Proposal: Zurmat Flour Mill

A business plan proposal to establish and operate a regional shortflow flour mill in Paktiya Province in Afghanistan.

1. Executive Summary

Zurmat Group of Businesses (“ZGB” or the “Company”) proposes to construct and operate the Zurmat Flour Mill
(“ZFM”), a regional, state-of-the-art shortflow flour mill to be located in either Gardez City or Zurmat in the District of
Paktiya Province. Expected output will be 30MT of vitamin fortified flour per day, expanding to a maximum capacity of
60MT based on projected future increases in planting and harvesting due to higher flour prices and increased
demand generated by the flour mill itself.

The current regional market for flour is largely dominated by imported products. The recent upsurge in food
commodity prices, and the tightening of imported flour from Pakistan, has created a demand for competitively priced,
high-quality domestic flour. As a state-of-the-art regional commercial mill, ZFM will provide locally manufactured,
superior quality and competitively-priced flour that is also vitamin fortified and halal certified. Fortified flour is generally
not available to most of the Afghan population, and as a new source, ZFM will contribute important health benefits to
a significant portion of the general population.

1.1 Objectives

 To construct and operate a regional shortflow flour mill in Paktiya Province in Afghanistan.
 To produce and market high-quality, halal-certified, fortified domestic flour that is superior to imported
products and competitively priced.
 To incentivize farmers in the provinces of Logar, Ghazni, Paktika, Khost and Paktiya to grow wheat rather
than cannabis, by creating consistent demand for regional wheat production.
 To produce and market milling by-products as an attractive animal livestock feed.

2. Company Summary
2.1 Company Ownership
Mr. Zaland Yousaf is the founder of the Zurmat Group of Businesses (ZGB) which has a proven track record of
success in sectors spanning construction, trade, IT and consulting. He is a self-made entrepreneur who landed his
first job through a family connection working on Forward Operating Base (FOB) Gardez in Paktiya Province. That first
job was a US$800 contract from the Provincial Reconstruction Team (PRT) Gardez to paint the Governor’s
Compound. Yousaf was the only employee. Five short years later, Mr. Yousaf’s company, Zurmat Construction
Company (ZCC), now has more than US$60 million in projects, employs 1,400 people and is recognized as one of
the best Afghan general construction sub-contractors in the region.

ZGB recognizes that, while general contracting is a vibrant growth sector in the current Afghan business climate,
increasing demand and commodity prices make agribusiness a highly attractive option for diversification. ZGB is
seeking partners and investors to help realize the economic and social value of a regional shortflow flour mill in
Paktiya province.

2.2 Government Relations

Doing business in Afghanistan requires in-depth knowledge of the local environment and established working
relationships with government officials. Through its diversified businesses developed in the last three years, ZGB has
formed excellent local business and government relationships, including with International Security Assistance Forces
and Provincial Reconstruction Team (PRT) staff and leaders in Paktiya province). ZGB is also exploring the
possibility of tax and duty exemptions or mitigation, justified by the important social benefits from ZFM (which include
greatly increasing the country’s domestic food production and security). While there is no assurance of government
incentives, ZGB’s established presence and credibility will facilitate negotiations with local and national government
agencies to address project needs.

ZGB believes a regional flour mill will not only create economic gains for Afghanistan, but help address a critical food
security gap that plagues Afghanistan. The domestic flour mill market is dominated by Pakistani imports, which are
low cost during surplus years, and prohibitively expensive during shortfalls (as is the case during 2008). See Section
5. Market Summary. As a result, during wheat shortages millions of Afghans face starvation. Increasing domestic
production capacity is therefore vital to addressing one of Afghanistan’s most pressing food security vulnerabilities.
The Government of Afghanistan (GoA) recognizes this reality, and ZFM plans to seek GoA support once suitable
private sector partners are engaged.

ZFM will further assist job-creation by stimulating additional wheat production. Many of the country’s poor have
access to arable land fit for wheat production, but do not exploit these opportunities due to the absence of reliable
purchasers for their crops. ZFM will be a consistent and reliable purchaser of wheat, and will pay producers
competitive market prices, thereby incentivizing more growers to produce wheat. Local and regional growers are
expected to have the greatest incentives since they will enjoy the lowest transportation costs for supplying ZFM. ZGB
will also leverage its existing relationships with the PRT network in Paktiya province. A new PRT Agribusiness
Development Team is scheduled to be operational in Paktiya by March 2009.

Significant local community support, strong district government support and very proactive provincial government
support is expected for ZFM as food security, employment opportunity and a reliable buyer for surplus wheat will
improve the quality of life for the surrounding communities. ZFM is expected to create spin-off gains in the agricultural
sector by incentivizing farmers to grow wheat. Farmers will be more likely to stick with wheat as one of their main
crops, and those currently growing illicit cash crops will be encouraged to shift production to wheat as local market
demand (led by ZFM) becomes more established.

3. Economic and Environmental Trends

3.1 Rising Food Prices

World Wheat Prices

  2002 2003 2004 2005 2006 2007

Price (US$) 118.53 116.62 125.19 121.65 153.00 203.66
Variation (%)   -1.61 7.35 -2.83 25.77 33.11

Over the past 12 months global market prices for wheat have nearly doubled. There are many reasons for this
increase, including higher demand for cereals in some parts of the world, particularly in Asia, China and India;
conversion and use of some grains for bio-fuels; and a poor 2007 harvest in a few regions of the world that have
traditionally had very strong wheat production.

The strengthening in world commodity prices that became so pronounced in late 2007 and early 2008 may prove to
be a new phase in world markets. Local food production can help buffer the region against turbulence in world
markets by providing an alternative to expensive imports. High prices will provide the incentives that the agriculture
sector needs to increase production, which will ultimately help reduce regional food prices. Agriculture, however, has
been neglected in recent decades and will take some time to rebuild. The surge in food prices highlights the
importance of ending this neglect and paying more attention to the rural economy.

In the local areas of Paktiya province, increased prices in fuel oil, record high wheat prices, political instability and
border closures with Pakistan, and voluntary and involuntary refugee returns have the potential to lead to increased
dissatisfaction with the GoA, growing food insecurity and malnutrition, and in extreme cases, food-induced
displacement within the local and nearby provinces of Afghanistan. As these factors converge, there becomes a
direct correlation with rapid price increases, escalating demand and shortages of supplies relating to wheat and
wheat flour in Afghanistan.

3.2 Economic Environment

There are approximately one million farms in Afghanistan and more than 2,000 wholesalers for horticulture products.
Intensive commercial farming will increase sustainable economic growth in rural areas, encourage competition,
contribute to regional development and help sustain the growth of spin-off businesses. Investment in agribusiness
and agriprocessing will have a positive impact on the economic development of Afghanistan and will instill in Afghans
pride that comes from producing and purchasing local Afghan food products. The ultimate goal for a modern
agricultural sector in Afghanistan is to achieve sustainable production for both domestic consumption and export.
ZFM will be in a position to become Afghanistan’s sunrise industry, an emerging growth industry that will be a strong
sector in the future.
3.3 Environmental Concerns
Currently, winter grain growing conditions in much of Afghanistan are significantly worse than last year, due to
prolonged drought and low winter snowfall. The Famine Early Warning System (FEWS NET) reported in March 2008
that much of Afghanistan received 50-90% less precipitation and that both rain fed and irrigated crops would be
seriously affected. Afghanistan has a total of approximately 3 million hectares in production, half under irrigation and
the other half rain-fed. Field surveys in late spring indicated that approximately 80% of the nation’s rain-fed wheat
crop and 30% of its irrigated crop have been lost due to severe dryness. The irrigated wheat crop relies extensively
on snowmelt for irrigation supply, and in normal years, accounts for roughly 80% of total wheat production. Winter
wheat planting normally occurs between mid-September and mid-November, while harvest typically occurs from June
through September. These factors may reduce the 2008/09 local wheat harvest, resulting in a greater Afghan reliance
on imported wheat.

4. Industry Overview
4.1 Background
Annual per capita wheat consumption in Afghanistan is 160 Kg, among the highest in the world. Chronic food
insecurity, most pronounced in the central highlands and northwestern parts of Afghanistan, has been exacerbated
by continued increases in cereal prices across the country (especially in urban areas), and a below-normal 2007/08
wet season that will negatively affect pastures and the upcoming harvest (May through August). In a typical year,
Afghanistan cannot meet its total cereal requirements through domestic production, leaving it dependent on food aid,
as well as cereal imports from Pakistan, Kazakhstan, Uzbekistan, and Iran. Given anticipated below-normal wheat
harvests in much of Central Asia this year (which are likely to impact the amount of wheat supplied to Afghanistan
from within the region), and high global cereal prices, food insecurity is certain to increase in the absence of prompt
and significant interventions. These interventions could include food aid (with a strong emphasis on improved
targeting both at the geographic and household level), bilateral cereal trade agreements between countries within the
region, activities to strengthen households’ purchasing power, the continued withholding of import duties on
wheat/flour, and subsidized fuel and other transport costs.

Afghanistan also has a severe shortage of wheat milling capacity, which has created a market for surplus flour from
Pakistan. Grain storage, marketing, milling, baking and processing infrastructure are all grossly inadequate.
Development of these capacities will strongly encourage local wheat production while reducing Afghanistan’s
dependency on flour imports and international food assistance. The Afghanistan commercial flour market is
dominated by Pakistan to the extent that flour is priced and sold in Pakistan rupees. Even so, Pakistani surplus flour
is not available on a regular basis, and quality is not consistent. Therefore flour milling and grain storage
requirements of Afghanistan are issues of national food security. There are only eight commercial-sized mills
operating in Afghanistan, none of which are in Paktiya, Paktika, Ghazni, Logar or Khost provinces.

In Loya Paktiya, most wheat is planted in October-November and harvested the following July-August. Wheat in
Afghanistan is typically milled on a very small scale with grinding stones powered by water or diesel-powered motors.
These mills are locally called “zirandas”. Little cleaning or sieving of wheat is done prior to milling; zirandas typically
do not separate the husk and the bran, producing yields of 97-99% whole-wheat flour. Despite these high yields, the
zirandas typically produce discolored, poor quality flour, and they also destroy some of the nutrients that originally
were present in the whole grain. Thus, most bakery and household customers prefer refined white flour from
Pakistan. ZFM product will compete directly with high quality Pakistani flour, but will not negatively impact most small
ziranda millers that produce inferior, brown flour. Moreover, ZFM plans to incorporate ziranda millers into the supply
chain by tapping their networks to supply needed wheat seed/inputs delivery. There are an estimated 5,000 zirandas
throughout Afghanistan that collectively grind about 3.3 MMT of wheat per year.

There are only six functioning commercial-sized flour mills in Afghanistan with an estimated combined capacity of 600
MT per day, but utilized capacity is only about 400 MT per day. Only two of these mills are operating full-time, and
both are in the north (Mazar-e-Sharif). The two commercial mills closest to Zurmat/Gardez are in Kabul, 180 km
north. These mills operate part-time and at less than full capacity, due to power interruptions and limited wheat
supplies. Kabul Flour Mill (Surat Zada Mill) is a 4-year old company currently producing approximately 40 MT per day,
with a total capacity of 147 MT/day if fully operational. The other Kabul flour mill, Afghan Mills, was recently
established and is still under construction; it is producing approximately 36 MT per day of flour, with a total capacity of
125 MT/day when fully operational. All of the functioning mills in Afghanistan are hampered, to varying degrees, by
needed repairs or replacement of equipment, limited electricity and water, lack of technical expertise, lack of
government investment and inadequate wheat supplies.

ZFM will also seek to leverage wheat production programs like the Village-Based Seed Enterprise Development.
4.2 Domestic Production Levels

Afghanistan wheat production, crop yields, and cultivated land area*

2002/03 2003/04 2004/05 2005/06 2006/07
Production 2,686 3,480 4,266 4,266 3,363
Yields 1,542 1,500 1,822 1,822 1,376
Area 1,742 2,320 2,342 2,342 2,444

*Production in thousands of tons, yields in kgs per hectare, area in thousands of hectares
Source: IMF Statistical Appendix, 2008

Nearly three decades of civil strife have virtually destroyed the industrial and export sectors in Afghanistan, and have
severely damaged agriculture marketing, storage and processing infrastructure. Agriculture is the main source of
national output – generating 50% of the country’s GDP – and is a fundamental means of livelihood supporting 85% of
its people. An estimated 21 million people depend on agriculture for their livelihood.

Approximately 4% of Afghanistan’s total land area is used for wheat cultivation. From 2002-06 Afghanistan
experienced steady increases in wheat production but 2007 production levels decreased 1MMT to approximately
3.4MMT. Similarly, wheat crop yields had been increasing since 2003, but in 2007 yields dropped 25% from the
previous year. These recent decreases are largely attributable to low precipitation and drought conditions.

Adverse weather in key exporting countries and disruption of production from conflict and political unrest has strained
already tight markets, reducing supply. For several years Afghanistan has relied on imported Pakistani wheat to
satisfy domestic demand. Pakistan, however, is currently experiencing both significant political uncertainty and a
wheat shortage, resulting in the imposition of export bans on wheat (and Pakistan has even begun importing wheat
from neighboring countries).

4.3 Wheat Imports

All wheat flour bound for the region, licit or illicit, through the United Nations or a host nation, travels through one of
only three entry points into Afghanistan: (1) Hairatan/Termez, (2) Spin Boldak/Chaman, and (3) Jalalabad/Torkham.
Political instability in any of these border areas impacts the ability of wheat flour to enter Afghanistan, causing a
natural increase in prices. Security challenges inside Afghanistan also affect the ability of aid organizations to move
and distribute food aid within the country.

Afghanistan has historically been the largest importer of Pakistani wheat, its main export crop. As mentioned above,
Pakistan is currently experiencing a wheat shortage, which its citizens blame on the government’s decision to allow
wheat exports to Afghanistan, and also on traders whom they have accused of “hoarding” wheat to exploit high
prices. Pakistan’s current wheat requirement stands at close to 23 MMT and consumption levels are almost equal to
this year’s production. In Pakistan, wheat is delivered “just in time” to the flour mills which largely reduces the need
for storage. The Government of Pakisan (GoP) intervenes by subsidizing wheat prices and electricity, thereby
allowing Pakistani flour producers to sell low-priced flour into Afghanistan as production and market conditions
warrant. While GoP policies provide an important advantage to Pakistani flour producers, assistance is only provided
in times of surplus production. Currently the high cost of wheat and shortages in Pakistan have resulted in even
higher prices and less availability of refined flour in Afghanistan. While ZFM will not enjoy subsidies from the GoA, it
will be able to establish and maintain its market presence by delivering consistent quality and competitive pricing to
both consumers and wheat growers in Afghanistan.

Reducing reliance on imported wheat from Pakistan is vital for Afghanistan’s food security. Volatile global prices for
wheat, political instability in the North-West Frontier Province (NWFP) and the Federally Administered Tribal Areas
(FATA) regions of the country, the failure of mills to grind to capacity due to frequent power failures, and continued
cross-border smuggling from Pakistan into Afghanistan may result in future supply shocks leading to severe
shortages in Afghanistan. While ZFM does not assume GoA subsidies, Mr. Zaland intends to seek GoA support for
this project to ensure its economic viability and sustainability.

5. Market Summary
5.1 Market Overview
Wheat is the primary staple food of the Afghan diet with an average of one pound per person consumed each day or
approximately 160 kg per year. Wheat products are served at every meal and (for many poor households a meal may
only be bread (naan) and tea) provides an estimated 70% of average daily caloric intake. Since locally produced flour
is generally unavailable, bakers and households rely heavily on imported flour. Furthermore, it is estimated that
50,000 MMT of bakery and wheat-based products are imported annually, in addition to the flour imports.

Significant demand for flour exists from approximately 3,200 small bakers nationwide: 1,200 bakers producing cakes,
cookies, etc. and 2,000 bakers producing naan bread. With a reliable supply of flour from the regional flour mill, the
number of bakeries is expected to increase. In addition, three biscuit manufacturers and all private households have
a demand for flour.

Most wheat is consumed by farmers, with excess sold informally in local markets. Surveys have shown that only 80%
of Afghan farmers sell their wheat, and most of those who do are only able to sell modest amounts. Annual wheat
sales are typically below 5 MMT, with two-thirds of farmers selling less than 1 MMT. The average quantity of wheat
sold per household per year is a meager 224 kg, which represents approximately 11% of the total wheat on the
market. Farmers typically use an additional 12% of their wheat production for repayment of rent and other obligations
and this stock will also enter the local wheat markets. The remaining 77% of wheat produced is typically kept in the
households for domestic consumption or later sale.

Imports from Pakistan dominate the bagged flour market in eastern Afghanistan. The flour milling industry in Pakistan
is mainly dependent on support from the GoP, which releases wheat to flour mills on an as needed basis and also
provides financing to flourmills for the procurement of wheat and for milling operations. Annual harvests vary, and
some years Pakistan is a net importer of wheat. During surplus years, the GoP implements special arrangements to
facilitate flour exports to Afghanistan (including suspension of regular duties on the export of flour and other
concessions to flour mills). The GoP also sells wheat to Pakistani mills near the Afghan border at favorable prices,
about US$5.50 below interior Pakistan prices. Pakistan’s export tax is 15% but the GoP lowers it as needed to
increase Pakistani flour competitiveness.

Several factors determine price fluctuations for imported Pakistani flour: availability of Pakistani wheat; government
release prices to flour mills; waivers of taxes and duties by the GoP; variations in transportation costs; wholesaler
costs and margins; and variations in the quality of milled flour. There is no systematic testing or quality control of
Pakistani flour, and therefore market demand and consumption determines the perceived "quality" of Pakistani flour.

5.2 Market Trends

Reflecting the rise of global prices overall, wheat flour retail prices in February 2008 were significantly higher (nearly
double in some instances) than the February five-year average in all reference markets across Afghanistan. While
prices in Afghanistan typically increased over this period, in 2008 the rate of increase has been more dramatic. The
rise in prices from January to February was most pronounced in the south and east (Kandahar and Jalalabad
markets) where the rise reached approximately 50%. These markets depend predominantly on flour imports from
Pakistan, and the dramatic increases reflect Pakistan’s effective imposition of export restrictions on wheat, including
regular shipments to Afghanistan. The wheat harvest is generally April-May of each year, therefore it would be
optimal for ZFM to begin operations at that time of year and obtain locally produced, lower-cost wheat. However, ZFM
will be able to commence operations as soon as the facility is completed by purchasing wheat on the open market as
needed.

For highly import-dependent or highly food-insecure countries, such as Afghanistan, any decline in import capacity
stemming from rising food prices or adverse weather conditions can have a dramatic impact on food security. In the
current environment, attractive market prices should naturally motivate small farmers to plant wheat and benefit from
rising prices while also maximizing the returns on their yields. As winter planting begins, ZFM will be uniquely well-
positioned to intake the upcoming harvests and produce and distribute wheat flour to the local market at a competitive
price.

6. Market Strategy
The target market encompasses every individual or business consumer of flour (bakeries or home industry stores)
nationwide. However, the primary target is women in the local area who usually have the final purchase decision for
household products. ZFM will expand market share and generate brand loyalty through competitive pricing,
consistent quality and emphasis on the benefits of fortified and halal-certified flour. ZGB has consulted with the Flour
Fortification Initiative, a non-profit public/private sector partnership based at Emory University in Atlanta, Georgia that
promotes fortification and works with industry partners for that purpose. FFI offers a range of free and fee-based
services, and ZGB will leverage FFI's publicly available resources to obtain technical support and assistance for
fortification.
As a local producer, ZFM will enjoy lower transportation and delivery cost advantages over imported flour.
Additionally, ZFM will attract local farmers by collecting wheat in three ways: farmers will deliver the crop to ZFM
directly; ZFM sales personnel will visit different viable crop fields and transport wheat back to the mill; and ZFM will
negotiate distribution arrangements with existing ziranda millers who will become purchasers of wheat for ZFM. In the
latter cases, the ziranda miller becomes the distribution link to farmers, to both purchase wheat for ZFM and also
distribute to farmers quality fertilizers and ICARDA-certified seed for planting. The ziranda millers will also be the
logical link between the farmer and the ZFM for post-harvest product storage and shipment to the mill. In this way,
ZFM will leverage the established, traditional relationships between the ziranda millers and local farmers.

7. Products
The primary product will be 4 types of whole wheat bread flours:

 Fine grind: best seller; granulated texture, bran and germ in small uniform pieces.
 Medium grind: like fine grind, but a little coarser.
 Stone Ground: best bread flour; smoother texture, bran and germ in bigger pieces; may have a longer shelf
life.
 Coarse wheat meal: unsifted, with fines included, for added texture.

The main characteristics of these products will be:

 Voluntary enriched/fortified to contain a pre-mix of vitamins and nutrients including iron, folic acid, zinc,
riboflavin, vitamin A, vitamin C and calcium.
 Certified halal.
 Locally-produced domestic flour.

A secondary revenue stream for ZFM is the sale of wheat by-products produced naturally during the wheat cleaning
and screenings process. In the United States, this wheat by-product is a traditional and economical energy source for
livestock. An established animal livestock feed market already exists in Afghanistan, and with the steep increases in
prices, this will prove to be a valuable secondary revenue stream. Production costs will be approximately US$5.00
MMT/flour.

7.1 Packaging and Distribution

The wheat flour will be sold in 2, 5, and 8 lb bags by the case, as well as individual 25 and 50 lb bags. Most of the
flour will be sold through tribal food distributors, to retail stores and to food co-ops in the Loya Paktiya region of
Afghanistan. ZFM will also sell direct from the mill at quantity and distribute locally.

7.2 Promotion
ZFM will promote the three most important and unique aspects of ZFM flour:

a) Quality and Cost – Pakistani flour is generally some of the highest quality flour available in Afghanistan.
Domestically-produced flour of comparable quality, competitively-priced, is an attractive alternative to
Pakistani imports. Pakistan, which currently serves as the primary source of flour for Afghanistan, has
imposed restrictions on flour exportation to Afghanistan. Therefore, support of ZFM by the community is a
statement of national self-reliance. In light of fluctuations in the availability of Pakistani flour, ZFM will also be
seen as an important resource for domestic food security.

b) Vitamin Fortification – Fortified flour is essential for alleviating malnutrition, which is especially common
among children. The World Health Organization (WHO) and the World Food Programme (WFP) have both
endorsed fortified flour. In May 2005, the Afghanistan Ministry of Public Health (MoPH) held a public briefing
to announce the results of the first ever national nutrition survey in Afghanistan (supported by UNICEF and
the Centers for Disease Control (CDC)). In the briefing, MoPH stated that the "Number one method for
prevention of malnutrition in Afghanistan would be flour fortification." The main findings documented that over
half (54%) of Afghan preschool children are stunted (chronically malnourished), over a third (39%) are
underweight and about 7% are wasted (acutely malnourished); 72% of children 6-59 months, 48% of non-
pregnant women and 18% of adult men tested were classified as iron deficient. Specific micronutrient
deficiencies are prevalent in Afghanistan and are likely to contribute to high infant, child and maternal
morbidity; decreased learning capacity; lower productivity and higher mortality. To remedy these problems,
flour fortification has been supported by the MoPH, UNICEF, WHO and the CDC.
 Fortification of commercially-milled flour will reach a substantially larger population than a fortification program
relying on zirandas. There are approximately 5,000 of these small millers in Afghanistan, and application of
fortification would be extremely costly and labor intensive, while far fewer consumers would be affected.

c) Halal certification – Muslim consumers who observe halal will be assured that ZFM honors Islam and is
respectful of the traditional Afghan culture while still placing the highest value on quality. ZFM will provide the
highest quality flour, fortified with badly needed vitamins and minerals, in a way that is respectful of Islam and
the national culture of Afghanistan. Most imported flour in Afghanistan is not halal certified.

Promotion channels include the use of mass communication, such as print ads, radio and TV. In addition, ZFM has
identified a successful direct mailing campaign from a South African flour company, Sasko’s Flour, in which the
company used cell phones to reach its clients. SMS messages to local suppliers and buyers would inform the
community of promotions and sales.

ZFM will also develop a web site to engage with its clients and as a platform for promotions, such as campaigns with
celebrities, raffles, recipes and tips, among others. The key message to customers will be that they now have a
choice and can select high-quality Afghan flour instead of buying imported or inferior flour.

8. Location and Infrastructure

8.1 Location/Transportation/Security
The ZFM will be located either in the district of Zurmat or Gardez, in the Afghan province of Paktiya. Zurmat has a
strong central location and will only get stronger as more roads and better infrastructure are added. A suitable
alternative location is Gardez City, the capital of Paktiya province, 30 km north of Zurmat. There is no regional flour
mill of any size within a 180 km radius of the proposed sites in Zurmat or Gardez. The paved road connecting Gardez
and Khost (75 km) is under construction, and is expected to be completed by June 2010. Design and survey work is
in progress for the paved road connecting Gardez and Ghazni, and the estimated construction completion target is
June 2011.

With either a Zurmat or Gardez location, the mill will be well-serviced by two new major paved roads supported by
USAID. One is the Gardez-Khost paved road which is currently under construction and will provide the easiest and
quickest link through Afghanistan to and/or from the port of Karachi for any businessman in Kabul or Afghanistan's
neighbors to the north. The second paved road now funded and under design is the Gardez to Ghazni road which will
link Gardez, through Zurmat, to Ghazni and the ring road to the west. Either site option – Zurmat and Gardez City –
will serve as an attractive multi-provincial wheat milling hub.

Security conditions will be a primary consideration in site selection. Current conditions are better in Gardez City than
in Zurmat, although security will be reassessed once the project is fully developed and ready for implementation to
begin. ZGB has extensive existing relationships with the Provincial Reconstruction Network in Gardez and at Forward
Operating Base Zurmat. These relationships will facilitate coordination and assistance with managing security risks in
either location.

8.2 Land
Engagement with the local community development shura elders and the District Woleswal (sub-Governor) will be
conducted in order to obtain use rights to the land required for the ZFM, under an allocation or lease-type agreement.
Typically, such arrangements are agreed amongst the relevant parties, and then forwarded by the District Woleswal
to the Provincial Governor for his confirmation. ZFM will seek land or land use rights contributed by local tribes.

8.3 Building
A structure at least 30 X 24 X 11 meters will be required to house ZFM, which includes the shortflow mill, a cleaning
house, a pre-mix fortification feeder, a flour packer and flour bag warehouse space, a laboratory, the by-product
bran/feed bins and packing unit, and office space (See Appendix I for the proposed layout). A simple pre-fabricated
steel warehouse structure with a cement floor pad is estimated to cost US$527,000. This estimate was obtained from
the contractor of an almost identical structure that has just been completed at FOB Gardez.

8.4 Water and Electricity

Depending on how dry the wheat is and how much wheat is processed daily, up to 500 gallons per day may be
required to temper the wheat to approximately 12-15% moisture.
ZGB will seek to site the mill near a source of steady and reasonably-priced electrical power. Currently there is no
electrical grid in Paktiya Province and for the time being, the ZFM will have to rely on generators for power.

There are no commercially-piped water sources in Gardez and Zurmat. ZGB intends to fulfill ZFM’s water needs
through locally sourced wells (both existing and new ones at or near the mill site).

8.5 Management Team and Labor

The management team will be comprised of a General Manager and two shift managers (millers) who will be
responsible for the operation of the milling equipment. There will be an office manager who oversees the customer
service and order processing and filling functions. Grain buying and flour sales and marketing will be handled by a
sales manager, who is the final member of the management team.

Labor will be used on the packing line, in the warehouse area, and to load-out of bags of finished flour. Other labor
capacities may include: additional millers, packers, store-men, and stock clerks; maintenance staff, truck drivers, lab
techs, quality assurance technicians, office staff, and marketing personnel. Estimated costs of labor are US$144,000
for the first year of operation.

9. Operations Equipment
9.1 Shortflow Mill and Cleaning House
ZFM will utilize a modern short flow mill known as the "Kice Shortflow Mill 1000" ("KSU Mill" or "Mill"), based on
proprietary technology developed by Kansas State University and licensed to Kice Industries for manufacturing. This
short flow produces high quality flour at a fraction of the cost of traditional long flow mills. Power consumption is
greatly reduced on a per cwt basis (35% less power required than traditional mills), and the labor needed to operate a
KSU Mill is minimal in comparison with traditional mills. The modular design affords several key advantages over
traditional long flow mills: preassembly before shipping, installation in simple, existing warehouse or factory buildings,
and easy relocation to different sites, relative to traditional mills. The KSU Mill is also scalable, allowing additional
capacity to be added in the future.

The KSU Mill is designed for processing hard, soft, and

durum wheat varieties into white flours with high
extractions and quality finished products. The Mill has a
capacity of 60 metric tons/24 hours day of white flour at an
extraction rate of 72-75%.

The Mill will cost approximately US$1,250,000, which

includes the equipment structure with floor and handrails,
electrical/automation, motors, spouting, dust control, and
conveying systems with the module proposed and
pneumatic conveying systems to transport the finished
products to a destination. Installation is estimated to take
5-6 weeks for a qualified four to five man crew.

Another advantage of the KSU Mill is its compatibility with

dry cleaning. Wheat washing or wet cleaning of wheat
normally requires substantial water (approximately 15,000
litres per day for a 60MT flour production). In addition,
these processes produce significant effluents and
contaminants in waste water. Dry cleaning with the KSU mill will consume far less water (which is scarce in Paktiya
province) and have far less of an environmental impact. A cleaning house to provide cleaned grain for the mill will
cost approximately US$800,000 (excluding shipping).

Both the Mill and the cleaning house will have to be imported from Kansas and shipped through Norfolk to Karachi
and then transported overland to Kabul, for forward transportation to Gardez or Zurmat. Five 40-foot containers will
be needed for the Mill and an additional five containers for the cleaning house at an estimated US$10,000 per
container for a total transport cost of US$100,000. Transportation of 40-foot containers from Karachi to Kabul will be
done in summer months only due to the winter weather conditions in the mountains.

9.2 Fortification Feeder

Vitamin and mineral deficiencies are commonplace amongst most Afghans, especially women and young children.
The World Food Program has offered to support flour mill production with pre-mix feeders and fortificants. Currently
little or no flour available in Afghanistan is fortified. One of the primary objectives of the ZFM is to boost production,
distribution, and consumption of vitamin and mineral fortified halal flour to combat existing nutritional deficiencies.
Flour produced by ZFM will not only provide the main source of complex carbohydrates, calories, and protein to
consumers, but also essential vitamins and minerals. A pre-mix fortification feeder will be incorporated into the ZFM
flow design and is estimated to cost US$10,000 plus transportation at an estimated cost of US$6,000 (Rate All-In) in
a 20-foot container from Kansas through Karachi landed Kabul. Transportation from Kabul to the ZFM site will be
coordinated through the Paktiya PRT, and scheduled for sometime between May and October.

9.3 Flour Bagger

A flour bagging machine ("Bagger") will provide packaging capacity on site at ZFM. The Bagger is a completely
automatic, integrated system for packaging flour in a wide range of 2-110 lb (1-50 kg) bags. Estimated costs are
US$80,000 for the Bagger plus transportation costs of an estimated US$7,000 (Rate All-In) in a 20-foot container
from Minnesota through Karachi landed Kabul.

ZFM will balance the packing rates and the flour storage rates as it produces approximately 60MT of product a day at
full production with output of 45MT flour and 15MT bran. ZFM will require packing and storage of flour to allow at
least a 25% cushion for production and will utilize 24-hour storage of both bran and flour with a capacity to pack 24
hours of product in an 8 hour shift.

9.4 Generator
There is no electrical grid in Paktiya Province, and therefore ZFM will have to be energy self-sufficient. The mill will
run at approximately 192 HP with the cleaning house running additional motors at approximately 100-120 HP.
Transferring the dirty wheat to be cleaned, packaged, transported and stored will require additional power of
approximately 30-40 HP. With approximately 350 HP connected, it is anticipated that a 300kW generator will be
adequate to run all ZFM operations at full capacity. Total cost of a generator is currently estimated in-country to be
US$85,000 (excluding fuel costs). ZFM will acquire two generators (one for back-up), either new or used.

9.5 Silos, Conveyors, Catwalks, Elevator and Receiving Hopper and Bins
External silos to be housed near the cleaning house mechanism will be 3,000 MT hopper bottom silos, which have
lower material handling costs and are more energy efficient. Internally, the mill floor will house the two dirty wheat
bins with a combined capacity of 100MT, the two tempering bins with a combined capacity of 60MT, and the two
bran/feed bins with a combined capacity of 45MT. See Appendix II for a proposed floor layout.

These galvanized silos, conveyors, catwalks, elevator and receiving hopper and bran/feed bins will cost
approximately US$450,000 if purchased in the U.S. Shipment to Afghanistan is expected to require five 40-foot
containers. Container loading, inland freight, courier fees, bank fees, ocean freight and insurance will cost
approximately US$40,000.

9.6 Laboratory
To ensure quality and consistency of raw wheat used by ZFM, a basic laboratory will be established to determine
moisture, protein, falling number, test weight, and dockage. This lab will also play a key role in ZFM’s marketing
campaign and quality assurance program. A laboratory is not required for ZFM to operate, but it is essential for
ensuring product quality and for providing accurate information to both consumers and ZFM sales staff. The
estimated cost for the laboratory equipment is US$65,000. Additional costs will be incurred for training of technical
staff (which training may be conducted locally or by sending staff outside Afghanistan for training).

9.7 Bran/Feed Packer

A separate bran/feed packer will be required to package animal feed ingredients in 35 kg bags for distribution to feed
markets. ZFM will produce animal feed ingredients, known in the industry as bran, middlings, red dogs, and/or shorts.
These ingredients contribute bulk to ruminant feeds and are a vital source of crude protein, fiber, fat, carbohydrates,
minerals and vitamins. Additional potential markets include fish farming. With prices for animal feed increasing at a
rapid pace, these by-products will provide an important revenue supplement for ZFM.

The bran/feed packer is estimated to cost US$80,000 plus transportation costs of an estimated US$7,000 (Rate All-
In) in a 20-foot container from Minnesota through Karachi landed Kabul.

10. Estimated Production Start-Up Costs

Production Start-Up Costs
  US $ AFA
Building construction 527,000  
Electricity (2 generators) 170,000  
Labor 144,000  
Total Building, Electricity, Labor 841,000  
Equipment    
Shortflow Mill 1,250,000  
Cleaning House 800,000  
Fortification Feeder 10,000  
Flour Bagger 80,000  
Silos, conveyances, bins, catwalks, elevator and receiving
hopper 450,000  
Laboratory 65,000  
Bran/Feed Packer 80,000  
Equipment Total 2,735,000  
Transportation    
Equipment 120,000  
Silos, conveyances, bins, catwalks, elevator and receiving
hopper 40,000  
Transportation Total 160,000  
Total Start-Up Costs 3,736,000  
Inventory    
Wheat (100 day start inventory)* 1,500,000  
Premix for fortification 11,250  
Inventory Total 1,511,250  

*Based on wholesale price of US $500 per MT wheat with expected initial input of 30 MT/day.

Appendix I
Proposed Equipment Layout of Cleaninghouse, Shortflow Mill, Flour Bagger including bins for dirty wheat, temper,
feeder and flour (30 X 24 X 11 meters).