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Pre feasibility Study

COLD STORAGE

(Fruit & Vegetable)

Small and Medium Enterprise Development Authority


Government of Pakistan
www.smeda.org.pk
HEAD OFFICE
Small and Medium Enterprise Development Authority, 6th Floor,LDA Plaza ,Egerton Road. Lahore, Pakistan
Tel: 92-42-111-111-456 Fax: 92-42-6304926-7, Email: helpdesk@smeda.org.pk

REGIONAL OFFICE REGIONAL OFFICE REGIONAL OFFICE REGIONAL OFFICE


PUNJAB SINDH NWFP BALOCHISTAN
6th Floor,LDA Plaza ,Egerton Road. 5th floor, Bahria Complex-II, Ground Floor, State life Building, The Bunglow No.15-A Chaman
Lahore, Pakistan Moulvi Tameezuddin Khan Road, Mall, Peshawar Cantt. Housing Scheme, Airport Road,
Tel: 92-42-111-111-456 Fax: 92-42- Karachi Tel: 92-91-111-111-456, 92-91- Quetta
6304926-7, Email: Tel: 92-21-111-111-456, 9213046-7 Fax: 92-91-286908, Email: Tel: 92-81-831702, 92-81-
helpdesk@smeda.org.pk 5610432, 5610536, 5610459, Fax: helpdesk-pew@smeda.org.pk 831623 Fax: 92-81-831922,
92-21-5610572. Email: helpdesk- Email: helpdesk-
khi@smeda.org.pk qta@smeda.org.pk

February, 2009
Pre feasibility Study Cold Storage (Fruit & Vegetable)

TABLE OF CONTENT

1 INTRODUCTION TO SMEDA ......................................................................4

2 PURPOSE OF THE DOCUMENT .................................................................4

3 PROJECT PROFILE ......................................................................................4


3.1 PROJECT BRIEF ............................................................................................4
3.2 STORAGE OF POTATO ...................................................................................5
3.3 OPPORTUNITY RATIONALE ...........................................................................6
3.4 MARKET ENTRY TIMINGS.............................................................................7
3.5 PROPOSED LOCATION ...................................................................................7
3.6 PROPOSED BUSINESS LEGAL STATUS ............................................................7
3.7 LEGAL BENEFIT ............................................................................................7
3.8 PROPOSED CAPACITY ...................................................................................8
3.9 PROJECT INVESTMENT ..................................................................................8
3.10 PROPOSED PRODUCT MIX ..........................................................................8
3.11 RECOMMENDED PROJECT PARAMETERS .....................................................8
3.12 KEY SUCCESS FACTORS/ PRACTICAL TIPS FOR SUCCESS.............................8
3.13 STRATEGIC RECOMMENDATIONS ...............................................................9
4 CRUCIAL FACTORS & STEPS IN DECISION MAKING FOR
INVESTMENT.......................................................................................................9
4.1 SWOT ANALYSIS ........................................................................................9
4.1.1 Strengths and Opportunities..................................................................9
4.1.2 Weaknesses and Threats .......................................................................9
5 SECTOR & INDUSTRIAL ANALYSIS.......................................................10
5.1 GLOBAL PERSPECTIVE ................................................................................10
5.2 LOCAL PRESPECTIVE ..................................................................................12
6 MARKET INFORMATION .........................................................................13
6.1 MARKET POTENTIAL...................................................................................13
6.2 TARGET CUSTOMER .................................................................................... 13
7 COLD STORAGE TYPES AND INFRASTRUCTURE.............................. 14
7.1 TRADITIONAL TYPE COLD STORAGE ...........................................................14
7.2 PRE-FABRICATED COLD STORAGE ..............................................................15
8 PRODUCT PROCESS FLOW......................................................................16

9 HUMAN RESOURCE REQUIREMENTS ..................................................16

10 MACHINERY/EQUIPMENT DETAILS..................................................17

11 LAND AND BUILDING ............................................................................17


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Pre feasibility Study Cold Storage (Fruit & Vegetable)

11.1 LAND...................................................................................................... 17
11.2 INFRASTRUCTURE REQUIREMENTS ...........................................................18
11.3 BUILDING LAYOUT ................................................................................. 18
12 PROJECT ECONIMICS ........................................................................... 19
12.1 PROJECT COSTS ......................................................................................19
12.2 ESTIMATED TIME FRAME FOR PROJECT COMPLETION ................................19
13 FINANCIAL ANALYSIS........................................................................... 20

14 KEY ASSUMPTIONS................................................................................23
14.1 CAPACITY ...............................................................................................23
14.2 OPERATIONAL CAPACITY ........................................................................ 23
14.3 REVENUE RELATES ASSUMPTION ............................................................ 23

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Pre feasibility Study Cold Storage (Fruit & Vegetable)

1 INTRODUCTION TO SMEDA
The Small and Medium Enterprise Development Authority (SMEDA) was
established with the objective to provide fresh impetus to the economy through the
launch of an aggressive SME support program. Since its inception in October 1998,
SMEDA had adopted a sectoral SME development approach. A few priority sectors
were selected on the criterion of SME presence. In depth research was conducted
and comprehensive development plans were formulated after identification of
impediments and retardants. The all-encompassing sectoral development strategy
involved recommending changes in the regulatory environment by taking into
consideration other important aspects including financial aspects, niche marketing,
technology upgradation and human resource development.
SMEDA has so far successfully formulated strategies for sectors including, fruits
and vegetables, marble and granite, gems and jewelry, marine fisheries, leather and
footwear, textiles, surgical instruments, urban transport and dairy. Whereas the task
of SME development at a broader scale still requires more coverage and enhanced
reach in terms of SMEDA’s areas of operation.
Along with the sectoral focus a broad spectrum of business development services is
also offered to the SMEs by SMEDA. These services include identification of viable
business opportunities for potential SME investors. In order to facilitate these
investors, SMEDA provides business guidance through its help desk services as well
as development of project specific documents. These documents consist of
information required to make well-researched investment decisions. Pre-feasibility
studies and business plan development are some of the services provided to enhance
the capacity of individual SMEs to exploit viable business opportunities in a better
way. This document is in the continuation of this effort to enable potential investors
to make well-informed investment decisions.

2 PURPOSE OF THE DOCUMENT


The objective of the pre-feasibility study is primarily to facilitate potential
entrepreneurs in project identification for investment. The project pre-feasibility may
form the basis of an important investment decision and in order to serve this
objective, the document/study various aspects of project concept development, start-
up, and production, finance and business management.

3 PROJECT PROFILE

3. 1 Project Brief
All fruits and vegetables require specialized post harvest treatment, appropriate
temperature and relative humidity for their storage. Establishment of cold storage
provides refrigerated storage and preservation facilities for several fruits, vegetables
& flowers. Because of technology advancements and logistic strategies, the cold
storage of perishable items has become an important stage in the distribution
between manufacturers/processors and retail locations. The cold storage will ensure
the increased availability and improved quality of high value perishable fruits and
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Pre feasibility Study Cold Storage (Fruit & Vegetable)

vegetables for both export and local sale, which would otherwise perish or
deteriorate.
This project is designed for storing of potatoes and apples/ kinnu but it can be used
to store multiple products, stored in different compartments of the unit, where
relative temperatures for respective products can be maintained. The major clientele
of this business will be the export houses and the local trading and marketing units
of potato and apple/ kinnu. The project will further aim at storing fruits & vegetables
even during off-seasons. The project will ultimately assist the clientele in
maintaining market price equilibrium throughout the year for potatoes.

3. 2 Storage of Potato
The purpose of potato storage is to maintain tuber quality and provide a uniform
flow of tubers to fresh market and processing plants round the year. Good storage
should prevent excessive dehydration, decay and sprouting. It should also prevent
high sugar concentrations which result in dark colored fried products. Following are
the requisites for efficient potato storage:
 Adequate insulation
 Outside waterproofing
 Inside vapor proofing
 Ventilation
 Air distribution
 Adequate humidification
 Properly designed controls for precisely maintaining the storage atmosphere.
Temperature, humidity, and air movement are the most important environmental
factors affecting storability. Temperature requirements are determined by the
intended use of the potatoes. Tubers should always be kept in the dark since very
small amounts of light will gradually cause greening. Lights should not be used more
than absolutely necessary. Surface greening is due to chlorophyll formation and is
harmless. However, its presence in potatoes is undesirable because of marketing
restrictions and the fact that at times an alkaloid called solanine increases with the
chlorophyll. Solanine and other glycoalkaloids cause potatoes to have a bitter,
undesirable flavor. Greening develops slowly in the light at 40F or below but
develops rapidly at 68F.
Potatoes are usually held in bulk piles 8 to 20 feet deep. Some are stored in pallet
boxes for short periods. Pressure bruise and internal black spot are substantially
lower with pallet storage but decay is often increased because of poor air circulation
within boxes/bags.
The proposed project contains racking system build up by using good quality steel
and wooden logs. These racks provide space for placing the potato bags & apple/
kinnu crates with sufficient intra spaces for air circulation.
Early harvested potatoes are usually stored only briefly if at all. Such tubers are quite
perishable and damage easily because of immature skins. Early potatoes free from
serious bruising and decay can sometimes be held 4 to 5 months at 40F for table use
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Pre feasibility Study Cold Storage (Fruit & Vegetable)

if they are cured 4 or 5 days at 55 to 65F to heal wounds before storage. However,
early crops should usually be sold immediately because of poor storability and
typically high early season prices.
Most late potatoes are stored. Storage temperature depends on crop use. A relative
humidity of 90 to 95% is typically recommended regardless of temperature regimes.

3. 3 Opportunity Rationale
Securing an adequate food supply has been the fundamental concern of mankind and
so has been the preservation of food. The loss of food in the post-harvest system is
not new; it has always been a problem for man, even in the highly scientific and
technological world of today. Among all the major problems persistent in the world
regarding the fulfillment of the basic needs of people, food requirement stands at the
top, as without ensuring satisfactory diets, people cannot lead healthy and productive
lives.
In these present times of high population growth rates, food supply has become
diminutive. For filling this gap between demand and supply, there is a need to
conserve the food supply, in order to meet the growing and existing food
requirements, especially fruits and vegetables, as these are more perishable.
The problem related with food loss is more prevalent in the less developed world as
compared to the developed world. The developed countries have curbed the loss of
food to a great extent by adopting new technologies and ways of storing food. Some
examples of such measures are adoption and development of better harvesting
equipment; establishment of collection centers at strategic points in major crop
producing areas; remodeling of containers to add more protection to the produce;
and more importantly the development of commercial storage plants/cold storages.
As far as the scenario of food losses in Pakistan is concerned, Pakistan produces a
variety of fruits and vegetables like potato, apple, mangoes, dates, banana, cherries,
apricots, pomegranates, peas, carrots, etc. Pakistan's total annual production of fruits
amounts to nearly 6 million tons and that of vegetables to approximately 5.3 million
tons. However, it is estimated that in Pakistan 25% of fruits & vegetables produced
each year are lost because of poor harvest conditions. This loss if calculated
approximately amounts to 2.7 million metric tons and its estimated local market
value reaches somewhere near US $ 522 million. The major reasons for this loss are
careless harvesting, rough handling, inadequate transportation, and storage facilities.
If we only look at the losses due to lack of storage facilities, it alone reaches 1.24
million metric tons, which values to nearly US $ 239 million1.
Furthermore, the purpose of storage of vegetables and fruits is to preserve and
maintain the edible quality characteristics until they are consumed in the fresh state,
which the cold storage serves.

1
Source: FBS and FAO

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Pre feasibility Study Cold Storage (Fruit & Vegetable)

3. 4 Market Entry Timings2


The harvest season for potato is from December to February and of apple is from
July to November so the best time to enter in the cold storage business is December.

3. 5 Proposed Location
For retail sales, location of the cold storage must be near a major road, and the area
must have adequate parking space. Proposed locations for cold storage could be
from Kasur to Depalpur as potatoes are grown on this belt, apples are brought from
Quetta & Kinnus are brought from Sargodha. Location of the cold storage should be
done by keeping in view the following factors:
 A cold storage facility must be in a well-drained area. It requires drains to
remove water from condensation, and cleaning and sanitation operations.
Providing good drainage is essential.
 Availability of water
 Availability of Electricity
 Three phase of electricity is necessary when more than 10 tons of refrigeration is
needed.
 Wastewater disposal facility
 Appropriate sewage collection and disposal system must be considered.
If any of above facility is not available the arrangement for the same must be done
prior to construction of cold store.3

3. 6 Proposed Business Legal Status


It is recommended that this project should be started as sole proprietorship or
partnership. Moreover, less complications and costs are involved informing,
administering and running the sole proprietorship or partnership business. The tax
rate applicable for sole proprietorship is lower than private or public limited. Most of
the cold storages in the country are operating as sole proprietorship or partnership
basis.

3. 7 Legal benefit4
A scheme is launched by Trade Development Authority of Pakistan, it is called,
Cool Chain and Cold Storage for horticulture Products will come into operation
with immediate effect. Business concerns selected for financial assistance under this
scheme will be allowed following incentives.
Mark-up cost of loans obtained by business concerns for establishment of cool chain
infra-structure will be picked-up by the Trade Development Authority of Pakistan
through the Export Development Fund (EDF) up to a maximum of 8% or 50%
(whichever is less).

2
Pakistan horticulture and export board, harvest calendar
3
Pakistan horticulture and export board
4
Trade Development Authority of Pakistan
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Pre feasibility Study Cold Storage (Fruit & Vegetable)

3. 8 Proposed Capacity
The proposed cold storage facility has a maximum storage capacity of storing 60,000
bags of potato or 180,000 crates of apple at any given time. It will be operational for
potato storing period from February to July and will be available for apple/ kinnu
storage in December & January. It is also proposed that owner should maintain a
stock of 7,200 bags of potato (15% of total capacity and keep on increasing the
capacity by 5% uptil 30%) of his own that will earn extra profits in peak season and
remaining 85% capacity will be utilized on rental basis.

3. 9 Project Investment
The proposed project of potato cold storage needs a capital investment of about Rs.
75,214,920, which includes Building (civil work), machinery, Insulation of
Expanded Polystyrene (EPS or Thermopore) with Plaster layer, Racking and pre-
operational expenses of Rs. 2,908,000. Rs. 7,136,000 would be required as working
capital and cash requirement for purchase of 7,200 potato bags. The total project cost
amounts to Rs. 82,350,920.

3. 10 Proposed Product Mix


In the proposed cold storage there would be a capacity to store 60,000 bags of potato
from February to July and 180,000 apple/kinnu crates would be stored in December
& January.

3. 11 Recommended Project Parameters


Capacity Human Resource Technology/ machinery
60,000 potato bags /
180,000 apple/ kinnu 10 Ammonia Gas Cold Store
crates
Project cost IRR NPV Pay back period
Rs. 82,350,920 26.49% 54,529,922 4.69

3. 12 Key Success Factors/ Practical Tips for Success


Following are some of the major factors, which contribute towards the success of the
potato cold storage.
 Better insulation technology and compartmentalization of cold storage as
compared to the rest of the cold storages in Pakistan.
 Energy efficient construction hence low operating/fuel costs due to efficient
insulation.
 Compartmentalization i.e. compartments has the provision of storing different
commodities at their respective temperatures.

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Pre feasibility Study Cold Storage (Fruit & Vegetable)

3. 13 Strategic Recommendations
 It is recommended to develop a chain of dealers who put potato bags and
apple/ kinnu crates on regular basis. The dealer deposits a guarantee in the
shape of cash security, keeping in view the number of bags/ crates taken out
from cold storage on agreed terms. In case the dealer is unable to pick the
agreed number of bags/ crates on a particular day, the amount is deducted
from his security.
 For earning higher profits it is recommended to the seller that he should send
fruit & vegetable to Karachi, Lahore & Islamabad for sale.

4 CRUCIAL FACTORS & STEPS IN DECISION MAKING FOR


INVESTMENT

4. 1 SWOT Analysis
A SWOT Analysis is a strategic planning tool used to evaluate the Strengths,
Weaknesses, Opportunities, and Threats involved in a project or business venture.
Strengths and weaknesses are internal to the company whereas the opportunities and
threats originate from the external environment. A SWOT analysis is usually
performed early in the project development process, and helps organizations
evaluate the environmental factors and internal situation facing a project.

4.1.1 Strengths and Opportunities


 Fairly good price.
 Use of machinary that is durable and fesible.
 Low operational cost because of energy efficient construction.
 Compartmentalization provide opportunity to store diferent commodities at
their respective temperatures.
 Extend product range.
 By using effective marketing strategies cold storage business can attract more
growers and traders.
 The establishment of wholesale market and cold storage facilities would
enhance the pace and volumes of business by providing market place for
commercial transactions for the domestic and international trade.
 Sufficient quality control and reduction of waste will directly enhance
availability of the produce. Further, the cold storage facilities would result in
supplies during off-season which otherwise may not be possible.
 Timely placement of products in the cold storage will help preserve their
quality and improve shelf life. It will also avoid food contamination caused
by microbial activity thus assuring availability of quality food products.

4.1.2 Weaknesses and Threats


 Irregular government policies e.g., abnormal tax increase.
 Fluctuation or unexpected increase in electricity tariff.
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Pre feasibility Study Cold Storage (Fruit & Vegetable)

 Failure of potato crops due to natural calamity.


 Ruthless competition by other business adversaries.

5 SECTOR & INDUSTRIAL ANALYSIS

5. 1 Global Perspective
Worldwide average food grain losses have been put at 5 percent. In the developed
countries, losses have been generally at 1 percent while 10 to 30 percent losses have
been reported for developing countries5. Increase need for potato cold storages is
because of increase in the demand of potatoes through out the world. It is caused by
following factors:
 Increase in purchasing power
 Increase in population.
 Mishandling and wastage of fruits & vegetables.

The world potato sector is undergoing major changes. Until the early 1990s, most
potatoes were grown and consumed in Europe, North America and countries of the
former Soviet Union. Since then, there has been a dramatic increase in potato
production and demand in Asia, Africa and Latin America, where output rose from
less than 30 million tonnes in the early 1960s to more than 165 million tonnes in
2007. FAO data show that in 2005, for the first time, the developing world's potato
production exceeded that of the developed world. China is now the biggest potato
producer, and almost a third of all potatoes is harvested in China and India.

Table 5-1: World potato production 1999-20076


1999 2001 2003 2005 2007
Countries Million tonnes
Developed 165.93 166.93 160.97 159.97 159.89
Developing 135.15 145.92 152.11 160.01 165.41
World 301.08 312.85 313.08 319.98 325.30

Table 5-2: Top potato producers, 20077


QUANTITIES (Tonnes)
China 72,040,000
Russian fed. 36,784,200
India 26,280,000
United state 20,373,267

5
Trade Development Authority of Pakistan
6
FAOSTAT
7
FAOSTAT
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Pre feasibility Study Cold Storage (Fruit & Vegetable)

Ukraine 19,102,300
Poland 11,791,072
Germany 11,643,769
Belarus 8,743,976
Netherlands 7,200,000
France 6,271,000

Table 5-3: Potato production by region, 20078


Harvested area Quantity Yeild
hecters tonnes Tonnes/hecters
Africa 1,541,498 16,706,573 10.8
Asia / Oceania 8,732,961 137,343,664 15.7
Europe 7,473,628 130,223,960 17.4
Latin America 963,766 15,682,943 16.3
North America 615,878 25,345,305 41.2
World 19,327,731 325,382,445 16.8
Asia and Europe are the world's major potato producing regions, accounting for
more than 80 percent of world production in 2007. While harvests in Africa and
Latin America were far smaller, production was at or near record levels. North
America was the clear leader in yields, at more than 40 tonnes per hectare.

Table 5-4: Potato consumption by region, 20059


Population Consumption
Total food (t) Kg per capita
Africa 904,388,000 12,571,000 13.9
Asia / Oceania 3,934,644,000 94,038,000 23.9
Europe 739,203,000 64,902,000 87.8
Latin America 562,270,000 11,639,000 20.7
North America 330,400,000 19,824,000 60.0
World 6,484,792,000 282,974,000 31.3
Asia consumes almost half of the world's potato supply, but its huge population
means that consumption per person was a modest 24 kg in 2005. The heartiest potato
eaters are Europeans. Per capita consumption is lowest, but increasing, in Africa and
Latin America.
Asia and Oceania includes the world's potato giant, China, which accounts for more
than 20 percent of both the global potato-growing area and the world potato harvest.
Several other Asian countries - Bangladesh, India, the Islamic Republic of Iran,
Japan and Turkey - also figure in the world's top 20 potato producing countries.

8
FAOSTAT
9
FAOSTAT
11
Pre feasibility Study Cold Storage (Fruit & Vegetable)

Some of the world's best yields are recorded in New Zealand - on average, around 50
tonnes per hectare. Total harvested area is 8 732 961 ha, total quantity produced is
137 343 664 t, yield 15.7 t/ha.

Table 5-5: Asia’s top potato producers10


Sr.no. Countries
1. China
2. India
3. Islamic Rep. of Iran
4. Bangladesh
5. Turkey
6. Japan
7. Pakistan
8. Kazakhistan
9. Nepal
10. Korea DPR

5. 2 Local prespective

Although potato was grown on the Indian subcontinent from the late 16th or early
17th centuries, at Pakistan's foundation in 1947 cultivation was restricted to a few
thousand hectares and total annual output was less than 30,000 tonnes.

In the decades since independence, the aalu has become the country's fastest
growing staple food crop. Thanks to strong gains in cultivated area and average
yields - both made possible mainly by irrigation - output rose between 1995 and
2007 from one million to a record of more than 2.6 million tonnes. The lion's share
of potato production comes from the Punjab, where spring and autumn crops account
for 85 percent of the national harvest.
Apart from some subsistence growers in the north, most Pakistani farmers produce
for urban markets rather than household consumption, and the potato has become a
significant source of rural income (worth some $300 million in 2005). At present,
annual intake is around 11 kg per capita.
In year 2007, Pakistan total harvested area is 131,900 ha, quantity produced is 2,622
300 t, yeild is 19.9 t/ha11. Approximately 12 percent of the 13.67 million tons of
annual production of fruits and vegetables in the country is lost due to primitive and
poor techniques of handling between farms and the end-consumers In Pakistan, out
of 13.674 million tones of fruits and vegetables produced annually, it is estimated
that about 35 to 40 percent are wasted. This wastage creates the demand for proper
handling through cold storages12.

10
FAOSTAT
11
FAOSTAT
12
Trade Development Authority of Pakistan
12
Pre feasibility Study Cold Storage (Fruit & Vegetable)

There are total 533 cold storages in Pakistan which have installed capacity of
892,000 tons13 out of which 104 units of cold storage/ ice factory having installed
capacity of 1,905,907 bags/ crates, 25,208 blocks/ day are in proposed location
Okara.14

Table 5-6: cold storages in different provinces of Pakistan15


Provinces No. of cold storages
Punjab 503
NWFP 16
Sindh 12
Balochistan 2
Total 533

6 MARKET INFORMATION

6. 1 Market potential
Most of the existing local Cold Storage’s are constructed on locally developed
methods, which maintain a uniform temperature for all commodities stored. The
goods are not stored at their recommended relative storage temperatures and life, and
because of this the quality of stored commodity is badly affected. Potatoes require
specialized post harvest treatment, appropriate temperature and relative humidity
control for their proper & optimum storage, which most of the existing local cold
stores lack.

6. 2 Target customer
Following are the potential customers of cold storage:
 Growers
 Traders

Table 6-1: Major players of Lahore & surroundings16


Name Address
Iqra cold storage Chun Group of Industries,Crol
Ghaati,Bund Road,Lahore
Kisan cold storage Plot No.07,Phalia Road , Mandi
Bahauddin
Malik combine cold storage (Pvt) ltd. Near Mehmood Booti Chungi, Bund road,
Lahore

13
Dr. Khalid, Chairman of marketing & agri business, University of agriculture, FSD
14
pre- investment study on Okara district 2006, directorate of industries Punjab, Lahore
15
Pakistan horticulture development & export beaurue
16
www.jamals.com , www.lcci.com.pk
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Pre feasibility Study Cold Storage (Fruit & Vegetable)

Rafiq cold storage Fareed town, Sahiwal


Saudagar thermopole industries 49-A, Palace market,3-Cooper road,
Lahore
Roshan Rameeez cold storage New fruit market, link Ravi road, Lahore
Bao Mohammad Rafique cold storage Bogiwal road, Karool Ghati, near Bano
road, Lahore
The premier cold storage & general 213-RB,Susan Road, Faisalabad
mills limited
Zamindar cold storage Pasrur road, daska
Sarwar cold storage 8 Depalpur road, Bahadur pura, Kasur
Tahir ice & cold storage Pvt Ltd. Badami bagh, Lahore
Haq cold storage (Pvt) ltd. 7-G, Fruit market, Ravi road, Lahore

Table 6-2: Major suppliers of machinery17


Name of Suppliers Contact Person Address of Suppliers
Gardee trust building,
Pakistan Air Conditioning M. Younas Qureshi Naiper road, Lahore
Engineering Co. (Pvt) ltd. (chief executive) Factory: Bund road, Lahore
Tel:7226261-7358497
Dastgir engineering Mr. Taqi Raza 12-A, Lahore road, near
company Jamia Manzoor ul Islamia,
Saddar, Cantt, Lahore
Tel: 6665140, 6665202

7 COLD STORAGE TYPES AND INFRASTRUCTURE


There are two types of cold storages being used in Pakistan

1. Traditional type cold storage (Insulated brick walls)


2. Pre-fabricated cold storage (Walk in type)

7. 1 Traditional Type Cold Storage


This type of cold storage is being used in many areas of Pakistan. The construction
include following components:

 Civil work
Two types of building may be constructed depending on the external
environmental temperature and product type. It might be double wall having
4-6 inch gap between two walls or single wall having 9 inch thickness.

17
www.jamals.com , www.lcci.com.pk
14
Pre feasibility Study Cold Storage (Fruit & Vegetable)

 Insulation
The insulating material that is traditionally used is Expanded Poly-Styrene
(Thermopore) having a thickness of 4-6 inches. A recent development in
insulating material is Poly-Urethane. The later is 4-6 times efficient than the
former.

 Refrigeration system
Two types of refrigeration systems are used depending on product type and
cold storage area.

a. Ammonia Based System


This type of system is manufactured locally. After sale services and spare
parts are readily available. This also contributes low capital investment.
No need of highly skilled operators.

b. Freeon Based System


This system normally utilizes imported compressors. High initial cost and
require highly skilled operator for smooth operation.

 Racking
This includes combination of steel racks and wood logs etc. for storing of
potato or any other products.

7. 2 Pre-Fabricated Cold Storage


This type of cold storage is being used for delicate products that are mainly focused
for export purposes. Polyurethane injected panels are manufactured at factory and
are fixed together at project site using panel locking system. This type of clod
storage requires less civil work (only roof for low heights). The initial cost is higher
than the traditional cold storage (more than double). This cold storage provides
better hygienic environment for delicate food products and have easy future
expansion feature. The cold storage building consists of Pre-fabricated refrigerated
(Walk-in type) structure. This type of structure is highly superior to any form of
refrigerated storage construction previously available in Pakistan due to its better
technology and energy efficiency. Polyurethane insulated panels are used to erect the
building because these panels are metal clad and can be easily dismantled for
relocating the cold storage site. The cold storage building has a roof of insulated
corrugated sheet of galvanized mild steel to protect it from direct sun and rain. The
floor has a surface of polyurethane insulated galvanized steel material. The floor is
strong enough to withstand the distributed load. An automatic monitoring system is
installed in the storage compartments for maintaining relative humidity and
temperature and to eliminate any chances of human error during the refrigeration
period.

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Pre feasibility Study Cold Storage (Fruit & Vegetable)

8 PRODUCT PROCESS FLOW


The working of the Cold Storage will be as follows:

Potato Bags received Receiving/


from the customer Conditioning
Chamber

Commodities placed
in storage
compartments

Commodities Distribution/
Transported Conditioning Chamber

9 HUMAN RESOURCE REQUIREMENTS


The project would require following Human Resources/Staff:

Table 9-1: Human Resource Requirement


Designation No. of Monthly Annual Salary
Employees Salary (Rs.) (Rs.)
Store Manager 1 35,000 420,000
Shift In charge 1 20,000 240,000
Plant Operator 3 12,000 432,000
Accountant 1 18,000 216,000
Security Guards 2 8,000 192,000
Sweepers 2 7,000 168,000
Total 10 1,668,000

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Pre feasibility Study Cold Storage (Fruit & Vegetable)

10 MACHINERY/EQUIPMENT DETAILS
The type of equipment needed for the cold storage is as under:

Table 10-1: Machinery & Equipment Required

1. Machinery (Ammonia Option 1 Option 2


Refrigeration System)
Origin PAECO (Local) Grasso (Holland)
Power 200 HP 200 HP
Cost 13,000,000 20,000,000
2. Steel Racks
Steel (tons) 180 180
Rate/ton 70,000 70,000
Cost Rs. 12,600,000 12,600,000
Wooden Ballay 6,500,000 5,100,000
Labor Cost 1,000,000 1,000,000
Sub Total 20,100,000 18,700,000

3. Insulation Option 1 (Thermopore) Option 2 (Polyurethane)


Area (Sq. ft) 61,884 61,884
Insulation Rate 75 300
Cost 4,641,300 18,565,200
Mesh and Plaster rate 50 Not Required
Cost 3,094,200 Not Required
Sub Total 7,735,500 18,565,200

4. Generator 3,000,000 3,000,000


Total Plant & 43,835,500 60,265,200
Machinery

Keeping in view the requirement and project cost option 1 has been selected for
potato cold storage. The further calculations have been done accordingly.

11 L A N D A N D B U I L D I N G

11. 1 Land
It is recommended that the new storage facility site be located as close to the fields
as possible, minimizing handling, preserving product quality and limiting transport
costs. The site for proposed business place could be on Kasur to Depalpur belt.
Approximately 1 Acre of land would be required for this cold storage.

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Pre feasibility Study Cold Storage (Fruit & Vegetable)

11. 2 Infrastructure requirements


The project will have the following infrastructure components:

Table 11-1: Infrastructure Details


Building Area Rs. / Total Cost
Sq.ft. (Rs.)
Cold Storage 19,095 1,200 22,914,000
Parking/Open Area 5,000 200 1,000,000
Other construction (Boundary wall, Sub
station, OH water tank, Generator Room, 1,000,000
WAPDA meter room etc.
Total 24,095 24,914,000
Design & Consultancy Charges @ 3% 747,420
Total Infrastructure Cost 25,661,420

11. 3 Building Layout


The tentative lay out of the proposed building is as follows:

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Pre feasibility Study Cold Storage (Fruit & Vegetable)

12 PROJECT ECONIMICS

12. 1 Project Costs


The cost of the project will be as follows:

Table 12-1: Project Cost


Head Cost (Rs.)
Land 2,650,000
Building 25,661,420
Plant & Machinery 43,835,500
Office Equipment 100,000
Furniture & Fixture 60,000
Pre operational expenses, Utilities Charges, & contingencies 2,908,000
Total Assets 75,214,920
Working Capital
Working capital required for Salaries & other expenses 656,000
Stock & Inventory 6,480,000
Total Project Cost 82,350,920

Table 12-2: Project Returns


IRR % 26.49
NPV 54,529,922
Pay Back Period Yrs 4.69

12. 2 Estimated time frame for project Completion


The estimated time frame for the completion of the project is eight months.

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Pre feasibility Study Cold Storage (Fruit & Vegetable)

13 FINANCIAL ANALYSIS
Table 13-1: Income Statement
PROJECTED INCOME STATEMENT
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
Revenue from Cold Storage Charges 9,792,000 11,151,360 12,414,600 12,745,656 14,020,222 15,422,244 16,964,468 18,660,915 20,527,006 22,579,707
Revenue from Sale of Potatos 12,960,000 20,908,800 31,036,500 40,968,180 45,064,998 49,571,498 54,528,648 59,981,512 65,979,664 72,577,630
Revenue from Apple / Kinnu 11,520,000 13,939,200 16,552,800 18,208,080 20,028,888 22,031,777 24,234,954 26,658,450 29,324,295 32,256,724
Total Sales 34,272,000 45,999,360 60,003,900 71,921,916 79,114,108 87,025,518 95,728,070 105,300,877 115,830,965 127,414,061
Cost of Goods Sold
Cost of Potatos Purchased 6,480,000 9,979,200 14,139,563 17,815,849 18,706,641 19,641,973 20,624,072 21,655,276 22,738,039 23,874,941
Direct Labor 528,000 638,880 758,670 834,537 917,991 1,009,790 1,110,769 1,221,846 1,344,030 1,478,433
Utility Charges-Electricity Cost for 3,378,000 3,715,800 4,080,630 4,453,068 4,862,750 5,313,400 5,809,115 6,354,401 6,954,216 7,614,013
Total 10,386,000 14,333,880 18,978,863 23,103,454 24,487,382 25,965,163 27,543,955 29,231,522 31,036,286 32,967,387
Gross Profit 23,886,000 31,665,480 41,025,038 48,818,462 54,626,726 61,060,356 68,184,115 76,069,355 84,794,679 94,446,674
Operating Expenses
Payroll Administration 1,668,000 1,834,800 2,018,280 2,220,108 2,442,119 2,686,331 2,954,964 3,250,460 3,575,506 3,933,057
Misc. (Maintenance, Telephone, Stationary300,000
etc.) 330,000 356,250 356,250 356,250 356,250 356,250 356,250 356,250 356,250
Amortization pre Ops. Exp. 581,600 581,600 581,600 581,600 581,600
Promotional Expenses 68,544 51,408 41,126 32,901 26,321 21,057 16,845 13,476 10,781 8,625
Depreciation 6,988,692 6,282,233 5,648,924 5,080,625 4,570,279 4,111,722 3,699,525 3,328,886 2,995,537 2,695,675
Total 9,606,836 9,080,041 8,646,181 8,271,484 7,976,569 7,175,359 7,027,584 6,949,072 6,938,075 6,993,607
Operating Profit 14,279,164 22,585,439 32,378,857 40,546,978 46,650,157 53,884,996 61,156,531 69,120,282 77,856,605 87,453,067
Non Operating Expenses
Financial Charges 7,041,004 5,558,687 4,076,371 2,594,054 1,111,737 - - - - -
Profit before Tax 7,238,160 17,026,752 28,302,486 37,952,925 45,538,419 53,884,996 61,156,531 69,120,282 77,856,605 87,453,067
Tax 1,809,540 4,256,688 7,075,622 9,488,231 11,384,605 13,471,249 15,289,133 17,280,071 19,464,151 21,863,267
Profit after Tax 5,428,620 12,770,064 21,226,865 28,464,693 34,153,815 40,413,747 45,867,398 51,840,212 58,392,453 65,589,800

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Pre feasibility Study Cold Storage (Fruit & Vegetable)

Table 13-2: Balance Sheet


Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
Current Assets
Cash Balance - 4,530,220 15,930,515 35,247,110 61,213,717 91,836,496 135,882,371 184,935,400 239,553,558 300,350,577 369,562,668
Working capital required for Salaries & other expenses
656,000 721,600 791,510 858,786 932,790 1,014,194 1,103,738 1,202,237 1,310,585 1,429,769 -
Stock & Inventory 6,480,000 6,804,000 7,144,200 7,501,410 7,876,481 8,270,305 8,683,820 9,118,011 9,573,911 10,052,607 10,555,237
Receivable - 816,000 929,280 1,034,550 1,062,138 1,168,352 1,285,187 1,413,706 1,555,076 1,710,584 1,881,642
Total 7,136,000 12,871,820 24,795,505 44,641,856 71,085,125 102,289,346 146,955,115 196,669,353 251,993,131 313,543,537 381,999,548
Gross Fixed Assets
Net Fixed Assets 72,306,920 65,318,228 59,035,995 53,387,071 48,306,446 43,736,167 39,624,445 35,924,920 32,596,034 29,600,497 26,904,821
Intangible Assets
Pre-operational Expenses 2,908,000 2,326,400 1,744,800 1,163,200 581,600 -
Total 2,908,000 2,326,400 1,744,800 1,163,200 581,600 - - - - - -
Total Assets 82,350,920 80,516,448 85,576,300 99,192,127 119,973,172 146,025,513 186,579,560 232,594,273 284,589,165 343,144,033 408,904,369
long term loan 41,175,460 24,705,276 16,470,184 8,235,092 -
Current Liabilities
current portion of long term liability - 8,235,092 8,235,092 8,235,092 8,235,092 - - - - - -
Accounts Payable - 972,000 1,496,880 2,120,934 2,672,377 2,805,996 2,946,296 3,093,611 3,248,291 3,410,706 3,581,241
Total 41,175,460 33,912,368 26,202,156 18,591,118 10,907,469 2,805,996 2,946,296 3,093,611 3,248,291 3,410,706 3,581,241
Equity
Paid -up Capital 41,175,460 41,175,460 41,175,460 41,175,460 41,175,460 41,175,460 41,175,460 41,175,460 41,175,460 41,175,460 41,175,460
Retained Earnings - 5,428,620 18,198,684 39,425,549 67,890,242 102,044,057 142,457,804 188,325,202 240,165,414 298,557,867 364,147,668
Total 41,175,460 46,604,080 59,374,144 80,601,009 109,065,702 143,219,517 183,633,264 229,500,662 281,340,874 339,733,327 405,323,128
Total Liabilities And Equity 82,350,920 80,516,448 85,576,300 99,192,127 119,973,172 146,025,513 186,579,560 232,594,273 284,589,165 343,144,033 408,904,369

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Pre feasibility Study Cold Storage (Fruit & Vegetable)

Table 13-3: Cash Flow Statement


Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
Operating Activities
Profit before tax - 7,238,160 17,026,752 28,302,486 37,952,925 45,538,419 53,884,996 61,156,531 69,120,282 77,856,605 87,453,067
Amortization of Preoperational Expenses (2,908,000) 581,600 581,600 581,600 581,600 581,600 - - - - -
Working capital required for Salaries & other expenses (656,000) (65,600) (69,910) (67,276) (74,004) (81,404) (89,544) (98,499) (108,349) (119,184) 1,429,769
Depreciation - 6,988,692 6,282,233 5,648,924 5,080,625 4,570,279 4,111,722 3,699,525 3,328,886 2,995,537 2,695,675
Stock & Inventory (6,480,000) (324,000) (340,200) (357,210) (375,071) (393,824) (413,515) (434,191) (455,901) (478,696) (502,630)
Account Receivable - (816,000) (113,280) (105,270) (27,588) (106,214) (116,835) (128,519) (141,371) (155,508) (171,058)
Account Payable - 972,000 524,880 624,054 551,443 133,619 140,300 147,315 154,681 162,415 170,535
Income tax paid - (1,809,540) (4,256,688) (7,075,622) (9,488,231) (11,384,605) (13,471,249) (15,289,133) (17,280,071) (19,464,151) (21,863,267)
Cash provided by operations (10,044,000) 12,765,312 19,635,387 27,551,687 34,201,699 38,857,871 44,045,874 49,053,029 54,618,159 60,797,019 69,212,091
Financing Activities
Share capital 41,175,460 - - - - - - - - - -
Long term Loans 41,175,460 (8,235,092) (8,235,092) (8,235,092) (8,235,092) (8,235,092) - - - - -
Cash Provided/Used for Financing Activities 82,350,920 (8,235,092) (8,235,092) (8,235,092) (8,235,092) (8,235,092) - - - - -
Investing Activities
Capital Expenditure (72,306,920) - - - - - - - - - -
Cash Used Provided by Investing Activities (72,306,920) - - - - - - - - - -
Net Cash inflow/(outflow) - 4,530,220 11,400,295 19,316,595 25,966,607 30,622,779 44,045,874 49,053,029 54,618,159 60,797,019 69,212,091

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Pre feasibility Study Cold Storage (Fruit & Vegetable)

14 KEY ASSUMPTIONS

14. 1 Capacity
Store's Capacity Bags 60,000
Capacity available on rental basis Bags 40,800
Stock of own purchased potatoes Bags 7,200
First Year Capacity for Potatoes (Rental) % age 85.00%
Percentage of own Potato Bags % age 15.00%
Annual Growth rate % age 10.00%
Maximum Capacity % age 95.00%

14. 2 Operational Capacity


Year-1 Year-2 Year-3 Year-4 Year-5 Year-6 Year-7 Year-8 Year-9 Year-10
Operational 80% 88% 95% 95% 95% 95% 95% 95% 95% 95%
Capacity (% age)
Charges/Bag 240 264 290 319 351 386 425 467 514 565
Operational 40,800 42,240 42,750 39,900 39,900 39,900 39,900 39,900 39,900 39,900
Capacity (Rental
Bags)
Operational 7,200 10,560 14,250 17,100 17,100 17,100 17,100 17,100 17,100 17,100
Capacity (Owned
Bags)
Operational
Capacity (Crates) 144,000 158,400 171,000 171,000 171,000 171,000 171,000 171,000 171,000 171,000

14. 3 Revenue Relates Assumption


Service Charges Per Bag Rs. 240
Sale Price Growth Rate 10%
Sale Price of own Bag (120 kg) Rs.1,800

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