First Draf

FIRST DRAFT

PRE-FEASIBILITY STUDY
ON
PICKLE PRODUCTION, PROCESSING, PACKAGING AND MARKETING

PAKISTAN AGRICULTURE RESEARCH COUNCIL ISLAMABAD

MINISTRY OF NATIONAL FOOD SECURITY AND RESEARCH
Government of Pakistan
www.parc.gov.pk
February 2014

i
 CONTENTS

S.No. TITLE PAGE#

1 DISCLAIMER 1
2 PURPOSE OF DOCUMENT 2
3 INTRODUCTION TO SCHEME 2
4 EXECUTIVE SUMMARY 2
5 BRIEF DESCRIPTION OF PROJECT AND PRODUCT 3
6 CRITICAL FACTORS 3
7 INSTALLED AND OPERATIONAL CAPACITY FOR PICKLE PRODUCTION 4
8 GEOGRAPHICAL POTENTIAL FOR INVESTMENT 5
9 POTENTIAL TARGET MARKETS 5
10 PRODUCTION PROCESS FLOW 5
11 PRODUCTION MIX OFFERED 5
12 PROJECT COST AND BENEFIT SUMMARY 6
12.1 Project Economics 6
12.2 Project Cost 6
12.3 Space Requirement 7
12.4 Machinery and Equipments 7
12.5 Furniture and Fixture 7
12.6 Operational and Maintenance cost 7
12.7 Human Resource Requirement 8
12.8 Project Financing 8
12.9 Revenue Generation 9
13 KEY ASSUMPTIONS 10
14 CONTACT DETAIL FOR CONSULTATION 10
ANNEXTURE-I 11
ANNEXTURE-II 12

ii
 LIST OF TABLES

S# TITLE PAGE
Table 1 Project Economics 6
Table 2 Total Project Cost 6
Table 3 Space requirement and its cost 7
Table 4 List of Machinery& Equipments and its cost 7
Table 5 List of Furniture & Fixture and its cost 7
Table 6 Operational & Maintenance cost 8
Table 7 Human Resource Requirement its cost 8
Table 8 Project financing 8
Table 9 Revenue of the Project 9
Table 10 Income Statement of the Project 11
Table 11 Cash flow Statement of the Project 12

iii
1. DISCLAIMER

This information memorandum is to introduce the subject matter and provide a general idea
and information on the subject. Although, the material included in this document is based on
data / information generated from experiments and field testing by a team of relevant
scientists; however, it is based upon certain assumptions which may differ from case to case.
The contained information may vary due to any change in any of the concerned factors, and the
actual results may differ accordingly from the presented information. The PARC and its
employees do not assume any liability for any financial or other loss resulting from this
memorandum in consequence of undertaking this activity. The prospective user of this
memorandum is encouraged to contact qualified consultant/technical expert, especially
designated focal person(s) of this enterprise for reaching to an informed decision.

1
2. PURPOSE OF DOCUMENT

The purpose of this document is to facilitate potential investors in pickle production, processing,
packaging and marketing by providing them with a general understanding of the business, with
the intention of supporting potential investors in crucial investment decisions. The project pre-
feasibility may form the basis of an important investment decision and in order to serve this
objective, the document/study covers various aspects of project concept development, start-up,
production, finance, and business management. The need to come up with pre-feasibility
reports for undocumented or minimally documented sectors attains greater imminence as the
research that precedes such reports reveal certain thumb rules; best practices developed by
existing enterprises by trial and error, certain industrial norms and well established research
findings that become a guiding source regarding various aspects of business set-up and its
successful management. Apart from carefully studying the whole document, one must consider
critical aspects provided later on, which form the basis of investment decisions.

3. INTRODUCTION TO SCHEME
Prime Ministers Youth Business Loan Programme, for young entrepreneurs, with an allocated
budget of Rs. 5.0 Billion for the year 2013-14, is designed to provide subsidized financing at 8%
mark-up per annum for one hundred thousand (100,000)beneficiaries, through designated
financial institutions, initially through National Bank of Pakistan (NBP) and First Women Bank
Ltd. (FWBL). Loans from Rs. 0.1 million to Rs. 2.0 million with tenure up to 8 years inclusive of 1
year grace period, and a debt: equity of 90: 10 will be disbursed to SME beneficiaries across
Pakistan, covering; Punjab, Sindh, Khyber Pakhtunkhwa, Balochistan, Gilgit-Baltistan, Azad
Jammu & Kashmir and Federally Administered Tribal Areas (FATA).

4. EXECUTIVE SUMMARY
The proposed project envisages the setup of Pickle production, processing and marketing
business. Pickle is a general term used for fruits or vegetables preserved in vinegar or brine,
usually with spices or sugar or both. Pickle producing businesses are engaged in producing
pickle in different varieties. Natural fruit and vegetable items are used as raw material for

2
producing various types of pickle i.e. mango, beet, cabbage, cauliflower, cucumber, olive, onion,
pepper, and tomato. Besides its industrial scale production, pickle is also produced at home due
to its easy will be produced in large pots which will then be filled in bottles and after packaging
will be sent for sale in the local and remote markets of Pakistan. Dedicated distributors will
distribute this product and packing machinery will be used for the packaging purpose. The
producer may also explore export opportunities once the business gets stable. Pickle
production, processing and marketing is considered as small scale business in this project pre-
feasibility. This business is proposed to be located all over Pakistan depending upon the
continuous (and at reasonable price) availability of raw material; however, factors like
availability of man power, utilities and easy market access should also be carefully assessed. All
the prospects of pickles production i.e. quality of raw material, recipe development, nutritional
quality and shelf life, management and development at small scale has been studied at Food
Science & Product Development Institute (FSPDI), National Agricultural Research Centre (NARC),
Islamabad. Successful production of mango pickle, lemon chilli pickle, mixed pickle and sweet &
sour vegetable pickle etc have been achieved at FSPDI, NARC. After successful experimentation,
these technologies are declared technically feasible at small scale production. The production of
these types of pickles can be successfully carried in Sindh, Punjab and some parts of Balochistan
, Khyber Pakhtunkhwa, FATA & Gilgit Baltistan. The project can be started in a building of 5
Marlas. Total cost estimate is Rs. 1.476 million, with fixed investment of Rs. 0.230 million and
working capital amounting to Rs.1.246 million. Given the cost assumptions, Net Present Value
(NPV), Internal Rate of Return (IRR), Benefit Cost Ratio (BCR) and payback period are Rs.
2703442, 39%, 1.25 and 2.21 years respectively.

5. BRIEF DESCRIPTION OF PROJECT AND PRODUCT

Following key parameters must be addressed as per pre-feasibility study:
Techniques: There are two basic methods for pickle processing used in Pakistan where local
taste is concerned. One is water based process and the other is oil based processing.
Different techniques are used for pickles production. However, keeping in view the

3
 economical, technical and managerial factors, less intensive technique is suggested for the
proposed project.
Location: The business can be initiated in different areas of Sindh, Punjab and some parts of
Balochistan ,Khyber Pakhtunkhwa, FATA & Gilgit Baltistan having continuous (and at
reasonable price) availability of raw material; however, factors like availability of man power,
utilities and easy market access.
Product: Pickles are considered the permanent part of the food table all over the Sub-
Continent and its demand is rising after its production on commercial scale. Sub-continental
spices, preserved foods and traditional methods of cooking and food making have always
been attractive to the world particularly the western countries.
Target Market: In addition to major cities, such as Quetta, Karachi, Lahore, Peshawar,
Islamabad and small cities & towns, there is an enormous export potential to Middle Eastern
countries.
Employment Generation: The proposed project will provide direct employment to 6
individuals. Financial analysis shows the profitability of proposed business within first year
of its operation.
6. CRITICAL FACTORS
The commercial viability of the proposed project depends on the following factors:
Selection of proper location with water, vegetables, spices, fruits & other raw materials,
equipment, and staff play very important role in ensuring the project to run successfully.
Production may be positioned away from chemical industries to avoid chemical residues.
Quality raw material such as Vegetables, fruits, preservative, oil, vinegar, packing material etc.
must be purchased from reliable/reputed dealers, for the quality assurance of product.
Production unit is required to maintain the record of production and management practices
for successful marketing and traceability.
Production facility should have strong market linkages for effective disposal of produce.

7. INSTALLED AND OPERATIONAL CAPACITY FOR PICKLE PRODUCTION

This pre-feasibility suggests a facility operation on 5 Marlas of land producing different types of
pickles in different packing sizes as per location & market demand.

4
8. GEOGRAPHICAL POTENTIAL FOR INVESTMENT
The proposed location for establishment of pickles production facility will primarily be based at
areas having continuous (and at reasonable price) availability of raw material; however, factors
like availability of man power, utilities and easy market access.
9. POTENTIAL TARGET MARKETS
The marketing of pickles will follow the non-traditional distribution channel directly through
retailers in urban markets. The time spent in transportation, from production plant to the retail
shop, varies from area to area. Over the years, transportation of consumer goods has improved
with the use of loader vehicles. However, greater the distance between production unit and
consumer, more complicated will be the marketing or distribution system, due to high transport
cost. The key factors in marketing are availability of current market information, quality of
product and supply & demand which will determine the selling price.

10. PRODUCTION PROCESS FLOW

There are two basic methods for pickle processing used in Pakistan where local taste is
concerned. One is water based process and the other is oil based processing. Pickles available in
the Pakistani market are generally based on the water process, whereas, home -made pickles
are made using oil. Generic production process is carried out following the method given under;

11. PRODUCTION MIX OFFERED

For the purpose of this pre-feasibility, four types of pickles will be produced in different
packaging. Chili, Mango, Lime and Garlic or mix pickle are most commonly used. It has been
assumed that the four basic types of pickles will be produced initially in equal quantities and it
will be possible to produce mix pickle using the four basic pickles when there is a demand in the
market.

All types of pickles will be available in 330 grams, 450 grams, 1 kg, 1.8 kg and 5 kg packs. Pickle
from 330 grams pack to 1.8 kg pack will be available in Glass bottles, whereas, large quantities
will also be available in convenient polythene bags. Pickle in five kilogram will be available in

5
small bucket for loose pickle buyers. In the market, loose pickle is available in 16 kg to 32 kg
packs; however, the proposed business setup will not offer these quantities.

12. PROJECT COST AND BENEFIT SUMMARY

A detailed financial model has been developed to analyze the commercial viability of pickles
production technology under the Prime Ministers Small Business Loan Scheme. Various cost
and revenue related assumptions, along with results of the analysis, are outlined in this section.

12.1 Project Economics

All figures in the financial model have been calculated for pickles production capacity of 6110
kgs per year. The following table shows internal rate of return, payback period and net present
value of the project.

Table 1. Project Economics

Description Details
Net Present Value (NPV) 2703442
Benefits Cost Ratio (BCR) 1.25
Internal Rate of Return (IRR) 39%
Payback Period (years) 2.21

Factors that influence the profitability of pickles making are production planning &
management, quality of inputs and marketing factors.

12.2 Project Cost

Following requirements have been identified for operations of the proposed business.

Table 2. Total Project Cost

Capital Investment Amount (rupees)
Capital Cost (one time investment) 230,000
Initial operational cost 1,246,000
Total 1,476,000

12.3 Space Requirement

6
Table 3. Space requirement and its cost
Space Requirement Rent/ month Area Total Cost
(Sq. f.) (Sq. f.) (Rs.)
Building on Rent 15000 1250 180,000
Total 180,000

12.4 Machinery and Equipments

Following table provides list of Machinery & Equipments and its cost for pickles production.

Table 4.List of Machinery& Equipments and its cost

Description Quantity (No.) Unit Price Total (Rs.)
(Rs.)
Gas Burner with Other Accessories 02 5,000 10,000
Food Factory Commercial Medium (Peelers, Lump sump Lump sump 100,000
cutter/ slicers) other utensils
Packing Machine 01 Estimated 100,000
Total 210,000

12.5 Furniture and Fixture

Following table provides list of Furniture and Fixture required for pickle production facility.

Table 5.List of Furniture & Fixture and its cost

Description Unit Price Cost (Rs.)
Furniture and Fixture Lump sump 20,000 20,000
Total 20,000

12.6 Operational and Maintenance cost

Following table provides list of Consumable Requirement for pickles production.

Table 6. Operational & Maintenance cost

Description No. Unit Price Total

7
Raw material(Vegetables, Estimated 194,000
spices, fruits, preservatives
etc)
Packing Material ( bottles, 5300 @ Rs. 50 265,000
buckets etc)
Telephone @Rs.1000 p.m 12,000
Gas @Rs.1000 p.m 12,000
Electricity @Rs. 6667 p.m 80,000
Diesel @Rs. 10,000 p.m 96,000
Land Advance Rent 1 @Rs.15,000 p.m 180,000
Depreciation 10% equipment, 23,000
furniture & fixture
Total 862,000

12.7 Human Resource Requirement

The table below provides details of human resource required to manage pickles production
facility. The staff salaries are estimated according to the market trends. However, these
requirements and pay scales may vary area to area.

Table 7.Human Resource Requirement its cost

Description No. of Employees Salary/person/ month Total salary per year
Owner/Manager 1 12,000 144,000
Labour/worker 2 10,000 240,000
Total 384,000

12.8 Project Financing

Following table provides details of the equity required and variables related to bank loan;

Table 8. Project financing

Description Details
Total Equity (10%) 188800
Bank loan (90%) 1699200
Mark up to borrower (per annum) 8%
Tenure of Loan (Years) 8
Grace Period (years) 1
12.9 Revenue Generation

8
Final product of pickling facility is different types of pickles packed in bottles ready for sale in
market that will generate revenue. The following table provides the revenue of the project.
Table 9. Revenue of the Project
Products Unit Yield (No. Unit volume First Time Sales First
of bottles) of Bottle Production Price Time
(Kg) (Rs./Unit) Revenue
(Rs)
Packing 330 gram 1500 330 495 76 113850
450g gram 1500 450 675 104 155250
1000g gram 1000 1000 1000 230 230000
1800g gram 800 1800 1440 414 331200
5000g gram 500 5000 2500 1150 575000
Total Sales Revenue 1405300

9
13. KEY ASSUMPTIONS

Particulars Assumption
Sales Price Growth Rate 10% per year
Increase in cost of raw material 5% per year
Increase in utilities 10% per year
Debt/Equity Ratio 90:10
Machinery Depreciation 10%
Office furniture & fixture Depreciation 10%
Loan Period 8 years
Grace Period 1 year
Loan installments Monthly
Financial charges (interest rate) 8%

14. CONTACT DETAIL FOR CONSULTATION

Dr. Saeeda Raza

Director
Food Sciences & Product Development Institute
National Agricultural Research Centre (NARC)
Park Road, Islamabad
Contact No. 051-8443332
Email: saeedaraza@yahoo.com

10
 ANNEXTURE-I
Table 10. Income Statement of the Project
Description/Year Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
Revenues 1,405,300 1,545,830 1,700,413 1,870,454 2,057,500 2,263,250 2,489,575 2,738,532 3,012,385 3,313,624
Raw material
300,000 315,000 330,750 347,288 364,652 382,884 402,029 422,130 443,237 465,398
(Vegetables, spices, fruits, preservatives etc)
Packing Material
159,000 166,950 175,298 184,062 193,265 202,929 213,075 223,729 234,915 246,661
(bottles, buckets etc)
Labour 384,000 403,200 423,360 444,528 466,754 490,092 514,597 540,327 567,343 595,710
Cost of Goods Sold 843,000 885,150 929,408 975,878 1,024,672 1,075,905 1,129,701 1,186,186 1,245,495 1,307,770
Gross Profit 562,300 660,680 771,006 894,576 1,032,828 1,187,344 1,359,874 1,552,346 1,766,890 2,005,854
Rent 180,000 198,000 217,800 239,580 263,538 289,892 318,881 350,769 385,846 424,431
Utilities 200,000 220,000 242,000 266,200 292,820 322,102 354,312 389,743 428,718 471,590
Depreciation 23,000 23,000 23,000 23,000 23,000 23,000 23,000 23,000 23,000 23,000
Interest on Loan 106,272 106,272 94,362 81,499 67,607 52,603 36,400 18,900 - -
Sub - Total 509,272 547,272 577,162 610,279 646,965 687,597 732,593 782,412 837,564 919,020
Operating Income 53,028 113,408 193,844 284,298 385,863 499,747 627,281 769,934 929,327 1,086,834
Tax - - - - - 9,975 22,728 37,990 61,899 85,525
Net Income 53,028 113,408 193,844 284,298 385,863 489,772 604,553 731,944 867,428 1,001,309

ANNEXTURE-II

11
Table 11. Cashflow Statement of the Project

Description/Year Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
Net Income 53,028 113,408 193,844 284,298 385,863 489,772 604,553 731,944 867,428 1,001,309
Depreciation 23,000 23,000 23,000 23,000 23,000 23,000 23,000 23,000 23,000
Net Inventory (459,000) (50,490) (55,539) (61,093) (67,202) (73,922) (81,315) (89,446) (98,391) (108,230) 1,190,528
Tax - - - - - 9,975 22,728 37,990 61,899 85,525
Cash from Operations
(459,000) 2,538 80,869 155,751 240,095 334,941 441,432 560,835 694,543 844,097 2,300,362
Inflow / Outflow (A:G)
Interest on Loan 106,272 106,272 94,362 81,499 67,607 52,603 36,400 18,900 - -
Net Cash from
Operations (459,000) (103,734) (25,403) 61,389 158,596 267,334 388,829 524,435 675,643 844,097 2,300,362
Inflow / Outflow
Owners Equity 147,600
Principal Amount - 148,877 160,787 173,650 187,542 202,545 218,749 236,249 - -
1,328,40
Long Term Loan
0
Cash from Financing 1,476,00
- 148,877 160,787 173,650 187,542 202,545 218,749 236,249 - -
Inflow / Outflow 0
Cash from Investment
Furniture and Fixture (20,000)
Building Rent (180,000)
Machinery and
(210,000)
Equipment
Net Cash from Investing
(410,000) - - - - - - - - - -
Activities
Net Cash
607,000 (103,734) 123,474 222,176 332,247 454,876 591,374 743,184 911,892 844,097 2,300,362
Inflow / Outflow (
1,181,16 1,636,03 2,227,41 2,970,59 3,882,49
Opening Balance - 607,000 503,266 626,740 848,916 4,726,586
3 9 3 7 0
1,181,16 1,636,03 2,227,41 2,970,59 3,882,49 4,726,58
Closing Balance 607,000 503,266 626,740 848,916 7,026,948
3 9 3 7 0 6

12