102.

PROFILE ON GROUND NUT HULLING, ROASTING AND PACKING

102-2

TABLE OF CONTENTS

PAGE

I.

SUMMARY

102-3

II.

PRODUCT DESCRIPTION & APPLICATION

102-3

III.

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

102-4 102-4 102-7

IV.

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

102-8 102-8 102-10

V.

TECHNOLOGY & ENGINEERING A. TECHNOLOGY B. ENGINEERING

102-10 102-10 102-12

VI.

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

102-14 102-14 102-15

VII.

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

102-15 102-15 102-16 102-17 102-18

102-3

I.

SUMMARY

This profile envisages the establishment of a plant for ground nut hulling, cleaning and roasting with a capacity of 90 tonnes per annum.

The present demand for the proposed product is estimated at demand is expected to reach at

84.3 tonnes per annum. The

151.9 tonnes by the year 2022.

The plant will create employment opportunities for 15 persons.

The total investment requirement is estimated at about Birr 1.44 510,500 is required for plant and machinery.

million, out of which Birr

The project is financially viable with an internal rate of return (IRR) of present value (NPV) of Birr 736,980 discounted at 8.5%.

21 % and a net

II.

PRODUCT DESCRIPTION

Groundnut is a warm - season crop and is killed by frost. Most of the crop is produced in areas with 40 mm or more annual rainfall and there should be at least 20 mm rainfall in the growing season.

Groundnuts are a high value crop that can be marketed with little processing but are extremely versatile and can be used in a wide range of products. They are the second largest source of vegetable oil, the largest being Soya beans. The oil can be used for cooking, they can be used as a shortening or as a base for confectioneries and they can be used to make peanut butter.

Large quantities of groundnuts are consumed locally in the areas of production. The world trade depends largely on the European demand for groundnut oil extraction. The non-drying oil is used as a substitute for olive oil as a salad and cooking oil. It is used in the manufacture of

102-4 margarine and inferior quality oil for soap, and as a lubricant. High quality oil is used in the pharmaceutical industry. The cake after expression of the oil is a high- protein livestock feed. The best quality cake may be ground into flour for human consumption.

The nuts are eaten row or after roasting. They are also used in confectionery and in curries. The green haulms make excellent fodder and hay in general. SNNRP is one of the regional states of Ethiopia blessed with tremendous potentials for growing groundnuts commercially.

III.

MARKET STUDY AND PLANT CAPACITY

A.

MARKET STUDY

1.

Past Supply and Present Demand

The country's requirement for ground nut is essentially met through domestic production. However, data on domestic production of the product is not readily available. Therefore, the Revised Report on the 1995/96 Household Income, Consumption and Expenditure Survey is analyzed in estimating the demand for ground nut. Table 3.1 depicts the average amount of ground nut consumed by different expenditure groups in urban and rural areas according to the survey finding.

102-5

Table 3.1 DOMESTIC CONSUMPTION OF GROUND NUT

Number of Income Group Individuals in the Group < 600 600 - 999 1000-1399 1400-1999 2000-2599 2600-3399 3400-4199 4200-5399 5400-6599 6600-8999 9000-12599 12600-16199 16200-19999 > 20000 Total 17253 125904 432547 580104 4217465 6498555 7844772 10885614 8007978 8817091 5114961 1765555 673706 972722 55954227

Average Annual Consumption (gram) 3 1 4 3 9 8 5 4 3 7 8 4

Total Annual Consumption (kg) 1298 580 16870 19496 70603 87085 40040 35268 15345 12359 5390 3891 308224

Source: CSA, Revised Report on the 1995/96 Household Income Consumption and Expenditure Survey, 2001. 84,396

As can be seen from Table 3.1, the total consumption requirement of households for ground nut is 308224 kg per annum. Given a total population of 55954227 at the time the survey was conducted, the per capita consumption of ground nut is computed to be 0.01 kg. Assuming the

102-6 regional market constitutes the viable market for the product, the present demand for ground nut is estimated at 84396 kg using the total population of the region for 2007.

2.

Demand Projection

The consumption of ground nut is mainly associated with the urban population. Therefore, a 4% rate of growth that corresponds to the rate of urbanization in the country is applied in projecting the demand for the product. The projected demand for the product is shown in Table 3.2.

Table 3.2 PROJECTED DEMAND FOR GROUND NUTS (KG)

Year

Projected Demand

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

84396 87772 91283 94934 98731 102681 106788 111059 115502 120122 124927 129924 135121 140526 146147 151992

102-7 3. Pricing and Distribution

Currently the retail price of hulled, roasted and packed ground nut is Birr 15 per kg. Allowing margin for wholesale and retail margin, the factory gate price for the product of the envisaged plant is estimated at Birr 8 per kg.

The envisaged plant can distribute its product through the existing wholesale and retail network, which includes department stores, merchandise shops and supermarkets.

B.

PLANT CAPACITY & PRODUCTION PROGRAMME

1.

Plant Capacity

Based on the market study, capital requirement and minimum economy of scale, the production capacity of the envisaged plant is 90 tones of hauled, roasted and packed groundnut. This capacity will be attained by working single shift a day having eight working hours and 300 working days per annum.

2.

Production Programme

The annual production programme is formulated on the basis of the market forecast and selected plant capacity. It is assumed that the plant will achieve 75% and 85% capacity utilization rate in the first and second year, respectively. Full capacity will be reached in the third year and onwards. The production programme for total hauled, roasted, and packed groundnut is shown in Table 3.4.

102-8 Table 3.4 ANNUAL PRODUCTION PROGRAMME

Sr. No 1. Description Hauled, Roasted and packed groundnut, 2. Capacity utilization rate

Unit

Production Year 2008 2009 76.5 2010-2022 90

Tones

67.5

75

85

100

IV.

MATERIALS AND INPUTS

A.

RAW AND AUXILIARY MATERIALS

The principal raw material required by the envisaged plant is uncollected groundnut which is produced locally in the Administration. During roasting process the groundnut beans loose weight due to evaporation of water. Therefore, taking this weight loss into account, the annual requirement for groundnut seed at 100 per cent capacity utilization rate is estimated to be 90 tones +(0.20 x 90 tones) = 108 tones. Annual cost of groundnut at a rate of Birr 4,000 per ton will amount to Birr 432,000.

The major auxiliary materials required for the production of hauled, roasted and packed groundnut comprise packing materials of various types. The packing materials to be used by the plant are Poly pouch corrugated paper box with carton panel, and gumming paper

The proposed package sizes of poly pouch for packing of roasted groundnut are 500 gm, 1,000 gm and 1,500 gm which are planned to constitute 30%, 60% and 10% of the total roasted groundnut, respectively. Poly pouch of required size, quality and desired number of colours can be available from local private or public paper factories on an order basis.

102-9 The estimated annual requirement for poly pouch at 100 per cent capacity utilization rate and the corresponding cost estimates are given in Table 4.1 and therefore, the total cost estimates upto full capacities are expected to be Birr 75,337.5.

Table 4.1 ANNUAL PACKING MATERIAL REQUIREMENT AND COST ESTIMATES Package Size (Kg) 0.5 1 1.5 Total Total Roasted Groundnut (Kg) 27,000 54,000 9,000 90,000 Poly pouch Requirement (Pcs) 54,000 54,000 6,000 1350 1350 150 Allowance for Total Requirement 55,350 55,350 6,150 Total Cost (Birr) 27,675 41,512.5 6,150 75,337.5

Damage (2.5 %)

The estimated annual requirement for corrugated paper box and panel at 100 per cent capacity utilization rate, the optimum corrugated paper box sizes for each package size and cost estimates are given in Table 4.2. Table 4.2 ANNUAL REQUIREMENT FOR CORRUGATED PAPER BOX AND PANEL AND THEIR COST ESTIMATES Package Size of Poly Pouch (Kg) 0.5 1.0 1.5 Total Number of Poly Pouch per box (Pcs) 20 15 10 27,000 54,000 9,000 90,000 2,700 3,600 600 135 135 15 2,768 3,690 615 6,864.64 14,058.90 2,355.45 23,278.99 Total Roasted Groundnut (Kg) Total Box + Panel (Pcs) Allowance for Damage (2.5 %) Total Require ment Total Cost Birr/ Box (Panel)

102-10 Gumming paper of desired size and quality is available in rolls at the local market. The estimated annual requirement for gumming paper and respective cost estimates, at 100 per cent capacity utilization rate, is estimated at Birr 4,950.

Therefore, the total cost of raw materials and auxiliaries is estimated at Birr 535,566.49.

B.

UTILITIES

The major utilities required by the plant are electricity and potable water which is required for personal use and quality control laboratory. Annual electric and water consumption of the plant and their estimated cost, at 100 per cent capacity utilization rate is indicated in Table 4.2. The total annual cost of utilities is estimated at Birr 15,354.

Table 4.3 UTILITIES REQUIREMENT AND COST

No. 1. 2.

Utility Electricity Water Total Amount

Unit KWh m3

Qty. 15,000 1,500

Cost (Birr) 7,104 8,250 15,354

V.

TECHNOLOGY AND ENGINEERING

A.

TECHNOLOGY

1.

Production Process

The main processing steps in the manufacture of groundnut are hauling, roasting and packing. Groundnut beans should be cleaned of sand, stalk, plant debris and any other foreign matters.

102-11 Hauling: - Before transporting the groundnut to the roasting machine, it has to pass some postproduction operations like harvesting, stripping and mechanical shelling.

Harvesting: - Harvesting of groundnut can be done by pulling the plants using a spading fork, pitch or any other digging tool. Another method is bypassing a plow on both sides of the row followed by hand pulling. The first method is very time consuming and laborious while the second method is inefficient in exposing the groundnut pods.

Stripping/Threshing: - This is the process of removal and separation of groundnuts in-shell from the haulm after lifting and, usually, drying.

Shelling: - This involves the breaking of the shells and separating the broken shell from the beans (decortications).

Roasting: - Roasting a groundnut is a rapid cooking procedure using hot combustion gases in roasting cylinders. The bean charge absorbs heat at a fairly uniform rate and most moisture is removed during the first two-thirds of this period. As the temperature of the groundnut increases rapidly during the last few minutes, the beans swell and will be well browned and the skins loose. After cooling, it is necessary to remove the skins.

Air must be circulated through the beans to remove excess heat before the finished and cooled roasted groundnut is conveyed to packing machine. Residual foreign matter such as stones and tramp iron, which may have passed through the initial cleaning operation, must be removed before packing. The beans flow by gravity to packing machine where they are packed to the desired size.

Packaging: - After hauling, and roasting, the groundnut is conveyed, usually by gravity, to weighing and filling machines that achieve the proper fill by tapping or vibrating. The groundnut is packed in flexible paper bag and placed in a paper board carton that helps shape the bag into a hard brick form during the vacuum process. The carton also protects the package from physical damage during handling and transportation. This type of package provides a barrier to moisture and oxygen. The process has no any adverse impact on environment.

102-12 2. Source of Technology

The machinery and equipment required for groundnut production could be obtained from the following companies,

1. Hind sons Pvt Ltd The lower Mall, Patiala Punjab, India

2. United Engineering (Eastern) Corp., 22 Biplabi Rash Behari Bose Road, Calcutta 1 India

B.

ENGINEERING

1.

Machinery and Equipment

The total cost of machinery and equipment is estimated at Birr 510,500, out of which Birr 475,000 will be required in foreign currency. Detailed list of machinery and equipment is given in Table 5.1.

102-13 Table 5.1 LIST OF MACHINERY AND EQUIPMENT REQUIREMENT

Sr. No 1 2 3 4 5 6 Description Groundnut Digger Groundnut Stripper (Drum Type) Groundnut Thresher Groundnut Roaster Automatic Packing m/c Conveyor

Qty. (No.) 6 2 2 2 2 1

2.

Land, Buildings and Civil Works

The total land area required for the groundnut processing plant is 500 square meters. The total built-up area is estimated at 300 square meters. The total cost of buildings and civil works, at the rate of Birr 2,300 per m2, is estimated at Birr 690,000. On the other hand, the total cost of land lease, at the rate of Birr 0.1 per m2 and for a period of 80 years, is estimated at Birr 4,000. The total cost of land lease, building and civil works is estimated at Birr 694,000.

3.

Proposed Location

The location is proposed to be near perennial rivers with adequate and suitable land for the major raw material, groundnut. Taking this in to consideration, Kucha, Gofa zuria (both woredas are found in Gamo Gofa zone) or Sodo zuria woreda (found in Wolayta zone) are considered as the potential woredas for the envisaged project.

From the above woredas, Sawula town (the center of the woreda) is selected to be the location of the envisaged plant.

102-14 VI. MANPOWER AND TRAINING REQUIREMENT

A.

MANPOWER REQUIREMENT

The groundnut hauling, roasting & packing plant will create job opportunities for 15 persons. The detailed manpower requirement and the estimated annual labour cost including fringe benefits is given in Table 6.1. The total cost of manpower including fringe benefit is estimated at Birr 138,240.

Table 6.1 MANPOWER REQUIREMENT AND ANNUAL LABOUR COST

Sr. No. 1 2 3 4 5 6 7 8 9 10 11 12

Description

Req. No.

Monthly Salary (Birr) 1,500 600 700 900 700 400 900 1,800 400 500 600 600 11,700 2,340 14,040

Annual Salary (Birr) 18,000 7,200 8,400 10,800 8,400 4,800 10,800 21,600 4,800 6,000 7,200 7,200 115,200 23,040 138,240

General Manager Secretary Quality Controller Personnel Accountant Sales man Production Supervisor Machine Operators Production Clerk Store Keeper Purchaser Guards Total Employees Benefit (20% of Salary) Grand Total

1 1 1 1 1 1 1 3 1 1 1 2 15

102-15 B. TRAINING REQUIREMENT

The quality controller, production supervisor, technician operators should be given on-thejob training for a duration of two weeks by experts of the supplier of the machinery and equipment. The estimated training cost is Birr 20,000.

VII.

FINANCIAL ANALYSIS

The

financial

analysis

of

the

ground

nut

hulling,

roasting

and

packing

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 30 days 2 days 10 days 5 days 30 days

A.

TOTAL INITIAL INVESTMENT COST

The total investment cost of the project including working capital is estimated at Birr 1.44 million, of which 27 per cent will be required in foreign currency.

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

102-16

Table 7.1 INITIAL INVESTMENT COST

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

Total Cost (000 Birr) 4.0 690.0 510.5

75.0

139.9

21.4 1,440.9 27%

* N.B Pre-production expenditure includes interest during construction ( Birr 64.91 thousand ) training (Birr 20 thousand ) and Birr 55 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 492,040 (see Table 7.2). The material and utility cost accounts for 23.16 per cent, while repair and maintenance take 16.26 per cent of the production cost.

102-17 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 98.62 15.35 80 69.12 23.04 46.08 332.21 108.05 51.78 492.04

% 20.04 3.12 16.26 14.05 4.68 9.37 67.52 21.96 10.52 100

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.

102-18

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

33%

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 5 years.

4.

Internal Rate of Return and Net Present Value

Based on the cash flow statement, the calculated IRR of the project is 21% and the net present value at 8.5% discount rate is Birr 736,980.

D.

ECONOMIC BENEFITS

The project can create employment for 15

persons.

In addition to supply of the domestic

needs, the project will generate Birr 555,580 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.