277 .

PROFILE ON TEJ BOTTLING

277-2
TABLE OF CONTENTS

PAGE

I.

SUMMARY

277 - 3

II.

PRODUCT DESCRIPTION & APPLICATION

277 - 3

III.

MARKET STUDY AND PLANT CAPACITY

277 - 3

A. MARKET STUDY

277 - 3

B. PLANT CAPACITY & PRODUCTION PROGRAMME

277 - 6

RAW MATERIALS AND INPUTS

277 - 6

A. RAW & AUXILIARY MATERIALS

277 - 6

B. UTILITIES

277 - 7

TECHNOLOGY & ENGINEERING

277 - 7

A. TECHNOLOGY

277 - 7

B. ENGINEERING

277 - 8

MANPOWER & TRAINING REQUIREMENT

277 - 9

A. MANPOWER REQUIREMENT

277 - 9

B. TRAINING REQUIREMENT

277- 10

FINANCIAL ANLYSIS

277 - 10

A. TOTAL INITIAL INVESTMENT COST

277 - 10

B. PRODUCTION COST

277 - 11

C. FINANCIAL EVALUATION

277 - 12

D. ECONOMIC BENEFITS

277 - 13

IV.

V.

VI.

VII.

277-3
I.

SUMMARY

This profile envisages the establishment of a plant for the bottling of tej with a capacity of
1.2 million liters per annum.

The present demand for the proposed product is estimated at 12 million liters per annum.
The demand is expected to reach at 21.66 million liters by the year 2022.

The plant will create employment opportunities for 25 persons.

The total investment requirement is estimated at Birr 3.11 million, out of which Birr 1
million is required for plant and machinery.

The project is financially viable with an internal rate of return (IRR) of 25 % and a net
present value (NPV) of Birr 1.98 million, discounted at 8.5%.

II.

PRODUCTION DESCRIPTION AND APPLICATION

Tej is a favourite traditional drink in Ethiopia brewed from honey, local hops and water.
It is consumed at house-hold level and in small Tej-pubs in city and in rural towns as
well.

III.

MARKET STUDY AND PLANT CAPACITY

A.

MARKET STUDY

1.

Past Supply and Present Demand

Tej is a favourite traditional drink in Ethiopia. It is widely consumed in most urban areas
as well as rural towns. The product has a growing local demand due to urbanization, and
prospective export market to neighbouring countries. The country's requirement for tej
has been met through domestic production. However, data on domestic production and of
the product is not available. Data on domestic consumption of tej is not available either.
Therefore, consumption data for tela, borde and korefe, a closer substitutes for tej, from

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the Revised Report on the 1995/96 Household Income, Consumption and Expenditure
Survey is analyzed in estimating the demand for tej. Table 3.1 depicts the average amount
of tela, borde and korefe consumed by different expenditure groups in urban and rural
areas according to the survey finding.

Table 3.1
DOMESTIC CONSUMPTION OF TELA, BORDE AND KOREFE

Number of

Average Annual

Total Annual

Individuals

Consumption

Consumption

in the Group

(cc)

(liters)

< 600

17,253

7,238

1,248,772

600 - 999

125,904

773

973,238

1000 - 1399

432,547

814

3,520,933

1400 - 1999

580,104

664

3,851,891

2000 - 2599

3,217,.465

885

28,474,565

2600 - 3399

6,498,555

788

51,208,613

3400 - 4199

7,844,772

720

56,482,358

4200 - 5399

1,088,5614

642

69,885,642

5400 - 6599

800,7978

952

76,235,951

6600 - 8999

881,7091

747

65,863,670

9000 - 12599

511,4961

862

44,090,964

12600 - 16199

176,5555

1493

26,359,736

16200 - 19999

67,3706

943

6,3 53,048

> 20000

97 2,722

379

3,686 ,616

Total

55,954 ,227

Income group

438,235,996

Source: CSA, Revised Report on the 1995/96 Household Income, Consumption

and Expenditure Survey, 2001.

As can be seen from Table 3.1, the total consumption requirement of households for tela,
borde and korefe and hence for tej is 438235996 liters per annum. Given a total
population of 55954227 at the time the survey was conducted, the per capita consumption

277-5
of tej is computed to be 7.8 liters. Using the total population for 2007, the current demand
of households for tej is estimated at 601590600 liters. Taking into account the proportion
of the population of the region from the total population of the country (20%) and
allowing a 90% share for existing producers in the region, the market share of the
envisage plant is conservatively estimated at 12,031,812 liters.

2.

Projected Demand

The consumption of tej is mainly associated with the urban population. Accordingly the
4% rate of urbanization is used in projecting the demand for the product. Table 3.2
depicts the projected demand for the product.

Table 3.2
PROJECTED DEMAND FOR TEJ (LITERS)

Year

Projected
Demand

2007

12,031,812

2008

12513,,084

2009

13,013,608

2010

13,534,152

2011

14,075,518

2012

14,638,539

2013

15,224,081

2014

15,833,044

2015

16,466,366

2016

17,125,020

2017

17,810,021

2018

18,522,422

2019

19,263,319

2020

2,0033851

2021

20,835,205

2022

21668,614

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3.

Pricing and Distribution

The retail price of tej ranges from Birr 2 to Birr 8 per liter depending on its quality.
Taking the average retail price of Birr 5 per litter and allowing margin for retailers the
envisaged plant selling price is estimated at Birr 3.50 per liter.

The envisaged plant can distribute its product to restaurants, bars and tej-pubs.

B.

PLANT CAPACITY AND PRODUCTION PROGRAMME

1.

Plant Capacity

According to the market study, the demand of honey in the year 2008 will be 12,513,084
liters, whereas this demand will grow to 21,668,614 liters by the year 2022 . Taking only
about 9.5% of the demand of the year 2008, the envisaged plant will have an annual
production capacity of 1,200,000 liters of Tej will be installed. Production capacity is
based on a schedule of 300 working days per annum and three shifts of eight hours per
day.

2.

Production Programme

The project is assumed to start operation at 83% of its rated capacity, which reaches 91%
of the rated capacity in the second year. Full capacity production will be attained in the
third year and thereafter.

IV.

MATERIALS AND INPUTS

A. RAW

MATERIALS

The direct and indirect material required by the project at 100% capacity utilization is
given in Table 4.1.

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Table 4.1
RAW MATERIALS AND INPUTS REQUIREMENT

Sr.
Description

No.

Unit Price

Cost

Qty. (Tons)

(Birr)

(Birr)

Honey

200

2,800,000

2,800,000

Local hops

48

240,000

240,000

Total

B.

3,040,000

UTILITIES

Annual estimated cost of utilities at full capacity operation of the plant is given in Table
4.2.

Table 4.1
ESTIMATED ANNUAL UTILITY COST

Unit of

Annual

Cost ('000
Birr)

No.

Description

Electric power

Water

Measure

Consumption

KWh

15,000

7.104

m3

1500

15

Total

V.

TECHNOLOGY AND ENGINEERING

A.

TECHNOLOGY

1.

Production Process

22.104

The production process involves mixing, stirring, fermenting, straining, washing, filling,
corking, packing and dispatching.

277-8
2.

Source of Technology

Selam Technical and vocational college

Tel:011 646 2942
Web Page: WWW.selamethiopia.org
Addis Ababa
Ethiopia
B.

ENGINEERING

1.

Machinery and Equipment

The plant machinery and equipment required by the plant are listed down in Table 5.1.
Table 5.1.
MACHINERY AND EQUIPMENT REQUIRMENT AND COST
Sr.

Qty

Total Cost
('000 Birr)

No.

Description

Wooden barrel, 300-lt cap.

250

Plastic bucket, 25 lt cpa.

50

Heater

Hop grinder

Honey clarifier

Collection Tank, SS, 2000 lt cap

Total

2.

Pcs

5 sets

1,000

Land ,Building and Civil Works

The plant requires a total of 600 m2 area of land out of which 300 m2 is built-up area
which includes Processing area, raw material stock area, offices etc. Assuming
construction rate of Birr 2500 per m2, the total cost of construction is estimated to be Birr
750,000. The total cost, for a period of 80 years with cost of Birr 1 per m2, is estimated at
Birr 600. The total investment cost for land, building and civil works is estimated at Birr
750,600.

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3.

Proposed Location

According to the resource potential study of the region, the raw material is identified in
Masha,Yeki, Mizan Tefri Zuria , Bonke woredas. Based on the availability of raw
material infrastructure, utility and market out let Gresse town of Bonke woreda is selected
and recommended to be the location of the envisaged plant

VI.

MANPOWER AND TRAINING REQUIREMENT

A.

MANPOWER REQUIREMENT

The annual labour cost of the project is estimated to be Birr 317,250. The list of labour
together with the corresponding salary cost is presented in Table 6.1.

Table 6.1
MANPOWER REQUIREMENT ANNUAL SALARY
Sr.
No.
1
2
3
4
5
6
7
8
9
10
11
12
13

Position
Plant manager
Personnel
Commercial manager
Secretary
Purchaser
Sales man
Accountant
Accounting clerks
Shift leader
Skilled workers
Laborers
Guards
Driver
Sub Total
Workers benefit (20% of Basic salary)
Grand total

No. of
Persons
1
1
1
1
2
1
1
2
1
3
40
6
3
63
25
-

Salary ( Birr)
Monthly
Annual
1,200
14,400
700
8,400
1,000
12,000
600
7,200
1600
19,200
400
4,800
600
7,200
1,800
21,600
700
8,400
1500
18,000
10,000
120,000
900
5,400
900
7,200
10,950
253,800
2,190
63,450
317,250

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B.

TRAINING REQUIREMENT

On-the-job training on the production process is required by an expert during the start up
and trial run, production period. The total cost of training is estimated at about Birr
5,000.

VII.

FINANCIAL ANALYSIS

The financial analysis of the tej bottling

project is based on the data presented in the

previous chapters and the following assumptions:-

Construction period

1 year

Source of finance

30 % equity

70 % loan
Tax holidays

years

Bank interest

8%

Discount cash flow

8.5%

Accounts receivable

30 days

Raw material local

30days

Raw material, import

90days

Work in progress

5 days

Finished products

30 days

Cash in hand

5 days

Accounts payable

30 days

A.

TOTAL INITIAL INVESTMENT COST

The total investment cost of the project including working capital is estimated at Birr 3.11
million, of which 43 per cent will be required in foreign currency.

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

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Table 7.1
INITIAL INVESTMENT COST

Sr.

Total Cost

No.

Cost Items

(000 Birr)

Land lease value

Building and Civil Work

Plant Machinery and Equipment

1,000.00

Office Furniture and Equipment

75

Vehicle

200

Pre-production Expenditure*

299.79

Working Capital

707.51

Total Investment cost

3,112.3

Foreign Share

80
750.00

43

* N.B Pre-production expenditure includes interest during construction ( Birr 149.79

thousand ) training (Birr 10 thousand ) and Birr 140 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 3.71
million (see Table 7.2). The material and utility cost accounts for 82.51 per cent, while
repair and maintenance take 2.02 per cent of the production cost.

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Table 7.2
ANNUAL PRODUCTION COST AT FULL CAPACITY ('000 BIRR)

Items
Raw Material and Inputs

Cost
3,040.00

81.92

22.1

0.60

75

2.02

109.8

2.96

36.6

0.99

73.2

1.97

3,356.70

90.45

215

5.79

139.42
3,711.12

3.76
100

Utilities
Maintenance and repair
Labour direct
Factory overheads
Administration Costs
Total Operating Costs
Depreciation
Cost of Finance
Total Production Cost

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.

277-13

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

= 25 %

Sales Variable Cost

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 25 % and the net
present value at 8.5% discount rate is Birr 1.98 million.

D.

ECONOMIC BENEFITS

The project can create employment for 25 persons. In addition to supply of the domestic
needs, the project will generate Birr 1.29 million in terms of tax revenue.