Business Development Services (BDS) Market Diagnostics in Uganda

FINAL REPORT CONSULTANCY SERVICES FOR BUSINESS DEVELOPMENT SERVICES (BDS) MARKET DIAGNOSTIC IN UGANDA CONDUCTED BY: FIT RESOURCES SUBMITTED TO: EAST AFRICA DAIRY DEVELOPMENT (EADD) PROJECT FINAL REPORT FOR BDS DIAGNOSTIC IN UGANDA 1 FIT RESOURCES JANUARY 2009

JANUARY 2009 FINAL REPORT FOR BDS DIAGNOSTIC IN UGANDA 2 FIT RESOURCES JANUARY 2009

CONTENTS Background and introduction..................................................................................................4 Methodology and activities .....................................................................................................5 Pre-planning .......................................................................................................................5 Training...............................................................................................................................6 Field work ...........................................................................................................................8 Sampling .........................................................................................................................9 Key challenges of fieldwork ...........................................................................................10 Data processing ................................................................................................................10 Presentations ....................................................................................................................11 Key conclusions of the methodology ................................................................................11 Findings of fieldwork and data analysis ................................................................................12 Consumer survey .................................................................................................................12 Locations covered and key informants interviewed ..........................................................12 Targeted SME consumers interviewed .............................................................................12 Market profiles ..................................................................................................................14 Key demand side constraints and opportunities ...............................................................28 Business development services that address those constraints and opportunities ..........29 Specific policy constraints that are affecting MSE product markets ..................................29 Supplier diagnostic by location .............................................................................................30 Existing providers/ services and their locations ................................................................30 A workable data base of the BDS actors ..........................................................................31 BDS suppliers interviewed ................................................................................................31 Types of services and price of services, how providers cover costs, profitability, existing contractual arrangements/relationships and promotional/marketing strategies ................35 Capacity gaps of interviewed suppliers.............................................................................40 Priority supply side constraints, market failures, and market opportunities.......................40 The enabling environment for BDS ...................................................................................46 Characteristics of the market for BDS in each specific region in relation to existing supply, demand and transactions .................................................................................................48 An insight into the potential of each target market location...............................................50 Level of market distortion..................................................................................................51 Comparative information on the in-country sites and the 3 markets ................................. 50 Other current or proposed dairy sector interventions ........................................................53 Sustainable solutions to address priority market constraints and market failures .............53 ‘Illustrative’ market based interventions to develop the market for key identified services that are in demand or offer the greatest potential for stabilization or growth ....................62 Approaches and methodologies .......................................................................................66 Strategies which ensure effectiveness and efficiency .......................................................67 Strategies which ensure sustainability ..............................................................................71 Suggested BDS providers/delivery channels to target for future interventions .................74 Selecting appropriate BDS providers ................................................................................75 FINAL REPORT FOR BDS DIAGNOSTIC IN UGANDA 3 FIT RESOURCES JANUARY 2009

BDS performance measurements at the BDS market level ..............................................76 Annexes ...............................................................................................................................80 Database of SME actors including persons interviewed ...................................................80 Database of BDS suppliers including persons interviewed ...............................................80 Database of targeted suppliers .........................................................................................80 Itinerary.............................................................................................................................80 FIT/RI scope of work.........................................................................................................80 Final instruments ..............................................................................................................80 BDS training report ...........................................................................................................80 Researcher training report ................................................................................................80 Background and Introduction In a bid to improve life through poverty reduction, a Consortium of organisations comprising of Heifer International as lead, TechnoServe Inc, ILRI, ABS-TCM and ICRAF launched a 4 year program dubbed EADD (East Africa Dairy Development) funded by Bill and Melinda Gates Foundation. The program aims to move smallholder farmers out of poverty by delivering farmer-focused, value-chain activities that are implemented simultaneously to stimulate dairy farm production, dairy-sector services, business development and dairy market pull. The vision of success for the EADD is that the lives of 179,000 families - or approximately one million people, are transformed by doubling household dairy income by year 2018, through integrated interventions in dairy production, market-access and knowledge application. The Consortium deemed it important to carry out a market assessment to understand the characteristics of the BDS markets in relation to existing supply, demand and transactions in the dairy sectors in some key sites in Kenya, Uganda and Rwanda. The information would: • Provide an insight into the potential of each market • Clarify opportunities for interventions • Define broad strategic approaches FIT Resources Kenya (FIT) in collaboration with Research International East Africa Ltd (RIEAL) were contracted to coordinate the market diagnostic in key locations in Uganda. The findings and recommendations of this consultancy will contribute to the market focused, sub sector approach of the EADD aimed at improving the functioning of BDS markets. The final scope of work is attached to this report (Annexes/ Final Revised SOW). FIT Resources act as the lead agency and contract holder, to provide strategic leadership in devising and conducting the business development service consumer research and supplier diagnostic. Research International conduct the field work as a sub contractor, to collect FINAL REPORT FOR BDS DIAGNOSTIC IN UGANDA 4 FIT RESOURCES JANUARY 2009

primary/secondary qualitative and quantitative information, analyse, process and present the data. Methodology and activities To achieve the above results the following activities were agreed on: • Pre-planning (planning meetings, research boundaries on the basis of project resources, existing sub sector information, market assessment goal/objectives/research hypothesis, developing and testing the tools, screening interviewers, target locations in each country, preliminary key informants, other current or proposed interventions) • Training (training of EADD staff, field research teams and BDS training workshop) • Field work (target groups, sample size, areas covered, team structure, consumer survey and supplier diagnostic) • Data processing (developing the data base of BDS actors, profiling the markets, choose priority constraints, identifying and scoping out sustainable solutions, defining ‘illustrative’ market based interventions and strategies, suggest appropriate BDS providers, establishing comparative information, identifying BDS performance measurements) • Presentations (stakeholder workshops and final presentation) Pre-planning Relevant background information was sourced via a series of planning meeting with Technoserve and EADD Consortium members. Meeting presentations and minutes are attached to this report (Annexes/Process meetings). These meetings also included setting the research boundaries on the basis of project resources, preliminary selection of target locations and the agreed definition of ‘small holder farmer’. The market assessment goal, objectives and research hypothesis were agreed as follows: The market assessment goal is: To understand the characteristics of the BDS markets in relation to existing supply, demand and transactions in key sites in Uganda. The market assessment objectives are: • To provide an insight into the potential of each market • To clarify opportunities for interventions • To define broad strategic approaches The research hypothesis is: FINAL REPORT FOR BDS DIAGNOSTIC IN UGANDA 5 FIT RESOURCES JANUARY 2009

If current BDS market dynamics are better understood then strategic approaches and interventions can be devised to develop BDS markets in a sustainable manner and thus benefit SMEs. It was agreed that the FIT/RI team would build capacity of the project staff to undertake future market assessments during the life of the project. Due to budget constraints a targeted number of sites were discussed that affords the best opportunities to kick-off the project and generate some ‘quick wins’. A training itinerary was also agreed upon to capacitate EADD project staff in BDS and research skills. FIT Resources provided lead for the overall assignment and liaison with Technoserve and the country office on all the pre-planning activities. FIT Resources coordinated the field preparation with Research International and Technoserve including; tool development and testing, researcher selection and training and itinerary development. Different tools were developed to cover the demand (consumer) side and supply (supplier) side of the market. The final instruments and itinerary are attached to this report (Annexes/Final Instruments). The following activities were undertaken prior to the commencement of fieldwork: screening of team members, preparation and translation of questionnaires and preparation of reporting tools and manuals. Research International personnel met field staff/counterparts and finalised the selection of target locations and identification of key informants in each location. Research International finalised the training of field researchers including EADD project staff and preparations for field research. No secondary information was used, as the project is building on a baseline survey and an existing value chain assessment. The comprehensive examination of targeted BDS markets and value chains will assist EADD in designing systemic solutions to key market problems. The two subsystems - BDS markets and value chains - are complementary components of the larger market system into which MSEs must integrate. Training 1. BDS training workshop - FIT Resources personnel implemented an in-depth EADD staff stakeholder training in Uganda. This 2 day formal training in diagnostic skills covered the principles and practices of BDS, BDS market development, BDS market assessment and BDS market development programme design and performance measurement. The aim of this training was to capacitate project staff and provide stakeholders with a contextual framework for the research. The workshop presentations, training materials and training reports are attached (Annexes/BDS Training). 2. Training of field research teams - teams including Technoserve and Consortium member staff, were subject to an in country briefing session prior to fieldwork commencement. The training sessions covered methodology of the assessment stages, sampling, tools and stimulus methods to use with market players and how to complete reporting formats. The aim of this training was to capacitate project staff to engage in further market diagnostics beyond the life of this collaboration. The FINAL REPORT FOR BDS DIAGNOSTIC IN UGANDA 6 FIT RESOURCES JANUARY 2009

workshop presentation and training reports are attached (Annexes/Research Training). FINAL REPORT FOR BDS DIAGNOSTIC IN UGANDA 7 FIT RESOURCES JANUARY 2009

Field work In order to complete this assignment within the defined period, a large teams of Interviewers, Team-Leaders and Supervisors were assigned. Team members were recruited from the RIEAL regional offices, according to specifications based on experience and qualifications. The RIEAL Principle Researcher and a Field Coordinator coordinated the research at all stages, and focused on ensuring that outputs were planned in advance so time-schedules were met. They worked alongside the RIEAL existing field management structure that forms the line management for the Field Departments. Daily reporting of results and activities from each team was channeled back through this Central Management Team. Research International led and implemented the field research in collaboration with EADD project staff. However no staffs were on the ground during the fieldwork in some sites in Uganda. Consultations and market observation were undertaken during the fieldwork which included visiting identified target locations plus identifying and holding interviews with key informants and targeted dairy sector stakeholders relevant to the selected sites. Consumer survey - Consumer research was implemented with a selection of consumers from the core market itself, with a focus on farmers and Chilling Plant stakeholders. However the definition regarding ‘small holder farmer’ was reviewed and altered during a process meeting and the ceiling lifted on the number of cows, as many farmers in Uganda and Rwanda are large compared to Kenya’s extensive small holder population. Constraints and opportunities were then identified in the areas of market access, input supply, technology/product development, management and organisation, policy, finance and infrastructure. The size and strength of the market in each specific area of the country for those services was estimated broadly plus key sub sector constraints, market failures and market opportunities defined from the demand side. Key business development services were identified that address the specific constraints and opportunities. Supplier diagnostic - Based on the identified priority services, relevant suppliers were identified and a supplier survey implemented with service providers from the support markets to determine who is supplying BDS and how. Constraints, market failures and opportunities were then determined from the supply side. A comparison of suppliers was also undertaken and the level of market distortion anticipated. Stakeholders from the business environment such as Local Authorities, Regulators/Policy Makers were contacted as required to provide an overview of the business environment. The BDS survey fieldwork was conducted between the 24th and 30th of November 2008. Three separate field teams of 4 Enumerators were used in each location. The Enumerator groups were language specific for the purposes of ensuring consistence with instant translation of the questions. The three teams were supervised by the co-ordinator. The areas covered in the survey are shown below: FINAL REPORT FOR BDS DIAGNOSTIC IN UGANDA 8 FIT RESOURCES JANUARY 2009

Luweero Masindi Kiboga Nakaseke (Wakyato) Kiryandongo (Kakooko) Kyankwanzi Katikamu Kimengo (Kijunjubwa) Nsambya Bamunanika Bwijanga (Ntooma) Kapeke New sites not included will be covered by Technoserve staff beyond the life of this consultancy. The interview length for each interview was approximately 30 minutes. Sampling The sample included 327 interviews spread across the 3 sites: • 300 farmers were interviewed. • The instruction to cover farmers within a 20Km radius from the proposed locations of the Chilling Plant/ hub was not adhered to for two reasons. o Farmers hold large tracts of land they use for grazing. The distance from one farm to the next was very big; it was not uncommon to find farmers holding 20 to 80 acres. In this situation the 20Km radius was limiting access to prospective respondents. o The proposed sites of the Chilling Plants are in the main towns of the districts except for Kiboga where the site is Kyankwanzi. To access dairy farmers the field teams had to exceed the 20 Km limitation. • Depending on the number of locations located within the 20 KM radius, an equal number of sampling points were picked in each location to ensure spread of interviews. For each location, the Team Leader picked the starting point randomly, and using the Random Route Method, farmers who fitted the set criteria were interviewed: Selection criteria included: o Be a dairy farmer o Have mature milking cows o Be engaging in some milk sales irrespective of quantities sold • In Luweero, the team had to go beyond the Administrative Boundary of Luweero District into Nakaseke District. Nakaseke was previously a county within Luweero District. Discussions with members of the Interim Cooperative Committee revealed that the bulk of the milk for the Chilling Plant in Luweero will actually come from this area. • The other key consideration in the sampling was engagement of a farmer in milk sales. This consensus was reached in the course of field training. It was agreed that numbers of cattle kept did not necessarily imply active engagement in the dairy market. • As for suppliers (27 were interviewed), the team picked supplier names from the farmers, other suppliers and also those they came across in the market places. From the list, a score was given to each and every supplier based on set criteria (capacity to deliver services, closeness to SMEs e.g. in terms of understanding their culture and geography, commercial focus e.g. level of profitability, focus on services, SMEs or BDS, organizational independence- especially from donor funds, legally registered and willingness/interest/ability to partner). From the list, suppliers who met the above criteria were selected for the interviews. FINAL REPORT FOR BDS DIAGNOSTIC IN UGANDA 9 FIT RESOURCES JANUARY 2009

Key challenges of fieldwork • No staff on ground in some sites • Suspicion and fatigue of consumers and suppliers (also Interviewees demanding money) • Few providers with little diversity to be found • Limited functional linkages (e.g. between EADD and Gov) and knowledge among clients about EADD • Definition of small holder farmer • Distances to farms • Lack of public transport • Clash of events Data processing Research International processed all the data collected on an ongoing basis. Research International personnel have developed a database of actors (BDS providers in each of the areas under study are listed, categorized by service provision and their location recorded). A further database defines specific provider gaps and capacities including a score against agreed selection criteria for determining target partner providers. A database of the small and micro enterprises (SMEs) interviewed has also been developed. The full data set is attached to this report (Annexes/Databases). To understand the markets, RI examined three key issues - demand, supply and transactions (the interaction between demand and supply) during the market assessment. The outcome of analyzing this information forms a picture of each BDS market showing how it works, where the opportunities for growth are, and where significant problems lie. Data analysis was undertaken to profile the markets, establish comparative information on the in- country sites (and the 3 countries) and draw conclusions from the data. A round table meeting was held in early December 08 with stakeholders to overview the methodology and process of data processing and analysis and reach consensus on the priority constraints/opportunities and identify possible solutions. The meeting presentation is attached to this report (Annexes/ Process meetings). Sustainable solutions that address priority supply side and demand side constraints were discussed. Illustrative market based interventions were also developed with a focus on potentially sustainable/profitable services that are replicable in the private sector. Strategies which ensure effectiveness, efficiency and sustainability were also discussed alongside suggested BDS performance measurements. The data processing plan was then circulated for stakeholder feedback during the analysis process and the data plan is attached to this report (Annexes/Process meetings). Comparative information on the in-country sites and 3 BDS markets was also produced. FINAL REPORT FOR BDS DIAGNOSTIC IN UGANDA 10 FIT RESOURCES JANUARY 2009

Presentations FIT Resources and Research International personnel collaboratively implemented a presentation and action planning at a stakeholder workshop in Uganda with staff, Consortium members and key informants on the 8th of January 09. This workshop included a short review presentation on the basic principles and practices of BDS and the Market Development Paradigm. All the research findings were presented and proposed illustrative solutions and performance measurements discussed (Annexes/Process meetings). Feedback was recorded and an action plan developed. FIT Resources then prepared this final draft report and will present the final report to Technoserve with support from Research International in Nairobi, Kenya on January 30th 2009. Key conclusions of the methodology • Outsourcing the MA to a research company ensured a more effective and efficient MA process. • A combination of outsourcing and internal capacity building ensured the best possible results. The likelihood of useful research results was ensured as EADD stayed close to the MA process. • The ability of EADD staff to remain consistent to the process was questionable. Staffs were not always available for the trainings and meetings as required plus EADD field staff were not available to partner on the field work in some locations drawing into question the long term ability of Field Staff to implement further diagnostics in new locations. • Determining a clear hypotheses and outlined MA goal and objectives ensured a more effective delivery of analysed data from Research International. • The MA focused on a holistic picture of the market and incorporated both sides of the market equation—demand and supply. FINAL REPORT FOR BDS DIAGNOSTIC IN UGANDA 11 FIT RESOURCES JANUARY 2009

Findings of fieldwork and data analysis Consumer survey Locations covered and key informants interviewed Luweero Masindi Kiboga Nakaseke (Wakyato) Kiryandongo (Kakooko) Kyankwanzi Katikamu Kimengo (Kijunjubwa) Nsambya Bamunanika Bwijanga (Ntooma) Kapeke Key Informants Interviewed • Chairman Luweero • Model Farmer and • Member of Cooperative Cooperative Member of Cooperative committee based in • Member of Cooperative Committee Kyankwanzi Committee- Katikamu Area • Chairman Kigomora- • Veterinary Assistant • 2 Dairy farmers; One zero Bweyale Farmers Kyankwanzi Sub County grazing hybrid cattle and Association • 2 local dairy both with local the other free grazing local • 2 local dairy both with cattle cattle. local cattle • 1 Supplier in Kyankwanzi • One Supplier in Luweero • 1 Supplier in Masindi Trading Centre Town Town Targeted SME consumers interviewed A total of 300 respondents were covered in the three survey sites in Uganda. Of these 264 (88%) were male while 36 (12%) were female. In terms of specific sites; of the 300 respondents, 100 (33%) were from Masindi, 98 (33%) from Kiboga and 102 (34%) were from Luweero. Most of the consumers were in the age groups; 36-45 (102), 26-35 (79) and 46-55 (53%). The other age groups had fewer numbers (less than 34 or less than 12%) of consumers. The full distribution is shown in the table below: Respondents profile Gender Age Area TOTA Mal Femal 18- 26- 36- 46- 56- 66 Masi Kibo Luw Area L e e 25 35 45 55 65 + ndi ga ero Total Sample 300 264 36 19 79 102 53 33 14 100 98 102 Masindi 33 36 17 37 49 34 15 24 21 100 - - Kiboga 33 33 33 26 20 27 53 48 36 - 100 - Luwero 34 32 50 37 30 38 32 27 43 - - 100 FINAL REPORT FOR BDS DIAGNOSTIC IN UGANDA 12 FIT RESOURCES JANUARY 2009

As per the recruitment criteria, all the consumers interviewed were engaged in cattle keeping. Other farming activities carried out, included food crop farming though their mainstay was on cattle keeping for income and sustenance. With regard to numbers of cattle kept, a majority of them kept more than 5 cows for milking. However, in Luweero, the proportion of farmers with 5 cows and below was significantly higher -40% compared to Masindi (10%) and Kiboga (24%). This is because Luweero is densely populated and farmers have mainly resulted to zero grazing practice as farms are quite small. Results concerning breeds kept indicated a ratio of 3:1 of Local Breeds to Cross Breeds. The numbers of Pure Exotic Breeds was more or less insignificant with an overall mention of only 3%, least in Kiboga at 2% and most in Luweero at 4%. Area Breeds of Cattle Kept TOTAL Masindi Kiboga Luwero BASE: Total Sample 300 100 98 102 % Pure Breed 3 3 2 4 Cross Breed 33 28 42 28 Indigenous 91 98 89 85 On milk production, farmers claimed to produce an average of 25 litres with sales of up to 18.7 litres per day. Among the three study sites, Masindi had the highest milk production and sales volumes, followed by Kiboga. Area TOTA Milk production and sale L Masindi Kiboga Luwero [Q4c1] Total (average) number of litres produced per day (Mean) 25.1 33.1 26.1 16 [Q4d] Total (average) number of litres sold per day (Mean) 18.7 27.5 17.4 10.6 Difference 6.4 5.6 8.7 5.4 Most farmers (78%) were found owning in excess of 5 acres of land. Amongst the study sites, Luweero had the largest proportion of farmers (34%) with 5 acres and below, while in Kiboga only 12% had 5 acres and below. However, regardless of the size most farmers indicated that they use ¾ to almost all their land for dairy farming/ cattle keeping as shown in the Table below: Area Farm Sizes TOTAL Masindi Kiboga Luwero BASE: Total Sample 300 100 98 102 % FINAL REPORT FOR BDS DIAGNOSTIC IN UGANDA 13 FIT RESOURCES JANUARY 2009

Less than a quarter 9 1 8 18 Between a ¼ - ½ 20 18 24 19 Between a ½ - ¾ 40 47 42 32 Almost all 30 34 26 31 To test the significance of dairy production, farmers were asked what proportion of their income came from dairy farming. Results showed that dairy contributes 31-50% of their total income as shown in the table below: Area Dairy contribution to HH income TOTAL Masindi Kiboga Luweero BASE: Total Sample 300 100 98 102 Less than 10% 12 3 21 12 11-30% 18 8 20 25 31-50% 40 47 42 32 51-70% 20 30 11 20 71-90% 20 19 19 23 Above 90% 14 23 13 6 Market profiles Changes Farmers are likely to undertake Farmers were asked what changes they were likely to undertake on their farms. Results showed the 72% of the farmers were already planning to undertake changes on their farms. The highest ranked change farmers wanted to undertake was improvement of breeds reared through cross breeding and artificial insemination which was rated at 67% followed by the desire to increase the herd size (56%), improving access to veterinary services (55%) and improvement in knowledge on dairy farming (40%). See full list below: Changes farmers are likely to undertake Masindi Kiboga Luwero BASE: All plan to change 215 57 83 75 % Improve breeding / breed of cattle through breeding methods / use AI 67 77 71 56 Enlarge size of herd / Buy more cattle 56 79 57 39 Improve the veterinary treatment / drugs used on cattle 55 68 66 32 Improve my knowledge about dairy farming 40 51 49 20 Buy farm equipments 33 44 30 27 Group together with other farmers / join association / join coop / 24 30 30 13 Get more money for my milk through changing buyer (general) 23 35 24 12 Improve the management of my dairy as a business 21 21 29 13 Grouping with other farmers to get a better price 20 30 25 7 Improve feed through growing better / more feed 18 9 11 32 FINAL REPORT FOR BDS DIAGNOSTIC IN UGANDA 14 FIT RESOURCES JANUARY 2009

Improve the quality of my milk / improve my milk handling skills 18 23 20 12 Get more money for my milk through increasing price 17 47 6 7 Change feeding to zero grazing 11 9 12 11 All the improvement aspirations were rated in terms of certainty of the farmers undertaking them. Results obtained generally depict the farmers more positive about issues that are within their sphere of influence. This result shows a general positive attitude of the farmers to change. There are generally few responses in the category ‘some what likely to make improvement’ which would depict a non committal attitude to change. The full result by various changes is depicted in the figure below: Definitely will do so have firm plans in place Very likely to make this improvement Somewhat likely to make this improvement Improve transport / invest in transport n=18 6 50 44 Improve feed storage methods n=9 11 78 11 Improve the management of my dairy as a business n=46 17 54 28 Grouping with other farmers to get cheaper inputs n=14 21 57 21 Change feeding to zero grazing n=23 26 48 26 Improve feed by buying supplements n=88 27 45 27 Improve the quality of my milk / improve my milk handling skills 31 62 8 n=39 Group together with other farmers / join association / join coop / 31 50 19 join producer group n=52 Improve technology n=20 35 45 20 Get more money for my milk through changing buyer (general) 35 57 8 n=49 Grouping with other farmers to get a better price n=53 37 40 23 Get more money for my milk through increasing price n=37 38 54 8 Buy farm equipments n=70 39 53 9 Improve the veterinary treatment / drugs used on cattle n=118 46 47 8 Enlarge size of herd / Buy more cattle n=121 50 43 7 Improve my knowledge about dairy farming n=85 53 27 20 Improve building n=13 54 23 23 Improve breeding / breed of cattle through breeding methods / 54 37 8 use AI n=145 Improve feed through growing better / more feed n=38 58 34 8 Awareness and frequency of use of the services The regularity of use of the different services available to the farmers was investigated. Results show that the most purchased services across the three study sites are veterinary treatment services, vaccination and products such as mineral supplements, sprays and disinfectants. In Kiboga (21%) and Masindi (30%) there was mention of purchases related to information/ training on Animal Husbandry while in Masindi had a reasonable proportion (20%) mentioning purchase of market information. The full general result is shown in the FINAL REPORT FOR BDS DIAGNOSTIC IN UGANDA 15 FIT RESOURCES JANUARY 2009

figure below: Aware Used Inadequate No times pst Ever Purchased in nowadays Amount 12 months purchased P12M Veterinary 51 treatment services 99 98 96 76 8 Veterinary 97 74 50 vaccination 98 96 5 Insecticides & tick 27 93 99 86 30 sprays 97 Mineral 63 34 26 78 78 73 supplements Artificial 59 8 2 71 5 5 Insemination (AI) Milk coolers 59 0 55 7 4 1 Disinfectants - for 13 25 47 cleaning and 56 44 35 sterilizing Information/training 51 44 18 8 3 on animal 14 husbandry The result also highlighted the occasional nature of some services in dairy management such as artificial insemination, whereas awareness was above average (59%), purchases were low but adequate (71%). The overriding reason on non use of services and products was the level of expense involved in the use of the various available services. It is important to note that rating on information on dairy markets was highest in terms of farmers not knowing where to get it, while the frequently used products like sprays and disinfectants had quality issues. The full result is depicted in Figure below: Information on dairy markets 100 Milk coolers n=14 64 21 7 7 Insecticides & tick sprays n=4 50 50 Disinfectants - for cleaning and sterilizing n=3 67 33 Veterinary vaccination n=13 69 31 Veterinary treatment services n=9 78 22 Artificial Insemination (AI) n=6 67 33 FINAL REPORT FOR BDS DIAGNOSTIC IN UGANDA it Too expensive Dont know where to get Quality Services are too far Refused 16 FIT RESOURCES JANUARY 2009

Constraints in the market for the services To understand both the demand and supply side constraints that are occurring in the market farmers were asked what problems they experienced with their dairy enterprises. The ranks of the various problems are shown in the table below: Key challenges faced by Dairy Farmers TOTAL Masindi Kiboga Luwero BASE: Total Sample 300 100 98 102 % Unaffordable animal health services- treatment, vaccination and drugs 47 61 53 28 Unreliable animal health services- treatment, vaccination and drugs 38 31 56 26 Low milk prices 37 35 44 31 Disease outbreaks 31 43 23 27 Inaccessible roads 30 30 51 11 Fluctuating milk prices 24 28 29 16 High transport cost 22 37 18 10 Poor climatic conditions 22 15 30 21 Delayed milk payments 19 37 14 5 Exploitation by middle men 18 19 23 11 Inaccessible loan facilities 17 16 32 5 Unavailability of milk cooling facility 16 23 22 4 Lack of adequate foliage e.g. grass, Napier grass etc 12 7 14 15 Inadequate foliage e.g. grass, Napier grass etc 11 5 15 14 Insecurity 11 6 13 13 FINAL REPORT FOR BDS DIAGNOSTIC IN UGANDA 17 FIT RESOURCES JANUARY 2009

Satisfaction with the service From the results obtained in this survey the levels of satisfaction exhibited by farmers on various services they had consumed was high across various services and products as shown in the figure below: Completely satisf ied Partly satisf ied Not at all satisf ied Seeds to grow feed n=7 29 43 29 Milk collection/bulking n=22 58 8 33 Artificial Insemination (AI) n=24 58 8 33 Information on dairy markets n=31 61 32 6 Milk advance payments or credit services n=15 60 27 13 Information/training on animal husbandry n=55 67 18 15 Veterinary vaccination n=294 67 24 9 Veterinary treatment services n=295 66 28 5 Metal milk churns n=17 82 6 12 Milk coolers n=11 82 9 9 Milk testing kits n=32 78 16 6 Disinfectants - for cleaning and sterilizing n=131 82 11 8 Insecticides & tick sprays n=298 83 16 1 Supplementary feeds n=32 84 6 9 Mineral supplements n=234 86 12 1 FINAL REPORT FOR BDS DIAGNOSTIC IN UGANDA 18 FIT RESOURCES JANUARY 2009

Awareness and understanding of the services Farmers across the three sites were aware and familiar with the benefits of some key services. However, despite high awareness on AI Services only a few claimed to be familiar with its benefits. Further availability and affordability of AI was rated too low. It is also worth noting that almost an insignificant number of respondents consider AI as one of the most important services. Not Completely affordable Most Aware familiar with Easily Very strongly even after important benefit of needed (n=300) available saving up overall needed Veterinary treatment services 99 77 60 91 32 36 Veterinary vaccination 97 78 57 92 29 15 Insecticides & tick sprays 93 94 78 86 22 27 Mineral supplements 78 88 63 80 20 8 Artificial Insemination (AI) 59 13 51 2 27 37 Milk coolers 59 34 21 55 53 5 Disinfectants - for cleaning and 56 67 48 57 25 5 Information/training on animal 44 30 23 50 39 1 Milk testing kits 39 27 24 22 60 Supplementary feeds 34 52 21 42 44 Information on dairy markets 33 25 53 1 Metal milk churns 32 33 15 31 73 Milk collection/bulking 32 34 22 43 42 Milk advance payments or credit 23 29 49 41 1 Base: Chuff Cutters 17 30 16 24 41 all Hay bailers 11 9 12 18 25 Market access The dairy market for farmers in the study sites is highly segmented with very many market players. The main market players however are: 1. Homes; this is when farmers directly supply milk to homes. Although this is not a preferred market (rated 31% for least preferred). It is a market that farmers recognize has an all round demand. Qualitative Interviews revealed that the main problem with this market is that sales are on credit and recovery is often very difficult. 2. The other significant market players are the Hawkers; these are middle men between the towns and the remote villages where the milk is produced. This option was ranked highest in terms of least preference (38%) for reasons that have been discussed in the previous section. It is important to recognize that they also present a constant source of demand for milk (40%) and it is to them that farmers usually sell. FINAL REPORT FOR BDS DIAGNOSTIC IN UGANDA 19 FIT RESOURCES JANUARY 2009

3. Farmers recognize that the Cooling Plant is a potential market option (47%) and actually rated it the most preferred buyer (40%), but as discussed earlier existing plants are unreliable and are few with limited capacity. Usually sells to Buys most often Least preferred Could sell to Preferred buyer buyer Direct to homes 68 44 15 10 31 Hawker 66 54 50 11 38 Cooling Plant 47 7 3 40 3 Direct to institutions 33 10 2 8 1 Farmers’ cooperative/group 28 5 3 13 1 Milk bar 23 11 5 1 4 Broker at farm gate 16 9 6 3 6 Bulking center 12 2 1 2 2 Processor 7 1 1 1 Apart from buying milk, farmers were asked what other services they received from milk buyers and what extra service, if any, they wanted. The result shows that farmers are interested in an all-round market player, one who not only buys but offers other services as well. Services currently offered and those desired are shown below: FINAL REPORT FOR BDS DIAGNOSTIC IN UGANDA 20 FIT RESOURCES JANUARY 2009

Services required Services received 4 Animal health services- treatment, vaccination and drugs 39 11 Milk collection from the farm or near farm 30 6 Advance on milk payments 27 9 Information on market prices 21 4 Training on animal husbandry 19 5 Delivery/Transport of farm inputs and animal feeds 15 0 AI services 13 2 Animal feeds/supplements 11 0 Farm inputs - seeds, fertilizer 11 To clearly understand the dynamics of this service delivery that is piggy backed onto milk purchases - farmers were asked whether they usually paid for the extra services they got from milk buyers. Results show that for most services there was no payment except where it involved Animal Health Services and Feeds/ Supplements or Milk Collections and Advances. The result is shown below: Yes No Delivery/Transport of farm inputs and animal feeds n=15 100 Information on market prices n=27 100 Training on animal husbandry n=12 100 Animal health services- treatment, vaccination and drugs 18 82 n=11 Milk collection from the farm or near farm n=34 9 91 Animal feeds/supplements n=6 33 67 Advance on milk payments n=19 11 89 Forty two percent of the farmers involved in survey felt they were getting very little information on where they can sell their milk. In Kiboga half of the respondents felt they were getting very little while in Luwero, the majority (57%) of the farmers felt they were getting just enough. Feeling about the information on where to sell milk TOTAL Masindi Kiboga Luwero BASE: Total Sample 300 100 98 102 % Very little 42 43 51 32 FINAL REPORT FOR BDS DIAGNOSTIC IN UGANDA 21 FIT RESOURCES JANUARY 2009

Just enough 46 47 35 57 A lot 12 10 14 11 Farmers indicated they are currently transacting on credit terms where milk buyers pay them after a specified time (65%). However, their preferred mode was cash on delivery with their milk buyers (62%). Payment modes TOTAL Masindi Kiboga Luwero BASE: Total Sample 300 100 98 102 % Paid cash on delivery 28 21 32 30 Paid in cash after a specified period 65 69 61 65 Cash deposited to a financial institution 0 - - 1 Barter - exchange milk for other services 1 - 4 - Cooling Plant Awareness of existing Cooling Plants was low with only 22% of the respondents claiming to be at least aware of a Cooling Plant. Cooling Plant awareness TOTAL Masindi Kiboga Luwero BASE: Total Sample 300 100 98 102 % Yes 22 31 23 12 No 78 69 77 88 Some of the Cooling Plants mentioned include: • Bruban Cooling Plant • Mpora dairy • LC III chairman • Samayi • Kibogo dairy • Hajji briham Cooling Plant • Kasima Cooling Plant • Nalukonge dairy • Bwayale milk cooler • Kyakulogire • Fresh dairy • Nyamata dairy • Kyenja • Bukwiri dairy FINAL REPORT FOR BDS DIAGNOSTIC IN UGANDA 22 FIT RESOURCES JANUARY 2009

• Kiwarabwi dairy Farmers mentioned that they preferred to have the services depicted below offered at the Cooling Plant: AI services 19% Animal feeds 22% Farm inputs - seeds, fertilizer 24% vaccination and drugs 44% Training on animal husbandry 58% Milk collection from the farm or near farm 60% Information on market prices 69% Credit facility 69% Animal health services- treatment and prevention 83% Asked how they would feel if they were asked to pay for the desired services, they all answered in the affirmation at no less than 90%. Qualitative interviews revealed that farmers are convinced that services that would be availed at a common point at the Cooling Plant would be of quality and at rates well known to every one. Information and training needs From amongst all the farmers included in the survey only 24% claimed that they had all the skills and information that one would need to be a good dairy farmer. This proportion was highest in Luweero (31%), followed by Kiboga (26%) and in Masindi those attesting were only 14%. To further understand this situation, farmers were asked the aspects of dairy farming where they felt they needed more information. The result is depicted below: Base: Total sample n=300 Record keeping Buyers 25% Public health issues and requirements 25% Awareness of government policies 25% New animal feeds 26% Buyers 30% Dairy farm record keeping 38% Cattle breeding 46% Improvement of milk production 51% Milk prices 56% Drug administration 62% Disease identification, treatment and prevention 72% FINAL REPORT FOR BDS DIAGNOSTIC IN UGANDA 23 FIT RESOURCES JANUARY 2009

From the issues highlighted above, it is apparent that most dairy farmers have a rural background and lack exposure to modern dairy management practices. Information required on services and products reflects none appreciation of issues like record keeping that are critical to enterprise development and management. In addition, only 19% of the farmers attested that they had received useful information about dairy farming in the past 12 months. The areas in which this information was received are depicted below: Awareness of government policies 7% Buyers 9% Record keeping 12% Dairy farm record keeping 14% Milk prices 16% Cattle breeding 19% New animal feeds 21% Public health issues and requirements 23% Improvement of milk production 30% Drug administration 42% Disease identification, treatment and prevention 72% The common channels of obtaining information are Government Extension Workers and fellow farmers. This finding points to a few and weak private sector actors in the dairy sector, especially with regard to responding to information and training needs. The full result on information sources by category of information is shown in the figure below: Media Farmers Extension Worker (GOV) Buyer Supplier NGO Milk prices n=9 22 11 44 11 11 Buyers n=5 40 20 20 20 Record keeping n=7 14 29 43 14 Improvement of milk production n=17 6 18 29 6 24 18 Public health issues and requirements n=13 8 38 38 23 Awareness of government policies n=4 100 Cattle breeding n=11 64 18 9 9 Disease identification, treatment and prevention n=41 12 5 49 20 15 Drug administration n=24 4 71 29 New animal feeds n=12 17 42 42 Dairy farm record keeping n=8 50 38 13 FINAL REPORT FOR BDS DIAGNOSTIC IN UGANDA 24 FIT RESOURCES JANUARY 2009

Taking from the result above on information and information sources; the result (figure below) on adequacy of information has to be taken with caution. Qualitative evidence obtained in the survey suggests that given the remoteness of the sites farmers feel that what they are receiving is adequate in the circumstances. However the reality of the situation is that some farmers take months on end without interacting with any information source except for the numerous FM stations, fellow farmers and milk buyers. The result on adequacy of channels is shown below: Adequate Inadequate Paid by self Milk prices n=9 78 22 33 Buyers n=5 20 80 Record keeping n=7 86 14 29 Improvement of milk production n=17 53 47 35 Public health issues and requirements n=13 46 54 38 Awareness of government policies n=11 50 50 25 Cattle breeding n=11 64 36 27 Disease identification, treatment and 56 44 46 prevention n=41 Drug administration n=24 63 38 63 New animal feeds n=12 75 25 25 Dairy farm record keeping n=8 50 50 63 The survey also sought to establish whether farmers keep their own records at the farm. Results show that few farmers only 22% keep some records on their farmers; amongst the records kept most are milk sales (66%), followed by treatment and vaccination records (63%) and others are shown in the table below: AI services records 2% Feeds record 2% Milk production 54% Yes, No, 22 Record on animal births 58% 78 Treatment and vaccination records 63% Milk sales 66% FINAL REPORT FOR BDS DIAGNOSTIC IN UGANDA 25 FIT RESOURCES JANUARY 2009

From Qualitative Interviews and the farm visits conducted in the course of the survey, it emerged that although farmers tried to keep records there are problems being experienced: 1. The quality of records kept is poor. The records lack clarity in content; it’s hard for one to follow them without the assistance of the person who wrote the records. 2. In addition ordinary school books are used to keep records which do not last long and easily get lost or spoilt. As a consequence of this situation only 32% of the farmers attested to knowing the profitability of their dairy farming activities. Technology and product development Most farmers attested to owning mobile phones (69%). To follow up on how this technology can be innovatively used, farmers were asked the types of information they would like to access on their phones through SMS alerts; and assuming the information was trustworthy, relevant and up to date. The most desired piece of information was on disease alerts and milk prices as shown in the figure below. These were also the services that the majority of them indicated high willingness to pay for. Milk rejected at processor level to inform farmer 3 6 Quantity of milk supplied 11 15 Market for breeds 16 20 Availability of new products and services 26 29 Availability of milk payments 26 31 New market opportunities 28 36 Sale of cows 34 38 Trainings/field days/dairy farming workshops 35 41 New markets 43 45 Access to loans 45 47 Milk prices 72 73 Cow disease alerts 74 76 Information would be ready to pay for Information would like to access through a mobile phone It should be noted that there is a phone mismatch between phone ownership and competence to use the various functions of the phone. Qualitative results agree with the FINAL REPORT FOR BDS DIAGNOSTIC IN UGANDA 26 FIT RESOURCES JANUARY 2009

quantitative findings that there many phone owners but also allude to the fact that for most farmers it’s the phone calls that matter and many are not conversant with SMS usage. This finding is consistent with the relatively low literacy and formal education levels in the study sites. Thus the use of mobile phones would involve embedding an element of training for farmers on various phone applications. It was suggested though that this would not be mass training but rather seed training where a few trained would teach the others and a multiplier effect would take care of this limitation. Finance Nearly all dairy farming operations both productive and sales are financed through private incomes and savings. Results show that 89% of the farmers would like to obtain lump sum money to develop their dairy farming. Several known sources of finance were enumerated by farmers and most the prominent were cooperative savings and credit (24%), followed by Banks (18%) and Cooling Plants (17%). Microfinance institutions were mentioned at 12% as shown in Figure 19 below: No Fa m il y/frie s o u rce , 4 n ds , 1 4 Ba n ks , 1 8 C o o p e ra ti v C o o lin g e SAC C O , p la n t , 1 7 24 Micro N GOs , 5 fin a n ce i n s titu tio n s Su p pl ie rs , , 12 1 Policy and Advocacy There are hardly any noticeable policies and advocacy initiatives that are currently taking place in the dairy industry that are known by the farmers. In the qualitative interviews there was ignorance of the operations of the diary development authority which as a national body responsible for growth and development of the dairy sector. How ever the following issues came up as important for policy and advocacy initiatives: 1. The drive to transform dairy farming from herd size to individual stock productivity. This is a lead policy and advocacy issue because currently farmers mostly keep local breeds of cattle. These are low yielding and yet require a lot of space for grazing. FINAL REPORT FOR BDS DIAGNOSTIC IN UGANDA 27 FIT RESOURCES JANUARY 2009

This effectively translates into erratic highly seasonal milk incomes. This will move many farmers from looking at milk as an incidental product to an intentioned product. 2. Farmers also suggested that the rules by the National Drug Authority that require fixed premises for suppliers of certain requirements that are essential for them are limiting access to certain services. 3. Farmers are suspicious of the operations of Cooperatives. This impart is explained by the history of the Cooperative Movement in Uganda but also by the fact that many of them indicated that they had lost savings and contributions to unscrupulous Cooperative Schemes. This was particularly expressed in Luweero where farmers said they wanted to see the Chilling Plant in place then they would buy into it. Unmet demand and market opportunities From the farmers the following are priority unmet demands which represent market opportunities: 1. There is clearly an unmet demand for artificial insemination services. Improved herd quality will ultimately result in increased production of milk and this is the underlying driver for the development of the sector. 2. Milk collection and bulking is characterized by hawkers who increase the market chain at the cost of farmers. They have limited and unreliable capacity. This represents a market opportunity for strategically placed Chilling Plants which are essential for stable milk supply and longevity. 3. For BDS related services, demand is generally skewed towards Production Support Services and not Sales Support Services. This is limiting income opportunities that would arise from knowledge of the market. Key demand side constraints and opportunities The following are the key demand side constraints that represent opportunities for BDS: 1. Limited and fluctuating incomes are the key demand side constraint. This is essentially a result of farmers having low-unstable milk production which is supplied to an unpredictable milk market. The farmers hardly have any influence in the milk value chain. This presents an opportunity for BDS through seeking to empower farmers under a cooperative arrangement. 2. There are few suppliers; and, hardly any institutionalized. Thus even though farmers are constrained by incomes the services offered by the current caliber of suppliers are not competitive both in quality and price and this presents an opportunity for more market entrants to stimulate a competitive market environment. 3. Farmers simply do not know the wide range of services and the benefits that would accrue to consuming those services. This is evident in the mentions of what is FINAL REPORT FOR BDS DIAGNOSTIC IN UGANDA 28 FIT RESOURCES JANUARY 2009

accessed and what is desired. This presents an opportunity for enlightening farmers on the range of services and benefits. Business Development Services that address those constraints and opportunities The following Business Development Services would be critical in responding to the constraints and opportunities highlighted above: 1. Facilitating the acquisition of chilling/ Cooling Plants; these respond to multiple constraints and opportunities including milk collection and bulking plus the market distortions created by milk hawkers and would enhance access to a stable predictable milk market. Facilitation here might be realized through cost recovery where the infrastructure is put in place and then the cost recovered as farmers buy into the plant. 2. Specialized dairy farming services like artificial insemination need a high level of investment and need partnership with local government providers under specific memoranda of understanding for purposes of maintaining quality which will attract paid demand which is currently lacking. The capacity to deliver this service exists and farmers are willing to pay but the discord is with the quality of semen and this is the point of intervention. 3. Farmers need information and training. Dairy production is generally rudimentary. Demand and supply decisions are not balanced, farmers simply do not know the range of various services and how these can enhance productivity. This aspect ties in to the issues of information and innovative product development - if ignorance is high then not much can be accomplished. This needs to be overcome. Specific policy constraints that are affecting MSE product markets Field findings showed that specific policy constraints on dairy products from medium and small enterprises concern milk and milk products standards and manifest in the following: 1. In Uganda some standards exist; however, both suppliers and consumers were not aware of these standards and how they were developed. And, these are limited in scope plus they do not cover on farm primary dairy production practices. 2. The most commonly known issue on standards was amongst transporters. They claimed that they were banned from transporting milk in plastic Jerry Cans and yet the cost of Churns was prohibitory. However this also had an enforcement problem as Hawkers operating Motor Bikes were not adhering to this and continued using plastic Jerry Cans which have problems with maintaining the safety and quality of milk. 3. In Uganda, it is common for milk to be vended in polythene bags in evening markets. This kind of milk is often adulterated and cheap and presents a public health and safety hazard. FINAL REPORT FOR BDS DIAGNOSTIC IN UGANDA 29 FIT RESOURCES JANUARY 2009

Supplier diagnostic by location Existing providers/ services and their locations Type of Location organization Business Name Private Sub- Trading Services provided comm… location centre Ezinabala * Luwero T/C Luwero Treatment; Tick spray; Mineral supplement Luwero Farmers * Luwero Luwero Treatment; Tick spray; shop Mineral supplement Ssosolye * Luwero T/C Luwero Treatment; Tick spray; Mineral supplement Kikyusa Vet Drug * Kikyusa Veterinary vaccination; shop Veterinary treatment services Bulemezi * Luwero Treatment; Tick spray Town and Mineral feeds Banabukalasa * Wobulenzi Wobulenzi Treatment; Vaccination Farm Supply and Minerals Las Enterprises * Wobulenzi Wobulenzi Treatment, Sprays and Minerals, salts etc No business name Luwero Treatment, Vaccination specified and Spraying Vet Point Clinic * Katikamu Wobulenzi Treatment, Sprays and Minerals salts etc FINAL REPORT FOR BDS DIAGNOSTIC IN UGANDA 30 FIT RESOURCES JANUARY 2009

A workable data base of the BDS actors A workable data base of these BDS providers is attached to this report (Annexes/Databases). BDS suppliers interviewed WHOLESALE OR RETAIL? Retail Both SUPPLIER NAME BUSINESS NAME P. O. BOX ROAD/ STREET TOWN/ CENTRE Nature of Business Count Count ANIMAL LIFE KIGUMBA MASINDI Private Owned SVS ROAD 1 0 BIKYENKYA PIONEER FARM KIJUJUMBA Private Owned HENRY SUP ROAD 0 1 BISASO AGALI AWAMU NGOMA ROAD KIWOKO Private Owned IBRAHIM VET 1 0 BYAMUKAMA YIGA BYAMU 71 KIBOGA HOIMA ROAD KIBOGA TOWN Private Owned ANNET 1 0 DAVIS BWIRE VALID DRUG 64 KLA-GULU BWEYALE Private Owned SHOP BWEYALE 1 0 DENIS KABWANGU VET 7 KIBOGA HOIMA ROAD KIBOGA Private Owned ANTHONY SHO 1 0 DR.ATICOLO JRA VET ZAZA KIBOGA Private Owned PARTNERS 1 0 JAMES COP VET ALONG BWEYALE Private Owned HIGHWAY 1 0 KATORONGO KATORONGO NTOOMA T C NTOOMA TC Private Owned VET SH 1 0 KISAKYE ENKUMBI WOBULENZI KIKYUSA Private Owned MARGARET BWEBUGAG ROAD 1 0 FINAL REPORT FOR BDS DIAGNOSTIC IN UGANDA 31 FIT RESOURCES JANUARY 2009

MAHOORO NTOOMA VET NTOOMA TC NTOOMA Private Owned KELLEN 1 0 MANDE JOYCE REDEEMER VET BWEYALE TC BWEYALE Private Owned CON 0 1 MOHOORO NTOOMA VET NTOOMA NTOOMA Private Owned KELLY 1 0 MR. KALULE LAS 34 K'LA WOBULENZI Private Owned ENTERPRISES WOBULENZI LUWEERO RD 1 0 MR.KAMULASI TOMKY VET KIBOGA HOIMA KIBOGA Private Owned TOM DRG SH RD 1 0 NABULYA JANE EZINABALA VET KIKUBO LUWEERO Private Owned CE TOWN 1 0 NABUNYA SOSOLYE VET LUWERO PARK LUWERO Private Owned HARIET DRG 1 0 NALONGO VET POINT OFF KLA WOBULENZI Private Owned CLINIC LUWERO RD 1 0 NANSEREKO HAJJA FARM NGOMA ROAD KIWOKO Private Owned HARIET SUPPL 1 0 NDAWULA KIKYUSA VET KIKYUSA MAIN KIKYUSA Private Owned RONALD SHOP 1 0 NDORI JULIUS NJ VET DRUG KIGANZI ROAD KIBOGA TOWN Private Owned SHOP 1 0 SENTONGO DAN LUW FARMERS KIKUUBO LUWEERO Private Owned SHOP 1 0 SUNDAY G. KATUGO VET KATUGO ROAD KATUGO T/C Private Owned TUGUME CENTR 1 0 TUMWINE BWEYALE VET 98 BWEYALE TC BWEYALE Private Owned ARNOLD SHOP BWEYALE TWEHEYO AGRO VET NTANGA MASINDI TOWN Private Owned GASHOM DRUG SH STREET 1 0 WALULYA WAL FARM KASIISO ROAD KASANA Private Owned MUKASA 1 0 FINAL REPORT FOR BDS DIAGNOSTIC IN UGANDA 32 FIT RESOURCES JANUARY 2009

FIXED OR MOBILE BUSINE IF FIXED, SS PERMAN HOW OLD IS PERMANENT CASUAL PREMIS ENT OR BUSINESS? EMPLOYEES EMPLOYEES ES? SEMI? n= Le Se counts ss Betw Ov Fix mi - tha een er ed Per n 1 1-2 2 pre Per ma SUPPLI ye year ye mis Bot man nen ER ar s ars 0 1 2 3 0 1 2 3 es h ent t NAME n n n n n n n n n n n n n n n BIKYEN KYA HENRY 0 0 1 0 0 0 1 1 0 0 0 0 1 1 0 BISASO IBRAHI M 0 0 1 1 0 0 0 1 0 0 0 1 0 1 0 BYAMU KAMA ANNET 0 0 1 0 0 0 1 1 0 0 0 1 0 1 0 DAVIS BWIRE 0 0 1 0 0 1 0 0 0 0 1 1 0 1 0 DENIS ANTHO NY 0 0 1 0 0 0 1 1 0 0 0 1 0 1 0 DR.ATIC OLO 0 0 1 0 1 0 0 0 0 1 0 1 0 1 0 JAMES 0 0 1 0 1 0 0 1 0 0 0 1 0 1 0 KATOR ONGO 0 1 0 0 1 0 0 1 0 0 0 1 0 0 1 KISAKY E MARGA RET 0 0 1 1 0 0 0 1 0 0 0 1 0 1 0 MAHOO RO KELLEN 0 0 1 0 0 1 0 0 0 0 0 0 1 MANDE JOYCE 0 0 1 0 0 1 0 1 0 0 0 1 0 1 0 MOHOO RO 0 0 1 0 0 1 0 1 0 0 0 1 0 1 0 FINAL REPORT FOR BDS DIAGNOSTIC IN UGANDA 33 FIT RESOURCES JANUARY 2009

KELLY MR. KALULE 0 0 1 0 1 0 0 1 0 0 0 1 0 1 0 MR.KAM ULASI TOM 0 0 1 0 1 0 0 0 1 0 0 1 0 NABULY A JANE 0 0 1 0 1 0 0 1 0 0 0 1 0 1 0 NABUN YA HARIET 0 1 0 1 0 0 0 1 0 0 0 1 0 1 0 NALON GO 0 0 1 0 1 0 0 1 0 0 0 1 0 1 0 NANSE REKO HARIET 1 0 0 1 0 0 0 1 0 0 0 1 0 1 0 NDAWU LA RONAL D 0 0 1 0 0 0 0 0 1 0 0 1 0 NDORI JULIUS 0 1 0 0 0 0 0 0 1 0 0 1 0 SENTO NGO DAN 0 0 1 0 1 0 0 1 0 0 0 1 0 1 0 SUNDA Y G. TUGUM E 0 1 0 0 1 0 0 0 1 0 0 1 0 1 0 TUMWI NE ARNOL D 0 1 0 0 0 1 0 1 0 0 0 0 1 1 0 TWEHE YO GASHO M 0 0 1 0 1 0 0 1 0 0 0 1 0 1 0 WALUL YA MUKAS A 0 0 1 1 0 0 0 1 0 0 0 1 0 1 0 Total 1 5 20 5 10 5 4 19 4 1 1 22 3 22 1 FINAL REPORT FOR BDS DIAGNOSTIC IN UGANDA 34 FIT RESOURCES JANUARY 2009

Types of services and price of services, how providers cover costs, profitability, existing contractual arrangements/relationships and promotional/marketing strategies Types of Services and Price of Services 1. A variety of services and products were mentioned by the suppliers, the most mentioned were insecticides and tick sprays, followed by general Veterinary Treatment Services, Vaccinations and Mineral Supplements. The other mentions by district are shown in the table below. The results on types of services show that highly specialized services like artificial insemination are not widespread and common amongst suppliers. It is also apparent among the products that those capital asset characteristics like Milk Churns, Milk Collection and Bulking also have few suppliers involved. DISTRICT Qn 8a. Which Services or goods do you MASINDI KIBOGA LUWERO Total provide to Diary Farmers Responses Responses Responses Responses AI - Artificial insemination 0 0 1 1 Veterinary treatment services 6 5 10 21 Veterinary vaccination 4 5 7 16 Supplementary feeds 4 1 2 7 Mineral supplements 4 4 7 15 Disinfectant - for cleaning and sterilizing 6 2 1 9 Insecticides and tick sprays 8 5 10 23 Seeds to grow feed 1 1 2 4 Milk testing kits 2 1 0 3 Metal milk churns 0 0 1 1 Information / training on animal 6 1 2 9 husbandry Milk collection / bulking 2 0 0 2 Milk advance payments or credit 1 0 0 1 services Information on dairy markets 0 1 0 1 Total 44 26 43 113 2. As indicated from issue one above, there are very few supplier on specialized services and high investment- low turnover services and products; it is can also be deduced from the result below that alternatives do not exist in terms of suppliers of these services and products. It is only ordinarily tradable products like sprays and supplements as well as general veterinary services that have multiple options in terms of suppliers. DRAFT REPORT FOR BDS DIAGNOSTIC IN UGANDA 35 FIT RESOURCES DECEMBER 2008

DISTRICT Qn 8b. How many Other Suppliers are Known to be Offering the MASINDI KIBOGA LUWERO Total Services and Products Counts Counts Counts Counts Veterinary treatment services 6 5 8 19 Veterinary vaccination 4 5 5 14 Supplementary feeds 4 1 1 6 Mineral supplements 4 4 6 14 Disinfectant - for cleaning and sterilizing 6 2 1 9 Insecticides and tick sprays 8 5 8 21 Seeds to grow feed 1 1 2 4 Milk testing kits 2 1 0 3 Metal milk churns 0 0 1 1 Information / training on animal husbandry 6 1 2 9 Milk collection / bulking 2 0 0 2 Milk advance payments or credit services 1 0 0 1 Information on dairy markets 0 1 0 1 Total 44 26 34 104 3. With regard to service delivery it emerges from the results that suppliers often deliver to farmers (20 out of 25 mentions); this result should be understood with regard to the activities of veterinary workers in the various sites that were involved in the survey. Very often farmers do not come to shops but rely on the veterinary workers to bring them most supplies i.e. the vets act as liaisons between the farmers and actual suppliers. 4. In nearly all mentions (21 out of 25 mentions) suppliers attested that they mostly deal with small scale farmers. Qualitative Interviews with some suppliers regarding the meaning of small scale revealed that this was on the basis of the sizes of farms and the numbers of animals they keep. Suppliers felt the farmers in their areas do not qualify to be considered as large scale because they generally produce little milk at individual level and earn little money from it. DISTRICT MASINDI KIBOGA LUWERO Total Count Count Count Count TO WHOM SUPPLIER MAINLY Small scale 7 4 10 21 SALES farmers Large scale 1 2 0 3 farmers Both 1 0 0 1 Total 9 6 10 25 5. Asked whether they offered any additional services to farmers; only one supplier from Masindi attested while more than half from both Kiboga (5 mentions) and Luweero (6 mentions) were affirmative. Further investigation revealed that the additional services are largely in the form of advice on how to manage herds (12 mentions) and helping farmers access Credit Services (3 mentions) as shown below. DRAFT REPORT FOR BDS DIAGNOSTIC IN UGANDA 36 FIT RESOURCES DECEMBER 2008

DISTRICT MASINDI KIBOGA LUWERO Total Additional Services Responses Responses Responses Responses Small credit facilities 1 1 1 3 Advice on how to manage cows 1 5 6 12 Improve market 0 1 0 1 Total 2 7 7 16 6. Similarly suppliers indicated that farmers usually are interested in information concerning herd management (17 out of 28 mentions), followed by how to use the purchased product and also how crossbreed and/ or herd improvement can be attained as shown in the Table below by site. Almost all (save for three, all from Masindi); the suppliers claimed that they usually do not charge for this information. The three from Masindi who claimed to charge indicated that the charge usually depends on the kind of information the farmer needs and the associated product cost. It emerged that the charge is some times not direct but once the advice is given then the unit cost of the service or product is slightly increased without the knowledge of the farmer. Again this finding has to put in the context that service delivery both in terms of other services or products is by Veterinary Services providers. DISTRICT Information sought by Dairy from MASINDI KIBOGA LUWERO Total Suppliers Responses Responses Responses Responses How to use purchased supplies / 3 2 0 5 products How cross breeding can be achieved 2 0 3 5 Available market for dairy products 1 0 0 1 How to manage cows 6 4 7 17 Total 12 6 10 28 7. From a general perspective of qualitative interviews, suppliers claimed that farmers usually drive hard bargains on prices and seek consumption of services and products on credit terms. This not withstanding, they also indicated that the default rate on credit is usually very high. These interviews also revealed that pricing products and services is often determined by the price the supplies where obtained at; whether the supplier is selling from the local town or has traveled to the local market near the farmers and whether the supplier, especially for Veterinary Services, has a long standing relationship with the farmer. DRAFT REPORT FOR BDS DIAGNOSTIC IN UGANDA 37 FIT RESOURCES DECEMBER 2008

DISTRICT MASINDI KIBOGA LUWERO Total Factors that Influence Pricing Responses Responses Responses Responses Transport costs - To purchase / supply 6 4 5 15 goods and services Cost prices / Price increments and 4 3 8 15 decrements Demand/ Stock availability 3 2 1 6 Price of drug preservatives 2 1 0 3 Total 15 10 14 39 8. It emerged that most suppliers gauged the level of demand for services to be moderate (11 mentions) and high (10 mentions). Amongst those who felt that the level of demand was low the main reason advanced was sales were low because farmers purchasing power was low equally low while for those claiming demand was high the reverse was considered true. Whereas this result was not very informative, Qualitative Interviews with some suppliers revealed that services delivery is very often highly personalized and suppliers with well established networks and linkages/ relationships with veterinary service providers definitely have high demand for their products and services. DISTRICT MASINDI KIBOGA LUWERO Total Count Count Count Count What Is The Level Low 1 1 2 4 Of Demand High 5 3 3 11 Moderate 3 2 5 10 Total 9 6 10 25 How providers cover Costs and Profitability 1. Qualitative discussions with the suppliers/ providers on how they cover their costs and gain profitability revealed that they essentially pass on all the business costs to the consumers/ farmers. There were no other mechanisms of cost recovery mentioned by the suppliers. There was no mention of any form of subsidy or supply delivery that is piggy backed onto other services for purposes of covering costs. 2. This was found to stem from the nature of the businesses that are operated. These are generally sole proprietorships formed with own savings with no other stakeholders or partnerships. This qualitative observation was reinforced by the results on the preferred mode of payment; suppliers indicated that farmers generally pay cash (25 out of 43 mentions) although credit is also an option that is often used (16 out of 43 mentions) as shown by site below: DRAFT REPORT FOR BDS DIAGNOSTIC IN UGANDA 38 FIT RESOURCES DECEMBER 2008

DISTRICT MASINDI KIBOGA LUWERO Total How Farmers Pay Suppliers Responses Responses Responses Responses Installments 1 1 0 2 Cash 9 6 10 25 Credit 6 3 7 16 Total 16 10 17 43 3. Given this scenario, farmers indicated that there are associated challenges with the various payment options that are available. Most outstanding was the mention of credit recovery problems along with high rates of default with tied out capital with an associated cost of calling or looking for the farmers in question. 4. Although cash was most preferred for capital recycling and business liquidity reasons; suppliers argued that the hard bargains driven by farmers often eat way at the envisaged margins and refusal to accept either credit terms or the proposed bargains often leads to low tock turnover, slow business and smaller margins hence a negative effect on profitability. DISTRICT MASINDI KIBOGA LUWERO Total Challenges with Payment Options Responses Responses Responses Responses Long periods to clear credits / 5 4 2 11 Installments/ difficult recovery Cash payers drive very hard bargains 2 0 6 8 Defaulting 4 5 6 15 Total 11 9 14 34 Existing Contractual Arrangements Out of the 25 supplies included in the survey, 18 had no existing contractual arrangements in services or products provision; and, 5 of the 7 who claimed to have contracts were from Masindi. This finding highlights the level of business development amongst the three sites. Of the three Masindi is more developed and has farmers that are generally larger and more developed. DISTRICT MASINDI KIBOGA LUWERO Total Count Count Count Count What Kind of Contracts Yes 5 1 1 7 No 4 5 9 18 Total 9 6 10 25 Promotional Marketing Strategies There are generally few initiatives by suppliers to create awareness on their products and services. Suppliers generally rely on the bigger suppliers from whom supplies are obtained to create awareness. Amongst the three sites the suppliers in Kiboga are least active in awareness creation while those in Luweero were most active. This result is shown below by site. The main strategy works with a supplier in Kampala announcing on radio or in the DRAFT REPORT FOR BDS DIAGNOSTIC IN UGANDA 39 FIT RESOURCES DECEMBER 2008

papers a particular product and then mentioning the outlet agencies in the various locations. This result points to the level of capitalization and therefore the scale of operations of these businesses. DISTRICT MASINDI KIBOGA LUWERO Total How Suppliers Create Awareness Responses Responses Responses Responses Have radio weekly program. 3 1 1 5 Rely on supplier ads 3 3 7 15 Farmer to farmer linkage / information 3 1 5 9 giving Home visits/ Direct to farmers/ Field 0 1 3 4 visits Telephone calls 0 1 0 1 Total 11 7 16 34 Capacity gaps of interviewed suppliers The capacity gaps of BDS suppliers in the study sites largely arise from the nature of the enterprises that these suppliers are. As discussed earlier these are private and in most cases sole proprietor businesses that have been set up using private individual capital and rely on these individuals technical competence to deliver services and as a result have the following capacity gaps: 1. The technical competence of the individuals concerned is limited. Most agro-vet outlets are concerned with veterinary related services because most operators are either veterinary assistants or veterinary doctors whether still in service or retired. It also emerges that once this technical person goes into the field, they often leave attendants who have no technical exposure to dispense or sell whatever service is available at the outlet. This problem was found worse amongst suppliers of feeds and feed supplements where there was totally no technical competence in appropriate dairy feed regimes. 2. As a result of the above problem, nearly all suppliers are limited in stock levels and capacity to avail options to farmers since they provide only what they can afford given the level of capital their businesses have. This limitation in business capitalization underlines a key factor in the scale of operations of these suppliers in terms of areas covered, consumer outreach and the extent to which competitive services provision can actually stimulate demand. Priority supply side constraints, market failures, and market opportunities 1. In analyzing the priority supply side constraints two perspectives are considered; the suppliers’ understanding of products and services sourcing limitations amongst farmers and the suppliers own challenges in businesses operations. DRAFT REPORT FOR BDS DIAGNOSTIC IN UGANDA 40 FIT RESOURCES DECEMBER 2008

2. From the three sites in Uganda, it is apparent that dairy farmers’ products and sourcing constraints from the perspective of suppliers are characterized by poor road infrastructure that escalates the cost of product and services sourcing. This is through high transport costs and time spent away from the farm traveling. This perception of a high cost has to be understood in the context of low-erratic incomes that diary farmers have as a result of an unstable milk market. This observation effectively manifests as low purchasing power (demand) amongst farmers for the suppliers products and services. 3. In Luweero, the unique mentions were little knowledge on products and services; and, high procurement prices which translate into high consumer prices for farmers. For Masindi, inexistence of specialized services and service providers like artificial insemination was the lead issue while in Kiboga the unique constraint was the quality of products with suppliers admitting that it’s not uncommon for what is supplied to be ineffective in use. The variety of responses on priority constraints as perceived by suppliers on the side of farmers is shown below: Luweero Masindi Kiboga Qn17a. • Long distances • Limited goods and • Long distances and bad Key and bad roads services options/ roads creating high Constraints creating high limited supplier transport costs and Dairy transport costs. options. untimely service delivery. Farmers • Low capital bases • Inexistence of • Poor farmers’ purchasing Face While and high specialized service power due to farmer’s Sourcing procurement (e.g. Artificial erratic-low incomes. for a prices for insemination) • High and fluctuating prices Supplier products. suppliers. of veterinary products and • Poor farmers’ • Long distances and services and other inputs. purchasing power bad roads creating • Some veterinary products due to farmers’ high transport costs. on the market do not work, erratic-low • Poor farmers’ diseases seem resistant incomes. purchasing power due (some are obtained • Little knowledge to farmers’ erratic-low expired). about the use of incomes. products. 4. From the same perspective suppliers suggested the options below to minimize the effect of these constraints in the diary farmers’ ability to source for suppliers. Luweero Masindi Kiboga Qn. 17b. • Creating • Start a cooperative to • Introduce subsidies to Opinion of linkages with help them over come help farmers afford Suppliers bigger suppliers the common veterinary products and in who bring goods constraints. services. Minimizing and services for • Increasing outlets in • Introduce a system where Dairy them to retail outlaying areas (or even stock outs are managed. Farmers out. in the main town where • There should be research Constraints • Strengthening small suppliers can buy to establish effective and DRAFT REPORT FOR BDS DIAGNOSTIC IN UGANDA 41 FIT RESOURCES DECEMBER 2008

them by for retail) to enable non effective drugs improving to farmers save on (initiate feed back access to capital transport and purchase mechanisms between options. more. consumers and suppliers). • Increasing • Improving the road • Make the National Drug outlets in infrastructure in the Authority flexible on its outlaying areas dairy areas. requirements for operation to enable • Strengthening them by especially establishment farmers save on improving access to of branches (suppliers transport and capital options. should be allowed to purchase more. • Lobby government to follow weekly markets in • Have provider strengthen veterinary the local areas). induction support services. • Have provider induction training/ • Help farmer obtain a training/ workshop to workshop to stable market for milk to improve supplier, goods improve supplier, overcome low-erratic and services knowledge. goods and incomes. services • Have provider induction knowledge. training/ workshop to • Improving the improve supplier, goods road and services infrastructure in knowledge. the dairy areas. From suppliers own challenges in business operation, the following manifest as priority constraints: 1. Sources of products and quality of products; results show that district level suppliers have limited and unclear / un-established sources of stock. This was particularly apparent in Luweero where suppliers were unwilling to disclose the source supplies; they gave a vague answer ‘Kampala’ without specifying any details. This is a priority constraint because it underlines issues surrounding quality and associated use knowledge. The full result on sources of supplies is shown below. 2. This observation actually explains why almost all suppliers claimed that they always pay for supplies in cash. It is only in Masindi where one supplier claimed that they have the option of credit or paying in installments. The outstanding reason they gave was that they are never given any other option by suppliers. This is reinforced by the responses obtained when suppliers were asked how they ensured quality of supplies; the lead answer was they check the expiry dates on the labels (11 mentions); followed by inquire from farmers on use results (8 mentions). Interestingly only one supplier (Masindi) attested to having a product return on quality queries. DISTRICT Qn18a. Where Supplies are Obtained MASINDI KIBOGA LUWERO Total from Mentions Mentions Mentions Mentions CONTAINER VILLAGE 3 1 1 5 COOPER UGANDA LTD 3 2 0 5 DRAFT REPORT FOR BDS DIAGNOSTIC IN UGANDA 42 FIT RESOURCES DECEMBER 2008

ELAM UGANDA LTD 0 2 0 2 GLOB VET SERVICES 0 1 0 1 KAMPALA - M.S.J 0 0 1 1 KAMPALA 2 1 8 11 KATWE CHEMICALS 0 1 0 1 M.S.J AFRO AGRO PHAR 0 0 1 1 M.V.C 0 1 0 1 MUSAKA ALWAZA 1 0 0 1 NATIONAL DRUG AUTHOR 0 1 0 1 NILE SERVICES LTD 0 1 1 2 NO LOAD BROKERS 1 1 0 2 QUALITY CHEMICALS 3 1 0 4 SEKALALA AGROVET SVS 2 0 0 2 Total 15 13 12 40 3. Business financing/ funding; nearly all suppliers are individual small businesses that have a small scale operation both in stock and areas covered. Suppliers essentially use their own saving to establish and operate business. The lead challenge on financing/ accessing capital was mentioned as high interest rates and lack of collateral (16 mentions) followed by inexistence sources of capital and obtaining documentation often required to access capital. These are shown below: DISTRICT Challenges in Business Financing/ MASINDI KIBOGA LUWERO Total Funding Responses Responses Responses Responses No Sources of Capital 1 4 1 6 Interest is high on borrowed capital and no collateral 6 1 9 16 Getting documents required when you want to obtain funding is a problem 0 2 1 3 Total 7 7 11 25 4. The other challenges mentioned, were linked to fulfillment of legal requirements for business operations. The lead challenge here was high costs involved amidst demands for bribes (20 mentions) followed by a lot of bureaucracy which is time consuming (11 mentions) as shown below by site. DISTRICT Challenges in Fulfilling Legal MASINDI KIBOGA LUWERO Total Requirements Responses Responses Responses Responses There is a lot of bureaucracy and its time consuming 5 2 4 11 The costs involved are high and involve bribes 7 4 9 20 Total 12 6 13 31 DRAFT REPORT FOR BDS DIAGNOSTIC IN UGANDA 43 FIT RESOURCES DECEMBER 2008

5. Specific market entry challenges; suppliers indicated that lead issue for any market entrant was credit management. Farmers generally have a high demand for credit services and initially suppliers are tempted to give it but have problems with cost recovery, this was particularly big in Masindi. Raising capital was most mentioned in Masindi and Kiboga while location of business particularly away from wholesalers and other small competitive retailers was most mentioned in Luweero as shown below: DISTRICT Challenges a Supplier (New Market MASINDI KIBOGA LUWERO Total Entrant) Should be Prepared for Responses Responses Responses Responses Credit Management 8 1 1 10 Transport and cost of obtaining stock 1 1 0 2 Location or site of the business (must be away from whole sellers) 0 1 6 7 Meeting legal requirements 1 2 2 5 Raising Capital 4 4 1 9 Total 14 9 10 33 Market Opportunities 1. Market opportunities were analyzed in terms of key diary farming services and products that suppliers felt were in high demand and services and products that suppliers could offer but are currently unable to. The reasons for these situations are viewed as pointers to market entry options that may be available for BDS services. 2. The products and services in high demand according to the suppliers themselves do not give a very informative result on market opportunities because they are no different from those that the suppliers are already offering. However, they do indicate an opportunity in terms of market players. There are few market players who can optimally satisfy the market. Optimal satisfaction in the sense that the purchase price on the side of the consumers is not exploitative to the extent that it inhibits demand instead of growing it. The fact that these products and services are no different from those being offered currently also shows that the market players now are looking at returns per item not on turnover and that creates high prices in the long run. Luweero Masindi Kiboga Qn. 22. • Training for suppliers • Vaccination services • Dewormers Key and farmers on how • Feed supplements/ • Chilling services Dairy • Sprays (Ticks, mineral licks • Improved breeds Farming • Acaricides • Sprays, Spray Kits/ (Friesian bulls) Services • General Veterinary Insecticides • Sprays and services • Deformers • Training on artificial Products • Products (Bontic, • General Vet Services insemination on Albenzone 10%, • Metal Milking churns • General Veterinary Demand Albendazole, Endospec, • Fencing techniques services Albena, Deworming • Milk testing kits tablets, Milbitraz DRAFT REPORT FOR BDS DIAGNOSTIC IN UGANDA 44 FIT RESOURCES DECEMBER 2008

3. With regard to services suppliers would like to offer but are currently unable, two issues are apparent and these include the level of capitalization of the suppliers in market and the level of technical exposure and competence they have. The services desired are specialized e.g. artificial insemination, producer loans and vaccination. These require a reasonable level of capital and technical competence and represent a clear market opportunity. DISTRICT Services Supplier Wants to Offer but is MASINDI KIBOGA LUWERO Total Unable Responses Responses Responses Responses Artificial Insemination 4 0 0 4 Loans / Credit 2 1 0 3 Vaccination 5 2 4 11 Available markets 1 2 2 5 Group formation information / Trainings 1 3 3 7 Supplementary feeds 3 0 0 3 Total 16 8 9 33 4. A similar observation can be made about the products that suppliers are unable to offer currently. The issue of capital and technical competence and specialty arises and this clearly presents a market entry opportunity that is in line with issues raised in 3 above. DISTRICT Products Supplier was to Offer MASINDI KIBOGA LUWERO Total but is Currently Unable Responses Responses Responses Responses Milking kits / Cans 5 2 3 10 Cross breeds 3 2 1 6 Quality feeds 0 1 0 1 Sprays / Drugs 0 1 1 2 Total 8 6 5 19 5. The reasons why suppliers are unable to offer services and products demonstrate the options and/ or the courses of action that have to be undertaken. The reasons also show that non conventional BDS actors have to come on board given that the levels of investment might be significant especially when the elements of infrastructure development and awareness-raising are prominent. DISTRICT MASINDI KIBOGA LUWERO Total Reasons for Failure to Offer Services Responses Responses Responses Responses Lack capital 8 4 9 21 Transport costs are high 3 1 0 4 Roads are poor 4 2 1 7 Farmers do not know value of certain 0 1 0 1 services Total 15 8 10 33 DRAFT REPORT FOR BDS DIAGNOSTIC IN UGANDA 45 FIT RESOURCES DECEMBER 2008

Comparison of interviewed suppliers Comparatively the suppliers interviewed in the survey have the following characteristics: 1. Generally all are small individual based operations. 2. They are essentially shop operations and person-based veterinary services delivery. It only in Masindi that one institutionalized supplier called Masindi Agrovet was found. 3. They all have privately mobilized capital; and, 4. Are generally informal i.e. lack legal establishment documentation save for trading licenses. Supplier Assessment on a DISTRICT scale of 1-5 where 1 is MASINDI KIBOGA LUWERO Total least capable and 5 is most Count Count Count Count capable 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5 Capacity To Deliver Services 0 1 3 3 1 0 0 3 1 2 0 0 3 6 0 0 1 9 10 3 Closeness To SMEs 1 0 2 5 0 0 1 0 3 2 0 5 3 0 1 1 6 5 8 3 Commercial Focus (Level Of Profitability) 0 1 2 3 0 0 0 3 2 1 0 0 1 8 0 0 1 8 13 1 Focus On Services, SMEs Or BDS 0 2 4 2 0 1 1 1 3 0 0 1 3 5 0 1 4 8 10 0 Independence 3 3 1 1 0 1 1 1 1 2 0 0 1 8 0 4 4 3 10 2 Legal Registration 0 3 3 0 2 0 0 1 1 4 0 1 2 6 0 0 4 6 7 6 Willingness/ Interest/ Ability To Partner 1 2 2 1 2 1 1 1 1 2 0 3 2 3 1 2 6 5 5 5 The enabling environment for BDS The enabling environment for BDS is assessed from five different parameters and these include: 1. The number of BDS actors that exist in the intervention areas. It is clear that the number of BDS suppliers is small thus fear of saturation and/ or duplication of services is not likely to arise. All sites had a handful of suppliers. 2. The quality and caliber of BDS suppliers that are in the BDS market. The current suppliers in the BDS market do not present a source of serious competition to any new market entrant. All the sites had small individual proprietorships with limited scales of operation especially in terms of geographical coverage. 3. The range of BDS services currently offered. Currently suppliers are offering only production support services; even these are limited in range and scale. The products and services available are not diversified and specialized services like artificial insemination and nutritional guidance are generally limited. 4. The level of satisfaction of demand by suppliers. Suppliers are unable to meet demand, currently they supply only what they can afford to stock given their level of capitalization and technical competence. DRAFT REPORT FOR BDS DIAGNOSTIC IN UGANDA 46 FIT RESOURCES DECEMBER 2008

5. Flexibility of the National Drug Authority on its requirements for operation especially establishment of branches for drug outlets (suppliers should be allowed to follow weekly markets in the local areas). 6. Linkages with local governments especially where BDS is likely to result in competitive services delivery with government agricultural extension services. 7. At a policy level, interfacing with government programmes like NAARDS, which essentially offer free BDS services from a non facilitative perspective. Policy has to be lobbied to put in context issues associated to sustainability of such measures and to appreciate the fact that farmers can and are willing to pay for services that they deem necessary. Owing to the above issues it suffices to note that the environment for BDS in the intervention areas is characterized by limited service providers who are limited in scale and scope of operations and yet demand is not satisfied and stimulated. DRAFT REPORT FOR BDS DIAGNOSTIC IN UGANDA 47 FIT RESOURCES DECEMBER 2008

Conclusions Characteristics of the market for BDS in each specific region in relation to existing supply, demand and transactions The BDS markets in all the three sites in Uganda have the same characteristics; its only Luweero where the BDS market shows clear segmentation with a well developed zero grazing group of farmers. The other common characteristics of the BDS market are presented in table below: Supply Demand Transactions Key • Small number of • Low purchasing power • Limited milk Characteristics suppliers • Ignorance of range and collection and • Non institutionalized benefits of services. bulking suppliers • Market distortions by • Limited financial • Limited range of BDS hawkers/ vets and services services existing Chilling Plants. • Preference for • Mostly production • Low milk production cash support services • Traditional dairy transactions • Extremely localized husbandry- breeds, • Milk sales operations feeds, Insemination etc channels mainly • Limited capitalization of informal businesses In summary, across all the three locations, the dairy sector as a commercial enterprise is still at its infant stages. Based on these findings, the market needs to be stimulated through education to among other actions. Although there are no set criteria for plotting a location on the matrix, a form of benchmarking has been used that compares the quality (productivity and practices) of one BDS market against another within the country and between locations across the 3 countries. Supply and demand have been evaluated as a one off event during the assessment process in relation to best practice which forms the basis of this informal comparison exercise. The exercise was undertaken during a group discussion between the Team Leaders of the research teams for each country. Based on the above, the diagnostic team feel all the areas in Uganda fall in the low supply/low demand quadrant. DRAFT REPORT FOR BDS DIAGNOSTIC IN UGANDA 48 FIT RESOURCES DECEMBER 2008

STRONG SUPPLY STRONG SUPPLY LOW DEMAND STRONG DEMAND LOW SUPPLY STRONG DEMAND LOW DEMAND LOW SUPPLY Masindi Kiboga Luweero CONSUMERS – DEMAND SIDE CONCLUSIONS • The most purchased services are basic veterinary treatment services, vaccination and products such as mineral supplements, sprays and disinfectants. Generally the demand for services is low. • Local breeds are predominant across all the locations however farmers specifically want to improve breeds through cross breeding and artificial insemination and to increase the herd size. • Currently farmers use some three quarters of their land for cattle keeping however dairy farming currently contributes between 31-50% to the farmer’s total income suggesting room for improvement. • Farmers are in a position to expand cattle/dairy activities as the majority of farmers (78%) own in excess of 5 acres of land. • Consumers shy away from purchasing services due to the expense involved and the poor quality/unreliability of many products. • Information on dairy markets is virtually non existent across all sites. • Although farmers are aware of many services and do acquire some services they are not clear as to the benefits they should expect from the services. Information and training on dairy farming is currently non existent for most farmers with extension workers being a key source of assistance. • Farmers sell predominantly to homes and hawkers although Cooling Plant sales are preferred but many farmers are unaware of existing plants or regard them as limited or unreliable. Farmers sell on credit but prefer cash. • Buyers currently provide few required services to farmers yet the opportunity for such embedded services is apparent. • Farmers keep few records and cannot determine the profitability of their business activities. • Most farmers have access to a mobile phone and are willing to pay for important information via SMS such as disease alerts and milk prices. • Farmers struggle to self fund their operations and few are aware or acquire loans or other financial services despite a desire to do so. • There is very little knowledge among farmers regarding policy issues and the legal and regulatory authorities and standards/regulations that concern their operations. • Luweero is slightly more developed due to zero grazers and free range cattle keepers demonstrating relatively higher demand and more regular source of income. DRAFT REPORT FOR BDS DIAGNOSTIC IN UGANDA 49 FIT RESOURCES DECEMBER 2008

SERVICE PROVIDERS – SUPPLY SIDE CONCLUSIONS • General services such as basic health treatment services and products are on offer but more specialised services are scarce. All evident services are focused on production support and non on market support. Operations are localized. Few suppliers exist in the market beyond individual veterinary suppliers/providers and demand appears generally low beyond the established networks and linkages/ relationships of the existing veterinary service providers. • Fee based stand alone services are the norm and few subsidies and limited embedded services are apparent. However defaults are high and payment recovery and business turnover is a problem. Capital is very limited. • The business acumen of existing service providers is low with few entering into contractual arrangements or implementing clear and focused pricing and marketing strategies. Drawing from the findings of this study, the markets in all the three study sites in Uganda are characterized by low supply and low demand and will require educating as a lead intervention. It should be noted; however, the market in Luweero exhibits a tendency towards strong demand amidst weak supply. This observation arises from the level of development of this market. This market is characterized by both zero grazers and free ranger herders. Whereas the demand of the free range herders is low, zero grazers because of intensive production activities present a high demand market segment. An insight into the potential of each target market location The three market locations in Uganda have the following similar and unique factors underlying the market potential in each location. The market potential aspects shared by the three target market locations include: 1. The un-stimulated and unmet demand for products and services characterised by ignorance of the consumers of the existence and benefits of the various products and services in the market. 2. The similar calibre of suppliers characterised by limited range, scale and scope of services and products amidst capital constraints hence inability to offer competitive services in the market. 3. The skewed nature of services towards production support rather than balancing with market/ sales enhancement/ facilitating services. A unique market potential was observed in Luweero, the market in Luweero is more developed with diversified consumer groups. In this market there are both zero grazers and free range cattle keepers. The intensive farming practices of zero grazers represent a market segment with relatively higher demand for products and services that has a higher and more regular source of income (milk) compared to the other group of free range cattle keepers. This unique observation was not apparent in Masindi and Kiboga. DRAFT REPORT FOR BDS DIAGNOSTIC IN UGANDA 50 FIT RESOURCES DECEMBER 2008

Level of market distortion There are two levels of market distortion that are affecting the manner in the BDS market in current operations. These are at the level of the suppliers and at the level of consumers and manifest in the following three ways: 1. On the side of consumers the activities of the suppliers who visit and offer a personalized service creates a distortion in the market by denying the farmers free choice of services and products available on the market. This is particularly common with vets who not only offer technical vet services but also sell drugs from their own outlets. 2. Still on the side of consumers in instances where milk hawkers turn suppliers, consumers do not obtain products and services at market price but pay an embedded cost to the hawker. This to a level is exploitative with regard to price. The consumer will only access services that allow the hawker to widen his margin. 3. On the side of suppliers market distortion is mainly in the form of the range of services provided. Suppliers will only offer what they afford as stock not what is best available in the market. Therefore from their part the market distortion is the arbitrary narrowing of service and product options that consumers can access. 4. BDS services especially with regard to agricultural production are highly subsidized where civil society actors especially NGOs are involved and at times free especially where government agencies are involved. This creates an institutionalized dimension in market distortion that presents a limitation in a liberalized BDS market. In the visited sites, actors offering either free or subsidized BDS services included VEDCO, Plan International, CRS and NAADS programmes at sub county level. Comparative information on the in-country sites and the 3 markets Characteristically the three sites are generally the same and are therefore comparable on nearly all forms and categories of information. However in comparison, one needs to consider: 1. The level of development of the market especially with regard to market segments which class demand i.e. zero grazers Vs free range grazing. 2. The herd composition which reflects the level of transformation of dairy farming in a particular area i.e. the extent to which rearing of hybrids has taken root. In terms of BDS, the two issues above represent the net effect of various interventions ranging from artificial insemination to measures aimed at sustaining demand and supply of products and services. The other parameters of comparison are similar in across all the sites. However, in comparison to Kenya and Rwanda, the results showed Kenya to be relatively ahead of Rwanda and Uganda. The table below shows some comparison between the three markets. DRAFT REPORT FOR BDS DIAGNOSTIC IN UGANDA 51 FIT RESOURCES DECEMBER 2008

Uganda Rwanda Kenya Breeds kept Mainly exotic Mainly exotic Mainly cross breeds Use of BDS services Low Low Average Dairy as business At infant stage At infant stage At development stage Market linkages Poor poor Average Market distortion Exist (few compared Exist Minimal to Rwanda) Number of Suppliers Very few Very few Relatively high Milk delivery channels Mainly informal Mainly informal Shared almost equally between formal & informal Milk market - formal Low Low High channels Marketing/promotional Very few Very few Relatively high activities by suppliers DRAFT REPORT FOR BDS DIAGNOSTIC IN UGANDA 52 FIT RESOURCES DECEMBER 2008

Recommendations1 Other current or proposed dairy sector interventions It is very important to coordinate INGO/Donor efforts. It is very difficult, and not at all effective, for one INGO donor funded project to pursue a market development approach if others continue to subsidize transactions and offer publicly-funded services in the same market. Suppliers will almost always choose to work with a donor who will subsidize transactions rather than one advocating market development. Free services also dampen SME willingness to pay. Even if all donors pursue a market development approach, coordination across projects and programmes is critical. In markets with relatively few suppliers, these suppliers can be overloaded or lose their commercial focus if they receive significant financial resources from several donors. EADD must be aware of the other projects supporting the sector and liaise with the facilitators to ensure that efforts are appropriately coordinated. Sustainable solutions to address priority market constraints and market failures The project must ensure that all interventions have a market focus (private sector domination with numerous competitive BDS suppliers selling commercially to large numbers and types of SMEs). It is possible to ensure impact and outreach of BDS if the interventions focus on profitable services, focus on services that are replicable in the private sector and build on what is already being offered by the private sector. Always ask: “What problems do businesses have and why isn’t the market environment providing solutions to these?” The end result of a market focused programme is numerous SME’s buying BDS of their choice from a wide selection of products offered from unsubsidized private sector suppliers in a competitive and evolving market. Remember that the provision of subsidies to particular suppliers may crowd out other, private sector suppliers who do not receive subsidies. Supplier costs must ultimately be appropriate for the SME market and not skewed by donor funding. It is important to promote as many suppliers as the market will bear. That is not to say that subsidies are a bad thing. Subsidies can be used to stimulate demand and supply for a finite period of time with an explicit reason and exit strategy. The project should group services as per the following recognised categories: MARKET ACCESS - These services identify/ establish new markets for SME products. They facilitate the creation of links between all the actors in the market and enable buyers to expand their outreach to, and purchases from, SMEs. They also enable SMEs to develop new products and produce them to buyer specifications. Key dairy sector 1 Some of the narrative and ideas in this section have been drawn from various papers and presentations placed in the public domain by BDS practitioners and sourced from the following website: www.mmw4p.org DRAFT REPORT FOR BDS DIAGNOSTIC IN UGANDA 53 FIT RESOURCES DECEMBER 2008

examples include: • Linkages to processors and informal markets • Linkages to Cooling Plants and setting up Chilling Plants • Linkages to traders for inputs and access to quality requirements • Creating access to market information • Facilitating milk supply contractual agreements with processors • Linking farmers to steady markets • Creating awareness of available markets • Ensuring stable and reasonable milk prices to farmers • Creating milk collection centers • Forming milk cooperatives • Improving access to reliable and affordable transport INPUT SUPPLY - These services help SMEs improve their access to raw materials and production inputs. They facilitate the creation of links between SMEs and suppliers and enable the suppliers to both expand their outreach to SMEs and develop their capacity to offer better, less expensive inputs. Key dairy sector examples include: • Create awareness regarding Agrovet shops selling farm inputs • Facilitate access to Agro-Vet Shops, AI service, Feeds, Livestock Health/Veterinary (quality, credit services , payment systems, bulk purchase, efficiency, distribution systems, negotiate delivery contracts) • Avail vet kits to farmers • Facilitate access to quality inputs through CP check off system • Group people together to bring down inputs costs • Increase access of milk cans and coolers • Enhance skills and knowledge about feed and fodder to farmers • Encourage farmers to set up their agro-shops • Facilitate water drilling services TECHNOLOGY & PRODUCT DEVELOPMENT - These services research and identify new technologies for SMEs and look at the capacity of local resource people to produce, market, and service those technologies on a sustainable basis. They also develop new and improved SME products that respond to market demand. Key dairy sector examples include: • Facilitate access to Biogas installers, • Facilitate feed formulation enterprises • Raise awareness to feed conservation techniques • Facilitate provision of new milk handling containers/equipments • Improving Cooling Plant MIS through training and computerization • Facilitate simple milk testing equipment • Development of market information services • Enhance farmers ability to identify enterprises and engage in value addition • Advise processors on how to improve on the product packaging. • Promotion and adoption of new technology • Access and training in adoption of relevant ICT e.g. accounting soft-wares • Raise awareness regarding feeding and feeding systems, housing systems, fodder production/ agronomic practices, milk handling, milk quality testing, milk preservation, water harvesting, milk transportation and milk storage • Training and equipping AI experts DRAFT REPORT FOR BDS DIAGNOSTIC IN UGANDA 54 FIT RESOURCES DECEMBER 2008

• Use ICT to disseminate information TRAINING AND TECHNICAL ASSISTANCE - These services develop the capacity of enterprises to better plan and manage their operations and improve their technical expertise. They develop sustainable training and technical assistance products that SMEs are willing to pay for and they foster links between service providers and enterprises. Training and technical assistance may be delivered on any topic. Key dairy sector examples include: • Cattle registration and milk recording services • Training on feed conservation and fodder crops • Business advisory services on Chilling Plant management • Technical assistance on improving milk quality • Research on new milk market opportunities • Capacity building for farmers, staff and chilling plan management, BOD plus management and staff of the Coop societies • Exposure visits and farmer study tours • Dairy cows registration to the Stud book • Training on animal husbandry (feeding, pasture production and conservation, health management) and milk hygiene/handling, storage and transportation • Group formation • Capacity building on business development • Facilitate access to consultancy services in strategic plans, feasibility studies, business management training, marketing, auditing and book keeping, record keeping, financial management, governance and group dynamics • Facilitate TOTs and the development of training manuals • Training on how to advocate for change • Facilitate disease surveillance INFRASTRUCTURE - These services establish sustainable infrastructures that enable SMEs to increase sales and income. Examples include refrigeration, storage, processing facilities, transport systems, loading equipment, communication centers, and improved roads and market places. Key dairy sector examples include: • Facilitate access to improved road network, water supply, communication facilities and electricity • Liaise with Government and private contractors for improvement of road networks, power and water supply • Organizational management of the dairy hub • Facilitate access to improved storage facilities, milk bulking and cooling and milk transport, • Building Cooling Plants • Agro dealer networks • Access to feed analysis facilities and milk testing facilities • Social services • Assist farmers to acquire Chilling Plants, transport facilities and laboratory equipment • CP start-up and setting up a hub of business services; feed shops, Agro-Vet shops; hardware shops; transport and village banks POLICY/ADVOCACY - These services carry out sub-sector analyses and research to identify policy constraints and opportunities for SMEs. They also facilitate the organization DRAFT REPORT FOR BDS DIAGNOSTIC IN UGANDA 55 FIT RESOURCES DECEMBER 2008

of coalitions, trade organizations, or associations of business people, donors, government officials, academics, etc. to effect policies that promote the interests of SMEs. Key dairy sector examples include: • Awareness creation on environmental degradation and traceability • Facilitate business registration • Lobbying for policy change (e.g. milk payment based on milk quality, semen importation in Uganda governance of operations of CAHWs in Rwanda and Uganda) • Expose farmers to KEDAPO • Facilitate stakeholder collaboration • Facilitate research and disseminate to policy makers • Facilitate engagement of legal services • Facilitate policy makers partnerships • Formation and affiliation to lobby groups to champion farmers interests • Lobbying through regulatory bodies and developing advocacy strategies for farmers • Address disagreements on use of community based animal health workers between NGOs and Gov • Create awareness of dairy standards/laws and regulations (national and regional) • Production of IEC materials • Lobby to influence road and utilities infrastructure in the areas where new CPs are sited • Advocate for improvement of Cooperative laws and regulations FINANCE - These services help SMEs identify and access funds through formal and alternative channels that include supplier or buyer credits, factoring companies, equity financing, venture capital, credit unions, banks, etc. They also assist buyers in establishing links with commercial banks (letters of credit, etc.) to help them finance SME production directly. Key dairy sector examples include: • Facilitate access to affordable loans, equity funding, credit and capital for Coops and individual farmers • Linking farmer groups to MFI’s, FSAs, banks and SACCOs • Facilitate CP banking facilities • Auditing books of accounts • Facilitate access to check-off systems for input supplies • Facilitate saving systems and milk payment systems • Train farmers on financial management • Facilitate establishment of microfinance institutions • Facilitate business plan development • Provide Chilling Plant part-financing ‘Service’ should be interpreted broadly, to include basic, ‘bundled’, ‘embedded’ and other ‘hidden’ services. It is important to focus first on services that will contribute to high-impact, are in high- demand and are the most feasible to deliver. The EADD should combine the prioritization of services that offer SMEs the greatest potential for stabilization or growth with those that DRAFT REPORT FOR BDS DIAGNOSTIC IN UGANDA 56 FIT RESOURCES DECEMBER 2008

appear to have the greatest unmet demand from SMEs. This involves incorporating both impact-driven ideas with demand-driven ideas: • Impact driven ideas incorporate the ideas of field staff and other informants - without an overview of the business systems in which they operate, SMEs, especially those that are marginalized, do not know which services are most likely to benefit them. Demand for services may need to be stimulated, or services can simply be embedded in market chains. • Demand driven ideas starts with the consumer research to identify the services or business benefits SMEs want as they often know best what assistance they want from others. An example of supply-side problems and opportunities: Service products lack the benefits and features consumers want • Assist suppliers in developing and commercializing new products • Bring in suppliers from other countries to adapt and franchise appropriate products Suppliers are risk averse to targeting new consumer segments, such as women or micro enterprises • Provide suppliers with information on the viability of selling to SMEs • Subsidize cost of targeting new consumer segments, e.g., market testing • Use market research to identify promising opportunities to serve new consumer segments Suppliers lack market information • Develop or improve marketing research services/suppliers • Provide suppliers with market information • Teach suppliers how to gather market information Suppliers lack business or technical skills • Provide training and technical assistance to suppliers • Assist training suppliers in developing and selling appropriate products to other BDS suppliers There is insufficient supply in the market • Provide venture capital to suppliers to expand • Design a programme to assist start-up suppliers Variable service quality harms supplier reputation • Provide quality assurance services • Assist supplier to improve consistency in service provision • Help suppliers form associations with certification processes Supplier cannot manage supplier credit or other purchasing mechanisms • Build capacity of suppliers to manage supplier credit • Link SMEs with MFIs or other financial services providers Key solutions that address supply side constraints and increase demand include: o market research o provision of information for consumers/social marketing o new product development DRAFT REPORT FOR BDS DIAGNOSTIC IN UGANDA 57 FIT RESOURCES DECEMBER 2008

o identifying market niches o supplier training o service demonstrations o improving marketing strategies o monitoring and evaluation of services An example of demand-side problems and opportunities: Consumers lack information about services • Develop a BDS yellow pages • Open a BDS consumers’ bureau or information center • Help suppliers improve their marketing • Implement a voucher scheme Consumers are unable to effectively identify their business problems • Develop an awareness-raising campaign about typical business problems and BDS that can help • Help suppliers create marketing campaigns that help SMEs identify business problems Consumers do not have the capacity to pay for services up front • Assist suppliers in developing payment options • Promote embedded services • Promote services financed by large firms • Help consumers form clusters to purchase services in groups Consumers are risk averse to trying services • Provide suppliers with technical assistance to improve trial inducing strategies • Implement a voucher scheme • Promote business linkages for embedded services Consumers do not see the value of services • Help suppliers test, demonstrate, and gather information about the quality of services • Assist suppliers in improving advertising • Assist suppliers in developing customer referral programmes • Conduct general advertising for the service Consumers want services packaged together • Broker agreements among suppliers to develop service packages • Provide venture capital and technical assistance for suppliers to diversify Key solutions that address demand side constraints and improve supply include: o awareness raising o provide information about services o linking SMEs with BDS suppliers o forming SME clusters/associations to access services o temporary incentives and financing o temporarily discounting services DRAFT REPORT FOR BDS DIAGNOSTIC IN UGANDA 58 FIT RESOURCES DECEMBER 2008

An example of transaction problems and opportunities: Consumers cannot afford to purchase services • Develop a business model with third party payment such as advertising, or with embedded services There is a lack of trust between suppliers and consumers; suppliers insist on up-front payment; consumers insist on delivery before payment • Support entrepreneurs or social enterprises to establish a guarantee or wholesale system • Establish a temporary guarantee system until there is stronger trust in the market There is no mechanism for exchanging payment or collecting payment due to distance, lack of technology, or banking system • Help SMEs and others in the supply chain to form an intermediary who is sophisticated enough to access the formal banking system or an international banking system that is functioning • Promote Smart Cards — electronic banking cards • Develop money transfer services Consumers are geographically and/or socially isolated from service markets • Help SMEs form clusters, associations, or cooperatives that can act as intermediaries to reach distant services providers • Form a social enterprise to provide services An example of market environment problems and opportunities Free services are distorting the BDS market • Advocate with government and/or other donors to rationalize BDS subsidies Regulations adversely affect the BDS market • Advocate for changes in the regulations • Organize SME suppliers to advocate for changes in regulations affecting the BDS market Solutions that specifically address policy constraints and remove macro-economic constraints to BDS market development include: o policy research o building the capacity of advocacy groups o helping SMEs engage in advocacy activities o building the capacity of local governments The programme must focus on facilitative activities such as market research, provision of information for consumers, new product development, supplier training, monitoring and evaluation. These activities are aimed at “facilitating” market improvement by increasing demand and/or improving supply. The main activity of the programme must not be direct service provision. DRAFT REPORT FOR BDS DIAGNOSTIC IN UGANDA 59 FIT RESOURCES DECEMBER 2008

Country specific suggestions to address priority market constraints and market failures The current market failures and constraints are largely linked to infrastructural issues. For these to be responded to in a sustainable manner, a lot of investment has to be undertaken. Whatever solution is undertaken here it must have a link with local governments. In Uganda currently, under the plan for modernisation of agriculture, there are initiatives that involve feeder roads and it would be very easy to partner with a sub county local government to obtain a Chilling Plant. These options have to be explored. The lead issue that local governments look at is enhancement of their tax base; as long as this is easily clarified and they are assured of cost recovery then they would buy into the partnership. Country specific suggestions that address supply side constraints and increase demand • Support all existing service providers to better source and offer quality, affordable and consistent animal health products. • Support existing service providers to source and offer quality, affordable and consistent breeding services with a view to increasing the herd sizes and milk production. Support existing providers to improve outreach of their services via new outlets and sales teams. Support service demonstrations. • Support new providers to enter the market competitively with products/services based on market demand (with a focus on currently unavailable specialist services). Support can include the identification of, development of, testing of, rolling out of, marketing of and monitoring of the new services/products. Use market research to highlight business opportunities. Support as many as the market will bear. Cost share where possible. • Work with milk buyers (including hawkers) and input suppliers to develop new embedded and fee based services such as health services, milk bulking, input delivery, information on herd management/improvement and animal husbandry. Subsidize the cost of the new products/services in the short term with vouchers for farmers. • Offer support to service providers to develop appropriate and transparent pricing and payment mechanisms for clients such as installments and discounts for group purchasing. • Support service providers to develop their capacity to better plan and manage their businesses. Assistance is required in strategic/business planning, pricing and marketing. Offer support to service providers to implement appropriate marketing activities to create awareness of their products and services. Facilitate this via the private sector where possible. Assist providers to legalise and formalize their operations • Improve access to broader veterinary services by facilitating new and existing veterinary input suppliers to better respond to consumer demand and reach under served customers. Support suppliers to offer advice in the appropriate use of products as an embedded service. • Facilitate training providers to develop and offer/market fee-based technical assistance and advice in order to improve knowledge among farmers on dairy farming. Such providers new and existing may include local training institutions, NGOs, individual consultants and local media/print houses. DRAFT REPORT FOR BDS DIAGNOSTIC IN UGANDA 60 FIT RESOURCES DECEMBER 2008

• Offer support to service providers to increase their own technical ability via training, counseling and mentoring programmes. Identify and introduce new appropriate technologies. Organise study tours between service providers. • Facilitate training providers to develop and offer fee-based technical assistance in order to develop farmer’s ability to better plan and manage their operations and promote ‘farming as a business’. • Promote ‘farming as a business’ via social media campaigns, radio programmes, field days, brochures and exchange visits. • Few providers exist to support sales. Promote new providers who can perform the role of identifying and establishing markets for milk and milk based products. Fees can be charged for services such as business linkages, research information and organising exhibitions. • Promote quality stable services via bulking centres, cooling plans and processing facilities. Help build the reputation of such facilities to offer reputable and transparent fee-based services. • Facilitate private sector providers such as value add companies who handle closed user groups for SMS services to Interactive Voice Response (IVR) companies who can establish and run call-up voice services. Demand led information such as disease alerts and milk prices can be delivered via mobile phones on a sponsored or user pays basis. Information on quack products and providers may also be useful. This may have to be supported with basic knowledge on phone use. • Partner with the private sector to facilitate establishment of sustainable infrastructures such as Cooling Plants and storage/processing facilities. • Assist existing financial service providers to promote their services. Work with the suppliers to facilitate new user friendly services such as preferential loans, factoring, equity financing and venture capital. • Partner with the private sector to facilitate establishment of new business support infrastructure such as communication centers, courier services and money transfer services. • Increase awareness or loan acquisition and use for service providers. Assist them to identify and access funds through formal and alternative channels. • Support advocacy efforts to improve roads and support regulation and outreach of veterinary support services. • Promote the sustainable role of the private sector in service delivery and highlighting opportunities for reduced/removal of subsidies. • Increase knowledge among service providers regarding policy issues and the legal and regulatory issues that concern their operations such as drug sales. This may include research to identify policy constraints and opportunities or support to effect policies. Country specific suggestions that address demand side constraints and improve supply • Increase farmer’s strength to actively participate in and influence the dairy chain. Bring farmers together to bulk purchase and access other services such as training and finance. Promote the concept of formal groups, cooperatives and associations. • Bring farmers together to access training via local providers on dairy farming and business management issues. This can be subsidized in the short term. Some key areas of concern for farmers are input use, disease identification and business DRAFT REPORT FOR BDS DIAGNOSTIC IN UGANDA 61 FIT RESOURCES DECEMBER 2008

planning and management. Training and technical assistance should include information relating to the expected benefits of BDS services – this will also help increase demand for services. Increase opportunities for farmer to farmer forums/exchanges and study tours. Areas of concern for transporters and buyers include milk standards and regulations plus other public health issues. • Facilitate access for farmers to input suppliers in order to improve of breeds through cross breeding and artificial insemination. • Facilitate access to markets by linking actors in the chain especially new buyers to small scale farmers. Also support farmers to produce to different buyer specifications. • Facilitate access to sustainable infrastructures for increased sales such as Cooling Plants and storage/processing facilities. Increase awareness of existing Cooling Plants. • Promote existing embedded and fee based services via milk buyers and input suppliers such as milk collection and information on market prices. • Increase access to information for farmers via print, radio and TV. Improve awareness of Internet access and telecommunication opportunities. • Increase awareness or loan acquisition and use for farmers, buyers and input suppliers. Assist them to better identify and access funds through formal and alternative channels such as credit unions and banks. • Increase knowledge among farmers regarding policy issues and the legal and regulatory authorities and environment that concern their operations. This may include research to identify policy constraints and opportunities or support to effect policies and regulations. • Promote existing services that support business such as communication centers, courier services and money transfer services. Country specific suggestions address policy constraints and remove macro- economic constraints to BDS market development 1. The ultimate solution here is lobbying of government agencies to respond to two issues. The need for suppliers of the dairy sector especially those selling drugs to reach out to farmers and the need to make herd transformation for better productivity part of the national farmer empowerment effort especially under the national agricultural advisory services. ‘Illustrative’ market based interventions to develop the market for key identified services that are in demand or offer the greatest potential for stabilization or growth Interventions must “fit” the market and be designed to improve a particular market problem or take advantage of a market opportunity. A key principle for choosing and designing interventions is that the intervention should not be any more intensive than required to address the market issue. Interventions have the capacity to both distort and develop the market. By targeting a specific problem and intervening only to address that problem, programmes run the least risk of distorting the market. It is recommended that all interventions follow the best practice and principles of BDS market development. They must facilitate market development rather than providing DRAFT REPORT FOR BDS DIAGNOSTIC IN UGANDA 62 FIT RESOURCES DECEMBER 2008

services. Programmes should be designed to be flexible and responsive to the market and efforts should be made to coordinate with other development actors. It is vitally important to fit interventions to market issues in such a way that employs subsidies primarily for pre and post service delivery activities only. All interventions activities must be aimed at facilitating market improvement by increasing demand and/or improving supply. The EADD project must clearly separate the roles of provider and facilitator. Providers take care of on-going service delivery the costs of which should be covered by the markets. The provider is an integral part of the system. The facilitator performs the temporary function of developing markets (these activities are considered appropriate to subsidize). The facilitator is external to the market system. Interventions must promote competition and efficiency in the market and work toward a clear picture of a sustainable market. As defined by best practice it is important that the interventions: Engage the private sector in devising and developing viable businesses and market models that are likely to be copied and to take off in the wider market. Involve little financial support to market players and lots of cost sharing opportunities. The project should develop a transactional relationship with suppliers. Are flexible, responsive and multi faceted. The project must tread lightly in markets. Employ an overarching strategy of ‘crowding in’ or ‘getting others to do things’. A variety of interventions have been used by other BDS programmes and each aims to address one or several weaknesses in a BDS market such as: • Voucher programmes address SMEs lack of information about services and reluctance to try a service. It expands demand by providing information and temporary subsidies to SMEs that do not commonly use BDS, and link them with BDS suppliers who do not normally serve SMEs. This increases awareness and demand among SMEs which stimulates suppliers to develop and improve services. However vouchers may distort a market more than necessary by fostering SMEs dependence on subsidies. • Information to consumers addresses SMEs lack of information about services and suppliers. The aim is to expand demand for BDS by making SMEs aware of available services and their potential benefits. Some programmes have commercialized the information dissemination role, which increases the potential for sustainability. • Collective action through clusters, networks and associations addresses SMEs inability to pay for services and supplier unwillingness (or inability) to sell services in small enough quantities. The aim is to help SMEs overcome dis-economies of scale by enabling them to purchase services in groups. A major challenge of this approach is how labor-intensive it is to form groups and identify services common to everyone in the group. In general, SMEs do not perceive “group organizing” as a service and are not willing to pay for it. DRAFT REPORT FOR BDS DIAGNOSTIC IN UGANDA 63 FIT RESOURCES DECEMBER 2008

• Business linkages and promoting embedded services address SME isolation and inability to pay for services up front. Business linkages also address suppliers’ lack of knowledge about SMEs. The aim is to create or expand BDS embedded within business relationships between SMEs and other firms. Facilitation to foster links focuses on disseminating information about players or promoting sub contracting. Examples include: o Promoting sub-contracting from large firms to SMEs o Providing opportunities for large firms and SMEs to interact o Supporting SMEs participation in trade shows and trade associations o Developing business associations that include SMEs and larger businesses o Building supplier capacity for enterprises that provide embedded services to SMEs • Technical assistance (TA) to suppliers addresses suppliers’ lack of technical or managerial skills. The aim is to address a range of supply-side constraints and build the capacity of new or existing BDS suppliers to profitably serve SMEs. TA lessens supplier risk in diversifying by absorbing the costs of innovation. Suppliers also need help to learn how to profitably meet demand. A key advantage of TA is that it allows facilitators to target specific problems in supply. A disadvantage is it may be difficult for a facilitator to offer equal access to assistance to many providers. Providing TA to only a few may give them an unfair advantage however, the market could be developed if other suppliers copy those business strategies. It is also wise to develop the capacity of the private sector itself to provide technical assistance to suppliers. • Social enterprise addresses a lack of supply in the market. The aim is to increase the supply of services by helping new suppliers to enter the market. Developing business service markets when “there is no market,” is a challenge. The BDS market development approach encourages not-for-profit institutions to understand and build on the capacity of the existing private sector market. There is some evidence that social enterprises have the potential to contribute to the development of a competitive, vibrant BDS market but key market development principles must apply. • Product Development and commercialization addresses a lack of appropriate service products for SMEs in the market and supplier reluctance to target new consumer segments. Suppliers may not be skilled innovators, lacking the knowledge and experience to develop new service products. The aim is to commercialize new products through existing suppliers by assisting with product development, market testing, and initial marketing. New product commercialization can also be undertaken by promoting franchising of appropriate products. But product development costs can be high and sustainability is a key challenge (some programmes have found that they must also provide on-going support services, such as advertising and branding, quality control, remedial service support, and upgrades). • Offer matching grants to private sector players for strategic technical assistance to associations, lead firms, service providers, or for pilot programmes to develop new ways of doing business. DRAFT REPORT FOR BDS DIAGNOSTIC IN UGANDA 64 FIT RESOURCES DECEMBER 2008

• Support BDS policy and advocacy such as developing appropriate SME policies, ensuring a supportive business environment, and helping SMEs engage in advocacy activities can be an important part of both economic and democratic development. Try building the capacity of advocacy groups, developing mechanisms for public-private dialogue, building the capacity of local governments and developing business environment (BE) reform support functions. • Promote access to Information and Communication Technologies (ICTs): physically and economically isolated SMEs are gaining better access to information and to communication technologies that put them in touch with markets. SMEs use ICTs to communicate with suppliers, customers, workers, transporters, membership associations, BDS suppliers, and policy makers. However it is challenging to find viable ICT business models that target SMEs. Often the information seems like a public good and commercialization can be problematic. Some charge SMEs for services, others embed the information into existing transactions between SMEs and buyers or suppliers, while some information suppliers generate revenue from advertising or sponsorship deals. Many of these above strategies are effective ways to stimulate markets or launch a systemic process, but without a strategy for sustainability and market replication, they tend to end with the project. The EADD is not designed as a systemic market project but should be aware of the challenges involved with implementing non systemic interventions such as the ones described above: • Beware of matching grants to selected private-sector firms, with no clear link to employment creation or backward linkages to small-scale farmers or other poverty- reducing mechanisms. • Beware of “challenge” grants to individual lead firms that do create jobs and/or link to small-scale farmers, but that are one-off investments, not replicable to other firms and not generating or stimulating other economic development. • Beware of grants to service providers on a short-term, subsidized, and small-scale basis, rather than stimulating purchasing power of SMEs through vouchers. • Beware of facilitating business linkages between individual firms and buyers, firms and service providers, firms and suppliers without an over-arching industry competitiveness strategy or a sustainability strategy for the linkage service. • Beware of direct value chain development: directly enhancing value chain competitiveness by training value-chain businesses and directly facilitating linkages, rather than stimulating associations, business support markets and other learning systems to strengthen multiple businesses in the value chain on a sustainable basis. • Beware of targeting all assistance directly to SMEs, ignoring the power of larger firms to generate growth that benefits SMEs and the poor. Country specific illustrative market based interventions Problem Situation Illustrative Intervention Intervention Risks Market distortion caused by Introduction of a strategically The risk associated with hawkers due to: placed Chilling Plant that has the intervention include: DRAFT REPORT FOR BDS DIAGNOSTIC IN UGANDA 65 FIT RESOURCES DECEMBER 2008

• Low fluctuating prices. auxiliary dairy services. • the integrity of • Loss of income through Hawkers will be eliminated management milk going bad. hence: • Capacity of the Chilling • High costs on embedded • Milk prices become stable Plant services associated with • Reduced or no income loss • Operations cost of the bringing supplies to the due to milk going bad or plant farmers and transport of forfeiture to hawkers for • Growth of monopolistic milk. services. tendencies • Erratic capacity to collect, • Stable capacity to collect, transport and bulk bulk and transport. • Fair pricing of embedded services at the plant. Approaches and methodologies EADD should focus on the market system not individual enterprises and view the BDS market from an external and objective position with the goal of benefiting as many SMEs as possible. As a market facilitator the project should plan for a viable and independent market structure that continues to exist after EADD have exited. This includes visualizing the functions of a sustainable market (offering more benefits to SMEs) and the various types of players who do or might perform those functions. The facilitator should promote competition among suppliers in the market. Business-like relationship between the facilitator and suppliers are more effective in developing markets plus this business-like approach has a number of advantages: • Requiring investment from private sector suppliers means that the financial scale of the initiative will generally fit the capacity of the market. • Business-like relationships foster business-like incentives, behavior and attitudes • It is possible to link support to suppliers’ achievement of agreed upon objectives • The approach attaches a value to support • It builds ownership without being overwhelmed by external funds and advice. It is recommended that the EADD adopt a facilitative approach to implementation which includes employing a light touch to catalyse, initiate, motivate and link. It is less about ‘what a project does’ and more about ‘why’ and ‘how’. Such as approach focuses on using indirect interventions such as networking, player alignment, intelligence and awareness building. BDS best practice defines the facilitator’s role in the following ways: • NOT playing a direct role in the market system • Demonstrate the business case, benefits and vision to market players via press conferences, study trips and seminars. • Share information publicly about opportunities/ lessons learnt in open workshops, on the internet and in the media. • Implement calls to select service provider partners and engage dynamic DRAFT REPORT FOR BDS DIAGNOSTIC IN UGANDA 66 FIT RESOURCES DECEMBER 2008

commercial service providers where ever possible. • Mentor partners to develop/ test viable models, strategies and approaches. • Facilitate advice and assistance to capacitate service providers. • Cost share to develop, test/ demonstrate, monitor and evaluate approaches and services. • Facilitate business linkages, partnerships and contracts. • Capture lessons learnt with analysis of the market system and developed models. • Measure systems change and broader market response. • Undertake impact assessment and examination of causal chain. • Replicate successful interventions. • Implement strategies to promote market-driven replication and scale up. EADD must: • Be aware of the entire BDS market using both the value chain and BDS survey results: In a market system, service markets are complementary subsystems to value chains. Researching BDS markets provides information that is not readily available through value chain analysis alone. Although a BDS market can exist completely within a value chain a service provider may also be outside the value chain making a case for cross-cutting services. • Develop a clear offer: a description of what EADD is bringing to the situation will support the development of a sustainable system. • Define an exit strategy upfront: the BDS markets and transactions must be sustainable when facilitation activities end and certain facilitation activities may need to continue on a commercial basis. EADD can prepare for this by training BDS providers to conduct these activities themselves. • Manage expectations and establish credibility: communicating the vision for the BDS market and the part the EADD will play in achieving it is critical. Managing expectations will help EADD establish its credibility. It is strongly recommended that the project pilot interventions early. Some aspects of markets can be understood only after piloting starts and commencing interventions highlights information gaps. An effective programme pilot is an iterative process in which a facilitator tries an intervention on a small scale, learns from the intervention, gathers more information, and adjusts the intervention. Strategies which ensure effectiveness and efficiency The EADD has adopted a sub sector BDS strategy to support the provision of BDS services to SME players in the dairy sub-sector chains to help them take advantage of market opportunities and earn more profits within the sub-sector. However it is important to recognise that the programme will also promote some “cross-sector” business services. Accounting, computer services, basic legal services, technical training, marketing, and telecommunications services are “cross-sector” services that help firms increase productivity, reduce costs, and access markets. When assessing the performance of the DRAFT REPORT FOR BDS DIAGNOSTIC IN UGANDA 67 FIT RESOURCES DECEMBER 2008

project it will be important to acknowledge how facilitating these services may have impacted on other sub sectors also. It is recommended that the BDS component of the EADD combine all the following key effectiveness strategies. However as the Uganda locations have been plotted in the low supply and demand quadrant, the strategy of ‘EDUCATING’ should lead: INFORMING FACILITATING STRONG SUPPLY STRONG SUPPLY LOW DEMAND STRONG DEMAND EDUCATING STIMULATING LOW SUPPLY STRONG DEMAND LOW DEMAND LOW SUPPLY “Educating” is advised in the weakest markets (low demand and low supply), in the “marginal” BDS markets where there are few enterprises or where there are extremely exploitative trade relationships. These markets may have been disrupted or have yet to develop and there are few community organizations or private firms with the potential for delivering services. Interventions in these very weak markets should strive to influence the business culture by helping potential clients understand what business development services are and how they help people start, stabilize, and grow businesses. Activities might include: • Basic business education • Skills training for self-employment • Business awareness creation and opportunity identification to help people identify viable businesses • Identification and capacity building of potential service suppliers • Tours to other areas where business is more vibrant and BDS markets exist • Conduct service demonstrations and seminars • Promote farming as a business via radio programs, field days, brochures and exchange visits • Promote model farmers/consumers and success stories • Implement and disseminate market studies • Social media campaigns e.g. dramas and road shows for awareness creation “Facilitating” (strong demand and strong supply) is advised in the markets that have large numbers of small- to medium-sized firms and some active suppliers. BDS programmes operating here conform best to the ideal BDS market development approach of facilitating BDS markets with lighter interventions, helping service providers: • Identify market niches and provide market research information • Develop and commercialize new services plus promote use of new technology DRAFT REPORT FOR BDS DIAGNOSTIC IN UGANDA 68 FIT RESOURCES DECEMBER 2008

• Improve their marketing strategies and facilitate market linkages and expansion to new markets • Link SMEs with BDS suppliers • Remove macro-economic constraints to BDS market development • Developing new business models and differentiated high quality services • Develop check off systems • Develop and test ICT potential • Networking between suppliers • Capacity building to increase operational efficiency • Facilitate hubs to improve transactional efficiency • Promote provision of embedded services • Match supply and demand via trade shows, farmer field days, creation of a national trading platform “Stimulating” (strong demand and low supply). Interventions in the BDS markets with very weak supply should focus on stimulating supply. In order to convince private sector suppliers to enter the market, the facilitator may take on the role of supplier by: • Developing and testing viable business models for service delivery to demonstrate BDS market opportunities • Researching demand for BDS and publishing the results or holding investor conferences/forums and business opportunity seminars • Building the capacity of existing and new suppliers • Linking existing suppliers to financiers and markets • Linking SMEs with distant service providers • Helping SMEs work together (clusters, associations, etc.) to access services • Conducting policy research to identify barriers to entry for suppliers • Offering suppliers temporary incentives such as matching grants • Assisting BDS providers with their initial promotion • Assisting BDS providers with improving their products and marketing • Advocacy for favourable investment climate • Create incentives for service providers “Informing” (strong supply and low demand) is advised in the markets with very low demand. Where there are some BDS suppliers, there may be a fairly large gap between the services the supplier offers and SME understanding of their own need for them. In the BDS markets with very low demand, such as those in rural areas, the EADD should aim at “informing” SMEs about the potential benefits of particular BDS by: o Devising a social marketing campaign o Improving supplier marketing capabilities o Assisting suppliers to develop a customer referral system o Conducting service demonstrations and product trials for target enterprises - explain the benefits of services and illustrate to “first-time users” their need for the services and encourage them to purchase the service at full cost in the future o Provide direct stimulation - use free samples and vouchers as a direct stimulation strategy DRAFT REPORT FOR BDS DIAGNOSTIC IN UGANDA 69 FIT RESOURCES DECEMBER 2008

o Improve the level of interaction between SMEs and BDS providers – this can encourage SMEs to purchase BDS. Facilitate fairs, trade shows, exhibitions, meetings, and technical clinics plus initiate advertising in print and mass media. o Introduce links between BDS providers and potential users - providers who are unfamiliar to SME communities have difficulty promoting their services. These links can also assist providers with increasing their outreach or penetrating new markets This demand stimulation should be coupled with the capacity building of service providers to help them respond better to SME wants and needs. It is recommended that after the existing and potential commercial providers are agreed in each location, EADD must firstly persuade them that a market opportunity exists to serve dairy business customers. It is important to share market assessment findings with targeted providers and show providers the demand in the market. Market assessment data can show that SMEs purchase services and are willing and able to pay for services that benefit them. EADD can highlight the percentage of potential customers who expressed interest in the service, provide an estimation of potential revenues, and describe the various features customers expect from the service, including modes of payments for services and delivery mechanisms. Maybe in the future the project can involve BDS providers in the market assessment process by having them perform their own market assessments under supervision - this strategy encourages BDS providers to be committed to entering the market. EADD must also educate the providers on the benefits of commercialized BDS, for example, embedded service providers may not realize that they offer services. They may not have consciously thought about improving their services or offering them on a larger scale. The project must be cogniscent of the fact that providers will not enter a new market unless they are reasonably confident that they will make money. Market information can provide much of the data needed to analyze the viability of a new business model or serving a new consumer segment. Market information is useful, and in many cases essential, to assist providers in developing viable business models and a business plan. When considering which business models might work for the delivery of a particular service, the project needs to think broadly and build on existing businesses, business models, or business relationships. The following examples of business models might be viable: • Independent small service providers • Bigger service businesses subcontracting to small, independent providers • Existing service businesses extending their services to new types of customers • Franchises • Business linkages with embedded services • Previously noncommercial BDS providers, such as vocational training institutions, government parastatals, and NGOs entering the commercial market Even when providers are willing to enter a new market, they may not have sufficient capacity. In particular, providers often need assistance with developing appropriate service DRAFT REPORT FOR BDS DIAGNOSTIC IN UGANDA 70 FIT RESOURCES DECEMBER 2008

products for new types of customers, designing workable payment mechanisms, and promoting their services to new customers. No amount of persuasion will attract commercial BDS providers if no demonstrable demand exists for the service. Indeed, if providers do not see early revenues, they will quickly drop out of the market. Particularly for new or unfamiliar services, demand creation is an essential part of attracting commercial service providers to the market. Service demonstrations and sales agents are two useful strategies for stimulating demand. Country specific suggestions 1. The concepts of value for money and services being available when required are absent. Farmers often have to contend with high costs and inadequate supply. This requires enhancing of the competitive business environment. This can be achieved through encouraging more market players on the supply side to come by providing evidence of existing unsatisfied and un-stimulated demand. This can be demonstrated through encouraging national level suppliers to partner directly with local outlets whose service provision can then be more responsive to demand. 2. The operations of suppliers are currently obtained at relatively higher unit cost. There is no exploitation of economies of scale and there is no pooling of resource, suppliers are not conscious of demand driven concepts of service delivery and farmers on the other hand are not knowledgeable of product and service changes. This has to be overcome by enhance feed back mechanisms between suppliers and consumers. This in its self is a sustainability measure encouraging mutual response. 3. Sustainability can only be attained if enterprise growth is encouraged both amongst the suppliers and the consumers. The BDS market for dairy farming is generally cyclical; as herd transformation takes place as a result of AI and other services and farmers start valuing unit productivity other than herd numbers. At this stage farming becomes intensive requiring a lot of inputs which then the supply side would responds to. Strategies which ensure sustainability It is recommended that the following key sustainability strategies be considered within the business models adopted: Fee for services - suppliers offer services that are low-cost and often have a short-term payback period. Costs are reduced by dividing activities — the facilitator performs much of the service development and testing, and suppliers provide standard services on a regular basis. Suppliers become expert at serving SMEs and the facilitator specializes in negotiating and managing funds and developing supplier capacity. Market research costs may be subsidized by the facilitator who helps with technical assistance or conducts research for many suppliers such as in this BDS market assessment. BDS marketing costs may be subsidized by the facilitator who promotes awareness of services. Suppliers are primarily private sector businesses — donor funding is not used to subsidize direct transactions and the presence of donor funding is not publicized, thus minimizing SME expectations of subsidies. Full prices are charged when service design is complete. Many suppliers may DRAFT REPORT FOR BDS DIAGNOSTIC IN UGANDA 71 FIT RESOURCES DECEMBER 2008

use the following promotional, packaging, and payment mechanisms to reach low-income markets: • Lower costs by delivering services through other SMEs. • Package services in small pieces or “sachets”. • Offer introductory services with immediate value-added for a small fee. • Offer gradual payment mechanisms such as installment payments. • Offer financing to allow the poor to pay for services. • Collect payments “on commission” if services help the business make a profit. • Help SMEs purchase as a group and receive a discount. Benefits of stand alone services Risks of stand alone services Provides SMEs with more choice Lead firms have limitations on quality and Increased competition leads to lower standardization prices and improved service delivery Financing constraints may inhibit service Maximizes outreach delivery Levels power relationships amongst Difficult to kick-start in an immature market value chain businesses A combination of fee-based and embedded service provision is crucial in creating a dynamic, competitive market. Embedded services - many SMEs are reluctant or unable to pay up-front for valuable services. However, they can produce commodities or manufacture products if a buyer supplies raw material, market information, product specifications, or other services. Small enterprises may not be able to afford BDS in any form that requires direct payment and embedded services have excellent potential to reach the poor because they are not fee- based. Services provided by buyers of SME products are more likely to reach the poor as are services embedded in essential inputs that the poor already purchase. Embedded services can act as a natural driving force of market transactions and thus provide programmes with an advantage in developing markets. Such services are well tailored to improving transactions between SMEs and other businesses. Services embedded with another service may stimulate the demand for stand-alone services. Benefits of embedded services Risks of embedded services Enables lead firms to produce per market Heavy investment may over-expose lead firms specification May inhibit development of stand-alone Overcomes financing constraints among services SMEs Potential to “over-service” leading to market Useful when support market is immature distortions or non-existent DRAFT REPORT FOR BDS DIAGNOSTIC IN UGANDA 72 FIT RESOURCES DECEMBER 2008

Cross-subsidies - in cases where services are demand-driven and valuable, but not financially viable, some providers choose to cross-subsidize them with other revenue generating activities. Such as supplying BDS to larger businesses that can pay profitable rates and then using profits to supply smaller businesses with services; or operating a completely unrelated business and using those profits to subsidize BDS activities; or using income from a viable BDS to cover the cost of a non-viable BDS. Third party payment - another strategy is to identify and deliver services that are mutually beneficial to both small and large firms, and charge only the large firms. Another example would be harnessing advertising or sponsorship revenue to provide a service which is seen as a public good such as information delivered by radio, print or mobile telephony. Piggy-backing on microfinance and disseminating a BDS through a microfinance institution - successful programmes use credit meetings to disseminate information about a BDS, but offer it as a separate, non-required, fee-based activity. Usually, loan officers and BDS staff are separate as well. The advantages of this approach is that promotional costs are minimal because there is a captive audience in credit meetings, clients have access to finance to pay the fee for a BDS and training costs can be kept to a minimum and overheads minimized. The disadvantages of this approach are that clients may feel compelled to purchase the service for fear of not receiving a loan, primary clients may not be the same as microfinance clients, staff may have too many activities and skills could be diluted. Plus there is a danger of cross-subsidizing low-demand services with lucrative microfinance services, thus compromising institutional profitability. The following strategies are recommended and focus on the preferences and limitations of SMEs: • Use installments (or hire purchase, renting, leasing) so clients pay a predetermined fee every week/ month or facilitate bulk purchasing. • Facilitate a guaranteed payment system (a revolving fund or a check off system via a service hub). • Collect a commission on products sold by the client to recover costs. • Embed the cost of the services into fees for services or products that clients are known to value. • Educate BDS providers on cost analysis to promote fair and consistent pricing. • Keep the price of the service within the affordability limits of the clients. • Clearly link the services to increased profits for SMEs. • Offer the service over the same time period as the payments. • Determine the installments by assessing the client’s capacity to pay. • Ensure high-quality demand driven services based on market awareness resulting in concrete benefits for the client. • Ensure continuous improvement of services. • Develop a trusting relationship. Full cost recovery can also depend on the strength of the existing relationship between the provider and the client. When a trusting relationship exists, greater flexibility in the payment schedule may be possible. • Monitor payments and follow up with the clients. DRAFT REPORT FOR BDS DIAGNOSTIC IN UGANDA 73 FIT RESOURCES DECEMBER 2008

It is recommended that the project share financial risk only when the market development effects would outweigh the market distortion effects. The facilitator should analyze the potential impact of risk sharing on the market. Will risk sharing distort the BDS market, limiting the entry of potential providers, or expand the market, facilitating the entry of other providers in the market? In the following situations, sharing financial risks is likely to be both essential and beneficial: o When no or very few existing providers are in the market o When developing new services o In very weak markets o In markets with subsidized providers To develop a sustainable commercial market for BDS alongside subsidized BDS - commercial services must offer something different, better, or beyond what subsidized services offer; and SMEs must be aware of what these added benefits from commercial services are. The project can use the following methods to meet these conditions: • Develop unique selling features of a commercial service by understanding the clients’ needs and the gaps in the subsidized services. • Assist providers with customizing services. • Enable BDS providers to address SMEs’ problems that are not addressed by existing subsidized services. • Teach commercial providers how to promote their services. It is recommended that on the demand side, the facilitator may need to realize the following objectives: lessen SMEs’ distrust of middlemen and service providers, increase SMEs’ understanding of how services add value to products, and promote a culture of payment for intangible services. It is recommended that on the supply side, the facilitator may need to realize the following objectives: increase BDS providers’ capacities to price services logically, fairly, and consistently; explain to SMEs how services are priced to increase trust; and develop payment options with input from client SMEs. For SMEs to be comfortable paying for services, some transparency on how those services are priced must exist. Value chain workshops can assist with developing this transparency. Always ask “who would/ should perform this role if the project was not there? The vision is that functions performed by facilitators will either not be needed in sustainably growing markets, or they will be commercialized. Suggested BDS providers/delivery channels to target for future interventions The EADD should ideally work with private sector providers who are business like and willing to invest. This may not be possible in all locations and the project may partner with DRAFT REPORT FOR BDS DIAGNOSTIC IN UGANDA 74 FIT RESOURCES DECEMBER 2008

some of the following types of suppliers: private BDS businesses and individual consultants, informal networks, companies offering other products, farmers’ associations and Coops, religious institutions, employers or business associations, Chambers of Commerce, NGOs, CBOs, research institutions, educational institutions, financial institutions, media houses, publicly funded enterprise development agencies and Government institutions and departments. The project may also partner with members of the supply chain such as input providers who provide embedded services that can be promoted and replicated. The important questions to ask include: o Who can deliver BDS sustainably and how can the services be paid for? o Which kinds of institutions make highly sustainable providers and how can services be paid for through commercial channels over the long run and still reach the poor? o What is the capacity of existing suppliers to expand and/or improve service delivery and potential providers to transform into viable private sector providers? If the target population is isolated, low-income SMEs, informal sector business may be more appropriate options. In some situations, the dearth of suppliers may require the facilitator to work with community-based entrepreneurs and groups to launch new supplier businesses. But be aware of national level NGOs struggling to define their role. Some NGOs who support the BDS market development approach choose to remain BDS providers, but register as a private company or social enterprise. Others opt to become facilitators. The facilitator may have to support these organisations to define their role clearly. The private sector that is currently offering BDS in the Uganda sites is non-institutionalized, weakly resourced with a limited range of products and services. In addition it is offering services and products that are not competitive. Since they are even few, it is hard to see them as a viable option in the foreseeable future. The following are therefore suggested: 1. Local cooperative initiatives that have been created by farmers. 2. Local government (sub county level) agricultural extension workers. 3. Civil society actors especially service delivery local NGOs like VEDCO in Luweero, Send a cow, Heifer international - that have grassroots initiatives. Selecting appropriate BDS providers In order to assist EADD staff in selecting appropriate providers for future interventions a set of criteria has been developed as follows: • Capacity to deliver services - e.g. existing contracts, marketing strategy & accounting and management systems • Close to SMEs - in culture, operating environment & geography • Focus on services, SMEs or BDS • Commercial focus - business like with a business vision, profitability (pricing strategy & pricing mechanisms) & business culture • Organizational independence - especially from donor funds • Legally registered DRAFT REPORT FOR BDS DIAGNOSTIC IN UGANDA 75 FIT RESOURCES DECEMBER 2008

• Willingness/interest/ability to partner – use information, provide minimum investment capital & expand capacity During the supplier diagnostic interviews each supplier was given a rating against these criteria to enable staff to select partners with the best ability to develop and deliver appropriate services. A workable data base of these BDS providers is attached to this report (Annexes/Databases). BDS performance measurements at the BDS market level It is recommended that the causal chain is firstly made implicit: What does the project expect to happen, and how can the project show that each effect is causally linked back to the original inputs? This describes the overall SME development strategy — the causality between programme inputs, activities, outputs, outcomes, and ultimate impacts. A recommended clear causal link is defined below: Better business practices contribute to SME growth and profitability and, eventually, increased employment and income BDS market development leads to large numbers of SMES using and applying business services to improve their business practices Strengthening the demand for, and supply of, services leads to a vibrant, competitive BDS market It is further recommended that the EADD adopts the Performance Measurement Framework (PMF). PMF is a common system for measuring the performance of BDS programmes or components of programmes. The goal of PMF is to help improve performance in the BDS field by helping identify best practices and programmes improve their performance. The PMF focuses on assessing changes in supply and demand for services, the development of BDS markets, and how SMEs use services to change business practices. It proposes to monitor results in 3 categories: 1. Household level (measuring impact on SMEs2) 2. BDS market level (measuring the development of vibrant competitive markets for BDS) 2 SMEs refer to small holder farmers however the definition of what this term to the EADD means must be clear from the onset. DRAFT REPORT FOR BDS DIAGNOSTIC IN UGANDA 76 FIT RESOURCES DECEMBER 2008

3. Programme level (measuring programme performance and costs effectiveness) It is designed to be used in conjunction with occasional impact assessment and more frequent tracking of efficiency indictors by suppliers. Remember a performance evaluation is not the same as an impact assessment. • Inputs are used to undertake project activities • Project activities produce outputs • Outputs can be evaluated to see if a project achieved its immediate purpose (performance evaluation) • Outputs lead to outcomes. Outcomes are the final results to show that the project has contributed towards its overall objective • Outcomes lead to impacts • Impact assessment measures the final results of a project once it has had time to produce an impact The PMF is structured to measure common objectives: impact-changes in SMEs, outreach- market development, sustainability and cost effectiveness. The framework proposes objectives that the BDS component of the programme might be trying to achieve: o Impact on SME BDS customers and the wider economic/social environment – to increase consumer acquisition of BDS, increase customer application of BDS in the business and increase business benefits from BDS o Outreach, meaning both the number of SMEs reached (scale) and the effort to provide services to people not served by existing markets (access) – to expand the market for BDS, develop a high quality, diverse, competitive market and increase access to BDS by under-served groups o Sustainability of business service delivery and supplier institutions – to promote sustainable access to services o Cost-effectiveness of programme activities – to maximize programme cost effectiveness Goal 1: Increase Impact Assessing BDS Customer, SMES Objective Indicators Strengthen demand for Total number of firms acquiring BDS by service type services and increase (programme level) customer acquisition of BDS Percentage/number of women and youth acquiring services Total number of SMEs acquiring BDS from programme supported providers by service % of total BDS purchases subsidized DRAFT REPORT FOR BDS DIAGNOSTIC IN UGANDA 77 FIT RESOURCES DECEMBER 2008

Customer satisfaction with a business development service and willingness to purchase (percentage satisfied) Repeat customers (percentage of customers who buy more than once) Reasons for satisfaction and repeat purchase (supplemental) Increase customer application Percentage of customers who applied the services — of BDS as intended by the programme and reported by the client such as: • Improved productivity/yield on-farm • Improved in sales • Reduction in bacterial counts • Improved efficiency • Increased number of functioning fodder multiplication plots • Increased number of business plans/FS Increase customer benefits Percentage of customers who experienced business from BDS benefits as a result of the service — as defined by the programme and reported by the client such as: • Increase of productivity/yield on-farm • Increase in sales/business volume • Improved purchasing power Goal 2: Increase Outreach (Scale and Access) Assessing BDS Markets Objective Indicators (Reported for the Overall Market and for the BDS Programme) Expand the market for BDS Number of SMES acquiring a service through any method and purchasing a service through commercial transactions Amount of sales by BDS suppliers (programme only) Market penetration: percentage of potential SME market acquiring a service through any method and purchasing a service A programmes market share of all services acquired through any method and all services purchased (programme only) Awareness: percentage of SMES aware of a service Reach: percentage of SMES who are aware and have purchased a service at least once Develop a high-quality, Total number of BDS providers in the market by service diverse, competitive market (market and programme level) % of private, for private (no donor funds/contracts) sector DRAFT REPORT FOR BDS DIAGNOSTIC IN UGANDA 78 FIT RESOURCES DECEMBER 2008

BDS providers Number of BDS products (programme only) % of high quality, differentiated and appropriate services Retention: percentage of multiple purchasers out of all purchasers (not relevant for some programmes) Satisfaction with last service purchase (supplemental) Reasons for purchase, non-purchase, and choice of supplier (supplemental) Increase access of Extent of access: percentage of SME customers underserved groups to BDS purchasing a service that represents targeted populations (women, micro enterprises, and so on) Target market penetration: percentage of potential SME targeted markets (women, micro enterprises, etc.) acquiring a service through any method and purchasing a service Goal 3: Achieving Sustainability and Cost Effectiveness Assessing BDS Suppliers and Facilitators Objective Indicators Achieve supplier Price for each BDS service sustainability/profitability % of profitable BDS providers Percentage supplier revenue from SMES Breakdown of sources of supplier revenue (supplemental) BDS supplier financial sustainability (non-donor revenues /total expenses) (supplemental) BDS contribution margin (SME revenues from a service- direct expenses for the service / total expenses) (supplemental) BDS viability (SME revenues from a service / direct expenses for the service) (supplemental) Improve programme cost- Ratio of annual programme expenses to annual effectiveness programme sales to SMES Annual programme expenses per customer served Total programme costs per SME (rural households) served Long term outreach growth of programme The programme must aim to deliver a greater number of differentiated suppliers earning profits from fees (or other commercial sources) with a range of service products available in the market and a gradually increasing numbers of transactions between private suppliers and SMEs. It is expected that service quality and appropriateness will improve with increased competition. DRAFT REPORT FOR BDS DIAGNOSTIC IN UGANDA 79 FIT RESOURCES DECEMBER 2008

Information gathering: • Much of the information required can be sourced for partner suppliers. However the partners must be clear from the outset as to the information to be collected and at what time intervals. • Data from consumers must be collected via sample surveys. Depending on the budget available quantitative information should be collected during face to face interviews using a questionnaire plus qualitative case studies and testimonies via client interviews. To reduce costs it is recommended that the project also run a number of tele research panels using the phone numbers in the databases compiled during the market assessment. This would involve developing a short questionnaire to collect targeted information over the telephone from a sample of consumers and suppliers. • Internal quantitative sample surveys using questionnaires The project should aim to: • CREATE VALUE: Provide information on what’s working/not working and why • BE SCALEABLE: Provide evidence/potential to serve larger number of poor people • BE SUSTAINABLE: Provide evidence/potential of market capacity to sustain improvements over time without continued support It is important that the project capture lessons learnt and provide an analysis of developed business or market models incorporating new and improved business linkages and practices that embody a market development strategy. Specific strategies should be identified for market replication and resilience and systems defined for disseminating information, promoting learning and adaptation and catalyzing market change. Annexes Database of SME actors including persons interviewed Database of BDS suppliers including persons interviewed Database of targeted suppliers Itinerary FIT/RI scope of work Final instruments BDS training report Researcher training report DRAFT REPORT FOR BDS DIAGNOSTIC IN UGANDA 80 FIT RESOURCES DECEMBER 2008

Business Development Services (BDS) Market Diagnostics in Uganda

by East Africa Dairy Development

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Business Development Services (BDS) Market Diagnostics in Uganda Document Transcript