Coffee Roasting, Grinding and Packing

May, 2013

Dire Dawa

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 Table of Content

1. Executive Summary ……………………………………………..................................3

2. Introduction …………………………………………………………………………...3

3. Background ……………………………………………………… …………………..4

4. Policy Environment & Incentives …………………………………………………….6

5. Project Objectives & Rational ………………………………………………………..7

6. Project Area Description …………………………………………………………….. 8

a. Land Availability ……………………………………………………………. 8

b. Infrastructure ………………………………………………………………….9

c. Service Facilities …………………………………………………………….10

7. Project Description …………………………………………………………………..10

8. General Market Description …………………………………………………………11

9. Indicative Project Cost ………………………………………………………………17

10. Conclusion …………………………………………………………………………..19

11. Appendix……………………………………………………………………………..20

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1. Executive Summary

The coffee roasting industry involves the processing of green coffee beans into roasted coffee
products, including whole and ground beans and soluble coffee products. The proposed project
also consists coffee roasting, grinding and packing and this project profile envisages the
establishment of a plant for the production of roasted and milled coffee. The present capacity of
the proposed project is 80 ton per year. It will create job opportunity for 15 persons. The total
investment requirement is estimated at about 4,361,920.00 Birr, out of which Birr 946,000 is
required for plant and machinery.

2. Introduction

Coffee is one of the known commercial crops. It is the most traded one second after oil. It is
usually traded in green coffee and roasted coffee form. The roasting of coffee beans is a common
activity that occurs throughout the country at a wide variety of facilities ranging from small gourmet
coffee shops to medium-sized commercial operations with locally distributed products to large facilities
with national product distribution that operate throughout the year. In Dire Dawa there are certain
factories which prepared roasted coffee and distributed within the influence area. They have created value
chain with the coffee producer farmers. This proposed project also strength this chain and increased
improvement of the subsector growth. In this document included the proposed project production
description included with the objective, policy and incentive and project area description. Finally the
document describes the project market and indicative in detail with conclusion.

3. Background

The Dire Dawa Administration where the coffee roasting project will be implementing is situated
in the Eastern Ethiopia with in the eastern Catchments of the Awash River Basin. It is far from
Addis Ababa about 510 k.m. It is bounded by the Oromyia Regional state to the South and East
and by the Somali regional state to the North and West. The geographical coordinates of Dire
Dawa Administrative are between 41o 38’ E and 42o 19’E longitude and 9o 27’ N 9o 49’N
latitudes. Dire Dawa is placed in the Awash River basin, at the bottom of the northern side of the
Amhar mountain chain, in the eastern part of the country. It extends down up to boarders of the
Somali lowlands. The Dire Dawa Administrative consist the Dire Dawa town and 38 peasant

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associations (PAs). It has at present an estimated total population of 377,000 Out of this about
256,774 (70%) are urban population and 120,220 (30%) rural populations.

The main economic activity of the Dire Dawa city is predominately industry and trade. The city
is serving as a center of trade, industry and service. On the other hand the rural part of the
Administration is agrarian.

It is very ideal place to invest on various projects due to the existence of enormous raw materials
and its strategic location for market and nearness to Djibouti port. Currently, in addition to the
existing different factory the various mega projects such as cement and textile factory have been
established. All the present establishing factory projects have both forward and backward linkage
each other. Because of this many other projects pulled and established as small and medium
factory. Coffee roasting factory is one of the agro processing subsectors which have high
linkage with coffee production.

The coffee roasting industry involves the processing of green coffee beans into roasted coffee
products, including whole and ground beans and soluble coffee products. The coffee roasting
process consists essentially of cleaning, roasting, cooling, grinding, and packaging operation.
Good coffee, carefully roasted and properly brewed, produces a natural beverage that, for tonic
effect, cannot be surpassed, even by its rivals, tea and cocoa.

4. Policy Environment & Incentives

Private sector is one of the development partners. It is known as the motor of the economy. This
role of the private sector is indispensable. Despite the fact that, the significant role the private
sector would play in promoting national and regional development in the past few decades in
Ethiopia, the prevailed policy environment that has highly discouraged the participation of
private investors both foreign and domestic was made the potential to be far from relaxation.

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This has resulted in hindering national and regional socio-economic progress in almost all
sectors of the economy revealing the existing low productive capacity of the economy and
significant socio economic losses in various dimensions.

Recognizing the extent to which the past policy environment has highly impeded the
development of the national economy and the necessity to promote private sector participation in
various of investment ventures that are believed to be, more rewarding and compatible with the
current national and regional development objects and priorities the new investment policy in the
country has open the wider opportunity for private sector participation.

In particular, the basic objectives of the industrial policy should be to achieve an accelerated
pace of competitive and sustainable industrial growth within a framework of increased market
orientation and private sector development. Such growth should also bring about greater socio-
economic development, including increased employment and incomes, and thereby improved
living standards. And also the industrial development strategy focuses on export manufacturing
with priority given to textile and garments, leather and leather products, agro-processing, and
small and micro-enterprises.

The very rational of the manufacturing project lies in the strategy of the government that is being
used for implementation of the policies to achieve the overall government goals. The success of
any policy demands for private sector investment, which in turn leads to the inevitability of
industrial development.
The foremost and basic step to make effective this policy is the government incentive to
encourage the investors by various ways. The incentive which the government implements by
investment proclamation includes the following main issue:
 100% exemption from the payment of import duties and other taxes levied on
imports of capital goods, equipment and spare part up to 15% of the value of
capital invested;
 Exemption from the payment of import duties levied on the import of raw
material for production of export- orientated goods;

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  Income tax exemption for periods ranging from three to eight years; this is a
function of where the investment is located and also the priority accorded to that
particular good; All research and development expenses are tax deductible; and
 Remittance from the proceeds of the sale or transfer of shares or assets upon
liquidation of enterprises to domestic investors is exempted from the payment of
any tax.
In general, in regard to the coffee roasting, grinding and packing agro processing industry our
economic policy considers it directly since the industry absorbs large number of human power
and use agricultural product as raw materials.

5. Project Objectives & Rationale

5.1 Objectives

Coffee is one of the known commercial crops. It is the most traded one second after oil. Because
of this popularity it has significant role in the economy. In order to utilize this advantage related
to coffee it is better to implement processed coffee projects. Therefore the general objective of
this envisages project is to contribute the economic growth of the city. And the specific
objectives of the project are listed below.

 Creating job opportunity to the society

 Generate optimum profit to the owner

 To utilize the opportunity of the city in producing roasted coffee.

5.2 Rationale

Dire Dawa is eligible for various investments because of the existence of rail, road and air
transport, hydroelectric power supply, clean potable water, digital and cable communication and
of wide & reliable market. Dire Dawa, by virtue of its location to the Red-sea port of Djibouti
and of being the final big town in the east with rail and high way links with neighboring
Djibouti, almost all exportable goods produced within the country and those imported from

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abroad reach their destinations via Dire Dawa. The majority of its urban residents earn their life
with various business and trading activities. The coffee roasting, grinding and packing project
will get coffee bean easily in the city since it is the center of eastern Ethiopia exported coffee.
Beside this there is large number human power which is pulled from the influence area.
Therefore, the rationality of establishing such a coffee roasting factory project becomes
unquestionable.

6. Project Area Description

a. Land Availability

The proposed project may obtain land by two options. The first option is by leas contract for
certain years. In Dire Dawa Administration land development and administration managed by
the newly established bureau ‘Land development and management bureau.’ This bureau provides
land for investor in the already prepared investment village. This industry village covered total
area 110 ha. It has the entire necessary infrastructure such as electric power, water and
telecommunication line.

The other option is that if the investor may purchase the land through land bid or have for its
own land, it is possible to change the land use permit to the intended purpose but it should be
compatible with the local development plan. In general the land provision for the coffee roasting,
grinding and packing project is very simple and it is available every time especially with first
option. The total land area required for the establishment of this project is estimated to be 800m 2

, from this total estimated land the built up area should be 400m. 2 Regarding to the city Cost of

building construction, at a unit cost of Birr 4000 per m 2, is estimated at Birr 1.6 million. Total

land lease cost, for a period of 80 years with cost of Birr 9.78 per m 2, is estimated at Birr
625,920. The total investment cost for land, building and civil works, assuming that the total and
lease cost will be paid in advance is estimated at Birr 2,225,920.00

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 b. Infrastructure

To facilitate the production and the market activity of the proposed project there is well
organized infrastructure in sufficient amount. In regard to the road access the Dire Dawa
administration has good level of passenger transport interaction with influence areas and with
other towns particularly Nazareth and Addis Ababa. And on the other hand there are Ethio-
Djibuti and Ethiopian train corporation train which will serves from Djibouti to Addis Ababa via
Dire Dawa so that it helps the project to transport the raw material and workers place to place.
Beside this the other fast transport for passenger and commodity is airline transport which serves
as international standard. The other best infrastructure which is available in sufficient amount
for this project is electrical power supply, water supply and telecommunication which is may
provide as the project request.

c. Service Facilities
In Dire Dawa city there are 20 bank and insurance financial institution which give networked
strong service for the manufacturing sector. In line with the financial service foreign trade which
gives service for any exportable and import product with the collaboration of revenue and
costume service. In related to standardization the Quality and Standards Authority of Ethiopia
has a regional branch office in Dire Dawa gives certification give the laboratory testing
certification based on the international standard.

7. Project Description

A coffee bean is a seed of the coffee plant. It is the pit inside the red or purple fruit often referred
to as a cherry. The two most economically important varieties of coffee plant are the Arabica and
the Robusta; 75-80% of the coffee produced worldwide is Arabica and 20% is Robusta. Arabica
seeds consist of 0.8-1.4% caffeine and Robusta seeds consist of 1.7-4% caffeine. The coffee
roasting process consists essentially of cleaning, roasting, cooling, grinding, and packing
operation. Roasting coffee transforms the chemical and physical properties of green coffee beans
into roasted coffee products. When roasted, the green coffee bean expands to nearly double its
original size, changing in color and density. As the bean absorbs heat, its color shifts to yellow,

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then to a light "cinnamon" brown, and then to a rich dark brown color. During roasting, oils
appear on the surface of the bean. The roast will continue to darken until it is removed from the
heat source. The roasting process involves spinning the beans in a hot air chamber heated by
natural gas. Coffee is roasted for about 10 to 20 minutes at temperatures ranging from 400 0F to
4250F. During roasting, the chemical make-up of the coffee bean changes. It turns a hard,
spongy to bite, green / grassy smelling bean into an intensely fragrant, brittle, and extractable
dark brown bean. Water dissipates and sugars and starches change into oils, which give coffee
much of its aroma and flavor.

The next step of coffee processing stage is grinding. In this step the whole coffee beans are
ground, also known as milling, to facilitate the brewing process. The fineness of grind strongly
affects brewing. So that it must fit with the brewing process. There are some types of grinding
such as burr grinding, chopping, pounding and roller grinding.

After roasting and grinding, the coffee is conveyed, usually by gravity, to weighing and filling
machines that achieve the proper fill by tapping or vibrating. The ground coffee is vacuum
packed in flexible paper bag and placed in a paperboard carton that helps shape the bag into a
hard brick form during the vacuum process. The carton also protects the package from physical
damage during handling and transportation. This type of package provides a barrier to moisture
and oxygen. The process has no any adverse impact on environment.

8. General Market Description

8.1. Present Demand and Supply

In the case of the milled coffee as it describes in the table-1 it shows the decreasing trend in the
last five years. It is because of the market structure and the export coffee price fluctuation but not
related to the demand. Therefore as far as these problem solved the proposed project will have
high demand.

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Table 1: Production of milled coffee in tons
Production year E.F.Y Quantity produced
1997 563
1998
16317
1999
1544
2000
2767
2001
1984
2002
1708
2003
1407
Average
1882
Source: CSA/2003/4 E.F.Y
The average production of the year 1999-2003 is 1882 tone and the projected 2004 and 2005
years production is 1987 and 2035 tons respectively. On the other hand the eleven year average
imported milled coffee 134.73 tons. Therefore the effective demand of 2005 is 2169.73 tons. The
demand for milled coffee is exclusively influenced by urbanization. Accordingly, the 4% annual
rate of urbanization is applied in projecting the demand for the product.

Table 2: Projected Demand for Milled Coffee (tons)

Year in EFY Projected Demand Un satisfied Demand

2006 2255.76 373.76
2007 2345.99 464.00
2008 2439.83 557.83
2009 2537.42 655.42
2010 2638.92 756.92
2011 2744.48 862.48
2012 2854.26 972.26
2013 2968.43 1086.43
2014 3087.16 1205.16
2015 3210.65 1328.65
2016 3339.08 1457.10

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Regarding the proposed project the demand of roast coffee exists both in domestic and foreign. In
the change of the life style of the people the demand of processed (roasted, grinned and packed)
coffee is increased in domestically. In the foreign trade also the new market opened where as the
milled coffee production trade shows decreasing trade due to price fluctuation of raw coffee bean
and the market structure. But these both problems will solve therefore the demand of roasted and
milled coffee will increase. As far as the plant capacity is concerned based on the existing demand
and the prevailing technology it is proposed to produce 80 tons per year.

8.2. Man power, Raw Materials and Utilities

8.2.1 Raw materials

The main raw material for coffee roasting is coffee bean and packing material. The amount of
this two input depending upon the production capacity and the yearly production program of the
factory. As far as the coffee bean concerned the quality Harar coffee may supply from the
surrounding influence area such as east and west Hararge Zone and from the Direa Dawa rural
area. On the other hand the source of packing material is from the paper bag preparing factory
from Addis Ababa. Based on the annual production capacity the required paper packing is given
below in the table.

Table-3: Annual packing material requirement

Package size in gm Total roasted coffee Paper bag

in kg requirement
1500 32000 2200
1000 40000 4000
500 8000 1600
80,000

Regarding the total size of roasted it should be considered the weight loss of coffee during
roasting process because of evaporation. In average the loss is estimated around 22 percent.
Therefore the annual green coffee requirement of the plant is (80,000kg + 0.22 *80,000 =
97,600kg) ninety seven thousand and six hundred kilogram.

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8.2.2. Man power

Table-4: Man power of the proposed project

No Description Quantity
1 General manager 1
2 Secretary 1
3 Quality control 1
4 Personnel 1
5 Accountant Sales man 1
6 Production supervisor 1
7 Machine operator and technician 3
8 Production clerk 1
9 Store keeper 1
10 Purchaser 1
11 Driver 1
12 Guard 2
Total 15

8.2.3. Utilities

Table-5: Required Utilities of the project

No Utility Requirement (Annual) Unit price

1 Electricity 1000MWH 10
2 Water 1100 m3 0.5
3 Telecommunication
- Fixed line
- Mobile
- Fax
- Internet

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9. Required Machinery

Table 6 : List of Machinery and Equipment

No Description Specification Quantity

1 Coffee roaster Batch Capacity: 33.0 lbs. 1
Maximum Batch: 4/hr
Motors: 3
Power: 120V 60Hz 12A
BTU's: 70000
Dimensions: 57 L 27 W 70 H
Weight: 720 lbs
2 Coffee mixer 1
3 Coffee Grinder Place of Origin: CN;HUN ; 3
Brand Name: JUNYU ;
Certification: CE ; Power (W):
37 ; Type: Blade Coffee
Grinders ; Voltage (V): 220 ;
Model Number: JY-G900
4 Automatic packaging m/c 1
5 Screw conveyor 1
6 Goose type conveyor 1

10.Indicative Project cost

The coffee roasting, grinding and packing project may have different cost component.
 Land lease value
 Building and civil work
 Plant machinery and equipment
 Office furniture and equipment
 Vehicle

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  Pre-production expenditure
 Working capita

Underlying Assumption

The financial analysis of coffee roasting, grinding and packing plant is based on the data
provided in the preceding chapters and the following assumptions.

Table-7: Construction and Finance

Construction 2 years

Source of Finance 30% Equity and 70% Loan

Tax Holidays 1 years

Bank interest Rate 12%

Value of Land 9.78/m.sq

Table8: Depreciation
Building 5%

Machinery And Equipment 10%

Office Furniture 10%

Vehicles 20%

Pre-production (Amortization) 20%

 Land lease value …………………………..625,920

 Building and civil work ………………….. 1,600,000
 Plant machinery and equipment …………. 946,000
 Office furniture and equipment …………..130,000
 Vehicle ……………………………………400,000

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  Pre-production expenditure ………………180,000
 Working capital ……………………………480,000
Based on the above cost component the indicative total investment cost is 4,361,920 birr.

11. Conclusion

The demand of coffee has increasing trend based on the drinking habit of human being all over
the world. Consequently, the profitability of coffee roasting, grinding and packing project is
better than other beverage projects. But the size of individual roasting establishments will vary
greatly, according to the skill of the proprietor and demand of the specific area. If it is
established in the middle scale, the investor may get more advantage. In line with the advantage
of the investor the project creates good job opportunity and contributes to the revenue collection
of the administration.

Appendix

Table1. Dire Dawa Administration lease period description

Purpose Lease periods

Housing 99

Manufacturing and industry 80

For education, health, science & technology, culture, sport, research 99

& study and nonprofit making philanthropist institutions

For commercial purpose 70

For urban agriculture 15

For other purposes 70

Source : Dire Dawa Provisional Administration lease regulation No. 3/1996

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