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COLD STORAGE
February, 2009
Pre feasibility Study Cold Storage (Fruit & Vegetable)
TABLE OF CONTENT
10 MACHINERY/EQUIPMENT DETAILS..................................................17
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.
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 40F or below but
develops rapidly at 68F.
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 40F 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 65F 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. 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. 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.
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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. 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.
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.
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
8
FAOSTAT
9
FAOSTAT
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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.
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
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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
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
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)
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
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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.
Racking
This includes combination of steel racks and wood logs etc. for storing of
potato or any other products.
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Pre feasibility Study Cold Storage (Fruit & Vegetable)
Commodities placed
in storage
compartments
Commodities Distribution/
Transported Conditioning Chamber
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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:
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)
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Pre feasibility Study Cold Storage (Fruit & Vegetable)
12 PROJECT ECONIMICS
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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)
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Pre feasibility Study Cold Storage (Fruit & Vegetable)
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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%
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