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What next as Vinci coffee deal cools?

Buganda responds to Museveni’s defense.


MUBATSI ASINJA HABATI | Kampala, Uganda
On February 10, 2022, Finance Minister Matia Kasaija signed an agreement with an Italian, Enrica Pinetti, to allow her company, Uganda Vinci Coffee Company Limited (UVCC), to build a $80 million coffee processing plant.


Apart from Enrica Pinetti’s involvement, an already contentious Italian in Uganda’s foreign investment circles, the agreement’s unduly generous conditions have left a sour taste.


However, a further study by The Independent reveals that the uproar over the Vince transaction may provide Ugandan coffee growers with new insight into how the world coffee market operates, including its obstacles and potential. About ten years ago, the Vince deal was proposed.
Pinetti surprised President Yoweri Museveni in a meeting with him at his Rwakitura country house in May 2014, when she roasted coffee seeds using a tiny roaster and made the President taste different excellent samples.

Pinetti guaranteed Museveni that her plant would roast, produce, and package instant coffee for export and the Ugandan market.“I’ve been trying for a long time to persuade someone to add value to our coffee,” Museveni exclaimed, “and Uganda has been a donor by exporting raw coffee.”

That’s when Museveni promised to give the Italian “everything essential help to guarantee that the project gets off the ground as quickly as possible.” However, eight years later, the factory has remained in limbo, having not progressed beyond the groundbreaking ceremony. Uganda’s abrupt withdrawal from the International Coffee Organisation (ICO), which administers the International Coffee Agreement (ICA), an important mechanism representing 98 percent of world coffee output and 67 percent of world consumption, could be linked to its recent resurrection.

The Uganda Coffee Development Authority (UCDA) announced its departure for seven reasons, including discriminatory tariffs, export restrictions on processed coffee, and a “unjust and obsolete” coffee classification system. Museveni’s commitment to see that “Uganda ceases giving the value of its coffee” despite resistance from parliament, coffee growers, dealers, and processors may explain his steadfastness on the Vinci contract.

 

According to World Atlas, Uganda is the world’s eighth largest coffee producer. In Uganda, coffee is not grown on vast estates. It is primarily grown on tiny privately held estates in central Uganda.
However, governments have tried and failed to restrict its marketing over the years. Uganda’s government has undertaken a multi-pronged coffee policy under President Museveni. It has attempted to enhance output, diversify growing areas outside of the central region, ensure quality, and, most recently, regulate its sale, particularly the export component.

The 2018 Coffee Bill has been pushed through parliament by the administration.
However, some of the Bill’s contents have caused controversy, and it is still being debated in parliament over the harmonisation of contentious elements.
For example, the government has requested the ability to arrest farmers who do not properly maintain their coffee gardens.

Uganda shipped 6.55 million unprocessed coffee bean bags for $657.23 million last year.
This represents 0.6 percent of the $102 billion worldwide coffee market. Many critics have claimed for decades that Uganda might make more money from its coffee. However, Uganda had to export processed coffee rather than raw beans for this to happen.

Despite this, Uganda has continued to export raw coffee beans to Europe, as colonialists intended.

This is purportedly the reasoning used by the UVCC, or simply Vinci, a private and previously unknown firm, to persuade officials at the Ministry of Finance to provide government approval.

Vinci promoted the concept of purchasing Ugandan coffee, processing it, and exporting it.

Why is it so difficult for Uganda, or many other African countries, to establish processing capability and enter the market from farm to cup?

In response to Uganda’s withdrawal, the ICO stated that a working group established in 2019 to update and modify the present Agreement is now reviewing Ugandan complaints, particularly restrictions to exporting “value-added” processed products.

The ICO stated in its 2020 internal report that processed coffee imported from Uganda is subject to a 60% tariff, while processed coffee imported from other countries such as the European Union, Norway, and Japan is subject to low or zero tariffs, that “unbalanced tariffs are an ongoing concern in the global coffee market.”

The ICO further stated that tariffs are governed by the World Trade Organisation (WTO).

President Museveni appears to have grown impatient and is eager to see significant economic advantages from the recent investment in coffee by his administration.

The Permanent Mission of Uganda to the United Nations, in collaboration with Inspire Coffee, hosted a two-day coffee cupping and tasting event on September 9th and 10th, 2021.

Defending the agreement

Ramathan Ggoobi, Permanent Secretary of the Ministry of Finance, defended the Vinci contract, saying that the government had invested extensively in expanding coffee production through Operation Wealth Creation, including giving enhanced seedlings.

“The declared goal is to increase yearly coffee production from 420,000 tons to 1.2 million tons by 2030,” Ggoobi told Parliament.
We’re aiming for $2 billion.”

He mentioned the Buganda Kingdom as a participant in the ambitious project.

“Producing more coffee and ensuring that the majority (if not all) of it is premium is a win-win solution for everyone.”
That is an excellent task.
How is it possible that just 60,000 tons of the 420,000 tons of coffee we produce today are premium?
The government agreed to take “reasonable” steps to ensure Uganda Vinci’s supply of premium coffee.
Such measures cannot involve preventing other investors from fulfilling their obligations.”

“If we can convert our coffee into fine, completed items, we can obtain nine times more monetary value out of it, or $5.4 billion each year,” Ggoobi stated.
We would also be able to employ more of our workers in the coffee chain here at home, among other benefits.”

Ggoobi informed MPs that Vinci is the investor who proposed a strategy to carry out the government’s wishes.
He claimed they proposed to invest $80 million in Uganda to process coffee and sell it in untapped markets in Europe and elsewhere.

“Vinci bears the cost and risk of breaking into those new markets.
“All the government has done is provide Vinci a set of incentives that are accessible to every strategic investor in coffee, dairy, iron and steel, you name it,” he explained.

The incentives granted to Vinci, according to Ggoobi, should not be an issue because they have been offered to other investors, both local and foreign.

In any event, he stated, they are only for the first ten years.

“It’s only to help it create a foundation,” he explained.
Many other firms that have contributed to Uganda’s prosperity have also been targeted by the government.
The incentives we’ve discussed will no longer be accessible to Vinci once it has penetrated virgin markets and begun producing profits, and it will pay all taxes owed to the government.
This is the strategy for all incentive investors.”

a difficult problem

However, it appears like Ggoobi purposefully simplified a complex scenario that poor coffee-producing countries are still fighting as they try to get more money from their product in the worldwide coffee value chain.

Coffee’s supply and value networks are intricate.
They include actions such as cultivation, harvesting, transportation, and shipping, as well as processing, milling, roasting, and packing.
Poor farmers raise the crop in over 80 nations across Africa, Latin America, Asia, and India, while wealthy countries process, roast, and package it.
The poor battle to work in roasting and packing, while the wealthy, through organizations such as the ICO and the World Trade Organization, ensure that they cannot.

It has been established that African farmers produce some of the best coffee beans in the world, but they receive the lowest prices of all growers worldwide.
Every year, that African coffee grower loses $1.47 billion due to exploitation of their harvests.
Coffee growers in Africa’s two largest coffee producers, Ethiopia and Uganda, are expected to lose US$713.1 million and US$229.7 million annually owing to unfair trade terms.

As a result of low prices that are barely enough to cover production expenses, millions of African coffee farmers have fallen into abject poverty, while the rest of the coffee supply chain enjoys soaring profits.

These figures come from a paper titled “Misery at the Farm: Africa’s Coffee Farmers Lose Billions to Exploitation.”
According to the report, an African farmer’s part of the roasted coffee value chain ranges from 8.7% to 12.6 percent, with smaller shares in key African coffee exporters Ethiopia and Uganda (12.6 percent and 10.0 percent, respectively).
Outside of Africa, farmers’ shares in the roasted coffee value chain are higher, with India’s coffee growers receiving 15.7 percent and 14.9 percent in Brazil.

“These figures are critical for African producers from a number of nations where coffee is their primary export,” the research stated.

Selina Wamucii, a platform for food and agricultural products from Africa’s agricultural cooperatives, farmers’ groups, agro-processors, and other organizations that engage directly with family farmers throughout 54 African countries, released the study in 2020.

President Museveni labeled those opposed to the Uganda-Vince arrangement, which has the ability to add value to Ugandan coffee, as “agents of foreign interests,” based on the terrible facts presented by Selina Wamucii and others, and his lived experience in Uganda.

“This is a conflict between the comprador bourgeoisie, foreign interests’ agents, and the local bourgeoisie,” Museveni remarked in Kampala on May 1. President Yoweri Museveni meets Enrica Pinetti, a controversial Italian investor (in red jacket).


Many people remain dissatisfied.

The Lukiiko Parliament of the Buganda kingdom recently condemned the Uganda-Vinci deal and promised to hold a grand assembly of all the country’s main coffee farmers.

Uganda’s coffee industry is heavily influenced by Buganda. The majority of the coffee produced in the country is Robusta (85%) and Arabica (5%). Central Uganda, primarily Buganda, produces up to 80% of the world’s Robusta coffee. The Uganda-Vinci pact, according to royal authorities, should be scrapped because it will not provide any developmental benefits and may even be harmful.

Vinci would retain exclusive rights to buy all Ugandan coffee under the terms of the agreement.
This arrangement also includes a 10-year tax break for UVCC, as well as power tariff waivers and guaranteed water supply.

Coffee producers have petitioned parliament to scrap the government’s agreement with Uganda Vinci Coffee Ltd. They claim that it is illegal. Farmers testifying before the parliamentary trade committee argue that contracting a foreign corporation to perform out value addition is unnecessary because they can do it themselves if supported like Vinci.
Investigations are ongoing.
The Parliamentary Committee on Trade, Tourism, and Industry launched a probe into the contentious coffee transaction between the government and Uganda Vinci Coffee Company Limited on April 25, 2022. (UVCC).
The Committee wanted to interrogate Vinci’s contentious and elusive board chairperson, Enrica Pinetti.
However, the Italian government ignored parliament by failing to appear before the committee.

The Committee heard from Moses Matovu, who signed the deal as Vinci’s company secretary, Ramathan Ggoobi, the Secretary to the Treasury, and Finance Minister Matia Kasaija, who signed on behalf of GoU.

When Moses Matovu told the MPs that Pinetti, who was there at the signing of the coffee processing agreement in February, couldn’t appear before their committee because she was with President Yoweri Museveni at the time, they were furious.
Museveni has been accused by many MPs of harboring Pinetti.
Her appearance was rescheduled.
But she ignored them once more.

In Uganda, Pinetti is no stranger to controversy.
In 2018, she received parliament’s approval to build the Lubowa Specialised Hospital through a business called Finasi.
Surprisingly, the government offered a promissory note to the Italian corporation Finasi, offering to pay up to $397 million if the company completed the hospital.
The hospital was meant to be finished in two years, but four years later, there is still nothing to show for it.

Many others questioned why the government was supporting a foreigner who had neither money nor experience in the hospital business at the time. “Powerful Ugandans own Vinci and are using Pinetti as a front,” MP Samuel Ssemakula Lutamaguzi remarked (Nakaseke South). In the case of the coffee deal, the Committee chaired by Mwine Mpaka (Mbarara City) claimed to have discovered anomalies.

MPs were shocked to learn that Pinetti, as director of UVCC, had sought to mortgage the 25 acres of government land she had been given free of charge in Namanve Industrial Park near Kampala to secure a loan from a commercial bank during the meeting while interrogating officials from UVCC led by the company secretary, Moses Matovu.
The Italian stated that she would use the funds to establish a coffee processing plant.

According to an email sent by Pinetti to the Uganda Investment Authority (UIA) in 2018, Vinci planned to leverage the 25 acres it was allotted in Namanve to get a bank loan.
Vinci intended to utilize the financing to build and operate a roasting, grinding, and instant coffee processing facility.

The MPs were perplexed as to why Vinci, who had received free land and a premium waiver worth about $2 million, wanted to mortgage the same site.
Pinetti was halted in her tracks because, according to UIA Executive Director Robert Mukiza, a foreign investor must have built the factory to 60% completion before being able to mortgage a UIA land title to obtain a commercial loan.
Vinci had not yet completed the factory’s ground-breaking.

President Yoweri Museveni meets Enrica Pinetti, a controversial Italian investor (with dark shades).

The government is out of coffee. Many people argue that this arrangement, in its current form, alienates Ugandans from the coffee industry by giving a monopoly on coffee procurement and export to a single organization. The arrangement exempts the coffee firm from paying all taxes, including income tax, pay as you earn, excise duty, and the National Social Security Fund, as well as attempting to subsidize the company by providing them with a preferential power pricing, which is in violation of the Coffee Act.

However, Attorney-General Kiwanuka Kiryowa and Finance Minister Matia Kasaija have defended the government’s controversial coffee deal with Vinci. After Uganda withdrew from the International Coffee Organization, Kiryowa told MPs examining the coffee trade that Vinci’s contract with the government is critical to promoting value addition to coffee.

“I investigated the company’s legal standing and am confident that it has adequate legal standing in Uganda, thus the contract does not violate any legal provisions.” As a result, I confirm that I conducted legal due diligence on the organization and am certain that it complies with all requirements and laws,” the Attorney General stated.
Kasaija, for one, defended the deal, claiming that Ugandans will benefit.

“This arrangement does not preclude other possible investors from investing in value addition; UVCC allows the country to obtain higher prices for high-quality coffee.”
The company plans to build multiple hubs across the country to improve farmer traceability and eliminate intermediaries, according to Kasaija, who also stated that UVCC will pay a competitive and market-determined price.

Richard Gafabusa, a Bwamba County MP, questioned why the government did not consult extensively before signing the contentious coffee contract.
He was also perplexed as to why the UVCC contract did not have a termination clause.

“Enrica obtained the land transaction, but little has been done throughout the years. After more than a decade, the purchase was finally completed this year. This renders the preceding years meaningless. Is there a language in the contract that states that if the investor fails to produce, the contract would be terminated?”
Gafabusa enquired.

“Coffee is not a natural resource controlled by the government,” Amuria Woman MP Suzan Amero stated. “And since the corporation does not have coffee, our farmers shall also not be party to their agreement because they were not consulted.”


What’s next as the Vinci coffee deal cools? originally published on The Independent Uganda:.

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