Food processing and collection services

Food processing and collection services

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Food processing and collection services

Country
Sector
Most major industry classification systems use sources of revenue as their basis for classifying companies into specific sectors, subsectors and industries. In order to group like companies based on their sustainability-related risks and opportunities, SASB created the Sustainable Industry Classification System® (SICS®) and the classification of sectors, subsectors and industries in the SDG Investor Platform is based on SICS.
Food and Beverage
Sub Sector
Most major industry classification systems use sources of revenue as their basis for classifying companies into specific sectors, subsectors and industries. In order to group like companies based on their sustainability-related risks and opportunities, SASB created the Sustainable Industry Classification System® (SICS®) and the classification of sectors, subsectors and industries in the SDG Investor Platform is based on SICS.
Food and Agriculture
Indicative Return
Describes the rate of growth an investment is expected to generate within the IOA. The indicative return is identified for the IOA by establishing its Internal Rate of Return (IRR), Return of Investment (ROI) or Gross Profit Margin (GPM).
15% - 20% (in ROI)
Investment Timeframe
Describes the time period in which the IOA will pay-back the invested resources. The estimate is based on asset expected lifetime as the IOA will start generating accumulated positive cash-flows.
Medium Term (5–10 years)
Market Size
Describes the value of potential addressable market of the IOA. The market size is identified for the IOA by establishing the value in USD, identifying the Compound Annual Growth Rate (CAGR) or providing a numeric unit critical to the IOA.
> USD 1 billion
Direct Impact
Describes the primary SDG(s) the IOA addresses.
Zero Hunger (SDG 2) Decent Work and Economic Growth (SDG 8) Responsible Consumption and Production (SDG 12)
Indirect Impact
Describes the secondary SDG(s) the IOA addresses.
No Poverty (SDG 1) Industry, Innovation and Infrastructure (SDG 9) Life on Land (SDG 15)

Business Model Description

Process and aggregate from a cluster of farms commodities, especially coffee, tea, cotton, cassava, maize, vegetable oil, fish, dairy and beef.

Expected Impact

Address post-harvest losses and increase value adding of agricultural products for local consumption and export.

How is this information gathered?

Investment opportunities with potential to contribute to sustainable development are based on country-level SDG Investor Maps.

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Country & Regions

Explore the country and target locations of the investment opportunity.
Country
Region
  • Uganda: South Western
  • Uganda: Acholi
  • Uganda: East Central
  • Uganda: Central
Learn more

Sector Classification

Situate the investment opportunity within sustainability focused sector, subsector and industry classifications.
Sector

Food and Beverage

Development need
70% of Ugandans are employed in agriculture (IX), and the sector constitutes approximately a quarter of gross domestic product (GDP) and a large proportion of exports (III). The agriculture sector is marred by low levels of productivity and output, mainly caused by poor agricultural practices as well as the impacts of climate change.(VII)

Policy priority
The government supports the development of the agriculture sector, emphasising agro-industrialisation in the Third National Development Plan 2020/21 – 2024/25.(IV) The Vision 2040 recognises agriculture as one of the key pillars for the country's development and acknowledges the need for innovation and integration of the sector.(X)

Investment opportunities introduction
Approximately 80% of Uganda's land is arable, however only 35% is currently being cultivated. Agricultural development is predicted to contribute to domestic wealth creation and increased employment.(IV)

Key bottlenecks introduction
The Agriculture Sector Strategic Plan 2015/16 - 2019/20 provides a detailed analysis of opportunities and challenges in agriculture, emphasising agro-processing, innovation, improvement of skills and establishment of market linkages, which will help transform the sector towards industrialisation and higher value adding.(IV)

Sub Sector

Food and Agriculture

Key bottlenecks introduction
The main challenges in food and agriculture and with processed foods include: poor access to electricity, frequent underutilization of processing facilities (due to poor aggregation of products from farmers), lack of inputs, high transport costs and a lack of skilled employees.

Industry

Processed Foods

Pipeline Opportunity

Discover the investment opportunity and its corresponding business model.
Investment Opportunity Area

Food processing and collection services

Business Model

Process and aggregate from a cluster of farms commodities, especially coffee, tea, cotton, cassava, maize, vegetable oil, fish, dairy and beef.

Business Case

Learn about the investment opportunity’s business metrics and market risks.

Market Size and Environment

Market Size (USD)
Describes the value in USD of a potential addressable market of the IOA.

> USD 1 billion

Agro-processing is a key contributor to gross domestic product (GDP) from manufacturing. It accounts for around 60% of manufacturing output.(3) It also recorded strong growth of 8% in 2017.(2)

Food sales in Uganda are expected to rise by 11.1% in 2020, 13.3% in 2021, 7.6% in 2022, 14.3% in 2023 and 6.9% in 2024. By 2024, they are expected to be worth USD 16 billion.(4)

The rapid increase in population - 3.2% annually - and increasing wealth of the society are driving the market for more processed food of higher value.(2) The growth potential of the sector (especially dairy) was also confirmed during interviews with companies active in the sector.(17)

Indicative Return

ROI
Describes an expected return from the IOA investment over its lifetime.

15% - 20%

Benchmark statistics for the food processing sector estimate a return rate between 15% and 19%. This rate is a benchmark, calculated as the cost of equity with a country risk premium, reflecting an average return required by investors.(14)

As an example, Mujaasi Investments which is aggregating, processing and marketing various food (including fruits) has a projected internal rate of return (IRR) of 233% over 5 years.(8)

A Kenyan company, the Best Tropical Fruits is expecting investment in fruit processing will generate an IRR around 126%.(8) A case study on Kenyan investments tackling post-harvest loss reduction estimates a 28% IRR in 10 years.(13)

Investment Timeframe

Timeframe
Describes the time period in which the IOA will pay-back the invested resources. The estimate is based on asset expected lifetime as the IOA will start generating accumulated positive cash-flows.

Medium Term (5–10 years)

Research suggests investment in food processing is expected to have an average repayment period of 5 to 10 years.(8)

Different active stakeholders in the sector estimated the timeframe to be 7 years, according to interviews.(15)

Market Risks & Scale Obstacles

Market - Highly Regulated

The segment is currently poorly regulated (14), creating a risk of challenges related to new regulations.

Business - Supply Chain Constraints

Weak supply chains and market integration (10)

Competition from low quality feed producers. (Maize in Uganda contains significant amounts of aflatoxin and feed producers use chemical compounds to make it suitable for use.) (20)

Impact Case

Read about impact metrics and social and environmental risks of the investment opportunity.

Sustainable Development Need

Although agricultural value added in Uganda is growing, agricultural value added per worker (constant 2010 USD) has decreased from USD 1,250 in 2002 to USD 910 in 2019. This demonstrates the need to accelerate agricultural value adding.(1)

In Uganda almost 70% of population are employed in agriculture and 90% of poor people live in rural areas. Agro-processors have incentives to aggregate smallholders into value chains and thus drive their productivity. However, many processors report underutilization up to as much as 60%.

The uptake of agricultural products by processors can also reduce post-harvest losses, which were estimated at around 12.4% - 17.6% for cereals.(6) Other more perishable commodities have even higher post-harvest losses.

Gender & Marginalisation

Women, as a critical part of the agricultural workforce, are particularly affected by low productivity, and their livelihoods suffer from post-harvest losses.

Rural communities, as the backbone of agricultural production, suffer critically from the low productivity and the underutilization of agricultural products for processing.

Expected Development Outcome

Increased income of smallholder farmers; increased export value; satisfied demand of developing society; reduced post-harvest losses

Increased value adding of supply chains; increased employment opportunities; extended shelf life of food products; improved productivity and produce utilization; new job opportunities

Decreased food losses; decreased infrastructural and access to processing facilities gaps in the country; increased processing facilities utilization due to aggregation of produce from smallholders

Gender & Marginalisation

Increased agricultural productivity is expected to positively impact women, as critical workforce.

Primary SDGs addressed

Zero Hunger (SDG 2)
2 - Zero Hunger

2.3.2 Average income of small-scale food producers, by sex and indigenous status

2.c.1 Indicator of food price anomalies

Decent Work and Economic Growth (SDG 8)
8 - Decent Work and Economic Growth

8.2.1 Annual growth rate of real GDP per employed person

8.4.1 Material footprint, material footprint per capita, and material footprint per GDP

Responsible Consumption and Production (SDG 12)
12 - Responsible Consumption and Production

12.3.1 (a) Food loss index and (b) food waste index

Secondary SDGs addressed

No Poverty (SDG 1)
1 - No Poverty
Industry, Innovation and Infrastructure (SDG 9)
9 - Industry, Innovation and Infrastructure
Life on Land (SDG 15)
15 - Life on Land

Directly impacted stakeholders

People

Local consumers

Women obtaining work opportunities

Nucleus farmers, aggregators, fruit processing industry, fruit growers and exporters

Public sector

Government benefitting from value adding as well as local and export promotion

Indirectly impacted stakeholders

People

Communities benefitting from local value adding and improved food availability

Other food industries, restaurants, transportation sector, retailers and supermarkets

Outcome Risks

Considerable part of processed food is shipped abroad which limits the local amount of food.

Food processing will increase its price and reduce affordability for poor households.

Impact Classification

C—Contribute to Solutions

What

Likely to have a positive impact because it increases the income of smallholder farmers, reduces post-harvest losses and increases utilization of agro-processors and agricultural value adding.

Risk

Although the model is market proven, many processors report operating under capacity, so aggregating smallholders is key to avoiding this risk.

Impact Thesis

Address post-harvest losses and increase value adding of agricultural products for local consumption and export.

Enabling Environment

Explore policy, regulatory and financial factors relevant for the investment opportunity.

Policy Environment

Uganda National Development Plan: This plan recognizes agro-processing as a driver of manufacturing and agriculture. By 2025 the government aims to increase manufacturing's share of gross domestic product (GDP) from 19% to 25%, industry growth from 3.8% to 5.1%, and the value of manufactured exports in total exports from 13% to 20%.(IV)

Agriculture Sector Strategic Plan: This plan presents the overall strategy for agriculture development. Although the newest version for 2020-2025 is being drafted, like previous versions, it will strongly support agro-processing and focus on the efficiency of value chains.(3)

The budget speech for 2019/20 highlighted the target of “Industrialization for job creation and shared prosperity”, which requires strengthening supply chains.(3)

Overall government policy emphasizes the smallholder out-grower business model. It involves aggregating farmers from a certain geographical area for a joint processing value chain.(2)

Financial Environment

Fiscal incentives: Items necessary for processing are exempt from value added tax (VAT) and other taxes, such as refrigerated trucks, agricultural tractors, alumni cans for dairy industry, heat insulated milk tanks for the dairy industry, insulated tankers, cold rooms, machinery for processing dairy products.(11)

Other incentives: Agro-processing companies have priority for subsidized land in industrial parks and free zones. Examples from Kampala include Uganda Investment Authority selling land there for around 80% of its market value.(10)

Regulatory Environment

The Constitution of Uganda states the government will stimulate the agriculture and industry. These principles are further translated into the existing Vision 2040.(9)

National Standards and Quality Policy 2012: This policy provides the framework for standardizing and maintaining the high quality of products.(9)

Draft National Industrial Policy 2018 and Draft National Industrial Development Strategy: These policies established strategic agro-processing industries including fruit processing, coffee processing, cotton, textiles and apparel, tea processing and livestock (including meat, dairy and leather products).(10)

Uganda's Land Act 1998 and its revisions, together with National Land Policy 2013, were designed to coordinate land for national development.(5)

The Ministry of Trade, Industry and Cooperatives is the main body responsible for creating industrial policy and regulations. However, it was recognized as lacking power to influence industrialization, so some industrial projects are conducted by other ministries.(10)

Marketplace Participants

Discover examples of public and private stakeholders active in this investment opportunity that were identified through secondary research and consultations.

Private Sector

Uganda Development Bank, Pearl Capital Partners, ICCO, Kigezi highland Ltd, Afro-Ka, Stemuka Foods Ltd, Unga Millers (U) Ltd, Your Choice Ltd, East African Basic Foods Ltd, Sesaco Limited, CECOFA, Mujaasi Investments

Government

Ministry of Agriculture, Animal Industry and Fisheries; Uganda Export Promotion Board; Ministry of Trade, Industry and Cooperatives,

Multilaterals

African Development Bank (AfDB), European Union (EU), International Fund for Agricultural Development (IFAD)

Target Locations

See what country regions are most suitable for the investment opportunity. All references to Kosovo shall be understood to be in the context of the Security Council Resolution 1244 (1999)
country static map
rural

Uganda: South Western

The government's agro-processing zones for development are Kabale, Fort Portal, Mbarara, Arua, Gulu, Soroti, Mbale, Jinja, Luzira, Luwero-Nakaseke, Bweyogerere for 2020-25 and Kasese, Bushenyi, Rakai, Masaka, Hoima, Iganga, Tororo, Moroto.(IV)
rural

Uganda: Acholi

The agro-processing regions targeted by the National Development Plan include Gulu for cassava, meat in Nakasongora, grain in Jinja, cotton in Lira, dairy in Mbarara and potatoes in Kisoro.(IV)
rural

Uganda: East Central

The bankable projects in food processing are proposed specifically in Luweero, Kampala Industrial Business Park in Namanve, Iganga and Kalerwe.(7)
semi-urban

Uganda: Central

The bankable projects in food processing are proposed specifically in Luweero, Kampala Industrial Business Park in Namanve, Iganga and Kalerwe.(7)

References

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