33. CATTLE FEED MANUFACTURING PLANT

33. CATTLE FEED MANUFACTURING PLANT

33-2 TABLE OF CONTENTS PAGE I. SUMMARY 33-3 II. PRODUCT DESCRIPTION & APPLICATION 33-3 III. MARKET STUDY AND PLANT CAPACITY 33-3 A. MARKET STUDY 33-3 B. PLANT CAPACITY & PRODUCTION PROGRAMME 33-6 IV. MATERIALS AND INPUTS 33-6 A. RAW & AUXILIARY MATERIALS 33-6 B. UTILITIES 33-7 V. TECHNOLOGY & ENGINEERING 33-8 A. TECHNOLOGY 33-8 B. ENGINEERING 33-9 VI. MANPOWER & TRAINING REQUIREMENT 33-11 A. MANPOWER REQUIREMENT 33-11 B. TRAINING REQUIREMENT 33-12 VII. FINANCIAL ANLYSIS 33-12 A. TOTAL INITIAL INVESTMENT COST 33-12 B. PRODUCTION COST 33-13 C. FINANCIAL EVALUATION 33-14 D. ECONOMIC BENEFITS 33-15

I. SUMMARY 33-3 This profile envisages the establishment of a plant for the production of cattle feed with a capacity of 15,000 tonnes per annum. The present demand for the proposed product is estimated at 644,696 tonnes per annum. The demand is expected to reach at 1.55 million tonnes by the year 2020. The plant will create employment opportunities for 33 persons. The total investment requirement is estimated at Birr 12.77 million, out of which Birr 7 million is required for plant and machinery. The project is financially viable with an internal rate of return (IRR) of 32% and a net present value (NPV) of Birr 15.12 million discounted at 8.5%. II. PRODUCT DESCRIPTION AND APPLICATION Cattle feed is a kind of feed for oxen, cows, sheep, and goat reared for their milk and meat. It contains protein, minerals and other nutrients which are useful for beef and milk production and survival of the animals. Cattle feed can be prepared from oil cakes, agro-residues, flour mill by-products, cereals, molasses, etc. The major cattle feed consumers are large and small scale cattle raising and fattening farms. III. MARKET STUDY AND PLANT CAPACITY A. MARKET STUDY 1. Past Supply and Present Demand According to the resource potential assessment study of SNNPRS, natural grazing land is the main source of feed in the region which supply crude proteins and metabolize energy for maintenance and production requirement of ruminates. However, most of the forage resources

33-4 are not consumable as the dry period advanced due to increase in lignin in the cell wall. As a result livestock reducing their body weight and condition and exposed to economically important diseases in most part of the year. Although the amount and quality of feed resources is the determining factor for the condition and productivity of animals, the use of improved feed is virtually negligible in the region. Hence, the production of livestock products such as milk, meat and other livestock products has remained very low. Currently, there are few animal feed processing plants in the country which are concentrated around Addis Ababa. The average annual local production of animal feed during the period 2000 2005 is about 5,000 tonnes. Since transporting animal feed to far places is not economical, the demand estimate is worked out based on the existing livestock population of the region. According to the SNNPRS Basic Socio-Economic and Demographic Information (1997 EC), there are 8831.45 thousand cattle in the region. According to the information gathered with respect to animal feed, the recommended average consumption is 2 kg/head a day. As per the recommended average consumption, the total amount of animal feed required for the region's cattle population is 6.45 million tonnes ( 2 kg/head day X 8.83 million total cattle X 365 day/years). Considering conditional limiting factor such as product adaptability and awareness and income of farmers and the like only 10% of the cattle population are assumed to be fed with industrially processed cattle feed initially. Accordingly, the current demand for cattle feed in the region is estimated at 644,696 tonnes. 2. Projected Demand The demand for improved cattle feed is influenced by the size of the livestock population, awareness of farmers towards the importance of the product and establishment of modern commercial livestock farms in the Administration. As these conditions are believed to be

33-5 improved in the future, a growth rate of 7% is considered in projecting the demand for animal feed. Table 3.1 depicts the projected demand of cattle feed for SNNPRS up to the years 2020. Table 3.1 PROJECTED DEMAND FOR CATTLE FEED IN SNNPRS Year Demand (Tonnes) 2008 689,825 2009 738,112 2010 789,780 2011 845,065 2012 904,219 2013 967,515 2014 1,035,241 2015 1,107,707 2016 1,185,247 2017 1,268,214 2018 1,356,989 2019 1,451,979 2020 1,553,617 3. Pricing and Distribution The price of processed animal feed depends up on the availability and value of raw materials. In this profile, the ex-factory price of animal feed to be produced by the project under consideration is estimated to be Birr 1500/tonne. The plant can either sell its product directly to end users (for clients around the location of the plant) or appoint commission agents at strategic locations.

33-6 B. PLANT CAPACITY AND PRODUCTION PROGRAMME 1. Plant Capacity In this study, a plant with annual capacity of 15,000 tonnes is envisaged considering the market study and minimum economies of scale. The plant will operate a single shift of 8 hours a day, and 300 days a year. 2. Production Programme The plant will start operation at 85% of its rated capacity in the first year. It will then build up its production capacity to 95% and 100% in the second and third year, respectively. The low production level at the initial stage is to develop substantial market outlets for the product. Machinery operators will also get enough time to develop the required skills and experience. IV. MATERIALS AND INPUTS A. RAW & AUXILARY MATERIALS The annual requirement for raw materials and their costs are indicated in Table 4.1. Accordingly, the basic raw materials are: oil cake, molasses, and bone meal, bran of cereals, maize, salt and limestone. The total annual cost of raw material is estimated at Birr 16,604.64 thousand.

33-7 Table 4.1 THE ANNUAL REQUIREMENT OF RAW MATERIAL AND THEIR RESPECTIVE COSTS Sr. No. Description Qty (Tonnes) Unit Price Total Cost ('000 Birr) 1. Oil cake 3,450 1050 3,622.5 2. Bran of cereals 3,705 1050 3,890.25 3. Molasses 750 51 38.25 4. Maize 6,000 1200 7,200 5. Salt 21 1000 21 6. Limestone (ground) 24 110 2.64 7. Other grains (wheat, barely, etc) 450 3800 1,710 8. Meal (bone or flesh or blood) 600 200 120 Grand Total 16,604.64 Note: The cost for packing material (sack) is excluded from the annual cost of raw material with the assumption that customers will bring their own packing materials or they will pay for it, if they do not have. B. UTILITIES Utilities required by the plant consist of electricity, water and fuel oil. Electricity is required to run the production machinery and to provide lighting for the plant. Water is required for general purposes and for supplying to the boiler, where hot water is produced to be supplied to the molasses tank. Fuel oil is required for boiler. The annual requirement and costs of these utilities are shown in Table 4.2. The total cost of utilities is estimated at 538.62.

33-8 Table 4.2 UTILITIES REQUIREMENT AND COST (AT FULL CAPACITY) Sr. Item Annual Unit cost Cost ('000 Birr) No. Requirement 1 Electricity 450,000 kwh 0.4736 213.12 2 Water 10,000 m 3 5.5 55 3 Fuel oil 50,000 lt. 5.41 270.5 Total 538.62 V. TECHNOLOGY AND ENGINEERING A. TECHNOLOGY 1. Production Process The major operations involved in the production of animal feed are: raw materials preparation, primary crushing, assorting and measuring, molasses mixing, fine crushing, pellet making, and packaging. Raw and auxiliary materials are first charged into silos and tanks where they are made ready for further processing. They are then processed by primary crusher. Crushed materials are further separated by means of a sifter, and then stored in the assorting tanks according to the kind of raw materials. In assorting and measuring operation, small amounts of additives are charged into the bins containing different assortments of raw materials. The raw materials stored in the assorting tanks are measured in accordance with the desired proportion. The raw materials are then mixed by means of a mixer. In this process, fatty ingredients are added to the materials in order to raise the nutritional value of the feed. The feed obtained from the mixer is blended with molasses.

33-9 After the feed is blended with molasses, it is further crushed by means of the second crusher. Sometimes, second crushing is undesirable and can be avoided. Assorted animal feed that is crushed into fine particles is further formed into pellets. The pellets, which are cylindrical type and size, 6mm in diameter and 2cm in length, are then dried. The product is next stored in the product tanks, then weighed and packaged in jute bag. 2. Source of Technology The following company could supply the required machinery and technology. Sunita impex Pvt. Ltd. 36A Bentinck street, 1st floor, Kolkata 700069, India, ph: 2248 1986/87, 2243 0102 Fax: 91-33-2248 3664 E-mail: Kolkata: admin@sunitaimpex.com, sutimpex@cal2.vsnl.net.in B. ENGINEERING 1. Machinery and equipment Machinery and equipment required by the plant, including the auxiliary equipment are given in Table 5.1. The total cost of plant machinery and equipment is estimated at Birr 7.0 million, of which Birr 5.6 million is required in foreign currency.

33-10 Table 5.1 MACHINERY AND EQUIPMENT REQUIRED BY CATTLE FEED PRODUCING PLANT Sr. Description Qty. No. 1 Tank and silos for raw and auxiliary materials storage 1 2 Metal screen and shaker 1 3 Hammer Mill (crusher) 1 4 Blender 1 5 Weighing scale (5 tons) 1 6 Bagging machine 1 7 Dust collector 1 8 Product tank 1 9 Pellet producing machine 1 10 Tanks for oil cakes and molasses 1 11 Boiler 1 12 Other accessories 1 2. Land, Building and Civil Works The total land area of the plant including the open space for future expansion is 1,000 m 2. The built-up area required by the plant is estimated at 600 m 2. The total cost of civil works and construction at the rate of Birr 2300 per m 2 is estimated at Birr 1, 380, 000. The total cost of land lease on the basis of lease value of Birr 0.1 per m 2 for a period of 80 years is estimated at Birr 8,000. The total cost of land, building and civil works is estimated at Birr 1.388 million. 3. Proposed Location The plant is best located where there is a conducive environment for commercial animal rearing and inputs for the plant are available in the near vicinity. Considering the above mentioned factors, Omosheleko woreda, Mudula town is proposed to be an ideal location for the envisaged plant.

33-11 VI. MANPOWER AND TRAINING REQUIREMENTS A. MANPOWER REQUIREMENT The manpower requirement of the plant will be 33 persons, out of which 18 will be engaged in production activities and the remaining 19 will be involved in administrative activities. Table 6.1 shows the details of manpower requirement of the plant and estimated annual labour cost including fringe benefits. The total annual cost of manpower is estimated at Birr 273,600. Sr. No. Table 6.1 ANNUAL MANPOWER REQUIREMENT AND ESTIMATED Description LABOUR COST No. of Persons Monthly Salary, Birr Annual Salary, Birr 1 Plant Manager 1 2,500 30,000 2 Secretary 1 700 8,400 3 Accountant 1 700 8,400 4 Personnel officer 1 1200 14,400 5 Salesperson/purchaser 1 1200 14,400 6 Cashier 1 500 6,000 7 Clerks 2 1000 12,000 8 General Service officer 1 1200 14,400 9 Store keeper 2 1,000 12,000 10 Production supervisor 1 1200 14,400 11 Maintenance Engineer. 1 1200 14,400 12 Technician operators 6 3,600 43,200 13 Laborers 6 1,800 21,600 14 Cleaner 2 300 3,600 15 Driver 2 900 10,800 16 Guard 4 1,200 14,400 Sub-total 33 20200 242,400 Benefit (20% BS) 48,600 Total Cost 290,880

33-12 B. TRAINING REQUIREMENT On-site short-term training for about two weeks by the machinery supplier is required for the production supervisor, operators and maintenance engineer on operation and maintenance of machinery and equipment. The cost of such training is estimated to be Birr 15,000. VII. FINANCIAL ANALYSIS The financial analysis of the cattle feed 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 3 years Bank interest 8% Discount cash flow 8.5% Accounts receivable 30 days Raw material local 30days 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 12.77 million, of which 14 per cent will be required in foreign currency. The major breakdown of the total initial investment cost is shown in Table 7.1.

33-13 Table 7.1 INITIAL INVESTMENT COST Sr. Total Cost No. Cost Items ( 000 Birr) 1 Land lease value 8.0 2 Building and Civil Work 1,380.0 3 Plant Machinery and Equipment 7,000.0 4 Office Furniture and Equipment 75.0 5 Vehicle 450.0 6 Pre-production Expenditure* 666.2 7 Working Capital 3,189.3 Total Investment cost 12,768.5 Foreign Share 14 * N.B Pre-production expenditure includes interest during construction ( Birr 516.21 thousand ) training (Birr 15 thousand ) and Birr 135 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 18.87 million (see Table 7.2). The material and utility cost accounts for 90.87 per cent, while repair and maintenance take 0.93 per cent of the production cost.

33-14 Table 7.2 ANNUAL PRODUCTION COST AT FULL CAPACITY ('000 BIRR) Items Cost % Raw Material and Inputs 16,604.64 88.01 Utilities 538.62 2.85 Maintenance and repair 175 0.93 Labour direct 174.53 0.93 Factory overheads 0 0.00 Administration Costs 116.35 0.62 Total Operating Costs 17,609.14 93.34 Depreciation 896.9 4.75 Cost of Finance 360.17 1.91 Total Production Cost 18,866.21 100 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. 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 = 60 % Sales Variable Cost

33-15 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 32 % and the net present value at 8.5% discount rate is Birr 15.12 million. D. ECONOMIC BENEFITS The project can create employment for 33 persons. In addition to supply of the domestic needs, the project will generate Birr 8.11 million 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.