222.

PROFILE ON PRODUCTION OF ESSENTIAL OIL OF ORANGE

222-2

TABLE OF CONTENTS

PAGE

I.

SUMMARY

222-3

II.

PRODUCT DESCRIPTION & APPLICATION

222-3

III.

MARKET STUDY AND PLANT CAPACITY A. MARKET STUDY B. PLANT CAPACITY & PRODUCTION PROGRAMME

222-4 222-4 222-6

IV.

RAW MATERIALS AND INPUTS A. RAW & AUXILIARY MATERIALS B. UTILITIES

222-6 222-6 222-7

V.

TECHNOLOGY & ENGINEERING A. TECHNOLOGY B. ENGINEERING

222-8 222-8 222-9

VI.

MANPOWER & TRAINING REQUIREMENT A. MANPOWER REQUIREMENT B. TRAINING REQUIREMENT

222-10 222-10 222-10

VII.

FINANCIAL ANLYSIS A. TOTAL INITIAL INVESTMENT COST B. PRODUCTION COST C. FINANCIAL EVALUATION D. ECONOMIC BENEFITS

222-11 222-11 222-12 222-13 222-14

222-3

I.

SUMMARY

This profile envisages the establishment of a plant for the production of essential oil of orange with a capacity of 45 tones per annum.

The present demand for the proposed product is estimated at

1157 tones

per annum.

The demand is expected to reach at 2498 tones by the year 2022.

The plant will create employment opportunities for 19 persons.

The total investment requirement is estimated at about Birr 4.31 million, out of which Birr 2.2 million is required for plant and machinery.

The project is financially viable with an internal rate of return (IRR) of 18 % and a net present value (NPV) of Birr 1.49 million discounted at 8.5%.

II.

PRODUCT DESCRIPTION AND APPLICATION

The essential oil of orange has a dominant volatile component, limonene, about 90%. In addition, citral, citronellal and methyl anthranilate are parts of the essential oil.

The essential oil of orange is used in beverages, ice creams, perfumes and cosmetics.

222-4 III. MARKET STUDY AND PLANT CAPACITY

A.

MARKET STUDY

1.

Past supply and Present Demand

Orange oil is used as a flavoring agent in deserts, soft drinks, ice creams and odorants in perfumery and cosmetics. The local demand for orange oil is met through imports. In order to determine the current effective demand for essential oil of orange, the imported quantity of essential oils of orange and other essential oils of a kind used in non alcoholic drink industries and in preparation of flavoring food (excluding essential oils used in alcoholic drinks, medicaments etc) is presented in Table 3.1.

Table 3.1 IMPORT OF ESSENTIAL OIL OF ORANGE AND OTHER ESSENTIAL OILS USED IN NON ALCOHOLIC DRINKS AND FLAVORING FOOD

Year 2000 2001 2002 2003 2004 2005 2006

Quantity 279,069 353,601 478,172 521,573 616,090 830,799 964,083

Source:- Compiled From Customs Authority.

As could be seen from Table 3.1 import of essential oils of orange and other essential oils used in non-alcoholic beverages and in preparation of flavoring food has been increasing from year to year. The amount of import which was 279,069 kg during year

222-5 2000 has increased to 521,573 kg and 964,083 kg by the year 2003 and 2006, respectively. Annual average growth rate during the past seven years was more than 20%.

Since the consumption of the product in the past seven years has been annually increasing by about 20% current effective demand is estimated at 1,157 tons by taking year 2006 as a base.

2.

Demand Projection

The demand for essential oils of orange will increase with the expansion and establishment of the food and soft drinks industries. Due to the favorable climate created for domestic and foreign investors a number of food and soft drinks factories are in pipe line for establishment. Although the demand for the product has been increasing by more than 20% in the past seven years a conservative growth rate of 8% is taken to project the future demand (see Table 3.2.)

Table 3.2 PROJECTED DEMAND FOR ESSENTIAL OIL OF ORANGE (TON)

Year 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Quantity (kg) 1,250 1,350 1,457 1,574 1,700 1,836 1,983 2,142 2,313 2,498

222-6 3. Pricing and Distribution

Based on Customs Authority data (year2006) a factory gate price of Birr 120 per k.g is recommended.

The product can be sold directly to the end users mainly for food and soft drinks factories.

B.

PLANT CAPACITY AND PRODUCTION PREGRAM

1.

Plant Capacity

The annual production capacity of the proposed project is 45 tones of orange peel oil, based on 300 working days and three shifts per day.

2.

Production Program

The production program is indicated in Table 3.3. At the initial stage of the production period, the plant requires some years to penetrate the market. Therefore, in the first and second year of production, the capacity utilization rate will be 70% and 90% respectively. In the third year and then after, full capacity production shall be attained. .

Table 3.3 PRODUCTION PROGRAM

Product 1 1 2 Orange peed oil (ton) Capacity Utilization Rate (%) 33.75 70

Production Year 2 40.5 90 3-10 45 100

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IV.

RAW MATERIAL AND INPUTS

A.

RAW AND AUXILIARY MATERIALS

The essential ail content of orange peel is about 1 to 2.5 %. The annual orange peel requirement and estimated cost is indicated in Table 4.1.

Table 4.1 ANNUAL RAW AND AUXILIARY MATERIALS REQUIREMENT & COST (AT FULL CAPACITY)

Material 1 2 Orange peel Drums Replacement -2%) TOTAL B. UTILITY

Unit Ton Pcs

Qty 3000 45

Cost (1000 Birr) 2,700 5.4

2,750.4

Utilities of the project are electricity, fuel oil and water. The annual utility requirement and its cost are indicated in Table 4.2. Table 4.2 ANNUAL UTILITY REQUIREMENT AND COST Sr. No. 1 2 3 Electricity Furnace oil Water Total Kwh lt M3 150.000 270,000 5000 71.1 1460.7 50 1581.8 Utility Unit Qty Cost (1000 Birr)

222-8 V. TECHNOLOGY AND ENGINEERING

A.

TECHNOLOGY

1.

Process Description

First the orange peel shall be chopped in small pieces; to that steam can easily vaporize the essential oil in the peel.

The steam, produced in a boiler is introduced into an evaporation kettle which contains the chopped orange peel and water. The peel is located on a grid placed at a certain distance above the level of the water which fills the bottom of the vessel. The water is vaporized indirectly, by steam flowing in a pipe coil submerged by the water. The water vapor plus the distilled oil coming from the evaporator is recovered in a separate water cooled condenser.

The mixture flowing out of the condenser is separated in a Florentine flask. The essential oil is collected at the top and distilled water leaves the leaves the flask at the bottom. As water still contains some soluble parts of the oil, it is sent back to the evaporator to recover the soluble components by means of second distillation.

2.

Source of Technology

Among the different suppliers of essential oil production machinery the following company can be requested for an after:

Food and Biotech Engineers Khwaja, Faridabad Haryana- 121003, India Phone: +91-129-2510924 Website: http://www.dairyfoodtech.Com.

222-9 B. ENGINEERING

1.

Machinery and Equipment

The list of machinery and equipment is shown in Table 5.1. The total cost of machinery is estimated at Birr 2.2 Million of which Birr 1.83 Million is in foreign currency.

Table 5.1 LIST OF MACHINERY & EQUIPMENT

Sr. No. 1 2 3 4 5 6 7 8 Peel chopper Evaporator Condenser

Description

No

1 4 2 2 1set 2 1set 1 set

Florentine flask Cooling Tower Pump Boiler Submersible pump

2.

Land, Building and Civil Work

The total area of the required by the project is about 1500 m2 of which 350 m2 is a builtup area. The cost of buildings is estimated at Birr 525,000. The lease value of land is calculated to be Birr 120,000 at a rate of 1 Birr / m2 / years for 80 years.

3.

Location and Site

Arbaminch town is the best location of the project, for its proximity to raw material sources.

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VI.

MANPOWER AND TRAINING REQUIREMENT

A.

MANPOWER REQUIREMENT

The list of manpower and the annual labour cost are indicated in Table 6.1. The total annual labour cost is estimated at Birr 213,000.

Table 6.1 MANPOWER REQUIREMENT & LABOUR COST

Sr. No. 1 2 3 4 5 6 Manpower General Manager Production Head Accountant Operators Laborers Guards Subtotal Benefit (25%BS) Total No 1 1 1 6 8 2 19

Monthly Salary (Birr) 3000 2000 2000 4200 2400 600 14,200 3,550 17,750

Annual Salary (Birr) 36,000 2400 2400 50,400 28,800 7200 170.400 42,600 213,000

B.

TRAINING REQUIREMENT

Training of labour force is carried out during plant erection by the experts of machinery suppliers. The cost of training is estimated at Birr 20,000

222-11 VII. FINANCIAL ANALYSIS

The financial analysis of the essential oil of orange

project is based on the data

presented in the previous chapters and the following assumptions:-

Construction period Source of finance

1 year 30 % equity 70 % loan

Tax holidays Bank interest Discount cash flow Accounts receivable Raw material local Work in progress Finished products Cash in hand Accounts payable

3 years 8% 8.5% 30 days 30days 1 day 30 days 5 days 30 days

A.

TOTAL INITIAL INVESTMENT COST

The total investment cost of the project including working capital is estimated at Birr 4.30 million, of which 39 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

Sr. No. 1 2 3 4 5 6 7 Cost Items Land lease value Building and Civil Work Plant Machinery and Equipment Office Furniture and Equipment Vehicle Pre-production Expenditure* Working Capital Total Investment cost Foreign Share

Total Cost (000 Birr) 120 525.00 2,200.00 75 200 302.60 886.25 4,308.9 39

* N.B Pre-production expenditure includes interest during construction ( Birr 202.60 thousand ) training (Birr 20 thousand ) and Birr 80 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 5.11 million (see Table 7.2). The material and utility cost accounts for 83.73 per cent, while

repair and maintenance take 1.46 per cent of the production cost.

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Table 7.2 ANNUAL PRODUCTION COST AT FULL CAPACITY ('000 BIRR)

Items Raw Material and Inputs Utilities Maintenance and repair Labour direct Factory overheads Administration Costs Total Operating Costs Depreciation Cost of Finance Total Production Cost

Cost 2,705.00 1581.8 75 127.8 42.6 85.2 4,617.40 313.75 188.57 5,119.72

% 52.83 30.90 1.46 2.50 0.83 1.66 90.19 6.13 3.68 100

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

222-14

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 Sales Variable Cost

31 %

3.

Pay Back Period

The investment cost and income statement projection are used to project the pay-back period. The projects initial investment will be fully recovered within 6 years.

4.

Internal Rate of Return and Net Present Value

Based on the cash flow statement, the calculated IRR of the project is 18 % and the net present value at 8.5% discount rate is Birr 1.49 million.

D.

ECONOMIC BENEFITS

The project can create employment for 19 persons. In addition to supply of the domestic needs, the project will generate Birr 1.37 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.