156. PROFILE ON PRODUCTION OF GRAIN
TABLE OF CONTENTS
I. SUMMARY 156-3
II. PRODUCT DESCRIPTION & APPLICATION 156-3
III. MARKET STUDY AND PLANT CAPACITY 156-4
A. MARKET STUDY 156-4
B. PLANT CAPACITY & PRODUCTION PROGRAMME 156-7
IV. MATERIALS AND INPUTS 156-7
A. RAW & AUXILIARY MATERIALS 156-7
B. UTILITIES 156-8
V. TECHNOLOGY & ENGINEERING 156-8
A. TECHNOLOGY 156-8
B. ENGINEERING 156-9
VI. MANPOWER & TRAINING REQUIREMENT 156-10
A. MANPOWER REQUIREMENT 156-10
B. TRAINING REQUIREMENT 156-10
VII. FINANCIAL ANLYSIS 156-12
A. TOTAL INITIAL INVESTMENT COST 156-12
B. PRODUCTION COST 156-13
C. FINANCIAL EVALUATION 156-14
D. ECONOMIC BENEFITS 156-15
This profile envisages the establishment of a plant for the production of grain grinding
stone with a capacity of 2,000 units per annum.
The present demand for the proposed product is estimated at 3,278 tonnes per annum.
The demand is expected to reach at 5,694 tonnes by the year 2017.
The plant will create employment opportunities for 25 persons.
The total investment requirement is estimated at Birr 2.90 million, out of which Birr
620,000 is required for plant and machinery.
The project is financially viable with an internal rate of return (IRR) of 28 % and a net
present value (NPV) of Birr 2.90 million discounted at 8.5%.
II. PRODUCT DESCRIPTION AND APPLICATION
Grain grinding stone or milling stone is abrasive stone often built up of several pieces and
used for grinding grain or other substances fell through a center hole in the upper stone.
An iron support is fixed across the hole in the upper millstone of a grain mill. When the
drive, usually of belt type, belt revolves a shaft attached to the lower stone, the grain
between will be ground into smaller sizes as per the stone gap adjustment
Grain grinding stone in grain mills are then very important to grain our daily food grains
like teff, maize, wheat, barely, etc.
The project is resource based. Moreover, at present the country import a significant
quantity of the products. Therefore, the project is both resource based and aimed at import
substitution. There is also a substantial export potential.
III. MARKET STUDY AND PLANT CAPACITY
A. MARKET STUDY
1. Past Supply and Present Demand
Grain grinding stone as the name implies is used in the grinding of wheat, teff, maize etc.
Despite scientific advancement in the field, the age old method of grinding remains the
best grinding method known.
The supply of grain grinding stone is directly related with the production of flour. As
flour mills constitute the most popular small scale industry in the country, grinding stone
is an important product for the house hold preparation of food made from flour.
Even though there is the practice of home grinding of grain, majority of households
depend on flour mills for the processing of grain. Both urban and rural household
members visit flour mills frequently.
The main source of supply from import in the last ten years on average was 2,364 tonnes.
Import of grinding stone is presented in Table 3.1. A linear trend analysis on the ten years
time series reveals a least square equation with explanatory power of 12%. This low
explanatory power is due to the two exceptionally higher import figures of 1997 and
2005. A closer look at the data set after excluding. 1997, 2005 and 2006 import of
grinding stone and applying a least square equation the following trend with a significant
explanatory power is obtained.
Y = 241.52 X + 863.71 R2 = 73.1%
Applying this equation, the current effective demand for grinding stone is estimated to be
IMPORTED MILLSTONES AND GRINDING STONES FOR MILLING,
GRINDING OR PULPING (TONNES)
Source: Customs Authority.
2. Projected Demand
The demand for grinding stone is a function of grain flour consumption which is in turn
dependent on population growth rate and income. Population growth rate will contribute
to additional demand while income growth will increase the consumption rate per head
altogether contributing to growing demand for flour and hence grinding stone. Therefore
the demand for grinding stone is estimated based on the least square equation fitted for
the 1998 – 2004 supply series of grinding stone. Accordingly, the demand for grinding
stone will reach 5,694.1 tonnes by the year 2017. Grinding stone projected demand is
presented in Table 3.2.
PROJECTED DEMAND FOR MILLSTONES AND GRINDING STONES
FOR MILLING, GRINDING (TONNES)
Year Projected Demand
3. Pricing and Distribution
The average CIF value of millstones in the latest year of import was Birr 6,591 per tonne.
On the other hand the latest export FOB price is Birr 5,891 per ton. Therefore Birr 5,891
per ton is recommended for the project under study.
Opportunity of the existing export market is one of the market segments which will be
targeted for the product. Local distribution will find the existing established channel.
B. PLANT CAPACITY AND PRODUCTION PROGRAME
1. Plant Capacity
Based on the market study and economic scale of production, the envisaged plant will
have an annual production capacity of 2,000 units of grain grinding stone. Production
capacity is based on a schedule of 300 working days per annum and single shift of eight
hours per day.
2. Production Programme
The envisaged plant will start operation at 85% of its rated capacity in the first year and
95% in the second year. Full capacity production will be achieved in the third year and
IV. MATERILS AND INPUTS
A. RAW AND AUXILIARY MATERIALS
The major raw materials required include siliceous abrasive stones and mild steel plate.
Siliceous abrasive stones are available in SNNPRS while steel plates have to be imported.
The two woredas where the major raw material is found is Bakogazer and Knoso special
Table 4.1 indicates annual raw material requirement and associated cost at full capacity
ESTIMATED ANNUAL REQUIREMENT AND COST OF ROUGH STONES
Sr. Description UOM Annual Cost (Birr)
1 Siliceous abrasive stone Tonnes 500 50,000
2 Mild steel plate (Assorted thickness) Tonnes 20 40,000
3 Others 25
The utilities required by the envisaged project are electric power and water. The
estimated annual utility consumption at full capacity of the plant and the estimated costs
are given in Table 4.2.
ANNUAL UTILITIES REQUIREMENT AND ESTIMATED COSTS
Sr. Description Unit Annual Cost
No. Requirement (Birr)"000
1 Electric power kWh 350,000 165.76
2 Water m 2,000 20
V. TECHNOLOGY AND ENGINEERING
1. Production Process
The process of grain grinding stone includes primary size reduction of the purchased raw
stones, cutting, roughening, drilling and reinforcing. Individual stone is then examined
for any undetectable cracks and other defects. The grinding stones are then mainly
delivered to the customers who assemble grain mills and also to grain mill owners as
2. Source of Technology
The technology of grain grinding stones can easily be obtained through contacts with
Waheed Trade Complex
Khayaban - e-Iqbal, DHA Lahore
Tel. (042) 111-111-456
Fax (042) 5896619, 5899756
1. Machinery and Equipment
The following combination of machinery and equipment will be required for cutting and
roughening of 2000 units per year. The plant needs vehicles (one pick-up and one mini-
truck) for transportation of finished product and for office activities. The total cost of the
vehicles is estimated at Birr 620,000.
The estimated cost of acquiring the machinery and equipment is also given in Table 5.1.
MACHINERY AND EQUIPMENT REQUIREMENT AND ESTIMATED COST
Sr. Description Unit Cost (Birr)
1 Buffing, roughening sets 1 45,000
2 Facetor 2 60,000
3 Calibrating machine with wheels 2 54,900
4 Dual edge grinding machine 1 18,300
5 Trim saw 2 18,300
6 Gem pack 3 54,900
7 Faceting table 1 3,000
Total Landed Cost 254,400
2. Land, Building and Civil Works
The plant requires a total of 1,000 m2 area of land out of which 600 m2 is built-up area,
which includes Processing area, raw material stock area, offices etc. Assuming
construction rate of Birr 2500 per m2, the total cost of construction is estimated to be Birr
1.5 million. The total cost, for a period of 80 years with cost of Birr 1 per m 2, is
estimated at Birr 1,000. The total investment cost for land, building and civil works is
estimated at Birr 1,501,000.
3. Proposed Location
According to the resource potential study of the region, the raw material is identified in
Bakogazer and Konso Special woredas. Based on the availability of raw material
infrastructure, utility and market outlet Karat town of Konso Special woreda is selected
and recommended to be the location of the envisaged plant.
VI. MANPOWER AND TRAINING REQUIREMENT
A. MANPOWER REQUIREMENT
The manpower requirement of the plant at full capacity operation and the estimated
annual cost of labour including the fringe benefits are given in Table 6.1.
B. TRAINING REQUIREMENT
The production supervisor, the shift leader and six operators should be given a two weeks
on-the-job training by an advanced technician of the equipment supplier during
commissioning. The training cost is estimated at Birr 25,000.
MANPOWER REQUIREMENT AND ESTIMATED LABOUR COST
Sr. No. of Salary ( Birr)
No Job Title Persons Monthly Annual
1 General manager 1 1,800 21,600
2 Secretary 1 700 8,400
3 Finance Head 1 1,500 18,000
4 Accountant 1 600 7,200
5 Cashier 1 450 5,400
6 Commercial head 1 1,500 18,000
7 Purchasor 1 450 5,400
8 Sales man 1 450 5,400
9 Store keeper 1 450 5,400
10 Supervisor 1 800 9,600
11 Shift leader 1 700 8,400
12 Operator 6 400 28,800
13 Labourer 3 150 5,400
14 Driver 2 300 7,200
15 Guard 3 150 5,400
Sub total 25 13,300 159,600
Employees' benefit (20% of 2,660 31,920
Total 25 15,960 191,520
VII. FINANCIAL ANALYSIS
The financial analysis of the grain grinding stone 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 3 years
Bank interest 8%
Discount cash flow 8.5%
Accounts receivable 30 days
Raw material local 30days
Work in progress 2 days
Finished products 30 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 2.9
million, of which 36 per cent will be required in foreign currency.
The major breakdown of the total initial investment cost is shown in Table 7.1.
INITIAL INVESTMENT COST
Sr. Total Cost
No. Cost Items (‘000 Birr)
1 Land lease value 80.0
2 Building and Civil Work 1,500.0
3 Plant Machinery and Equipment 620.0
4 Office Furniture and Equipment 100.0
5 Vehicle 250.0
6 Pre-production Expenditure* 316.6
7 Working Capital 37.5
Total Investment cost 2,904.2
Foreign Share 36
* N.B Pre-production expenditure includes interest during construction ( Birr 166.63 thousand ) training
(Birr 25 thousand ) and Birr 125 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 918,820 (see
Table 7.2). The material and utility cost accounts for 30.01 per cent, while repair and
maintenance take 28.16 per cent of the production cost.
ANNUAL PRODUCTION COST AT FULL CAPACITY ('000 BIRR)
Items Cost %
Raw Material and Inputs 90.0 9.80
Utilities 185.76 20.22
Maintenance and repair 75 8.16
Labour direct 63.84 6.95
Factory overheads 31.92 3.47
Administration Costs 95.76 10.42
Total Operating Costs 542.28 59.02
Depreciation 231 25.14
Cost of Finance 145.54 15.84
Total Production Cost 918.82 100
C. FINANCIAL EVALUATION
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
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 = 73 %
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 4 years.
4. Internal Rate of Return and Net Present Value
Based on the cash flow statement, the calculated IRR of the project is 28 % and the net
present value at 8.5% discount rate is Birr 2.90 million.
D. ECONOMIC BENEFITS
The project can create employment for 25 persons. In addition to supply of the domestic
needs, the project will generate Birr 1.41 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.