By Joshua Kato
“It is like a death sentence for the poultry and piggery sectors,” says Moses Ssebunza, in reference to the new taxes imposed on livestock concentrates.
Concentrates, commonly known as ‘akalungo’ are a combination of condensed feeds, mainly with a high protein content of between 40-45%.
All that a farmer does is get whole maize (broken) maize bran and process it with a recommended quantity of concentrates to get a complete meal for the animals.
In September, however, the Uganda Revenue Authority (URA) moved to start taxing concentrates, in the process threatening the poultry industry.
According to Stephen Bayite Kasule, in charge of Agribusiness, Resource and Economic Development at the Embassy of the Netherlands, predominantly, the livestock sector in the country had been reliant on nature’s provision.
This included natural fodder, water and very low cash-based inputs.
However, the increase in incomes pushed the growth in demand for protein-based foods including chicken all over the East African region.
This Kasule says had several implications.
Firstly, that producers had to step up production. This means shifting from a low-input to a high-input production system which relies on high-value, processed livestock inputs.
With these inputs, production cycles are cut shorter compared to when farmers use ordinary feeds and there is more predictability regarding production volumes and timelines.
According to Kasule, the unfortunate fact though, is that such high-value inputs, including premixes, concentrates, vitamins and veterinary drugs are mainly imported from other countries.
Due to a lack of appropriate technology and knowledge, often fully constituted feeds are imported as well. Importation peaked around 2016, mainly because the local feed supply was low, poor and unpredictable and yet the concentrates provided a much easier way to mix the feeds.
Majority of the concentrates come from the Netherlands, Belgium and France and most of them are fed to chicken (layers, broilers, kuroilers) and pigs.
“Importation has been quite smooth and easy because such agro-inputs were classified as tax-exempt as per Taxation Act (2017).
However, at the end of September 2022, the tax watchdog, Uganda Revenue Authority sent out tax bills to all importers of animal feeds.
“Even tax-exempted commodities have been added to the demand notes that have been given to the importers,” Kasule says.
The taxes include import duty and 18% VAT.
Tax exemption not clear
According to the URA, importers of livestock feeds used the unclear tax exemption on premixes to start importing ‘another’ feed that they claim includes concentrates.
“The exemption was on premixes, which are mainly raw materials used in processing feeds, however, concentrates were not listed, thus fall under the ‘any other’ products that should have paid taxes,” Geoffrey Okaka, Assistant Commissioner of Trade, URA says.
A Premix consists of one or two ingredients for example vitamins and minerals, while a concentrate carries five or more ingredients including Proteins.
Other import duties and VAT-exempted imported items include day-old chicks imported by a registered farm, parent stock for raising chicken, eggs for hatching into chicks, feeds for livestock, raw materials used in processing livestock feeds including raw protein sources like soya, feeds imported from East Africa and COMESA states.
Equipment, for example, poultry cages are also exempted as long as they are imported by a registered farmer for use on his farm.
Okaka also explains that beyond the taxes, there is also the Buy Uganda Build Uganda (BUBU) issue.
“There are companies that are locally processing some of these imported concentrates. This means that by giving a tax waiver to imported concentrates, local production is suffocated,” he says.
Obviously, members of the local feed processors support the taxes and are watching with bated glee.
According to Amiable Mbarashimana from the Uganda Animal Feeds Manufacturing Association, the taxes will help local processors grow their businesses.
“There are many of us who can produce the concentrates but we are not doing so because of unfair competition,” he says.
However, the importers through their representatives say a concentrate is a premix because farmers cannot feed it to livestock directly, “You have to process it with other raw materials, for example, maize bran and whole maize to make the complete feed,” Magezi Director Champrisa International says.
It, therefore, qualifies as a raw material for feeds.
Sources indicate that some of the players were given back-dated bills with over sh200b, far above their operating budgets! They are in disarray and panic. Many face the likelihood of going bankrupt.
“A retrospective taxation is an effective tool for termination of business,” Kasule says.
URA under their tax laws can backdate taxes to as way behind as the importer did not pay. Most of the demand notes go back to 2017.
“How can they pay a tax that they never featured in their sales? Where will this money come from,” wonders Francis Baguma, Director of KAFFIKA Feeds.
“It is a prohibitive tax against a product on which the fast growth of the poultry sector stands,” says Magezi.
State of the poultry sector
For the last seven years, the poultry sector has been growing at a plausible 3.2% per year.
According to the Uganda Bureau of Statistics (UBOS), there are an estimated 47 million chicken in Uganda.
Out of these, about six million are hybrids, mainly owned by commercial farmers. These provide most of the eggs and meat that Ugandans consume. The other 41 million are largely indigenous chicken, ducks and turkeys.
Production of eggs is estimated at nearly one billion eggs per year, compared to about 400 million eggs 10 years ago. The poultry sector contributes about 4.3% of the total agricultural sector contribution to GDP. The actual value of feeds procured is US$300m per year.
“It is a sub-sector that employs a different array of people,” Kasule says.
He argues that prohibitively taxing a sector that is just recovering from bird flu-related bans in 2020, COVID-19 pandemic closures and dampened aggregate demand is a sure way of grinding its recovery to a halt!
Most importantly though, is the inadmissible fact that this value chain employs many Ugandans.
It also earns the country significant amounts of revenue from exports. Both poultry meat, eggs and dairy products (milk, yoghurts, casein etc) are big exports.
Negative impacts to farmers
It is anticipated that over 1,000 containers with animal feeds and feed components were stuck at Mombasa, Busia and Malaba, owing to the new tax measures.
Sources indicate that many feed processors are juggling the likelihood of closure and filing for bankruptcy.
“This new quest to raise revenue collections will cause more damage to the sector than the COVID-19 pandemic and bird flu ever did,” Kasule says.
The poultry and piggery sub-sectors are very vulnerable.
“Intense farming systems are very sensitive to disruptions in the supply of inputs. For instance, once the incoming animal feeds fail to be supplied on the time, the entire production system will grind to a halt. In economic terms, anticipated economic value will be lost,” Kasule says.
The result will be bad loans, closures and loss of jobs. With not much to export to the regional markets, Uganda’s competitors like Brazil (in supplying to the region) will have a field day.
Financially weighed per kilogram, feeds mixed with concentrates are cheaper for the farmers and also easy to process.
For example, while a kilogram of broiler starter mixed with concentrates costs sh2,300-sh2,400 at retail price, the one for packed feeds produced locally ranges between sh3,200 and sh3500.
A kilogram of layer feeds mixed with concentrates costs sh2,250 compared to sh2,800 for locally packed feeds.
According to Lucky Kakooza, a poultry farmer in Kira, who uses concentrates, while it costs a broiler farmer using concentrates mixed with maize bran sh5,750 to reach 1.5kgs, it will take him sh8,000 to reach the same weight at the same age if he uses locally packed feeds.
“The difference of sh1,250 per broiler is a lot of money,” he says.
Feeds constitute 75% of the cost of production in livestock.
However, if 18% VAT and 10% import duty are imposed on the products, this will ultimately increase the cost of production by almost 100%.
“Many of us will obviously go out of business and definitely, the sector will be affected,” says Hajjati Zahara Mubiru, a poultry farmer in Gangu, Wakiso district.
She says that at the moment with the current prices, a profit on a five weeks broiler rotates around 6%, however, if this tax is enforced, this will be wiped away.
On the other hand, according to Joseph Muwanga, a pig keeper, the profit per kilogram of pork is just about 10.1%.
“You need about sh8,999 to produce a kilogram of pork. We sell each at the farm at sh10,000 on average giving us a profit of sh1,000 per kilogram,” he says.
He adds that if the tax is enforced, production costs will rise to sh10,762 and far above the current farm gate price.
“We shall either increase prices or make losses and run out of business,” he says.
Local processors limping
According to Dr Samuel Ssewagudde, a commercial manager, Tunga Nutrition, a local affiliate of Trouw Nutrition, who are the producers of Hendrix Concentrates in Uganda, the livestock sector alone requires about 600,000 metric tons of feeds per year, of which 72% are for poultry, 19.4% are for pigs, 8.5% dairy feeds while others constitute 0.1%.
However, the installed capacity by recognized feed producers include Ugachick, Biyinzika, Impala, SR Chicks, HMH Rainbow Ltd etc is only 100,000 metric tonnes. But even then, actual production is about 60,000 metric tons per year.
“You see a deficit of about 500,000 metric tons and this is covered by farmers using concentrates,” he says.
Ssewagudde explains that one of the challenges facing local producers is a lack of protein sources, especially soya and mukene (silverfish).
Given the amount of feeds consumed annually, you will need about 70,000metric tons of protein sources (mukene or soya) to cover the current market.
“Annual local production of soya is about 40,000metric tons. But this is raw soya that has not been processed. If it is processed and some of it consumed by human beings, you remain with less than 20,000 metric tonnes, far below the requirement,” he says.
He says that the sector cannot think about silverfish because its growth is not managed and cannot be estimated since they grow wildly in the lakes.
As a result of this deficit, the local livestock feeds sector is currently dominated by foreign feeds, mainly concentrates because of deliberate or ignorantly done adulterations, degradations, and poor handling of locally processed feeds.
For example, silverfish (mukene) is mixed with sand in order to increase weight. Maize infected with aflatoxin is processed into bran and broken.
“Farmers adopted the imported concentrates feeds because of the uncertainty that begets locally processed feeds,” one of the importers says.
He explains that for the imported feeds, it is perfect mixing.
“All a farmer has to do is buy the concentrate, mix it according to the producer`s specifications with maize bran and he is good to go,” he says.
The concentrates come in indicated measurements of 5%, 10%, 20%, 25%etc.
“Since the 1990s, efforts have been made to instill sanity in the local feed industry in vain. I remember how the late Dr Benon Ssebina who made efforts to awaken the farmers on feed quality for animal health was greatly detested and fought,” Solomon Male, a farmer and one of the processors says.
He said that years ago when some processors stood up to fight adulteration and degradations, the government gave them no support, but instead opened up the livestock feeds sector to the external world.
“Today, the remaining local feeds processors are struggling because of stiff competition from foreign feeds,” Male said.
The importers are not against the notion of buying Ugandan processed feeds, however quality, quantity and regulation should improve.
Ssewagudde says that before imported concentrates are taxed out of business, the local feed sector must be thoroughly regulated to improve the quality of the product.
Local production needs time
During his budget address to the country in 2021, President Yoweri Museveni wondered why the country was spending money on importing livestock feeds.
His view is that these can and should be processed in Uganda. Indeed, some of the producers of the concentrates in the Netherlands are already setting up a processing unit here.
Recently, Trouw Nutrition, through its local affiliate Tunga Nutrition took over the former cereals warehouse and silos of UNGA.
“We are in the process of renovating them so that in a few years, we shall be able to process all these concentrates here,” Ssewagudde says.
Magezi says that additionally, a deliberate effort must be made to promote the growing of soya, the key ingredient in processing these feeds.
“We cannot talk about processing a cheaper livestock feed here when there is no soya on the market,” he says.
Frank Tumwebaze, the Minister of Agriculture Animal Industry and Fisheries (MAAIF) said the imposed VAT and Import duty has got implications on the livestock sector at large and, therefore, should be handled carefully.
“The good life and feeding of livestock leads to higher yields therefore, we must make sure that the feeds are there,” he said.
On the other hand, he says that there are local processors of feeds who are claiming that they are being suffocated by concentrates.
“But even these cannot yet produce enough quantities and quality to satisfy the market. Therefore, we are handling these taxes with respect to all these factors,” he said.
Around October 20, trucks loaded with feeds that had been stuck at Mombasa, Busia and Malaba were finally allowed into the country, but only after the owners signed an indemnity accepting to pay the taxes later just in case ongoing negotiations fail to bear fruit.