VII. Feasibility Study for Melon Subsector Plan: Improved sorting, grading and boxing of melons for export The comprehensive feasibility study of the MRRD selected business opportunity Improving sorting, grading and boxing of melons for export for the melon subsector shall be presented in this section, covering both the economic viability and technical feasibility. The Economic Viability analysis includes market analysis, competitive analysis, business justification, marketing plan, alternative financing options, realistic cost flow statement, cost benefit analysis, breakpoint point, and contribution of potential entrepreneurs. The Technical Feasibility analysis includes: demand and supply analysis, availability of required resources, availability of technical know-how, and alternative supply sources. There is a special focus on Balkh. 7.1 Business description The Company will select the appropriate quality, size and variety of melons, which are suitable for export, from the market and/or directly at the farm gate. The melons will be treated pre-harvest on the farm to reduce melon fly prevalence. They will then be transported to export-markets in special corrugated boxes. The products will be the best quality of the varieties Arkani and Gentor. Adding a product label From Afghanistan is optional. Services Organisational model End products Manual sorting, grading, storing and packaging Factory setting with some(embedded farmer) services off site(melon fly pre-harvest spraying and sorting). Packaged melons for export. Estimated employment Direct employment: 19 Indirect employment embedded services, increased income though melon-fly prevention measures- about 45 farmers Subsector Analysis and Business Plan Development/ North& NE/Economic Viability& Technical Feasibility Dec 07 81
7.2 Economic Viability The Market/ Overview A Industry Analysis Melons are another native crop and also another major subsector in Northern Afghanistan. They are sold fresh(predominantly) as well as dried. Afghan melons are sweet and are recognised for their goodinherentquality and opportunitiesin[the]longterm 58 (Maani2003). Thisimportantcrop has suffered in recent months from the Balochistan melon fly (myiopardalis pardalina), which has spreadfromthebordersofuzbekistanandtajikistan. 59 Current production of melons(including watermelons) in Afghanistan is approximately 300,000 M T per year (see below). Production areas include Samangan, Jowzjan, Kunduz, Balkh and Takhar on both irrigated and rain-fed land. Current melon production levels in Balkh sit at around 90,000 M tonnes per annum across 7,000 hectares land. Kabul, Kunduz and Mazar are the main market hubs for trading melons. Export levels range(presently on average ~20 per cent). In 2003 these were shown tobe~$0.5 million 60. Thereareatotal of 38varietiesof melon. In thenorth of Afghanistan, the melon season stretches from July until the end of September. Kabul is an important market for melons from mid summer to early autumn as is Pakistan. Like common vegetable crops, melons compete in Kabul s market with Pakistani imports but later in the season this trend is reversed. 61 Presently only two products are sold: fresh (long, medium and short shelf life) or dried melon, and there is limited processing activity taking place in country. Value addition activities in Afghanistan include (basic) manual sorting, and grading at the market place. The traders contract semi skilled labourers to do this work. These activities take place in situ in the open market. Meanwhile, some farmers families (women) carry out melon drying at the village level. These activities seems to be limited and motivated by increasing the lifespan of the melon products. Aside from basic sorting at the auction site, no further value addition (processing, packaging traders just load them onto trucks ) is presently taking place in Afghanistan. Ahighincidenceof melon fly hasbothincreasedspoilagerates preandpost harvest,aswellasput off many potential clients don t bother buying melons, they are all infected with melon fly. This is being looked into by ASAP, FAO and AKF. If this problem can be tackled adequately, there is significant opportunity to improve transport packaging of melon, brand melons from this part of the country and certify melon as melon fly free, and to market both fresh melons(within and outside of Afghanistan particularly long-lasting arkani variety), and melon derivatives such as dried melons, melon syrup and melon juice. 58 Maani2003 59 CitedinMRRDLiteratureReviews2007. 60 OTF2006. 61 CitedinMRRDLiteraturereviews2007. Subsector Analysis and Business Plan Development/ North& NE/Economic Viability& Technical Feasibility Dec 07 82
The SWOT analysis provides a comprehensive overview of strengths, weaknesses, opportunities and threats in the melon subsector(with a focus on Balkh). SWOT-analysis MELON SUBSECTOR/BALKH PROVINCE STRENGTHS - Competitive product in world market, especially the Arkani variety which lasts several months - Afghan product is well known in the region, particularly in India - Suitable climate in Balkh, which is a large production of a variety of melons(38 varieties, 90,000MT/annumwithapproximately500 tonnestraded/daybetweenjulyand November) - Existence of a domestic market and big markets in proximity(kunduz, Kabul and Herat) - Major investments in farm-level technical assistance in melon subsector in Balkh (ASAP) OPPORTUNITIES - Eradicating melon fly and utilizing preventive means - Quality control and certification - Packaging with labeling, including melon fly free - Investment in processing facilities, for juice, syrup - Drying and packaging - Direct transport to export markets - Branding Afghan melons - Extending the sales season by creating better storage facilities - Growing different and unique varieties(by genetic alterations? Or introducing new variety to Afghanistan?) - Improving market linkages? - Targeting other export markets(high value) by meeting international certification standards and improved packaging) WEAKNESSES - Occurrence of melon fly and inadequate means to detect and prevent - Lack of quality control - Lack of value addition, packaging and processing - Lackofabrand - General low level of technical knowhow and marketing at farmer and trader-level - Lack of organization by farmers and melon traders - No direct transportation to main export markets - Lack of professional( honest ) business conduct - Lack of cold storage facilities - Seasonal market THREATS - Competition from regional markets - Competition on price? - Melonflycandestroydomesticaswellas export market, when consumers lose faith in product - No particular product features( nothing special ) Subsector Analysis and Business Plan Development/ North& NE/Economic Viability& Technical Feasibility Dec 07 83
B Market Analysis Major Afghan markets for melons include Kabul, Mazar and Kunduz. Melons are currently sold internally(80 per cent) and abroad(20 per cent), mostly as fresh melons although some(informal) drying is done. There is demand for Afghan melons in traditional markets such as India but problems with melon fly, perishability (usually melons can only withstand 2-3 days but some varieties can last 7-8 months (Arkani)), standards and certification constrains their export despite potential interest from buyers. Transporting is also difficult through Pakistan but there is a traditional market inindia. 62 Sample supply chain reports describe melons traveling to Kabul and onto Pakistan. 63 Research indicates small traders from Kunduz/ Mazar transporting these to Kabul. Traders unload at Kabul s specialized wholesale melon market and Kabul traders then sort and reload onto trucks(no packing) headed to Peshawar. In Peshawar, melons are unloaded and sorted into different piles (by size). Melons are auctioned by pile. Sometimes Indian middlemen are present and buy in Afghanistan. C Co mpetitor Analysis International competitors(includes watermelon) include China(66 million MT), Turkey(4.3 million MT),Iran(2millionMT),CentralAsia(0.8millionMT),andPakistan(0.4millionMT). Typesof melons sold include fresh and(some) dried. Afghanistan s melons have a good historical/ traditional reputation in India for their sweet taste and are much coveted in the regional market. Export beyond the region is not cost efficient. D C usto mers/markets Kabul/direct export Afghanistan s melons are sold in Kabul, Kunduz, and Mazar within Afghanistan. From Kabul, a small percentage is directly exported to India via Pakistan (20 per cent). Average melon prices in Afghanistan are indicated below. Prices in Pakistan and Delhi are quoted at seven times the wholesale priceinmazar($0.7/kg). Melon variety Average prices of melon varieties in Mazar market Type of melon (Av.) Farmgate price (Afs/7kg) (Av.) Wholesale price in Mazar (Afs/7kg) Arkani Grade 1 30-52 35-52 3-5 Arkani Grade 2 20-30 23-32 3-5 Chedree Grade 1 45-50 35-50 3-5 Chedree Grade 2 22-40 24-45 3-5 (Av.) Margin (Afs/7kg) 62 IndiahaslongfavouredAfghanmelons.StoriestellofthefirstMurghalEmperorBarburrequestingmelonstobesentfromAfghanistanto Aghra and Delhi. 63 Maani2003(appendixA10) Subsector Analysis and Business Plan Development/ North& NE/Economic Viability& Technical Feasibility Dec 07 84
Melon variety Type of melon (Av.) Farmgate price (Afs/7kg) (Av.) Wholesale price in Mazar (Afs/7kg) Lo beiee Grade 1 30-55 32-52 3-5 Lo beiee Grade 2 20-35 22-36 3-5 (Av.) Margin (Afs/7kg) E Demand and supply analysis As stated earlier, current production levels have been estimated at 300,000 MT / annum (including watermelons). In Balkh, this is quoted to be approximately 90,000 MT/ annum(melons only), and 500-700 tonnes /day during the season July-Nov. Of these, at the moment up to 50 per cent are afflicted with the melon fly. Appendix 2 provides the approximate proportion of production districtwise. Within Afghanistan, there is indicated to be a surplus of melons. Export has been impacted by melon fly prevalence. Demand for melon-fly free melons in India is relatively high. Other markets are too costly to reach (although Dubaiwouldbeasecondmarket of choice if cheaper air freight couldbe secured). F Business Justification The melon subsector is hampered by poor sorting/ grading, poor packing and lack of cool storage. This is causing the following: Melon Sorting/ grading: Services are basic and quality control does not formally exist leading to increased spoilage and spread of the melon fly Value addition and packaging: Absence of professional packaging leading to increased spoilageandspreadofthemelonfly Storage facilities: Warehouses and cold storage are lacking leading to increased perishability Subsector Analysis and Business Plan Development/ North& NE/Economic Viability& Technical Feasibility Dec 07 85
FinancialPlan 64 A Capital requirement Owners Equity: MRRD grant: Total: 70,000 US$ 30,000 US$ 100,000 US$ B Capital Investments Land: 14,666 US$ paid in 7 terms 1/3 of costs(44,000 US$) allocated to melons Building: Equipment: Transportation: 11,666 US$ 9,000 US$ 1/3 of costs(35,000 US$) allocated to melons 1/3 of total costs(27,000 US$) allocated to melons Packaging material: 3,840 US$ Generator: Chemicals: Total 1,008 US$ 40,180 US$ C Financing options(and contribution of potential entrepreneurs) PleaseseeA.Noloanwillberequired. D Landed costs 7MTtruck 8AFAperkg 56,000AFA 1,120USD 64 InthefinalBusinessPlans,someofthisdatamaybetweaked. Subsector Analysis and Business Plan Development/ North& NE/Economic Viability& Technical Feasibility Dec 07 86
Costs of transportation to Delhi 5%importduty 65 Total costs FOB Delhi 1,100 USD 111USD 2,231 USD Landed costs Delhi: 0.32 US$/kg E Operations Forecast From half August until half November - 4 months Totalshipments4trucksaweektoDelhiwith7MTeach Income Statement US$ US$ Sales revenue 268,800 Costs of goods sold Raw material 17,920 Costs of transportation 52800 Fuel costs: 5,400 TO TAL 76,120 Gross Profit 192,680 Expenses Insecticide 252 Rent 0 Utilities(water, electricity, fuel) 24,000 Salaries 16,400 Other labor costs 3,000 Deprecation 4,059 TO TAL 47,711 Net Income before Tax 144,969 Less: Income Tax 28,993.8 Net Income 115,975 F Cash Flow and Break-Even Analysis Fixed Costs/(Sales Price Average Variable Costs) 47,112/(0.6 0.32) 65 Importdutyhastobeconfirmed.Zerotariffincaseoftaxexemption. Subsector Analysis and Business Plan Development/ North& NE/Economic Viability& Technical Feasibility Dec 07 87
Break-Even Point 170 MT Cash flow Overview $ $ $ year1 year2 year3 Opening balance 70,000 179,992 297,185 Grant 30,000 0 0 Collection from sales 268,800 268,800 268,800 Total receipts 368,800 448,792 565,985 Payments Purchase of land 6,286 6,286 6,286 Building 35,000 0 0 Purchase vehicle 27,000 27,000 0 Label machine 0 10,000 0 Payment to farmers 17,920 17,920 17,920 Transportation 52,800 35,200 23,467 Fuel costs 5,400 10,800 10,800 Labor costs 19,400 19,400 19,400 Operational expenses 24,000 24,000 24,000 Other expenses 1,002 1,002 1,002 Total payments 188,808 151,608 102,874 Balance 179,992 297,185 463,110 G Cost benefit analysis*cba) Pleaserefertoalloftheaboveforpreliminarycost /benefits.afullcbawillbeincludedinthedraft Final Report/ Business Plan. Subsector Analysis and Business Plan Development/ North& NE/Economic Viability& Technical Feasibility Dec 07 88
Marketing Plan A Targeting Strategy The Company will strive to develop long-term relationships with buyers in export markets, over time sorting out the better customers and creating a customer relationship that is based on mutual trust and continuously delivering good quality products, both timely and according to the requirements. The Company will consistently put efforts into business development, in order to attract new customers, over time ceasing to work with bad customers, that cannot or will not issue payments according to the given time schedules. The Company will primarily service export markets, in particular India where the Afghan products already have a reputation with Arkani(two varieties) and Gin Tor(one variety). The potential of other markets will have to be investigated. B Service Strategy The Company will firstly aim at good quality products, delivered timely and packaging according to the customers specifications. C Pricing Strategy The Company will continuously monitor prices of competition in Mazar-e Sharif, Kabul, India, UnitedArabEmirates,PakistanandUSproductsinordertomaintainahighlevelof competitiveness, but will not compete on price alone. D Advertising The Company will use direct sales contact with potential new clients through a representative agency in Delhi. The company will use other sales tools, like discounts for large quantity orders, and/or special price offerings off-season when appropriate. E Sales Forecast TargetaTotal4trucksaweektoIndiawith7MTpertruck Total season 4 months Wholesale Price Delhi: 28MT/week 112 MT/month between 0.25-1.26 USD/kg Market prices have to be checked regularly, when sales prices drops below landed costs, no goods will be shipped. Subsector Analysis and Business Plan Development/ North& NE/Economic Viability& Technical Feasibility Dec 07 89
Weekly Sales revenue average 0.60 US$/kg 67,200 US$ Total sales revenu e 268,800 US$ Subsector Analysis and Business Plan Development/ North& NE/Economic Viability& Technical Feasibility Dec 07 90
7.3 Technical Feasibility A Manag eme nt Management Managing Director/Business Owner: Haji Hassan End responsible for Overall Management, Finance, Marketing& Sales, and Human Resources. Manager: A local manager will have to be recruited for who will be managing the day to day operations on the different sites, and have overall control over the staff. Financial Administration The company will do the financial administration in the main factory. Accounting software (QuickBook, etc.) will be bought for the financial administration. The company will receive technical assistance with the implementation of a professional computerized financial administration and the use of accounting software from MRRD. At the main factory Internet-connection will be present and at least one PC for the administration. Administrative and financial controls - Bookkeeping system - Accounting system - Accounts receivable and account payable management system B (i) Availability of required reso urces(technical, infrastructure and equipment) Infrastructure ThebusinessmenhaveselectedasiteinMazarforthefactoryunit. Thissitehasaccesstowaterand electricity. Thissitewillbepartusedforthisbusiness(onethirdoftheyear). (ii) Equipment/ materials The following would need to be purchased including: Reusable Wooden boxes 122x122x90cm/2cmthickwood good quality4,000afs/piece Navid Mashreqiwal Co. Contact person: Eng. Abdul Haadi Phone: 0799 372 678 Subsector Analysis and Business Plan Development/ North& NE/Economic Viability& Technical Feasibility Dec 07 91
Chemicals Insecticide: Spinosad(biological)/ Mazar based company/ cost 1 USD/per week/per ha (iii) Technical/ Business Assistance The business does not depend on this assistance to be operational. The company will receive additional management, finance, marketing and technical training / support (the training support / plan is described under Appendix 5). Management support: The Company will receive management support from a Kabul based consultant during the first year of operationswhichwillbepaidfor by MRRD. The monthly meetingswillbe focused at Coaching, mentoring, troubleshooting, support service contract management, HR management, monitoring and evaluation.( Total cost = $21,600) Financial support: The Company will receive Accounting/ Quickbook training and assistance from a Kabul based Consultant in the establishment of a Financial Management System. ( Total cost = $3,800) Marketing and Business training: The Company will receive a three-day marketing and BDS training from a Kabul-based BDS provider which will be paid for by MRRD. Modules including marketing, business development, supply chain management and export.( Total cost = $1,800). Technical support: The Company will receive in total three days of technical assistance from a Mazar-based expert which will be paid for by MRRD. The training will focus on on-farm melon-fly prevention measures and post-harvest pre-cooling treatment. ( Total cost = $1,500) (iv) Raw Materials Melons: As stated earlier, during the season (July October), approximately 500 tonnes of melons are tradedadayin Mazar (fresh). The businessmen have links to farmers in Aqcha and Dehdadi districts and will procure their melons directly from these locations. 66 The Company will form formal contracts with the farmers. The Company intends to process approximately 28 tonnes of melonaweekduringtheseasonfor the twoselectedvarieties ArkaniandGin Tor-(midAug-mid Nov). 66 Appendix2highlightsmainproductiondistrictsofalmondinBalkh. Subsector Analysis and Business Plan Development/ North& NE/Economic Viability& Technical Feasibility Dec 07 92
References ADB, Landell Mill Limited March: ADB 2007 Favre, R., CNFA Carpet Sector Review: CNFA 2005 Maani, University of California, Prioritising Export Opportunities for Horticulture in Afghanistan: 2003 McCord, M., An Analysis of Business Opportunities within Afghanistan s Carpet Sector, 2007 OTF Strategy and Action Plan for Afghanistan s Dried Fruit and Nuts Sector: OTF 2006 OTF Study on Afghan Carpet Sector: OTF 2006. UNDP / ALTAI Consulting Market Sector Assessment in Horticulture(Phase 2-3, Feasibility studies and Business Plans), Altai 2004 UNFP Province of Balkh. A Socio-Economic and Demographic Profile. Household Listings 2004. Subsector Analysis and Business Plan Development/ North& NE/Economic Viability& Technical Feasibility Dec 07 93
Appendix1: NotesonKeyResourcesinMazarandBalkh [1] Electricity in Mazar Local consultation in Mazar with traders, shopkeepers and other businessmen indicate that Mazar citycurrentlyhasapproximately5-6hoursofcitypoweraday(intheevening). Thisisbeprovided byuzbekistaninanagreementwithbalkh.inthefollowing6months,citypowerisexpectedtorun in the industrial park in Mazar during daylight hours(according to businessmen / authorities). For operating factories it is recommended to use a generator. A large generator is estimated to cost ~ $10,000- $20,000 per generator with running costs of $12,000/ annum. [2] Trucks Local consultation with Mazar and Kabul businessmen indicate that truck costs are $27,000. [3] Land Local consultation with Mazar businessmen during the project indicate three types of land that is available in Mazar for purchase with varying degrees of services and costs as described below: Landcost/ Resources Land location Availability Other comments jerib $400 None New government subsidized land Businessmen may register to buy with Prioritized for carpet sector near Mazar local government. No confirmation on purchase. $30,000 Water/ power (see above) In various parts of the city Can be difficult Drainage may be a problem $44,000 Water/ power (see above) New industrial park Available [4] Female labour Female labour is available in both the rural and urban areas in Balkh. However, local discussions during theresearch indicatethatwomeninmoreremoteruralareasinbalkhwouldbelesskeentoworkina factory setting. In general however, on the outskirts of more urban areas 67 women wouldbeboth permitted and keen to work in a formalized factory setting, particularly where women can work together and are supervised by a female line manager. [5] Factory buildings 67 TheurbanpopulationisconcentratedinMazar,Khulm,Balkh,DaulatabadandSholgara.StatisticsherearedrawnfromProvinceofBalkh.A Socio-Economic and Demographic Profile. Household Listings 2004. UNFP Subsector Analysis and Business Plan Development/ North& NE/Economic Viability& Technical Feasibility Dec 07 94