How profitable is dairy farming in Uganda?

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I was always afraid of cows (called “duck” in the local language), especially when milking them. Growing up, I watched my grandfather milking from afar. I couldn’t trust that the cow wouldn’t get angry (at having her mammary glands touched) and give the gonads a well-aimed kickback!

From a nutritional point of view (for those readers who are unaware, such as aliens and Martians), milk is an essential nutritional substance needed for our growth from childhood to adulthood and provides the body with essential proteins and calcium delivers.

In Uganda, many families consume unprocessed milk, which is sold at the retail price of Shs. 1,400 shillings for a liter compared to processed milk sold at Shs. 2,000 shillings per liter

Why invest in dairy farming in Uganda?

In Uganda, milk and dairy products come mainly from cattle goats and a small percentage from goats and sheep. Mbarara, Moroto, Bushenyi, Kotido, Masaka, Mbale, Kabarole, Mukono, Ntungamo and Kamuli districts dominate production in this sector.

The cattle population in Uganda was last estimated at 11.4 million according to the 2008 livestock census. It is estimated that native breeds make up around 84%, while exotic breeds and crossbreeds make up the rest. It is also estimated that Uganda currently produces 1-1.5 billion liters of milk per year, of which 30% is consumed on farm (or in households) and 70% is sold.

Although the domestic market is the main market for milk and dairy products, some of the processed milk and value-added milk products are exported to regional markets such as Kenya, Rwanda, the Democratic Republic of the Congo, South Sudan and Tanzania.

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

Given that Uganda’s population will continue to grow at over 3% per year and become more prosperous (with people below the poverty line declining), opportunities arise particularly in the distribution and processing of milk. In particular, the windows of opportunity that I see for the dairy sector include the following:

  1. Investment in milk collection points
  2. Investment in delivery milk tankers
  3. Investment in a distribution system for packaged pasteurized milk
  4. Upgrade informal actors to mini dairies
  5. Modernization of existing dairies
  6. Investing in an integrated farm/dairy processing company
  7. Investment in a cleaning system for transport tankers.

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

FIRST THE CONS

1. Marketing bottlenecks

Marketing their milk has been identified as one of the most critical issues faced by dairy farmers in Uganda.

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

The solution for the ‘forward-thinking’ farmer would be to partner with regional cooperatives for milk supply, as they already have well-established transport and infrastructure systems.

There is also the possibility of contacting the large milk processors in order to supply them. The downside is that their prices are often lower than retail prices, but the upside is the secured market for your product.

2. Low animal productivity

In Uganda, dairy farmers are mostly smallholders. Many produce for their own use and only offer the market the available surplus. Most rely on the traditional indigenous herd, known for its very low productivity. In addition, they rely mainly on the natural green pastures for feeding without any nutritional supplements

It would be prudent for the forward thinking farmer to use improved local and exotic dairy breeds known for producing high milk yields while also zero grading while also offering feed supplements to improve animal nutrition.

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

3. Availability of Funding

Traditionally, the agricultural sector has been viewed as high-risk and as such there are limited sources of funding, for example from venture capital firms and private equity firms (some of which do not lend specifically to the sector).

However, there is an increasing number of regional and international commercial banks, including development banks, offering long-term financing for viable projects in this sector.

I would recommend that in order for farmers to have a better chance of getting credit, they keep records of their farm produce to prove they don’t frequently have low milk yields (which is one of the factors that make the sector high risk to borrow) .

Another option is membership in a cooperative or similar group where they can access group loans through SACCO programs. Donors and other aid projects for agriculture often prefer to grant loans to cooperatives and similar farming groups.

Commercial bank lending rates averaged around 25% in April 2013, while SACCO appears to be lending in the 10% range.

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 signs that the dairy market is growing rapidly and steadily. The growth rate of milk production is estimated at over 8% per year. On the other hand, there is an unmet supply of milk in the export market as the leading processors and distributors cannot serve 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 constrained by the low supply in supplying those countries.

The ‘advance-thinking’ farmer has the opportunity to partner with milk processors to produce for them. However, he must ensure that he has systems in place to meet the strict quality control requirements of these processors.

2. Food and property security

A significant number of households in Uganda own a cow (albeit many native breeds of their own) for the simple reason that both the milk and cows are highly tradable and thus provide food security in the event of financial hardship (milk for the family ) and sell well, especially the coveted exotic breeds.

Oh, and let’s not forget (at the risk of feminist wrath) 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 developed; I estimate the return on investment (ROI) for this sector as follows:

Seed Capital (A): Shs 44,273,900

· Profitability (B): Shs. 10,589,863

Return on investment (A/B): 4.18 years

Now for the basics that you need to master before investing in this sector.

  1. Feeding. In addition to nutritional supplements, plant elephant grass in advance. This ensures that the cows are fed adequately. Feeding and milk production are directly related;
  2. Purchase of cows. I suggest you buy pregnant heifers. My research shows you can get them cheaper than the non-pregnant ones. This is how you quickly double your supply. When buying, make sure you choose breeds (possibly crossbreeds) that are appropriate for the local environment (climate and disease resistance);
  3. Technical support. Visit a demonstration farm practicing good farm management to improve your knowledge.
  4. Records. Keep farm records to ensure you can assess your daily milk yields and the quality of your milk. This will be particularly necessary if you want to expand and, for example, supply larger milk processing plants; and
  5. Water. Make sure you have enough water nearby. Cows drink a lot of water, so you’ll either need a tank or, further along, dig a borehole to provide the water.

Last word

I’m still afraid of being kicked by a milked cow, so I still say, “No, thank you sir, I will stick to hiring a shepherd from a friend’s village in Nyakahita, Mbarara.”

Lighter humor aside, milk production has the potential to be a profitable business opportunity for farmers in Uganda. There is always room to grow, both for start-up farmers and established players.