199.

PROFILE ON THE PRODUCTION OF NIGER SEED OIL

199-2 TABLE OF CONTENTS

PAGE

I.

SUMMARY

199-3

II.

PRODUCT DESCRIPTION & APPLICATION

199-3

III.

MARKET STUDY AND PLANT CAPACITY A. MARKET STUDY B. PLANT CAPACITY & PRODUCTION PROGRAMME

199-4 199-4 199-7

IV.

MATERIALS AND INPUTS A. RAW & AUXILIARY MATERIALS B. UTILITIES

199-8 199-8 199-8

V.

TECHNOLOGY & ENGINEERING A. TECHNOLOGY B. ENGINEERING

199-9 199-9 199-10

VI.

MANPOWER & TRAINING REQUIREMENT A. MANPOWER REQUIREMENT B. TRAINING REQUIREMENT

199-12 199-12 199-12

VII.

FINANCIAL ANLYSIS A. TOTAL INITIAL INVESTMENT COST B. PRODUCTION COST C. FINANCIAL EVALUATION D. ECONOMIC BENEFITS

199-13 199-13 199-14 199-15 199-16

199-3 I. SUMMARY

This profile envisages the establishment of a plant for the production of niger seed oil with a capacity of 240 per annum.

The present demand for the proposed product is estimated at 83,000 tonnes per annum. The demand is expected to reach 128,995 tonnes by the year 2020.

The plant will create employment opportunities for 38 persons.

The total investment requirement is estimated at Birr 6.06 million, out of which Birr 2.85 million is required for plant and machinery.

The project is financially viable with an internal rate of return (IRR) of 25% and a net present value (NPV) of Birr 4.16 million, discounted at 8.5%.

II.

PRODUCT DESCRIPTION AND APPLICATION

Nigerseed oil has high oleic acid content. It is non drying and has a specific gravity (at 15o c) 0.911. The oil is mainly used for cooking. The by-product of Nigerseed oil processing is expeller cake which is left from expeller press. Its major use is as animal feed.

199-4 III. MARKET STUDY AND PLANT CAPACITY

A.

MARKET STUDY

1.

Past Supply and Present Demand

Niger seed in Ethiopia is widely grown by smallholder farmers on fragmented land holdings. It is the leading oil crop in production and area coverage in the oil seeds category.

Niger seed in Ethiopia is cultivated mainly for the production of edible oil and direct consumption fried and mixed with sunflower seed. The pressed cake from oil extraction is used for livestock feed especially in and around cities and large fattening and dairy farms.

The countrys requirement for edible oil has been met through domestic production and imports. The apparent consumption of edible oil, comprising both domestic production and import is shown in Table.3.1. Table 3.1 THE SUPPLYOF EDIBLE OIL (IN TONNES) Year Domestic % share Import % share 2000 2001 2002 2003 2004 2005 Average 6,579 6,637 8,329 7,993 8,027 6,931 7,416 8.50 21.12 19.59 26.40 6.18 7.79 15 70,789 24,785 34,196 22,283 121,812 82,014 59,313 91.5 78.9 80.4 73.6 93.8 92.2 85 77,368 31,422 42,525 30,276 129,839 88,945 66,729 Total

Source: CSA, Statistical Abstract and Customs Authority, External Trade Statistics

199-5

During the period 2000-2005, the maximum total supply (apparent consumption) of edible oil to the local market was 129,839 tonnes (year 2004), while the minimum 30,276 tonnes was registered in year 2003. In the remaining years, apparent consumption was fluctuating between these two extremes, around a mean figure of 66,729 tonnes.

During the period under consideration, the bulk of the total supply comes from import on average accounting for 85% of the total supply.

Given the fluctuating nature of the historical apparent consumption, it is assumed that assumed that the average of the last three years, i.e., about 83,000 tonnes, fairly approximate the current effective demand for edible oil.

2.

Projected Demand

The demand for edible oil is influenced mainly by urbanization (and the consequent change in taste) and income. Assuming modest growth in income, a growth rate of 3.45% (i.e., an average of the total and the urban population growth rates) is considered in projecting the demand for edible oil (see Table 3.2).

199-6 Table 3.2 PROJECTED DEMAND FOR NIGER SEED OIL (TONNES )

Market Total Year Projected Demand 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 85,864 88,826 91,890 95,060 98,340 101,733 105,243 108,873 112,630 116,515 120,535 124,694 128,995 Existing Factories 7,416 7,416 7,416 7,416 7,416 7,416 7,416 7,416 7,416 7,416 7,416 7,416 7,416 Share Envisaged Plant 78,448 81,410 84,474 87,644 90,924 94,317 97,827 101,457 105,214 109,099 113,119 117,278 121,579

3.

Pricing and Distribution

The current retail price of imported edible oil ranges from Birr 12 to Birr 15 per litre. And the average retail price for locally produced edible oil is Birr 12 per litre. Allowing for wholesale and retail margin, the envisaged plant is expected to sale its product at Birr 7 per litrer. The factory gate price for oil cake is Birr 80 per quintal. The product is currently distributed through wholesale-retail network. The envisaged plant can use the existing network, which includes department stores, merchandise shops and supermarkets to distribute its product.

199-7

B.

PLANT CAPACITY AND PRODUCTION PREGRAMME

1.

Plant Capacity

The annual production capacity of the envisaged plant is 240 tones of Nigerseed oil, based on 300 working days per annual. The press section and refinery are operated in Sigel shift and three shifts, respectively.

2.

Production Programme

Table 3.3 indicates the production program of the project. At the initial stays of the production period, the plant requires some years to penetrate the market. Therefore, in the first and second year of production, the capacity utilization rate will be 70% and 90% respectively. In the third year and then after, full capacity production can be attained.

Table 3.3 PRODUCTION PROGRAM

Sr. No. 1 2 3 Description Nigerseed Oil (tonnes) Expeller cake (tonnes) Capacity Utilization Rate (%) 1 167 231 70

Production Year 2 216 297 90 3 240 330 100

199-8 IV. MATERIAL AND INPUTS

A.

RAW AND AUXILIARY MATERIALS

The principal raw materials of the project are nigger seed, conmen salt, caustic soda and bleaching earth. Usually, vegetable oil is packed in 200 it barrels. Table 4.1 shows the annual requirement and cost of these materials at full capacity production.

Table 4.1 RAW AND AUXILIARY REQUREMENT & COST MATERIALS

Sr. No. 1 2 3 4 5 Materials Niggerseed Caustic Soda Bleaching earth Common salt Replacement of Drums (200 lt) 2% Total Unit Tonne Kg Kg Kg Pes Qty. 660 2400 5280 5448 20 LC

Cost (1000 Birr) FC 10.56 Total 2,970 14.4 10.56 4.36 2.4

2,970 14.4 4.36 2.4

2,991.16

10.56

3001.72

B.

UTILITIES

Electricity, furnace oil and water are utilities of the proposed project. Table 4.2 indicates the annual utility requirement and cost at full capacity. Process water shall be supplied by submersible pumps installed by the project.

199-9 Table 4.2 ANNUAL UTILITIES REQUIREMENT & COST

Sr. No. 1 2 3

Utility

Unit

Qty

Cost (1000 Birr)

Electricity Furnace oil Water Total

kWh Kg m3

750.000 49187 17511

355.5 266.1 8.76* 630.36

* Only water for drinking and preparation of food shall be from municipality water.

V.

TECHNOLOGY AND ENGINEERING

A.

TECHNOLOGY

1.

Process Description

Edible oil processing is broadly classified in two groups: crude and refined oil production. Impurities of raw nigerseed are separated by vibratory screens, pneumatic cleaners and magnets. The cleaned oil seed is then Condi timed in a cooker with steam.

The cooked meat is then pressed to produce crude oil which shall be screened and filtered before entering the refinery unit.

199-10

In the refinery, there exists three major consecutive operations: neutralization, bleaching and deodorization. In the neutralizer, the free tally acid (FFA) content of crude oil shall be lowered by adding caustic soda. The colour of oil will be adjusted in the bleacher with bleaching earth. Finally, the constituents of oil which are responsible for the odour are removed by the deodorization process. The final refined oil is then packed in barrels (200 its) and then dispatched for sales.

2.

Source of Technology

Several machinery suppliers and manufactures can be requested for their offer. The following company could be one of the candidates.

Henan Times Trading Com. Ltd Tel. Fax. 0086-371-9013776 0086-371-3812887

E-mail shang5@371.net

B.

ENGINEERING

1.

Machinery and Equipment

The list of machinery and equipment is indicated in Table 5.1. The total cost of machinery is estimated at Birr 2,851,200, of which Birr 2,376,000 is required in foreign currency.

199-11 Table 5.1 LIST OF MACHINERY & EQUIPMENT Sr. No. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 2. Crusher Cooker Expeller press Settling tank Hot water tank Alkali Treatment tank Filter press Holding tank Neutralization and Bleaching tank Deodorization tank Cooling tower Submersible pump Boiler Water Reservoir Crude and Refined oil tank Description Libratory Cleaner No 1 1 1 1 2 1 1 1 1 1 1 1 1 1 unit 1 2

Land, Building and Civil Works

The total area of the project is 5,000 m2 at which 1200 m2 is a built up area. The cost of building is estimated at Birr 1,800.000. The lease value of land is about Birr 400,000 at a rate of 1 Birr per m2 year for 80 years.

3.

Proposed Location

Bonnosha town has been selected at the best location for the envisaged plant, for its proximity to major raw materials sources.

199-12

VI.

MANPOWER AND TRAINING REQUIREMENT

A.

MANPOWER REQUIREMENT

The list of manpower and annual labour cost are indicated in Table 6.1. The total cost of labour is estimated at Birr 441,000.

Table 6.1 MANPOWER REQUIREMENT & LABOUR COST

Sr. No. 1 2 3 4 5 6 7 8 9 Manpower General Manager Secretary Sales Officer Accountant Production and Technic head Operators Labourers Laboratory Technical Guards Sub-total Benefit (25%BS) Total

Req. No. 1 1 1 1 1 12 16 3 2 38

Manthly Salary (Birr) 3000 800 1500 2000 2000 8400 6400 4500 800 29,400 7,350 36,750

Annual Salary (Birr) 36,000 9,600 18,000 24,000 24,000 108,800 76,800 13,500 9,600 352,800 88,200 441,000

B.

TRAINING REQUIREMENT

Training of labour force could be carried out during plant erection and commissioning by the experts of machinery suppliers. Its cost is estimated at Birr 20,000.

199-13

VII.

FINANCIAL ANALYSIS

The financial analysis of the niger seed oil project is based on the data presented in the previous chapters and the following assumptions:-

Construction period Source of finance

1 year 30 % equity 70 % loan

Tax holidays Bank interest Discount cash flow Accounts receivable Raw material local Work in progress Finished products Cash in hand

5 years 8% 8.5% 30 days 30days 5 days 30 days 5 days

A.

TOTAL INITIAL INVESTMENT COST

The total investment cost of the project including working capital is estimated at Birr 6.06 million, of which 19 per cent will be required in foreign currency.

The major breakdown of the total initial investment cost is shown in Table 7.1.

199-14

Table 7.1 INITIAL INVESTMENT COST

Sr. No. 1 2 3 4 5 6 7 Cost Items Land lease value Building and Civil Work Plant Machinery and Equipment Office Furniture and Equipment Vehicle Pre-production Expenditure* Working Capital Total Investment cost Foreign Share

Total Cost (000 Birr) 400.0 1,800.0 2,851.2 75.0 450.0 339.6 594.6 6,060.4 19

* N.B Pre-production expenditure includes interest during construction (Birr 264.61 thousand) training (Birr 20 thousand) and Birr 55 thousand costs of registration, licensing and formation of the company including legal fees, commissioning expenses, etc.

B.

PRODUCTION COST

The annual production cost at full operation capacity is estimated at Birr 4.76 million (see Table 7.2). The material and utility cost accounts for 76.28 per cent, while repair and maintenance take 1.68 per cent of the production cost.

199-15

Table 7.2 ANNUAL PRODUCTION COST AT FULL CAPACITY ('000 BIRR)

Items Raw Material and Inputs Utilities Maintenance and repair Labour direct Factory overheads Administration Costs Total Operating Costs Depreciation Cost of Finance Total Production Cost

Cost 3,001.72 630.36 80.0 211.68 88.2 141.12 4,153.08 397.62 211.1 4,761.80

% 63.04 13.24 1.68 4.45 1.85 2.96 87.22 8.35 4.43 100

C.

FINANCIAL EVALUATION

1.

Profitability

According to the projected income statement, the project will start generating profit in the first year of operation. Important ratios such as profit to total sales, net profit to equity (Return on equity) and net profit plus interest on total investment (return on total investment) show an increasing trend during the life-time of the project.

The income statement and the other indicators of profitability show that the project is viable.

199-16

2.

Break-even Analysis

The break-even point of the project including cost of finance when it starts to operate at full capacity (year 3) is estimated by using income statement projection.

BE =

Fixed Cost Sales Variable Cost

= 30 %

3.

Pay Back Period

The investment cost and income statement projection are used to project the pay-back period. The projects initial investment will be fully recovered within 4 years.

4.

Internal Rate of Return and Net Present Value

Based on the cash flow statement, the calculated IRR of the project is 25 % and the net present value at 8.5% discount rate is Birr 4.16 million.

D.

ECONOMIC BENEFITS

The project can create employment for 38 persons. In addition to supply of the domestic needs, the project will generate Birr 2.84 million in terms of tax revenue. The

establishment of such factory will have a foreign exchange saving effect to the country by substituting the current imports.