Executive Cases: Interviews with Senior Executives of Early-Stage Companies:
Victoria Seeds – Uganda
Prepared by Justin Randolph and George Foster
Victoria Seeds Limited is a full-line seed company, based in Kampala, Uganda. It became operational in 2004 for the purpose of delivering quality seed to Ugandan “smallholder” farmers, who produce over 90% of agricultural output in Uganda.
The company has since grown into a seed house that exports to the East Africa regional market and is engaged in seed research, production, processing and marketing. The company provides vegetable and cereal seed – and related inputs – as its core business product; it also offers a range of seed varieties for legume crops, oil crops and forage for livestock farmers. The company’s efforts to reverse the decline in agricultural productivity in Uganda and other countries in the region have been widely acknowledged. In 2007, the Uganda Investment Authority recognized its contribution to Uganda’s economy and named the company Investor of the Year in the Small & Medium Enterprise category.
Q1: What was the source of the initial idea, and how did that idea evolve into a viable growing company? How did it change over time?
I was also driven by the desire to try and make a difference in the lives of rural women in Uganda. While growing up, I had the experience of seeing women holding their families together, heading households during civil war, and really contributing most of the agricultural production in Uganda.
So I was motivated to capitalize on the market opportunity for improved quality seed in Uganda in the hope of making a difference in the lives of Ugandan agricultural communities.
Q2: What were the major growth accelerators for your company in the early years of high growth?
Okot: “I would say a key accelerator was the government, which at the time of our founding had just launched a very effective policy called the Plan for the Modernization of Agriculture. Mechanisms to encourage smallholder farmers – who accounted for over 90% of Uganda’s farmers – to adopt improved agricultural inputs were embedded in that policy, and so the use of improved seed represented an important way to increase agricultural production.
A government body was formed – the National Agricultural Advisory Services (NAADS) – to facilitate members of the private sector, such as ourselves, to go out and distribute inputs to small farmers. It provided subsidies to farmers to allow them to demonstrate proof of concept and subsequently generate enough income to become self-sustaining.
So it was very exciting because the demand for improved seed was really growing with seed market potential of over 35,000 metric tons. By incentivizing the private sector to participate, farmers adopted hybrid maize at levels that we didn’t have before. Demand grew from just 100 metric tons per annum in 2004 to over 2,000 metric tons today. It was a huge improvement, and the policy environment was right.”
Q3: What role did key aspects of the entrepreneurial ecosystem surrounding your company play in the growth of your company?
Okot: “Well, the opportunity originated from the seed industry having been in the public domain for 30 years. The business opportunity was there and unrealized, especially with a country like Uganda where there was a rapidly growing population that fundamentally needed more food. At the company’s founding, it helped, as I mentioned, that the policy environment was supportive.
However, agribusiness was seen as risky by most commercial banks. I was an excited entrepreneur, ready to mortgage my house to pursue the opportunity, and I went to a commercial bank for start-up capital. They said, ‘No way. Even if you have a house or collateral, we aren’t in the business of reselling houses, my dear. You have no credit history and may just disappear.’ And of course, that was really an obstacle, but I still believed in myself. Back then, there was a USAID agriculture productivity enhancement programme, and I approached the head of the programme, presented him with my business plan, and told him how I was stuck. After speaking, he decided to write to the bank and offered a guarantee on the loan. I think that without that intervention, Victoria Seeds wouldn’t even exist.
It also helped at the time that we had available labour. Labour was very cheap. Another important growth driver was the recognitions we got – such as the Yara Prize for the green revolution in Africa or the Investor of the Year prize from the Uganda Investment Authority. We were privileged to meet Sir Richard Branson, who cited us as one of the promising enterprises in Africa – not in terms of revenue, but as a company that had the building blocks for a successful business, had management systems in place, and policies that would ensure the business ran ethically. These recognitions gave us the will to continue doing what we were doing and provided us with valuable credibility.”
Q4: What key aspects of the entrepreneurial ecosystem surrounding your company that were absent (or existed only in a weak form) created the greatest challenges for growing your company? Please describe and discuss how you met/were impacted by these gaps in the ecosystem and their resultant challenges?
Okot: “One challenge we’ve encountered has had to do with the deterioration of the Ugandan policy environment and the politicization of the government’s agricultural programmes, especially NAADS.
Also, enforcement has completely collapsed. The National Seed Certification Services in the Ministry of Agriculture, Animal Industry and Fisheries have not had adequate financial or human resources to undertake seed crop inspections and regulate the seed market. There have been issues with counterfeit, fake seeds throughout the country. So that has really undermined our market, and from a business standpoint we certainly have seen our profits stall. So the market has really been hurt over the last three years due to counterfeit seeds and the inability to prevent them from hitting the market.
Important legislation has also been absent. Attempts have been made since 2003 to get the plant variety protection bill enacted into law, but to no avail and it is still currently with parliament. How does an investor invest in new technology or how can an international company bring their product into a market where there’s no protection for intellectual property?
While access to finance has improved since we started, financial products structured for agribusiness are still limited. There’s debt and very expensive finance with erratic rates. For instance, in 2011, inflation caused by food shortages drove commercial bank interest to 30%. I don’t blame the banks – they have depositors’ money after all – but the country needs more flexible products from development banks that also factor in market and environmental risks impacting agribusiness, in particular adverse weather patterns like drought and flooding, into the terms of any loan.
Further, the country as a whole also lacks sufficient marketing infrastructure. In successful seed markets, such as in Kenya or South Africa, either a very strong grain board or a commodity exchange exists, which enables farmers to sell their entire crop even when there’s a surplus in the market. So the challenge in Uganda is that we have a weak commodity exchange that has never really taken off. So when there’s a bumper harvest, prices collapse. Farmers don’t want to grow the following season, and they don’t come to us for more seeds. So we have to live through that. That has been a huge challenge for us.
A similar challenge is a general lack of information. Right now, if somebody asks how much land area in Uganda is under tomato production or maize production, the statistics that would provide the answer are virtually non-existent. They only become available three years later. So in running a seed trade business, it’s helpful to know what exists in the market around which production can be planned, but it’s very difficult to do so today. What’s more, the educational system in Uganda is not designed to drive business growth. So when you recruit young graduates – even the ones with Master’s degrees in agriculture – you have to train them; and that can be very costly for a start-up enterprise. There are few vocational skills taught in the schools or universities.
Lastly, you can never really realistically achieve any serious gains in food production without rural electrification and transportation infrastructure. Farmers require some kind of mechanization, primary processing or storage to get their product to market. So you need rural electrification and well-functioning roads. While this is one area where the government has tried really hard – I commend them for that – it’s still a challenge.
These are issues that we’ve raised at the policy level without much success. We tried to make the National Seed Certification Services that regulate us autonomous so that they don’t have to go through the Ministry of Agriculture to get funding, but we’ve found that there is no political will to truly make a difference. So certainly the policy environment has changed. Now, there’s very little regulation or accountability. But I just think that if there is political will, these are issues that can be addressed – they’re not insurmountable.”
Q5: Large companies can play an important role in the scaling up of early-stage companies with high growth aspirations. These roles can include being customers, suppliers, marketing partners, joint venture partners, and so on.
(a) Describe the key areas where interaction with larger companies helped promote your growth path.
Okot: “Our business model mostly involves working with small farmers, though it’s important to note that we don’t work with farmers as individuals; instead, farmers are organized in producer groups called marketing groups, which are similar to a cooperative. Nevertheless, there are a few large farmers out there, and as a company we are beginning to target them in lieu of smaller holders because that market is more sustainable and they’re ready to adopt new technologies as they have the resources and knowledge. Moreover, you can only truly pursue the small farmer market if government extension is working, but it’s not fully functioning at the moment; small farmers often make costly mistakes. They often don’t know the correct plant population, or sometimes they spray their crops with the wrong pesticides, frequently suffering high post-harvest losses, and in all these cases they are quick to put the blame on us. So that becomes a challenge.”
(b) Describe the challenges and potential problems that larger companies may have played in limiting the growth path of your company.
Okot: “In order to source our seed supply, we could have gone to one of the big, global agricultural companies – such as Monsanto or Syngenta – but we would have realized limited returns. Instead, we get our parental seed lines from public research institutions – such as Kenya’s Agriculture Research Institute – or from Ugandan universities and research institutes.
A number of multinationals were present in Uganda, but the majority have since either scaled down or they have closed down and left because of the unfavourable policy environment. And we considered working with them, but my understanding was that when you are very small and you get married to a very, very large company, there’s always a mismatch. So in our strategy, we thought we should first build up the company and get our brand name known. Then at that stage, rather than buying and selling products, you can go into more of a joint venture with one of the multinationals so that they bring in technology and the experience. And then we’ll use our infrastructure to scale it up.”
Q6: Your current revenue growth to date had been predominantly focused on your own domestic market. What are the major reasons for this major revenue focus to date on domestic markets?
Okot: “Our business is not only within Uganda. We export to the regional market and 25% of our turnover already comes from exports to South Sudan, where we are a registered company. While South Sudan has a lot of challenges, its agri-ecology and the kinds of staple food that the people eat there are nearly identical to those of Uganda. The opportunity and our mission began in Uganda, and so we’ve been keen to maintain our focus here. But if we can send our seed across Uganda’s near borders – remember, borders are nothing more than lines drawn across the continent – it means we can rapidly scale up in terms of revenue. So that has been our objective. We also hope to open an outlet and start sales efforts in Rwanda in the near term.”
Q7: What would you view as the greatest challenges in growing a sizable revenue presence in markets beyond your own domestic country or region? In deciding when and where to seek growth in international markets, what characteristics of a country’s ecosystem would be most important in attracting you to invest significant resources in that non-domestic country or region?
Okot: “The greatest challenge in markets outside Uganda has been policy-oriented. Issues like currency or culture are surmountable. However, in places like South Sudan, infrastructure is really absent. There are hardly any roads. And the government hasn’t been in power long enough to craft policies that fully promote the development of the country’s agricultural sector.”
Q8: Building a company that aims to have sustainable high growth inevitably will have both high moments and dark (low) moments. Briefly describe one high moment and one dark (low) moment in your entrepreneurial journey.
Okot: “Our high moments have certainly come when someone else recognizes our work, which fills us with pride. We’ve been fortunate enough to receive a number of accolades. Other great moments come when we meet and fulfil our strategy plans, such as developing our research facility, completing a processing plant in northern Uganda, or constructing our brand new headquarters at the prestigious Kampala Industrial and Business Park. Those have all been very high moments that come with dreaming up a plan and meeting our goals.
The biggest challenge we have faced has had to do with our employees. Many times, even the best employee does not grow in line with the company. In such situations, and given our size, I’ve had to be not only a CEO and manager, but also a mentor, which has been very challenging. At times, I’ve had to make a decision to let employees go in order to bring in new talent that is more aligned with the company. Those moments are very dark.”