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Invest in this Mushroom Value Chain: US $6,500 Needed in Equity

Photo credit: Eclof

24th August, 2021

I have always had a knack for mushrooms, especially as an individual. I love eating them, especially when mixed with groundnut paste accompanying mashed plantain (matooke) cooked in banana leaves. My grandma would just pick them from decaying logs and prepare. That’s for me.

Anyway, the first time I discovered that mushrooms are real money makers other than being a personal delicacy was during my stint with a business advisory firm six or seven years ago. An analysis of the opportunity was done with a gentleman named Abel Kiddu being the case study. It stopped at that.

However, I later got the opportunity to meet him in 2017 as he was looking for financing to expand his mushroom business. He runs African Mushroom Growers based in Makindye Division. He could be one of the biggest around Kampala.

Expanding business or growth in operations really needs a cash investment, always.

In the last fortnight of December 2020, I got an opportunity to interact with a young practicing mycologist and entrepreneur whose operations are based in Kyebando just outside Kampala Central Business District. He has been in the mushroom business for two years now, coming to three.

“I started out in 2018, growing mushrooms after I won some money from the Anzisha Price competition. We then registered. We have been growing slowly, supplying customers with mushrooms, both fresh and dry. We also supply mushroom substrate/raw materials (call them fertilizers).

We realized that selling mushrooms alone was not getting us the revenue we wanted and raising tonnes was a big challenge. We even got an order from Zimbabwe to supply 2tons of mushrooms per week but we couldn’t.

So we decided that it’s better to supply farmers in large numbers for them to grow and we buy from them or collect together and supply as a consortium; and it worked. We would also rather add value to the mushrooms than sell them fresh or dried.

With the farmer supply approach, it worked very well and we are currently facing some challenges with meeting the demand. The farmers are many and we want to supply them with quality substrates. Because as you know, the commonest raw materials most growers use are wood shavings, saw dust and coffee husks. But those don’t give the much needed yields because the needed nutrients are always removed during processing.

The other option is cotton husks but this too is in little supply. Cotton growing in Lira and other parts of the country has gone down, making it worse. The little that is available is taken by big players in the animal feeds business like Madhvani. The cotton waste is used to make cotton seed cake and by the time we get to use it as raw material for our mushrooms, it lacks the minerals/nutrients desired for growth.

So we want to produce our own mushroom substrate and package it before selling it to the farmers. By the way, we are also offering training services to these farmers until they get yields from their investment. We shall need money to buy these raw materials for processing”.

This provides an opportunity for anyone reading this to invest in the mushroom business. But before we proceed, I would like to give a semi detailed analysis of the mushroom growing business.

About the mushroom growing industry

Mushrooms are not new, they have always existed in the wild forests or woodlands and near termite habitats (hills) or ant hills. But when the era of commercial agriculture set in, there was a need to make a business case out of the activity so as to spur economic growth and create employment in Uganda.

So despite all those beginnings, the mushroom market is not fully exploited here in the country. Supply is less yet demand especially outside Uganda is high. I guess there is need for awareness on mushroom consumption as well as growing.

The biggest market in Kampala for example are the upscale restaurants of locals, Chinese and other big hotel offering foreign cuisines. There are also very few mushroom growers in Kampala.

Thumbs Down (what will weigh you down)

1. Inconsistent domestic consumption: Much as there is market, the local consumption is low; and farmer faces this. The buyers too, if existent face inconsistent supply. The domestic buyers are mostly urban, hotels; that have foreign cuisines. In fact you will also discover that some eateries import mushrooms, like from China.

The solution is to search for export markets. However, be able to sustain the supply and meet the demand levels. You can have mushroom out growers to sell to too.

2. Low supply capacity: Like my brother in the above case, he was not able to supply the quantities demanded by the Zimbabwean customer due to low production capacity. He couldn’t collect enough from other farmers still. Even at local/domestic consumption level, many mushroom growers still have to source from other growers to meet the daily demand from their big sisters.

Form a consortium of mushroom growers, harvest and sell the product together or as a lead supplier/seller. Alternatively, have a farmers’ empowerment program where you provide mushroom substrate/raw materials on credit and collect the harvest from them for sale. This is some kind of out grower scheme/network.

3. Pests and diseases: Much as mushrooms are rarely susceptible to diseases, they are attacked by pests, vermins, insects, snails, rodents, etc. They take advantage of dark places or rooms. Sometimes too much dampness can cause such.

The problem can be handled by ensuring a fairly dry shack. Improve the housing conditions by making it vermin proof. For the insects, you can use smoke (burn banana leaves) periodically to chase away harmful insects. Also do disinfection, always wash hands.

4. Poor quality raw materials, low yields: In mushroom growing, you are most likely to face low or poor yields due to poor quality substrates — that lack enough nutrients. It can also be due to poor hygiene, contamination, handling and not having or maintaining the right or ideal growing conditions like temperature, humidity, light intensity, etc.

Use good quality raw materials or substrates such as cotton hull, crushed maize cobs, etc. You can further purchase well mixed or blended and packaged mushrooms substrates from professional processors. Also seek training on good mushroom growing and handling practices.

5. High water requirement: Mushrooms need constant water supply. In fact the reason they have a water content level as high as 90%. The bigger your capacity, the more water you will need. For example proper conditions and depending on the scale, you may need 20 litres of water daily for at least two months. Water is also needed during heating of the substrates.

It’s recommended that you have a ready water source like an underground well or locate the mushroom shacks near a stream, etc. This will ensure consistent water supply.

6. Perishability: To a large extent, mushrooms are perishable, being 90% water. Thus need to be consumed with in a short period of time.

The best way to preserve them immediately after harvest is by sun drying (direct sunshine or a tunnel dryer). You can get a rapid solar dryer from Atamba Mixed Farm in Mukono. Also freeze them using a refridgerator, mostly for export markets as they may prefer fresh to dry ones.

Thumbs Up (be happy)

1. No need for big space: it doesn’t need a lot of land to start grow mushrooms. You may even need your backyard. In fact a few square metres of space. Many practicing urban dwellers have embraced it because of limited space and they are capitalizing on that to make money. You too can.

2. Growing process is not tedious, not labour intensive: Apart from the cost of a training in mushroom growing, the learning process is not rocket science. You don’t need a lot of expertise or knowledge. Secondly, the maintenance of the growing mushrooms plus the house/shack does not need a lot of labour, even an infant can water the gardens if instructed to be very careful with the watering can. Also, establishing the type of edible mushrooms should be key when starting out.

3. Little startup capital: Magnitude and scale of operation matters. That is, more gardens or more quantity of substrates will mean more capital. However, you can start small and grow, and with capital as low as UGX500,000 and at least not below UGX400,000, you can start off. You might use 60% — 70% of the money to set up the shack/house and the remainder to buy substrates, spawn, polythene bags and other tools needed.

4. Very good return on investment (profits): Growing mushrooms is no doubt profitable and returns are very fast. Assuming you start with the capital above (UGX500,000), you might need to setup a house at a cost of about UX300,000 and minimizing as much as possible. With part of the remaining money you can buy or make about four (4) gardens.

Now, keeping the number of gardens constant for four cycles, you will harvest at least 24kgs, i.e. four gardens each giving 2kgs in 3 months (4x2x3), multiply that by 4 to get 96kgs. Multiplying that quantity by the price per kilo of about UGX15,000 will give you about UGX1,440,000; less UGX120,000 cost of production to you remain with about UGX1,320,000. That is at the lowest capacity. The trick is to increase the number of gardens.

For expenses, let’s take feeding for one person daily at UGX5,000 for 26 days a month for 12 months — UGX936,000. Assuming you were buying water (3 20L jerricans per 3 days a week for 3 months in 4 quarters) at UGX500 per jerrican thus spending about UGX54,000. Deduct the sum of the two (UGX990,000) to give you UGX330,000. That’s a ROI of about 0.66, which is not bad.

Here is an Equity Investment Opportunity (20% Stake)

A mushroom growing and substrate processing startup in Kyebando, Kampala is looking for financing. It’s two (2) years old and it’s supporting farmers as its target customers (about 2,000 currently) and wants to serve more (about 5,000) in creating 20,000 jobs. It plans to produce 50tons of packaged substrate (50kg bags) annually with input sales of 5,000tons each year to achieve US $150,000 revenue in 5 years.

The startup made US $2,400, US $6,140 and US $3,820 in 2018, 2019 and 2020, respectively in mostly substrate and mushroom sales to farmers plus offering trainings. It plans to upgrade its production facility, storage, stocking and cater for transport plus some administration costs. And thus, asking for US $6,500 (about UGX24Mn).

The investor/financer should expect to earn profits in the third month after investment, expect transparent operations as a team with open book policy; and he/she should be growth oriented and passionate about developing agribusiness.

If you feel this opportunity excites you or someone you know, share this article with them or reach out to me on WhatsApp +256789962775 or jjjmasaba@gmail.com and we talk. I will share a pitch deck.

Let’s make some money!

NB: This article also appeared on Medium by the same author. Click here

About the Writer

Julius Masaba is the Team Lead at Leanfoot Ventures, a private investment research and business consulting firm; a WordPress writer/blogger on startups, entrepreneurship, business and finance. He’s also the Business Development Lead at Ablestate, https://www.theablestate.com/. He loves tech.

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