48.

WHEAT FLOUR

48-2

TABLE OF CONTENTS

PAGE

I.

SUMMARY

48-3

II.

PRODUCT DESCRIPTION & APPLICATION

48-3

III.

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

48-4 48-4 48-6

IV.

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

48-7 48-7 48-7

V.

TECHNOLOGY & ENGINEERING A. TECHNOLOGY B. ENGINEERING

48-8 48-8 48-9

VI.

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

48-11 48-11 48-13

VII.

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

48-13 48-13 48-14 48-15 48-16

48-3 I. SUMMARY

This profile envisages the establishment of a plant for the production of with a capacity of 31,160 tonnes per annum.

wheat flour

The present demand for the proposed product is estimated at 194,658 tonnes per annum. The demand is expected to reach at 529,397 tonnes by the year 2020.

The plant will create employment opportunities for 57 persons.

The total investment requirement is estimated at Birr 47.63 million, out of which Birr 20 million is required for plant and machinery.

The project is financially viable with an internal rate of return (IRR) of 18% and a net present value (NPV) of Birr 30.31 million, discounted at 8.5%.

II.

PRODUCTION DESCRIPTION & APPLICATION

Flour is a food item, which is finely ground meal of cereals such as wheat, maize, sorghum, rice, etc. obtained by milling and blending various streams of different quality. It mainly contains endosperm and certain quantity of bran. Wheat flour on average contains from 14% to 16.5% moisture. Based on its baking quality and other quality indices such as gluten quality and content, colour, moisture content, granular size of particles and others, flour is divided into different grades.

The basic application of flour is for bread making, cakes and biscuits, and porridge at household level. Semolina, a product obtained by milling extra hard (durum) wheat, is also used in pasta and macaroni making. The by product bran is used as animal feed preparation.

48-4 III. A. 1. MARKET STUDY AND PLANT CAPACITY MARKET STUDY Past Supply and Present Demand

In Ethiopia, the rural population used to consume flour made from cereals by traditional means at home. Grain mills, however, are expanding deep into rural areas reducing labour and time for women, replacing home-made flour consumption of industrially processed flour, however, is still insignificant in rural Ethiopia. Urban dwellers, on the other hand, consume more and more flour produced by flour mills thus shifting to manufactured flour. Urban house-holds also consume food items like bread, biscuits and cakes prepared at home or in bakeries and pastries from industrially processed flour. The demand for wheat flour is met through both local production and imports. The apparent consumption of flour, comprising both domestic production and import is shown in Table.3.1. Table 3.1 APPARENT CONSUMPTION OF WHEAT FLOUR 1995-2004 (TONNES) Domestic Year Production Import Total 1995 115,968 1,523 117,491 1996 121,160 588 121,748 1997 140,499 186 140,685 1998 105,157 7,300 112,457 1999 167,526 10,686 178,212 2000 195,437 23,059 218,496 2001 165,345 60,995 226,340 2002 142,541 13,757 156,298 2003 136,669 122,365 259,034 2004 155,692 19,662 175,354 2005 148,786 801 149,587 Source: 1. CSA, Report of survey of the Manufacturing & Electricity Industries, annual issues. 2. Customs Authority, External Trade Statistics, Annual Issues.

48-5 Table 3.1 shows that both domestic production and import of wheat flour are characterized by a fluctuating trend which is, however, erratic. The peak level of local production, 195,437 tonnes, was registered in year 2000, and imports, 122,365 tonnes, in 2003. Given the nature of the historical apparent consumption, it is reasonable to assume that the average of the last three years, i.e, about 194,658 tonnes, as the current effective demand for flour.

2.

Projected Demand

The demand for wheat flour is mainly determined by the growth rate of population and the per capita consumption of flour. Increased application of wheat flour for industrially processing of food products such as pasta and macaroni would also have great bearing of future flour demand. In view of the likely change in these determining variables, an 8% annual growth in demand is considered to be reasonable rate to project future demand (see Table 3.2).

Table 3.2 PROJECTED DEMAND FOR WHEAT FLOUR (TONNES) (2006-2020) Projected Demand 210,231 227,049 245,213 264,831 286,017 308,898 333,610 360,299 389,123 420,253 453,873 490,183 529,397 Existing Capacity 144786 144786 144786 144786 144786 144786 144786 144786 144786 144786 144786 144786 144786 Un Satisfied Demand 65,445 82,263 100,427 120,045 141,231 164,112 188,824 215,513 244,337 275,467 309,087 345,397 384,611

Year 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

48-6 3. Pricing and Distribution

The current price of flour at Addis Ababa is Birr 385 per quintal. For this project, an exFactory price of Birr 370 per quintal is proposed.

Flour is an industrial as well as a consumer product. Bakeries and pastries could be supplied directly at factory gate or through intermediaries. Households could be supplied through retailers as well as with distribution centers to be established by the new project itself.

B.

PLANT CAPACITY AND PRODUCTION PROGRAMME

1.

Plant Capacity

According to the market study, the unsatisfied demand of wheat flour in the year 2008 will be 65,445 tonnes, whereas this demand will grow to 384,611 tonnes by the year 2020. Taking only about 50% of the demand of the year 2008, the envisaged plant will have an annual capacity of processing 41,000 tonnes pure wheat and produce 31,160 tonnes of wheat flour and 9,840 tonnes of bran. The plant will operate 3 shifts of 24 hours a day, and for 300 days a year.

2.

Production Programme

The plant will start operation at 75% of its installed capacity during the first year, and will increase production to 85% in the second year, and then to 100% in the third year and then after. The proposed production programme is given in Table 3.3.

Table 3.3 PRODUCTION PROGRAMME

Year Capacity utilization (%) Production (tonnes) Flour Bran

1 75 23,370 7,380

2 85 26,486 8,364

3-10 100 31,160 9,840

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IV.

MATERIALS AND INPUTS

A.

RAW AND AUXILIARY MATERIALS

The principal raw material for flour production is wheat grain. Flour for baking bread is produced from hard wheat or a blend of hard and soft wheat, while flour for cakes and biscuits is milled from soft wheat. Wheat can be available in different part of the region. The impurity rate for local wheat should not exceed 8%.

Auxiliary materials required are pp bags of different size for packing flour and sewing thread. These can be easily obtained from local markets. The estimated annual cost of raw and auxiliary materials is given in Table 4.1 below. The total annual cost of raw materials is estimated at Birr 115,513,000.

Table 4.1 RAW & AUXILIARY MATERIALS REQUIREMENT & COST Sr. No. 1 2 3 4 5 Wheat PP bag (50kg PP bag (10kg) PP bag(5kg) Sewing thread Total Description Unit of Measures tonnes pcs pcs pcs kg 44,280 42,000 150,000 120,000 1200 Qty. Cost (000 Birr) 115,128 93.660 177.000 99.600 15.000 115,513

Note: the plant will generate Birr 10,332,000 annually from the sale of bran as animal feed

B.

UTILITIES

The major utilities required by the plant are electricity, water and lubricants. The estimated annual requirement at full production capacity of the plant and the corresponding cost are given in Table 4.2.The total annual cost of utilities is estimated as Birr 638,600.

48-8 Table 4.2 ANNUAL UTILITIES REQUIREMENT& ESTIMATED COST

Sr. No. 1. 2. 3.

Description

Unit of Measure

Qty.

Unit price (Birr)

Cost ('000 Birr)

Electricity Water Oil and lubricants Total

kWh m3 Kg

750,000 5,000 150

0.4736 5.5 56.00

355,200 27,500 8,400 391,100

V.

TECHNOLOGY AND ENGINEERING

A.

TECHNOLOGY

1.

Production Process

The production process of wheat flour consists of four major operations:

Wheat Intake and Pre-Cleaning, Wheat Cleaning and preparation, Milling, and Packing and Dispatching.

Wheat Intake and Pre-cleaning:- The major unit operations are dumping, conveying, weighing, pre-cleaning and conveying to storage silos or transferring to the working bins of the cleaning room.

Wheat Cleaning and Preparation: - The main unit operations involved are weighing, screening, destoning, impurity separation, ferromagnetic separation, scouring, aspiration, dampening, tempering and entoleting.

48-9 Milling: - Major operations involved are weighing, breaking open, scalping, scratching, detaching, sifting, purifying, milling (grounding), resifting and entoleting.

Packing and Dispatching: - The major operations involved are collection of flour streams and bran, mixing and aerating, resifting, entoleting, packing, sewing, loading and dispatching. The process does not release any pollutant to the environment.

2.

Source of Technology

The technology of flour milling is available in countries like India, China or Europe. One supplier of machinery and equipment for the production of wheat flour is stated as follows:

1. Jiashengeg Grain Machinery Company No.8 jingim Road, Kaifeng, Henan, China (main land) Telephone: 86-378-2850850 Fax: 86-378-2850850 Mobile phone: 008613937853263

2. ETA ENGINEERING SERVICES Address: 412-TI AKASH RATH, B/H PARISEEMA, C.G. ROAD, AHMEDABAD 380006, GUJARAT, INDIA Phone: 91-79-26564613/26566149 Mobile: +919824099013 Fax: 91-79-26566149

B.

ENGINEERING

1.

Machinery and Equipment

Machinery and equipment required by the envisaged plant is given in Table 5.1. The total cost of machineries and equipment processing 41,000 tonnes of pure wheat annually to produce

48-10 31,160 tonnes of flour is estimated at Birr 20 million, out of which Birr 16 million is required in foreign currency.

Table 5.1 MACHINERY AND EQUIPMENT REQUIREMENT & COST Sr. No. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. Screw conveyor for wheat Separator Weigher Qieur cylinder for wheat Scourer Bucket elevator for wheat Roller mill Plan sifter Purifier Bran finisher Flour cyclone with airlock Flour filter Detacher Pneumatic Conveyor Screw conveyor for flour and bran Bucket elevator for flour Pneumatic duct, set Description Qty. (No.) 5 2 5 1 2 6 16 3 2 4 16 2 10 2 4 2 1

2.

Land, Building and Civil Works

The total area of land required for the plant is estimated to be 10,000 square meters, out of which plant building will cover about 2,000 square meters. The production building shall be built out of hollow block walls, corrugated iron sheets roofing and cement screed floor. The

48-11 total cost of buildings is estimated at Birr 4,600,000 assuming a construction rate of Birr 2300 per m2 for the type of building mentioned above. The cost of land, at lease rate of Birr 0.10 per m2 and holding period of 80 years, will be Birr 80,000.The cost of building and civil works, at a unit cost of Birr 1,200 per m2, is estimated to be Birr 2.4 million. Thus, the total cost of land, building and civil works assuming that the total land lease cost will be paid in advance is estimated to be Birr 4.68 million.

3.

Proposed Location

Proximity to market and availability of raw material are the factors that are considered to determine the location of the envisaged plant. Misha woreda, Morsito town is the most appropriate location for establishing the flour production plant.

VI.

MANPOWER AND TRAINING REQUIREMENT

A.

MANPOWER REQUIREMENT

The flour production plant requires both production and administrative manpower. The total manpower required is 57 persons. A detail of manpower requirement and estimated annual salary expenditure including fringe benefits is given on Table 6.1.

48-12 Table 6.1 MANPOWER REQUIREMENT AND ANNUAL SALARY EXPENDITURE

Sr. No. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23.

Description

Req. No.

Salary (Birr) Monthly 2500 900 1500 1200 2000 1800 1800 1100 850 800 800 850 800 700 950 800 400 700 950 950 400 550 500 Annual 30000 10800 18000 28800 24000 21600 21600 12300 20400 9600 9600 10200 9600 11400 34200 96000 57600 25200 34200 34200 4800 13200 24000 561,300 140,325 701,625

General Manager Executive secretary Quality control head Chemist Production & technical head Commercial head Finance & administration head Personnel Store keeper Purchaser Salesperson Accountant Cashier Clerk Production shift leader Operator Labourer Janitors Mechanic Electrician Grease & oil man Driver Guard Sub-total Employees benefit (25% BS) Grand Total

1 1 1 2 1 1 1 1 2 1 1 1 1 1 3 10 12 3 3 3 1 2 4 57 57

48-13 B. TRAINING REQUIREMENT

The production supervisor, operators and quality controllers (chemists) should be given three weeks on-the-job training by machinery supplier personnel on the technological process, machine operation and quality management. The cost of training is estimated to be Birr 40,000.

VII.

FINANCIAL ANALYSIS

The financial analysis of the wheat flour 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 30 days 5 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 47.63 million, of which 31 per cent will be required in foreign currency.

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

48-14 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) 80.0 4,600.0 20,000.0 100.0 675.0 1,597.9 20,583.2 47,636.1 31

* N.B Pre-production expenditure includes interest during construction ( Birr 1.46 million ) training (Birr 40 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 120.95 million (see Table 7.2). The material and utility cost accounts for 95.83 per cent, while repair and maintenance take 0.12 per cent of the production cost.

48-15 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 115,513.00 391.1 150 280.65 140.33 420.98 116,896.06 2407 1650.33 120,953.39

% 95.50 0.32 0.12 0.23 0.12 0.35 96.65 1.99 1.36 100

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.

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 = 30%

48-16

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 18 % and the net present value at 8.5% discount rate is Birr 30.31 million.

D.

ECONOMIC BENEFITS

The project can create employment for 57 persons. In addition to supply of the domestic needs, the project will generate Birr 18.38 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.