TABLE OF CONTENTS

SECTION 1: BUSINESS AND INDUSTRY OVERVIEW...............................................................................................7

1.1 Company Information...............................................................................................................................7

1.2 Primary Purpose and Goal........................................................................................................................7
1.3 Primary Activities and Services................................................................................................................7
1.4 Background Information of Rice Sector in Tanzania................................................................................7
1.5 Key Constraints and Opportunities in Rice Sector....................................................................................9
SECTION 2: CORPORATE AND MANAGEMENT STRUCTURE......................................................................10

2.1 Ownership Structure...............................................................................................................................10

2.2 Management Structure............................................................................................................................10
2.3 Technical Arrangements and Assistance................................................................................................11
2.4 Planning, Execution and Control Strategies............................................................................................11
SECTION 3: APPROPRIATE TECHNOLOGY ANALYSIS...................................................................................12

3.1 Overview of Rice Farming and Processing Techniques..........................................................................12

3.2 Proposed Production Process and Cycles...............................................................................................12
3.2.1 Modern Rice Cultivation Techniques/Steps....................................................................................12
3.2.2 Modern Rice Milling Techniques/steps..........................................................................................13
3.3 Description of Special Technical Requirements.........................................Error! Bookmark not defined.
3.4 Equipment Requirements and Supplies......................................................Error! Bookmark not defined.
3.4.1 Rice Farming Equipment....................................................................Error! Bookmark not defined.
3.4.2 Warehouse Equipment........................................................................Error! Bookmark not defined.
3.4.3 Rice Processing Equipment................................................................Error! Bookmark not defined.
3.5 Infrastructural Facilities..............................................................................Error! Bookmark not defined.
3.5.1 Irrigation scheme improvement:.........................................................Error! Bookmark not defined.
3.5.2 Construction of Rice Collection Center:.............................................Error! Bookmark not defined.
3.5.3 Construction of a Warehouse and Fence:............................................Error! Bookmark not defined.
3.5.4 Factory Construction:.........................................................................Error! Bookmark not defined.
3.6 Labor and Skills requirements....................................................................Error! Bookmark not defined.
3.7 Breakdown of Operating Costs...................................................................Error! Bookmark not defined.
3.8 Environmental Aspects...............................................................................Error! Bookmark not defined.
3.10 Transport and Logistics..........................................................................Error! Bookmark not defined.
SECTION 4: MARKET ANALYSIS AND PLAN........................................................................................................14

4.1 Overview of Rice Sub-Sector in Tanzania..............................................................................................14

4.3 Marketing Strategy.................................................................................................................................14
4.3.1 Production Volumes.......................................................................................................................15
4.3.2 Pricing............................................................................................................................................15
4.3.3 Sales objectives and Market Share..................................................................................................15
4.4 Competition Analysis.............................................................................................................................15
4.5 Primary Marketing Constraints...............................................................................................................15
4.6 Unlocking Marketing Potential...............................................................................................................16
SECTION 5: INDUSTRIAL DYNAMICS......................................................................................................................17

5.1 Business Competitiveness and Success Factors......................................................................................17

5.2 List of Competitors.....................................................................................Error! Bookmark not defined.
5.3 List of Major Buyers...................................................................................Error! Bookmark not defined.
5.4 List of Major Suppliers...........................................................................................................................17
5.6 Business Cycles and Seasonality Issues..................................................................................................17
SECTION 6: FINANCIAL ANALYSIS AND PLAN...................................................................................................18

6.1 Key Assumptions and Facts....................................................................................................................18

6.2 Projected Financial Statements...................................................................Error! Bookmark not defined.
6.3 Proposed Financial Structure......................................................................Error! Bookmark not defined.
6.3.1 Estimated Project Costs (in TZS)........................................................Error! Bookmark not defined.
6.3.2 Financing Plan....................................................................................Error! Bookmark not defined.
SECTION 7: BUSINESS REGULATIONS, INCENTIVES AND OPPORTUNITIES.......................................23

7.1 Regulatory Environments.......................................................................................................................23

7.2 Business Incentives.................................................................................................................................23
7.3 Key Opportunities..................................................................................................................................23
7.4 Contribution to National Economy.........................................................................................................24
7.5 External Support (Government/Donors).................................................................................................24
7.6 Environmental Issues..............................................................................................................................24
SECTION 8: RISK FACTORS AND MITIGATION STRATEGIES.....................................................................25

8.1 Security Issues........................................................................................................................................25

8.2 Risks and Risk Mitigation Strategy........................................................................................................25

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 8.2.1 High price fluctuations....................................................................................................................25
8.2.2 Increasing food inflation.................................................................................................................25
8.2.3 Weather Fluctuations..........................................................................Error! Bookmark not defined.
8.2.4 Technological risk..........................................................................................................................25
SECTION 9: FUNDING PHASES.........................................................................................Error! Bookmark not defined.

9.1 Funding Phases/Schedule...........................................................................Error! Bookmark not defined.

SECTION 10: RATIONALE AND ECONOMIC BENEFITS.........................................Error! Bookmark not defined.

10.1 Business Rationale Factors and Economic Benefits...................................Error! Bookmark not defined.
ANNEX I: BUDGET TABLE...................................................................................................Error! Bookmark not defined.

ANNEX III: DUE DILIGENCE DOCUMENTS................................................................................................................27

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INDEX OF DEFINED TERMS (Acronyms which are only mentioned once in the text are not listed)

SERENGETI SERENGETI Business Centre

ASDP Agricultural Sector Development Program
CEM Commodity Exchange Market
CSDI Center for Sustainable Development Initiatives
HTM Huantai Machinery Company Limited
MCC Millennium Challenge Cooperation
NSSF National Social Security Fund
O/D Bank Over Draft
PAYE Pay As You Earn
SAGCOT Southern Agricultural Growth Corridor of Tanzania
SDL Service Development Levy
SQM Square Meter
SSR Self Sufficiency Ratio
SUA Sokoine University of Agriculture
SUASA Sokoine University Academic Staff Association (Canteen)
TA Technical Assistant
TANFEED TANFEED International Company Limited
TIB Tanzania Investment Bank
TIC Tanzania Investment Center
TPRI Tropical Pesticides Research Institute
TZS Tanzania Shillings
USA United States of America
USDA United States Department of Agriculture
VAT Value Added Tax
VETA Vocational Education Training Authority
WRS Warehouse Receipt System

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EXECUTIVE SUMMARY

PEPENE GENERAL ENTERPRISES LIMITED (PGEL) is based in Chimala- Mbeya City, Tanzania was
established and incorporated in Tanzania as a limited liability company in April 2014 under the
Company Act of 2002 and issued with a certificate of incorporation. The company is owned by
Tanzanian six (6) shareholders namely, Harun Michael Mihavile (58%), Monica Andrew Ndelele
(18%), Michael Harun Mhavile (9%), Valentine Malila (5%), Habaruki Lusan Ngogo (5%) and Imani
Aron Mwalumbwe (5%).

The company main activity is agro-processing activities mainly paddy processing to rice. Other
activities the company involved with is cereal buying and selling, farming and general trading. The key
promoter of PGEL has more than 15 years’ experience in the agro-processing business, farming
activities and business of cereal crops business. The business started way back in year 2000. The main
focus of the business is food production and distribution for both domestic consumption and export.

The business plan describes rice milling project operating by Pepene General Enterprises Limited at
Chimala, Mbeya. The objective of the plan is to seek funds of about TZS 500 million as term loan for
constructions of modern Godown at Chimala to have adequate stock to be processed and ensure the
constant supply throughout the year. Current the company has got paddy milling machine with the
capacity of processing 50 tons/day. The promoters have a factory building located at the prime area, also
a proposed new industrial area to build modern go-down of about 4,920sq just opposite to the factory
site at Chimala Township and the same will be used as security for the said loan. The requested loan for
asset finance will be repaid within five years, the cash-flow projections indicate that this loan can be
repaid fully by end of year three of operations.

The project thrust is to ensure it takes the organized shortage of food in the country by increasing in
food processing and distribution. Food production is key priority for the country and this project fits
well in the overall strategies of the country economic development. The demand and supply situation of
rice market in the country show that there is high demand that cannot be sufficiently supplied by the
local production; varying from a self sufficiency of over 80% in good years, where in bad years only
about two third of the consumption is produced in the country and deficit is imported.

The core objective of this twenty five-years business plan is to further formalize and expand the rice
business in a manner that will optimize profitability through economies of scale and use appropriate
technologies for improved rice production, processing and distribution to the target market.

Rice is one of the major staple food as well as cash crop in some areas in Tanzania and ranks the second
after maize in terms of volume of production and preference among cereals grown in Tanzania. More
than 60 percent of the population, particularly the urban population, which is expanding rapidly due to
rural-urban migration, depends on rice. The high elasticity of demand for rice, changes in traditional
food habits, rapid urbanization and production of rice as a cash crop, has led to the consistent increase in
consumption and demand.

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Despite its importance, rice business has not realized its full potential particularly to most ordinary
Tanzanian farmers. PEPENE promoters are committed to further unlock the potential by optimizing on
the present opportunities which include increasing rice demand, conducive investment climate which are
currently provided through various government initiatives like MCC, SAGCOT and National Rice
Development Strategy, and great financing initiatives like Tanzania Agricultural Development Bank.

PEPENE is requesting loan amount of TZS 500,000,000 /=. The project is viable; hence the company
is submitting the request to TADB Bank to liquidate the existing outstanding loan balance with TIB
Development bank with total outstanding balance of approximate 30 million so that TADB become the
sole Banker. The construction of this Godown with the capacity of storing about 40,000 bags with
100kgs will enable small farmers (11 groups) store there produced then process the paddy to factory
hence assure factory fully operation throughout the year.

The implementation of the project is having a minimal and insignificant impact on the environment
given the nature of operation and the use of modern technology. The company policy is to ensure that
the operation and activities undertaken by the company to have favorable impact to the environment and
surrounding communities.

The business analysis indicates that PEPENE will be able to make significant profit in each year ceteris
peribus. Below are the expected major milestones of this business:

Performance Indicators Year 1 Year 2 Year 3

Sales Revenues
1,247,000,000 1,796,800,000 2,185,000,000

Net Income (before income taxes and depreciation)

278,060,781 349,561,721 464,080,881

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CHAPTER 1: BUSINESS AND INDUSTRY OVERVIEW

1.1 Company Information

Having operated informally in the rice sub-sector for over 15 years in Chimala, Mbeya Region,
PEPENE Business Centre in brief “PEPENE” became formally registered with BRELA on April
2014 and was granted Certificate of Incorporation No. 107527 with Tax Identification No. 123-
774-787. In the course of its informal operations the key company promoter – Mr. Harun
Michael Mihavile is an experienced businessman in agro-processing business, farming business
and crops trading business. The factory is located at Chimala- Mbeya near the famous paddy
production basin at Kapunga Village.

1.2 Primary Purpose and Goal

The primary purpose of the business is to increase profit through economies of scale and take
advantage of the demand of cereal in Tanzania and the sub-sahara in general.

The primary goal of PEPENE is to offer the best quality value-added rice and rice products to the
fast increasing middle and high income earners located in rice deficit regions of Tanzania such as
Mbeya, Dodoma, Moshi, Tanga, Dar es Salaam and high-end markets overseas at the most
affordable price and efficient service delivery.

1.3 Primary Activities and Services

PEPENE is determined to undertake the following sequenced business activities:
i. Establish and manage efficiently rice farm at Kapunga Village in terms of productivity
and water use efficiency;
ii. Conduct contract farming activities with the smallholder farmers surrounding the farm
and beyond.
iii. Store the crops for farmers and traders during the harvesting season.
iv. Carryout extensive value-addition activities of the produced and/or purchased paddy from
smallholder farmers. This will involve processing, packaging and supplying rice to
carefully selected customers.

1.4 Background Information of Rice Sector in Tanzania

Rice (Oryza sativa L.) ranks second after maize in both production and preference among cereals
grown in Tanzania. It is an important staple food and cash crop. More than 60 percent of the
population, particularly the urban population, which is expanding rapidly due to rural-urban
migration, depends on rice. The high elasticity of demand for rice, changes in traditional food
habits, rapid urbanization and production of rice as a cash crop, has led to the consistent increase
in consumption and demand.

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 Rice contributes about 8% of the total food production in Tanzania 1. The table below
indicates the 2015/2016 National Food gap/surplus analysis based on the 2013/14 Final
Food Crop Production Forecast (Tonnes) - Grain Equivalent:

 Cereals Maize Sorghum & Rice Wheat Cereals

Millets
Production 3,326,200 929,683 867,619 95,124 5,218,626
Requirement 4,115,581 1,535,082 712,390 204,018 6,567,071
Gap(-)/Surplus(+) -789,381 -605,399 155,229 -108,894 -1,348,445
Source: Ministry of Agriculture - AgStats for Food Security Vol. 1

Based on the table above rice ranks third in terms of total production of cereals after maize
(63%) and Sorghum & Millet (18%) and the least is wheat (2%). Production is primarily
dominated by smallholder farmers with farm size ranging from 0.5 – 5 acres per farm-family.
There are few large scale rice farmers which are mainly found in areas with irrigation schemes
e.g. Kilombero scheme (KPL) and Mbarali (Kapunga and Mbarali Estates). SERENGETI is
rated as medium rice farmer as it runs a 50 acres rice farm with plan to expand to 100 acres upon
fund availability.

Many biotic and abiotic factors greatly reduce rice productivity in Tanzania and many traditional
African farming systems. Drought is one of the major production constraints and leads to crop
failure, hunger and poverty for many small-holder rice farmers in Tanzania. SERENGETI is
determined to build its own production capability to satisfy its target customers and further
promote productivity of small-holder rice farmers surrounding the company through introduction
of improved irrigation techniques, use of improved seeds, pest management and postharvest
handling methods.

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1.5 Key Constraints and Opportunities in Rice Sector
There are several constraints facing the rice sub-sector in Tanzania. These involve:
 Limited water accessibility due to inadequate irrigation facilities and unpredictable droughts
 Limited extension services to disseminate requisite knowledge and skills necessary to
improve rice productivity.
 Poor road access to the rice fields – over 60% of smallholder rice farmers produce their crop
more than 5 km away from the road where vehicles can pass year around, making
transportation of their crops a major bottleneck.
 Limited storage facilities – most smallholder farmers especially those in Chimala find
difficulties in storing their produce which result in post-harvest losses or selling their crop at
low prices to avoid the problem.
 Unreliable marketing system – apparently the market is dominated by middlemen who
normally offer low prices and contract farming arrangements are limited.
 High post-harvest losses which range between 30 to 40%.
 Limited techniques in paddy processing and rice packaging – most rice available in the
market is not graded and professionally packaged.

1.6 The following impact will affect the surrounding smallholder farmers at Chimala

 The storage will help improve farmer’s margin because they can now realise increased paddy
selling price compared to those obtained during harvest seasons.
 The project will help reduce post-harvest losses due to poor storage facilities facing small holder
farmers.
 The project will bring competition among existing warehouse which might lead to reduce of
storage price which is currently around TZS 3000/= per season.
 The warehouse is just adjacent to rice processing machine that will help smallholder farmers add
value their paddy hence increase their margin and reduce transport costs from warehouse to rice
processing facility.
 Smallholder farmers will store their paddy in the warehouse to as to tap increase in price in the
off-season.

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 SECTION 2: CORPORATE AND MANAGEMENT STRUCTURE

2.1 Ownership Structure

PEPENE is a limited liability company (LLC) owned by six Tanzanian shareholders as outlined
below:

Name Citizenship Number of % Ownership

Shares

Mr. Harun Michael Mihavile Tanzanian 1000 58%

Mis. Monica Andrew Ndelele Tanzanian 300 18%

Mis. Michael Harun Mhavile Tanzanian 150 9%

Mis. Valentine Laurent Malila Tanzanian 100 5%

Mr. Habakuki Lusan Ngogo Tanzanian 100 5%

Mr. Imani Aron Mwalumbwe Tanzanian 100 5%

2.2 Management Structure

No. Name Qualifications Position

i) Mr. Harun Michael Advanced Secondary Managing Director
Mihavile
ii) Fromena Ng’ondya Secondary Level Plant Manager
iii) Valentine Mhalila Degree Level Finance & Admin.
Manager
iv) Festo Julius Primary Level Sales and Marketing

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2.3 Technical Arrangements and Assistance
PEPENE is in operational for over 15 years. The major areas that will definitely need technical
assistance are machine installation and support services which is frequently provided by the
Small Industry Development Organization (SIDO). More over the key staff have adequate
experience to run the project efficiently.

2.4 Planning, Execution and Control Strategies

In order to ensure efficient and effective planning, execution and control of PEPENE business
activities, the management will adhere to the principles of good governance in each business
decision that will be done and promote high professionalism and ethics in every service that will
be provided. To achieve this, the company will develop various policy manuals to guide business
operations; carry out regular staff meetings and appraisals; encourage teamwork and sharing of
information. In addition to effective use of the manuals, the company will design and make use
of computerized accounting system, install budget control mechanisms and seek strategic
partnerships.

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 CHAPTER 3: APPROPRIATE TECHNOLOGY ANALYSIS

3.1 Overview of Rice Farming and Processing Techniques

All business operations of PEPENE is carried out at Chimala Village, Mbeya Region because the
principal promoters’ activities are centered in the region for long time (over 15 years) and also
because of comparative advantages available in the region.

Rice is the major crop produced and is cultivated and processed almost in each Ward in Mbeya
Region. Rice farming activities are dominated by smallholder farmers with a land size of 0.5 – 3
hectors and is characterized by relatively low productivity of 1.5 tons per hector. In a similar
way, the processing activities are characterized by small spots of rice processing machines most
of which are owned by traders and middlemen.

3.2 Proposed Production Process and Cycles

This business plan proposes one lines of business for PEPENE: that is Paddy processing
business. However the company is also involved with paddy farming to about 50 acres at
Kapunga Village. These two businesses are interlinked. Currently the company is operating
mini-factory at Chimala, Mbeya.

3.2.1 Modern Rice Cultivation Techniques/Steps

Modern rice cultivation activities is categorized into six (6) key steps - land preparations,
seedling and transplanting, weeding, harvesting, loading, transportation and storage. Paddy is
then processed into rice, packaged and sold. General knowledge and techniques required in the
cultivation of rice are well known by most farmers in Chimala and even PEPENE promoters but
are not effectively and efficiently applied due to limited financial capabilities. However the
company future plan is to invest much on paddy farming so as to connect the value chain from
production, processing and marketing which is best model for surviving in the future. The
following is a summary of key steps and corresponding technical requirements for paddy
production.

Table below indicates the key paddy production stages

Production Stages Technical Description Equipment/materials

requirement
Stage1: Land Tractor (4-wheel, 65 HP);
preparation These activities are self explanatory – disc plough; harrow; drill
- Farm Clearing land will be properly cleared and tilled planter; irrigation canals,
- Tillage using a tractor. Then harrowing follows water pump.
- Harrowing along with leveling the land and setting
- Leveling irrigation system.
- Lotavating
- Irrigation
Stage 2: Seedling and Transplanting will be done at 15-21 days Manual labour; water for

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 Transplanting after seedling establishment in order to irrigation and/or seed drill
promote proper and early tilling, which is planter.
an essential yield component. Where
direct planting using a seed drill will be
done, transplanting will not be required.

Stage 3: Weeding Involves removal of weeds manually and Herbicide (2-4D), Manual
supplemented by selective herbicides. The labour
crop is weeded twice, in February and in
April, depending on planting time.
Stage 4: Harvesting Harvesting will be done manually. Rental combine harvester(if
Combine harvesting may also be used available timely); Sickles,
depending on the availability of combines storage bags; tarpaulins and
for rental. Manual Labor
Stage 5: Transportation Two stages of transportation will be Tractor, Trailer; casual
needed – from the farm to a temporary laborers; truck
storage house in Mwamkulu using a
tractor and a trailer; and from Mwamkulu
to Mpanda Town Mpanda using a lorry.
Stage 6: Storage Proper sun drying to 12-13 % grain Warehouse; labor for
moisture content will be done on a packing and
turpentine to prevent molding and avoid unpacking/arranging in
the potential hazard for aflatoxin warehouse.
contamination in the grains.

3.2.2 Modern Rice Milling Techniques/steps

Once paddy is properly dried and stored it is then processed to rice. The basic objective of a rice
milling system is to remove the husk and the bran layers, and produce an edible, white rice
kernel that appeals to the customer: is sufficiently milled with maximum total milled rice
recovery out of paddy, with a minimum of broken kernels and free of husks, stones, and other
non-grain materials.

There are different techniques used in rice milling and vary from one plant to another depending
on the financial capacity and knowledge of the factory owner. Apparently, most of these
techniques do not produce high quality graded rice. PEPENE is committed to become leading
manufacturer and supplier of high quality graded rice in Mbeya and beyond and hence has
solicited modern rice processing equipment as detailed below. It is anticipated that upon
successful installation and running of the described technology below, PEPENE will become
high competitive company in the region.

Graded rice processing involves 4 key steps - paddy cleaning, de-stoning, milling and grading.
Each stage requires specific machine operations

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 The selected 2TPH Mini Modern Rice Mill Plant consists of a paddy cleaner, destoner, paddy
husker (rice huller), separator, rice miller (dry polisher), bucket elevator & blower. It can
produce high quality white rice with fewer broken rice. It is suitable for small farmer & small
scale rice producer. PEPENE will combine the milling plant with rice grader and rice packing
scale.

CHAPTER 4: MARKET ANALYSIS AND PLAN

4.1 Overview of Rice Sub-Sector in Tanzania

In Tanzania, rice is one of the widely grown crops and is the second most important food crop in
terms of number of households, area planted and production volume. Besides meeting local
consumption demands, the rice sector is a major source of income and employment in rural
areas. The leading regions in rice production are Shinyanga, Tabora, Mwanza, Mbeya, Rukwa
and Mpanda. Others include Kilimanjaro, Arusha, Manyara, Iringa, Mara, Tanga and Kigoma.
Total area under rice cultivation in 2005 was 702,000 hectares of which 90 percent is under
small scale farmers and the rest under large scale.

Productivity of milled rice vary from 1.0 to 1.2 tons of milled rice per ha (equivalent to 1.6 to 1.8
tons of paddy per ha.) The low yield is mainly caused among others, by the use of genetically
low yielding varieties, drought, low soil fertility, weed infestations, prevalence of insect pests
and diseases and birds.

In overall, consumption of rice is gradually increasing and per capita consumption in 2007 is
25.4 kg. Self sufficiency ratio (SSR) is 84.5 percent (USDA 2009). A recommended level of
SSR ensuring a country’s sustainable food availability is above 120 percent.

4.2 Market Demand and Supply Analysis

At domestic level: Rice is ranked second in both production and preference among the cereals
grown in Tanzania and in Africa in general. It is also an important food and cash crop. More than
60 percent of the population, particularly among the urban population, which is expanding
rapidly due to rural-urban migration, depends on rice. The high elasticity of demand for rice,
changes in traditional food habits, rapid urbanisation and production of rice as a cash crop, has
lead to consistent increase in consumption and demand. So, demand is potentially higher than
current supply.

4.3 Marketing Strategy

Provided that rice has sure demand both domestic and abroad due to prevailing lower supply,
PEPENE will optimize the opportunity by spending less on marketing and focus on production
and value additions activities to capture medium and high income classes in Mbeya, Dodoma,
Dar es Salaam and beyond. Apparently, availability of high quality graded rice is limited both

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 locally and regionally. Demand is ever increasing due to high urbanization almost in every city
and towns in Tanzania. PEPENE’s marketing strategy will therefore focus on reaching these
middle and high income earners at its best possible capability by consistently and timely
distributing high quality graded rice to them.

4.3.1 Production Volumes

SERENGETI’s policy on the level of production will be to continuously produce in order to
meet the secured orders from the customers. This entails buying paddy in areas beyond Chimala
region so long as quality is assured.

4.3.2 Pricing
PEPENE’s pricing strategy will be that of ensuring affordability but optimizing profitability.
This will allow faster growth of the company as opposed to rent-seeking strategy which may
render the company less competitive and hence longer time to grow.

4.3.3 Sales objectives and Market Share

To distribute high quality graded rice to earmarked customers at the required amounts, specified
standards, acceptable price and timely delivery. At initial project period, PEPENE will be
directly distributing its products to the end customer in order to build customer loyalty and
improve market share.

4.4 Competition Analysis

There is limited supply of high quality graded rice and this is attributed to lack of appropriate
technology. As a result, competition seems to be manageable. PEPENE is seeking to improve the
rice processing technology by championing new rice processing that will involve proper grading
and packaging.

4.5 Primary Marketing Constraints

Given small experience that PEPENE has gained by supplying rice to some institutions,
marketing constraints include:

i. Availability of quality packaging materials – good qualities need to be imported mostly

from Kenya and are expensive because of taxation (VAT);
ii. High price fluctuations of paddy - whereby it falls significantly during harvest season and
rises sharply during low season. This results into unstable price of polished rice which in turn
impact customer loyalty. PEPENE’s strategy is to bulk paddy during harvest, processing and
distributing consistently to customers at acceptable price.
iii. Role of middlemen – marketing of rice is by large dominated by middlemen who are
actually speculators and rent-seeking rice dealers. PEPENE will be directly dealing with the
customers and making good negotiations with the buyers.

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4.6 Unlocking Marketing Potential
As discussed above PEPENE will be selective in reaching the market it has committed to serve.
We will focus on distributing high quality graded rice to selected supermarkets, institutions and
individual consumers. We will do “marketing unusual” and not “marketing as usual”.

4.7 SWOT Analysis

The company SWOT analysis depicted weakness, strengths, threats and opportunities existing in
cultivation of rice:

Strengths
1) The promoter is doing business of rice farming and processing for over 15 years therefore the owners
have appropriate paddy management skills.
2) The promoter has ready market
3) Direct linkage to small holder farmers for more than 10 groups
4) The market for paddy products is readily available at the local and regional market
5) The cultivation of rice will be under irrigation system utilizing infrastructure of the Chimala project
under special arrangement.

Weakness:
1) No enough working capital as well as machines and equipment to mechanise the farming activities.
2) Unreliable power
3) Management of irrigation system for balance and fair utilization of water resources.

Threats:
1) Insufficient Rainfall, although the past rainfall regime has proven favourable.
2) Soil erosion which can be prevented by ridging across the farm land that may be affected
3) Un stable price
4) Low productivity of paddy resulting to unutilized milling machine capacity
5) Wholesale buyers can conspire to low prices

Opportunity:
1) There is high demand of food in neighboring countries.
2) Government support on Agriculture sector.
3) Construction of new international market for paddy in Igurusi Mbarali. This will provide more
markets for paddy farmers in Mbarali.

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CHAPTER 5: INDUSTRIAL DYNAMICS

5.1 Business Competitiveness and Success Factors

PEPENE’s business competitiveness and success factors are underpinned to the following
conducive environments:

i. Good business location – it is located at Chimala Village which has been declared a is one of
the large and famous area in paddy production and is among of one largest producers in the
south-east corridor. The place is well connected in terms of primary infrastructural
requirements (along Mbeya – Dar es Salaam road).
ii. Promoter’s high level of entrepreneurship – The shareholders and management team is
highly professional businessman and has been carrying his farming and agro-processing
business for over 13 years and has established good business reputation for himself within
the region.
iii. Product’s goodwill – rice is the second highly consumed grain after maize. Much is
consumed by the fast growing middle class in Tanzania. Rice is rated priority crop for food
security and income generation in Sub-Saharan African and government has special
emphasis on the crop through “National Rice Strategic Development”.
iv. Adequate financing – success of this business will depend on the timely availability of funds
to implement all the described activities. It is believed that TIB will be able to provide the
needful.
v. PEPENE will use special technology of processing high quality graded rice and avoid the
prevailing traditional technology of milling rice.

5.4 List of Major Suppliers

The major suppliers of paddy will be the surrounding smallholder farmers at Kapunga, Igurusi
and Rujewa area nearly to the factory. PEPENE plan to sign farming contract with each farmer
willing to supply paddy.

5.6 Business Cycles and Seasonality Issues

Prices for rice are determined by the free market forces. For example in the off-season farm gate
prices reach as high as TShs. 180,000 per 100 kilogram bag of paddy. During the harvest season
prices are as low as TShs.60 - 80,000 per bag. Prices of milled rice also vary subsequently with
the prices of paddy. In order to manage the business cycles and seasonality issues of rice
business, PEPENE will stock adequate paddy and will be processing depending on the received
orders. The ultimate business objective is to supply high quality graded rice throughout the year
and not on the basis of seasons.

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CHAPTER 6: INVESTMENT AND FINANCIAL ANALYSIS PLAN

6.1 Capital Inputs and Pre-operating Expenses

The major capital requirements are for land, rice milling plant and motor vehicles has already injected by the
promoter and additional investment is for one line of rice milling machine and working capital. Tabulate the
proposed project costs

Table: Physical Investment, Working capital and Financing requirements;

Description Existing Additional Invest Total cost

Equity Loan

Land and development

Land of the existing factory 50,000,000 50,000,000

(5,245 sq.m)

New land for Go-down (4,920 50,000,000 50,000,000

sq.m)

Building 650,000,000 500,000,000 1,150,000,000

Sub-Total 750,000,000 500,000,000 1,250,000,000

Machinery and equipment

Milling Machinery and 200,000,000 200,000,000

accessories

Standby Generator 25,000,000 25,000,000

Fuso Truck 35,000,000 35,000,000

Sub-Total 260,000,000 260,000,000

Furniture and fitting

Furniture and fitting 20,000,000 20,000,000

Sub-Total 20,000,000 20,000,000

Pre-operational expenses and 250,000,000 250,000,000 500,000,000

working capital(Stocks)

Sub –Total 250,000,000 250,000,000 500,000,000

Grand –Total 1,280,000,000 250,000,000 500,000,000 2,030,000,000

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PEPENE BUSINESS CENTRE FINANCIAL ANALYSIS

i. PEPENE’s rice milling machines two lines have the capacity of processing 50
tons/day

ii. The utilizing capacity by the company reaches about 80% per year that is 32
tons/day.

iii. Conversion rate of paddy to rice is 70%:30% i.e. 1bag of 100 kg of raw paddy
produce 70kg of rice
iv. Purchasing price of paddy is TZS 600,000 to 800,000 per tons
v. The sale price processed and graded rice is estimated at TZS 1.3 to 1.5 million per
ton
Vi The factory will operate on the double shift on 240 days per annum

v. Storage cost per bag of 100kg is TZS 2,500 and farmers must mill to the same
company factory by TZS 5,000 per bag of 100kg.
 The company will secure loan of constructing Godown with the capacity of
storing 40,000 bags of paddy with 100kg,the same will be processed to
PEPENE factory,
 The company will also enjoy income of storage from farmers where by TZS
2,000 will be charged per bag before going to the company factory for
processing.
 Projected have been only for three years the company is sure of liquidating
the loan although we have applied for 5 year.
vi.
FINANCIAL PROJECTION

  YEAR 1 YEAR 2 YEAR 3

  Organizational Financial Statement 2019 2020 2021

I. Income Statement      

A. Sales Revenues 762,023,808 1,567,591,834 1,881,110,200

B. Cost of Goods Sold 624,143,520 1,069,960,320 1,069,960,320

C. Gross Margin (A-B) 137,880,288 497,631,514 811,149,880

D. Other Income Earned      

E. General and Selling Costs 53,354,000 61,186,200 70,528,068

F. Net Profit Before Income Taxes and Depreciation 84,526,288 436,445,314 740,621,812
(D+C-E)

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G. Depreciation 7,855,000 7,855,000 7,855,000

H. Income Taxes      

I Net Income After Income Taxes and Depreciation 76,671,288 428,590,314 732,766,812
(F-G-H)
II. Cash flow Statement      

A. Cash on Hand (beginning of year) 11,999,000 672,698,488 943,943,802

         

B. CASH RECEIPTS      

C. Cash Sales 762,023,808 1,567,591,834 1,881,110,200

D. Collections from accounts receivable 0 0 0

E. Loan from TIB 450,000,000   0

F. TOTAL CASH RECEIPTS (C+D+E) 1,455,197,008 1,567,591,834 1,881,110,200

G. Total Cash Available (before cash out, A+F) 1,467,196,008 2,240,290,322 2,825,054,002

         

H. CASH PAID OUT      

I. Purchases & All costs which are part of cost of 624,143,520 1,069,960,320 1,069,960,320
sales
J. Purchases ()      

K. Purchases ()      

L. Gross wages (exact withdrawal) 32,400,000 38,880,000 46,656,000

M. Payroll expenses (taxes, etc.) 5,184,000 6,220,800 7,464,960

N. Outside services (Consultancy) 2,200,000 2,244,000 2,288,880

O. Supplies (office & operating) 360,000 367,200 374,544

P. Repairs & maintenance 3,800,000 3,876,000 3,953,520

Q. Advertising 580,000 591,600 603,432

R. Car, Truck, Lorry, delivery & travel 3,800,000 3,876,000 3,953,520

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S. Accounting & legal 1,200,000 1,224,000 1,248,480

T. Rent 560,000 571,200 582,624

U. Communication – Telephone 320,000 326,400 332,928

V. Utilities 180,000 183,600 187,272

W. Insurance 500,000 510,000 520,200

X. Taxes (real estate, etc.) 320,000 326,400 332,928

Y. Interest/Bank charges 420,000 428,400 436,968

Z. Fuel 550,000 561,000 572,220

AA. Electricity 980,000 999,600 1,019,592

AB. Other (specify)      

AC. Miscellaneous      

AD. SUBTOTAL 677,497,520 1,131,146,520 1,140,488,388

AE. Loan principal payment 7,000,000 165,200,000 165,200,000

AF. Capital purchase (Building construction) 78,800,000 0 0

AG. Capital purchase (Purchase of processing 31,200,000    

machines)
AH. Reserve and/or Escrow      

AI. Owners' Withdrawal      

AJ.        

AK. TOTAL CASH PAID OUT 794,497,520 1,296,346,520 1,305,688,388

AL. Cash Position (end of year, G-AK) 672,698,488 943,943,802 1,519,365,614

III. Balance Sheet      

A. Cash and cash equivalents 672,698,488 943,943,802 1,519,365,614

B. Accounts Receivable 0 0 0

C. Inventory 0  0 0

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D. Total Current Assets (A+B+C) 672,698,488 943,943,802 1,519,365,614

E. Long-Term Assets 233,125,000 225,270,000 217,415,000

F. Accumulated Depreciation 5,290,000 13,145,000 21,000,000

G. Net Long-Term Assets (E-F) 227,835,000 212,125,000 196,415,000

H. Total Assets (D+G) 900,533,488 1,156,068,802 1,715,780,614

I. Accounts Payable      

J. Other Current Liabilities      

K. Total Current Liabilities (I+J) - - -

L. Long-Term Liabilities 707,000,000 560,000,000 420,000,000

M. Total Liabilities (K+L) 707,000,000 560,000,000 420,000,000

N. Owners’ Equity (Paid-in Capital) 108,152,200 108,152,200 108,152,200

O. Retained Earnings   76,671,288 505,261,602

P. Earnings 76,671,288 428,590,314 732,766,812

Q. Total Capital (N+O+P) 184,823,488 613,413,802 1,346,180,614

R. Total Liabilities and Capital (M+Q) 891,823,488 1,173,413,802 1,766,180,614

S. Net Worth (H-K) 900,533,488 1,156,068,802 1,715,780,614

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CHAPTER 7: BUSINESS REGULATIONS, INCENTIVES AND
OPPORTUNITIES

7.1 Regulatory Environments

The Government of Tanzania through the Ministry of Agriculture and Food Security has
established Grain and Mixed Crops Board charged with regulating the business in the country.
The Ministry in collaboration with the World Bank has established a task force to speed up the
establishment of commodity exchange markets (CEM). The objective is to ensure increased
production of crops and their quality. PEPENE is viewing this strategy as an opportunity because
it will help achieve right price of rice that relate to the costs of production.

Another positive regulatory environment is the recent commitment of the government to lift
grain ban. This will enable PEPENE to be able to explore external markets and finally sell more
by buying more from the smallholder farmers.

7.2 Business Incentives

PEPENE is new company aspiring to invest heavily in rice sub-sector. In this sense will
endeavor to apply and actually own Certificate of Incentives provided by Tanzania Investment
Center (TIC). The preparations for processing the certificate have commenced and this process
continues in tandem with other company’s business operations.

7.3 Key Opportunities

Policy opportunities (SAGCOT) - SAGCOT’s objective is to foster inclusive, commercially
successful agribusinesses that will benefit the region’s small-scale farmers, and in so doing,
improve food security, reduce rural poverty and ensure environmental sustainability. The risk-
sharing model of a public-private partnership (PPP) approach has been demonstrated to be
successful in achieving these goals and SAGCOT marks the first PPP of such a scale in
Tanzania’s agricultural history.

Strategic location – all operations will be carried out in Mbeya whereby there are favorable
climatic conditions and is easily accessible by the market due to improving road infrastructure
which has been built as part of SAGCOT and MCC initiatives. The business location will reduce
the costs of production; will allow appropriate rice distribution channels and promoter has lived
in Mbeya for a long time.

Lifting of grain export ban – this has been a big obstacle for many businessmen who wanted to
export grains abroad. The ban has been lifted this year thus is big advantage to PEPENE in terms
of widening markets and securing better prices.

TADB’s agricultural window – this is great opportunity for new businesses based on
agriculture and PEPENE wants to exploit this opportunity.

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 Increasing Global Food Crop Prices – this is critical opportunity especially taking into account
that Tanzania has comparative advantage in rice production globally.

7.4 Contribution to National Economy

In Tanzania, rice is one of the widely grown crops and is the second most important food crop in
terms of number of households, area planted and production volume. Besides meeting local
consumption demands, the rice sector is a major source of income and employment in rural
areas. It is anticipated that PEPENE will create significant employment

7.5 External Support (Government/Donors)

PEPENE is committed to carry out the business independent of any donor or government. The
project is commercially designed to ensure profit generation and promote high level of business
professionalism and good governance amongst shareholders. With this, the company is expected
to sustain in business.

7.6 Environmental Issues

Generally there are varying environmental issues related to rice production and processing.

Rice processing – indiscriminating disposal of rice mill wastes (and particularly rice husks) near
the neighborhoods of the mills may result into pollution since husks are high in silcon which is
hazardous to health. Rice husks if poorly disposed off may also be a major habitat for rodents,
snakes and weevils that may be harmful to humans.

Mitigation strategy: PEPENE will ensure that all rice a waste especially husks are carefully
treated. One way will be selling the bran to owners of animal feeds plants e.g. TANFEED
International and use the husks to manufacture bio-bricks.

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CHAPTER 8: RISK FACTORS AND MITIGATION STRATEGIES

8.1 Security Issues

PEPENE’s main business operations will be carried out in Chimala-Mbeya area and there is no
any anticipated insecurity situation other than possible theft which is prevalent in many areas of
the country. For precaution purposes, PEPENE will construct a fence at the factory and deploy
24 hours security guards. The company will outsource this service. Further, company promoters
maintain excellent relationship with village members in and around Chimala Village.

8.2 Risks and Risk Mitigation Strategy

8.2.1 High price fluctuations – prices of paddy and polished rice are market determined and vary
from one season to another depending on the harvest volumes. For instance, during harvest
season the price of 100kgs bag of paddy fall down to Tshs. 55,000 (June – July) and at the same
time price of polished rice range between Tshs. 1,500/= to Tshs. 2,000/=. Non-harvest season
particularly months of October through February the price of paddy and rice rises to Tshs.
140,000 and Tshs. 2,600 respectively. Price discovery is done mostly by middlemen or brokers.

Mitigation Strategy – the ultimate business mission of PEPENE is to become leading supplier
of high quality rice at affordable price. To save this risk, the company will bulk adequate stock
of paddy during harvest season and will be distributing polished rice to contracted buyers (as
opposed to conventional buyers). The market target of PEPENE rice products is institutions,
supermarkets and middle class people.

8.2.2 Increasing food inflation – apparently the food inflation rate is high (at 20%) and there is no
any indication that this rate will slow down. It is assumed that it may be constant for the next 3
years but it is still a risk if the rate may further go up. This will cause the price of paddy to go up
and in the end price of rice go up.

Mitigation Strategy – though not easily controllable PEPENE will pursue strategy of producing
more its own paddy and also buy more from the smallholder farmers during harvest season. The
company will enter into forward contract with paddy producer at Kapunga, Igurusi and Rujewa
farmers around Chimala who are expected to grow paddy.

8.2.4 Technological risk – PEPENE will use the proven technology which is manageable easily.

Mitigation Strategy – PEPENE will use services of professional engineers who will be hired
from Dar es salaam

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9.0 CONCLUSIONS AND RECOMMENDATIONS

The financial and technical analysis shows that it is viable to undertake this business. The company is
requesting TADB to provide a total loan of TZS 500 million to improve infrastructure of the company
and provision of term loan for construction of Godown to enable storage of enough stocks of paddy for
smoothly operation of the company rice milling factory. The loan for the godown will be repaid within
five years.

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ANNEX III: DUE DILIGENCE DOCUMENTS

(i) Board Resolution to Borrow

(ii) Loan Application Covering Letter

(iii) Memorandum and Articles of Association (MEMARTS)

(iv)Certificate of Incorporation

(v) Valid Business License

(vi)Tax Identification Number

(vii) Copies of all title deeds

(viii) Banker’s Details

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