For start, I am not abusing anyone like Uganda’s Col. Kahinda Otafire and his, shall I call them “famous euphemisms” including the “Mavi ya Kuku” statement. For the uninitiated, “Mavi ya kuku” is a Swahili word to refer to chicken droppings and when you deal with chicken you will have to literally get your feet deep in chicken s%*t (literally) but I will tell you about why these are money makers later on. I present my analysis on investment in the poultry sub sector in Uganda.
FIRST THE CONS (of Course)
1. Too many so called “chicken experts”
The beauty about chicken farming is that almost every Ugandan knows something about it; or some part of it anyway, almost every “Kampala person” who has gone to their village for Christmas has most likely received a gift of a chicken and likewise those of you who are “traditionalist men” know that in your home you are the only one entitled to eat “nkoko nkulu”. The “Nkoko Nkulu” is the chicken gizzard and it is traditionally served to the head of the house or in many instances to a special visitor (usually male) as a sign of respect and special welcome to that household.
Ugandans know this all because chicken are an integral part of the DNA of Ugandan life. Despite this, having almost every one with knowledge of some form of chicken farming can however also be the worst enemy for the potential investor especially if you are looking to do it on a commercial basis. You see while every “Tom, Dick and Oryem” will claim they have experience in chicken farming, most of it is with indigenous chicken farming which is not the same as commercial farming, the aim of this article.
Local Ugandan chicken for example produce only 40 eggs a year (just over 1 egg a month!) compared to exotic chicken (like the shaver brown variety) which produce 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”, next thing you know your entire stock has been wiped out by coccidiosis.
2. Market and Distribution bottlenecks
Uganda is still very much a “localised retail” based sector for the chicken/poultry sector. You may for example have to sell your eggs shop by shop or to neighbouring towns as there may not be many “super markets” or “whole sale buyers” who provide a ready market to absorb the produce and therefore you may have to rely on middlemen coming from far. This in itself gives rise to price extortion from these middlemen. These bottlenecks are because there is to date no formalised large scale transport distribution network to get your produce from the poultry producing area (mainly Northern and Eastern Uganda) to the key market (mainly Central Uganda). Furthermore our transport network is not well developed given the state of roads. You will therefore early on have to establish the market and distribution logistics for your produce as this can affect your profit.
3. Cost of feed
Chicken feed is perhaps one of the most important aspects to ensure profitability of your poultry business. It has been estimated as costing between 60% and 70% of the total cost of production. You must ensure you get the best quality feed as of course this means you will have healthy chicken (and good quality eggs).
The high feed situation is pretty serious in Uganda and many Ugandan poultry farmers are being driven out of business and so before you invest, you need to consider this very carefully. This high feed price is being driven by increase in prices of maize bran. Maize bran composition is about 52% of chicken feed. Coupled with high Maize bran prices is that fact that fish stocks in Uganda are being depleted quickly (fish is about 10-20% of the chicken feed composition).
I touched upon this briefly when I earlier on mentioned coccidiosis. There are however other chicken diseases like New Castle disease which can wipe out the entire poultry stock. I have however not ranked this risk at the top of the CONS because any serious investor will hire a competent and suitably experienced farm manager to prevent disease threats and also have access to a good veterinary officer/doctor and this should further reduce this threat.
5. Cost of capital
Sustainable commercial chicken farming requires a fair amount of capital particularly because layers take about 17 weeks before they start producing eggs and so for this period there is no income. The investor will therefore need to provide working capital for this period of about 4 months before he can expect any revenue. This working capital includes the key cost of chicken feed.
From my estimates (I will come to that later on) you need about Shs 26m as start up capital for a 1000 chicken farm (shaver brown variety). I will deal with the details in the section below.
AND NOW THE PROS
1. Chicken are here to stay
Chicken have been around a long time and in the developed world chicken is cheaper than beef. The reverse is true in Uganda and chicken is usually reserved for special days (like when I had passed my P.7 PLE exams and was admitted to the school of my first choice). In Uganda, this is however going to change especially as our population grows and more people come out of poverty. Recent studies show that we have increased egg consumption by 28% and chicken consumption by 60% between 2000 and 2006.
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 University 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 with the continued East African community expanding and us working towards regional integration, there will remain continued demand for eggs and chicken.
2. Excellent profitability return on capital
Despite the several articles speaking about the cost of chicken feed crippling the industry I believe this industry sector still offers some of the best returns on investment. From my estimates below, it has a return on investment of 1.09 years! I set out my estimates below. The estimates are based on a sustainable investment of 1000 layers of the shaver brown variety. All figures are in Uganda Shillings. The exchange rate at November 2011 is about I USD = Shs 2,700
Summary 1: Starting capital
A: Fixed costs(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
Sub total: Shs 5,192,000
B: First 4 months(week 1-17)
1. Day old chicks (1000 of them): Shs 4,500,000
2. Chicken feed(starter): 13,043,836
3. Other incidentary costs: 220,000
Sub total: Shs 17,763,836
C: Labour (week 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 (Estimated at 3 hands each earning 60k per month)
4. Vet office Shs 90,000 for 3 visits.
Sub total: 2,810,000
D: Contingency(10%): 2,576,584
TOTAL START UP: 28,342,419
Summary 2: Profitability and Return on Investment
REVENUE (for 8 months)
The revenue is estimated on 1,000 hens with a mortality rate of 7% hence 930 hens net. It is estimated that each hen lays 292 eggs per year. This is pro rated over an 8 month period to comprise of the first financial period (as 4 months are in which the chicken are maturing). In Uganda, eggs are sold in trays of 30. It is estimated at August 2011 that each egg cost Shs 300 thereby meaning a tray costs Shs 9,000
On basis of above, Revenue over the period will be:
1000 hens less 7% mortality: 930 hens * 292 eggs each =271,560 eggs = 9,052 trays
Each tray is Shs 9,000 hence 9,052 *9000 = Shs 81,468,000 per year (or 292 days over an annual period that the hens lay)
Pro rating the annual revenue to the 8 months is revenue of Shs 54,834,231
COSTS (Monthly for 8 months)
1. Chicken feed: 24,261,534. This is estimated on a hen consuming about 37kg per year.
At August 2011, layer feed (which chicken feed on for most part of 17 week growth) cost Shs 75,000 per 70 kg bag. On the basis of the above, a chicken consumes about Shs 108.7 worth of feed per day.
The total cost over the 8 months is therefore Shs. 24,261,534
2. Transport to market:Shs 5,400,000 (estimated at Shs 15,000 daily)
3. Labour (on same basis as labour costs in first 4 months but for 8 months): Shs 10,940,000
4. Utilities (water and electricity): 720,000
5. Miscellaneous: 1,800,000
Sub total: Shs43,121,534
Operating profit: Shs 11,712,697
1. Sale of chicken (after their productivity cycle ends): 6,510,000. I am assuming each chicken will be sold for Shs 7,000 the market price in August 2011.
2. Less: Costs to market: 200,000
3. Chicken droppings: 8,035,510
(estimated on 11479 kg of droppings produced on basis of this being 1/3 of feed intake). Each kg being sold at Shs 700.
NET Profit(incl other income): Shs 26,058,207
Return on capital: 1.09 years.
As you can see from above, In 1 year you can expect to recoup your cost! I don’t think there is anything more to say about this sector but for those who are, well there is a third reason this is good.
4. Social responsibility advantages
Charities and other NGOs recognise the impact poultry farming has on the rural communities especially on women and several studies show that this is the next social revolution.
SUMMARISING AND THE FINAL WORD
First the numbers
On the basis of my analysis:
* Capital investment (A): Shs 28,342,419
* Revenue per year (including other revenue): Shs 69,179,741
* Profit per year (revenue (including WIFI) and excluding all expenses) (B) is Shs 26,058,207
* Return on capital (years to get capital back or A/B) is 1.09 years
Now the basics you must get right before investing.
* Working capital. Like I said at the start, for about 4 months you will be sustaining this business without any income at all, you need to therefore secure the necessary funds especially for chicken feed. You cannot compromise on the quality of feed or quantity when there are cash flow shortages as this will ultimately affect the quality of eggs and chicken.
* Agriculture support and training. This is a sector that the government, NGOS, donors have put in a considerable amount of money and so there is no excuse for not using support facilities right from NAADS to district support projects, NGO supported projects, even many of the day old chick suppliers provide courses.
* Market/distribution network. There are significant bottlenecks in Uganda and it is well and good to develop capacity for 1000 birds but if you cannot get them to the market then that’s a waste. It will therefore be critical that wherever you choose to locate your farm you consider how you will get it to the market.
* Land. Now you will notice I havent considered the cost of land in this analysis. The reasons are multifold. When I considered this business venture and from my research, an investor can get the land for “free” in return for for example hiring local people, from relatives in rural areas and the like.
I therefore didn’t consider it to be a major issue. Besides chicken don’t usually require a lot of land and if necessary this land can be “leased” cheaply in many rural areas in Uganda. Of course you should not choose to encroach on the land at Mabira forest or perhaps in a wetland because then my “friend” Col Otafire may ask you if you are a frog!
Like I have said, this sector is going nowhere and there will continue to be demand for agriculture prodcuts. Furthermore with the developed world becoming more willing to pay for “organic” products, Ugandan poultry will continue to be highly valued.
I had promised to highlight about “Mavi ya Kuku” in more detail and you will notice that in my revenue analysis, this sh%*t really does bring in money because as the agriculture sector continues to expand and as fertilisers continue to be more expensive, farmers will look to alternatives. Chicken droppings may be that future and so yes, “Mavi ya Kuku” together with “Nkoko Nkulu” are our future!
As a chartered accountant with over 8 years of audit experience with various clients in Uganda, The Bahamas and currently the United Kingdom I have dealt with several sectors including banking and financial services, manufacturing, public sector/Donor funds, entertainment and Agriculture which has given me the inside knowledge of several businesses and their performance.
These writings are my observations and research on investing/ doing business in various sectors in Uganda. You can read more about me and these business series including this article at my website: http://investinginuganda.yolasite.com/the-sector-analysis.php.