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8. PROFILE ON PEA CANNING
TABLE OF CONTENTS
PAGE
I. SUMMARY 8-3
II. PRODUCT DESCRIPTION & APPLICATION 8-3
III. MARKET STUDY AND PLANT CAPACITY 8-4
A. MARKET STUDY 8-4
B. PLANT CAPACITY & PRODUCTION PROGRAMME 8-6
IV. MATERIALS AND INPUTS 8-7
A. RAW MATERIALS 8-7
B. UTILITIES 8-8
V. TECHNOLOGY & ENGINEERING 8-8
A. TECHNOLOGY 8-8
B. ENGINEERING 8-9
VI. MANPOWER & TRAINING REQUIREMENT 8-13
A. MANPOWER REQUIREMENT 8-13
B. TRAINING REQUIREMENT 8-14
VII. FINANCIAL ANLYSIS 8-15
A. TOTAL INITIAL INVESTMENT COST 8-15
B. PRODUCTION COST 8-16
C. FINANCIAL EVALUATION 8-17
D. ECONOMIC BENEFITS 8-18
8-2
I. SUMMARY
This profile envisages the establishment of a plant for pea canning with a capacity of
6,500 tonnes per annum.
The principal raw material required is dried pea, which is found locally.
The present demand for the proposed product is estimated at 4,359 tones per annum. The
demand is expected to reach 8,771 tonnes by the year 2020.
The plant will create employment opportunities for 104 persons.
The total investment requirement is estimated at Birr 18.58 million, out of which Birr
2.77 million is required for plant and machinery.
The project is financially viable with an internal rate of return (IRR) of 17.01% and a net
present value (NPV) of Birr 8.60 million, discounted at 8.5%.
The project will have a backward linkage effect on agriculture. The establishment of such
plant will have a foreign exchange saving by substituting the import. Moreover, there is
also a considerable export potential.
II. PRODUCT DESCRIPTION AND APPLICATION
Preservation of food stuffs has been conceived as an art of living ever since the dawn of
human history. At present, various methods of preserving food can be cited, such as
canning, refrigeration, drying, salt-pickling, sugar preservation and smoking. The scope
of the study is the preservation of dried pea canning from the time it is delivered to the
plant until it arrives at the wholesale customer.
8-3
The protein concentration of peas range is from 15.5-39.7%, which can be consumed in
either roasted, boiled or in any other forms. Dried pea canning is preferred than fresh pea
canning, because of unstable high quality of packing of fresh pea.
III. MARKET STUDY AND PLANT CAPACITY
A. MARKET STUDY
1. Past Supply and Present Demand
The Country's requirement for pea has been met through domestic production and
imports. Fresh and dried peas are the major types of exported peas. On the other hand, the
imported item of peas is preserved or canned pea. Table 3.1 below indicates the quantity
of fresh peas exported and the volume of canned peas imported during the past ten years.
Table 3.1
FRESH PEAS EXPORTED AND CANNED PEAS IMPORTED
Year Exported FreshShelled or Unshelled
Peas In Tones
ImportedCanned (Preserved)
Peas In Tonnes1997 46.3 0.41998 41.5 19.71999 90.2 6.72000 127.7 41.62001 42.2 15.72002 645.6 17.72003 508.9 434.32004 676.6 5136.12005 292.5 2622.8
Average 274.6 921.7
Source: Customs Authority, External Trade Statistics, 1997-2005.
As can be seen from Table 3.1, the country exports fresh peas to the foreign market at the
same time imports processed peas from the international market. Both the volume of the
8-4
export as well as that of the imports shows an increasing trend. The average size of
exported peas during the first five years of the study period (1997-2001) was 70 tonnes.
This figure has significantly grown to an average of 531 tonnes during the last four years
of the study period (2002-2005). Similarly, the average magnitude of imported canned
pea has grown from an average of 17 tonnes during the first five years of the study period
to an average of 2,053 tonnes in the last four years.
This clearly indicates that the demand for canned pea is rising significantly. This rising
demand is supplemented by the availability of enough supply of non canned peas in the
Country. Therefore, there is a favorable condition for the establishment of a pea canning
plant. As canned pea is mostly consumed by urban population, the demand for the
product is influenced by rate of urbanization in particular and also by the rate of
economic growth that has been successively registered by the country since the recent
past. Accordingly, the demand for canned pea is estimated to increase at 6% per annum.
Considering the average imported canned pea during the last two years as the import
demand for the year 2006 and applying a growth rate of 6%, the present demand (2008)
for canned pea is, thus, estimated at 4,359 tonnes.
2. Projected Demand
As stated above, the consumption of canned pea is associated with the rate of
urbanization and the overall economic growth in the country. Considering all the
influencing factors jointly, the future demand for canned peas is estimated to grow at 6%
per year. Accordingly, the projected demand for the product is shown in Table 3.2.
8-5
Table 3.2
PROJECTED DEMAND FOR CANNED PEA (TONNES)
Year ProjectedDemand
2008 4,3592009 4,6202010 4,8982011 5,1922012 5,5032013 5,8332014 6,1832015 6,5542016 6,9482017 7,3642018 7,8062019 8,2752020 8,771
3. Pricing and Distribution
Imported canned pea is currently retailed at Birr 15 – 20 per kg. Assuming the envisaged
plant will produce competitive product and allowing 45 per cent for wholesale and retail
margin, the factory-gate price for the product of the envisaged plant is estimated at Birr
8.25 per kg.
The envisaged plant can use the existing wholesale and retail network, which includes
department stores, merchandise shops and supermarkets to distribute its product.
B. PLANT CAPACITY AND PRODUCTION PROGRAMME
1. Plant Capacity
Based on the above data of demand projection, the annual plant production capacity is set
at 6,500 tones.
8-6
2. Production Programme
The plant is envisaged to operate eight hours per day for 300 days in a year on a single
shift basis. The plant will operate at 75% and 85% capacity in the first and second years,
respectively reaching 100% capacity in the third year of operation. The service
programme is shown in Table 3.3.
Table 3.3
PRODUCTION PROGRAMME
Year 1 2 3Capacity Utilization (%) 75 85 100
Production (tones) 4,875 5,525 6,500
IV. MATERIALS AND INPUT
A. RAW MATERIALS
The major raw materials required for the envisaged plant are dried pea, empty can and
salt. All of the raw materials and inputs required for manufacturing of pea canning are
locally available. The major raw material pea grows in different regions of the country.
The estimated annual raw and auxiliary materials cost at full capacity is about Birr 44.94
million. The list of raw materials requirement is presented in Table 4.1.
T able 4.1
RAW MATERIAL REQUIREMENT AND COST
Sr. No. Material
Qty. (MT)
Unit Cost (Birr) Total Cost ('000 Birr)LC FC LC FC TC
1 Dried Pea 7,150 5,500 - 39,325.0 - 39,325.02 Empty Can 2,248 0.65/can - 1461.2 - 1,461.23 Table Salt 112 1000 - 48.0 - 48.0
4 Packaging Material 483 8.5 - 4,105.5 - 4,105.5
Total 44,940.7 - 44,940.7B. UTILITIES
8-7
The utility required for the plant is electricity, furnace fuel and water. The annual
required amount of utilities along with cost is shown in Table 4.2.
T able 4.2
UTILITY REQUIREMENT AND COST
Sr.
No.Material Qty. (MT)
Unit Cost (Birr) Total Cost (Birr)
LC FC LC FC TC
1 Electricity 569,550KWH 0.4736 - 269,739.88 - 269,739.88
2 Water 20,000m3 3.25 - 65,000.0 - 65,000.0
3 Furnace Fuel 450,000liter 5.84 - 2,628,000.0 - 2,628,000.0
Total 2,962,739.88
V. TECHNOLOGY AND ENGINEERING
A. TECHNOLOGY
1. Process Description
Peas are delivered from the field in trucks. The peas are fed in to an electrically driven
conveyor system that washes, removes vines and leaves, removes ends and cuts the peas
and sorts them by diameter. About ten percent of the water used in this process is lost to
spray and splashes. One quarter of the mass of the peas is removed in this process and
sent to a dairy as feed.
Water packed in the canned peas is not chlorinated. Prior to filling, the peas are weighed.
When there is a direct filling undergoing a salting process in order to preserve the
freshness of the raw materials.
8-8
Before seaming, each can must be weighed in order to prevent shortage of weight. Then
the blanching is performed (Blanching means rapidly heating peas to denatures the
enzymes contribute to loss of color). It is performed using boiling of water or steam,
either in rotating drums or in drench baskets. Then after testing of cans for leakage,
cooling of cans inside the cooling tank, the material is ready for dispatch. The
technological process has no any adverse environmental impact.
2. Sources of Technology
The machinery and equipment required can be obtained from the following company.
1. LAKASHMI INDUSTRIES
59/14, 4th Main Industrial Town
Rajaji nagar, Bangalore-560044
2.NAZEER INDUSTRIES
59/513, Saravanapuram
Rajiv Gandhi Road, chittoor
INDIA
B. ENGINEERING
1. Machinery and Equipment
The list of machinery and equipment is given in Table 5.1. The total machinery and
equipment cost is estimated at Birr 2.8 million, of which Birr 622.20 is in local currency.
8-9
T able 5.1 MACHINERY AND EQUIPMENT REQUIREMENT AND COST
Sr. No.
Description Qty.Cost, 000 Birr
LC FC TC1 Belt Conveyor for peas 1Set - 45.00 45.001 Nobbing and Cutting 1 - 30.00 30.002 Washing Tank 4 48.00 - 48.003 Salt Soaking Tank 4 34.00 - 34.004 Empty Can Conveyor 2 - 54.00 54.005 Packing Conveyor 1 - 75.00 75.006 Table for Balance 2 - 7.00 7.007 Tray 400 - 10.00 10.008 Can Assembling Table 1 0.85 - 0.859 Cooking Box (Steamer) 1 -. 0.25 0.2510 Drainer 2 - 0.25 0.2511 Can Supplying Table 2 1.10 - 1.1012 Rotary Filler 2 - 150.00 150.0013 Vacuum Seamer 2 - 74.00 74.0014 Vacuum Pump 2 - 30.00 30.0015 Can Washer 1 - 1.95 1.9516 Chain hoist with Trolley Rail 1 - 85.00 85.00
17Clutch Door Type Horizontal retort
5 - 67.50 67.50
18 Basket Cooler 50 - 280.00 280.0019 Jacketed Steam Kettle 3 - 4.50 4.5020 Stainless Tank 2 - 30.00 30.0021 Gear Pump 1 - 27.00 27.0022 Balance 20 - 60.00 60.0023 Seaming Micrometer 2 - 0.70 0.7024 Seaming Wire Gauge 2 - 0.36 0.3625 Seaming Scale 2 - 10.00 10.0026 Seam Band Saw Frame 2 - 0.15 0.1527 Seam Band Saw 10 - 0.25 0.2528 Vacuum Can Tester 2 - 15.00 15.0029 Hand Can Tester 2 - 12.00 12.0030 Saccharimeter 2 - 9.00 9.0031 Inspection Bar 2 - 0.60 0.6032 Thermometer 15 - 0.25 0.2533 Salinometer 2 - 0.13 0.1334 Boiler 1 - 1,072.96 1,072.96
Sub Total 83.95 2,152.85 2,236.80Insurance, Custom duty, Inland transport, Bank Charge, etc
538.21 - 538.21
Grand Total 622.16 2152.85 2,775.01
8-10
2. Land, Building and Civil Works
The envisaged plant will require a total land area of 2,500m2 of which 1,000m2 will be
covered by factory and office buildings, stores, etc. Out of the total built up area, 600m 2
will be occupied by production facility, 250m2 by stores for raw material and finished
product and 150 m2 will be occupied by office building. The total cost of building and
civil works at a rate of about Birr 2300 per m2 will be Birr 2.3 million.
According to the Federal Legislation on the Lease Holding of Urban Land (Proclamation
No 272/2002) in principle, urban land permit by lease is on auction or negotiation basis,
however, the time and condition of applying the proclamation shall be determined by the
concerned regional or city government depending on the level of development.
The legislation has also set the maximum on lease period and the payment of lease
prices. The lease period ranges from 99 years for education, cultural research health,
sport, NGO , religious and residential area to 80 years for industry and 70 years for trade
while the lease payment period ranges from 10 years to 60 years based on the towns
grade and type of investment.
Moreover, advance payment of lease based on the type of investment ranges from 5% to
10%.The lease price is payable after the grace period annually. For those that pay the
entire amount of the lease will receive 0.5% discount from the total lease value and those
that pay in installments will be charged interest based on the prevailing interest rate of
banks. Moreover, based on the type of investment, two to seven years grace period shall
also be provided.
However, the Federal Legislation on the Lease Holding of Urban Land apart from setting
the maximum has conferred on regional and city governments the power to issue
regulations on the exact terms based on the development level of each region.
8-11
In Addis Ababa the City’s Land Administration and Development Authority is directly
responsible in dealing with matters concerning land. However, regarding the
manufacturing sector, industrial zone preparation is one of the strategic intervention
measures adopted by the City Administration for the promotion of the sector and all
manufacturing projects are assumed to be located in the developed industrial zones.
Regarding land allocation of industrial zones if the land requirement of the project is
blow 5000 m2 the land lease request is evaluated and decided upon by the Industrial Zone
Development and Coordination Committee of the City’s Investment Authority. However,
if the land request is above 5,000 m2 the request is evaluated by the City’s Investment
Authority and passed with recommendation to the Land Development and
Administration Authority for decision, while the lease price is the same for both cases.
The land lease price in the industrial zones varies from one place to the other. For
example, a land was allocated with a lease price of Birr 284 /m2 in Akakai-Kalti and Birr
341/ m2 in Lebu and recently the city’s Investment Agency has proposed a lease price of
Birr 346 per m2 for all industrial zones.
Accordingly, in order to estimate the land lease cost of the project profiles it is assumed
that all manufacturing projects will be located in the industrial zones. Therefore, for the
this profile since it is a manufacturing project a land lease rate of Birr 346 per m 2 is
adopted.
On the other hand, some of the investment incentives arranged by the Addis Ababa City
Administration on lease payment for industrial projects are granting longer grace period
and extending the lease payment period. The criterions are creation of job opportunity,
foreign exchange saving, investment capital and land utilization tendency etc.
Accordingly, Table 5.2 shows incentives for lease payment.
8-12
Table 5.2
INCENTIVES FOR LEASE PAYMENT OF INDUSTRIAL PROJECTS
Scored pointGrace period
Payment Completion Period
Down Payment
Above 75% 5 Years 30 Years 10%From 50 - 75% 5 Years 28 Years 10%From 25 - 49% 4 Years 25 Years 10%
For the purpose of this project profile the average i.e. five years grace period, 28 years
payment completion period and 10% down payment is used. The period of lease for
industry is 60 years.
Accordingly, the total lease cost, for a period of 60 years with cost of Birr 346 per m2, is
estimated at Birr 51.90 million of which 10% or Birr 5,190,000 will be paid in advance.
The remaining Birr 46.71 million will be paid in equal installments with in 28 years i.e.
Birr 1,668,214 annually.
VI. MANPOWER & TRAINING REQUIREMENT
A. MANPOWER REQUIREMENT
The plant will require 104 workers. The annual labor cost is estimated at Birr 921,600.
The detail breakdown of manpower requirement and annual salary expense is shown in
Table 6.1.
8-13
T able 6.1
MANPOWER REQUIREMENT AND LABOUR COST
Sr.
No.Material
No.
Required
Salary (Birr)
Monthly Annual
1 Plant Manager 1 3000 36,000
2 Secretary 1 900 10,800
3 Finance/Administration 1 2000 24,000
4 Senior Clerical Worker 1 700 8,400
5 Assistant Clerical Worker 2 550 13,200
6 General Service 1 350 4,200
7 Technical and Production Head 1 2,200 26,400
8 Food Technologist 1 1,800 21,600
9 General Mechanic 3 800 28,800
10 Operators 90 550 594,000
11 Driver 2 300 7,200
Sub Total 104 774,600
Employee's Benefits ( 20% of Basic
salary)154,920
Grand Total 104 929,520
B. TRAINING REQUIREMENT
It is suggested to train technical and production head as well as three general mechanics
for a period of one month. The training will be given by the machinery supplier in the
country of the supplier. The cost of the training is estimated at Birr 288,000.
8-14
VII. FINANCIAL ANALYSIS
The financial analysis of the pea canning 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 8.5%
Discount cash flow 8.5%
Accounts receivable 30 days
Raw material local 30 days
Work in progress 1 days
Finished products 10 days
Cash in hand 5 days
Accounts payable 30 days
Repair and maintenance 5% of machinery cost
A. TOTAL INITIAL INVESTMENT COST
The total investment cost of the project including working capital is estimated at Birr
18.58 million, of which 12 per cent will be required in foreign currency.
The major breakdown of the total initial investment cost is shown in Table 7.1.
8-15
Table 7.1
INITIAL INVESTMENT COST ( ‘000 Birr)
Sr.
No.
Cost Items Local Cost
ForeignCost
Total Cost
1 Land lease value 5,190.00 - 5,190.00
2 Building and Civil Work 1,150.00 - 1,150.00
3 Plant Machinery and Equipment 622.16 2,152.85 2,775.01
4 Office Furniture and Equipment 125.00 - 125.00
5 Vehicle 450.00 - 450.00
6 Pre-production Expenditure* 985.19 - 985.19
7 Working Capital 7,904.93 - 7,904.93
Total Investment cost 16,427.28 2,152.85 18,580.13
* N.B Pre-production expenditure includes interest during construction ( 597.19
thousand , training (Birr 288 thousand ) and Birr 100 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 49.96
million (see Table 7.2). The raw material cost accounts for 89.95 per cent of the
production cost. The other major components of the production cost are cost of utility and
depreciation which account for 5.93 % and 1.03 % respectively. The remaining 3.09 % is
the share of repair and maintenance, direct labour and other administration cost.
8-16
Table 7.2
ANNUAL PRODUCTION COST AT FULL CAPACITY ('000 BIRR)
Items Cost %Raw Material and Inputs 44,940.00 89.95Utilities 2,962.74 5.93Maintenance and repair 138.75 0.28Labour direct 464.76 0.93Labour overheads 154.92 0.31Administration Costs 309.84 0.62Land lease cost - -Total Operating Costs 48,971.01 98.02Depreciation 515.10 1.03Cost of Finance 476.43 0.95
Total Production Cost49,962.54 100
C. FINANCIAL EVALUATION
1. Profitability
Based on the projected profit and loss statement, the project will generate a profit through
out its operation life. Annual net profit after tax will grow from Birr 2.3 million to Birr
3.5 million during the life of the project. Moreover, at the end of the project life the
accumulated cash flow amounts to Birr 33.69 million.
2. Ratios
In financial analysis financial ratios and efficiency ratios are used as an index or yardstick
for evaluating the financial position of a firm. It is also an indicator for the strength and
weakness of the firm or a project. Using the year-end balance sheet figures and other
relevant data, the most important ratios such as return on sales which is computed by
8-17
dividing net income by revenue, return on assets ( operating income divided by assets),
return on equity ( net profit divided by equity) and return on total investment ( net profit
plus interest divided by total investment) has been carried out over the period of the
project life and all the results are found to be satisfactory.
3. Break-even Analysis
The break-even analysis establishes a relationship between operation costs and revenues.
It indicates the level at which costs and revenue are in equilibrium. To this end, 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 = 25 %
Sales – Variable Cost
4. Payback Period
The pay back period, also called pay – off period is defined as the period required to
recover the original investment outlay through the accumulated net cash flows earned by
the project. Accordingly, based on the projected cash flow it is estimated that the
project’s initial investment will be fully recovered within 7 years.
5. Internal Rate of Return
The internal rate of return (IRR) is the annualized effective compounded return rate that
can be earned on the invested capital, i.e., the yield on the investment. Put another way,
the internal rate of return for an investment is the discount rate that makes the net present
value of the investment's income stream total to zero. It is an indicator of the efficiency or
quality of an investment. A project is a good investment proposition if its IRR is greater
than the rate of return that could be earned by alternate investments or putting the money
8-18
in a bank account. Accordingly, the IRR of this porject is computed to be 17.01 %
indicating the vaiability of the project.
6. Net Present Value
Net present value (NPV) is defined as the total present ( discounted) value of a time
series of cash flows. NPV aggregates cash flows that occur during different periods of
time during the life of a project in to a common measuring unit i.e. present value. It is a
standard method for using the time value of money to appraise long-term projects. NPV
is an indicator of how much value an investment or project adds to the capital invested. In
principal a project is accepted if the NPV is non-negative.
Accordingly, the net present value of the project at 8.5% discount rate is found to be
Birr 8.60 million which is acceptable.
D. ECONOMIC BENEFITS
The project can create employment for 104 persons. In addition to supply of the
domestic needs, the project will generate Birr 5.94 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. The project will create a back ward linkage effect with
the agricultural sector.
.
8-19