) 2010/11–2014/16 and the introduction of the new ASSP 2015/16– 3.2 Level of Public Expenditure 2019/20. Nonetheless, PEAS remained, on in Agriculture average, at about 3.6 percent of total public spending, much below the target. Uganda is 14 Recognizing the sector’s importance for not unique, however; in 2014, only Burkina the national economy, the Government Faso, Malawi, Mozambique, and Zimbabwe of Uganda (GoU) remains committed had barely met or surpassed the 10 percent to funding agriculture. The GoU signed target (Malawi and Mozambique consistently the African Union’s Maputo Declaration surpassed it). Three other countries—Niger, in 2003, thereby committing to allocate Rwanda, and Zambia—were close behind at at least 10 percent of its public budget to 9 percent. Overall, the annual average share agriculture. It renewed this commitment of agriculture in total spending in Africa is in the 2014 Malabo Declaration. The 2010 about 4.0 percent, and its annual growth Uganda CAADP Compact9 underlines the rate is 0.8 percent. necessity of meeting the 10 percent target to achieve a 6 percent growth rate in annual agricultural GDP, which is also an objective 16 "The low prioritization of the sector in public spending contrasts sharply with the weight of agriculture in the Ugandan of the Malabo Declaration. The ASSP 2015/16–2019/20 indicates that Members economy", given that agriculture accounts of Parliament adopted a resolution in 2011 for around one-quarter of national GDP and that would increase the share of agriculture about 70 percent of employment. Again, in the public budget to 7 percent in 2012/13, this fact is not surprising, as most African and up to 10 percent thereafter. The ASSP countries spend much smaller proportions notes that significant scope exists to scale of the public budget on agriculture than up public expenditures on agriculture to the sector’s share in the economy. Public meet the set 10 percent target. spending on agriculture as a share of agricultural GDP in Africa is about 5.18 15 Despite this commitment and vigorous percent, substantially lower than in other increase in recent years, PEAS in Uganda regions of the world. has fallen short of the 10 percent target of total public spending. Table 3.1 outlines the main economic and spending indicators 17 General and annual trends also hold true in constant terms. Table 3.2 replicates some key PEAS indicators in constant for the agriculture sector in relation to the national economy. The PEAS, measured both terms. As previously shown, PEAS spiked in nominal and relative terms, increased in Uganda in 2016/17, after stagnating in markedly between 2013/14 and 2017/18 2013/14–2015/16. Expressed as spending per rural inhabitant, the level of spending on 9 CAADP is the Comprehensive Africa Agriculture Development Programme, a pan-African policy framework to promote agriculture sector growth and economic development. More than 40 African Union Member States have signed CAADP compacts, and more than 30 have developed national agriculture and food security investment plans. See (https://www.nepad.org/caadp). 44 Republic of Uganda: Agriculture Sector Public Expenditure Review agriculture increased considerably in 2016/17 but did not extend into 2017/18. The increase of PEAS in 2017/18 was lower than the increase in total PE, pushing shares of PEAS in the total budget down again. Table 3.1. Main PEAS indicators (nominal USh billions) Average 2013/14 2014/15 2015/16 2016/17 2017/18 Average growth rate Budgeted PEAS 716 776 711 1,228 1,337 954 20% Final PEAS 408 417 467 971 . 565 41% Final PEAS per capita (USh) 16,957 16,774 18,146 36,460 . . 36% Final PEAS per rural capita (USh) 13,733 13,678 14,915 30,240 . . 37% Budgeted PE 14,033 15,767 23,977 26,251 29,009 21,807 21% Final PE 9,701 12,114 16,643 24,098 . 15,639 36% Agricultural GDP 17,371 18,350 19,655 22,744 25,343 20,693 10% GDP 69,276 76,517 82,903 91,351 97,666 83,543 9% Share AgGDP/GDP 25.0% 24.0% 24.0% 25.0% 26.0% 25.0% 1% Share budgeted PEAS/PE 5.1% 4.9% 3.0% 4.7% 4.6% 4.5% 3% Share final PEAS/PE 4.2% 3.4% 2.8% 4.0% . 3.6% 2% Share final PEAS/AgGDP 2.3% 2.3% 2.4% 4.3% . 2.8% 27% Share final PEAS/GDP 0.6% 0.5% 0.6% 1.1% . 0.7% 28% Source: GDP figures from UBOS (2017). Note: Budgeted amounts were assumed to be equal to actual (final) amounts for external financing over 2013/14–2015/16, as donor actuals were not available in the data for those years. As a result, the share of final PEAS within total PE might be overestimated. Blank cells with dots mean that data were not available. Averages excluded 2017/18 whenever data were missing for that year. Table 3.2. Main PEAS indicators (constant 2013 USh) Average growth 2013/14 2014/15 2015/16 2016/17 2017/18 Average rate (%) Budgeted PEAS 716 753 654 1,067 1105 859 15% Final PEAS 408 404 429 844 . 521 34% PEAS per capita 16,957 16,274 16,672 31,692 . 20,399 30% PEAS per rural capita 13,733 13,269 13,703 26,285 . 16,748 31% Budgeted PE 14,033 15,297 22,029 22,818 23,966 19,628 15% Final PE 9,701 11,753 15,291 20,946 . 14,423 29% Agricultural GDP 17,371 17,802 18,058 19,769 20,938 18,788 5% GDP 69,276 74,233 76,168 79,403 80,688 75,954 4% Source: Amounts in constant terms computed from Table 3.1 using the Consumer Price Index obtained from UBOS (2018). 18 The low prioritization of agriculture in public budgets is not uncommon across the developing world. Between 2013/14 and 2015/16, the average share of agricultural public expenditures in central government budgets stood at 2 percent for SSA (Table 3.3). Average shares were even lower in Northern Africa (1.7 percent), as well as in Latin America and the Caribbean (0.7 percent). In South East Asia, however, shares were slightly higher, averaging 3.7 percent. At 3.6 percent, the average share of PEAS in Uganda over 2013/14–2015/16 is low in comparison with other countries in the EAC. It is almost one-third of that of Burundi (9.7 percent) and about two-thirds of that of Rwanda (5.3 percent) and Kenya (5.7 percent). Hence, while few African countries meet the ambitious 10 45 Republic of Uganda: Agriculture Sector Public Expenditure Review percent target, by increasing the share of administrative units, the analysis attempts PEAS, for Uganda it is the quality of spending to determine the most efficient and effective that matters the most. Thus, for MAAIF, the ways of allocating PEAS. first step should be to improve the efficiency and effectiveness of spending of the current share of PEAS to strengthen the case for 3.3.1 Administrative Efficiency increased allocation. Table 3.3. Percentage share of final PEAS in Global and Regional Context national budgets across countries of the East 20 African Community and developing regions Planned budget allocations favor a shift from advisory services to MAAIF and 2013/ 2014/ 2015/ its SAGAs. The ASSP 2015/16–2017/18 14 15 16 Average budget provides indicative cost estimates Uganda 4.2 3.4 2.8 3.5 for the strategies that contribute to the Other EAC countries outcomes of the plan. These estimates Kenya 5.2 6.5 5.5 5.7 serve as a basis for deriving reference Tanzania 3.6 4.1 4.0 3.9 budgetary allocations for the agriculture Rwanda 3.7 5.5 6.7 5.3 sector agencies. The ASSP budget Burundi 7.0 11.0 11.0 9.7 designates the institutions responsible for Other regions all activities under all strategies. Based on Northern Africa 1.9 1.59 1.47 1.7 the mapping described in Section 3.1, yearly Sub-Saharan Africa 2.08 2.28 1.72 2.0 estimates were computed for all agriculture Latin America and the Caribbean 0.75 0.7 0.78 0.7 sector institutions. The resulting detailed South East Asia 2.83 4.02 4.11 3.7 allocations are given in Table A3.1 in Annex 3 and summarized in Figure 3.1. Collectively, Source: Shares for the other EAC countries obtained from FAO- MAAIF, NAADS, and NARO capture the bulk of MAFAP (2018), by computing the share of “agriculture-specific expenditures” in “total public expenditures.” Shares for other allocations in the sector (approximately 73.6 developing regions from FAO-GEA (2018). percent), but the composition has shifted sharply in favor of MAAIF (about 39 percent) at the expense of extension and advisory 3.3 Efficiency of Public Expenditure services. NAADS budget remained flat over in Agriculture the 2015/16-2017/18 and was projected to decline in 2018/19. 19 This analysis looks at the allocative efficiency (doing the right things) among the administrative units (including MAAIF and its SAGAs), local governments, and geographic distribution. Public spending on agriculture is efficient if it is directed toward generating knowledge (often in the form of technology), disseminating knowledge (technology), reducing transaction costs, and attracting private capital. Based on the functions performed by the various 46 Republic of Uganda: Agriculture Sector Public Expenditure Review Figure 3.1. Estimated budget allocations for agriculture sector agencies in the ASSP 2015/16–2019/20 (USh billions) (in the table, left) and relative proportions (in the figure, right) 2015/16 2016/17 2017/18 100% MAAIF and sub-branches 149 293 327 NAADS 133 136 136 50% NARO 80 97 103 Other SAGAs 47 49 51 Local governments 30 95 100 0% 2015/16 2016/17 2017/18 Donor agencies 19 75 109 Other 4 12 12 MAAIF & sub-branches NAADS NARO Other SAGAs Total 463 757 838 Local governments Donor agencies Note: Totals in the table are smaller than PEAS totals given in Table 3.1, given that the PEAS definition used in this review is larger than the one used in the ASSP. 21 It can be argued that the increase in allocation to MAAIF is consistent with the transfer of extension and advisory the nominal expenditure levels). NAADS was the biggest standalone expenditure item, averaging 30 percent of PEAS across functions from NAADS to the ministry. 2013/14–2016/17, before MAAIF became the However, unless the additional resources largest spending unit in 2017/18. The bulk are disbursed to the local governments as of NAADS spending, though, went to finance production grants, this move is contrary the input subsidies under the OWC program. to the spirit of decentralization. Budget This way of spending public resources— figures over 2016/17–2017/18 reveal that namely, allocating public expenditure on the increase in the local government budget private goods—is economically inefficient. was insignificant (about 5 percent). Given The approach used to distribute subsidized that it is the function of local governments inputs has been technically inefficient as to provide frontline agricultural services well: it favored the wealthiest farmers, who such as extension and advisory services, can already afford the inputs. Nor did it market information services, and rural strengthen private input suppliers, improve infrastructure (rural and feeder roads, the targeting of subsidies (through the use small scale irrigation, rural markets, and of e-vouchers, for example), or invest in rural storage facilities), this trend needs to be infrastructure to reduce transaction costs reversed. "MAAIF should improve the quality and ensure that farmers can obtain inputs of spending by disbursing the additional easily. budget to the local governments to enhance service delivery", which is necessary for increasing agricultural productivity. 22 Actual disbursements, overall, follow the same general trends. Table 3.4 summarizes the share of each agency in the total disbursements of public funds in agriculture (Table A2.4 in Annex 2 provides 47 Republic of Uganda: Agriculture Sector Public Expenditure Review Table 3.4. Distribution of PEAS across various national ministries and agencies (% of total final expenditure) Agency 2013/14 2014/15 2015/16 2016/17 2017/18† Average MAAIF and sub-branches 17% 22% 16% 16% 25% 19% NAADS 18% 38% 39% 33% 21% 30% NARO 8% 9% 8% 10% 7% 8% Other SAGAs 5% 7% 13% 12% 8% 9% Rural development-related ministries 16% 13% 17% 22% 32% 20% Local governments 37% 11% 4% 6% 7% 13% Other 0% 0% 1% 1% 1% 1% Total 100% 100% 100% 100% 100% 100% Note: † Budgeted amounts (not final expenditure) are used for 2017/18. For other years, final expenditure is used. “Rural development- related ministries” include MoLG and the Ministry of Water and Environment. “Other” includes the National Forestry Authority and the Uganda Export Promotion Board. 23 NARO was the second-biggest spender within the group of agricultural SAGAs. This finding is consistent with the analysis of percent in Latin America and the Caribbean, 0.6 percent in East Asia and the Pacific, and 0.9 percent in South Asia. impacts of different types of public spending in Africa described in Chapter 2, which finds that R&D generates the highest returns to 24 Spending on agriculture by rural development-related ministries Uganda, particularly by MoLG, increased in investments in the sector. Large countries in Africa have earned higher returns to R&D significantly in 2016/17. The increase (an internal rate of return of 43 percent) can be attributed to the launch of the than small countries (an internal rate of Project for the Restoration of Livelihoods return of 17 percent), but even in small in the Northern Region and enhanced countries, returns were still high enough spending within the Community Agricultural (higher than a discount rate of 10 percent) Infrastructure Improvement Program (about to justify the investments. Research shows USh40 billion each). These initiatives were that recent spending by the CGIAR centers part of the GoU’s effort to provide targeted in Africa has generated US$6 in benefits public services to areas that were previously for every US$1 spent on research. Returns affected by conflicts and that currently have to spending by national agricultural R&D high poverty rates and poor infrastructure, agencies have been relatively lower but still which is warranted. As seen in Chapter significant, averaging about US$3 in benefits 2, spending on productive investments for every US$1 spent. In 2006, the NEPAD related to the development and diffusion set an additional target to increase public of technological improvements, greater spending on agricultural R&D to at least 1 connectivity in rural areas, and irrigation percent of agricultural GDP, a target that development has done more to reduce few African countries have met. Over the last poverty in Asia than input subsidies. decade, spending on agricultural research constituted about 0.4 percent of agricultural GDP in SSA, compared with 1.3 25 At the agency level, however, some notable gaps appear between planned expenditure and actual disbursements. Figure 3.2 shows the gaps between target allocations and observed allocations for 48 Republic of Uganda: Agriculture Sector Public Expenditure Review selected agencies in the agriculture sector for increased productivity and enhanced over 2015/16–2017/18. In those years, resilience in the agriculture sector. NAADS received significantly more than its planned budget, whereas MAAIF fell below its targets by relatively similar percentages. 26 The tendency to prioritize NAADS is also observed in the Medium-Term Expenditure Frameworks (MTEFs). In the NARO has also been receiving lower allocations than expected. The other SAGAs 2015/16 MTEF, the share of MAAIF in the were over-funded in relative terms, and so agriculture sector budget was projected were the local governments. These gaps are to move from 28 to 35 percent between examined in more detail in the next section. 2015/16 and 2017/18, while the share of But the implications here are that either the NAADS was projected to move from 48 to ASSP targets were set arbitrarily too high 54 percent. In the most recent 2017/18 for MAAIF and agencies, NARO, and local MTEF, the average MAAIF budget share for governments, or for some political reasons 2016/17-2017/18 is 33 percent, and the it was decided to increase the allocations for share of NAADS is 38 percent. While the NAADS at the expense of the core functions MTEF foresees the MAAIF share declining to of the ministry (policy and regulatory), 25 percent in 2020/21, the share of NAADS is NARO (R&D), and local governments projected to move up and reach 51 percent (extension services). If not corrected, this in that year. These MTEF allocation targets could adversely impact the adoption of are inconsistent with the ASSP targets. new technologies, which are necessary Figure 3.2. Gaps between observed (final) PEAS allocations and ASSP targets for selected agriculture sector agencies (deviations from relative shares) 30% 20% 10% 0% -10% -20% -30% MAAIF & NAADS NARO Other SAGAs Local governments sub-branches 2015/16 2016/17 2017/18* Note: Gaps for 2017/18 computed using budgeted expenditures from the PEAS database. Because the scope of expenditures under the ASSP and the scope of PEAS used in the present review do not overlap precisely, shares were compared looking only at the restricted set of agencies displayed in the figure. 49 Republic of Uganda: Agriculture Sector Public Expenditure Review 27 The increase in NAADS budget, which is mainly used to finance input subsidies, means that more public resources are access to improved technologies, and induce proactive participation in value chain development.” The ASSP describes the spent on private goods. In addition, responsibilities of local governments more the increase in NAADS budget for input generically, saying they are to “collaborate subsidies will distort the factors market and with MAAIF on matters of increasing crowd out the private sector. While some production and commercialization of attempts were made to rebalance budgets agriculture” (MAAIF 2016:68). in favor of MAAIF around 2015/16 (the year in which the ASSP was introduced), the most recent budget projections from MoFPED 30 In the PEAS database compiled for this review, district-level spending on agriculture relates to three major indicate that NAADS is expected to increase its dominance as a budgetary recipient in the subfunctions. Extension services is by far coming years. Plans outlined in the ASSP for the largest subfunction, followed by input the administrative organization of the sector subsidies and, to a smaller extent, feeder appear to have only a limited influence on roads. Local governments in Uganda thus the annual budgetary process and decisions have a key role to play in providing basic for the sector. goods and services to smallholder farmers to increase agricultural productivity. Decentralization 31 The decentralization objectives are not fully matched with corresponding 28 The GoU is committed to decentralization. allocation of resources. Using the ASSP The country’s second NDP 2015/16– budget plan as a reference (Figure 3.1), 2019/20 includes a chapter on subnational decentralized spending on agriculture development, with proposals to strengthen was supposed to increase to 12 percent local governments by expanding their in 2017/18. After that, it was supposed capacities for service delivery and by scaling to stay at around 10 percent through up their revenue base. These objectives are 2019/20. During the period under this regularly referenced in budgetary documents review, however, less than 10 percent of the for the agriculture sector. For example, the sector spending went to local governments. Sector Budget Framework Paper 2014/15 Over 2015/16–2017/18, the share of PEAS says that the “Government will continue to going to local governments increased but provide agricultural services through the remained below 12 percent. The low share10 decentralized system of government and needs to be seen from the perspective of the will work to strengthen it.” general underfunding of the sector, implying that local governments have in effect been 29 The Agriculture Sector DSIP 2010/11– 2014/15 outlines several core functions of local governments for public service left with very limited resources to deliver on their assigned mandates. The underfunding of local governments echoes concerns delivery in agriculture: “deliver regulatory from MoFPED about budget absorption and quality assurance services, collect capacity and the quality of service delivery in agricultural statistics and information, decentralized spending units (BMAU 2014). deliver advisory services to increase farmer These circumstances may trigger a vicious 10 Note however that some of the PEAS at the decentralized level may not have been included in this analysis, given that the project output descriptions did not allow them to be identified properly. 50 Republic of Uganda: Agriculture Sector Public Expenditure Review cycle in which decentralization is further and political tensions that can emerge from constrained because MAAIF and MoLG stark differences in economic development become reluctant to transfer money to the across regions. districts. Country-wide agencies like NAADS are preferred owing to their better track record in public services delivery. 34 The spatial disaggregation of PEAS shows that indeed spending for a good cause favors the Northern Region. The BOOST public expenditure database12 and the IFMS Geographic Distribution datasets of MoFPED make it possible to disaggregate PEAS down to the regional level, 32 The ASSP does not provide very precise spatial targets for agricultural spending in Uganda. It merely states that the list up to 2016/17. The share of PEAS allocated to the regions closely matches the share of PEAS allocated to districts and municipal of priority commodities has been defined councils (the average shares are displayed based on national agroecological zones in Table A2.4, Annex 2). Decentralized PEAS (MAAIF 2016: 69). The NDP 2015/16–2019/20 chiefly targets the Northern Region, followed says that the Northern and Eastern Regions by the Western Region and the Central and should receive specific policy attention Eastern Regions. Per capita PEAS is also because of their higher poverty rates and persistently higher in the Northern Region potential for instability. Focus areas include (Figure 3.3). According to the poverty productivity improvements in agriculture, assessment report (2016), households in fishing, and agroprocessing. Uganda’s Northern, Eastern, and Western Regions have much lower levels of human 33 According to the Ugandan poverty assessment report (2016), regional variations in poverty are large and capital, fewer assets, and more limited access to infrastructure than those in the Central Region. The Northern Region is the increasing, with most of the poor worst off, largely because conflict took lives, concentrated in the north and east. In damaged communities, destroyed assets, 2006, approximately 68 percent of the poor and had lasting effects on the aspirations of lived in the Northern and Eastern Regions.11 many individuals. In addition, households in By 2013, this proportion had increased to the north are relatively large and more likely 84 percent. About 47 percent of the poor to be headed by a woman who has not had live in the Northern Region and another 37 any formal education. The Eastern Region percent live in the Eastern Region. In the also lags the Central and Western Region in North East subregion, almost three in four nearly all of these metrics. residents (74 percent) live below the national poverty line. This subregion is also the least populous. Poverty is also high in the Mid- Northern subregion, where 35 percent of the population lives in poverty. The report concludes that a focus on the Northern and Eastern Regions will be needed for Uganda to end extreme poverty and boost shared prosperity, as well as to reduce the social 11 Uganda poverty assessment report (2016). 12 See http://boost.worldbank.org/country/uganda. 51 Republic of Uganda: Agriculture Sector Public Expenditure Review Figure 3.3. Disaggregation of decentralized PEAS (final) by region (left); per capita PEAS (final) by region (USh) (right) 100% 9000 90% 8000 80% 7000 70% 6000 60% 5000 50% 4000 40% 3000 30% 2000 20% 1000 10% 0 0% 2013/14 2014/15 2015/16 2016/17 2013/14 2014/15 2015/16 2016/17 Central Region East Region Central Region East Region North Region West Region North Region West Region Source: Per capita amounts given in the right-hand figure were obtained using population figures from UBOS (2016). Note. No regional disaggregation of budgeted PEAS is available for 2017/18. 35 This pattern does not follow from differences in population levels. In fact, population in the Eastern and Central imbalances (reducing inequality poverty), as well as by opportunities for rapid agricultural productivity growth. In a way, and Regions is higher than in the Northern and and if well managed, such targeted spending Western Regions. The budgetary focus on the can help address historic inequalities in the Northern Region is in line with the objectives distribution of public goods and services in of the NDP, but the low share of the Eastern Uganda for poverty reduction and shared Region is probably not. The difference can prosperity. be explained by the large donor-funded projects that are targeting the conflict and poverty-stricken northeastern areas, unlike the Eastern Region, which depends largely on domestic resources. PEAS targeting the Northern Region tends to flow to areas where agricultural potential is high, which are not always the areas where poverty is concentrated (see Box 3.1. ). This resource flow is probably consistent with the general hypothesis that the elasticity of agricultural production with respect to spending in the sector will be higher in areas with high agricultural potential because of favorable natural endowments and if the overall policy environment is conducive to a positive supply response. Geographic PEAS allocations thus seem to rightly be guided by the country’s need to correct broad socioeconomic 52 Republic of Uganda: Agriculture Sector Public Expenditure Review Box 3.1. Geographic disaggregation of PEAS Uganda’s Northern Region is poorer and less populous than other regions of the country. The region extends across almost 35 percent of the national land area, and although it has only 21 percent of the country’s population, it has around 44 percent of the country’s poor.† Even if some degree of stability has been observed in recent years, the Northern Region has been through decades of violent conflict and remains a fragile area. Value-added per acre tends to be lower in the Northern Region than in other regions, both for rich and poor farmers.‡ The region has significant agricultural potential,§ but there are significant constraints, such as poor enforcement of land tenure regulations.†† Economic performance varies within the Northern Region. The Karamoja, Sebei, and Bugisu subregions (in the northeastern part of the region) are generally poorer than subregions in the northwestern part (Acholi, Lango, and Teso).‡‡ Karamoja is an arid agroecological area, and Sebei and Bugisu are much smaller. The table offers insights on PEAS allocations at the subregional level. Final PEAS among the subregions of Northern Region, Uganda Subregions of Northern Region 2013/14 2014/15 2015/16 2016/17 Teso, Lango, and Acholi 46% 48% 55% 51% Karamoja, Sebei, and Bugisu 18% 18% 16% 17% Other subregions 36% 34% 29% 31% A mapping of GDP per capita across districts by the United States Agency for International Development (USAID) confirms the Northern Region’s richer districts are in the Teso, Lango, and Acholi subregions.§§ As the table indicates, PEAS chiefly targets those subregions, which are also more suitable for farming, especially in comparison with the arid northeastern subregions. Both agricultural potential and growth potential seem to be major drivers of decentralized PEAS in the Northern Region, along with poverty mitigation and efforts to channel public resources to the fragile zones of the country. Source: † UBOS (2017). ‡ World Bank (2010b: 8). § Löwe and Phiona (2017). †† World Bank (2010b: 23). ‡‡ World Bank (2016a: 18). §§ USAID (2017: 10). management capacity, improper appraisal 3.3.2 Technical Efficiency and feasibility work, poor coordination of project preparation and implementation 36 Technical efficiency (doing things well) in public spending involves making the best use of inputs to provide outputs in the between MAAIF and local governments, and inadequate operating budgets for technical staff are within the purview of the ministry form of public services. Most of the donor- itself. These constraints result in high cost funded projects are being implemented overruns, low-quality work, and other kinds inefficiently for various reasons. But not of wastage. Although budget execution rates all of the blame for technical inefficiency are high for domestic resource spending rests with MAAIF. Constraints such as on agriculture13 (approximately 90 percent delayed budget ratification by Parliament, for the years under review), the execution and untimely and insufficient release of rates for external resources (donor- counterpart funds by MoFPED, are beyond funded projects) are low. Given that capital MAAIF. They were identified during AgPER expenditures account for a large share of 2010, but to date are still unresolved. the development projects, MAAIF must work These constraints cause several years to with MoFPED to address these constraints, pass before a donor-funded project can prior to making a convincing case for scaling be launched in Uganda. Other constraints, up funding for agriculture. including weak procurement and financial 13 Execution rates for donor spending could not be computed as actual (final) amounts, for donor sources are not available in the latest version of the database. 53 Republic of Uganda: Agriculture Sector Public Expenditure Review 37 A sizable proportion of resources budgeted for the agriculture sector in Uganda comes from donor-funded under OWC, reaching about 31 percent of the PEAS in 2016/17. In 2017/18, the share of externally funded PEAS going to MoLG projects. From 2013/14 through 2017/18, declined sharply, while the share of MAAIF budgeted amounts recorded under MAAIF continued to increase, probably because the spanned 25 projects on average. "During this extension services function was transferred period, as much as 33 percent of agriculture from NAADS to MAAIF. Given this increase, sector budgets flowed from external sources MAAIF needs to improve technical efficiency, through donor-funded projects". Such a high by aligning the donor funding with the ASSP share may weigh negatively on the stability target. In other words, it must ensure that of PEAS and create institutional distortions, external resources are financing national such as wage gaps and the related movement priorities that are necessary for achieving of skilled personnel from regular positions the ASSP objectives. MAAIF also needs to in the civil service to “project” positions. An develop an effective framework for capturing additional consequence of the high donor the off-budget spending by donors; then presence in agriculture is “projectization,” MAAIF could track the off-budget spending which is the tendency of projects with a in the sector and assess its impacts. lifespan of three to five years to become the usual way of intervening in the sector. The lack of a programmatic approach for using external sources of funds limits the impact of individual projects and increases transaction costs. Consistent with the Paris Declarations on increasing development effectiveness, MAAIF should move away from a project mode to a programmatic approach, implemented through a better donor coordination framework. 38 In recent years, MAAIF has assumed a much weightier role in managing donor funds. Figure 3.4 shows how budgeted external financing has evolved across votes (ministries and agencies). Donors tended to allocate a minor share of their resources to MAAIF in 2013/14 and 2014/15. In those years, on-budget support to agriculture and rural development was mostly channeled through MoLG and NARO. At that time, donors were mainly supporting extension services through NAADS programs and R&D activities under NARO. From 2015/16 onward, however, shares of external financing going to MAAIF rose, as donors cut back their support to NAADS. This reduction occurred as NAADS shifted its focus from extension services to input distribution 54 Republic of Uganda: Agriculture Sector Public Expenditure Review Figure 3.4. Distribution of budgeted external financing in support of the agriculture sector across votes 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 2013/14 2014/15 2015/16 2016/17 2017/18 Office of the Prime Minister Ministry of Agriculture, Animal Industry and Fisheries Ministry of Local Government Ministry of Water and Environment National Agricultural Research Organisation 39 Increased spending from external sources not only leads to the increase in PEAS, but also creates a fiscal space seldom produced benefits commensurate with their fiscal costs, although they remain politically attractive. Therefore, where for increasing the allocation of domestic subsidies continue to be used, they should resources across agencies. Figure 3.5 at least be reduced to a modest amount in depicts the allocation of domestic funds by national agriculture budgets, with a clear agency. As mentioned, noteworthy changes exit strategy. In the longer term, no program include an increase in the shares of NAADS will sustainably raise fertilizer use until and MoLG in total agricultural spending it becomes profitable for farmers to buy in recent years, particularly the 2016/17 fertilizer on commercial markets after they spike (70 percent). In line with this trend, graduate from the subsidy program. donor contributions to the budget rose by around 150 percent. The money was chiefly channeled to MoLG and MAAIF. Interestingly, 40 Technical inefficiencies, however, have emerged from how subsidized inputs are being delivered to farmers. Considerable contributions of domestic resources to the MAAIF budget remained stable volumes of inputs are distributed under throughout 2015/16–2016/17, implying that OWC, ranging from seed (maize, beans, the nearly twofold increase in the MAAIF soybeans, rice, sorghum, groundnuts, and budget (see Table A2.4 in Annex 2) came Irish potatoes) to banana plantlets, heifers, from the increase in external resources. layers and broilers, and tilapia and catfish Meanwhile, donors stayed out of NAADS, fingerlings. While these inputs are not and contributions of domestic resources to costed in the National Budget Framework the NAADS budget increased by 78 percent. Paper (NBFP) they average US$100 million As noted, the increase in the NAADS budget equivalent per year (World Bank 2015: presumably served to fund the activities of 19). The Parliamentary Committee on OWC. However, we learned from Chapter Agriculture (2017) report found that the unit 2 that even “smart” input subsidies have costs of some of the inputs procured were 55 Republic of Uganda: Agriculture Sector Public Expenditure Review 20–50 percent higher than comparable with no monitoring of results. This approach market prices. The report also found that resulted in the wastage of inputs. The report free inputs procured under OWC were often further states that “giving free inputs to of poor quality; they were distributed late, farmers is not sustainable and will in the without communication or consultation with long run breed dependency syndrome.” It districts; without extension services (and duly recommends that GoU should address rarely with complementary inputs such as these inherent technical inefficiencies. fertilizers, pesticides, and irrigation); and Figure 3.5. Distribution of budgeted, national (non-donor) PEAS across votes 100% 80% 60% 40% 20% 0% 2013/14 2014/15 2015/16 2016/17 2017/18 Local governments 306 Uganda Export Promotion Board 160 Uganda Coffee Development Authority 157 National forestry authority 155 Cotton development organization 152 NAADS Secretariat 143 Uganda Bureau of Statistics 142 National Agricultural Research Organisation 125 National Animal Genetic Res. Centre and Data Bank 121 Dairy Development Authority 019 Ministry of Water and Environment 015 Ministry of Trade, Industry and Cooperatives 012 Ministry of Lands, Housing & Urban Development 011 Ministry of Local Government 010 Ministry of Agriculture, Animal Industry and Fisheries 003 Office of the Prime Minister 41 The share of external financing in agriculture budgets varies national institutions. PEAS implemented across to domestic sources of funding. The donor- funded part of MoLG concentrates on a handful of projects, also with an emphasis by the Office of the Prime Minister (OPM) are on the poorer regions of the country. The almost entirely dependent on donor funds drop in 2017/18 reflects the fact that those (Table 3.5). These donor funds have been projects were almost fully taken over by the used to finance special programs focusing government, also calling for a compensatory on agricultural and rural development in increase in the domestic fund allocation. the Northeastern Region. As noted, this In MAAIF, donor funds are spread across region is emerging from conflicts, has poor a larger number of initiatives. About seven infrastructure, and has higher poverty rates projects received donor support annually than any other region in Uganda. Donor funds from 2013/14 to 2017/18. The strong donor therefore provide an important complement presence in MAAIF allows national funds 56 Republic of Uganda: Agriculture Sector Public Expenditure Review to focus on NAADS and, to a lesser extent, 3.3.3 Economic Efficiency MoLG (decentralized government). 42 Despite complementarities, the high shares of donor spending in PEAS remain 43 Analysis of the allocative efficiency of public expenditure provides an understanding of priorities and the a challenge for technical efficiency. This is because this spending is difficult to trace balance of spending. It essentially accurately. For instance, no information consists of an economic and functional was available in the BOOST database on decomposition of public spending. An expenditure amounts for external funding in economic decomposition of public spending 2013/14–2015/16. Donor budgets are often on agriculture in Uganda shows that easier to track than donor final expenditures, development expenditures dominate both which might explain why such gaps are budgeted and final PEAS in Uganda (Table observed. The budgets of donor-funded 3.6). They represented about 66 percent of projects are usually agreed upon with budgeted PEAS for the years under review. national institutions, and some data sharing There were no major differences between inevitably occurs at that stage. As projects budgeted and final PEAS in terms of the are implemented, however, reporting of relative sizes of recurrent and development donor expenditures is poor. The problem spending, which is surprising because is a recurring one: more than a decade development expenditure usually exhibits ago, a study by the World Bank and the lower execution rates in comparison Department for International Development with recurrent expenditure (salaries (DFID) already pointed to the need to design must be executed each year to keep incentive systems for effective reporting on the administration running, while capital project finance by donors (Williamson 2008: expenditures can be delayed across the 27). lifespan of development projects). Table 3.5. Share of external financing in budgeted PEAS across votes 2013 2014 2015 2016 2017 Vote /14 /15 /16 /17 /18 003 Office of the 81% 100% 91% 96% 92% Prime Minister 010 Ministry of Agriculture, 24% 22% 29% 62% 43% Animal Industry, and Fisheries 011 Ministry of Local 88% 99% 79% 95% 3% Government 019 Ministry of Water and 17% 14% 14% 50% 9% Environment 142 National Agricultural 49% 70% 55% 59% 51% Research Organization 57 Republic of Uganda: Agriculture Sector Public Expenditure Review Table 3.6. Shares of recurrent and development spending within budgeted and final PEAS 2013/14 2014/15 2015/16 2016/17 2017/18 Average Recurrent 36% 35% 37% 36% 22% 33% Of which wage 9% 14% 11% 12% 7% 10% Budgeted Of which non-wage 26% 21% 27% 24% 15% 23% PEAS Development 64% 65% 63% 64% 74% 66% Unspecified 0 0 0 0 3% 1% Recurrent 31% 32% 35% 35% NA 33% Of which wage 8% 14% 8% 12% NA 11% Final PEAS Of which non-wage 23% 18% 27% 23% NA 23% Development 69% 68% 65% 65% NA 67% Note: Final PE and PEAS do not include external financing (donor spending). No disaggregation between recurrent and development spending is available for donor funds. 44 The share of development expenditures Note: Final PE and PEAS do not include external financing (donor spending). No disaggregation between recurrent and in PEAS was much larger in comparison development spending is available for donor funds. Spending of with the national PE (Table 3.7). While the “unspecified” type (a minor proportion of 2017/18 budgets) PE indicators are probably driven up by was omitted from the table. spending on defense, education, or health (sectors where wage shares in budgets tend to be high), this nevertheless suggests 45 "In Uganda, 'development expenditure' is not synonymous with 'capital expenditure'.” The high share of that agricultural budget holders are development expenditures in PEAS is to adopting long-term spending strategies. some extent due to misclassification. First, Relative proportions of wage and non-wage many items reported as development expenditures within recurrent expenditures expenditures serve to fund recurrent do not differ much between total PE and PEAS, activities. For example, “support to both for budgeted and final amounts. The institutional development” is reported as absence of any notable difference between a project in the IFMS under development execution rates for recurrent spending and expenditures in all years throughout 2013/14– execution rates for development spending 2017/18. Oxford Policy Management (2007: also applies to overall PE. 20) had already recommended tagging Table 3.7. Budgeted and final PE and this item as recurrent spending. Second, a PEAS, recurrent (wage and non-wage) and high share of development expenditures is development, 2013/14–2017/18 average (%) used to purchase goods and services that are redistributed to farmers. For example, Budgeted Budgeted Final Final during the reviewed period, 96 percent PE PEAS PE PEAS of the NAADS budget was classified as Recurrent 71% 34% 73% 25% development spending, even though much Of which wage 19% 12% 18% 8% of this budget serves to buy seed and Of which non- fertilizer. Thus, development expenditures 52% 22% 55% 17% wage within PEAS should not be viewed as “capital Development 29% 66% 27% 50% expenditures.”14 Only a small proportion 14 This issue was already identified in World Bank (2010a: 68). 58 Republic of Uganda: Agriculture Sector Public Expenditure Review of development expenditures goes into reduce the impacts of even small capital investments with long-term effects such as outlays to a very low level. MAAIF therefore infrastructure (see the next section).15 should ensure that a larger part of the development budget allocation is actually 46 The above information suggests that the economic efficiency of PEAS in Uganda is rather low. But better budget monitoring spent on capital expenditures. systems are needed for a full assessment. 3.3.2 Functional Efficiency Too little is invested in rural access roads, 47 small-scale irrigation, bridges, and wholesale The assessment of functional efficiency and livestock markets. In addition, only looks at the composition of public a minor share of the budget is allocated expenditures by main functions and to veterinary, sanitary, and phytosanitary at how it aligns with national policies, laboratories and equipment, despite strategies, sector objectives, and other their importance for raising agricultural priorities. In 2016, the government formally productivity. These expenditures generate endorsed a commodity-based approach higher returns to investment. In Uganda, (CBA) in its agricultural policy (MoFPED less than 1 percent of smallholder farmers 2016a: 75), although the idea of focusing on a use irrigation. Across Africa, irrigated area as set of priority commodities had already been a share of total cultivated area is estimated advanced in the DSIP (MAAIF 2010a: 59). The at 6 percent, compared with 37 percent for CBA identifies 12 priority commodities. It is Asia and 14 percent for Latin America. Recent assumed that PEAS will chiefly serve to build studies show that irrigated land in Africa can up the value chains for these commodities. be expanded from 13 million hectares to The ASSP provides estimated budget 24 million hectares in economically viable allocations for commodity-specific spending ways, with returns ranging from 17 percent and maps activities to around 20 different for large-scale irrigation to 43 percent for crops and livestock commodities. small-scale irrigation. Investing in rural roads is important for reducing transport Table 3.8. Target shares for commodity groups costs and increasing access to markets in the ASSP budget by smallholder farmers. Trader surveys in Benin, Madagascar, and Malawi find that Commodity groups 2015/16 2016/17 2017/18 transport costs account for 50–60 percent All 159 405 486 of total marketing costs. A reduction in Cash crops 119 139 138 transport costs reduces both trade costs Crops, general 94 101 109 and interregional price gaps. The spillover Fisheries 10 13 13 effects are that farmers pay less for their Livestock and dairy 97 124 130 inputs and get more for their outputs, Total 480 782 876 hence increasing incomes. Not surprisingly, Share of identified groups in total 67% 48% 45% access to markets facilitates economic (excludes “all”) diversification in rural areas and creates incentives for smallholder farmers to adopt Source: Authors, using Annex D of the ASSP (MAAIF 2016). Note: Cash crops include not only coffee and tea but other modern production technologies. Technical commodities such as cocoa, oil palm, and oilseeds. inefficiencies in capital expenditures further 15 Of course, recurrent or “non-capital development” expenditures such as the salaries of doctors, researchers, or teachers can also have beneficial long-term effects. The point here is that not all development expenditures in agriculture in Uganda should be considered as capital expenditures. 59 Republic of Uganda: Agriculture Sector Public Expenditure Review 48 Cash crops, crops general, fisheries, and livestock and dairy account for nearly 45 percent of the budget allocated for The relative importance of the “crops, general” subgroup increased in 2017/18 because of increased allocations under agriculture in Uganda (Table 3.8).16 The the Commercialization of Agriculture in remainder of the agriculture sector budget Northern Uganda Project. The rise in the serves to fund goods and services that “other” subgroup in 2016/17 resulted from benefit all commodity value chains without increased spending on a Vegetable Oil making any distinction among them. The Development Project. The “crops, general” share of commodity-specific spending has and “other” categories represent the main declined in recent years, falling from 67 staples and grains, which are important percent in 2015/16. This implies functional for food security, especially for the poorer inefficiencies, because the declining households. Increased public spending on spending on these priority and strategic these smallholder crops will help to increase commodities leads to a slowdown in their productivity and incomes and have a agricultural productivity and value addition. greater impact on poverty reduction. Depending on the supply response, this could weaken the backward and forward Figure 3.6. PEAS final expenditure, linkages in the sector and have adverse disaggregated by identified subsector effects on overall growth in value added and 100% poverty reduction efforts. Its distribution 90% 80% across broad commodity groups has 70% 60% balanced out, however, with a more notable 50% increase in the budget for livestock and 40% 30% dairy. This increase could benefit the poor 20% communities in Northeastern Region, where 0% 2013/14 2014/15 2015/16 2016/17 2017/18* animal husbandry is the predominant Livestock and dairy Cash crops Crops, general Fisheries Forestry Other economic activity. Note: *Budgeted expenditures were used for 2017/18, not actuals. “Livestock” includes cattle, dairy, poultry, pigs, and goats. 49 It is more difficult to map actual spending to specific commodities; on average, only 21 percent of PEAS could be assigned “Crops, general” includes crops that could not be associated with cash or food crops. “Other” includes horticulture, vegetable oils, insects, and honey. 50 to identified subsectors. The remainder In practice, commodity-specific spending benefits the agriculture or rural sector is concentrated on a few commodities only. as whole, including most recurrent costs By disaggregating commodity subsectors as well as spending on infrastructure or into single commodities (see Table A3.2 in multipurpose projects. Within PEAS specific Annex 2), it is evident that coffee, the main to subsectors, the emphasis on cash crops export commodity and number one foreign increased between 2013/14 and 2015/16, exchange earner, dominates the cash crop reaching as much as 50 percent (Figure subsector. Budget allocations to the Uganda 3.6). The shift occurred simultaneously Coffee Development Authority (UCDA) with the introduction of the CBA. Livestock, almost quadrupled between 2014/15 and dairy, and forestry also received significant 2015/16, probably because coffee is a high- proportions of the budget, whereas other value cash crop predominantly produced crops and fisheries received less funding. by smallholders. The shares of tea, which 16 These are the 12 priority commodities under the ASSP, namely: bananas, beans, maize, rice, cassava, tea, coffee, fruits and vegetables, dairy, fish, livestock (meat); and four strategic commodities, namely, cocoa, cotton, oil seeds, and oil palm. 60 Republic of Uganda: Agriculture Sector Public Expenditure Review is mainly a large-scale plantation crop, and as beans, cassava, bananas, and rice. As other cash crops, including cotton, have mentioned, these crops are very important remained close to zero over the period. for food and nutrition security, especially Within the “livestock and dairy” subsector, for poorer households. Continued neglect spending has focused more on beef and would mean slowing down the poverty less on dairy products. Beef comes mainly reduction effort and increasing food and from the northeastern areas, where pastoral nutrition insecurity in Uganda. The ASSP production systems dominate, and poverty budget plan seldom refers to spending on is high. forestry and fisheries, which explains why small deviations are observed for these 51 The relative shares of actual spending differ from those planned in the ASSP budget. Traditionally, budget spending groups. The CBA is reflected in the budget data only to a limited extent, and allocations of resources across commodity groups have favored cash crops as well as items in the varied from what is outlined in the ASSP. “other” category, which include horticultural This mismatch illustrates either that ASSP crops and various innovative items such budget estimates were arbitrary and overly as honey (Figure 3.7). Funding gaps have ambitious or that the budgeting process affected “livestock and dairy” as well as “crops, does not adhere to the targets set in the general,” which includes commodities such ASSP. Figure 3.7. Gaps between observed (final) PEAS allocations and ASSP targets for commodity target groups (deviations from relative shares) 30% 20% 10% 0% -10% -20% -30% Livestock and Cash crops Crops, general Fisheries Forestry ' Other dairy 20/16 2016/17 2017/18* Note: Gaps for 2017/18 were computed using budgeted expenditures from the PEAS database. 52 Extension and research jointly, along with producer subsidies, take up nearly half of the sector budget. Table 3.9 maps and international trade, is low. Planned ASSP allocations remained stable over the whole 2015/16–2017/18 period. There is the ASSP budget plan to subfunctions. an apparent willingness to gradually phase Producer-subsidies are the largest category, out producer subsidies to the benefit of comprising roughly one-quarter of the total, “processing, marketing, and storage” as well and include fertilizer and seed subsidies as as other subfunctions such as irrigation, well as on-farm support and mechanization. but the planned shift is expected to be The allocation to inspection services, incremental across several years. The main which are critical for promoting regional question is where the savings from reduced 61 Republic of Uganda: Agriculture Sector Public Expenditure Review spending on producer subsidies will be 3 percent for the period. Investments in spent. Based on the findings discussed in this irrigation, rural or feeder roads, livestock and review, it would be beneficial if the savings plant pest and disease control, regulatory were transferred to the capital expenditures services, and institutional development are that generate the highest returns on all core public goods—goods in which the investment, such as R&D and small-scale private sector will not invest. But they are irrigation systems (core functions of MAAIF) essential for catalyzing private investment and extension and advisory services (core in agricultural production and agribusiness. functions of local governments). This lack of investment in these areas limits smallholders’ access to markets and reduces 53 Data on actual spending allow for even further disaggregation of PEAS (Table 3.10) and are generally consistent with their income. Increasing public expenditure on R&D, extension services, and irrigation is consistent with allocative efficiency— planned amounts. In accordance with the spending public resources to provide public ASSP targets, “input subsidies” have been goods and services. By contrast, increasing the dominant category on average, followed public expenditure on producer subsidies by extension and advisory services provided amounts to allocative inefficiency— through NAADS. “Processing and marketing” spending public resources on private goods. as well as “research” were other dominant Spending public resources on processing subfunctions. Shares going to irrigation and marketing, which are primarily private were lower, even though they increased goods, is encouraged if used to leverage in recent years. Allocations for feeder private sector investments. roads were rather small, averaging around Table 3.9. ASSP budget targets mapped to major agricultural subfunctions Subfunction 2015/16 2016/17 2017/18 Agricultural research 86.7 103.8 109.4 Extension 55.1 146.4 177.2 Producer subsidies 187.3 220.3 231.7 Inspection 51.2 75.1 74.2 Irrigation 6.1 40.3 68.4 Other 9.7 35.9 39.4 Processing, marketing, and storage 61.5 121.3 122.6 Training 22.3 39.3 52.9 Total 480.0 782.4 875.7 Source: Authors, using Annex D of the ASSP (MAAIF 2016). 62 Republic of Uganda: Agriculture Sector Public Expenditure Review Table 3.10. Final PEAS, disaggregated by agricultural subfunction (USh billion)   2013/14 2014/15 2015/16 2016/17 2017/18† Input subsidies 79 122 153 258 328 Capital subsidies 5 5 5 13 15 Other subsidies 4 7 3 1 6 Research 46 50 60 159 153 Extension and advisory services 150 92 57 120 128 Training 17 39 16 29 33 Inspection and quality control 1 2 3 4 4 Feeder roads 2 0 9 59 58 Irrigation 28 32 39 53 159 Other infrastructure 4 0 5 3 12 Storage 0 0 0 0 2 Processing and marketing 35 30 68 150 282 Administrative costs 35 36 44 67 73 Other 0 0 2 48 79 Total 406 416 463 965 1,332 Note: † Budgeted expenditures were used for 2017/18, not actuals. There are very minor differences between total subfunctional PEAS and total PEAS as reported in Table 3.1. The gap is due to apportionment of categories for multifunctional projects with components falling outside the perimeter. 54 Some of the changes in the relative spending shares mark improvements in the policy direction, whereas others of agricultural research budgets during 2016/17–2017/18. In 2015/16, input subsidies saw a big boost to the detriment are contextual. Processing, marketing, of extension services. After that, resources and irrigation gained some ground in the allocated to extension services recovered last couple of years, especially relative to somewhat. This development needs to be input subsidies and extension. Increased analyzed in the context of OWC (Box 3.2), investments in processing and marketing which, from 2015 on, changed how input from 2015/16 on followed in great part from subsidies and extension services were the government’s recognition that grain provided and funded. Initially, the goal was to storage capacity was lacking across the procure inputs through NAADS; eventually, country (MoFPED 2016a:76). As mentioned, extension services were shifted to MAAIF. this kind of spending is encouraged if it leverages private investments. Research also came to absorb a larger proportion of 55 Deviations in spending from planned targets varied by subfunction (Figure 3.8). Producer subsidies (which include input expenditures, especially in 2016/17. This jump in research spending is attributable subsidies) and extension, the two largest to a large inflow of World Bank funds in the subfunctions, deviated the least. A larger context of the Agricultural Technologies and share than foreseen went to agricultural Agribusiness Advisory Services Project. The research, and the behavior of budget holders ending of this project in June 2018 (World reflected the ASSP objective of increasing Bank 2018b) places the sustainability of investments in processing, marketing, and research funding at risk, given that the storage. The relative funding gap observed project represented about 40 percent for inspection is consistent with the gap 63 Republic of Uganda: Agriculture Sector Public Expenditure Review mentioned earlier for the “livestock and that it was profitability and not subsidies that dairy” commodity group. drove technology adoption. Given increasing climate variability and pest outbreaks (such 56 At the aggregate level, however, the budget composition is not well aligned with the country’s broader development as fall army worm) in Uganda, it is vital that the government increases spending on agricultural R&D, irrigation, rural roads, and strategy, which relies heavily on the pest and disease management to build the expansion of the private sector. The resilience of agricultural production systems ASSP states that incentives will be needed and rural livelihoods. To this end, farmers to promote private sector engagement should be equipped with climate-smart in agriculture (MAAIF 2016), even though agriculture technologies such as sustainable the plan provides no specifics on those land and water management practices, and incentives. Figure 3.9 shows that spending access to agro-weather and market (prices on private goods such as input provision and quantities) information. and processing, marketing, and storage dominates agricultural budgets and is growing. It represented 21 percent of budgeted PEAS on average during 2013/14– 2015/16 and increased to 42 percent in 2016/17–2017/18. Such heavy investment in private goods risks crowding out private investors in the sector. It also reduces the overall effectiveness of public spending by diverting resources from investments with higher returns, such as agricultural R&D, rural infrastructure, or capacity building for farmers. 57 Research from Latin America and the Caribbean finds that a reallocation of 10 percentage points of public expenditures from subsidies to public goods increases per capita agricultural income by about 2.3 percent without increasing total spending (Chapter 2). These findings from cross-country analysis for Latin America are consistent with the analysis for Asia, where spending on rural infrastructure, agricultural research, and dissemination had large poverty alleviation effects. For example, studies in four Asian countries—Bangladesh, India, Indonesia, and Pakistan—conclude that fertilizer subsidies were not significant in farmers’ adoption of technology. They instead identify R&D of new technologies, irrigation expansion, and other investments, such as roads, as the main drivers—indicating 64 Republic of Uganda: Agriculture Sector Public Expenditure Review Box 3.2. Operation Wealth Creation, the National Agricultural Advisory Services, and the Ministry of Agriculture, Animal Industry, and Fisheries Created through a Presidential Directive in June 2014, Operation Wealth Creation (OWC) aimed to “cure the inefficiencies that had arisen in the NAADS program,” and a “team of military officials” was commissioned to “oversee the supply of inputs originally in areas that had supported the military/political struggles that liberated the Country and with veterans as first beneficiaries.”† Thus the core activity of OWC is to distribute inputs to farmers with the help of military personnel and in collaboration with NAADS staff. The operation centers on logistics and not on training.‡ Its introduction is reflected in the dominance of input subsidies in the 2015/16 NAADS budget (top figure). According to the budget database used for this review, input subsidies prior to 2015/16 were channeled through district budgets. Resources available to extension activities largely declined in 2015/16. Extension services were replenished in 2016/17 through NAADS and MAAIF (bottom figure). In 2017/18, input subsidies dominated the NAADS budget again, but the share of extension services in the MAAIF budget increased widely. There has been some back and forth in the organization and funding of input distribution and extension services. The initial thinking probably was for OWC to focus on logistics and NAADS on training. Yet in 2017/18 all extension resources (salaries for trainers) were provisioned under MAAIF, and the NAADS budget became a channel for input subsidy procurement. NAADS budget, disaggregated by subfunction 100% 80% 60% 40% 20% 0% 2013/14 2014/15 2015/16 2016/17 2017/18 Extension Input subsidies Research Inspection and quality control Processing and marketing MAAIF budget, disaggregated by subfunction 100% 80% 60% 40% 20% 0% 2013/14 2014/15 2015/16 2016/17 2017/18 Input subsidies Capital subsidies Other subsidies Research Extension Training Inspection and quality control Irrigation Other infrastructure Processing and marketing Administrative costs The consequences of institutional restructurings and service delivery should be examined with care. The increase in the extension budget at MAAIF goes against the spirit of decentralization promoted in the DSIP and ASSP. Indeed, both documents identify extension as a key function of local governments. Budget management should reflect the institutional roles and responsibilities outlined in the agriculture sector’s strategic frameworks. Source: † Republic of Uganda (2017: 2). ‡ ACODE (2015: 5). 65 Republic of Uganda: Agriculture Sector Public Expenditure Review Figure 3.8. Gaps between observed (final) PEAS allocations and ASSP targets for agricultural subfunctions (deviations from relative shares) 20% 15% 10% 5% 0% -5% -10% -15% Agricultural Extension Producer Inspection Irrigation Other Processing, Training research subsidies marketing and storage 2015/16 2016/17 2017/18* ! Note: Gaps for 2017/18 were computed using budgeted expenditures from the PEAS database. Figure 3.9. Relative size of agricultural subfunctions that could be assumed by the private sector within budgeted PEAS 1,600 Billions USh 1,400 1,200 1,000 800 600 400 200 0 2013/14 2014/15 2015/16 2016/17 2017/18 Potentially transferable to the private sector Public goods Source: Authors. Note: Subfunctions that could be transferred to the private sector are input subsidies, processing, marketing, and storage. 66 Republic of Uganda: Agriculture Sector Public Expenditure Review about 4 percent of total PEAS. Spending on 3.4 Conclusions research was starting to increase, but it was cut from 17 percent in 2013/14 to 11 percent 58 Although the final share of public spending on agriculture (PEAS) more than doubled in real terms between of the total budget in 2017/18. The private sector cannot finance these expenditures. But they are critical for leveraging private 2013/14 and 2016/17, the share of investments in the sector, as they contribute PEAS in total public expenditure (PE) to improving access to markets, increasing remained low throughout the period, value addition, and enhancing resilience to averaging 3.6 percent. Uganda’s share is climate change and variability.  also low compared to that of its East African 60 neighbors (Kenya, Rwanda, and Tanzania) National decentralization objectives and the Maputo/Malabo Declaration target are not fully matched by the allocation of 10 percent, but it is higher than the SSA of resources. Local governments receive average of 2.0 percent. Given the tight fiscal a much lower share of final PEAS than space and competing needs for public agriculture-related ministries. Collectively, resources from other key sectors such MAAIF, NAADS, NARO, and other SAGAs as infrastructure (transport, energy, and capture the bulk of the allocations in the water) and human development (health sector (approximately 92 percent). The and education), it is unlikely that spending allocations to local governments declined in agriculture will increase in the short- from 37 percent in 2013/14 to about 7 to medium term. To justify an increase in percent in 2017/18, falling slightly short of budget allocation to move toward the 10 the ASSP target of 10 percent. Given that local percent target (which is aspirational, as only governments provide frontline agricultural a few African countries have achieved or services such as extension and advisory are close to achieving it), MAAIF first needs services, market information services, and to improve the quality and effectiveness of rural infrastructure, their budget allocations spending in the sector. need to be increased. MAAIF should find ways of reducing its headquarters operating 59 The economic efficiency of PEAS was low, as depicted by the small share of capital expenditures (which are necessary costs and should retain a modest budget for its policy, strategy, and regulatory functions. 61 for spurring inclusive growth) in the The technical efficiency of PEAS was also development budget. Between 2013/14 low, as donor-funded projects continued and 2017/18 the development budget in the to suffer delayed implementation. agriculture sector declined from an average Delayed budget ratification by Parliament, of 80 percent to 67 percent. The share of and the untimely and insufficient release PEAS going to input subsidies increased of counterpart funds by MoFPED, are from about 19 percent in 2013/14 to about beyond the purview of MAAIF, yet these 25 percent in 2017/18 (with a high of 33 constraints cause several years to pass percent in 2015/16). This increase was largely before a donor-funded project can be at the expense of extension and advisory launched in Uganda. Other constraints, services, whose share declined from about including weak procurement and financial 37 percent in 2013/14 to 10 percent in management capacity, improper appraisal 2017/18. Other important functions such as and feasibility work, poor coordination of inspection and quality control, feeder roads, project preparation and implementation and storage had a combined share of only between MAAIF and local governments, and 67 Republic of Uganda: Agriculture Sector Public Expenditure Review inadequate operating budgets for technical staff are within the mandates of the ministry itself. These result in high cost overruns, low- quality work, and other kinds of wastage. MAAIF must work with MoFPED, MoLG, and local governments to address these policy and operational constraints. 68 Republic of Uganda: Agriculture Sector Public Expenditure Review 04 UGANDAN INSTITUTIONAL ENVIRONMENT & BARRIERS TO IMPROVING AGRICULTURE PUBLIC EXPENDITURE 70 Republic of Uganda: Agriculture Sector Public Expenditure Review 01 This chapter surveys the policy and institutional environment for agriculture, focusing on the organization and Country within 30 Years.” Vision 2040 will be realized through the implementation of successive five-year NDPs. One priority coherence of policy making, planning, of Vision 2040 is to enhance agricultural and budgeting for the agriculture sector productivity and value addition by investing and on the roles of the central and in new technologies, reforming the local government in that process. This agricultural extension service, improving discussion lays the groundwork for the land governance, enhancing market access, remainder of the chapter, which is a deeper and improving value addition. exploration of how barriers and enablers at work in these institutions influence the efficiency and effectiveness of public 04 The second five-year plan (NDP II), covering FY2015/16–2019/20, was introduced by the president “to propel Uganda towards expenditures and the delivery of services in the agriculture sector. lower middle-income status by 2020, in line with the aspirations of Uganda’s Vision 2040.” It aims at strengthening Uganda’s 4.1 The Policy and Institutional “competitiveness for sustainable wealth Framework for Agriculture creation, employment and inclusive growth.” Agriculture is identified as a development 02 This section describes the policy priority in NDP II, although the plan devoted framework for agriculture and illustrates only five general pages (out of 344) to the the roles and responsibilities of the main sector . central and local institutions in developing policy and engaging in the planning and budgeting process for agriculture. Drawing 05 The key targets for agriculture in the medium term are: (1) increase productivity by farmers to at least 50 percent of the on this institutional perspective, the yields at research stations; (2) transform subsequent section will focus on ways to subsistence farmers (producing for their improve the efficiency and effectiveness of own consumption) into enterprise farmers public expenditure in the agriculture sector. (producing for consumption and responding to market needs), and transform smallholder 4.1.1 The national policy and farmers into commercial farmers; (3) increase food security and food availability institutional framework in all parts of the country; (4) increase agricultural exports to at least US$4 billion per year; and (5) reform and strengthen Pillars Of The National Policy Framework agricultural service institutions such as research, extension, and regulatory bodies 03 The pillars of the national policy framework are the Uganda Vision 2040 and the National Development Plan to make them effective and efficient. (NDP). Launched in April 2013, Uganda Vision 2040 is the nation’s long-term development strategy. It describes the development paths that will bring about Uganda’s vision of “A Transformed Ugandan Society from a Peasant to a Modern and Prosperous 71 Republic of Uganda: Agriculture Sector Public Expenditure Review The Ministry of Finance, Planning, and The National Planning Authority Economic Development 08 The NPA is one of 11 autonomous 06 As part of its mission to “formulate agencies under MoFPED. It was established sound economic policies, maximize by an Act of Parliament in 2002 to be the revenue mobilization, [and] ensure principal statutory agency responsible efficient allocation and accountability for for the management of national and public resources,” MoFPED is responsible decentralized  development planning. for ensuring that sectoral investments, The NPA’s primary function is to produce including investments in agriculture, are comprehensive and integrated long- and well coordinated and appropriately funded. medium-term plans, like Vision 2040 and the MoFPED comprises five directorates, NDP. There are two directorates in the NPA: including the Budget Directorate, which is (1) Development Planning and Research responsible for analyzing, assessing, and and (2)  Development Performance. challenging spending proposals. Each sector Development Planning is responsible for is required to submit a written response coordinating and spearheading planning at explaining areas of under-performance, and the national and decentralized levels. It has MoFPED regularly calls together staff across six departments, including the Department line agencies for training and briefings of Local Government Planning. on budget preparation, execution, and management. The National Budget Framework Paper 07 During budget preparation, budget officers in respective line ministries must submit each iteration of the budget to 09 The NBFP, issued annually by MoFPED, shows the budget strategy for the next financial year. It is the mechanism for the MoFPED in person, requiring extensive government to implement its medium-term face-to-face interaction among staff in policy objectives as specified in the NDP— ministries and agencies. Regular slippages in other words, the NBFP provides the in the budget calendar, and delays in link between NDP policies and the annual sending final budget ceilings to spending planning and budgeting cycle. The NBFP agencies, weaken the quality of the budget is revised every year to reflect changes in process, however, and limit the potential for the macroeconomic framework, including input from below (Krause et al. 2016). Line fiscal resource projections. The NBFP has ministry officials are said to feel that MoFPED two parts: Part 1 essentially sets out the dictates rather than coordinates, and that macroeconomic forecast and the resource some consultation processes are tick-box envelope, and Part 2 provides details on exercises rather than genuine opportunities proposed sector plans and expenditures. to influence the budget process. MoFPED insists that new budgeting procedures introduced over recent years have led to better performance monitoring and better budget discipline. 72 Republic of Uganda: Agriculture Sector Public Expenditure Review The Uganda Bureau of Statistics and sustainable and provide food and income security to the citizenry.” 10 The Uganda Bureau of Statistics (UBOS) is the principal agency for collecting, processing, analyzing, and disseminating MAAIF and its agencies data, and it is responsible for coordinating and supervising the National Statistical System. Formerly the Statistics Department 12 At the center of much of the agricultural policy narrative is MAAIF, which consists of a headquarters in Entebbe and several under MoFPED, it was transformed into a semi-autonomous body by the Uganda semi-autonomous agencies. The structure Bureau of Statistics Act, 1998. The bureau’s of MAAIF is outlined in Figure 4.1. main tasks as identified in the 1998 act are: (1) providing high quality central statistical information services on social, 13 MAAIF headquarters. Key responsibilities of the ministry headquarters are to formulate and support agricultural policy, environmental, and economic conditions in sector planning, regulation, standard setting, the country; (2) providing guidance, training, quality assurance, sector monitoring, and other assistance as may be required to and guidance. The headquarters is also other users and providers of statistics; and responsible for supervising agricultural staff (3) being the focal point of cooperation with in district governments. Recent changes at statistics users and providers at regional MAAIF Headquarters have expanded three and international levels. UBOS takes the directorates to four (Animal Resources, lead in providing statistics for the agriculture Crop Resources, Fisheries, and Extension). sector, in conjunction with the smaller Within each directorate are two to three and limited-capacity Statistics Unit in the departments headed by commissioners, a Planning Department of MAAIF. few standalone departments (most notably one for planning), and four specialist units. 4.1.2 The Sectoral Framework National Agriculture Policy 11 Achieving the CAADP goals is a key pillar of the 2013 NAP, and its main objectives are to achieve food and nutrition security and to improve household incomes. The main interventions for achieving these objectives are: (1) production and value addition according to agricultural zones; (2) internal and external trade; (3) sustainable use and management of agricultural resources; and (4) development of human resources in the agriculture sector. By implementing the NAP, the GoU aspires to “transform the agriculture sector from subsistence farming to commercial agriculture” and thereby “make agriculture profitable, competitive 73 Republic of Uganda: Agriculture Sector Public Expenditure Review Figure 4.1. Structure of the Ministry of Agriculture, Animal Industry and Fisheries Office of the Minister Minister of State NAADS NARO Permanent Secretary NAGRIC COCTU DDA CDO UCDA Directorate Directorate Directorate Directorate of Animal of Fisheries of Agricultural of Crop Resources Resources Extension Resources Public Department of Department of Services Department of Internal Procurement Agricultural Infrastructure Finance and and Disposal of Planning Administration Audit Unit and Public Planning and Mechanization Assets Unit Development 14 MAAIF agencies. MAAIF agencies, with their own allocations/votes under the MAAIF budget, are NARO, NAADS, UCDA, CDO, 16 The planning period for DSIP II ended in 2014, and the document was superseded by the Agriculture Sector Strategic Plan NAGR&DB, COCTU, and DDA. The agencies (ASSP) 2015/16–2019/20. The ASSP focuses of MAAIF, operating at both the national and on 12 “priority” commodities (bananas, district levels, are responsible for executing beans, maize, rice, cassava, tea, coffee, fruits, approved plans and projects. vegetables, dairy, fish, and livestock) and four “strategic” commodities (cocoa, cotton, oilseeds, and oil palm) based on “their Agriculture Sector Plans contribution to household income and food security.” The budget needed to implement 15 MAAIF has published agriculture sector plans since 2004; before that, there was the multisectoral Plan for the the ASSP has been “computed at USh6.97 trillion (US$1.88 billion equivalent) over the 5-year period.” However, “as interventions Modernization of Agriculture (PMA, will be funded through prudent resource 2001).17 The current round of plans probably allocation,” ASSP also provides for a begins with the second Development “constrained budget” in line with NDP II, Strategy and Investment Plan (DSIP II), amounting to USh4.6 trillion (US$1.24 billion published in 2010 as part of the CAADP equivalent). process. 17 Famously said by the PS, MoFPED (at the time) to be neither a plan nor about the modernization of agriculture, nor even specific to agriculture, the PMA was a framework which set out the strategic vision and principles upon which interventions to address poverty eradication through transformation of the agriculture sector could be developed. It identified priorities for interventions and activities in the form of seven pillars, to be implemented by various government ministries and local government, and a non- sectoral conditional grant to be administered by the PMA Secretariat, but allocated though local government. Much lauded at first, it slowly died as a process, largely due to the challenges of getting all the stakeholders to work together. 74 Republic of Uganda: Agriculture Sector Public Expenditure Review 17 Indicative budgets are shown by strategic area in ASSP with no detailed breakdown of the costs. There is no prioritization of handling and agro-processing). The main stages in the budget formulation process are summarized in Box 4.1. interventions or work plan in the ASSP: “In developing the budgets of the ASSP, consideration has been given to the need The Agriculture Sector Working Group to remain within reasonable limits …it is also necessary to take into account the equitable distribution of the budgets among the 20 A key institution in the planning and budget process is the Sector Working Group (SWG). The SWG for agriculture various priorities and commodities so that allocation to one will not be at the expense of includes MAAIF’s heads of department and other priorities….” In other words, all existing representatives of civil society, donors, the vote-holders get a share of the allocation, private sector, and farmers/smallholders. pretty much in line with the share they have MoFPED initiated the SWG approach and been receiving. still has a key role in promoting it. The intention was that SWGs would provide a multi-stakeholder platform and consultative The MAAIF Budget Process mechanism for formulating public expenditure policy, setting priorities and 18 From the viewpoint of the agriculture sector, the whole budget exercise, at least in principle, lasts nine months, from planning. In this capacity they are expected to review and sign off on the NBFPs, monitor performance, and ensure that projects and the national consultative meeting scheduled programs are consistent with the NDP II and to be held in October, at which the MTEF with sector priorities. The ASSP for MAAIF ceilings for each line ministry are announced, describes the SWG’s other responsibilities, to the reading of the National Budget in June including: (1) pursuing solutions to structural, the following year. institutional, and other constraints to effective ASSP implementation at the 19 The BFP for agriculture is prepared in the Planning Department at MAAIF with some support from the Agriculture central, zonal, and local levels; (2) reviewing mechanisms for enhancing stakeholder participation in implementing the ASSP; and Sector Working Group (see below). (3) reviewing the agriculture BFP as a basis Annual assessments of performance against on which the annual budget for the sector is the targets, year on year, are undertaken compiled. and presented to the ASWG. However, the value of these assessments (beyond broad budget utilization) is hampered by the availability of data and the capacity to undertake meaningful analysis. The key objective for the sector, for several years now, has been to increase agricultural production and productivity, presumably through investments in irrigation schemes and research and extension services. Less attention has been given to addressing access to markets (for inputs, output, and finance) and value addition (post-harvest 75 Republic of Uganda: Agriculture Sector Public Expenditure Review Box 4.1. The Budget Preparation Process October: Draft Budget Ceilings • MoFPED distributes Budget Call Circular to all ministries, agencies, etc., with inter- and intra-sector MTEF allocations • MoFPED hosts a Budget (Framework) Consultative Workshop November – December: Preparation of Sector Working Group Reports • Sector working groups use indicative budget ceilings to arrive at inter-sector allocations and prepare Sector Budget Framework Paper (BFP) January: Preliminary Estimates • Sector BFP reports discussed with MoFPED during ministerial consultations • Ministries and agencies prepare draft budget estimates on this basis March: National Budget Framework Paper to Cabinet and Parliament • MoFPED compiles Sector BFPs into the NBFP, which is presented to the cabinet • After NBFP is considered and approved, it is submitted to parliament April-May: Parliament and Public Expenditure Review • The Budget Committee of Parliament discusses the NBFP and presents recommendations to the president and MoFPED • National Public Expenditure Review meeting is held at which the NBFP is discussed June: Finalization of Budget • Based on parliamentary/Public Expenditure Review recommendations, the proposed Budget and Medium-Term Expenditure Framework are amended • The Budget is read Source: GoU (2007). 4.1.3 The Local Government Structures 22 At the top of the five-tier local government structure is the district, comprising several counties and municipalities 21 In the early 1990s, the GoU issued a new policy (Republic of Uganda 1993) that decentralized powers essentially to two lying within its territory. It has primary responsibility for subnational service delivery. An elected council (LC5) presides levels of local government: the district over the district, headed by a chair and an (LC5) and the subcounty (LC3). These levels executive committee. On the technical side, were mandated to formulate and implement the Chief Administrative Officer is the head development plans; draft, approve, and of the district administration. Originally, this execute budgets; raise financial resources officer was appointed by the LC5, but central and use them to respond to local priorities; government has taken back these powers. make ordinances and bylaws; and manage The district structure includes the sector and deliver services that had previously departments such as agriculture, education, been the responsibility of the central health, works, water, environment, and government. In 1997, the Local Governments planning. The elected leaders are supposed Act formalized this structure, and central to oversee the activities of the technical staff. government resources were made available Membership of the LC5 must be at least 30 to enable the new system to proceed. percent women. 76 Republic of Uganda: Agriculture Sector Public Expenditure Review 23 Below the district is the county council (LC4), constituted by members of subcounty executive committees. These 27 At the base of the five-tiered local government structure is the village, which is Uganda’s smallest political members elect an executive committee, administrative unit. Uganda has some which has limited powers.18 Counties do, 60,000 villages (USAID 2015), and the average however, constitute the parliamentary village comprises 50–100 households. Each constituencies, with each county village has a council (LC1) whose members represented in the national parliament by include all residents 18 years and older. an elected member. Presiding over each village council is an executive committee, with a chairman and 24 The next lower level is the subcounty (LC3), made up of several parishes. The subcounty chief works with an elected nine members. These committees have no service delivery function but are meant to “mobilize” community members for matters council, which has a chair, an executive of collective interest. committee, and elected councilors representing the parishes. The subcounty chief heads a technical team of officials, who are responsible for overseeing service 28 Another element in government structure is the Resident District Commissioner from MoLG. the local delivery, as inspectors and coordinators The commissioner represents the central in, for example, the sector ministries of government at the district level and is agriculture, health, education, and water responsible for supervising staff in the provision. districts, providing advice, linking a district government with the center, and overseeing 25 At the LC3 and LC5 levels, the responsibility to implement council decisions and central government directives belongs to implementation of national policies. appointed civil servants, who are overseen 4.2 Institutional Barriers to Improving by the Chief Administrative Officer. In theory, Public Expenditure in Agriculture elected leaders oversee the work of civil 29 servants and wield authority over them. This section develops a detailed analysis Tensions inherent in the relationship of the of institutional barriers and enablers for two groups frequently arise, however, and improving the efficiency, quality, and they can negatively affect service delivery. effectiveness of public expenditures and the delivery of services in Ugandan 26 A parish (LC2) comprises several villages. Each parish has a council whose members include all the chairpersons from the parish’s agriculture. The analysis attempts to answer three fundamental questions: What are the barriers for effective agricultural constituent villages. The role of parish policy implementation? How could public councils and their committees is largely expenditure for agriculture be improved restricted to settling local disputes referred from an institutional perspective? What is from LC1s, but currently they are dormant. the relative balance and efficiency between central and local government spending in the context of fiscal decentralization? 18 Republic of Uganda (2001). See also Oxford Policy Management (2007). See Rwamigisa et al. (2013) and Kjaer and Joughin (2012). See World Bank (2010a). 77 Republic of Uganda: Agriculture Sector Public Expenditure Review 30 The discussion will comment on actual performance relative to policy where possible. It will be seen that the policy ceilings. In a detailed analysis of the FY2017/18 budget, NPA notes that budget performance across sectors of the economy, narrative throughout the period under including agriculture, was unsatisfactory. review is that the government aims to The sector budget targets, according to the bring services closer to the people and in NPA analysis, significantly differed from NDP the process somehow generate improved II targets, and slow budget releases and low productivity. As this review will emphasize, absorption made matters worse. policy in the Ugandan agriculture sector is not what is laid out in the many documents but is what is represented by the annual 32 The Agriculture Sector BFP is rarely followed to the letter. In most cases, the MAAIF budget is made up of last year’s figures budget and how it is spent. with a few extrapolations and adjustments. The process is further weakened by the 4.2.1 Institutional Barriers at fact that the BFP may be rehashed before the National Level cabinet approval without any input from the technical staff. And should a real need arise for additional budget later in the year, a “supplementary budget”20 can be Weak Agriculture Sector Planning And requested (and has been many times).21 Budgeting Capacity Records for supplementary budgets have not been aggregated over the years. But, 31 The planning process described in the previous section is top down, lacks analytical detail, and is deficient in for FY2015/16, the MAAIF supplementary budget totaled USh9.8 billion (USh6 billion for NAADS and USh3.8 billion for CDO). execution and in monitoring progress. 33 For example, NDP II was prepared by NPA MAAIF leadership has articulated the with only limited input from MAAIF, perhaps need to strengthen planning within the because of the ministry’s lack of capacity.19 ministry. In June 2018, a new commissioner Exactly how any of the NDP II goals are to be was appointed to head the understaffed achieved, let alone what the role of MAAIF MAAIF Planning Department, but part of the might be in pursuing them, is not discussed problem, as MAAIF will concede, is that the in the NDP document. The linkages between Planning Department lacks authority over the NDP II, ASSP, MTEF, and budget targets the four MAAIF directorates. The possibility are not obvious. The ASSP would be more of elevating the Planning Department to a strategic if it gave some indication of: directorate has been mooted many times (1) how “prioritization” was assessed; (2) since the Functional Review of 2002. It was the expected outcomes; and (3) how the picked up during the DSIP restructuring proposed investments fit into the MTEF process of 2009/10, for instance, but never 19 In fact, the performance of NPA may not be much better. Krause et al. (2016) write: “While the NPA is responsible for NDP, interviewees suggest that the real powers rest with MoFPED, which sets the MTEF and thus shapes the country’s development priorities.” 20 A Supplementary Budget is an expenditure statement introduced to provide funds to the government to meet new or additional expenses in a fiscal year. 21 As illustrated in New Vision (April 26, 2017); the newspaper reports the minister telling the Parliamentary Committee that USh21 billion of the MAAIF budget will be allocated to backing up the president’s pledge to provide one million hoes to “less privileged farmers” and 167 tractors to “various farmers’ groups.” 78 Republic of Uganda: Agriculture Sector Public Expenditure Review happened. The top policy management team the Agricultural Technology and Advisory can be reluctant to take policy decisions Services Project. The GoU could not around planning and budgeting, which are immediately fill this financing gap, which essential improve the efficiency of resource inevitably has a significant impact on NARO’s use. operational effectiveness. 34 MAAIF has defended its implementation performance over the years by focusing on “insufficient resources.” To some 36 Heavy reliance on projects can also create “islands” of authority within MAAIF. These islands are the basis on which extent, however, the lack of resources is an funds, power, influence, and control are issue of allocation efficiency. Records show traded. Project coordination units, which that consistent with the ASSP budget targets aim to ensure timely project implementation (Table 3.9, Chapter 3), MAAIF allocated may sometimes create parallel structures more funds to input subsidies , followed by that undermine the formal structure of civil extension and advisory services , than to service authority. Budget execution rates R&D, irrigation, and rural roads, which could have also been lower for projects than for have a sustainable impact on increasing government-funded activities, partly owing productivity and building resilience. The to the procurement and disbursement past weakness of planning and budgeting procedures of donor agencies. Establishing at MAAIF Headquarters was one reason that Single Project Implementation Units that contributed to the agriculture sector being support implementation of several projects subject to ad hoc interventions by the either can improve efficiency, the sharing of State House or MoFPED and NPA. specialized capacity and the sustainability of expertise within the ministry. Reliance On Projects And Special Programs 37 Special GoU programs to provide immediate ad hoc solutions are becoming the new norm. For example, the MAAIF 35 Nothing is said in the ASSP about projects budget for FY2016/17 saw an increase of at MAAIF or how they are managed and nearly 75 percent over the FY2015/2016 financed. In its latest Policy Statement budget. The increase was mainly to raise GoU (Republic of Uganda 2018), MAAIF appears allocations for expenditures on: (1) “Wages,” to have 37 discrete projects. The analysis for the additional agricultural extension staff of the level and composition of PEAS to be recruited; (2) “Non-Wage Recurrent,” all (Chapter 3) shows that a large proportion of which was allocated to UCDA to produce of resources budgeted for the agriculture and distribute coffee seedlings; and (3) sector come from external sources. Over “Domestic Development,” almost entirely 2013/14–2016/17, an average of 33 for the NAADS Secretariat (presumably percent of agriculture sector budgets were to finance free input procurement and sourced externally, particularly through distribution by OWC), the construction of donor-funded projects. Such a high share grain storage facilities, and the purchase of of donor support may weigh negatively on hand-hoes for distribution to smallholders.  the predictability and sustainability of sector budgets. For example, the NARO budget for FY2018/2019 decreased by USh22 billion over the previous fiscal year (a reduction of 26 percent) following completion of 79 Republic of Uganda: Agriculture Sector Public Expenditure Review Ineffective Sector Working Group Weak Coordination Under the Agriculture, Rural, and Urban 38 The agriculture SWG has some authority to reallocate the budget within the sector to reflect ASSP, NDP II, and Development program MTEF priorities, but it may never have used that authority. The SWG would 40 Programmatic budgeting means that several ministries, departments, and agencies play important roles in be the entry point for agriculture sector planning, budgeting, and executing stakeholders to bring in ideas for reforms, budget under the Agriculture, Rural, and and it could be much more closely involved Urban Development (ARUD) program. The with annual work planning and budgeting by ARUD program includes MAAIF (and all its MAAIF, in addition to providing oversight of semi-autonomous agencies); MoLG; MWE; budget execution through monitoring and the Ministry of Lands, Housing and Urban evaluation. However, few SWG members Development (MoLHUD); local governments; have the time to scrutinize the annual activity and the Office of the Prime Minister. The plans and budgets for the sector, however. analysis of the level and composition of 39 The SWG’s hesitation to get to grips with sector expenditures (Chapter 3) shows that the big sector policy and strategic issues allocations to these rural development– arises partly from the way it convenes and related ministries and local governments conducts its meetings, which especially average 33 percent of the PEAS. Each deters busy representative of the private ministry in the ARUD program has its own sector and farmer organizations. MAAIF SWG, however, and there is no framework commits to forward all relevant documents for coordinating those SWGs to ensure for review and consideration by working complementarity in planned and budgeted group members at least one week before activities, which would improve the technical the meetings, and to deliver the minutes of and economic efficiency of expenditures in the meetings no later than one week after the sector. the meetings. Unfortunately, MAAIF often has not been able to fulfill this promise. Consequently, SWG members rarely 41 The intention of the proposed Uganda Platform for Agricultural Coordination and Transformation (U-PACT) is to undertake a critical review of MAAIF budgets “spearhead coordination and agricultural and execution performance. Enhanced SWG transformation,” and it may help to improve oversight would help to improve budget coordination under the ARUD program. The implementation performance by MAAIF. core ministries involved are MAAIF, the Office An initiative by MAAIF and development of the Prime Minister, MoFPED, MWE, MoLG, partners is planned during 2019 to review MoLHUD, the Ministry of Trade, Industries the functioning of the ASWG, the experiences and Cooperatives, and the Ministry of Works of other sector SWGs and agreement and Transport. Other relevant ministries can of changes that would strengthen its be co-opted from time to time as the need functioning and effectiveness. arises. One of the lessons learned from implementing the PMA is that a multisectoral coordination framework is complex and difficult to manage. Whether U-PACT will effectively coordinate the ARUD program remains to be seen, but it is certain that 80 Republic of Uganda: Agriculture Sector Public Expenditure Review structural issues will need to be addressed to physical implementation of approved to avoid the pitfalls encountered with the annual work plans, their outcomes and PMA coordination framework. impacts, and budget execution rates, in addition to reducing transparency and accountability to citizens. Weak Linkages Between MAAIF and Local Governments 4.2.2 Agriculture Sector Reforms In Uganda 42 District or local government plans and budgets are insufficiently integrated in the MAAIF budget. The local government 44 Over the years, MAAIF has been responsible for implementing has three sources of funding: unconditional substantial reforms in the sector but has grants, conditional grants, and equalization struggled with all of them: The Plan for grants, each with different requirements. Modernization of Agriculture (PMA) in 2001,22 The abolition of the graduated tax has NAADS in 2007,23 and the ministry’s own reduced the local revenue base. reorganization24 (Box 4.2). Almost all these reforms sought to set definite priorities and align them with functions and the budget. Low Governance Capacity 43 Capacity within MAAIF to perform the functions related to procurement, 45 Despite efforts at least since the 2000s, the government retains an outsized role in agriculture, where its continued financial management, environmental presence creates opportunities for rents for and social safeguards, and monitoring public officials and political elites and leaves and evaluation is low. These deficiencies little room for private sector participation are partly caused by the low number of and development. Government programs qualified and experienced staff to carry include free distribution of inputs through out these functions; and partly due to NAADS and the OWC, farm implements (hand poor understanding of the requirements, hoes), and tractors. The government seems procedures, and processes of various more focused on transforming subsistence donor agencies. Low procurement capacity farming into modern commercial-oriented delays the approval of contracts and farming with the free distribution of inputs leads to cost overruns; when inadequate than with the exigencies of supporting procurement capacity is coupled with low policies that (1) enhance the capacity of financial management capacity, payments to MAAIF to efficiently and effectively deliver on service providers take longer than expected, its mandates; (2) increase public investments attract penalties, and result in low budget in infrastructure (such as irrigation and execution rate. Low capacity to implement rural roads); and (3) crowd in private environmental and social safeguards makes sector investment in agribusiness, such as it difficult to ascertain the sustainability and firms that market inputs and outputs and inclusiveness of MAAIF programs. A stronger provide agricultural services (for instance, monitoring and evaluation system would mechanization and financial services). support performance assessments related 22 Republic of Uganda (2001). See also Oxford Policy Management (2007). 23 See Rwamigisa et al. (2013) and Kjaer and Joughin (2012). 24 See World Bank (2010a). 81 Republic of Uganda: Agriculture Sector Public Expenditure Review 46 Part of the MAAIF mandate is to support and build capacity in district authorities so that they can provide extension advice, provide regulatory and quality assurance services, and collect agricultural statistics and information. Given that NAADS in recent years has been allocated the lion’s share of the MAAIF budget for procurement and distribution (through the OWC) of free inputs, the ministry’s capacity-building functions are grossly underfunded. Box 4.2: Reform initiatives of the Ministry of Agriculture, Animal Industry, and Fisheries since 2000 2001: As part of the Plan for Modernization of Agriculture (PMA), MAAIF undertook a “Core Functional Analysis” that identified priorities for the ministry (policy and planning, regulatory services, agricultural promotion services) and proposed a new structure reflecting those priorities. The new structure was not implemented, “largely because of lack of consensus within MAAIF and other key ministries.”† 2002: The “Reorganization of MAAIF” study followed from the Core Functional Analysis. It made additional proposals for reorganization to better deliver relevant aspects of the Presidential manifesto and PMA, with an emphasis on results- oriented management and output-oriented budgeting, but it was not implemented. 2009: The ministry commissioned a “MAAIF Restructuring Report” as part of the process to approve the Development Strategy and Investment Plan (DSIP). The report, with its recommendations on restructuring, was submitted to the Ministry of Public Services (MoPS). During the dialogue with MoPS, a further study (“Review of the MAAIF Restructuring and Reform Process”) was undertaken. The conclusions—presented in detail in the published DSIP (2010)—were to form a four- directorate structure with the creation of two new directorates (significantly, one of the new directorates was Planning and Policy). The proposals and a plan for transitioning to the new structure were approved by top management at MAAIF, the cabinet, and development partners in March 2010. The transition was linked to the move of key headquarters staff to Kampala in 2012. Although staff moved, restructuring never started. After two years funding expired, and staff went back to Entebbe. 2011: MAAIF commissioned a review of institutional linkages to “make proposals for facilitating effective cooperation and collaboration in the implementation of the DSIP between MAAIF, the sector agencies, local government authorities and other key stakeholders.” The main findings were that no single or common institutional and regulatory framework existed, and its absence detracted from achieving coordinated DSIP implementation. The report had no specific outcome. 2012: MoPS initiated a functional review of MAAIF by Adam Smith International “to consolidate past public service reform initiatives dating back to early 1990s.”‡ The report proposed modified but very similar structures to the MAAIF Restructuring Report. It also recommended creating an additional directorate of Regulatory and Quality Assurance Services. The recommendations were not implemented. 2013: The National Agricultural Policy contained nothing about reforming MAAIF. 2015: Part of the argument against creating new directorates has been that MoPS processes are “too unwieldy,” but with the collapse of the National Agricultural Advisory Services (NAADS), a new Directorate of Extension was created, bringing back the very functions delegated to NAADS under the PMA. 2015: The Agriculture Cluster Development Project has International Development Association financing of US$15 million for a component on “Project Management and Capacity Building for Policy, Regulatory, and ICT Functions of MAAIF,” but this agenda is relatively limited. 2018: A proposed Uganda Platform for Agricultural Coordination and Transformation (U-PACT) is under consideration. Source: † DSIP (MAAIF 2010a). ‡ Adam Smith International (2011). functional responsibilities assigned to 4.2.3 Institutional Barriers at the District the respective levels of government. or Local Government Level The functions of the central and local governments are clearly demarcated 47 In the context of fiscal decentralization, the relative balance and efficiency of expenditure by the central and local in Uganda’s Constitution. To ensure efficient and effective service delivery by local governments, central government governments needs to reflect the ministries, departments, and agencies 82 Republic of Uganda: Agriculture Sector Public Expenditure Review are responsible for providing direction and assistance through technical support, advice, supervision, and monitoring, with 50 The division of responsibilities between central and local governments seems clear, but in practice, considerable the purpose of ensuring adherence to difficulties emerge. Based on the assigned guidelines on policy, strategy, standards, roles and responsibilities, resources at and regulations. The central government the central government level should be provides grant funding through the weighted more strongly in favor of policy budget, and local governments, in turn, are analysis and reforms, planning and technical responsible for planning and implementing assistance, R&D, and regulatory and their budgets in line with the guidelines. quality assurance functions. For the local governments, resources should be weighted 48 MoLG is mandated to coordinate implementation of the decentralization program. To support efficient, effective, toward the delivery of agricultural services (such as advisory or extension services, animal health and veterinary services, agro- and sustainable service delivery by weather and market information services) local governments, MoLG has four key and the development of rural infrastructure responsibilities: (1) inspect, monitor, and, (irrigation, drainage, feeder roads). where necessary, offer technical assistance, Intuitively, the bulk of PEAS spending should supportive supervision, and training; be directed to local governments where (2) coordinate and provide advice for investments are needed rather than to the harmonization and advocacy; (3) link local central government agencies. In practice governments with other ministries and this is not the case, primarily because of the departments, parastatals, the private sector, erosion of the decentralization program, and regional and international organizations; the fragmentation of districts, and low and (4) research, analyze, develop, and institutional capacity at the local government formulate national policies, including those level. These constraints are briefly discussed pertaining to local revenue mobilization next. through taxes, fees, levies, and rates. 49 The efficiency argument in favor of decentralization is that local governments can interact with local citizens better 4.2.4 Erosion Of The Decentralization Program than central governments because of their geographic proximity. This interaction enables local administrations to 51 Originally, in line with the principles of decentralization, the government intended for local governments to be spend the budget more effectively and with financed by locally generated revenue, more impact. The argument is partly based which would be topped up by fiscal on a theoretical assumption that when local transfers from the central government. governments tax their local communities, Locally generated revenue consisted of the those people are likely to want something graduated tax, fees from market dues and in return, and hence a local revenue bargain rates, various licenses, and property taxes. evolves in which local officials are held to Revenue was collected at the subcounty account for the money which has been level (LC3), which had the right to retain collected locally (Kjaer and Katera 2017). In 65 percent of the collected revenue with other words, local taxation increases the the obligation to remit the balance to the likelihood that the demand for local service districts. delivery is met. 83 Republic of Uganda: Agriculture Sector Public Expenditure Review 52 These locally generated revenues were to be supplemented by three types of fiscal transfers from the central and creating dependency on fiscal transfers from the central government. As a result, about 90 percent of the budget across all government. First, unconditional grants districts is currently financed by the central would allow local governments discretion government. in the use of resources, while privileging five national program areas (agricultural extension, primary education, primary 54 The share of the budget allocated to local governments has eroded substantially, from 31 percent in FY2010/11 to 21 healthcare, feeder roads, and safe and clean water). Population size and geographical percent in FY2015/16, and now averages expanse are the main considerations in less than 10 percent (ULGA 2016). Coupled the allocation of unconditional grants, with with feeble local revenue generation, it has population accounting for 85 percent of resulted in severe financial shortfalls for the weighting and geographical area 15 local governments. The decentralization of percent. Second, conditional grants would functions is not buttressed with increased finance predetermined programs under the allocation and spending in the agriculture priority areas, ideally based on agreements sector; in other words, public spending on between central government and the local agriculture is increasingly centralized. governments. The third type of fiscal transfer consisted of equalization grants, a subsidy that came into operation in FY1999/2000. 4.2.5 Fragmentation Of Districts The central government would make equalization grants available to the least developed local governments so that they 55 Aside from abolition of the graduated tax, the major development that torpedoed the decentralization dream has been could meet minimum standards for service delivery. the persistent creation of new districts. In 1995, Uganda had only 36 districts. The 53 From the start, inevitably, revenues were insufficient for the levels of service delivery aspired to by local governments. number had increased to 56 by 2002, to 80 by 2008, 112 by 2015, and further expanded to 125 by September 2016. The GoU argues The graduated tax, with its roots in the that the expansion of districts is a response colonial era, was especially unpopular. to the rising population and the quest for The Local Governments Act required the bringing government closer to the people. graduated tax to be collected from all able- But those working in the districts are more bodied male persons above the age of 18 cognizant of the evident problems with this and all able-bodied women engaged in approach. Staff are now shared out among gainful employment. According to studies the old and new districts, so already limited undertaken by the Local Government Finance human resources are spread ever more Commission, graduated tax contributed thinly. There is increased administrative about 75 percent of locally generated confusion, especially in the new districts, revenues in districts and 35 percent in some of which have close to zero capacity municipal councils in FY1997/98. Then, in and are poorly resourced. The quality of 2005, in the run-up to the election, the GoU services is deteriorating steadily and the suspended the unpopular graduated tax. In coverage across all districts is shrinking. one swoop, this action wrecked the finances of local governments, undermining service delivery, limiting the autonomy of districts, 84 Republic of Uganda: Agriculture Sector Public Expenditure Review The limited budget for extension services staff, but particularly local councilors has already been mentioned. But there (elected politicians), who often have a low is a long record of limited staff numbers level of education and undertake actions that in the districts and a long history of weak obstruct economic development. There is also supervision. a need for a change of attitude towards the private sector from being a major source of revenues for the LGs [local governments] to 4.2.6 Low Institutional Capacity actors who need to be supported to generate economic growth and create jobs in the 56 DFID (2013) describes institutional capacity at the local level in northern locality. Uganda as follows: The district LGs [local governments] in 58 The desperate vacuum in extension service provision in the districts can hardly be mentioned too often; as Northern Uganda have very serious capacity emphasized by the World Bank (2015: 19), problems, which constrains their effective “the several thousand advisors in the field service delivery. It has been observed that under NAADS have been let go, and even inadequate capacity in terms of staffing and under optimistic projections, it is likely to take skills at district level has led in some cases well over a year to replace them in the field to inadequate planning and procurement under the new institutional configuration).” capacity, including procurement delays In early 2017, the press reported in some and weak supervision of projects. Apart detail that 1,945 extension officers had from the low staffing levels, the knowledge been recruited under the new system, but and skills gap identified are in the areas there were no operational budgets for them of planning and budgeting, procurement, to perform their duties. MAAIF continues to financial management and reporting, M&E recruit extension workers to reach a target [monitoring and evaluation], records and of 4,000 in FY2018/19. The ministry has been data management, ICT, conflict and human lobbying hard for more budget to deliver resource management. Furthermore, the extension services, but funding has not communities are equally not aware of their been forthcoming and threatens to make roles and therefore cannot hold the district the recruited extension workers redundant. leadership accountable. 57 These problems may be worse in the northern districts, but they are apparent 4.3 Conclusions 59 to some degree in all districts. According Public expenditures on agriculture to USAID (2015), staffing levels are worse underperform because of structural (only about 45 percent of posts filled) in deficiencies and capacity constraints— newly created districts, particularly those but even so, MAAIF has ample scope to that are more remote and hard to reach. improve the technical and economic Another report (World Bank Group 2016) allocation of public resources to spur goes even further: growth in the sector. To achieve this improvement, MAAIF must continue with The other major constraint identified was radical institutional reforms to reflect its the low capacity and understanding of new roles, including its role in delivering local economic development among local extension services (transferred from NAADS), governments officials, including technical and reinforce its role in policy and planning. 85 Republic of Uganda: Agriculture Sector Public Expenditure Review Champions are needed from within MAAIF, at the senior leadership level, to articulate the rationale, significance, and outcomes of the reforms. 60 "The balance and efficiency of central and local government spending must improve". Local governments should get a bigger share of PEAS than the current average of less than 10 percent. District fragmentation, underfunding, and low capacity at the local government level have caused the quality of services to fall across the board, even though the total number of people with ostensible access to some services may have grown. 86 Republic of Uganda: Agriculture Sector Public Expenditure Review 05 THE ROLE OF THE PRIVATE SECTOR IN PROVIDING AGRICULTURAL SERVICES 88 Republic of Uganda: Agriculture Sector Public Expenditure Review 01 Leveraging private sector investment in agriculture is critical to fully realizing the sector’s potential for contributing to unions provide agricultural services to small-scale producers in various value chains. The discussion concludes with policy Uganda’s Vision 2040. Agriculture by nature recommendations in support of inclusive is a private sector activity, with firms best private investment in the sector. positioned to understand market potential and to engage within their specific value chains. Moreover, the Maximizing Finance for 03 The material for this chapter was gathered through a thorough desk review of key documents, case studies, Development principles dictate—rightfully— that scarce public resources be focused on and interviews with selected private those core public goods and services for sector actors. That information was used which private financing is unlikely. A rigorous to identify the key sector actors, identify application of the Maximizing Finance for the attractive commodity value chains for Development framework will help to identify private sector service provision, identify those priority public functions. incentives that enable producer groups to increase production, and assess public 02 At the same time, the constraints to private investment in agriculture are well known, particularly within those sector enablers of improved agricultural production. value chains in which small-scale producers can participate fully. This 5.1 The Private Sector and chapter reviews Uganda’s experience and Agricultural Services in Uganda: that of comparator countries to provide Background and Context policy recommendations on innovative 04 models of leveraging greater private sector Guided by the Vision 2040, Uganda aims investment in inclusive agribusiness, and to transition from low-income to upper to adjust public expenditures to facilitate middle-income status within 30 years private sector investments in agriculture. It through private sector led development. does not assess the profitability or merits In this context, the private sector is defined of specific value chains, given that hard as an element of the national economic data on private investments are difficult system that is run by individuals and to obtain, commercially sensitive, and companies, rather than by the government, often indistinguishable from their regular with the intention of making a profit. The business investments or working capital GoU recognizes the private sector’s key outlays.25 Instead, the analysis focuses role in creating jobs, exploiting business on current national and sectoral policies, opportunities, and—particularly in the strategies, and plans to promote private agriculture sector—unlocking the potential sector development in Uganda. It examines in value chains. Through policy and models for the private sector to provide liberal economic structural reforms, the agricultural services, together with the government has consistently sought to opportunities and constraints for bringing create an enabling environment for these those models to scale. Case studies review outcomes. how the private sector and cooperative 25 Note that although this chapter sheds light on some investments made by the private sector as part of normal business operations, it does not take into consideration financial outflows related to Corporate Social Responsibility, a self-regulating business approach that contributes to sustainable development by delivering economic, social, and environmental benefits for all stakeholders. 89 Republic of Uganda: Agriculture Sector Public Expenditure Review 05 National policies and their implementation are the critical levers for easing the costs and risks of doing business with 07 A few strategies have rallied the private sector to identify investment opportunities in Ugandan agriculture, small-scale producers and integrating including the PMA, the Medium-Term them into value chains. The GoU has Competitiveness Strategy (2000–05), and recently adopted a National Private Sector the first and second Competitiveness and Development Strategy (2017/18–2021/22) Investment Climate Strategies (2005/06– to reinforce its objective of private sector led 2009/10, and 2011/12–2015/16). MAAIF in growth by improving the business enabling 2016 formulated the National Agricultural environment, accelerating industrialization, Extension Policy (NAEP) to guide, harmonize, and supporting firm-level productivity and and regulate the provision of agricultural modernization.26 The strategy seeks to extension services to farmers, farmer groups, strengthen the coordination of policies and users of extension knowledge products and initiatives geared toward growing and in agricultural value chains throughout the developing private enterprises. It also seeks country. The 2016 policy establishes MAAIF to facilitate the management and measure as the hub for implementing agricultural the performance of national efforts to extension and related services to address improve private sector competitiveness. shortcomings in service provision, respond In the absence of a public institution with to users’ demands, take advantage of a specific mandate to engage the private emerging opportunities, and support the sector, it is hoped that this strategy will much-needed progression of small-scale coordinate efforts across and within sectors, producers from subsistence production to as well as with development partners, to market-oriented commercial agriculture. achieve that engagement.27 06 Missing from the current policy framework, however, is a clear incentive 08 The policy emphasizes that agricultural services will be provided through a “pluralistic, inclusive, equitable, mechanism through which the public decentralized, integrated, and sector will support the private sector harmonious system” that links all in providing agricultural services as categories of “users” along the value public goods. The perception is that chain with appropriate services and public interventions to support private innovative technologies. More specifically, sector development are skewed toward the objectives of NAEP are: (1) to establish manufacturing and industry, with incentive a well-coordinated, harmonized, pluralistic mechanisms such as land acquisition in agricultural extension delivery system for the recently developed industrial parks increased efficiency and effectiveness; (2) to and tax relief for imported machinery. build institutional capacity for the effective Fewer interventions appear to enhance the delivery of agricultural extension services; performance and competitiveness of firms (3)  to develop a sustainable mechanism for involved in the agriculture sector. packaging and disseminating appropriate technologies to all categories of farmers and other beneficiaries in the agriculture sector; and (4) to empower farmers and other value chain actors (including youth, women, and 26 MoFPED (2017). 27 Global Partnership for Effective Development and Co-operation (2018). 90 Republic of Uganda: Agriculture Sector Public Expenditure Review other vulnerable groups) to participate to land use. Instead, the program has been effectively in agricultural extension processes captured by elites who claim to be farmers and build their capacity to demand services. and distribute inputs among themselves What is striking about the NAEP objectives, (Tabaro and Katusiimeh 2018). Amid these strategies, and implementation guidelines is implementation inconsistencies and gaps that they say so little about the role of private in service delivery, it is not clear who is sector actors in the provision of extension delivering which services to whom, and services. although it seems that private companies have increased their role, their contribution 09 The government has continued to offer extension and agriculture-related has not been fully documented. services, despite disappointing results and increasing criticism regarding low staffing, limited engagement with farmers, 11 Garforth and Jones (1997) identify four main drivers of change in the traditional public extension services: the economic and extension workers who are not trained and policy climate, the social context in rural to address emerging threats in the sector. areas, systems knowledge, and information NAADS, designed as a demand-driven technology. For the private sector, however, program to deliver agricultural advisory it is the profit motive that drives the services, was criticized for targeting only development of more independent, client- “elite” farmers with a capacity to evolve into oriented, private extension services attuned commercial farmers. Despite some success, to specific value chains of commercial NAADS reached only 22 percent of the target interest. The development of a strong farmers, and a majority of rural smallholders business relationship between the private expressed no trust in the program. A study sector and producers emphasizes the on trust and the effectiveness of NAADS quality of interactions between service identifies trust as the starting point for providers and clients, which contrasts with explaining farmers’ perceptions of the the traditional public extension model of effectiveness of extension service delivery moving “messages” through a hierarchical programs in Uganda (Turyahikayo and system (Adebayo 2004). Kamagara 2016). 10 Like NAADS, the OWC, one of Uganda’s biggest civil-military operations, faces 12 According to the Uganda Investment Authority, the commercial opportunities in agriculture and agroprocessing are myriad challenges in serving farmers, vast, ranging from the production of including the low number and weakness of cut flowers for export to production and farmer groups and institutions, late delivery value addition in oilseeds, livestock, and of inputs, inputs of low quality and quantity, cotton,28 and in fact some agribusinesses and high mortality rates in planting materials have expanded rapidly in Uganda. In 2017, and breeding stock owing to drought one-fifth of export earnings and one-third and poor management. The stringent of foreign exchange earnings came from eligibility requirements—for instance, land grains, sugarcane, cotton, tea and coffee. is a basic requirement to participate in the program—do not favor women and young people, who either have no land or cannot make important decisions related 28 See http://www.ugandainvest.go.ug/priority-sectors/agriculture-agribusiness/. 91 Republic of Uganda: Agriculture Sector Public Expenditure Review 5.2 The Private Sector in Uganda 5.3 Private Sector Approaches to Providing Agricultural Services 13 The status of the private sector in Uganda 16 is mixed. Private enterprises consist Many countries and governments mainly of micro, small and medium increasingly partner with agribusinesses enterprises. These mostly informal to share financial risks and/or defray enterprises collectively account for over 90 the costs of investments. The public percent of private sector production and sector has created enabling policy reforms, employ over 2.5 million people. Only 14 implemented regulatory reforms, and percent of these businesses operate in the installed supportive infrastructure to allow agriculture sector.29 the private sector to thrive. Enterprise surveys suggests that infrastructure 14 The private sector plays a major role in the Ugandan economy, even in the presence of typical bottlenecks and challenges, constraints alone are responsible for as much as 58 percent of economic productivity constraints.32 This finding is more telling for such as the disproportionately high cost of agribusiness, as infrastructure constraints doing business. Uganda ranked 127 of 190 erode profits on investment and constrict economies for ease of doing business in the space for firms to grow and expand. It is 2017.30 Other constraining factors include also worth noting that implementation of the the cost of starting a (formal) business public-private partnership (PPP) approach to and increased domestic borrowing, which agribusiness has been slow, despite its huge crowds out the private sector by raising the potential to link producers to opportunities cost of capital. for agroprocessing and value addition. 15 Because of these challenges, Uganda’s private sector is dominated by fewer than 30 large-scale firms, which control 17 It should be recalled that under NAADS, the provision of agricultural inputs and extension services was contracted more than half of all manufacturing to private service providers on terms and processing.31 Although leveraging and conditions that targeted specific private investment in agriculture is critical services for specific commodity value for Uganda to fully realize the transition chains. This PPP arrangement was hailed to middle-income status expressed in the as an efficient means of delivering services Vision 2040, private sector investment in only to those farmers who demanded them agricultural value chains has not always (although the challenge with this approach flourished. It is especially challenging for was the lack of supervisory monitoring to private firms to invest in value chains guarantee the quality of the goods and dominated by small-scale producers with services provided). The idea was that this minimal resources, limited capacity, and arrangement would create a demand-driven little experience in commercial farming— extension system that would minimize the precisely the farmers who need agricultural cost of public financing to provide extension services the most. 29 fsdUganda (2015). 30 See https://tradingeconomics.com/uganda/ease-of-doing-business. 31 UNDP (2018). 32 NPCA CAADP Unit (2015). 92 Republic of Uganda: Agriculture Sector Public Expenditure Review services and related public goods.33 The NAADS contractors are not considered in the analysis here, however, as they were 20 Typically, the private sector offers agricultural services as means of securing the required volume and quality of supply simply paid by the public to offer a service to through service delivery models that aim smallholders, and nothing else. to improve value chain performance and value creation. For example, from 18 Following the experience with NAADS, NAEP (2016) sought to reform the delivery of extension services by creating a marketing perspective, firms train and advise suppliers to meet product quality standards in their target markets, and from a more streamlined, inclusive, better an investment perspective, they subsidize coordinated, and decentralized “Single the public sector through commodity Spine” service delivery system. The Single sourcing, merchandising, and distribution; Spine approach entailed the creation of storage, primary processing, and other a Directorate of Extension and Advisory types of value addition; and supporting Services, although free input distribution primary producers, the majority of whom remains under OWC. As discussed in Chapter are smallholder farmers. The private sector 3, because OWC focuses on procuring and invests in farmers and their organizations distributing agricultural inputs and offers as a means of aggregating products to little in the way of knowledge transfer, it reach economies of scale, and it may also compounds the existential challenge of provide production inputs of assured farmers who do not know how to use the quality to maximize productivity, product technologies that are distributed, which quality, and uniformity. The specific services limits technology adoption and potentially offered to producers by the private sector slows the transformation of agriculture and may range from training to enhance quality the agri-food system. and productivity (for example, training in farm management practices and the use 19 There is a growing public perception that the intense interest of the current political establishment in retaining a stronghold of agro-inputs), the provision of financial services (input credit, direct financial credit), and marketing services (bulking produce in rural areas has caused OWC to appear and providing access to the market). From to serve more of a political purpose than to the producer’s point of view, agribusiness act as an enabler of rural agricultural service actors are filling a critical gap by setting up delivery and socio-economic transformation. demonstrations to increase the adoption of No policy framework guides the functions of new products, developing farmer outreach OWC. The contradictions described in this programs, and establishing contract farming review between the agriculture sector policy and outgrower schemes. Although this suite framework and implementation of OWC are of services appears entirely to serve the yet to be fully evaluated. The specific manner purposes of agribusiness, it nevertheless in which OWC constrains private investment delivers benefits to farmers in the form of in agriculture needs to be analyzed, but improved productivity; greater awareness of it is obvious that OWC crowds out private new products, technology, and innovations; participation in input marketing. better post-harvest management of agricultural output; and the development of a value chain of commercial interest. 33 World Bank (2001). 93 Republic of Uganda: Agriculture Sector Public Expenditure Review 5.4 Main Constraints Facing Agribusiness 23 The lack of defined standards for most agricultural commodities also restricts value chain development and marketing. 21 The challenges that private firms encounter in providing agricultural services to small-scale producers vary In the absence of clearly understood standards, private firms find it challenging to do business with smallholders. For depending on the value chain and the example, the farm-gate unit of measure for area of engagement along the value chain— horticultural products varies from counts to for example, they depend on whether the crates to baskets, while at the retail stage firms are involved as input and equipment products are measured either in counts or suppliers, nucleus producers and by weight. In addition, from the producer’s processors, or marketers. In general, private perspective, pricing lacks transparency. This provision of agricultural services in Uganda is informality increases market penetration characterized by asymmetry of information. costs for agribusiness. For example, the lack of information on 24 input use and technological advances Efforts to establish formal markets prevents small-scale producers from using began with NAADS and continue with them. At the same time, limited access the government’s current drive to revive to input and output market information cooperatives. Small-scale producers receive among smallholders creates opportunities support to form producer associations (PAs) for informal businesses, which are normally and/or farmer organizations (FOs), which unregulated, to exploit producers. can connect producers to formal national, regional, and international commodity 22 Other challenges for agribusiness include the high cost of finance, inadequate physical infrastructure, and poor farming markets. The PAs and FOs can also help producers to aggregate produce, negotiate farm-gate prices, and provide a link to techniques, which translate into low agroprocessors for value addition. In other productivity, low revenue, limited access to words, these rural institutions can increase markets, and low agroprocessing capacity. transparency by facilitating access to Only limited public financing and incentives market information—prices, quantities, and are available to private agribusiness. The locations. government has set up an Agricultural 25 Credit Facility (ACF) in partnership with The weak regulatory framework is commercial banks, Uganda Development particularly pernicious problem. Informal Bank Ltd., micro deposit taking institutions, agro-dealers thrive in the unregulated market and credit institutions. The Agricultural for inputs and equipment at the expense Credit Facility provides medium- and long- of formal businesses, and competition is term loans for agricultural production and stiff. The informal service providers offer agroprocessing with a grace period of three inputs that appear to be perfect substitutes years and an interest rate of less than 10 for those offered by formal firms, while percent. Lending to the agriculture sector targeting the same clients—small-scale still remains stagnant, however, at about 7 producers. The inadequate enforcement percent of all private sector credit. The lack of quality standards also encourages the of financing and other incentives erodes dumping of low-quality agricultural inputs profitability and prevents value chains from in Uganda with limited traceability. Formal expanding to their full potential. firms normally meet the required standards and can impart some knowledge on how 94 Republic of Uganda: Agriculture Sector Public Expenditure Review to use them, but they can be pushed out Side-selling occurs when outgrowers do not of business by informal agro-dealers to the adhere to their supply contracts with the detriment of smallholders. When farmers nucleus estate and sell their produce in the stop using inputs because their quality is open market to other buyers. Side-selling low, they resort to traditional production may occur despite significant investments practices, which are not economically viable by the nucleus estate to support increased and cannot help them transition from production by smallholders and provide subsistence to commercial farming. a guaranteed floor price. This practice is common among smallholders in sugarcane, 26 Many smallholder farmers remain underserved by the public extension system for reasons cited earlier: coffee, and rice outgrower schemes, in which competition for produce among processors is intense. inadequate extension staff, corruption, inadequate central and local government funding, limited PPPs, and a top-down linear focus on service provision. Yet because 28 The challenge of enforcing supply chain contracts is serious for the viability of agribusiness. A typical example is Pearl private agro-input dealers and other service Rice,36 an indigenous company working providers tend to operate in the highly with over 800 smallholder rice outgrowers productive agricultural regions where in Busembatya, eastern Uganda. The poverty is relatively lower, they also leave company is involved in rice production, smallholders underserved, especially in milling, packing, and marketing. It provides areas such as the drier northeastern areas. a range of agricultural services to small- scale rice farmers, ranging from tractor 27 The private sector can only meet smallholders’ demand for extension services when it supports their services, quality rice seed, and agronomic advisory services. In turn, Pearl Rice expects the farmers to sell their produce to its mill. commercial interests, and even then, When farmers decide to sell their rice to the challenges can be significant. For other buyers, Pearl Rice incurs losses that instance, in the last three years Simlaw adversely affect its business performance. Seeds Company has spent over USh600 million on extension services in the agroecological zones where it operates.34 Because the lack of quality market data and 29 Limited access to rural financial services is another challenge for firms that elect to work with smallholders. According to information is a constraint, the firm projects FinScope,37 only 10 percent of the people that its next budget will include over USh100 living in rural Uganda, where the majority million for data acquisition. Nucleus estates of smallholders live, have access to formal and processors35 also invest significantly financial services. Their limited access to in delivering agricultural services to finance prevents them from investing in new outgrowers, but they encounter challenges technologies to increase productivity and such as side-selling by famers, limited access value addition. In the absence of functional to financial services, and small land holdings. rural financial markets, agribusinesses 34 Source: Ms. Syliva Nanteza Kyeyune, Country Manager, Simlaw Uganda. 35 Adopted from Technoserve (2011). 36 The author is grateful to Mr. Taseer Alwi for time and space accorded. 37 See http://fsduganda.or.ug/finscope-2018-case-for-deeper-inclusive-financial-sector-uganda/. 95 Republic of Uganda: Agriculture Sector Public Expenditure Review working with smallholders are compelled deferred if the cost of plant and machinery to provide credit, which adds to the cost of is above US$22,500. Agricultural processing doing business and erodes profits. plants and equipment are also tax exempt if they meet certain conditions, including 30 Finally, by definition, smallholders have little land, which presents another set of problems for agribusiness. Uganda’s being destined for use by new entrants in the agroprocessing industry and for processing locally produced agricultural commodities agricultural production systems are for domestic consumption. dominated by approximately 3 million geographically dispersed smallholder farmers cultivating about 0.8–1.6 hectares. These small farms are difficult to mechanize. 32 Various agro-inputs are also tax exempt. They include all planting material certified by the relevant authorities as eligible to enter Widely scattered small farms increase the the country and all horticulture, floriculture, cost of providing mechanization services and aquaculture implements. The VAT for and transporting produce to factories, which agrochemicals is zero-rated. These tax remains the biggest challenge for nucleus exemptions are temporary measures to estates and processors. kick-start investment and provide relief to struggling subsectors that face stiff competition from within the region. 5.5 Incentives for Attracting Private Investment in Agriculture 33 Some voices are calling for reversals in the tax regime in the agriculture sector, 31 The GoU acknowledges that the agriculture however, arguing that it would broaden sector continues to play a critical role in the tax base and provide relief to overly the economy by creating jobs and wealth taxed areas. For instance, Kasirye (2015) for its largely young population, and it contends that termination of the VAT zero slightly increased the budget allocation to rating on processed milk could generate the sector from USh832.42 billion in 2017/18 revenue in the range of USh19–22 billion. to USh892.9billion in 2018/19.38 As part Also, removing the VAT exemption on maize, of the initiative to promote private sector which is consumed by about one in every led growth, the government through the two households in Uganda, would generate Uganda Investment Authority established about USh129–148 billion in additional tax a one-stop center to process applications revenue, but unlike the tax on milk, the for investment licenses and land acquisition burden of a tax on maize would be borne documents, and it published a compendium mostly by poorer households. of feasible agribusiness opportunities for potential investors to explore. As noted, the government established the Agricultural 34 Investments in large-scale farming increasingly draw accusations of land grabbing, facilitated by lacunae in the land Credit Facility with an interest rate ceiling law. The dual civil and traditional land tenure of 10 percent per annum, which is almost system also constrains private investments 50 percent less than current commercial in large-scale farming, notably in the sugar bank rates. Plant and machinery for subsector in northern Uganda and oil palm agriculture are exempt from import duty. in Kalangala in the South. It is relatively easier The 18 percent value added tax (VAT) and to acquire land for agroprocessing because the withholding tax (WHT) of 6 percent are the land requirement is smaller. 38 See http://www.ugandainvest.go.ug/priority-sectors/agriculture-agribusiness/. 96 Republic of Uganda: Agriculture Sector Public Expenditure Review are many players, however, side-selling is 5.6 Models Used by the Private Sector a risk. Private firms often mitigate that risk to Provide Agricultural Services by providing tractor services, cuttings cane at rates lower than the prevailing market 35 The private sector has taken various approaches to engage communities in Uganda and provide farming rate and offering pre-harvest credit that is guaranteed by the projected value of the sugarcane. These mechanisms safeguard agricultural services. The approaches the firm’s business interests to a large extent differ in their degree of formality, the level of (see the case study on Kakira Sugar Works investment by private firms, the negotiating later in this chapter). power of producers, and the underlying risks to both parties. The model of engagement that is chosen by a private firm will reflect the trade-off between increasing investment and 38 Production contracts are agreements between producers and a private business to deliver products of a certain quality increasing risks, such as market crowding and quantity at an agreed price. These and inconsistent supply of produce. agreements are less structured than contracts for outgrower schemes. The 36 Formal models are characterized by agreements between individual farmers (or through their associations and private sector partner provides technical support to improve product quality but purchases only produce that meets the set organizations) and private sector actors standards. This approach has been used that usually aim to benefit both parties. by seed traders who contract with farmers Typically, a well-managed partnership to produce and supply seed meeting their provides farmers with secure access to minimum requirements. markets (a guaranteed market and basic price); access to high-quality inputs, often provided on credit; access to extension and/ or advisory services; reduced transaction 39 Credit schemes and guarantees have been used by various private input stockists and distributors as well as producers (such costs; and improved cross-learning and as multipliers of certified seed). Given the exchanges. Private sector interventions also risks, credit is usually provided to trusted facilitate the participation of PAs and FOs farmers, stockists, and distributors who in markets and reduce the costs of doing have a standing relationship with each business along the value chain. The firms other. Services offered to farmers range benefit from economies of scale in product from training in how to use products to acquisition and trade in inputs. Examples demonstrations of product performance. of formal engagement models include: (1) Some firms report giving a 30-day credit to outgrower schemes, (2) production contracts, farmers and FOs to develop and strengthen (3) credit schemes and guarantees, and (4) their professional relationship. The credit farmer organizations and cooperatives. is part of the firms’ marketing strategy and is not considered an extension service 37 Outgrower schemes have been widely used in plantation agriculture, particularly in investment in their book of accounts. the sugar subsector. Farmers are contracted as outgrowers to supply sugarcane to processors. Farmers also receive extension 40 Farmer groups and cooperatives are the most common approach used by the private sector to engage with farmers. Working with services and inputs aimed at managing farmer groups helps businesses obtain the product quality and quantity. Where there required volumes and reduces transaction 97 Republic of Uganda: Agriculture Sector Public Expenditure Review costs. This approach has been used in more specialized value chains such as Arabica coffee (wet processing), cotton, and palm 42 An intermediary model also exists, in which firms engage intermediaries who sign contracts with individual farmers oil. These value chains require producers or PAs/FOs that guarantee to purchase to use specific varieties of seed, high-quality agreed quantities of their produce of fertilizers, agrochemicals, and specialized acceptable quality. This model is very equipment to achieve the desired quantity common in the Central Region value chains and market quality. The private sector for Robusta coffee and vanilla. For vanilla has been keen to invest in providing the producers, firms invest substantially in the required inputs and extension services delivery of extension services to farmers to farmers engaged in the business. For through third parties (intermediaries) to instance, Fine Spinners Uganda Limited39 ensure the quality of the produce. offers farmers a range of cotton production services, from inputs (improved seed) and advice on improved agronomic practices 43 Under the tripartite model of engagement, farmers or PAs/FOs, private firms, and third parties enter into contracts to guaranteed purchase of the produce at premium farm-gate prices, which are slightly to deliver on various commitments. higher than prevailing market prices. The For example, the third parties may be same model is applied by BIDCO under the providers of specialized services such Kalangala Oil Palm Growers Trust, which has as production inputs, financial services, over 1,800 outgrowers. and micro-insurance that are demanded by producers and have the potential to 41 Informal models are less structured and have no binding terms and/or conditions governing the relationship between remove bottlenecks along the value chain. The aBi Trust used this model to promote agribusiness development to increase the the private sector actors and farmers, productivity and competitiveness of various PAs, or FOs. The engagement is simply agricultural value chains. Both technical transactional, and the private actors deliver and financial support is extended to minimal services. Informal arrangements producers through third parties to support may include promotions and outreach or improvements, efficiency, effectiveness, demonstrations, particularly by agro-input and competitiveness in the preferred value dealers seeking to increase awareness and chains, removing obstacles to the flow purchases of new products and technologies. of produce from production to the final To achieve scale, farmers and PAs/FOs consumers. are targeted through their platforms, such as subcounty farmer forums, which are normally organized through the production 44 The models described here can be generally termed centralized models, in which firms directly engage farmers officers in the local governments. This model is mainly preferred by agro-input dealers through some form of relationship in such as Simlaw Uganda. addition to providing extension and other agricultural services directly. In contrast, nucleus-estate models contract directly with outgrowers while also engaging in centralized production and processing on estates. This is the working model for large 39 See http://www.finespinners.com/. 98 Republic of Uganda: Agriculture Sector Public Expenditure Review firms engaged in large-scale production of Table 5.1. Annual output and market share of industrial crops such as oil palm. The risk for sugar manufacturers in Uganda producers with this model is that the firms may have a purchase monopoly and may 2014 Market output be able to manipulate contract farmers who Rank Manufacturer share (metric (%) cannot find an alternative market for their tons) produce. For example, Oil Palm Uganda 1 Kakira Sugar Works 180,000 41.06 Limited (OPUL), which operates in Kalangala 2 Kinyara Sugar Works Ltd 120,360 27.45 district, is a monopoly, and its outgrowers 3 Sugar Corporation of Uganda 73,500 16.77 Ltd are merely price takers. 4 Sugar and Allied Industries Ltd 29,500 6.73 5 Others 35,000 7.98 5.6.1 Case Study 1: Private Sector Total 438,400 100.00 Involvement In Providing Agricultural Services 46 The KSW is a subsidiary of the Madhvani Group of Companies, the largest conglomerate in Uganda. Madhvani Group’s current turnover in Uganda Kakira Sugar Works exceeds US$150 million per year, and its assets are valued at more than US$300 45 Uganda is the largest producer of granular sugar in the EAC. According to the Uganda Sugar Manufacturers Association,40 sugar million. The group also has investments in other EAC countries—Rwanda, South Sudan, and Tanzania. During the 1970s, the production increased by 17 percent from Madhvani family was expelled from Uganda. about 365,452 tons in 2017 to 428,000 tons Their businesses were nationalized and in 2018. In 2017, sugarcane production mismanaged to near-extinction. In 1986, in Uganda was about 3.86 million tons, the family returned to Uganda, revived and increasing from 1.67 million tons in 1968, rehabilitated their businesses, and started growing at an average annual rate of 2.95 new ones. The flagship of Madhvani Group percent. Sugar production in Uganda was is KSW, which set up in the early 1940s but for many years dominated by three big experienced a hiatus between the 1970s manufacturers: Kakira Sugar Works (KSW), and 1986 due to political instability. Its Kinyara Sugar Works Limited, and Sugar annual sugar output increased from 90,000 Corporation of Uganda Limited, accounting metric tons in 2006 to 152,600 metric tons in for about 82.3 percent of the national 2010 and more than 180,000 metric tons in output in 2014 (Table 5.1). In November 2014. KSW crushes over 6,000 metric tons of 2011, the government licensed several new cane per day and operates continuously for sugar manufacturers41 to reduce the deficits 10.5 months per year. The company grows in domestic sugar production. sugarcane on a nucleus estate of about 10,000 hectares and supplements that production with cane sourced from 26,000 hectares owned by outgrowers. During 2006 40 See http://www.ugandaeconomy.com/trade-associations/uganda-sugar-manufacturer-s-association. 41 These include Amuru Sugar Works Limited, Atiak Sugar Factory, Bugiri Sugar Company, Buikwe Sugar Works Limited, Busia Sugar Limited, Hoima Sugar Limited, Kamuli Sugar Limited, Kyankwanzi Sugar Works Limited, Mayuge Sugar Industries Limited, Mukwano Sugar Factory, Ndiburungi Sugar Works Limited, Seven Star Sugar Limited, Sezibwa Sugar Limited, Sugar and Allied Industries Limited, and Uganda Farmers Crop Industries Limited. 99 Republic of Uganda: Agriculture Sector Public Expenditure Review to 2014 period the number of contracted the company. The question is whether GoU outgrowers rose from 3,000 to over 7,500, should subsidize KSW to offset part of the who supply over 1 million metric tons of costs of providing public goods. sugarcane, which is about 65 percent of the factory’s annual requirement. Outgrowers normally own over 1 hectare and are located 49 KSW also contributes immensely to the Ugandan economy in terms of job creation, tax revenue, and environmental within a 25-kilometer radius of the factory. sustainability. The company directly 47 The company maintains a sugarcane nursery for treated seed cane and a full-fledged agronomy section with an employs over 8,000 persons on the sugarcane estate and in the factory. Over 100,000 people depend on the company, applied research center. The research and the community has seen not only jobs, center conducts field trials and experiments but schools, hospitals, roads, and electricity on various aspects of sugarcane production, arrive on the back of the sugar industry. The including herbicides, fertilizers, spacing, company generates about 22 megawatts and varieties; it also analyzes the nutrient of power from the bagasse, of which 12 status of the crop and soils. In addition, megawatts is supplied to Uganda’s national the company has a laboratory and an grid. The company also produces biofuels agro-meteorological station that records (ethanol) from molasses, which is used for all weather parameters for more effective blending petroleum products to reduce the planning of cane production both at the dependence on fossil fuels. nucleus estate and on outgrowers’ farms. The success of the company is reflected in the steady increase of cane supplied Oil Palm Uganda Limited by outgrowers. KSW’s expansion program foresees outgrower production increasing to over 1.7 million metric tons per annum. 50 In 2002, OPUL signed an agreement with the government to invest in an integrated palm oil project in Kalangala District. This growth will be achieved by increasing the area under cane production, increasing OPUL is a subsidiary company formed the productivity of current outgrowers, through a joint venture between Wilmar and registering new outgrowers. In the last Group of Malaysia, Josovina Commodities decade, the company has invested over of Singapore, and BIDCO Oil Refineries US$80 million in a sugar complex in the of Kenya. It is one of the largest direct northern Uganda. foreign investments in Uganda. To date, the company’s capital outlay has exceeded 48 KSW provides agricultural services and US$150 million for an oil palm nucleus estate technical support to its outgrowers. in Kalangala District and a processing factory Services and support include the provision in Jinja. The factory employs more than of seed cane and agrochemicals, advice 1,200 workers, including workers from local on agronomic practices and techniques, communities. So far, about 10,000 hectares use of farm machinery and equipment, and have been sourced for oil palm production transport of the sugarcane to the factory. in Buggala Island. The government has Although the costs of delivering these agreed to source 30,000 additional hectares agricultural services are not available, they for oil palm on the mainland, with 20,000 are likely to be substantial. Ultimately, the hectares for a nucleus estate and 10,000 costs of delivering these “public goods” hectares for outgrowers and smallholder reduce the profits and competitiveness of farmers. OPUL has already established trees 100 Republic of Uganda: Agriculture Sector Public Expenditure Review on about 6,500 hectares. To meet its raw the outgrowers’ quality of life has immensely material requirement, OPUL is supporting improved in the last decade. Oil palm trees over 1,800 smallholder outgrowers, who have an economic life of about 28 years. have planted over 3,500 hectares with oil They provide a sustainable alternative palm. The outgrowers sell their produce to source of income to outgrowers and help OPUL at a mutually agreed farm-gate price. to reduce pressure on the fisheries of Lake Victoria. OPUL also provides other economic 51 OPUL is a beneficiary of the government’s Vegetable Oil Development Project, which aims to expand local palm oil production services, including rural infrastructure such as feeder roads, electricity, clean and safer water, schools, and health centers. These as a substitute for imported edible oils services contribute significantly to economic worth over US$75 million per year. The transformation and poverty reduction in Vegetable Oil Development Project is funded Kalangala District. by the International Fund for Agricultural Development (IFAD), and its target is to plant over 40,000 hectares of oil palm in various districts of Uganda. OPUL’s investments 53 The GoU will need to sustain the enabling policy environment to help OPUL roll out operations to other districts; the are driven partly by government incentives, government recently announced intentions including assistance in acquiring land to to expand oil palm production to 10 new establish the nucleus estate, exemptions on districts. Bugiri, Bundibugyo, Buvuma, import duty, and deferred VAT and WHT on Hoima, Iganga, Jinja, Kabarole, Kibaale, factory and farm machinery and equipment. Masaka, and Masindi Districts have been The GoU also provided tax incentives to identified as possible areas where oil establish a palm oil processing factory, a palm can grow. In addition, a recent study modern facility in Jinja that produces palm oil indicates that oil palm could also grow in to international standards. The processing Amolatar, Bundibugyo, Dokolo, Mayuge, is environmentally-friendly, since biomass- Mukono, and Oyam Districts. powered boilers produce superheated steam that generates electricity through turbine generators. The lower pressure 5.6.2 Case Study 2: Cooperative steam from the turbine is used to provide union involvement in providing heat in the factory. agricultural services 52 OPUL provides agricultural services to outgrowers during the production season, including support to clear land; 54 Agriculture cooperative unions are quasi- private entities that provide agricultural services to their members. According to the provision of disease-free and high- the Uganda Cooperative Societies Act Cap yielding seedlings, as well as agrochemicals 112, a cooperative union is an organization (fertilizers and pesticides) on credit; the formed by primary cooperative societies to provision of extension services; and the provide the primary societies with services guarantee of a ready market for the produce that the individual primary societies cannot at harvest. An evaluation by IFAD finds that afford in economic terms. Following the this arrangement has helped to establish liberalization of the agriculture sector in the trust between OPUL and smallholder mid-1980s, most of the major cooperative outgrowers. The Kalangala Oil Palm unions wound up their businesses, including Outgrowers Association currently owns 10 Banyankole Kweterana Cooperative percent of the shares in OPUL. As a result, 101 Republic of Uganda: Agriculture Sector Public Expenditure Review Union, Bugisu Cooperative Union, Busoga Agricultural services offered by the Growers Cooperative Union, East Mengo cooperative unions include extension, Growers Cooperative Union, Masaka education and training; bulking and Growers Cooperative Union, South Bukedi marketing; farm input supply; and savings Cooperative Union, and West Mengo and credit schemes. Each type of service is Growers Cooperative Union. In the early briefly discussed below. 1990s the surviving cooperative unions were reorganized to function in the context of newly liberalized agricultural markets. Extension, Education, And Training 55 Several strategies were used to revive the cooperative movement and help 57 Cooperative unions by their nature are supposed to provide added services to their members (the value- farmers adjust to the changing business environment of a liberalized market cooperative societies). The services include economy, including: (1)  supporting training in leadership and management for cooperatives as independent business staff of cooperative societies; promoting units; (2) building autonomous democratic autonomous and democratic entities; and institutions; (3) providing technical support providing members with technical services to farmers to improve their productivity (extension services). Extension services and profitability; (4) training cooperative can be provided through cooperative- union staff in best practices for operating hired technical staff or by linking members agricultural cooperatives; and (5) providing or PAs/FOs to the district production policy guidelines for cooperative operations departments. The Uganda Cooperative (Kwapong 2010). Survey (2010) reveals that 89 percent of members surveyed reported having 56 Accordingly, cooperative societies were reorganized as business entities with some form of self-generated revenue received some form of training, and 87 percent reported selling over 80 percent of their total marketed produce through the from commission charges, shareholdings, cooperative (Kwapong 2010). These findings and membership fees. The cooperatives demonstrate the increasing importance of formerly sold their produce to commodity cooperative unions in spurring growth in the boards at fixed farm-gate prices, but the productivity and profitability of smallholder newly reorganized cooperative unions would agriculture in Uganda. negotiate prices, sell to the highest bidder on the open market, engage in diversified businesses, and promote value-addition. Bulking And Marketing About 64 percent of households surveyed for the Uganda Cooperative Survey (2010) attributed improvements in their livelihoods 58 Cooperative unions have logistical capacity to aggregate produce from cooperative societies, store or transport to the cooperative movement, while over 90 percent of respondents reported increasing the commodities, and undertake primary their incomes by more than 24 percent as processing or value addition. These roles members of cooperative societies. cannot be met by the primary societies or even smallholders, who lack the means to bulk, process, and deliver their output in the required quantity to national, regional, and international markets. This arrangement 102 Republic of Uganda: Agriculture Sector Public Expenditure Review helps to protect members of cooperative This practice has supported the societies from exploitation by unscrupulous segmentation of agro-input markets into intermediaries as they lack bargaining power. customer groups that share similar interests Bulking and marketing arrangements can and needs in locations where cooperative be formalized under various schemes, such unions are fully functional. as contract farming, outgrower schemes, warehouse receipts, and crop insurance. Savings And Credit Schemes 59 A notable example is the Bugisu Cooperative Union, which is owned by coffee farmers in Bugisu subregion, 61 Savings and credit services are often delivered together (bundled) to optimize comprising the Bilambuli, Bududa, their effectiveness, encourage the Manafwa, Mbale, Namusindwa, and efficient use of money, and promote Sironko Districts. This cooperative union a culture of saving. For example, the has been in existence for over 60 years and Bugisu Cooperative Union retains part of has 277-member cooperative societies. The the proceeds of its member cooperative union’s resilience and survival is attributed societies as savings that earn interest to the importance of the Arabica coffee income and can be borrowed by members market, over which the union has almost as needed. Savings can also be used to monopolistic control, despite the presence of leverage credit from commercial banks as other private sector actors in the region. The well as crop insurance. Interest income can union trains farmers in the best agronomic be distributed to members as dividends practices for producing Arabica coffee and or recapitalized to increase the value in post-harvest handling, especially wet proposition of the individual cooperative processing. Wet processing entails many society. steps, and although costly, yields coffee of very high quality. To maintain its edge over competitors, the Bugisu Cooperative 5.7 Conclusions Union provides wet processing facilities to members as well as full market information. 62 For agriculture to act as a key economic driver of Uganda’s Vision 2040 and the transition to middle-income status, Farm Input Supply private sector investment must be leveraged. Agriculture by nature is a private 60 Cooperative unions operate at scale both in business terms and geographical coverage. Unions undertake aggregate sector activity, in which commercial firms are in the best position to understand market potential and to engage within their purchase, storage, and distribution specific value chains. Moreover, Uganda’s of farm inputs to member cooperative scarce public resources should be focused societies to take advantage of volume on those core public goods and services for discounts and economies of scale. The which private financing is unlikely. A rigorous cost of inputs for members of cooperative analysis will help to identify investments societies is lower than if they purchased that generate largely public goods in which the same inputs directly from commercial the private sector cannot invest, and suppliers. investments that yield private goods that will attract private sector financing. 103 Republic of Uganda: Agriculture Sector Public Expenditure Review Public-private partnerships could be promoted in the case of relatively large investments. 63 At the same time, the constraints to private investment in agriculture are well known, particularly within those value chains in which small-scale producers can participate fully. For the private sector, the motive is obviously to facilitate business development and to earn a profit. Yet the large-scale agricultural services required for agribusiness development are costly, and the associated risks are too high to be mitigated by individual firms. The financial markets are equally hesitant to develop products for financing agriculture, which to a large extent has limited the operations of even relatively larger agribusinesses. Consequently, they have restricted their businesses to certain geographical areas and specific value chains. To further leverage private sector investment in agriculture, the government must implement policies that will help to reduce the cost of doing business, and it must also co-finance some of the services provided by agribusinesses to smallholders. 104 Republic of Uganda: Agriculture Sector Public Expenditure Review 06 CONCLUSIONS AND RECOMMENDATIONS 106 Republic of Uganda: Agriculture Sector Public Expenditure Review for increasing agricultural productivity and 6.1 Public Expenditure on Agriculture: building resilience to climate change risks. Level, Composition, and Efficiency The low capital expenditure is reflected in the poor condition of rural infrastructure, which 01 Although the final share of public spending on the agriculture sector (PEAS) more than doubled in real terms between adversely affected farmers’ productivity and access to input and output markets. Similarly, the underfunded regulatory 2013/14 and 2016/17, the share of PEAS functions (sanitary and phytosanitary in total public expenditure (PE) remained services) impacted regional and international low throughout the period, averaging 3.6 agricultural trade and ultimately poverty percent. This share is also low compared reduction efforts. MAAIF therefore needs to to that of Uganda’s East African neighbors increase the share of capital expenditure in (Kenya, Tanzania and Rwanda) and the its development budget, which is essential Maputo/Malabo target of 10 percent. To for productive investments. justify an increase in budget allocation to move toward the 10 percent target (which is aspirational, as only a few African countries have achieved or are close to achieving it), 04 Despite the government’s on decentralization, the share of decentralized PEAS is low (7 percent in focus MAAIF needs to first improve the quality and 2017/18, falling slightly short of the ASSP effectiveness of spending in the sector. target of 10 percent). Collectively, MAAIF, NAADS, NARO, and other SAGAs capture 02 An economic decomposition of public spending on agriculture in Uganda indicates that development expenditures the bulk of the allocations in the sector (approximately 92 percent). The allocations to local governments declined from 37 dominate both budgeted and final PEAS. percent in 2013/14 to about 7 percent Development and recurrent expenditures in 2017/18, falling slightly short of the represented about 66 and 34 percent of ASSP target of 10 percent. Given that local budgeted PEAS, respectively. There were no governments provide frontline agricultural significant differences between budgeted services such as extension and advisory and final PEAS in terms of the relative services, market information services, and sizes of the development (50 percent) and rural infrastructure, their budget allocations recurrent (25 percent) budgets. Given that need to be increased. A vicious circle appears budget execution rates are high (around to exist in which local governments/districts 90 percent), this means about 15 percent receive limited resources because of poor of budgeted PEAS was not disbursed by service delivery, and service delivery remains MoFPED to the agriculture-related ministries poor at the district level because of limited and SAGAs. resources. MAAIF therefore should find ways to reduce its headquarters operating costs 03 Although development expenditures averaged 66 percent, they were heavily oriented to non-wage recurrent and retain a modest budget for the policy, strategy, and regulatory functions. 05 expenditures rather than to capital The geographic distribution of PEAS expenditures. As a result, too little was shows high efficiency in addressing invested in irrigation, rural access roads, inequality. Although the ASSP does wholesale and livestock markets, and not provide precise spatial targets, the veterinary, sanitary, and phytosanitary geographic disaggregation of PEAS shows laboratories and equipment, which are critical that spending favors the Northern Region. 107 Republic of Uganda: Agriculture Sector Public Expenditure Review This region is emerging from conflict, has much lower levels of human capital, is the least populous, and has poor infrastructure. 07 The analysis of the PEAS data across 2015/16–2017/18 reveals that OWC activities contribute to both allocative Per capita PEAS is also persistently higher (economic and functional) and technical in the Northern Region but is relatively the inefficiencies. From 2015/16, input same in the Western, Central and Eastern procurement expenditures started to Regions. In 2006, approximately 68 percent dominate NAADS budgets, and extension of the poor lived in the Northern and services shifted to MAAIF. The budget for Eastern Regions. By 2013, this proportion NAADS includes the allocation for OWC to had increased to 84 percent. In 2016, about procure and distribute free inputs, of which 47 percent of the poor lived in the Northern 96 percent is categorized as development Region and another 37 percent in the expenditures instead of recurrent Eastern Region. In the Northeastern Region expenditures. The parliamentary report on almost three in four residents (74 percent) implementation of OWC (Republic of Uganda live below the national poverty line. The 2017) argues that the introduction of OWC Northern and Eastern Regions would need had several negative effects on the provision targeted spending to address inequality, of inputs and extension services across the end extreme poverty, and boost shared country, including a sharp decline in the prosperity. number of extension agents at NAADS, the poor quality of inputs delivered by OWC, 06 The complexity of the institutional setup and budget architecture contribute to technical inefficiencies in public and the failure to deliver inputs on time or unreliability of private input suppliers. Whereas the focus was on NAADS over spending on agriculture. MAAIF has 2010–13, input distribution functions were 12 departments operating under four transferred to OWC from 2015/16 onward, directorates, and there are six SAGAs. Under and in 2015/16 extension functions were the circumstances, MAAIF can hardly play transferred to MAAIF (the shift appears to an effective coordination role and take the be fully complete in the 2017/18 budget). lead in budget planning, implementation, and monitoring. This level of complexity prevents the smooth implementation of an agricultural transformation strategy 08 In this context, the respective roles of MAAIF, NAADS, and OWC urgently require clarification. Clear, well-defined roles are that balances production support, training, vital to a renewed strategy for sustainably research, infrastructure, storage, and providing input subsidies and extension marketing. The challenges induced by services. A detailed budget breakdown for persistent centralization and poor capacity OWC is necessary to understand how the at the district level are well exemplified by operation’s introduction affected budget the multiplicity of stakeholders (MAAIF, management and the provision of inputs NAADS, OWC, and local governments) and and extension services. In addition, if the issues surrounding input provision and extension subfunction of PEAS falls chiefly extension. on NAADS and MAAIF, the role of local governments and districts in supporting productivity improvements should be clearly determined. 108 Republic of Uganda: Agriculture Sector Public Expenditure Review 09 Donor funding plays an important and complementary role to national funding for agriculture (for instance, donors 11 The policy and institutional landscape for agricultural expenditures in Uganda also needs to improve. The government’s prioritize regions that are less well off). outsized role in agriculture leaves little Although the share of donor funds (external room for private sector participation. The resources) in PEAS has averaged 33 percent, government seems more enamored of there is no credible system of monitoring transforming subsistence farming into expenditures. Much of the donor portfolio modern, commercially oriented farming with in agriculture shifted from MoLG to MAAIF the free distribution of inputs than with the from 2015/16 on. This shift coincided with exigencies of supporting policies that: (1) a significant increase in domestic resources enhance the capacity of MAAIF to efficiently for NAADS. In 2017/18, domestic sources of and effectively deliver on its mandates; (2) funds compensated for the decline in donor increase public investments in infrastructure funding to MoLG. Complete information (such as irrigation and rural roads); and on actual spending of donor funds is not (3) crowd in private sector investment in available for most years reviewed here. agribusiness, such as firms that market Data and information collection on external inputs and outputs and provide agricultural partners must improve to inform budget services (for instance, mechanization and performance assessments during the fiscal financial services). Table A1.1 in Annex year. The additional information could help 1 summarizes the findings on policy to mitigate excessive “projectization” of coherence for selected PEAS indicators in PEAS, which is a challenge associated with Uganda. It compares PEAS indicators against donor-funded investments. national policy and ASSP targets as well as the Malabo/CAADP targets. 10 A large proportion of PEAS (more than 40 percent in 2017/18) was used to finance private goods such as agricultural inputs 6.2 Institutional Environment and Barriers or processing, marketing, and storage to Improving Public Expenditures facilities. The increase in processing and on Agriculture in Uganda marketing expenditures is not necessarily bad, provided they are used to attract private investments into the sector. But the large shares devoted to the distribution of 12 A review of the agricultural policy and institutional environment suggests that MAAIF’s role in developing policy for the free inputs at the expense of investments sector has diminished over time. Some that would yield higher returns, such as agriculture sector policies have emanated research, rural/feeder roads, and irrigation, from NPA, an agency of MoFPED. The ASSP is worrying. MAAIF should contemplate a , which currently provides strategic direction reallocation of PEAS toward subfunctions to sector development, is not adhered to that serve to deliver public goods, such as strictly. The links between the ASSP, the feeder roads and irrigation, rather than MTEF for agriculture, and the budget are private goods like inputs. Lastly, closure of not obvious. Although the agriculture SWG the Agricultural Technology and Agribusiness provides a platform for stakeholders to Advisory Services Project, which provided participate in the budget process and for 40 percent of agricultural research funding monitoring execution, its effectiveness has since 2015/16, prompts the need for been less than required. Finally, the roles and renewed thinking on sustainable sources of responsibilities of various MAAIF agencies in finance for agricultural research. 109 Republic of Uganda: Agriculture Sector Public Expenditure Review budget planning and execution of budgets be most affected—MAAIF staff. Otherwise are unclear, let alone the interface between their lack of commitment to implement MAAIF and the local governments/districts reforms will generate the negative energy in the budget process. These are some of that can eventually slow and even stop the the barriers to the improved efficiency and them. Reforms must aim at increasing the effectiveness of public expenditure that efficiency and effectiveness of delivering must be removed to enhance the delivery of agricultural services to farmers. Finally, the agricultural services. existence of champions to articulate the rationale, significance, and outcomes of 13 Policy and institutional frameworks for agriculture are in place in Uganda, but as this analysis has shown, they the reforms is a necessary condition. These champions must be internal and at senior leadership level. Several sources suggest are ineffective. Public expenditures on that reforms without champions have agriculture are underperforming because limited chances of success. Below are eight of structural deficiencies and capacity recommendations on how to improve PEAS constraints, but even so, MAAIF (and the from an institutional point of view: ARUD program) have ample scope for improving the allocative efficiency of public • Ensure that limited resources are resources to spur growth in the agriculture used as efficiently and effectively as sector. To do so, MAAIF must continue with possible. MAAIF should identify, agree, radical institutional reforms. The ministry’s and target the highest priorities. organizational structure should be reviewed to reflect its new roles, including its role in • MAAIF should ensure transparency, delivering extension services (transferred accountability, and participation from NAADS). In addition, elevating the in its service delivery to maximize Planning Department to become the the efficiency and effectiveness of its Directorate of Policy and Planning would expenditures. This action is in line with strengthen its role and authority. A stronger widely accepted principles of good framework is needed for incorporating local governance. government plans and budgets into the • Public expenditures should address ministry’s annual work plans and budgets the roots, not the results, of market and for monitoring their implementation. failures. Rather than spending the bulk The SWG should effectively provide technical of PEAS on free distribution of inputs, guidance, oversee budget planning and efforts should be directed toward creating execution, and monitor budget performance. incentives or an enabling environment for To enhance the coordination of the ARUD the private sector to participate in input program, U-PACT should be supported to markets, and toward strengthening the get off the ground. regulatory functions of MAAIF to ensure 14 Past reform initiatives were largely the quality of inputs. externally driven, particularly by • Direct targeted input subsidies to MoFPED, MoLG, State House, and donors. producers who have the potential As a result, MAAIF’s authority and leadership to transition from subsistence have been usurped by these ministries, (producing for domestic consumption) departments, and agencies. The processes to commercial farming (producing of initiating and managing reforms must surplus for the market). The current be owned by the people who are going to 110 Republic of Uganda: Agriculture Sector Public Expenditure Review provision of free inputs is fiscally to guide budget allocations across unsustainable, creates dependency, and subsectors and address operational constrains efforts to crowd-in private constraints in the portfolio. sector investment in input distribution. • Improve the efficiency of project management to free MAAIF and local 15 There is an urgent need to balance allocations and increase the efficiency and effectiveness of spending on agriculture governments to focus on delivering at the central and local government levels. their respective mandates. Projects Unavoidably, local governments should get need to be consistent with the strategy a bigger share of PEAS than the current and priorities for agricultural growth and average of less than 10 percent. In the early development (ASSP and NDP II). However, years after decentralization, the consensus a programmatic approach to sector was that service delivery was improving. development may reduce the number of This optimism has now been muted by projects, and the establishment of Single the challenges with district fragmentation, Project Implementation Units could underfunding, and low capacity at the local reduce transaction costs. government level. The quality of service has fallen across the board, even though the total • Strategic improvements in public number of people with ostensible access to spending on agriculture must begin some services may have grown. To reverse by making much greater use of the this negative trend in service delivery under BFP and better use of the SWG. Use local governments, the following measures the BFP as a tool to provide feedback should be implemented: to MoFPED and enforce the role of the SWG regarding technical assistance, • Strengthen local government capacity oversight for planning and budgeting, for planning and budgeting, financial and performance monitoring. management, and procurement to improve the efficiency and effectiveness • The MAAIF planning process must of spending, and most important, become much more credible and increase the quality and impact of robust. The ministry should have a agricultural services. Directorate of Planning with capacity, authority, and influence. Much greater • Develop a framework to engage attention needs to be paid to: (1) the citizens in planning, budgeting, and criteria used for prioritization; (2)  the performance evaluation to ensure expected outcomes; (3) detailed transparency and accountability. expenditure estimates; and (4) linking Sustained improvements in service investment plans more closely to delivery depend, at least to some degree, anticipated MTEF ceilings and indicating on the ability of stakeholders to hold local how plans would change if MTEF ceilings governments accountable. increase or decrease. • Shift procurement from the central • Much better impact evaluation is to the district level where possible required to provide useful information to reduce transaction costs, minimize about programs. Once these evaluations wastage and leakage, improve the quality are established, policy makers and of supervision, and empower the people planners will be in a better position of the district. 111 Republic of Uganda: Agriculture Sector Public Expenditure Review • Discontinue the fragmentation of smaller domestic agribusinesses and favor districts (and if possible, consolidate large multinational companies, which can to reduce administrative costs), and bring in the necessary expertise and have strengthen the governance and service the financial depth to engage. delivery capacity of existing districts. • Explore other sources of local revenue for local governments to fill the gap left 17 The GoU needs to recognize the role of the private sector in providing agricultural services demanded by smallholders in behind by the abolished graduated tax. value chains. For the private sector, the motive is obviously to facilitate business • Address the human resource capacity development and to earn a profit. Yet the vacuum at the local government large-scale agricultural services required for level to ensure adequate staff numbers agribusiness development are costly, and the and skill sets for planning production associated risks are too high to be mitigated interventions, implementing them, by individual firms. The financial markets and monitoring and evaluating their are equally hesitant to develop products performance. for financing agriculture. This constraint to a large extent has limited the operations of even relatively larger agribusinesses. 6.3 Role of Private Sector in Providing Consequently, they have restricted their Agricultural Services businesses to certain geographical areas and specific value chains. To further leverage 16 Agribusinesses may invest in PAs/FOs as a means of ensuring that producers can provide a critical mass of the product private sector investment in agriculture, the government needs to put in place policies that will help reduce the cost of doing they need to attain economies of scale. business, and it needs to co-finance some of Or agribusinesses may provide other the services provided by agribusinesses to agricultural services to producers, such as smallholders. Below are some of the policy seed and fertilizer, to maximize productivity reforms that are recommended: and ensure product quality/uniformity. Such arrangements may be formalized under a • Strengthen farmer organizations. contract farming arrangement or left informal. These organizations are important for These arrangements place additional cash integrating smallholders into agri-food flow demands on agribusinesses (especially value chains. Small-scale producers are in the presence of credit market failures), numerous and geographically scattered, place further demands on their balance which increases the transaction costs sheets (for instance in securing credit for of dealing with individual farmers. inputs from suppliers), and augment project Through FOs, smallholders can gain risks. Some agribusinesses are willing and access to knowledge and technologies able to take on such expenditures, but and aggregate produce to achieve others cannot, and therefore opportunities scale economies. FOs can provide links for smallholder farmers to participate in to agroprocessors for value addition value chains are denied. Moreover, the to further increase farm incomes and propensity of agribusinesses to provide reduce poverty. Federated FOs (such as agricultural services to smallholder farmers cooperative societies and unions) can is not scale neutral. The transaction costs form productive alliances to commercially involved often prohibit the participation of produce and supply agreed quantities 112 Republic of Uganda: Agriculture Sector Public Expenditure Review and quality of a specific commodity to arrangements, vertically integrated a specific market. Under productive operations, and outgrower schemes alliances, smallholders can also gain can provide input credit to farmers. This access to credit. form of financing is increasingly used in Uganda for tea, sugar, coffee, dairy, • Support vertical integration of FOs barley, and sorghum (World Bank 2018c). with larger producers and processors. Through smartphone-based FinTech, To foster the competitiveness of smallholders and financial institutions in Uganda’s agri-food system and the rural areas can access a range of financial economic inclusion and market power of services, make mobile payments, receive smallholders, it is vital to integrate FOs in remittances, or obtain higher prices diverse value chains. Vertical integration for their produce because they have of FOs into sustainable agri-food better access to market information. An systems is important for smallholders example of FinTech is Smart Money, a to commercialize their production savings and payment system operating in and access credit and markets; for Tanzania and Uganda (AGRA 2017). larger producers (nucleus estates and agroprocessors), vertical integration • Reform the public expenditure enables value addition. By organizing framework. Although there has production and facilitating quality been strong growth in spending on grading through producer integration processing and marketing, PEAS has into processing firms, the challenges increasingly focused on the provision of branding can be overcome (Delgado of input subsidies. A priority of the 1999). The use of digital technologies can government should be to steer public help to reduce asymmetries in market investments in agriculture toward the information and lower the transaction provision of public goods, such as R&D, costs of dealing with large numbers of extension and advisory services, and small-scale, widely dispersed farmers. rural infrastructure. Input and output marketing should be left in the hands • Increase access to agricultural finance. of the private sector. The government Access to finance is critical for all parts should focus on regulating input quality of agri-food systems. Large farms and and standards. In addition, it should fully agroprocessors can potentially get loans implement extension reforms by allowing from commercial banks, but financial public goods and services for agriculture institutions are often reluctant to lend to be delivered by both public and non- to the agriculture sector, particularly state actors (including agribusinesses), smallholder farmers. To this end, savings and it should also directly offset/defray and credit cooperative organizations and the costs to agribusiness of delivering warehouse receipt systems are promising those services through subsidies and vehicles for fostering financial inclusion PPP financing. of smallholders and addressing the lack of collateralizable land titles for loans. • Strengthen the policy and regulatory Other options for smallholder financial framework. A range of policy and inclusion are value-chain financing and institutional challenges need to be smartphone-based financial technologies addressed, particularly those pertaining (FinTech). In the case of value-chain to input regulations and quality controls. financing, formal contract farming The prevalence of low-quality inputs in 113 Republic of Uganda: Agriculture Sector Public Expenditure Review the market significantly reduces returns and technologies adoption rates. MAAIF needs to beef up its capacity to regulate the input market. Uganda has a Public Private Partnership Act (2015), which defines the role of the private party in a PPP. The PPP Act focuses mainly on infrastructure projects at the expense of service provision. There is an urgent need for the government to clarify the role of the private sector (agribusinesses) in providing agricultural services under PPP arrangements as well as contract farming. • Address land tenure issues. 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Development in Uganda.” World Bank, Washington, DC. https://openknowledge.worldbank.org/ handle/10986/25359. 121 Republic of Uganda: Agriculture Sector Public Expenditure Review Yeboah, F.K., and T.S. Jayne. 2018. “Africa’s Evolving Employment Trends.” Journal of Development Studies 54(5): 803–32. You, L., C. Ringler, U. Wood-Sichra, R. Robertson, S. Wood, T. Zhu, and Y. Sun. 2011. “What Is the Irrigation Potential for Africa? A Combined Biophysical and Socioeconomic Approach.” Food Policy 36: 770–82. 122 Republic of Uganda: Agriculture Sector Public Expenditure Review ANNEX 124 Republic of Uganda: Agriculture Sector Public Expenditure Review 01 SUMMARY OF POLICY RECOMMENDATIONS Table A1.1. Policy coherence assessment for selected PEAS indicators Indicator Observed Target Source of target Gap Recommendation Level 3.6% 10% Malabo (2014) -6% Build up capacity to allow sector Declarations, 2010 institutions to receive greater CAADP Compact, ASSP proportions of the national budget. Administrative efficiency MAAIF and sub-branches 26% 41% ASSP -15% Reconsider the role of NAADS in the sector’s institutional framework and rebalance budgets accordingly. NAADS 41% 23% ASSP 17% NARO 11% 16% ASSP -5% Local governments 8% 12% ASSP -4% Build up capacity at the decentralized level to increase district resources and gear up local service delivery. Technical efficiency Execution rates 90% No target, Maintain high execution rates but high value seek to increase the magnitude of desirable PEAS. Share of donor spending 33% No target, World Bank (2011) Develop a strategy to phase out in PEAS low value donor spending in the long run. desirable Enhance expenditure monitoring systems for donor spending. Economic efficiency Share of development 66% No target, World Bank (2011) Refine classification systems spending in PEAS high value of recurrent and development desirable spending. Contemplate the reallocation of PEAS shares to long- term investments (capital spending). Functional efficiency Share of PEAS allocated 21% 53% ASSP -32% Refine budget monitoring systems to specific commodities to better track and understand how (including priority ones) PEAS interventions support specific commodities, including the priority commodities of the CBA. Allocation of PEAS across Replenish livestock and fisheries, commodity groups as well as food crops (even if they are poorly represented in the ASSP budget). Livestock and dairy 20% 36% ASSP -16% Cash crops 41% 28% ASSP 13% Crops, general 12% 3% ASSP 9% Fisheries 6% 32% ASSP -26% Forestry 4% NA ASSP NA Other 16% NA ASSP NA 125 Republic of Uganda: Agriculture Sector Public Expenditure Review Indicator Observed Target Source of target Gap Recommendation Allocation of PEAS across Replenish inspection for livestock. subfunctions Envisage a gradual diminution of spending on producer subsidies to the benefit of irrigation or feeder roads. Agricultural research 26% 15% ASSP 11% Extension 12% 17% ASSP -5% Producer subsidies 28% 31% ASSP -3% Inspection 0% 10% ASSP -9% Irrigation 4% 5% ASSP -1% Other 9% 4% ASSP 5% Processing, marketing and 18% 14% ASSP 4% storage Training 3% 5% ASSP -2% Share of private sector- 30% No target, World Bank (2011) Design a strategy to crowd in related functions (inputs, low value private investment in the sector and processing, marketing, desirable increase spending shares on public and storage) in PEAS goods such as irrigation and feeder roads. 126 Republic of Uganda: Agriculture Sector Public Expenditure Review 02 DATA SOURCES AND METHODOLOGY 01 The analysis for this Uganda AgPER relied on data provided by MoFPED and drew on two sources: qualify as PEAS are mapped to a set of subsector categories, namely livestock, cash crops, crops (general), forestry, and fisheries. i. The MoFPED/World Bank BOOST public expenditure database, April 2018 iv. Commodity: all expenditure lines that version, which covers 2003/04–2016/17. qualify as PEAS are mapped either to For 2016/17, only budgeted amounts are single commodities, commodity groups, available in the database. or “all commodities.” ii. IFMS budget data from MoFPED for 2016/17 (includes both budgeted amounts and expenditures) and 2017/18 04 Data gaps and implications summarized in Table A2.1. Annex 2. The most critical data gaps are: (1) the are (includes budgeted amounts only). geographical mapping of expenditures in the data sources was not fit for the purposes 02 These two data sources were combined to compute the PEAS indicators for 2013/14–2017/18. The combination of the of the analysis; and (2) no disaggregated expenditure data were available for Operation Wealth Creation (OWC). BOOST and MoFPED datasets resulted in a single Excel raw data file containing about 127,000 lines of budget data. The analysis used 20 core variables extracted directly 05 The analysis draws on an approach to reviewing PEAS that builds on previous work done by African governments in from the BOOST and MoFPED database.42 collaboration with the World Bank, the Food and Agriculture Organization (FAO), 03 Four more variables were constructed, as follows: and the African Union (AU) (World Bank 2011; MAFAP 2015; AU 2015). This Annex outlines the approach followed to create the scope, i. Scope: a variable that specifies whether subfunctional, sectoral, and commodity the expenditure line is considered as variables. The content of this Annex was PEAS or not (included/excluded). adapted from the World Bank Agriculture Sector Expenditure Public Expenditure ii. Subfunction: all expenditure lines that Review Methodological Note (World Bank qualify as PEAS are mapped to a set of 2018a). categories describing subfunctions, such as subsidies, research, extension, infrastructure, and so on. iii. Subsector: all expenditure lines that 42 The whole set of variables can be found in Uganda’s BOOST database at boost.worldbank.org/country/Uganda. 127 Republic of Uganda: Agriculture Sector Public Expenditure Review Table A2.1. Data gaps and implications for PEAS indicators Data gap Implication for PEAS Significance for analytical results Next steps indicators No data were available 2017/18 figures in the Most recent budget behavior Incorporate 2017/18 actuals on actual expenditures report are budgeted remains unobserved. Some when they become available. in 2017/18 at the time of expenditures. recommendations may therefore writing. already be endorsed. No data were available on Analysis of external The level of PEAS may be Analyze donor finance actual expenditures from (donor) financing uses overestimated. Execution rates matrices and off-budget external sources, except for budgeted amounts. (economic efficiency) may be expenditure tables in the 2016/17. overestimated. The functional budget books to see if missing efficiency analysis is based on actuals can be added. donors’ planned behavior, not actual behavior. Geographic disaggregation Geographic analysis of Most recent trends in the Liaise with MoFPED to update across regions was not PEAS does not include distribution of decentralized PEAS the geographical mapping in available for 2017/18 2017/18 figures. are not covered. the BOOST database up to figures. 2017/18. Digital geographical PEAS levels are known The report does not contain maps Liaise with MoFPED and other mapping of subregions, and for subregions, but PEAS of PEAS across districts. agencies to obtain a mapping correspondence table of levels on associated of subregions to districts. subregions to districts, were districts are unknown. not available. No disaggregated data on The level and composition How inputs and extension services Liaise with MoFPED staff to OWC. of the OWC budget are are provided to farmers, how obtain disaggregated budget unknown. provision of these inputs and data on OWC. services has evolved over time, the commodities that are prioritized, and how the introduction of OWC affected public financial management in agriculture remain unclear. Scope disaggregation of local government expenditure across districts was available 06 Four dimensions define the scope of PEAS covered in this analysis: timeframe, functions and subfunctions, administrative in the 2017/18 dataset. Even though no detailed analysis of district-level PEAS was done for this review, the lack of these units, and economic categories. Each is data could constrain future studies on the discussed in turn next. decentralization of agricultural spending. Timeframe Functions and Subfunctions 07 The analysis focuses on the 2013/14– 2017/18 period. Merging the BOOST database and MoFPED IFMS budget data 08 According to the Government Finance Statistics manual of the International Monetary Fund (IMF), a functional for 2016/17 and 2017/18 created some classification of expenses “provides challenges. For example, the coding system information on the purpose for which an for expenditure items differed in the BOOST expense was incurred” (IMF 2014: 114). As and IFMS datasets, which made the creation such, agricultural expenditures are limited of the additional variables and classification to those that support agriculture directly; particularly intricate. In addition, no in contrast, expenditures that support 128 Republic of Uganda: Agriculture Sector Public Expenditure Review agriculture indirectly (such as through and hunting” (70423), and “agricultural positive externalities or long-term impact) research and development” (7084). are excluded. 09 The set of functions considered in this analysis is consistent with the 10 Functions were disaggregated into subfunctions using the methodology for analysis of public expenditure on food Classification of the Functions of and agriculture developed by FAO under Government (COFOG), an accounting its Monitoring and Analyzing Food and system developed by the Organization for Agricultural Policies (MAFAP) program. Economic Co-operation and Development This methodology proposes “COFOG- (OECD) and the United Nations Statistics compatible” categories for subfunctions Division. COFOG classifies public (MAFAP 2015). Some MAFAP categories, expenditure by “functions or socioeconomic however, go beyond the scope of COFOG to objectives that general government units include rural expenditures and expenditures aim to achieve” (IMF 2014: 142). The African in support of consumers. The analysis Union Guidance Note (AUGN) on tracking excluded the subfunction categories that and measuring the levels and quality of were not COFOG-compatible. The final set government expenditures for agriculture of subfunction categories is shown in Table (AU 2015) recommends using the following A2.2. Figure A2.1 is a visual representation COFOG categories to define “agricultural of the functions and subfunctions included public expenditures”: “agriculture (including in the analysis. livestock)” (70421), “forestry” (70422), “fishing Table A2.2. Subfunction perimeter for this AgPER, based on selected categories from the MAFAP methodology of FAO (covers COFOG categories 70421, 70422, 70423, 7084) Subfunction Description Transfers to private agents in the agriculture sector in the form of variable inputs or A. Subsidies assets. Transfers to private agents in the agriculture sector in the form of partial or total A1. Input subsidies payment of seeds, fertilizers, pesticides, fuel, electricity, credit, and other similar items. Transfers to agents in the agriculture sector in the form of partial or total payment of A2. Capital subsidies agricultural equipment, machinery, on-farm infrastructure, livestock, and other similar items. Transfers to public or private agents in the form of partial or total payment of B. Research agricultural research activities. Transfers to public or private agents in the form of partial or total payment of C. Extension & advisory services agricultural extension and advisory services. Transfers to public or private agents in the form of partial or total payment of training of D. Training agricultural private agents. Transfers to public or private agents in the form of partial or total payment of inspection E. Inspection and quality control and quality control activities: livestock vaccination campaigns, inspection of produce quality for marketing, and other similar activities. Transfers to public or private agents in the form of partial or total payment of the F. Agricultural infrastructure construction of infrastructure that directly supports the agriculture sector. Transfers to public or private agents in the form of partial or total payment of the F1. Feeder roads construction of roads that connect production areas to the market. Transfers to public or private agents in the form of partial or total payment of the F2. Irrigation construction of irrigation for agricultural production that is not on-farm (for on-farm, see A2): irrigation dams, canals, and other similar structures. 129 Republic of Uganda: Agriculture Sector Public Expenditure Review Subfunction Description Transfers to public or private agents in the form of partial or total payment of the F3. Other infrastructure construction of other agricultural infrastructure that is not on-farm: for instance, wells to supply water to livestock. Transfers to public or private agents in the form of partial or total payment of the G. Storage construction of public or collectively owned storage infrastructure (for private ownership, see A2). Transfers to public or private agents in the form of partial or total payment of the construction of collectively owned market and processing infrastructure (for private H. Processing and marketing ownership, see A2), marketing or processing training, and other similar items or activities. Transfers to public agents in the form of partial or total payment of the costs of maintaining efficient administrative functions in support of agriculture. This subfunction Other – Administrative costs essentially includes salaries of staff in government agricultural agencies involved in managerial and secretarial functions and the maintenance/running costs of these agencies. Source: Authors, based on MAFAP (2015). Figure A2.1. Perimeters of functions and subfunctions for this AgPER A. Subsidies E. Inspection & quality A1. Input B2. Capital subsidies subsidies Control F. Infrastructure B. Research F1. Feeder F2. F3. roads Irrigation Other C. Extension & advisory H. Storage services D. Training I. Markets and marketing Note: Administrative costs are not displayed in the diagram but form another category of the perimeter. 130 Republic of Uganda: Agriculture Sector Public Expenditure Review 11 Although this scope corresponds to the COFOG coverage as described in the AUGN, it does not really match its “enhanced COFOG” coverage, which includes several additional categories that are deemed too broad for this analysis. Table A2.3 lists the “enhanced” COFOG categories, along with justifications for including them in this analysis or excluding them. Table A2.3. AUGN enhanced COFOG functions included in the scope of this AgPER AUGN enhanced Included in the scope of Justification COFOG function this analysis? There is no standard methodology to identify food and nutrition security Food and nutrition expenditures, which can be far-reaching in scope, encompassing health No security and environment, food aid and humanitarian expenditures, and education, among others. Their inclusion risks skewing the indicators heavily. Only identifiable feeder roads were included. Rural roads entail massive public expenditure items, which aim to support all sectors of the rural Rural/feeder roads Partially economy—health, education, resource extraction, and so on. Their inclusion risks skewing the indicators heavily. Rural land Rural land titling and administration have multiple institutional, social, and No administration economic objectives and support agriculture only indirectly. Expenditures in direct support of the agriculture sector pertaining to sustainable natural resource management are included, such Sustainable natural Partially as agroecology, agro-forestry, and conservation agriculture. Other resource management environmental expenditures are not included, as they support agriculture only indirectly and their inclusion risks skewing the indicators. Multisectoral/multi- Whenever they include an agricultural component, these projects are Yes purpose projects considered. Mandated functions Public funds that semi-autonomous government agencies (including state- of state-owned Yes owned enterprises) spend on agriculture are included. enterprises Agricultural marketing Yes See category H of the scope defined in Table A2.2. Capacity development for agriculture Yes See category D of the scope defined in Table A2.2. development Rural electrification entails massive public expenditure items which aim Rural electrification for No to support all sectors of the rural economy—health, education, resource agriculture extraction, and so on. Their inclusion risks skewing the indicators heavily. Information and communication ICT for agriculture is included through other categories of the scope defined Yes technology (ICT) for in Table A2.2 (B, C, D, E, H, mainly). agriculture Subnational PEAS that are implemented at the subnational level are included in the Yes expenditures scope of this analysis. Source: Authors. 12 A two-step approach was used to extract data from the BOOST and MoFPED databases in a manner consistent with 13 Administrative selection/screening automatically included all expenditures managed by the following agencies: the scope defined earlier for functions and subfunctions: administrative selection/ • 010 MAAIF. screening and keyword-based selection/ • 157 National Forestry Authority. screening. • 306 Uganda Exports Promotion Board. 131 Republic of Uganda: Agriculture Sector Public Expenditure Review • The six semiautonomous government • 160 UCDA. agencies (SAGAs): 152 NAADS, 142 NARO, • 306 Uganda Export Promotion Board. 155 Cotton Development Organization (CDO), 160 Uganda Cotton Development • All municipal councils and the Kampala Authority (UCDA), 121 Dairy Development City Authority. Authority (DDA), and 125 National Animal • All districts. Genetic Resource Centre and Data Bank (NAGRC&DB). Economic Categories 14 Keyword-based selection/screening was 16 used to capture relevant expenditures The analysis of expenditures included falling outside the agencies identified in the following economic categories: all the previous step. The screening was done recurrent and development budgetary by performing keyword searches in the items, budgeted, released, and spent datasets to identify agriculture-related lines. (expenditure), excluding debt service and In addition, project lists were manually including supplementary budget transfers. screened for all agencies (ministries and Revenue foregone is not included. agencies) to identify agriculture-related projects. Mapping Expenditures by Subfunction, Subsector, and Commodity Administrative Units 15 The analysis covered the following agencies: 17 Once the scope was defined, three additional variables were created (subfunction, subsector, and commodity), and expenditures were mapped to each • 003 Office of the Prime Minister (OPM). variable. Expenditures were mapped to • 010 MAAIF. the subfunctions defined in Table A2.2 as follows: • 011 Ministry of Local Government (MoLG). • Isolation of lines included in the scope of • 012 Ministry of Lands, Housing and work (about 127,000 lines were reduced Urban Development. to around 32,000 lines). • 015 Ministry of Trade, Industry and • Concatenation of agency, program, Cooperatives. and project codes for lines included in • 019 Ministry of Water and Environment the scope of work. Each line thus has a (MWE). 12-digit code with three components, such as “010-010.00-0070,” where • 121 DDA. “010” is MAAIF, “010.00” the program • 125 NAGRC&DB. (“Development”), and 0070 the project (in this case, “AHRC-Ankole Ranch”). • 142 NARO. • 152 NAADS Secretariat. • Removal of duplicates in the list of concatenated codes (around 32,000 lines • 155 CDO. were reduced to about 750 lines). • 157 National Forestry Authority. 132 Republic of Uganda: Agriculture Sector Public Expenditure Review • Manual classification of the 750 remaining projects, either using project name or through internet searches and 19 The attribution process left subsector and commodity variables open for a large proportion of expenditure lines, the review of project documents. The because of information gaps or because content of other core variables (such expenditures target multiple sectors (such as “function,” “MTEF,” or “item”) was also as expenditures on agricultural research or used to classify each budget line. marketing). For example, for the 2017/18 fiscal year, 24 percent of budgeted PEAS • Many projects could not be mapped to could be mapped to identifiable subsectors, a single subfunction, because they are and the remainder targeted agriculture, multisectoral or multipurpose projects forestry, and fisheries without distinguishing that implement a diverse set of activities. among them. In those cases, multiple subfunctions were mapped to the expenditure line. After that, expenditure amounts were Selection Of PEAS Indicators apportioned to each subfunction, assuming equal shares. Around 50 projects and 2,250 expenditure lines 20 The data available and choices regarding the scope of work and expenditure mapping drove, to some extent, the ended up being mapped to multiple categories and apportioned in this way. selection of indicators. Some efficiency There were also cases in which projects indicators, for instance, that rely on were rejected from the perimeter subfunction, subsector, and commodity following a closer examination of their mapping are therefore based on calculated content. spending data. 18 The attribution of subfunctions also involved linking to subsectors and 21 In this context, it is important to emphasize two points. First, the overlap between total expenditures for all national agencies commodities for all expenditure lines included in the scope of work. The included in the analysis and PEAS is almost attribution used a simple list of five livestock complete, implying that the gap between single commodities and four cash crops. the reported budgets and expenditures and In addition to the “livestock” and “cash the calculated PEAS is close to nil (See Table crop” sectors (for which disaggregation A2.4). Second, an exclusive focus on the across single commodities was possible), figures reported in the budget books has expenditure lines were mapped to three its limitations. The recurrent/development other sectors: “crops, general,” “fisheries,” distinctions in the books are of little help in and “forestry.” Expenditures were mapped differentiating between expenditures that to the “crops, general” sector when they fund institutional activities (administrative could not be mapped to a single commodity, costs) and expenditures that fund activities considering the information available. Thus, that directly target economic agents in the expenditures under “crops, general” include agriculture sector. The salaries of extension but are not limited to food crops. workers or researchers, for example, may be recorded in the budget books as recurrent costs even though they result in services being provided to farmers. Moreover, assessing budget efficiency directly from the books is not straightforward, because it is 133 Republic of Uganda: Agriculture Sector Public Expenditure Review difficult to determine how much goes to each subfunction or commodity only by skimming through the project labels. 22 In sum, this analysis seeks to add value to more descriptive accounts of budget trends in Uganda.43 It should be read jointly with the main reporting documents published by MoFPED, such as the National Budget Framework Papers. Table A2.4. Administrative disaggregation of PEAS, final expenditure (USh billions)   2013/14 2014/15 2015/16 2016/17 2017/18† MAAIF  PE 68 92 76 160 331 Of which PEAS 68 (99%) 92 (100%) 76 (100%) 160 (100%) 331 (100%) NAADS PE 72 156 184 318 280 Of which PEAS 72 (100%) 156 (100%) 184 (100%) 318 (100%) 280 (100%) NARO PE 32 38 38 96 90 Of which PEAS 32 (100%) 38 (100%) 38 (100%) 96 (100%) 90 (100%) DDA PE 5 4 4 7 7 Of which PEAS 5 (100%) 4 (100%) 4 (100%) 7 (100%) 7 (100%) NAGRC&DB PE 5 4 4 13 15 Of which PEAS 5 (100%) 4 (100%) 4 (100%) 13 (100%) 15 (100%) CDO PE 3 12 10 9 9 Of which PEAS 3 (44%) 12 (91%) 10 (69%) 9 (33%) 9 (38%) UCDA PE 8 7 43 85 77 Of which PEAS 8 (100%) 7 (100%) 43 (100%) 85 (100%) 77 (100%) National Forestry Authority PE 11 7 24 16 30 Of which PEAS 1 (9%) 1 (12%) 5 (20%) 2 (14%) 8 (27%) Uganda Export Promotion Board PE 0 0 0 3 3 Of which PEAS 0 (0%) 0 (0%) 0 (0%) 3 (100%) 3 (100%) MoLG PE 35 31 45 154 282 Of which PEAS 15 (43%) 3 (9%) 20 (44%) 130 (84%) 245 (87%) MWE PE 156 177 250 497 528 Of which PEAS 49 (31%) 53 (30%) 61 (25%) 87 (18%) 184 (35%) Districts, councils, other agencies PE 2,071 2,308 928 2,781 3,047 43 Such as the descriptive approaches used in Kakuba (2016). 134 Republic of Uganda: Agriculture Sector Public Expenditure Review Of which PEAS 150 (7%) 46 (2%) 21 (2%) 61 (2%) 89 (3%) Total PEAS agencies PE 2,467 2,837 1,606 4,138 4,698 Of which PEAS 408 (16%) 417 (15%) 467 (29%) 971 (23%) 1,337 (28%) Note: †2017/18 amounts are budgeted amounts, not final expenditure. Percentages in brackets are the shares of PEAS within PE. The “districts, councils, other agencies” item covers all districts and councils, the Kampala City Authority, the Office of the Prime Minister, and the Ministry of Trade, Industry and Cooperatives (see disaggregated list in “Administrative” section above). Ministries of “Lands, Housing and Urban Development” and “Lands, Water and Environment” were grouped together under “Ministry of Water and Environment” (MWE). 135 Republic of Uganda: Agriculture Sector Public Expenditure Review 03 LEVEL OF PUBLIC EXPENDITURE IN AGRICULTURE Table A3.1. Reference budget allocations across agriculture sector agencies from the ASSP 2015/16– 2019/20 Agency 2015/16 2016/17 2017/18 MAAIF and sub-branches 149.2 293.5 326.7 MAAIF 138.8 264.5 295.4 MAAIF/COCTU 5.0 19.9 20.3 MAAIF DAES/NARO 5.5 9.0 11.1 SAGAs 260.3 282.1 290.1 NAADS 133.3 136.3 136.3 NARO 80.4 97.1 102.6 UCDA 33.2 33.4 34.6 DDA 4.8 6.4 6.6 CDO 4.5 4.8 6.0 NAGRC&DB 4.0 4.0 4.0 Local governments 30.4 95.0 100.0 Other agencies 23.2 86.7 121.3 Donor agencies 19.0 74.7 109.0 Fisheries Training Institute 0.5 2.0 2.2 Other 3.6 10.0 10.1 Total 463.0 757.2 838.0 Note: Amounts computed by the authors using Annex D of the ASSP (MAAIF 2016). COCTU is the Coordinating Office for the Control of Trypanosomiasis in Uganda. DAES is the Directorate of Agricultural Extension Services. 136 Republic of Uganda: Agriculture Sector Public Expenditure Review Figure A3.1. Administrative composition of PEAS 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 2013/14 2014/15 2015/16 2016/17 2017/18* MAAIF NAADS NARO DDA NAGRC CDO UCDA National forestry authority Uganda Export Promotion Board Ministry of Local Government Ministry of Water and Environment Districts, municipal councils and other agencies Note: *Budgeted expenditures were used for 2017/18, not actuals. Table A3.2. Disaggregation of final PEAS across commodities   2013/14 2014/15 2015/16 2016/17 2017/18† Livestock 5% 9% 3% 5% 6% Beef 3% 8% 2% 4% 5% Dairy 2% 1% 1% 1% 1% Pigs 0% 0% 0% 0% 0% Poultry 0% 0% 0% 0% 0% Goats 0% 0% 0% 0% 0% Cash crops 3% 5% 11% 10% 6% Coffee 2% 2% 9% 9% 6% Cotton 0% 3% 2% 0% 0% Tea 1% 0% 0% 0% 0% Other export crops 0% 0% 0% 0% 0% Crops, general 2% 2% 2% 1% 5% Fisheries 3% 2% 2% 1% 2% Forestry 1% 1% 2% 0% 1% Other 2% 4% 3% 5% 4% General PEAS on agriculture and the rural sector 85% 77% 77% 78% 76% Total 100% 100% 100% 100% 100% Note: † For 2017/18, shares are for budgeted amounts. 137 Rwenzori House, 1 Lumumba Avenue P.O. Box 4463 Kampala - Uganda. www.worldbank.org