291 .

PROFILE ON PRODUCTION OF RICE STARCH

291-2 TABLE OF CONTENTS

PAGE

I.

SUMMARY

291 - 3

II.

PRODUCT DESCRIPTION & APPLICATION

291 - 3

III.

MARKET STUDY AND PLANT CAPACITY A. MARKET STUDY B. PLANT CAPACITY & PRODUCTION PROGRAMME

291 - 4 291 - 4 291 - 6

IV.

RAW MATERIALS AND INPUTS A. RAW & AUXILIARY MATERIALS B. UTILITIES

291 - 7 291 - 7 291 - 7

V.

TECHNOLOGY & ENGINEERING A. TECHNOLOGY B. ENGINEERING

291 - 8 291 - 8 291 - 8

VI.

MANPOWER & TRAINING REQUIREMENT A. MANPOWER REQUIREMENT B. TRAINING REQUIREMENT

291 - 10 291 - 10 291 - 10

VII.

FINANCIAL ANLYSIS A. TOTAL INITIAL INVESTMENT COST B. PRODUCTION COST C. FINANCIAL EVALUATION D. ECONOMIC BENEFITS

291 - 11 291 - 11 291 - 12 291 - 13 291 - 14

291-3 I. SUMMARY

This profile envisages the establishment of a plant for the production of rice starch with a capacity of 250 tonnes per annum.

The present demand for the proposed product is estimated at 183.02 tonnes per annum. The demand is expected to reach at 504.96 tonnes by the year 2022.

The plant will create employment opportunities for 35 persons.

The total investment requirement is estimated at 6.15 is required for plant and machinery.

Birr 9.23 million, out of which Birr

The project is financially viable with an internal rate of return (IRR) of 14% and a net present value (NPV) of Birr 1.39 million, discounted at 8.5%.

II.

PRODUCT DESCRIPTION AND APPLICATION

Starch is one of the most common substances existing in nature and is the major basic constituent of the average diet. Industrially, its applications are numerous, and it is used in more than 300 modern industries, including the manufacture of textiles, paper, adhesives, insecticides, paints, soaps, explosives, and such derivatives as heat resistant adhesives, nitrostarch, dextrose, glucose and fructose. In recent years such derivatives as heat-resistant adhesives, esters comparable with cellulose esters, carboxylic acids from the oxidation of dextrose, and wetting agents have been produced.

Corn is the leading source of starch both for food and for its use in industries. Wheat, rice, potato, enset and cassava starches also have many of the same applications as cornstarch. Rice starch is particularly preferred for laundry purposes. It is normally prepared from broken white rice.

291-4 III. A. 1. MARKET STUDY AND PLANT CAPACITY MARKET STUDY Past Supply and Present Demand

Rice starch has both domestic and industrial uses. Industrially, its applications are numerous and are used in various modern industries including the manufacturing of textile, paper, adhesives, insecticides paints, soaps, explosives and such derivatives as dextrin and nitro starch. Industries use the product mainly as binding, diluting adhesive, water absorber agent in their production process. The source of supply of starch is local as well as import. However, starch production in the country is insignificant. Currently there is only one privately owned starch production plant from enset. Thus, the countries requirement for rice starch is essentially met through import. However, data on imports of the product is not readily available. Hence, a conservative estimate of 30% of the total imports of starches into the country is used as a proxy in determining the demand for rice starch. Table 3.1 depicts imports of rice starch (i.e. 30% total imports of starch) during 1997-2006. Imports highly fluctuated during the period under reference and averaged at 171 tonnes. Table 3.1 IMPORTS OF RICE STARCH (TONNES) Year Imports 1997 61 1998 42 1999 69 2000 10 2001 111 2002 30 2003 145 2004 143 2005 1006 2006 93 Average 171 Source: Customs Authority, External Trade Statistics, 1997-2006.

291-5 Given the considerable fluctuations in the supply of the product, which comprises of only imports, the average annual supply for the period under reference is considered as the effective demand for the product for the year 2006. Since the consumption of the product is associated mainly with the industrial sector the demand for the product is influenced by developments in the sector. Accordingly, a rate of growth of 7% is adopted in estimating the demand for the product. The present demand for the product (i.e., for 2007) is thus estimated at 183.02 tonnes.

2.

Projected Demand

As stated above, a rate of growth of 7% is used in projecting the demand for rice starch. Table 3.2 depicts the projected demand for the product. Table 3.2 PROJECTED DEMAND FOR RICE STARCH (TONNES) Year 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Projected Demand 183.02 195.83 209.54 224.21 239.90 256.70 274.66 293.89 314.46 336.47 360.03 385.23 412.20 441.05 471.92 504.96

291-6 3. Pricing and Distribution

Based on the CIF price of the external trade statistics for 2006 (the latest data available), and allowing 30% for import duty and other clearing expenses, the factory gate price for the envisaged plant is estimated at Birr 17,161 per tonne.

The plant can directly supply its product to industries. The plant can also appoint agents at selected locations.

B.

PLANT CAPACITY AND PRODUCTION PROGRAM

1.

Plant Capacity

The plant is envisaged to produce 250 ton/year operating 8 hrs per day.

2.

Production Programme

The production programme is shown in Table 3. 3. The production programme is set by considering just 250 working days per annum.

Table 3. 3 PRODUCTION PROGRAMME

Year Capacity utilisation (%) 70

1 80

2 90

4 100

Production programme (tons)

175

200

225

250

291-7 IV. MATERIALS AND INPUTS

A.

RAW MATERIALS

The annual material requirement of the plant is shown in Table 4.1 below.

Table 4.1 ANNUAL RAW MATERIAL REQUIREMENT AND COST

Cost in '000 Birr Item 1. Rice 2. Packing Materials (Polypropylene sacks) Total Costs 5,000pcs 25 1,253 25 1,253 Qty. 500tons FC LC 1,228 TC 1,228

B.

UTILITIES

Utilities such as oil, water and electricity are required by the plant. The annual consumption is shown in Table 4.2 below. Table 4.2 ANNUAL CONSUMPTION OF UTILITIES AND COST Sr. No 1 2 3 Utility Furnace Oil Water Electricity Total m3 m
3

Annual Unit Consumption 68 1,915 21,250 F.C -

('000 Birr) L.C 367.9 10.5 10.6 389 Total 367.9 10.5 10.6 389

KWH

291-8 V. TECHNOLOGY AND ENGINEERING

A.

TECHNOLOGY

1.

Production Process

The production process of starch varies depending upon the type of raw material used. However, the method of starch production starts with crushing or grinding of the raw material to destroy its tissues. Thus, in this way the starch is obtained from within the tissues. Hence, the simplified production process is outlined as follows.

The rice is steeped for 24hours within dilute caustic soda solution in tanks with perforated false bottoms. At the end of the period the liquor is withdrawn, the rice washed , fresh liquor added , and steeping continued for another 36 to 48 hours. The resulting softened grains are ground with a caustic solution and the mash is centrifuged. The solids obtained include all sorts of fibrous material, starch and gluten. These are suspended, a small amount of formaldehyde is added to inhibit fermentation, and they are centrifuged and washed .A bleaching or bluing agent may be added at this point. The liquor is screened, adjusted and sent to disk centrifuges. The resulting starch is dried for 2 days at 50 to 60 oC. The dry starch is then stored and packed in 100kg plastic bags.

2.

Source of Technology

The technology, machinery and equipment could be secured from an Italian Engineering and Contracting Company Endeco Spa, Padova, Italy.

B.

ENGINEERING

1.

Machinery and Equipment

The list and cost of machinery and equipment required by the plant is given in Table 5.1.

291-9

Table 5.1 LIST OF MACHINERY AND EQUIPMENT AND COST

Qty. Item 1. Steeping tanks 2. Mills 3. Screen bends 4. Hydro cyclones 5. Centrifugal Machines 6. Dryers FOB Fright, Insurance, Bank charge, Insurance, Transportation Total Cost 315 315 4 2 2 2 2 2 LC -

Price ('000 Birr) FC Total

6,300

6,300 315

9,300

6,615

2.

Land, Building and Civil Works

The major buildings and civil works include:

Buildings for production, offices, workshops and warehouses. The total area required is about 500m2.

Total land requirement including sewers, storage, open spaces etc. is estimated to be 1,000m2.

Total construction cost is estimated at Birr 1,250,000 for the building and other civil works. The lease cost for 99 years lease holding of the land will be Birr 79,200.

291-10 3. Proposed Location

Palocha fawn has been selected as the best location for the envisaged plant, for its proximity to major raw material sources.

VI.

MANPOWER AND TRAINING REQUIREMENT

A.

MANPOWER REQUIREMENT

The manpower requirement of the plant and the monthly and annual salary expenditure are shown in Table 6.1. Table 6 .1 REQUIRED MANPOWER AND LABOUR COST (BIRR)

Sr. No 1 2 3 4 5 6 7 8 9 10 11 12

Manpower

Req .No.

Monthly Salary

Annual Cost

General Manager Technical Manager Personnel Production Head Supervisor Chemist Skilled operators Semi-skilled Operators Maintenance crew Accountant Sales Man Unskilled labour

1 1 1 1 1 1 5 5 5 2 2 10

3,000 2,500 1,200 1,500 1,200 1,000 3,500 2,000 3,500 2,000 2,000 2,000

36,000 30,000 14,400 18,000 14,400 12,000 42,000 24,000 42,000 24,000 24,000 24,000

Total

35

25,400

304,800

291-11 B. TRAINING REQUIREMENT

The technical personnel of the plant should be trained by qualified engineers of the machinery supplier. The cost of training shall be Birr 50,000.

VII.

FINANCIAL ANALYSIS

The financial analysis of the rice starch project is based on the data presented in the previous chapters and the following assumptions:-

Construction period Source of finance

1 year 30 % equity 70 % loan

Tax holidays Bank interest Discount cash flow Accounts receivable Raw material local Work in progress Finished products Cash in hand Accounts payable

3 years 8% 8.5% 30 days 30days 3 days 30 days 5 days 30 days

A.

TOTAL INITIAL INVESTMENT COST

The total investment cost of the project including working capital is estimated at Birr 9.32 million, of which 37 per cent will be required in foreign currency.

The major breakdown of the total initial investment cost is shown in Table 7.1.

291-12 Table 7.1 INITIAL INVESTMENT COST

Sr. No. 1 2 3 4 5 6 7 Cost Items Land lease value Building and Civil Work Plant Machinery and Equipment Office Furniture and Equipment Vehicle Pre-production Expenditure* Working Capital Total Investment cost Foreign Share

Total Cost (000 Birr) 79.2 1,250.00 6,615.00 125 200 701.81 262.88 9,233.9 37

* N.B Pre-production expenditure includes interest during construction ( Birr 551.81 thousand , training Birr 30 thousand and Birr 130 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 3.80 million (see Table 7.2). The material and utility cost accounts for 43.13 per cent, while repair and

maintenance take 7.35 per cent of the production cost.

291-13 Table 7.2 ANNUAL PRODUCTION COST AT FULL CAPACITY ('000 BIRR)

Items Raw Material and Inputs Utilities Maintenance and repair Labour direct Factory overheads Administration Costs Total Operating Costs Depreciation Cost of Finance Total Production Cost

Cost 1,253.00 389 280 282.53 94.18 188.35 2,487.06 806.5 513.6 3,807.16

% 32.91 10.22 7.35 7.42 2.47 4.95 65.33 21.18 13.49 100

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 total investment (return on total

(Return on equity) and net profit plus interest on

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.

291-14 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 Sales Variable Cost

45 %

3.

Pay Back Period

The investment cost and income statement projection are used to project the pay-back period. The projects 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 14% and the net present value at 8.5% discount rate is Birr 1.39 million.

D.

ECONOMIC BENEFITS

The project can create employment for 35 persons. In addition to supply of the domestic needs, the project will generate Birr 1.73 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.