FEASIBILITY STUDY ON THE ESTABLISHMENT OF ATCHUETE THRESHER & PROCESSING CENTER IN ABRA

Engr. LEONELL P. LIJAUCO

Agricultural and BioProcess Division Institute of Agricultural Engineering College of Engineering and Agro-Industrial Technology University of the Philippines Los Baos

E. V. CASAS Consultant Submitted to: CORDILLERA HIGHLAND AGRICULTURAL RESOURCES MANAGEMENT PROJECT (CHARMP) DEPARTMENT OF AGRICULTURE CORDILLERA ADMINISTRATIVE REGION FIELD UNIT Guisad, La Trinidad, Benguet

TABLE OF CONTENTS Page

List of tables List of figures List of appendices Executive summary Chapter 1 Introduction 1.1 Rationale 1.2 Objectives 1.2.1 General 1.2.2 Specific 1.3 Methodology 1.3.1 Phase 1: Situational analysis 1.3.2 Phase 2: Project formulation and feasibility study Market aspect Technical aspect Economic aspect Financial aspects Managerial aspects Social aspects Environmental aspects Chapter 2 Situational analysis 2.1 Study area 2.2 Profile of respondents 2.3 Production potential 2.4 Production performance 2.5 Postproduction performance Threshing and cleaning Drying practices Storage practices Trading practices Price differentials for wet & dry achuete Methods of delivery to buyer 2.6 Market of achuete Achuete market performance Storage and marketing system Chapter 3 Market study 3.1 Description of target market 3.2 Current producers and capacities catering to target market 3.3 Supply growth rate based on historical data 3.4 Projected increase in supply 3.5 Current product user and consumption levels in target market 3.6 Factors contributing to projected demand increase/decrease 3.7 Supply-demand gap analysis 3.8 Competitiveness of the product in the target market 3.9 Planned product packaging & distribution strategy iv v vi vii 1

3 4 5

12

13 23 31

37

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Chapter 4 Technical study 4.1 Location of the project 4.2 Description of the production process/technology 4.3 Production facility 4.4 Production scheduling and quantity projections 4.5 Production strategy to ensure quantity and quality 4.6 Product specifications Chapter 5 Managerial and administrative study 5.1 Description of the project and organizational structure 5.2 Job requirements, personnel plantilla, salaries and benefits 5.3 Analysis of manpower availability Chapter 6 Financial Aspects 6.1 Basic assumptions 6.2 Major assumptions 6.3 Investment financing 6.4 Total investment requirement 6.5 Financial projections 6.6 Financial analysis 6.7 Sensitivity analysis Chapter 7 Social and economic desirability 7.1 Employment generation 7.2 Income generation to the community 7.3 Benefits offered to atchuete users 7.4 Contribution to national economy 7.5 Atchuete as traditional medicine 7.6 Related industries Chapter 8 Environmental aspects 8.1 Impacts on soil 8.2 Impacts on water 8.3 Impacts on the inhabitants and animals

41

46 50

52

55 59 61 85

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List of tables Page Table 2.2 Profile of respondents in study area 9 Table 2.3 Production potential of respondents in study areas 10 Table 2.4 Production performance 13 Table 2.5 Postproduction operations and management 15 Table 2.6.1 Profile of respondents in the atchuete market 23 Table 2.6.2 Market performance of respondents 27 Table 3.1 Atchuete production by province and region, 1990-2001 32 Table 3.5 Area planted, bearing and non-bearing trees and yield 35 In Abra Table 3.7 Supply of annatto and natural colors to US, 1994-1998 37 Table 3.9 Activities and fees 40 Table 4.1 Projected production of atchuete technology 42 Table 6.41 Total investment requirement for Option 1 57 Table 6.4.2 Total investment requirement for Option 2 58 Table 6.4.3 Total investment requirement for Option 3 59 Table 6.5.1.1 Schedule of depreciation for Option 1 62 Table 6.5.1.2 Schedule of amortization of loaned amount 63 Table 6.5.1.3 Schedule of costs of goods manufactured 64 Table 6.5.1.4 Schedule of operating expenses 65 Table 6.5.1.5 Projected cash flow statement 68 Table 6.5.1.6 Net present value and internal rate of return 69 Table 6.5.1.7 Projected income statement 70 Table 6.5.1.8 Sensitivity analysis 71 Table 6.5.2.1 Schedule of depreciation Option 2 72 Table 6.5.2.2 Schedule of amortization, Option 2 75 Table 6.2.2.3 Schedule of costs of goods manufactured, Option 2 74 Table 6.5.2.4 Schedule of operating expenses, Option 2 75 Table 6.5.2.5 Projected cash flow statement, Option 2 76 Table 6.5.2.6 Net present value and internal rate of return, Option 2 77 Table 6.5.2.7 Projected income statement, Option 2 78 Table 6.5.2.8 Sensitivity analysis, Option 2 79 Table 6.5.3.1 Schedule of depreciation, Option 3 80 Table 6.5.3.2 Schedule of costs of processed products, Option 3 81 Table 6.5.3.3 Projected cash flow statement, Option 3 82 Table 6.5.3.4 Net present value and IRR, Option 3 83 Table 6.5.3.5 Projected income statement 84

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List of Figures Page Figure 2.2.1 Map of Abra showing study areas 8 Figure 2.5.1 Typical storage house for grains 18 Figure 3.3.1 Achuete production in the Philippines, regions 1, 2 and 32 CAR, 1990-2001 Figure 3.4.1 Projected production of achuete by 2001 in 34 The Philippines Figure 4.1 Achuete post harvest processing technology 43 Figure 4.2 Flatbed dryer 44 Figure 4.3 Achuete threshing machine 45 Figure 4.4 Achuete grading machine 46 Figure 4.5 Equipment layout 48 Figure 4.6 Building layout 49

List of Appendices Page

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EXECUTIVE SUMMARY
The results indicated the potentials for atchuete thresher and processing facilities. The study made a technical, institutional, financial, market and environmental feasibility of establishing atchuete thresher and processing facilities in Abra. Three (3) municipalities of Abra were selected as project sites (survey areas) for the atchuete thresher and processing center study. PROFILE OF THE RESPONDENTS More farmers in Sallapadan and Boliney were producing and selling dried atchuete higher than 30 kg (67 and 68%, respectively) than farmers in Bucloc selling with 48% responding. No farmers in Boliney produced atchuete lower than 10 kg per cropping season. PRODUCTION PERFORMANCE Respondents in all towns revealed that atchuete is planted at 0 -.4 hectare farms according to 37%, followed by 26% respondents with 1.01.4 hectares planted to atchuete (Table 2.4). More of the farmers (39%) have 1.0-1.4 hectares of land devoted to growing atchuete. Planting Farmers do not employ intensive management practices in most atchuete farms (79%) in the study area. In Bucloc, most farmers stacked atchuete before threshing on field plots (61%) and backyard (39%). Drying Practices After threshing, drying atchuete is practiced (37%) if the product is for home use or for selling (32%). Drying cost is not fully estimated by the respondents (89%) though some indicated 2.00 per kg of dried atchuete and 100 per day.

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Price differentials for wet and dry atchuete Respondents in all sites rarely think that price differentials between wet and dry atchuete exist with the rest thinking other wise or no answer. One respondent thinks price differs by about 25 per kilo. The most preferred sellers are farmers and middleman. MARKET OF ATCHUETE Restaurant owners and atchuete processor in the study areas do not buy wet atchuete from the farmers. Middleman, restaurant owners and atchuete processors were buying dried atchuete higher than 51 kg than one restaurant owner with 1 responding. Respondents from the intermediary have gross sales of dried atchuete at 26-50 and 51-75 per cropping season (25% and 75%, respectively). Atchuete processors sell at 26-50 and 76-100 (both 50%) per cropping season. Drying Practices among buyers After buying/procuring, drying atchuete is practiced if the product is slightly wet or wet. Drying period lasts from 9-16 hours (the middleman respondent). Middleman (12.5%) and atchuete processor (50%) spent 100 per day for drying cost. Storage and Marketing System Most middlemen, restaurant owners and atchuete processor use bag storage. The middleman normally sells dried atchuete products to restaurant owners with the farmers as main source. Atchuete processor procured dried atchuete from the middleman and farmers. Middlemen and farmers are coming from Bucloc, PROJECTED INCREASE IN SUPPLY Local markets shall increase by more than 140% in the next 10 years if farmers develop more areas for production such as in the Proposed Project. On the other hand, foreign supply will also increase by 20 to 30% due to increasing demand by the food, pain and textile industries. The current users of the proposed atchuete processing center are the atchuete farmers in Abra province and nearby regions like Ilocos and Cagayan.

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FACTORS CONTRIBUTING DECREASE

TO

PROJECTED

DEMAND

INCREASE/

By enlarge the demand for atchuete and atchuete products will continue to increase due to the following global shift from chemical to natural coloring that are important ingredient in the food, paint, cosmetics, pharmaceutical and textile industries. TECHNICAL STUDY Atchuete processing centers can be established anywhere to protect the harvests. The proposed project for atchuete post harvest processing plant shall produce good quality atchuete seeds. The atchuete products shall be packed in plastic sacks. A processing fee of 18.00 per kilogram shall be charged if the farmer for processing only brings atchuete (Option 1). In addition, 120.00 per kilogram if atchuete is bought processed and marketed by the cooperative (Option 2). Option 3 can be started immediately during the initial stage of Options 1 and 2. Threshing fee can be pegged at 1.00 per kilogram cleaned atchuete. MANAGEMENT STUDY A cooperative shall be established to manage the Project. The Board of Directors of the Atchuete Cooperative shall manage the proposed atchuete thresher and processing center. INVESTMENT FINANCING The proposed Project can be financed any government or private financing institutions. Preferably, the study can be considered by the Land Bank of the Philippines (LBP) or the National Agriculture and Fishery Council (NAFC). TOTAL INVESTMENT REQUIREMENT Atchuete Processing Alone (Option 1) Atchuete Buying, Processing and Marketing (Option 2) Threshing and grading operation (Option 3) FINANCIAL ANALYSIS Atchuete Processing Alone (Option 1) The Internal Rate of Return of the proposed project is 165 percent. The unit cost (per kilogram) of processed atchuete products is 18.00. Atchuete Buying, Processing and Marketing (Option 2) 2,357,588.20 27,557,588.20 230,000.00

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For atchuete buying, processing and marketing, the Internal Rate of Return is 106 percent. The unit cost (per kilogram) of selling atchuete products is 120.00. Achuete Threshing and grading operation (Option 3) Operating the thresher in each town and a grader will result in IRR of 106 percent. Threshing fee can be set at 1.00 per kg cleaned atchuete seeds. SOCIO-ECONOMIC AND ENVIRONMENTAL BENEFITS The proposed processing center shall produce high quality atchuete products that are more acceptable than the existing atchuete products in the market, and can result in faster selling out of the products. The proposed project will compliment the planned processing facilities for production of dyes with atchuete as raw material in Tayum, Abra funded by NAFC. The Project will generate employment and income for the community, contribute to global competitiveness thru high quality products that can be exported, and provide sources of traditional medicine to the community. The propagation of atchuete in Boliney, Bucloc and Sallapadan and throughout Abra will contribute to the environmental stability of the area.