33.

CATTLE FEED MANUFACTURING PLANT

33-2 TABLE OF CONTENTS

PAGE

I.

SUMMARY

33-3

II.

PRODUCT DESCRIPTION & APPLICATION

33-3

III.

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

33-3 33-3 33-6

IV.

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

33-6 33-6 33-7

V.

TECHNOLOGY & ENGINEERING A. TECHNOLOGY B. ENGINEERING

33-8 33-8 33-9

VI.

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

33-11 33-11 33-12

VII.

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

33-12 33-12 33-13 33-14 33-15

33-3 I. SUMMARY

This profile envisages the establishment of a plant for the production of cattle feed with a capacity of 15,000 tonnes per annum.

The present demand for the proposed product is estimated at 644,696 tonnes per annum. The demand is expected to reach at 1.55 million tonnes by the year 2020.

The plant will create employment opportunities for 33 persons.

The total investment requirement is estimated at Birr 12.77 million, out of which Birr 7 million is required for plant and machinery.

The project is financially viable with an internal rate of return (IRR) of 32% and a net present value (NPV) of Birr 15.12 million discounted at 8.5%.

II.

PRODUCT DESCRIPTION AND APPLICATION

Cattle feed is a kind of feed for oxen, cows, sheep, and goat reared for their milk and meat. It contains protein, minerals and other nutrients which are useful for beef and milk production and survival of the animals. Cattle feed can be prepared from oil cakes, agro-residues, flour mill by-products, cereals, molasses, etc. The major cattle feed consumers are large and small scale cattle raising and fattening farms.

III.

MARKET STUDY AND PLANT CAPACITY

A.

MARKET STUDY

1.

Past Supply and Present Demand

According to the resource potential assessment study of SNNPRS, natural grazing land is the main source of feed in the region which supply crude proteins and metabolize energy for maintenance and production requirement of ruminates. However, most of the forage resources

33-4 are not consumable as the dry period advanced due to increase in lignin in the cell wall. As a result livestock reducing their body weight and condition and exposed to economically important diseases in most part of the year.

Although the amount and quality of feed resources is the determining factor for the condition and productivity of animals, the use of improved feed is virtually negligible in the region. Hence, the production of livestock products such as milk, meat and other livestock products has remained very low.

Currently, there are few animal feed processing plants in the country which are concentrated around Addis Ababa. The average annual local production of animal feed during the period 2000 2005 is about 5,000 tonnes. Since transporting animal feed to far places is not

economical, the demand estimate is worked out based on the existing livestock population of the region.

According to the SNNPRS Basic Socio-Economic and Demographic Information (1997 EC), there are 8831.45 thousand cattle in the region. According to the information gathered with respect to animal feed, the recommended average consumption is 2 kg/head a day. As per the recommended average consumption, the total amount of animal feed required for the region's cattle population is 6.45 million tonnes ( 2 kg/head day X 8.83 million total cattle X 365 day/years).

Considering conditional limiting factor such as product adaptability and awareness and income of farmers and the like only 10% of the cattle population are assumed to be fed with industrially processed cattle feed initially. Accordingly, the current demand for cattle feed in the region is estimated at 644,696 tonnes.

2.

Projected Demand

The demand for improved cattle feed is influenced by the size of the livestock population, awareness of farmers towards the importance of the product and establishment of modern commercial livestock farms in the Administration. As these conditions are believed to be

33-5 improved in the future, a growth rate of 7% is considered in projecting the demand for animal feed. Table 3.1 depicts the projected demand of cattle feed for SNNPRS up to the years 2020.

Table 3.1 PROJECTED DEMAND FOR CATTLE FEED IN SNNPRS

Year 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Demand (Tonnes) 689,825 738,112 789,780 845,065 904,219 967,515 1,035,241 1,107,707 1,185,247 1,268,214 1,356,989 1,451,979 1,553,617

3.

Pricing and Distribution

The price of processed animal feed depends up on the availability and value of raw materials. In this profile, the ex-factory price of animal feed to be produced by the project under consideration is estimated to be Birr 1500/tonne.

The plant can either sell its product directly to end users (for clients around the location of the plant) or appoint commission agents at strategic locations.

33-6

B.

PLANT CAPACITY AND PRODUCTION PROGRAMME

1.

Plant Capacity

In this study, a plant with annual capacity of 15,000 tonnes is envisaged considering the market study and minimum economies of scale. The plant will operate a single shift of 8 hours a day, and 300 days a year.

2.

Production Programme

The plant will start operation at 85% of its rated capacity in the first year. It will then build up its production capacity to 95% and 100% in the second and third year, respectively.

The low production level at the initial stage is to develop substantial market outlets for the product. Machinery operators will also get enough time to develop the required skills and

experience.

IV.

MATERIALS AND INPUTS

A.

RAW & AUXILARY MATERIALS

The annual requirement for raw materials and their costs are indicated in Table 4.1. Accordingly, the basic raw materials are: oil cake, molasses, and bone meal, bran of cereals, maize, salt and limestone. The total annual cost of raw material is estimated at Birr 16,604.64 thousand.

33-7 Table 4.1 THE ANNUAL REQUIREMENT OF RAW MATERIAL AND THEIR RESPECTIVE COSTS

Sr. No. 1. 2. 3. 4. 5. 6. 7. 8. Oil cake

Description

Qty (Tonnes) 3,450 3,705 750 6,000 21 24 450 600

Unit Price 1050 1050 51 1200 1000 110 3800 200

Total Cost ('000 Birr) 3,622.5 3,890.25 38.25 7,200 21 2.64 1,710 120 16,604.64

Bran of cereals Molasses Maize Salt Limestone (ground) Other grains (wheat, barely, etc) Meal (bone or flesh or blood) Grand Total

Note: The cost for packing material (sack) is excluded from the annual cost of raw material with the assumption that customers will bring their own packing materials or they will pay for it, if they do not have.

B.

UTILITIES

Utilities required by the plant consist of electricity, water and fuel oil. Electricity is required to run the production machinery and to provide lighting for the plant. Water is required for general purposes and for supplying to the boiler, where hot water is produced to be supplied to the molasses tank. Fuel oil is required for boiler. The annual requirement and costs of these utilities are shown in Table 4.2. The total cost of utilities is estimated at 538.62.

33-8 Table 4.2 UTILITIES REQUIREMENT AND COST (AT FULL CAPACITY)

Sr. No. 1 2 3

Item

Annual Requirement

Unit cost

Cost ('000 Birr)

Electricity Water Fuel oil Total

450,000 kWh 10,000 m3 50,000 lt.

0.4736 5.5 5.41

213.12 55 270.5 538.62

V.

TECHNOLOGY AND ENGINEERING

A.

TECHNOLOGY

1.

Production Process

The major operations involved in the production of animal feed are: raw materials preparation, primary crushing, assorting and measuring, molasses mixing, fine crushing, pellet making, and packaging.

Raw and auxiliary materials are first charged into silos and tanks where they are made ready for further processing. They are then processed by primary crusher. Crushed materials are further separated by means of a sifter, and then stored in the assorting tanks according to the kind of raw materials.

In assorting and measuring operation, small amounts of additives are charged into the bins containing different assortments of raw materials. The raw materials stored in the assorting

tanks are measured in accordance with the desired proportion.

The raw materials are then mixed by means of a mixer. In this process, fatty ingredients are added to the materials in order to raise the nutritional value of the feed. The feed obtained from the mixer is blended with molasses.

33-9

After the feed is blended with molasses, it is further crushed by means of the second crusher. Sometimes, second crushing is undesirable and can be avoided.

Assorted animal feed that is crushed into fine particles is further formed into pellets. The pellets, which are cylindrical type and size, 6mm in diameter and 2cm in length, are then dried. The product is next stored in the product tanks, then weighed and packaged in jute bag.

2.

Source of Technology

The following company could supply the required machinery and technology.

Sunita impex Pvt. Ltd. 36A Bentinck street, 1st floor, Kolkata 700069, India, ph: 2248 1986/87, 2243 0102 Fax: 91-33-2248 3664 E-mail: Kolkata: admin@sunitaimpex.com, sutimpex@cal2.vsnl.net.in

B.

ENGINEERING

1.

Machinery and equipment

Machinery and equipment required by the plant, including the auxiliary equipment are given in Table 5.1. The total cost of plant machinery and equipment is estimated at Birr 7.0 million, of which Birr 5.6 million is required in foreign currency.

33-10 Table 5.1 MACHINERY AND EQUIPMENT REQUIRED BY CATTLE FEED PRODUCING PLANT Sr. No. 1 2 3 4 5 6 7 8 9 10 11 12 2. Tank and silos for raw and auxiliary materials storage Metal screen and shaker Hammer Mill (crusher) Blender Weighing scale (5 tons) Bagging machine Dust collector Product tank Pellet producing machine Tanks for oil cakes and molasses Boiler Other accessories 1 1 1 1 1 1 1 1 1 1 1 1 Description Qty.

Land, Building and Civil Works

The total land area of the plant including the open space for future expansion is 1,000 m2. The built-up area required by the plant is estimated at 600 m2. The total cost of civil works and construction at the rate of Birr 2300 per m2 is estimated at Birr 1, 380, 000. The total cost of land lease on the basis of lease value of Birr 0.1 per m2 for a period of 80 years is estimated at Birr 8,000. The total cost of land, building and civil works is estimated at Birr 1.388 million. 3. Proposed Location

The plant is best located where there is a conducive environment for commercial animal rearing and inputs for the plant are available in the near vicinity. Considering the above mentioned factors, Omosheleko woreda, Mudula town is proposed to be an ideal location for the envisaged plant.

33-11 VI. MANPOWER AND TRAINING REQUIREMENTS

A.

MANPOWER REQUIREMENT

The manpower requirement of the plant will be 33 persons, out of which 18 will be engaged in production activities and the remaining 19 will be involved in administrative activities. Table 6.1 shows the details of manpower requirement of the plant and estimated annual labour cost including fringe benefits. The total annual cost of manpower is estimated at Birr 273,600. Table 6.1 ANNUAL MANPOWER REQUIREMENT AND ESTIMATED LABOUR COST Sr. No. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 Description Plant Manager Secretary Accountant Personnel officer Salesperson/purchaser Cashier Clerks General Service officer Store keeper Production supervisor Maintenance Engineer. Technician operators Laborers Cleaner Driver Guard Sub-total Benefit (20% BS) Total Cost No. of Persons 1 1 1 1 1 1 2 1 2 1 1 6 6 2 2 4 33 Monthly Salary, Birr 2,500 700 700 1200 1200 500 1000 1200 1,000 1200 1200 3,600 1,800 300 900 1,200 20200 Annual Salary, Birr 30,000 8,400 8,400 14,400 14,400 6,000 12,000 14,400 12,000 14,400 14,400 43,200 21,600 3,600 10,800 14,400 242,400 48,600 290,880

33-12

B.

TRAINING REQUIREMENT

On-site short-term training for about two weeks by the machinery supplier is required for the production supervisor, operators and maintenance engineer on operation and maintenance of machinery and equipment. The cost of such training is estimated to be Birr 15,000.

VII.

FINANCIAL ANALYSIS

The financial analysis of the cattle feed project is based on the data presented in the previous chapters and the following assumptions:-

Construction period Source of finance

1 year 30 % equity 70 % loan

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

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

A.

TOTAL INITIAL INVESTMENT COST

The total investment cost of the project including working capital is estimated at Birr 12.77 million, of which 14 per cent will be required in foreign currency.

The major breakdown of the total initial investment cost is shown in Table 7.1.

33-13

Table 7.1 INITIAL INVESTMENT COST

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

Total Cost (000 Birr) 8.0 1,380.0 7,000.0 75.0 450.0 666.2 3,189.3 12,768.5 14

* N.B Pre-production expenditure includes interest during construction ( Birr 516.21 thousand ) training (Birr 15 thousand ) and Birr 135 thousand costs of registration, licensing and formation of the company including legal fees, commissioning expenses, etc.

B.

PRODUCTION COST

The annual production cost at full operation capacity is estimated at Birr 18.87 million (see Table 7.2). The material and utility cost accounts for 90.87 per cent, while repair and

maintenance take 0.93 per cent of the production cost.

33-14 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 16,604.64 538.62 175 174.53 0 116.35 17,609.14 896.9 360.17 18,866.21 % 88.01 2.85 0.93 0.93 0.00 0.62 93.34 4.75 1.91 100

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.

2.

Break-even Analysis

The break-even point of the project including cost of finance when it starts to operate at full capacity ( year 3) is estimated by using income statement projection.

BE =

Fixed Cost Sales Variable Cost

= 60 %

33-15

3.

Pay Back Period

The investment cost and income statement projection are used to project the pay-back period. The projects initial investment will be fully recovered within 4 years.

4.

Internal Rate of Return and Net Present Value

Based on the cash flow statement, the calculated IRR of the project is 32 % and the net present value at 8.5% discount rate is Birr 15.12 million.

D.

ECONOMIC BENEFITS

The project can create employment for 33 persons.

In addition to supply of the domestic

needs, the project will generate Birr 8.11 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.