agriculture with large scale mechanised commercial farms is either socially desirable or feasible in east africa. it is not socially desirable because it would require mass displacement of peasants from their land, probably forcibly. mechanised farming is not labour intensive and so would absorb only a fraction of the peasants driven off the land as farm labourers. most of the peasants displaced from the land would have to be absorbed in the urban areas, but they have few of the skills needed for urban employment and there are already acute shortages of jobs in the urban areas. consequently the social consequences of modernising agriculture through large scale mechanised farming would be catastrophic ; poverty would increase. the distributional consequences of the second route to agricultural modernisation – supporting smallholders to modernise their farm practises – are much more benign. smallholder farmers are one of the poorest sections of society, so helping them to raise their incomes will reduce poverty. although not all smallholders will remain on the land, especially as population pressure intensifies land constraints, rural - urban migration should be lower than if peasants were forcibly displaced on a large scale, and hence it will easier to absorb these migrants into urban employment. promoting smallholder farming is an agricultural strategy which will support inclusive growth ; economic growth which includes the poorest sections of society. a strategy based on large scale mechanised farming is also likely to fail in terms of raising agricultural output in the region. in many parts of the region, arable land is becoming an increasingly scarce factor of production because of high rates of population growth. hence maximising crop yields per land area is essential if overall agricultural output is to be raised. large farms, however, perform poorly compared to small farms in terms of crop yield per acre. research in uganda reported by the world bank has revealed that average crop value added per acre is four times higher on small farms, with a land area of one hectare or less, than on large farms with land of more than five hectares, as shown in table 2. small farms bis central bankers ’ speeches are much more productive than large farms because they mainly employ family labour, which have much greater incentives to work efficiently without supervision than the hired labour employed on large farms. 4. policy measures to support agricultural modernisation if smallholder farmers are to embark on the transition to agricultural modernisation, the vicious circle of poverty, lack of resources and low productivity which characterises smallholder food crop farming must be broken. fortunately, there are feasible policy measures which can

emmanuel tumusiime - mutebile : inflation and opportunities in uganda press statement by mr emmanuel tumusiime - mutebile, governor of the bank of uganda, at the bank of uganda, kampala, 24 september 2008. * 1. * * recent inflation developments the recent spike in inflation comes after a long period of low and stable single digit inflation that has been entrenched in uganda since the 1990s. the long term commitment of the bou remains to maintain price stability at all times. in this regard, it is important to understand the reasons for the recent surge in inflation, and also explain the stance that bank of uganda has adopted to deal with the problem. two developments need to be explained. first, at the international level, data from the world economic outlook indicates headline inflation in advanced economies to have risen to 3. 5 percent in may 2008. the rise in inflation in advanced economies has led central banks to express growing concerns in regard to the current price environment. the increase in inflation is more marked and broader in developing economies, particularly sub saharan africa where headline inflation has registered an average of 20. 0 percent ; the highest rates since the beginning of the current decade. in these economies, food and fuel make up a larger share of consumption baskets and sustained strong growth has tightened capacity constraints. the major part of the spike in inflation reflects sharp increases in global energy and food commodity prices, and other commodities. in part, the rise in prices was driven by the commodity boom that resulted from both accelerated demand and constrained supply. in particular, the increased demand from emerging economies for various commodities ; demand for specific food crops and bio fuels ; and slow supply responses, amplified the price pressures. second, on the domestic front, core inflation had remained in single digits since 1996 but rose above the 10 percent mark after april 2008. in the same vein, headline inflation was recorded at single digit levels for most of the period from august 1993 to may 2008. it was only some episodes in 1997, 2003 and 2005 that inflation rose above the 10 percent level, mainly due to the world oil prices increasing after the genesis of the gulf war, supply constraints after the closure of the sugar factories among others, and periods of elongated drought. figure 1 maps the inflation profile. the domestic food crop prices, as reported by the uganda bureau of statistics, rose mainly due to seasonal factors, poor harvest, substitution effect and high domestic and regional demand. the rise i prices of processed foods were brought about by