New business plan and strategy for Mount Rwenzori Coffee Union

24-07-2014 Mount Rwenzori Coffee Farmers Cooperative Union, being part of Agriterra's client portfolio in Uganda since the start of this year, is a young organization founded in January 2013. The union was formed to enable coffee farmers to have sustainable and competitive advantage over other coffee traders and to involve coffee farmers on the slopes of Mount Rwenzori further in the coffee value chain. The union has 5 fully registered primary cooperative members (PCs) and 35 farmer groups, representing over 3000 farmers who are spread over the Mount Rwenzori slopes in the district of Kasese. The union's main operating activity is the local sales of ungraded Arabica green coffee on behalf of its members.

At the start of every coffee season the management of the union collects projected supply data from all members. With this large volume at hand, the union tries to find a local buyer offering the best prices and conditions. A large challenge in the coffee business is to get access to the required volume of working capital against reasonable interest rates. The working capital is necessary in order to buy the coffee from the farmers, who in most cases demand immediate cash at delivery. Last year, the union managed to access small amounts of working capital from its local buyer in Kasese. By fast revolving the working capital (buying-selling) the union managed to procure and sell 130 metric ton of ungraded coffee with a total sales value of approximately €140.000.

The union has agreed with its members that it receives a commission of €0.01 cents per sold kilogram. In that way the union functions as a kind of agent on behalf of the members. Although the union has shown impressive results in turnover during its first year, it needs access to sufficient working capital in order to grow. Therefore, the core focus of Agriterra’s support to the union is on developing a professional business plan and strategy in order to approach banks. With the technical advice and assistance from Agriterra, the business plan was finished mid-July 2014.

In the newly developed business plan, the union will put key focus on increasing the total volume of coffee sales from 300 metric ton in 2014 to 600 metric tons in 2016. Based on the developed cashflow forecast, the union requires working capital of approximately €50.000 at the peak of the harvest season. Having this working capital at hand, there will be less dependency on the buyer and more freedom to access better markets. The union will furthermore increase the membership base and add value to the members' produce through becoming Fairtrade certified in 2015. Finally, there will also be more focus on broadening the market scope from Kasese town to the capital city Kampala and build experience on the export market through exporting 1 to 2 containers by 2016.

It was furthermore decided that the union will transform its business model from commission based to profit based. This implies that instead of the €0.01 per kg, the union will receive a (to be agreed upon with the members) percentage of the profit made at the end of the year. This is required, because with only the commission on the projected sales volumes, the union will hardly manage to pay its yearly fixed expenses and will be unable to invest in order to develop the union and extend the services to its members.

With the newly developed business plan at hand the union will approach banks to attract the necessary amount of working capital to realize the projected sales targets. Agriterra will assist the union in this process and expects to announce positive results at the end of this year.


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