Detailed analysis of various business sectors in Uganda

Is growing maize the priority for a Ugandan entrepreneur?

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

About my guest writer:

Francis Olupot is a farmer. His Dicanio mixed farm is a 369 acre farm and the 2nd largest in Eastern Uganda. In addition to growing maize, it grows Sorghum, Sim Sim (sesame) and Oranges. It also is involved in animal husbandry (pigs, cows, goats and turkeys). Francis has a bachelors degree in Agri Business (MUK) and previously worked with the Food and Agricultural Organisation (FAO) and with FARM Africa.

About the writer:

For over 8 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 maize growing can give a revenue of about Shs. 54m per year and a net profit of about Shs. 24m which gives a return on investment of 1.4 years.

This profitability however hinges on having yields of about 3,300 kg/ha which is almost double traditional Ugandan yields of 1,500 kg/ha. To achieve these yields, we assume the “advanced thinking” farmer will use improved seed varieties and similar practices unlike traditional methods predominantly used by small scale subsistence farmers.

Background

I personally do not like maize (as a food) very much. I got tired of it. Almost every day for 6 years in boarding school we had to make do with porridge for breakfast (made from maize) and also have corn meal, called “posho” which was served with beans) either at lunch or supper . The few exceptions to this routine were usually on some Sundays when we had a “delicacy” of green bananas (“Matooke”) served with meat. I still couldn’t run away from maize during school holidays. These seemed to coincide with the maize harvest season where it seems every 5 meters by the roadside was someone selling either roasted or boiled maize.

I still can’t run away from maize! My close (family and friends) relations with our Kenyan neighbors, yes them of the “Ugali and “sukuma wiki” fame mean I just have to embrace maize and what’s more, its even more important to Uganda as a nation.

Just how important is maize to Uganda?

Maize is the most highly cultivated crop, with statistics from the Uganda National Housing Survey (UNHS) of 2005/6 showing that maize was cultivated by about 86% of the 4.2 million agricultural households in Uganda (UBOS 2007). Furthermore Maize is an important staple food for the urban poor, and is the primary food source in institutions such as schools, prisons, military and the police (UNDP Value Chain Report, 2010).

Besides food for human consumption, the crop is an important ingredient in livestock and poultry feeds, as well as a highly preferred starch used in the fermentation of local non formal alcoholic brews. All the above uses make maize grain the most traded food crop in Uganda.

To underline the importance of this crop, the government of Uganda has prioritized maize as one of the 10 agricultural crops within the Rural Development and National Zoning Strategy.
This positions maize to play an increasingly significant role in the poverty alleviation agenda of the country (UNDP Value Chain Report, 2010).

So with the above in mind, how do you proceed to help the government in its goal of poverty alleviation?

FIRST THE CONS
1. Fluctuating prices

Maize has traditional been grown seasonally during the rainy seasons of Mid-February or March to June, and second rains from Mid-August to December. As a result, the prices 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 two solutions for the “advanced thinking farmer”.

Market information Services (MIS). The first is to take advantage of the various Market Information Services (MIS) that have cropped up. These disseminate information via SMS, radio etc. Examples include farmgain , agrinet and ratin which provide retail/wholesale prices for Kampala, other markets and Kenya.

Warehouse receipt System (WRS). Pioneered with support from the World Food Programme (WFP) who purchase a significant portion of maize in Uganda, this system allows farmer to take their produce to a designated warehouse where it is dried, graded, packed and stored. The warehouse receipt they receive is evidence of storage and it can even be used as security to obtain a loan (60% of value of grain) from banks such as Centenary Rural Development Bank (CERUDEB)

Storing of the product by the farmer until a time when prices stabilize or when they can find a suitable farmer helps them have more control over their produce compared to when middlemen rule the market.

You can find out more about the Warehouse receipt system: http://www.uce.co.ug/index.php

2. Drought

Climate change has resulted in less than predictable rains, even in Uganda which has traditionally had known seasons.

In order to counter this, we would recommend that the advanced thinking farmer invest in a water reservoir and simple mechanical pump system. I first read about the wonder pump, which I understand costs only $150 from this article

I have since found out that the company behind the concept; Kickstart org has some distributors in Uganda including Davis & Shirtliff. There is no more reason for farmers to suffer at the hands of drought when an affordable solution can be found.

Another option is to use improved seed varieties. Those developed in Uganda like the Longe varieties (Longe 1, Longe 4, Longe 5 et al) are drought resistant varieties. Various seed companies in Uganda sell them (in the range of Shs. 2000-2500 per kg). Some of the key players include Victoria seeds, Naseco, Monsanto and Mt Elgon Seed Company.

In our financial model shared later on, we assume that the farmer will use these improved seed varieties which in addition to being drought resistant have been shown by one study to improve yields (kg/ha) by over 74% from traditional maize seeds.

3. Access to financing

The cost of agriculture capital equipment like threshers, water reservoir, ploughs and tractors is high. In addition as maize takes about 3 months to mature, it means for at least that time the farmer will have to finance the crop growth without any expected income.

It is however pretty difficult to get agriculture loans in Uganda (well not just agriculture but credit in general) but hopefully with the WRS mentioned above, it should be easier for the farmer to use their produce as security for a loan.

Furthermore there are some organisations that are increasingly seeking to help the agriculture sector. We 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 crop failure (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 November 2012 were about 24% 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/

AND NOW THE PROS
1. Free or cheap Technical support

Considering that maize is one of the key cash and food crops in Uganda, there is a significant amount of technical support available right from seed companies, NAADS government programmes as well as NGO support. We would however recommend if possible identifying a suitable technical officer who is readily available to advice the farm on aspects like pests and diseases, soil fertility et al.

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. Intercropping

Maize can for example be intercropped with beans. This has various advantages including increased profitability from the same acreage and reduced need for fertilizer.

Care should however be taken before considering intercropping as crops have different cycles and there might be difficulty in use of say mechanized implements.

In our financial model, we have assumed that only maize is grown without intercropping.

3. Good Return on Investment (ROI)

In our model we assume that the farmer will have 15 acres (about 6 ha) and embrace irrigation and thus be able to plant maize over a period of 3 seasons. We assume the farmer will plant Longe 5 improved seed varieties which take about 115 days (about 3.6 months) to mature. This variety of seed costs about Shs. 2,500 per kg.

We also assume access to low cost lending at a rate of 10% from a SACCO to finance purchase of equipment.

We assume our model farmer is selling maize grain (rather than maize flour). Our model is summarized below:

Financial model for maize
 

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.34,188,000
  • Profitability (B): 24,331,975
  • Return on Capital (A/B): 1.405 years
My Guest writer weighs in

Maize is the number one staple food for the urban poor, in institutions such as schools, hospitals and the military. Also, the crop is the number one source of income for most farmers in eastern, northern and north‐western Uganda.

I, Francis Olupot started producing maize on just a 10 acre piece of virgin land after an initial investment of about 2-3 Million Uganda Shillings, but after just one year of cultivation, this investment paid me off, since i earned a net return of 16 Million. Other than food, maize has had a wide range of other uses to me including processing of livestock and poultry feeds and making flour eaten as "posho", porridge and can be served in various forms in different parts of the country and others use it for making local brew.
All this has made maize the most traded food‐crop in eastern Uganda and the country as a whole.

Maize cultivation needs the farmer to be prepared with;

(i) Fertile land

(ii) Good improved seeds which can either be composite or hybrid seeds. Please note that the latter can’t be replanted while the former can.

(iii) Cash for farm work, from planting through weeding, harvesting to threshing.

(iv) The farmer also needs to be informed about latest market information.

As a maize farmer, inter-cropping maize with other crops of other families is paramount such as beans in depleted soils helps improve on soil fertility and reduce surface run offs.

Also in order to be able to track whether the farm business is making a profit or loss, recording keeping is one of the most important aspects.

Problems associated with maize production:

(i) Drought

(ii) High costs of inputs leaves most farmers using traditionally less viable seeds

(iii) Striga weeds mostly in depleted soils/fields

(iv) Middle men

(v) Fake seeds in the markets

Although farmers need to be made aware of the warehouse receipt system, though it will be difficult for the local farm to really participate in this in the mean time but as time goes it’s the way local traditional farmers can benefit and avoid middle men marketing their produce having been the first food crop to be traded under the Uganda warehouse receipt system (WRS).

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

In addition to considering the views of my guest writer, I wish to emphasize the following:

1. Technical Training.

It is worth investing some time to undertake training. Even a visit to a farm is insightful. We would recommend that this training covers you and your key staff. The farm visited should be one that is embracing modern methods rather than traditional methods.

It is key that your staff “buy in” to this modern method otherwise you will be frustrated when they cannot appreciate the importance of the improved seeds or irrigation or certain weeding to ensure your yields are high.

2. Record keeping and annual accounts.

The World Food Programme (WFP) is one of the most important purchasers of maize in Uganda but to supply them you need to maintain high quality control such as:

· Max Moisture content of 13.5%

· Max Pest damaged grain of 1%

· Max Broken grains of 2%

In addition 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, semi annually or annual financial statements (audited if possible).

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

3. 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

My personal dislike for maize as a food aside, ignoring this important crop would be a rather ignorant decision as growing maize should definitely be included in the portfolio of a serious Ugandan investor or entrepreneur (Like me).

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 via WFP (relief aid) and to our neighbors like Kenya and Southern Sudan.

In addition the introduction of the revolutionary warehouse receipt system means that in addition to enabling farmers choose when to sell (hence reducing fluctuating prices) it can now be used as security for loans. Lack of access to loans for agriculture has long been a stumbling block to development of the sector. It seems maize has therefore directly led to solving this problem.

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.

 

10 thoughts on “Is growing maize the priority for a Ugandan entrepreneur?

  1. Thank you so much for feeding our minds and for opening my eyes. I am personally got very interested in this information you have given us and I am looking forward to getting in touch with you Dickson please for further enlightenments.

    Wishing you all the best, God Bless you!

    Joseph-Mary

  2. I thank the author for this insightful article, it has inspired me into investing in maize growing as my next investment project. Am not a land owner but would like to start by 'renting' about 10 acres of land. I am saving 5 million shillings to finace the star of the business as I generally dislike loans; location could be Eastern Uganda (Busoga sub-region), please advise me on the best seed for this area and if the money is sufficient to run the project.

    Regards.

    Haruna Buyera

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