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69. PROFILE ON PRODUCTION OF JUTE
BAGS
69-2
TABLE OF CONTENTS
PAGE
I. SUMMARY 69-3
II. PRODUCT DESCRIPTION & APPLICATION 69-3
III. MARKET STUDY AND PLANT CAPACITY 69-4
A. MARKET STUDY 69-4
B. PLANT CAPACITY & PRODUCTION PROGRAMME 69-8
IV. RAW MATERIALS AND INPUTS 69-8
A. RAW & AUXILIARY MATERIALS 69-8
B. UTILITIES 69-9
V. TECHNOLOGY & ENGINEERING 69-10
A. TECHNOLOGY 69-10
B. ENGINEERING 69-14
VI. MANPOWER & TRAINING REQUIREMENT 69-16
A. MANPOWER REQUIREMENT 69-16
B. TRAINING REQUIREMENT 69-16
VII. FINANCIAL ANALYSIS 69-18
A. TOTAL INITIAL INVESTMENT COST 69-18
B. PRODUCTION COST 69-19
C. FINANCIAL EVALUATION 69-20
D. ECONOMIC BENEFITS 69-21
69-3
I. SUMMARY
This profile envisages the establishment of a plant for the production of jute bags
with a capacity of 5 million pieces per annum.
The present demand for the proposed product is estimated at 5,430 tonnes per annum.
The demand is expected to reach at 9,173 tonnes by the year 2016 .
The plant will create employment opportunities for 74 persons.
The total investment requirement is estimated at Birr 8.21 million, out of which Birr
1.22 million is required for plant and machinery.
The project is financially viable with an internal rate of return (IRR) of 33 % and a net
present value (NPV) of Birr 8.89 million discounted at 8.5%.
II. PRODUCT DESCRIPTION AND APPLICATION
Jute bags are manufactured from jute yarn and are used for packing a wide range of
industrial and agricultural goods such as grains, oil seeds, salt sugar etc. The products
have a great demand in industrial and agricultural sectors for packing and wrapping of
manufactured and agricultural products.
69-4
III. MARKET STUDY AND PLANT CAPACITY
A. MARKET STUDY
1. Past Supply and Present Demand
Jute bags are biodegrable containers made from plant fibre called jute. They are usually
used for storing and holding. Heavy duty jute bags or sacks are popular for packaging
agricultural commodities.
Eventhough jute bags are replaced by synthetic materials some applications take
advantage of jute’s biodegrable nature, where synthetics would be unsuitable. Jute
shopping bags and carriers are increasingly replacing plastic non-woven as ecofriendly
alternatives.
Jute bags are mainly used to pack sugar, grain, coffee, cotton and other agricultural
products, which are packed in weight ranging from 50 to 100 kg. Jute bags used in the
agro-based products treated with vegetable oils to destroy the harmful effect of
hydrocarbons are also called hydrocarbon free bags. Due to their biodegradable nature
jute bag is becoming and eco friendly alternative.
The supply of jute bags is almost met through domestic production. The two jute bag
producing factories supply for the last nine years was on average 5,430 tonnes per
annum. ( See Table 3.1.)
69-5
Table 3.1
SUPPL Y OF JUTE SACKS IN TONNES
Year Total Local Import
1997 9,206 6,418 2,788
1998 8,194 7,649 545
1999 5,114 4,981 133
2000 5,729 5,708 21
2001 5,981 5,981 -
2002 5,709 5,691 18
2003 3,996 3,960 36
2004 3,315 3,315 -
2005 5,163 5,163 -
2006 N.A 45
Source: CSA Annual Survey of Manufacturing Industry Customs Authority.
The least square estimate for the domestic production of the jute bags indicates a negative
trend as follows:
Y= -334.68 4X + 7,103
The negative trend is due to the substitute product of PP sacks which are increasingly
substituting grain and flour sacks. In addition to this shift of demand from natural sacks
to synthetics there is also a raw material supply delay and production interruption due to
working capital problems as the raw material, jute is imported from Bangladesh. The
demand shift is explained by the very wide gap of the unit price of jute bag which is more
than eight birr as against two Birr for PP sacks. Therefore the current effective demand is
expected to be the average supply of the past nine years at 5,430 tonnes.
69-6
2. Projected Demand
The demand for jute bags will be dependent on those products which are using natural
fibre bags for their suitability of packaging agro based products like coffee and cotton.
With a growing concern for the environment and ecofriendliness of jute sacks the
demand in the long run is believed to be returning back.
The past nine years show a declining supply of jute bags due to the abundant substitute
supply of pp bags manufactured locally. Even though this trend is expected to continue,
those products which are packed only in jute sacks are also expected to demand more jute
bags. One of these products, the major Ethiopian export commodity, coffee export is
growing significantly. The average annual growth rate achieved in coffee export for the
last ten years was 6%. Further, the least square estimate of the ten years coffee export
reveals an annual growth of 6,892 tonnes. Coffee export is presented in Table 3.2.
Table 3.2
COFFEE E XPORT (T ONNES)
Year Export Growth Rate %
1997 118,784
1998 115,025 -3
1999 109,079 -5
2000 118,911 9
2001 88,662 -25
2002 123,433 39
2003 135,548 10
2004 156,648 16
2005 150,393 -4
2006 181,799 21
Average 131,055 6
Source: Customs Authority.
69-7
Thus demand estimation of jute bags is expected to grow at 6%. Projected demand for
jute sacks is presented in Table 3.3.
Table 3.3
PROJECT ED DEMAND FOR J UTE S ACK (TONNES)
Year Projected Demand
2008 5,755
2009 6,101
2010 6,467
2011 6,855
2012 7,266
2013 7,702
2014 8,164
2015 8,654
2016 9,173
3. Pricing and Distribution
The current price of 60kg coffee sack is Birr 8/ piece. Therefore, assuming margin for
wholesalers and distributors a factory get price of Birr 5/ piece is adopted.
Most jute sack customers are agro based institutions which apply sacks to pack their
products. Therefore the distribution of the product will be coordinated in line with each
institutional demand and product seasonality.
69-8
B. PLANT CAPACITY AND PRODUCTION PROGRAMME
1. Plant Capacity
Based on the demand projection of jute bags indicated in the market study, the envisaged
plant will have an annual production capacity of 5 million pieces of jute bags. The plant
will operate two shifts, 8 hours each shift and for 300 days a year.
2. Production Programme
The jute bags producing plant will start operation at a lower production capacity to allow
time for market penetration and skill development of workers. Thus, production will start
at 75% of installed capacity during the first year of operation, and then will grow to 85%
and 100% of full capacity in the second year, and third year and then after. The details of
production programme is shown in Table 3.4 below.
Table 3.4
PRODUCTION PROGRAMME
Year 1 2 3 and above
Annual production (million pieces) 3.75 4.25 5.0
Capacity utilization (%) 75 85 100
IV. MATERIALS AND INPUTS
A. RAW AND AUXILIARY MATERIALS
The major raw material required for jute bag production is jute yarn. Jute yarn is not
produced locally, and therefore it has to be imported from abroad.
69-9
Auxiliary materials include oils, chemicals and other required inputs. Annual
requirement and cost of raw and auxiliary materials shown in Table 4.1 below.
Table 4.1
ANNUAL REQUIRE MENT OF RAW AND AUXI LIARY MATE RI ALS
No. Description Qty Cost (‘000 Birr)
LC FC TC
A. Raw Materi a l
1 Jute yarn (tons) 6825 - 20475 20475
B. Auxilia r y Mate r i als
1 Oils Req - 50.0 50.0
2 Other inputs (chemicals, etc) Req - 10.0 10.0
3 FOB price - 20535 20535
Customs, Insurance, Bank
charges material handling
costs
150 - 150
CIF Landed Cost 150 20,535 20,685
B. UTILITIES
Inputs required for the plant include electricity and water. Total power requirement is 40
kW (or about 200,000 kWh) and annual water consumption is estimated to be 2500 m3.
At the rate of Birr 0.474 per kWh and Birr 10.0 per m3, the total annual expenditure on
utilities at full capacity production is Birr 119800.
69-10
V. TECHNOLOGY AND ENGINEERING
A. TECHNOLOGY
1. Process Description
The process of manufacture of jute bags essentially involves the following operations.
a) Weaving of the Hessian from the yarn
b) Cutting of the Hessian into required sizes by heavy duty cutter
c) Stitching by electrically operated stitching machines
d) Testing
e) Pressing
f) Packing and forwarding
Weaving Fundamentals
The classical method of weaving is essentially the insertion of a continuous length of
weft yarn from a shuttle which travels to and fro across the warp sheet in the loom and
leaves behind a trail of weft (pick) at each passage. Weaving involves three primary
actions and two secondary ones. These are briefly as below:-
Primary Action
The three primary actions are shedding, picking and beating up. They must be
performed in strict rotation in a loom.
69-11
i) Shedding:-
To form any weave structure all warp threads under which a particular pick has to lie in
ultimate cloth are raised during the shuttle passage while all threads with the same pick
has to pass over powered. Thus for each pick inserted, the individual containing the total
required ends in the weavers warp. It may be noted that all the individual threads from
any single back beam are approximately evenly distributed across the width of the
finished warp. The upper limit to the number of ends on back beams is determined
largely by the size of the creel in which the cones of yarn are held for making the beam.
A creel capacity of between 500 and 512 cones is very common. The warp length of a
back when the sheet from all beams in a set have been later combined during the warp
sizing operation which follows beaming.
Indirect Warping
This system consists of winding the warp in separate width way sections, each section
being laid side by side on the horizontal barrel of a special beaming machine. This
method is suited to the preparation of continuous filament warps.
Warp Sizing
The subject of warp sizing is of complex in nature and is strictly outside the scope of this
report. However, the following should serve as some initial guidelines on this aspect of
weaving. For successful weaving of most fabrics the warp threads require a protective
coating of an adhesive film referred to generally as a size paste. This coating enables the
threads to with stand the abrasive action of weaving which largely takes place during
shedding i.e. when the threads are drawn to and over or against the surface of parts such
as healed eyes and read, etc. without a coating of sizes. Many threads, particularly of
single yarns would quickly become seriously abraded and would break thus making
satisfactory weaving impossible.
69-12
Sizing Material
Traditionally size materials consists of an adhesive in the form of a natural or modified
natural starch such as ago maize tapioca, farina etc. The adhesive help to bind the surface
fibers together. It also helps to lay flat any projecting surface fibres or other perfect yarn
should not exceed 20% if the lowest quality yarn were used.
The use of low quality yarns inevitably leads to higher breakage rates and consequently
to an increase in the number of operative hours needed to produce a given quantity of
cloth.
However, the type of loom used does not first order effect on the amount of time in the
repairing of weaving break either warp or weft. At the lowest level of yarn quality
consistent with fabric covered by this report one weaver might reasonably be expected to
tend two non-auto warp threads that are raised or lowered as dictated by the weave plan.
The actions of raising or lowering the warp threads in this way is known as shedding
while the sheet opening so formed is called the shed.
ii) Picking
The action of passing the shuttle through the shed is picking.
iii) Beating Up
Finally after the insertion of each brick, the pick of weft in itself has to be pushed forward
by a reed (a type of closed comb through which all of the warp threads are drawn) to a
point adjacent to the previous pick, known as the ‘ fell’ where this cloth is formed. This
third action is called beating up.
69-13
Secondary Action:
In addition to the primary actions two secondary actions are necessary. However, the
instant at which they are performed is at the discretion of the weaver in the case of simple
hand looms. On the other hand strict control and timing in relation to primary motions is
required for power looms.
i) Taking up
This action involves the taking up of woven cloth as weaving proceeds so that the fell is
maintained in the same position.
ii) Letting off
This action involves the letting off the further warp from a beam at the above of the loom
to replace that woven into cloth.
Woven structures in the most simple form of woven structure, known as plain weave a
pick of weft passes under and over alternate warp ends from selvedge. The next pick
does the same but in the reverse fitting order. Thus a plain weave repeats on two picks.
Simple variations in the order in which the ends and picks interlace produce numerous
weaves which are known widely by name such as twills sat in mat weaves, etc. The
majority of such weaves can be elaborated and extended to that they repeat on many ends
and picks. But there was often little to be gained in cases where fancy weave effects are
required. Consequently, the great majority of woven fabrics consists of the smallest
repeat corresponding to the basic weave so that it can be woven on looms equipped with
either simple (treadle operated) or mechanized (cam operated) shedding motions.
69-14
2. Source of Technology
Address of Machinery Supplier is given below:
Shanghai Small Enterprises Trade
Development Service Centre
International Cooperation Division
Shanghai 200032
Fax: (008621) 642201814
B. ENGINEERING
Machinery and equipment required for jute bags manufacturing plant are given in Table
5.1.
Table 5.1
LIST OF MACHINERY AND EQ UIPMENT
No. Description Qty Unit
Price
Cost (‘000 Birr)
LC FC TC
1 Power jute loom 10 80,000 - 800 800
2 Winding machine 2 55,000 - 110 110
3 Heavy duty cutter 2 25,000 - 50 50
4 Stitching machine 3 20,000 - 60 60
5 Pressing machines 2 20,000 - 40 40
6 Tools and auxiliaries Reqd - - 10 10
FOB price 1070 1070
Customs, Insurance, Bank
charges, materials handling
150 - 150
CIF Landed Cost 150 1,070 1,220
2. Land, Building and Civil Works
The total land area required for the envisaged plant is 2500 m2, of which the built-up area
will be 1500 m2.
69-15
At a land lease rate of Birr 1.0 per m2, and for a period of 80 years, and building cost of
Birr 1500 per m2, the total expenditure on land, building and civil works will be Birr 2.45
million.
3. Proposed Location
Location of a plant is determined on the basis of proximity to raw materials, availability
of infrastructure and distance to potential market areas. Potential woredas selected for
the establishment of jute bags producing plant are Badawacho, Aleta and Dale.
Considering fair distribution of the projects among SNNPRS weredas, the most
appropriate wereda selected is Badawacho. It is therefore suggested that jute bags
producing plant be established in shone town.
VI. MANPOWER AND TRAINING REQUIREMENT
A. MANPOWER REQUIREMENT
The plant requires manpower both for production and administrative work. The details of
manpower requirement including monthly salary and annual expenditure is given in
Table 6.1 below.
B. TRAINING REQUIREMENT
The skill of jute yarn weaving is well developed in the country since there is a plant
engaged in jute bag production. However, machinery operators will have to be given
training for two weeks in Ethiopian Fibre Factory located in Akaki, Addis Ababa. A total
of Birr 20,000 is allotted to train plant operators and technicians.
69-16
Table 7.1
MANPOWER REQUIREMENT AND LA BO UR CO S T (BIRR)
No. Job Title Req.
No.
Monthly
Salary
Annual Wages
A. Administration
1 Plant manager 1 2000 24000
2 Secretary 2 700 16800
3 Accountant 1 1200 14400
4 Personnel officer 1 1000 12000
5 Salesman 1 1000 12000
6 Purchaser 1 1000 12000
7 Store man 1 1000 12000
8 Cashier 1 800 9600
9 Clerk 2 600 14400
10 General services 6 350 25200
Sub-total 17 - 152400
B. Production
1 Production supervisor 1 1500 18000
2 Shift foreman 2 1200 28800
3 Operators 34 700 285600
4 Laborer 10 350 42000
5 Mechanics 4 800 38400
6 Electricians 4 800 38400
7 Production Clerk 2 500 12000
Sub-total 57 - 463200
Workers’ benefit (25% BS) - - 153900
Total 74 - 769500
69-17
VII. FINANCIAL ANALYSIS
The financial analysis of the jute bags 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 days
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 8.21
million, of which 14 per cent will be required in foreign currency.
The major breakdown of the total initial investment cost is shown in Table 7.1.
69-18
Table 7.1
INITIAL I NVES TME NT COST
Sr.
No. Cost Items
Total Cost
(‘000 Birr)
1 Land lease value 200.0
2 Building and Civil Work 2,250.0
3 Plant Machinery and Equipment 1,220.0
4 Office Furniture and Equipment 75.0
5 Vehicle 200.0
6 Pre-production Expenditure* 436.5
7 Working Capital 3,833.7
Total Investment cost 8,215.2
Foreign Share 14
* N.B Pre-production expenditure includes interest during construction ( Birr 286.52 thousand ) training
(Birr 20 thousand ) and Birr 130 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 25.56
million (see Table 7.2). The material and utility cost accounts for 92.19 per cent, while
repair and maintenance take 0.77 per cent of the production cost.
69-19
Table 7.2
ANNUAL PRODUCTION COST AT FULL CAPACITY ('000 BIRR)
Items Cost %
Raw Material and Inputs 20,685.00 91.66
Utilities 119.8 0.53
Maintenance and repair 174 0.77
Labour direct 617.1 2.73
Factory overheads 149.96 0.66
Administration Costs 152.4 0.68
Total Operating Costs 21,898.26 97.04
Depreciation 312 1.38
Cost of Finance 356.85 1.58
Total Production Cost 22,567.11 100
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.
The income statement and the other indicators of profitability show that the project is
viable.
69-20
2. Break-even Analysis
The break-even point of the project including cost of finance when it starts to operate at
full capacity ( year ) is estimated by using income statement projection.
BE = Fixed Cost = 18 %
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 33 % and the net
present value at 8.5 % discount rate is Birr 8.89 million.
D. ECONOMIC BENEFITS
The project can create employment for 74 persons. In addition to supply of the
domestic needs, the project will generate Birr 5.58 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.