1st Draf

PRE-FESIBILITY STUDY
OFF SEASON VEGETABLE PRODUCTION
(HIGH TUNNEL)

PAKISTAN AGRICULTURE RESEARCH COUNCIL ISLAMABAD

MINISTRY OF NATIONAL FOOD SECURITY AND RESEARCH
Government of Pakistan
www.parc.gov.pk
January 2014

i
Contents
1. DISCLAIMER...............................................................................................................................3
2. PURPOSE OF DOCUMENT..........................................................................................................4
3. INTRODUCTION TO SCHEME......................................................................................................4
4. EXECUTIVE SUMMARY...............................................................................................................4
5. BRIEF DESCRIPTION OF PROJECT AND PRODUCT.......................................................................6
6. CRITICAL FACTORS......................................................................................................................6
7. INSTALLED AND OPERATIONAL CAPACITY FOR OFF SEASON VEGETABLE FARMING...................7
8. GEOGRAPHICAL POTENTIAL FOR INVESTMENT..........................................................................7
9. POTENTIAL TARGET MARKETS....................................................................................................7
10. PRODUCTION PROCESS FLOW................................................................................................7
11. PROJECT COST AND BENEFIT SUMMARY...............................................................................8
11.1 Project Economics.................................................................................................................8
11.2 Project Financing...................................................................................................................9
11.3 Project Cost............................................................................................................................9
11.4 Space Requirement..............................................................................................................10
11.5 Machinery and Equipments.................................................................................................10
11.6 Operational and Maintenance Cost.................................................................................10
11.7 Human Resource Requirement..........................................................................................11
11.8 Revenue Generation...........................................................................................................11
12. KEY ASSUMPTION................................................................................................................12
13. FINANCIAL ANALYSIS............................................................................................................13

i
 1. DISCLAIMER
This information memorandum is to introduce the subject matter and provide a general
idea and information on the subject. Although, the material included in this document is
based on data/information generated from experiments and field testing by a team of
relevant scientists; however, it is based upon certain assumptions which may differ from
case to case. The contained information may vary due to any change in any of the
concerned factors, and the actual results may differ accordingly from the presented
information. The PARC and its employees do not assume any liability for any financial or
other loss resulting from this memorandum in consequence of undertaking this activity.
The prospective user of this memorandum is encouraged to contact qualified
consultant/technical expert, especially designated focal person(s) of this enterprise for
reaching to an informed decision.

1
 2. PURPOSE OF DOCUMENT
The purpose of this document is to facilitate potential investors in Off Season
Vegetable Production-High tunnelby providing them with a general understanding of
the business, with the intention of supporting potential investors in crucial investment
decisions. The project pre-feasibility may form the basis of an important investment
decision and in order to serve this objective, the document/study covers various aspects
of project concept development, start-up, production, finance, and business
management. The need to come up with pre-feasibility reports for undocumented or
minimally documented sectors attains greater imminence as the research that precedes
such reports reveal certain thumb rules; best practices developed by existing
enterprises by trial and error, certain industrial norms and well established research
findings that become a guiding source regarding various aspects of business set-up and
it’s successful management. Apart from carefully studying the whole document, one
must consider critical aspects provided later on, which form the basis of investment
decisions.

3. INTRODUCTION TO SCHEME
Prime Minister’s Youth Business Loan Programme, for young entrepreneurs, with an
allocated budget of Rs. 5.0 Billion for the year 2013-14, is designed to provide
subsidized financing at 8% mark-up per annum for one hundred thousand
(100,000)beneficiaries, through designated financial institutions, initially through
National Bank of Pakistan (NBP) and First Women Bank Ltd. (FWBL). Loans from Rs. 0.1
million to Rs. 2.0 million with tenure up to 8 years inclusive of 1 year grace period, and a
debt: equity of 90:10 will be disbursed to SME beneficiaries across Pakistan, covering;
Punjab, Sindh, Khyber Pakhtunkhwa, Balochistan, Gilgit-Baltistan, Azad Jammu &
Kashmir and Federally Administered Tribal Areas (FATA).

4. EXECUTIVE SUMMARY
Growing out-of-season crops in controlled atmosphere inside polythene tunnel is called
Tunnel Farming. It was first introduced by William Fredrick 2600 years before. High
tunnels, also known as hoop houses, are relatively simple polyethylene-covered
unheated structures. It covered with one or two sheets of plastic and two layer offering
better insulation and consequently more cold protection. It gives maximum yield of
crops and makes easy soil preparation, picking and spraying due to its width and height.
It’s much suitable for tomatoes, cucumber and sweet pepper.
2
Vegetable Production under high tunnel is considered for Business in this project pre-
feasibility. This business is proposed to be located primarily in all temperate and sub
tropical areas of the country. All aspects of tunnel farming i.e. selection of suitable crop
for tunnel farming, nursery raising for off season crop, their nutritional requirement, all
crop management practices and different necessary measures for productivity
improvement has been studied at Vegetable Crops Research Programme, Horticultural
Research Institute (HRI),National Agricultural Research Centre (NARC), Islamabad. After
successful experimentation, this technology is declared technically feasible for
commercial vegetable farming. The technology of tunnel farming is in the phase of
extension to the farmers. Farmers are already practicing this technology at their farms.
The tunnel farming can be successfully carried in Punjab, KhyberPakhtunkhwa and
some parts of Balochistan. The project can be started at an area of one acre with eight
tunnels of 30ft x 100 ft(3000 sq.ft) each per acre. Total cost estimate is Rs.1.542 million,
with fixed investment of Rs.0.685 million and working capital amounting to Rs.0.857
million. Given the cost assumptions, Net Present Value (NPV), Internal Rate of Return
(IRR), Benefit Cost Ratio (BCR) and payback period are Rs. 2,117,799,32%, 1.53 and
3.15 years respectively.

5. BRIEF DESCRIPTION OF PROJECT AND PRODUCT

Following key parameters must be addressed as per pre-feasibility study:

3
• Techniques: Different methods and techniques are used for off-season vegetable
farming. However, keeping in view the economical, technical
andmanagerial factors, high tunnel off season vegetable farming is
suggested for the proposed project
• Location: The business can be successfully carried in Punjab, KhyberPakhtunkhwa
and some parts of Balochistan.
• Product: Year round vegetable consumption is increasing in Pakistan due to changing
food habits. Off season tunnel farming is the only way to fulfill this objective.
• Target Market: In addition to local consumption in the country, there is an enormous
export potential.
• Employment Generation: The proposed project will provide direct employment to
seven individuals. Financial analysis shows the profitability of proposed
business within first year of its operation.

6. CRITICAL FACTORS
The commercial viability of the proposed project depends on the following factors:
 Any person who is planning to adopt this technology should have some practical
knowledge about farming.

 Land that is being utilized for off-season vegetable farming should be tested
which will help in determining the quality of land for agriculture purposes.

 Farmer should ensure that the plant they are planning to grow must have the
ability to self-pollinate under the plastic sheet.

 Selection of the seed is most important factor because this determines the
productivity of the crop.

 Vegetables, which are in demand, should be cultivated, this will help in earning
higher profit margins.

 Timing of cultivation of vegetables has to be done accurately. The farmer should

have knowledge about the benefit that the early crop will offer and should gather
data about the prices of these early crops.

7. INSTALLED AND OPERATIONAL CAPACITY FOR OFF SEASON

VEGETABLE FARMING
This pre-feasibility suggests a farm operation on one acre of land with eight tunnels of
size (30 x 100 ft) each.

4
 8. GEOGRAPHICAL POTENTIAL FOR INVESTMENT
The proposed location for establishment of the tunnel farming will primarily be
temperate and sub tropical areas.

9. POTENTIAL TARGET MARKETS

The marketing of off season vegetables follows the traditional marketing channel,
through middlemen or wholesalers at farm who identifies potential buyers and
negotiate price, or directly to retailers in urban markets. The time spent in
transportation, from farm to the retail shop, varies from area to area. Over the years,
transportation of vegetables has improved with the use of better and refrigerated
vehicles. However, greater the distance between farm and consumer, more complicated
will be the marketing or distribution system, due to the perishable nature of the
vegetables. The key factors in marketing are availability of current market information,
quality of vegetables and supply & demand which will determine the selling price.

10. PRODUCTION PROCESS FLOW

The overall production cycle for the off season vegetable farming comprises of 4-8
months, depending upon the crop. In case of tomato, the production cycle will take eight
months to achieve the desired output.Following is the production process flow of off-
season vegetables farming:
Figure 1: Production flow of off- season vegetables

5
 Sowing& Picking Period Of Off -Season Vegetables
Following are sowing and picking periods of selected off-season vegetables in their
respective normal growing seasons:
Table 1: Sowing and picking period for the selected off--season vegetables

vegetables Sowing period Picking period

Tomato October (Nursery) February-May

November (Transplantation)
Cucumber End of October to end of Mid January to May
December (direct seeding)
Sweet peppers Mid of September to 1st week of October End of January toSeptember
End of October to 1st week of November
(Transplantation)

Temperature Requirements for Best Growth of Vegetables

Temperature is much important in off-season vegetables.Following are the temperature
requirement for the off-season vegetables
Table 2:Temperature Requirements for Vegetables
Vegetables Temperature Requirements

Tomato 29-21

Cucumber 24-18

Sweet pepper 24-21

11. PROJECT COST AND BENEFIT SUMMARY

A detailed financial model has been developed to analyze the commercial viability of off-
season vegetable farming under the Prime Minister’s Small Business Loan Scheme.
Various cost and revenue related assumptions, along with results of the analysis, are
outlined in this section.

6
 11.1ProjectEconomics

The following table shows the Net Present Value (NPV), Benefit Cost Ratio (BCR),
Internal Rate of Return (IRR) and payback period.
Table 3.Project Economics

Description Details
Net Present Value (NPV) 2,117,799

Benefits Cost Ratio (BCR) 1.53

Internal Rate of Return (IRR) 32%

Payback Period (years) 3.15

Returns on the scheme and its profitability are highly dependent on theentrepreneur
having some practical knowledge about agriculture & farming,selection of fertile land,
selection of best seed, cultivating the in-demandvegetables and selection of right time
for vegetable cultivation.

11.2Project Financing

Following table provides details of the equity required and variables related to bank
loan;
Table 4: Project Financing
Description Details

Project life (Years) 10

Equity Ratio (10%) 154200

Debit Ratio (90%) 1387800

Interest Rate on Loan 8%

Debt Tenure (Years) 8

7
 11.3 Project Cost

Following requirements have been identified for operations of the projectedbusiness:

Table 5.Total Project Cost

Capital Investment Amount (Rupees)
Capital Cost (one time investment) 685000
Initial operational cost 857000
Total Cost 1542000

11.4 Space Requirement

Following is the space requirement for the construction of Eight Tunnels for the Project.

Table 6.Space Requirement and its Cost

Space Requirement Cost Quantity Area Total Cost
(30x100 Sq. f.) Rs./ tunnel (No) (Acre) (Rs.)
Construction of tunnels 80,000 08 01 640,000
Total 640,000

11.5Machinery and Equipment

Following table provides a list of machinery and tunnel farm equipment required for
Off-Season Vegetable Farming (High Tunnel).
Table 7.Machinery&EquipmentCost
Description Quantity Unit Price Total (Rs.)
(No) (Rs.)
Tube Well and Channels including 01 250,00 250,00
boring & motor
Electricity connections 20,000 20,000
Total 45,000

11.6Operational and Maintenance Cost

Following table provides list of Consumable Requirement for off season vegetable
farming.

8
Table 8.Operational & Maintenance Cost
Description No. Unit Price Total
Plastic Cost 120000

FYM Cost 10000

Chemical Fertilizer Cost 12000

Land Lease expenses 50000

Land preparation expenses 10000

Seed Cost 25000

Labor expenses 6 11000 per month 528000

Nursery raising expenses 12000

Herbicides and insecticide Cost 50000

Irrigation Cost 40000

Total Cost 857,000

11.7Human Resource Requirement

The table below provides details of human resource required to manage basic tunnel
farm. The staff salaries are estimated according to the market trends. However, these
requirements and pay scales may vary area to area.

Table 9. Human Resource Requirement and its Cost

Description No. of Employees Salary/person/ month Total salary per year

Labour 6 11000 528000

11.8Revenue Generation

Final product of tunnel farming is vegetable that will generate revenue. The proposed
crop mix is tomato, cucumber and sweet pepper and the average capacity of farm is
35000, 40000 and 8000 kg per acre with sale price as per market Rs. 50, Rs. 40 &Rs. 50
respectively.

9
Table 10. Revenue and production of the project
Land Utilization Production Total
Sale Price
Vegetable Quantity Production Amount
(Acre) Rs./Kg
(Kgs/Acre) Quantity (kgs)

Tomatoes 0.33 35000/- 11550/- 60/- 693000

Cucumber 0.33 40000/- 13200/- 40/- 528000

Sweet Pepper 0.33 8000/- 2640/- 50/- 132000

Total Amount 1353000

12. KEY ASSUMPTION

Particulars Assumption
Sales Price Growth Rate 5% per year
Increase in cost of raw material 5% per year
Increase in utilities 5% per year
Debt/Equity Ratio 90:10
Plant Building Maintenance Expenses 10%
Machinery Maintenance Expenses 10%
Loan Period 8 years
Grace Period 1 year
Loan installments Yearly
Financial charges (interest rate) 8%

10
 13. FINANCIAL ANALYSIS

Table 11. Project Income Statement

Present
Capital R&M/ Installment Income afer Present Discount
Years Variable Cost Total Cost Benefits Cash Flow Value
Cost Depreciation /Year Installment Value Cost Factor
Benefit

0 1542000 1542000 0 -1542000

1 0 34250 857000 891250 1353000 461750 123360 338390 891250 1353000 1
2 0 34250 899850 934100 1420650 486550 296176 190374 864907 1315416.67 0.926
3 0 34250 944843 979092.5 1491682 512590 296176 216414 839414 1278877 0.857
4 0 34250 992085 1026335 1566266.6 539932 296176 243756 814738 1243353 0.794
5 0 34250 1041689 1075939 1644580 568641 296176 272465 790847 1208815 0.735
6 0 34250 1093773 1128023 1726809 598786 296176 302610 767714 1175237 0.681
7 0 34250 1148462 1182712 1813149 630437 296176 334262 745309 1142592 0.630
8 0 34250 1205885 1240135 1903807 663672 296176 367496 723607 1110853 0.583
9 0 34250 1266179 1300429 1998997 698568 702581 1079996 0.540
10 0 34250 1329488 1363738 2098947.1 735209 682209 1049996 0.500
1542000 10779254 11121754 2266863 4354135 7822576 11958136

11