Cassava growing: The long walk to financial freedom?

cassava

Outside Looking In

D E Wasake, FCCA

About the writer

For over 10 years I have worked with several clients in Uganda, The Bahamas and the United Kingdom in providing audit, tax, accounting and advisory services. My experience with various clients in the different sectors enables me to have a good understanding of this business. To see the full depth of my experience, please see my profile.

Article summary

In this article, we estimate that cassava growing on 1 acre of land in Uganda requires an investment of Shs. 16.2m (excluding working capital) and also without borrowing (though we expect most businesses to do so). In terms of returns, it can give Shs. 5.8m per year (net revenue after direct costs) and an average net profit of 468,000 Shs. 20m which gives a return on investment of 35 years.

This profitability however hinges on in addition to not borrowing, having yields of about 4,000 kg per acre. To achieve these yields, we assume the “advanced thinking” farmer will not use local varieties but will instead use the hybrid high yielding and disease resistant varieties like NASE 14 for purposes of commercialization.

Background

For many a growing child in Uganda during my school days, a school snack was fried cassava. These were often deep fried on the road side, almost always by women (with a baby or two nearby), sitting on 3 legged stools. These women probably had names like Aketch and Anek. These are names from Northern Uganda, which are primary cassava growing areas in Uganda as Cassava can handle high temperatures. How I loved deep fried cassava! Of course, you could enjoy the cassava tuber (even raw, it works as well as the deep fried cassava) but please stay away from mum when she was angry, the cassava stem makes a good cane for naughty children! 

On a more serious note, this sector in Uganda has been changing for a few years now. The projected/expected driving factor for continued increased cassava demand will be the consumption by breweries in Uganda. For instance, Uganda Breweries Limited needs it to produce Senator and Ngule beer brands.

Cassava is a drought resistant crop doing well in areas with 500 – 600mm of rainfall annually and optimally in areas with 1,000 – 1500mm of rainfall annually. In Uganda, its cultivation is mainly in the West Nile (Apac, Pakwach), Northern Uganda (Gulu, Lira, Kitgum) and Eastern Uganda (Mbale, Tororo, Kumi, Soroti). The Central parts of Uganda (Rakai, Masaka, Nakasongola, Sembabule and Kiboga) have some of the untapped vacant lands in the dry corridor to which cassava growing can be expanded to.

A total of 16.8 million hectares was planted with cassava throughout the world in 2000; about 64% of which was in sub-Saharan Africa. World utilization is projected to increase by 2.3% annually to 209 million tons. 60% of the total demand is for food, the remainder for other uses.

To understand the importance of this crop, total world cassava utilization is projected to reach 275 million tons by 2020 (IFPRI in Westby, 2008). Cassava for feed is projected to continue to account for over three quarters of the world cassava trade and flours and starches for food and industrial uses for the remainder. About 60% of the total demand will be for food, the remainder for other uses.

So with the above introduction how can you get investing in this sector in Uganda?

FIRST THE CONS….

1. Fluctuating prices

The prices of cassava fluctuate significantly with low prices just after the traditional harvest season and high prices during “off seasons”. These fluctuating prices are also a result of market inefficiencies where there is lack of information on more suitable prices (for example export markets).

There are however solutions for the “advanced thinking farmer” i.e. Market information Services (MIS) that have cropped up.

These disseminate information via SMS, radio and on the internet on their website etc. Examples include farmgain , agrinet and ratin which provide retail/wholesale prices for Kampala, other markets and Kenya.

2. Production Constraints

Constraints like pests (birds, rodents, moles and termites) and diseases like Cassava Mosaic Disease (CMD) affect both the quantity and quality of cassava that is produced.

An “advanced thinking” farmer should for example be able to acquire a laser gun that will help with dispersing the birds whenever they are feeding on the sorghum to avoid loss in crop yields.

3. Poor marketing and transport infrastructure

Cassava is a perishable food that requires immediate transportation to the final consumer. However, farmers in the remote areas of in Uganda fail to deliver the fresh tubers to urban markets because of distance and bad roads.

There are for example inadequate on-farm stores, and there are no rural warehouses except for the local granaries. The road net work especially off the main central government maintained highways are in a bad state and render produce that is more costly.

The “advanced thinking” farmer could however invest in on-farm value addition that includes drying it and milling it into flour.

AND NOW THE PROS….

1. Free or cheap Technical support

High Quality Cassava Flour is used for beer brewing. Consumer companies like Uganda Breweries contract farmers for the growth of the crop on certain specifications. These consumer companies accord incentives and technical support to their contracted farmers.

We recommend that the farmer affiliate themselves with a relevant co-operative society as in addition to the technical support, they could get access to cheap credit (or a grant).

2. Guaranteed market

Contracted farmers (for beer companies) are assured of market for their produce given that they produce the crop to the specifications outlined in their contracts. For un-contracted farmers, there’s market for fresh cassava for food.

Having a guaranteed market eliminates the costs of marketing and potentially transport to the market.

3. Modest Return on Investment (ROI)

In our financial model we assume an initial land allocation of 1 acres; each acre yielding 4 MT (4,000kg); 1Kg of cassava sells for about Ugx1,400 as the farm gate price (as opposed to market price) that there is an initial pre planting and post-harvest loss of 10% of the yield; assume an Inflation rate per Year (food inflation) of 12.30%; assume an Inflation rate per Year (EFU) of 5.5% as a cost of production.

We assume the farmer will plant the high yielding disease resistant NASE 14. This variety of seed costs about Shs. 1,400 per kg.

Our 5 year model is summarized below – excluding borrowng:

5 year financial model for Cassava

  • Startup capital  (excluding working capital (A): Shs.16,220, 500
  • Average Profitability (B): 467,835
  • Return on Capital in Years (A/B): 35

In our financial model, once you factor in borrowing, which can be a quite high cost of business in Uganda, you are likely to get into negative returns so carefully evaluate borrowing for this sector.

The detailed financial model is here:

P.S The link will take you to a google drive excel file which contains various tabs of the financial model to support the return on investment projected for this sector. More detailed content on sectors like this is available on our data bank: https://inachee.com/databank/index.php

The basics you must get right

1. Planting

Ensure the land has been prepared – thoroughly ploughed at least twice. The first land ploughing turns the soil, the second one has to make it smooth to ease root growth for the 8 months plus. Select the correct variety of planting materials for the desired output objectives.

2. Post-harvest handling and storage

Moisture content in the crop can be high leading to cyanogenic substances/aflatoxins and spoilage during storage. Thorough sun drying using appropriate drying facilities and clean surfaces is advised.

3. Record keeping and annual accounts.

You need to be able to maintain proper records like yield per ha, fertilizer usage etc.

Likewise in order to have a high chance of accessing alternative sources of finance such as from venture capitalists, it is important that you can demonstrate proper records for various aspects of managing the farm.

We would recommend that you have a dedicated record keeper on the farm and if possible work with an accounting firm to prepare quarterly, annual financial statements (audited if possible).

This will help you, should you need to access additional funding as lenders often require seeing audited financial records.

4. Market information.

Market information can be obtained from various private providers of Market Information (such as farmgain ,agrinet and ratin) but in addition market information can be obtained from sources like the Uganda Bureau of Statistics (UBOS) which as part of its Consumer Price Index (CPI) report prepares a monthly survey of retail and wholesale prices in various regional markets of Uganda.

This information can help the farmer assess what the best market rate is for their produce and help them in planning purposes.

Final word

Growing cassava should definitely be included in the portfolio of a serious Ugandan investor or entrepreneur – particularly if you mechanise (we have estimates of mechanization in our model).

Its diverse use not only for human food consumption but for animal feeds makes it a very important crop. In addition it has export prospects to our neighbors like Kenya and Southern Sudan.

Our financial model indicates a return of 35 years which appears extremely long but it is overly prudent in order to manage the issue of shocks and risks in the Uganda agriculture sector.

It is worth pointing out that incentives to contracted farmers by the beer companies means that farmers can easily reduce their costs and improve their farming methods. This also increases their production credits which will help them easily access loans from banks to further develop their farms. With the rebirth of the East African Community farmers can also tap into the huge market from Tanzania, Kenya, Rwanda, and South Sudan and the COMESA market which would bolster the agricultural sector in Uganda.

Value addition in this sector is also something to consider, particularly with a rise of the middle class, then alternative dietary needs are a life style (such as vegans) – cassava bread anyone?

END

Otherwise, best of luck and of course if you need some help, do not hesitate to speak to us to get the ball rolling, Inachee after all represents Home Grown Energy in Motion.

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And now the disclaimer: While I have taken steps to research this information as well as based on my experience, you should not solely rely on the information given here to base your investment decisions. You should seek business advice from a professional knowledgeable of your specific circumstances. I (or Inachee) shall therefore not be held responsible for any loss you may incur when acting on this information.