Africa in Bloom
Led by Uganda, a continent better known for food shortages is becoming the center of an agribusiness boom - with fertile opportunities for entrepreneurs everywhere.
By G. Pascal Zachary, Business 2.0 Magazine

(Business 2.0 Magazine) -- Clement Kagwa, hands gloved in thick rubber, expertly wields his 7-inch knife, slicing into a fleshy 3-foot-long perch caught by fishermen only hours before. He cuts off one fillet, decapitates the fish, then carves out a second fillet. He flicks the fish's head into a bin below his cutting table, then places the gleaming pink fillets onto a conveyor belt. Time elapsed: 52 seconds.

Kagwa works in a fish-processing plant owned and managed by a Belgian living in the East African country of Uganda. The fish, tasty Nile perch, come from Lake Victoria, only a few miles away. The hundreds of fillets Kagwa and his co-workers carve out on this recent workday will be chilled to near-freezing temperatures and flown - on two long British Airways passenger flights - to San Francisco. Two days after they leave the plant, the fillets are to be eaten by Americans 8,000 miles from where Kagwa works.

Role reversal?
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Africans feeding Americans - it sounds like one whopper of a fish tale. Africa remains a continent of episodic starvation and chronic food shortages; tens of millions of sub-Saharan Africans are unable to reliably and consistently feed themselves. But as implausible as it might seem, these imbalances coexist with pockets of increasingly vibrant commercial farming throughout much of the continent.

"Africans are starting to prove that not only can they feed themselves, but they'll help feed the rest of the world too," says Ken Stalder, president of SW Africa Holdings, of Rockville, Md., which ships lobster tails from Mozambique to Florida and the Northeast.

Uganda - still best known to most people for the mad dictator and self-proclaimed cannibal Idi Amin, who savaged the country in the 1970s - is ground zero for a startling transformation of African agribusiness that's spawning scores of entrepreneurial opportunities. Uganda boasts two growing seasons, ample rain, rich volcanic soils, and millions of small farmers eager to expand production of cash crops. Output of everything from fish to rice, vanilla to sunflower seeds, roses to potatoes is soaring. Overall, Ugandan farm output increased nearly 50 percent during the past decade.

Investors and agriculture experts from the world over are flocking to Uganda, seeking ways to ride the emerging boom in African agribusiness. Israelis are building greenhouses and setting up the latest in hydroponic irrigation systems. Indians are growing rice and sunflower seeds. South Africans and Americans have invested in cotton gins. Europeans have opened fish-processing plants.

Chinese traders are buying up specialty woods, leather hides, and fish innards -a delicacy not relished by most Westerners but big in Asia. Scouring Uganda for other food sources, Chinese officials are talking about buying a million tons of soybeans a year from Uganda and an equally gargantuan amount of cassava, a tuber the Chinese fry up and gobble the way Westerners devour french fries.

Western investment in Africa has a sad history of promising starts with heartbreaking finishes, and many things - corruption, coups, climate change - could kill efforts to create a global breadbasket on the continent. Uganda, calm and increasingly advanced by African standards, is plagued by guerrillas on its northern frontier and is entangled in the Congo's horrific civil war.

But for now, at least, the continent is dotted with fertile entrepreneurial fields and many ways to make hay. "I've been telling Americans, 'Come to East Africa; there are tremendous opportunities here,'" says Calvin Burgess, a real estate developer from Oklahoma City. He is launching rice- and fish-farming enterprises in western Kenya, across the border from one of Uganda's most fertile areas, where he hopes to expand. "Americans are crazy if we don't come," he says. "Opportunities like this around the world are rare indeed."

Feeding the emerging middle class

Uganda's unfolding agricultural boom is, like much in the world economy today, partly fed by the roaring growth of China and India. Just as those countries are prospecting across the globe for fuel to power their superheated economies, they must also search abroad for foodstuffs to meet their surging middle classes' hunger for a more varied and richer diet.

The boom is also fueled by Europe's emerging taste for year-round and exotic fresh foods and by increases in the wholesale prices of specialty items that make it economical to fly certain goods halfway around the world on commercial airlines so American consumers can enjoy Africa's bounty just days after harvest.

Moreover, there are conditions on the ground in Uganda that, though once considered an obstacle to foreign investment, are increasingly seen as an edge for the country. Traditionally in Uganda and much of Africa, commercial farming has been dominated by plantations; the continent's hundreds of millions of small, independent farmers were seen as inefficient.

But the Ugandan boom is built on the energies of small farmers. By relying on them, foreign investors need not assemble large tracts of land or manage acreage and laborers themselves; there's a vast army of farmers who work cheap and are happy to sell their crops to foreign food processors at prices that leave ample room for profit.

"These small farmers are creating a mass base for expanded production," says John Magnay, a British national who runs one of Africa's leading grain-trading operations from his base in Uganda's capital, Kampala. "Multinational investors can look first at contracting production from these farmers."

That dynamic helps explain why Bob Murphy recently found himself in a fragrant garden near Kampala, trailed by an excited Ugandan farmer. Murphy is an executive at Pennsylvania-based Shank's Extracts, one of the biggest suppliers of vanilla to American households.

A few years ago, Uganda suddenly emerged as, in Murphy's view, the world's highest-quality supplier of vanilla beans. Prices soared because of a crop failure in Madagascar, traditionally the vanilla king. Ugandans filled the breach, reaping large revenue increases from 2002 to 2004. At the peak of the boom in 2003, cured vanilla beans sold for about $200 a pound, 20 times the historical rate.

More than 100,000 farmers in Uganda now grow vanilla, producing two crops a year to Madagascar's one. Almost all of those farmers tend plots of just an acre or less, and it's challenging work. Farmers must pollinate the orchid's bloom by hand with an implement resembling a swizzle stick. When the beans appear, the farmers hire security guards to protect them from theft. Spouses even keep separate gardens, wary of one partner absconding with the entire harvest. "This is a magic plant," says Keefa Kawesa, a prominent vanilla grower. "You can't trust anyone. Even your own wife might steal it."

Ugandans may own the fields, but the vanilla industry is spawning countless related opportunities for foreign entrepreneurs. Six years ago Phillip Betts, a British national, set up an operation that cures and exports the finished beans from a processing plant about an hour outside Kampala.

"This is one of the most valuable crops, pound for pound, in Uganda," Betts says. He won't disclose his revenue or profit but says he's the second-largest exporter of vanilla to America. Ugandan vanilla beans these days fetch $12 to $15 a pound, but Shank's, one of Betts's customers, is happy to pay it. Shank's exec Murphy foresees continued expansion in Uganda's vanilla industry - and increasing opportunity for everyone involved in the vanilla trade, from growers to processors to buyers. "There's still tremendous growth potential in vanilla here," Murphy says.

Back to the basics

Rice offers even larger potential gains. Uganda's rice production has doubled in the past five years and is projected to more than double again by 2011 because new varieties can be grown in rain-fed land, not just the swampy paddies that dominate world production today.

There's a huge upside in rice; sub-Saharan countries are importing $2 billion worth of rice a year, mainly from Asia. Investors from Singapore, the Middle East, and the United States are pushing rice expansion. Ugandans are responding by opening new mills with the latest technology in a drive to make the country self-sufficient in rice - as well as a rice peddler for East Africa and ultimately the world.

"Uganda is still five years away from becoming a major exporter," says Robin Kuriakose, the rice manager in Uganda for Singapore-based trading firm Olam. "But entering the market now can bring profits from domestic demand."

The jockeying for a piece of the rice action is already heated. On a recent morning in Jinja, where Uganda's Indian population once ran a thriving textile-and-trading empire, a Yemeni haggles with a Ugandan over the price of rice grown a few miles away. The Yemeni has been importing Vietnamese and Thai rice into Uganda for many years and is looking to develop a local rice brand - he wants to call it Kilimanjaro - because of surging local production.

The other man is Phillip Idro, who once ran Uganda's version of the Central Intelligence Agency and is his country's most recent ambassador to China. During his five years in Beijing, Idro became obsessed with the dream of transforming Uganda into one of China's breadbaskets. "The first time I told the Chinese that someday they'd be eating Ugandan rice, they thought I was mad," says Idro, a burly man with a short beard and a winning smile.

The Chinese are not so dismissive these days. Last spring Idro opened the first of a string of new rice mills planned for Uganda, using Chinese-made equipment. Both the Yemenis and the Singaporeans have signed on as customers. Idro buys rice from local producers, small farmers who are steadily expanding production in response to cash payments. Until recently, rice milling in Uganda was a haphazard affair, with the polishing process too crude to create the shiny white color demanded by many rice buyers. Idro's new mill produces this sheen, thus raising his rice to the international standard.

Running his hands through Idro's rice, the Yemeni, Fadhil Ahmad, starts chewing on a few grains. He says something in Arabic to one of his associates, then smiles. "This is good," he tells Idro. "We have a deal."

Small farmers are the backbone of Uganda's rice boom, but the country's largest rice producer is a vast plantation in eastern Uganda owned by Tilda Ltd., a London-based rice power. The plantation employs 1,200 people and sells the most popular aromatic rice in Uganda. Tilda provides a different model of how parts of Africa can leapfrog into the front ranks of farming countries. Relying on a sophisticated irrigation system fed by Tilda's own artificial lake, the plantation produces rice around the clock, with harvests and new plantings occurring day after day - a method known as "continuous cropping" that's possible because of Uganda's temperate climate.

Tilda's success in Uganda hasn't come without pain. Venugopal Pookat, the company's country director, has suffered eight bouts of malaria during his decade in the country. Swarms of voracious birds have attacked his fields. His profit is eroded by strange cost disadvantages. Shipping fertilizer into Uganda, for instance, costs more than the fertilizer itself. So Tilda must go light on inorganic fertilizer, using organic material as much as possible. That hurts yields but helps to contain costs.

Electricity is another problem. Uganda depends nearly entirely on hydropower from a dam complex at the base of the Nile, about 50 miles from Kampala. But drought and overuse have crimped electrical output; lately it's been about a third of normal levels. Blackouts are common. Tilda has backup generators, but they're expensive to operate. So the company runs its machinery less, even drying rice outdoors to save energy.

The process is labor-intensive: Two or three people carefully spread rice that's yet to be husked across an area the size of a football field and then gently go over the grain with rakes. When dry, the rice must be collected and moved to the mill, an hours-long job for a dozen people. But with workers costing $2 a day, the elaborate process is cheaper than running the electricity-hungry dryer. And despite the challenges Tilda has encountered, the company plans to increase its rice acreage by 50 percent in the next few years.

Flower power

The rice business faces constraints, mainly because the heavy subsidies that the United States, Japan, Korea, and others pay their growers distort prices and restrict the market. Uganda's flower business may face a clearer path to success. For instance, thanks to near-perfect growing conditions, low labor costs, and an influx of international expertise, Uganda is on its way to becoming a world power in roses, one of the most valuable crops in the multibillion-dollar global flower market.

On a recent Saturday, Donata Navakoza, a rose picker, trolls a state-of-the-art greenhouse near Kampala run by Rosebud Ltd., a rose grower owned by British and Ugandan investors. A KLM passenger plane is scheduled to leave tomorrow, and some of Rosebud's red sweetheart roses must be in the cargo hold. Navakoza walks down row after row of waist-high bushes, clipping flowers that she gingerly slides into a paper wrapper. "This rose comes from Uganda, pearl of Africa," Navakoza remarks.

Later that day the roses will be sorted, chilled, and trucked to the airport, where they will be X-rayed by security guards looking for weapons or drugs and ultimately loaded into the belly of the jet. Barely 50 hours after being snipped, the flowers will arrive in Miami and move swiftly to their final destination: Kroger supermarkets.

The journey of those African roses highlights a key opportunity for global entrepreneurs. Africans need help finding markets and establishing links to far-flung customers. Americans are good at knowing how their own markets work.

"There's a huge opportunity for African products in the United States, and not just roses," says Ruud Bloksma, whose Miami-based Orange Flower Connect imports flowers from Uganda. He acknowledges that transport logistics remain tough and says U.S. requirements for farm imports can be thorny for many growers in Africa. "But we are specialized for getting those things together," Bloksma says. "And we've found a growing market here for Ugandan products."

Competing against subsidized prices

For all the enthusiasm such tales of entrepreneurial success may inspire, it's important to remember that Africa is still, well, Africa. In addition to the many standard disasters that can befall businesses in the Third World - coups, corruption, conflicts - Uganda, like all of Africa, is also handicapped by vicious competition in the global trade of many raw commodities.

For instance, the United States and Vietnam, two of the biggest rice producers, subsidize their farmers so they can sell at lower prices. Both countries ship enormous amounts of rice to Africa. The subsidies make it more difficult for Uganda to sell its rice to neighboring markets. And many countries subsidize other farm crops that Uganda is trying to expand, compounding the competitive problem; Uganda, like most of Africa, is too poor to subsidize its farmers.

Yet even in the face of subsidies, foreign investors can prosper. Cotton is one of the most heavily subsidized crops in the United States, yet Dunavant Enterprises, the largest American cotton broker, began investing in Ugandan production five years ago and has grown into the country's largest ginner and trader.

And subsidies aren't an issue for some products - fish, for example. Five years ago Belgian Philip Borel, who had been shipping frozen Ugandan fish within the country for a decade, noticed a surge in fresh fish consumption in Europe. Borel, general manager of Greenfields Uganda, revamped his processing plant, investing about $5 million to meet the European Union's environmental and labor standards.

Today the plant, about five miles from Uganda's international airport at Entebbe, ships thousands of pounds of fillets to America and Europe every week. To reach American consumers, Borel works through Tampa-based distributor Anova Food. The economic proposition is compelling. Borel buys perch fillets from fishermen for about $1 a pound and sells them to his U.S. partner for about $2.50 a pound. It costs about $2 a pound for the distributor to fly the fish to North America. But at U.S. fish counters, these fresh fillets can fetch about $9 a pound.

Wild fish are only the start. Borel is launching a fish farm; he and other experts think Uganda can support thousands of them, from small ones run by individual peasants to corporate farms funded by global investors. "Uganda could become the next Vietnam" - an aquaculture kingpin - says Karen Veverica, an aquaculture expert at Auburn University who is assisting Uganda's infant fish-farming sector.

One recent morning Veverica is showing the Ugandan owner of the country's largest fish hatchery how to best separate different sizes of baby catfish. Digo Tugumisirize, a former air traffic controller at Entebbe, operates the complex of spawning ponds, covering about a dozen acres. He watches Veverica prepare bait in a fish trap; there are 9,000 baby catfish in the pond, and with the help of the trap, the scavenger fish that eat the young fingerlings will be captured and removed. Tugumisirize now sells about 200,000 baby catfish a month, mostly for use as live bait by people fishing for the Nile perch being exported to the United States and Europe. "We need to first double and triple our output, and then double and triple it again," he says. "Then our fish farmers can start feeding the world--and agribusinesses here can get rich!"

G. Pascal Zachary is a former editor-at-large at Business 2.0.

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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer.

Morningstar: © 2014 Morningstar, Inc. All Rights Reserved.

Factset: FactSet Research Systems Inc. 2014. All rights reserved.

Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved.

Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor’s Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2014 and/or its affiliates.