Business plan for a centralized pig abattoir in Masaka, Uganda

Uganda smallholder smallholder pigs value chain review and planning meeting

Kampala, 14-15 May 2015

Mable Kabagabu

Presentation summary

• Background• Business strategy• SWOT Analysis• Market opportunity.• Market segregation• Competition• Pork demand• Pork supply• Financing plan• Implementation• Recommendation

Background

• Pig production has been on the increase in Uganda. According toinformation from (MAAIF 2011) the numbers of pigs in Uganda has beenincreasing by 3% today’s more than two million pigs are in the hands of1.1 million households (MAAIF 2009).

• In 2011, Uganda had the highest per capita consumption of pork in sub-Saharan Africa (3.4 kg per person per year) (ILRI 2011).

• However, the pork production is characterized by several constraints, likelimited market information and standards, poor slaughter technologiesand infrastructures, disease control and public health concerns whichposses a health risk to pork consumers. (ILRI 2014).

• Therefore the is need for central pig abattoir where pigs can be properly

slaughtered, inspected for quality before being released to the market for

consumption.

4

Expected Business case

Union-Slaughter house

Pig Abattoir as a of Hub services to farmers

Fresh cuts factory ( Seguku).

Farmers

Cooperative.

Farmer cooperative

Payment for BDS via

pig/pork deduction

Payment for pork/ pig

BDS services e.g.Agro vet, Animal health, transport etc.

Provision of services

Direct Payment for BDS services

Pig/pork Payments

and Dividends

Pig/pork Payments and

Dividends

Investment for establishing services or payment

subsidization of existing services

Traders buy from the slaughter house and sell pork joints.

Abattoir SWOT analysis

.

Helpful

to achieving the objective and must be

maintained.

Harmful

to achieving the objective and must be

converted to strengths and opportunities.

Inte

rnal

ori

gin

(att

ribute

s of

the

syst

em)

Strengths

Farmer owned, thus resulting in

farmer willingness to participate by

supplying of pigs.

Availability of pigs in region greater

Masaka.

Economies of scale due to

aggregation and bulk selling.

Profitability of the abattoir.

Weaknesses

Lack of resources for setting up the

abattoir.

Disenfranchised farmers have no

bargaining capacity.

Lack of logistical support for members

to operate effectively.

The cooperative is not yet registered.

Low numbers of members mobilized.

Exte

rnal

ori

gin

(att

ribute

s of

the

envir

onm

ent)

Opportunities

Increasing demand for quality pork in

the country.

Support from development partners.

Planned local government regulation

for pig business in Masaka.

No organized provision of BDS.

Threats

Competition from pig traders.

Diseases like ASF.

Resistance to adapt to new concept of

Business hub model.

• The SWOT analysis will enable us get competitive strength for Masaka.

Market opportunity

• The current daily consumption of pigs (pigs slaughtered per day) in

Kampala city alone is estimated to be between 300 and 500 animals

(Tatwangire 2013).

• The per capita consumption of pork is 3.4 kg/person/year, the

highest in the region. This level of consumption is reported to have

increased 10 times more than it used to be 30 years ago( FOASTAT

2013).

Market Segregation

Formal Market:

• Processors: In Uganda there is

only of processor of pork i.e.

Fresh cuts Uganda with capacity

of handling of 3,000kg per day.

Fresh cuts gets its supplies from

as far as Kabale and Kibale. So

Masaka Union will have an

opportunity to sign a contract and

supply into this market.

Informal Market;

• Traders: According to primary

source, there are 62 pig butchers

within Masaka with each selling

on average 25Kgs and over 158

pork outlets in Kampala (Kungu

M. Joseph)

Competition for Masaka slaughter house

• There are 62 local butchers in Masaka. This also target the pigs fromsmall holder cooperative farmers the same farmers targeted by thecooperative union.

• Traders at Wambizzi cooperative society are a big threat to theabattoir as their mandate requires to source pigs all over the countryMasaka inclusive.

Pork demand per Capita

0

0.5

1

1.5

2

2.5

3

3.5

4

Northern Western Eastern Central Kampala

Pork demand

Urban(Mts)

Rural(Mts)

Source: Uganda national household survey 2012/2013.

In the above graph, the total pork demand is 19Mts per annum. Most of it isconsumed in Central region and Kampala. This huge domestic demand is goodopportunity for pork producers in the country and Masaka Union farmerscould take advantage of this and make business

Number of pigs in greater Masaka region

.

- 50,000 100,000 150,000 200,000 250,000

Masaka

Rakai

Sembabule

Lyatonde

Kalangala

Pigs

Masaka is the biggest producer of pigs according to the livestock statistics

produced by UBOS as per the above graph. This implies that establishing

the abattoir in Masaka will have enough supplies of pigs and smallholders

farmers will be helped as a result. Greater Masaka will produce total of

about 388,734 pigs.

Source: UBOS statistics 2011

Expected pig supplies to the abattoir

The pig supply analysis to the abattoir

Number of operating days in the year 365 Percentage

Total Number of pigs in Masaka 388,734

Pigs segregated by purpose

Boar 9% 34,986

Sow 10% 38,873

Gilt 15% 58,310

Weaning 15% 58,310

Finishers 21% 81,634

Piglets 30% 116,620

Total Herd 100% 388,734

Total finishers expected to the abattoir 10% 8,163.41

Expected daily supplies to the abattoir. 22

Source; ILRI benchmark survey and focus group discussion

Abattoir financing plan

• For farmers to have stake in the business, they are expected toraise 23% of the finances in form of equity.

• As seen from the graph above 23% of the financing will beraised from farmers as equity and 77% will be commercial debt.

Equity 23%

Debit77%

The Abattoir Financing plan

Source: Assumptions

Phased Implementation of the Abattoir

Initial capital cost. As seen in the above extract from the

finance model, Option I requires only USD 83,064 compared to

Option II which requires initial capital of USD 204,564.It is

easier for union to raise $83,064 than $204,564.

Particulars

Option I(10-15

pigs per day)

Option II(25-50 Pig

per day)

Initial capital investment UGX 234,489,672.0 577,484,172.0

Initial capital investment USD 83,064.0 204,564.0

Net present value UGX 256,854,314.0 184,122,122.0

Net present value USD 90,986.3 65,222.1

IRR (%) 64.16 39.9

Profitability levels (%) 8 to 9 9% to 15%

Leverage ratio Ratio 0.68:1 3.34:1

Implemtation plan for abattoir

Organization of Masaka abattoir

.Chairman

BOD.

Accountant

General hand-staff

Slaughterers

Abattoir Manager.

Source: Cooperative by-laws

Abattoir management

• The Board of Directors:

This will comprise of representatives from different primarycooperatives. The BOD will have 9 delegates each representing aprimary cooperative. This BOD will be the top most policy organ ofthe union responsible for policies and strategic plans. It will directlysupervise the operations of the business and management teamheaded by the secretary manager.

• Abattoir Manager. The secretary manager will be the overall paidemployee of the union responsible to operationalize the abattoiractivities. He will be responsible for all the staff of the abattoir and isexpected to turn around the farmers investment into profitablebusiness.

Risk and Mitigations of the abattoir

Risk Mitigation

• There is eminent risk of the abattoir

not attracting membership from the

greater Masaka region as planned.

This means less buy in for abattoir

and related services by the

smallholder farmers .

• The Cooperative leadership,

development partners to mobilize

and support mobilization effort.

This will reduce the objection from

small holder farmers shunning the

abattoir business by the cooperative.

• The abattoir may remain a good plan

on the paper without funds to

operationalize the plan. Farmers need

at least UGX178M and maximum of

about UGX 577M.Collected to date is

1.1M.

• Union interim committee should

mobilize for funds by lobbying

government and other development

partners to realize required funds

for investment in the abattoir. This

is provided for as other sources.

• Lack of title in the land provided by

the district local government. The

cooperative union, the owner of

business has no registered land in its

names and yet the investment is so

significant.

• The Union is not yet registered

• Fast track the cooperative

registration so that the land can be

registered appropriately. This will

alley fears of investing that huge

some of money only to realize that

land is not for the local council in

light of land grabbing experience.

Recommendations

.

Economically: The abattoir is economically viable and subjective to theresults of the financial projections for options 1 and 2,the two optionsmay be implemented as mutually exclusive projects as a result of fundsavailability may be implemented in the phased way as mobilization of startcapital may be insufficient.

Increased pig supply: The sustainability of abattoir profitability dependson mobilizing and recruiting more farmers beyond the current 392farmers and 10 primary cooperatives.

Significant initial Capital expenditure: This expenditure will delay profitsto the union as the break even period is after the 4th year. It isrecommended that the union starts small and grows gradually to fullcapacity of the required option.

Establishment of BDS

Other recommendations

• Private public partnership: The cooperative union can enter apartnership with government under Private Public Partnership toraise enough capital for investment.

• Lobby for government support: The union can lobby for fundingfrom government projects like CAIIP and AMP to realize theirbusiness dream

• Private Partnership: Private Individual/individuals can invest in theabattoir business, as the union focuses on supply of pigs. This willensure ready market for their pigs and no operational costsincurred by the union at the abattoir.

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