Investing in

Uganda
Investment Potentials in Fruit Juice Processing

Project Title: Fresh Fruit Juice Processing

Proposed Total Investment (US$): US$: 2,445,856

Contact:

Uganda Investment Authority

Twed Plaza, Plot 22B, Lumumba Avenue

P.O. Box 7418 Kampala Uganda, East Africa

Tel: +256 (0) 414 301 000

Fax: +256 (0) 414 342 903

ipd@ugandainvest.com

October 2009

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 Table Of Contents

List of Acronyms:................................................................................................................................................................3
Map of Uganda Showing Fruit Growing Areas in the Country...................................................................................4
I.0: Background Information To The Project .......................................................................................................4
2.0 Proposed Project ..................................................................................................................................................5
2.1: Purpose of the Project....................................................................................................................................5

2.2: Rationale behind the Project .........................................................................................................................5

Potential markets (local and export):.......................................................................................................................6

2.3 Description of Technological options and preferred Choice, sources and costs .................................9

2.3 Description of Technological options and preferred Choice, sources and costs ...............................10

2.4: Average Estimated Total Investment Costs (In thousands US Dollar) ...............................................10

2.5. Location: .........................................................................................................................................................10

2.6. Environmental issues and Waste Disposal:...............................................................................................10

2.7 Special conditions, Regulatory and Licensing Issues and procedures...................................................11

3.0 Selected Factor Costs.........................................................................................................................................11

3.1 Infrastructure required at proposed site Land and Space Requirements .............................................11

3.1.1 Technology and Equipment ...................................................................................................................11

3.1.2 Civil engineering works ...........................................................................................................................11

3.1.3 Pre-production capital expenditures......................................................................................................11

3.2 Working capital requirements......................................................................................................................12

3.3 Factory supplies and over heads .................................................................................................................12

3.4. Personnel and labour Requirements and costs.........................................................................................12

3.5 Estimated Production costs.........................................................................................................................13

3.6 Estimated annual sales revenues .................................................................................................................13

3.7 Indicative time schedule for project implementation..............................................................................13

4.0 Financial Analysis: Approximate pay back period, approximate rates of return......................................13

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List of Acronyms:

COMESA Common Market for East and Southern Africa

EPOPA Export Promotion of Organic Products from Africa

EU European Union

GDP Gross Domestic Product

Kwh Kilowatts per Hour

MAAIF Ministry of Agriculture, Animal Industry and Fisheries

NEMA National Environmental Management Authority

PMA Plan for Modernisation of Agriculture

UEPB Uganda Export Promotions Board

UGX Uganda Shillings

UIA Uganda Investment Authority

UNBS Uganda National Bureau of Standards

URA Uganda Revenue Authority

USA United States of America

USD United States Dollar

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Map of Uganda Showing Fruit Growing Areas in the Country

1.0 Background Information To The Project

To date, special emphasis has been placed on promotion of investments in agro processing.
Although processing of fruits is at very small scale in Uganda as compared to fresh fruit export,
there is good potential for it to develop. Despite the country being the number one fruit producing
nation in Africa, processing fruits is mainly limited to extraction of juice and drying, bottling and
labeling.
The current investment of the lower end market players is estimated to range from a minimum of
2.8 million to 3.6 million US dollars, excluding investments in the working capital and cash reserves
of the businesses. Within the sector, the number of companies involved in fresh fruit juice
processing is still very low with four major companies.
The government of Uganda strongly supports global economic integration as it increases volume of
trade as well as offers other economic opportunities. Because of its membership, Uganda exports
qualify for preferential tariff rates in the East African market comprising 120 million people,
COMESA trade has assisted phenomenal growth; for instance it increased three times from USD
3.1 billion in 2001 to just over 9 billion in 2007. COMESA with a population of about 400 million
and GDP of USD 290 position it as a most attractive region for investment and trade. Furthermore
has been exponential, rising from USD 3.2 billion in 2000 when the FTA was launched to USD
15.2 billion in 2008, making the regional market the fastest growing export destination (IMF report
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 2008). For Uganda, the benefits are immediate and significant due to its geographical position in
the middle of the markets. As incomes grow, it is inevitable that consumers will turn towards higher
quality goods and services.
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.
A number of investment incentives are available, including capital allowances and operational
expenses deductible from a company’s income and deductible annual allowances for depreciable
assets. (Contact UIA for information).
Uganda has lower power rates for industrialists, as compared to the other three East African states,
namely Kenya and Tanzania. The rate for medium industrial consumers per kilowatt-hour (kwh)
dropped by 3.1% to an average of 150.3 Uganda shillings (8 US cents) from 155.1 shillings.
The growing demand for fruit juice on the local market cannot be underscored. Aggregate
expenditure has exceeded domestic source income, supported by substantial aid transfers and by a
remittance flow that exceeds even the foreign exchange value of coffee exports. Over the last 7
years GDP has grown at an average of 5% (CIA World Factbook).All of these monetary sources
flow through the economy and into the pockets of high and low income recipients, ultimately
creating a growing trend in urban centers of Uganda for higher juice consumption. This market
may become much larger in future.

Research indicates that demand for fruit juice in Uganda exceeds production, which is met through
import of fruit juices. Given the big demand for Ugandan dried fruits abroad, most effort has been
on export and only 10-20% local demand can be satisfied.
Since 1997, the leading player in the fresh fruit juice industry has been able to increase production
for the market from half a million litres a month to the current two million litres monthly which is
a growth of 400% and an average of 36-40% per annum. This justifies that the domestic market is
growing and there is increased interest in the market within the East African Community and the
wider COMESA.
2.0 Proposed Project
Fresh fruit Juice Processing Project.
2.1: Purpose of the Project
Value chain for fresh fruit products, the processing of mangoes, oranges, passion fruits, apple
bananas and pineapples into juice products.
2.2: Rationale behind the Project
2.2.1 Access to resources
The raw materials used can be locally obtained, the production of the fresh fruits; namely apple
banana, orange, passion fruit and pineapple is dominated by small scale farm holder producers.
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 5,000 acres (2,000ha) on 2,500 small
holdings in Luwero and Kayunga where pineapples are grown as a sole crop or intercropped with
bananas.

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 Citrus fruits produced in Uganda include several varieties of oranges, lemons, and tangerines. They
perform well under dry areas with low humidity which prevails in more than one third of the
country. These areas include: Teso region, parts of Busoga (Kamuli) and the low lands of Western
region (Kasese).

Current citrus production is estimated at 900,000 mature trees with an estimated total production
of 250,000 metric tones per year of fresh oranges valued at UGX 70 billion.1 The production is
estimated to increase to 5 million trees by 2011.

Of recent, a number of farmers have taken up mango farming on a commercial scale and in 2 1/2-3
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/2 years these varieties will be available for processing on a commercial scale.

In addition, some development agencies such as Technoserve are supporting the increased
commercial production of mangoes and are importing large volumes of seedlings of varieties such
as alphonso and Tommy, and distributing them to small holder farmers, as well as encouraging the
multiplication of other high quality local varieties such as Dodo.
It is also important to note that local production can be stimulated easily for scaling up once
sufficient processing demand/capacity is established.

2.2.2 Potential markets (local and export):

The CBI market survey 2007 indicated that the total EU consumption of fruit juices and nectars
amounted to 11.2 billion litres. In 2007, total imports of fruit juices by EU member countries
amounted to approximately 6.4 million tonnes, representing a value of US $ 5.9 billion. Since 2002,
imports increased by an average annual rate of 6% in terms of value.
Consumers in international markets, especially the E.U, USA and Japan are exposed to a great
variety of different fruits and as a result, a number of specific patterns are emerging on the
consumption of dried fruits, largely resulting into classifications below:
• Consumable foods;
• Health food; and
• Organic food.
Currently, the demand for Uganda’s organic products in the integrated market is close to 7 times
higher than the supply and this presents a high opportunity for export of organic fruit juice from
Uganda.
• The growing demand for fruit juice on the local market cannot be underscored. Aggregate
expenditure has exceeded domestic source income, supported by substantial aid transfers and
by a remittance flow that exceeds even the foreign exchange value of coffee exports. All of
these monetary sources flow through the economy and into the pockets of high and low
income recipients ultimately being translated into expenditure on goods and services, including
on fresh fruits products. There is a growing trend in urban centres of Uganda for higher juice
consumption and this market may become much larger in future.

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Final Draft Report (February 2009) Citrus Market Study for Teso Sub-Region sponsored by MAAIF-PMA
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 • Research indicates that demand for fruit juice in Uganda exceeds production, which is met
through import of fruit juices. Given the big demand for Ugandan dried fruits abroad, only 10-
20% of this can be satisfied and Kenyan and South African juices parked in tetrapaks have
come in to supplement the demand. The rapid urbanization taking place also continues to fuel
and change the demand for fresh fruit juice products, where the consumer is now stressing
nutritional values. Uganda imports about 18.4 million liters of fresh juice per year worth about
30 million USD. (URA 2006).
• The annual growth in importation of fresh fruit juice between 2002-2006 was reported at 56%-
135% which is a sign of increased demand for fresh fruit juice.
• Since 1997 the leading player in the fresh fruit juice industry has been able to increase its
production for the market from half a million litres a month to the current two million litres
monthly, which is a growth of 400% and an average of 36-40% per annum. This justifies that
the domestic market is growing and there is also increased interest in the market within the East
African Community and the wider COMESA.
2.2.3 Favourable location
• Uganda is more suited for placing a fruit processing factory because of the availability of the
raw materials as described earlier. Certified organic raw materials and skilled labour in food
processing industry is easily available in the country.
• Production is mainly by small farmers, which can be stimulated in a very short time once there
is an assured market outlet by the processor, without one investing in the production process.
A processor/producer contract would guarantee that producers are tied in with the processor.
Such arrangements are in existence in the country between certified organic farmers and
exporters of organic fruits.
• Uganda is located at the heart of Africa, with numerous water bodies and fertile soils that are driving
production of a variety of fruits and vegetables for export to both western and regional markets.
• Uganda is also well connected to the international world markets by a major International Airport with
sufficient cargo flight out of Uganda. There is also a railway and road transport to the port of Mombasa
for delivering the finished products to the market by sea.

2.2.4 Availability of infrastructure

• The preferred location for this 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.

2.2.5 Competitiveness:
• Uganda is highly competitive in terms of producing organic fruits. The country is the leading
African country with respect to certified organic agriculture production, with over 50,000
organic farmers and the number is growing fast. Currently, the demand for organic fruits from
Uganda, especially of a fair-trade quality, exceeds the supply.

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• Uganda Organic Certification Limited (UgoCert) provides certification services for organic
agriculture production and processing in Uganda. The country is in position to export certified
organic fresh fruit juice where we have a competitive advantage in the European Union, North
American and Japan markets whose demand for organic products is growing.

• Raw materials (fresh fruit) are cheaper to obtain in Uganda from the local farmers, as compared
to other countries in the region. Cost production of fruits is cheaper, mainly because of the very
good climate, which allows the production of food at very minimum cost, (minimize input
costs on irrigation). Uganda has slight cost advantage over Kenya, Tanzania, Zambia and
Zimbabwe.

• Uganda has a very unique climate which allows the country a great competitive advantage in
terms of production and, therefore, access to a variety of locally grown of fresh fruits products
with different harvest peak seasons, which allows the investor to process a wide range of
products, thereby allowing the processing equipment to be used optimally throughout the year.

• Abundant and cheaper farm labour available to the small scale farmer, in the rural areas.

• Lower power rates for industrialists, as compared to the other three East African states, namely
Kenya and Tanzania. The rate for medium industrial consumers per kilowatt-hour is an average
of 150.3 Uganda shillings (8 US cents). The rates for large industries also fell by 32.4%, to 60.4
shillings a kwh, from 89.4 shillings. In addition, a new rate is introduced for extra large
industries, with electricity requirements of more than ten megawatts, which will pay an average
of 37.3 shillings a kwh.

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 Integrated Process Flow Diagram For Mango, Pineapple, Banana And Orange Juices

Inspection section (manual)

-Roller Inspection belts
-Receiving crates

Sorting/grading
-Roller inspection belt,
-sizing machine

Orange halving
Washing (semi-automatic) Peeling and slicing (manual)
(slicing) Oranges -Fruit washing machine -Peeling tables (stainless steel)
-Orange sizer (slicer)
(tank) & Holding crates -Knives (stainless steel)

Pineapple juice extraction

Juice Pressing -Pineapple screw press
-Orange press (Citrus Pulp extraction
juice extractor) Pineapple juice Scrapping batter/brush
extractor (Pulper & Finisher)

-Reservoir tank
Orange Juice pulp

Filtration (Optional)
-Centrifugal filter

Juice additives
Blending
-Blending tanks

Removal of Oxygen
-Vacuum de-aerator or
-Membrane de-aerator

Pasteurization
-Heat exchanger (Continuous pasteurizer

Packing Labeling
-Automatic bottling machine Label imprinter (if
-Cup filling & sealing machine bags & cans are not
-Form, fill and seal machine (tetrapak)- on-printed)

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2.3 Description of Technological options and preferred Choice, sources and costs
The project is planned to process 5 fresh fruit juice products, to be handled by the same processing
plant/equipment and up to 8 tonnes of fruit juice to be produced per day at a single processing
plant, once sufficient equipment is installed, an equivalent of 19 tonnes of fresh fruit juice per day
or 380 tonnes per month including pineapples, mangoes or apple bananas.
Technologies/equipment for processing fruit juice can easily be sourced outside from Europe or
Asia. Equipment from India and China can be secured a low cost of about half to ¾ the price of
the equipment from Europe. The sector technical personnel required for the processing of fresh
fruit juice is easily available in the country.

2.4: Average Estimated Total Investment Costs (In US Dollar)

Table 1: Summary Breakdown of Estimated Investment Cost
No. Infrastructure & Civil works Amount (USD)
1 Land (1-Acres ) 75,000
2 Site preparation and development 75,000
120,000
3 Civil works, structures and buildings (refer to section below on infrastructure required at 312,000
proposed site)
4 Plant and Equipment (for detailed breakdown refer to section below on Equipment) 868,900
5 Auxiliary service and plant equipment (for detailed breakdown to section below on 260,000
Equipment)
Incorporation expenses 1% of capital investments 23,846

Pre-production expenditures (5% Staff, operational and Administration costs) 37,410

6 Working Capital Requirements 748,200
Average Estimated Total Investment Costs 2,445,856

2.5 Location:

UIA has secured land that it can lease out to investors for setting up processing plants. To date, a
number of these pieces of land have been developed into industrial parks in Wakiso and Mukono
districts that are within a range of about 15 to 30 Kms from the Kampala City centre, with all the
basic infrastructure (power, water sewerage disposal and road networks) established. The proximity
to the centre of the capital city also ensures that the plant is close to the largest market in the
country and this lowers distribution and marketing costs. Other major towns such as Jinja that have
a reasonable large market have also established similar industrial parks that are available for use by
investors.

2.6 Environmental issues and Waste Disposal:

Sewage water outlet and Solid Waste disposal
All wastewater will be collected into drains. No wastewater will leave the plant without being
treated, to remove biological matter.
In order to be economical and yet comply with environmental waste management disposal, the
solid waste from the production process will be transferred to a bio digester, which will give two
outputs: bio gas; and natural manure. The bio gas may be used to subsidize power/energy costs since it

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 can be used in heating the boilers at the plant. The manure can also be sold off to farmers at a reasonable
sales price (guidelines for disposal of industrial materials available by NEMA).

2.7 Special conditions, Regulatory and Licensing Issues and procedures

There are no other special requirements over and above the general conditions listed in the
background for one to invest in Uganda for these specific products. However, compliance to health
and international food safety requirement are very critical for any investor in the food processing
industry to capture the international market, where such conditions are mandatory and highly
enforced.

3.0 Selected Factor Costs

3.1 Infrastructure required at proposed site Land and Space Requirements

Table 2: Breakdown of Estimated Cost for Infrastructures and civil works.
No. Infrastructure & Civil works Qty Cost/unit Amount (USD)
1 Land (1-Acres ) 1 75,000 75,000
2 Site preparation & development (4000 sqm) x 30 USD 4,000 30 75,000
120,000
Civil works, structures and buildings (USD 250 per square -
meter minimum area required) 1,250sqms
3 Plant (800sqms) 800 250 200,000
4 Offices (150 sqm) 150 250 37,500
5 Housing for management (300 sqms) 300 250 75,000

Total Investment Infrastructure & Civil works 507,500

3.1.1 Technology and Equipment

Overall investment in equipment is substantial, even if low-cost extracting and processing
equipment can be found, tetrapak packaging technology has to be added, which may increase the
costs.

3.1.2 Civil engineering works

• The civil works required will include the preparation and landscaping of the site.
• Civil works to prepare the ground for building of the infrastructure.
• Building of the infrastructure to the specifications to required to house the equipment and the
auxiliary service centres and points.

3.1.3 Pre-production capital expenditures

Technical Training
This may be required for the technical staff to handle the machinery for processing of the fruit
juice. This is to be provided by the supplier of the equipment and will not constitute more than 1%
of the cost of machinery and equipment.

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3.2 Working capital requirements
Raw materials and additional supplies:
The raw materials required can be locally obtained, for the production of the fresh fruits; namely
apple bananas, orange, passion fruits and pineapples and is dominated by small scale farm holder
producers, who can easily double their output in 2-3 years. The raw materials required are costed
based on the projected out put of 8 tonnes of fresh fruit juice for the five fruit brands, broken
down as in the table below for 5 working days of the week. The daily composition being as follows
4 metric tonnes of mangoes, 3.2 metric tonnes oranges, 5.6 metric tonnes for passion fruit, 2.9
metric tonnes of pineapples and 3.2 metric tonnes of apple bananas. The raw materials are costed
on the industrial average of the three major processors in the country for a period of 12 months. It
is assumed that maximum trading period that the processor will allow is a 90 day cycle to allow
recovery on all credit sales, such that a maximum cash flow of 4 months would be sufficient to
cover the working capital requirement of the business/plant.

Table 3: Breakdown of Estimated Cost of Raw Materials

Product Requirement per No required for 4 months Average Price per Total
month (tones) of business cycle (tones) ton (USD)
1 Pineapple 58 232 200 46,400
2 Apple bananas 64 256 500 128,000
3 Oranges 64 256 312.5 80,000
4 Passion 112 448 500 224,000
5 Mangoes 80 320 400 128,000
Average 378 1,280 382.5 606,400
The plant is to process up to 16 tonnes of raw materials in whatever proportion of mix of products.

3.3 Factory supplies and over heads

The overheads are costed on the industrial average of the three major processors in the country for
a period of 12 months. It is assumed that maximum trading period that the processor will allow is a
90 day cycle to allow recovery on all credit sales, such that a maximum cash flow of 4 months
would be sufficient to cover the working capital requirement of the business/plant.
Table 4: Table Showing The Estimated Operational And Factory Overheads Cost
Amount Total
Units (US$) (US$)
Operational costs (average industrial) 12 8,333.3 100,000
Administration Costs (average industrial) 12 16,667 200,000
Sub-total 300,000
Working capital requirements (4 months)
Operational costs (average industrial) 1.00 33,333 33,333
Administration Costs (average industrial) 1.00 66,667 66,667
Working capital requirement 100,000
3.4. Personnel and labour Requirements and costs
To establish a medium sized fresh fruit juice processing plant in Uganda one would estimate to
employ an average of 44 people with about 14% of these being in management, technical and sales
and the rest working as casual unskilled labour. Casual labour will mainly be required to sort and
peel the fruits.

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 Table 5: Estimated Personnel/Labour Cost Of Production
Type Units Unit Cost Quantity Annual cost
Managerial 3 750 12 27,000
Technical 4 600 12 28,800
Skilled 7 400 12 33,600
Unskilled 30 100 12 36,000
125,400
Working capital requirement 41,800

3.5 Estimated Production costs

Table 6: Summation of all the production costs.
Type Working capital requirement Annual cost
(US$) (US$)
Labour requirements 41,800 125,400
Factory supplies and over heads 100,000 300,000
Raw materials 606,400 1,819,200
Total Estimated Production cost 631,400 2,244,600

3.6 Estimated annual sales revenues

The average annual revenues (for the low and high ended sector player) in this industry stands at
about USD 1.6 million to about 6 million USD 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).

3.7 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.

4.0 Financial Analysis: Approximate pay back period, approximate rates of return.

Assumption underlying the Financial Analysis

1. A daily production output of 8,000 litres of fresh fruit juice will be produced per day.
2. 240 days of production are costed per year.
3. An annual increment in the production rate of 10% is projected per year.
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4. For the five categories of fruits, 5 fruit juice brands will be produced in equal proportions of
20%.
5. An annual inflation factor has been built in of 10% for all expenses.

Table 7: Summary Of Profitability Analysis Of The Fruit Juice Processing Project

Profitability Item Year 1 Year 2 Year 3 Year 4 Year 5 Total
Sales Revenue 2,688,000 3,548,160 3,902,976 4,293,274 4,722,601 19,155,011
Less: Manufacturing Costs 1,743,400 2,092,080 2,092,080 2,092,080 2,092,080 10,111,720
Gross Profit 944,600 1,456,080 1,810,896 2,201,194 2,630,521 9,043,291
Less: Production
Overheads 805,105 802,457 783,593 775,917 776,209 3,943,280
Net Profit(Loss) before
Interest & Tax 139,495 653,623 1,027,303 1,425,276 1,854,312 5,100,011

* Corporation tax of 30%

Table 8: Feasibility Analysis For The Fruit Juice Project Over 5 Years

NPV Analysis:
Year 1 Year 2 Year 3 Year 4 Year 5
Year End Cash flows 4,809,241 35,574,834 73,025,753 108,173,044 162,599,717
Discount Factor 20%
NPV 188,484,684

Table 9: Pay Back Period Analysis

Balance on Recovery of
Pay back Period Period Investment Net Cash flow Investment
Pay Back Year 1 2,445,856 4,809,241 (2,363,385)
Year 2 35,574,834 (37,938,219)
Year 3 73,025,753
Year 4 108,173,044
Year 5 162,599,717

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