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How Profitable Is Dairy Farming in Uganda?
I have always been afraid of cows (called “ente” in the local language), especially during milking. Growing up, I watched from afar as my grandfather milked. I couldn’t trust the cow not to get angry (to have her mammary glands touched) and give a well-targeted back kick to the gonads!
Nutritionally (for readers who don’t know, like aliens and martians), milk is an essential food substance necessary for our growth from childhood to adulthood, providing protein and calcium essential to the body.
In Uganda, a large number of families consume unprocessed milk sold at the retail price of Shs. 1,400 shillings per liter compared to processed milk which is sold at Shs. 2000 shillings per liter
Why invest in dairy farming in Uganda?
In Uganda, milk and dairy products come mainly 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 2008 livestock census at 11.4 million. It is estimated that native breeds make up about 84% while exotic and cross breeds 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 the farm (or in households) and 70% is sold.
Although the domestic market is 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, Democratic Republic of Congo, South Sudan and Tanzania.
Where are the investment opportunities in the dairy sector in Uganda?
Considering that Uganda’s population will continue to grow at over 3% per year, as well as getting richer (with people below the poverty line), there are opportunities, especially in milk distribution and processing. In particular, the windows of opportunity that I note for the dairy sector include the following:
- Investment in milk collection centers
- Investment in supply milk tankers
- Investment in a packaged pasteurized milk distribution system
- Upgrading informal actors into mini-dairies
- Upgrading existing dairy plants
- Investment in an integrated dairy farming/processing enterprise
- Investment in a tank truck cleaning installation.
So, with the above in mind, how do you try to make money (“sente” in the local language) with cows (“ente”)?
FIRST THE CONS
1. Marketing bottlenecks
One of the most critical issues facing dairy farmers in Uganda is marketing their milk.
This is due to poor market access (eg due to poor roads and lack of market price information).
The solution for the “advanced” farmer would be to partner with regional cooperatives for milk supply as they already have well-established transport systems and infrastructure.
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 assured market for your product.
2. Low animal productivity
In Uganda, dairy farmers are largely smallholders. Many produce for self-consumption and only offer the available surplus to the market. Most depend on the traditional indigenous herd, known for its very low productivity. Moreover, they mainly depend on natural green pastures for food without any food supplements.
For the savvy 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 perform zero grazing while providing feed supplements to boost animal nutrition.
I also recommend planting Napier grass about 3 months before setting up the farm.
3. Availability of funding
Traditionally, the agricultural sector has been considered high risk and therefore there are limited financing options, for example venture capital firms and private equity firms (some of which do not specifically lend to the sector).
Nevertheless, there are more and more regional and international commercial banks, including development banks, which 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 accessing loans, he keeps records of his agricultural products to show that he does not have a high incidence of low milk yields (which is the one of the factors that makes the sector high risk to lend).
Another option is to join a cooperative or similar group where they can access group loans through SACCO schemes. Donors and other agricultural aid projects also often prefer to lend to cooperatives and similar farmer groups.
In April 2013, commercial bank lending rates averaged around 25%, while SACCOs appear to lend around 10%.
1. Strong demand for milk in domestic and export markets
Reliable data on milk consumption in Uganda is sorely lacking. However, strong indicators show that the dairy market is growing at a fast and steady pace. The growth rate of milk production has been estimated at more than 8% per year. On the other hand, the supply of milk is not satisfied on the export market, the main processing and distribution companies being unable to satisfy their supply markets. The largest milk processor, Sameer Agricultural and Livestock Limited (SALL), for example, claims to have existing markets in 17 countries, but is limited by poor service provision in these countries.
The “forward-thinking” farmer has the opportunity to partner with milk processors to produce for them. However, he will need to ensure that he has systems in place to comply with the rigorous quality control requirements of these processors.
2. Food security and wealth security
A significant number of households in Uganda own a cow (although many own indigenous breeds) for the simple reason that milk and cows are highly marketable and in times of financial hardship provide food security (milk for family) and can be easily sold, especially the highly sought-after exotic breeds.
Oh and let’s not forget (at risk of feminist ire) 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 to be:
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 need to get before investing in this sector.
- Food. In addition to food supplements, plant elephant grass beforehand. This will ensure that the cows are well fed. Feeding and milk production are directly correlated;
- Purchase of cows. I advise you to buy pregnant heifers. My research shows you can get them cheaper than non-pregnant ones. So you double your stock quickly. When buying, be sure to choose breeds (possibly cross breeds) suitable for the region (climate and disease resistance);
- Technical support. Visit a demonstration farm that practices good agricultural management to perfect your knowledge;
- Folders. Keep farm records to ensure you can assess your daily milk yields as well as the quality of your milk. This will be particularly necessary if you expand and say you want to supply milk processors on a larger scale; and
- Water. Make sure you have enough water nearby. Cows drink a lot of water so you need a reservoir or as you go build a borehole to provide water.
I’m always scared of being hit by a cow being milked so I always say “no thanks sir, I’ll stick to hiring a shepherd from a friend’s village in Nyakahita , Mbarara”.
Lighter humor aside, dairy farming has the potential to be a profitable business opportunity for Ugandan farmers. There is always room to grow, both for start-up farmers and more established players.
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