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Investing in Poultry Farming in Uganda
So you want to do business in Uganda by investing in poultry farming and “mawi ya kuku”?
To begin with, I am not bashing Ugandan Colonel Kahinda Otafire and anyone like him, shall I call him a “famous euphemism” with the statement “Mavi Ya Kuku”? For the uninitiated, “mavi ya kuku” is a Swahili term to refer to chicken droppings, and when you deal with chicken you literally have to dig your feet deep into chicken s%*t (literally), but I’ll tell you about it. After the money maker. I present my analysis on investment in the poultry subsector in Uganda.
First the cons (of course)
1. Too Many So-Called “Chicken Experts”
The beauty of poultry farming is that almost every Ugandan knows something about it; Oh, part of it, almost every “Kampala person” who went to their hometown for Christmas probably received a chicken gift, and likewise those of you who are “traditional men” know that you are the only one in your house. A “nkoko nkulu” is the right to eat. “Nkoko Nkulu” is a chicken gizzard and is traditionally given to the head of the household or in many instances to a special guest (usually male) as a mark of respect and special welcome to that household.
Ugandans know all this because chicken is an integral part of the DNA of Ugandan life. Despite this, the fact that almost everyone knows some form of poultry farming can also be a potential investor’s worst enemy, especially if you want to do it on a commercial basis. You see every “Tom, Dick and Orem” will claim that they have experience with chicken farming, mostly domestic chicken farming which is not the same as commercial farming, which is the purpose of this article.
For example, local Ugandan chickens only lay 40 eggs a year (just 1 egg a month!) compared to exotic chickens (Shaver Brown type) that lay about 300 eggs a year (that’s almost one egg a day!).
If you don’t get the right person and choose to listen to every “Tom, Dick and Amerit”, the next thing you know your entire stock has been wiped out by coccidiosis.
2. Market and distribution barriers
Uganda is still a “localized retail” based area for the chicken/poultry sector. For example, you may have to sell your eggs through shops or neighboring towns as there may not be many “supermarkets” or “wholesale buyers” that provide a ready market to absorb the product and thus you may have to rely on middlemen. Coming from afar. This is the price squeeze by these middlemen. These constraints are due to the fact that to date there is no formalized large-scale transport distribution network to take its produce from poultry producing areas (mainly northern and eastern Uganda) to main markets (mainly central Uganda). Also our transport network is not well developed considering the condition of the roads. So you need to establish a market and distribution logistics for your product as soon as possible as this can affect your profitability.
3. Cost of feed
Chicken feed is perhaps the most important aspect of ensuring the profitability of your poultry business. It is estimated to cost between 60 and 70% of the total production cost. You need to make sure you get a good quality feed because of course you get a healthy chicken (and good quality eggs).
The high feed situation in Uganda is very serious and from recent news (August and October 2011) many Ugandan poultry producers are being put out of business and so before you invest, you need to think carefully. This high cost of feed is due to the increase in the price of cornstarch. Corn bran makes up 52% of chicken feed. It is a fact that Uganda’s fish stocks are rapidly depleting with the high prices of maize bran (fish make up 10-20% of the chicken feed composition).
I touched on this briefly when I mentioned coccidiosis earlier. However there are other chicken diseases like Newcastle disease that can wipe out entire poultry stocks. However, I have not ranked this risk at the top of the CONS as any serious investor would hire a competent and suitably experienced farm manager to avoid disease risk and have access to good veterinary officers/doctors and this would further reduce this risk.
5. Cost of capital
Sustainable commercial poultry farming requires a considerable amount of capital, especially since layers take about 17 weeks before they start producing eggs, and thus generate no income during this period. So the investor needs to provide working capital for this period of around 4 months before expecting any earnings. This working capital includes the main cost of chicken feed.
According to my estimate (I will come to that later) you need about Shs 26m as start up capital for 1000 chicken farms (shaver brown type). I will deal with the details in the following section.
And now the pros
1. Chicken is here to stay
Chicken has been around for a long time and in the developed world chicken is cheaper than beef. In Uganda the opposite is true and chicken is usually reserved for special days (like when I passed my P.7 PLE exam and got into my first choice school). This is about to change in Uganda, especially as our population grows and more people rise out of poverty. Recent studies have shown that between 2000 and 2006, we increased egg consumption by 28% and chicken consumption by 60%.
Ugandan girls really love chicken (and chips)! [This last statement is “tongue in cheek” in reference to the fact that many a Ugandan man seeking to impress a girl, perhaps a Univeristy student will often buy her Chips and Chicken from the many “takeaways”in urban areas especially around Kampala and its suburbs including the popular takeways in Wandegeya which is in the proximity of Makerere University.]
I can further expect that as the East African Community continues to expand and we work towards regional integration, the demand for eggs and chicken will continue.
2. Excellent return on capital
Despite the many articles on chicken feed cost crippling the industry, I believe this industry sector still offers some of the best returns on investment. According to my estimate below, it has a return on investment of 1.09 years! I have given my predictions below. Estimates are based on sustainable investment of 1000 layers of Shaver Brown breed. All figures are in Uganda Shillings. The November 2011 exchange rate is about I USD = Shs 2,700
Summary 1: Initial capital
A: Fixed cost (one off)
1. Chicken coop and related items: Shs 3,450,000
2. Electricity and water (connection): Shs 1,000,000
3. Legal and other start-up costs: Shs 700,000
4. Training: Shs 42,000
Total sub: Shs 5,192,000
B: First 4 months (weeks 1-17)
1. Day-old chicks (1000 of them): Shs 4,500,000
2. Chicken feed(starter): 13,043,836
3. Other Contingencies: 220,000
Total sub: Shs 17,763,836
C: Labor (Weeks 1-17)
1. Farm Supervisor: Shs 800,000 (200k per month)
2. Farm Manager: Shs 1,200,000 (300k per month)
3. Farm hands: Shs 720,000 (approx 3 hands earn 60k per month each)
4. 90,000 rupees for 3 visits to vet office.
Total Subs: 2,810,000
D: Contingency(10%): 2,576,584
Total Start Ups: 28,342,419
Summary 2: Profitability and Return on Investment
Revenue (for 8 months)
The yield is estimated from 1,000 chickens with a mortality rate of 7% so a net of 930 chickens. It is estimated that each hen lays 292 eggs per year. It is pro-rated for a period of 8 months to cover the first financial period (4 months in which the chicken is maturing). In Uganda, eggs are sold in trays of 30. It is estimated in August 2011 that each egg costs Shs 300 meaning that one tray costs Shs 9,000.
Based on the above, the revenue during the period will be:
1000 chickens 7% less mortality: 930 chickens * 292 eggs each = 271,560 eggs = 9,052 trays
Each tray is Shs 9,000 so 9,052 * 9000 = Shs 81,468,000 per year (or 292 days in the annual period of laying hens)
Pro Rating Annual Revenue for 8 months is Rs 54,834,231
Cost (monthly for 8 months)
1. Chicken feed: 24,261,534. This is on a chicken consuming approximately 37 kilograms per year.
In August 2011, layer feed (which chickens eat for most of their 17-week growth period) was priced at Rs 75,000 per 70 kg bag. Based on the above, one chicken consumes about Shs 108.7 worth of feed per day.
So the total cost in 8 months is Shs. 24,261,534
2. Transport to market: Shs 5,400,000 (approx Shs 15,000 per day)
3. Labor (in first 4 months but based on labor cost for 8 months): Shs 10,940,000
4. Utilities (water and electricity): 720,000
5. Miscellaneous: 1,800,000
Total sub: Shs43,121,534
Operating profit: Shs 11,712,697
1. Sales of chickens (after the end of their productive cycle): 6,510,000. I am assuming that each chicken will sell for Rs 7,000 as per the market price in August 2011.
2. Less: Cost to market: 200,000
3. Chicken droppings: 8,035,510
(Based on this estimate 11479 kg of faeces produced is 1/3 of the feed). 700 per kg is being sold.
NET Profit (including other income): Shs 26,058,207
Return on capital: 1.09 years.
As you can see from above, you can expect to recoup your cost within 1 year! I don’t think there’s much more to say about this area but for those who are, it’s good for the third reason.
4. Benefits of social responsibility
Charities and other NGOs have recognized the impact of poultry farming on rural communities, especially women, and many studies show that it is the next social revolution.
Summary and final words
Based on my analysis:
* Capital investment (A): Shs 28,342,419
* Revenue per annum (including other revenue): Shs 69,179,741
* Profit per year (excluding revenue (including WIFI) and all expenses) (B) is Shs 26,058,207
* Return on capital (years to recover capital or A/B) is 1.09 years
You need to get the basics right before investing.
* Working capital. As I said at the beginning, for almost 4 months you will be sustaining this business without any income, so you need to secure the necessary funds especially for chicken feed. When cash flow is tight, you cannot compromise on feed quality or quantity as it affects the quality of eggs and chicken.
* Agricultural assistance and training. This is an area for which the government, NGOs, donors have invested a lot of money and so there is no reason not to use the many supporting facilities from NADS to district support projects, NGO supported projects, even daily supply of chicks. Provide curriculum.
* Market/distribution network. Uganda has significant constraints and developing a capacity of 1000 birds is all well and good but if you can’t get it to market then it’s a waste. So wherever you decide to locate your farm, it’s important to think about how you’ll get it to market.
* Land. Now you will notice that I have not considered the cost of land in this analysis. The reasons are multiple. When I thought about this business venture and from my research, the investor can get the land “for free”, for example by hiring local people, from relatives in the countryside and so on.
So I didn’t consider it a big issue. Apart from chickens there is usually not much land required and if needed this land can be “leased” cheaply in many rural areas of Uganda. Of course you shouldn’t choose to trespass into the Mabira forest or perhaps the wetlands because then my “friend” Colonel Otafire might ask you if you’re a frog!
As I said, this sector is not going anywhere and the demand for agricultural products will continue. Furthermore, as the developed world becomes more willing to pay for “organic” products, Uganda’s poultry will be highly valued.
I promised to shed more detail on “Mavi Ya Kuku” and you’ll notice that in my earnings analysis, this sh%*t actually makes money because the agricultural sector is expanding and fertilizers are getting more expensive. , farmers will look for alternatives. Chicken droppings can be the future and so yes, “Mavi Ya Kuku” and “Nkoko Nkulu” are our future!
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