17.

PROFILE ON WHEAT FLOUR

 TABLE OF CONTENTS

PAGE

I. SUMMARY 17 -3
II. PRODUCT DESCRIPTION & APPLICATION 17 - 3
III. MARKET STUDY AND PLANT CAPACITY 17 - 4
A. MARKET STUDY 17 - 4
B. PLANT CAPACITY & PRODUCTION PROGRAMME 17 - 6

IV. MATERIALS AND INPUTS 17 - 7

A. RAW & AUXILIARY MATERIALS 17 - 7
B. UTILITIES 17 - 7

V. TECHNOLOGY & ENGINEERING 17 - 8

A. TECHNOLOGY 17 - 8
B. ENGINEERING 17 - 9

VI. MANPOWER & TRAINING REQUIREMENT 17 - 11

A. MANPOWER REQUIREMENT 17 - 11
B. TRAINING REQUIREMENT 17 - 13

VII. FINANCIAL ANLYSIS 17 - 13

A. TOTAL INITIAL INVESTMENT COST 17 - 13
B. PRODUCTION COST 17 - 14
C. FINANCIAL EVALUATION 17 - 15
D. ECONOMIC BENEFITS 17 - 16
 17 - 3
I. SUMMARY

This profile envisages the establishment of a plant for the production of wheat flour with a
capacity of 27,702 tonnes per annum.

The present demand for the proposed products is estimated at 225,000 tonnes per annum. The
demand is expected to reach at 661,000 tonnes by the year 2020.

The plant will create employment opportunities for 57 persons.

The total investment requirement is estimated at Birr 25.18 million, out of which Birr 4.11
million is required for plant and machinery.

The project is financially viable with an internal rate of return (IRR) of 19% and a net present
value (NPV) of Birr 18.26 million, discounted at 8.5%

II. PRODUCTION DESCRIPTION & APPLICATION

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

The basic application of flour is for bread making, cakes and biscuits, and porridge at
household level. Semolina, a product obtained by milling extra hard (durum) wheat, is also
used in pasta and macaroni making.
 17 - 4

III. MARKET STUDY AND PLANT CAPACITY

A. MARKET STUDY

1. Past Supply and Present Demand

In Ethiopia, the rural population used to consume flour made from cereals by traditional means
at home. Grain mills, however, are expanding deep into rural areas reducing labour and time
for women, replacing home-made flour consumption of industrially processed flour, however,
is still insignificant in rural Ethiopia.

Urban dwellers, on the other hand, consume more and more flour produced by flour mills thus
shifting to manufactured flour. Urban house-holds also consume food items like bread,
biscuits and cakes prepared at home or in bakeries and pastries from industrially processed
flour.

The demand for wheat flour is met through both local production and imports. The apparent
consumption of flour, comprising both domestic production and import is shown in Table.3.1.

Table 3.1
APPARENT CONSUMPTION OF WHEAT FLOUR
1995-2004 (TONNES)

Domestic
Year Import Total
Production
1995 115,968 1,523 117,491
1996 121,160 588 121,748
1997 140,499 186 140,685
1998 105,157 7,300 112,457
1999 167,526 10,686 178,212
2000 195,437 23,059 218,496
2001 165,345 60,995 226,340
2002 142,541 13,757 156,298
2003 136,669 122,365 259,034
2004 155,692 19,662 175,354

Source: 1. CSA, Report of survey of the Manufacturing & Electricity Industries, annual issues.
2. Customs Authority, External Trade Statistics, Annual Issues.
 17 - 5
Table 3.1 shows that both domestic production and import of wheat flour are characterized by a
general growth trend which is, however, erratic. The peak level of local production, 195,437
tonnes, was registered in year 2000, and imports, 122,365 tonnes, in 2003. Given the nature of
the historical apparent consumption, it is reasonable to assume that the average of the last three
years, i.e, about 197,000 tonnes, as the current effective demand for flour. With the estimated
current population size of the country (75 million), this estimate implies a per capita
consumption of 2.62 kilograms, which is quite low. Assuming that a per capita consumption
of 3 kilograms would reflect true demand, the present effective demand would amount 225000
tonnes, implying a supply short fall of about 28000 tonnes which a new plant could aspire to
exploit.

2. Projected Demand

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

Table 3.2
PROJECTED DEMAND FOR WHEAT FLOUR (TONNES)
(2006-2020)

Year Projected Demand Un satisfied Demand

2006 225,000 28000
2007 243,000 30000
2008 262,000 33000
2009 283,000 35000
2010 306,000 38000
2011 330,000 41000
2012 357,000 44000
2013 386,000 48000
2014 416,000 52000
2015 450,000 56000
2016 486,000 60000
2017 525,000 65000
2018 566,000 70000
2019 612,000 76000
2020 661,000 82000
 17 - 6

3. Pricing and Distribution

The current price of flour at Addis Ababa is Birr 350 per quintal. For this project, an ex-
Factory price of Birr 300 per quintal is proposed.

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

B. PLANT CAPACITY AND PRODUCTION PROGRAMME

1. Plant Capacity

According to the market study, the demand of wheat flour in the year 2006 will be 225,000
tonnes, whereas this demand will grow to 661,000 tonnes by the year 2020. Taking only about
15% of the demand of the year 2007, the envisaged plant will have an annual production
capacity of 36,450 tonnes. The plant will operate 3 shifts of 24 hours a day, and for 300 days a
year.

2. Production Programme

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

Table 3.3
PRODUCTION PROGRAMME

Year 1 2 3-10
Capacity utilization (%) 75 85 100
Production Flour 20,776.5 23,546.7 27,702
(tonnes) Bran 6,561 7,435.8 8,748
 17 - 7

IV. MATERIALS AND INPUTS

A. RAW AND AUXILIARY MATERIALS

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

Auxiliary materials required are sacks for packing flour and bran, and jute twins. These can
abe easily obtained from local markets. The estimated annual cost of raw and auxiliary
materials is given in Table 4.1 below.

Table 4.1
RAW & AUXILIARY MATERIALS REQUIREMENT & COST

Sr. Description Qty. Cost (Birr)

No.
1 Wheat (tonne) 39,366 95660
2 PP bag (100kg, pcs) 277,200 762
3 PP bag (50kg, pcs) for Bran 175,100 253.9
4 Twins (kg) 2,232 17.86
Total - 96,693.76

B. UTILITIES

The major utilities required by the plant are electricity, water and lubricants. The estimated
annual requirement at full production capacity of the plant and the corresponding cost are given
in Table 4.2.
 17 - 8
Table 4.2
ANNUAL UTILITIES REQUIREMENT& ESTIMATED COST

Sr. Description Unit of Qty. Unit price Cost ('000 Birr)

No. Measure (Birr)
1. Electricity kWh 650,000 0.4736 307.84
2. Water m3 2,500 3.10 7.75
3. Oil and lubricants Kg 150 18.00 2.7
Total 318.29

V. TECHNOLOGY AND ENGINEERING

A. TECHNOLOGY

1. Production Process

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

- Wheat Intake and Pre-Cleaning

- Wheat Cleaning and preparation
- Milling
- Packing and Dispatching

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

Wheat Cleaning and Preparation: - The main unit operations involved are weighing,
screening, destoning, impurity separation, ferromagnetic separation, scouring, aspiration,
dampening, tempering and entoleting.
 17 - 9
Milling:- Major operations involved are weighing, breaking open, scalping, scratching,
detaching, sifting, purifying, milling (grounding), resifting and entoleting.

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

2. Source of Technology

The technology of flour milling is available in countries like India, China or Europe. One
address of the machinery supplier is given below.

Buhler Ltd. CH-5240 Uzwil / Switzerland

Direct call: 0735021 63
Fax: 073518450

B. ENGINEERING

1. Machinery and Equipment

Machinery and equipment required by the envisaged plant is given in Table 5.1.
 17 - 10

Table 5.1
MACHINERY AND EQUIPMENT REQUIREMENT & COST

Sr. Description Qty. Cost, [ '000 Birr]

No. (No.) FC LC TC
1. Screw conveyor for wheat 5 114.03 - 114.03
2. Separator 2 136.84 - 136.84
3. Weigher 5 114.03 - 114.03
4. Oieur cylinder for wheat 1 114.03 - 114.03
5. Scourer 2 94.38 - 94.38
6. Bucket elevator for wheat 6 136.85 - 136.85
7. Roller mill 16 1216.37 - 1216.37
8. Plansifter 3 342.11 - 342.11
9. Purifier 2 228.08 - 228.08
10. Bran finisher 4 182.45 - 182.45
11. Flour cyclone with airlock 16 352.31 - 352.31
12. Flour filter 2 228.08 - 228.08
13. Detacher 10 228.08 228.08
14. Pneumatic Conveyor 2 319.28 319.28
15. Screw conveyor for flour and bran 4 91.22 91.22
16. Bucket elevator for flour 2 45.61 45.61
17. Pneumatic duct, set 1 22.83 22.83
FOB Price - 3,966.58 3,966.58

Freight, Insurance, Bank charges - - 150 150.00

and Inland transport
CIF Total - 3,966.58 150 4,116.58
 17 - 11

2. Land, Building and Civil Works

The production building shall be built out of hollow block walls, corrugated iron sheets roofing
and cement screed floor.

The total area of land required for the plant is estimated to be 10,000 square meters, out of
which plant building will cover about 2,000 square meters. The cost of land, at lease rate of
Birr 9.78 per m2, will be Birr 97,800.The cost of building and civil works, at a unit cost of Birr
1200 per m2, is estimated to be Birr 2.4 million. Thus, the total cost of land, building and civil
works assuming that the total land lease cost will be paid in advance is estimated to be Birr
2,497,8000.

3. Proposed Location

Proximity to market and availability of infrastructure are the factors that are considered to
determine the location of the envisaged plant. Dire Dawa is the most appropriate location for
establishing the flour production plant.

VI. MANPOWER AND TRAINING REQUIREMENT

A. MANPOWER REQUIREMENT

The flour production plant requires both production and administrative manpower. The total
manpower required is 57 persons. A detail of manpower requirement and estimated annual
salary expenditure including fringe benefits is given on Table 6.1.
 17 - 12
Table 6.1
MANPOWER REQUIREMENT AND ANNUAL SALARY EXPENDITURE

Sr. Description Req. Salary (Birr)

No. No. Monthly Annual
1. General Manager 1 2500 30000
2. Executive secretary 1 900 10800
3. Quality control head 1 1500 18000
4. Chemist 2 1200 28800
5. Production & technical head 1 2000 24000
6. Commercial head 1 1800 21600
7. Finance & administration head 1 1800 21600
8. Personnel 1 1100 12300
9. Store keeper 2 850 20400
10. Purchaser 1 800 9600
11. Salesperson 1 800 9600
12. Accountant 1 850 10200
13. Cashier 1 800 9600
14. Clerk 1 700 11400
15. Production shift leader 3 950 34200
16. Operator 10 800 96000
17. Labourer 12 400 57600
18. Janitors 3 700 25200
19. Mechanic 3 950 34200
20. Electrician 3 950 34200
21. Grease & oil man 1 400 4800
22. Driver 2 550 13200
23. Guard 4 500 24000
Sub-total 57 - 561,300
Employees benefit (25% BS) - - 140,325
Grand Total 57 - 701,625
 17 - 13
B. TRAINING REQUIREMENT

The production supervisor, operators and quality controllers (chemists) should be given three
weeks on-the-job training by machinery supplier personnel on the technological process,
machine operation and quality management.

The cost of training is estimated to be Birr 40,000, of which 30% will be foreign currency.

VII. FINANCIAL ANALYSIS

The financial analysis of the wheat flour project is based on the data presented in the previous
chapters and the following assumptions:-

Construction period 1 years

Source of finance 30 % equity
70 % loan
Tax holidays 3 years
Bank interest 8%
Discount cash flow 8.5%
Accounts receivable 30 days
Raw material local 30days
Raw material, import 90days
Work in progress 1 day
Finished products 30 days
Cash in hand 5 days
Accounts payable 30 days

A. TOTAL INITIAL INVESTMENT COST

The total investment cost of the project including working capital is estimated at 25.18 million,
of which 36.21 per cent will be required in foreign currency.
 17 - 14

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

Table 7.1
INITIAL INVESTMENT COST

Sr. Total Cost

No. Cost Items (‘000 Birr)
1. Land lease value 97.8
2. Building and Civil Work 2400.0
3. Plant Machinery and Equipment 4116.58
4. Office Furniture and Equipment 100.0
5. Vehicle 675.0
6. Pre-production Expenditure* 568.86
7. Working Capital 17229.41

Total Investment cost 25187.65

Foreign Share 36.21

B. PRODUCTION COST

The annual production cost at full operation capacity is estimated at Birr 99.63 million (see
Table 7.2). The material and utility cost accounts for 97.37 per cent, while repair and
maintenance take 0.10 per cent of the production cost.

* N.B Pre-production expenditure includes interest during construction ( Birr 428.86

thousand ) training (Birr 40 thousand ) and Birr 100 thousand costs of registration,
licensing and formation of the company including legal fees, commissioning expenses,
etc.
 17 - 15
Table 7.2
ANNUAL PRODUCTION COST AT FULL CAPACITY ('000 BIRR)

Items Cost %

Raw Material and Inputs 96693.76 97.05

Utilities 318.29 0.32
Maintenance and repair 100.00 0.10
Labour direct 300.00 0.30
Factory overheads * 140.32 0.14
Administration Costs** 261.3 0.26
Total Operating Costs 97813.67 98.17
Depreciation 709.55 0.71
Cost of Finance 1110.00 1.11
Total Production Cost 99633.22 100

C. FINANCIAL EVALUATION

1. Profitability

According to the projected income statement, the project will start generating profit in the first
year of operation. Important ratios such as profit to total sales, net profit to equity (Return on
equity) and net profit plus interest on total investment (return on total investment) show an
increasing trend during the life-time of the project.

The income statement and the other indicators of profitability show that the project is viable.

* Factory overhead cost includes salaries and wages of supervisors, insurance of factory
workers social costs on salaries of direct labour etc.

** Administrative cost includes salaries and wages, insurance, social costs, materials and
services used by administrative staff etc.
 17 - 16

2. Break-even Analysis

The break-even point of the project including cost of finance when it starts to operate at full
capacity (year 3 ) is estimated by using income statement projection.
BE = Fixed Cost = 17 %
Sales – Variable Cost

3. Pay-Back Period

The investment cost and income statement projection are used to project the pay-back period.
The project's initial investment will be fully recovered within 7 years.

4. Internal Rate of Return and Net Present Value

Based on the cash flow statement, the calculated IRR of the project is 19 % and the net present
value at 8% discount rate is Birr 18.26 million.

D. ECONOMIC BENEFITS

The project can create employment for 57 persons. In addition to supply of the domestic
needs, the project will generate Birr 1.27 million in terms of tax revenue. The establishment of
such factory will have a foreign exchange saving effect to the country by substituting the
current imports.