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Zeleke Geleta Inves Proposal - G Sayo
Zeleke Geleta Inves Proposal - G Sayo
(+251-911-11-71-81)
Consultant: sileshi angerasa econ, business and investment development consultancy service
Address: Mobile: 0911896145/0966109246
Consultant Name & Signature:
Nekemte, Ethiopia
JANUARY, 2021
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TABLE OF CONTENTS
EXECUTIVE SUMMARY OF THE PROJECT .............................................................. iv
1. INTRODUCTION ............................................................................................1
2. BACKGROUND ..............................................................................................2
2.1. Stakes in Agricultural Production ........................................................................ 3
2.2. The Agriculture Sector .............................................................................................. 3
2.3. Development and socio-economic objectives .................................................... 4
2.4. Income distribution and poverty ........................................................................... 5
3. NAME OF PROMOTERS, CONTACT PERSON, LEGAL FORM OF BUSINESS .....5
4. NEED (PROBLEM STATEMENT) PROBLEM JUSTIFICATION ...........................5
5. PROJECT GOAL, OBJECTIVES AND RATIONALES .........................................6
6. THE PROJECT AREA DESCRIPTION ..............................................................7
6.1. Physical Features ....................................................................................................... 7
6.2. Economic Base ............................................................................................................ 7
6.3. Population ..................................................................................................................... 9
6.4. Vegetation ..................................................................................................................... 9
6.5. Infrastructure and Institutions.............................................................................. 9
7. THE PROJECT OUT PUTS, ACTIVITIES AND INPUTS ................................... 10
7.1. Project Description ................................................................................................... 10
7.2. Project Objectives ..................................................................................................... 10
7.3. Types Of Technology Use ....................................................................................... 10
7.4. Production Capacity ................................................................................................ 11
7.5. Land Use Plan and Action Plan ........................................................................... 11
8. MARKET PROSPECTS ................................................................................. 11
8.1. Demands and Main Customers ........................................................................... 11
8.2. Competition analysis and Selling Prices ........................................................... 12
8.3. Marketing Strategies ............................................................................................... 12
9. ORGANIZATIONS AND ADMINISTRATION OF THE PROJECT ....................... 13
9.1. Business Form .......................................................................................................... 13
9.2. Organization Structure of the Project ................................................................ 13
9.3. Manpower Requirement with Qualification ..................................................... 13
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10. STAKEHOLDERS AND PARTNERS ............................................................... 14
11. FINANCIAL STUDY ...................................................................................... 14
11.1. Financial Requirements ......................................................................................... 14
11.2. Project Capital Costs ............................................................................................... 14
11.3. Forecasted Production ............................................................................................ 18
11.4. Forecasted Sales Revenues ................................................................................... 19
11.5. Depreciation Calculations ..................................................................................... 19
11.6. Loan Repayment Schedule and Interest Expense ......................................... 19
11.7. Forecasted Income Statement .............................................................................. 19
11.8. Forecasted Cash Flow Statement........................................................................ 20
11.9. Forecasted Balance Sheet...................................................................................... 20
11.10. Overall Financial Assessment ....................................................................... 20
13. PHASE OUT AND SUSTAINABILITY STRATEGY ........................................... 23
14. ACTION PLAN AND BUDGET BREAK DOWN ................................................. 23
15. RISKS AND ASSUMPTIONS.......................................................................... 24
16. ENVIRONMENTAL IMPACT ANALYSIS ......................................................... 25
17. CONCLUSION AND RECOMMENDATION ...................................................... 26
ANNEX .............................................................................................................. 27
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EXECUTIVE SUMMARY OF THE PROJECT
1. Project Name Cereals, Pulses and Oilseed Crop Production Project
2. Project Owner Zeleke Geleta Ayana
3. Project Type Agriculture
4. Project Promoter The promoter of the project is the owners themselves
(the investors) and those of who are benefiting from the
project.
5. Nationality Ethiopian
6. Project Location Oromia Region, East Wollega Zone, Gobu Sayo
Woreda, Adere Tiksa kebele
7. Premises Required 100 ha
8. Full production At full production Capacity, the project will produce
Capacity 6,370 quintals of produce annually
9. Total investment capital 8,452,323.51 (ETB)
10. Job opportunity Permanent: Skilled 16 and unskilled 5
Temporary: Skilled - and unskilled 637
Total: Skilled 16 and Unskilled 642 (Aggregate =658)
11. Benefit Expected The expected benefit of the project is to produce 4,388
quintals of production per annual, and thereby create
job opportunity for 658 individuals and become source
of income for the government
12. Expected The surrounding community in obtaining job
beneficiaries opportunity
People living in Gobu Sayo woreda, Adere Tiksa
Kebele and the surrounding community will
obtain social fund and job opportunity
People living in East Wollega zone, in large
Government and non-government organizations
13. Technology to be The firm will use environment friendly technology
used which can be operated by local people.
14. Market Destination i. Different individuals who are living in Oromia
region, east Wollega zone and woredas and towns
ii. Finfinne, Adama and surrounding community
iii. Some of the produce will be planned to be exported
abroad
15. Source of finance Out of Br. 8,452,323.51 as capital requirement, 30% (Br.
2,535,697.05) from own contribution and 70%
5,916,626.46 ) from bank@ interest rate of 11.5%
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1. INTRODUCTION
Under the thematic area of productivity and production strategic objective 1 entails
the following outcomes: increase the production of food, cash crops and livestock;
increase agricultural productivity; reduce qualitative and quantitative post-harvest
losses; scale-up proven best agricultural practices; increase the use of agricultural
inputs and improved agricultural practices; and reduce dependence on commercial
imports of staple food products. Under the thematic area of rural commercialization
in strategic objective 2, the following outcomes are expected: increase in private
agribusiness investment; increase in smallholder household cash incomes; increase
in the proportion of agricultural production marketed (versus subsistence
utilization); increase in the diversification into higher value products; improvement
of farmer access to agricultural inputs and productive assets; increase in farmer
access to rural financial services; increase in agricultural export earnings; increase
in households’ participation in farmer organizations; strengthening of farm income
growth through improved infrastructure and market access; and reduction of rural
unemployment.
In addition, following the issuance of PIF and GTP, there has been a call for shifting
from low value land extensive production to high value and land intensive form of
agriculture is made. Accordingly, this crop production project is proposed by
visionary emerging domestic investor Zeleke Geleta. It is against this background
that this project study is being undertaken to assess the profitability of the project
so as to provide the investor and Oromia Investment and Industry Bureau with a
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tool to use in determining the feasibility of enterprises and monitoring its
performance. In making this project feasibility study, the consultant team has
devoted a great deal of time in searching and collecting information on specific
aspects of the project.
The information was collected by reviewing both print and electronic documents
from research publications (library and on-line reprints and databases).
2. BACKGROUND
Although agriculture is one of Ethiopia’s most promising resources, the sector has
been slowed down by periodic drought, high levels of taxation and poor
infrastructure that often make it hard and expensive to get goods to market. Also,
overgrazing, deforestation and high population density has led to massive soil
degradation leading to low productivity. The above problems have made it hard for
the country to feed itself; best exemplified by the dramatic 1984-85 famine. Since
then, the country has experienced similar occurrences that expose a sizeable
population to humanitarian needs. As things stand, over 3 million Ethiopians need
food and other humanitarian assistance annually (SIDA, 2015). However, a critical
look at the sector shows a high potential for self-sufficiency in grains and also for
the development export especially for livestock, vegetables, fruits and grains.
Further, many other economic activities depend on agriculture. These include
processing, marketing and export of agricultural products among others.
The role of gender in the Ethiopian agricultural system is also critical: in post-
harvest activities for cereals, women contribute as much as 70 percent of on-farm
labor; in marketing, particularly in cereals, participation of women is as high as 60
percent of labor market share. While MoARD strategies do identify the role of
women in the agricultural value chain, the gap is in the implementation of these
strategies. PASDEP II has already identified targets for the participation of women
in cooperatives and unions (>30 percent), as well as the number of women targeted
by public extension in male-headed and female-headed households, 50 percent and
100 percent, respectively. Given the stakes of women in production systems,
specific strategies that target increasing the opportunity of women to participate in
income generation and decision-making, and the disaggregation of data sets to
capture the participation of women are critical.
About a third of rural household’s farm less than 0.5 hectares which, under rain fed
agriculture at current yield levels, cannot produce enough food to meet their
requirements. Most agricultural production is used to meet household consumption
needs and, for a very large number of households, there is a prolonged hunger
season during the pre-harvest period. This period is also characterized by rising in
food item prices. When there are surpluses, smallholder farmers are often
constrained by lack of access to markets, and hence sale their outputs at very
depressed prices.
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Table: Strategic Objective
Thematic Area Strategic Objectives (SOs)
Productivity and To achieve a sustainable increase in agricultural
Production productivity and production.
Rural Commercialization To accelerate agricultural commercialization and
agro industrial development.
Natural Resources To reduce degradation and improve productivity of
Management natural resources.
Disaster Risk To achieve universal food security and protect
Management and Food vulnerable households from natural disasters.
Security
Thus, the objective of this investment project proposal is well anchored to, and
aligned with the national socioeconomic development of the country. The detail
project rational and objectives are explained under section three “rationale and
Objectives of the project”.
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Indeed, at the close of the century of greatest agricultural expansion, the dilemma
of the farmer had become a major problem. Several basic factors were involved-soil
exhaustion, the vagaries of nature, overproduction of staple crops, decline in self-
sufficiency, and lack of adequate legislative protection and aid. Some of the
environmental issues that are related to agriculture are climate change,
deforestation, dead zones, genetic engineering, irrigation problems, pollutants, soil
degradation, and waste.
Ethiopian agriculture has been suffering from various external and internal
problems. It has been stagnant due to poor performance as a result of factors such
as low resource utilization; low-tech farming techniques (e.g., wooden plough by
oxen and sickles); over-reliance on fertilizers and underutilized techniques for soil
and water conservation; inappropriate agrarian policy; inappropriate land tenure
policy; ecological degradation of potential arable lands; and increases in the
unemployment rate due to increases in the population
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Implementation of this commercial seed and crop production project is
expected to motivate other investors to supplement it by investing in agro-
processing factors around Nekemte so that the outputs of this project will
become the inputs for the processing factors.
As Nekemte town is expected to be the commercial center of the western
Ethiopia, this project will have access to lucrative international market. The
railroad and airport which is on the process of implementation will facilitate
the transportation of the products safely and swiftly.
Climate, the long-term effect of the sun's radiation on the rotating earth's varied
surface and atmosphere. It can be understood most easily in terms of annual or
seasonal averages of temperature and precipitation. Most part of the land has an
elevation above 1500 meters and characterized by sub-tropical climatic condition
with a mean annual temperature between 130c and 270c and mean annual rainfall
of 770 mm to 1,657 mm.
6.1.3. Soils
Clay loam and loam soil is exceedingly dominating the district, which has a good
quality of agricultural potentialities. The coverage of Clay loam soil in hectares is
27,002 and of this hectare 14,889.4 hectares is suitability for agriculture. Loam soil
also covers 6,750.6 hectares and it is totally suitable for agriculture.
6.2. Economic Base
6.2.1. Crop Production
The crop cultivation activity was conducted during meher season only. In Gobbu
Sayyo district, there is no state farm and large-scale private farms. Agricultural
inputs are believed to be the most important factor to attain food self-sufficiency.
Without chemical fertilizer, high yield is not expected & feeding a family of large size
would be impossible. During last two years the farmers used fertilizers as DAP and
Urea, improved seeds of maize and wheat and others distributed for them in order
to improve productivity.
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Farmers of the district used the two methods of soil fertility. Traditional methods of
maintaining soil fertility used are organic and green manure and mulching whereas
modern methods of maintaining soil fertility in the district are using adding
chemical fertilizers, use compost and crop rotation. Shifting cultivation,
intercropping and counter ploughing are among traditional methods of soil
conservation and soil band, cut off drain, grass stig and water way are modern
methods of soil conservation exist in the district.
6.2.2. Livestock
Livestock play a key role in day-to-day life of the society, especially in the peasant
sector. They provide meat & milk, transport, manure, skin & hide & furnish regular
& easily realizable cash income. But in contrast to the size of the livestock
population, physical & value productivity are low. The following table indicates the
size of livestock in the district.
In this project area oxen are the main source of power for peasant farming and
hence a farmer with no farm oxen is considered as poor. A farmer having a pair of
ox is expected to feed himself and his families provided that he possesses enough
farmland. Saving capacity of the society is again the function of their production
capacity, which in turn, is the functions of oxen and farm sizes, both of which are
declining from time to time in this area. Besides, the farm oxen need medical care
and treatment, the cost and availability of which is again the major challenges for
the smallholder farmers. As a result, the average number of farm oxen per
household has been decreasing from time to time thereby leaving the smallholder
farmers at very precarious situation.
6.2.5. Industry
Industry is a group of productive enterprises or organizations that produce or
supply goods, services, or sources of income. There were 11 registered small-scale
industries in Gobbu Sayyo district by the year 2002 E.C with capital of 564,675
birr.
6.3. Population
Population size, compositions, its spatial distribution and some other demographic
and socio-economic data are very important for planning, monitoring and
evaluation of various development programs. As shown in table below the counted
population of Gobbu Sayyo district based on population and housing census
conducted in 2007 G.C is 43,581 and 45,690 in 2001 E.C and 2002 E.C
respectively. By the year 2002 E.C from 45,690 total populations of the district
22,388 (48.99%) were males whereas about 23,302 (51.01%) were females. During
this year about 87.97% of the total populations were rural population, which are
directly engaged their life with even the back bone of the country called agriculture.
The crude population density of the district in the year 2002 E.C was 119 persons
per. km2.
6.4. Vegetation
Gobbu Sayyo district has a better vegetation cover than the other neighboring
districts. There are different patches of forests along the riverside. There was a
forest area assumed to be under forest on some areas having a total area of about
1,381 hectares, but not demarcated as assumed. However, there is a very serious
deforestation especially along the river and its surrounding where there had been a
jangle forest before a decade.
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be easy communication of the project affairs within the project and with the
external bodies.
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7.4. Production Capacity
For each crop types proposed, the project aims at producing the maximum output
per hectare as proved to be achievable at the research stations. The project
promoter aims at utilizing the technologies and practices as per the
recommendations of the research centers so as to produce the maximum output per
hectare. Accordingly, the projected output per hectare for each crop will be
presented under sub-section 9 (projected output per hectare).
As the above table shows, the total farm land is allocated to production of
demanded crop production and various high valued items such as: Cereal (63
percent of the land to be covered by maize); Pulses crop production (10 percent of
the land to be covered by Soybean); Oilseed’s production (25 percent of the land to
be covered by groundnuts. The construction plots are expected to cover only 0.5
hectare and the remaining land 2 percent is reserved for forest coverage (at least 2
percent of the allotted land for investment as per the Oromia Rural Land use and
Administration Proclamation No. 130/ 2007, which will be 9 hectares).
8. MARKET PROSPECTS
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9. ORGANIZATIONS AND ADMINISTRATION OF THE PROJECT
Note that this organizational structure depicts the overall flows of accountability
and reporting structure of the project staffs.
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Note that the employees’ salary is expected to increase by a minimum of five per
cent each year.
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Table 4. Summaries cost of the project farm machineries (in Birr)
S.N0 Descriptions of the Items quantity Unit costs Total costs
1 New John Deere 6100D Mfwd Tractor (Mexico Origin) 1 1,200,577 1,200,577
2 Mounted Four Disc Plough (Make: Nardi, Model: QD 1 325,000 325,000
70/E)
3 Mounted Tandem Disc Harrow (Make: Nardi, Model: 28 2 285,725 571,450
HOP 56)
4 Brand New Toyota Hilux Double cab (Full Option) 1 1,100,000 1,100,000
4WD, 2.5L, 2949cc, 4cylinders, 16valve, Diesel Turbo,
DOHC (Japan origin)
5 Truck 1 1,420,000 1,420,000
Estimated machineries (in Birr) 4,617,027.08
Office Equipment’s: - the following table shows the prices of office equipment’s at
the time of preparing this project proposal.
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Table 6. Summaries of the office equipments’ costs (in Birr)
FURNITURE Qty Unit Cost Total cost
Table and chair (Farm Manger) Set 2 8,200 16,400
Waiting /guest Chair Pcs 2 750 1,500
Camp bed and furniture’s Set 2 3200 6,400
Shelf and Other Drawers Set 1 5,000 5,000
Weighing scale 1 35,000 35,000
Desk top computer with its 1 15,000 15,000
Accessories
Fax Machine 1 7,600 7,600
Laptop computer 1 15,500 15,500
Computer tables 2 5,000 10,000
Printer 1 7,600 7,600
Safe box 1 11,000 11,000
Cash register machine 1 8,000 8,000
Calculator /adding machines 2 450 900
Sub total 139,900.00
Repair and maintenance costs: - Operating costs for operations and maintenance
of machineries and equipment is taken to be 2 percent of the initial investment
costs starting from its second year after acquisition until end of tenth year, after
which the rate would be 10 percent. Accordingly, table 8 (annexed) shows the
detailed calculation of this cost item which is summarized to be Birr 101,708 .00
starting from the second year of the project operation to tenth year. This is
presented by table 13 (annexed).
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determinations of the working capital requirements. This is because such expense
has no effect on cash flow streams for which we need to determine working capital
requirement. However, periodical income tax and interest liabilities need to be
considered since such items affect cash flows of an entity. Nonetheless, they are not
reflected in this case since we have not yet estimated such costs by this time.
Note that the projections are based on the expert opinions in the field as well as per
the recommendations of east Wollega zone agriculture office, and experienced
investors & seed multipliers enterprises. In essence, if the project is to be
implemented and run-in accordance with the recommendations of the experts,
these projections are supposed to be achievable. Here, it is expected that as the
project operates for a greater number of years, there is advantage of getting lessons
from the past years and hence the latter years’ output per year is expected to
increase accordingly.
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11.4. Forecasted Sales Revenues
Sales revenues are the functions of projected production and projected selling price
per unit of each crop. Taking the projected production of each crop from the table
17, we now proceed to the projection of selling price of each crop. Accordingly, the
selling price of each quintal of the crop is expected to increase each year by a
minimum of 5 percent. Given the trends of the past five years in Ethiopia in
particular and in the world in general, this projection wouldn’t be far from the
reality under the normal macroeconomic condition. Table 18 (annexed) shows the
projected selling price per quintal of each crop over the next ten years.
In order to determine the forecasted sales revenues, we need to multiply the
forecasted selling price per unit of each crop by their respective projected
production of each year. Table 19 (annexed) shows this procedure.
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11.8. Forecasted Cash Flow Statement
Unlike the forecasted income statement, the forecasted cash flow statement shows
the inflows and outflows of money to and from the project over a given period of
time. In this case, all items (revenues and expense) which don’t affect cash flow are
excluded from the statement. In our case, depreciation expense is the only expense
that doesn’t affect cash flow and hence excluded from the outflows whereas all
revenues are supposed to be either fully collected within the year of sales or the sale
be made on cash basis.
The cash flow statement shows the sources and uses of money over a given period
of time. Accordingly, there are three sections of this report: (1) cash flows of
operating activities (O); (2), cash flows of investing activities (I), and (3) cash flows of
financing activities (F). Net cash flow of the project is the sum of net cash flows from
these three sections. Table 23 (annexed) shows the projected cash flow statement
over the first ten years of the project. Note also that this cash flow report shows that
the firm’s cumulative cash inflows over the forecast period is very attractive and
deserves financing. This statement also proves that the project is finically viable.
Note that as the projected balance sheet shows that the financial position of the
firm remarkably improves over the period and will be able to full operate by own
finance after ten years if the project is successfully implemented. This also supports
that the project has financial viability.
Net Present Value (NPV): - is the sum of present values of all the cash flow both
positive and negative that are expected to occur over the life of the project. The
formal selection criterion for the NPV measure of project worth is to accept all
independent projects with a positive NPV when discounted at the opportunity cost
of capital. In this project case, given the project has positive value of Birr
32,530,663; it means that the project would contribute 32,530,663.00 towards the
wealth maximization of the owner’s wealth and hence it is viable.
Benefit Cost Ratio (BCR): - The benefit-cost ratio is defined as the ratio of the
discounted values of benefits to the discounted value of costs. A ratio of at least one
is required for acceptability and the ratio of one indicates that the NPV of zero at a
particular discount rate. In our case BCR of Birr 1.60 shows, for every one Birr
invested in this project, the return would be 1.60 Birr, which is highly remarkable
figure.
Net Benefit Cost Ratio (NBCR): - this ratio is defined as the ratio of net present
value to the present value of cost. A ratio greater than zero (0) is needed for the
project to be financially acceptable; in our case the ratio of 0.60 is in excess of the
hurdle rate required to make the project financially viable (the project is magnificent
in terms of this criteria also).
Internal Rate of Return (IRR): - is the maximum interest that a project could pay
for the resources used if the project is to recover its investment and operating costs
and still break even. It measures opportunity cost of capital tied up in the
investment. In this project case, IRR is 119 percent which is extraordinarily large
compared with the minimum cost of capital of 11.5 per cent. Hence, we can safely
conclude that the IRR of the project is extraordinarily high and hence indicates
project viability.
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into the definition of volume of output sold, selling price, required investment, labor
costs per unit; maintenance costs of machines, profit, and so forth. However, as
these values are based on certain assumptions, they may change in unfavorable
direction thereby making projects less attractive than when it was planned. Thus,
switching value measures the value an element of a project would have to reach as
a result of a change in an unfavorable direction before that project no longer meets
the minimum level of acceptability as indicated by one of the measures of project
worth. In this case we ask, by how much an element would have to change in an
unfavorable direction before the project would no longer meet the minimum level of
acceptability as indicated by one of the measures of project worth. In other words,
in sensitivity analysis, we ask how sensitive is the project’s estimated financial and
economic benefits to increase in costs, fall in price and extension of implementation
periods?
In our case, since BCR is 1.80, it means that cost can rise by 80 percent at which
the BCR will become exactly 1.0 and hence the decision will be indifference.
However, any rise in cost beyond 80 percent keeping sales revenues constant will
lead the BCR to be below 1.0 and hence the decision will be to reject the project on
this ground. But it is unlikely to expect such increase in operating costs keeping
selling prices of these products’ constant. Thus, the 38 percent margin of safety is
large enough to guarantee for the stability of the above decision criteria. Similarly,
revenues can keep dropping up to = = 1-0.625= 0.375 which is
roughly equals to 38 percent, keeping the cost elements constant. Any drop in sales
by more than 38 percent may lead the project to rejection region. However, given
the past few year trends, the price of these items has been increasing at increasing
rate and hence expected to increase over the next many years partly due to
increasing demand to these outputs and partly due to increasing general trend in
commodity prices. Overall, when evaluated both in terms of cost and revenue, the
project has sufficient margin of safety to guarantee the stability of the determined
investment decision criteria above. Thus, it is can be safely concluded that the
project is financially viable.
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This also involves major potential for scaling up and synergies in relation to
subsequent investment programme
11 Harvesting ** ** **
12 Marketing ** **
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15. RISKS AND ASSUMPTIONS
Successful agricultural development initiatives associated with poverty reduction
have seldom included large-scale land-based investment. Feed the Future focuses
on smallholder-led agricultural growth as the principal engine of poverty reduction
and food security. Investment in agriculture of all sizes, however, can be
constructive and is encouraged by the Ethiopian Government, but investments
must take into account specific country contexts and circumstances and respect
the rights of local populations.
1. Production risks stem from the uncertain natural growth processes of crops and
livestock, with typical sources of these risks related to weather and climate
(temperature and precipitation) and pests and diseases. Other yield-limiting or
yield-reducing factors are also production risks such as excessive heavy metals
in soils or soil salinity.
2. Market risks largely focus on uncertainty with prices, costs, and market access.
Sources of volatility in agricultural commodity prices include weather shocks
and their effects on yields, Other sources of market risk include international
trade, liberalization, and protectionism as they can increase or decrease market
access across multiple spatial scales. Farmers’ decision making evolves in a
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context in which multiple risks occur simultaneously, such as weather
variability and price spikes or reduced market access.
3. Institutional risks relate to unpredictable changes in the policies and regulations
that effect agriculture, with these changes generated by formal or informal
institutions. Government, a formal institution, may create risks through
unpredictable changes in policies and regulations, factors over which farmers
have limited control. Sources of institutional risk can also derive from informal
institutions such as unpredictable changes in the actions of informal trading
partners, rural producer organizations, or changes in social norms that all affect
agriculture.
4. Personal risks are specific to an individual and relate to problems with human
health or personal relationships that affect the farm. Some sources of personal
risk include injuries from farm machinery, the death or illness of family
members from diseases, negative human health effects from pesticide use, and
disease transmission between livestock and humans.
5. Financial risk refers to the risks associated with how the farm is financed and is
defined as the additional variability of the promoter’s operating cash flow due to
the fixed financial obligations inherent in the use of credit. Some sources of
financial risk include changes in interest rates or credit availability, or changes
in credit conditions.
Key invested Project implementation assumptions are that the country’s economy
maintains its stability and that consistency is established between the stated
government policies and agricultural reforms supporting private sector
development, and the agriculture sector vis-à-vis the actual implementation of
investment policies and reforms.
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rural poverty often exacerbates environment and natural resource
degradation; and
Climate change increases the vulnerability of rural people and the ecosystems
they depend on for their livelihoods.
Thus, opening alternative source of income by creating job opportunities within the
project can relieve the current pressure on the rural land in the project area.
Besides, the project promoters are fully aware of the Oromia Rural Land use and
Administration Proclamation No. 130/ 2007, which force any investor to cover at
least 2 percent of the allotted land area by indigenous trees.
The strategic objectives of the projects are highly consistent with the national
development objective which calls to “sustainably increase rural incomes and
national food security, which embodies the concepts of producing more, selling
more, nurturing the environment, eliminating hunger and protecting the
vulnerable against shocks.
These projects are expected to create job opportunities for these potential
migrants at their nearby village and hence alleviate the pushing factor for
migrations.
The projects aim at utilizing locally available technologies so as to encourage the
backward and forward linkage of the project and hence contribute towards the
realization of Agricultural Development Led Industrialization (ADLI) strategy of
the country.
Finally, the projects will largely contribute towards the national economic
development by contributing to National GDP. GDP contribution originating from
the agriculture sector has more power of poverty reduction than other sectors (a
one percent GDP growth rate originating in agriculture sector has more potential
for poverty reduction than two percent GDP growth rate originating from the
service sector).
Recommendation: - considering the viability of the project, as aforementioned,
the project is recommended for implementation.
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ANNEX
Table. 7 Labor requirement per Hectares of each crop
Project life in years
Crop and Operation 1 2 3 4 5 6 7 8 9 10 to 25
Maize (Seed) Land preparation 7 7 7 7 7 7 7 7 7 7
Planting 5 5 5 5 5 5 5 5 5 5
Weeding (2X) 7 7 7 7 7 7 7 7 7 7
Chemical application (2X) 5 5 5 5 5 5 5 5 5 5
Harvesting 5 5 5 5 5 5 5 5 5 5
Threshing 5 5 5 5 5 5 5 5 5 5
Total 34 34 34 34 34 34 34 34 34 34
Soya Beans
Land preparation 4 4 4 4 4 4 4 4 4 4
Planting 5 5 5 5 5 5 5 5 5 5
Weeding (2X) 4 4 4 4 4 4 4 4 4 4
Chemical application (4X) 3 3 3 3 3 3 3 3 3 3
Harvesting (2X) 7 7 7 7 7 7 7 7 7 7
threshing 5 5 5 5 5 5 5 5 5 5
Total 28 28 28 28 28 28 28 28 28 28
Groundnuts
Land preparation 4 4 4 4 4 4 4 4 4 4
Planting 5 5 5 5 5 5 5 5 5 5
Weeding (2X) 5 5 5 5 5 5 5 5 5 5
Chemical application (2X) 3 3 3 3 3 3 3 3 3 3
Harvesting 8 8 8 8 8 8 8 8 8 8
threshing 5 5 5 5 5 5 5 5 5 5
Labor per season 30 30 30 30 30 30 30 30 30 30
Sesame
Land preparation 5 5 5 5 5 5 5 5 5 5
Planting 8 8 8 8 8 8 8 8 8 8
Weeding (2X) 6 6 6 6 6 6 6 6 6 6
Harvesting (2X) 7 7 7 7 7 7 7 7 7 7
threshing 6 6 6 6 6 6 6 6 6 6
Total 32 32 32 32 32 32 32 32 32 32
Labor requirement is expressed in terms of work-day, which is to mean the time devoted by one person during one day (usually eight hours).
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Table 8. Estimated yearly repair and maintenance expenses Repair and maintenance
Items costs Rate
1 Store and bathing room 202,000.00 0.02 4,040.00
2 New John Deere 6100D Mfwd Tractor (Mexico Origin) 1,200,577 0.02 24,011.54
3 Mounted Four Disc Plough (Make: Nardi, Model: QD 70/E) 325,000 0.02 6,500.00
4 Mounted Tandem Disc Harrow (Make: Nardi, Model: 28 HOP 56) 571,450 0.02 11,429.00
5 Brand New Toyota Hilux Double cab 1,100,000 0.02 22,000.00
6 Truck 1,420,000 0.02 28,400.00
7 Chemical Sprayer 13,500.00 0.02 270.00
8 Sickles 4,800.00 0.02 96.00
9 Axes 1,700.00 0.02 34.00
10 Tape meter (100 m) 1,800.00 0.02 36.00
11 Wheel borrow 17,500.00 0.02 350.00
12 Shovel 1,440.00 0.02 28.80
13 Weighing scale 75,000.00 0.02 1,500.00
14 Thresher 40,000.00 0.02 800.00
15 Saw 300.00 0.02 6.00
16 Cutlass or Machete 40,000.00 0.02 800.00
17 Spade hoe 4,500.00 0.02 90.00
18 Local hand hoe 840.00 0.02 16.80
19 Spade 980.00 0.02 19.60
20 Digging fork 6,000.00 0.02 120.00
21 Trovel 2,000.00 0.02 40.00
22 Laptop Computer 15,500.00 0.02 310.00
23 Printers 7,600.00 0.02 152.00
24 Shelf 5,000.00 0.02 100.00
25 Managerial Chairs 16,400.00 0.02 328.00
26 Guest Chairs 1,500.00 0.02 30.00
27 Computer tables 10,000.00 0.02 200.00
Total Repair and Maintenance costs 101,707.74
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Table 9. Total Labor requirement and cost of the project
Years 1 2 3 4 5 6 7 8 9 10
Maize Labor per Ha (table 7) 34 34 34 34 34 34 34 34 34 34
Land area (table 1) 62.5 62.5 62.5 62.5 62.5 62.5 62.5 62.5 62.5 62.5
Sub-total labor required 2125 2125 2125 2125 2125 2125 2125 2125 2125 2125
Soybean Labor per Ha (table 7) 28 28 28 28 28 28 28 28 28 28
Land area (table 1)* 10 10 10 10 10 10 10 10 10 10
Sub-total labor required 280 280 280 280 280 280 280 280 280 280
Groundnuts Labor per Ha (table 7) 30 30 30 30 30 30 30 30 30 30
Land area (table 1) 10 10 10 10 10 10 10 10 10 10
Sub-total labor required 300 300 300 300 300 300 300 300 300 300
Sesame Labor per Ha (table 7) 32 32 32 32 32 32 32 32 32 32
Land area (table 1)* 15 15 15 15 15 15 15 15 15 15
Sub-total labor required 480 480 480 480 480 480 480 480 480 480
Total Labor required per ha 3185 3,185 3,185 3,185 3,185 3,185 3,185 3,185 3,185 3185
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Table 14. Miscellaneous and utilities expense per year
years 1 2 3 4 5 6 7 8 9 10
Utilities Expense 201,250 211,313 221,878 232,972 244,621 256,852 269,694 283,179 297,338 312,205
Other Operating expense 364,576 382,805 401,945 422,042 443,144 465,302 488,567 512,995 538,645 565,577
Table 17. Forecasted production of each crop over the first 10 years
Crops 1 2 3 4 5 6 7 8 9 10
Maize Land area in Ha 62.5 62.5 62.5 62.5 62.5 62.5 62.5 62.5 62.5 62.5
Output per Ha (quint) 55 55 55 55 55 55 55 55 55 55
Total Output (quint) 3,438 3,438 3,438 3,438 3,438 3,438 3,438 3,438 3,438 3,438
Soybean Land area in Ha 10 10 10 10 10 10 10 10 10 10
Output per Ha (quint) 35 35 35 35 35 35 35 35 35 35
Total Output (quint) 350 350 350 350 350 350 350 350 350 350
Groundnuts Land area in Ha 10 10 10 10 10 10 10 10 10 10
Output per Ha (quint) 30 30 30 30 30 30 30 30 30 30
Total Output (quint) 300 300 300 300 300 300 300 300 300 300
Sesame Land area in Ha 15.0 15.0 15.0 15.0 15.0 15.0 15.0 15.0 15.0 15.0
Output per Ha (quint) 20 20 20 20 20 20 20 20 20 20
Total Output (quint) 300 300 300 300 300 300 300 300 300 300
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Table 18. Projected selling price of (at the farm gate price in Birr per quintal)
Crops 1 2 3 4 5 6 7 8 9 10
Maize 1500 1,575 1,654 1,736 1,823 1,914 2,010 2,111 2,216 2,327
Soya beans 1800 1,890 1,985 2,084 2,188 2,297 2,412 2,533 2,659 2,792
Groundnuts 2200 2,310 2,426 2,547 2,674 2,808 2,948 3,096 3,250 3,413
Sesame 3500 3,675 3,859 4,052 4,254 4,467 4,690 4,925 5,171 5,430
Table 19 Projected annual Sales revenues from each Crop (at the farm gate price in Birr)
Crops 1 2 3 4 5 6 7 8 9 10
Maize Price (Birr) 1500 1,575 1,654 1,736 1,823 1,914 2,010 2,111 2,216 2,327
Production (quint) 3,438 3,438 3,438 3,438 3,438 3,438 3,438 3,438 3,438 3,438
Sales (Birr) 5,156,250 5,414,063 5,684,766 5,969,004 6,267,454 6,580,827 6,909,868 7,255,362 7,618,130 7,999,036
Soyabean Price (Birr) 1,800 1,890 1,985 2,084 2,188 2,297 2,412 2,533 2,659 2,792
Production (quint) 350 350 350 350 350 350 350 350 350 350
Sales (Birr) 630,000 661,500 694,575 729,304 765,769 804,057 844,260 886,473 930,797 977,337
Groundnuts Price (Birr) 2,200.0 2,310.0 2,425.5 2,546.8 2,674.1 2,807.8 2,948.2 3,095.6 3,250.4 3,412.9
Production (quint) 300 300 300 300 300 300 300 300 300 300
Sales (Birr) 660,000 693,000 727,650 764,033 802,234 842,346 884,463 928,686 975,121 1,023,877
Sesame Price (Birr) 3,500 3,675 3,859 4,052 4,254 4,467 4,690 4,925 5,171 5,430
Production (quint) 300 300 300 300 300 300 300 300 300 300
Sales (Birr) 1,050,000 1,102,500 1,157,625 1,215,506 1,276,282 1,340,096 1,407,100 1,477,455 1,551,328 1,628,895
Total Sales revenues 7,496,250 7,871,063 8,264,616 8,677,846 9,111,739 9,567,326 10,045,692 10,547,977 11,075,375 11,629,144
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Table 22 Projected Annual Income Statement (all in Birr)
Years 1 2 3 4 5 6 7 8 9 10
Total Revenues 7,496,250 7,871,063 8,264,616 8,677,846 9,111,739 9,567,326 10,045,692 10,547,977 11,075,375 11,629,144
Operating Expenses:
Salaries Expense 740,400 777,420 816,291 857,106 899,961 944,959 992,207 1,041,817 1,093,908 1,148,603
Wages Expense 238,875 238,875 250,819 263,360 276,528 290,354 304,872 320,115 336,121 352,927
Repair & maintenance 0 101,708 106,793 112,133 117,739 123,626 129,808 136,298 143,113 150,269
Utilities Expense 201,250 211,313 221,878 232,972 244,621 256,852 269,694 283,179 297,338 312,205
Supplies Expense 890,693 935,227 981,988 1,031,088 1,082,642 1,136,774 1,193,613 1,253,294 1,315,958 1,381,756
Miscellaneous Expense 364,576 382,805 401,945 422,042 443,144 465,302 488,567 512,995 538,645 565,577
Depreciation Expense 657,040 657,040 657,040 657,040 657,040 461,768 461,768 5,050 5,050 5,050
Interest Expense 680,412 612,371 544,330 476,288 408,247 340,206 272,165 204,124 136,082 68,041
Total Operating Expense 3,773,245 3,916,758 3,981,084 4,052,028 4,129,922 4,019,841 4,112,693 3,756,872 3,866,216 3,984,429
Income Before Income Tax 3,723,005 3,954,305 4,283,532 4,625,818 4,981,817 5,547,485 5,932,999 6,791,105 7,209,160 7,644,715
Income Tax (35%) 1,303,052 1,186,291 1,285,060 1,387,745 1,494,545 1,664,245 1,779,900 2,037,331 2,162,748 2,293,415
Net Income 2,419,953 2,768,013 2,998,472 3,238,073 3,487,272 3,883,239 4,153,099 4,753,773 5,046,412 5,351,301
Retained Earnings 2,419,953 5,187,966 8,186,439 11,424,511 14,911,783 18,795,022 22,948,122 27,701,895 32,748,307 38,099,607
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Interest payment 680,412 612,371 544,330 476,288 408,247 340,206 272,165 204,124 136,082 68,041
Income Tax (30%) 1,303,052 1,186,291 1,285,060 1,387,745 1,494,545 1,664,245 1,779,900 2,037,331 2,162,748 2,293,415
Working capital 169,243 105,894 111,189 116,748 122,585 128,715 135,150 141,908 149,003 0
Total cash outflows 4,588,500 4,551,903 4,720,292 4,899,482 5,090,013 5,351,033 5,565,975 5,931,061 6,172,917 6,272,793
Net cash provided by operation 2,907,750 3,319,159 3,544,323 3,778,364 4,021,726 4,216,292 4,479,717 4,616,915 4,902,458 5,356,351
2. Cash flows of investing activities:
Cash inflows:
Cash Outflows:
Project construction costs 880,000
Projected farm machine cost 4,617,027
Projected farm tools cost 210,360
Projected office equipments 139,900
Total cash outflows 5,847,287
Net cash used by investing -5,847,287
3. Cash flows of Financing:
cash inflows:
Owners' equity 2,535,697
Bank loans 5,916,626
Total cash inflows 8,452,324
Cash outflows:
Repayments of loans 591,663 591,663 591,663 591,663 591,663 591,663 591,663 591,663 591,663 591,663
Net cash flows by financing 7,860,661 -591,663 -591,663 -591,663 -591,663 -591,663 -591,663 -591,663 -591,663 -591,663
Total N et cash flows 4,960,553 2,727,497 2,952,661 3,186,702 3,430,063 3,624,630 3,888,054 4,025,253 4,310,796 4,764,688
Cumulative cash flows 4,960,553 7,688,049 10,640,710 13,827,412 17,257,475 20,882,105 24,770,159 28,795,411 33,106,207 37,870,895
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Table 24 Projected Balance sheet of the project (in Birr)
Years 1 2 3 4 5 6 7 8 9 10
Assets
Current asset
Cash (cumulated) 4,960,553 7,688,049 10,640,710 13,827,412 17,257,475 20,882,105 24,770,159 28,795,411 33,106,207 37,870,895
working capital (cumulated) 169,243 275,137 386,325 503,073 625,659 754,374 889,524 1,031,432 1,180,435 1,180,435
Total current assets 5,129,796 7,963,186 11,027,036 14,330,485 17,883,134 21,636,478 25,659,683 29,826,843 34,286,642 39,051,331
Fixed asset
Project construction costs 880,000 880,000 880,000 880,000 880,000 880,000 880,000 880,000 880,000 880,000
Projected accu. depren -5,050 -10,100 -15,150 -20,200 -25,250 -30,300 -35,350 -40,400 -45,450 -50,500
Projected farm machine cost 4,617,027 4,617,027 4,617,027 4,617,027 4,617,027 4,617,027 4,617,027 4,617,027 4,617,027 4,617,027
Projected accu. depren -456,718 -913,435 -1,370,153 -1,826,871 -2,283,588 -2,740,306 -3,197,024 -3,653,742 -4,110,459 -4,110,459
projected farm tools cost 210,360 210,360 210,360 210,360 210,360 210,360 210,360 210,360 210,360 210,360
Projected accu. depren -184,072 -368,144 -552,216 -736,288 -920,360 -1,104,432 -1,288,504 -1,472,576 -1,656,648 -1,840,720
projected office equipment’s 139,900 139,900 139,900 139,900 139,900 139,900 139,900 139,900 139,900 139,900
Projected accu. depren -11,200 -22,400 -33,600 -44,800 -56,000 -67,200 -78,400 -89,600 -100,800 -112,000
Total fixed assets 5,190,247 4,533,208 3,876,168 3,219,128 2,562,089 1,905,049 1,248,009 590,969 (66,070) (266,392)
Total assets 10,320,043 12,496,394 14,903,204 17,549,614 20,445,222 23,541,527 26,907,692 30,417,813 34,220,572 38,784,938
Liability
Bank Loan 5,324,964 4,733,301 4,141,639 3,549,976 2,958,313 2,366,651 1,774,988 1,183,325 591,663 0
Capital
Owners' equity 2,535,697 2,535,697 2,535,697 2,535,697 2,535,697 2,535,697 2,535,697 2,535,697 2,535,697 2,535,697
Retained earning 2,419,953 5,187,966 8,186,439 11,424,511 14,911,783 18,795,022 22,948,122 27,701,895 32,748,307 38,099,607
Total capital 4,955,650 7,723,664 10,722,136 13,960,208 17,447,480 21,330,719 25,483,819 30,237,592 35,284,004 40,635,304
Total Liability + Capital 10,280,614 12,456,965 14,863,774 17,510,184 20,405,793 23,697,370 27,258,807 31,420,917 35,875,666 40,635,304
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Table 25. Projected Annual cash Flow Statement from Operations(all in Birr)
years 1 2 3 4 5 6 7 8 9 10
Cash flows of Operating activities:
Cash Inflows:
Cash collections from revenues 7,496,250 7,871,063 8,264,616 8,677,846 9,111,739 9,567,326 10,045,692 10,547,977 11,075,375 11,629,144
Cash Outflows:
Salaries payment 740,400 777,420 816,291 857,106 899,961 944,959 992,207 1,041,817 1,093,908 1,148,603
Wages payment 238,875 238,875 250,819 263,360 276,528 290,354 304,872 320,115 336,121 352,927
Repair & maintenance - 101,708 106,793 112,133 117,739 123,626 129,808 136,298 143,113 150,269
Utilities Expense 201,250 211,313 221,878 232,972 244,621 256,852 269,694 283,179 297,338 312,205
Supplies Expense 890,693 935,227 981,988 1,031,088 1,082,642 1,136,774 1,193,613 1,253,294 1,315,958 1,381,756
Miscellaneous Expense 364,576 382,805 401,945 422,042 443,144 465,302 488,567 512,995 538,645 565,577
Interest payment 680,412 612,371 544,330 476,288 408,247 340,206 272,165 204,124 136,082 68,041
Income Tax (30%) 1,303,052 1,186,291 1,285,060 1,387,745 1,494,545 1,664,245 1,779,900 2,037,331 2,162,748 2,293,415
Working capital 169,243 105,894 111,189 116,748 122,585 128,715 135,150 141,908 149,003 -
Capital cost 5,847,287
Total cash outflows 10,435,787 4,551,903 4,720,292 4,899,482 5,090,013 5,351,033 5,565,975 5,931,061 6,172,917 6,272,793
Net cash provided by operation (2,939,537) 3,319,159 3,544,323 3,778,364 4,021,726 4,216,292 4,479,717 4,616,915 4,902,458 5,356,351
PVC 9,618,237 4,195,303 4,350,500 4,515,652 4,691,256 4,931,828 5,129,931 5,466,416 5,689,324 5,781,376
PVB 6,908,986 7,254,435 7,617,157 7,998,015 8,397,916 8,817,812 9,258,702 9,721,637 10,207,719 10,718,105
NPV (2,709,251) 3,059,133 3,266,657 3,482,363 3,706,660 3,885,984 4,128,771 4,255,221 4,518,395 4,936,729
PVC 54,369,822.95
PVB 86,900,485.64
NPV 32,530,662.69
BCR 1.60
NBCR 0.60
IRR 119%
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