COMMUNITY BASED LIVELIHOODS RECOVERY PROGRAM (CBLRP) FOR EARTHQUAKE AFFECTED AREAS OF AZAD JAMMU AND KASHMIR AND

NWFP

CBLRP-UNIDO

INVESTMENT OPPORTUNITY PROFILE FOR PICKLE PRODUCTION, PROCESSING AND PACKAGING PLANT IN NWFP

SEPTEMBER 2007
SUBMITTED TO AYESHA KHAN CHIEF TECHNICAL ADVISOR Community Based Livelihood Recovery Program (CBLRP) United National industrial Development Organization (UNIDO)

BY Sardar Shahid Farid Chartered Accountant

Disclaimer All material included in this document is based on data/information gathered from various sources and certain assumption. Due care and diligence has been taken to compile this document. The document may contain human, mechanical error or non accuracy of the information at the source. No liability for error, or omission or unintentional misrepresentation will be accepted. We reserve the right to make correction and changes wherever desired in this document or its subsequent versions.

1.

PROJECT EXECUTIVE SUMMARY

1.1

PROJECT BRIEF The proposed project envisages the setup of Pickle production, processing and marketing business in the Manshera. Pickle is a general term used for fruits or vegetables preserved in vinegar or brine, usually with spices or sugar or both. Pickle producing businesses are engaged in producing pickle in different varieties. Natural fruit and vegetable items are used as raw material for producing various types of pickle i.e. apple, beet, cabbage, cauliflower, cucumber, olive, onion, pepper, and tomato. It is planned initially to produce pickles of mango, lemon, carrot and green chili. However after wards more fruits and vegetable varieties will be add to enhance product mix. The main raw materials are fruit/vegetables, treated water, sugar, citric acid, fruit flavors and preservatives which is readily available at very low costs. The unit has a rated capacity of producing 100,000 Kg of pickles in a year, with an estimated capital cost of Rs 1,300,000. The project will employ 8 personnel directly besides creating more job opportunities both on farm and off farm. The project will be completed for final production in 3 months.

1.2

FINANCIAL SUMMARY Sales Gross Profit Margin Net Profit Margin Internal Rate of Return Rs 10 Million 44% 12% 56%

Foreign collaboration sought

Joint Venture Loan Market access Sub contracting Buy back arrangement Equipment purchase Feasibility study Other Specify 25 October 2007

Management expertise Technical expertise Marketing expertise Technology transfer Joint R&D Other :Project description

Studies Available

Date:

2.

PROJECT RATIONALE In the proposed business setup, pickle will be produced in large pots which will then be filled in bottles and after packaging will be sent for sale in the local and remote markets of Pakistan. Dedicated distributors will distribute this product and packing machinery will be used for the packaging purpose. The producer may also explore export opportunities once the business gets stable. Pickles are considered a permanent part of the food table all over the Sub-Continent and its demand is rising after its production on commercial scale. Sub-continental spices, preserved foods and traditional methods of cooking and food making have always been attractive to the world particularly the western countries. Traditionally in Pakistan and India homemade pickles have been used; however, rise in consumerism and urbanization has affected traditional food and cooking habits where people tend to use food products instantly available in the market. This trend is growing which has resulted in investment growth in the value added whole sale and retail sector by more than 400% during 2005-06 as reported by the economic survey of Pakistan. Growth in population (1.9% as per Economic Survey of Pakistan) is another proponent leveraging the potential in this sector for the investment, further aided by the growth in exports by 104% during 2004-05. A huge local market of more than 150+ million consumers carries enormous potential for the investment in this business. In comparison with other businesses, pickles have always been in consistent demand due to typical subcontinent spicy add-on food supplement, making meal incomplete without having some spicy taste. This signals substantial potential of this business and market growth largely depends on population growth and demographics. Ratio of younger people in the population (according to 1998 census 64% belongs to age group of between 15 to 34). Increase in urban life phenomenon; and switching from popular homemade pickles to ready to use foods. Growth in this factor is the key determinant factor for investing in pickle business. For most economical purchases, the vegetables and fruits will be purchased in season when the prices are the lowest. Suppliers of raw material are available There is need to employ latest technology and skilled labor on this project.

3.

MARKET OPPORTUNITY Approximately 32% of population of NWFP and particularly the population of Manshera depends upon agriculture, it is their main source of livelihood. Therefore, availability of raw material will not present any issues. On average total demand of the pickle products in area is around 24,000 kilograms per 3 month. In 2005-2006, around 643,018 kilogram pickle was exported. Main export markets include USA, UK and Middle East Countries. On this estimate, local market of Manshera and adjacent areas have more than 100,000 kg, production but without any local producer. Pickle products are available in the market with different composition and in different sizes. Following table presents different types of pickle introduced by two market leaders of the sector.

The Pakistani Pickle products are famous outside the country and its export doubled, from 476,981 Kg to 973,857 Kg during last year 2004-05, but decreased during the current year [2005-06] from 973,857 Kg to 643,018 Kg. However, this still represents an improvement over the volume achieved in 2003-04, as presented in the table below. The industry has a potential for generating foreign reserve.

4.

BUSINESS PLAN The project will produce pickles of high quality. Modern plant will be installed so as to minimize wastage and get the production in hygienic environment. There is demand in the local market for the pickle, but at a later stage export potential will be availed so as to maximize the profits. Initially the production will be at 80 % which will increase at a steady rate of 10% until 100% capacity is attained which will be maintained.

4.1

Product Sales Based on our discussions with the industry experts, following revenue related assumptions have been made on annualized basis with respect to different quantities of pickle packs, their prices and total revenue expected from each quantity pack.
No of packs (Grams) 330 450 1,000 1,800 5,000 Qty 24,550 24,550 16,367 13,093 8,183 Weight in Kg 8,101 11,047 16,367 23,568 40,917 100,000 Retail Price 40 60 110 180 370 Total Revenue 981,997 1,472,995 1,800,327 2,356,792 3,027,823 9,639,935

4.2

Raw Material Requirements. Pickle production would need different types of vegetables and fruits. Tomato, Bean , Potato ,Spinach, Turnip, Apple , Pear, Apricot ,Plum and Cherry are easily available in the area. For the proposed setup, annual requirement of raw material will be as given on the following page:
Item/Ingredients Chilli Mango Lime Garlic Spices Salt Chilli Saunf Methi Seeds Kalongi Rie Oil Packaging Material Following packaging material will be required for the production purposes: Glass bottles 330 gms 15,000 Glass bottles 450 gms 15,000 Glass bottles 1000 gms 10,000 Glass bottles 1.8 kg 8,000 Plastic buckets 5 kg 5,000 Total Requirement of bottles and buckets 53,000 %age of total 25% 25% 25% 25% Qty. (kg) 10,750 10,750 10,750 10,750 12,300 1,535 1,535 614 614 614 614 12,300

4.3

Product Manufacturing Process There are two basic methods for pickle processing used in Pakistan where local taste is concerned. One is water based process and the other is oil based processing. Pickles available in the Pakistani market are generally based on the water process, whereas, homemade pickles are made using oil. Generic production process is carried out following the method given under.

Pickle processing and packaging does not need any heavy machinery and equipment. During the discussion with existing pickle producers, pickle production is time consuming because its process requires sun-light and machinery is used for packaging of Pickle. Total project cost of the Pickle processing and packaging machinery costs around Rs. 1.7 million. 4.4 PRODUCT MARKETING CHANNELS Promotional activities are the primary source of revenue generation. Pickle processing & packing business is unique in the sense that this is a common item of our daily life. However, it is very important to focus on promotional activities to ensure a constant stream of business. Mostly the business or branded pickle business promote their products by announcing different schemes like by two get one free or giving cutlery items on purchase of their products etc.

4.5

HUMAN RESOURCE REQUIREMENT Pickle processing does not need specialized and skilled labor and generally women can make good pickle. However packaging may need to hire trained labor having experience of operating packaging machinery. The proposed project would need a total of 8 persons in order to handle the processing and packaging operations. The business unit will work on one shift basis (8 hours daily). Technical staff for packaging and distribution purpose would require experience. Manpower requirement for the business operations along with their respective salaries is given in the table below:

4.6 4.6.1

PROJECT FINANCIALS Operational data The plant has a rated capacity of producing 100,000 Kg of pickles per annum. First year 80 % capacity is achieved, in five subsequent years the operations are depicted below.
Year 1 Weight in Kg 6,481 8,838 13,093 18,854 32,733 80,000 Year 2 Weight in Kg 72,913 99,427 147,300 212,111 368,249 900,000 Year 3 Weight in Kg 81,015 110,475 163,666 235,679 409,165 1,000,000 Year 4 Weight in Kg 81,015 110,475 163,666 235,679 409,165 1,000,000 Year 5 Weight in Kg 81,015 110,475 163,666 235,679 409,165 1,000,000

No of packs (Grams) 330 450 1,000 1,800 5,000

4.6.2

Fixed costs The investment in the initial capital cost of the company would be Rs 1,300,000 detailed below.

4.6.3

Working capital The initial working capital of Rs 479,909 is required on the following items. Utilities - Three Months (Office & Factory Electricity/Month Diesel for Vehicles and Machinery Gas / Month Office Rent Telephone/Month Water Salaries - Three Months (Production Staff) Raw Material Inventory - One months Misc. Expenses - Three months (@ 5000 /month) 93,000 10,000 5,000 6,000 25,000 5,000 5,000 111,000 204,909 15,000 479,909

Total Working Capital 423,909

4.6.4

Overhead costs. The overhead cost for the first year is worked out to be Rs 2,425,817 as detailed below.
Admin and Selling Salaries Misc Expenses Rent Expenses Depreciation Maintenance expense Distributor retailers margin Selling and promotional expenses 144,000 60,000 300,000 115,000 15,000 1,679,828 111,989 2,425,817 7