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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