A small boy darted from the bush that forms the border with Uganda here, ran to a stall set up along the road and pulled a plastic bag filled with unroasted coffee beans from his pocket.

In exchange for the pound of coffee the boy had just smuggled into this country, the shopkeeper handed over a loaf of bread. The boy wolfed down the bread on the spot. Then, without saying a word, he ran back into Uganda where ordinary foods such as bread are scarce.

A few miles south, in Sio Port on the shores of Lake Victoria, the smuggling operation is larger and more organized. Ugandans unable to market their crops in their own country because of its shattered economy use large fishing canoes with outboard motors to carry cotton, coffee and corn for illegal sale in Kenya.

The Ugandan smugglers return with food staples such as salt and bread, common household goods such as soap and cooking fat and manufactured goods such as radios and tires. All of these items are scarce in Uganda these days, travelers reaching here report.

The smuggling trade has become to active across Lake Victoria, where there are no effective patrols by either government, that there are virtually no outboard motors available in Kenya. They have all been bought by the smugglers.

"I think smuggling is intensifying now," said Frederick C. K. Waiganjo, deputy district officer for the area that includes Busia and Sio Port.

"Considering the situation on the other side (Uganda) it's hard to control it."

He said Ugandans who are caught smuggling are shot on sight by their army. But Waiganjo and many other residents here believe the smuggling is actually controlled by Uganda's army, which is used ruthlessly by President Idi Amin to keep control of the country. In return the army and secret police are rewarded with the only luxury goods available in the country and a share in the most lucrative enterprises.

Smuggling is extremely profitable --especially for the middlemen on the Kenyan side of the operation. Officials here, the district seat for much of the border area, said coffee beans are bought at Sio Port for about 80 cents a pound. A few miles down the road the beans are sold to dealers for slightly more than a dollar a pound.

The beans are then mixed with Kenya's own coffee crop and marketed around the world as Kenyan coffee.

Uganda used to sell coffee, but during Amin's six-year rule the country's economy has declined so much that it can no longer market its crops. Farmers in Uganda who sell their coffee beans to the official agency there have to wait months to get paid. Meanwhile, they say, they have no money to buy food and clothing.

The value of the Uganda shilling had fallen to the point that no one would accept it.Waiganjo said, though, that the value of the currency is on the increase because of the smuggling trade.

Sources here said there are about 200 fishing canoes engaged in smuggling across Lake Victoria and boat owners can make at least $12,000 a day. Waiganjo said some Ugandans are opening bank accounts in Nairobi and buying property in Kenya with profits from smuggling.

The markets here, at Sio Port and in the inland town of Samia are filled with consumer goods that are taken into Uganda. One man here said he opened his stall within sight of the border two months ago and almost all his customers come from Uganda.

He sells soap, razor blades, toothpaste, bread, cooking fat and other household goods. He will take only Kenyan money, and since it is illegal for Ugandans to carry Kenyan money over the border they often hire small boys -- who generally are not checked at the border -- to smuggle the cash for them.

Most of the shoppers openly carry the goods they buy across the border into Uganda.

The shopkeeper said it is not unusual for a hungry youngster from Uganda to bring a little bit of coffee here to trade for food.

In Sio Port, smugglers carry heavier goods such as blankets, radios, mattresses, clothing and bedsheets for sale in Uganda.

Stores there are reported to be empty. One market in Kampala, the capital of Uganda, has windows filled with boxes, but all of them are empty. A hardware store has shelves lined with paint cans, but they too are empty.

Generally, the trading on the Kenya end of the smuggling operation is orderly. According to people who have been at Sio Port, hundreds of traders wait all night along the lake for the canoes to arrive at dawn with coffee, corn and cotton. There is no mad rush when a boat arrives. People line up to examine the material and then offer a price.

In Chepkubz, however, several people were killed recently in a brawl when boatloads of smuggled coffee arrived, according to reports here.

The smuggling operation appears to be winked at by authorities here. In a wide ranging interview, deputy district officer Waiganjo gave no indication that the government intends to crack down on it.

"There is big money in coffee smuggling, and obviously among the smugglers there are some very rich people in the country," wrote columnist Joe Kadhi in the Sunday Nation newspaper.

"But the people who seem to be caught red-handed are only the simple drivers of other small men. Somehow the big sharks seem to be getting away."