How Profitable Is Dairy Farming in Uganda?

Background

I was always afraid of cows (called “ente” in the local language), 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!

From the nutritional point of view (for those readers who are unaware, such as 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 Shs. 1,400 shillings for a litre as compared to processed milk which is sold at Shs. 2,000 shillings a litre

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. The districts of Mbarara, Moroto, Bushenyi, Kotido, Masaka, Mbale, Kabarole, Mukono, Ntungamo, and Kamuli dominate production in this sector.

The cattle population in Uganda was last estimated as per the 2008 livestock census to be 11.4m. It is estimated that indigenous breeds account for approx 84{ccdfc561878e9246e1a18999d5a21dd519dc1b039f0564ab04c9b3978134babb} 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{ccdfc561878e9246e1a18999d5a21dd519dc1b039f0564ab04c9b3978134babb} is consumed on the farm (or households) and 70{ccdfc561878e9246e1a18999d5a21dd519dc1b039f0564ab04c9b3978134babb} is sold.

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.

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

Considering that Uganda’s population will continue to grow by over 3{ccdfc561878e9246e1a18999d5a21dd519dc1b039f0564ab04c9b3978134babb} 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 I note for the dairy Sector include the following:

  1. Investment in milk collection centres
  2. Investment in supply milk tankers
  3. Investment in packaged pasteurized milk distribution system
  4. Upgrade of Informal actors into mini dairies
  5. Upgrade of existing dairy plants
  6. Investment in integrated farming/processing dairy business
  7. Investment in transportation tanker cleaning facility.

So with the above in mind, how do you try to make money (“sente” in the local language) 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.

This is due to poor market access (for example due to bad roads and lack of information on market prices).

The solution for the “advanced thinking” farmer would be to partner with regional cooperatives in the supply of milk as they already have well established transport and infrastructure systems.

There is also the option of getting in touch with the large scale milk processors to supply them. The downside is that their prices are often lower than retail prices, but the upside is the assured market for your product.

2. Low animal productivity

In 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. Additionally they 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 the animals’ nutrition.

I also recommend planting elephant (napier) grass about 3 months before setting up the farm.

3. Availability of financing

Traditionally the agriculture sector has been viewed as high risk and so there are 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.

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{ccdfc561878e9246e1a18999d5a21dd519dc1b039f0564ab04c9b3978134babb} while SACCOs seem to lend amount in the range of 10{ccdfc561878e9246e1a18999d5a21dd519dc1b039f0564ab04c9b3978134babb}.

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{ccdfc561878e9246e1a18999d5a21dd519dc1b039f0564ab04c9b3978134babb} per annum. On the other hand there is unfulfilled supply for milk in the export market with the leading processing and distribution companies unable to fulfill their supply markets. The biggest milk processor, Sameer Agricultural and Livestock Limited (SALL), for example claims to have existing markets in 17 countries, but is constrained by low supply in servicing these countries.

The “advanced thinking” farmer has the opportunity to enter into partnership with the milk processors to produce for them. He will however need to make sure he has systems in place to comply with the rigorous quality control requirements of these processors.

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 the cows are highly tradeable 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 dowry (or “bride price”) in Uganda.

3. Return on investment

From a financial forecasting model, I have developed; I estimate the Return on Investment (ROI) for this sector is as follows:

· Startup capital (A): Shs.44, 273,900

· Profitability (B): Shs. 10, 589,863

· Return on Capital (A/B): 4.18 years

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

  1. Feeding. In addition to food supplements, plant elephant grass in advance. This will ensure the cows are fed adequately. Feeding and milk production are directly correlated;
  2. Purchase of cows. I suggest you buy pregnant heifers. My 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 and disease resistance);
  3. Technical support. Visit a demonstration farm that practices good farm management to improve your knowledge;
  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 bore hole to provide the water.

Final word

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 a friend’s village in Nyakahita, Mbarara.”

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 startup farmers as well as the more established players.