Beginning of this year, I was commissioned by Bank of Uganda to write an article about the honey industry in Uganda. It was meant for their year book for 2010. It had been published and I had duplicated it for all to read.
In this article, you will have a better insight about the honey business and its potential.
3.3 Money in Honey: Investing for Quality Gives Best Returns in a
High Prospect Sub-sector
Section 1 The Markets for Ugandan Honey
All honey, in the hive, is at its purest possible quality. The vegetation around where bees forage determine the flavour, colour and viscosity of the honey. Quality deteriorates because of poor harvesting and processing methods. Normally it is the human factor that plays the biggest role in compromising the quality of honey. This will be further elaborated in Section 2 below.
Honey producers can target local, regional and global markets. The local market can be sub-divided into two segments. The first such segment is almost purely price-driven. Quality here is not an issue. Honey catering for this market is promoted by street vendors, selling it in all sorts of reused packaging, ranging from soda bottles to used cooking oil containers. Some foreigners or tourists are actually enticed by these vendors in the villages, as they believe honey sold in rural areas is natural and unadulterated. To prove that the honey is pure, the vendors have a practice of dropping a dead bee inside the bottle!
The other local segment caters to the retail market such as supermarkets and sundry shops in and around all major districts. In this segment, there is a small group of consumers that go for higher quality honey that has fewer impurities. However, the bigger local demand is still for low priced honey, as most consumers are not particular or have little knowledge about honey standards.
For the higher-priced retail market, presentation and packaging are important. Usually the honey is packed in new plastic jars with a net weight of 500g. Of late, with an increase in choice of packaging materials, honey is also packed in smaller quantities of 100g and 250g. Retail prices, locally and regionally, hover around UGX 3,800 to UGX 5,000 per 500gm.
Regarding export market, honey from Uganda is said to be exported to the European Union and the Middle East. However there are no official statistics for this market. It is believed Ugandan honey is exported by a couple of companies in small quantities, directly to niche retailers, instead of being exported in bulk.
The quality of honey for the export market must be very high. For exporting to European Union countries, the honey has to meet the European Union Honey Legislation requirements (http://eur-lex.europa.eu/ ). The important aspects buyers look into are the country of origin, pollen spectrum, flavour, enzyme activity, moisture and sediment content. Packaging for such niche markets varies according to the buyers’ requirements. It can be in airtight buckets of 25kg or in individual jars, as specified by the buyers.
Bulk export is usually packed in food-grade drums of 300kg. Currently the price for bulk honey is between US$1.20 – 1.30 per kg (CIF). The minimum required quantity for bulk export is a full container load of at least 20 tons. At present, Uganda’s honey industry is still at the infant stage. Nobody yet has the capacity to tap into the bulk export market.
Section 2 Quality Issues in the Honey Value Chain
For the basic local market, honey is mainly sourced from honey hunters and traditional bee farmers. Honey hunters get their honey from wild bee colonies in anthills and hollow tree trunks, while the traditional beekeepers own a few beehives made out of local materials such as rattan and logs.
There are also a good number of modern beehives given by donors and funded projects. Both the honey hunters and traditional bee farmers got their knowledge of beekeeping from their forefathers and practise destructive methods of honey harvesting. They do not tend to the bees regularly and will only approach the colonies during harvesting season. They force the bees out of the hives with lots of smoke and fire before collecting whatever remains in the hive. The honeycombs with brood, beebread, ripe and unripe honey are then squeezed with bare hands or unhygienic equipment. Some will even boil the honey to separate honey from the wax. Investment for players in this sector is minimal. Both the producers and sellers make use of whatever they can get hold of and no expensive equipment and training are required.
For the local and regional retail market there are also more commercially-minded producers. Some are traditional bee farmers and some are members of beekeeping associations, who have gone through a form of training. They usually sell their honey to traders or packers who add value by packaging before selling to retailers. There are a significant number of players involved in this segment.
Packers are normally not beekeepers themselves. Middlemen will travel to villages to buy from various sources and resell at some centralized market in town. Most packers purchase from these middlemen, filter some of the impurities from the honey, pack and label for retail sales. Little or no testing and minimal quality control of the honey is involved. The packers only need to invest in simple filtering equipment, plastic jars and labels. Investment in improving the presentation of the end product is important, as many different brands compete for attention on the same retail shelves.
Although the packaging has improved, the quality of the honey varies greatly amongst different brands. Though some of the producers have undergone training and have acquired modern beehives such as Kenyan Top Bar hives or Langstroth hives, most of the training is done in classrooms without any actual interaction with the bees. The lack of hands-on experience in handling the bees catches most beekeepers off-guard when they encounter the aggressive behaviour of the African bees face to face during their first harvest. This has led to the development of fear of the bees and subsequently these apiarists revert back to the destructive mode of harvesting. This will result in dead bees, burnt grass ashes and melted wax being mixed together with the honey. As such, the quality of the honey will still be compromised, despite the investments in training and the use of more expensive hives.
Often the emphasis is on short term profitability of the business, without any education on the importance of proper handling of the bees for longer term productivity and profit. This is just like putting the cart in front of the horse. Bee farmers should recognize the bees as an important asset in their honey business. They have to understand how to work harmoniously with the bees in their natural environment, rather than fighting against the bees. It is only when they can calmly work on the bees that they will abandon the hit-and-run approach of harvesting. They can then harvest correctly, maintaining the quality of the honey. When the process is right, the outcome will be right. Profitability will follow when the honey quality and yield improve.
For bee farmers and beekeeping associations that pack their own honey for retail sales, improved training will equip them to do quality control and produce higher quality honey. However, non-beekeeper packers who buy their honey from middlemen have absolutely no control over the quality of the honey. They buy whatever is available during that period. Even if some good quality honey is produced at the source (i.e. by the bee farmers in rural areas) there is no way to prevent adulteration, mixing with other lower quality honey or improper handling by the many hands through which the honey passes.
For the export market the investment is much higher both in training and equipment. In order to maintain best quality, all involved have to be acutely aware of the consequence of not doing the right thing. Any mistake along the way, starting from the very source inside the hive, through the harvesting, processing and packaging, will lead to the honey failing to meet the stringent requirements for the export market. As such, even after the initial training, beekeepers and refinery staff have to be constantly reminded, monitored and re-trained to ensure they follow the proper procedures.
Bee farmers must harvest only ripe honey, using the proper harvesting method to ensure the honey is not laden with excessive smoke and ashes. At the refinery, the honey extraction, filtering and packing has to be carefully controlled. Throughout the chain of activities, the honey has to be handled with clean equipment and stored under proper conditions. Although the investment in honey processing equipment is also higher for exporters, the bulk of the investment actually needs to be set aside for training and follow-ups as people are always the deciding factor in maintaining the quality of the honey.
Most of the beekeeping training courses which are currently available in Uganda are only acceptable for producing for the local and regional markets. In order to fulfill the more stringent requirements for the export market, exporters will have to work closely with their outgrowers, to the extent of developing a monitoring system or database to keep track of the farmers and of their performance. Close supervision of all departments involved will ensure that the required level of competence is achieved.
Section 3 Typical Investment and Returns for a Small Apiary
There is no magic figure in starting beekeeping. The numbers of hives one can maintain depends on the competency of the beekeeper, the land available to him or her and the vegetation surrounding the land. For discussion purpose, we look at a typical smallholder beekeeper with 20 hives that are colonized.
Before comparing the different kinds of hives from which a beekeeper can choose, the other standard accessories they should be equipped with are:
A smoker @ UGX 25,000
A protective bee suit @ UGX 120,000
A hive tool @ UGX 10,000
A bee brush @ UGX 7,000
A pair of protective gloves @ UGX 18,000
20 airtight buckets for honey harvesting @ UGX 7,500 each = UGX 150,000
Basic beekeeping training @ UGX 300,000
Total standard cost UGX 630,000
Now we shall compare the costs and income achievable using different kinds of hives. It usually takes about 18 months for a new colony to fully build up its strength and produce to capacity. Small harvests are possible in the first year, but this will be excluded in the calculation below, as it is not certain that production in the first year will be achieved.
a)For traditional beehive investment
Cost of 20 traditional beehive @ UGX 10,000 = UGX 200,000
Plus standard cost, as above = UGX 630,000
Total investment = UGX 830,000
Honey harvest in a year = 15kg / hive
Total honey harvest in the 2nd & 3rd year = 600 kg
Selling price of honey = UGX 3,000 per kilo
Gross income = UGX 1,800,000
Net income = UGX 970,000
b) For Kenyan Top Bar (KTB) beehive investment…
Cost of 20 KTB beehive @ UGX 60,000 = UGX 1,200,000
Standard cost = UGX 630,000
Total investment = UGX 1,830,000
Honey harvest in a year = 20kg / hive
Total honey harvest in the 2nd & 3rd year = 800 kg
Selling price of honey = UGX 3,000 per kilo
Gross income = UGX 2,400,000
Net income = UGX 570,000
c) For Langstroth beehive investment…
Cost of 20 Langstroth beehive @ UGX 140,000 = UGX 2,800,000
Standard cost = UGX 630,000
Total investment = UGX 3,430,000
Honey harvest in a year = 30kg / hive
Total honey harvest in the 2nd & 3rd year = 1200 kg
Selling price of honey = UGX 3,000 per kilo
Gross income = UGX 3,600,000
Net income = UGX 170,000
To use the Langstroth beehive effectively, a much higher beekeeping skill level and precision hive construction are needed. This is to ensure productivity over a number of years, to realize the benefits of the considerable investment involved, upfront. With the current conditions in Uganda, traditional and Kenyan Top Bar hives are still the more recommended methods of beekeeping.
With improved knowledge, skills and close monitoring of the activities of the bees, harvesting can be done on a more regular basis and thus yield will increase. Also, in the rural areas where properly dried timber is not available, KTB and Langstroth hives will warp after a short while and create problems for the beekeepers when handling the bees. They will also be difficult to maintain and repair. Using local materials available in hive construction is more appropriate.
Section 4 A Honey Export Operation
To start an export honey operation, one can choose to be involved in the upstream activity of beekeeping, or to concentrate on trading. In the discussion below, we are looking at the operations of an exporter who does not engage in beekeeping itself. The company will buy directly from the outgrowers, process the honey and pack it for export. The main field of operation will be sourcing, processing and marketing.
There are two kinds of export in which one could be engaged, small scale and bulk export, respectively.
For small-scale export, the basic equipment required would be:
Honey extracting equipment, stainless steel settling tanks, filtering equipment, airtight buckets, clean refinery & storage building, pickup. The cost can range from UGX 50,000,000 to UGX 150,000,000, excluding the building.
For bulk export, the basic equipment required would be:
Forklift truck, food grade drums, palettes, honey extracting equipment, stainless steel settling tanks, filtering equipment, airtight buckets, clean refinery & storage building, truck. The cost can range from UGX 300,000,000 onwards, again excluding the building.
Expansion of a refinery can be progressive. One can invest in the minimum initially and add on more of the same equipment as production increases. Usually, companies will start with small-scale export. Once they secure more honey and orders, they can easily switch over to bulk export operations by adding on some other equipment. Whatever they have already invested in will not be wasted, as the assets are still applicable in the new operation.
At the moment, the local and regional demand for honey far exceeds the supply. In fact, local and regional prices are more attractive than those achievable for bulk export, at world honey wholesale prices. At the same time, the investment for a bulk export operation is quite substantial. Thus bulk export is not the most profitable option at the time of writing. Small-scale export to niche markets that command higher product prices is a more attractive choice to start with.
As written in Section 2 above, the investment in training and education will be much higher than the investment in hardware. It is difficult to quantify this software investment as it varies with the level of professionalism of the staff and moreover is an on-going investment.
It is only during the last ten years that the beekeeping industry is slowly gaining attention as an additional income generating activity for the growing number of farmers who have small land plots. The local land inheritance culture of dividing land among one’s sons is causing plots to be split into smaller portions. Beekeeping becomes a viable enterprise for such small landowners, as it takes up less space compared to agriculture or animal husbandry. This newly-noticed industry is not well understood by banks in Uganda and they have not developed any special schemes to cater for beekeeping activities. They will assess any loan request using standard policies and procedures. The following is a summary, from the point of view of a honey producer.
a) Financing Equipment: For companies engaging in honey production and processing, asset-financing arrangements are possible with some general equipment such as generators and vehicles. However, banks would be more reluctant to provide loans for equipment that is specific to the beekeeping industry, such as refinery equipment and beehives. They will only consider loans for such specific equipment if there are other assets to secure it. Risk is much higher due to the limited resale market for such items. Also, for production equipment like beehives, it will be almost impossible to repossess once the bees colonize the hives.
b) Working Capital: Unlike equipment loans where the equipment itself is an asset with some value as collateral, banks are more stringent in facilitating loans for working capital. The usual procedure would require the borrower to use assets such as land, buildings or fixed deposit as collateral to secure the loan. They will also look into the past years’ cash flows and performance of the company in deciding the payment terms. Interest rate is in the high 20% – 30% range.
An alternative for companies without suitable assets as collateral would be contract financing, whereby, with a firm order secured from a buyer, the exporter could negotiate for a temporary loan using that as security. Unlike businesses such as manufacturing where business activities are more evenly spread out through the year, honey production is seasonal. The huge amount of money needed to buy the honey during the one or two seasons a year poses a great strain on most companies’ cash flows.
With contract financing, once the exporter ascertains the amount of honey their out-growers can harvest for the season, they can liaise with their buyer and bank for such a financing arrangement. The money released in advance by the bank makes it possible for them to pay the outgrowers for the honey, process and ship it to their customer. The exporter will incur less interest expense with contract financing, compared to the case with unsecured finance, which in any case is extremely difficult to obtain in Uganda.
c) Financing for Smallholder Producers: Local banks are receptive to opportunities to provide financial services to out-growers supported by a processor / exporter. Many banks are coming up with low cost savings accounts and are opening branches upcountry to tap into this market. However, the monthly bank charges may still be too taxing on beekeepers who may receive income only once or twice a year. Also, any loan packages come with the unaffordable interest of more than 20% and a short repayment period. Beekeeping is unlike most other agriculture or animal husbandry activities when it comes to the investment and return schedule. Almost all the investment is made in the initial period and the returns only start to be generated 18 months later. However, the beekeeper can reap returns for many years thereafter with minimal maintenance investment. If this situation is understood by the banking sector, and they develop special loan packages that take all these unique characteristics of beekeeping activity into account, then it would be viable for the outgrowers to tap into financing by the banks.
Section 5 Support by Government
The Ministry of Agriculture, Animal Industries and Fisheries has been making efforts to support the honey industry by assisting commercial beekeepers and stakeholders with permits for bee transfers and veterinary certification for honey exports.
The Ministry of Trade and Tourism and The Uganda Export Promotion Board also issue different certificates essential to any export of honey, while the Ministry of Finance allows tax exemption on imports of honey processing equipment and packaging.
All these greatly help in advancing and developing this industry. It would be an added boost to the development if all the necessary permits and certificates could be processed in a one-stop location. Not only is it more efficient for the exporter, it will be easier for Uganda to compile statistics regarding this industry. With more information and feedback, the Government can then formulate policies that will enhance the growth of this industry.
The National Agricultural Advisory Services (NAADS) Program provided some farmers with beehives and training. There is room for improvement in the quality of the provisions though.
With the setting up of ApiTrade Uganda, an organization dedicated to supporting the beekeeping industry, Uganda is trying to provide a regional link for producers, buyers and equipment suppliers. They organized ‘Apitrade’, a honey conference / exhibition that acts as a platform for interested players in the industry to meet. It is held once every two years in different African countries; the first was in Uganda in 2008. This year, 2010, Apitrade is hosted by Zambia and in 2012 it will be in Ghana.
 Author: Lesster Leow, EastWest Innovations Uganda Ltd.
 See also Article 4.2 in this Yearbook for a more complete discussion of bank financing linked to forward sales contracts.