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Pre-Feasibility Study

Cheese

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TABLE OF CONTENTS
Page

1. Introduction 5

2. Products 6-7

3. Process 8-11

4. Raw Material 12-15

5. Recovery Ratio 16

6. Import & Export 17

7. Target Market 18-19

8. Price 20

9. Distribution Network 21

10. Project Location & Facilities 22-23

11. Project Cost and Financial Plan 24

12. Conclusion 25

13. Appendix

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EXECUTVE SUMMARY:

Pakistan is the fifth largest milk producer in the world. Pakistan produced 31.3 million tones
of milk during 2005-06. Out of the total milk produced, 68 per cent is contributed by
buffaloes, 27 per cent by cows and the remaining 5 per cent by sheep, goats and camels. The
Food and Agriculture Organization (FAO) has termed as buffalo as important but „an
undervalued asset‟. To promote the live stock sector, one should add value to the dairy
industry, because milk is the largest and single most important commodity in this sector.

There is an opportunity for a processor to add value to the dairy industry by processing milk
into cheese. Cheese is the product which is widely used in hotels, restaurants, fast food
corners and airlines, shipping lines and households. The food processing industry of
Pakistan is growing roughly 10% to 15% annually. Growing popularity of Western-style
cuisine, increasing urbanization, growing per capita income, and increasing two-income
families are fueling this demand. Local pizza restaurants are opening almost in every corner
of the road, which increases the demand for mozzarella and cheddar cheese, interestingly
local pizza industry uses locally made mozzarella and cheddar cheese (Ratio: 50:50); hence
one can easily find growth potential in the market.

Local demand for cheese has grown in such a way that local manufacturers can‟t meet and
the supply-demand gap is being filled by the imported cheese. Hence, one can capture
certain market share by producing imported quality cheese at a reasonable price.

In recent years, Pakistani market is changing and developing rapidly. Many consumer
products, which were considered luxury items in the past, are being used regularly by a larger
section of the middle and lower income groups i.e. mobile phones and mineral water, cheese
is also becoming part of such items.

Realizing the potential of Pakistani market, foreign companies are starting retail operations
in local market. For example, the German-based Metro Group and Netherlands-based
Makro, wholesalers of food and non-food products are opening their stores in Pakistan and
will offer thousands of products at favorable wholesale prices under one roof. To carry out
their operations, they will require a huge supply chain and they will engage with many
suppliers of different products to satisfy their customers‟ needs, including frozen products.
This process has already begun.

Marketing and the Business Plan:

The marketing plan for cheese necessitates a very carefully orchestrated strategy revolving
around establishing high value institutional clients in all the major cities of the country along
with retail outlets. The reason for soliciting business from institutional clients is of course
cost and repeat orders. Supply in bulk reduces the cost of packing, transportation,
distribution and retail storage (freezers in shops etc). It also facilitates the cash flow
problems, payments collection etc. Moreover once a client is firmly dependant on the
product and recipes are based on the established quality, repeat orders are almost guaranteed.

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The growth rate for cheese consumption in Pakistan can be conservatively estimated at
about 10% a year across all types of consumers. This however is just an estimate as there are
no official figures available. Keeping in mind the economic growth rate of the country, the
increase in disposable income and the up grading of the quality of life, it is felt that
convenience products such as fast food, pre-packed foods are gaining popularity in the
consumption habits of the population. Pakistan‟s food industry is showing phenomenal
growth and cheese, and other items, have great potential.

Financial and infrastructure requirements are the main determinants for successfully
executing this project. If the company has adequate funds to procure milk from reliable
sources, has the required processing and storage capacity, it can earn extra ordinary returns
on his investment by adding value to milk.

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INTRODUCTION:

This pre-feasibility study has been conducted by PAMCO to investigate the possibility of
establishing a commercially viable processing unit by the private sector. The aim of this pre-
feasibility report is to establish the main parameters for conducting a detailed financial
feasibility study with the collaboration of the private sector. PAMCO is soliciting expressions
of interest from the private sector for investment in this project. This report provides a basis
for the private sector to make serious investigation into setting up the project.

Potential investors are invited by PAMCO to open a dialogue with PAMCO for the
preparation of this project feasibility on cost sharing basis. PAMCO is prepared to assist the
private sector in various ways, ranging from financial to non-financial support, in line with
its Business Engagement Policy.

We welcome inquiries from the private sector. PAMCO is ready to provide any assistance
which will enable the private sector to make profitable investments in agribusiness.

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PRODUCTS:
 One of the value added products of milk is cheese. There are approximately more
than 200 varieties of cheese being sold in the Pakistani market. Among them
mozzarella, cheddar and cottage cheese are mostly consumed.

 Cheese is mostly consumed by FMCG restaurants to use in various products like


Pizza, Italian cuisine, Lasagna, Cheese-Sandwich, Shwarma, Cheese-Burger, Cheese-
French fries, Salad and many more food items. Individual households also consume
cheese but their consumption in terms of quantity is lesser.

 Traditionally, buffalo milk is used to make mozzarella cheese and cow‟s milk is used
to make cheddar cheese and cottage cheese. But cheese processors all over the world
use goats‟, sheep, water buffalos‟, cows‟, camels‟, horses‟, reindeers‟, or combination
of these milks to produce any kind of cheese.

 The biggest market for mozzarella cheese is pizza industry. Growing number of
pizza restaurants also increases the demand for mozzarella cheese. A pizza is not a
pizza without a large handful of grated cheese topped and melted onto it. The cheese
of choice is mozzarella, a stringy and sometimes gooey white cheese. Unlike some of
sharper cheeses such as cheddar, mozzarella has enjoyable taste with stringing ability.

 There are two types of mozzarella cheese that are acceptable for pizza:

1. Low moisture, which has a moisture content less than 50%, and
2. High moisture, which has a moisture content of more than 52%.

The low moisture version tends to have a longer shelf life therefore it is found
commonly in the grocery store. The later is more popular for the pizza and
restaurant industry.

 Cheddar is an immensely popular snack cheese; is often served with crackers, apples,
or pears, fruit pies and cobblers; shredded over salads; melted over pizza and omelets;
or nibbled with crusty rye bread.

 Cottage cheese is mostly consumed by households. It is used in salads, with fruits or


as an ingredient in recipes like jello salad, desserts, and sandwiches and in various
dishes. It can also be used to replace grated cheese or ricotta cheese in most recipes
such as lasagna. Cottage cheese is popular for its high content of protein while being
relatively low in fat.

 Recovery Ratio: The yield depends on milk composition and on the moisture
content of the product, but should be at least 1 kg of cottage cheese from 8 liters of
milk (12.5%). To make 1 kg of mozzarella cheese we need 5 kg of milk, hence its

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recovery ratio is about 20%. Similarly, to produce one kg of cheddar cheese 10 liters
of milk is required; therefore its recovery ratio is 10%.
(Source: http://www.britishcheese.com/cmfiles/334/Healthy%20Diet.pdf)

 Ricotta cheese is soft, un-ripened curded cheese. It is the byproduct of whey that
formulates during mozzarella cheese processing. Sweet in flavor and grainy in texture.
Often utilized in Italian sweets and in stuffed in pasta.

 Shelf life:

o Local Cheddar – 6 months shelf life at 4oc (there is no production & expiry date
is written)

o Local Mozzarella – 1 month shelf life at 4oc


6 months shelf life at -18oc to -22oc (in freezer)

o Cottage Cheese: it has a short shelf-life; it can be increased by adding salt or by


reducing the moisture content of the cheese. Storing the product in an air-tight
container also extends storage life.

o Imported Cheese – 6 months shelf life of all cheese types.

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PROCESS:
 The following flowcharts describe the production process of cheddar and
mozzarella and cottage cheese.

Standardize & Pasteurize Milk

Inoculate with Starter & Non-Starter Bacteria


and Ripen

Coagulation (Add Rennet & Form Curd)

Cutting & Heating the Curd

Drain Whey

Cheddaring

Mozzarella Cheese
Cheddar Cheese
Cottage Cheese

Curd Maturation

Stretching

Shaping or “Mozzatura”

Salting

Form Cheese into Blocks

Store & Age (Ripening or Maturation)

Packaging

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 The main ingredient in cheese is milk. Cheese is made using cow, goat, sheep, water
buffalo or a blend of these milks.

 Milk is often standardized before cheese making to optimize the protein to fat ratio
to make a good quality cheese with a high yield. Depending on the desired cheese,
the milk may be pasteurized or mildly heat-treated to reduce the number of spoilage
organisms and improve the environment for the starter cultures to grow.

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 After standardization, milk is transformed into curd, i.e. from a liquid it becomes gel-
like. There are three distinct types of coagulation: by rennet, by acid or mixed (acid
with the addition of a small quantity of rennet). The initial milk acidity, the
temperature, the quantity of rennet used the enzymatic composition of the rennet
and the protein contents of the milk are usually the main factors that influence the
coagulation process.

 The curd is then cut with cheese knives into small pieces. The heating step helps to
separate the whey from the curd. To obtain soft fresh cheese varieties, curd should
have high percentage of water and in case of hard ripe cheese low percentage of
water is required.

 Shaping process is carried out only during the production of stretched curd (“pasta
filata”) cheeses characterized by an “elastic” string curd. The mass is worked into the
desired shape (spherical, spherical with small head, braids, small knots, etc.). Instead,
for all the other types of cheeses, after the breaking and scalding (when necessary),
the curd is put into appropriate moulds where it obtains its final size and shape.

 The cheese can be salted when already dry (the salt is sprinkled directly on the
cheeses) or brined (the cheeses are kept in a salty solution for a period of time that
depends on their weight; usually 12 hours per kilo).

 During the ripening phase the fresh curd becomes matured cheese, for cheddar it
may be three months. The ripening needs an environment with a specific
temperature and humidity. Throughout this resting period, the proteins and the fats
in the curd follow chemical transformations that are responsible for the aromatic
characteristics of the final product.

Flow Chart for the Mechanized Production of Cheddar Cheese

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Flow Chart for the Mechanized Production of Mozzarella Cheese

Flow Chart for the Mechanized Production of Cottage Cheese

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RAW MATERIAL:
 Pakistan is the fifth largest milk producer in the world. In 2003 Pakistan produced 32
million tons of milk, which amounts to 6 percent of the total world milk production.
Put differently, Pakistan produces about 40 and 45 percent of the amount of milk
produced in India and USA, the world‟s largest milk producing countries,
respectively. (Source: http://www.fao.org). See Appendix 2 & 3

 From 1996 to 2002 milk production in Pakistan increased by 17 percent.


Milk production from buffaloes increased by 20 percent while that from
cattle rose by 11 percent. (Source: http://www.fao.org)

 In 2002, Punjab maintains the same 70 percent share of the national milk
production as it had in 1996. (Source: http://www.fao.org)

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 Our average milk production is far below the world average. The productivity is
1,333 liters per animal in our country whereas in the developed world it is 6,000 liters
per animal. (Source: http://www.fao.org)

Where PK: Pakistan, IN: India, DE: Denmark, NZ: New Zealand

Explanations of variables; year and sources of data:

 Milk Production per Country (2002): FAO Statistical database on


March 2003, (http://www.fao.org).  Average Farm Size (2000):
Agriculture Statistics of Pakistan 2000.
 Milk Yields per Dairy Animal (2000): Agriculture Statistics of
Pakistan 2000
 Number of Live Animals (2001): FAO Statistical database on
March 2003, (http://www.fao.org).  Farm Gate Milk Prices
(2002): Strategy Development in Milk Production and
Distribution, 2000  Production per Capita (2001): FAO
Statistical database on March 2003 (http://www.fao.org).

 Milk price can vary from Rs.16 to Rs.35 per liter depending on the location of the
source. The milk prices are higher in the places near to the bigger cities, but lesser in
far flung areas. Consumers pay between Rs.28 to Rs.35 per liter depending on the fat
content of the unprocessed milk in urban areas. Whereas Tetra Pak milk companies
after processing and packaging, sell it around Rs.42 per liter.

 The price of milk increases by one rupee per liter at every stage of sale. The 'dodhees'
generally have undocumented contracts with farmers for regular milk supply. They
pay farmers an average price of Rs.10.74 per kg. Some 'dodhees' have milk storage
and chilling system and transport system. Transportation generally costs Rs.0.50 to
Rs.1.0 per liter. 'Dodhees' make one rupee per liter. (Source: Report of the 'Food Price
Structure Study - Pakistan, commissioned by Consumers International Asia Pacific Office)

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 Annual milk production of cows increased from 9.36 billion liters in 1996 to
13.33 billion liters in 2006, showing an impressive increase of 42.4 percent.
Gross annual milk production of buffaloes jumped from 18.90 billion liters in
1996 to 25.04 billion liters in 2006, with growth pegged at 32.5 percent. Overall,
the milk production has increased by 35.6 percent in 2006 over 1996. The share
of buffaloes in total milk production stood at 64.7 percent followed by cows 34.5
percent and goats by 0.8 percent in 2006. (Source: Economic Survey 2006-07)

Source: Economic Survey 2006-07

Livestock Population:

Source: Economic Survey 2006-07

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 The population of cattle registered a significant increase of 45 percent in 2006
when compared with 1996 while it was 16 percent higher in 1996 over 1986. The
other major animals which posted impressive increase include buffaloes and
goats with 35 percent and 31 percent higher in 2006 over 1996. Number of other
animals like asses, mules, sheep, camels and horses increased by 20 percent, 18
percent, 13 percent, 13 percent and 3 percent, respectively in 2006 when
compared with 1996 and it was higher by 91 percent, 19 percent, 1.0 percent and
lower by 15 percent and 14 percent for mules, asses, sheep camels and horses
respectively in 1996 over 1986. See Appendix- 5

Buffaloes Population

30

25
Population (Qty)

20

15

10

0
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007*

Buffaloes 17.8 18.3 18.7 19.2 19.7 20.3 20.8 21.4 22 22.7 23.3 24 24.8 25.5 26.3 28.4 27.3
Year
Source: Economic Survey 2006-07

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RECOVERY RATIO:
 The following graph shows the recovery ratio of different Cheeses. The top portion
of these bars shows wastage and bottom portion shows recovery ratios.

 To make 1 kg of mozzarella cheese we need 5 kg of milk, hence its recovery ratio is


about 20%. Similarly, to produce one kg of cheddar cheese 10 liters of milk is
required; therefore its recovery ratio is 10% and at least 1 kg of cottage cheese from
8 liters of milk (12.5%).
(Source: http://www.britishcheese.com/cmfiles/334/Healthy%20Diet.pdf)

Recovery Ratio (%)

120%

100%

Ratio 80%

%
60%

40%

20%

0%
Mozzarella Cheddar Cottage
Wastage Ratio 80% 90% 87.5%
Recovery Ratio 20% 10% 12.5%

Cheese

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IMPORTS & EXPORTS:
 Egypt, France, Australia and New Zealand are the main supplier of Cheese to
Pakistan. Other importers are Austria, Denmark, UK, USA, UAE, China, Saudi
Arabia etc.
(Source: Custom)
Pakistan Import_Value PKR' 000
a
406-1010 406-1090a 406-2000 b 406-3000 c 406-9000 d Total
2004 8,220 8,220
2005 207,820 14,789 26,341 1,276,806 3,189,048 4,714,805
2006 620,987 7,440 56,207 1,663,311 1,393,703 3,741,649
2007 1,560,473 1,073 12,143 134,773 895,422 2,603,885
Total 2,397,500 23,303 94,691 3,074,890 5,478,174 11,068,559
a Fresh (unripened/uncured) cheese, incl. whey cheese, & curd
b Grated/powdered cheese, of all kinds
c Processed cheese, not grated/powdered
d Cheese (excl. of 0406.10-0406.40)

(Source: Custom)
Pakistan Import_Qty (Kg)
406-1010 a 406-1090 a
406-2000 b 406-3000 c 406-9000 d Total
2004 906 906
2005 21,509 2,367 5,900 565,219 233,727 828,722
2006 91,887 1,301 6,910 535,278 125,177 760,553
2007 126,802 290 2,400 17,614 86,500 233,606
Total 241,104 3,958 15,210 1,118,112 445,404 1,823,787

WORLD IMPORTS & EXPORTS:

Trend of world cheese imports & exports from the years 2003 to 2006 is shown below:
(Source: http://comtrade.un.org)

World Import
Period Trade Value
2006 $14,867,974,635
2005 $15,746,477,055
2004 $15,164,929,762
2003 $12,867,004,747
World Exports
Period Trade Value
2006 $16,822,483,224
2005 $16,836,602,374
2004 $15,813,461,384
2003 $13,500,015,732

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TARGET MARKETS:
The producer of Cheese can target both local as well as export markets. Local market is
growing market as demographic conditions are changing.

Local Market:

 There is only one company in Pakistan Adam‟s Milk Foods (Pvt.) Ltd. which is
producing Mozzarella cheese and selling it locally. Amson‟s is a co-brand of the same
company. There are also other suppliers who import Mozzarella and other kinds of
cheese to satisfy the local market needs, for example: Makro. The size of local
market is growing due to changing eating habits, increasing per capita income, and
growing number of two-income families.

 Haleeb foods has just entered into cheese business from May 2007. Vital 3 is the
right combination of calcium, protein and vitamins in Haleeb cheddar cheese; and
for the first time in Pakistan, it is also offered in a customized 2 slices pack. The
product is sealed and packed in air-tight packaging, which keeps the product fresh
and tasty.

 Noon Pakistan Ltd commenced its operation in June 1972 and its products namely;
milk powder, butter and cheese are marketed throughout Pakistan under the brand
name of "Nurpur". Noon Pak is currently into cheddar and cottage cheese only and
planning to produce mozzarella cheese soon.

 Al Marai, Arla, Monte Christo, Happy Cow, Kraft, Puck and many more imported
brands which capture major share of Pakistani Cheese market.

 A Cheese processor can target institutional clients like hotels, restaurants, airlines and
shipping lines. Imported cheese is sold at premium price in local market because of
low competition but a local supplier faces difficulty in serving this market due to
poor infrastructure.

 The consumption of Cheese is directly related to the degree of economic


development in a country and in Pakistan per capita income has reached $847 in
2004-05. As the country becomes wealthier, the demand for value-added agriculture
products will increase.

 In recent years, Pakistani market is changing and developing rapidly. Many consumer
products, which were considered luxury items in the past, are being used regularly by
a larger section of the middle and lower income groups i.e. mobile phones and
mineral water, cheese is also becoming part of such items.

 Realizing the potential of Pakistani market, foreign companies are starting retail
operations in local market. For example, the German-based Metro Group and

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Netherlands-based Makro, wholesalers of food and non-food products are opening
their stores in Pakistan and will offer thousands of products at favorable wholesale
prices under one roof. To carry out their operations, they will require a huge supply
chain and they will engage with many suppliers of different products to satisfy their
customers‟ needs, including frozen products. This process has already begun.

Export Market:

 The global export market of Cheese is more than $62 billion. USA and European
countries are biggest importers and exporters of Cheese. Among them Germany and
Italy are one of the largest markets.
(Source: http://comtrade.un.org)

Top World Importers in Years 2003-06


Reporter Title Trade Value
Germany $10,021,778,000
Italy $6,035,439,668
United Kingdom $5,866,312,595
Belgium $4,100,813,713
USA $4,086,107,547
Other reporters $28,535,934,676
Total Import: $58,646,386,199

Top World Exporters in Years 2003-06


Reporter Title Trade Value
France $10,683,138,438
Germany $10,126,585,000
Netherlands $9,286,436,266
Italy $5,666,364,921
Denmark $4,636,975,813
Other reporters $22,573,062,276
Total Export: $62,972,562,714

 Middle East and Far East countries offer many opportunities to Pakistani exporters
of Cheese because the demand of Cheese is increasing due to growing tourism and
economic activities in these countries. These markets are currently being supplied by
the European producers.

 Despite a well established cheese market in the above countries, there is still space
for more products to be introduced. The Middle East is especially attractive due to
the large Pakistani population who buy products both in the high end and low end
markets.

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PRICE:
Brands Wholesale Price Quantity
Imported Brands Rs. (Grams)
Arla
Shredded Mozzarella cheese 140 200
Danish Mozzarella cheese 128 200

Monte Christo
Danish Mozzarella cheese 220 200
Cheddar cheese 332 230

Almarai
Shredded Mozzarella cheese 209 200

Happy Cow
Mozzarella cheese 75 200

Local Brands
Eden
Eden's Cheddar 136 453
Cheddar Block 414 2000
Danish Mozzarella 737 2000
Mozzarella cheese 629 2000

Adam's
Mozzarella singles 89 200
Extra light 89 200
Mozzarella cheese 73 227
Mozzarella cheese 133 453
Pizza Cheese 168 453

Haleeb
Cheddar Vital 3 33 100
Cheddar Vital 3 216 900

NurPur
Processed cheddar cheese 61 225
Processed cheddar cheese 71 227
Cottage Cheese 45 200

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DISTRIBUTION NETWORK:
Unprocessed milk in urban areas passes through the middlemen before it reaches the urban
retailer. The urban retailers deliver milk door to door, by motorbike or sell it in a shop to
consumers.
Dairy companies are also part of the marketing structure. Small local companies have milk
supply contracts with 'dodhees'. They have milk storage, chilling and UHT treatment
facilities and have network of milk shops in the cities.
Nestle, for example has improved its supply system by setting 'Village Milk Centers' (VCMs)
where they collect milk directly from farmers or from 'dodhees'. Large dairy companies
produce UHT milk in paper cartons and make other products like infant formula, milk
cereals for babies, flavored milk drinks, yoghurt, cream, etc.
Farmers are forced to sell milk for cash income. But the market forces operating in a totally
unregulated environment are exploiting the poor farmers by offering low prices for their
produce. There is also no restriction on the quantity of milk that a company can collect from
an area.
Source: Report of the 'Food Price Structure Study - Pakistan, commissioned by Consumers
International Asia Pacific Office

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PROJECT LOCATION & FACILITIES:
Location:

The success of any project depends on its strategic location. The surrounding area of Lahore
will be an ideal location for this project as far as transportation cost of final product is
concerned. Firstly, it is the target area where we sell our product and there would be no
difficulty in the shipment of the final product. Secondly, Lahore is the second largest
consumers market in the country. Plus many other major cities are located only a couple of
hours drive from this city.

But the disadvantage of being located in the city is the high price of the raw material i.e.,
milk. But if a processor move to the far flung areas of Punjab, then it may get raw material at
cheaper rates, but the transportation cost would increase on the other hand.

Raw Material Requirements & Margin:

Total sale price per kg of all three cheese varieties will be approximately Rs.865 against total
raw material cost of Rs.598. Therefore, a processor will have a margin of 46.82% to cover its
other costs and make an attractive profit.

Milk Qty Avg. Milk Price Total Milk Recovery Cheese


Name
(Liters)* PKR/Liter Cost** Ratio Price/Kg
Mozzarella 5 20 100 20% 295
Cheddar 10 20 200 10% 270
Cottage 8 20 160 12.5% 300
Total 23 460 865
* Milk Required to Produce 1 Kg of Cheese
** Total Milk Cost to Produce 1 Kg of Cheese

There are different scenarios in which raw material price varies between Rs.16 to 24 and its
impact on the sales margin mentioned below. A mozzarella cheese producer will have
average margin of 66% to cover its other costs and make an attractive profit.

Mozzarella Cheese
Milk Qty Avg. Milk Price Total Milk Cheese Margin Margin
(Liters)* PKR/Liter Cost** Price/Kg %
5 16 80 295 215 73%
5 18 90 295 205 69%
5 20 100 295 195 66%
5 22 110 295 185 63%
5 24 120 295 175 59%
Total 25 500 1,475 975
* Milk Required to Produce 1 Kg of Cheese
** Total Milk Cost to Produce 1 Kg of Cheese

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If a processor wants to produce cheddar cheese only, it will have average margin of 36% to
cover its other costs and make an attractive profit.

Cheddar Cheese
Milk Qty Avg. Milk Price Total Milk Cheese Margin Margin
(Liters)* PKR/Liter Cost** Price/Kg %
10 16 160 280 120 43%
10 18 180 280 100 36%
10 20 200 280 80 29%
10 22 220 280 60 21%
10 24 240 280 40 14%
Total 50 1,000 1,400 400
* Milk Required to Produce 1 Kg of Cheese
** Total Milk Cost to Produce 1 Kg of Cheese

A cottage cheese producer will have an average margin of 47% to cover its other costs and
make an attractive profit.

Cottage Cheese
Milk Qty Avg. Milk Price Total Milk Cheese Margin Margin
(Liters)* PKR/Liter Cost** Price/Kg %
8 16 128 300 172 57%
8 18 144 300 156 52%
8 20 160 300 140 47%
8 22 176 300 124 41%
8 24 192 300 108 36%
Total 40 800 1,500 700
* Milk Required to Produce 1 Kg of Cheese
** Total Milk Cost to Produce 1 Kg of Cheese

Note: All cheese prices per kg are approximate.

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PROJECT COST AND FINANCIAL PLAN:
Particulars Rs. ‘000

PROJECT COST

Land cost 4000


Building and civil work 46,959
Imported equipment 195,776
Import cost 15,662
Local equipment 109,375
Erection and Installation Cost 4,600
Vehicles 19,100
Office Equipment 3,100
Furniture and Fixtures 2,000
Pre-operating expenses 15,000
Cost Escalation 11,897
Contingencies 7,931

Total Fixed Cost 435,400

Initial Working Capital 73,324

Total Project Cost 508,724

FINANCIAL PLAN

Capital 508,724

Total Funds 508,724

a. 4 acres of land will be acquired at the rate of Rs. 1 million per acre;

b. Building and civil work cost per m2 is different for different type of civil work.

c. Imported equipment cost also includes additional cost for cheddaring, whey process line
laboratories equipments;

d. Pre-operating expenses have been estimated for costs to be incurred during establishment
period of the project and includes incorporation expenses and management expenses; and

e. Cost escalation has been taken as 2% of the project cost while contingencies as 3% of the
project cost.

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CONCLUSION:
 The food processing industry of Pakistan is growing roughly 10% to 15% annually.
Growing popularity of Western-style cuisine, increasing urbanization, growing per
capita income, and increasing two-income families are fueling this demand. Local
pizza restaurants are opening almost in every corner of the road, which increases the
demand for mozzarella and cheddar cheese, interestingly local pizza industry uses
locally made mozzarella and cheddar cheese (Ratio: 50:50); hence one can find
growth potential in the market.

 Local demand for mozzarella and cheddar cheese has grown in such a way that local
manufacturers can‟t meet and the supply-demand gap is being filled by the imported
cheese. Hence, one can capture certain market share by producing imported quality
cheese at a reasonable price.

 This is an excellent time to enter into cheese market. Local market is developing
rapidly and demand for fast food is increasing due to growing per capita income, and
increasing number of two-income families. To satisfy the growing demand, many
foreign companies are establishing their huge retail stores in Pakistan. For example,
each outlet of Makro would have approximately 100,000 square feet of sales area and
these mega stores are going to attract a large number of consumers.

 Presence of foreign whole sellers in local market will expand our consumer market
by many folds. In our country, there is limited number of cheese producers specially
producers of Mozzarella and Cottage cheese. This situation presents a golden
opportunity for new food processors to enter into a rapidly developing consumer
market and position themselves carefully as a supplier of quality cheese while the
competition is low.

 B2B Marketing should be the main focus for Pakistani business for successful
penetration in the international market. Successful, profitable and self-sustaining
food-processing industry cannot be based on the occasional marketing campaign. It
requires aggressive and steady marketing efforts to establish a presence in the
international commodity markets. New suppliers who want to break into the
international market have to introduce products that are of good quality, well-
packaged and competitively priced.

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APPENDICES:
Appendix-1:
Brands Wholesale Price Qty
Rs. (Grams)
KRAFT
cream cheese spread original 87.50 140
cream cheese spread original 124.99 240
cream cheese spread original 220 500
cream cheese spread original 679 910
cream cheese spread white 87.50 140
Philadelphia light spreadable cheese 200 225
Philadelphia spreadable cheese 200 221

PUCK
cream cheese spread 80 140
cream cheese spread 129 240
cream cheese spread (cheddar taste) 246 500
cream cheese spread (cheddar taste) 246 500
cream cheese spread (cheddar taste) 399 910
cream cheese 119 200
white cream cheese(cheddar taste) 129 240
white cream cheese(cheddar taste) 398 500
spreadable Danish white cheese 154 200
Danish Feta cheese 188 500
Danish Feta cheese (in oil & Spices) 222 150

Arla
Danish camembert cheese 160 125
Danish Brie cheese 170 125
Danish Brie cheese 170 125
Kids sticks 91 18
Blue cheese 96 100
Danish Hav arti 207 200
Shredded Mozzarella cheese 140 200
Mozzarella cheese 128 200

Frico
Red hot cheese (spicy with chili n pepper) 224 150
Edam Classic 203 150
Maasdam Delice 203 150
Gouda Fordant 203 150
Smoked processed cheese 222 200
Edam mild 462 235
Red hot Dutch (original Dutch spicy cheese) 272 235
Herbey Dutch 302 235

Monte Christo
Mozzarella cheese 220 200
Cheddar cheese 332 230

Almarai
White cream cheese 158 140
Shredded Mozzarella cheese 209 200
Almarai tin 181 200

Eden
Eden's Cheddar 136 453
Mascarpone cheese 761 500
Cheddar Block 414 2000
Danish Mozzarella 737 2000
Mozzarella cheese 629 2000

Happy Cow 128 340

Adam's
onion pepper singles 89 200
Mozzarella singles 89 200
Extra light 89 200
Chilli cheese 63 227
Adam's tin 42 340
Mozzarella cheese 73 227
Mozzarella cheese 133 453
Pizza Cheese 168 453

Haleeb
Cheddar Vital 3 33 100
Cheddar Vital 3 216 900

NurPur
Processed cheddar cheese 61 225
Processed cheddar cheese 71 227

President cheese (% portions) 37 120

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Appendix-2:

Appendix-3:

Source: Where PK: Pakistan, IN: India, DE: Denmark, NZ: New Zealand

Explanations of variables; year and sources of data:

 Milk Production per Country (2002): FAO Statistical database on March 2003,
(http://www.fao.org).  Average Farm Size (2000): Agriculture Statistics of Pakistan
2000.
 Milk Yields per Dairy Animal (2000): Agriculture Statistics of Pakistan 2000
 Number of Live Animals (2001): FAO Statistical database on March 2003,
(http://www.fao.org).  Farm Gate Milk Prices (2002): Strategy Development in
Milk Production and Distribution, 2000  Production per Capita (2001): FAO
Statistical database on March 2003 (http://www.fao.org).

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Appendix-4:

Source: Where PK: Pakistan, IN: India, DE: Denmark, NZ: New Zealand

Explanations of variables; year and sources of data:

 Milk Production per Country (2002): FAO Statistical database on March 2003,
(http://www.fao.org).  Average Farm Size (2000): Agriculture Statistics of Pakistan
2000.
 Milk Yields per Dairy Animal (2000): Agriculture Statistics of Pakistan 2000
 Number of Live Animals (2001): FAO Statistical database on March 2003,
(http://www.fao.org).  Farm Gate Milk Prices (2002): Strategy Development in
Milk Production and Distribution, 2000  Production per Capita (2001): FAO
Statistical database on March 2003 (http://www.fao.org).

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Appendix-5:

Livestock Population:

Source: Economic Survey 2006-07

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