Diary & Diary Products

ACRONYMS CIP Clean In Place

COMESA Common Market for Eastern and Southern Africa

DDA Dairy Development Authority

EAC East African Community

EADBA East African Dairy Business Association

EU European Union

FAO Food and Agricultural Organization

GDP Gross Domestic Product

MW Mega Watts

NAADS National Agricultural Advisory Services

PMA Plan for Modernization of Agriculture

UBOS Uganda Bureau of Statistics

UCCCU Uganda Crane Creameries Cooperative Union

UDPA Uganda Dairy Processors Association

UHT Ultra Heat Treated milk

UIA Uganda Investment Authority

UNBS Uganda National Bureau of Standards

UNDFA Uganda National Dairy Farmers Association

UNDTA Uganda National Dairy Traders Association

URA Uganda Revenue Authority

US United States

VAT Value Added Tax

WHO World Health Organization

1.0 BACKGROUND INFORMATION ON THE DAIRY SECTOR

1.1 Introduction of the dairy sector profile

Uganda has one of the best climates in Africa that is moderate with cool temperatures, and

receives rainfall throughout the year. The country has rich and green vegetation with tropical

rain forests and water bodies covering most parts of the country. The River Nile, one of the

longest rivers in the world, starts its long journey to Mediterranean Sea from Uganda. Uganda is

home to the Lake Victoria, the largest lake in Africa and also the second largest fresh water lake

in the world.

Uganda lies astride the equator and enjoys a unique location at the heart of sub-Saharan Africa

within the East African region. The country has been able to achieve macro-economic stability

when clouds of uncertainty rocked many regions of the world. Uganda is one of the fastest

growing economies in Africa with GDP growth rate averaging 7.7% per annum since the year

2000, making the country the fastest growing economy in East Africa.

In order to provide information to investors to Uganda, this Dairy sector profile has been

prepared as a guide on the potential investment opportunities in the country. The profile gives

highlight on investing in a number of areas including: Powdered milk, UHT milk, Pasteurized

milk and cheese

1.2 Overview of Uganda’s Dairy Sector

In brief, the following are the key characteristics of the sector:

• The national cattle herd was estimated to be 11.4 million cattle (UBOS, National Livestock

Census, 2009);

• It is estimated that Uganda currently produces 1.5 billion liters of milk per year, of which 30

per cent is consumed on the farm and 70 per cent is marketed to consumers (DDA, 2008);

• Out of the marketed milk, about 85% is annually sold through the informal marketing channel

as raw or unprocessed milk valued at about US$ 160 million by July 2009;

• 15 % of the marketed milk is sold through the formal marketing channel as processed milk

and value added dairy products worth about US$108 million (Elepu, 2006).

• Although the domestic market constitutes the major market for milk and dairy products, some

of the processed milk and value added dairy products are exported to regional markets such as

Kenya, Rwanda, Democratic Republic of Congo, Tanzania, Southern Sudan, and Mauritius. The

value of milk exports was 1,500,000 liters in 2007 (DDA Sector Report 2008);

• Most countries surrounding Uganda often experience deficits (in milk production due to

weather challenges) which they fill through imports mostly from Uganda. Uganda has the

potential to expand its exports of dairy products in these markets.

1.3 Current activities in the dairy sector

a) Milk production

A large proportion (over 80%) of the total milk produced comes from the local cattle breeds,

which account for over 95% of the national herd. In contrast, improved cattle breeds whose size

is estimated to be less than 5% of national herd contribute about 19% of the total milk output.

The following are the highlights in the production of milk:

• The total national milk production has experienced steady growth from an estimated 365

million liters in 1991 to 1.5 billion liters in 2007.

• Uganda has five milk sheds: South Western, Mid-West, Central, Eastern and Northern though

the south-western region has the highest milk production (36%).

• The increase in milk production has been mainly due to favorable weather conditions and

dairy development programs instituted by government and development partners. It was also due

to improved breeds of dairy livestock with higher yields.

• Uganda has a total of 98 milk collection centers, bulking about 445,000 liters of milk per day

(i.e. approximately 30% of the milk available for collection).

b) Dairy Processing and marketing There are at least ten (10) large and small dairy processors in Uganda. Most of these processors

are based in the South Western (the home to the largest milk shed in the country) and the Central

regions of Uganda with a total installed processing capacity of over 389,000 liters per day. The

main products processed and marketed include, UHT milk, powdered milk, pasteurized milk,

yoghurt, cheese, butter, ice cream and ghee.

In addition to the mainstream milk factories, there are over 100 small–scale dairy processors that

process between 100 and 500 liters of milk per day into yoghurt, ice –cream, cheese, ghee, boiled

and cooled milk and fermented or sour milk.

1.4 Markets- in country, regionally and beyond According to DDA, it is estimated that 70% (i.e. 1.05 billion liters) of the milk produced is

marketed commercially and the other 30% is consumed on the farm. There are two marketing

channels for milk: informal and formal marketing channels. 80-90% of the marketed milk is sold

through the informal marketing channel as raw milk.

There are over 200 milk coolers with a total capacity of about 550, 000 liters. Most of these are

found in South-West region of Uganda. Chilled milk is delivered to processing plants in

insulated milk tankers.

10% of the processed milk is exported to the regional markets such as Kenya, Tanzania,

Democratic Republic of Congo, Burundi, Southern Sudan, Mauritius and Rwanda. Some dairy

products are also exported to the Middle East.

1.5 Current Capabilities and Potential Uganda is in the centre of a rapidly growing region of Africa with a combined population of over

150 million people (of Rwanda, Burundi, Kenya, Tanzania, Eastern Democratic Republic of

Congo, Southern Sudan and Uganda) presents an immense opportunity for investment in

processing and exportation of milk products.

More than 2.5 million households in the country are engaged in milk production with a national

herd of over 11.4 million. Uganda’s annual milk yield is estimated at about 1.5 billion liters; of

this about 85% of the milk is consumed in an unprocessed form. The country has a total of 87

active collection centers, bulking approximately 156,000 liters of milk per day equivalent to only

. 15% of the milk available for collection

1.6 Competitive advantage of Uganda’s Dairy sector

When compared with other countries in the region, Uganda has more potential and this is mainly

due to favorable weather conditions. The availability of the following key features provides a

friendly working environment for the dairy sector:

• The Government has put in place an effective institutional regulatory and legal framework

such as the Dairy Development Authority (DDA) and Uganda National Bureau of Standards

(UNBS).

• Existence of a well organized dairy processors associations e.g. Uganda Dairy Processors’

Association (UDPA).

• Available export market mainly in the milk deficient neighboring countries.

• Steadily expanding domestic and regional market with growing income per capita.

• Renewed Government commitment to support development of the sector through

enforcement of laws and upgrading of extension services through such initiatives as the Plan for

Modernization of Agriculture (PMA) and the National Agricultural Advisory services (NAADS).

a) Access to resources Land: Uganda is blessed with abundant resources including good arable land in the country side.

Land can be bought from individuals or gazetted industrial parks/areas. Prospecting investors are

advised to acquire land on the advice of the Uganda Investment Authority or through the UIA

District Focal Point Offices.

Raw materials: Milk is plentifully available in Uganda. The total national milk production has

experienced steady growth from an estimated 365 million liters in 1991 to 1.296 billion liters in

2005. The growth rate of milk production is estimated at 8-10%.

Labour: There is plenty of skilled and semi-skilled labour in Uganda. The country has a good

education system that churns out a number of graduates in most key professions at all levels.

Availability of technical expertise: There exists technical expertise in dairy technology, food

technology and powdered milk processing.

Availability of financing: There are a number of regional and international commercial banks

including development banks that offer long term financing for viable projects.

b) Access to markets or market niche. Uganda provides a local market of about 31 million people but is in the heart of a greater

regional market of the East African Community (comprised of Kenya, Uganda, Rwanda,

Tanzania and Burundi) with a combined population of 120 million people. The dairy industry in

neighboring countries of Rwanda, Burundi, Southern Sudan and the DRC are not well

developed. The export of milk and dairy products to these countries is therefore expected to

continue.

The establishment of the EAC is complete. This has paved way to the formation of a single

market and investment area. Some developments in the implementation of the EAC Treaty

programmes include:

• Member states adopting a single customs entry document in 1999.

• Formation of the east African Community Customs Union in 2005

• Forty two (42) standards have been harmonized and adopted as East African standards. Three

of the adopted East African Standards deal with milk and milk products. The East African Dairy

Business Association (EADBA) regional interim committee was formed in 1999. The EADBA

seeks to enhance developments and trade in the dairy industry within the region. Powdered milk

can also be exported to the neighboring countries and the Middle East.

c) Capability and competence. Dairy production and processing in Uganda has come of age. There is a growing number of

highly qualified personnel who can provide expertise in milk processing. Most of these experts

have experience in working with dairy and fruit processing companies in Uganda and abroad.

There is also great potential of recruiting fresh graduates of Food Science and Technology from

the leading universities in the country and training them on the job to many dairy processing

assignments at the factory. Makerere and Kyambogo universities each has 30-40 graduates in

food science and technology each year

d) Favorable locations. Investors in dairy processing in Uganda have the option of locating their industries either:

• South Western Uganda where there is a plentiful supply of milk. Locating a milk processing

factory in the South Western region has many advantages. Raw milk is in plentiful supply,

labour is relatively cheap, there is a steady supply of utilities, and the road networks.

• Namanve Industrial Park nearly 12km from the city centre. The park is serviced with running

water, good road network, telephones and reliable power supply. A location in Namanve

Industrial park has the obvious advantage of assured market.

2.0 INVESTMENT OPPORTUNITIES IN THE DAIRY SECTOR

The proposed investment opportunities in the dairy sector include processing one product or a

combination of the following: Powdered milk, UHT milk, Pasteurized milk, Cheese, Yoghurt.

2.1 Powdered milk processing Purpose of the proposed project

To produce powdered milk for the domestic and export markets

Proposed projected capacities and processing requirements

Estimated Total Investment Costs (US$)

a) Raw materials

c) Proposed Infrastructure at the site

d) Proposed Personnel and labour costs

Preliminary Financial Viability Analysis of the Proposed Investment

a) Estimated capital costs

b) Major Input Requirements

c) Estimated Production Costs and Operating Expenses

d) Estimated Annual Sales Revenues

Proposed Organization and Management

• The investor will need a Chief Executive Officer with experience in Dairy processing

• The investor will also need an experienced and professional Dairy Processing Technologists,

Dairy Plant Engineer and Quality Controller with proven experience and capacity to handle

powdered milk processing. The investor also needs trainable service staff ;

• The project should take about 12 months to begin commercial operations

• First sales may be realised in the 13th month from date of project inception

• There are a number of qualified and experienced staff that can take up most positions in the

factory. Employment of local community members enhances local community acceptance of the

project;

• Targeted marketing especially in the export market will be a major requirement;

• Normal production quantities and sales will be 10,950,000 kgs.

Project Implementation Plan

Financial Analysis

a) Profitability

b) Feasibility

2.2 UHT milk processing

Purpose of the project: To produce UHT milk for the domestic and export markets.

Proposed Projected Capacities and processing requirements

Estimated Total Investment Costs (US$)

Main production inputs

a) Raw materials:

b) Machinery and equipment

Selected factor costs

a) Proposed Infrastructure at the site

b) Proposed Personnel and Labour costs

Preliminary Financial Viability Analysis of the Proposed Investment

a) estimated capital costs

b) Estimated Production Costs and Operating Expenses

c) Estimated Annual Sales Revenues

Organization and Management

• The investor will need a Chief Executive Officer with experience in Dairy processing

• The investor will also need an experienced and professional Dairy Processing Technologists/

Cheese processing specialist.

• The project should take about 6 months to begin commercial operations

• First sales may be realised in the 6th month from date of project inception

• There is a number of qualified and experienced staff that can take up most positions in the

factory. Employment of local community members enhances local community acceptance of the

project;

• Targeted marketing especially in the export market will be a major requirement;

• Normal production quantities and sales will be 73,000 Kgs.

Project Implementation Plan

Financial Analysis

a) Profitability

b) Feasibility

Payback period is three (3) year

3.0 OTHER CONSIDERATIONS AND ADDITIONAL INFORMATION

3.1 Location of processing plants

Investors in dairy processing in Uganda have the option of locating their industries as follow:

a) Kampala Industrial parks and gazetted areas

Kampala has a number of areas suitable for industries. The government has also constructed an

industrial park nearly 10km from the city centre. The park is serviced with running water, good

road network, telephones and reliable power supply. A location in Namanve Industrial park or

near the city centre has the obvious advantage of assured market.

b) South Western Uganda

Mbarara town is an ideal place to locate dairy processing plants. There is a plentiful supply of

milk. The District Investment Promotion Officers in the region can offer guidance in the

appropriate location of the factory. Locating a milk processing factory in the South Western

region has many advantages. Raw milk is in plentiful supply, labour is relatively cheap and there

is a steady supply of utilities.

3.2 Environmental Issues Since dairy plants are likely to have an impact on the environment, the investor is expected to

carry out an Environmental Impact Assessment (EIA) in line with the National Environmental

Statute (1995) and Environmental Impact Assessment Regulations (1998). The EIA is carried out

in collaboration with the National Environment Management Authority. The terms are friendly

and are aimed at enhancing natural environmental conservation.

3.3 Available studies. Some studies have been carried out on the sector. The reports can be obtained from:

• Uganda Investment Authority, a government stop centre for investment promotion:

www.ugandainvest.com;

• Dairy Development Authority, the lead agency responsible for registering, licensing and

regulating the activities of the dairy sector: www.dda.or.ug;

• Land O’Lakes Inc, a USAID funded private sector dairy development body:

www.landolakes.com;

• National Environment Management Authority, lead agency in the use, protection and

conservation of the environment: www.nema.or.ug.

3.4 Dairy Sector regulations

i) Regulatory framework

The Dairy Development Authority (DDA) is the lead agency for registering, licensing and

regulating the activities in the industry. The government liberalized the dairy industry in 1993

and five years later, parliament enacted the Dairy Industry Act, 1998, which provided the legal

framework for establishment of the Dairy development Authority (DDA) to regulate the

liberalized dairy industry.

ii) Special conditions for investing in the dairy sector

Investors in the dairy sector are required to:

Register with the Uganda Dairy Development Authority, the lead agency responsible for

registering, licensing and regulating the activities of the dairy sector;

Obtain certification under the guidelines of the Uganda National Bureau of Standards for quality

and standard assurance mechanisms.

iii) Regulatory and Licensing Issues and Procedures • Registering a company in Uganda;

• Foreign investors require a minimum of US$100,000 in planned investment in order to

• Secure an investment license from the Uganda Investment Authority (UIA);

• Get your Investment License from Uganda Investment authority:

• Obtaining a Trading License from the Municipal authorities;

• Registration with the Uganda Revenue Authority (URA) for tax purposes;

• Registration with the National Social Security Fund (NSSF), a saving scheme for staff

in the private sector.

3.5 Dairy sector Business Associations in Uganda • Uganda National Dairy Farmers Association (UNDFA) is the national umbrella body for

dairy farmers.

• Uganda Crane Creameries Co-operative Union (UCCCU) is the national umbrella body for

dairy co-operatives in Uganda, registered as a union under the Co-operative Societies Statute.

• Uganda Dairy Processors Association (UDPA) brings together big and small dairy processing

companies.

• Uganda National Dairy Traders Association (UNDTA) is mainly for traders that are involved

in procurement and marketing of raw milk.