PROFILE ON NAIL MANUFACTURING

PAGE 105-4

PROFILE ON VEGETABLE SEEDSTable OF CONTENTS

PAGE

I.SUMMARY105-3

ii.PRODUCT DESCRIPTION & APPLICATION105-3

III.mARKET STUDY AND plant capacity105-4

A. MARKET STUDY105-4

B. pLANT CAPACITY & PRODUCTION PROGRAMME105-7

IV.MATERIALS AND INPUTS105-8

A. rAW & AUXILIARY MATERIALS105-8

b. uTILITIES105-9

V.tECHNOLOGY & ENGINEERING105-10

a. tECHNOLOGY105-10

b. eNGINEERING105-11

VI.mANPOWER & tRAINING REQUIREMENT105-16

a. mANPOWER rEQUIREMENT105-16

B. tRAINING REQUIREMENT105-16

VII.fINANCIAL ANLYSIS105-17

A. tOTAL INITIAL INVESTMENT COST105-17

B. PRODUCTION COST105-18

C. fINANCIAL EVALUATION105-19

D. ECONOMIC BENEFITS105-20

I. SUMMARY

This profile envisages the establishment of a plant for seed processing for vegetables with a capacity of 100 tons per annum.

The present demand for the proposed product is estimated at 130.89 tons per annum. The demand is expected to reach at 700 tons by the year 2020.

The plant will create employment opportunities for 24 persons.

The total investment requirement is estimated at about Birr 5.21 million, out of which Birr 1.50 million is required for plant and machinery.

The project is financially viable with an internal rate of return (IRR) of 21.72% and a net present value (NPV) of Birr 2.64 million, discounted at 8.5%.The project creates forward linkage with the horticultural sector. The establishment of such factory will have a foreign exchange saving effect to the country by substituting the current imports.

II.PRODUCT DESCRIPTION AND APPLICATION

This project is going to produce vegetable seed that the country mostly imports from European countries. Currently, vegetable seed has a high demand in Addis Ababa and its surroundings although its quality is sometimes questionable.

Vegetable seed like tomato, lettuce, swisshard and cauliflower are expected to be produced from the envisaged plant. These vegetable have a high demand since consumers have better preference and do not need much additional expense to prepare them. It can be processed in factory or taken as a salad mixed with lettuce or prepared as paste. Similarly lettuce can be taken as a salad and no cooking is necessary in its preparation. Swiss chard is also much liked and it is served cooked. Seemingly cauliflower is more expensive than the other three and foreigners like it. Above all these facts these vegetables are the major sources of vitamins and minerals.

III. MARKET STUDY AND PLANT CAPACITY

A. MARKET STUDY

1. Past Supply and Present Demand

Besides being consumed daily, vegetables are commercial crops whose seeds are required in abundance in the future due to expected growth in the agricultural sector. The country's requirement for vegetable seed has been met through domestic production and imports. However, data on domestic production of the product is not readily available. The amount of imports of the product during 1997-2006 is shown in Table 3.1. As can be seen from the information depicted in the Table, the amount of imports was fluctuating with a rising trend. During the period under reference, imports varied from 22.06 tons in 1997 to 98.97 tons in 2006. Imports averaged 57.65 tons during the period.

Table 3.1

IMPORTS OF VEGETABLE SEED (TONS)

YearImports

199722.06

199826.62

199929.25

200057.47

200155.92

200254.71

200342.19

200496.33

200592.98

200698.97

Average57.65

Source: Customs Authority, External Trade Statistics, 1997-2006.

Assuming supply was driven by demand and imports measure demand gap and taking into account the persistent increase in imports of the product, the amount of vegetable seed imported in 2006 is considered as the effective demand gap for the product for that year. The average rate of growth of imports of the product during the reference period is computed to be 25.6%. However, a conservative estimate of 15% rate of growth is adopted in estimating the demand for the product. The present demand for the product (i.e. 2008) is thus estimated at 130.89 tons.2. Projected Demand

The Ethiopian Governments strategy for poverty reduction as stipulated in the A plan for Accelerated and Sustained Development to End Poverty, PASDEP includes production diversification in to more marketed oriented production from the traditional grain based agricultural production.

The agricultural strategy will revolve around a major effort to support the intensification of marketable farm products -both for domestic and export markets, and by both small and large farmers. Elements of the strategy include the shift to higher-valued crops, promoting niche high-value export crops, a focus on selected high-potential areas, facilitating the commercialization of agriculture. Accordingly, one of the market oriented products selected are vegetables.

Therefore, due to the priority given by the government it can be concluded that demand for vegetable seeds will grow in the future. Therefore a growth rate of 15% is considered in projecting the domestic demand for vegetable seed. The projected demand for the product is shown in Table 3.2.

Table 3.2

PROJECTED DEMAND FOR VEGETABLE SEED (TONS)

YearProjectedDemand

2009151

2010173

2011199

2012229

2013263

2014303

2015348

2016400

2017460

2018530

2019609

2020700

3. Pricing and Distribution

Based on the CIF price of the external trade statistics for 2006 (the latest data available), and allowing 30% for import duty and other clearing expenses, the factory-gate price for the envisaged plant is estimated at Birr 92,445.90 per tonne.

The product can get its market outlet through the existing wholesale and retail network for agricultural inputs. The envisaged plant can also supply its product directly to users or appoint agents at selected locations.

B.PLANT CAPACITY AND PRODUCTION PROGRAMME

1.Plant Capacity

Based on the market study, the envisaged plant will have a capacity of processing 100 tons (or 1000 quintals) of improved vegetable seeds. The processing plant will operate double shift for 16 hours per day and 300 days per annum.

2.Production ProgrammeConsidering the time required for penetrating the market, the envisaged plant will start operation at 75% of capacity during the first year. Then production capacity will grow to 85% and 100% of capacity during the second and third year, respectively. Table 3.3 below shows production build-up programme.Table 3.3

PRODUCTION PROGRAMME

YearCapacity UtilizationProduction(quintal)

175750

285850

3-101001000

IV.MATERIALS AND INPUTS

A.RAW AND AUXILIARY MATERIALS

The raw and auxiliary materials required for processing plant are vegetable seeds, jute bag, canvas and chemicals for seed treatment. The annual requirement of raw and auxiliary materials along with corresponding costs is shown in Table 4.1 below. The materials required by the plant could be purchased from local markets in Addis Ababa.Table 4.1

ANNUAL REQUIREMENT OF RAW AND AUXILIARY MATERIALS AND COST (AT FULL CAPACITY)Sr.

No.DescriptionUnit of MeasureUnit Cost (Birr)QtyCost (000 Birr)

LCFCTC

1Vegetable seed tonne2,000101 -20202020

2Jute bags Pcs610106.06-6.06

3Canvas m325705-5

4Chemicals lts20500 -1010

Grand Total -11.0620302041.06

B.UTILITIES

Electricity and water are the most important utilities required for vegetable seed processing plant. The annual requirement of electricity and water is 15,000 kWh and 400 m3, respectively. The total cost for the utilities is estimated at about Birr 6036.00.TABLE 4.2

UTILTIES REQUIREMENT AND COSTSr.No.DescriptionUnit of MeasureQuantityUnit Cost(Birr)Total Cost (Birr)

1ElectricitykWh10,0000.47364736

2Waterm34003.251300

Total6,036

V.TECHNOLOGY AND ENGINEERING

A.TECHNOLOGY

1.Production Process

The basic improved seed will be procured from Ethiopian and Regional Agricultural Research Institutes and distributed to farmers for multiplication by contractual agreement to be made between the two parties, the project and the farmers. After procuring from farmers, the seeds will be collected for processing. The seed processing plant comprises 3 steps viz pre-cleaning, seed processing and seed treating series.

Weighing of the collected seeds will be the first step in seed processing. Then the seeds being cleaned and pass through a distribution system, a self regulating, feeding flap, being equipped with weights, and finally reaches the screening drum. Because of the rotary motion, coarse and foreign matters and dusts, including lighter pieces of shells are sorted out. Thereafter, the pre-cleaned product is falling into a collection hopper with out let socket. During pre-cleaning three kinds of impurities: coarse, foreign matters and dusts, including higher pieces of shells are sorted out. In the seed processing, drying and cooling will be employed for conservation purposes before storage. Seed drying and cooling will be followed by seed treatment which includes dressing of seeds with powder or liquid chemicals against seed born pests. Finally, the seed is bagged with a bag with a 100 kg capacity and stored in a ware house with controlled temperature and humidity.

2.Source of Technology

The machinery and equipment required can be supplied by following Indian Company. Goyum Screw Press

Plot No. 324/2, Industrial Area-A,Ludhiana - 141003, Punjab, IndiaPhone:91-161-4629180Fax:91-161-2543442/2230380B.ENGINEERING

1.Machinery and Equipment

The required plant machinery and equipment with their corresponding costs are given in Table 5.1. The total cost is estimated at Birr 1.502 million.

Table 5.1

MACHINERY AND EQUIPMENT REQUIREMENT AND COST

Sr.DescriptionQtyCost 000 Birr

No.LCFCTC

1Multi Cleaner with the following parts

- Separate fan

- Connection spout for air pipe

- Interchangeable screens

- Feeding bin

- Discharge hopper

- Connection spout

- Seed flow device

- Frequency converter1

1

1

1

1

1

1

1

1 - 14501450

2Weighing/balance125 -25

3Manual swing machine127 -27

Grand Total5214501502

2.Land, Building and Civil Works

In general terms, the total area required for the seed processing plant is estimated to be 2000 m2. The land is expected to be utilized for construction of stores, offices, and seed processing units. The area for seed processing unit, warehouse, offices and staff canteen is estimated to be 400 m2, 200m2, 120 m2 and 80 m2, respectively and the remaining 1000 m2 will be left open. Cost of construction for building, at a unit cost of Birr 2,300 per/m2 is estimated to be Birr 1.84 million. According to the Federal Legislation on the Lease Holding of Urban Land (Proclamation No 272/2002) in principle, urban land permit by lease is on auction or negotiation basis, however, the time and condition of applying the proclamation shall be determined by the concerned regional or city government depending on the level of development.In Addis Ababa the Citys Land Administration and Development Authority is directly responsible in dealing with matters concerning land. Regarding the manufacturing sector, industrial zone preparation is one of the strategic intervention measures adopted by the City Administration for the promotion of the sector and all manufacturing projects are assumed to be located in the developed industrial zones.

However, the project under consideration is an urban agriculture project. Therefore, it is assumed that the project will be located outside the industrial zones. Accordingly, the initial land lease rate in Addis Ababa set by the Citys Land Administration and Development Authority based on the location of land is as shown in Table 5.1.

Table 5.1

INITIAL LAND LEASE RATE IN ADDIS ABABA

Sr.

No.Location of the landLand GradeInitial Price in m2

1

Central Business zones

1

2

3

4

51167.3

1062.9

916.2

751.5

619.2

2

Places That are Under Transit

1

2

3

4

5716.4

647.1

559.8

472.5

384.3

3

Expansion Zones

1

2

3

4245.7

207

150.3

132.3

Source; Addis Ababa City Land Administration Authority.

As can be seen from Table 5.2, the initial land lease rate ranges from Birr 1,167.3 to 132.3 per m2 .

Considering the nature of the project the expansion zones of the city are recommended as the best locations. Accordingly, the highest land lease rates in the expansion zones of the city which is Birr 245.7/ m2 is adopted.

The Federal Legislation on the Lease Holding of Urban Land legislation has also set the maximum on lease period and the payment of lease prices (see Table 5.2 and Table 5.3). Table 5.2

LEASE PERIOD

Type of ServiceLease Period ( Years)

Residential area99

Industry80

Education, cultural research health, sport, NGO and religious99

Trade70

Urban Agriculture15

Other service70

Table 5.3

LEASE PAYMENT PERIOD

Sr.

No.Service TypePeriod of Payment According to the Grade of Towns

1Private residential are obtained through tender or negotiation50 - 60 years

2Trade40 - 50 years

3Industry40 - 50 years

4Real estate40 -50 years

5Urban Agriculture8 - 10 years

6Trade and social service40 - 50 years

7Others40 50 years

Moreover, advance payment of lease based on the type of investment ranges from 5% to 10%. For those that pay the entire amount of the lease will receive 0.5% discount from the total lease value and those that pay in installments will be charged interest based on the prevailing interest rate of banks. Moreover, based on the type of investment, two to seven years grace period shall also be provided. The lease price is payable after the grace period annually.

Regarding, the terms and conditions of land lease the Addis Ababa City Government have adopted Article 6 of the Federal Legislation with very minimal changes. Therefore, for the purpose of this project profile since the project is urban agriculture , 15 years lease period, 10 years lease payment completion period, 10% down payment and two years grace period is used.

Accordingly, the land lease cost of the project, at rate of Birr 245.7 per m2 for 15 years of holding is estimated at Birr 7.37 million. Assuming 10% of the total cost ( Birr 737,100 ) will be paid in advance as down payment and the remaining Birr 6.63 million will be paid in equal installments with in 10 years, the annual lease payment is estimated at Birr 663,390. VI.MANPOWER AND TRAINING REQUIREMENT

A.MANPOWER REQUIREMENT

The manpower requirement for the envisaged seed processing plant is shown in Table 6.1. The total number of employees required is 24 persons.

Table 6.1

MANPOWER REQUIREMENT AND LABOR COST

Sr. No.DescriptionReq. No.Monthly Salary (Birr)Annual Salary (Birr)

1Plant manager13,00036,000

2Secretary/cashier sales man190010,800

3Accountant11,20014,400

4Store keeper16007,200

5Line operators63,60043,200

6Mechanic21,40016,800

7Drivers21,00012,000

8Laborers (including office boy and janitor103,50042,000

Total24182,400

Employees benefit (25%)45,600

Grand Total24228,000

B.TRAINING REQUIREMENT

Training is required for the manager and for the three line operators. The training will be provided for one month by the multi-seed cleaner supplier at the project site. The total cost for training, which will be paid for the supplier, is estimated to be Birr 20,000.

VII.

FINANCIAL ANALYSIS

The financial analysis of the seed processing for vegetables seed project is based on the data presented in the previous chapters and the following assumptions:-

Construction period

1 year

Source of finance

30 % equity

70 % loan

Tax holidays

3 years

Bank interest

8.5%

Discount cash flow

8.5%

Accounts receivable

30 days

Raw material local

30 daysRaw material import 30 daysWork in progress

2 days

Finished products

15 days

Cash in hand

5 days

Accounts payable

30 days

Repair and maintenance 5% of machinery cost

A.TOTAL INITIAL INVESTMENT COST

The total investment cost of the project including working capital is estimated at Birr 5.21 million, of which 28 percent will be required in foreign currency. The major breakdown of the total initial investment cost is shown in Table 7.1.Table 7.1

INITIAL INVESTMENT COST ( 000 Birr) Sr. No.Cost ItemsLocal CostForeignCost Total Cost

1Land lease value737.10-737.10

2Building and Civil Work1,840.00-1,840.00

3Plant Machinery and Equipment 52.0 1,450.001,502.00

4Office Furniture and Equipment75.00-75.00

5Vehicle450.00-450.00

6Pre-production Expenditure*253.31-253.31

7Working Capital355.35-355.35

Total Investment cost3,762.761,450.005,212.76

* N.B Pre-production expenditure includes interest during construction (Birr 158.31 thousand), training ( Birr 20 thousand) and Birr 75 thousand costs of registration, licensing and formation of the company including legal fees, commissioning expenses, etc.

B. PRODUCTION COST

The annual production cost at full operation capacity is estimated at Birr 3.49 million (see Table 7.2). The raw material cost accounts for 58.39 percent of the production cost. The other major components of the production cost are land lease, depreciation and financial cost which account for 18.98%, 10.29% and 3.50% respectively. The remaining 8.84% is the share of utility, direct labor, repair and maintenance and other administration cost. Table 7.2

ANNUAL PRODUCTION COST AT FULL CAPACITY ('000 BIRR)ItemsCost%

Raw Material and Inputs2,041.0658.39

Utilities 6.040.17

Maintenance and repair75.102.15

Labor direct109.443.13

Labor overheads 45.601.30

Administration Costs72.962.09

Land lease cost663.3918.98

Total Operating Costs3,013.5986.21

Depreciation359.7010.29

Cost of Finance122.313.50

Total Production Cost3,495.60100

C.FINANCIAL EVALUATION

1.Profitability

Based on the projected profit and loss statement, the project will generate a profit through out its operation life. Annual net profit after tax will grow from Birr 987.95 thousand to Birr 1.08 million during the life of the project. Moreover, at the end of the project life the accumulated cash flow amounts to Birr 10 million.

2. RatiosIn financial analysis financial ratios and efficiency ratios are used as an index or yardstick for evaluating the financial position of a firm. It is also an indicator for the strength and weakness of the firm or a project. Using the year-end balance sheet figures and other relevant data, the most important ratios such as return on sales which is computed by dividing net income by revenue, return on assets ( operating income divided by assets), return on equity ( net profit divided by equity) and return on total investment ( net profit plus interest divided by total investment) has been carried out over the period of the project life and all the results are found to be satisfactory.

3.Break-even Analysis

The break-even analysis establishes a relationship between operation costs and revenues. It indicates the level at which costs and revenue are in equilibrium. To this end, the break-even point of the project including cost of finance when it starts to operate at full capacity ( year 3) is estimated by using income statement projection.

BE =

Fixed Cost= 29%

Sales Variable Cost

4.Payback Period

The pay back period, also called pay off period is defined as the period required to recover the original investment outlay through the accumulated net cash flows earned by the project. Accordingly, based on the projected cash flow it is estimated that the projects initial investment will be fully recovered within 5 years. 5.Internal Rate of Return

The internal rate of return (IRR) is the annualized effective compounded return rate that can be earned on the invested capital, i.e., the yield on the investment. Put another way, the internal rate of return for an investment is the discount rate that makes the net present value of the investment's income stream total to zero. It is an indicator of the efficiency or quality of an investment. A project is a good investment proposition if its IRR is greater than the rate of return that could be earned by alternate investments or putting the money in a bank account. Accordingly, the IRR of this porject is computed to be 21.72 % indicating the vaiability of the project. 6. Net Present Value

Net present value (NPV) is defined as the total present ( discounted) value of a time series of cash flows. NPV aggregates cash flows that occur during different periods of time during the life of a project in to a common measuring unit i.e. present value. It is a standard method for using the time value of money to appraise long-term projects. NPV is an indicator of how much value an investment or project adds to the capital invested. In principal a project is accepted if the NPV is non-negative.

Accordingly, the net present value of the project at 8.5% discount rate is found to be Birr 2.64 million which is acceptable.

D.ECONOMIC BENEFITS

The project can create employment for 24 persons. In addition to supply of the domestic needs, the project will generate Birr 829,610 in terms of tax revenue. The establishment of such factory will have a foreign exchange saving effect to the country by substituting the current imports. The project creates forward linkage with the horticultural sector