ZAMG BUSINESS PLC - AGRO INDUSTRY

BUSINESS PLAN ON THE ESTABLISHMENT

OF DAIRY FARM, ANIMAL FEED MILL AND
MILK PROCESSING UNIT

Final Report

December 2021

SENYO Business PLC

(Management Consultancy Service)
Lideta Sub City, Wereda 08, House No. New
On the way to Geja Sefer, Abdella Building, Room No. 501
Phone: +251 91 160 0631
E-mail: senyo.business@gmail.com
 TABLE OF CONTENTS
EXCUTIVE SUMMARY......................................................................................................................... 1
1. INTRODUCTION........................................................................................................................... 3
1.1 Background of the Owner...................................................................................................... 3
1.2 Business Model and the Business Objective.........................................................................4
1.3 Vision and Mission................................................................................................................. 4
1.3.1 Vision............................................................................................................................. 4
1.3.2 Mission........................................................................................................................... 5
1.4 Products and Services of the Envisaged Business................................................................5
1.5 SWOT Analysis...................................................................................................................... 5
1.5.1 Strengths........................................................................................................................ 6
1.5.2 Weakness...................................................................................................................... 6
1.5.3 Opportunity..................................................................................................................... 6
1.5.4 Threats........................................................................................................................... 6
1.5.5 Actions in line with the SWOT analysis results...............................................................7
2. MARKETING ENVIRONMENT ANALYSIS....................................................................................8
2.1 PESTL Analysis..................................................................................................................... 8
2.1.1 Political factors............................................................................................................... 8
2.1.2 Economic environment................................................................................................... 8
2.1.3 Social factors................................................................................................................ 10
2.1.4 Technological factors................................................................................................... 10
2.1.5 Legal factors................................................................................................................. 11
2.2 Market Structure and Analysis............................................................................................. 11
2.2.1 Supply analysis............................................................................................................ 11
2.2.2 Demand analysis.......................................................................................................... 12
2.3 Target Market and Customer Base......................................................................................15
2.4 Market Size and Potential.................................................................................................... 15
2.5 Competitors Analysis........................................................................................................... 15
2.5.1 Major competitors......................................................................................................... 15
2.5.2 The five – forces model of competition.........................................................................16
2.6 Key Success Factors........................................................................................................... 18
3. MARKETING STRATEGIES (4PS).............................................................................................. 19
3.1 Products............................................................................................................................... 19
3.2 Promotions........................................................................................................................... 19
3.3 Distribution /Places.............................................................................................................. 21
3.4 Pricing Strategies................................................................................................................. 22
4. OPERATIONAL PLAN................................................................................................................. 23
4.1 Civil Work and the Physical Layouts....................................................................................23
4.1.1 Location and site.......................................................................................................... 23
4.1.2 Building and civil work.................................................................................................. 24
 4.2 Technology and Engineering............................................................................................... 24
4.2.1 Plant capacity............................................................................................................... 24
4.2.2 Technology................................................................................................................... 24
4.2.3 Engineering.................................................................................................................. 31
4.3 Commencement Plan........................................................................................................... 32
4.3.1 Project management.................................................................................................... 32
4.3.2 Project implementation schedule.................................................................................32
4.3.3 Project implementation cost.........................................................................................33
5. ORGANIZATION AND HUMAN RESOURCES PLAN.................................................................34
5.1 Governance Structure.......................................................................................................... 34
5.2 Manning / Staffing................................................................................................................ 34
5.3 Organizational Systems....................................................................................................... 34
6. FINANCIAL FEASIBILITY............................................................................................................ 35
6.1 Financial Assumptions......................................................................................................... 35
6.1.1 Project life.................................................................................................................... 35
6.1.2 Repair and maintenance cost.......................................................................................35
6.1.3 Depreciation and amortization......................................................................................35
6.1.4 Working capital............................................................................................................. 36
6.1.5 Discounting.................................................................................................................. 36
6.1.6 Income Tax.................................................................................................................. 37
6.1.7 Investment.................................................................................................................... 37
6.1.8 Source of finance......................................................................................................... 37
6.1.9 Production cost............................................................................................................ 38
6.2 Projected Financial Statements........................................................................................... 38
6.2.1 Projected profit and loss statement..............................................................................38
6.2.2 Projected balance sheets............................................................................................. 38
6.2.3 Cash flows for planning................................................................................................ 39
6.2.4 Breakeven analysis...................................................................................................... 39
6.3 Investment Decision Ratings................................................................................................ 39
6.3.1 Net present value......................................................................................................... 39
6.3.2 Internal rate of return.................................................................................................... 39
6.3.3 Payback period............................................................................................................ 40
6.4 Economic Benefits............................................................................................................... 40
FINANCIAL SCHEDULES................................................................................................................... 41
ANNEXES............................................................................................................................................ 50

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EXCUTIVE SUMMARY

The promoter of the present project, ZAMG BUSINESS PLC - AGRO INDUSTRY
intends to rear of young stock for fattening and marketing, produce compound animals
feed, and set up a milk pasteurization unit.

Breezers are ready-to-serve beverages, quite popular among the light drinkers. They are
pre-mixed flavoured drinks containing fruit extracts and carbonated water, ready to be
mixed with rum and vodka.

The country’s requirement of alcoholic liquors is met through both local production and
imports. The project uses total supply as a proxy method for effective demand as it avoid
the potential errors associated with the end use method since it is based on actual
supply data or apparent consumption of the product. Accordingly, the demand for
alcoholic liquors is forecasted to grow from 2,143,467 HL in 2021 to 9,216,992 HL in
2035.

Based on the unsatisfied demand projection for alcoholic liquors in the market study and
the minimum economic scale, the capacity of the plant is selected to be 8,000 bottles per
hour (330 ml/bottle). This capacity is proposed on the basis of a one shift of 8 hours per
day and 20 working days per month.

The direct raw materials used for the project comprises animal feed, medication, young
stock for fattening and feed ingredients. Electric power and water are the major utilities
required for the plant.

Technically, the promoter believes the use of automated machines would be

instrumental in terms of efficiency and effectiveness of the manufacturing sectors. The
project bases itself on the use of high technology production lines to better meet the
current needs in the domestic market.

The proposed project is located in the Amhara National Regional State, North Shewa
Zone, within the Angolala and Tera Wereda, Chefenen Kebele.

The proposed organizational set-up shall be staffed with optimum manpower in a way
that it shall enable the project to operate efficiently and effectively. About 81 employees
will be required when the project operates in full capacity. The annual salary and fringe
benefit of these employees are Birr 4.5 million.
3
It is estimated that about 18 months would be required for the implementation of the
project including the preparation time, assuming project activities will be undertaken as
planned. The activities on the critical path of the implementation are applying and
approval of loan; detailed project planning; construction; delivery and erection of
machinery and equipment; and plant commissioning.

The project is estimated to cost Birr 178.7 million including fixed investment, pre-
operation expenditures and working capital. The investment requirement of the project is
assumed to be financed both from bank loan and equity capital. At full capacity, the
factory will generate gross sales revenue of Birr 278 million, and a net profit after tax of
Birr 63 million (5th year). The internal rate of return (IRR) of the project is calculated to be
46% on total investment. When discounted at a rate of 24%, the project generates a net
present value (NPV) of above Birr 96 million on total investment. The simple payback
period of the project is less than four years.

The financial analyses show that the project is highly profitable and viable. The entire
components of the project are designed to be socially and economically friendly that
benefit the promoter and the country.

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1. INTRODUCTION

1.1 Background of the Owner

The promoter of the present project, ZAMG BUSINESS PLC is a general engineering
and trading company which is primarily engaged in providing process technology
solutions and engage in electro mechanical works in the food, beverage and alcohol
industries. ZAMG’s key activities comprise the supply, design, engineering, installation
and commissioning of electromechanical systems, chemical process technologies and
supply of industrial spare parts particularly food and beverage additives, liquor
packaging power conveying systems, industrial adhesives etc.

Among the shareholders Mr. Solomon Bogale Kassa has graduated from Addis Ababa
University (Ethiopia), Faculty of Technology, B.Sc in Chemical Engineering with
Distinction on July 1992. In October 1998 he has received his M.Sc in Food Science and
Technology with Great Distinction from the University of Ghent (Belgium), Faculty of
Agricultural and Applied Biological Sciences. Mr. Solomon is a PhD candidate at the
University of Wageningen (The Netherlands). Since June 1999 to date he has been
Lecturer at Addis Ababa University at the Department of Chemical Engineering, Faculty
of Technology. Mr Solomon has undertaken various researches and conducted various
courses at different Universities. He has also supervised different research works and
has wide range of experience in the business purpose VIV is engaged in.

The other shareholder, W/ro Meaza Getachew Endashaw has years of proven
experience in the Hotel management and establishment in particular and also has wide
scope of business management in general that the envisage project is well thought and
properly planned. In addition W/ro Meaza Getachew is founder and President of the
Board of Directors of the company.

Mr. Mulugeta Ayalew Tesema, whom among the company’s shareholder, is also a well-
established business person engaged in different areas of business.

The other shareholder Mr. Mengesha Assefa has graduated from Addis Ababa
University with B.Sc. in Mechanical Engineering in December 1991. Since then he has
been engaged in different areas of work relating to his profession. Some of his
professional experience include Managing the installation & commissioning of
refrigeration plant at Dire Dawa Plant; Managing syrup room expansion project at Dire
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Dawa Plant; Managing compound upgrade at Addis Ababa Plant; Managing Country
Management Team office complex construction; Supervising complete liquor bottling line
installation & commissioning at Balezaf Alcohol & Liquors Factory; Supervising the
construction of complete bottling hall both local civil work and & steel structure supply,
boiler room, generator room; Supervising complete bottling line installation and
commissioning at Addis Ababa Plant; Supervising the installation and commissioning of
service rendering machineries like water treatment plant, steam boiler, air compressor,
cooling towers, refrigeration plant, cold room.

Mr. Shimels Kenaw Fantaye, whom among the company’s shareholder, has graduated
from Addis Ababa University with B.Sc. in Chemical Engineering. He has also received
his M.Sc in Food Science and Technology from Addis Ababa University. He has tangible
leading, supervising and managerial experience in vast types of business and
entrepreneurial ventures.

Lastly, Mr. Zerihun Ayalew Tesema is an experienced business leader with over 28
years of experience in the fields of manufacturing especially in the alcohol industry. He
had leading a number of business organizations before he embarked on the current
project. In general he has broad background in the overall management of business
organization.

1.2 Business Model and the Business Objective

The business is established as ZAMG BUSINESS PLC - AGRO INDUSTRY and intends:

- To focus on the rearing of young stock for fattening and marketing. Lambs and
kids from six to eight months of age will be purchased and resold in the market
after fattening period of 90 to 100 days.

- To produce 5,700 tons of compound animals feed. This feed will be supplemented
to livestock in addition to green fodder and libitum (Freely available to animals) for
high production.

- To set up a milk pasteurization unit to process raw milk and market it under a
brand name.

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1.3 Vision and Mission

1.3.1 Vision

 Become one of the top five Agro Processing Industries in Ethiopia by 2026.

1.3.2 Mission

 To exceed our customers’ expectations in quality, delivery, and cost through

continuous improvement and customer interaction

1.4 Products and Services of the Envisaged Business

The products and services of the envisaged business are:

1) Fattened Sheep: Lambs and kids from six to eight months of age will be
purchased and resold in the market after a fattening period of 90 to 100 days.

2) Animal Feeds: are composed of several distinctly different groups of substances,

known as nutrients e.g. proteins, carbohydrates, fats, minerals, vitamins and
water. These have definite functions in body. For intelligent ration formulation,
nutrients, nutrient composition and palatability of feedstuffs are important.

3) Pasteurized Milk: milk that has been exposed briefly to high temperatures to
destroy microorganisms and prevent fermentation

1.5 SWOT Analysis

The SWOT analysis explores both the internal and external environment for the owners’
and their current business and applies in relation to both existing and potential
competitors towards meeting the goals of the envisaged project. The SWOT analysis
outlines the identified strengths, weakness, opportunities and threats in light of executing
the envisaged project.

1.5.1 Strengths

 The project has been initiated by an experienced management engaged in

different activities. The promoter can capitalize its experience for the
successful implementation and management of the envisaged project.

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  The promoter has strong presence on the project site

 The promoter network will be valuable for the anticipated marketing of the
product.

1.5.2 Weakness

 Being new entrant to market

1.5.3 Opportunity

 Conducive and encouraging economic environment.

 The business has been promising.

 Priority sector: Increased attention and focus given by the government for
manufacturing and value additions.

 Unsatisfactory demand: there exists unmet demand in local market.

 A number of investment incentives available.

1.5.4 Threats

 Volatility in the price of raw material may impact on the pricing structure of the
products.

 High risks of diseases in live stock

 Imbalance between prices of inputs and outputs

 Lack of community organizations and out dated farm practices.

1.5.5 Actions in line with the SWOT analysis results

The project will plan to address its weaknesses, and minimize the potential threats
through devising appropriate mitigation strategies. It will have aggressive marketing
initiative to reach more potential customers.

The following are actions to be taken as part of the project implementation process to
minimize the effect of weaknesses and threats identified in the SWOT analysis.
8
 Developing a customer oriented marketing strategy to win the competition “Fair
price with best quality”.

 Designing the appropriate sales strategy in which the objective of ensuring

dependable customer relationship.

 Adopt modern, waste avoiding and technology enabled operations

 Strengthen the networking and communication with the concerned governmental

administration bureaus (woreda, district and zonal) to assure the importance of
the project and other planned strategic moves of the organization.

 Working in advance with Banks and other concerned governmental organization

to get loan on time.

 Strengthening linkage with all value chain actors in the industry and create
favourable environment for the production.

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2. MARKETING ENVIRONMENT ANALYSIS

2.1 PESTL Analysis

The PESTL analysis offers an insight of the various macro environmental factors that the
business needs for the successful implementation of the business plan.

2.1.1 Political factors

Commitment of the federal and local governments towards achieving the vision of the
country, rural capacity building strategic plan, power decentralization, security and
stability of the country, etc. have desirable effect on business environments. The private
sector is given recognition as allay in the government’s economic development program
playing key role particularly in small, medium and huge industries.

The Ethiopian government new prosperity plan re-emphasizes the importance of

agriculture in country overall growth and industrial development. Hence, the government
strongly promotes agro- processing industries. A number of international donors are
providing support to strengthen the sector.

There are also incentives including providing of land with lease free provision for the
organization involving agro-processing sector and building industry zone in different part
of the country for giant projects with fair rent.

In general, the political environment is conducive to operate lucrative business and the
influence of the government is very minimal in trading and pricing.

2.1.2 Economic environment

In Ethiopia as a result of the appropriate policy adopted by the government in recent

years the country’s economy is on a higher growth trajectory. According to the National
Bank of Ethiopia the Ethiopian economy continued to register a notable growth even
when the world faces challenging macroeconomic and social conditions owing to the
outbreak of COVID-19 pandemic. In 2019/20 fiscal year, real GDP grew by 6.1 percent
compared to 3.5 percent average growth estimated for Sub - Saharan Africa (World
Economic Outlook Update, June 2019).

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This growth in real GDP was attributed to 9.6 percent growth in industry, 5.3 percent in
service and 4.3 percent in agriculture sectors. Thus, nominal GDP per capita rose to
USD 1,080, showing a 9.6 percent year-on-year growth.

Generally, the Ethiopian economy recorded 8.2 percent average growth rate per annum
during the GTP II period (2015/16-2019/20) which was 2.8 percentage point lower than
the average growth target set for the plan period.

The structure of the Ethiopian economy is divided into three major sectors; namely, the
agriculture, industry and service sectors. In 2019/20, the share of agriculture in GDP
went down to 32.7 percent from 33.3 percent last year and 33.5 percent GTP target for
the year. The contribution of agriculture to GDP growth was 22.9 percent of which crop
production accounted for 65 percent, followed by animal farming & hunting (25.9
percent) and forestry (8.8 percent). In terms of growth, crop production expanded by 4.7
percent, animal farming & hunting by 3.3 and forestry 3.9 percent.

Industry showed 9.6 percent annual growth and constituted 29 percent of the total GDP.
The sector contributed 42.6 percent to the overall economic growth during the fiscal year
and its performance was far below the 18.4 percent target set in the GTP II though its
share was higher than the 22.3 percent target.

Manufacturing sector increased by 7.5 percent and constituted 23.9 percent of the
industrial output. Construction industry, on the other hand, contributed more than half
(72.6 percent) to industrial sector and it expanded by 9.9 percent signifying its leading
role in roads, railways, dams and residential houses construction. The mining and
quarrying sector has reversed its downward trend of the past few years and registered
91.4 percent growth over the previous year. Policy improvements, especially in boarder
areas as well as the closure of borders due to COVID-19, can be cited as the main
reasons for the robust growth although its contribution to industry production was still
minimal (0.9 percent). Electricity & water had 2.6 percent contribution to industrial
production.

Service sector continued to dominate the economy as its share in GDP was about 39.5
percent and its contribution to GDP growth stood 34.4 percent. The 5.3 percent annual
growth in service sector was largely attributed to the increase in real estate, renting and
business activities (9.5 percent), others (7.5 percent), whole sale and retail trade (6.4
percent) and public administration and defense (2.3 percent).

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2.1.3 Social factors

Ethiopia, with a population of nearly 110 million is the second most populous country in
Africa next to Nigeria. Almost 25% of Ethiopia’s population is under the age of 18 and
83% resides in the country side. A look in to some human development indicators
reveals that primary school enrolments have quadrupled, child mortality has been cut in
half, and the number of people with access to clean water has more than doubled.

Ethiopia’s agriculture contributes to less than 33% of the national GDP whereas provides
80-85 percent of employment for the population plays a central role in the economic and
social life of the nation. In recent years, the role played by services and manufacturing
sector is also showing improvement from time to time. Along with this dynamics,
population growth, growth of urbanization, improved income of farmers, and growing
urbanization have contributed to the expansion of consumer market as well as sourcing
the human resource requirement needs of the project.

2.1.4 Technological factors

With the massive public expenditure going on in the country especially in roads, train air
and port facilities and improvements in utilities such as electricity, the import and export
activities in the country is showing improvements. The project area, where movements
of commercial and industrial products take place, is benefiting from construction and
road networks.

With regards to communication services, there are technological developments in the

area of ICT mainly in the mobile network. This has greatly contributed to enhance access
to information. Most organizations have now mobile access that would enable them to
access market information and active network with their fellow trading partners,
information to and from production areas up to export outlets. The introduction of
electronic payments, including mobile payments will also facilitate payment transactions.

The choice technologies specific to this project depends on the requirements of capacity,
level of sophistication, cost, efficiency and quality. As a result, there is more preference
to imported technology mainly from Asian countries. European machineries are known
for better efficiency and durability than machineries imported from Asian countries but
with regard to cost, the Asian brand is cheaper than the European ones.

12
2.1.5 Legal factors

The new commercial code of Ethiopia Proclamation No.979/2008 is incorporates modern

business legal frameworks. The Ethiopian Government has a package of incentives
under Regulation No.270/2012 for domestic and foreign investors which are a priority
sector for the country. Among the incentives are tax holidays, export guarantee
schemes, duty free privileges for importation of machinery. Export is zero tax rates
where exporters can claim for rebate for value added tax paid for their inputs. Moreover,
exemptions from customs duties or other taxes levied on imports are granted for raw
materials and packing materials necessary for the production of export goods. All other
goods and services destined for export are exempted from any export and other
taxes levied on exports.

The other regulation conducive to the export is the Income Tax Exemption and Loss
Carry Forward privileges. Accordingly, any income derived from an approved new
manufacturing, agro-industrial or agricultural investment is exempted from the payment
of income tax ranging from 2-8 years depending on the area of investment, export
volume and the location in which the investment is undertaken. On the other hand,
business enterprises that suffer losses during the tax holiday period can carry forward
such losses for half of the income tax exemption period, after the expiry of such a period.
There are also other export incentive packages (which help to boost the export activities)
following various agreements that the country has made with bilateral and multilateral
organizations, in the form of duty exemption for inputs of exports, export credit guarantee
schemes and bonded warehouse.

2.2 Market Structure and Analysis

2.2.1 Supply analysis

The country’s requirement of alcoholic liquors is met through both local production and
imports. Table 2.1 summarizes the structure of supply and apparent consumption of
alcoholic liquors and the share of local production and import during the period 2011 –
2020.

TABLE 2.1: APPARENT CONSUMPTION OF ALCOHOLIC LIQUORS (IN HL)

13
 Local Production Import Total Growth
Year
Quantity % Share Quantity % Share Supply Rate
2011 301,253 99.49% 1,545 0.51% 302,798 -2.76%
2012 316,365 99.52% 1,515 0.48% 317,880 4.98%
2013 363,963 99.62% 1,383 0.38% 365,346 14.93%
2014 352,581 99.62% 1,348 0.38% 353,929 -3.12%
2015 448,254 99.58% 1,872 0.42% 450,126 27.18%
2016 669,339 99.84% 1,083 0.16% 670,422 48.94%
2017 1,053,409 99.82% 1,939 0.18% 1,055,349 57.42%
2018 1,390,500 99.84% 2,172 0.16% 1,392,672 31.96%
2019 1,640,790 99.84% 2,563 0.16% 1,643,353 18.00%
2020 2,346,330 99.88% 2,717 0.12% 2,349,047 42.94%
Averag 888,279 99.71% 1,814 0.29% 890,092 24.32%
e
Source- “Survey of Manufacturing & Electricity Industries” CSA, and Compiled From “Ethiopian Revenues
and Customs Authority” ERCA,

During the period 2011 – 2020, the maximum total supply (apparent consumption) of
alcoholic liquors to the local market was 2,349,047 hectoliter (year 2020), while the
minimum 302,798 hectoliter was registered in year 2011. In the remaining years, apparent
consumption was fluctuating between these two extremes, around a mean figure of
890,092 hectoliter.

During the period under consideration (2011 – 2020) apparent consumption of alcoholic
liquors though characterized by a noticeable growth trend exhibits fluctuations from year to
year. In 2013, total supply has increased by about 14.93% as compared to 2012.
However, in 2014 total supply has decreased by 3.12% while in 2015 supply has increased
by 27.18% compared to the previous year. During the period 2015 – 2020 supply has
exhibited constant growth registering a growth rate that ranges from 27.18% to 42.94%
annually.

2.2.2 Demand analysis

Demand is defined as the quantity of a good or service consumers are willing and able to
buy at a given price in a given time period. Only when the consumers' desire to buy
something is backed up by willingness and an ability to pay for it than we speak of
demand.

2.2.2.1 Factors that influence the demand for agricultural products

There are many factors affect the demand for agricultural products. The most important
ones are sustainability of supply, price and overall economic development level.

14
Quality: - Product quality is the basic and most important marketing mixes that affect the
success of a product. Product quality has two dimensions, i.e., level and consistency.
Level means the producer must first choose a quality level that will be acceptable in the
target market and in a level that comply with the quality of competing products.
Consistency refers to the consistent delivering of ones established quality through strict
quality control measures.

The envisaged project would thus install modern machineries and safe guarded
production process with a system of optimally combined machine operations and control
of them by qualified and trained technicians and quality control will be given top priority.

Product price: - price is the other major factor that influences the demand for
agricultural products. If the price of a product is cheaper and its quality is inferior, lower
income groups are often used it. If it has good quality and high price, it is only affordable
to high income groups. The project has taken this information as good insight to develop
best pricing strategy affordable to all income groups.

Performance of the Ethiopian Economy – The demand for agricultural products is

strongly related to Economic development. Therefore, the demands for agricultural
products may also be expected to increase as economic expansion accentuates the
demand for the product.

In Ethiopia as a result of the appropriate policy adopted by the government in recent

years the country’s economy is on a higher growth trajectory. According to the National
Bank of Ethiopia the Ethiopian economy continued to register a notable growth even
when the world faces challenging macroeconomic and social conditions owing to the
outbreak of COVID-19 pandemic. In 2019/20 fiscal year, real GDP grew by 6.1 percent
compared to 3.5 percent average growth estimated for Sub - Saharan Africa (World
Economic Outlook Update, June 2019).

This growth in real GDP was attributed to 9.6 percent growth in industry, 5.3 percent in
service and 4.3 percent in agriculture sectors. Thus, nominal GDP per capita rose to
USD 1,080, showing a 9.6 percent year-on-year growth.

Generally, the Ethiopian economy recorded 8.2 percent average growth rate per annum
during the GTP II period (2015/16-2019/20) which was 2.8 percentage point lower than
the average growth target set for the plan period.

15
2.2.2.2 Projected demand and supply for agricultural products

As we noted above, there is huge demand by domestic production. On top of this

positive performance of the economic development will obviously bring huge demand for
agricultural products. The supply for agricultural products has been increasing since
2011 with an average rate of 24%. Demand is expected to be higher than the actual
supply.

In this case, the demand and the market share projection are computed based on the
results of SWOT analysis. As per the SWOT analysis, it is assumed that the
opportunities will be counter balanced by the threats so that with conservative estimate
the project will capture a market share of 2% of the country’s total demand of agricultural
products. Accordingly, the market size for agricultural products by the project is as
shown in Table 2.2.

TABLE 2.2: PROJECTED DEMAND AND MARKET SHARE OF THE PROJECT (IN HL)

Projected Demand
Market Share of
Year for Agricultural
The Project
products
2021 2,143,467 42,869
2022 2,441,841 48,837
2023 2,761,108 55,222
2024 3,103,283 62,066
2025 3,470,590 69,412
2026 3,865,484 77,310
2027 4,290,674 85,813
2028 4,749,151 94,983
2029 5,244,220 104,884
2030 5,779,533 115,591
2031 6,359,127 127,183
2032 6,987,465 139,749
2033 7,669,484 153,390
2034 8,410,645 168,213
2035 9,216,992 184,340

As can be seen from the above Table, the total market share of the project is forecasted
to grow from 42,869 HL in 2021 to 184,340 HL in 2035.

2.3 Target Market and Customer Base

The targets for the project are local and export market. However, in the early project
period, the project will more focus on local market. In latter year of the project period it
will try to reach some neighboring countries with affordable price.

16
This project plan compound feed bags will be sold to livestock farmers. Following are
some of the target clients for a manufacturer of compound feed.

• Dairy farmers

• Calf fattening farmers

• Sheep farmers

• Goat farmers

The price of compound feed per kg and that of one UMB should be lower than that of
simple cakes so that farmer could feel it economical. The cheaper the product more will
be its use in livestock feeding. To avoid risk of price fluctuations, the feed ingredients
should be stored in season of availability.

2.4 Market Size and Potential

The different types of market segments for the project products can be classified as:-

1) Wholesaler and Retailers

2) Household consumers

Wholesaler and retailers buy the product from producers to get the product with
reasonable price. These customers are often professional buyers. The main factors of
interest to these buyers are that they require the product to be delivered in bulk, at a low
price, and with a proven ability to meet delivery requirements. The project should
therefore take these factors into account when deciding if this is a market sector that
they can successfully target.

2.5 Competitors Analysis

2.5.1 Major competitors

The demand for agricultural products is met both through import and local production.
The latter source constitutes of the lion's share, on average accounting for more than 99
percent of the country's total agricultural products consumption during the period 2011 –
2020.

17
At present Komari Beverages Manufacturing Company (Komari) is the only Breezer
producer in the country. Komari was established and legally registered in Ethiopia in
2019, in Debre Berhan as a private company. The company has a production capacity of
bottling and packaging 27,000 bottles an hour. Currently it has created 135 permanent
jobs with some 175 temporary employees.

Komari launched three flavors of new drinks with 5 percent alcohol concentration
branded Arada. The current selling prices of Arada product is Birr 22.00.

Partly financed by Dashen Bank Share Company, Komari is currently distributing its
products in Addis Ababa, Bishoftu, Adama and Debre Birhan.

The company finds its main input (Pure alcohol) from the VIV Beverages Manufacturing
S.C.

2.5.2 The five – forces model of competition

1. Threat from Substitutes

There is no substitute for the project’s products. However, there are generic products
and complementary products which can be used instead of the products. Furthermore,
the buyer propensity to switch brands is low; since consumers on the market are brand
loyal to the products they are currently using and the fact that the products often have
complementary products.

2. Rivalry from Existing Competitors

• Concentration, Diversity of Competitors – There are few operators in the industry

and they are similar in their cost structure and strategies thus no price competition
as it is difficult for prices coordination

• Product Differentiation - There is no product differentiation other than differences

in product offerings

• Cost Conditions - The price competition from excess capacity is not aggressive as
fixed costs are low relative to variable costs

3. Threat from New Entrants

• Capital requirements – The cost of setting up this type of project is high,

18
 • Economies of scale – Entry into the industry has to be on a large scale in order to
make a meaningful profit. There is currently excess capacity as the market
penetration rate is very low.

• Absolute cost advantages – No absolute cost advantage unless the new entrant
has its own input source.

• Access to distribution channels – Key distribution channels is by appointing

sufficient number of agent.

• Regulatory and legal barriers – There is no legal barriers

• Retaliation by established competitors – There can be no retaliation by

competitors as there are no many competitive farmers.

4. Bargaining Power of Customer

• Market Type - The industry is combination of inputs and outputs; with inputs being
the dominant market. The main inputs are cows, young stock for fattening, and
ingredients for feed. Outputs are fattened sheep, concentrate feed, and
pasteurized milk.

• Price Sensitivity - There is little price sensitivity and there is no product switching
due to price changes; hence largely dictates prices.

• Relative Bargaining Power - There are a number of buyers, who make large
purchases. There is awareness on manufacturer’s costing methods. Appointing
sufficient number of agent which are manageable in size for supervision and
control, feedback exchange purposes and facilitating the selling process of the
project would be attractive for producers.

5. Bargaining Power of Suppliers

 The suppliers of inputs are usually small number. Hence these suppliers may be
said to have high bargaining power.

 It is difficult for manufacturer’s to integrate backward to produce inputs by

themselves to reduce their dependence on the suppliers.

Combined Impact of the Forces

19
The five forces model competitors’ analysis indicates an industry marked high bargaining
power of supplier, high barriers to entry, high customer power and no price rivalry
between competitors as no product differentiation.

2.6 Key Success Factors

The commercial viability of the envisaged plant depends on the following factors:

 Production processes need to be monitored very carefully.

 Advance sale orders can ensure the success of the business.

 Quality maintenance will play an important role as it is evident from the behavior
of consumers that they are more specific towards quality issues. This is very
important for example after the distribution of milk where there is a need to check
that the distributors do not supply adulterated milk

 Cost accounting system should be strengthened so as to monitor the entire

process and determine the reasons for major variances in the process such as
Material, Labor and Factory Overhead Variances.

 Selection of technical / skilled staff would be very crucial decision to be made by

the management.

 Continuous efforts should be made for up-gradation of the technology.

 Smart milk distribution networks also play an important role in the success of this
business

20
3. MARKETING STRATEGIES (4PS)

Based on the detailed analysis presented in this business plan, the project has designed
marketing strategies to ensure its competitiveness and return on investment. It is also the
objective of the project to ensure the highest level of customer satisfaction in the targeted
market segment. Strategic relationship with major buyers is one of the key success factors
in each selected market segments (institutional buyers and consumers). The marketing
strategy explains the sub strategies with the four marketing components (4Ps) and
additional customer oriented strategy.

3.1 Products

The project plan is to produce standard quality products i.e. a product which has good
quality parameters. In addition to this, the products will available in required amounts and
qualifies acceptable national and international quality standards.

3.2 Promotions

The project will use different promotional strategies, which are essential to support
attainment of its marketing and profit objectives. Its main promotion strategies, therefore,
include personal selling, product dedicated marketing personnel, maintaining healthy and
strong networking brochure and flyers, web presence, organizing annual events, attending
at national and international trade fairs, most of which are discussed here below.

 Inauguration: the project will have inauguration ceremony soon after the completion
of the commission phase. Relevant governmental officials, sector representatives
and the media will be invited. The event will enable the project to get publicity.

 Personal selling: The project will deploy personal selling approach to potential
buyers through door to door visit. Popular trade shows will be used as an opportunity
to create opportunities for networking and personal communication with buyers.

 Assigning product oriented marketing personnel: A marketing representative or

management staff will be recruited and assigned to handle product specific marketing
activities.

21
  Networking activities: The management has to promote the hugeness and positive
impact of the project on overall agro market of the country to appropriate government
bodies. The management will watch closely national level events in the sector and
involve whenever applicable to tap opportunities to follow from such events.

 Web presence: The project will develop a website, which will contribute towards the
visibility of the project and its products in the market. The website allows potential
customers and collaborators to get to know the project and reach it through contact
information to be provided on the site. In addition to website, it is planned to
intensively use different information systems to promptly communicate and closely
work with potential customers, collaborators and other interested parties.

 Brochure and flyers: The project plans to develop an informative brochure to be

distributed to various stakeholders and buyers. The brochures and flyers will be
distributed national association, chamber of commerce and during networking
events.

 Annual events: The project will have annual events where corporate customers and
stakeholders will be invited. The session will be used as a promotional event to
acknowledge employees, partners and corporate customers who did excellent jobs
during the year.

 Trade fairs: the project will attend national and international trade fairs to promote its
products. International trade fairs are excellent opportunities to reach as many
customers as possible and also to understand the competition environment and the
customers’ requirements.

The types of promotion that are selected are different for each market segment. Posters or
signboards in villages and special leaflet promotions in village shops are likely to reach
more people. In urban markets the project will use personal contacts with buyers.

3.3 Distribution /Places

Historically animals have not been marketed on a regular basis for income as a
commercial endeavor but sold in times of need. However, around population centers i.e.
big towns and cities, producers have started to consider animal commercial ventures and
targets specific markets.

22
Marketing; and distribution involves many stakeholders; producers (Agro pastoralists),
dealers (usually from villages or adjoining areas), wholesalers, butchers, and consumers.
The marketing takes place on individual animal as well as on lot basis.

The milk reaches end users for immediate consumption through an extensive, multi-
layered distribution system of middlemen. There are two ways of milk distribution i.e.
through company's own distribution network or through third party distributor. Milk can be
supplied once in a day at evening or in morning time.

3.4 Pricing Strategies

The price of products will be set based on the cost of production and the price of competing
products supplied in the Ethiopian market. The products produced by the project are
expected to attract better price than others due to standard quality acceptable by all type of
customers. However, the project has a plan to install a price well below the current market
price of high standard price to reach all type of customers. Unless there is a significant cost
variation during the purchase of inputs, the project will try to maintain a uniform and stable
selling price.

23
4. OPERATIONAL PLAN

4.1 Civil Work and the Physical Layouts

4.1.1 Location and site

The site is located in the Amhara National Regional State, North Shewa Zone, within the
Angolala and Tera Wereda, Chefenen Kebele. The selection of project area is made
with due consideration of the availability of electricity, telephone and water as well as
proximity to raw materials and it is near to the major customers.

North Shewa is one of 10 Zones in the Amhara Region. The population is now estimated
to reach 3,500,000; along with the entire population of Ethiopia it has more than doubled
since 1994, but based on the 2007 Census conducted by the Central Statistical Agency
of Ethiopia (CSA), this Zone has a total population of 1,837,490, an increase of 17.72%
over the 1994 census, of whom 928,694 are men and 908,796 women; with an area of
15,936.13 square kilometers, North Shewa has a population density of 115.30. While
214,227 or 11.66% are urban inhabitants, a further 112 or 0.01% are pastoralists. A total
of 429,423 households were counted in this Zone, which results in an average of 4.28
persons to a household, and 413,235 housing units. The three largest ethnic groups
reported in North Shewa were the Amhara (95.73%), the Oromo (2.14%), and the
Argobba (1.71%); all other ethnic groups made up 0.42% of the population. Amharic is
spoken as a first language by 96.97%, and 2.32% spoke Oromiffa; the remaining 0.71%
spoke all other primary languages reported. 94.71% of the population said they practiced
Ethiopian Orthodox Christianity, and 4.91% were Muslim.

According to a May 24, 2004 World Bank memorandum, 4% of the inhabitants of North
Shewa have access to electricity, this zone has a road density of 41.4 kilometers per
1000 square kilometers (compared to the national average of 30 kilometers), the
average rural household has 1.2 hectares of land (compared to the national average of
1.01 hectare of land and an average of 0.75 for the Amhara Region) and the equivalent
of 0.9 heads of livestock. 15.7% of the population is in non-farm related jobs, compared
to the national average of 25% and a Regional average of 21%. 48% of all eligible
children are enrolled in primary school, and 12% in secondary schools. 39% of the zone
is exposed to malaria, and 14% to Tsetse fly.

24
4.1.2 Building and civil work

The envisaged project requires building for operation, ware houses, and management
buildings. The space requirement of the project is determined by the total area each
production equipment occupy, adequate space required in between the equipment/
machineries, space required for the workers and that needed to handle work in progress.
Finished product store will also have enough building space to store a minimum of one
month finished products.

The breakup of the required area and construction cost of the building is given in the
table below:

TABLE 4.1: SUMMARY OF BUILDING AND CIVIL WORKS REQUIREMENT AND

THEIR COSTS (BIRR)

AREA OF ESTIMATE OF TOTAL

No. DESCRIPTION OF BLOCKS BLOCKS ONE SQUARE AMOUNT OF
IN M2 METER CONSTRUCION
1 Dairy Farm
Shed for cows along with free stalls 8,500 2,000.00 17,000,000.00
Cage for claves (up to 15 days) 500 2,000.00 1,000,000.00
Claves shed (15 days - 1 year) 1,000 2,000.00 2,000,000.00
Shed for Heifers (older than one year) 2,000 2,000.00 4,000,000.00
Stores for fodder, concentrate and machine room 300 2,000.00 600,000.00
Utensils and milk storage 100 5,000.00 500,000.00
Servant room, wash room 100 6,000.00 600,000.00
Bunker silage 6,000 200.00 1,200,000.00
Total Land Requirement 18,500 26,900,000
2 Sheep Fattening
Shed space (including quarantine pen and 500 2,000.00 1,000,000.00
isolation pen)
Open paddock and fencing 1,000 200.00 200,000.00
Total Land Requirement 1,500 1,200,000
3 Animal Feed
Production hall 1,500 6,000.00 9,000,000.00
Store house for Urea, Molasses, Meals, 2,000 5,000.00 10,000,000.00
Store for Processed Feed 1,500 6,000.00 9,000,000.00
Total Land Requirement 5,000 28,000,000
4 Milk Processing
Production hall 3,000 6,000.00 18,000,000.00
Store 500 6,000.00 3,000,000.00
Pavement/ driveway 1,000 800.00 800,000.00
Management building 500 8,000.00 4,000,000.00
Total Land Requirement 5,000 25,800,000
Total Sum 30,000 81,900,000.00
10% Contingency 8,190,000.00
Grand Engineers' Estimate 90,090,000.00

25
4.2 Technology and Engineering

4.2.1 Plant capacity

Having considered the investment cost, management and administration complexity as

well as the business, the capacity of the plant is selected to be:

- Dairy Farm: an initial herd size of 200 Cows, which is economical to justify the
overhead cost. The farm size will increase to approximately 1,500 cows within 10
years. Herd mix of 100% cows is recommended to get the maximum milk
production round the year.

- Sheep Fattening: The farm will start production with 350 animals. The farm will
achieve maximum production capacity of 500 animals per production cycle in its
4th year. The limit of 500 animals has been imposed on the farm because very
large flock would be difficult to manage.

- Animal Feed: This study suggests production of 5,700 tons of animal feed
annually. However the proposed project will be started with an initial year capacity
of 70% i.e. 3,990 tons of animal feed. This production capacity justifies the
running cost of the project.

- The milk pasteurization unit: has a maximum capacity to process 950 litres per
hour. However, the unit will operate at 270 litres per hour in the first year and 8
hours is the milk processing time per day.

4.2.2 Technology

4.2.2.1 Process description

1. Dairy Farm

Commercial dairy farmers depend on land, labor and animals as the major resources.
Successful dairy farming harnesses all available resources into productive and
profitable unit. Dairy farming is highly complex as it includes breeding, management,
feeding, housing, disease control and hygienic production of milk on farm. Bunker
silage

26
a) Feed

Ration for Dairy Animals: The ration is allowance of nutritionally balanced feed in
24 hours. It includes dry matter and concentrate to increase animal productivity.
Wheat straw is also used as dry roughage along with green fodder. About 1 kg of
Total mix ration on dry matter (TMR) is required for the production of 2 litres of milk.
These feed ingredients when mixed according to feed formula will provide adequate
energy according to energy and protein requirements of animal in production.

Mineral Mixture: This is used as a feed supplement. It includes a mix of minerals

(magnesium, iron, sodium and salts). Mineral mixtures are good source of energy
and increase the animal productivity to give milk.

Fodder Crop: Fodder is grown at the land, which is acquired on lease or owned by
the entrepreneur. Due to increased demand, improved forage crops such as multi-cut
oats, berseem, lucerne, Sorghum- Sudan grass hybrids, mott grass, sorghum, maize
and millet have been developed. The fodder yield (except multi cut Mott Grass which
yield 100-150 tones/ acre in 4 to 6 cuttings per year) varies between 10 tons to 40
tons per acre depending upon the fertility of land, quality of seed and application of
fertilizer.

There is no fixed fodder requirement for the animals but a rule of thumb says that an
animal needs daily fodder equal to 9%-10% of its body weight (3% of live body weight
on Dry Matter Basis). According to estimates, consumes 50-55 kg fodder daily while
cow consumes about 40-45 kg.

Wheat Straw: Wheat straw is major, typical, and very popular dry roughage. It is
always chaffed, and is the main or even only major dry roughage used on almost all
the dairies. Traditional threshing methods break the straw into short pieces, and
modern mechanical threshers have been designed to break the straw.

b) Medication

Vaccination and medicine is required to prevent any disease outbreak in the animal
herd. Each new animal will be vaccinated before entering the farm. Vaccines are
produced at Veterinary Research Institute. Farmers can also obtain these vaccines
on payment according to prescribed schedule from the Institute. Technical guidance
is also provided to the farmers.
27
 c) Output

Lactation Period: The lactation period is the period during which the animals yield
milk. These animals are called wet animals. Generally the lactation period of cows is
305 days. The calving interval in cow has 13 months. The average milk yield of cow
is estimated at 20 x 305 = 6100 liters per lactation.

Milk Composition: Cow's milk contains 12-14% total solids and the butterfat content
is usually between 3% and 5%. Phospholipids are lower but cholesterol and
saturated fatty acids are lower in cow’s milk.

2. Sheep Fattening

a) Breed Selection

The farmers not only has to select the better breed which can bring results for
fattening but also has to select most suitable animals from the selected breed.
Through better management the weight gain of these selected breeds would be
higher.

Animals selected for fattening should be from six months to eight months of age. At
this age the animal is weaned and used to eating green fodder and grass. As
compare to grown up sheep the daily weight gain capacity is also better at this age.
Weight and age of all the selected animals should also be similar otherwise the larger
and older animals would not let the smaller animals to eat feed according to their
requirement. Selected animals should not be sick, weak or with physical disabilities.

b) Feed

Nutrition is a serious limiting factor in the livestock industry of Balochistan with the
result that many animals arrive at the market in less than optimal body condition with
body weight on the lower end; there is a dire need to ensure feed availability round
the year with proper protein contents for increasing livestock productivity. In this
regard supplementary feed must be provided to the livestock, especially during
periods of drought and scarcity. For instance, perennial grasses, such as sudan
grass, Bajra Napier hybrid, or sorghum hybrids could be grown on part of the
cultivated land. Green fodder from these crops could be cut during the dry periods to
improve feed supply during the lean period.

28
 Similarly non–conventional feed preparation and feeding techniques should be used
like treatment of wheat/ rice straws and other crop residues with urea or ammonia,
molasses bocks, silage making, concentrate mixtures with low cost formulae, feed
lots, semi intensive farming and ewe flushing etc..

For this prefeasibility it is suggested that the farmers use open range grazing as well
as give supplementary feed to the animals, animals should obtain at least half of the
energy requirement from grazing which is very low cost and suited for local species of
sheep. Supplementary feeding on the other hand will help in fattening of animals.
Similarly storage and conservation of forage, use of high protein fodders, treatment of
crop residues, and mineral nutrients will overall improve forage quality and give better
results.

c) Diseases Management

Numbers of diseases are found in livestock; most common diseases are Peste Des
Petits ruminants (KATA), PPR, Pneumonia, Piro Plasmosis, Fasciolasis, Ticks &
Mange, sheep pox, Lungs & Stomach worm and Liver fluke. Sometimes the diseases
causes epidemic situation in the area. If treatment is not provided on time the animal
get weaker and weaker and ultimately die. It is recommended the animals are
properly vaccinated before joining in the farm.

3. Animal Feed

The compound feed preparation process requires:

a) High accuracy and precision of weighing

b) Feed ingredient handling and processing

c) Mixing

d) Packing

e) Labelling

29
Figure 4 - 1 Process Flow Diagram of Animal Feed

A liquid storage and a direct-weight system for adding fat, molasses, and water is
required. Grain processing is done through hammer mill grinding. Mixed feed is delivered
in bags or bulk load out to livestock farms.

4. Milk Processing

After the fresh milk is received it is filtered and pumped into the dump tank. It is then
chilled with help of a chiller so that the growth of bacteria is minimized. On average,
fresh milk contain 4.5% fats which will be reduced to 3.5% with the help of a cream
separator. The milk will then undergo the pasteurization process. This is based on
heating the milk to 75ºC and holding at that temperature for at least 15-20 seconds.

Figure 4 - 2 Process Flow Diagram of Milk Processing

30
This heat treatment ensures the destruction of unwanted micro-organisms and all
bacteria. During this process the temperature is reduced to 4ºC as at this temperature
ideal growth of bacteria is stopped. After milk processing, the pasteurized milk is filled in
the cooling tanks for delivery to urban milk distribution centers. Milk is also filled and
sealed in plastic pouches and then are ready for distribution in market. After the
pasteurization process is completed, the tanks will be cleansed through steam for
sterilization.

4.2.2.2 Operation program

Considering the experience of similar plant, it is assumed that owing to probable

technological, production and commercial difficulties, the envisaged project will initially
experience problems that can take the form of only a gradual growth of sales and market
penetration, on the one hand and a wide range of production problems such as
acquaintance of technical manpower with the selected technology and equipment on the
other hand.

Accordingly, the project starts production at 70% of its installed capacity which will grow
to 80% in the second year, and 90% in the third year. Full capacity production will be
attained in the fourth year and onwards.

Thus the annual output for the project has been formulated based on the proposed
capacity. The output program for the life of the project is shown in the Table 4.2 below.

TABLE 4.2: OPERATION PROGRAMME

Operation Year
Unit of
No Description 4th and
Measure 1 st
2nd
3rd
onwards
1 Capacity utilization % 70 80 90 100
2 Output
2.1 Dairy Farm
Total cows No. 200 230 265 304
Lactating cows No. 160 184 212 243
Clave younger than one year No. 140 154 169 186
Clave older than one year No. 130 150 172 198
Total Animals No. 470 534 606 688
2.2 Sheep Fattening
Sheep fatten No. 1,050 1,200 1,350 1,500
2.3 Animal Feed
Concentrate (Animal Feed) kg 3,990,000 4,560,000 5,130,000 5,700,000
2.4 Milk Processing
Pasteurized milk Liter 780,800 897,920 1,032,608 1,187,499
Butter kg 5,466 6,285 7,228 8,312
Cheese kg 1,562 1,796 2,065 2,375
Cream kg 781 898 1,033 1,187
31
4.2.2.3 Materials and inputs

A. Dairy Farm
1) Feed

Ration for Dairy Animals: The ration is allowance of nutritionally balanced feed in
24 hours. It includes dry matter and concentrate to increase animal productivity.
Wheat straw is also used as dry roughage along with green fodder. About 1 kg of
Total mix ration on dry matter (TMR) is required for the production of 2 liters of milk.
These feed ingredients when mixed according to feed formula will provide adequate
energy according to energy and protein requirements of animal in production.

Mineral Mixture: This is used as a feed supplement. It includes a mix of minerals

(magnesium, iron, sodium and salts). Mineral mixtures are good source of energy
and increase the animal productivity to give milk.

Fodder Crop: Fodder is grown at the land, owned by the entrepreneur. Due to
increased demand, improved forage crops such as multi-cut oats, berseem, lucerne,
Sorghum- Sudan grass hybrids, mott grass, sorghum, maize and millet have been
developed. The fodder yield (except multi cut Mott Grass which yields 100 - 150
tones/ acre in 4 to 6 cuttings per year) varies between 10 tons to 40 tons per acre
depending upon the fertility of land, quality of seed and application of fertilizer.

There is no fixed fodder requirement for the animals but a rule of thumb says that an
animal needs daily fodder equal to 9% - 10% of its body weight (3% of live body
weight on Dry Matter Basis). According to estimates, cow consumes about 40 - 45
kg.

Wheat Straw: Wheat straw is major, typical, and very popular dry roughage. It is
always chaffed, and is the main or even only major dry roughage used on almost all
the dairies. Traditional threshing methods break the straw into short pieces and
modern mechanical threshers have been designed to break the straw.

2) Medication

Vaccination and medicine is required to prevent any disease outbreak in the animal
herd. Each new animal will be vaccinated before entering the farm. It will cost Birr 50
for each cow per year.

32
B. Sheep Fattening
1) Young stock for fattening

Animals selected for fattening should be from six months to eight months of age. At
this age the animal is weaned and used to eating green fodder and grass. As
compare to grown up sheep the daily weight gain capacity is also better at this age.
Weight and age of all the selected animals should also be similar otherwise the larger
and older animals would not let the smaller animals to eat feed according to their
requirement. Selected animals should not be sick, weak or with physical disabilities.

2) Feed

Nutrition is a serious limiting factor in the livestock industry with the result that many
animals arrive at the market in less than optimal body condition with body weight on
the lower end; there is a dire need to ensure feed availability round the year with
proper protein contents for increasing livestock productivity. In this regard
supplementary feed must be provided to the livestock, especially during periods of
drought and scarcity.

Similarly non–conventional feed preparation and feeding techniques should be used

like treatment of wheat straws and other crop residues with urea or ammonia,
molasses bocks, silage making, concentrate mixtures with low cost formula, feed lots,
semi intensive farming and ewe flushing etc..

For this project it is suggested that to use open range grazing as well as give
supplementary feed to the animals, animals should obtain at least half of the energy
requirement from grazing which is very low cost and suited for local species of sheep.
Supplementary feeding on the other hand will help in fattening of animals. Similarly
storage and conservation of forage, use of high protein fodders, treatment of crop
residues, and mineral nutrients will overall improve forage quality and give better
results.

3) Medication

Numbers of diseases are found in livestock; most common diseases are Peste Des
Petits ruminants (KATA), PPR, Pneumonia, Piro Plasmosis, Fasciolasis, Ticks &
Mange, sheep pox, Lungs & Stomach worm and Liver fluke. Sometimes the diseases
causes epidemic situation in the area. If treatment is not provided on time the animal
33
 get weaker and weaker and ultimately die. It is recommended the animals are
properly vaccinated before joining in the farm.

There are a number of external and internal parasites that affect the sheep and
goats. In addition to vaccination the animals must be dewormed regularly (quarterly in
a year). For external worms like ticks and lice etc., the animals also need to be
dipped or sprayed with some proper insecticide for protection.

C. Animal Feed

Classification of Feed Ingredients:

1) Protein Sources

These are;

• Cotton seed cake/meal

• Corn gluten meal (30 or 60%)
• Urea.

2) Carbohydrate Sources:

These are the products with less than 20% crude protein and 18% crude fiber.

• Molasses
• Corn by products such as corn cobs no; other corn by products

3) Mineral supplements:

• Salt (white/black)
• Bone meal
• Dicalcium phosphate (DCP)
• Calcium oxide (CaO)

These feed ingredients when mixed according to concentrate formula will provide
adequate energy to livestock. The formula for a concentrate is not a fixed one. It has to
be changed from time to time keeping in view the cost of ingredients used in the formula
and the cost of feed ingredient is never static

34
D. Milk Processing

Raw Milk: Fresh Milk on average contains 4.5% fats and 6.75% solids, to reach the
standardized milk requirement (3.5% fats and 9% solids) 1% of fats are removed with the
help of cream separator and milk powder is added to increase the solid contents of milk so
that it reaches 9%. Raw milk price varies depending on the season. Raw milk must be free
from dirt and have very low bacteria, any powders and must be easy to dissolve.

The estimated annual requirement for raw materials and packing materials at 100%
capacity of operation are given in table 4.3 below.

TABLE 4.3: LIST OF RAW MATERIALS AND COST AT FULL CAPACITY

Unit Cost Total Cost

No. Description UoM Quantity
(Birr) (000 Birr)
1. Direct Raw Materials
1.1 Dairy Farm
A Feed
Cow
Dry kg 1,221,263 3.75 4,579.73
Concentrate (Animal Feed) kg 888,191 -
Calve younger than one year
Dry kg 204,042 3.75 765.16
Concentrate (Animal Feed) kg 136,028 -
Calve older than one year
Dry kg 505,159 3.75 1,894.34
Concentrate (Animal Feed) kg 180,414 -
B Vaccination and medicine No. 688 50 34.41
1.2 Sheep Fattening
Young stock for fattening No. 1,500.00 2,500 3,750.00
Concentrate (Animal Feed) kg 73,000 -
Vaccination and medicine No. 6,000 50 300.00
1.3 Animal Feed
Wheat bran kg 1,425,000 11.00 15,675.00
Molasses kg 2,850,000 5.25 14,962.50
DCP kg 171,000 23.00 3,933.00
White salt kg 171,000 12.00 2,052.00
Black salt kg 171,000 14.00 2,394.00
Urea kg 513,000 50.00 25,650.00
Cement kg 399,000 7.50 2,992.50
Calcium oxide kg 57,000 3.00 171.00
PP Bag Pcs 88,447 14.00 1,238.26
1.4 Milk Processing
Raw milk Liter 1,484,374 -
Pouch Pcs 3,450,653 20.00 69,013.06
2. Utilities
Process Water m3 10.94 11.60 0.13
Electricity kwh 366,000 1.76 644.16
G/Total 150,049.26

35
4.2.3 Engineering

The detail of recommended machinery and equipment along with their costs is given in the
Table 4.4.

TABLE 4.4: DETAILS OF MACHNERY AND EQUIPMENT REQUIREMENTS OF THE

PROJECT AND THEIR RESPECTIVE COSTS

Cost
Unit of
No. Item Description Qty Foreign Total Cost
Measure
Currency (USD) (Birr)
1 Dairy Farm
1.1 Maize cutter Set 1 7,542.55 396,731.98
1.2 Milking machine (Milking partour) Set 1 64,089.53 3,371,058.04
1.3 Milk cooling unit Set 1 23,465.70 1,234,277.26
1.4 Tractor Set 1 10,056.73 528,975.97
1.5 Heavy duty ventilation fans Set 1 5,028.37 264,487.98
1.6 Trolley Set 1 2,514.18 132,243.99
1.7 Submersible pump Set 1 5,866.43 308,569.31
1.8 Generator Set 1 8,380.61 440,813.31
Subtotal 1 126,944.09 6,677,157.84
2 Sheep Fattening
2.1 Mangers 0.5 feet/ sheep Set 1 419.03 22,040.67
2.2 Hay racks Set 1 544.74 28,652.86
2.3 Chaff cutter Set 1 419.03 22,040.67
2.4 Tube well Set 1 15,923.16 837,545.28
2.5 Tubs Set 6 8.38 2,644.88
2.6 Wheel barrow Set 1 67.04 3,526.51
2.7 Weight scale Set 1 100.57 5,289.76
Subtotal 2 17,481.95 921,740.62
3 Animal Feed
Grinding Section
3.1 Hopper elevator, sheet body 3mm Set 1 419.03 22,040.67
3.2 Elevator Set 1 1,005.67 52,897.60
3.3 Hammer mill Set 1 1,676.12 88,162.66
3.4 Hopper hammer mill Set 2 335.22 35,265.06
3.5 Packing wall Set 1 167.61 8,816.27
3.6 Hopper elevator Set 1 670.45 35,265.06
3.7 Elevator Set 1 2,639.89 138,856.19
3.8 Rotary separator Set 1 1,340.90 70,530.13
Mixing Section
3.9 Hopper mixer Set 2 838.06 88,162.66
3.10 Mixer Set 1 4,190.30 220,406.65
3.11 Worm conveyor Set 1 502.84 26,448.80
3.12 Hopper molasses Set 1 419.03 22,040.67
3.13 Molasses mixer Set 1 1,676.12 88,162.66
3.14 Separator Set 1 1,676.12 88,162.66
3.15 Packing hopper and valve Set 1 502.84 26,448.80
3.16 Separator pelt Set 1 1,676.12 88,162.66
3.17 Hopper pelt Set 1 2,514.18 132,243.99
3.18 Air lock Set 1 586.64 30,856.93
Pelting Section
3.19 Center flow cooler Set 1 5,866.43 308,569.31
3.20 Crumbles body Set 1 4,609.33 242,447.32
3.21 Fan low pressure Set 1 1,676.12 88,162.66
3.22 Cyclone Set 1 1,257.09 66,122.00
3.23 Air lock cyclone Set 1 167.61 8,816.27
3.24 Pipe line Set 1 1,257.09 66,122.00
3.25 Elevator Set 1 2,639.89 138,856.19
3.26 Micro mixer Set 1 670.45 35,265.06

36
 Cost
Unit of
No. Item Description Qty Foreign Total Cost
Measure
Currency (USD) (Birr)
3.27 Molasses pump Set 1 167.61 8,816.27
3.28 Molasses tank Set 1 335.22 17,632.53
3.29 Fitting charging Set 1 4,190.30 220,406.65
3.30 Pelt machine Set 1 30,505.42 1,604,560.43
3.31 Boiler Set 1 8,380.61 440,813.31
3.32 Boiler fitting and accessories Set 1 5,028.37 264,487.98
3.33 Electric motors Set 1 6,704.49 352,650.64
3.34 Electric panel Set 1 6,704.49 352,650.64
3.35 Power factor Set 1 1,676.12 88,162.66
Subtotal 3 104,673.80 5,567,472.05
4 Milk Processing Unit
Milk Reception
4.1 Raw milk reception tank Set 1 10,056.73 528,975.97
4.2 Milk Reception Set 1 27,454.87 1,444,104.39
4.3 Double static filter with bypass Set 1 11,404.33 599,858.75
4.4 Plates milk cooler Set 1 10,675.72 561,534.44
4.5 Raw milk storage tank Set 1 26,398.92 1,388,561.91
4.6 Control panel Set 1 2,534.30 133,301.94
4.7 Centrifugal electro pump Set 1 2,703.25 142,188.74
Milk Pasteurizing
4.8 Skid mounted pasteurizer Set 1 49,629.96 2,610,496.40
4.9 Separators Set 1 48,119.95 2,531,070.66
4.10 Milk degassing/ deodorizer unit Set 1 52,797.83 2,777,123.83
4.11 Milk storage tank Set 1 26,398.92 1,388,561.91
4.12 Control panel Set 1 2,534.30 133,301.94
4.13 Centrifugal electro pump Set 1 2,534.30 133,301.94
Milk Packaging
4.14 Automatic Filling Machine Set 1 20,951.52 1,102,033.26
Service
4.15 Ice bank unit Set 1 44,350.18 2,332,784.01
4.16 Semiautomatic CIP unit Set 1 46,462.09 2,443,868.97
4.17 Steam generator Set 1 46,462.09 2,443,868.97
Subtotal 4 431,469.26 22,694,938.03
Grand Total 680,569.11 35,861,308.54
Note that as of May 31, 2022; 1USD = 52.5992

4.3 Commencement Plan

4.3.1 Implementation Schedule

The implementation schedule covers the activities starting from the project evaluation and
approval up to and including the trial-run and commissioning. It is envisaged that the
complete implementation program requires a total of 18 months from the approval and
financial arrangement is carried out.

Tender document preparation for plant machinery and equipment will start after project is
approved and finance is arranged and will take 0.5 month period. Tender floating will start
1 month after the approval of the project study and will be completed within 1month.
Tender evaluation, negotiation and contracting will start 2.5 months after the approval of
the project and will be completed within 2 month. Design, engineering and manufacture of
plant machinery and equipment will start after the contract agreement is signed and be

37
completed within 4 months.

Equipment delivery, that requires 4 months for completion, will start after the design and
manufacture of machinery and equipment is completed. Erection of machinery and
equipment will start as their delivery is completed and will take 2.5 months.

Tender document preparation for architectural and civil works design will start 4 months
after approval of the project and will take 0.5 month. Tender floating and evaluation of
architectural and civil works design which takes 0.5 month follows immediately after
completion of tender document preparation. Architectural and civil works design will
commence after awarding the contract and requires 1.5 months for completion. Tender
document preparation construction work will take 0.5 month. Tender floating for building
and civil works construction will start after the tender preparation is completed and will take
0.5 month for completion. Tender evaluation, awarding, negotiation and contract signing of
building and civil works construction requires 1month for completion. Construction work
will commence after awarding the contract and requires 7 months for completion.

Recruitment and training of manpower will start 1.0 months before the erection of
machinery and equipment starts and will continue up to the completion of erection and
commissioning. Commissioning and startup will commence immediately after completion of
erection of machinery and equipment and continues for 1month. The plant operation will
start immediately after commissioning at the end of the 18 months from approval of the
study. Details of the implementation schedule are shown in Figure 4.3.

4.3.2 Implementation Cost

It is assumed some costs will be incurred such as for project engineering; project
management, production know-how transfer (training of workers); and promotion cost.
These costs are as follow:

TABLE 4.5: SUMMARY OF IMPLEMENTATION COST (000’ BIRR)

No Description Cost (000’ Birr)

1 Project engineering (1% fixed investment) 326
2 Project management (2% fixed investment) 489
3 Training 50
4 Other expenditures (sales promotion, sales network, etc.) 50
Total 915

38
All these costs are amortized over the project years. Consequently, the annual amortization
amount would be Birr 91,500.

39
 FIGURE 4 - 3: IMPLEMENTATION SCHEDULE

Months
No. Activity
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18
1 Preparatory period
1.1 Approval of the study
1.2 Financial arrangement
2 Machinery procurement, and errection
2.1 Tender document preparation
2.2 Tender Floating
2.3 Tender evaluation, negotiation and contracting
2.4 Design, engineering, and manufacturing of plant machinery and
equipment
2.5 Delivery of machinery and equipment to factory site
2.6 Erection of machinery and equipment
3 Civil work
3.2 Tender Document preparation for architectural and civil work design
3.3 Tender floating and evaluation for Architectural and civil works design
3.4 Architectural and civil works design
3.5 Tender document preparation for construction work
3.6 Tender floating for building and civil works construction
3.7 Tender evaluation, award, negotiation and contract of civil works
3.8 Civil works construction
4 Manpower recruitment and training
5 Trial - run and commissioning
6 Start of operation

40
5. ORGANIZATION AND HUMAN RESOURCES PLAN

5.1 Governance Structure

The proposed organizational structure of the company is comprise the following
divisions and services:
- Production and technical division,
- Administration division,
- Finance division,
- Sales division,
- Purchasing and property administration division, and
- Quality control service.
The proposed organizational set-up shall be staffed with optimum manpower in a
way that it shall enable the project to operate efficiently and effectively.
5.2 Manning / Staffing
The manpower required is estimated to be 81 persons which are operation workers
who are directly associated with the activity for operation and supportive staffs in line
with the corresponding annual salary and fringe benefit of Birr 4,491,300.00. Details
are shown in Annex 4.
5.3 Organizational Systems
The project will develop organization system procedures and operational manuals to
enhance the efficient and effective use of resources and to ensure the appropriate
level of internal control and for the overall achievement of its objectives. These
include development of HR, financial management, marketing, procurement, and
production and operation manuals.

6. FINANCIAL FEASIBILITY

6.1 Financial Assumptions

6.1.1 Project life
According to the implementation plan of the project, the construction period allotted
for the entire project from the start of applying for loan to the final commissioning is
18 months. With regard to operational life of the project, a standard assumption of 10
years is considered. Hence, the costs and benefits of the project are computed over
11 years.

41
6.1.2 Repair and maintenance cost
The annual cost of spare parts, repair and maintenance usually increases with the
increase in the service life of machinery and equipment and other facilities. In the
present study, considering the heavy wear and tear of some of the machines a value
equivalent to 3% and 5% of the cost of machinery and equipment is assumed for the
annual cost of spare parts during the first three years and the remaining years of the
project life, respectively. The same assumption is also used for the annual cost of
repair and maintenance of the production plant. The annual cost of repair and
maintenance of other facilities is taken to be 2% of the cost of fixed assets other than
land, machinery and equipment during the first three years, and 3% of the same
thereafter.
6.1.3 Depreciation and amortization
Based on the Federal Income Tax Proclamation No. 979/2016 and Council of
Ministers Regulations 2017, the following depreciation rates are applied to
depreciate the assets of the project under the straight-line method:
 Buildings and associated civil works 5%, linear to scrap value
 Machinery and equipment 15%, linear to scrap value
 Computer and software products 20%, linear to scrap value
 Pre-production expenditure 10%, linear to scrap value
6.1.4 Working capital
The working capital requirement of the project during operation is calculated on the
basis of the minimum days of coverage needed for the different elements of the
working capital. Hence, the minimum days are specified as follows:-
TABLE 6.1: MINIMUM DAYS OF COVERAGE

No Item Minimum Days of Coverage

1 Raw Materials
- Local 30 days
- Foreign 90 days
2 Work in progress 1 day
3 Finished product 10 days
4 Cash in hand 30 days
5 Accounts receivables 10 days
6 Accounts payable 0 days

6.1.5 Discounting
The cash flows expected to be generated by a business are discounted to their
present value equivalent using a rate of return that reflects the relative risk of the
investment, as well as the time value of money. Our approach is to use the weighted
42
average cost of capital (WACC) as the appropriate rate at which to discount future
free cash flows. The WACC is calculated by weighting the required returns on
interest-bearing debt and common equity capital in proportion to their estimated
percentages of total invested capital.
We have used the Capital Assets Pricing Model to estimate the cost of equity. The
CAPM gives an estimate of an equity investor's required rate of return for a given risk
level associated with an investment. The model estimates an equity investor's
expected return by adding the country’s risk free rate and estimated equity market
premium.
The estimated nominal long-term risk free rate of return for Ethiopia is derived by
adding the Ethiopia inflation and the country risk premium. The country risk premium
has been estimated by using credit ratings of countries prepared by Moody’s, S&P,
EIU and Euromoney. The risk free rate of Ethiopia has been estimated to be 11 –
12%.
Although Ethiopia does not have developed capital markets from which to estimate
an empirical equity risk premium, we estimate that its equity risk premium by using
the credit ratings of countries prepared by Moody’s. The equity risk premium for
Ethiopia markets has been estimated to be between 12-13%.
Therefore the total investment and equity capital of the project are discounted with
the average cost of capital at 24 percent over the life of the project.
6.1.6 Income Tax
According to the Investment Incentives and Investment Areas Reserved for
Domestic Investors Council of Ministers Regulations No.270/2012, the project is
entitled to the following incentives:
• Income tax exemption for 4 years
• Losses carry forward for 2 years, and
• Exemptions from payment of custom duty on machineries and equipment
For the rest of project’s life, a 30% tax rate is applied on the taxable income.
6.1.7 Investment
The total investment cost of the project is estimated at Birr 178.7 million (See Table
6.2). From the total investment cost the highest share (Birr 163 million or 91%) is
accounted by fixed investment cost followed by initial working capital (Birr 14.7
million or 8%) and pre operation cost (Birr 0.9 million or 1%).
TABLE 6.2: TOTAL INVESTMENT COSTS IN 000 BIRR

43
 Cost
Item % Share
( in 000 Birr)
Fixed investment
Value of animals 20,000 11.19%
Building and civil work 90,090 50.40%
Machinery and equipment 35,861 20.06%
Vehicles 17,140 9.59%
Office furniture and - 0.00%
equipment
Sub total 163,091 91.23%
Pre operating cost 915 0.51%
Working capital 14,757 8.26%
Grand Total 178,764 100.00%

6.1.8 Source of finance

The investment requirement of envisaged project would be financed by equity capital
and long – term bank loan. Accordingly from the total 178.7 million financial
requirements the share of equity capital is envisaged to be Birr 53.6 million or 30% of
the total investment requirement. The remaining Birr 125.1 million or 70% of the total
investment is planned to be financed through bank loan.
6.1.9 Operation cost
The total cost of operation at 100% capacity utilization is estimated at Birr 188
million. Table 6.3 shows the total costs of production for a selected year. The costs
of production for the other years of operation are shown in Annex 1.
TABLE 6.3: COSTS OF PRODUCTION (YEAR FIVE IN 000’ BIRR)

Cost % share
Items
( in 000 Birr)
Raw material 152,208 80.82%
Utilities 837 0.44%
Repair and maintenance 2,510 1.33%
Labour 1,932 1.03%
Labour overhead costs 483 0.26%
Marketing cost 2,023 1.07%
Administrative costs 15,905 8.45%
Depreciation 8,042 4.27%
Financial costs 4,380 2.33%
Total 188,320 100.00%

6.2 Projected Financial Statements

6.2.1 Projected profit and loss statement
Based on the projected profit and loss statement shown in Schedule 4, the project
will generate a profit throughout its operation life. Annual net profit after tax increases
from BIRR 40 million to BIRR 69 million. Net profit as percent of sales revenue lies

44
between 21 to 30 %. Net profit to equity and net profit to total investment or return on
investment (ROI) are also attractive.
6.2.2 Projected balance sheets
The positive financial performances are manifested in the balance sheet. As can be
seen from the projected Balance sheet depicted in Schedule 8, the net worth of the
project at the start, which is about BIRR 178 million, will rise to BIRR 716 million at
the end of the project life.
6.2.3 Cash flows for planning
The projected cash flow of the envisaged project shows that the project would
generate positive net cash flows throughout the operation years. Cumulative cash
flow generated by the project towards the end of the first operation year will amount
to BIRR 13 million. At the end of the project life, this amount will rise to BIRR 562
million. Details are shown in Schedule 5.
6.2.4 Breakeven analysis
The break-even analysis establishes a relationship between production costs and
revenues. It indicates the level of production at which costs and revenue are in
equilibrium. To this end, using full capacity operation costs of year five, the break-
even point for capacity utilization and sales value is computed as followed.
Brake Even Sales Value = Fixed Cost + Financial Cost = Birr 69,447,027
Variable Margin ratio (%)
Brake Even Capacity utilization = Brake even Sales Value X 100 = 25.14%
Sales Revenue
6.3 Investment Decision Ratings
6.3.1 Net present value
Net present value (NPV) is defined as the total present (discounted) value of a
time series of cash flows. NPV aggregates cash flows that occur during different
periods of time during the life of a project in to a common measuring unit i.e.
present value. It is a standard method for using the time value of money to
appraise long-term projects. NPV is an indicator of how much value an
investment or project adds to the capital invested. In principle a project is
accepted if the NPV is non-negative.
Accordingly, the net present value of the project at 24% discount rate is found to
be Birr 96 million which is acceptable. (See Schedule 7)
6.3.2 Internal rate of return
The internal rate of return (IRR) is the annualized effective compounded return
rate that can be earned on the invested capital, i.e., the yield on the investment.
45
 Put another way, the internal rate of return for an investment is the discount rate
that makes the net present value of the investment's income stream total to zero.
It is an indicator of the efficiency or quality of an investment. A project is a good
investment proposition if its IRR is greater than the rate of return that could be
earned by alternate investments or putting the money in a bank account.
Accordingly, the IRR of this project is computed on capital invested to be 46%
indicating the viability of the project. (See Schedule 7)
6.3.3 Payback period
The payback period, also called pay – off period is defined as the period required
recovering the original investment outlay through the accumulated net cash flows
earned by the project. Accordingly, based on the projected cash flow it is
estimated that the project’s initial investment will be fully recovered within 4
years, which is a short period of time.
6.4 Economic Benefits
As a result of the envisaged project employment opportunities will create for 81
persons. Moreover, during the life of the project Birr 173 million will generate in terms
of corporate tax.

46
FINANCIAL SCHEDULES

47
 Schedule 1& 2: Initial Investment Costs
000’ BIRR
Year 0 Year 1 Total Grand Own Bank
Items
Loc. C. For. C. Loc. C. For. C. Loc. C. For. C. Total Financing Financing
Fixed investment 127,230 35,861 - - 127,230 35,861 163,091 48,927 114,164
Value of Animals 20,000 - - - 20,000 - 20,000 6,000 14,000
Building & civil work 90,090 - - - 90,090 - 90,090 27,027 63,063
Machinery & equipment - 35,861 - - - 35,861 35,861 10,758 25,103
Vehicles 17,140 - - - 17,140 - 17,140 5,142 11,998
Office equipment & furniture - - - - - - - - -
Computer & software products - - - - - - - - -
Pre-Production expenditures 915 - - - 915 - 915 275 641
Working capital, initial - - 14,492 265 14,492 265 14,757 4,427 10,330
128,145 35,861 14,492 265 142,638 36,127 178,764 53,629 125,135
Total
164,007 14,757 178,764 100.00% 30.00% 70.00%

48
 Schedule 3: Production Programme and Sales Revenue
000’ BIRR
No Selling Production Years
Description
. Price/unit 1 2 3 4 5 6 7 8 9 10
Capacity utilization 70% 80% 90% 100% 100% 100% 100% 100% 100% 100%
1 Sales in quantity
1.1 Dairy Farm
Culled cows No. 14 16 19 21 24 28 32 37 43 49
Low yielders cows No. 10 12 13 15 17 20 23 27 31 35
Male calve No. 70 77 85 93 102 113 124 136 150 165
1.2 Sheep Fattening
Sheep fatten No. 1,050 1,200 1,350 1,500 1,500 1,500 1,500 1,500 1,500 1,500
1.3 Animal Feed
kg 3,134,075 3,581,161 4,011,416 4,422,367 4,248,473 4,049,176 3,820,732 3,558,84 3,258,579 2,914,270
Concentrate (Animal Feed)
5
1.4 Milk Processing
Liter 780,800 897,920 1,032,608 1,187,499 1,365,624 1,570,468 1,806,038 2,076,94 2,388,485 2,746,758
Pasteurized milk
4
Butter kg 5,466 6,285 7,228 8,312 9,559 10,993 12,642 14,539 16,719 19,227
Cheese kg 1,562 1,796 2,065 2,375 2,731 3,141 3,612 4,154 4,777 5,494
Cream kg 781 898 1,033 1,187 1,366 1,570 1,806 2,077 2,388 2,747
2 Total Sales Revenue 192,483 220,170 248,088 276,275 278,551 281,184 284,231 287,754 291,829 296,539
2.1 Dairy Farm
Culled cows 70,000.00 980 1,127 1,296 1,490 1,714 1,971 2,267 2,607 2,998 3,448
Low yielders cows 100,000.00 1,000 1,150 1,323 1,521 1,749 2,011 2,313 2,660 3,059 3,518
Male calve 30,000.00 2,100 2,310 2,541 2,795 3,075 3,382 3,720 4,092 4,502 4,952
2.2 Sheep Fattening
Sheep fatten 6,000.00 6,300 7,200 8,100 9,000 9,000 9,000 9,000 9,000 9,000 9,000
2.3 Animal Feed
Concentrate (Animal Feed) 45.00 141,033 161,152 180,514 199,007 191,181 182,213 171,933 160,148 146,636 131,142
2.4 Milk Processing
Pasteurized milk 50.00 39,040 44,896 51,630 59,375 68,281 78,523 90,302 103,847 119,424 137,338
Butter 300.00 1,640 1,886 2,168 2,494 2,868 3,298 3,793 4,362 5,016 5,768
Cheese 150.00 234 269 310 356 410 471 542 623 717 824
Cream 200.00 156 180 207 237 273 314 361 415 478 549

49
50
 Schedule 4: Proforma Profit & Loss Statement

000’ BIRR
Production Years
Description
1 2 3 4 5 6 7 8 9 10
Total Sales Revenue 192,483 220,170 248,088 276,275 278,551 281,184 284,231 287,754 291,829 296,539
Less Cost of Goods Sold 115,659 130,862 146,340 163,209 166,012 169,232 170,281 169,230 174,112 179,720
Gross Profit 76,824 89,308 101,749 113,066 112,539 111,952 113,950 118,524 117,717 116,818
Gross Profit Margin 40% 41% 41% 41% 40% 40% 40% 41% 40% 39%
Less Administrative and Marketing Expenses 14,502 14,815 15,152 17,916 17,928 17,941 17,956 17,974 17,994 18,018
Profit (loss) before Interest and Tax 62,322 74,493 86,597 95,150 94,611 94,011 95,994 100,551 99,723 98,801
Less Interest (Financial Costs) 21,899 17,519 13,139 8,759 4,380 (0) (0) (0) (0) (0)
Profit (loss) before Tax 40,424 56,974 73,457 86,391 90,231 94,011 95,994 100,551 99,723 98,801
Less Income Tax (30%) * * * * 27,069 28,203 28,798 30,165 29,917 29,640
Net Profit (Loss) 40,424 56,974 73,457 86,391 63,162 65,808 67,196 70,385 69,806 69,161
Cumulative Net Profit (Loss) 40,424 97,398 170,855 257,246 320,408 386,215 453,411 523,796 593,602 662,763
Profit (loss) before Tax (w.o. ex. financing) 62,322 74,493 86,597 95,150 94,611 94,011 95,994 100,551 99,723 98,801
Less Income Tax, w.o. ex. financing (30%) * * * * 28,383 28,203 28,798 30,165 29,917 29,640
Net Profit (Loss), w.o. External Financing 62,322 74,493 86,597 95,150 66,228 65,808 67,196 70,385 69,806 69,161
Cumulative Net Profit (Loss) 62,322 136,815 223,412 318,562 384,789 450,597 517,793 588,178 657,984 727,145
* Tax holiday period

Ratios (%)
Return on sales (net income by revenue) 21% 26% 30% 31% 23% 23% 24% 24% 24% 23%
Return on equity (net profit divided by equity) 75% 106% 137% 161% 118% 123% 125% 131% 130% 129%
Return on assets (operating income divided by 40% 39% 37% 34% 30% 25% 22% 21% 18% 16%
assets)
Return on total investment (Net profit + interest 38% 69% 108% 153% 181% 210% 238% 266% 289% 309%
to investment)

51
 Schedule 5: Cash Flow for Financial Planning (Source and Application of Funds)

000’ BIRR
Book
Description Impl. Yr. Production Years Value
0 1 2 3 4 5 6 7 8 9 10 11
Total Cash Inflow 178,764 52,970 69,520 86,004 98,937 75,708 78,354 77,092 74,981 74,402 73,757 68,928
1. Inflow of funds 178,764 - - - - - - - - - - -
Total equity 53,629 - - - - - - - - - - -
Borrowing (term loan) 125,135 - - - - - - - - - - -
Borrowing (medium term) - - - - - - - - - - - -
Borrowing (working cap.) - - - - - - - - - -
Increase in overdraft - - - - -
2. Inflow from operation - 52,970 69,520 86,004 98,937 75,708 78,354 77,092 74,981 74,402 73,757 -
Profit after tax - 40,424 56,974 73,457 86,391 63,162 65,808 67,196 70,385 69,806 69,161 -
Depreciation - 12,546 12,546 12,546 12,546 12,546 12,546 9,896 4,596 4,596 4,596 -
3. Other income - - - - - - - - - - - 68,928
Salvage value of assets - - - - - - - - - - - 45,045
Recoverable assets - - - - - - - - - - - 23,883
Total Cash Outflow 164,007 39,784 30,051 30,534 31,309 29,929 5,638 6,403 7,295 8,573 9,859 -
4. Investment
Fixed investment 163,091 - 3,000 3,450 3,968 4,563 5,247 6,034 6,939 7,980 9,177 -
Pre-Production expenditures 915 - - - - - - - - - - -
Incremental working capital - 14,757 2,024 2,057 2,314 340 391 369 356 593 682 -
5. Loan repayment
Term loan (Principal) - 25,027 25,027 25,027 25,027 25,027 - - - - - -
Overdraft (Principal) - - - - - - - - - - - -
Net cash flow 14,757 13,186 39,469 55,469 67,628 45,779 72,716 70,689 67,686 65,829 63,898 68,928
Cumulative Net cash flow - 13,186 52,655 108,125 175,753 221,531 294,248 364,936 432,622 498,451 562,349 631,277

52
 Schedule 6: Discounted Return on Equity Capital Invested

000’ BIRR
Book
Impl. Yr. Production Years
Description Value
0 1 2 3 4 5 6 7 8 9 10 11
Total Cash Inflow 125,135 52,970 69,520 86,004 98,937 75,708 78,354 77,092 74,981 74,402 73,757 68,928
1. Inflow of funds 125,135 - - - - - - - - - - -
Borrowing (long term) 125,135 - - - - - - - - - - -
Borrowing (short term) - - - - - - - - - - - -
2. Inflow from operation - 52,970 69,520 86,004 98,937 75,708 78,354 77,092 74,981 74,402 73,757 -
Profit after tax - 40,424 56,974 73,457 86,391 63,162 65,808 67,196 70,385 69,806 69,161 -
Depreciation - 12,546 12,546 12,546 12,546 12,546 12,546 9,896 4,596 4,596 4,596 -
3. Other income - - - - - - - - - - - 68,928
Salvage value of assets - - - - - - - - - - - 45,045
Recoverable asset - - - - - - - - - - - 23,883
Total Cash Outflow 164,007 39,784 30,051 30,534 31,309 29,929 5,638 6,403 7,295 8,573 9,859 -
4. Investment
Fixed investment 163,091 - 3,000 3,450 3,968 4,563 5,247 6,034 6,939 7,980 9,177 -
Pre-Production expenditures 915 - - - - - - - - - - -
Incremental working capital - 14,757 2,024 2,057 2,314 340 391 369 356 593 682 -
5. Loan repayment
Long term loan (Principal) - 25,027 25,027 25,027 25,027 25,027 - - - - - -
Short term loan (Principal) - - - - - - - - - - - -
Net cash flow (38,872) 13,186 39,469 55,469 67,628 45,779 72,716 70,689 67,686 65,829 63,898 68,928
Cumulative Net cash flow (38,872) (25,686) 13,783 69,253 136,881 182,659 255,376 326,064 393,750 459,580 523,478 523,478
Net present value (@ 24%) 109,252
Internal rate of return (IRR) 85%

53
 Schedule 7: Discounted Return on Total Capital Invested

000’ BIRR
Book
Impl. Yr. Production Years
Value
Description
0 1 2 3 4 5 6 7 8 9 10 11
Total Cash Inflow - 74,869 87,039 99,143 107,696 78,774 78,354 77,092 74,981 74,402 73,757 68,928

1. Inflow from operation - 74,869 87,039 99,143 107,696 78,774 78,354 77,092 74,981 74,402 73,757 -

Profit after tax without - 62,322 74,493 86,597 95,150 66,228 65,808 67,196 70,385 69,806 69,161 -
external financing
Depreciation - 12,546 12,546 12,546 12,546 12,546 12,546 9,896 4,596 4,596 4,596 -

2. Other income - - - - - - - - - - - 68,928

Salvage value of assets - - - - - - - - - - - 45,045

Recoverable asset - - - - - - - - - - - 23,883

Total Cash Outflow 164,007 14,757 5,024 5,507 6,282 4,902 5,638 6,403 7,295 8,573 9,859 -

3. Investment

Fixed investment 163,091 - 3,000 3,450 3,968 4,563 5,247 6,034 6,939 7,980 9,177 -

Pre-Production expenditures 915 - - - - - - - - - - -

Incremental working capital - 14,757 2,024 2,057 2,314 340 391 369 356 593 682 -

Net cash flow (164,007) 60,111 82,015 93,636 101,414 73,871 72,716 70,689 67,686 65,829 63,898 68,928

Cumulative Net cash flow (164,007) (103,895) (21,880) 71,756 173,170 247,041 319,758 390,446 458,132 523,961 587,859 656,787

Net present value(@ 24%) 96,566

Internal rate of return (IRR) 46%

54
 Schedule 8: Projected Balance Sheet

000’ BIRR
Con.Yr. Production Years
Description
0 1 2 3 4 5 6 7 8 9 10
Fixed assets
Fixed investment 163,091 163,091 166,091 169,541 173,509 178,071 183,318 189,353 196,292 204,272 213,449
Pre-production expenditures 915 915 915 915 915 915 915 915 915 915 915
Total Fixed Assets 164,007 164,007 167,007 170,457 174,424 178,987 184,234 190,268 197,207 205,187 214,364
Less acc. Depr'n & ammortiz'n - 12,546 25,092 37,639 50,185 62,731 75,277 85,174 89,770 94,366 98,962
Net fixed assets 164,007 151,461 141,914 132,818 124,239 116,256 108,956 105,094 107,437 110,822 115,403
Current assets
Cash on hand & at bank 14,757 28,268 67,769 123,271 190,941 236,720 309,436 380,125 447,811 513,640 577,538
Debtors (receivables) - 2,109 2,413 2,719 3,028 3,053 3,081 3,115 3,153 3,198 3,250
Stocks - 12,323 14,011 15,730 17,694 18,008 18,370 18,706 19,023 19,572 20,202
Total current assets 14,757 42,700 84,194 141,720 211,663 257,781 330,888 401,946 469,988 536,410 600,990
Less Current liabilities
Creditors (payables) - - - - - - - - - - -
Overdraft - - - - - - - - - - -
Total current liabilities - - - - - - - - - - -
Total working capital 14,757 42,700 84,194 141,720 211,663 257,781 330,888 401,946 469,988 536,410 600,990
Total net assets 178,764 194,161 226,108 274,538 335,902 374,037 439,844 507,040 577,425 647,232 716,392
Financed by
Paid-up capital 53,629 53,629 53,629 53,629 53,629 53,629 53,629 53,629 53,629 53,629 53,629
Loan and Credit 125,135 100,108 75,081 50,054 25,027 - (0) (0) (0) (0) (0)
Retained profits (Losses) - 40,424 97,398 170,855 257,246 320,408 386,215 453,411 523,796 593,602 662,763
Total 178,764 194,161 226,108 274,538 335,902 374,037 439,844 507,040 577,425 647,232 716,392

Schedule 9: Repayment of Loan (Debt Financing Schedule)

55
 000’ BIRR
Impl.
Description Yr. Operation Years
0 1 2 3 4 5 6 7 8 9 10
1. Borrowing 125,135 125,135 - - - - - - - - -
Long-term loan - Initial working capital 125,135 - -
Medium-term loan - - -
2. Repayment of Principal - - 21,899 17,519 13,139 8,759 - - - - -
Long-term loan - 21,899 17,519 13,139 8,759 - - - - -
Medium-term loan - - - - - - - - - -
3. Repayment of Interest - - 25,027 25,027 25,027 25,027 - - - - -
Long-term loan 17.5% - 25,027 25,027 25,027 25,027 - - - - -
Medium-term loan 0.0% - - - - - - - - - -
4. End of Year Balance - - 21,899 17,519 13,139 8,759 - - - - -
Long-term loan - 21,899 17,519 13,139 8,759 - - - - -
Medium-term loan - - - - - - - - -

56
ANNEXES

57
 Annex 1: Annual Costs of Production & Expenses

000’ BIRR
Operation years
Cost item
1 2 3 4 5 6 7 8 9 10
Capacity utilization 70% 80% 90% 100% 100% 100% 100% 100% 100% 100%
I. Total Costs of Production 115,659 130,862 146,340 163,209 166,012 169,232 170,281 169,230 174,112 179,720
1. Direct & auxiliary materials 103,849 118,746 133,917 149,405 152,208 155,428 159,127 163,376 168,258 173,866
2. Spare parts 1,076 1,076 1,076 1,793 1,793 1,793 1,793 1,793 1,793 1,793
3. Utilities 451 515 580 644 644 644 644 644 644 644
4. Labour, direct 1,691 1,932 2,174 2,415 2,415 2,415 2,415 2,415 2,415 2,415
5. Factory Overheads 8,593 8,593 8,593 8,952 8,952 8,952 6,302 1,002 1,002 1,002
Salaries & wages (+ benefits) - - - - - - - - - -
Repair & maintenance 430 430 430 717 717 717 717 717 717 717
Depreciation & amortization 8,042 8,042 8,042 8,042 8,042 8,042 5,392 92 92 92
Insurance 13 13 13 13 13 13 13 13 13 13
Supplies & services 108 108 108 179 179 179 179 179 179 179
II. Selling & Dist'n (Marketing) Costs 1,075 1,592 1,731 1,870 2,011 2,023 2,036 2,051 2,069 2,089
Salaries & wages (+ benefits) 630 630 630 630 630 630 630 630 630 630
Marketing costs (0.5% sales) 0.5% 962 1,101 1,240 1,381 1,393 1,406 1,421 1,439 1,459 1,483
III. General & Adm. Expenses 34,808 30,603 26,421 24,664 20,285 15,905 15,905 15,905 15,905 15,905
1. Administrative Overheads 12,910 13,084 13,282 15,905 15,905 15,905 15,905 15,905 15,905 15,905
Salaries & wages (+ benefits) 1,012 1,157 1,302 1,446 1,446 1,446 1,446 1,446 1,446 1,446
Land lease 2,545 2,545 2,545 3,817 3,817 3,817 3,817 3,817 3,817 3,817
Repair & maintenance 4,505 4,505 4,505 4,505 4,505 4,505 4,505 4,505 4,505 4,505
Depreciation 10 10 10 10 10 10 10 10 10 10
Insurance 2,163 2,163 2,163 3,244 3,244 3,244 3,244 3,244 3,244 3,244
Fuel & lubricants 152 174 217 217 217 217 217 217 217 217
Travelling and perdiem 1,908 1,908 1,908 1,908 1,908 1,908 1,908 1,908 1,908 1,908
Supplies & services 615 623 632 757 757 757 757 757 757 757
Miscellaneous 21,899 17,519 13,139 8,759 4,380 (0) (0) (0) (0) (0)
2. Financial costs (interest) 152,060 163,196 174,631 189,885 188,320 187,173 188,237 187,204 192,106 197,738
Total Operating Costs 115,659 130,862 146,340 163,209 166,012 169,232 170,281 169,230 174,112 179,720

58
 Annex 2: Net Working Capital Requirement

000’ BIRR
Days of Production Years
Description Coverage
1 2 3 4 5 6 7 8 9 10
1. Current assets 14,757 16,781 18,838 21,153 21,492 21,883 22,252 22,608 23,201 23,883

1.1 Accounts receivables (debtors) 10 2,109 2,413 2,719 3,028 3,053 3,081 3,115 3,153 3,198 3,250

1.2 Inventory 12,323 14,011 15,730 17,694 18,008 18,370 18,706 19,023 19,572 20,202

a) Materials

- Local materials 30 8,573 9,802 11,055 12,333 12,563 12,828 13,132 13,481 13,882 14,343

- Imported materials 90 - - - - - - - - - -

b) Spare parts in stock 90 265 265 265 442 442 442 442 442 442 442

c) Work-in-Progress 1 317 359 401 447 455 464 467 464 477 492
d) Finished Products 10 3,169 3,585 4,009 4,471 4,548 4,636 4,665 4,636 4,770 4,924

1.3 Cash-in-hand 30 324 357 389 431 431 431 431 431 431 431

2. Current liabilities - - - - - - - - - -

2.1 Accounts payable (creditors) - - - - - - - - - - -

3. Working capital
3.1 Net working capital (1) - (2) 14,757 16,781 18,838 21,153 21,492 21,883 22,252 22,608 23,201 23,883

3.2 Increase in working capital 14,757 2,024 2,057 2,314 340 391 369 356 593 682

3.3 Foreign component (%) 1.8% 1.6% 1.4% 2.1% 2.1% 2.0% 2.0% 2.0% 1.9% 1.9%

59
 Annex 3: Depreciation & Amortization of Fixed Assets

000’ BIRR
Production Years Book val.
Description
1 2 3 4 5 6 7 8 9 10 11
A. Fixed Investment

1. Building & civil work 4,505 4,505 4,505 4,505 4,505 4,505 4,505 4,505 4,505 4,505 45,045

2. Machinery & equipment 5,379 5,379 5,379 5,379 5,379 5,379 3,586 - - - -

3. Vehicles 2,571 2,571 2,571 2,571 2,571 2,571 1,714 - - - -

4. Office equipment & furniture - - - - - - - -

5. Computer & software products - - - - - - - - - - -

Sub-total of A 12,455 12,455 12,455 12,455 12,455 12,455 9,805 4,505 4,505 4,505 45,045

Cumulative Sub-total 12,455 24,909 37,364 49,819 62,273 74,728 84,533 89,037 93,542 98,046 143,091

B. Pre-production expenditure 92 92 92 92 92 92 92 92 92 92 -

Cumulative 92 183 275 366 458 549 641 732 824 915 915

Total A & B 12,546 12,546 12,546 12,546 12,546 12,546 9,896 4,596 4,596 4,596 45,045

Cumulative 12,546 25,092 37,639 50,185 62,731 75,277 85,174 89,770 94,366 98,962 144,007

60
 Annex 4: MANPOWER REQUIREMENT AND ESTIMATED ANNUAL LABOUR COST

Monthly Annual Salary

No. Work Station and Job Position Head Count
Salary in Birr in Birr
1 Manager Office
Plant Manager 1 20,000.00 240,000.00
Senior Secretary 1 5,000.00 22,212.00
Operation Planner 1 6,000.00 30,828.00
Manager Office - Sub Total 3 293,040.00
2 Operation Division
2.1 Dairy Farm
Farm Manager 1 15,000.00 180,000.00
Technician 1 6,000.00 72,000.00
Farm Attendants 8 3,000.00 288,000.00
Tractor Driver 1 4,000.00 48,000.00
Sub Total 1 11 588,000.00
2.2 Sheep Fattening
Farm Attendants 7 3,000.00 252,000.00
2.3 Animal Feed
Production Manager 1 15,000.00 180,000.00
Laborer 10 2,000.00 240,000.00
Technician 1 6,000.00 72,000.00
Sub Total 2 12 492,000.00
2.4 Milk Processing
Production manager 1 15,000.00 180,000.00
Laboratory Analyst 1 10,000.00 120,000.00
Operator 1 6,000.00 72,000.00
Assistant Operator 5 3,000.00 180,000.00
Laborer 2 2,000.00 48,000.00
Sub Total 3 10 600,000.00
Operation - Sub Total 40 1,932,000.00
3 Sales and Distribution Division
Sales Supervisor 1 8,000.00 96,000.00
Sales Car Driver 5 4,000.00 240,000.00
Sales Assistant 1 5,000.00 60,000.00
Laborer 6 1,500.00 108,000.00
Sales - Sub Total 13 504,000.00
4 Personnel and General Service Division
Personnel and General Service Head 1 6,000.00 72,000.00
Driver 6 4,000.00 288,000.00
Guard 6 1,500.00 108,000.00
Personnel - Sub Total 13 468,000.00
5 Property Section
Store keeper 2 3,000.00 72,000.00
Laborer 6 1,000.00 72,000.00
Property Section - Sub Total 8 144,000.00
6 Finance Section
Senior Accountant 1 8,000.00 96,000.00
Accountant 2 5,000.00 120,000.00
Cashier 1 3,000.00 36,000.00
Finance - Sub Total 4 252,000.00
Grand Total 81 3,593,040.00

61
Annex 5: COMPANY REGISTRATION OF THE
CONSULTANT

62