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Ye Bechi Fire Dry Coffee Processor & Supplier PLC

Submitted to Development Bank of Ethiopia

May, 2023
Tepi, Ethiopia
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Ye Bechi Fire Dry Coffee Processor & Supplier PLC
1. Executive Summary
Project Name: Ye Bechi Fire Dry Coffee Processor & Supplier PLC
Project Sector፡ Sole Proprietorship
Project Type፡ NEW
Project Owners (Association Members) ፡
1. Hassen Yimer
2. Hassen hussen
3. Abidu Abagero
4. Teka Ambo
Owner’s Address፡
Town: Tepi
House No.:
Marital Status:
Tel. No.:
E-Mail: NEW
Legal Form of Ownership: Sole Proprietorship
Project Location: Southwest Ethiopia Regional Gov’t, Sheka Zone
Total Project Cost: 6,000,000 /Six Million Ethiopian Birr/ETB
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Ye Bechi Fire Dry Coffee Processor & Supplier PLC
2. Description of Dry Coffee Processors & Supplier
Business
A market emerging, many coffee-dependent developing countries such as
Ethiopia are struggling with production and marketing of their coffee. In the
early 2000s, a historic world market price slump hit millions of coffee farmers
hard, especially smallholder producers in Africa and Latin America as cited in
IAAE,2012. Therefore, the Ethiopian farmers at the time were take a measure
to resist the market price fall by reducing coffee plantation replacing chat
plantation in place of coffee.

Settled agriculture began in Ethiopia some 2000 years ago, and as long as
anyone can remember Coffee Arabica has been grown in the wild forests of the
south-western massive highlands in the district of Kaffa. Coffees said to have
taken the name of Kaffa, the region where it first discovered. Export began to
Yemen, and was from there introduced to Indonesia, India, The Netherlands,
Colombia and Brazil. Coffee in Ethiopia is not only an important export good
but it is a part of the culture; about 50 % of the produced coffee is consumed
domestically and there is even a cultural ceremony connected to it. Total
production of washed and unwashed coffee is increasing.

According to USAID, Coffee production systems in Ethiopia generally

categorized into four areas i.e., forest coffee, semi - forest coffee, garden coffee,
and plantation coffee. Forest coffee is a wild coffee grown under the shade of
natural forest trees and it does not have a defined owner. Semi-forest coffee
farming is a system where farmers thin and select forest trees to let sufficient
sunlight to the coffee trees and to provide adequate shade. A farmer who
prunes and weeds the forest area once a year claims to be the owner of the
semi forest coffee. Garden coffee normally found in the vicinity (near) of a
farmer’s residence. It normally fertilized with organic material and usually
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Ye Bechi Fire Dry Coffee Processor & Supplier PLC
inter-cropped with other crops. The government or private investors for export
purposes plant Plantation coffee. Fertilizers and herbicides usually used in the
coffee plantation farming system.

Ethiopia encompasses a potential opportunity to increase coffee production. It

is endowed with suitable elevation, temperature, and soil fertility, indigenous
quality planting materials, and sufficient rainfall in coffee growing belts of the
country. Coffee is a shade-loving tree.

3. Products or Services to be Delivered by the Proponent

The main services proposed by the proponent is supplying quality coffee
product that is competent in the international coffee market both in quality
and quantity.

The supply of quality-based coffee product is enhanced to meet the national

as well as the international market through the supply of the demand-based
coffee product.

According to the data Ethiopia's coffee export performance during the study
period in the consecutive five years shows the highest value in USD was scored
in the year of 2011 and the lowest value scored in the year of 2014 as shown in
figure 12. This result found by the three exporter’s actors involved in coffee
exports from producers and exporters, cooperative unions and Exporters. The
majority of coffee exports in the hands of exporters was scored the highest value
USD with average mean of 50.08% and the lowest value was scored 11.9%
found by Producers and exporters.

Here are numerous cooperative unions established in Ethiopia, the structure

and regulations of the cooperative unions are the same. They are licensed to
bypass the coffee auction (ECX) and can export their coffee directly. Under each
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union there are a number of Primary Cooperatives (PC´s) with which the
farmers can be members.

The PC´s buy the coffee from its members at a price, set by the local market
conditions (competition between cooperatives, local traders and wholesalers).
When the union buys the coffee from the PC, they pay the current market price
set at ECX for the specific kind of coffee. When the union sells the coffee to
foreign importing companies, 70% of the net profit is paid back to the primary
cooperatives. In turn the primary cooperatives, pay back 70% of their net profit
as dividend to the farmers.

4. Identified Gaps and Supplier-Customer Relation

The present result similarly reported by some publications done in the area of
coffee supply. The volume of Coffee supplied by members to the union has the
significant impact on export marketing activity of union. As the volume of
coffee supply increases, the volume of export sale also increases. confirmed that
World supply of coffee was significant both in the long run and short run. The
direction of this variable in the long run as well as in the short run was consistent
and it showed negative sign with the coffee exports, and its effect to the total
export of coffee was inelastic in the short run and long run.

International coffee market price volatility was reported by some of sampled

respondents as another constraint for coffee exported as reported by 9.76% of
coffee traders.

5. Evolution of modern coffee marketing

The modern marketing concept has evolved over a period of more than a
century. The role and significance of marketing is primarily a function of the
stages of economic development in a country. In a primitive society based on
agriculture and handcrafts, exchange is very limited and marketing is more or
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Ye Bechi Fire Dry Coffee Processor & Supplier PLC
less non-existent. In early stages of industrialization also, marketing does not
pose a serious problem because of the excess of demand over supply. The main
function of marketing in this stage is the movement of goods from the points of
to the points of consumption. In the third stage when production takes place
on a mass scale, production exceeds demand and mass production needs mass
distribution, marketing starts assuming an important role in the enterprise. In
this stage, main focus of marketing is on selling and distribution. It is in an
affluent economy where customer is highly sophisticated and his wants take a
specific shape, marketing orientation takes place.

The term marketing channel was first used to describe the existence of a trade
channel bridging producers and users. Early writers compared marketing
channels to paths through which goods or materials could move from producers
to users. This description makes it easy to understand how the term
‘middleman’ came into being as a way to explain product flows. Since then, a
whole lot of other flows have been made possible by marketing channels.

The movement of products and services is only made possible through the
exchange process. Recall that marketing is an exchange process. In fact, the
concept of exchange lies at the core of marketing. Exchange occurs whenever
something tangible (e.g., a meal) or intangible (e.g., a political concept) is
transferred between two or more social actors. In fact, marketing is generally
studied as an exchange process. Marketing is a social process by which
individuals and groups obtain what they need and want through creating and
exchanging products and value with others.

So, a marketing channel can be defined as an array of exchange relationships

that create customer value in the acquisition, consumption, and disposition of
products and services. This definition implies that exchange relationships
emerge from market needs as a way of serving market needs. Channel
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members must come to the marketplace well equipped to address changing
market needs and wants.

6. Coffee production and Marketing Value Chain in

Ethiopia
The producers under this stage in the coffee value chain of Ethiopia include
small-scale farmers, private owned farmers and state firms. The major portion
inters of volume of products mobilized, value adding functions, market share
and capital owned in coffee value chain of the country is under the hands of
producers especially the large-scale private coffee plantations and state farms
of coffee plantations. After the coffee is grown and matured, the following
value adding activities in the value chain performed by those producers are
collecting coffee chary and transporting to processing areas (USAID, 2010).

Coffee cherry collecting and transporting activities in Ethiopia in which except

loading and unloading, mostly performed by women groups of farmers. Most
of the farm products including coffee are raw in nature and need to process
before consumption. This increases the cost of marketing service, which adds
value and price on farm products. Under this main activity the sub tasks
performed in processing the coffee are pulping, washing coffee, drying, sorting,
sacking/ packing, loading, and transporting then finally unloading to the
warehouse. The small-scale coffee producers are always selling the red cherry
coffee on their farm as it is without harvesting, drying, and hulling to the coffee
collectors. However, some small-scale farmers in country grow, harvest, dry, hull
and sell their dry cherry coffee to collectors (legal and illegal collectors). While,
household farmers were mostly selling red cherry coffee. The large scale-private
farmers and state farms harvest coffee chary and use pulping machine (dry or
wet pulping machines) add more value on the coffee products. The pulped and
washed coffee then exposed to sun rise in appropriate place until the coffee
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bean become properly dried and those foreign materials in coffee are sorted so
that it will be ready grading and sacking. Therefore, most geoprocessing
employees are women (USAID, 2010).

Packing dry coffee loading, transporting, and unloading to the warehouses

transported to the final market through ECX is also value addition. While some
of the large scale, private coffee producers sell their products the exporters
either in Addis Ababa or to international importers.

7. Supplier as Exporter
After the all the coffee production and processing activities are finished, it
exported to the international market by exporters. Exporters found in Addis
Ababa central market who received coffee from private producers, private
traders and cooperative unions to sell it to the international market. These
exporters bought the coffee from the central auction market through ECX.
These coffee exporters do not get any coffee from the state producers, because
state farm producers export coffee to foreign market by themselves. They play
a significant role by searching foreign market through the linkage they have
with the importers outside the country. They add a place utility to the
commodity coffee. Here, the unions, the private traders and the state-owned
producers could also act as exporters of coffee, since they can directly sell it to
the foreign importers (MOT, 2019).

Certification and verification schemes can be powerful tools for value addition,
access to a fast-growing market segment and the dissemination of good
agricultural, environmental and social practices. Consumers are demonstrating
an increasing interest in the economic, social and environmental aspects of
coffee production. Coffee covered by the various initiative estimated to
constitute 8 percent of world exports of green coffee and is the fastest growing
market segment in traditional (developed country) markets. Starbucks defines
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Ye Bechi Fire Dry Coffee Processor & Supplier PLC
sustainability as an economically viable model that addresses the social and
environmental needs of all the participants in the supply chain from farmer to
consumer. The Starbucks C.A.F.E. program evaluates the sustainable
production of coffee according to four categories: Product Quality, Economic
Accountability, Social Responsibility, and Environmental Leadership. The
programmer designed to establish quality criteria for growers, processors, and
vendors in order to encourage cooperation and shared responsibility
throughout the supply chain. It addresses critical issues such as water
conservation, worker conditions, including hiring practices and policies, and
conservation of biodiversity amongst others matters. However, reservations
have expressed about several aspects of the functioning of these programmers,
including: Common denominator approach questions have risen as to the
homogenizing “common denominator” approach that built into the checklist-
based compliance methodology of the different certifications, which fails to
take into account differences in local conditions.

8. Investment requirements
There are many requirements in which one investment is in need of. Among
them are the following:

a) Financial
Coffee supplier company is financed by 30% equity and the rest 70% is obtained
from bank loan. The company has got great appreciation and good loan
provision from the bank managers to promote the expansion of the business.
We sincerely want to thank the managers and other workers of the bank.

b) Material and Facility

The most interesting materials and facility requirements are, the integrated
utilization of the stock and processing plants establishment.
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Ye Bechi Fire Dry Coffee Processor & Supplier PLC
c) Man power
When we come to the manpower requirement coffee supplier industry needs
at least 100 workers including the managerial team. The top-level workers are
first there is a general manager/chairman, deputy chairman then a product
line manager, Employee administration controls, finance director, technical
director.

9. Marketing Plan
Ethiopia is a country with high natural resources potential, being coffee one of
the sectors with possibilities of development, therefore, promoting both national
and international investment in coffee supply and creating the means to
contribute to an easy access of investments is one of the priority State Policies.
The coffee farming and supplying industry is becoming on the future to be one
of the cornerstones of Ethiopian economy concentrating a number of activities
and processes where different areas of professional knowledge and fields
converge.

9.1. Pricing
The pricing condition in coffee supplier market is fixed. For instance, the current
price of a 1kg coffee is birr 180, the 100kg of the same product is about
18,000ETB. We can see how profitable it will be.

9.2. Distribution
After the coffee is processed out and processed its size to one quintal, the final
job is to provide the coffee to the international market. The transportation of
coffee needs so much care.
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Ye Bechi Fire Dry Coffee Processor & Supplier PLC
10. Financial Plan and Analysis
The financial plan includes the following: -

Cash flow analysis: Cash flow statement indicates the difference between
actual cash received and cash actually dispersed. It’s an over view of the cash
we anticipated in to our business based on sales forecast minus the anticipated
cash expenses of running the business.

Income statement analysis: subtracts the cost of the business from the
earnings over a specific period of time, typically a quarter or a year.

Balance sheet analysis: includes our assumed and anticipated business

financial, include asset, liability and equity.

Fig1: Office sketch layout

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10.1. Balance sheet analysis

Assets
Fixed Assets
Building--------800,000
Equipment-----2,450,000
Others------------300,000
Total fixed assets------3,550,000
`Current assets
Cash on hand---------650,000
Account receivable------------
Inventory----------------------
Total current asset------------4,200,000
Total asset--------------------4,800,000
Liabilities
Long term liabilities
Loans from Bank---------2,000,000
Others
Total long-term liabilities ------2,000,000
Current liabilities
Account payable-------------150,000
Other payable---------------50,000
Total liabilities---------------2,000,000
Owners’ equity partners saving---600,000
Total ownership equity-----------600,000
Total liabilities + total equity-----
2,600,000

10.2. Fixed asset and working capital requirement

Fixed Asset Working Capital

Building 800,000 Administrative cost 30,000
Equipment 2,500,00 Operating cost 200,000
Others 300,000 Man power hiring cost 150,000
Total Fixed Asset 4,550,000 Raw material cost 2,000,000
Salary expense 30,000
Transportation cost 20,000
Total working capital 2,400,000

10.3 Financing

Our company is operated through our capital and bank loan. Bank loan might
seem risky in returning it but it’s vital in financing our fund requirement and in
fulfilling the financial gaps we have. It helped us to satisfy our needs and
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Ye Bechi Fire Dry Coffee Processor & Supplier PLC
entering fully in to our operation without any hesitation, there is also an equity
finance fund obtained from the owners of the company.

Equity (30%) Loan (70%)

`1,800,000 4,200,000
Total = 6,000,000

10.4 Cash flow forecast

Time period in years Pre Year-1 Year-2 Year-3

operation
Cash at the beginning of 8,288,265.15 1656530.30 2486495.45
the year
Equity 600,000
Loan 200,000
Sales 80,000 95,000 100,000
Total cash in 1,000,000 170,000 190,000 215,000
Investment 850,000
Operation cost 50,000 55,000 60,000
Interest 10,000 10,000 100,000
Total cash out 850,000 60,000 650,000 70,000
Ending balance 150,000 110,000 125,000 135,000
Cash at the end of the 90,000 95,000 115,000
yr

10.5 Income statement analysis

Description Year-1 Year-2 Year-3

Total sales 8,288,265.15 8,288,265.15 8,288,265.15
Operating expenses
200,000 300,000 500,000
i. Salary expense
ii. Interest expense 50,000 70,000 100,000
Administrative expense 50,000 55,000 60,000
Total operating expense 330,000 470,000 770,000
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Ye Bechi Fire Dry Coffee Processor & Supplier PLC
Profit before tax 750,000 900,200 1,200,000
10% net income after tax 2,500,000 3,000,000 4,000,000
10.6 Project revenue

Revenue is the income obtained before tax and other costs are deducted from
the sold product. Before determining revenue of any production, first we have
to know the product.

11. The Organizational Plan

The owners are well experienced in the area of dry coffee processing and
supplying for the export market for a long period of time. His expertise in the
area of the dry coffee processing and supply to the export market is expected
to make him worthy in short period of time.

The company has planned to produce and supply a quality coffee for the
export market and to generate significant volume of foreign currency.

When this generated foreign currency is injected in to the national market it ca

significantly increases the different market sustainability.
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Ye Bechi Fire Dry Coffee Processor & Supplier PLC

11.1. Legal ownership of the company

Basically, there are three basic legal forms corporation, partnership and sole
proprietorship.

Ye Bechi Fire Dry Coffee Processor & Supplier Plc Company is formed
under the basis of Sole Proprietorship.

11.2. Organization structure

The organizational structure of our company is a little complex because of the

company’s broadness and its many departments. There is a general manager
at the top level which controls and manages the whole company. A product
line manager controls the dig out process of the coffee. Employee
administration controls and governs the employees. Under this there is a sub
branch of employee union.
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Ye Bechi Fire Dry Coffee Processor & Supplier PLC

11.3. Potential risk assessment

Risk can be both the environmental that can be mitigated by the

environmentalist as well as the one associated with the coffee marketing
industry that may arise due to the unexpected fall in the price of market.
However, both types are predicted and mitigation measures are adopted as all
usual projects.