TAMILNADU AGRICULTURAL UNIVERSITY

HORTICULTURAL COLLEGE AND RESEARCH INSTITUE PERIYAKULAM

FEASIBILITY REPORT ON

CHILLY OLEORESIN AND ESSENTIAL OIL PRODUCTON

PRESENTED BY

NAME I.D NO COURSE COURSE TEACHER

A.RAJA MOHAMED BSH 04036 AEC 311 DR.J.S.AMARNATH

INTRNAL EXAMINER

EXTERNAL EXAMINER

INDEX
S.NO 1. 2. 3. 4. PARTICULARS INTRODUCTON GENERAL TREND TECHNICHAL FEASIBILITY CONCEPTS PAGE NO 3 6 9 12

5. 6.

ECONOMIC ANALYSIS FINANCIAL ANALYSIS

15 20

7.

SWOT ANALYSIS

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8.

CONCLUSION

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I N T R O D U C T IO N

OLEORESINS AND ESSENTIL OIL

INTRODUCTION Spice Oleoresins and essential oil are the concentrated liquid form of the spice and reproduce the character of the respective spice and spice oil fully. They are obtained by the solvent extraction of the powdered dried spices with subsequent removal of solvent.

USE
The oleoresins are used mainly as a flavoring agent in the food processing industry. They are more economical to use, easier to control for quality and cleaner than the equivalent ground spices. Oleoresins are more stable when heated. The main products in a spice oleoresin plant are oleoresins of chilly, pepper, ginger and turmeric. The co-products are the corresponding spice oils, which are widely used in food and pharmaceutical industries.

IMPORTANT
The demand of spice oils and oleoresins in the developed countries is increasing day by day as more and more spicy snacks are being introduced by fast food chains with standardized tastes. The spice oils and oleoresins are specially suitable for such snacks in that they can be used very conveniently (without any handling of the raw spice like ginger, chilly, onion, etc.) and producing a standardized effect on taste. This is the reason practically all plants in India, numbering to more than twenty five are cent percent exporting their products to these nations. The demand is increasing and more and more plants are being commissioned for 100% export. The margins are high with the spice oil prices ranging between US $ 30 to 100 per Kg. made from equivalent raw material components of about US $ 1 to 5.

RANGE OF OLEORESINS AND ESSENTIAL OIL

Basil, Fennel, Mustard, Black pepper, Fenugreek, Nutmeg Capsicum, Garcinia, Onion, Cardamom, Garlic, Origanum, Cassia, Ginger, Paprika Celery, Green chilli, Rosemary, Cinnamon, Green garlic, Sage Clove, Green ginger,Tamarind, Cocoa, Green onion, Thyme Coriander, Green pepper, Turmeric Cumin, Hing (Asafoetida), Vanilla, Curry leaf, Laurel leaf, white pepper Curry powder, Mace, Blended oleoresins and mor

SALIENT FEATURES OF THE PROCESS

The process produces oleoresins of international standards ( having solvent residues in oleoresins should not be more than 30 PPM.) The process is ideally suitable for small scale operation Spice oils are distilled out before subjecting to extraction so that final product can be standardized easily If good raw materials are used spice oils will always be one of the coproducts. The spent meal obtained after removal of volatile and fixed oil can be dried and used in animal feed formulation.

PROCESS
The volatile oil is distilled out from the ground spices. The wet powdered spice free from volatiles are dried and then extracted with suitable solvent systems to remove the fixed oil and resineous / gummy materials. The solvent is removed from the miscella, dried and the extract is mixed with the dry spice oil to the required level and the product is suitably packed in containers.

MARKET POTENTIAL Oleoresins and spice oils have large domestic as well as export markets. They are consumed by a broad spectrum of manufacturers like confectionary, noodles, beverages, sauces, canned meat, soup powders, curries, poultry products and so on. Most of the end use industries are growing steadily and demand is bound to increase. With increasing preference for quality products, use of spices is rapidly replaced with oleoresins and spice oils. Exports of these processed products, instead of raw spices, would also result in considerable value addition.

GENERAL TREND

GLOBAL ANALYSIS OF IMPORTS The oleoresins market is an attractive and growing one. The imports in the period 1999-2003 increased an average 8.8 percent per year in terms of value and 9.6 percent in terms of volume. The developing countries increased their share in the import market for oleoresins. Together they supplied 34.1 percent of the imports in 2003, coming up from 29.5 percent in 1999. This represents an annual average growth of their market share of 2.7 percent. In short, according to the International Trade Center, the oleoresins market is a product champion. Global imports oleoresins, 1999-2003

DEMAND
The demand for these derivatives is on the rise in the global market and India too is cashing on this booming market. India is one of the leading producers and exporters of black pepper oleoresin. US is one of the chief importers of paprika and black pepper oleoresin. The demand of this product can be attributed to a sharp rise in the snacks food and fast food industry for producing a standardized effect on taste. High concentration of oleoresins, makes them difficult to use in the food industry, unless they are diluted.

TREND AND MARKET

The world trade in essential oils and their value-added products is vast. World production of essential oils (excluding turpentile oil) is estimated to be about 105 000 tones to the tune of US$ 922 million. India stands at third position with a share of about 16 percent. Indian production of the essential oils is estimated to be 17 000 tones valued about US$ 195 million (S.C. Varshney, Personal Communication, 2001).

Essential oils produced in India could be divided into the following categories (S.C Varshney, Personal Communication, 2001):

Essential oils for fragrances (exotic): 40-45 tonnes Essential oils for flavours (exotic): 1200-1400 tonnes Essential oil for processing: 16000 tonnes.

TRENDS SUMMARY
We expect firm prices for oleoresins of black pepper, ginger and turmeric. Prices should be steady for oleoresins of paprika and celery. We forecast easing prices for oleoresi

BLACK PEPPER
Prices for oleoresin black pepper will continue to be firm, at least until the new Indian crop in November. The strong pricing is due to no uncommitted extraction grade berries, a high market for black pepper oil, and firm spice markets. Our early forecast is not to expect any significant price relief with the new crop - not only will the other fundamentals remain, but also pepper plants take three years to bear commercial quantities of berries. Therefore, with the current economic and industry environment, expect black pepper oleoresin at roughly current levels.

CAPSICUM
An average crop from India and expanding capacity from China means that prices will slowly ease. PAPRIKA Most recently a continuous extraction plant is running in India, and investments are being made to start significant production from Zimbabwe. Prices remain low from these and Chinese origins, while some extractors in the USA and Mexico are either reselling others' production or using old inventory. As a result we see steady prices at current levels. TURMERIC As predicted, prices have risen over the last quarter, and we expect firm prices at current levels at least until spring 99. The reasons are due to a cyclical pattern. We are at the stage where the crop size has been reduced because of unremunerative turmeric price levels. Carry forward positions have been used up, and buyers will not see lower prices unless Indian farmers have a good large crop in the spring of 99. GINGER Prices are steady, and will be firm over the next quarter. India had a small crop, and Chinese and Nigerian ginger for extraction is being offered at relatively high prices. There are some carry forward inventories, so we do not expect any rapid increases.

TECHNICAL FEASIBILITY

TECHNICAL FEASIBILITY
MANUFACTURINGPROCESS Spice oleoresins are derived through non-aqueous volatile solvent extraction of powdered and dried spices. These spices are mixed with a suitable solvent and subsequently removed at the end of the process through evaporation. Spice oil, being volatile in nature, is distilled from the grounded spice and thereafter the wet spice, is dried and extracted with a solvent to produce oleoresins. The extraction method will also vary depending on the properties of the spice being extracted.

SPICE EXTRACTION METHOD There are various methods being employed these days for extracting essential oils from different spices and herbs. The quality of oil extracted depends on the kind of method used for extracting oil. Below are few of the major extraction methods being used these days:

STEAM DISTILLATION :

One of the most popular method for extracting oil from spices, the process involves heating the water to produce steam, which is a carrier of volatile chemicals present in the spice. An outside source of steam is used, which is introduced into the distillation unit at a high pressure. The steam is finally condensed and the resulting essential oil is collected separately.

HYDRODISTILLATION :

This is one of the oldest methods of extraction used. The spice is fully immersed in hot water. The result is a soup, which carries aromatic molecules of the plant. The method is not much in use these days, because of the risk of over heating the plant and subsequent loss of the oil. The method is best suitable for spice in dry and powdered form of roots and barks.

SOLVENT EXTRACTION :

Many herbs and spices cannot be extracted from distillation method, so solvent extraction is the safest method for extracting high quality oil. Spices or herbs to be extracted are washed with a solvent, which dissolves all extractable matter from the plant. These include pigments, volatile molecules and non-aromatic waxes. The herbs and spices are then subjected to low pressure distillation and the volatile oil is then separately collected.

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CARBON DIOXIDE EXTRACTION :

This method is also being popularly used for oil extraction from different spice. Carbon Dioxide in liquid form is used as a inert and safe liquid solvent for extracting aromatic molecules. The process is more advantageous, as there is no residue left at the end of the process. The liquid carbon dioxide simply reverts back to the gaseous state.

PROCESS

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CONCEPTS

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CONCEPTS
NET PRESENT WORTH(NPW): This is simply the present worth of the cash flow stream.some times,it is referred to as Net present value(NPV).The choice of discount rate to be used in the measurement of Net present worth poses many problems as discussed earlier.NPW is helpful in working out BCR of the project.The selection criterion of the projects depends upon the positive value of the net Present worth,when discounted at the opportunity cost of the capital.This could be satisfactorily done,provided there is a correct estimate of opportunity cost of capital.NPW is an absolute measure, but not relative. NPW of the project is estimated using the following equation

NPW= P1 + P2 + (1+i)t1 (1+i)t2

Where P1=net cash flow in first year i=discount rate t=Initial cost of the investment

P3 (1+i)t3

BENEFIT COST RATIO (B-C):

Here, we compare the present worth of costs with present worth of benefits. Absolute value of the benefit cost ratio will change based on the interest rate chooses. While ranking the project depending upon the B-C ratio, the most common procedure of selecting is to choose the projects, having B-C ratio of more than one, when discounted at opportunity cost of capital. Following formula deficits the estimation os B-C ratio

B-C ratio =t=1 - BT (1+i)n n t=1

-

CT

(1+i)n

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INTERNAL RATE OF RETURN(IRR):

In the computation of IRR , the time value of money is accounted.The method of working IRR provides the knowledge of actual rate of return from the different projects.Thus IRR is known as marginal efficiency of capital or yield on the investment.It is the discount rate at which the present values of the net cash flows are just equal to zero,i.e NPW=0.when NPW is set equal to zero, the equation is solved for I. This is IRR.The IRR must be found out by trial and error with some approximation.IRR is found out using the formula:

IRR={lower discount rate}+{difference between two different rates}{present worth of

Of the cash flow at lower discount rate} Absolute difference between the present worth of the cash flow at the two discount rate

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ECONOMIC ANALYSIS

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DETAILS OF THE PROPOSED PROJECT

1.LAND AND BUILDING

2.MACHINERY
A provision of Rs. 14.70 lacs would take care of the required machinery. 3.MISCELLANEOUS ASSETS An amount of Rs. 1.00 lac is adequate towards other support assets. 4.PRELIMINARY AND PRE-OPERATIVE EXPENSES An amount of Rs. 1.50 lacs would take care of pre-production expenses like establishment and registration charges, travelling, administrative expenses, interest during implementation, trial runs etc.

5.WORKING CAPITAL REQUIREMENT At 60% capacity utilisation in the first year, the working capital needs shall be as under.

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ECONOMICS
FIXED COST:
1.LAND & BUILDING A plot of around 300 sq.mtrs. with constructed area of 150 sq.mtrs. would be adequate for the contemplated production capacity. Land may cost Rs.90,000/- whereas the cost of civil work is assumed to be Rs. 3.75 lacs. 2.MACHINERY For the contemplated installed capacity of 1500 kgs. of spice oil and 3000 kgs. of Oleoresins per year with 12 hours working per day and 300 working days every year, following equipments shall be needed. RS in lacs

3.MISCELLANEOUS ASSETS Other assets like weighing scales, furniture and fixtures, working tables, storage racks etc.would need around Rs. 1.00 lac. 4.UTILITIES Power requirement shall be 15 HP whereas water requirement will not be more than 2000ltrs every day. LDO or coal shall be required for boiler. 5.RAW AND PACKING MATERIALS

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Raw spices like black pepper, ginger, turmeric, cinnamon and cardamon seeds shall be the main raw materials. Appropriate solvent needs to be identified. Tin containers, lables, corrugated boxes and BOPP tape shall be the packing materials.

VARIABLE COST(IN LACS)

1.Raw and Packing Materials-36.00 2.Utilities (70%)- 0.78 3.Salaries (70%) -1.58 4.Repairs and Maintenance- 0.60 5.Selling Expenses (70%) -6.85 6.Administrative Expenses -(50%) 0.50 7.Interest on working capital -1.05

PROJECT IMPLEMENTATION

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COST OF THE PROJECT AND MEANS OF FINANCING

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FINANCIAL ANALYSIS

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PROJECTED PROFITABILITY

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BREAK-EVEN POINT ANALYSIS

[A] LEVERAGES FINANCIAL LEVERAGE = EBIT/EBT = 14.68 4.47 = 3.28 OPERATING LEVERAGE = Contribution/EBT = 17.89 4.47 = 4.00 DEGREE OF TOTAL LEVERAGE = FL/OL = 3.28 4.00 = 0.82

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DEBT SERVICE COVERAGE RATIO

INTERNAL RATE OF RETURN (IRR) Cost of the project is Rs. 26.45 lacs

The IRR is around 23%.

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SWOT ANALYSIS

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SWOT ANALYSIS
STRENGTHS
1. Intrinsic characteristics of the Indian spice oleoresins and essential oils with respect to flavor, aroma and medicinal value due to natural habitat. Market leader in for production and export. 2 Specific micro-climatic zones and soil conditions which are conducive for spice growing and herbal plants. 3 Accepted traditional knowledge in the production of spices and oleoresins. 4 Freight advantage due to close proximity to international trade routes. 5 Technological capability for value addition. E.g. Solvent extraction, Super Critical Fluid Extraction (SCFE) 6. Low labor cost 7. High potential to produce diverse oleoresin types

WEAKNESSES
1 cost of technology for further processing 2.Poor maintenance of smallholder farms and poor post harvest processing leading to low quality products 3.Lack of supply of quality products 4. Poor linkage between the industry and research institutions leading to retardation of innovation. 5.Poor linkage among producers, processors and exporters. 6.Response from the plantation sector for spice cultivation 7.Lack of information on supplies, research and marketing aspects.

OPPORTUNITIES
1 Changing attitude of plantation sector to undertake spice and medicinal herb cultivation intercropping or mono-cropping 2 Trend towards natural flavours and fragrances and natural health-care in the developed markets 3 Move towards a marketing approach from a trading mentality 4 Vast unskilled labour force making the smallholder outgrower system viable.

THREATS
1.Ever increasing standards by the developed countries, which will act as a trade barrier for products to enter those markets. 2.Changing international regulations for medicinal herbs and ayurvaedic medical treatment may weaken a long-term plan unless proper lobbying is ensured. 3.Nonconformity of supplies due to weaknesses in the infrastructure. 4.Strong competition in the world market 5. Declining prices in the global market

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CONCLUSION

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SUMMARY

S.NO 1. 2. 3. 4. 5.

PARTICULARS TOTAL COST(TC) TOTAL FIXED COST(TFC) TOTAL VARIABLE COST(TVC) BREAK EVEN POINT(BEP) INTERNAL RATE OF RETURN(IRR)

VALUE (RS in lacs) 73.81 26.45 47.36 54% 23%

CONCLUSION:
From the above results, project is technically feasible & economically viable; IRR 23% is more than bank rate.

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