Detailed analysis of various business sectors in Uganda

How about dairy farming, is there sente in ente?

Outside Looking In
D E Wasake, FCCA [With Guest Writer]

About my guest writer:

Robinah Nankoola is a dairy farmer in Wakiso district owning a two acre farm with five exotic cows. In addition to dairy farming, she is also involved in rearing pigs, goats and ducks. She has been involved in dairy farming for about three years.

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

In this article, we estimate that dairy farming can give total revenue of about Shs. 51 million per year and a net profit of about Shs. 11 million which gives a return on investment of 4.1 years.

The key start up cost being vehicle costs, the cows (pregnant heifers) and the land for purchase.

This profitability hinges on having milk collection of about 86 liters/day. To achieve these yields, we assume the “advanced thinking” farmer will use improved livestock breeds like heifers and Friesian cows and also have food security by planting Elephantiasis grass and Sirage as well as give food supplements unlike traditional methods predominantly used by small scale subsistence farmers.

Background

I was always afraid of cows (called “ente” in the local languages), particularly during milking. When growing up, I watched from a distance while my grandfather milked. I couldn’t trust the cow not to get angry (for its mammary glands being touched) and deliver a well aimed back kick to the gonads, so no thank you sir, I will continue watch the milking from a safe distance!

I did prefer the cow horns though (like the Ankole breed from Nyakahita a dear friend’s village); there was a brisk trade to be made in selling cow horns (money is “sente” in the local language). My mother being a jack of all trades once introduced me to this business but boy oh boy is this an embarrassing trade. Imagine the horror of meeting your posh speaking school mates during school holidays, whilst you are carrying a sack of horns! But that is a story for another day…..

From the nutritional point of view (for those readers who are unaware, for example aliens and Martians), milk is an essential food substance needed for our growth all the way from child hood to adult hood, providing essential proteins and calcium for the body.

In Uganda, a big number of families consume unprocessed milk sold at the retail price of 700 shillings for half a litre and 1,400 shillings for a litre as compared to processed milk sold at 1,000 shillings (half litre) and 2,000 shillings for a litre (From Jessa factory).

Why invest in dairy farming in Uganda?

In Uganda milk and milk products are mostly got from cattle and a small percentage from goats and sheep consumed with in the households. With the areas of Mbarara, Moroto, Bushenyi, Kotido, Masaka, Mbale, Kabarole, Mukono, Ntungamo, and Kamuli being predominantly known for the high levels of production.

The cattle population in Uganda was last estimated as per the 2008 livestock census to be 11.4m. It is estimated that at 2007 (per a technoserve report on the dairy value chain) indigenous breeds account for approx 84% while the exotic and cross breeds account for the balance. It’s also estimated that Uganda currently produces 1- 1.5 billion liters of milk per year of which 30% is consumed on the farm and 70% is marketed to the consumers (Dairy Development Authority (DDA) report 2008).

A 2008 technoserve report on the “dairy value chain in Uganda” estimates that although exotic breeds are less than 20% of the cattle population, they contribute about 60% of all milk in Uganda.

Out of the marketed milk, about 85% is annually sold through the informal marketing channel as raw or unprocessed milk and 15% of the marketed milk is sold through the formal marketing channel as processed milk and value added dairy products (Elepu 2006). This therefore has an impact on the model pursued by the “advanced thinking” farmer.

Although the domestic market constitutes the major market for milk and dairy products, some of the processed milk and value added dairy products are exported to regional markets such as Kenya, Rwanda, Democratic republic of Congo, South Sudan and Tanzania (DDA sector report 2008).

Where are the investment opportunities in the diary sector in Uganda?

Considering that Uganda’s population will continue to grow by over 3% per annum, as well as get wealthier (with persons below the poverty line reducing) there are opportunities particularly in the distribution and processing of milk. In particular, the windows of opportunity that we note for the diary Sector include the following:

  • Investment in Milk Collection Centres
  • Investment in Supply Milk Tankers
  • Investment in unpackaged pasteurized milk distribution system
  • Upgrade of Informal actors into Mini Dairies
  • Upgrade of existing dairy plants
  • Investment in Integrated farming/processing dairy business
  • Investment in transportation tanker cleaning facility.

So with the above in mind, how do you proceed to make money (sente) from cows (ente)

FIRST THE CONS

1. Marketing bottlenecks

One of the most critical problems facing dairy farmers in Uganda has been recognized as that of marketing their milk.

Due to poor market access (for example due to bad roads), high transaction costs and the perishable nature of raw milk (and lack of storage facilities), the amount of sold milk and prices are significantly low for peri-urban producers. The farmers can’t afford to sell their milk in bulk yet alone have proper storage of milk before it reaches the market.

The solution for the advanced thinking farmer would be to partner with the cooperatives in the supply of milk as they already have well established transport and infrastructure systems. This is evident in the case of Uganda’s Eastern Dairies a company comprised of 11 local dairy cooperatives, which quadrupled its sales in one year with assistance provided by Land O’Lakes, Inc., under USDA’s Food for Progress (FFPr) Program: http://www.fas.usda.gov/excredits/foodaid/ffp/LandOLakes_Uganda.pdf

In our model later on, we also assume that the advanced thinking farmer will set up their own retail outlet with excess capacity to collect and store unprocessed milk from other farmers.

There is however the option to get in touch with the large scale milk processors and understand their quality procedures so as to supply them. The downside is their prices are often lower than retail prices but the upside is the assured demand.

2. Low animal productivity

n Uganda Dairy farmers are largely small holder farmers. Many produce for home consumption and only offer the available surplus to the market. Most rely on the traditional indigenous herd, known to have very low productivity. And at the same time mainly rely on the natural green pastures for feeding without any food supplements

For the advanced thinking farmer, it would be wise to use improved local and exotic dairy breeds which are known for producing high quantities of milk and at the same time carry out zero grazing while offering feed supplements to boost on animal nutrition.

These feed supplements can be bought from feed mills which are located in the central and eastern regions of Uganda. Farmers around urban areas use concentrates from such mills as feed supplements.

Some commercial farmers however, prepare their own feed concentrates to supplement the forage supplies. Some of the feed mills in Uganda producing high quality feed include Maganjo Grain Miller Ltd, Uganda Feeds (NUVITA), Prisons Feed Mill, Liberty Trading Co. among others

In our model we assume the farmer will buy exotic breeds like the heifer and in addition plant elephant grass as well as provide feed supplements. These are critical for ensuring the cows produce sufficient milk.

3. Infrastructure for collection, storage and chilling of milk is extremely limited across the entire country.

In order to counter this, we would recommend that the advanced thinking farmer joins cooperatives societies like Uganda Crane Creameries Cooperative Union (UCCCU) that was for example given a Shs 21bn grant from Agribusiness Initiative Trust (aBi Trust) and it got access to milk coolers, milk testing kits, laboratory kits, milk cans, insulated milk tanks and refrigerated trucks(cited http://www.newvision.co.ug/news/643241-dairy-farmers-get-sh21b-grant.html ) or for those that are financially stable to invest in collection, storage and chilling equipment so as to be ahead of the competitive edge in the market these equipment can be bought from IndiaMART (http://www.indiamart.com/venture-steel-limtied/products.html)

4. Availability of financing

Traditionally the agriculture sector has been viewed as high risk and so there is limited financing options, say from venture capital firms and private equity firms (some of whom specifically don’t lend to the sector).

Nevertheless, there are increasingly a number of regional and international commercial banks including development banks that offer long term financing for viable projects in the sector for example centenary bank offers agricultural loans (cited http://www.centenarybank.co.ug/content/other-product)

We also profile a number of sources of finance for agriculture at our sister website

I would recommend that in order for the farmer to have higher chances of accessing loans, they keep records of their agriculture produce to show that they do not have high incidences of low milk yields (which is one of the factors that makes the sector high risk to lend to).

Another option is to get affiliation to a co-operative or similar group where they can get access to group loans via SACCO schemes. Donors and other aid projects for agriculture also often prefer to lend to co-operatives and similar farmer groups.

Commercial bank lending rates in April 2013 averaged about 25% while SACCOs seem to lend amount in the range of up to 10% per annum.

You can find a SACCO near you by checking out the umbrella body’s website: http://www.ucscu.co.ug/

THE PROS

1. High demand for milk in both domestic and export markets

Reliable data on milk consumption in Uganda is seriously lacking. However, there are strong indicators to show that the dairy products market is growing at a fast and steady rate. Milk production growth rate has been estimated at over 8 percent/annum (DDA, 2008).

Annual per capita consumption is also estimated at approximately 58 litres/person /annum. On the other hand there is unfulfilled supply for milk in the export market with the leading processing and distribution companies unable to fulfil their supply markets for example The biggest milk processor, Sameer Agricultural and Livestock Limited (SALL), claims to have existing markets in 17 countries, but is constrained by low supply in servicing these countries. (Cited LivestockStudyUgandaAgriterraEKNreportdraft 2012)

The advanced thinking farmer therefore has the opportunity to enter into partnership with the milk processors to produce for them. They will however need to ensure they have systems in place to comply with the rigorous quality control requirements of the processors.

In our model, we include start up costs for a lactometer, a device that is used to assess the quality of milk. This is comparably cheaper than obtaining certification from the Quality Standards regulator, particularly at the initial stages of set up.

2. Food and wealth security

A significant number of households in Uganda own a cow (albeit many own indigenous breeds) for the simple reason that both milk and cows are highly trade able and so in the event of financial distress, they provide food security (milk for the family) and can be easily sold, particularly the highly desired exotic breeds .

Oh and let’s not forget [at the risk of ire from feminists] that these cows are a very important source of bride price in Uganda, particularly if you seek to woo one of the daughter of the Hima demi gods (like my dear friend from Nyakahita).

3. Technical support and a policy framework.

The dairy sector being a priority sector for the government is well supported by the government and other organisations (e.g Heifer Project, FAO) and as such there is widespread technical and other support available through various bodies including:

The Dairy Development Authority (DDA) and Uganda National Bureau of Standards (UNBS)

Existence of a well organized dairy processor associations for example Uganda dairy processors association (UDPA)

Renewed government commitment to support development of the sector through enforcement of laws and upgrading of extension service though such initiatives as the plan for modernization of agriculture (PMA) and the national agricultural advisory service (NAADS) (or successor bodies).

4. Return on investment

In our model, we assume that the return on investment will be achieved on the following basis:

  • The farmer has 5 exotic cows, purchased as pregnant heifers (instead of normal ones)
  • Planting elephant grass prior to farm set up to provide grass to the cows. This is supplemented with processed feeds
  • Having an own “retail” outlet to sell the unprocessed milk at the market rate, currently at Shs. 1,400 compared to say selling to 3rd party distributors (or processors).
  • This retail outlet will generate additional revenue from having a large cooler and hence being able to receive milk from other farmers.
  • There is further scope of additional revenue through for example sale of manure. We have however not factored this in the model.

The model is below

Return on investment from dairy farming

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.

From the above link, using our model, we estimate the Return on Investment for this sector is as follows:

  • Startup capital (A): Shs.44, 273,900
  • Profitability (B): 10, 589,863
  • Return on Capital (A/B): 4.18 years
My Guest writer weighs in

I have been in dairy farming for three years and one thing I can tell you about it is that it’s a gold chest for those that like mining. Traditionally cows are called “Ente” and when you add letter S at the beginning of the word it becomes “Sente” which means Money from the time you get the milk, you sell the cow, the skin, the stool and the horns it’s surely a profitable business.

The reason why farmers get frustrated with dairy farming is because they begin with purchasing poor breeds, they accompany it with insufficient feeds and they don’t take the initiative to research more into how they can improve on their milk production.

Personally I attend agricultural shows and visit other farms to see how I can improve on my farming practices to improve on my production. For those farmers beginning dairy farming, they should plant elephant grass (Napier grass) 3-4 months before they buy the cows. That way they have secured food that’s going to run them for the first six months.

Now the basics you must get right before investing in this sector.

1. Feeding. Plant elephant grass in advance like our guest writer recommends. This will ensure the cows are fed adequately. Feeding and milk production are directly correlated;

2. Pregnant cows. We suggest you buy pregnant heifers. Our research shows you can get them cheaper than the non pregnant ones. You hence double your stock quickly. In purchasing, ensure you choose breeds (possibly cross breeds) that are suited for the local area (climate, disease resistance);

3. Technical support. Visit a demonstration farm that practices good farm management to improve your knowledge. There is in addition support from government and other organisations;

4. Records. Keep farm records to ensure you can assess your daily milk yields as well as assess the quality of your milk. This will be particularly necessary as you expand and say want to supply the larger scale milk processors; and

5. Water. Ensure you have sufficient water nearby. Cows drink a lot of water and hence you either need a tank or as you advance, construct a borehole to provide water.

Final word

Being young is sometimes strange, to think that I was more worried about being seen with a sack of horns by my “posh” friends than with the sente I would have made from the ente!

I still fear being kicked by a cow being milked so, I still say, no thank you sir, I will stick to hiring a herdsman from my dear friend’s village in Nyakatita (he who will milk while dreaming of lady Mariam in her hit song, Tindatiine).

The lighter humor aside, dairy production has the potential to be a profitable business opportunity for farmers in Uganda There is always room to grow, both for beginner farmers as well as more established players.

Smaller farmers have the opportunity to “add value” to their milk by putting up a small factory and entering the market place. Larger scale dairy farmers can either produce milk and sell to the larger companies like Sameer Agricultural and Livestock Limited (SALL), Jesa Dairy Farm Ltd, and Dairy Corporation Ltd among others or become smaller distributors of their own products.

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.

12 thoughts on “How about dairy farming, is there sente in ente?

  1. Dear Mr. Wasake,

     

    I was wondering on what year you calculated the Return of Investment model?

    Next to that I was wondering if this model was based on Fresh-milk or pasteurized milk?

    Last question I have is if you also have a value-chain (so margins per level: Dairy-farm, transporter, trader).

    I am currently doing research on the costprices and the margins that milk-processing companies face. I am particarly interested in yoghurt-processing companies. I know that the average salesprice is 2500 per 0.5L yoghurt, but I cannot find any more information on the margins and costs. 

    If you have these available, it could really help me out.

    Thank you so much already and I look forward to hearing from you.

     

    Best regards,

    Mark de Koff

  2. Hello,

    Good Day,

    I Wants To Start Small Scale Dairy Business, Wants To Start With Five Acres Of Land Around Kampala, Uganda.  And Minimum Numbers Of Cows. What Kind Of Help Should I Expect From You.

    Thanking You.

    mohammed sakir 

    Contact No . 0750167535

  3. The article which has been well researched is very educative to those like me profoundly interested in Dairy Farming. Thanks

  4. it is a well done proposal that need only the geography and finally complete documents for a begining farmer.

  5. How are you Sebo?

    I am  interested in diary farming, how can I access a breed of your animals?  I live in Mubende but now in Kampala.

    I am on 0703158338 , 0782331737.

    I need your help. Thank you very much.

  6. Superb blog! Do you have any hints for aspiring writers?
    I’m hoping to start my own website soon but I’m a little lost
    on everything. Would you suggest starting with a free platform like WordPress or go
    for a paid option? There are so many options out there that I’m totally confused ..

    Any suggestions? Appreciate it!

  7. Thanks for the great article. I have 0.7m uganda shillings. What type of cow should i buy for the start and where could i possibly buy it from?

  8. Thanks Dickson for the great service to Uganda and Ugandans. 

     

    Please try to do a similar one on Fish Farming. 

     

    Kind regards

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