241. PROFILE ON NEEM CAKE

241. PROFILE ON NEEM CAKE

241-2 TABLE OF CONTENTS PAGE I. SUMMARY 241-3 II. PRODUCT DESCRIPTION & APPLICATION 241-3 III. MARKET STUDY AND PLANT CAPACITY 241-3 A. MARKET STUDY 241-3 B. PLANT CAPACITY & PRODUCTION PROGRAMME 241-6 IV. RAW MATERIALS AND INPUTS 241-6 A. RAW & AUXILIARY MATERIALS 241-6 B. UTILITIES 241-7 V. TECHNOLOGY & ENGINEERING 241-7 A. TECHNOLOGY 241-7 B. ENGINEERING 241-8 VI. MANPOWER & TRAINING REQUIREMENT 241-8 A. MANPOWER REQUIREMENT 241-8 B. TRAINING REQUIREMENT 241-9 VII. FINANCIAL ANALYSIS 241-10 A. TOTAL INITIAL INVESTMENT COST 241-10 B. PRODUCTION COST 241-11 C. FINANCIAL EVALUATION 241-12 D. ECONOMIC BENEFITS 241-13

241-3 I. SUMMARY This profile envisages the establishment of a plant for the production of neem cake with a capacity of 12,000 quintals per annum. The present demand for the proposed product is estimated at 5,359 tones per annum. The demand is expected to reach at 14,576 tones by the year 2022. The plant will create employment opportunities for 17 persons. The total investment requirement is estimated at about Birr 3.79 million, out of which Birr 1.8 million is required for plant and machinery. The project is financially viable with an internal rate of return (IRR) of 24 % and a net present value (NPV) of Birr 2.92 million discounted at 8.5%. II. PRODUCT DESCRIPTION AND APPLICATION The neem fruits contain azadiradione, azadirone, etc. which are increasingly being used in the formulation of biodegradable pesticides. Neem cake, which is produced from the neem fruit after extracting the oil is used as manure and pesticide.

241-4 III. MARKET STUDY FARM & PLANT CAPACITY A. MARKET STUDY 1. Past Supply and Present Demand Although Ethiopia has the potential for neem tree extracts production, it is not currently produced either due to lack of proper information on its uses or available technologies. However, every part of the neem tree viz roots, leaves, flowers, seeds, trunks and branches has multiple uses. The demand for neem cake is assessed based on its potential uses. Neem cake is an excellent source of pesticides. Neem pesticides are now increasingly used around the world on crops like cotton, vegetables, fruit trees, coffee, tea, etc. Neem has an important application as a fertilizer. It not only provides organic nitrogen but also inhibits the nitrification process when mixed with urea. Neem coated urea in 90:10 proportion can save upto 30% of the total chemical nitrogen requirement of the crops. With the global trend towards the use of alternative ecologically beneficial agricultural and health agents and broad application of the product in various industries, there is a wide potential for domestic use or export market. For the purpose of this project, only two potential applications, i.e., fertilizers and pesticides are taken into consideration. According to IPM of Alaska, 2003, use of neem oil in the above product ranges from 1% to 2% depending on the target use. It is also stated that the product can be used in combination with other manufactured fertilizers. Hence, it can be assumed that of the total usage of fertilizers and pesticides, demand for neem cake will be about 1.5%.

241-5 According to Statistical Abstract of CSA, annual average import of fertilizers during 2004 2006 was 353,722 tones Customs Authority data also reveals that annual average import of pesticides (insecticides, fungicides, herbicides and rodenticides ) during 2004-2006 amounts about 3580 tones. The sum of the above products gives 357,302 tones. In order to arrive at the demand for neem cake, the ratio mentioned earlier which is 1.5% of the of the two products is taken. Accordingly, the present demand for neem cake is estimated at 5,359 tones. 2. Projected Demand The demand for neem oil will grow mainly with modernization of the agricultural sector. The demand for fertilizers and insecticides in the past 5 years has been growing from 7% to 10%. In addition, there is a wide export market if appropriate measures are taken. Considering the above factors, demand for neem cake is conservatively assumed to grow by 8% per annum. The projected demand is shown in Table 3.1. Table 3.1 PROJECTED DEMAND FOR NEEM CAKE Year Projected Demand (tone) 2008 5,788 2009 6,251 2010 6,751 2011 7,292 2012 7,875 2013 8,505 2014 9,185 2015 9,920 2016 10,714 2017 11,571 2018 12,496 2019 13,496 2020 14,576

241-6 3. Pricing and Distribution The ex-factory price of neem cake is proposed to be Birr 15 per kg. The product can be sold directly to pesticides manufactures as well as to other bulk buyers. B. PLANT CAPACITY AND PRODUCTION PROGRAM 1. Plant Capacity The annual neem cake production capacity of the envisaged plant is 12000 quintals and 300,000 lts of neem oil, based on 300 working days and 8 hours per day. The capacity can be increased by increasing the number of working hours per day. 2. Production Program Table 3.2 shows the production program of the proposed plant. At the initial stage of the production period, the plant requires some years to penetrate the market. Therefore, in the first and second year of production, the capacity utilization rate will be 70% and 90%, respectively. From the third year on wards full capacity production shall be attained. Table 3.2 PRODUCTION PROGRAM Sr. Product Production Year No. 1 2 3-10 1 Neem cake (quintal) 8400 10,800 12,000 2 Neem oil (lt) 210,000 270,000 300,000 Capacity utilization rate (%) 70 90 100

241-7 IV. RAW MATERIAL AND INPUTS A. RAW MATERIAL The principal raw material is neem fruit which is harvested from a neem tree. Fruit yield ranges from 30 to 100 kg per tree, depending on rainfall, oil type and neem ecotype and genotype. 50 kg of fresh fruit yield approximately 30 kg of seed/kernel. The annual neem fruit requirement is 23,500 quintals. 2,011,500. Its cost is estimated at Birr B. UTILITIES Furnace oil, electricity and water are the major utilities of the project. The annual utility requirement and its cost are indicated in Table 4.1. Table 4.1 ANNUAL UTILITY REQUIREMENT (AT FULL CAPACITY) Sr. Utility Unit Qty Cost ( 000 Birr) No. 1 Furnace oil Lt 12500 67.63 2 Electricity kwh 101000 47.87 3 Water M 3 5000 50 Total 165.5

241-8 V. TECHNOLOGY AND ENGINEERING A. TECHNOLOGY 1. Process Description The neem fruit shall first be washed and then air dried. The clean fruit shall be decorticated to separate the husk from the kernel. After dehulling the seed is conveyed to the press. The neem cake, with about 10% oil is conveyed to packing. The oil then goes to toot separator and filter press for clarification. 2. Source of Technology Several machinery manufacturers and suppliers could be contacted for their offer. The following company could be one of the candidates. Shanghai Small Enterprise Trade Development Service Center Int. Corp. Division Shanghai, 200032 Fax (008621) 64220814 B. ENGINEERING 1. Machinery & Equipment The list of machinery and equipment is indicated in Table 5.1. The total cost of machinery is estimated at Birr 1,800,000 of which Birr 1,500,000 is in foreign currency.

241-9 Table 5.1 LIST OF MACHINERY AND EQUIPMENT Sr. Description No. No. 1 Dehulling machine 1 2 Expeller press 1 3 Foot separator 1 4 Filter press 1 5 Washing equipment Set 6 Boiler Set 7 Pumps 3 8 Storage tank 2 2. Land, Building and Civil Work The total land requirement of the proposed project is 1500 m 2 of which 500 m 2 is a builtup area. The cost of building is estimated at Birr 750,000. The lease value of land is Birr 120,000, at a rate of 1 Birr/m2/year for 80 years. 3. Location & Site Kebado town is selected as the best location of the envisaged project, for its proximity to raw material sources. VI. MANPOWER AND TRAINING REQUIREMENT A. MANPOWER REQUIREMENT The list of manpower is indicated in Table 4. The annual labour cost of the project is Birr 204,000.

241-10 Table 4 MANPOWER REQUIREMENT Sr. No. Manpower No. Monthly Salary (Birr) Annual Salary (Birr) 1 General manager 1 3000 36000 2 Accountant 1 2000 24000 3 Production head 1 2000 24000 4 Operators 4 2800 33600 5 Labourers 8 3200 38400 6 Guards 2 600 7200 Sub total 17 13600 163200 Benefits (25% BS) 3400 40800 Total 17000 204000 B. TRAINING REQUIREMENT On-the-job training could be carried out during plant erection and commissioning by experts of machinery supplier. The cost of training is estimated at Birr 15,000. VII. FINANCIAL ANALYSIS The financial analysis of the neem cake 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 5 years Bank interest 8% Discount cash flow 8.5%

241-11 Accounts receivable Raw material local Work in progress Finished products Cash in hand Accounts payable 30 days 30days 2 days 30 days 5 days 30 days A. TOTAL INITIAL INVESTMENT COST The total investment cost of the project including working capital is estimated at Birr 3.79 million, of which 36 per cent will be required in foreign currency. The major breakdown of the total initial investment cost is shown in Table 7.1. Table 7.1 INITIAL INVESTMENT COST Sr. No. Cost Items Total Cost ( 000 Birr) 1 Land lease value 120 2 Building and Civil Work 750.00 3 Plant Machinery and Equipment 1,800.00 4 Office Furniture and Equipment 100 5 Vehicle 250 6 Pre-production Expenditure* 331.70 7 Working Capital 443.12 Total Investment cost 3,794.8 Foreign Share 36 * N.B Pre-production expenditure includes interest during construction ( Birr 181.70 thousand ) training (Birr 15 thousand ) and Birr 135 thousand costs of registration, licensing and formation of the company including legal fees, commissioning expenses, etc.

241-12 B. PRODUCTION COST The annual production cost at full operation capacity is estimated at Birr 2.97 million (see Table 7.2). The material and utility cost accounts for 73.08 per cent, while repair and maintenance take 3.81 per cent of the production cost. Table 7.2 ANNUAL PRODUCTION COST AT FULL CAPACITY ('000 BIRR) Items Cost % Raw Material and Inputs 2,011.50 67.52 Utilities 165.5 5.56 Maintenance and repair 113.65 3.81 Labour direct 97.92 3.29 Factory overheads 40.8 1.37 Administration Costs 65.28 2.19 Total Operating Costs 2,494.65 83.74 Depreciation 313.5 10.52 Cost of Finance 170.91 5.74 Total Production Cost 2,979.06 100 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.

241-13 The income statement and the other indicators of profitability show that the project is viable. 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 = 32% Sales Variable Cost 3. Pay Back Period The investment cost and income statement projection are used to project the pay-back period. The project s 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 24 % and the net present value at 8.5% discount rate is Birr 2.92 million. D. ECONOMIC BENEFITS The project can create employment for 17 persons. In addition to supply of the domestic needs, the project will generate Birr 1.52 million in terms of tax revenue.