1.

Background information
1.1. The loan applicant
The loan applicant for this project is Dagne Kasa. He is well known farmer in Lode Hexosa
district of Arsi Zone Oromia National Regional State. In addition he is respected by his
communities in the Lode Hexosa district. He has excellent characteristic and loyal to others in
deed and speech. He fulfills these promises to other based on his convection.

Currently, Dagne Kasa mobilizes large resources/capital from farmer perspective. He owns two
bus with 24 seats, two house in Itaya town in 200m 2, twelve hectares land for farming, more
than 30 hybrid cattle etc.

1.2. Location of the project

This project will be located in Oromia Regional National State Arsi Zone Lode Hexosa district.
Oromia Regional National State is one of the nine ethnically based regional states of Ethiopia,
covering 286,612 square kilometers. It is bordered by the Somali Region to the east; the
Amhara Region, the Afar Region and the Benishangul-Gumuz Region to the north; South
Sudan, Gambela Region, and Southern Nations, Nationalities, and Peoples' Region to the west;
and Kenya to the south. The 2011 census reported Oromia Region population is 55,000,000;
making it the largest state in population.

Arsi is one of the zones of the Oromia Region National State in Ethiopia. Arsi is bordered on the
south by Bale, on the southwest by the West Arsi Zone, on the northwest by East Shewa, on the
north by the Afar Region and on the east by West Hararghe. The administrative centre of this
zone is in Asella; other towns in this zone include Abomsa, Assasa, Bokoji, Sagure, Kersa,
Dhera, Etaya, Arsi Robe, Huruta etc.

Lode Hexosa woreda is located in the Arsi zone in Oromia Regional National State in Ethiopia.
The center of the woreda is Kersa town. This woreda is known by the production of different
crops. The lion share goes to Wheat and Barley crops.

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1.3. License
This project will be registered to Lode Hexosa woreda market development and trade office to
obtain trade license under trade policy. All permits will be obtained to operate the combiner
equipment while entering to the business.

1.4. Credit relationship with other banks

The owner of this project Dagne Kasa has no loan/ credit history or relationship with any banks
until know.

1.5. Capital
The owner of this project Dagne Kasa has currently owned assets or a capital of more than Birr
10,000,000. These assets include two houses in Itaya town, Bus, 30 hybrid cattles, and more than
12 hectors for farming purpose under his name.

1.6. Brief history of the cooperative

The project owner is a man of good character and he has good interaction with his community.
He is cooperative in any kind of activity in the community at the time of happiness as well as
bad time.

1.7. Objective of the company

The following are the objective of this project;
 To generate revenue from harvesting crops
 To Increase the production of crops
 To strengthen the productive capacity
 To lesser time for farm work.
 To advance the quality and value of agricultural produce and processed products
 To facilitate crop processing and thereby improve rural economic opportunities

Mission Statement
Combiner rental service’s mission is to become the recognized premier provider of harvesting
services within its target market.

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1.8. Product description
1.8.1 General background
Mechanization or mechanisation is the process of changing from working largely or exclusively
by hand or with animals to doing that work with machinery.

Farm machines have not only increased the mechanical advantage, but also helped to reduce
drudgery while performing the different agricultural operations. The contributions of agricultural
mechanization in various stages of crop production could be viewed as saving in seeds, saving in
fertilizers, saving in time, reduction in labour, increasing in cropping intensity and higher
productivity.

Harvesting combiner is one of farming machine widely used in the world and Ethiopia. The
modern combine harvester, or simply combine, is a versatile machine designed to efficiently
harvest a variety of grain crops. The name derives from its combining three separate harvesting
operations reaping, threshing, and winnowing into a single process. Among the crops harvested
with a combine are wheat, oats, rye, barley, corn (maize), sorghum, soybeans, flax (linseed),
sunflowers and canola.

1.8.2. Description of the rental service

This project will be one of the most competent harvesting operators in the local area for
competence, safety practices, reliability, dependability, and cost effectiveness in performing
jobs. The combiner will harvest different crops like wheat, barley etc in different areas of Lode
Hexosa woreda and others Arsi zone.

1.8.3. Advantage of the service

The agricultural mechanization rental service has various advantages to the community and the
owner. To the community, in general, it will increase productivity of the community by reducing
the cost of production and avoiding wastage in the harvesting processes. To the owner, it will
bring fair income.

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 1.9. Rationale of the project
This project is important for the community as well as the owner. It supports the community in
by enhancing their productivity from farming activity in increasing the quality and quantities of
the crop production. Again it boosts the owner income by generating revenue though harvesting
activity fees.

1.10. Purpose of the loan

The purpose of this loan is to finance purchase of Combiner equipment to known Dagne Kasa.
This is a request for a birr 2,150,000 loan in order to purchase combiner machinery which cost
birr 4.3 million.

1.11. SWOT analysis

The SWOT was made to identify strength, weaknesses, opportunities and treats to farming
equipment industry in Arsi zone.
Strong sides of agricultural service rental service businesses are;
 They are getting profit from year to year
 They increased the quality of harvesting the local crops and
 They have large market in the project area
Weak sides of agricultural service rental service businesses are;
 They do have poor management and
 They lack in creation of interactive relationship with farmers
Opportunities of agricultural service rental service businesses are;
 The coverage operation of existing agricultural service rental service businesses is low.
The market needs more agricultural market service rental service and
 There is increase in the awareness of the farmers in the usage of harvesting combiner/
agricultural service rental service.
Treats of agricultural service rental service businesses are;
 Difficulties for repairing & maintaining of farm equipment and
 Unseasonal rainfall in recent time

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 2. Market and demand analysis
2.1. General overview
Ethiopia has a significant agricultural potential as well as agricultural tradition. Agricultural is
the main stay of the nation’s economy in terms of source of livelihood for about 85% of the
population. In terms of contribution to the Gross domestic product (GDP) (45%) and foreign
export earnings (85%) its development has been minimal but growing progressively in recent
years.

The existing economic policy of government towards the development of the overall economy in
general & agricultural sector in specific and untapped domestic market potential for crops will
convince such projects are demanding. The market study revealed that rental service has high
demand both in project area and in the country. It has strong forward and backward linkage and
high value adding attributes. The market assessment also reveals that profitability of the project.

Besides to this In Ethiopia, among the cereals and other agricultural products, Wheat & barley
are the most consumable products. The demands of these cereals is so high, most Ethiopians,
almost all food consumption depends on the direct of agricultural. There for, serving producers
of those cereals with the supply of agricultural machineries highly encouraged.

In general cereal crop require special attention during harvesting period. Unless timely harvested,
it loses its quality due to sudden rain and other calamities which make farmers to sell it at
cheaper price. Hence the availability of combine harvester is justifiable.

2.2. Domestic demand analysis

This combiner project will target community in Lode Hexosaworeda and other woredas in the
Arsi zone. According to data from Arsi zone agricultural office, Arsi zone has respectively total
arable lands of five hundred thousand hectors.

Services that are provided through agricultural mechanization are substitutes for mechanization
of farms & other agricultural activities by owning the machinery and equipment. These types of
services enable farmers to use modern farm machinery and equipment without burdening each

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farmer or group of farmers in owning expensive farm machinery & equipment. Agricultural
mechanization service reduces farming time and enable farmer to plow, harrow, plant, harvest
balling and store their farm produce in optimal period of ach season thereby increasing
productivity and production

The main advantage of these rental center to farmer is they enable group of farmers with adjacent
farms to rent (in groups) agricultural machinery such as tractor and combine harvester for
plowing and harvesting all the farm land in group. This will reduce the rental cost for each
farmer and will also minimize the operation expense of the farm mechanization service.

More than 9,690,733 hectares of land is under cultivation of cereals at the national level (CSA,
2011 report). The following table shows cultivated land and crops proportions.

Table 1: Cultivated land Vs crops coverage in 2011

Locations Total Cultivable Wheat coverage Barely coverage Other cereals
land (70%) (20%) (10%)
Arsi 896,450 627,515 179,290 89,645
Bale 258,174 180,727 51,635 25,817
Surrounding
Peasant 155,576 108,903 31,15 15,558
Associations
Total 1,310,200 917,140 262,040 131,020

As it is depicted in the above table 1 the majority of land in the project area was covered by
Wheat and Barley. In Arsi zone from total cultivated land of 896,450 hectare wheat covers
627,515 (70%), barley covers 179,290 hectare (20%) and other crops covers 89,645 hectare
(10%).

Unlike any other times small holder farmers are very keen to apply improved farming practices
and mechanization service promotion is undergoing both by government and development
partners. Currently there are a number of small and commercial farmers in Arsi, zone. Most of
the farmers need to use modern technology to harvest on time before any damage is shown up on
the farm land. The demand is high and tends to progressively increase at a constant rate of 6%

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annually. The following table shows cultivated land that needs combiner service to harvest the
crops.

Table 2: Cultivable land Vs combiner demands

Types of crop Total cultivated Area that need Total are that
area combine service demand combine
Wheat 896.450 65% 582,692
Barely 256.1774 52% 134,250
Other crop 155.576 - -
Total 1,310,200 716,942

The above table shows that from total cultivated land of 1,310,200 hectare in Arsi zone 716942
hectare need combiner service.

2.3. Domestic demand forecast

From above mentioned cultivated land that needs combiner service, this project forecast annual
sales based on quintal crops output harvested by combiner at harvesting time. This business or
project sales is largely seasonal. It fully operates from begging October to end January in each
year. The following table shows total quintal (100 kg) to be processed by combiner for five years
with respective sales to be obtained from it by the project. It is expected that quantity of crops in
100 kg will increase by 10% from year to year.

Table 3: Five years forecast of crops output to be harvested per quintal and sales
Combiner Rental Service
Sales per year

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 Year Total sales
4,368,000
1st
5,285,280
2nd
6,395,189
3rd
16,048,469
Total

2.4. Domestic supply forecast analysis

Even if mechanized farming has been introduced to these project area decades before, compared
to the cultivable land in the area, it can be revealed there is still a shortage of supply. Statistics
show’s no more than 105 combine harvesters (MOANR, 2010) are engaged in serving the
project area. This implies with such supply, only 106,278 hectare from 716,942 hectare of land
were covered by combiner currently, and the remaining 610,664 hectares of land is looking for
potential entrants to be served effectively. This shows the existence of supply of combiner
shortage in the project area.

2.5. Demand supply gap analysis

The demand for mechanized farming is growing from year to year with the expansion of
commercial farming. The realistic demand for combiner is far greater than the supply exists.
Table 4: Combine harvester Projected demand, supply and gap in the target area.
Year Project demand Project supply Observed gap
1 716,942 106,278 610,664
2 752,789 165,375 587,414
3 790,428 173,643 616,784
4 829,949 182,327 647,623
5 871,447 191,442 680,005

2.6. Market competition analysis

This project will mainly compete in Lode Hexosa woreda. There are the 3 primary competitors in
this geographic area within a Lode Hexosa woreda of Arsi zone. These are Lamma combiner
rental service business, Worku combiner rental service business and Males combiner rental
service business. The business will compete among these businesses for when harvesting arise.
However, Management intends to develop ongoing relationships with the farmers in the area.

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2.7. Price analysis
For each 100 kg of harvesting output, Management anticipates that the business will generate
approximately Birr 65 of revenue in the first year of operation.

2.8. Marketing strategy

Management will intend on using a number of marketing strategies that will allow the business
to generate revenue from its harvesting services at the onset of operations. Prior to commencing
business, Dagne Kasa will develop relationships with farmers in the community. The business
will also develop relationships with local government administration. It is important to note that
once these relationships are solidified, the Company will be able to maintain a regular
connection with the business.

3. Technical study
3.1. Geographic location and site
This project will be located in Lode Hexosa woreda of Arsi Zone, Oromia Regional National
State, Ethiopia.

3.2. Infrastructure and utilities

Lode Hexosa woreda has various facilities. It has electricity, telecommunication, garage, and
other facilities that are necessary to operation this combiner rental service business. Therefore, it
is advantageous for the business to operate in the region.

3.3. Building and civil works

This project requires some building works. It will need the establishment of the center, and
constructing of shades in order to protect it from wear and tear.

3.4. Machinery and equipment requirement

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This project needs agricultural mechanization equipment titled as combiner harvester with its full
accessories. The total cost of this equipment is estimated to bet birr 4,300,000.

3.5. Vehicle
This project of Dagne Kasa of agricultural mechanization rental service of combiner doesn’t
require vehicle.

3.6. Capacity and capacity utilization

In this project, the needed combine will have the capacity of harvesting 20 hectare per day and it
will work four months in full capacity within a year. The owner of the project is expected to
utilize it at least 90% of the capacity of the combiner during peak period.

3.7. Raw material

This project deals with the provision of service and as such it does not require the use of “raw
material”. However the main inputs for the provision of these services will be the diesel oil and
minor accessories to make operation the agricultural machineries and equipment’s.

3.8. The basic principle of the project

This project has principles to follow while undertaking business activity. These are;
 Trustfulness to the customers
 Quality service to its customers
 To be honest to the customers and
 Impartial treatment to customers

3.9. The manufacturing process

This project will fully operate each year from October to January. This indicates that
agricultural mechanization rental combiner undertake its duties four months from annual.

3.10. Implementation schedule

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It is expected that this project will be implemented in action within two months from the date of
submission to Oromia International Bank.

3.11. Environmental impact

This project will not result in environment damage. But, it has insignificant impact on the air
pollution. However, it advantage overweight its side effect on environment when comparative is
done. In addition, this project does not violate environmental policy of Oromia Regional
National State and Ethiopia. Therefore, it is possible to say that this project is environmental
friend.

4. Organization, Management and Manpower

4.1. Organization and management
This project is owned Dagne Kasa. It will be managed by owner itself. He has been previously
managed similar project and he was successful in his administration. Management is responsible
for the company, both financially and day to day operations.

The owner will retain Accounting Firm to assist him with bookkeeping and tax responsibilities.
A commercial checking account will be established with Commercial Bank of Ethiopia,

Figure 1: Organizational chart

Manager

Combiner service
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 Administrative service

Dispatch Accounting
Manager
Firm

Operation
Marketing
Staffs
Staff

Maintenance Guard
Staff

4.2. Manpower requirement

This project will require one seven permanent employees and one per-time work. Permanent
employees are dispatch manager, combiner operator, combiner assistant, marketing staff, auto
mechanical, guard and the manager of the business. Per-time work is accounting firm owner
when is responsible for bookkeeping and preparation of financial statements.

Table 5: Human resource requirements

Position No Profile
Manager 1 - Owner of Project
Dispatch Manager 1 - Degree graduate in management marketing 5 year working
experience
- Preferable in Agro business/mechanized Farming
- Age Less than 40 and ready to work in mobile station
Accounting firm 1 - A Degree graduate in accounting
- 5 year working experience in agri-business area
- Abe to work on Peachtree and careful with data recording
- Has Authorized Accountant license
Marketing staff 1 - A diploma graduates in marketing/agribusiness
- Communicative and able to speak Oromifa language

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 - 2 years’ experience in marketing related job
Mechanical staff 1 - A TVET/ Diploma graduate and 5 years work experience in
maintaining agricultural machineries
- Able to work in remote area including weekends
Combine operator 1 - 12th Grade completed and licensed machinery operator
- 10 Year in operating combiner
Combiner Assistant - At least 8th completed
- More than 3 years’ experience in assistance ship
Security staffs 2 - 8th grade completed and 2 years’ experience as security staff
- Able to work under pressure
Total staff 8 -

5. Sensitivity analysis
In the event of an economic downturn, the business may have a decline in its revenues. However,
in this area there is less fluctuation in the production of crops. However, the business will earn
substantial margins from its product sales, and the business will be able to remain profitable and
cash flow positive despite moderate declines in revenue.

6. Socio-economic aspect
This project has positive impact on society and economy of the Lode Hexosa woreda in
particular and Arsi zone in general. It has capacity of building socio interaction by avoiding large
labor time consumption. And in addition the project increase the productivity of the community
by avoiding harvesting time crops wastage and improving their quality.

7. Conclusions and recommendations

7.1. Conclusions
In general, from net present value and internal rate of return it is known that the project is
feasible. Investment on this project results in profitability. Therefore, making investment in
agricultural rental service business specifically combiner is viable business in the Lode Hexosa
woreda of Arsi zone of Oromia Regional National State for the reason that there are less number
of competitors and there is increase in the awareness of the community in the usage of
combiner.

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7.2. Recommendations
Based on the conclusion reached, the following two points are forwarded;
 It is recommended that the owner of the business has to implement this viable project
and
 Oromia International Bank has to extend loan to Dagne Kasa for the reason that the
project is feasible.

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