292 .

PROFILE ON PROCESSING OF COFFEE HUSKS AND SKINS

292-2 TABLE OF CONTENTS

PAGE

I.

SUMMARY

292 - 3

II.

PRODUCT DESCRIPTION & APPLICATION

292 - 3

III.

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

292 - 4 292 - 4 292 - 6

IV.

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

292 - 7 292 - 7 292 - 7

V.

TECHNOLOGY & ENGINEERING A. TECHNOLOGY B. ENGINEERING

292 - 8 292 - 8 292 - 8

VI.

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

292 - 10 292 - 10 292 - 11

VII.

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

292 - 11 292 - 11 292 - 12 292 - 13 292 - 14

292-3

I.

SUMMARY

This profile envisages the establishment of a plant for the processing of coffee husks and skin with a capacity of 30 tonnes per annum.

The present demand for the proposed product is estimated at 32.32 tonnes per annum. The demand is expected to reach at 497.95 tonnes by the year 2022.

The plant will create employment opportunities for 17 persons.

The total investment requirement is estimated at Birr 2.21 million, out of which Birr 1 million is required for plant and machinery.

The project is financially viable with an internal rate of return (IRR) of 12 % and a net present value (NPV) of Birr 335,970,discounted at 8.5%

II.

PRODUCT DESCRIPTION AND APPLICATION

Coffee is an agricultural crop of significant economic importance in Ethiopia.Coffee pulp is the major primary by-product from the processing of coffee cherries. The bean is the main crop. After processing the pulp and hull are either dumped or utilized rather unproductively. Better utilization of the by-products could make the cultivation and processing of coffee more economical. For years the only use for coffee pulp has been as a fertilizer for the coffee plant, a practice dictated more by the lack of alternative usage of the pulp than by its effectiveness as a fertilizer.

292-4

The main alternative uses of coffee by-products include the production of soil conditioner, fertilizer, mulch, animal feed, alcohol, biogas, caffeine, sugar, pectines, charcoal, heat energy, wax and acids.

In this profile processing of coffee husks and skin for animal feed. Coffee pulp should be considered as a means of alleviating the scarcity of animal feed. Chemical treatment of feeds is restricted by costs, availability and necessary machinery, available technical ability and safety. Urea seems promising in this line, because it is cheap and easy to get and has minimal hazards.

III. A. 1.

MARKET STUDY AND PLANT CAPACITY MARKET STUDY Past Supply and Present Demand

The country's requirement for coffee husks and skins has been met through domestic production and imports. However, data on domestic production of the product is not readily available. The amount of imports of the product during 1998-2006 is shown in Table 3.1. Varying from a minimum of 6.62 tonnes in 2005 to a maximum of 76.06 tons in 2002, imports of coffee husks and skins highly fluctuated during the period under reference. On the average, the country imported 26.93 tons of coffee husks and skins during the reference period.

292-5 Table 3.1 IMPORTS OF COFFEE HUSKS AND SKINS (TONNES)

Year 1998 1999 2000 2001 2002 2003 2004 2005 2006 Average

Imports 27.10 14.01 10.34 18.76 76.06 45.61 21.52 6.62 22.35 26.93

Source: Customs Authority, External Trade Statistics, 1998-2006.

Assuming supply is driven by demand, the average annual supply of the product, which comprises of only imports for the period under reference, is considered as the effective demand for the product for the year 2006. The average rate of growth of imports of coffee husks and skins during the reference period is computed to be 48%. However, a conservative rate of growth of 20% is adopted in estimating the demand for the product. The present demand for the product (i.e. 2007) is ,thus, estimated at 32.32 tonnes.

2.

Projected Demand

As stated above, a rate of growth of 20% is considered in projecting the demand for coffee husks and skins. Table 3.2 depicts the projected demand for the product.

292-6 Table 3.2 PROJECTED DEMAND FOR COFFEE HUSKS AND SKINS (TONNES) Year Projected Demand 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 32.32 38.78 46.54 55.85 67.02 80.42 96.51 115.81 138.97 166.76 200.12 240.14 288.17 345.80 414.96 497.95

3.

Pricing and Distribution

Based on average CIF price of recent external trade statistics, and allowing 30% for import duty and other clearing expenses, the factory gate price for the envisaged estimated at Birr 22,346.07 per tonne. plant is

The envisaged plant can directly supply its product to major users that includes producers of briquette and prefabricate boards. The plant can also appoint agents at selected locations.

292-7 B. PLANT CAPACITY AND PRODUCTION PROGRAMME

1.

Plant Capacity

According to the market study, the projected demand in the year 2008 will be 38.78 tones, whereas this market share will grow to 497.95 tonnes by the year 2022. Taking in to account the demand projected and the economic scale of processing, the envisaged plant will have an annual processing capacity of 30 tonnes of animal feed per annum. Processing capacity is based on a schedule of 300 working days per annum and one shift of eight hours per day. 2. Production Programme

The annual production programme is formulated on the basis of the market forecast and selected plant capacity. It is assumed that the plant will achieve 70% and 85% capacity utilization rate in the first and second year, respectively. Full capacity will be reached in the third year and onwards.

IV.

MATERIALS AND INPUTS

A.

RAW AND AUXILIARY MATERIALS

The direct and indirect material required by the project at 100% capacity utilization is given in Table 4.1.

292-8 Table 4.1 RAW AND AUXILIARY MATERIALS REQUIREMENT AND COST Sr. No. 1 2 3 Unit of Measure Tone Kg Pcs Cost ('000 Birr) L.C Total 11 11 1.35 12.35 30 1.35 42.35

Description Coffee husk and skin Urea Packing material, 50kg Total UTILITIES

Qty 22 1500 450

F.C 30 30.00

B.

Annual requirement and cost of utilities is indicated in Table 4.2. Table 4.2 UTILITIES REQUIREMENT AND COST UOM Sr. Description No 1 Electricity 2 Water Total Qty. KWh m3 5000 100 Cost (000 birr) 2.386 1 3.386

V. A. 1.

TECHNOLOGY AND ENGINEERING TECHNOLOGY Production Process

The chemical treatment of fibrous residues using urea has been known for some time now. Enzyme urease hydrolyses urea and releases ammonia. Ammonia in water is an alkali that can improve the digestibility of low quality roughages.

292-9 40, 50, 60 grams of urea are dissolved in l litre of water. The urea solutions are applied at the rate of 1 litre/kg of air-dried pulp. The 1 kg lots of pulp are thoroughly mixed and transferred into plastic bags. The bags are tightly closed and left at room temperature, for a 15 and 30 days reaction period. The control (water treated) is stored in similar manner. Finally the animal feed is tested, packed in 50 kg bag and dispatched.

B.

ENGINEERING

1.

Machinery and Equipment

The total cost of machinery and equipment is estimated at Birr 1,000,000, out of which Birr 500,000 will be required in foreign currency. The plant needs vehicles (one pick-up and one truck) for transportation of finished product and for office activities. The total cost of the vehicles is estimated at Birr 620,000. Detailed list of machinery and equipment is given in Table 5.1.

Table 5.1 LIST OF MACHINERY AND EQUIPMENT REQUIREMENT

Sr. No 1. 2. 3. 4. 5 Description Digestion tank with mixer (0.75 tone) Mixing tank Conveyors system Automatic Bagging and swing machine Miscellaneous Total Cost (Birr) 2 2 1 1

Qty. (No.)

1,000,000.00

292-10 2. Land, Buildings and Civil Works

The plant requires a total of 600 m2 area of land out of which 300 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 750,000. The total cost, for a period of 80 years with cost of Birr 1 per m2, is estimated at Birr 600. The total investment cost for land, building and civil works is estimated at Birr 750,600.

3.

Proposed Location

According to the resource potential study of the region, the raw material is identified in Bakogazer woreda. Based on the availability of raw material infrastructure, utility and market out let Jinkatown of Bakogazer woreda is selected and recommended to be the location of the envisaged plant.

VI.

MANPOWER AND TRAINING REQUIREMENT

A.

MANPOWER REQUIREMENT

The

plant will create job opportunities for 17 persons.

The detailed manpower

requirement and the estimated annual labour cost including fringe benefits are given in Table 6.1. The total cost of manpower including fringe benefit is estimated at Birr 159,000.

292-11 Table 6.1 MANPOWER REQUIREMENT AND ANNUAL LABOUR COST Sr. No. 1 2 3 4 5 6 7 8 9 10 11 12 13 General Manager Secretary Quality Controller Personnel Accountant Sales man Production Supervisor Digestion tank attendant Production Clerk Store Keeper Purchaser Driver Guard Total Employees Benefit (20% of Salary) Grand Total 17 Description Req. No. 1 1 1 1 1 1 1 3 1 1 1 2 2 15 Monthly Salary (Birr) 1,500 600 700 900 700 400 900 1,800 400 500 600 1000 600 12700 3,175 15,875 Annual Salary (Birr) 18,000 7,200 8,400 10,800 8,400 4,800 10,800 21,600 4,800 6,000 7,200 12,000 7,200 127,200 31,800 159,000.00

B.

TRAINING REQUIREMENT

The quality controller, production supervisor, technician operators should be given on-thejob training for a duration of two weeks by experts of the supplier of the machinery and equipment. The estimated training cost is Birr 20,000.

292-12 VII. FINANCIAL ANALYSIS

The financial analysis of the coffee husks and skins processing 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

5 years 8% 8.5% 30 days 30days 2 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 2.21 million, of which 47 per cent will be required in foreign currency.

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

292-13 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) 0.6 750.00 1,000.00 75 150 227.21 14.18 2,217.0 47

* N.B Pre-production expenditure includes interest during construction ( Birr

127.21

thousand ) training (Birr 20,000 ) and Birr 80 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 690,180 (see Table 7.2). The material and utility cost accounts for 7.51 per cent, while repair and maintenance take 8.21 per cent of the production cost.

292-14 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 42.35 3.39 50 95.4 39.75 63.6 294.49 195.03 119.66 609.18

% 6.95 0.56 8.21 15.66 6.53 10.44 48.34 32.02 19.64 100

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 (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 viable.

292-15 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

59 %

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 7 years.

4.

Internal Rate of Return and Net Present Value

Based on the cash flow statement, the calculated IRR of the project is 12 % and the net present value at 8.5% discount rate is Birr 335,970.

D.

ECONOMIC BENEFITS

The project can create employment for 17 persons. In addition to supply of the domestic needs, the project will generate Birr 943,880 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.