PROFILE ON PRODUCTION OF EDIBLE AVOCADO OIL by lifemate

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									26. PROFILE ON PRODUCTION OF EDIBLE
           AVOCADO OIL
                            26-2


                      TABLE OF CONTENTS


                                                  PAGE


 I.    SUMMARY                                    26-3


II.    PRODUCT DESCRIPTION & APPLICATION          26-3


III.   MARKET STUDY AND PLANT CAPACITY            26-4
       A. MARKET STUDY                            26-4
       B. PLANT CAPACITY & PRODUCTION PROGRAMME   26-6


IV.    MATERIALS AND INPUTS                       26-7
       A. RAW & AUXILIARY MATERIALS               26-7
       B. UTILITIES                               26-8


V.     TECHNOLOGY & ENGINEERING                   26-8

       A. TECHNOLOGY                              26-8
       B. ENGINEERING                             26-10


VI.    MANPOWER & TRAINING REQUIREMENT            26-11
       A. MANPOWER REQUIREMENT                    26-11
       B. TRAINING REQUIREMENT                    26-11


VII.   FINANCIAL ANALYSIS                         26-13
       A. TOTAL INITIAL INVESTMENT COST           26-13
       B. PRODUCTION COST                         26-14
       C. FINANCIAL EVALUATION                    26-15
       D. ECONOMIC BENEFITS                       26-16
                                       26-3


I.     SUMMARY


This profile envisages the establishment of a plant for the production of edible avocado
oil with a capacity of 150 tonnes per annum.


The present demand for the proposed product is estimated at 667 tonnes            per annum.
The demand is expected to reach at 1,111 tonnes by the year 2020.


The plant will create employment opportunities for 32 persons.


The total investment requirement is estimated at Birr 5.92 million, out of which Birr
2.20 million is required for plant and machinery.


The project is financially viable with an internal rate of return (IRR) of 16 % and a net
present value (NPV) of Birr 1.64 million discounted at 8.5 %.


II.    PRODUCT DESCRIPTION AND APPLICATION


Avocado is a pulpy green or purple, pear-shaped edible fruit that is obtained from tropical
trees of the genus persea.


Avocado processing yields avocado oil, which is edible and high in unsaturated fatty
acids. Its chief constituents are oleic, palmitic and linoleic acids. It has a faint odor,
bland taste and greenish color. Its main applications are in edible salad oils.


Avocado oil is a resource based product that will substitute import and have also a
potential for export.
                                      26-4


III.   MARKET STUDY AND PLANT CAPACITY


A.     MARKET STUDY


1.     Past Supply and Present Demand


Edible avocado oil main application is for dressing of salad. The country’s requirement
for edible oil has been met through domestic production and import. Table 3.1 shows
supply of edible oil both through import and local production.


                                        Table 3.1
                        SUPPLY OF EDIBLE OIL (TONNES)


            Year        Domestic         % Share           Import            Total
            2000             6579            8.50            70,789           77,368
            2001             6,637           21.12           24,785           31,422
            2002             8,329           19.59           34,196           42,525
            2003             7,993           26.40           22,283           30,276
            2004             8,027           6.18           121,812          129,839
            2005             6,931           7.79            82,014           88,945
        AVERAGE              7,416            15             59,313           66,729

                   Source: Customs Authority CSA, Statistical Abstract.

As can be seen from Table 3.1, during the time under reference imports and domestic
production averaged 59,313 and 7,416 tones respectively, while average supply stands at
66,729 tonnes. Thus on the average, about 15% of country’s requirement for edible oil
was supplied through domestic production.

It is assumed that the average supply during the period of analyses approximates current
(2007) demand for edible oil. Moreover, in is conservatively assumed that the market
share of edible avocado oil is only 1% of the total demand for edible oil.
                                        26-5


Accordingly, the current (2007) effective demand for edible avocado oil is estimated at
667 tonnes.


2.     Projected Demand


The demand projection is estimated on a hypothetical assumption that edible oil
consumption should grow with the growth of urban population. Hence, a 4% growth rate
is used to forecast the demand as depicted in Table 3.3.


                                          Table 3.2
              PROJECTED DEMAND FOR EDABLE OIL (TONNES)
                          Year              Projected Demand
                           2008                              694
                           2009                              722
                           2010                              751
                           2011                              781
                           2012                              812
                           2013                              844
                           2014                              878
                           2015                              913
                           2016                              950
                           2017                              988
                           2018                            1,027
                           2019                            1,068
                           2020                            1,111

3.     Pricing and Distribution

Based on current market price of the product a factory-get price of Birr 14 per litter is
proposed for the envisaged factory. The product can be distributed through existing food
products distributors or by establishing a distribution centers in strategic locations.
                                         26-6


B.       PLANT CAPACITY AND PRODUCTION PROGRAMME


1.       Plant Capacity


The market study for edible avocado oil indicates (Table 3.2) that the demand for the
product in 2008 will be 694 tonnes, and is shown to grow (@ 4% rate) to 913 tonnes and
1,111 tonnes by the year 2015 and 2020, respectively.         Considering a small scale
production of the product, the envisaged plant is proposed to have an annual production
capacity of 150 tonnes. The processing plant will have 300 working days, operating in
single shift of 8 hours a day.


2.       Production Programme


Considering the need for skill development and the time required for market penetration,
the processing plant will be planned to start operation at 65% of the full capacity in the
first year, and will progressively grow to 75%, 85% and 100% in the 2nd , 3rd, and 4th year
and then after, respectively. Production build-up programme is shown in Table 3.3.
below.


                                          Table 3.3
                             PRODUCTION PROGRAMME


             Year                    1            2              3           4 and above
Capacity utilization (%)                 65             75             85              100
Edible avocado oil (tonnes)         97.50         112.50         127.50                150
Oil cake (tonnes)                   42.25             48.75          55.25              65
                                      26-7


IV.      MATERIALS AND INPUTS


A.       RAW AND AUXILIARY MATERIAL


The main raw material required for the project is dehydrated avocado fruit. Dehydrated
avocado fruit yields as much as 70% oil.

Fruits like avocado, pineapple, papaya, banana, quava and fashion fruits are highly
produced in Sidama zone. South Omo, Bench- Maji, Gedeo and wolyta zones and
Amaro special woreda produce mango, avocado, banana, papaya and fashion fruits in
bulk amount. When the accessibility and agroecologic optimum of the areas are looked
at Sidama, Gedeo, and Wolayta are appreciated for their avocados and mango products.
Therefore, raw material can be sourced from SNNPRS.

Auxiliary materials required for the production of edible avocado oil consist of bleaching
agent, deodorizing agent, other chemicals, oil barrels, etc. Annual requirement of raw
and auxiliary materials with related costs is shown in Table 4.1 below.

                                        Table 4.1
  RAW AND AUXILIARY MATERIALS AT FULL CAPACITY PRODUCTION

 Sr.             Description               Qty                     Cost (‘000 Birr)
 No.                                                   LC                FC           TC
         A. Raw Material
     1   Dehydrated avocado fruit            215            450                 -            450
         Sub Total                                          450                 -            450
         B. Auxiliary Materials
     1   Bleaching earth (ton)                   4          10.0                -          10.0
     2   Deodorizing agent (ton)             0.8             4.8                -            4.8
     3   Chemicals                           Req            10.0                -          10.0
     4   Barrels (metallic) (pcs)            100            15.0                -          15.0
     5   Jute sacks (75 kg) (pcs)            867             3.0                -            3.0
         Sub total                               -          42.8                -          42.8
         Total                                           492.8                  -       492.8
                                           26-8


B.        UTILITIES

Utilities required for edible avocado oil plant consist of electricity, water, fuel oil and
lubricants. Annual requirements of each of these inputs at full capacity production is
given in Table 4.2 below.


                                            Table 4.2
                  ANNUAL REQUIREMENT OF UTILITIES AND COST

          Sr.                     Description                Qty         Cost (‘000 Birr)
          No.
           1       Electricity (kWh)                         120,000                 56.88
           2       Water (m3)                                 15,000                150.00
           3       Fuel oil (litres)                           5,500                29.755
           4       Lubricants & oils                               Req               10.00
                   Total                                             -


V.        TECHNOLOGY AND ENGINEERING


A.        TECHNOLOGY


1.        Production Process


Edible avocado oil processing consists of the following unit operations:-

     a)        Fresh dehydrated avocado fruit preparation
     b)        Pressing
     c)        Refining
     d)        Bleaching
     e)        Deodorizing
     f)        De-acidification
     g)        Filling, packing and dispatching to market.
                                        26-9


Dehydrated avocado fruit is first washed and sorted, and damaged ones are removed from
the process.   The clean fruit is directly applied onto the filter press, where the oil is
separated from the non-oil part. The crude oil is then refined by a refinery unit. The
output of the refinery is bleached, de-odorized, and then de-acidified. The final edible oil
is stored in main oil storage tanks.    The output of the filter press is stored in metallic
tanks where settling of impurities takes place. Metallic drums are filled with refined
edible oil to be ready for marketing.


2.     Source of Technology


Machinery and equipment required for edible avocado oil processing plant will be
supplied by the following supplier:-


Shanghai Small Enterprise Trade Development Service Centre,
International Cooperation Division
Shanghai 200032
Fax: (008621) 64220814


B.     ENGINEERING


1.     Machinery and Equipment


Table 6.1 shows the details of machinery and equipment required for the envisaged plant.
                                       26-10


                                           Table 5.1
          MACHINERY AND EQUIPMENT REQUIREMENT AND COST


 Sr.                Description                Qty                   Cost (‘000 Birr)
 No.
                                                        LC                 FC           TC
     1   Filter press                           1              30               185           215
     2   Settling tanks                         2             34.0                -      34.00
     3   Oil refinery                           1             150               750      900.0
     4   De-odorizing equipment                 1             120                 -           120
     5   De-acidification equipment             1             135                 -           135
     6   Main storage tanks (25,000             2             150                 -           150
         litres )
     7   Boilder (small size)                   1              50               300           350
     8   Miscellaneous        (weighing        Set             30               270           300
         scale,     Testing   equipment.
         Etc.
         CIF landed cost                   -                  699             1505       2204


2.       Land, Building and Civil Works


Edible avocado oil processing plant requires land for warehouses of raw material and
final product, for factory building, for administration and general purpose building,
pathways, and space for expansion in the future. A total of 5000 square meters of land is
allotted for the envisaged plant. At the rate of Birr 1.0 per m2 as land lease value for 80
years, the total investment on land will be Birr 400,000. Of the total land lease for the
processing plant 1200 m2 will be built-up area, and at the rate of Birr 2000 per m2, the
building and civil construction cost will be Birr 2.4 million. Thus, the total investment
on land, building and civil works will be Birr 2.8 million.
                                        26-11


3.     Proposed Location


Location of a plant is determined on the basis of proximity to raw material, availability of
infrastructure and distance from potential market outlets. Accordingly, two woredas,
namely Marreka and Wonago are identified from which Marreka Woreda is selected due
to its agro ecology is suitable for growing avocado. It is therefore suggested that the
plant will be located in Tercha town.


VI.    MANPOWER & TRAINING REQUIREMENT


A.     MANPOWER REQUIREMENT


The processing plant requires direct production workers and administrative and
supervisory staff. Details of manpower requirement and estimated of annual expenses on
salaries is shown in Table 6.1


B.     TRAINING REQUIREMENT


Workers directly related to production, supervisor, operators and technician need to be
given on-the-job training for two weeks by qualified personnel of machinery supplier.
The training cost is estimated to be Birr 30,000.
                               26-12


                                 Table 6.1
        MANPOWER REQUIREMENT AND LABOUR COST (BIRR)


Sr.               Job title      Req.        Monthly Salary   Annual Wages
No.                               No.
      A. Administration
1     Plant manager                1             2000            24000
2     Secretary                    2              600            14400
3     Personnel                    1              800             9600
4     Accountant                   1              800             9600
5     Sales officer                1              700             8400
6     Store man                    1              700             8400
7     Cashier                      1              600             7200
8     Clerk                        1              450             5400
9     Time keeper                  1              450             5400
10    Driver                       2              450            10800
11    Messenger                    2              250             6000
      Guard                        4              250            12000
      Sub-total                   18                             121200
      B. Production
1     Production supervisor        1             1500            18000
2     Skilled operator             4              600            28800
3     Chemist                      1             1000            12000
4     Boiler operator              1              600             7200
5     Technicians                  2              600             1400
6     Laborer                      5              250            15000
      Sub-total                   14                             95400
      Workers’ benefit (25%)                                     54150
      Total                       32                             270750
                                     26-13


VII.   FINANCIAL ANALYSIS


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


Construction period                  1 year
Source of finance                    30 % equity
                                     70 % loan
Tax holidays                         5 years
Bank interest                         8%
Discount cash flow                   8.5%
Accounts receivable                  30 days
Raw material local                   10 days
Work in progress                     1 days
Finished products                    10 days
Cash in hand                         5 days
Accounts payable                     30 days


A.     TOTAL INITIAL INVESTMENT COST


The total investment cost of the project including working capital is estimated at Birr
5.92 million, of which 41 per cent will be required in foreign currency.


The major breakdown of the total initial investment cost is shown in Table 7.1.
                                           26-14


                                              Table 7.1
                                INITIAL INVESTMENT COST


                        Sr.                                                  Total Cost
                       No.                    Cost Items                    (‘000 Birr)
                         1       Land lease value                                    400.0
                         2       Building and Civil Work                           2,400.0
                         3       Plant Machinery and Equipment                     2,204.0
                         4       Office Furniture and Equipment                      125.0
                         5       Vehicle                                             200.0
                         6       Pre-production Expenditure*                         482.5
                         7       Working Capital                                     109.8
                                 Total Investment cost                             5,921.4
                                             Foreign Share                              41




* N.B Pre-production expenditure includes interest during construction ( Birr       332.51 thousand )
training (Birr 30 thousand ) and Birr 120 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                         1.83
million (see Table 7.2).        The material and utility cost accounts for           40.51 per cent,
while repair and maintenance take 2.74 per cent of the production cost.
                                          26-15


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


                                      Items                Cost       %
                          Raw Material and Inputs         492.80     27.00
                          Utilities                       246.64     13.51
                          Maintenance and repair            50       2.74
                          Labour direct                   149.55     8.19
                          Factory overheads                76.89     4.21
                          Administration Costs             121.2     6.64
                          Total Operating Costs           1,137.08   62.30
                          Depreciation                     422.9     23.17
                          Cost of Finance                 265.28     14.53
                          Total Production Cost           1,825.26    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.
                                      26-16



2.     Break-even Analysis


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


                               BE =           Fixed Cost      =   37 %
                                      Sales – Variable Cost


3.     Pay Back Period


The investment cost and income statement projection are used to project the pay-back
period. The project’s initial investment will be fully recovered within 6 years.


4.     Internal Rate of Return and Net Present Value


Based on the cash flow statement, the calculated IRR of the project is 16% and the net
present value at 8.5 % discount rate is Birr 1.64 million.


D.     ECONOMIC BENEFITS


The project can create employment for 32         persons.     In addition to supply of the
domestic needs, the project will generate Birr 1.59 million in terms of tax revenue. The
establishment of such factory will have a foreign exchange saving and earning effect to
the country by substituting the current imports and also exporting the product.

								
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