D0VELOPMENT BANK OF ETHIOPIA

APPRAISAL DIRECTORATE I

DRAFT NEW LOAN APPRAISAL REPORT

FOR MISALE DAIRY FARMING & PROCESSING PLC

(DAIRY FARM AND MILK PROCESSING PLANT)

Prepared by: Team-I

Team Manager: Sinishaw Abate

D/Director: Ato Tadesse Tolcha

September 2016

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Table of Contents Page

I. EXECUTIVE SUMMARY 4
II. 7
2.1 The Applicant......................................................................................................................................7
2.2 The Company......................................................................................................................................7
2.3 Certificates and Licenses.....................................................................................................................8
2.4 Brief History of the company..............................................................................................................9
2.5 Capital Structure..................................................................................................................................9
2.6 Shareholders Business Track Record................................................................................................10
2.7 Credit Information.............................................................................................................................10
2.8 The Loan...........................................................................................................................................11
III. KEY SUCCESS & RISK FACTORS AND SWOT ANALYSIS 13
3.1 Key Success Factor...........................................................................................................................13
3.2 Risk Factors.......................................................................................................................................14
3.3 Risk Mitigating Measures..................................................................................................................15
IV. MARKET STUDY 17
4.1 Product Description...........................................................................................................................17
4.2 Domestic Demand.............................................................................................................................18
4.2.1 Determinants of Demand for Processed Dairy Products 18
4.2.2 Current Demand 19
a. Demand Projection for Processed Milk.............................................................................................19
4.2.3 Domestic Supply 21
4.2.4 Supply Projection 24
4.3 Demand Supply Gap projection........................................................................................................25
4.4 The Price Analysis............................................................................................................................26
4.5 Target markets and potential customers............................................................................................27
4.6 Marketing Strategy of the Company..................................................................................................27
V. TECHNICAL ASPECT OF MISALE DAIRY 29
5.1 Location and Accessibility................................................................................................................29
5.2 Infrastructure.....................................................................................................................................29
5.3 Land and Ownership.........................................................................................................................29
5.4 Agro-ecological Suitability of the Project.........................................................................................29
5.5 Input Requirement and Availability..................................................................................................30
5.6 Veterinary medicaments....................................................................................................................32
Artificial Insemination (AI)..........................................................................................................................33

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 5.7 Raw milk...........................................................................................................................................33
5.8 Milk processing.................................................................................................................................34
5.9 Building and Construction.................................................................................................................38
5.10 Machineries and Equipment..............................................................................................................38
5.11 Farm Machineries and Implements...................................................................................................39
5.12 Milking Machinery............................................................................................................................39
5.13 Trucks and Vehicles..........................................................................................................................39
5.14 Auxiliary Equipment.........................................................................................................................40
5.15 Utilities..............................................................................................................................................40
5.16 Office Furniture & Equipment..........................................................................................................41
5.17 Environmental Impact Assessment....................................................................................................41
5.18 Implementation Plan.........................................................................................................................42
VI. ORGANIZATION AND MANAGEMENT 43
6.1 Organizational Structure....................................................................................................................43
6.2 Project Management..........................................................................................................................45
6.3 Manpower Requirement and Training...............................................................................................45
VII. FINACIAL STUDY47
7.1 Investment Costs...............................................................................................................................47
7.2 Foreign and Local component of costs..............................................................................................47
7.3 Source of Finance..............................................................................................................................48
7.4 Expected Financial Results................................................................................................................49
7.5 Socioeconomic Benefits....................................................................................................................50
VIII. CONCLUSION AND RECOMMENDATION 52
8.1 Conclusion 52
8.2 Recommendations 53

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 I. EXECUTIVE SUMMARY

Misale Dairy Farming and Processing PLC were legally established on 01/12/2015 by two
shareholders namely Ato Shimelis Bizuneh and W/ro Frezewud Gelan. As per the shareholder
meeting minuet dated on 02/05/2008 E.C, paid up capital of the company is increased from Birr 4.5
million to Birr 8.14 million.
The project is located in Amhara National Regional State, North Shewa Zone, Angolela and Tera
district, Seriti Kebele, 103 Km from Country capital Addis Ababa and 27 Km from Zonal capital
Debre Birihan alongside the national high way that goes to Desie and Mekele. The project site is
accessible all seasons enabling it to obtain raw materials and easily supply its final product to the
market.
In view of the fact that market condition for the proposed products has vital role for the realization of
the objectives of establishment of the proposed project, the appraisal team has also tried to review the
current as well as forecasted demand and supply condition and price of the planned products based
on the commodity study. As per the commodity study of the Bank, we observed that there is excess
demand for the product. The project is planned to be supply product to domestic market.

In addition to this, the technical feasibility of the project area, the project site is accessible with all
infrastructures like electric power, and communication devices that are required by the project are
found in the area. On the other hand the project requires considerable amount of clean water for the
animals and processing unit. Accordingly there is a document submitted by the company which states
that it has completed bore hole. However, there is no valuation report made but the CRMD-I and the
appraisal team is not able to consider it as equity contribution. Therefore, the CRMD-I should
undergo valuation and deliver it before final appraisal report.

The financial projection made to test the viability of the venture indicates profitability of the
proposed venture. As per the financial projection made the total investment cost would be Birr 52.64
million out of which Birr 39.48 (75%) million would be DBE loan & the remaining balance of Birr
13.16 (25%), out of which 8.063 in kind and the reset 5.097 would be in cash equity contribution.
Financial projections for the project showed that the project is financially profitable and can repay the
loan. The project’s financial forecast results point out that it will generate net profit of Birr 2.76

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million on the first year and Birr 12.00 million at the end of 10th year. Furthermore, it will register a
cumulative net cash flow of Birr 3.31 million in first year and Birr 55.18 million at the end of 10th
year. FIRR before and after tax are 24% 21% respectively, indicating that the investment return
above the discounted rate.

Accordingly, the team has carefully assessed the key elements of the project and considering its
socio-economic benefits that determine the success rate of the project. The assigned appraisal team
recommends the total loan amount of Birr 39,480,090 for the partial finances of Misale Dairy and
Processing Plc.
The summary of financial analysis of the project is depicted below:-

Financial Study
 Project Investment
Table 1.1: Project investment (in Million Birr)
Amount
Description Percentage
Fixed Investment iMillion
45,874,976 87%
Working Capital 4,695,616 9%
Pre-operating costs and interest 2,069,528 4%
Total 52,640,120 100%

 Source of Finance
Table 1.2: Source of finance (in million Birr)

Source of finance Amount D/E Ratio

Debt 39,480,090 75%
Equity 13,160,030 25%
Total 52,640,120 100%

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  Financial Results
Table 1.3: Expected financial results
Year initial Year Final
Description
Sales Revenue 28,538,000 45,998,000
Profit (Loss) 2,763,914 12,004,336
Cumulative Cash flow 3,314,347 55,182,596
FIRR Before Tax 24%
FIRR After Tax 21%

 Sensitivity Analysis
FIRR before FIRR after
Description Tax Tax
Decrease in Sales Revenue by 10% 18% 14%
Increase in Operating Cost by 10% 20% 16%
Increase in Investment Cost by 10% 22% 18%

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 II. BACKGROUND INFORMATION

2.1 The Applicant

Name: - Misale Dairy Farming and Processing PLC

Address:

 Region: Addis Ababa

 Sub-City: Bole

 Kebele: 06

 House no 318/14

 Telephone:

 Mobile: +251 9 29436699

 P.O. Box:

2.2 The Company

Name: Misale Dairy Farming and Processing PLC

Address:

 Region: Amhara National Regional State

 Zone: North Shewa

 Woreda: Angolela and Tera

 Kebele: seriti

 Legal Form of the Business: Private Limited Company

 Date of Establishment: 01/12/2015

 Status of the Project: New.

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  Type of Project: Dairy Farm and Milk-Processing

 Project Objective: commercial Dairy Farming and Milk Processing

2.3 Certificates and Licenses

a. Investment Certificate

 Licensing Organ: Amhara National and Regional Sate, N/shewa Zone Bureau of Tread
,industry and Urban Development

 Licensing No: 03-30290-491-07

 Date of Issue: 03/04/2007.

b. Commercial Registration Certificate

 Licensing Organ: Federal Democratic Republic of Ethiopia, Ministry of tread

 Registration NO : MT/AA/2/0031558/2007

 Date of Issue: 16/07/2015

c. Land Holding Certificate

 Licensing Organ: N/shewa Environmental protection and land Administration

 Date of Lease Contract: 17/07/2007 –2023 E.c

 Total Land Area: 50,000 m2

d. Taxpayer identification No (TIN) 0045955294

e. Contact person :- Ato Shimelis Bizuneh , Mobile number +251-9-35-98-16-10

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 2.4 Brief History of the company
Misale Dairy Farming and Processing PLC were legally established on 01/12/2015 by two
shareholders namely Ato Shimelis Buzineh and W/ro Frezewud Gelan. As per the shareholder
meeting minuet dated on 02/05/2008 E.C, paid up capital of the company is increased from Birr 4.5
million to Birr 8.14 million.

The project is located in Amhara National Regional State, North Shewa Zone, Angolela and Tera
district, Seriti Kebele, 103 Km from Country capital Addis Ababa and 27 Km from Zonal capital
Debre Birihan alongside the national high way that goes to Desie and Mekele. The project site is
accessible all seasons enabling it to obtain raw materials and easily supply its final product to the
market

2.5 Capital Structure

As per the shareholder meeting minuet dated on 02/05/2008 E.C, paid up capital of the company is
increased from Birr 4.5 million to Birr 8.14 million for the establishment of Misale Dairy Farming
and Processing Project

Table 2.1: Capital structure of the company

No. of Par Paid up Percentage

No. Name of Shareholder
share Value in Share of share

1 Ato Shimelis Bizuneh 764 Birr

10,000 Capital
7,640,000.00 94%
2 w/ro Firezewud Gelan 50 10,000 500,000.00 6%
Total 814 - 8,140,000.00 100%

2.6 Shareholders Business Track Record

As per the due diligence report, the shareholders have ample experience in managing and leading
private business companies. Yonak Aluminum plc. on of already established a profitable business
and Bure Animal feed is a newly established plc ,both shareholders have got huge experience in
running various businesses and .they have worked in those businesses at deferent managerial
position.

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2.7 Credit Information

2.7.1 Company Credit information with local banks

CIC report obtained from National Bank of Ethiopia dated on 2016-06-01 with enquiry ID 382098
the company has no credit relation with any local banks.

2.7.2 Shareholders’ Credit information with other banks

As per credit information obtained from National Bank of Ethiopia dated on 2016-06-01 with enquiry
ID 382098, both shareholders has no credit relation with any local Banks. However one of the
shareholder Ato shimelis Bizuneh submitted conformation later dated 24/10/15 form Cooperative
Bank of Oromia S.S Finfine Brach Confirmed that Mr. Shimelish Bizuneh “Yonak Aluminum
Import” has Term Loan and Merchandise Loan 3,000,000 and 8,000,000 respectively.

2.7.3 Credit Status of shareholders with DBE

CIC report obtained from National Bank of Ethiopia dated on 2016-06-01 with enquiry ID 382098
Both shareholder has no credit relation with BDE.

2.8 The Loan

A. Loan requested

 Amount: -Birr 25,357,238

 Purpose: To cover the partial cost of the project investment

B. Loan Proposed

 Amount: Birr 39,254,733

 Purpose: to cover the partial investment cost of Building and construction, Tack and vehicle,
Machinery and Equipment, Axillary Equipment, Dairy animals and working capital.

C. Variation

 Amount: Birr 16,775,909

 Reason for variation: - The reason for variation was explained in the following table.

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Table 2.4: Reason for Variation between loans requested and proposed

Loan
Description Loan Requested Proposed Variation Remark
Cost determined based on submitted
Building and Construction 8,242,344 16,555,820 8,313,476 engineering documents
Cost determined based submitted per
forma invoices and to be covered by
Machineries & Equipments 8,889,012 1,554,489 (7,334,523) equity and loan.
Cost determined based on submitted per
Truck & Vehicles 1,351,500 3,048,174 1,696,674 forma invoices

Cost was not included in the plan but

Auxiliary Equipment - 5,299,034 5,299,034 performa is submitted & it is considered
Cost determined based on submitted per
Dairy Animals 5,400,000 8,000,000 2,600,000 forma invoices
Cost is determined using commodity
parameters & the difference arises from
assumption difference and cost
escalation over the years
Working capital 1,512,793 4,797,216 3,284,423

pre production cost and interest   - -  

Pre-production cost   - -  

Total 25,395,649 39,254,733 13,859,084  

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 II. KEY SUCCESS & RISK FACTORS AND SWOT ANALYSIS

III.1 Key Success Factor

III.1.1 Macroeconomic Success Factors

 Ethiopia has shown a continuous GDP growth for the last consecutive years, implying a positive
trend of economic growth. In addition, there is stable and conducive business, political and
economic environment.

 Ethiopia is known to have agro ecological conditions which are suitable for the raring of livestock
and Dairy development.

 There are incentives to attract domestic and foreign direct investment at the federal and regional
government level such as tax exemption, tax holidays for certain years and duty free import etc.

 There is improvement in service delivery and infrastructure

III.1.2 Sector Specific Success Factors

 Increasing population per capital income and trend towards consuming more milk and milk
product.

 Presence of institutional support including research and training institute to be supplied by up-to-
date information, training and technical assistant.

 Unsatisfied demand across the market destination

 Existence of conducive environment conditions for dairy development

III.1.3 Firm Level Success Factors

 Character: - As per the due diligence report the captioned project is found feasible and bankable
for financing with Acceptable Risk

 Capacity: - Based on Information we have obtained from the submitted document and due
diligence report, the General Manager of the project, Ato Shimelis Bizuneh, has BA Degree in
Business management from Alpha University Collage and Accounting from Addis Ababa
University. He is well experienced and professional in administrating a business with other

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 management professional staff. Based on Information we have obtained from the submitted
credentials and due diligence report, the recruited Project Manager is well educated & has 15
years of overall experience at different position including 7-year as a General Manager. Taking in
to account his work experience in different company and position can manage the project
cooperating with the farm manager for technical support.

 Capital: - As per the shareholder meeting minuet dated on 02/05/2008 E.C, paid up capital of
the company is Birr 8.14 million

 Collateral: - the project is one of the priority areas of the bank, so that the project itself
serves as collateral.

III.2 Risk Factors

 Sudden climatic changes, outbreak of livestock Epidemic diseases

 Low quality of raw milk that comes from poor milking, handling and transporting from
household farmer to the collection center.

 Perishable character of the industry’s products

 Inadequate number of exotic/hybrid cattle and commercial agriculture that are engaged in
production and distribution of raw milk in the country, which could be a reason for poor
supply of raw milk for the industry.

 Inadequate number of animal feed processing industries

III.3 Risk Mitigating Measures

As shown above, the risk factors that may happen to the project can be categorized as external and
internal factors. That means there are some factors out of project control like climatic changes and
epidemic diseases that may happen suddenly. Anyhow, the project managers and employs should
focus on internal factors to overcome expected risks by:

 Closely working with concerned body, like National veterinary Institute, national meteorology
agency and other concerned body to be informed well concerning trends of each factor before
occurrences.

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 Training and advisory service for raw milk suppliers, how to feed and maintain cows, how to care
the health of their cow, milking handling and transporting raw milk with proper quality required
to produce quality milk products to consumers.

 Adopting advanced technology that used to extend the spoilage period of milk products for long
time.

3.4. SWOT Analysis

Strengths Opportunities

 The promoter has the capacity to raise  Availability of labor that need little training
sufficient required equity capital. in sector.

 The project planned to employ appropriate  Conducive agro-ecology zone of the project
processing technology location.

 The project has planned to have around 200
crossed pregnant heifers. Thus, around 40%
of raw milk requirement is planned to be
supplied from own farm and the ratio grow
as a number of herd increase from year to
year
 Increase in milk demand due to
urbanizations, education, and increase in
income and change in life style.
 New product development to increase
customer selection

Weaknesses Threats

 The General Manager and project manager
lack proper experience in the sector.
 Failure to secure its own green fodder/
roughage source
 Seasonality of markets for milk products
due to cultural and religious factors like
fasting in Ethiopia.
 Reduction of milk production and its
quality due to occurrence of some disease

 Competition from similar products which

are already in the market

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 III. MARKET STUDY
Dairy products are generally defined as foodstuffs produced from mammalian milk which is an
opaque white liquid. The exact components of raw milk vary by species, but it contains significant
amounts of saturated fat, protein and calcium as well as vitamin C. The Food and Agricultural
Organization of the United Nation (FAO) defines milk product as a “product obtained by any
processing of milk, which may contain food additives and other ingredients functionally necessary
for the processing”. Milk processors produce a wide range of milk products, the most common milk
product are: Liquid milk, Yoghurt, Cheese, Butter.

III.4 Product Description

Liquid milk: which is the most consumed, processed and marketed dairy product. Liquid milk
includes products such as pasteurized milk, skimmed milk, standardized milk, reconstituted milk,
ultra-high-temperature (UHT) milk and fortified milk,
 Yoghurt: is a dairy product produced by bacterial fermentation of milk. Fermentation of lactose
produces lactic acid, which acts on milk protein to give yoghurt its texture and its characteristic
tang. Yogurt is made by the natural bacterial fermentation of milk. Flavors can be added to it like
strawberry to make it sweater so that the name like strawberry yoghurt is obvious.
 Cheeses are produced through the coagulation of milk protein (casein), which is separated from
the milk’s whey. Hundreds of varieties of cheese are produced.
 Butter is fatty milk products. Butter is produced by churning milk or cream; in many developing
countries, traditional butter is obtained by churning sour whole milk. Ghee is obtained by
removing the water from butter and is especially popular in South Asia.

III.5 Domestic Demand

III.1 Determinants of Demand for Processed Dairy Products
Describing the factors that affect the demand for processed dairy products is complicated because of
the varied number and type of products that can be processed from milk. Factors that influence why
one consumer would purchase skim milk are considerably different from factors that affect another’s
decision to buy cheese.

In Ethiopia there are various factors which affect the demand for dairy products. The major
determinants of demand for milk and milk products are those stated below:

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  Personal Disposal Income: - As disposable income of the consumers increases so does the
demand for the dairy products. Especially in Ethiopia, milk is considered as a luxury product
for urban dwellers, which is due to low income base of urbanites.
 Population:- As number of population increases so does consumption of dairy products
incresess
 Unemployment: - As the unemployment rate declines, consumption of dairy products is
expected to increase. When people are employed, they will have purchasing power to buy
dairy products for consumption.
 Inflation: - The inflation process in a given country has also a bearing in reducing the
demand for a product just by reducing the purchasing power of the society. Ethiopia is
currently exhibiting a rampant inflation, which of course, its impact is visible.
 Culture and Religion: -religion has a factor on determining the demand for dairy products.
There are religions that requires for its followers to fast a number of days within a year. This
makes the demand for the dairy products (especially raw milk) to be reduced by a significant
margin. In some cultures one type of processed diary product may be taken as cultural food
while in the others’ prohibited for consumption for the same reason. But, on aggregate the
same factors affect the consumption of each of the processed dairy products and hence, the
position of demand.
 Others: - The negative perception of the society towards processed milk has adverse impact
on demand for the same. Socioeconomic and demographic factors like age, family size and
composition, and education also affect consumption and demand for milk.
 GDP Growth Rate (g):- Ethiopia’s economy (GDP) on average has depicted double digit
growth for last four years except the GDP Exhibited 10.3% growth in 2006 E.C (MoFED)
 Per Capita Consumption :- The per capita demand for the products is taken by dividing the
amount of production of the products in the base year (2014) by the number of urban
population in the base year; and found to be 2.29 lit, 0.0312 Kg, and 0.03054kg; respectively,
for cow milk (pasteurized) ,butter and ghee; and cheese.

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III.2 Current Demand
4.2.2.1 Demand for processed dairy products
Ethiopia has one of the lowest levels of per capita dairy products consumer in the world. Processed
dairy products are majorly consumed in urban areas especially in Addis Ababa and other big regional
towns.

a. Demand Projection for Processed Milk

The export trend of the product is erratic and small in amount and the products are available in
aggregate terms and decreasing in amount in the period under consideration. Hence the exports of the
dairy products are not included on the estimation of demand for the processed dairy products.

According to the table presented below, the demand for the processed dairy products is forecasted to
grow significantly in all projection years.

According to the study conducted by the Indian Council for Research on International Economic
Relations (March 2008), the relationship between determinants of demand and the demand for the
product can be defined by:

Dt= d0*Nt (1+y*e) t

Where;

Dt =the demand of the commodity in year t,

d0=the per capita demand/consumption of the commodity in the base year,

Nt =the projected number of population in year t,

y=the per capita income growth rate, and

e= income elasticity of demand for the commodity.

In determining demand we use variables such as demand of the commodity the year t, projected
number of population, per capita income growth rate, income elasticity of demand for the
commodity. The demand for the products is forecasted by substituting the variables by the values.

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Table 4.1: Forecasted Demand for Processed Dairy Products

Pasteurized Milk (Lt) Butter and ghee (kg) Cheese (kg)

Year
DD DD DD
2014 203,040,076 1,884,337 2,700,999
2015 208,574,511 1,935,700 2,774,622
2016 214,259,802 1,988,463 2,850,253
2017 220,100,063 2,042,664 2,927,944
2018 226,099,517 2,098,343 3,007,754
2019 226,310,535 2,155,539 3,089,739
2020 233,099,851 2,220,205 3,182,431
2021 240,092,847 2,286,811 3,277,904
Source: DBE 2nd update dairy products research commodity study, 2014

As it can be seen in the above table, the demand for processed milk is increasing significantly in the
projected years. This opens a great opportunity for new entrants intending to invest in milk
processing industry.

III.3 Domestic Supply

I. Supply of Processed Milk Products

a. Domestic production

The domestic production of processed dairy products comes from traditional processers, small scale
processers and commercial scale (medium and large scale dairy products processing
industry).Industrially, raw milk can be processed in to different products. That includes pasteurized
milk, evaporates and condensed milk, skim milk and butter milk, cheese, yogurt, butter, cream, ghee
and whey.

According to the data compiled by CSA (Report on Large and Medium Scale Manufacturing and
Electricity Industries Survey), the country has an experience of processing dairy products. The report
includes the production of pasteurized milk, butter and ghee, and cheese. Even though the dairy
products are many and differentiated of course, the report has included the data on three of them; this
commodity study will also focus on those three.

The pasteurized milk production increased from 14,629,100 liters in 2008 to 28,215,582 liters in
2013, which has grown by 15.64% per year, on average. It was also showing a continuous increase

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 from year to year lest for the year 2011, in which production showed a decline as compared to its
2010 production figure.

Production of industrially processed butter and ghee decreased from 365,000 kg in the year 2008 to
253,226 kg in 2013; however which has grown annually by 11.06%, on average during the years
under consideration. Production is growing throughout the period expect for the years 2011 and
2012. The production of cheese, on the other hand, is growing throughout the period, from 236,000
kg in the year 2008 to 314,192 kg in 2013, has grown by 11.42% per year on average.

Table 4.2: Domestic production Trend of processed dairy products

No Items 2008 2009 2010 2012 2013(Esti Ave.Anual

mate) production (%)

Cow milk (Pasteur.) lit 14,629,100 16,092,700 24,356,400 22,035,000 28,215,582 15.64

Butter and Ghee (kg) 365,000 611,000 982,000 252,000 253,226 11.06

Cheese (kg) 236,000 270,000 185,000 160,000 314,192 11.42

Source: DBE 2nd update dairy products research commodity study, 2014

b. Import

Ethiopia imports a variety of dairy products which most of them do not have domestic substitute. The
country import more than 18 processed dairy products classified by their HS code .The major imports
include; milk and cream of different formula, butter, yoghurt, cheese and other types of products.

The six digits HS Code classifications show that milk and cream, which is in solid form, is
subdivided into various forms. The products vary from one another on their fat content, whether it is
sweetened or unsweetened, concentrated or not. Milk and cream is also the highest to be imported to
the country in volume terms, also.

Some processed dairy products have no domestic substitute; technically there is no domestic supply of them.
But, imported butter and cheese have a domestic substitute. The import of those products is presented in
the table 4.3. The increase in amount of import is positive except for solid milks and creams.

Table 4.3 : Import volume trend of processed dairy products to Ethiopia (kg)

Year Type of processed dairy products and Their HS Code

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 Solid Milks and Creams
(0401. & 0402.) Yogurt (0403) Butter (0405) Cheese (0406)

2009 1,769,117 6,835 32,706 81,772

2010 3,419,709 7,725 8,344 91,203

2011 1,588,045 11,866 13,315 102,387

2012 1,661,871 34,215 13,398 97,568

2013 1,160,756 11,489 19,703 83,532

Geo. AAIG
(%) -10.00 13.86 9.53 0.53

II.supply
Total Total Supply offorProcessed
is estimated the majorMilk
processed dairy products, pasteurized cow milk, butter and
cheese. Pasteurized cow milk is not being imported to the country where as the other two, butter and
ghee and cheese are being imported.

Table 4.4: Total processed milk supply

Items 2009 2010 2011 2012 2013 CAGR

Cow milk (pasteurized) 16,092,700 24,356,400 22,035,000 24,399,500 28,215,582 11.57%

(Lt.)

Butter and Ghee (kg) 16,125,406 990,344 265,315 241,398 272,929 -4.73%

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Cheese (kg) 351,772 276,203 262,387 379,568 397,724 9.09%

Yogurt (0403…) 6,835 7,725 11,866 34,215 11,489 10.95%

Solid Milks and Creams 1,769,117 3,419,709 1,588,045 1,661,871 1,160,756 -8.08%
(0401. & 0402.)

Source: DBE 2nd update dairy products research commodity study, 2014

As indicated in the above table total supply of naturalized milk, cheese and yoghurt has shown an
increment for year covering 2009-2013.Whereas solid milk and cream, butter and ghee has shown a
negative trend.

III.4 Supply Projection

In Ethiopia though the sector is not being well supported by a government policy and constrained to
some extent by ever increasing price of animal feed, the processed dairy products industry is taking
the attention of investors that the production of the products is increasing significantly. That is
probably because the startup capital is relatively small and the production process is also easy to
learn and adapt.

As it is presented in the table 4.5, the production of processed dairy products is increasing with
significant rate. In this commodity study, it is assumed that supply will increase in the future with the
rate that it has been doing in the past.

Table 4.5: Supply Projection

Year Cow Milk (pasteurized) (Lt.) Butter (kg) Cheese (kg)

2014 32,628,499 302,813 434,050

2015 37,731,596 335,973 474,476
2016 43,632,818 372,770 519,471
2017 50,456,990 413,602 569,555
2018 58,348,464 458,913 625,309
2019 67,474,163 509,193 687,380
2020 78,027,121 588,831 794,886

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2021 90,230,562 680,924 919,206
Source: DBE 2nd update dairy products research commodity study, 2014

III.6 Demand Supply Gap projection

It has argued that the demand for the processed dairy products is increasing, especially in the big
towns and cities of the country. The supply of the products is also increasing due to the increase in
the number of processing firms.

The gap between the supply and demand for all the products is positive. This is in tally with the
increase in the importation of dairy products. It is also shows that the people attention towards
consumption of processed dairy products is improving. This is because, impart the expansion of cities
is making the supply unprocessed milk difficult and consumers are moving towards the processed
milk products.

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 Table 4.6: Demand Supply Gap projection of Raw Milk, butter& cheese

Ye Pasteurized, Milk Butter and ghee (kg) Cheese (kg)

ar DD SS Gap DD SS Gap DD SS Gap

2014 203,040,076 32,628,499 170,411,577 1,884,337 302,813 1,581,525 2,700,999 434,050 2,266,949

2015 208,574,511 37,731,596 170,842,915 1,935,700 335,973 1,599,727 2,774,622 474,476 2,300,146

2016 214,259,802 43,632,818 170,626,984 1,988,463 372,770 1,615,693 2,850,253 519,471 2,330,782

2017 220,100,063 50,456,990 169,643,073 2,042,664 413,602 1,629,062 2,927,944 569,555 2,358,390

2018 226,099,517 58,348,464 167,751,053 2,098,343 458,913 1,639,430 3,007,754 625,309 2,382,445

2019 226,310,535 67,474,163 158,836,372 2,155,539 509,193 1,646,346 3,089,739 687,380 2,402,359

2020 233,099,851 78,027,121 155,072,730 2,220,205 588,831 1,631,374 3,182,431 794,886 2,387,545

2021 240,092,847 90,230,562 149,862,285 2,286,811 680,924 1,605,887 3,277,904 919,206 2,358,698

Source: DBE 2nd update dairy products research commodity study, 2014

III.7 The Price Analysis

Basically price of product is determined by both internal and external factors. The internal factors
include the marketing objectives, cost, organizational consideration and the marketing mix strategies,
the external factor include nature of the market, level of demand, competition and other economic
factors.

The second research commodity study of the bank shows that, price of dairy products increased
between years the year 2012 to 2014. The highest price increment is for Pasteurized milk which has
increased by 21.43% and the lowest is for yoghurt, which is has increased by 4.35%. The price of
quality raw milk in year 2014 is 12.25 ETB. Comparison of the two years prices is presented here
under.

Table.4.7.Factory gate price of major products

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 Unit of the Years Change in Price (CAGR)
Type of the Product *2012 **2014
Measurement (%)
Pasteurized milk Lt. 14 17 21.43
Yogurt Kg. 23 24 4.35
Modern Cheese kg 130 152 16.92
Butter Kg. 126 140 11.11
Source: DBE 2nd updates Research commodity study of the bank, 2014

III.8 Target markets and potential customers

The target market destination of the company will be domestic customers, particularly the
consumers in Addis Ababa market and surrounding near towns. The company will involve selling
the products directly to its customer by using vehicles equipped with cooling machine. It will be
sale for local catering institutions, supermarkets, universities and wholesalers will be the buyers
of the products. As a result, these ranges of potential customers are expected to gradually increase
in the coming 10 years of the projection period.

III.9 Marketing Strategy of the Company

As per the feasibility study of the applicant, the Company will involve selling the products directly to
its customer by using vehicles equipped with cooling machine. It will be sale for local catering
institutions, supermarkets, universities and wholesalers will be the buyers of the products. In addition
to these the appraisal team recommends the following marketing strategies for the company:

 Entering into long-term contracts for the supply of the products.

 Brand building for milk products, gathering local market information through surveys &
direct sales.
 Adhere to specific measurable technical qualities. All supplied product shall be within
acceptable range.
 Organizing an effective supply chain and sales forces.
 Ensure that the production and packaging systems are in line with international practice. The
production facilities, packaging technologies and production process will be up to
international standard and confirm to good agricultural/ manufacturing practices and ISO
22000 Quality and Food Safety Management Systems.

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 IV. TECHNICAL ASPECT OF MISALE DAIRY

III.10 Location and Accessibility

The project is located in Amhara National Regional State, North Shewa Zone, Angolela and Tera
district , Seriti Kebele, 103 Km from Country capital Addis Ababa and 27 Km from Zonal capital
Debre Birihan alongside the national high way that goes to Desie and Mekele. The project site is
accessible all seasons enabling it to obtain raw materials and easily supply its final product to the
market.

III.11 Infrastructure
The location has sufficient infrastructural facilities like electricity, telephone, and access road. The
overall infrastructure development of the country has benefited the project area with high standard
asphalted road.

III.12 Land and Ownership

The company has acquired 5 ha of land by lease from Amhara Regional State, North Shoa Zone
Environmental Protection and Land Administration, for a period of 15 years (17/03/2007 E.C. to
16/03/2022 E.C.); with a total annual land lease payment of Birr 1,355.

III.13 Agro-ecological Suitability of the Project

The project is located in the agro-ecology of major milk production area in the central highlands,
suitable for milk production, collection and processing. The area is characterized by cool temperature
and has better rainfall distribution.
Therefore this agro-climatic condition of the area categorized excess producing area for agricultural
products and also has a potential to establish a commercial dairy farm to produce milk and collect
milk from surrounding farmers and cooperatives or unions. As per feasibility study of the promoter
planned to raise 200 cows. However it has presented Performa for 120 pregnant heifers. As a result
the appraisal team considered purchasing of 200 cross breeds Holstein Frisian pregnant heifers from
local breeders as per its plan in the feasibility study by unit cost of Birr 60,000.

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 III.14 Input Requirement and Availability

III.14.1 Breeds of Livestock

To start a dairy farm the type of breed is the most important factor affecting the productivity of the
animal. The genotype of Ethiopian livestock has evolved largely through natural selection influenced
by environmental factors. This has made the local breeds to withstand feed and water shortages,
disease challenges and harsh climates; but the capacity for high levels of production has remained
limited.

Exotic breeds of cattle have higher milk yield and reproductive performance which results in higher
productivity as compared to the local ones. The most widely known exotic breeds of dairy cattle that
are suitable for agro-ecology of Ethiopia are Holstein Friesian and Jersey. Regarding to the amount
of milk production, Holstein Friesian provide high production as compared to Jersey; whereas, Jersey
breeds yield higher percentage of fat as compared to Holstein Friesians. Therefore, in Ethiopia most
commercialized dairy farms prefer Holstein Friesian cross breed than Jersey by considering the
amount of milk obtained from the breed. Currently there is no organized heifer breeding center that
serves as a source for dairy producers; but most dairy farmers are purchasing from different
individual suppliers. Therefore, the company has planned to procure its initial heard (pregnant
heifers) form Maleda Dairy Enterprise and Moges Kase Dairy Production Enterprise

III.14.2 Feed
Dairy cows use feed for different purposes; for milk production, maintenance, energy, growth and
reproduction. Feed is one of the major inputs that are necessary for dairy production and cost feed
cover around 60 % of the total running cost of the dairy business.
Dairy feeds are categorized into two major groups; roughage and concentrate. Roughages are green
fodders (forage plants that grow in the farm land and are offered to the animals freshly), green
fodders hay which is sun dried forage with considerable nutrient and silage which is preserved green
fodder in which anaerobic fermentation. Roughages constitute the major portion of dairy animals’
feed. The other feed type is concentrate which is obtained mostly from Agro-industrial byproducts
and mixed in a variety of proportions to form a feed supplement the cattle nutritional requirement
based on their physiology, age, and productivity etc.

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 III.14.3 Feed Requirement
 Calf feed requirement
The amount and type of feed required by a dairy animal vary according to their age, sex,
productivity, physiological stage and such as pregnancy, lactation etc
Milk is a feed for a calve used until its age 70 days or 98 days ( weaving time).However, weaving at
70 days is more economical in milk consumption and weaving at 70 and 98 days of age has almost
the same impact on the growth of the calf. The consumption of milk by the calf in the form of
colostrums in the first 3 or 4 day use to develop natural immunity and after then it is in the form of
whole milk. Calves starting consuming hay and concentrates after a week and introduce gradually.

Under commercial farm, male calves are sold at 15 days of age in most of the time and the amounts
of feed required in the first 15 days are milk and latter hay or concentrate is considered in the study.
 Heifer Daily Feed Requirement
According to the data obtained from Ethiopian Agricultural Research Institute indicates that a heifer
whose age is from 1-2 year, the average amount of feed required is 1.75-2 kg of concentrates and 4-5
kg of dry feed. When the heifer age is from 2-3 year, the amount of concentrates is 2-3 kg and dry
feed is 5-7 kg. However most of the time and the more advisable way of determining the required
feed for heifer are based on the live weight of the heifer. Accordingly, the total daily feed (TDF)
requirement of heifer is determined by 3% of the live weight of the heifer. From the total daily feed
30 % of concentrates and the rest 70 % is dry feed (second update Dairy farm & Processing research
commodity, 2014).

 Feed Requirement for Lactating Cow (Milking Dairy Cow)

Different sources indicate that the daily concentrates supplement for lactating cows does not
exceed 6 kg/head /day( for cross bread and exotic) and the dry feed also ranges from 9-11 kg per
day. On the other hand,
½ kg of concentrates required to produce for 1 kg of milk/day
2 kg of concentrates required for maintenance of the cow/ day
2 kg of concentrates required for pregnant cow/day.
Misale Dairy Farming and Processing Plc have planned to procure feed from Alema Koudijs Feed
Bishoftu by Birr 606.52 per quintal. On the other hand source of roughage is not mentioned in the
feasibility study of the project and proforma not yet presented. It creating great concern for the

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appraisal team because the commodity study for dairy farms and processing plants recommends that
a dairy farm to secure its own forage production area or has to agree with a forage producing firm to
supply forage to the dairy farm throughout the year. Consequently, the appraisal team demands either
of the above mentioned sources of forage for the dairy farm.

III.15 Veterinary medicaments

Animal disease is a major constraint limiting the production of dairy animals, by restricting the
introduction of more productive animals, new technology and constraining the country from entering
the high priced export market. There are epidemics of infectious diseases with high rates of mortality,
which could be controlled by vaccination; there are also parasitic, and vector born diseases.
Livestock diseases on their own and interacting with nutritional and productivity problems cause high
mortality, morbidity and hamper production in potentially productive areas.
The service of medication (like vaccination) is given in the dairy farm in order to avoid any
contamination when animals are transported to other farms. It is also recommended that
commercialized dairy farms to have their own professionals who have knowledge regarding to
medication, should know the prevalence time of disease to administrate vaccination and treat the
animals at any time.
The company has planned to employ a veterinarian to oversee health of the animals. The veterinarian
should have a separate office which is a sort of Clinic to keep the medicaments, laboratory tools and
chemicals, medical tools and chemicals and records of case history of the animals.

Artificial Insemination (AI)

The company planned to employs AI technical to use artificial insemination instead of natural
mating. On the way to prevent the inbreeding and minimize the problems caused by natural mating in
the herd.AI include its low cost and ease compared to maintaining a bull, ability to select from a large
number of bulls to match the anticipated market for the resulting calves, and predictable results. The
Service rate of artificial insemination per cow ranges from 1-3 times because it may not be successful
only giving one insemination and cost of it is assumed using the data of research commodity study of
2014.

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 III.16 Raw milk
In milk processing industry: Raw milk. Additives and Packing material are the main raw material .As
per the feasibility study submitted by the company; the project planed two sources of raw milk for
processing the envisaged dairy products. The primary source is from own farm and this is planned to
be realized by purchasing 200 crossed Holstein Frisian pregnant heifers cover around 40% the
required raw milk. The other strategy is to collect raw milk by directly purchasing form long term
contractual agreement to reach the planned processing capacity. As per the comment given from the
appraisal team members to have a long term milk supply contract agreement; based on the comment
given the company enters a new agreement with three different unions: Ayzak-Abafogi milk and
milk product suppler cooperative union up to 3000L/day, Meki-Andinet Milk development
cooperative 2000L/day and Kokeb Milk development cooperative has agreed to supply 4000-
5000L/day which help the company to satisfy daily raw milk requirement which is not able to satisfy
from own farm is planned to be supplied based on the agreement.

III.17 Milk processing

The company planned to process 8000 liters per day to products like pasteurize milk, yoghurt,
butter and cheese.

III.17.1 Pasteurized milk production

Pasteurized milk is milk which has been heat-treated to kill pathogens which cause disease. During
pasteurization common temperature and time combinations are 63 0C for 30 minutes by the holder
(batch) process and 72 0C for 15 seconds by the HTST (continuous) method. In each case the milk is
cooled without delay to 10 0C or below.
Pasteurization has little effect on the nutritive value of milk as the major nutrients are not altered.
There is no significant loss of vitamin C and the B group vitamins. The process kills many
fermentative organisms as well as pathogens but putrefactive micro-organisms survive pasteurization.
The company plans to convert 92 percent of the raw milk to pasteurize.

III.17.2 Yoghurt Production

Yogurt is produced through the fermentation of milk by lactic acid bacteria, usually Lactobacillus
bulgarius and Streptococcus thermophilus. The milk is firstly heat treated, homogenized and then
cooled to allow the addition of bacteria or starter culture. To give the right conditions, i.e. in correct

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temperature and moisture, the bacteria are able to ferment the milk sugar (lactose), and then produce
lactic acid. The milk proteins then coagulate and set, to form yogurt. A colorless liquid called
acetaldehyde is also produced during fermentation and gives yogurt its distinct flavor. Yogurt can be
made from different types of milk, including skimmed, semi-skimmed and whole milk.
The company has planned to produce yoghurt, utilizing (1%) of the raw milk, but detail of the starter
culture and flavor type are not clearly mentioned in the feasibility study; available data from
previously appraised projects is used and the company is expected to submit Performa invoice for
starter culture and additives (flavored )

III.17.3 Butter Production

The company plans to produce butter 3% from the total of milk. Butter is a dairy product made by
churning fresh or fermented cream or milk. Butter is a water-in-oil emulsion resulted from phase
reversal from oil-in-water emulsion with the help of continuous churning. Butter remains solid when
refrigerated, but often to a spreadable consistency at room temperature, and melts to a thin liquid
consistency at 32–350C. It generally has a pale yellow color, but varies from deep yellow to nearly
white. Its unmodified color is dependent on the animals' feed and is commonly manipulated with
food colorings in the commercial manufacturing process, most commonly annatto or carotene.

III.17.4 Cheese making

Cheese consists of proteins and fat from milk, usually from the milk of cows. It is produced by
coagulation of the milk protein (casein). Typically, the milk is acidified and addition of the enzyme
rennet causes coagulation. The solids are separated and pressed into final forms. Cheese is produced
throughout the world in wide-ranging flavors, textures, and forms like Gouda cheese (cheese
produced directly from fat raw milk), local cheese (mostly produced from skimmed milk or after
cream or milk fat is removed).
Hundreds types of cheese are produced. Their styles, textures and flavors depend on the origin of the
milk (including the animal's diet), whether they have been pasteurized, the butterfat content, the
bacteria and mold, the processing, and aging. Herbs, spices, or wood smoke may be used as flavoring
agents. The yellow to red color of many cheeses is from adding annatto.
Cheese is valued for its portability, long shelf life, and high content of fat, protein, calcium, and
phosphorus. Cheese is more compact and has a longer shelf life than milk. Cheese makers near a
dairy region may benefit from fresher, lower-priced milk, and lower shipping costs. The long storage

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life of some cheese, especially if it is encased in a protective rind, allows selling when markets are
favorable.
Misale Dairy Farm and Processing PLC has not specified the planned type of cheese to be produced;
however, the appraisal team believes that it would be Gouda cheese or mozzarella or cottage cheese
which is commonly produced and utilized in the country.

III.17.5 Product Storage

Finished products should be stored in a separate dispatch store at 4 0C to -20C, or for frozen milk
products, frozen in a freezer operating below -18 0C. This storing facility uses to increase the shelf
life of the final product. Air conditioning systems are essential in order to adjust the air. The store
should be regularly inspected and cleaned. An air-conditioned truck would be required for
transportation of the final milk product to different distribution areas. The company has planned a
cold room in the main processing hall and air conditioned vehicle to collect raw milk form suppliers
and to distribute the final product of the project.
Fig 5.1: General Processing Flow

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 III.17.6 Production Process and Production Capacity
Transportation of raw milk collected from the supplier to processing area is performed by
refrigeration truck. But the raw milk obtained from own farm can be transported using pumps that are
connected to central refrigeration since it is in the same compound.
Overall milk processing includes temporary preservation (raw milk handling), filtration/clarification
of raw milk, separation of all or part of the milk fat, production of cream and butter, pasteurization,
homogenization (if required), deodorization (if required), further product-specific processing and
distribution of final products.
The machinery of the project has a total processing capcity of 8,000 liters of milk per day. Production
of the plant is assumed to start at 60% and gradually increases year to year to reach to 95% on fifth
year. Thus, the maximum capacity utilization of this project is planned to be 95%.

III.18 Building and Construction

The main construction item of the company is the dairy farming and processing plant which includes
barn, milking house, milk processing house and hay shed structures and cost estimates are presented
in the following table
Table 5.1: Building and Construction
Building and Construction
Description No of Blocks Values in Birr
Barn 3 5,654,918
Milking House 1 1,026,119
Milk Processing House 1 2,402,828
Workshop 1 1,634,119
Staff Residence 1 2,997,711
Guest House 1 1,498,856
Managers Villa 1 1,215,103
Staff Café 1 369,720
Clinic 1 241,841
Office & Generator store 1 1,853,105
Guard House 1 119,446
Hay Shed 1 1,102,668
Site Work 1,157,975
Total 21,274,410

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 III.19 Machineries and Equipment
As it is obviously known, selection of machineries and equipment’s has critical importance since it
has the capacity to determine the quantity and quality standard of the product intended to produce.
Therefore, it is mandatory to thoroughly identify whether the appropriate type of plant that meets the
consumer requirements selected & all the necessary machineries & equipment are included. Based on
this fact, considering the submitted pro forma invoice, after appropriateness of all the necessary
machineries & equipments identified, the technical team has approved milk processing machine
supplied by Shanghai Beyond Machinery Co. Ltd. The aggregate processing capacity of the project
is 8,000 liters per day with total cost of Birr 6,144,517.48.

III.20 Farm Machineries and Implements

Based on the requirement of the project for smooth operation, 92 HP tractor and general purpose
agricultural Trailer Model 2B60TR are considered as necessary farm machineries and equipment.
Their costs and viability for the machinery was properly determined by the technical team .The total
cost is estimated to be Birr 1,348,650.00. The detail is depicted in the below table.

Table 5.2: Planned Farm Machineries and Implements

No Description Quantity Total
1 General purpose 92HP tractor 1 1,138,650.00
Cost(Birr)
2 General purpose Agricultural 1 210,000.00
trailer Total 1,348,650

III.21 Milking Machinery

To facilitate smooth milking operation, milking machine is required depending on the number of
milking cows that the farm is rearing. Therefore, since this project planned to have high number of
animals, the appraisal team recommended five milking machines.

III.22 Trucks and Vehicles

Due to the nature of the project, trucks and vehicles play great role in its effectiveness and
successfulness. The promoter will procure one Termoking and Equivalent refrigerating Unit
truck and one van body mounted NPR ISZU which will be used for the purpose of raw milk

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collection and for delivery the final product to the market.. It has also planned to procure Isuzu NPR
and Toyota Hilux Double cabin.
Therefore, the Isuzu NPR will be used for transportation of different inputs while the pickup will be
used for transportation of management staff. The total cost of trucks and vehicles is estimated to be
Birr 3,048,174 and the detail is attached in the annex part of this appraisal report.

III.23 Auxiliary Equipment

As any processing plant, this project requires different auxiliary equipments for complete processing
facilitation; and accordingly the company has planned to procure air compressor, boiler, cooling
facility, and laboratory equipment. This will reach total cost of Birr 5,299,034 including insurance,
bank charge and transportation cost. The detail is attached in the annex part.

III.24 Utilities
It is obvious that utilities like electric power, backup generator, water and communication devices
like telephone, internet and fax are among important facilities that are supposed to be fulfilled for
smooth operation of every project. Accordingly, the project site is accessible with all infrastructures
like electric power, and communication devices. With regard to backup generator, there is no
Performa submitted. However, since the raw material of the project has high perishable nature, for
successful processing of its final product, the need of backup generator is a must. Therefore the
company should present per forma invoice before final appraisal.

On the other hand, the project requires considerable amount of clean water for the milk processing, to
wash houses, milk utensils, for the cattle and the processing equipment. Accordingly there is a
document submitted by the company which states that it has completed bore hole. However, there is
no valuation report made by the CRMD-I and the appraisal team is not able to consider it as equity
contribution. Therefore, the CRMD-I should undergo valuation and deliver it before final appraisal
report.

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 III.25 .Office Furniture & Equipment
Office furniture and equipments are crucial for smooth operation of the project. Thus, all the
necessary types and number is determined and their costs are included in the total project cost. The
total estimated cost of office furniture and equipment is Birr 364,395. The details are presented in the
annex part of this report.

III.26 Environmental Impact Assessment

Processing industry has an adverse environmental impact. Similarly, the dairy processing pollutes
environment by discharging gaseous, liquid and solid waste. This impact come from activities
associated with liquid handling and, to a less significant extent, with the discharge of air and solid
wastes. However, by taking due care on selection of processing technologies and proper waste
management, it is possible to minimize the adverse impact to the environment.
In order to mitigate environmental impact related with this project. The Company has undertaken
environmental impact assessment and set mitigation mechanism which has been approved by
concerned body and which has accepted implementation of the project. Confidently, the Company
will implement all the necessary mitigating mechanisms and adhere to the conditions set by the
respective office in order to minimize impact of implementation of the project on the Environment.

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 Misale Dairy Farming and Processing PLC
Implementation Schedule
2016 2017
Item Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec
Processing the Loan                              
Building & construction                              
Plant Buildings                              
Dairy farm Building                              
Finishing Work                              
Procurement of Dairy cows                          
Negotiations with cooperative
union and other tasks                              
L/C opening for plant
machinery and Equipment                              
L/C settlement for plant
machinery and Equipment                              
Procurement of Truck and
Vehicles                              
Installing and commissioning                            
Recruitment and training                            
Procurement of raw materials                              
Trial production                            
Promotion & advertisement and
Setting up of warehouse                              
Commercial production                              

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 V. ORGANIZATION AND MANAGEMENT
III.27 Organizational Structure
The project under consideration is planned headed by General Manager who is responsible for to
control overall activity company by, Coordinating, Supervising and control of the day to day
operation of the company. He will be supported by project manager and three critical departments:
Administrative and Finance, Production and Marketing Departments, who are in charge of their
specific departments day to day activities. Under the three Departments there are seven units, which
are directly related to the day-to –day operation of the project. The units will also be supported by
specialized section which directly involve in processing.
Hence, summarized organizational structure of the company which has been prepared in line with the
organization structure stated in the commodity study is illustrated hereunder:

Figure 6.1: Organizational Structure of the project

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III.28 Project Management
6.2.1 Management
The company is organized under a general manager. The key management staff of the company
includes the general manager, administrative and finance manager, production manager and
Marketing Manager

6.2.2 General Manager

General Manager: The General Manager of the company is Ato Shimelis Bizuneh. He is the major
shareholder of the company. He has got BA Degree in Business Management from Alpha University
Collage and Accounting from Addis Ababa University Commercial Collage and overall 11 years’
experience in managing different business organization. Moreover, he has well experienced and
qualified, which help the management staff to lead to the project to go through successful during its
implementation as well as operational period of the project.
Also, the company has already hired Ato Alemayehu Ayele as Project Manager.Ato Alemeyehu
Ayele has BA Degree in Chemical Industry from Addis Ababa University of Technology Faculty .He
has a total of fifteen (15) years of work experience of which for the last seven (7) years, he had
engaged with a position of general manager. Besides .the general manager there is Farm Manager Ato
Melaku Tsegaye has Bsc Degree in wild life management and Diploma in Animal science from
Agarfa TVET collage. As a result, the recruited farm manager will successfully manage the project in
cooperation with the General Manager and other project staffs.
III.29 Manpower Requirement and Training
The project requires directly related to the main production areas and other financial and marketing
fields in addition to the sizable daily labor it will require in main production and processing seasons.
With regard to the availability of skilled and unskilled man power requirement of the project, since
the planned project is in line with the government’s priority development sector, there are many local
universities and colleges the train large number of professional in various field that the project is
planning to recruit. Therefore, locating itself just nearest to the capital Addis Ababa, it will not face
any problem in satisfying its man power requirement.
Training is a process of enhancing the skills, capabilities, and knowledge of employees for doing a
particular job. It is crucial for organizational development and success. It is fruit full to both

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employers and employees of an organization. An employee will become more efficient and
productive if he/she is trained well .As a result, continuous and related training is recommended as
deemed necessary.
Employee remuneration and benefit are also an important factor for employee’s productivity.
Employee remuneration refers to the reward or compensation given to the employees for their work
performances. Similarly, benefits are any perks offered to employees in addition to salary. The most
common benefits are medical, disability and life insurance, retirement benefits and fringe benefits.
Both remuneration and benefits provide basic attraction and motivation to an employee to perform
job efficiently and effectively. These all are considered and included in project cost. Therefore, the
company is expected to work hard on their implementation for success of the project. The detail man
power requirement with respective salary and other benefit packages is attached in the annex part of
this report.

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 VI. FINACIAL STUDY

VII.1 Investment Costs

The total investment cost of the project estimated at Birr 52.64 million. Out of which 87% is fixed
investment cost, while the remaining 13% is preproduction cost and interest and working capital cost.
Summary of Investment costs is shown in Table below

Description Existing Planned Total cost (Birr)

Building and Construction 1,092,666 17,167,887 18,260,552

Machineies & Equepments - 6,208,717 6,208,717
Truck & Vehicles 4,690,280 1,969,824 6,660,104
Auxilary Equepment 1,314,677 5,355,532 6,670,209
Office Furniture & Equepments - 364,395 364,395
Dairy Animals 631,000 7,080,000 7,711,000
Sub-total 7,728,622 38,146,354 45,874,976
Working capital 4,695,616 4,695,616
Sub-total - 4,695,616 4,695,616
Pre-production Interest - 1,735,145 1,735,145
Pre-production cost - 334,383 334,383
Sub-total - 2,069,528 2,069,528
Grand Total 7,728,622 44,911,498 52,640,120

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 VII.2 Foreign and Local component of costs
The total financial requirement of the project is estimated at Birr 52.34 million; out of which Birr
12.79 million is foreign cost and the remaining balance of Birr 39.55 million costs is local
component. Details of the cost components are as presented below:

Table 7.2: Local and Foreign component

Foreign Local Total Local
Component Component Component
Investment Costs (Birr Equivalent) (Birr) (Birr)
Building and Construction - 18260552 18,260,552
Machineries & Equipments 6,208,717 - 6,208,717
Truck & Vehicles - 6,660,104 6,660,104
Auxiliary Equipment 5,355,532 1,314,677 6,670,209
Office Furniture & Equipments - 364,395 364,395
Dairy Animals 7,711,000 7,711,000
Sub-total 11,564,249 34,310,727 45,874,976
Working capital 4,695,616 4,695,616
Sub-total - 4,695,616 4,695,616
Pre-production Interest - 1,735,145 1,735,145
Pre-production cost - 334,383 334,383
Sub-total 11,564,249 - 2,069,528 2,069,528
Grand Total 12,792,201 41,075,871 52,640,120
Percentage 22% 78% 100%

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 VII.3 Source of Finance

The project’s investment cost will be covered from owner’s equity and Bank loan. The total planned
investment cost of the project is estimated at Birr 52.34 million out of which 75% will be DBE loan
and the balance of 25% is equity contribution. The detail is summarized hereunder.
Table 7.3: Fund Allocation
Total Financial Owner's Equity
Requirements DBE Bank Total
Description (Birr) Loan In Kind In Cash equity
-
Building and Construction 18,260,552 15,207,661 1,092,666 1,960,226 3,052,892
Machineries & Equipments 6,208,717 5,171,457 - 1,037,260 1,037,260
Truck & Vehicles 6,660,104 1,969,824 4,690,280 4,690,280
Auxiliary Equipment 6,670,209 5,355,532 1,314,677 1,314,677
Office Furniture & Equipments 364,395 - - 364,395 364,395
Dairy Animals 7,711,000 7,080,000 631,000 631,000
Sub-total 45,874,976 34,784,474 7,728,622 3,361,881 11,090,503
Working capital 4,695,616 4,695,616 -
Sub-total 4,695,616 4,695,616 -
Pre-production interest 1,735,145 - 1,735,145 1,735,145
Pre-production cost 334,383 - 334,383 334,383
Sub-total 2,069,528 - 334,383 1,735,145 2,069,528
Total 52,640,120 39,480,090 8,063,005 5,097,025 13,160,030
Debt equity ratio 100% 75% 15% 10% 25%

VII.4 Expected Financial Results

 Profitability: - The projected profit and loss statement forecasted for 10 project years shows
that the net profit of the project in the first year of operation will be Birr 2,76 million and
Birr 12, million in the last projection period showing that the project could run profitable
business venture.

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  Liquidity: - The cash flow projection also shows an incremental cumulative net cash balance
from Birr 3,314,347 million in the first project year to Birr 55,182,596 million in the last
projection period indicating that the project will not face liquidity constraint to finance its
operational cost and meeting its debt obligation.
 Financial Internal Rate of Return:- Before and after tax internal rate of return computed based
on 10 years projection period is 24%and 21% respectively.
 Sensitivity Analysis: The project's sensitivity to adverse circumstance is viewed from three
different scenarios: by decreasing its sales revenue, increasing its operating cost and
investment cost, by 10%. The result indicates that IRR after tax decreases to 14%, 16% and
18% respectively. This shows that the project can withstand any adverse circumstances.

Table 7.4: Sensitivity Analysis

FIRR before FIRR after
Description Tax Tax
Decrease in Sales Revenue by 10% 18% 14%
Increase in Operating Cost by 10% 20% 16%
Increase in Investment Cost by 10% 22% 18%

VII.5 Socioeconomic Benefits

Ethiopia is among fastest growing countries from the world for the last ten year and above;
development of Agriculture and establishment of such processing industries are very important for
the country. It is possible to state varies reasons. Among, the followings are some of it

 Create Job Opportunity The project will create employment opportunity for 63 permanent
skilled and semi-skilled employees. The project will also create job opportunities to a substantial
number of laborers who are involved in the project implementation period.

 Source of Government Income: government get income in the form of personal income tax
from permanent and temporary employee, and profit tax from the business and in average the
government will get Birr 4,791,559

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  GDP Contribution: The dairy sub sector is the major contributor for economic growth of the
nation in Livestock sector

 Technology and Knowledge Transfer: The development of this subsector transfer new
technology and knowledge by introducing modern production techniques that optimize yield and
quality of product

 Increase Foreign Currency Saving: Milk products contribute significant foreign currency
earnings in the past five year by substituting those imported and from export.

 The project will supply quality dairy products to Addis Ababa and Debre-Birhan residents and
to the vicinity.

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 VII. CONCLUSION AND RECOMMENDATION

8.1 Conclusion
Even though Ethiopia holds large potential for dairy development, the country hasn’t been benefited
from the sector to the extent that is expected to be. As a result, the government has given a due focus
to eradicate bottleneck associated with the sector and supporting those who engaged and motivating
to involve in the sector. Along with government strategy, DBE has also set dairy farm and milk
processing projects among the priority area projects so as to provide financial as well as technical
support.
Misale Dairy Farming and Processing PLC were legally established on 01/12/2015 by tow
shareholders namely Ato Shimelis Bizuneh and W/ro Frezewud Gelan. As per. the shareholder
meeting minute dated on 02/05/2008 E.C, paid up capital of the company is increased from Birr 4.5
million to Birr 8.14 million
The project is located in Amhara National Regional State, North Shewa Zone, Angolela and Tera
district , Seriti Kebele, 103 Km from Country capital Addis Ababa and 27 Km from Zonal capital
Debre Birihan alongside the national high way that goes to Desie and Mekele. The project site is
accessible all seasons enabling it to obtain raw materials and easily supply its final product to the
market
With regard to market, indeed dairy products are in short of supply in the general Ethiopian market.
Misale Dairy and Processing PLC (Milk production & processing plant) planned to produce and
process milk produced on farm & collected from the raw milk supplier union. Engaging in dairy
farming sustains the project in that where there is shortage of milk supply due to increased price of
raw milk or failure of milk suppliers to abide by their agreement, and then the company can run by
offering premium price for milk suppliers.

The due diligence assessment of the company shows that it is legal in all terms and the promoters are
creditworthy. Market assessment indicates that there is huge unsatisfied demand for milk and milk
products in the country. Technical feasibility assessment also shows that establishing a dairy farm
and milk processing plant in the area is recommendable and the machinery and equipment are
appropriate to the envisaged production.

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 Financial projections for the project showed that the project is profitable venture, and financially
sustainable and can repay the loan.

Recommendations
Thus, considering all the above findings, Appraisal Team I found that financing the proposed project
for its implementation is commendable and appropriate. Therefore, the team has proposed and
approved the total loan amount of Birr 39,480,090 at its level with the following terms and
conditions:-

8.2.1 Terms and conditions

I. Terms
A. Equity Release Schedule

The promoter shall block and utilize its equity of Birr 5,097,025 for the following investment
items

Amount to be Expected Months

Equity Release Released To be to be Released
Plan Purpose of Release (Birr) Released for (2016/17)
Pre-production Interest 1,735,145 DBE
Sub-total
For Building and Construction 1,960,226 Contractor

For Machineries & equipment’s 1,037,260 supplier

Equity
Release For Office Furniture & equipment 364,395 supplier
Total Equity to be Blocked in Cash 5,097,025

B. loan Disbursement

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 First Disbursement –Birr 10,140,179.32

Upon verification by the CRMD-I that the promoter properly blocking & utilization of equity contribution,
the first disbursement of Birr 10,140,179.32 shall be disbursed as follows:

 Birr 7,603,830.30 to contractor for Building & construction

 Birr 1,551,437.12 to the supplier for opening of L/C for Machineries
 Birr 984,911.91 for procurements of Truck& Vehicles

Second Disbursement- Birr 23,531,734

After verification on the proper utilization of the previous disbursements and other conditions a total of Birr
23,531,734 shall be disbursed in the following manner.

 Birr 7,603,830.30 to contractor for Building & construction

 Birr 3,620,019.94 to the supplier for settlements of L/C for machineries
 Birr 2,677,766.05 to supplier for Auxiliary & supplementary equipment
 Birr 984,911.91 to supplier for procurement of vehicle
 Birr 7,080,000.00 to supplier for purchase of 200 diary animals
 Birr 1,565,205.44 to supplier for procurements of raw material

Third Disbursement- Birr 5,808,177

After verification on the proper utilization of the previous disbursements and other conditions a total of

Birr 5,808,177 shall be disbursed as follows.

 Birr 2,677,766.05 to supplier for procurements of Auxiliary Equipments
 Birr 3,130,410.89 to the supplier to supplier for procurements of raw material

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  Repayment
 Principal Repayment.
The principal loan is planned to be repaid quarterly in 25 installments, the first installments will be
Birr 3,167,825.9 and starts from December 31, 2017. The remaining 24 equal repayment will be
Birr 1,513,011.0. The last repayment will be made on December 31, 2023.
 Interest Payment
Interest is 12% per annum on the outstanding loan balance to be repaid every three months starting
on April 30, 2017.
 Commitment Charge:
A commitment charge of 0.5% shall be charged on unutilized balance of the loan.
II. Conditions
 Collateral- First degree mortgage on all fixed assets of the project
 Insurance- Purchase/Renewal of proper insurance policy for the entire fixed assets of the
project with DBE as a co-beneficiary
 Current Account- the company should maintain its current account with DBE
 Record keeping- The company should maintain proper record keeping system
 L/C Opening- The company should use DBE’s L/C facility
C. Others Conditions

1. The company shall deposit its equity contribution of Birr 5,097,025 in block account at DBE
2. In such project animal feed is a mandatory to achieve the ultimate goal of the project.
Performa for concentrate feed from Alama coudais submitted by the company, however, for
roughage (hay) not yet. Thus, their cost has been considered from previously appraised
projects and commodity study. Therefore, the company has to present Performa invoice
before final appraisal report.
3. Minor cost variation that might be aroused during implementation stage should be covered by
promoter
4. The promoter shall present all the receipts for verification of the pre-operating costs
amounting of Birr 383,412 considered in the appraisal report as equity.
5. The Promoter should float international bid while procuring machinery and equipments
whichever their cost is above 1million USD as per the NBE Directive.

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 6. During implementation phase, the promoter should present three per forma invoices and
procure the planned machinery and equipments from legitimate manufacturers/suppliers.

Precaution:

The credit process should monitor the implementation and performance of the project strictly. Any deviation
from the planned shall be subject for immediate action on the company to the extent of blocking subsequent
disbursements and/or cancellation of the loan

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