The Cobweb theory posits that price volatility in agricultural markets leads to supply fluctuations, creating a cycle of price changes. In Uganda, coffee farmers face challenges in predicting market prices due to the inelastic nature of supply in the short term. Despite historical trends indicating the influence of the previous year's prices on supply decisions, the scattered and unorganized nature of Ugandan farmers complicates forward-looking production planning. The record-high coffee prices in 2024 have spurred increased investment in coffee farming, echoing the misguided expansion seen in 1994 following a price surge due to adverse weather in Brazil. This shift towards coffee cultivation, at the expense of banana farming, risks creating food shortages and financial instability due to the annual cash flow nature of coffee farming.
Source: PML Daily