Feasibility of Up-scaling the EasyDry M500 Portable Maize Dryer to Uganda
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Written by Sophie Walker, Bill Wolfe, & Bryn Davies The AflaSTOP: Storage and Drying for Aflatoxin Prevention (AflaSTOP) project is identifying the most promising storage options to arrest the growth of aflatoxin and designing viable drying options that will allow smallholder farmers to dry their grain to safe storage levels. The project works to ensure that businesses operating in Africa are able to provide these devices to smallholder farmers. It is jointly implemented by ACDI/VOCA and its affiliate Agribusiness Systems International (ASI) under the direction of Meridian Institute. For more information on AflaSTOP and other key reports and resources, visit: www.acdivoca.org/aflastop-publications. 3
BACKGROUND Maize is one of the major cash crops in Uganda, with the majority of production happening in the eastern, central, and western areas of the country. According to Government of Uganda figures, land under maize cultivation accounts for over 1 million hectares as of 2008/2009, with production amounting to 2.4 million metric tons (yield on average 0.92mt/acre). Smallholders, who consume approximately 60% of what they grow, cultivate almost all the maize grown in Uganda. 1 That said, it is mostly schools and food-aid organizations within Uganda that use the maize that does make it to market - the latter needing it to feed incoming refugees from South Sudan. Ugandan maize is also exported to Kenya in large volumes ranging from 200 to 500,000mt depending on the year, along with additional quantities to Rwanda, Burundi and South Sudan. FAO estimated a surplus of approximately 200,000 tons of maize available for export in 2016 2 and the government of Kenya hopes for at least 300,000 mt in 2017. FAO Cereal Balance sheets record minimal growth, with maize production stagnant on average from 2011 through 2015, with no changes foreseen in 2016 implying demand and supply is currently balanced. Despite this, given its importance to household food and income security, the maize value chain has been prioritized by the Uganda Investment Authority for improvement, while the National Agricultural Research Laboratories have been working to improve post-harvest handling, processing, and storage. This is especially relevant in Uganda, as post-harvest losses (from harvest to consumption) for maize are high and in 2012 the maize sector experienced losses on average of 20% with the western region of the country experiencing levels closer to 25% compared to the average figure pf 17.5%. In fact, APHLIS, the African Postharvest Losses Information System, found that the biggest contributor to these numbers related to the harvesting and field drying of maize, especially when affected by damp weather in Western, followed by on farm storage. 3 1 http://www.yieldgap.org/uganda 2 http://www.fao.org/giews/countrybrief/country.jsp?code=uga 3 http://www.erails.net/ug/aphlis/aphlis-uganda/losses-explanation/ 4
With regard to the weather, Uganda s growing season is characterized by bimodal rainfall with a February to June 1 st season that coincides with the major rains, accounting for the majority of production. However, with climate change, the planting seasons in Uganda have become more fluid, especially given late and/or erratic rainfall. This weather variability, especially as related to the still lingering effects of El Nino in 2016, has reduced yields and pushed maize prices upwards. Consequently, wet maize is a significant issue in Uganda and becomes increasingly severe at higher elevations, and drying maize is an increasingly big problem for farmers due to the climatic conditions experienced during the harvest season. Ugandan farmers also appear to retain a lower percentage of their harvest due to extreme cash needs as soon as the harvest can be sold; the inability to sun-dry at farm along with the awareness that wet maize suffers significant loss/degradation when stored wet on farm; and a lack of on-farm storage facilities. Much of the drive that has allowed for the expansion of maize production in Uganda has come from the fact that Kenya is not self-sufficient, and needs to import even in a good production year over 300,000mt. Hence, the highest prices of the year are generally between May and August when there is very little maize being harvested in Kenya. Uganda s main harvest starts in June and runs through into August. If it can be dried, it can be moved into the Kenyan market at a profit. For this reason, most of the larger formal buyers of maize in Uganda have commercial dryers, as it is seen a necessary investment to be able to receive maize from smallholder farmers (along with cleaning). These commercial buyers employ wet versus dry maize market pricing differentials, with the most widespread being subjective weight penalties, which are applied when purchasing wet maize from the farmer. WHAT IS THE EASYDRY M500? AflaSTOP developed the EasyDry M500 as an open source technology that can dry maize in batches of 500kgs, lowering the moisture level from 18 to 20% to approximately 13.5% in 3 hours (the lower initial moisture level, the shorter the drying time). In addition, early tests have demonstrated that smallholder farmer maize, which had been dried on an earlier prototype of the EasyDryM500, had 77 percent less aflatoxin 2 to 3 months later than maize traditionally dried, and 51 percent less aflatoxin than maize that had been dried on an impermeable plastic sheet. However, this needs further investigation prior to claiming mechanical heat based drying as an aflatoxin mitigation technology. 5
With regard to logistics, it has been designed to be transported easily and can be loaded onto two motorbikes. It has a small petrol engine, which uses about half a liter of petrol per hour to power two fans, and burns about 11kgs of maize cobs per hour to provide the heat, which dries the maize. The design is relatively simple and can be manufactured by a similar, informal manufacturer of a sheller, or chaff cutter. These manufacturers are informal and have lower overhead costs than formal manufacturers. However, the informal sector has little ability to market and build awareness of a new product. If the farmers have access to electricity, the dryer can replace the petrol engine with an electric motor, which reduces the cost of operations. In Kenya the cost reduction to the farmer per 90kg bag would be about $0.33, however the farmer will then incur the electricity price which would mean over all the price would be about $0.25 lower. In Uganda, only 18.2% of the total population has access to electricity, so an electric motor is less of an alternative 4 unless there is electricity at available at local aggregation centers. MANUFACTURING OF EASYDRY M500 We explored two potential routes to market for the EasyDry M500. In Kenya AflaSTOP established informal fabricators located in small towns were able to build the EasyDry M500. Uganda has a similar sector throughout the country. Ultimately, the artisan fabrication route was the most economically viable, with artisan fabricators able to retail the EasyDry M500 at an estimated price of about $1,100, which allows for an affordable service to be offered by businesses aggregating smallholders maize. The EasyDry M500 is not a difficult machine to manufacture and therefore fabrication in the informal sector does have some advantages, as well as disadvantages, compared to the formal sector. First, the costs of manufacturing in the informal sector are generally lower, since those operating in the area do not pay taxes either on their end products or on any staff employed. The informal sector also keeps very low inventories, only manufacturing the more expensive items by request. The two big disadvantages of the informal sector for manufacture relate to its inability to market a product and build awareness around a new technology, 4 http://data.worldbank.org/indicator/eg.elc.accs.zs 6
as well as the potential inconsistencies in manufacturing, which increase the risk of a buyer purchasing a machine, which does not work. Accordingly, the formal sector has higher costs both in manufacturing but also in investing in marketing and customer support. This, of course, increases the price of the end product. While initially they may be able to make sales to the first adopters, once the informal sector is able to see the machines in the field, and potentially take them apart, they can start copying them and undercutting the price. The table to the left summarizes the success factors, risks and possible mitigation issues to consider. A final consideration as related to manufacturing is finance. The formal sector generally has access to financial instruments, which ease both their own cash flow constraints, and those of potential buyers of equipment by enabling the latter to spread payments over a number of years. Moreover, potential buyers have the ability to leverage the original cash available to purchase additional machines (e.g. if a buyer has $1,100 through financing that could be used to purchase three machines putting a 30% deposit on each machine, rather than buying a single machine outright for $1,100 which would reduce operating costs if all three machines were deployed together). The informal sector, whether the manufacturer or the small informal business entity, do not have the same access to financing, have a fear of financing, and would require specific capacity building to even consider trying to access such resources. EASYDRY M500 PART SOURCING, FABRICATION AND RELATED COSTS Throughout the country flourish many informal businesses fabricating products out of metal. Therefore, the Ugandan artisan fabricators should be able to fabricate the EasyDry M500. Nevertheless, artisan fabricators rely on bespoke business: a customer walks in through the door, asks whether they can build a product, provides a deposit and comes back for the finished product a few weeks later with the final payment. The fabricator does not advertise, demonstrate or market the products. Therefore, awareness comes from the customer seeing the product working somewhere else. If a customer has not seen the EasyDry M500 performing, they will not look to buy it. If a fabricator cannot physically see a dryer, they will struggle to build it. Therefore, there is the need to demonstrate the effectiveness of the dryer to promote market demand. AflaSTOP conducted market research in Uganda to estimate the cost of fabricating the EasyDry M500 informally in Uganda as compared manufacturing the same dryer in Kenya. For the most part, it was found that the materials needed to build the dryer could be sourced in Uganda. Nevertheless, as compared to Kenya, initial analysis indicates that the manufacturing costs in Uganda are at least approximately 14% higher. 7
Informal Manufacturing Costs for EasyDry M500 by Country Kenya Tanzania Uganda Rwanda Ex-Kenyan machine to Rwanda Materials $511 $630 $688 $1,027 $796 Labor $140 $251 $195 $341 Transport $15 $15 $17 $15 $200 VAT, Import $183 duty Profit* $130 $176 $177 $274 Total cost $796 $1072 $1077 $1,657 $1,179 *Presumes 20% profit margin, however individual manufacturer profit requirements may vary. ^Initial quotations received support these numbers. **All costing may vary and subject to exchange rate and material cost fluctuations. Given the small difference in pricing between Kenya and Uganda once VAT and other duties are added (difference about $90); fabricating the dryer in Uganda through the informal sector appears to be a viable option. MARKET DEMAND FOR DRYING SERVICES As previously mentioned, initial AflaSTOP research found that there are wet versus dry maize pricing differentials present within the Ugandan market, with the most widespread practice employed by traders being subjective weight penalties, which are applied by buyers when purchasing wet maize from the farmer. One buyer interviewed had an explicit price per kilogram premium for maize delivered with a moisture content of less than 14%. In addition, most of the larger maize buyers have commercial dryers, as it is seen as a necessary part of receiving maize from farmers, which bodes well with respect to the potential demand for the EasyDry M500 from commercial maize buyers. In terms of other dryers operating in the market in Uganda, farmers around Jinja and other areas have two alternatives when looking to sell their maize. First, they can dry their maize with AgroWays (U) Ltd., a local maize buyer and seller, as well as a service provider offering drying and storage services. Assuming moisture of 18%, AgroWays drying only cost to 14% per kilo is approximately USH 43. However, once mandatory handling charges of USH 6-12/kg are added, the actual cost increases to USH 49-55/kg (USD 13.6-15.3 per mt) which does not include the farmer s cost of transporting the crop to/from the AgroWays location. Farmers second option, and most common practice, is to semi dry their maize on-farm to around 16-19% moisture content (most often subjectively determined) and accept the subjective weight penalty applied by buyers to wet maize, as shown below. Maize Price/kg (USH) 1,200 Weight Penalty/100kg Bag (kg) 2 3 4 5 6 Implicit Dry Maize Premium (USH/kg) 24 36 48 60 72 Implicit Moisture Content Assumed 16% 17% 18% 19% 20% 8
With an estimated operating price per KG of USH 43-47 and minimal (2-3 kg per 100kg bag) penalties for wet maize, the EasyDry M500, while competitive, may not represent a significant improvement over currently available alternatives for the farmers. Given that a service provider would need to add a profit margin, the service provider model would appear to be marginal and may not be viable given the current maize market in Uganda. This is shown in the analysis below where the addition of service provider profit results in a cost per kg to dry of USH 83 ($23/mt) which does not compare favorably with the AgroWays pricing or even a 4-6kg weight penalty (with an estimated value of Ush48 72 / kg ($13.33 20 / mt). Variables Operating Costs per Day 1 USD = USH 3,600 Daily Amortized Cost 38,250 Payback Period (yrs) 2 Maintanance Cost 6,516 Upfront Dryer Cost (USH) 3,060,000 Transportation 13,059 Days Usage/Year 40 Operator Wage 25,000 Maintenance/Year 8.52% Fuel 15,750 Fuel Cost/Liter (USH) 3,500 Owner Profit 25,000 Batches/Day 3 Total Daily Cost 123,575 Cost/kg 83.2 However, at the trader run (or farmer) aggregation center, having small dryers on hand could mitigate the problems experienced when volumes of maize at 18% moisture content area delivered and need to be dealt with promptly before discolouration and rotting occurs. Particularly at peak buying periods it could alleviate the buildup of trucks waiting to dry at central dryers, as well as saving on the costs of transporting the weight of water subsequently lost through drying, allowing for the dry maize to move straight from the aggregation center to the end buyer rather than having to be handled centrally before distribution. Below is an analysis from the perspective of a buyer/aggregator that utilizes the EasyDry at a VAC location close to the farmer. For this type of user, profit is not relevant and the dryer will remain in place, eliminating transport costs. Additionally, their perspective will not be a pay-back period, but the useful life of the dryer which has been assumed to be four years. As can be seen from the analysis, the per kilo cost drops to just under USH 45 and thus becomes competitive with the commercial drying cost. Variables Operating Costs per Day 1 USD = USH 3,600 Daily Amortized Cost 19,125 Payback Period (yrs) 4 Maintanance Cost 6,516 Upfront Dryer Cost (USH) 3,060,000 Operator Wage 25,000 Days Usage/Year 40 Fuel 15,750 Maintenance/Year 8.52% Total Daily Cost 66,391 Fuel Cost/Liter (USH) 3,500 Cost/kg 44.7 Batches/Day 3 Additional savings could be made if there is sufficient drying need to employ three dryers with one operator managing three machines perhaps with a lower paid assistant. Interesting unlike Kenya, there is no developed network of shelling service providers. Local practices are to bag and beat, resulting in labor expended, high percentage of broken grains and frequent contact with the ground. If a small capacity sheller, powered by the petrol engine could be added as an additional service to the EasyDry M500, this 9
could be quite attractive for farmers and/or aggregator/buyers in that it would also address the labor and broken grain issues, thus increasing the usable quantity of maize. There is still the issue around capacity the sheller can process 50 to 100 bags of 100kgs per day and the dryer can only dry 15 bags, however the VAC could send the sheller out to the farmer, shell all the maize, bring back wet maize for drying with cobs for processing at the VAC. Lastly, at a more macro level, most large scale maize aggregators and traders possess commercial dryers located at their central warehouses, as it is seen as a required element given that high moisture content of the maize normally received. While larger drying units can obtain efficiencies over a small unit such as the EasyDry M500, they are still quite expensive to operate. Thus, the EasyDry M500 could be operated by these aggregators/traders through their small aggregation centers as a way to reduce overall costs, which we can presume is below the USH 43/kg that they charge for their drying service but does not include the expense of transporting handling moisture later lost when the maize is tried (between 2 6% of weight). THE COST OF THE DRYING SERVICE Given the lack of service providers, trying to position and introduce the EasyDry M500 as profitable enterprise for local entrepreneurs would require significant market development and training efforts. For this reason, the most fruitful avenues would be to sell dryers to those commercial entities that are buying and drying maize via networks of local VACs. The cost of drying with the EasyDry M500, while higher than large commercial dryers, appears to be viable given that having an EasyDry at a VAC would provide the additional economic benefit of reducing the weight transported and handled to the aggregator s central warehouse (transporting and handling dry versus wet maize). Additionally, drying the maize earlier will reduce the discolouration, which occurs when wet maize is being transported en masse, resulting in an improved quality for sale. Some examples of potential buyers and operators are as follows: o Farmer Associations such as KACOFA o Large buyer/aggregators such as AgroWays and Upland Rice o Trader, merchants and processors such as Soroti Grain Millers With regard to costs, the opposite analysis of the per kilogram cost of the EasyDry M500, as compared to local alternatives and price differentials, indicates that it is a competitive alternative for potential commercial buyers. However, marketing the EasyDry M500 to them would require cost reductions compared to their current drying practices. Utilizing currently observed 1 USD = 3,600 USH Payback Period of Dryer Cost (Years) 2 3 4 5 Upfront Dryer Cost 3,060,000 3,060,000 3,060,000 3,060,000 Days of Use per Year 40 40 40 40 Daily Amortized Cost 38,250 25,500 19,125 15,300 Other variables Mainteance per year 10% 10% 10% 10% Fuel per litre 3,500 3,500 3,500 3,500 Operating costs Mainteance costs per day 3,825 3,825 3,825 3,825 Transport Operator 25,000 25,000 25,000 25,000 Fuel 15,750 15,750 15,750 15,750 Total daily costs 82,825 70,075 63,700 59,875 Batches 3.00 3.00 3.00 3.00 Cost per bag USD 1.39 1.18 1.07 1.01 Cost per bag USH 5,020 4,247 3,861 3,629 Cost per kg USH 55.77 47.19 42.90 40.32 10
operating variables combined with local costs, the following graphic shows the drying costs under different scenarios of machine repayment. A 4% moisture drop is assumed with the buying and drying maize taking place at local VACs. As shown to the right, a reasonable (2-3 year) amortization period results in a per kilo cost of USH 51-59. 5 Footnote below. Compared to other drying alternatives in Uganda and given an assumed 4% moisture drop, the per kg cost in Ugandan Shillings of the aggregator run EasyDry M500 versus the two common local alternatives is shown below: USH/kg $/mt EasyDry M500 43-47 12.50 Subjective Weight Penalty 48-72 13.33 20 Commercial Drying (AgroWays) 49-55 14.44 CONCLUSION The prospects for commercialization of the EasyDry M500 in Uganda are strikingly different from Rwanda and Tanzania, as commercialization will likely need to target commercial maize buyers aggregating through networks of VACs, who also dry the maize they purchase, instead of individual operators/entrepreneurial service providers. The cost of operating the EasyDry M500 at an aggregation center appears to be lower than the cost of operating the larger scale dryers in the central locations. This means traders could also reduce their transport and handling costs by not transporting and handling up to 4% moisture which needs removing. It also offers the opportunity to reduce transport costs/distance by bulking dry maize at the aggregation center and moving it directly to the end market (e.g. Kenya) without having to transport it to a central location to be conditioned prior to onward transport to the end market. That said, whether the EasyDry M500 will bring about improved income for the smallholder farmer rather than improved income for the trader depends on the selling decision of the farmer. Based on the current differentials in the market (price or weight) If the farmer only sells at his/her farm gate to any old trader, then he/she is better off giving them the wet maize. If the farmer s maize is above 17% moisture content, they are better to sell to either the farm gate trader or the VAC as it is However, if the farmer sells through the VACs and his/her maize has a moisture content of around 16%, he/she is better off using the EasyDryM500 and then delivering 13.5% maize to the VAC. 5 Transportation costs have been excluded since the most likely situation would be for a dryer to be placed at a VAC, thus making transport costs insignificant farmers would bring in cobs with the maize since this is mainly by oxen cart it would not be difficult to add sufficient cobs. 11
Therefore, given the tight margins and the difficulty associated with drying maize in Uganda, the following should be completed in order to fully assess the viability of the EasyDry M500: o Investigate other regions within Uganda of significant supply, especially those that normally experience wet weather during harvest; o Pilot EasyDry M500 units through VACs with potential commercial partners, as there seems to be genuine interest in finding alternative drying solutions on the part of aggregators/traders; o Gather more accurate cost data from those entities currently operating commercial dryers with respect to their operating costs and transport costs from local VAC sites to the dryers. This will help get an accurate picture of the o viability of the EasyDry M500 as a cost savings strategy; Evaluate the difficulty farmers currently experience drying the maize they retain for home consumption and later sale to see whether losses experienced (quantity and quality) provide an economic reason to adopt drying services; o Evaluate the viability of offering shelling services and how this might be linked to drying services. Building the capacity of local industry, particularly informal artisans to manufacture the dryer to specification will require a capacity building program. Given the interest of a number of private sector companies, this could be worked through a train, build, buy program where the artisans are trained on building the dryer, then given a contract to build a dryer which pre-pays the material costs and some proportion of the labour, but only pays the profit when the dryer meets the correct specifications and performance standards checked by the independent entity ensuing the ultimate buyer has a working product. Initially, along with building local capacity to build the EasyDry M500 supporting the private sector to try the dryers at VAC locations for one or two seasons on some kind of rent to own model will mitigate the private sector s risk of investing in a technology which may not meet all estimated requirements to be economically viable at the VAC. Having demonstrated the concept works with companies such as Agroways, Adula Enterprises, and the Kapchorwa Commercial Farmers Association (KACOFA) all of whom expressed interest - a second phase aimed at building drying capacity at the VAC s as quickly as possible could be supported by a number of pull mechanisms, one example of which could pay out prizes over a relatively short period of time and could be linked to: The number of dryers bought from artisan fabricators; The volume of maize dried at VACs; The volume of maize purchased at VAC at a price level above the cost of using the EasyDry M500 on-farm. Accordingly, the most fruitful avenues may be to sell dryers to those commercial entities that are buying and drying maize via networks of local VACs. The cost of drying with the EasyDry M500 based on this model appears to be viable and having the EasyDry M500 at a VAC would provide the additional economic benefit of reducing the weight of unsellable water which currently has to be transported and handled. 12