Agricultural Project SBU

Feasibility Study of
Raisin Manufacturing

Prepared by :Marketing Section Head

November 2016

Feasibility Study of Raisin Manufacturing/ Marketing Section/ 2016 Page 1

 Contents
1 Introduction
1-1 General 3
1-2 Importance of the study 5
1-3 Objective of the study 5
1-4 Method of the study 6
2 Marketing strategy
2-1 Sales quantities 7 achievable prices of grapes 7
2-2 Market demand (consumption) 7
2-3 Market supply 9
2-4 Gap between supply & demand 10
2-5 Marketing strategy statement 11
3 Technical study
3-1 Description of grapes drying machine 12
3-2 Capital cost of the project 13
3-3 Operating cost 13
3-4 Working capital 13
3-5 Investment capital 14
4 Financial analysis
4-1 Basic assumption 15
4-2 Cash flows 15
4-2-1 Cash inflows 15
4-2-2 Cash outflows 15
4-2-3 Net cash flows 16
4-3 Analysis of profitability standards 16
4-3-1 Net present value 16
4-3-2 Internal rate of return 17
4-3-3 Benefit cost ratio 17
4-4 Recommendation 18

Chapter One

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 Introduction
1-1 General
A raisin is a dried grape. Raisins are produced in many regions of the world
and may be eaten raw or used in cooking, baking, and brewing. In
the United Kingdom, Ireland, New Zealand, and Australia, the word "raisin"
is reserved for the dark-colored dried large grape, with "sultana" being a
golden-colored dried grape.

Varieties
Raisins varieties depend on the type of grape used, and are made in a
variety of sizes and colors including green, black, brown. Seedless varieties
include the sultana (the common American type is known as Thompson
seedless in the USA), the Greek currants (black Corinthian
raisins, and Flame grapes. Raisins are traditionally sun-dried, but may also
be water-dipped and artificially dehydrated.
"Golden raisins" are treated with sulfur dioxide after drying to give them
their golden color.

Nutrition
Raisins can contain up to 72% sugars by weight, most of which
is fructose and glucose. They also contain about 3% protein and 3.7%–6.8%
dietary fiber. Raisins, like prunes and apricots, are also high in
certain antioxidants, but have a lower vitamin C content than fresh grapes.
Raisins are low in sodium and contain no cholesterol.
The three steps to commercial raisin production include pre-treatment,
drying, and post-drying processes.

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Pre-treatment
Pre-treatment is a necessary step in raisin production to ensure the
increased rate of water removal during the drying process. A faster water
removal rate decreases the rate of browning and helps to produce more
desirable raisins. Recently, new methods have been developed such as
exposing the grapes to oil emulsions or dilute alkaline solutions. These
methods can encourage water transfer to the outer surface of grapes which
helps to increase the efficiency of the drying process.

Drying
The three types of drying methods are: sun drying, shade drying, and
mechanical drying. Sun drying is an inexpensive process; however,
environmental contamination, insect infections, and microbial
deterioration can occur and the resulting raisins are often of low quality.
Additionally, sun drying is a very slow process and may not produce the
most desirable raisins. Mechanical drying can be done in a safer and more
controlled environment where rapid drying is guaranteed. One type of
mechanical drying is to use microwave heating. Water molecules in the
grapes absorb microwave energy resulting in rapid evaporation. Microwave
heating often produces puffy raisins.

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Post-drying processes
After the drying process is complete, raisins are sent to processing plants
where they are cleaned with water to remove any foreign objects that may
have become embedded during the drying process. Stems and off-grade
raisins are also removed. The washing process may cause rehydration, so
another drying step is completed after washing to ensure that the added
moisture has been removed.

All steps in the production of raisins are very important in determining the
quality of raisins. Sometimes, sulfur dioxide is applied to raisins after the
pre treatment step and before drying to decrease the rate of browning
caused by the reaction between polyphenol oxidase and phenolic
compounds. Sulfur dioxide also helps to preserve flavor and prevent the
loss of certain vitamins during the drying process.
1-2 Importance of the study
There are a lot of fresh grape varieties of low grade achieved low market
price. This study would like to know the feasibility of these low price
varieties if they will be sold as raisin rather than fresh varieties.

1-3 Objectives of the study

1-2-1 Make use of the low quality varieties.

1-2-2 Get earnings out of these low quality varieties.

1-2-3 Create a market opportunity.

1-2-4 Add a new value to the grape varieties.

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1-2-5 Broaden of such investment in the future to be applied for other
fruits.

1- 4 Method of the study

The data has been gathered from various sources:

1-3-1 Grapes section

1-3-2 Different web site in the internet

1-3-3 Statistical schedules has been used to calculate quantity, value & cost
of sales, operation cost, cash flows & profit criteria.

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 Chapter Two
Marketing Study
2-1 Sales quantities & achievable prices of grapes
During the period 2012-2016 the quantities sold (kg) & the market price
(SR/kg) of Tadco’s grapes varieties is illustrated in the following table:
Table # (1): Sales quantities (kg) & prices (SR/kg)
During the period 2012-2016
2012 2013 2014 2015 2016 Total Average
Quantity price
Varieties
Quantity Price Quantity Price Quantity Price Quantity Price Quantity Price

Alfonso 157915 4.4 153646 2.4 98230 3.3 114712 302 74075 2.4 598,579 3.2
Autumn royal 187907 5.2 311606 2.7 279481 3.1 393564 3.6 404452 2.8 1,577,010 3.5
Cardinal 87287 5.6 89771 5.0 80555 5.8 80187 5.5 74751 3.3 412,552 5.0
Exotic 90914 6.7 98127 5.7 101395 6.2 71565 4.4 46188 3.3 408,189 5.3
Flame 390517 4.3 469034 4.2 411443 4.5 546190 4.8 641011 2.8 2,458,193 4.1
Perlette 66405 5.6 74486 6.6 80598 4.3 52088 5.3 N/A N/A 273,577 5.5
Red globe 1213341 4.4 1091097 3.5 1104395 2.7 1186688 3.5 804349 3.5 5,399,870 3.5
Superior 1191338 5.2 2037181 4.6 1433919 5.8 1647933 3.6 1394556 3.3 7,704,928 4.5
Thompson 695328 5.3 738425 2.7 442641 2.9 358797 1.7 78201 2.3 2,313,391 3.0
Source: calculated from sales report (Orion)

From the above table it is noticed that:

- During the period 2012-2016, the best prices achieved from the small
quantities sold, Perlette, Exotic, Cardinal.

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- Thompson achieved the least price 3.0 SR/kg, followed by Alfonso 3.2
SR/kg, then Autumn royal & Red globe 3.5 SR/kg.
2-2 Market demand (consumption)
Raisin is considered as the main diet in Ramadan as of its healthy benefits
and rich in energy.
The estimation consumption of Raisin during the period 2017 – 2026 is
illustrating in the following table:

Table # (2): The estimated consumption of raisin

During the period 2017-2026
Raisin consumption rate**
Year Population qty(mt)
(kg/person/year)
2013 29994272*
2014 30804117 0.45
2015 31635828 0.45
2016 32489995 0.45
2017 33367224 0.45 15015
2018 34268139 0.45 15420
2019 35193378 0.45 15837
2020 36143599 0.45 16264
2021 37119476 0.45 16703
2022 38121701 0.45 17154
2023 39150986 0.45 17617
2024 40208062 0.45 18093
2025 41293679 0.45 18582
2026 42408608 0.45 19083
* Source: Central Department of Statistics & Information.
2.7% rate of population growth.
**source of consumption rate: food balance sheet (issue # 7 - 2012)

From the above table it is noticed:

- The consumption increase from 15,015 mt in 2017 by 27% in
2026.
Market prices of the raisin:

The dominant varieties of the raisin which available in the

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 markets are: American raisin, Iranian, the price of which is illustrated in the
following table:

Table # (3): The market prices of the raisin

Source Type (color) Retail price(SR/kg)
American Brown 24.0
Iranian Brown 24.0
Average price 24.0
Source: Supermarkets – Tabuk..Oct. 2016

Estimated selling quantities (mt) & prices (SR/mt):

The proposal selling quantities & prices along the period of the project is as
follows:

Table # (4): Estimated selling quantities & prices

Item/year 1 2 3 4 5 6 7 8 9 10
Quantity(mt) 10 10 10 15 15 15 22.5 22.5 22.5 22.5
Price (SR/mt) 10000 11000 1200 13000 14000 15000 16000 17000 18000 19000
0
Value (SR) 100000 110000 1200 19500 21000 22500 36000 382500 40500 427500
00 0 0 0 0 0
Source: calculated

The proposed price is 10,000 SR/mt increasing by 1000 SR/mt every year.
The quantities which are expected to be sold during the first three years are
10 mt, increasing by 50% for the next three years, and by 50% for the rest
of the period.
2-3 Market supply
The markets of the Kingdom depend completely on the imported dry
grapes. During the period 2008 – 2014 , the total imported dry grapes was

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 53,351 mt, 56% from Iran, 12% from China, 12% from India, 8% from
Yemen, 3% from USA, 2% from Chili, 2% from Afghanistan, 5% from other

countries(source: General Authority for Statistics).

The following table is illustrating the estimated supply during the period
2017-2026 using the equation of the straight line for the data 2008-2014 of
the imported raisin.
Table # (5): Estimated supply
During the period 2017 - 2026
year 2015 2016 201 2018 2019 2020 2021 202 2023 2024 2025 2026
7 2
Qty (mt) 7330 7257 718 7111 7038 6965 6892 681 6746 6673 6600 6527
4 9
Source: calculated by applying straight line equation.

From the above table it is noticed that:

- The supply quantities estimated to be ranged between 6527 mt & 7184

mt during the period 2017-2026.
- The percentage change in quantity supplied between the recent year and
the coming year is 1% difference.
2- 4 Gap between supply & demand (2017-2026)
The following table is explaining the supply, demand & the gap between
them.

Table # (6): Gap between supply & demand

During the period 2017 - 2026
Year 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
Supply
7184 7111 7038 6965 6892 6819 6746 6673 6600 6527
(mt)
Demand
15015 15420 15837 16264 16703 17154 17617 18093 18582 19083
(mt)
Difference(mt) - 7831 - 8309 - 8799 - 9299 - 9811 - 10335 - 10871 - 11420 - 11982 - 12556

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Source: calculated

From the above table it is noticed:

- There is a deficit of raisin estimated to be 7831 mt in 2017 & increase to

reach 12,556 mt in 2026.
2-5 Marketing Strategy statement
It is consist of three parts:
2-5-1 Target market & behavior
The target market is the final consumer who is searching for the domestic,
trusted product.
2-5-2 Price & distribution strategy
The proposal packing material is suggested to be 10 kg white plastic bags
for the dealers and in bulk for the retailers.
The suggested distribution map as follows:
40% of sales in Toaster, 20% in Tadco’s outlets, 20% in supermarkets, 20%
for traders.
The promotion tools includes: brochures, banners, stands.
The proposal retail price in the first year is 10,000 SR/mt, increasing by
1000 SR. every year, with 10% off the list price to the dealers whom are
buying 5 mt at least.
2-5-3 Planned long run sales & profit goals
The ultimately intends is to capture 0.1% – 0.3% of the market share during
the span life of the project. To achieve this, the product quality will start
high & be further improved over time through technical research. Price will
be raised on year basis by 1,000 SR/mt if competition permits.

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 Chapter Three
Technical Study
Description of grapes drying machine 3-1
The following table explains the different components of the grape

:drying machine & their price

Table # (7): Components of the grape drying machine

Product name Size Price (USD)
Drying machine KW 4.8 4154
Drying chamber 4000x2000x2200mm 1611
Door 1000X1870mm 594
Partition sheet 2150X2000mm 211
Fan motors W/unit 250 648
Fan motor rack 940X250X2000mm 268
Total SR =7486
28,073
Source: Website: http://kinkai.en.alibaba.com

Drying machine Racks Fan

.The suggested location: Cold store premises

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 .The life span of the project: 10 years

Capital cost of the project 2–3

:The capital cost consists of the following items

Table # (8): Capital cost of the project

Item Number Unit cost Total cost
)SR( )SR(
Grape dryer 1 28,027 28,027
Tax,trans,…)=30% 8,408 8,408
Total 36,434
Source: calculated

Operating cost (SR/mt) 3-3

It needs approximately 4.0 mt of raw material of grapes to produce 1.0

. mt of raisin

Table # (9) : Annual operation cost (SR/mt)

st
Item / year 1 2nd 3rd 4th 5th 6th 7th 8th 9th 10th
Production cost 720 748 778
7200 7200 7488 7488 7788 7788 7788
* of grapes 0 8 8
Production cost 108 112 116
1080 1080 1123 1123 1168 1168 1168
** of raisin 0 3 8
Total operation 828 861 895
8280 8280 8611 8611 8956 8956 8956
Cost 0 1 6
calculated as 2017 budget (for 4 mt the cost is SR 7200), and increasing 4% every 3 *
.years
.estimated as 15% of grapes production cost **

Working capital 4 -3

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It is the amount that requested to cover the operation cost in the first
year before cash flows. This includes the cost production of both grapes

.and raisin

The working capital is estimated for 30% of the operation cost in the first

.year that equal to SR 24,840

:See the following table

Table # 10 : Working capital

Item Amount (SR)

*Operation cost in the first year 82,800
Working capital (30%) 24,840
.Source: calculated ………* for production of 10 mt of raizin

Investment capital 3-5

.It is mean the total of the fixed cost & the working capital

:The following table is illustrated the value of the investment capital

Table # 11: Investment capital

Item Value (SR)
Fixed capital 36,434
Working capital 24,840
Total 61,274
Source: calculated

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 Chapter Four
Financial Analysis
4-1 Basic assumption
4-1-1 Residual value of the project:

It is the value of the assets at the end of the project.

It is assumed to be equal 30% of the fixed asset, which is equivalent to SR
10,930.
4-1-2 Interest rate:

The interest rate that used to calculate profit/loss standards is 7%which

reflects the interest rate in the commercial banks.
4-2 Cash flows
4-2-1 Cash inflows:

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 The sales of raisin constituents the main source for cash inflows, in
addition to the residual value & working capital in the last year of the
project.
The estimated revenue in the first year is SR 100,000, and in the fifth year is
SR 210,000, while in the ninth year is SR 405,000, and in the last year is SR
463,270.
4-2-2 Cash outflows:

The estimated cash outflows in the establishing year are SR 61,274.

The elements of the cash outflows during the project life consist of:
operation cost, marketing & other cost, that estimated to be SR 95,220 in
the first year, and reaching SR. 148,539 in the fifth year, and SR 231,736 in
the last year.
4-2-3 Net cash flows:

The net cash flow in the establishing year is negative equal SR. 61,274, and
equal to SR. 61461 in the fifth year, while in the last year equal to SR.
231,534. See the following table
Table # 12: Cash flows
Item/ year 0 1 2 3 4 5 6 7 8 9 10
Cash inflows
Sales of raisin 0 100000 110000 120000 195000 210000 225000 360000 382500 405000 427500
Residual value 10930
Working capital 24840
Total cash inflows 0 100000 110000 120000 195000 210000 225000 360000 382500 405000 463270
Cash outflows
Capital cost 36434
Working capital 24840
Operation cost 0 82800 82800 82800 129165 129165 129165 201510 201510 201510 201510
Marketing cost (10%) 8280 8280 8280 12916 12916 12916 20151 20151 20151 20151
Other (5%) 4140 4140 4140 6458 6458 6458 10075 10075 10075 10075
Total cash outflows 61274 95220 95220 95220 148539 148539 148539 231736 231736 231736 231736

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Net cash flows - 61274 4780 14780 24780 46461 61461 76461 128264 150764 173264 231534
Source: calculated

Analysis of profitability standards 4-3

The objective of this analysis is to assess the financial effects on the project

.for short & long term

The discount standards are being used that reflect the time value of the
money which is: (1) net present value. (2) Internal rate of return.(3)

.benefit / cost ratio

4-3-1 Net present value

It is the net present cash flows at specific discount rate, which obtaining by
subtracting the present values of cash inflows & cash outflows.
The NPV equal to SR 486,041. See table # 13.
4-3-2 Internal rate of return
It is the discount rate that brings the net present value of the cash flows to
zero.
The IRR is equal to 51%.
See table # 13
4-3-3 Benefit cost ratio:
It is the ratio obtaining by dividing the NPV of cash inflows over the NPV of
cash outflows at specific discount factor.
B/C ratio is equal to 1.42.
See table # 13
Table # 13: Analysis of profitability standards
Yea Discount Present value Present value Net
Benefits costs
r factor 7% of benefits of costs flows

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 0 1 0 0 61274 61274 - 61274
1 0.935 100000 93500 95220 89031 4780
2 0.873 110000 96030 95220 83127 14780
3 0.816 120000 97920 95220 77700 24780
4 0.763 195000 148785 148539 113335 46461
5 0.713 210000 149730 148539 105908 61461
6 0.666 225000 149850 148539 98927 76461
7 0.623 360000 224280 231736 144372 128264
8 0.582 382500 222615 231736 134870 150764
9 0.544 405000 220320 231736 126064 173264
10 0.508 463270 235341 231736 117722 231534
1,638,371 1,152,330
Source: calculated.

Net Present Value = 1,638,371 - 1,152,330 = SR 486,041

Benefit / Cost ratio = 1,638,371 ÷ 1,152,330 = 1.42
Internal Rate of Return = 51% (calculated directly from Excel program)
4-4 Recommendation
As resulted from the financial analysis, the NPV equal to SR 486,041 and the
IRR is 51%, B/C ratio is 1.42, all these standards indicators for the explicit
feasibility of the project.
So, the study is recommending investing in the production of raisin.

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