BAT has been operating in Uganda since the 1950s. All tobacco farmers have an account with BAT. Inputs are provided and debited from the accounts. Likewise, when the crop is harvested, the account is credited until the loan is paid off, thereafter farmers receive cash for the additional tobacco sold. Each year the company announces pre-season prices for the different grades of tobacco leaf. If farmers are interested, they enter into a one-year agreement with BAT, under which BAT will provide inputs and the farmer will sell his or her tobacco to BAT. All inputs are supplied, including tools such as hand hoes. The amount of inputs supplied is restricted in value to roughly 30% of the farmer's expected crop sales.

Requests for inputs and agreed supplies are handled by BAT extension staff, after checking computerized accounts in Kampala, to ensure that the farmer is not over his or her maximum credit allowance. Technical advice is provided, again by extension staff, by using demonstration plots and 'master' farmers throughout the production areas to demonstrate correct cultivation practices and the potential gains from receiving BAT inputs. New farmers are vetted before joining the scheme. Criteria including farming ability, proximity to other farmers, available labour, quality of soils, and local character references are used to determine the suitability of applicants. After one year in the scheme, farmers are appraised according to their performance (with respect to yield, quality of tobacco). Poor performance will restrict the amount of credit available in the following year. After two consecutive poor years, farmers are de-registered.

The farmer harvests, cures and dries the leaves and transports them to a purchasing point. Here the leaves are graded and the value determined. This is credited to the farmer's account until 100% of the loan has been recovered. Only then will the farmer receive cash payments. At the end of the season individual farmers receive a bonus (which is paid just prior to Christmas) of up to approximately 3% of the value of the harvest, based on the quality and volume of the tobacco that they produced that year.

Analysis:

Potential Problems:

The major development for the 1997 season was the enactment of an amendment to the Tobacco Law, which safeguards both farmer and companies entering into credit agreements. Basically, it commits the farmer to selling to the company which it has an agreement with, and commits the company to purchase all tobacco from that farmer (see enforcing repayments. Both BAT and Mastermind sponsored a series of workshops to raise awareness of the new law, attended by local officials including MAAIF staff, police and administrators. The law has since worked very well. In 1997, BAT recovered 100% of their loans and some of the outstanding loans from 1996. In 1998, BAT entered into agreements with 48,000 smallholders who cultivate tobacco on an average of 0.3 hectares.

• Credit applicants are screened using company criteria and have their performance monitored.
• Repayment is encouraged by individual incentives, lending in kind and phased credit release.
• This experience shows the positive effect of timely provision of strong extension support, physical inputs, and post-harvest services.

BAT's experience also highlights the importance of a number of additional factors:

• Guaranteed prices announced before the start of the season.
• Law to safeguard farmers and company.
• Trust between the company and smallholders built up over time.