Professional Documents
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PAGE
I.
SUMMARY
166-3
II.
166-3
III.
MARKET STUDY AND PLANT CAPACITY A. MARKET STUDY B. PLANT CAPACITY & PRODUCTION PROGRAMME
IV.
V.
VI.
VII.
FINANCIAL ANALYSIS A. TOTAL INITIAL INVESTMENT COST B. PRODUCTION COST C. FINANCIAL EVALUATION D. ECONOMIC BENEFITS
166-3
I.
SUMMARY
This profile envisages the establishment of a plant for the processing of small ruminate meat with a capacity of 1,000 tonnes per annum.
The present demand for the proposed product is estimated at 9,082 tonnes per annum. The demand is expected to reach at 44,345 tonnes by the year 2022.
The total investment requirement is estimated at Birr 30.43 million, out of which Birr 15 million is required for plant and machinery.
The project is financially viable with an internal rate of return (IRR) of present value (NPV) of Birr 8.8 million, discounted at 8.5%.
17 % and a net
II.
Canned meat is a product prepared from goat, beef, sheep, pig, poultry and other ingredient used for preserving and giving suitable taste. In this study, only sheep and goat meat are considered and the products are destined for export market.
III.
A.
MARKET STUDY
1.
The product envisaged here is mainly for export. Total exports of sheep and goat meat during 1977-2006 is shown in Table 3.1. Apparently, the volume of exports of the
166-4 product fluctuated with a rising trend. Total exports, on the average stood at 3,159.29 tonnes during the period under reference.
Year
Export
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Average
1,799.82 2,457.55 1,904.71 1,161.76 833.66 1,111.51 3,594.98 3,702.79 6,300.97 8,725.16 3,159.29
There is a wide export market for sheep and goat meat in the Middle East. As a result, a remarkable growth is observed in the exports of the product from the country. According to estimates of experts in the business, the above stated average volume of export of sheep and goat meat accounts for only 40% of the export demand for the product. The average rate of growth of exports of the product during the reference period is computed to be 35%. However, a conservative estimate of a 15% rate of growth is adopted in estimating the demand for the product. The present demand for the product (i.e. 2007) is thus estimated at 9082.96 tonnes.
As stated above, a 40% market share for existing exporters and a 15% rate of growth is used in projecting the demand for sheep and goat meat. The projected demand for the product is shown in Table 3.2.
Table 3.2 PROJECTED DEMAND FOR SHEEP AND GOAT MEAT (TONNES)
Projected Years 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Demand 5,449.78 6,267.24 7,207.33 8,288.43 9,531.69 10,961.44 12,605.66 14,496.51 16,670.99 19,171.64 22,047.38 25,354.49 29,157.66 33,531.31 38,561.01 44,345.16
Based on the FOB price of the external trade statistics 2006 (the latest data available), and considering 30% for transportation cost and other expenses, the factory gate price for the envisaged plant is estimated at Birr 33,685 per tonnes.
B.
1.
Plant Capacity
According to the market study, the demand of canned meat in the year 2007 will be 5449.78 tonnes, whereas this demand will grow to 44,345.16 tonnes by the year 2022. Taking only about 16% of the demand of the year 2008, the envisaged plant will have an annual production capacity of 1,000 tonnes of canned meat will be installed. Production capacity is based on a schedule of 300 working days per annum and 3 shifts of eight hours per day.
2.
Production Programme
The production programme is indicated in Table 3.3. At the initial stage of production, 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 85%, respectively. In third year and thereafter, full capacity production shall be attained.
166-7 Table 3.3 PRODUCTION PROGRAMME Production Programme Product Canned Meat (tonne) Capacity utilization rate (%) 2008 700 70 2009 850 85 2010 1000 100
IV.
A.
According to the information obtained from the Administration, the number of sheep and goat is about 3,190,732 and 2,678,712, heads, respectively. One can safely conclude that the above resource could be a base for the establishment of sheep and goat processing plant. The major raw materials of the envisaged project are meat, cans and common salt. The annual cost of raw and auxiliary materials is Birr 22,418,000. Table 4.1 indicates the annual requirement of raw and auxiliary materials at full production capacity. Table 4.1 RAW AND AUXILIARY MATERIALS REQUIREMENT & COST ( AT FULL CAPACITY) Sr. No. 1. 2. 3. 4. Description Sheep & Goat Meat Empty can Common Salt Packing Material and stickers Total Unit of Measure Tonnes 000 pcs Tonnes Lump sum Qty 1,600 2,520 144 Cost (000 Birr) 19,200 2,520 172.8 525 22,418
166-8 B. UTILITIES
The major utilities of the project are electricity, furnace oil and water. requirement and cost of utilities is indicated in Table 4.2.
Annual
UOM Sr. No 1 2 3 Electricity Furnace oil Water KWh m3 m3 Total 67500 500 140000 31.97 2705 1400 4136.97 Description Qty. Cost (000 birr)
V.
A.
TECHNOLOGY
1.
Production Process
The animals are subject to medical check-up to make sure that they are free from any disease before they are slaughtered. After slaughtering and before the viscera is
removed, inspection is carried out by veterinary staff. Then the meat is washed to remove blood and kept in the chilled room. After the meat is thoroughly chilled, it is then dressed and superficial fat is removed. After trimming and chopping, the bone is removed and the meat is then cut to uniform size of sliced chunks of about 1.25 cm thickness. The meat is then soaked into salt water for giving a salty taste and to kill microorganisms. It is weighed and filled into cans, and seaming process will be carried
166-9 out. After seaming the cans are fed in to a Jet-Spraying can washer for cleansing with neutral cleanser. Then, the seamed cans undergo sterilization immediately.
2.
Source of Technology
The following Indian company has already specialized on supplying equipment and machinery for diaries, food industries and breweries.
B.
ENGINEERING
1.
The list of machinery and equipment of meat canning project is indicated in Table 5.1. The total cost of machinery is estimated at Birr 15 million, of which Birr 10 million is in required foreign currency.
166-10 Table 5.1 LIST OF MACHINERY AND EQUIPMENT Sr. No. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28 29. 30. 31. 32. 33. 34. 35 Description Nobbing and cutting Washing tank Salt Soaking tank Empty can conveyor Packing conveyor Table for balance Tray(Assorted) Can assembling table Cooking box (steamer) Drainer Can supplying table Rotary Filler Vacuum seamer Vacuum pump Can washer Chain hoist with trolley rail Clutch door type horizontal retort Basket cooler Jacketed steam kettle Stainless still bank Gear pump Balance Seaming micrometer Seaming wire gauge Seaming scale Seam band saw frame Seam band saw Vacuum can tester Hand can tester Saccharin meter Inspection bar Thermometer Clinometers Boiler Cold room (Refrigerator) Qty. 1 4 4 2 1 2 400 1 1 2 2 2 2 2 1 1 5 50 3 2 1 20 2 2 2 2 10 2 2 2 2 15 2 1 1
The plant requires a total of 7,500 m2 area of land out of which 3,000 m2 is built-up area which includes Processing area, raw material stock area, offices etc. Assuming construction rate of Birr 2,500 per m2, the total cost of construction is estimated to be Birr 7.5 million. The total cost, for a period of 80 years with cost of Birr 1 per m2, is estimated at Birr 7,500. The total investment cost for land, building and civil works is estimated at Birr 7,507,500.
3.
Proposed Location
According to the resource potential study of the region, the raw material is identified in Kuraz and Hamer bena woredas. Based on the availability of raw material, infrastructure, utilities and market outlet Omarata town of Kuraz Woreda is selected and recommended to be the location of the envisaged plant.
Therefore, because of the above factors Debub- Omo has been chosen as the best location to establish the envisaged meat-canning project.
VI.
A.
MANPOWER REQUIREMENT
The envisaged project requires 56 labour force. The list of manpower and the annual cost of labour is indicated in Table 6.1.
Description
Req. No.
Annual Salary (Birr) 42,000 8,400 18,000 12,000 24,000 9,600 24,000 21,600 16,800 9,600 14,400 86,400 100,800 14,400 10,800 412,800 103,200 516,000
General Manager Secretary Marketing Officer Purchaser Senior Accountant Cashier Production Head Quality Control Head Senior Mechanic Mechanic Electrician Operators Labourers Drivers Guards Sub-Total Benefit (25% Basic Salary) Grand Total
1 1 1 1 1 1 1 1 1 1 1 12 28 2 3 56
3500 700 1500 1000 2000 800 2000 1800 1400 800 1200 7200 8400 1200 900 34,400 8,600 43,000
B.
TRAINING REQUIREMENT
The production head, quality control head and senior mechanic shall be trained by the experts of the machinery supplier during plant erection at the project site and other operators shall also be trained by the production head before commissioning the plant. Therefore, the total training cost is estimated at Birr 25,000.
166-13
VII.
FINANCIAL ANALYSIS
The financial analysis of the small ruminant meat processing project is based on the data presented in the previous chapters and the following assumptions:-
Tax holidays Bank interest Discount cash flow Accounts receivable Raw material local Raw material, import Work in progress Finished products Cash in hand Accounts payable
A.
The total investment cost of the project including working capital is estimated at 30.43 million, of which 53 per cent will be required in foreign currency.
Birr
The major breakdown of the total initial investment cost is shown in Table 7.1.
166-14
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) 600.0 7,500.0 15,000.0 150.0 450.0 1,606.0 5,129.8 30,435.8 53
(Birr 25 thousand ) and Birr 125 thousand costs of registration, licensing and formation of the company including legal fees, commissioning expenses, etc.
B.
PRODUCTION COST
30.49
million (see Table 7.2). The material and utility cost accounts for 87.07 per cent, while repair and maintenance take 0.90 per cent of the production cost.
166-15 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 22,418.00 4136.97 275 247.68 82.56 165.12 27,325.33 2010 1161.57 30,496.90
% 73.51 13.57 0.90 0.81 0.27 0.54 89.60 6.59 3.81 100
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.
166-16
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 =
72 %
3.
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.
Based on the cash flow statement, the calculated IRR of the project is 17 % and the net present value at 8.5% discount rate is Birr 8.8 million.
D.
ECONOMIC BENEFITS
domestic needs, the project will generate Birr 8.75 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.