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.

Plant nursery business, Where is the Calytunsi seed?

girl with flower

 

 

 

 

 

 

 

 

Outside Looking In

D E Wasake, FCCA

About My Guest Writer(s).
The two brothers, Kizza and Mukwaya have two things in common; the name John, and their passion for gardening. With the help of their wives and a few part time porters, these brothers run one of Kampala’s oldest and most successful plant nurseries – Sanyu Tree Nursery, which sits on a narrow piece of land adjacent to Naguru Police Station, along Ntinda road, has been in existence since the early 2000’s when Kizza left his job as a porter at the National Forestry Authority, to chase his dream.

As luck would have it, the said land had become a nuisance and the City Authority (then KCC) welcomed his idea of turning it into a green belt. So with a total savings of 500,000/-, he bought some polythene, soil manure, and seeds, to set the ball rolling. He started out with only eucalyptus seedlings but has since expanded his scope to include Terminalia, Grevillea, pine, and thorny apple which is commonly used for fencing.

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
One of the best ‘shoestring startups’ for anyone who enjoys gardening and landscaping, is starting a tree nursery.
So you want to be your own boss, working on your own schedule while retaining all your hard work’s fruit. Even better is that just about anybody can start this kind of business with only a minimal amount of capital. Growing plant seedlings is a great way to turn 50 UGX (the seed) six fold, into 300 UGX (the seedling), in the shortest time possible.

In this article, we explore the fortunes that lie in the Tree Nursery Business. With an initial investment of UGX 7,770,950 and average net sales of UGX 20,000,000 your estimated return on investment is 0.385 years.

Introduction

When people think of a plant nursery, the roadside potted plant center usually comes to mind. You’ll find small specialty plant nurseries ranging in size from tiny roadside sellers to giant wholesale nurseries, who supply such retailers (NFA, Kawanda, EA Seeds, etc.) That’s the beauty of the plant nursery business – there’s room for everyone – from part-timers hobbyists to the more serious large producers.

The nursery and landscape industry is in Uganda is made up of many individual and family-run businesses that grow, retail, install and care for plants and landscapes. it involves the production and marketing of various plants including, traditional food and cash crops, grasses, flowers, commercial and fruit trees.

Trees are not perishable like flowers or vegetables; if your flowers or harvested vegetables don’t sell, you are left counting your losses. Instead, trees just keep on growing, so you can sell them for more, at the right time.
When practiced more skillfully, nursery operations can also generate biomass in the form of pruning and culling waste, utilized for energy production, or converted to agricultural mulch.

In our advanced thinking tips, you will be advised to specialize in highly demanded plant varieties that can be container-grown to save space and water. You will also learn that investing a fraction of your earnings in free deliveries to your customers can give you an edge in this highly competitive, but underutilized market. You can also make good income by focusing on establishing a supply relationship for wholesale plant sales, and managed services to retail nurseries, home owners, landscapers and upcoming real estate projects around you.

Introduction to the sector

Plant Nurseries range in size from small hobby type operations that market a few trees to family and friends, -to profit oriented road side nurseries(such as Mr. Kizza’s found in Nakawa, opposite Spear Motors) , and even large-scale commercial operations with their own retail outlets(such as NFA, EA Seed, Victoria Seeds). Although many small producers specialize in only a single variety of stock like tree seedlings, there are those who choose to cast their nets wide; our research findings explain the risks in this.

The nursery business is driven by new home construction and healthy consumer spending, and the recent awakening to the desperate wails of our planet earth. Demand for sod (compound beatification grass) and flowers has in recent years been subdued by the revolutionary shift to commercial tree farming.

Even when taken up as a hobby, a nursery, just like any other business, requires proper management in order to remain sustainable and as a new entrant to the industry you need to equip yourself with the following basics:

  • Knowledge of the growing requirements of the various crops
  • The ability to maintain various irrigation, heating, cooling and production equipment
  • The skill to research products and services
  • The know how to develop marketing and sales plans
  • The ability to manage people
  • The ability to sell products and provide quality customer service
  • The knowledge to manage finances

Here Is What You Need/The Process
 

1. Training
Nursery crop production requires highly technical and specialized production skills, particularly with respect to propagation and germination. In addition to a fundamental and practical understanding of plants and how they grow, as a nursery operator, you require an understanding of the specific growing requirements of each crop and how these growing conditions can be managed to achieve efficient production.

2. Location

It is important that the site selected for the nursery has enough land to raise the number of seedlings needed, and if possible, room for expansion. A small nursery raising 65,000 plants in small polythene bags, and keeping the plants in a nursery for a year could require about 60m2 of land; this includes potting beds, 20 per cent extra for losses and damage, paths between the beds, soil storage, thatched shelter, and the compost-making area. The size of the nursery depends on the number of plants to be produced, the time they will remain in the nursery, as well as the quality and slope of the site.

Other factors to be considered in location selection include;
• Number of plants to be produced each year
• Species
• Type and size of plants

3. Water Supply
Growing Plants require an adequate supply of water which can come from a nearby pond, swamp, or private well. The ideal situation is where there is a perennial stream at a higher level than the nursery, and fairly close to it, so that water can be diverted from the stream to the nursery in high density plastic pipes (which should be buried 15cm deep).

You need to determine the best irrigation system and irrigation practices for their particular situation. Metered water will not be an option for a road side establishment because the local water management authority (NWSC) requires you to you possess a valid land title before you can think of extending piped water

4. Equipment
This can include anything from irrigation equipment to shovels, hoes, rakes, to an agricultural tractor, depending on the level of production you are aiming for. Because you will be making regular pickups of plants, soil and making deliveries, owning a small pickup truck is something you should consider along the way.
Other equipment that you might need:

  • Sprayers for control of weeds, insects and diseases
  • Office equipment
  • Potting equipment.
  • Wheelbarrows
  • Pruners

6. Purchase Tree Seeds

To ensure a good planting program, good nursery stock is essential. Major causes of seedling mortality on-farm include the wrong size or poor health of the seedlings at the time of planting or poor health of the seedlings at the time of planting. Poor seedlings are likely to have slower growth, to be less able to compete with weeds or drought, and to be more liable to damage by insects and pests.

Buying from a reputable seller such as NFA is vital, and considering that that you will be buying in bulk, you can plant as many seedlings as your space can allow, and in a couple of months, you’ll have many seedlings for sale to earn you a good profit margin.

Pros And Cons

For a better understanding of the pros and cons of this sector, it’s important to do a complete SWOT (strengths, weaknesses, opportunities, threats) analysis. Knowing the strengths and weaknesses of your competition will also allow you to position your plant nursery where your strengths prevail.

Strengths

  • Low initial investment and cost. It is a low-tech business that anyone can learn and can start with little more than a wheelbarrow and a shovel!
  • Quality of products. You can count on high quality products to win you more business.
  • Availability of the required equipment locally, such as packaging material and gardening tools.
  • Availability of affordable plant seeds. Since they are predominantly bought according to weight (kilograms) and sold as individual seedlings, you stand to benefit from the favorable pricing of most seed varieties. It gets even better! Once you’ve planted ‘mother’ stock, you can easily propagate more by cuttings or root division, to reduce your plant costs to zero.

Probable Weakness

  • Lack of technical support
  • Lack of knowledge
  • Lack of suitable transport means. (you will be hiring a vehicle in order to provide free deliveries for bulk purchases)
  • Lack of previous client base because we assume that you will be joining the industry fresh.
  • Lack of water resources. Living creatures, plants inclusive, have basic necessities for survival; steady water supply is vital for the good health of your plant nursery stock.
  • Land and suitable roadside location. Given the demand for easily accessible roadside land, it is nearly impossible for you to find a suitable unoccupied plot.
  • Lack of finances
  • Uneven sale / market periods… sales are predominantly seasonal; there is bound to come a time when you will have little or no sales at all. You should prepare means to get by and also provide the necessary care for the farm during periods of slow or no sales.

Opportunities

  • Availability of cheap labor
  • Market for seedlings
  • Opening up new markets in by organizations promoting environmental awareness, landscapers, homeowners in Uganda’s upcoming suburbs, etc.
  • The sudden shift in societal concern towards environmental conservation, hence the call for reforestation.
  • Opportunity to venture into professional landscaping, providing managed services to home owners and construction projects alike. This will open the doors to an entirely new world of exterior design.

Threats

  • Land & location. Kizza admits that he was lucky to be have secured KCCA’S permission to operate in the Kinawataka water-catchment area precincts; “finding a busy spot that can accommodate a similar venture, without making any enemies is impossible under the current situation.” According to him, the weak legislation and disregard for the environment has seen many scamper for what would have been mutually beneficial green spots in the city. (Memories of the failed attempt to have a Futon showroom developed along Yusuf Lule road, opposite garden city start ringing in my mind.) Additionally, he lives every day like it’s his last because he knows the implications of the temporary nature of his tenancy.
  • Unpredictability of demand
  • Pests and diseases.
  • Policy changes e.g. by KCCA which can decide to redeveloped particular land leading to eviction.
  • Isolated site leading to the risk of vandalism and theft. You would think that its close proximity to a police station, Kizza’s plant nursery is assured of security but that isn’t the case. The authorities at city hall are firmly against the idea of erecting a parameter fence, and the thought of hiring a private security guard sent us both laughing.

Marketing And Promotion
These will be the single most important (& costly) aspects of your nursery plant business and should be considered well ahead of growing any plants. In order to consider yourself a success, you need to be selling over 65,000 seedlings every season. One cannot simply rely on people to ‘’just ‘know’’ that you are a good grower; you have to make it known. With the proper marketing strategies it is possible to succeed in this business.

What marketing channels will work best for your situation, and what type of marketing and promotional tools will you use? What will be your market area? Will it include local, domestic or export markets? These are some of the questions that need to be answered.

Here are a few ‘Advanced Thinking’ tips for you…..as you consider this sector

  • Develop contacts with prospective buyers and maintain contact with existing clients.
  • Assess new trends in order to respond to changing consumer tastes and preferences.
  • Sort, handle, label and transport stock as required by buyers as an after sales service.
  • Provide required quantities as requested by large scale buyers.

The full article with additional information on the process, further advanced tips and contacts for purchase of items including seed prices from NFA are contained within our financial model below.

Our financial model of the profitability of the sector and return on Investment

P.S Clicking the above link will take you to the Inachee Databank where the full version of this document can be downloaded after you register. and pay the requisite fee

Final Word
In this business, there’s essentially nothing substantial enough to different you from your competition, so in order to successfully develop an edge, you have to concentrate on product quality, selection, lowest price and fastest service. Now you have it, good luck in your endeavors, don’t hesitate to get in touch with us for any assistance in bringing your dream to life.
Please include any questions and queries in the comments section below.

Share The Article! Did you like this article and know someone else who might benefit from it? Please share it, simply click the link of the article, copy and paste it to an email and send!

Join advanced thinking – subscribe to regular newsletter. Would you like more regular support or information? The easiest means of keeping up to date with new articles on this page is by joining “Advanced Thinking”. Please click here to join the email subscription list. We regularly provide business tips for our over 500 subscribers on marketing, corporate governance; accounting, entrepreneurship and best practice to help you successfully start, run and grow your investment/business.

And now the disclaimer: While I/we have taken steps to research this information as well as based on our 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.