Detailed analysis of various business sectors in Uganda

Green grocer: who wants to save a life?

Outside Looking In
D E Wasake

About the writer:

For over 9 years I have worked with several clients in Uganda, The Bahamas and the United Kingdom in providing audit, tax, accounting and advisory services. My sector experience with clients in various sectors including agriculture enables me have good understanding of this sector. To see the full depth of my experience,Please see my profile

Article Summary

Growing fruits and vegetables is not only good for health reasons, it can be profitable. We estimate a profitability of Shs. 52m per year from an initial capital of "only" Shs. 13.5m hence you get your initial capital back (return on investment) in only 0.26 years (about 3 months).

In order to achieve this profitability, our advanced thinking tips include an "out grower partnership" with an established farmer and use of irrigation using an innovative pump that costs $150 and is readily available in Uganda.

First the basics to put this all into perspective:

A green grocer is primarily a retailer who sells fruits and vegetables. For the purposes of Uganda, we are an agriculture nation and so I will take the liberty to extend this definition to someone who grows fruits and vegetables for subsequent sale. Some of the common fruits and vegetables in Uganda are: bananas(dessert), water melon, guava, papaya(paw paw), passion fruit, mango, avocado, orange, cabbage, tomato, cauliflower, chillies(for export), okra(for export), baby vegetables (for export), onion and greens (nakati, dodo etc).

Still interested?

Let's be honest, I don't think you can really start this business and be successful if you are not passionate about healthy living and agriculture. My goodness no one likes eating healthy. I remember as a child my mum slapping us when we didn't eat the greens like Solanum Aethipocum aka Nakati(yuck)), bitter oval egg plants aka Ntula (ewww), Pig weed aka Dodo(gross) or Avocado (nooo).

Bless her, she had to be cruel to be kind, she knew what every mother knows, greens save your life. They really do. Check out what the National Health Service (NHS) in the UK says as part of its “5 a day campaign” to encourage people to eat healthy: “eating a minimum of 400g of fruit and vegetables a day lowers the risk of serious health problems, such as heart disease, stroke, some types of cancer, type 2 diabetes and obesity”.

All the above seems like stuff right of a science text book and perhaps when you are younger you think you can afford to ignore all these and say you are okay, until the day that you are older and have to run for your life (being chased by a rabid dog in Naalya estate), until the day when you measure your Body Mass Index (BMI) and it tells you at 26.1 you are overweight. Until the day when you meet the one and trying to impress her, offer to carry her groceries up the stairs to her 4th floor apartment. You are however out of breath in a few minutes, and you are only on the 2nd floor!

So then, what does it take to transform your passion to save a life into a viable business venture? Well nothing really is straight forward and so:

FIRST THE CONS (Of course)
1. Low demand in the local market.

Uganda by nature is a subsistence economy and so most families have some farm land and will often be able to grow their own fresh produce of fruits and vegetables. This means that about 80% of Ugandans whose livelihood depends on agriculture will probably not be your clients. That leaves about 20% of the urban class of which a significant number will be in the lower class who either cannot afford (have you seen prices of these items recently?) or can get these cheaply for free (ie gardens, relatives et al).

This therefore leaves you with a small urban retail base which is slowly moving from buying from street side stalls and say Nakasero market to the increasingly proliferate supermarkets that are emerging. On this basis, should you choose to venture into this sector, your focus should be primarily to either supply a) retail green grocers b) supermarkets or c) for export.

There are other niche sectors you can however target. For example hotels and restaurants(including salad bars), animal feeds producers (who need greens) or even your local pork place who need these for Kachumbari aka nnebigenderako.

2. Perception and attitudes to healthy living

I do narrate about my own childhood distaste for greens. It carries on in adult hood, I will clean out my plate in a restaurant, except for that sprig of parsley or tomato. I am sure this is not unique to me. How many people prefer fast food to eating salad for lunch? It means that many people may not necessarily perceive purchase of fruit and vegetables as a necessity, imagine, in the UK and many of the more developed countries, there are heavy campaigns for this, hopefully more prominent campaigns in Uganda can lead to a better perception and hopefully can increase demand for these life savers.

3. Short shelf life

Tied to the low demand is the fact that of course fruit and vegetable have a shelf life before spoilage begins. In order to therefore counter this I suggest the following:

1. Go for fruits. Most fruits are more acidic than vegetables and so do not cause food poisoning; and

2. Know your time lines for spoilage. This determines how you aggressively market but also critically ensures you do not give your customers food poisoning. Maybe in Uganda you wont be sued but word goes round fast of the green grocer who gives customers running tummies. Some time lines for spoilage are as below:

  • A few days (bananas, mangos, passion fruits, pineapples, cauliflower, green beans, tomato)
  • A few weeks (avocado, jackfruit, cabbage, cowpeas,chick peas)
  • 1-2 months (lemon, lime, orange, tamarind, tangerine)

 

4. Need for excellent organisation skills

Critically tied to the fact that fruits and vegetables have a short shelf life and there is a very niche market for them, you cannot get into this sector if by nature you are for example a last minute person. This is a sector that requires excellent planning and organisation skills as you need to know in advance information like:

1. harvest time lines ie when are the various products are harvested and from which parts of Uganda so you can reach the various subsistence farmers if you are seeking to purchase items. This is because Uganda is a subsistence based economy with hardly any commercial size farmers.

2. knowing how to part process your raw materials for storage(to reduce spoilage), or optionally investing in storage equipment;

3. Cash. You need to have cash to purchase and transport the items at short notice during the harvest season. You likewise need cash to purchase say fertiliser, pay for labour et al as it could be at least 5 months during growth and harvest before you realise any income.

4. Diversity. To succeed you need to have organisation skills to process a succession of crops throughout the year. This especially applies for the vegetables.

5. Excellent record keeping skills. Like many businesses, you need to keep records, for this sector the kind of records you need to keep are:

  • Financial records including sales records
  • Production records (raw materials received and suppliers, wastage percentages)
  • Quality assurance records (sample test results, quality control checks etc). This is critical because increasingly supermarkets such as Nakumatt need to be assured about the quality of your produce and use of pesticides/fertiliser as required by the Uganda National Bureau of Standards(UNBS) and the EU respectively if for export.

(Source: United Nations Industrial Development Organisation (UNIDO) technology manual. Small scale Fruit and Vegetable processing and production, Vienna 2004)

Considering the need for excellent organisation skills, if you are seeking to go into this sector, I would probably suggest that the starting point is speaking to the Horticultural Promotion Organization of Uganda (HPOU) and if considering export then speak to the Horticultural Exporters of Uganda (HORTEXA).

AND NOW THE PROS
1. Out grower partnership

Having considered the various CONS surrounding this sector, particularly the low demand in the retail market coupled with Ugandans' perception to eating healthy as well as the need to maintain excellent organisation skills, I believe the best option will be as an out-grower to an already established player who caters for the export market.

The reasons I specifically advocate affiliation through the out grower programme with an established player is because the export market is fraught with health and safety regulations. To supply say Tesco supermarkt in the UK or the EU you probably need to have quality control systems in place to confirm that the pesticides you are using are not on a banned list or that you are using the right kind of fertiliser etc.

You likewise need to develop a system that will have traceability of your products from the farm to the market as well as sample quality checks. All such concerns make health and safety and other compliance requirements for the export market very expensive for a small player and thus need for affiliation by becoming a supplier for an export lead producer of fruits and vegetables. The established player will already have the access to the market and affiliated with him, the economies of scale of export kick in hence reducing transport,quality control and other cost.

In Uganda, export companies like Farm Fresh Produce and and Jaksons Uganda Limited would be a good start to contact. James Kanyije of Farm Fresh produce highlights as follows in an Interview with New Vision:

“I have at least seven dedicated buyers in the UK, but most times I am unable to fulfil the orders. Even with 500 out growers getting the required quantities is still a struggle,”

Now there is a golden opportunity for the “advanced thinking” investor. You therefore become an “out grower” of farm fresh and voilà, success!

2. Availability of free technical support

I mentioned support from the Horticultural Promotion Organization of Uganda (HPOU) and if considering export then speak to the Horticultural Exporters of Uganda (HORTEXA). More specifically, in relation to export to the EU, DANIDA's B2B programme in Uganda provides information on the EU PIP programme.www.coleacp.org/pip. This is a technical assistance programme funded by the EU to help African-Caribbean and Pacific producers of fresh fruit and vegetables to access the EU market.

The advantage of the PIP programme for the Ugandan investor is that it provides support in the form of cost sharing to cover cost of technical assistance and training with the investor providing the infrastructure and the working capital requirements. This technical training and support is critical as an oft cited problem for Uganda is lack of skilled man power and as such this training produces quality personnel at no cost to the investor, a win win situation.

3. Excellent Profit and Return on capital

And now I tackle what the numbers look like. My model analysis is laid out later on. I set out the assumptions and key aspects.

1. Out grower focus.

I advocate that the green grocer model is one modified to specifically be a supplier to an export oriented company such as Fresh Farm produce and Jaksons who have an established out grower programme.

You are therefore growing items like chillies, Okra, egg plants and Beans which are the most marketable items for the worldwide markets such as the EU and which more importantly are those which Uganda has a competitive advantage over other countries like Costa Rica, Ghana and South Africa who are other major suppliers of fruits and vegetables in world markets and have advantages of not being landlocked like Uganda. The supply chain partner(like Jaksons) in return provides technical support and provides the quality control frame work.

2. Inter-cropping.

You inter crop the main export crop with other fruits and vegetables or even other crops and thus earn miscellaneous income. Assuming the main crop is chilli, then French beans and Dodo (Amaranthas sp)for example can be intercropped with it and they are particularly advantageous as they provide nutrients to the soil. These other crops can then be sold in your retail outlet so that you remain within the true definition of the green grocer. These will be sold in the retail market to offer diversity of produce and partially mitigate the risks of revenue should the main firm to whom you supply as an out-grower no longer require your produce as happened when Mairye estates in 2006/2007 significantly reduced its out-grower programme.

3. Irrigation.

Weather trends are increasingly unpredictible even in Uganda which has previously had two known seasons. The ideal model would therefore include cost of irrigation and while traditional equipment can start at about $4500 per ha and as such may not be affordable to many farmers, there are increasingly advanced and yet low cost solutions being developed.

According to this article the wonder water pump for example costs $150 while Makerere University has per this article manufactured a solar powered system which can deliver 20,000 litres of water per day and can irrigate an area of 10 to 15 acres depending on the water source. The pump will cost about Shs250,000 ($100) and Shs480,000 with a drive.

Tables: Green Grocer model

Estimate of profitability, Start up budget and Return on Capital

P.S Clicking the above link will take you to the Inachee Databank where the full version of this document can be dowloaded after you register.

SUMMARISING AND THE FINAL WORD
First the numbers:

On the basis of my model analysis:

  • Start up Capital (A): 13,538, 374.49
  • Profit per year (B): 52, 488,421.59
  • Return on Investment/Capital (years to get capital back) (A/B): 0.26 years
Now the basics you must get right before investing.
  • Out grower partnership . Before you commence, I would recommend you partner with a firm that is already catering to the export market. Many of them will tell you that the problem is not demand. There is demand for our products, the problem is supply, particularly consistent quality supply. Their technical support programme as an out grower often extends to provision of quality seeds, advice on disease and pests and of course quality assurance.
  • Cash flow . Agriculture usually requires up front cash before you realise profit from the sale. You must therefore have sufficient cash for costs like fertiliser and pesticides which are significant.
  • Irrigation In this sector, given recent weather trends, there is no option but to invest in irrigation equipment. Luckily innovative low cost technology in Uganda like the wonder water pump means you can ensure all year round production,former Vice President Prof. Gilbert Bukenya is one of those converts to irrigation.
FINAL WORD

Not eating chillies/hot pepper is not necessarily what my mother spanked me for but hey growing other vegetables and fruits on your farm will save a life, it may well be your own and your children and children's children. So go on, plant fruits and vegetables, save a life.

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 shall therefore not be held responsible for any loss you may incur when acting on this information.

 

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