Detailed analysis of various business sectors in Uganda

Sorghum growing in Uganda: beer and heaven?

sorghum

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

Please note: Our information on this sector does not just come from research, one of our recent clients has a 100 acre commercial sorghum farm and our role is to provide “managed services”. The Inachee team therefore has 1st hand experience.

The sorghum industry in Uganda changed a few years ago when the breweries started demanding more of this crop. Reason? Ugandan beer brands like Senator, Eagle lager, Chibuku are brewed using sorghum as a main ingredient. If you need to find out what these beers taste like, ask my Uncle Wamoka.

You will find him green wearing crocodile (or is it snake) skin shoes and dancing in a synchronized style to the Lingala sounds of Madilu system and Diblo Dibala after imbibing just one bottle of the brew – bought by me of course!

Jokes aside – in this article, we estimate that sorghum growing can give average revenue of about Shs. 73m per year and an average net profit of about Shs. 20m which gives a return on investment of 6.1years.

This profitability however hinges on having yields of about 4,000 kg per acre. To achieve these yields, we assume the “advanced thinking” farmer will use epuripur kind of sorghum for purposes of commercialization since it has high yields compared to sekedo.

Background

According to a few research reports, Sorghum is the 3rd highest consumed cereal grain in Uganda, behind millet and Maize; it occupies c. 373,000 ha of arable land and is commonly grown in the East, Northern and South Western part of Uganda. Besides food for human consumption, the crop is an important ingredient in alcohol, and Ugandan beer brands like Senator, Eagle lager and Chibuku are brewed using sorghum as a main ingredient.

To underline the importance of this crop in the brewing industry, Nile Breweries (a subsidiary of SabMiller) has encouraged production of Epuripur the beer variety of Sorghum to improve beer production. If you asked yourself why Uganda is ranked among the top consumers of alcohol in the world then ask no more Sorghum growing will give you all the answers!

So with the above introduction (and do please forget my Uncle Wamoka’s dance antics), how can you get investing in this sector in Uganda?

FIRST THE CONS….

1. Fluctuating prices

Sorghum has traditionally been grown seasonally during the rainy seasons of March to April and harvested for the 1st season between June and August, and then grown again during the second rains from August to September and harvested for the 2nd season between November and December. Sorghum is drought resistant and so it can also be grown in the dry season with irrigation or proper watering.

The prices of sorghum 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).

They’re 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 pest and diseases affect the production of sorghum i.e. the Striga weed that attacks the sorghum is responsible for approximately 10% of the crop loss which affects the projected yield and sorghum is usually attacked by birds that normally feed on the sorghum head.

An “advanced thinking” farmer should 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

When commodity marketing was liberalized in the 1990s, an inexperienced and poorly resourced private sector stepped in to try and cope. These new entrants into the sector (except Nile Breweries Ltd and its contract farmers) have yet to establish the kind of infrastructure that would encourage efficient marketing.

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.

AND NOW THE PROS….

1. Free or cheap Technical support

Considering that sorghum 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 (a government programmes) as well as Non-Governmental Organisations (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.

Nile breweries (who focus on the Epuripur variety) also offers support to out grower schemes and they have played a pivotal role in the sector where they have purchased 10,410,050 kgs of Epuripur over the years from the local farmers to use in Jinja and Mbarara.  It has to date spent c. Shs11.5 billion on purchasing from dealers, suppliers but with farmers getting the lion’s share of Shs 7.2 billion.

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

For non-food sorghum there is a guaranteed market at a reasonable price by Nile Breweries Ltd. for its contracted farmers. This should provide some prospects for continued production albeit for a market that is limited and dependent on the breweries plans over which the farmers have little say, other breweries emulating Nile Breweries ltd in the near future would also increase the prospective market for sorghum.

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

3. Good Return on Investment (ROI)

In our financial model we assume that the farmer will have 10 acres and thus be able to plant sorghum over a period of 2 seasons each year. We assume the farmer will plant Sekedo red sorghum or Epuripur. This variety of seed costs about Shs. 1,500 per kg.

Our model is summarized below:

Financial model for Sorghum

  • Startup capital (A): Shs.121,357,096
  • Profitability (B): 19,896,565
  • Return on Capital (A/B): 6.1 years

The detailed financial model is available for purchase here via our research databank.

The basics you must get right

1. Weed Management

The first 6 to 8 weeks after planting is crucial, weeds tend to compete aggressively with the crop. This is when the root parasite Striga Asiatia attacks the sorghum. This weed occurs mainly in low-input farming conditions; the parasite plant has a single stem, with bright red flowers. The seeds of the parasite are spread by wind, and remain dormant in the soil for 15 to 20 years. Rotation with groundnuts, cowpeas, and pigeon peas helps reduce Striga. Farmers should look out for this particular weed because it greatly affects crop yields.

2. Post-harvest handling

Sorghum to be used for silage needs to be harvested when seeds are in milk dough stage. For hay, tow five harvests may be needed per season. Hay products need several days of sunshine, a forage crusher assist in reducing the time.

In terms of seed harvesting, the crop is to be cut by hand, or mower, and if the land is large one can use a combine harvester.  After being cut by hand the crop must be left in the field to dry for 10 to 14 days, and then it is to be threshed, stocked. The seed is to be stored with 12-13% moisture content or less.  In terms of animal feed, the crop can be harvested at 80 to 120 cm tall and provided to as dry matter as animal feed.

3. Storage

Sorghum is stored as whole grain, and seed is stored with 12 to 13% moisture. Several factors can cause loss in viability i.e. mound damage, poor germination. The grain is stored for future processors in silos and simple containers can also be used to store the grain. A common preservation method that can be used by local farmers is sun drying.

4. 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.

5. 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 sorghum should definitely be included in the portfolio of a serious Ugandan investor or entrepreneur.

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 especially Southern Sudan.

While the period of 6 years might seem long, this is due to the high costs of mechanization but with the growing industry and demand, there is a possibility you can get a return on investment earlier. Our financial model is overly prudent in order to manage the issue of shocks and risks in the Uganda agriculture sector.

It is worth pointing out that tax incentives by the government means that farmers can easily improve their farming methods with introduction of mechanization in agricultural. 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) – Sorghum bread anyone?

So are you ready to join me and Uncle Wamoka on the dance floor to celebrate this sector? We are in heaven! And I don’t mean because of the beer he is holding. I mean because of the client’s impending good harvest.

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.

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