COMMUNITY BASED LIVELIHOODS RECOVERY PROGRAM (CBLRP) FOR EARTHQUAKE AFFECTED AREAS OF AZAD JAMMU AND KASHMIR AND

NWFP

CBLRP-UNIDO

INVESTMENT OPPORTUNITY PROFILE FOR CUT FLOWER PLANT IN NWFP

SEPTEMBER 2007
SUBMITTED TO AYESHA KHAN CHIEF TECHNICAL ADVISOR Community Based Livelihood Recovery Program (CBLRP) United National industrial Development Organization (UNIDO)

BY Sardar Shahid Farid Chartered Accountant

Disclaimer All material included in this document is based on data/information gathered from various sources and certain assumption. Due care and diligence has been taken to compile this document. The document may contain human, mechanical error or non accuracy of the information at the source. No liability for error, or omission or unintentional misrepresentation will be accepted. We reserve the right to make correction and changes wherever desired in this document or its subsequent versions.

1.

PROJECT EXECUTIVE SUMMARY

1.1

PROJECT BRIEF Cut flowers growth is not a new phenomenon in floricultural sector of Pakistan; however it is an infant industry as far as its growth is concerned. The resource rich local soil provides ideal agronomic conditions for the production of cut flowers. Despite lack of knowledge on modern floricultural production techniques, difficulty in obtaining the latest varieties and the lack of infrastructure, the industry is continuously attracting new entrants. This document is being prepared and is intended to provide general information on the opportunity for an investor in the floricultural sector to develop cut flowers farm of roses for supply in Manshera and its surrounding markets Growing cut flowers, especially roses, is a very profitable business if done properly on commercial basis. Demand for cut flowers, especially roses, is growing tremendously as more and more people are becoming aware of the beauty of flowers as decorative items. Weddings, birthday parties, seminars, and other such social gathering events are incomplete without floral decorations. Besides earning money one also helps keep the environment clean and beautiful. The project is proposed to be located at Manshera and its surrounding area giving easy access of the country. The region has access to all public amenities including water electricity and telecommunication facilities. Roughly 11,000 plants would be planted in each acre, approximately 4-ft2 area for each rose plant. The initial total cost for the cut flower plant farm is estimated to be Rs 1,242,345. It is expected that the farm can be completed in 4 months and the production of commercial cut flower can begin in the next 10 month. Seven works will be employed directly on the farm will employment will be for many other indirectly.

1.2

FINANCIAL SUMMARY NPV (14%) IRR Payback Period (Years) Gross Profit Net Profit before Tax Sales 1,838,888 59% 2.25 years 90% 66% Rs 1,633,500

Foreign collaboration sought

Joint Venture Loan Market access Sub contracting Buy back arrangement Equipment purchase Feasibility study Other Specify 25 October 2007

Management expertise Technical expertise Marketing expertise Technology transfer Joint R&D Other :Project description

Studies Available

Date:

2.

PROJECT RATIONALE The cut flower industry is growing business around the world. The initial target market is NWFP and Islamabad later to increase profitability export is a viable option. The project becomes suitable as the cost of labor is minimum. The lease rental is also very suitable on the lower side. There are growing markets for the cut flowers in Manshera , Abbottabad and surrounding areas. Transportation of the cut flowers to markets is facilitated by the road net work. The environmental profile is most suited for the project. Flowers are perishable products with a limited life span. Without any life enhancing treatment, its shelf life is three days to four days maximum. Therefore, flowers should be transported from the field as soon as possible in order to take advantage of its short life.

3.

MARKET INFORMATION Local market of cut flowers, especially for different varieties and colors in roses, is still growing. This project aims to fulfill this demand. There are two basic market segments for flowers. a) Retail sales to consumers b) Wholesale sales to corporate and institutional customers In every major city of the country there are numerous retail outlets selling all kinds of flowers to consumers. These outlets could be anything from a roadside corner kiosk to a proper retail outlet shop in some high-end urban locality. These shops are either fed directly from farms or through a middleman or distributor. Some shops buy directly from mandi as well. Buying directly from the farms give bigger shops access to better quality flowers as flowers do not go through too many different hands and there is less wear and tear. Another important aspect of buying directly from farms is better profit margins for both farm owners as well as shopkeepers. This they achieve by eliminating the middleman. But this setup is quite rare. Nine out of ten times its the distributor who is the supplier to most of small shops in the city. A major advantage of buying from distributors is the availability of credit facility. Besides retail outlets the major buyers are corporate and institutional customers. These include hotels, offices and most importantly party decorators and marriage halls. All these institutional as well as corporate customers are fed by wholesale dealers and distributors. They buy in bulk quantities. For party decorators high quality is not an issue as they use the flowers only once. Once the party is over the flowers go to the bin. As far as hotels and offices are concerned, quality is an important issue.

4.

BUSINESS PLAN Annual 1,600,000 Cut flowers will be marketed in Manshera, Abbottabad, in the later years exports are also possible. Modern facility and techniques will be employed for the production as well as for the transportation and to decrease the parish ability of the cut flowers during transportation and storage. 4.1 PRODUCT SALES The product is cut flowers. *Farm at 100% capacity Total Area Total no. of rose flower plants Average no. of saleable flowers /plant / year Total available saleable flowers/year

5 acres 54,450 30 1,633,500

Only 30 flowers per plant per year are available for commercial sales. Sale price also depends on season, quality and size of flowers. It varies from Rs 35 for hundred stems to Rs 550 per hundred stems. But if we average out the price over the period of 12 months, one rose stem sells minimum for Rs 1 Sale is against credit and usual credit period is 15 days. Total sales at 100% capacity 4.2 RAW MATERIALS
Land

1,633,500

Land requirement is 5 acres for growing flowers and 2 kanals as area for sorting, washing, drying, packing and other related facilities. Land is to be obtained on lease. At present, lease rate are around Rs 15000 per acre per year.

Flower Plants

Roughly 11,000 plants would be planted in each acre, approximately 4-ft2 area for each rose plant. These plants would be brought from a commercial nursery. New plants are grafted in July by the nurseries and are ready to be transferred to the field in January. Starting from January, these six months old plants at the farm are to be taken care of till October.
Water

Water is a regular requirement of flower plants, as is for any living thing. To be on the safe side water-pump should also be installed at the farm. It would cost about Rs 50,000 to install a reasonable capacity and quality pump. The average cost of water and upkeep of water channels costs about Rs 1,500 per acre per year. During April, May and June, fields are irrigated every week. Otherwise the normal practice is irrigating every 20-25 days.
Building & Shed

This project does not require any major building structure. Only a small room for storage purpose is required. A maximum of 10x10 room is enough. Besides storage room, one proper shed is required. This is an important requirement. The shed should be 40x40 covered area with open sides for air passage. This area is to be used for washing, sorting, packing, and other post harvest activities. The construction rate is Rs 100 per square feet. This construction rate is based on the fact that the room and the shed would be made up of semi-baked bricks using local masonry skills. The idea is to cut the initial capital investment.

Pesticide Sprays

Between April and November, one spray of pesticides is required every fortnight. From December till March only one pesticide spray is required per month as prevention against fungus. One pesticide spray costs Rs 5000 resulting in total cost of sprays per acre per year
Material Cost/Acre (Bag) Acres/Bags Amount

Pesticide Sprays
Fertilizers

5,000

25,000

Flower plants require DAP, potash, and ammonium nitrate fertilizers for proper yield. Sometimes one or two bags of urea are also required. 4 bags of DAP are required every quarter at Rs 1000/bag. 3 bags of potash are required every quarter at Rs 700/bag, and 4 bags of ammonium nitrate are required every quarter at Rs 350/bag.We will use the combination of NPK which cost 500/bag and 2 bags per month which is batter mix.
Material Cost/Acre (Bag) Acres/Bags Amount

NPK
Farm Fixtures & Tools

500

24

60,000

Basic farm tools and fixtures would include tools for pruning the plants, picking the flowers, and removing leaves, etc. Besides these tools, other fixtures are required including clean water hand pump, tables, tubs, wooden crates and fans. Total capital requirement for all these items is Rs 40,000. All items would be Pakistan made and are easily available.
Packing

Rose flowers are either packed in specially designed wooden crates or else in cardboard cartons. Each wooden crate can carry about 25-30 Kg flowers (one-Kg flowers is roughly 60 individual stems). For long distance transportation, an 8-10 Kg ice block is also placed along with flowers to keep their temperature down. Cardboard cartons are usually used for short distance transportation. If they are to be used for long distance transportation, ice, packed in plastic bag, is also placed in each box for cooling effect. Usual gross weight for cardboard cartons is 15-20 Kg. Wooden crates are reusable over longer periods of time. About 100 boxes are enough to keep a cycle of rotation going. Each wooden crate would cost Rs 160. Cardboard carton usually cost Rs 35/box.

4.3 PRODUCTION PRROCESS

4.4 DISTRIBUTION/PRODUCTION CHANNELS The cut flower would be sold on the daily production basis to the shopkeepers. Cut flowers are perishable commodity as such they will have to transport quickly to the market. Selling directly to the shop keepers or stalls will increase the margins. 4.5 HUMAN RESOURCE REQUIREMENT A total of 7 employees are required on the farm, as described below. Post # of Salary/month 1st year cost personnel Manager/Accountant 1 8,000 96,000 Foreman 1 6,000 72,000 Semi-Skilled 5 4,000 240,000 Workers Total 7 408,000

5.0 PROJECT FINANCIALS

5.1 OPERATIONAL DATA The farm will operate at 100% capacity producing 1,600,000 cut flower stem in year. In the first year on two months production can be achieved, due to season, where as in the following years full season.

5.2 FIXED COSTS The initial investment in the fixed assets would be to the tune of Rs 818,701 as detailed below.
Capital Investment (Rupees)

Building/Infrastructure Land tillage and saplings Machinery & Equipment Pre-operating costs Total

153,000 594,000 50,000 21,701 818,701

5.3 WORKING CAPITAL The initial working capital investment would be to the tune of Rs 423,644, as detailed below.
Working Capital (Rupees)

Raw material inventory Upfront land lease rental Cash Total Working Capital

98,058 75,585 250,000 423,643

5.4 OVERHEAD COSTS In the first year following overhead cost are estimated. Administration expense Land lease rental expense Traveling expense Communications expense (Phone, fax, mail, internet, etc.) Depreciation expense Total 150,000 75,585 1,500 0 1,500 72,050 300,635