Background

I was always afraid of cows (called “ente” in the local language), especially during milking. Growing up, I watched from a distance as Grandpa milked. I couldn’t trust the cow not to get mad (at the affected mammary glands) and deliver a well-aimed kick back to the gonads!

From a nutritional point of view (for those readers who are not aware, such as aliens and martians), milk is an essential nutrient needed for our growth all the way from baby cap to adult cap, providing essential proteins and calcium to the body.

In Uganda, a large number of families use raw milk which is sold at the retail price of Shs. 1,400 shillings for a liter compared to processed milk which is sold at Shs. 2000 shillings a litre

Why invest in dairy production in Uganda?

In Uganda, milk and milk products come mostly 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 according to the livestock census in 2008 to be 11.4 million. It is estimated that indigenous breeds account for approx. 84%, while exotic breeds and crossbreeds account for the balance. It is also estimated that Uganda currently produces 1-1.5 billion liters of milk per year, of which 30% is consumed on the farm (or households) and 70% is sold.

Although the domestic market constitutes the main market for milk and dairy products, some processed milk and value-added dairy products are exported to regional markets such as Kenya, Rwanda, the 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 at over 3% per year, as well as become richer (with people below the poverty line decreasing), there are opportunities especially 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 milking centres
  2. Investment in the delivery of milk tankers
  3. Investment in distribution system for packaged pasteurized milk
  4. Upgrading of informal operators to mini-dairies
  5. Upgrading existing dairy facilities
  6. Investment in integrated farming/processing dairy operations
  7. Investment in treatment plants for transport tankers.

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

DISADVANTAGES FIRST

1. Marketing Bottlenecks

One of the most critical issues facing dairy farmers in Uganda has been recognized as 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 work with regional cooperatives for the delivery of milk, as they already have well-established transport and infrastructure systems.

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

2. Low animal productivity

In Uganda, dairy farmers are mostly small farmers. Many produce for home use and offer only the available surplus to the market. Most are dependent on the traditional indigenous population, known to have very low productivity. In addition, they mainly depend on the natural green pastures for feeding without food supplements

For the forward-thinking farmer, it would be wise to use improved local and exotic dairy breeds that are known to produce large quantities of milk and at the same time implement zero grazing while offering feed supplements to increase the animals’ nutrition.

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

3. Availability of financing

Traditionally, the agricultural sector has been seen as high risk, and therefore there are limited funding opportunities, for example from venture capital firms and private equity firms (some of which do not specifically 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 a better chance of getting a loan, they keep records of their agricultural produce to show that they do not have high incidences of low milk production (which is one of the factors that make the sector high risk to lend to) .

Another option is to join a cooperative or similar group where they can access group loans via SACCO schemes. Donors and other aid projects for agriculture also often prefer to lend to cooperatives and similar farmer groups.

Lending rates for commercial banks in April 2013 averaged around 25%, while SACCOs appear to be lending amounts in the region of 10%.

THE PROFESSIONALS

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 showing that the dairy product market is growing rapidly and steadily. Growth in milk production is estimated at over 8% per year. On the other hand, there is unmet supply of milk in the export market with the leading processing and distribution companies unable to fulfill their supply markets. For example, the largest milk processor, Sameer Agricultural and Livestock Limited (SALL), claims to have existing markets in 17 countries, but is limited by low supply when it comes to serving these countries.

The “advanced-thinking” farmer has the opportunity to enter into cooperation with the dairy farmers to produce for them. However, he must ensure that he has systems in place to comply with the strict quality control requirements of these processors.

2. Food and asset security

A significant number of households in Uganda own a cow (albeit many own indigenous breeds) for the simple reason that both the milk and the cows are highly marketable and in case of economic distress they provide food security (milk for the family) and can be easily sold, especially the highly sought after ones exotic breeds.

Oh, and let’s not forget (at the risk of irritating 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 to be as follows:

· Initial capital (A): 44,273,900 shs

· Profitability (B): Shs. 10,589,863

· Return on capital (A/B): 4.18 years

Now here are the basics you need to get right before investing in this sector.

  1. Guidance. In addition to supplements, plant elephant grass in advance. This will ensure that the cows get sufficient food. Feeding and milk production are directly correlated;
  2. Purchase of cows. I suggest you buy pregnant heifers. My research shows that you can get them cheaper than the non-pregnant ones. You thus quickly double your stock. When purchasing, make sure you choose breeds (possibly cross breeds) that are suitable 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 production as well as assess the quality of your milk. This will be especially necessary when you expand and say you want to supply milk processors on a larger scale; and
  5. Water. Make sure you have enough water nearby. Cows drink a lot of water, so you either need a tank or construct a borehole when you advance for the water.

Last 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 farming has the potential to become a profitable business opportunity for farmers in Uganda. There is always room for growth, both for start-up farmers as well as the more established players.

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