I.0 BACKGROUND INFORMATION ON THE SECTOR
1.1 Overview of the sector
Uganda is the number one fruit producing nation in Africa. The country is suitable and has abundant potential to produce mangoes, citrus, pineapples, tomatoes and a host of other vegetables. The fertile soils and conducive climate guarantee fruit and vegetable production for the greater part of the year. Despite this great production potential, the processing of fruits and vegetables is low and is mainly limited to extraction of juice, drying, bottling and labeling.

Most fruits and vegetables can be produced organically in Uganda but maximum benefits and guaranteed results can be realized if modest investments are put into the enterprise. This profile presents a case for Fruit Farming and processing. It presents and analyses the viability and profitability of an integrated enterprise of pineapples and mangoes produced on 500 hectare nucleus farm under irrigation. It also presents the viability and profitability of a minimum of 2.8 million to 3.6 million US dollars, excluding investments in the working capital and cash reserves of the businesses, in the processing of fruits and vegetables.

Commercial fruit production for domestic consumption and export was successfully undertaken in the 1960s. Government run schemes were established at Kiige (Kamuli District), Ongino (Kumi District), Odino (900ha in Soroti District) and Labori (800ha in Soroti District). These schemes produced various citrus fruits that supplied Nairobi Kenya, Kampala, Rwanda and Burundi. Production on these schemes went on until the mid -1970s when the political climate then made it hard to continue with meaningful management. In the initial plan the schemes were developed to use irrigation such that there is all – year – round production. These schemes’ massive and extremely productive land is still under government control and could be availed for reviving commercial fruit production.

There is still great room for investments in the fruit processing sector. Within the sector, the number of companies involved in fresh fruit juice processing is still very low with four major companies. During the last financial year, the leading player in the fresh fruit juice industry was able to report an annual turnover of up to 6 million US dollars, while the other had an average of 1.4 million dollars. The leading player projects in the next five years, the company will have realized a 120 percent growth in market share, which will result in a 12-15 million US dollars annual turnover.

1.2 Current activities
Current fruit production is purely in the hands of smallholders centered in the Southern, Central and Eastern regions. Pineapples are by far the most developed and widely grown commodity in the fruit crop range and value chain in Uganda. Current production is estimated at 5000 acres (2000ha) on 2500 smallholdings in Luwero and Kayunga where pineapples are grown as a sole crop or intercropped with bananas. In Uganda, there are no large scale fruit growers at the moment and until recently; fruits are produced exclusively as a smallholder crop. Mangoes are by far the most common fruit country-wide. Mangoes grow wild by gift of nature and adapt to all ecological zones of Uganda, dry or humid lowland, montane and Lake Shoreline. Production has been increasing over the years with increasing demand on the local and export markets. The government’s call on households to produce high value and marketable crops has been headed and there are now many fruit farmers in the country. Most fruits and vegetables are grown all under rain-fed conditions and this seasonality in production has often affected supply.

However the government is rising to the challenge of seasonal production and is revamping irrigation schemes. Two projects are now being implemented to provide water for irrigation. Under the Farm Income Enhancement and Forest Conservation (FIEFOC) Project, the Government has secured Loan funds to rehabilitate four old schemes (Mobuku, Doho, Agoro and Olweny) and under the Water for Agricultural Production Project four other schemes will be rehabilitated (Kiige, Odina, Labori and Atera). This gives credence to the proposed fruit production project under irrigation.

There are few players in the fruit processing sector. The current players in the fruit processing sector have made some backward linkages signing production agreements with most fruit farming societies but this has been largely minimal. As a result most of the processed juice consumed in Uganda is imported to meet the local demand.

1.3 Current capabilities and markets
Currently the demand for fruits and vegetables from Uganda has been moderate and high for organic and value added products. However, most companies or producer associations exporting fresh fruits and vegetables from Uganda are small to medium with little or no investment capacity to scale up the production and take advantage of the market demand, and hence have been unable to explore the export of value added products currently on demand in Europe and other International markets. Most of the current exports have been in raw fruits and vegetables and largely to the wholesale markets where competition is growing and prices going down. Besides, access to financial credit to facilitate investment has been limited for such companies; yet it requires some substantial capital to invest in appropriate infrastructure, if they are to take advantage of the value added market for fruits and vegetables, which attracts high demand and prices.

Currently, there are over 15 companies exporting fresh fruits and vegetables largely to the EU and, to a less extent, to the COMESA region, although the latter is largely informal. On average, the existing companies each exports 2 – 15 tonnes of fresh fruits per week, largely to the wholesale markets in Europe.

1.4 Competitiveness
Uganda’s competitiveness rests with soils, climate, irrigation opportunities, government policies and labour factor prices. Uganda has unmatched comparative advantage for growing fruits and vegetables due to its warm, less humid tropical climate, plentiful rainfall and vast opportunities for irrigation.  Soils of pH 5 to 6.5 are most ideal for the fruits (such as oranges, mangoes and pineapples) and vast areas of this type obtain in Uganda. These soils are rare in the world.  Uganda's climate is summer all year round: moderate temperatures (15 -30ºC) throughout the year with a bi-modal rainfall pattern. The soils have low levels of contamination due to prolonged periods of minimal use of chemical fertilizers, pesticides and herbicides creating natural quasi-organic conditions in most areas. The November to February harvest period in Uganda coincides with the northern hemisphere winter – a period of peak demand for fresh fruits and vegetables in Europe.

Suitable Government owned land free of squatters, for commercial estate type production, is available at Odina former citrus farm (950 hectares) and Labori former irrigation scheme (800 ha). Finally Government policy is highly supportive to fruit production as a strategic export. All schemes put together provide a total of over 3000 hectares (Odino, Ongino, Labori, and Mobuku). One additional point which favours Uganda is the fact that, overtime, the key European countries re-exporting fruit products into Africa will increasingly have to produce without EU subsidies.

1.5 Rationale behind the proposed project
There is plenty of land in the country that can be devoted to fruit farming. The government owned irrigation schemes can provide ample land. Besides there is an increasing number of out growers complimenting the raw material supply effort.  The out growers however may be supported with skills, implements. An investor in fruit farming has the option of irrigating the fruit farms to ensure all year round production.

The demand for fresh fruits on a year-round   basis is increasing, and consumers are willing to pay higher prices for out-of-season fresh fruits.  Given EU market entry barriers, Uganda would rather target domestic, border and regional markets. Currently, there is an existing trade within the region supplying Southern Sudan, Kenya and Rwanda. The current production levels of fruits are yet to satisfy the domestic, border and regional demand. It is strategic to strengthen the existing trade which is not satisfied and yet expanding.

Over one third of the country (Uganda) has unmatched resource endowment for growing fruits, particularly the Eastern Region. These include soils, climate, water bodies for irrigation, factor prices for land, labour save to a greater extent know-how and entrepreneurship.

The preferred location for fruit processing factory would be in the central region of the country being at the centre of strategic production areas to allow raw materials from all areas to converge at the centre. Location of the plant in the central region will allow access to markets, access to production areas and infrastructure.

2.0 INVESTMENT OPPORTUNITIES IN THE FRUIT AND VEGETABLE FARMING AND PROCESSING SECTOR
The proposed investment opportunities in this sector include undertaking one or a combination of the following:
•    Fruit farming
•    Pineapple farming
•    Mangoes farming
•    Citrus fruit farming
•    Fresh fruit juice processing
•    Dried fruits processing
•    Minimal processing of fruits and vegetables
•    Fruit pulp processing
•    Fruit tomato paste processing

2.1 Fruit farming
Purpose of the project
The proposed Fruit farming project is a flag bearer to potential investors within and outside Uganda as to how competitive and attractive fruit farming in Uganda actually is. The project derives from one of the core challenges identified by the Government of Uganda (GOU) for poverty eradication (Production, Competitiveness and Incomes) under its Poverty Eradication Action Plan (PEAP). It is being designed to support GOU’s Plan for Modernisation of Agriculture (PMA) which is aimed at increasing productivity and incomes of farmers. It also aims at putting to effective use otherwise dormant, poorly used but highly productive resources such as the former irrigation schemes for fruit production at Odina and Labori on the shores of Lake Kyoga in the Teso Region and Mobuku in Kasese district.  The project design is hinged on a core investor joint venture with Government and out-growers within the catchment area of the estate.  It is envisaged that investment options will include single or a combination of fruits on a single estate. The project will direct its efforts towards using a combination of large and small-scale irrigation facilities and improved soil fertility management practices to produce and market high value products paying due regard to value addition at  various links of the fruits value chain. Training and improvement in institutional capacity and monitoring of effects and outcomes will sustain project outputs.
The cropping programme targeting the combination of the three fruit enterprises is based on a 500 hectare nucleus farm to cover: Mangoes 100 ha; Oranges 200 ha; and Pineapples 200 ha, under irrigation.

Projected capacities, sales and preferred technology
Project output of fresh fruits per year (MT)

Potential export markets
The easiest and largest market to target will be the domestic, border and regional markets. The current production levels of fruits are yet to satisfy this area demand. It is strategic to strengthen the existing trade which is not satisfied and yet expanding. The major exporters of fruits to this market are Egypt, Zimbabwe, Swaziland but their potential has been on the decline and this is a gap that can be filled with supplies from Uganda.

Technological needs and possible sources
Uganda has introduced some of the high yielding fruit varieties for which the technology required to multiply improved varieties, is being adopted by the growers. The National Agricultural Research Organization (NARO) is taking a lead in the production of grafted planting materials. Private Nursery operators are complementing NARO to increase the supply of grafted planting materials.
 

Estimated total investment costs

 

Organization and management aspects

Proposed manpower structure
The proposed manpower structure provides for: a Chief Executive (1); Finance and Administration Manager (1); Marketing Manager (1); Farm Managers/Supervisors (11); Farm assistant Managers (40), Farm laborers (100); Drivers and security guards (6). This manpower force may be reviewed and fine tuned at Feasibility Study stage. Given the level of negotiation and paper work that goes into a joint venture arrangement, the pre-implementation lead time may be between 12-18 months.

The three fruit enterprises (Pineapples, oranges and mangoes) take about the same gestation period, if grown under irrigation (18-30 months). The maiden harvest can be 24-30 months after planting. For pineapples, full production is expected within 30 months and continues thereafter for the next three years before replanting, if the right variety is grown. For Mangoes and oranges, full production can be reached during the fourth year after planting. Critical considerations to assure project success are mainly three: acquisition of planting materials of improved varieties; irrigation; and linking and integrating production to markets.

Project implementation plan
Much of what is needed to implement the project will involve linking the proposal to investors and getting the government to mediate and facilitate the partnership. Constituent activities that relate to the implementation plan are indicated in the table that follows.

Cash flow analysis for 5-Year project implementation period (Years 1-5)

Profitability (NPV Analysis)

 

Risk analysis (Sensitivity analysis)

Technological needs and possible sources
For the envisaged scale of commercial pineapple production, there are not enough supplies of planting materials and of a type that may be needed for a variety mix as would provide the needed products for different market segments.  There will be need for importing germ-plasm for EU market pineapple varieties.

Estimated total investment costs (US$)

 

Project profitability and sensitivity analysis
The table that follows summarizes project viability in terms of Rates of return, payback period and sensitivity to changes in factor costs and prices. On the basis of the analysis, the project has a payback period of 4 years, an average Net Profit Margin of 41% and an average Return on Investment of 850% over the first 5 years. At 20% change in factor prices and costs, the project remains viable and profitable.  If this level of viability is re-confirmed at feasibility study stage, the investment shall prove to be extremely attractive.

Project profitability analysis

Feasibility analysis for 5-Year

NPV analysis (Years 1-5)

 

Payback period analysis (Years 1-5)

Return on investment analysis (Years 1-5)

Risk analysis (Sensitivity analysis)

 

2.3 Mango farming project
Purpose of the project
The proposed Mango production project is a flag bearer to potential investors within and outside Uganda showing how competitive and attractive investing in commercial mango   producing in Uganda actually is.  The project design is hinged on a core investor joint venture with Government and out-growers within the catchment area of the estate.  The project will direct its efforts towards using a combination of large and small-scale irrigation facilities and improved soil fertility management practices to produce and market high value products paying due regard to value addition at  various links of the mango value chain. Training and improvement in institutional capacity, monitoring of effects and outcomes will sustain project outputs. The cropping programme is based on a 500 hectare nucleus farm under irrigation.

Projected capacities, sales and preferred technology
Planned products
The project is designed and intended to put on the market fresh and processed mango products. It is envisaged that about 10% of total annual output will be sold in domestic, regional and export markets in fresh form while the balance will feed into the mango processing industry proposed to be part of the nucleus farm of 500-1,000 hectares. The sources of these mangoes are:-
•     National Seed Centre, Namanve
•     Kawanda Agricultural Research Institute

And the varieties of mangoes are:-
•    Tommy Atkins; and
•    Alphonso,
Both varieties can be used to make Juice; Keite; Dried and whole fruit

Based on the maturity period of mangoes, all the 500 hectares will reach full yield levels in the 9th year when 100 hectares are planted each year. Output for the initial 10 year period is projected as shown in the table that follows.

Annual planting program and production of mangoes per year (MT)

Estimated Total Investment Costs (US$ ‘000’)

 

Organization and management aspects

Proposed manpower structure

The proposed manpower structure provides for: a Chief Executive (1), Finance and Administration Manager (1); Marketing Manager (1); Farm Managers/Supervisors (11); Farm assistant Managers (40), Farm laborers (100); Drivers and security guards (6). This manpower force may be reviewed and fine tuned at Feasibility Study stage. Given the level of negotiation and paper work that goes into a joint venture arrangement the pre-implementation lead time may be between 12-18 months.

Mango production has a gestation period of 30-36 months if grown under irrigation. The maiden harvest can be 30 months after planting. Mangoes reach full production during the fifth year after planting. Progression of yield from maiden harvest is in the table that follows. Critical considerations to assure project success are mainly three: acquisition of planting materials of improved varieties which are not currently available in commercial quantities; irrigation; linking and integrating production to markets.

Project implementation plan
Much of what is needed to implement the project will involve linking the proposal to investors and getting the government to mediate and facilitate the partnership.

Project implementation plan

 

 

 

 

Project profitability and sensitivity analysis
The table that follows summarizes project viability in terms of rates of return, payback period and sensitivity to changes in factor costs and prices. On the basis of the analysis, the project has a payback period of 5 years. At 20% change in factor prices and costs, the project remains viable and profitable.  If this level of viability is re-confirmed at feasibility study stage, the investment shall prove to be extremely attractive.

Project Profitability Analysis

Cash flow analysis (US$)

NPV analysis (Years 1-5)

Payback period analysis (Years 1-5)

Return on Investment Analysis (Years 1-5 in US$)

2.4 Citrus fruit farming
Purpose of the project
The proposed Citrus production project is a flag bearer to potential investors within and outside Uganda and it shows how competitive and attractive commercial citrus production in Uganda actually is. The project design is hinged on a core investor joint venture with Government and out-growers within the catchment area of the estate.  It is envisaged that investment options will include single or a combination of Citrus fruits on a single estate. The project will direct its efforts towards using a combination of large and small-scale irrigation facilities and improved soil fertility management practices to produce and market high value products paying due regard to value addition at  various links of the fruits value chain. Training and improvement in institutional capacity, monitoring of effects and outcomes will sustain project outputs. The cropping programme targeting a mix of citrus fruits (oranges, lemons, tangerines and lime) is based on a 500 hectare nucleus farm under irrigation.

Projected capacities, sales and preferred technology
Planned products
The project is designed and intended to put on the market a variety of Citrus fruits to be sold in fresh or processed form. It is envisaged that about 10% of total annual output will be sold in domestic, regional and export markets in fresh form while the balance will feed into the fruit processing industry proposed to be part of the nucleus farm of 500-1000 hectares. Processed products will mainly be fruit pulp (concentrate) and juice.  Based on the maturity period of Citrus fruits, all the 500 hectares will reach full yield levels in the 9th year when 100 hectares are planted each year. Output for the initial 9 year period is projected as shown in the table that follows.

Annual Planting Programme and Production of fresh fruits per year (MT)
Oranges: spacing is 300 trees  per hectare, maturity 24-36 months, yield (yr1 100kg per tree, yr2 150kg per tree, yr3 and thereafter

Estimated total investment costs (US$)

Given the level of negotiation and paper work that goes into a joint venture arrangement the pre-implementation lead time may be between 12-18 months.
Citrus fruit production has a gestation period of 18-30 months if grown under irrigation. The maiden harvest can be 24-30 months after planting. Oranges reach full production during the fourth year after planting. Critical considerations to assure project success are mainly three: acquisition of planting materials of improved varieties; irrigation; linking and integrating production to markets.

Project implementation plan
Much of what is needed to implement the project will involve linking the proposal to investors and getting the government to mediate and facilitate the partnership.

Project implementation plan

Project profitability and sensitivity analysis
The table that follows summarizes project viability in terms of Rates of return, payback period and sensitivity to changes in factor costs and prices. On the basis of the analysis, the project has a payback period of 9 years, an average Return on Investment for the first 5 years of 14% and average Net Profit Margin of 25%. At 20% change in factor prices and costs the project remains viable and profitable.  If this level of viability is re-confirmed at feasibility study stage, the investment shall prove to be extremely attractive.

Project Profitability Analysis

Feasibility Analysis
Cash Flow Analysis for 10-Year Project Implementation Period (Years 1-10 in US$)

NPV Analysis

Return on Investment Analysis

2.5 Fresh fruit juice processing
Purpose of the project
This is a comprehensive value chain for fresh fruit products that includes the processing of mangoes, oranges, passion fruits, apple bananas and pineapples into juice products

Average Estimated Total Investment Costs (US$)

Selected Factor Costs
Infrastructure required at proposed site Land and Space Requirements

Breakdown of estimated cost of raw materials

Estimated operational and factory overheads cost

Estimated personnel/labour cost of production

Estimated annual sales revenues
The average annual revenues (for the low and high ended sector player) in this industry stands at about US$ 1.6 million to about 6 million US$ for the higher end producers/market leaders. The lower end players in the industry have been able to register an average growth in their output of at least 10% over the last 5 years, which shows a high potential of sales growth in the fruit juice industry.
(Source: RECO industries).

Indicative time schedule for project implementation
Pre investment phase (should be able to take between 2 weeks to 1 month)
•    Incorporation period (registration of business, obtaining investors licences, carrying out feasibility studies).

Investment phase (should be able to take up to 5 months)
•    Acquisition of land;
•    Building infrastructure; and
•    Step of equipment.

Production phase (should be able to take between 1 to 2 months)
•    Recruitment and trail of plants.
•    Start of actual production.

Financial analysis: Approximate payback period, approximate rates of return
Assumption underlying the financial analysis
•    A daily production output of 8,000 litres of fresh fruit juice will be produced per day.
•    240 days of production are costed per year.
•    An annual increment in the production rate of 10% is projected per year.
•    For the five categories of fruits, 5 fruit juice brands will be produced in equal proportions of 20%.
•    An annual inflation factor has been built in of 10% for all expenses.

Summary of profitability analysis of the fruit juice processing project
Note: Corporation tax is 30%

Feasibility analysis for the fruit juice project over 5 Years

Payback period analysis

Projected capacities, sales and preferred technology
a)  Planned products and services
•    A range of dried fruits can be handled by the same processing plant, but this project will target the three most highly demanded dried fruits from Uganda, which include: dried pineapples, dried mangoes and dried apple bananas.
•    Other product lines (such as dried Bogoya, dried jack fruits, dried papaya, dried tomatoes etc) shall be added on later to enrich the product range and diversify what is offered on the market.
•    For purposes of competitiveness, given Uganda’s geographical advantages, focus will be more on organic dried fruits. Based on current demand enquiries (NOGAMU, 2009), 60% of the processing capacity will be devoted to pineapples, 30% on Apple bananas and 10% on mangoes.
•    Up to 20 tonnes of dried fruits will be produced per month at the processing plant, once sufficient equipment is installed.

Average estimated total investment costs (US$)

Projected annual exports of minimally processed fresh fruits and vegetables from the project

Infrastructure available at proposed site

Working capital requirements

Factory supplies and over heads

Feasibility analysis (US$)

Projected annual production of fruit pulp by the project

Projected annual sales for the fruit pulp project

Average estimated total investment costs (US$)

The raw materials required can be locally obtained, the production of the fresh fruits; namely apple   bananas, mango, passion fruits and pineapple is dominated by small scale farm holder producers, and is easily available.

Infrastructure available at proposed site

Raw materials that are procured from the local farmers with preference for those who are organic certified

Profitability analysis (US$)

Average estimated total Investment costs (US$)

Infrastructure required at proposed site land and space requirements

Breakdown of estimated cost of raw materials