A successful public/private partnership: vegetable oil production in Uganda

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A successful public/private partnership: vegetable oil production in Uganda

©IFAD/Susan Beccio

There are 50 members in the Mpumwe farmer’s group in Kigumba subcounty. The farmers have received training to grow sunflowers and to learn to process into oil. There is a savings and credit component to the group, which allows farmers to take out small loans to start or expand their own farming activities.

It is quite a challenge to develop a major domestic industry that brings public and private investors together and also nurtures the interests of small-scale producers. An IFAD-funded project in Uganda is rising to that challenge by helping to forge a highly innovative partnership between small-scale producers of palm oil and a private sector operator. With the project’s support Uganda has progressed in a decade from almost total dependence on vegetable oil imports to development of a thriving domestic production sector that has a promising potential for foreign trade. And the country has seen a significant improvement in people’s nutrition as well.

In the early 1990s, Uganda relied almost entirely on imports from Asia to fill its needs for vegetable oil, a basic food. For landlocked Uganda, imports also involve high costs for shipping and trucking goods over the long inland road from Mombassa to Kampala.

After a study carried out by the United Nations Food and Agriculture Organization (FAO) confirmed that growing conditions in Uganda were suitable for palm oil production, the Government of Uganda asked IFAD to support the development of domestic vegetable oil production and the refining industry. The aim was to help reduce Uganda’s dependency on imported oil and ensure a supply of high-quality domestically produced vegetable oil, a basic commodity, at prices that even poor people could afford. Increased domestic production would also generate jobs for rural people, replace exports and make it possible to diversify exports.

In 1998 the Vegetable Oil Development Project (VODP) was launched with the objective of increasing small-scale farmers’ cash income by revitalizing and increasing domestic vegetable oil production.

A readily available source of edible oils brings an improvement in people’s health standards and food intake. “Unsaturated fat such as vegetable oil are essential to a healthy diet. They facilitate the absorption of vitamins,” says Marian Bradley, IFAD Country Programme Manager for Uganda. “Yet most Ugandans consume 30 per cent less than the recommended daily intake of oil. This project helps improve nutrition throughout the country.”

Boosting production of traditional oils

One component of the project helps smallholders improve their production of traditional vegetable oils, including sunflower oil, and essential oils such as citronella, for local and national markets. It works with farmers to improve traditional seed varieties and cultivation techniques, develop local processing, and link farmers to markets.

The project trained producers to introduce simple quality controls to meet national standards and help create viable enterprises. Quality is improving steadily, generating confidence in both producers and consumers. There has been significant growth in the production of oil-producing crops, even in the north of the country, which is still beset by security problems.

Introducing oil palm

A second component of the project focused on introducing the cultivation of the oil palm in Uganda and developing the palm oil industry. Palm oil has a much higher yield – about six times greater than other oil crops – and domestically produced palm oil will eventually replace imported oil.

Under the Vegetable Oil Development Project, IFAD joined the Government of Uganda in the search for a private-sector partner for oil palm development. They were looking for a partner that would bring technical expertise for plantation development and modern industrial refining methods that respect environmental safeguards and ensure a high quality consumer product that complies with food safety standards. In this partnership small-scale production would be integrated with large-scale processing, and small-scale producers would become part of the mainstream economy.

 

Finding a private company willing to make a long-term investment in this sector was not easy. The search for a suitable operator and the subsequent period of negotiations took six years. Finally, in April 2003, the government and the private sector consortium, Oil Palm Uganda Limited (OPUL), consisting of Wilmar, a conglomerate specialized in plantation development and Bidco, an integrated oil processing company signed an agreement. The agreement concluded a much larger investment than was initially planned by the private sector to marks its commitment to the enterprise and achieve greater efficiency of scale.

 

The Kalangala Oil Palm Growers’ Trust (KOPGT), the local farmers’ association, joined the consortium in 2006.

The area chosen for oil palm development was Bugala Island on Lake Victoria, a very poor, remote community, covered in degraded grasslands and mostly secondary forests, with poor infrastructure and very limited development opportunities. This in itself constituted a major challenge for the project.

Planting began in 2004, involving a combination of 6,500 hectares for the private-sector estate and 3,500 hectares of smallholder plantations. A state-of-the-art, environmentally friendly oil processing refinery was constructed in Jinja on the island and began operation in November 2005.  The refinery currently uses imported crude palm oil, but will begin to process oil from Bugala Island sometime in 2010.

In collaboration with the government, Infraco, a donor–funded project development company, financed the building of roads, brought electricity and water and established a ferry service to the island in 2006.

“Before the project, there was nothing on the island,” says Nelson Basaalide, manager of KOPGT and native of Bugala. “No roads, no electricity, no water points. Today, things have changed radically. With the establishment of the plantation, people come all the way here to work, private investors have built tourist hotels and we now have a reliable transportation service to and from the mainland.”

Ensuring that smallholders benefit

Introducing a new crop is a challenge in itself, and OPUL has played a crucial role in guiding and training smallholders in the cultivation of oil palm. Working as partners, OPUL and farmers are developing a total of 10,000 hectares of the trees. A third of that land is cultivated by small-scale producers. If suitable land is found elsewhere in the country, a further 30,000 hectares will be planted. At that point Uganda should become self-sufficient in vegetable oil.

OPUL manages outgrower schemes for farmers, clears the land for them, provides seedlings and fertilizers, and follows up with technical support. Farmers are encouraged to follow good husbandry practices and plant in line with modern environmental and quality standards. Chemical land clearing or burning is banned.

OPUL employs over 1,400 Ugandans on its plantation and has built access roads to many remote households on the island. OPUL also provides housing and healthy meals for its employees and runs a local clinic with a clinic officer and a visiting doctor. As a result, overall health conditions have improved and the number of malaria cases has dropped significantly.

IFAD ensures that smallholders reap the benefits of investments in the new industry by helping them establish their own oil palm plantations and set up their own producers’ association to consolidate their role as suppliers for commercial palm oil production. IFAD funds have established the Kalangala Oil Palm Growers Trust. The trust gives farmers credit to start and maintain their own plantations and ensures that they get a fair deal when selling their fruit to Bidco. It holds 10 per cent of shares in OPUL.

Environmental benefits

The project faced concern over the environmental impact of the oil palm plantations and the crude oil mill on the island. For plantation development, there is a “no-burn” policy, and cover crop is planted as a soil protection measure when the palm trees are small. Furthermore, a 200 metre protective border along the lake shore has been maintained to prevent siltation from soil erosion, and conserve marine resources and water quality. Construction of the crude oil mill is just starting: provision has been made to prevent effluent run-off into the lake, and energy will be provided from the waste of the fresh fruit bunches.

By bringing together smallholder producers with a modern processing company, the project avoids the damage to the environment caused by small-scale oil palm processing techniques, which burn fuel and create polluting waste. Bidco’s oil refinery in Jinja incorporates a zero waste principle.

Bidco is producing high-quality palm oil products that are affordable for everyone. “We produce vegetable oil, margarine, soaps and detergents of varying formats and different brands, to allow all Ugandans, whether rich or poor, to have a healthy diet and improve their hygiene,” says Kodey Rao, managing director of Bidco Uganda Ltd.

Although it will be another two years before the benefits of the oil palm plantations will be reaped by smallholders, the project’s success is already being felt elsewhere. The number of small traditional oil mills in rural centres has grown from 6 to 33, and an estimated 80,000 households have benefited from the increased income and employment opportunities. Competition has also brought farmers better market prices for their traditional oil seeds. In some districts, notably in the eastern part of Uganda, market channels are emerging for sale of citronella oil – a traditional mosquito repellent - to neighbouring Kenya.

The Ugandan oil palm enterprise still requires long-term commitment, but the country should become self-sufficient in the coming years and eventually export vegetable oil. The process has been long and it has met with delays and difficulties, but the projected gains are considerable, both for the national economy and for smallholder farmers.