Vegetable Oil Manufacturing Company Transforms lives on One Ugandan Island

How BIDCO's investment is changing the lives of people in the district and the potential it has to transform agriculture

Uganda today consumes 250,000 tonnes of vegetable oil per year, up from 100,000 tonnes in 2005. Of this, 16,000 tonnes was produced locally from oil palm by BIDCO in Kalangala in 2011. The company projects production to peak at 20,000 tonnes this year. Another 24,000 tonnes are produced by Mukwano from oil seeds. This leaves the country to import 210,000 tonnes of vegetable oil from Malaysia and Indonesia every year at a cost of about US$300 million of which about US$80m is transport costs.

East Africa imports about 1.2 million tonnes of vegetable oil per year at a cost of US$ 1.5 billion a year of which about US$ 300 million is transport cost. This means that in spite of our poverty, East Africa's consumers give US$1.2 billion of their income annually to Malaysian and Indonesian farmers. This is a story of both success and failure.

It is success in the sense that the increasing consumption of vegetable oil is a sign that incomes in Uganda (and East Africa) are increasing across the board. That is why more and more of our people are using industrial vegetable oil in their food. It is a sign of failure that agricultural economies like ours; with good climate to produce vegetable oil from its own farmers, still surrender US$1.2 billion annually to Malaysian and Indonesian farmers.

That is why I went to Kalangala to visit BIDCO's oil palm estates last week. I spoke to all involved: The chairman of the company's out-growers association; the head of the agency that handles farmers' credit; the Managing Director of BIDCO, the LCV Chairman of Kalangala District and ordinary farmers and people.

I write this column with a lot of humility as I was the first person to lead a struggle against BIDCO in 2004. Using Daily Monitor (where I was Political Editor) and KFM (where I hosted a daily radio talk-show), I mobilised various people to try block the deal. The contract between Uganda government and BIDCO stipulated that government would buy land for BIDCO to plant oil palm. It also said that government would reimburse the company for taxes for 25 years. I made a mistake in the tax computation and felt that this was a bad deal.

Today, especially after visiting the BIDCO factory in Jinja in 2010 and now after visiting Kalangala and talking to key people in the business, I admit I was wrong and mistaken. BIDCO has about 6200 hectares of land under its nucleus farm. Its out-growers have about 3,000 hectares of which only 800 hectares of the trees are mature and therefore yielding fruit. Those farmers earn Shs 350m per month selling their palm oil fruit to BIDCO. A farmer earns Shs 500,000 per ton. A hectare (2.5 acres) can produce 18 to 20 tonnes of the fruit per year - giving them earnings of about Shs 10 million. Therefore, a farmer with 10 hectares (25 acres) can earn up to Shs 100 million in a year.

Uganda needs about 70,000 hectares to become self-sufficient in vegetable oil. BIDCO can take 40,000 for its nucleus farm and have out-growers contributing from the other 30,000. Extrapolating from the current figures, if this happened, BIDCO would employ 12,000 directly and another 60,000 people indirectly. The out-growers would earn Shs 50 billion per year. The country would save US$300 million it spends on importing vegetable oil; and now have that money going into the pockets of its farmers as incomes. Today, BIDCO pays Shs 74 billion in taxes; if Uganda produced 250,000 tonnes of vegetable oil, BIDCO's tax bill would reach Shs 900 billion.

But Uganda can do better than that. In 2011 BIDCO exported about US$45 million of its oil to our neighbours. We can develop a strategy to take over the US$ 1.2 billion East African imported vegetable oil market. This would need about 300,000 hectares of land for oil palm. But given that consumption is growing rapidly every year, in ten years we would need about 800,000 hectares to dominate the regional market.

But can Uganda mobilise its farmers to plant oil palm? This would mean people changing their patterns of agriculture. And people fear change. So there would be resistance. To overcome this would require political leadership yet this is the scarcest commodity in our country. However, the lesson from Kalangala is to secure land for the investor first. Once he/she begins a nucleus farm and a few farmers can join, the earnings of these few can have a powerful demonstration effect on other farmers. That is why today, almost every farmer in Kalangala is joining oil palm business.

The real challenge is to transform our farmers from subsistence agriculture to commercial farming. However, the existing way of life may be precarious but certain; so better the devil you know than the angel you don't. Farmers will go commercial once they have met their subsistence needs. Subsistence agriculture involves farming many crops as an insurance against the risk of one of them failing. The farmer will plant cassava, rice, maize, matooke and beans. Should the birds descend of the rice, he can save the cassava; and should the wilt eat up the bananas, the beans may rescue him.

Commercial agriculture calls for mono-cropping (planting one specific crop). It promises very high yields and a huge return in money. But it can also be risky. Should natural disasters destroy the crop or the vagaries of the market depress prices, farmers will be devastated. Peasant rationality therefore emphasises low but steady yields against expectations of high yields at the risk of an equally high potential for failure.

Because this new way is uncertain, the real challenge is how to mobilise farmers to change their lifestyles. Peasants constitute the most retrogressive class of all people. They tend to be aroused to fight in defence of tradition rather than in promotion of transformation. Within our democratic institutions, the immediate incentive for politicians facing elections and seeking to win public favour is to side with farmers in defending tradition. What is politically appealing is often economically disastrous and people may genuinely resist reforms meant for their own good. Can Uganda and East Africa avoid this cul-de-sac?

By Andrew Mwenda
The Independent Newspaper
15 June 2012