Challenges of Agriculture Value

Addition in Uganda
By James Wire
Twitter: @wirejames
Email: lunghabo [at] gmail [dot] com
Blog: wirejames.com

Paper Context
Agriculture is the bedrock of Uganda’s economy. It is very evident that over 65% of the labour
force is gainfully employed by this sector. However, when it comes to contribution to GDP, the
sector only contributes 21% which is much less than the Services sector that employs a much
smaller labour force.

Comparison matrix for the performance of the Agriculture sector versus other sectors of the Ugandan economy (Source –
Background to the Budget, Fiscal Year 2016/17)

One of the reasons for these skewed statistics is the past sector efforts by Government that were
hinged on production and less on Agribusiness. However, towards the turn of the last century, the
government begun pushing for commercialisation of the Agriculture sector. This has seen many
initiatives come up in the Agriculture value chain. Today, a walk through the supermarkets reveals
numerous locally produced and processed agricultural products.

As a player in the value addition of agricultural produce, I have had numerous experiences since
2009 when I first set up a food processing business. These experiences are what I want to share in
this paper.

For purposes of clarity, this paper focuses on the challenges one is likely to face while engaging in
value addition of produce in Uganda. Most of the lessons learnt are from the Fish and cereals value
chain.
Whilst some of my findings cut across the Agricultural sector, others may not necessarily do so.
Therefore, I urge you to exercise caution as you internalise this information.

Background
The 2014 Population and Housing Census results revealed that the country had 5.2 million farming
households of which only 119,209 (2.3%) were engaged in commercial farming 1. This implies that
the past efforts by Government to encourage farming households to engage in Agribusiness have
not borne much fruit.

Agricultural produce value addition is largely a preserve of the private sector in Uganda today.
However, even in the private sector, it is mainly attributable to the Small and Medium Enterprises.

The government has realised that limited value addition is one of the reasons the private sector is
not growing as expected. As of 2014, the Agricultural sector’s contribution to Uganda’s value added
portion of GDP came up to 27.16%2. This is a paltry figure considering that Agriculture employs
directly or indirectly more than 60% of the populace. Most products are exported in raw form and
this greatly reduces on the earning potential of players in the local economy.

The government also recognises that the status-quo is brought about by the high energy costs, lack
of packaging materials, low quality seeds and breeds, lack of processing facilities and limited
availability of quality inputs. 3

As the country pursues higher levels of reliability and quality in Agricultural production, value
addition is an obvious accompaniment through the processing of the commodities produced.

The increasing population in Uganda and the region of East Africa coupled by the steadily rising
incomes that are generating a fast growing middle class are a recipe for value addition due to the
likely change in consumption from the staple traditional foods to their processed alternatives.

Uganda has a largely dualistic agricultural value chain. This is a situation where we have an
informal chain that meets the needs of low income consumers as well as a more formal chain that
involves greater processing routines targeting the middle class customers and export market.

Taking the example of Mukene (Silver Cyprinid Fish), you have a very thriving value chain that
undertakes minimal value addition and yet meets the needs of the larger section of the market while
simultaneously accommodating higher level processing companies that add value to the same
product and distribute it through supermarkets for the high end more sophisticated customers.

In the long run, given the more favorable outlook of world markets, African countries with
relatively good land and water resources and low population density should be able to tap booming
markets in rice, maize, soybeans, sugar, palm oil, biofuel, and feedstocks and emerge as major
exporters of these commodities globally, following the example of recent successes in Latin
America and Southeast Asia.4

1 Background to the Budget, Fiscal Year 2016/17, Pg 61

2 Trading Economics, http://www.tradingeconomics.com/uganda/agriculture-value-added-percent-of-gdp-wb-
data.html (14th Dec 2016)
3 Background to the Budget, Fiscal Year 2016/17 Pg 74
4 Growing Africa: Unlocking the Potential of Agribusiness Pg 15 World Bank Publication.
Agriculture Value Chain in Uganda
Definition - A Value Chain is a set of linked activities that work to add value to a product; it
consists of actors and actions that improve a product while linking commodity producers to
processors and markets.5

The Agriculture value chain in Uganda is largely composed of the following actors:

Producers – These are largely farmers or fishermen. They form the bulk of the value chain
numerically. Most of them are small scale producers who are transitioning from subsistence to
semi-commercial agriculture.

Local Traders – Are mainly individuals who traverse the countryside looking for farmers that have
produce to sell. They usually buy it at the farm gate and occasionally from small stores spread
around some villages. They tend to act on behalf of larger buyers in urban centres. Mukwano Group
of Companies uses such people alot to buy sunflower in Northern Uganda. In Eastern Uganda, the
Rice wholesalers in Kampala, Mbale, Jinja and as far as Kenya typically use such traders to acquire
stock in bulk.

Small/Medium Processors – These usually address issues of primary processing and tend to be
located in the rural trading centres or markets as well as nearby towns. They tend to get the produce
and prepare it for the wholesalers to obtain or even local consumers. Their processing involves
drying, sorting, milling as well as other basic processing routines that tend to be produce specific.

Wholesalers – They usually purchase the bulked produce (processed or unprocessed) and proceed
to either further process it or sell it as is in the major urban centres as well as exporting some.

Retailers – These are the interface between the Wholesalers and Consumers. They operate the
shops in the suburbs as well as supermarkets that consumers patronise. They avail the products to
the consumers in a form that is most preferred.

Consumers – Those that utilise the products without a need to further resale them.

5 Agriculture value chains: A Game Changer for Small holders https://www.devex.com/news/agricultural-value-

chains-a-game-changer-for-small-holders-83981 Sep 27th 2016
The value chain indicated above can be broken down into three major blocks;
• Production and Post Harvest Handling – Farmers and Local Traders.
• Processing – Small Processor, Wholesaler, Local Trader, Large Processors.
• Markets – Rural Retailer, Export, Urban Wholesaler, Urban Retailer and Consumer.
While there are challenges of value addition in each block, this paper shall focus more on the
Processing and Markets.

Most of the experience I have had has been in the two selected blocks, though significant
experience is now being garnered in the Production block too.

Challenges
Beyond the farm-gate, numerous challenges do exist for anyone venturing into value addition and
these include;
1. Quality of Produce purchased: One of the toughest challenges is the quality of produce
got from the primary producers. Due to various reasons that could as well go beyond the
scope of this paper, most of the produce at the farm-gate is of low quality in Uganda. Over
the years however, the increasing awareness of the primary producers and market
expectations have colluded to change this situation for the better. When we begun
processing silver cyprinid fish (mukene) in 2009, we found a landscape filled with poor
quality fish yet our goal was to avail the consumer very clean and contaminant free fish.
Between then and now, the fish handling has improved drastically with more beach front
processors drying it on raised racks as opposed to the bare ground.

Drying of Mukene on the ground using fishing nets.

 Rice produce is another interesting one. Buying husked rice tends expose one to many
dangers. The ratio of husks with rice and those without, moisture content as well as variety
homogeneity all conspire to determine how good the final milled product will be. While
some attributes can easily be determined at the point of purchase, others are much harder
and may require additional investment like moisture meters.

The unpredictable nature of the produce quality at this stage is largely responsible for the
low price offerings at the farm gate since most intermediate players consider how much they
are likely to lose quantitatively as a result of trying to meet the consumer’s expectations.

2. Post harvest handling: How is the produce handled after harvest? It’s common to find
produce being dried on bare ground and in some cases in the middle of the roads or on the
roadside.

The packaging used tends to be a major let down too. After the rigorous process of drying,
threshing and other activities, most farmers do not usually put much effort in ensuring that
the produce is adequately protected from weather elements and pests. Staple crops like
beans and maize have always fallen victim. Fresh produce suffers most since its
perishability guarantees the farmers losses or very poor prices due to poor packaging and
handling.

In a bid to make a quick buck, some producers do not give the produce enough preparation
time for the market e.g. where three days are needed to have a good product for sale, some
farmers prefer to sell it off as soon as possible. When Mukene is brought to the shore after a
night of fishing, it’s usually very clean and has a silvery shining colour. However, from the
time it gets off loaded, numerous questionable routines by the ground handlers like use of
dirty containers, bare ground drying, failure to salt the fish among others eventually lead to
it’s rapid degradation.

Weighing Fresh Mukene fish upon reaching the landing site

 For traders aggregating produce with the aim of further resale after processing, contending
with these post harvest handling issues is important.

3. Storage: Storage of produce, processed or unprocessed is one of the biggest nightmares

faced by those involved in value addition. All sorts of vermin exist that tend to partake of the
produce.

In other cases, the products are so sensitive to the environmental conditions that one has to
take extra care to ensure that they don’t make losses. Small fish like Mukene even when dry
are a good target for rodents and pussy cats. Most cereals are playground for various forms
of insects.

A poor decision on storage combined with lengthy storage times could easily expose you to
a total loss in case the store isn’t of a good grade.

Bags of rice in a store ready for sale

Vegetables and fruits are fickle products that require highly advanced storage environments
if they are to access distant markets that tend to be more lucrative. Cooling systems are
essential.

4. Transportation: Uganda is plagued by a poor transport network. While the road network
seems to be in place reaching most of the habitable locations, there is a problem of its
quality. As of July 2015, 4,000Km of the 21,000Km road network was paved 6. The state of
many countryside roads is so heartbreaking that it could take 3 hours for a journey that
would ordinarily last 30 minutes.

6 Wikipedia: UNRA https://en.wikipedia.org/wiki/Uganda_National_Roads_Authority 4th October 2016

 Due to the poor state of these roads, car breakdowns are rampant and this increases the cost
of doing business for the middlemen. Depending on the product one is dealing in, such
transport bottlenecks could lock out entire communities of farmers from value addition
opportunities.
I once visited a farming community in the Namunasa wetland found in Butaleja District,
Eastern Uganda where Cabbages weighing at least 2 Kgs were being sold for as low as UGX
500/= (US$ 0.15). They are usually so desperate to sell for fear of them going bad before
being bought.

Such good murram roads have the net effect of linking value chain actors to the farmers.

5. Market access: Accessing markets can be a nightmare due to a multiplicity of challenges.

These include transportation, storage and handling, access to retail outlets, distribution
network challenges among others. These challenges do exert a cumulative effect on one’s
ability to avail a value added product for sale.

The growing trend towards supermarket shopping is also hindering the ability by a number
of businesses involved in value addition to access customers effectively. This is largely due
to the unfair business practices they tend to engage in. Having realised their growing clout in
the urban retail business, most supermarkets do offer unfair supply terms to their suppliers
and sometimes even fail to honour those agreed upon terms. This has lead to a lot of cash
flow challenges on the part of the suppliers.

6. Financing: While adding value, chances are high that you will pay cash for the raw material
and offer credit to the retail outlets (At least the majority). This approach places a big load
on the business’ cashflow. Borrowing money is one of the most expensive ventures in
Uganda with interest rates hardly going below 25% per annum while informal money
lenders charge exhorbitant rates of not less than 10% per month.

Another outlook is the need for large scale purchase of produce during the harvesting season
in order to store and process over a longer period of time long after the harvest period ends.
Such an undertaking requires a well oiled cashflow that can allow the business to stock up
inventory.
 Access to financing therefore is one major hindrance to the business operatores in the
Agriculture value chain.

7. Packaging: This is a very crucial component for anyone into value addition of produce.
Customers are usually initially attracted to a commodity by its packaging before later getting
permanently hooked by its quality.

In Uganda, the availability of world class packaging is such a challenge. Matters are further
worsened by policy makers who only give this challenge lip service. Imagine the Honey
processors who usually recycle bottles that had other products like alcohol or soda to
package their honey. The cost of food grade packaging materials is prohibitively high,
making it one of the major constraints to the development of the export quality commercial
food industry in general.7

While the government imposed high tariffs on imported packaging in order to encourage
the emergence of a competitive local packaging industry, it is now ten years or so and we
have not seen much improvement. Most local packaging companies are content with
manufacturing the very basic cheap polyethene packaging.

Mukene fish packed for sale. This polyethene packaging is the most commonly used in Uganda.

Few are making an effort to avail good quality food grade packaging. For a processor that
has plans to sell products of a high grade, they start off from a disadvantageous point of high
packaging costs since they will most likely import the packaging.

7 Challenges and Prospects for Processing and Utilisation of Traditional Grains in Uganda, Y.B Byaruhanga and J.C
Auko http://www.sp.se/sv/units/fb/network/traditionalgrains/Documents/Byaruhanga.pdf 4th October 2016
 The argument that packages for export are tax free doesn’t hold much water since one has to
first hone their skills locally before producing for export. So, in essence, that favours only
the big players and not the SMEs that are the majority when it comes to adding value in
Agriculture.

Food grade international standard packaging of Mukene

8. Electricity: One cannot talk about value addition without considering the central and crucial
role energy plays. There are two aspects of this energy that can be tapped into. First, the free
energy in the form of Solar Energy directly from the sun that is largely used in the basic
primary processing of the produce. Case in point is fruit and fish drying. Secondly is the
paid for energy that comes in the form of electricity. The latter energy option enables one to
process products further in a manner that makes them more appealing and ready for
consumption by the consumer.

Uganda’s cost of electricity versus affordability is skewed. At UGX 651 per kWh 8 (19.2 US
Cents) without tax, a Ugandan processor would have a challenge competing with a
counterpart say from Ethiopia where the average rate is 7 US Cents.

The unreliable power supply affects the value addition process immensely. There are cases
in the countryside where electricity is unavailable for days without end. Such occurrences
have forced processors to resort to the more expensive fossil fuel alternatives.

8 Electricity End-User Tariffs and Charges, 3 rd Quarter 2016 http://www.umeme.co.ug/assets/resources/Tariff

%20Adjustments/Tariff_Adjustment.pdf
 Makeshift mill that runs off a diesel generator (Butaleja District)

9. Consistent Supply Capacity: When adding value to produce, one of the goals is to ensure
that the product is readily available on the market for consumers to purchase. In Uganda,
one of the biggest challenges is to have a steady supply of some categories of produce. The
seasonal nature of our farming, coupled by most primary producers (farmers) being small
holders, production is in small quantities or even when substantial, their poor storage
conditions dictate that they dispose of their produce with immediate effect. This can create a
challenge to other value chain players who are then expected to invest in storage facilities so
as to cater for off season product supply.

Possible Solutions
Despite the numerous challenges highlighted above, some of the possible solutions to mitigate them
include among others;

Farmer/Primary Producer Sensitisation: The primary producers need to be sensitised on what is

expected of them considering that most are just making a shift from subsistence to semi-commercial
production. They need to be made aware about:
• Management techniques that deliver good quality produce starting from the garden to the
store.
• Appreciation of contractual undertakings as well as adhering to them since this is one of the
modes used by the value chain players to guarantee bulk produce availability.
• The impact of quality on the price of the produce.
Considering that most small holder farmers have handled their produce the same way over the years
and have still been able to sell it, this sensitisation is likely to be a hard sell and yet crucial.
Training: Learning never ends. The primary producers need significant training in better ways of
handling produce to ensure that no losses accrue due to infestation by pests, diseases and other
foreign matter as it traverses the supply chain.

Secondly, other value chain actors too need training on proper produce handling to ensure that no
level of the value chain introduces contaminants. The maize mills are a good example. The handling
of maize during the milling in most cases leaves a lot to be desired.

Stored Posho in a maize mill. Such conditions are conducive for product contamination.
Selective Price Offers: Currently the tradition by most middlemen purchasing from primary
producers is to offer flat rates for the produce they buy. This does not incentivise the latter to strive
towards offering better quality products. When we started out with the small fish processing
business, we realised this fast enough and by offering a much higher pay for clean Mukene fish, the
primary producers begun improving on their game in order to benefit from the elevated produce
price.

Currently, we are toying with the idea of grading rice. Upon milling, we grade the rice and sell it
according to the pre-defined grades of Whole Grain, Whole/Broken grain and Broken grain rice.
The price offerings to the retailers are different and it’s becoming evident that consumers still
purchase all the grades depending on their purchasing power as well as acclimatisation.

Grading rice in Napologoma, Butaleja District.

Accessibility to affordable Post harvest Infrastructure: The average primary producer and middle-
man in Uganda is so small in production terms that they are very unlikely to invest significantly in
post harvest infrastructure like drying technologies, storage, packing etc. This challenge has a direct
bearing on the eventually processed product hence needing attention. One way it can be addressed
is through the setting up of communal facilities that can be rented out to the various value chain
players.

At Kiyindi Fish landing site on L. Victoria, fish drying racks have been constructed by some
enterprising entrepreneurs for above ground drying of the silver cyprinid fish. They then rent out
these racks to the primary processors who use them to hygienically dry the fish.

Mukene fish drying rack, Kiyindi, Buikwe District

In Butaleja district, most mills do offer temporary storage facilities for rice farmers as a way of
ensuring that they do not experience produce spoilage due to poor storage conditions at home.
Unfortunately, they do not store for long and this puts pressure on the primary producer to dispose
of their produce even when the timing is not favourable.

Construction of large warehouses whose role is to purely offer storage services has the potential of
aiding the value chain players interested in produce bulking.

Cold storage is another area that is wanting. For the regions where fruits and vegetables are grown,
availing communal services in this regard would greatly enhance the market access of such
produce. Alot of vegetables get spoilt even before they leave their production areas.

There is a need to promote the use of improved bags that can store products very well especially the
dried crops like maize, beans, rice etc that are usually stored for long in warehouses. These
improved bags are usually multi-layer in nature with the inner layers cutting off supply of oxygen
and moisture to the inner sections of the bag where the produce is. The net effect is such that
storage pests can hardly damage the produce stored there-in.

Packing rice in a bag for storage.

Transportation: Rural transportation in Uganda is such a nightmare in most parts of the country.
Not only are most of the roads unpaved (murram) but their condition tends to leave a lot to be
desired. The average urban saloon car can hardly gainfully serve you for long when driven on these
roads. This has led to exorbitantly high transport costs for those that dare take their cars to transport
produce from the villages. There is a need to upgrade most roads from murram to paved (tarmac)
roads as well as instituting proper road maintenance routines for most districts.
Formation of Farmer Cooperatives: When primary producers come together, they benefit a lot
from joint marketing of their produce. As a processor, one of the biggest challenges is getting the
required quantities of produce consistently to ensure that the supply chain is ever in motion.
Individual farmers can hardly guarantee this due to their scale of operation. However, entities like
cooperatives are a safe haven.

Members of a farming cooperative in Otuke county, Lira District.

Financing: The cashflow challenge faced by most players in the value addition of agricultural
produce can be addressed by ensuring that there is easy access to low cost short term overdraft/loan
facilities. A number of informal money lenders do exist but their operations are usually too crude
and unprofessional on top of their high charges.

Packaging of the final product: As a processor, one of the key selling points after adding value is
how you present your final product. This presentation greatly hinges on the product packaging. The
consumer is increasingly becoming more sophisticated and this calls for attractive product
packaging. Currently, one can hardly get world class food grade packaging for agricultural produce
manufactured locally.

The high taxes levied on the imported packages are a deterrent for those that want to import. The
recommendation here is that the government puts a tax waiver on packaging products for locally
processed Agricultural produce since the currently protected local packaging firms have failed to
improve on their game.

Electricity coverage: The wider this coverage is, the better. This is due to the fact that it offers
processors an opportunity to carry out primary value addition activities as close as possible to the
primary producers. For some produce, this is a very crucial requirement if quality is to be
maintained.
The Rural Electrification Agency seems to be making progress in this regard and has in the process
connected a good number of sub-counties to the main grid.

In Butaleja district, fifteen years ago, rice milling used to take place in Mbale town (close to 20km
away by road). However, from the time the district was hooked onto the main electricity grid, over
50 mills have opened up and are milling rice locally.

Electricity reliability is the achilles heel currently. Something definitely needs to be done about this.

Conclusion
The value addition space in the Agricultural sector of Uganda is still very virgin and pregnant with
all sorts of opportunities. As less people continue with their pursuits of tilling the land, others can be
absorbed into this layer of the Agricultural sector.

The insights shared in this paper should give you the reader a good idea of the kind of issues you
are likely to face when you immerse yourself into adding value to Uganda’s agricultural produce.

Prepared by

James Wire
Follow @wirejames on Twitter
Blog wirejames.com
Email: lunghabo [at] gmail [dot] com