220. PROFILE ON ENSET STARCH

PRODUCTION

220-2

TABLE OF CONTENTS

PAGE

I. SUMMARY 220-3

II. PRODUCT DESCRIPTION & APPLICATION 220-3

III. MARKET STUDY AND PLANT CAPACITY 220-4

A. MARKET STUDY 220-4

B. PLANT CAPACITY & PRODUCTION PROGRAMME 220-7

IV. RAW MATERIALS AND INPUTS 220-7

A. RAW & AUXILIARY MATERIALS 220-7

B. UTILITIES 220-8

V. TECHNOLOGY & ENGINEERING 220-9

A. TECHNOLOGY 220-9

B. ENGINEERING 220-9

VI. MANPOWER & TRAINING REQUIREMENT 220-11

A. MANPOWER REQUIREMENT 220-11

B. TRAINING REQUIREMENT 220-11

VII. FINANCIAL ANLYSIS 220-12

A. TOTAL INITIAL INVESTMENT COST 220-12

B. PRODUCTION COST 220-13

C. FINANCIAL EVALUATION 220-14

D. ECONOMIC BENEFITS 220-15

220-3

I. SUMMARY

This profile envisages the establishment of a plant for the production of enset starch

with a capacity of 300 tones per annum.

The present demand for the proposed product is estimated at 412 tones per annum. The

demand is expected to reach 1137 tones by the year 2020.

The plant will create employment opportunities for 15 persons.

The total investment requirement is estimated at about Birr 2.76 million, out of which

Birr 1.11 million is required for plant and machinery.

The project is financially viable with an internal rate of return (IRR) of 26 % and a net

present value (NPV) of Birr 2.05 million discounted at 8.5%.

II. PRODUCT DESCRIPTION AND APPLICATION

Starch is a source of carbohydrate, which is one of the three essential elements of food. It

widely occurs in agricultural products, mainly in cereals (such as wheat, maize and rice),

and in roots and tubers of potatoes, Sweet potatoes, Enset (commonly known as false

banana) and Cassava.

The starch in the roots and tubers of Potato and Enset is large in particle and easily settles,

and moreover the fat and protein existing with starch is small in quantity, and thus good

starch can be extracted comparatively easily.

Enset is Ethiopia’s most important root crop. Its harvest estimated to be 10-20 tonnes per

hectare depending on the growing conditions. It contains an average of 20% starch.

220-4

III. MARKET STUDY AND PLANT CAPACITY

A. MARKET STUDY

1. Past Supply and Present Demand

Enset starch has both domestic and industrial uses. Industrially, its applications are

numerous and is used in various modern industries including the manufacturing of

textile, paper, adhesives, insecticides paints, soaps, explosives and such derivatives as

dextrin and nitro starch. Industries use the product mainly as binding, diluting adhesive,

water absorber agent in their production process.

The source of supply of starch is local as well as import. However, starch production in

the country is insignificant. Currently there is only one privately owned starch

production plant from enset so much so that the demand for the product is essentially

satisfied through imports. Apparently data on imports of starch from enset is not

available. Moreover, data on domestic production of the product is not readily

available. Accordingly, since starch is occurring widely in plants and obtained chiefly

from grain and root crops, imports of starch categorized as other starches in the external

trade statistics (i.e., excluding starch obtained from maize wheat and potato) is used as

a proxy in estimating the demand for enset starch.

Table 3.1 presents imports of enset starch, i.e. other starches (excluding maize, wheat

and potato starch) during 1997 - 2006. Apparently, imports highly fluctuated and

averaged at 385.32 tons during the period under reference.

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Table 3.1

IMPORT OF ENSET STARCH

Year Imports(ton)

1997 1481.6

1998 49.6

1999 1404.77

2000 30.96

2001 13.64

2002 252.67

2003 206.06

2004 141.79

2005 52.95

2006 219.11

Average 385.32

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

Given the considerable fluctuations in the supply of the product, which comprises of

only imports, the average annual supply for the period under reference is considered as

the effective demand for enset starch for the year 2006. Since the consumption of the

product is associated mainly with the industrial sector the demand for the product is

influenced by developments in the sector. Accordingly, a rate of growth of 7% is

adopted in estimating the demand for the product. The present demand for the product

(i.e., for 2007) is thus estimated at 412.29 tons.

2. Demand Projection

As stated above, a rate of growth of 7% is used in projecting the demand for starch

from enset. Table 3.2 depicts the projected demand for the product.

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Table 3.2

DEMAND PROJECTION

Year Projection(ton)

2007 412.29

2008 441.15

2009 472.03

2010 505.07

2011 540.43

2012 578.26

2013 618.74

2014 662.05

2015 708.39

2016 757.98

2017 811.04

2018 867.81

2019 928.56

2020 993.55

2021 1063.10

2022 1137.52

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 4447.12 per ton.

The plant can directly supply its product to industries. The plant can also appoint agents

at selected locations.

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B. PLANT CAPACITY AND PRODUCTION PROGRAM

1. Plant Capacity

The plant is envisaged to produce 300 ton/year, in 300 working days and operating 8

hrs/day.

2. Production Programme

The production programme is shown in Table 3.3. The production programme is set by

considering just 300 working days per annum.

Table 3.3

PRODUCTION PROGRAMME

Year 1 2 3 4

Capacity utilisation (%)

70

80

90

100

Production programme (tons) 210 240 270 300

IV. MATERIALS AND INPUTS

A. RAW MATERIALS

The annual material requirement of the plant is shown in Table 4.1 below.

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Table 4.1

ANNUAL RAW MATERIAL REQUIREMENT

Sr.

No

Raw Material

Unit

Annual

Consumption

('000 Birr)

FC LC Total

1

Enset

ton

800

1,360 1,360

Total 1,360 1,360

In addition to the above raw materials the annual requirement of packaging materials will

be 6,000 bags of 50kg holding capacity. The total annual cost of which is estimated to be

Birr 30,000.

B. UTILITIES

Utilities such as oil, water and electricity are required by the plant. The annual

consumption is shown in Table 4.2 below.

Table 4.2

ANNUAL CONSUMPTION OF UTILITIES

('000 Birr) Sr.

No

Utility

Unit

Annual

Consumption F.C L.C Total

1

2

3

Furnace Oil

Water

Electricity

m3

m3

KWH

150

8,400

120,000

-

-

-

812

46.2

57.4

812

46.2

57.4

Total - 915.6 915.6

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V. TECHNOLOGY AND ENGINEERING

A. TECHNOLOGY

1. Production Process

The production of starch starts with wet grinding of the enset to destroy its tissue, and then

the starch is extracted by filtering it through water and also washing with running water.

The washed starch will then be dried and will be made ready for packing.

2. Source of Technology

The technical data and information are compiled from a document of Japan Consulting

Institute.

B. ENGINEERING

1. Machinery and Equipment

The list of machinery and equipment required by the plant is given in Table 5.1.The total

cost of these machinery and equipment is estimated at about Birr 1,116 thousands out of

which Birr 930 thousand will be required in foreign currency.

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Table 5.1

LIST OF MACHINERY AND EQUIPMENT

No

Item

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

Weighing Scale

Separator

Washing machine

Chute

Peeling table

Conveyor

Grinder

Starch extractor

Cylindrical sieve

Milk tank

Self plying pump

Nozzle Separator

Settling Pond

Grinder

Packing machine

Delivery pump

Refuse conveyor

2. Building and Civil Works

The total land requirement is close to 1000 m2. The built up area is estimated at 400 m2

while the remaining part is for open space and for future expansion. The lease cost for 99

years lease holding will be Birr 79,200. Building and civil works cost about Birr

1,000,000.

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3. Proposed Location

The proposed location for the plant is Gonchere town in Eaner woreda, Gurage Zone.

VI. MANPOWER AND TRAINING REQUIREMENT

A. MANPOWER REQUIREMENT

The manpower requirement of the plant and the monthly and annual salary expenditure

are shown in Table 6.1.

Table 6.1

REQUIRED MANPOWER

Sr.

No.

Manpower Quantity Monthly

Salary

Annual Cost

1

2

3

4

5

6

7

8

9

10

11

12

General Manager

Technical "

Administrative Manager

Production Head

Supervisor

Chemist

Skilled operators

Semiskilled Operators

Maintenance crew

Accountant

Sales Man

Unskilled (Labourers)

1

1

1

1

1

1

5

5

5

2

2

10

3,000

2,500

1,200

1,500

1,200

1,000

3,500

2,000

3,500

2,000

2,000

2,000

36,000

30,000

14,400

18,000

14,400

12,000

42,000

24,000

42,000

24,000

24,000

24,000

Total 15 25,400 304,800

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B. TRAINING REQUIREMENT

The technical personnel of the plant should be trained by qualified engineers of the

machinery supplier. The cost of training shall be Birr 25,000.

VII. FINANCIAL ANALYSIS

The financial analysis of the enset starch 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%

Discount cash flow 8.5%

Accounts receivable 30 days

Raw material local 30days

Raw material, import 90days

Work in progress 2 days

Finished products 30 days

Cash in hand 5 days

Accounts payable 30 days

A. TOTAL INITIAL INVESTMENT COST

The total investment cost of the project including working capital is estimated at Birr

2.76 million, of which 31 per cent will be required in foreign currency.

The major breakdown of the total initial investment cost is shown in Table 7.1.

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Table 7.1

INITIAL INVESTMENT COST

No. Cost Items Cost(‘000 Birr)

1 Land lease value 79.2

2 Building and Civil Work 1,000.00

3 Plant Machinery and Equipment 1,116.00

4 Office Furniture and Equipment 75

5 Vehicle 0

6 Pre-production Expenditure* 186.42

7 Working Capital 310.24

Total Investment cost 2,766.9

Foreign Share 31

* N.B Pre-production expenditure includes interest during construction (Birr 111.42

thousand) training (Birr 25 thousand) and Birr 50 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 million (see

Table 7.2). The material and utility cost accounts for 75.62 per cent, while repair

and maintenance take 2.66 per cent of the production cost.

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Table 7.2

ANNUAL PRODUCTION COST AT FULL CAPACITY ('000 BIRR)

Items Cost %

Raw Material and Inputs 1,360.00 45.20 Utilities 915.6 30.43 Maintenance and repair 80 2.66 Labour direct 182.88 6.08 Factory overheads 60.96 2.03 Administration Costs 121.92 4.05 Total Operating Costs 2,721.36 90.44 Depreciation 184.1 6.12 Cost of Finance 103.7 3.45

Total Production Cost 3,009.16 100

C. FINANCIAL EVALUATION

1. Profitability

According to the projected income statement, the project will start generating profit in

the first year of operation. Important ratios such as profit to total sales, net profit to

equity (Return on equity) and net profit plus interest on total investment (return on

total investment) show an increasing trend during the life-time of the project.

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2. Break-even Analysis

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 = 21 %

Sales – Variable Cost

3. Pay Back Period

The investment cost and income statement projection are used to project the pay-back

period. The project’s initial investment will be fully recovered within 4 years.

4. Internal Rate of Return and Net Present Value

Based on the cash flow statement, the calculated IRR of the project is 26 % and the net

present value at 8.5% discount rate is Birr 2.05 million.

D. ECONOMIC BENEFITS

The project can create employment for 15 persons. In addition to supply of the

domestic needs, the project will generate Birr 1.38 million 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