Outside Looking In
D E Wasake (with a guest writer)
About my guest writer:Sarah Namutebi has since 2009 been a director and manager of farm operations at Biyinzika Enterprises Limited. She has a BS and MA in Chemistry as well as an MBA. She studied in The Univeristy at Buffalo, The State Univeristy of New York as well as at Stony Brook Univeristy both in the USA. Biyinzika Enterprises is the leading producer of day old chicks and poultry products in Uganda.
About the writer
For over 8 years I have worked with several clients in Uganda, The
Bahamas and the United Kingdom in providing audit, tax,
accounting and advisory services. My sector experience with clients in
various sectors including poultry and agriculture enables me have good
understanding of this sector. To see the full depth of my
experience, Please see my profile
Chicken are such an integral part of Ugandan life that our estimates of profitability are Shs. 26m a year from an investment of Shs. 28m a year hence you get your initial capital (return on Investment) in just over a year.
In order to achieve these estimates, our "advanced thinking" tips include making additional income or reducing your costs from the literal"mavi ya kuku" as well as investing in security measures to protect your investment.
For a start, I am not abusing anyone like Maj.Gen Kahinda Otafire and his shall I call them “famous euphemisms" including the above statement. But well 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 these are money makers later on.
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; oh some part of it anyway, almost every “kampala” person who has gone to the 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” . For the uninitiated, this is the chicken gizzard and it is traditionally reserved for the head of the house or in many instances a special visitor(usually male) as a sign of respect.
know this all because chicken are an integral part of the
DNA of Ugandan life and
therefore being everywhere can however also be its worst enemy
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 chicken for example produce only 40 eggs a year (just over 1 egg a month!) compared to exotic chicken (like the shaver brown) which produce about 300 eggs a year(that's almost one chicken 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 rely on middlemen coming from far. This is because there is to date no formalised large scale transport distribution network to get your produce from the poultry producing area(In Uganda mainly Northern and Eastern Uganda) to the market (mainly Central). 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 have healthy chickens(and good quality eggs) and yet you must ensure it is profitable. The situation is pretty serious in Uganda and as per this article many Ugandan poultry farmers are being driven out of business and so before you invest, you need to consider this very carefully. This is being driven by increase in maize bran which is about 52% of chicken feed and then coupled with that, fish stocks are being depleted seriously (fish is about 10-20% of chicken feed composition).
I have touched upon this briefly when I mentioned coccidiosis. There are other chicken diseases like New Castle disease which can wipe out the entire poultry stock but I have 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 26m as start up capital for a 1000 chicken farm. 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. According to this article, 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 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 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.
|Initial Investment||unit price||quantity||price||Source of information|
|Fixed costs(one off)|
|chicken coop||3,000,000||1||3,000,000||Estimated but perhaps a better quote can be found from http://www.poultryproject.com/category/chicken-coop-design-competition/|
|Electricity installation||500,000||1||500,000||Estimated as at June 2010|
|brooder||25,000||10||250,000||Estimated as at June 2010|
|training||42,000||1||42,000||Estimated at $15 at ROE of 1USD = 2800 as per: http://www.ugandareflex.org/projects/poultry.asp|
|Feeders||5,000||10||50,000||Estimated as at June 2010|
|weighing scale||50,000||3||150,000||Estimated as at June 2010|
|water tank/connection||500,000||1||500,000||Estimated as at June 2010|
|legal and other costs||700,000||Estimated|
|First 4 month costs(17 weeks)|
|day old chicks(layers)||4,500||1,000||4,500,000||June/Aug 2011 as per: http://allafrica.com/stories/201108241325.html|
|transport to rural area||25,000||8||200,000||Estimated|
|Coffee husks and saw dust||10,000||2||20,000||Estimated|
|chicken feed(starter)(4 months)||109||1,000||13,043,836||A 70kg bag of layer feed at August 2011 cost Shs 75,000. A layer takes about 17 weeks to mature. It consumes on average 37kg of feed in a year. On this basis, the cost per day per layer will be about Shs. 109. Sources of information are: http://www.busiweek.com/11/news/uganda/1229-feeds-prices-threaten-poultry-farmers http://www.lrrd.org/lrrd14/1/faro141a.htm|
|farm hands||180,000||4||720,000||Estimated for 3 hands each earning 60k|
|Total Working capital(17 weeks)||25,765,836|
|Months 4-12||quantity||Sources of information|
|No of eggs per hen per year||292||http://www.lrrd.org/lrrd14/1/faro141a.htm|
|Total eggs per year||271560|
|No of trays(30 eggs per tray)||9052|
|sales price per tray||9000||based on shs 300 per egg as per A 70kg bag of layer feed at August 2011 cost Shs 75,000. A layer takes about 17 weeks to mature. It consumes on average 37kg of feed in a year. On this basis, the cost per day per layer will be about Shs. 109. Sources of information are: http://www.busiweek.com/11/news/uganda/1229-feeds-prices-threaten-poultry-farmers http://www.lrrd.org/lrrd14/1/faro141a.htm|
|Revenue allocated||54,834,231||Revenue from week 17 to week 52 representing a 12 month financial year.|
|Other costs(months 4-12)|
|Monthly costs(months 5-12)|
|Description||per day/period||no of hens||per month(30 days)||Total cost (months 5-12)|
|transport to market||15,000||450,000||5,400,000|
|labour(manager, supervisor, farm hands)- per quarter)||5,440,000||2||10,880,000|
|Labour-Vet officer(per quarter)||30,000||2||60,000|
|Sale of initial chicken(to trader)||930||7,000||6,510,000|
|Less: cost to market(transport other)||-200,000|
|quantity(per hen)||no of hens||Kg all||Amount|
|(estimated on basis that 1/3 of feed intake is manure and that this is sold at Shs 700 per kg on the basis of a 70kg of fertiliser costing $70 which is Shs 2800 per kg and thus 700 being ¼ of that cost. Information from: http://ohioline.osu.edu/b804/804_3.html and http://ipsnews.net/africa/nota.asp?idnews=53027|
|Return on capital(years)||1.09|
As you can see from the table 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.
Social responsibility advantages
Charities and other NGOs recognise the impact poultry farming has on the rural communities especially on women as this article highlights clearly, calling it the next social revolution.
My guest writer weighs in
I read the [draft] article and it is well researched and well written. Your estimates in costing are very good. the only thing you forgot to include was vaccination and medication of the birds especially during the first 4 months. it costs about Shs 1400 per bird for all the vaccinations and I hope that most local farmers vaccinate their birds. The price may be lower depending on where the vaccines are bought from so anywhere from about 1000-1400.
Other than that, yes you are right, there is huge potential in this business. Most farmers suffer many losses because of poor quality feeds especially when the raw materials[maize and fish] are scarce.
Also poor hygiene and poor care because most people do not get any training in proper rearing of birds.
[From my discussions with my various clients] one last thing that is not directly related to the birds but still affects many farmers is theft from their employees. As silly as this sounds theft is a big problem that many people experience and sometimes they think the birds are performing poorly while it is just their employees stealing the eggs. Because eggs are an easy commodity to disguise many people don't attain the profits they should have. So as you said unless you[the investor] are willing to actually get your feet in chicken sh%t, you may never attain your potential.
So I recommend the owner knowing production percentages expected at each age and if their production varies greatly, then they collect the eggs themselves for a day or two( most people will have an immediate increase in number of eggs when they do the collections for themselves once in a while).
Birds are also stolen so proper records of mortality and physical counting of the birds maybe twice a year is not a bad idea.
SUMMARISING AND THE FINAL WORD
First the numbers
On the basis of my initial 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
- Initial capital investment: 28,342,419
- Vaccination (Shs 1,400 each): 1,400,000
- Amended capital investment: 29,742,419.
- The other numbers don't change.
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. Biyinzika does offer some training programmes.
- 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 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 didnt consider it to be a major issue. Besides chicken doesnt usually require alot of land and if necessary this can be "leased" cheaply in many rural areas in Uganda. Of course you should not choose encroach on land at Mabira or perhaps in a wetland because then my "friend" Maj. Gen Otafire will famously ask you if you are a frog!
- Security. As suggested by my guest, it is wise to invest perhaps in security measures to protect your investment. A key starting point of course is knowing the business by doing research. For example average feed per bird, mortality rate, average number of eggs per bird. Knowledge will enable you ensure you can detect employee theft. You can alternatively consider physical security measures like say a security guard to ensure employees are searched on entry and departure from the chicken coop. Consider investing CCTV if you can or as you develop.
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 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!
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And now the disclaimer: While I have taken steps to research this information as well as based on my experience, you should not rely on the information given here to base your investment decisions. You should seek business advice from a professional knowledgeable of your specific circumstances. I shall therefore not be held responsible for any loss you may incur when acting on this information.
In : Poultry farming
Tags: poultry chicken eggs mavi ya kuku
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