Crops such as maize and rice are widely consumed throughout Africa. However, making money from these commodities can be challenging due to low margins and the significant economies of scale required.
Uganda-based Divine Masters Limited has built a sustainable business by cultivating and trading soya beans, rice and maize. The company grows these crops on its own land and also buys from over 120,000 third-party smallholder farmers. How we made it in Africa speaks to founder and CEO Orisa Raphael Jawino about how he built the business.
How did you start Divine Masters?
I originally started Divine Masters as a construction company in 2007. Two years down the road, I realised it was not my passion and changed course. The agribusiness as it stands today originated from my passion for agriculture that has been rooted in me since childhood.
I grew up in a farming family and my parents tilled the land to be able to educate me to the fully-qualified advocate I am today. My siblings were also educated from the proceeds of the land. Farming was part of life; my daily routine until I left for senior secondary school. Before then, we would wake up early and work in the fields before going to school.
I was shown that there is value in the land; if you own land, you should treat it like gold. However, the crops my parents grew, such as cotton, no longer had a market and there was no economic viability in Tororo, the community where I grew up. It baffled me that community members were begging for food and money when they owned arable land.
My parents had about 300 acres of fertile arable land, so I started with a crop of soya using foundation seeds I purchased from a research institute. When the community saw my first harvest which had soya yields they were not accustomed to, they became interested. Initially, they wanted to work on my land but I opted to provide the agricultural inputs to enable them to produce soya on their land and supply me. I explained we would be able to eradicate poverty from our community with these seeds of gold.
Right at the beginning, in the second growing season (July to December) of that first year of production in 2010, there were about 20 interested outgrower farmers. Today, we have more than 120,000.
Where did your initial funding come from?
Initial funding came out of my pocket; the little savings I could put away from my salary. I also had a radio station (West Nile Broadcasting Services) at the time, which supplemented my savings to finance the project and get it off the ground.
How did you find the customers for that first soya harvest?
During our first harvest in 2010, soya production in Uganda was very low and the demand was high. Various animal feed mills in the country were relying on silverfish from Lake Victoria for their production. But the government started regulating the fishing industry and they had to source alternatives, of which soya was a viable option. It created a huge market for us.
When did you expand to other crops?
I focused on soya for almost four years. During this time, maize production was increasing as neighbouring Kenyan traders were crossing the border to look for supply. Locally, in Uganda, the population also started turning to maize as a staple food. I realised we needed to add maize production for food security.
Almost at the same time, the government was busy with incentive programmes to grow rice locally instead of importing it. We were fortunate to be part of that original programme and the low-lying area where I came from was also suitable for rice production. I encouraged the community to use their swamps for rice production. The benefit was threefold: Divine Masters diversified our income streams; we assisted with food security; and we could increase incomes for the farmer households that supplied to us.
We began to target training centres where young people were considering migrating to the cities. We would encourage them to stay and farm as their energy would be the only thing determining their earnings at the end of the day. We believed our model could provide valuable jobs. This was around the fifth year after we started production.
What did the growth look like in the subsequent five years?
We aimed for growth across different categories: Firstly, we wanted to enrol more farmers through co-operatives and village savings and loan associations (VSLAs); secondly, we had to increase our production volumes because we wanted to meet the growing demand; and, thirdly, we always wanted to create indirect employment opportunities.
In reaching these growth targets, it became clear we would need to produce at least 40% of the total production volumes we required ourselves. So, we started acquiring land.
Today, we have approximately 12,000 acres: about 5,000 acres for rice production in Butaleja in the east; 2,500 acres for maize and soya in Kiryandongo and the north; and the last bit of land is in Tororo.
On the demand side, we acquired new customers. Today, our main customers are Mukwano, Mount Meru Millers, Upland Rice, Pearl Rice, East African Foods, Biyinzika Feed Mill and Ugachick Poultry Breeders.
Tell us about the services you provide to the outgrower farmers from whom you purchase the crops.
We work through co-operatives, of which there are about 60, and approximately 7,850 VSLAs. Through these structures, we supply production financing and, before each season, we provide free training in agronomic practices, business development, management and financial literacy through a train-the-trainer model.
We have contracts in place with all the farmers through the co-operatives and VSLAs where we stipulate the different roles expected from us and them. From our side, we provide knowledge, market access, make finance available and supply inputs as we are a bulk purchaser and get preferential rates.
We have provided roughly 2.5 billion Ugandan shillings ($675,000) in production financing to the different outgrower groups.
Divine Masters has a relatively small team of 48 staff for a company that has to manage supply from over 120,000 outgrower farmers. What are some of the lessons learnt?
We have to minimise our cost as the profit margins are very small. We want to provide jobs along the value chain, but indirectly, not directly in our business.
We realised quite early the difficulty in providing financing to individuals. Our security for the loans is the goodwill we create with the farmer. When it comes to selling back to us and choosing not to sell to another middleman, the probability is often only 50/50. For us to establish trust, we cannot rely on the individual. We needed communal accountability.
There were still challenges, though. At one stage, we had provided roughly 3 million Ugandan shillings in finance but had received just 20% repayment. It became very challenging. Despite having contracts in place, the farmers did not see them as legally binding. We didn’t have the option of putting the entire community in jail, so we had to let it go. We refused to trade with those who didn’t repay and they felt left behind and eventually started repaying their debt. Our repayments are now around 90%.
The other thing that keeps me up at night is maintaining the relationships with those farmers into whom we have put so much effort and training. As demand still outstrips supply, other middlemen try and force our outgrowers to sell to them and I have to deal with this every season. The farmers must understand we are a private company and not a charity. We are making an investment and we expect a return. Unfortunately, often in the past – through aid and the government – nothing was expected in return but this is slowly changing.
In 2017, GreenTec Capital Partners made an investment in Divine Masters. At the time the investment firm stated that Divine Masters aims to expand into the local processing of grains and edible oils for the domestic and export markets. Have you made any progress on this?
We have always wanted organic vertical and horizontal growth in the company and came up with the plan to not only produce to sell grain, for example, but also to add value to these crops. We began investigating the capital investment needed and that is how we became involved with GreenTec.
They introduced us to potential funders (e.g. Deutsche Bank) but at that stage, we did not have the expertise or due diligence proof that they required. It remains a medium-term plan and I am in contact with possible clients in the United States to see what would be required.
We want to produce food ingredients used in production for various industries and are looking at starch, glucose and syrups. For the local market, one of the most viable products seems to be the processing of cooking oil.