FOOD PROCCESSING PLANT

PROJECT PROPOSAL

AMASILLA CONSULTING ARCHITECTS & ENGINEERS

 FOOD PROCCESSING PLANT PROJECT PROPOSAL

BASIC INFORMATION

1. Project name: Food processing plant

2. Project Type: Industrial buildings
3. Nationality: Ethiopian
4. Project Owner: Newave Hi Tech Solutions P.L.C
5. Project location: Addis Abeba, Ethiopia.
6. Project composition: Factory Buildings (3* G+0) used for manufacturing flour,
biscuit& bread. Administration building, restaurant, café building and store.
7. Premises Required: 20,500 m2
8. Total investment Cost: 60,650,000 ETH Birr is required from this amount 30%
from owner equity and the rest 70% from bank loan.
9. Employment opportunity: 114 individuals on permanent 200 on casual basis
10. Social and Economic Benefit: Provide better product, employment
opportunities, generation of income and benefits for the local people.

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Table of Contents

1. EXCUTIVE SUMMARY ........................................................................................................... 7

2. PRODUCTION DESCRIPTION & APPLICATION ........................................................................ 7

3. MARKET STUDY AND PLANT CAPACITY ................................................................................ 8

3.1 MARKET STUDY ....................................................................................................................................................................... 8

A. Past Supply and Present Demand .................................................................................................................................................... 8
B. DEMAND PROJECTION ...................................................................................................................................................................... 11
C. PRICING AND DISTRIBUTION ........................................................................................................................................................ 13

3.2 PLANT CAPACITY AND PRODUCTION PROGRAMME............................................................................................... 13

A. PLANT CAPACITY ................................................................................................................................................................................. 13
B. PRODUCTION PROGRAM .................................................................................................................................................................. 14

4. MATERIALS AND INPUTS.....................................................................................................15

4.1 RAW AND AUXILIARY MATERIALS ................................................................................................................................ 15

4.2 UTILITIES............................................................................................................................................................................... 16

5. TECHNOLOGY AND ENGINEERING .......................................................................................17

5.1 TECHNOLOGY ............................................................................................................................................................................ 17

A. PRODUCTION PROCESS OF WHEAT FLOUR ............................................................................................................................ 17
B. PRODUCTION PROCESS OF BISCUIT ........................................................................................................................................... 18
C. PRODUCTION PROCESS OF BREAD ............................................................................................................................................. 18
D. SOURCE OF TECHNOLOGY ............................................................................................................................................................... 18

5.2 ENGINEERING ........................................................................................................................................................................ 19

A. MACHINERY AND EQUIPMENT ..................................................................................................................................................... 19
B. LAND, BUILDING AND CIVIL WORKS .......................................................................................................................................... 21
C. PROPOSED LOCATION ....................................................................................................................................................................... 22

6. MANPOWER AND TRAINING REQUIREMENT .......................................................................22

6.1 MANPOWER REQUIREMENT ............................................................................................................................................ 22

6.2 TRAINING REQUIREMENT ................................................................................................................................................ 23

7. FINANCIAL ANALYSIS ..........................................................................................................23

7.1 TOTAL INITIAL INVESTMENT COST .............................................................................................................................. 24

7.2 PRODUCTION COST ............................................................................................................................................................. 25

A. PRODUCTION COST OF WHEAT FLOUR .................................................................................................................................... 25
B. PRODUCTION COST OF BISCUIT ................................................................................................................................................... 25

7.3 FINANCIAL EVALUATION .................................................................................................................................................. 26

A. PROFITABILITY ..................................................................................................................................................................................... 26
B. BREAK-EVEN ANALYSIS ................................................................................................................................................................... 26
C. PAY BACK PERIOD ............................................................................................................................................................................... 27
D. INTERNAL RATE OF RETURN AND NET PRESENT VALUE ............................................................................................... 27

7.4 ECONOMIC BENEFITS.......................................................................................................................................................... 27

8. ENVIRONMENTAL IMPACT OF THE PROJECT ........................................................................28

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LIST OF TABLES

TABLE 3.1 APPARENT CONSUMPTION OF WHEAT FLOUR 1995-2004 (TONNES) ................... 9

TABLE 3.2 DOMESTIC PRODUCTION OF BISCUITS (TONS) ......................................................... 9
TABLE 3.3 IMPORT OF BISCUITS (TONS) ....................................................................................... 10
TABLE 3.4 PROJECTED DEMAND FOR WHEAT FLOUR (TONNES) (2006-2020) ...................... 11
TABLE 3.5 PROJECTED DEMAND, DOMESTIC SUPPLY AND UNSATISFIED DEMAND FOR
BISCUITS (TONS) ...................................................................................................................... 12
TABLE 3.6 ANNUAL BISCUIT PRODUCTION PROGRAM AT FULL CAPACITY OPERATION
...................................................................................................................................................... 14
TABLE 3.7 ANNUAL FLOUR PRODUCTION PROGRAM AT FULL CAPACITY OPERATION . 14
TABLE 4.1 RAW & AUXILIARY MATERIALS REQUIREMENT & COST .................................... 15
TABLE 4.2 ANNUAL RAW & AUXILIARY MATERIALS REQUIREMENT FOR BISCUIT
PRODUCTION AND ESTIMATED COST ................................................................................ 16
TABLE 4.3 ANNUAL UTILITIES REQUIREMENT& ESTIMATED COST ..................................... 17
TABLE 5.1 MACHINERY AND EQUIPMENT REQUIREMENT (FLOUR)..................................... 19
TABLE 5.2 MACHINERY AND EQUIPMENT REQUIREMENT AND ESTIMATED COSTS
(BISCUIT) ................................................................................................................................... 20
TABLE 5.3 MACHINERY AND EQUIPMENT REQUIREMENT (BREAD) .................................... 20
TABLE 6.1 MANPOWER REQUIREMENT AND ANNUAL SALARY EXPENDITURE ............... 22
TABLE 7.1 INITIAL INVESTMENT COST ........................................................................................ 24
TABLE 7.2 ANNUAL PRODUCTION COST AT FULL CAPACITY ('000 BIRR) ............................ 25
TABLE 7.3 ANNUAL PRODUCTION COST AT FULL CAPACITY (YEAR THREE) ......................... 26

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 FOOD PROCCESSING PLANT PROJECT PROPOSAL

1. EXCUTIVE SUMMARY

This proposal envisages the establishment of a plant for the production of wheat flour with a capacity
of 31,160 tons per annum. The present demand for the proposed product is estimated at 894,658 tons
per annum. The demand is expected to reach at 1,529,397 tones by the year 2022.
Also, the establishment of a plant for the production of biscuit with a capacity of 1,500 tons per annum.
The country`s requirement of biscuit is met through local production and import. The present demand
for biscuit is estimated at 1.02 million tons. The demand for the product is projected to reach 1.15
million tons and 1.32 million tons by the years 2017 and 2022, respectively.
And the establishment of a plant for the production of bread with a capacity of 72 tons per year
considering 300 working days. Each bread would be of 400 grams and 600 up to 800 breads could be
made every day.

2. PRODUCTION DESCRIPTION & APPLICATION

• Flour is a food item, which is finely ground meal of cereals such as wheat, maize, sorghum,
rice, etc. obtained by milling and blending various streams of different quality. It mainly
contains endosperm and certain quantity of bran. Wheat flour on average contains from 14%
to 16.5% moisture. Based on its baking quality and other quality indices such as gluten quality
and content, color, moisture content, granular size of particles and others, flour is divided into
different grades.
The basic application of flour is for bread making, cakes and biscuits, and porridge at household level.
Semolina, a product obtained by milling extra hard (durum) wheat, is also used in pasta and macaroni
making. The by-product bran is used as animal feed preparation.
• Biscuits are oven – baked food items with greater nutritive value than plain bread of equal
weight. They are classified as hard, soft and “batter” biscuits. They can be savory, sweet, plain
– baked, filled or coated (or a mixture of several of these options). Some biscuits satisfy special
dietary needs, such as those for high fiber, protein or extra vitamins (as in infant rusks). Biscuits
also contain fat and often sugar, and are cut or molded into thin layers and baked rapidly and

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thoroughly. If packed in a moisture proof material, biscuits can have a long shelf life. Children
and teenagers largely consume biscuit.
• The basic recipes for bread making include wheat flour, yeast, salt and water. If any one of
these basic ingredients is missing, the acceptable product cannot be prepared. Other ingredients
are known as optional, for example, fat, sugar, milk and milk product, malt and malt product,
oxidants (such as ascorbic acid and potassium bromate), surfactants and anti-microbial agents.
Each of these ingredients has specific role to play in bread making. The wheat flour is the main
ingredient in bread production. It is primarily responsible for bread structure and bite
characteristics. Water transforms flour into viscoelastic dough that retains gas produced during
fermentation and water also provides medium of all chemical reaction to occur. Yeast ferment
sugars and produces carbon dioxide gas and ethanol. It, thus, give us porous and leavened
bread. Sugar is the source of fermentable carbohydrate for yeast and it also provides sweet
taste.

3. MARKET STUDY AND PLANT CAPACITY

3.1 MARKET STUDY

A. PAST SUPPLY AND PRESENT DEMAND

In Ethiopia, the rural population used to consume flour made from cereals by traditional means at
home. Grain mills, however, are expanding deep into rural areas reducing labor and time for women,
replacing home-made flour consumption of industrially processed flour, however, is still insignificant
in rural Ethiopia.
Urban dwellers, on the other hand, consume more and more flour produced by flourmills thus shifting
to manufactured flour. Urban households also consume food items like bread, biscuits and cakes
prepared at home or in bakeries and pastries from industrially processed flour.
The demand for wheat flour is met through both local production and imports. The apparent
consumption of flour, comprising both domestic production and import is shown in Table.3.1.

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

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

2005 148,786 801 149,587

Source: 1. CSA, Report of survey of the Manufacturing & Electricity Industries, annual issues.
2. Customs Authority, External Trade Statistics, Annual Issues.

Table 3.1 shows that both domestic production and import of wheat flour are characterized by a
fluctuating trend, which is, however, erratic. The peak level of local production, 195,437 tones, was
registered in year 2000, and imports, 122,365 tones, in 2003. Given the nature of the historical apparent
consumption, it is reasonable to assume that the average of the last three years, i.e., about 194,658
tones, as the current effective demand for flour.
Biscuits are very popular food items. They are pleasant in taste and do not require cocking and hence
ready to be served. The local demand for biscuits is met both by domestic production and imports.
Domestic production from 2001/02-2009/10 is shown in Table 3.2.

Table 3.2 DOMESTIC PRODUCTION OF BISCUITS (TONS)

Year Production

2001/02 4,925

2002/03 5,639

2003/04 7,361

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2004/05 10,115

2005/06 10,429

2006/07 13,994

2007/08 29,546

2008/09 19,259

2009/10 193,773

Sources: - Central Statistics Agency, Large and Medium Scale Manufacturing and Electricity
Industries, Various Issues.

From Table 3.2 it can see that domestic biscuits production, which was 4,925 tons at the beginning of
the period (2001/02), has grown to 193,773 tons by the end of the period (2009/10).
Domestic biscuits production has also exhibited a consistent rising pattern during 2001/02-2009/10
period with the exception of year 2008/09 (average growth rate of 130%). In that year production fell,
but in the following year it grew by the maximum growth rate (of the period), which was 910% and
attained the highest production level which was 193,773 tons. This huge increase in production is
related to new plants with large capacity. In estimating the subsequent years’ production, therefore, it
was found appropriate to capture the rising trend. Applying the average growth rate of the period on
2009/10 productions did this. Accordingly, a figure of 445,677.9 tons and 1,025,059 tons respectively
were arrived as an estimate of the 2011 and 2012 production.
In addition to the domestic production, biscuits are imported from various parts of the world. Import
of biscuits for the period covering 2001--2011 is shown in Table 3.3.

Table 3.3 IMPORT OF BISCUITS (TONS)

Year Import

2001 1,688

2002 15,429

2003 1,007
2004 1,400

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2005 1,592
2006 26,643
2007 1,467
2008 1,039
2009 759
2010 1,397
2011 1,762
Source: - Ethiopian Revenue and Customs Authority.

Imports of biscuits during the period 2001-2011 were fluctuating highly. The highest imported quantity
was during year 2002 and 2006, which stood at 15,429 tones and 26,643 tones, respectively. In the
remaining nine years the imported quantity ranged from the lowest 759 tons (year 2009) to the highest
1,762 tones (year 2011), with a mean figure of 1,345 tones. For this reason, it was found appropriate
to take the last three years average (after skipping the outlier value of 2009) in estimating the 2012
import level. Hence, the 2012 import was estimated at 1,399 tons.

B. DEMAND PROJECTION
The demand for wheat flour is mainly determined by the growth rate of population and the per capita
consumption of flour. Increased application of wheat flour for industrially processing of food products
such as pasta and macaroni would also have great bearing of future flour demand. In view of the likely
change in these determining variables, an 8% annual growth in demand is considered to be reasonable
rate to project future demand (see Table 3.4).

Table 3.4 PROJECTED DEMAND FOR WHEAT FLOUR (TONNES) (2006-2020)

Y ear Projected Demand Existing Capacity Un Satisfied Demand

2008 210,231 144786 65,445
2009 227,049 144786 82,263
2010 245,213 144786 100,427
2011 264,831 144786 120,045
2012 286,017 144786 141,231
2013 308,898 144786 164,112
2014 333,610 144786 188,824
2015 360,299 144786 215,513

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2016 389,123 144786 244,337

2017 420,253 144786 275,467
2018 453,873 144786 309,087
2019 490,183 144786 345,397
2020 529,397 144786 384,611

The demand for biscuits is dependent on size of population in general and that of children and teenagers
in particular. This segment represents the majority of the Ethiopian population and has been increasing
fast. Therefore, the demand for biscuit is projected based on the annual population growth rate of 2.9%.
Domestic producers of Biscuits are reported to be running at their full capacity. They don’t also keep
stocks since what is produced is directly delivered to the market. Fasting biscuits are also being
produced by manufacturers, which ensure continuous production throughout the year as informants
from the subsector described and according to some studies (such as Yifru 2011). Hence, current
domestic production level is assumed to continue (no change anticipated). The total projected demand,
existing supply (assuming full capacity has been attained currently by domestic producer) and
unsatisfied demand is presented in Table 3. 5.

Table 3.5 PROJECTED DEMAND, DOMESTIC SUPPLY AND UNSATISFIED DEMAND FOR
BISCUITS (TONS)

Total Projected Demand Domestic Supply

Year Unsatisfied Demand
2013 1,026,458 1,025,059 1,399
2014 1,056,225 1,025,059 31,166
2015 1,086,856 1,025,059 61,797
2016 1,118,374 1,025,059 93,315
2017 1,150,807 1,025,059 125,748
2018 1,184,181 1,025,059 159,122
2019 1,218,522 1,025,059 193,463
2020 1,253,859 1,025,059 228,800
2021 1,290,221 1,025,059 265,162
2022 1,327,637 1,025,059 302,578

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C. PRICING AND DISTRIBUTION

The current price of flour at Addis Abeba is Birr 385 per quintal. For this project, an ex- Factory price
of Birr 370 per quintal is proposed.
Flour is an industrial as well as a consumer product. Bakeries and pastries could be supplied directly
at factory gate or through intermediaries. Households could be supplied through retailers as well as
with distribution centers to be established by the new project itself.
The prices of most biscuit brands are within reach of ordinary people’s budget. Biscuits are, therefore,
in demand in both urban and rural areas of the country. There are also many convenient outlets for
biscuits including neighborhood and village shops. The general situation in the market for biscuits is
going towards full-fledged competition through brand development, range of products offered,
delivery, advertisements and packaging. The price of biscuits varies with the brands and their contents
and packaging are also different. The average price some of the most popular brands is Birr 4/100 gm.
On the basis of this price level and taking in to account a margin of 25% for wholesalers and
distributors, the recommended ex-factory price for the new project is Birr 3.20/100gm.
The new project can utilize the existing network of wholesalers and retailers such as neighborhood
and village shops for its distribution.

3.2 PLANT CAPACITY AND PRODUCTION PROGRAMME

A. PLANT CAPACITY
According to the market study, the unsatisfied demand of wheat flour in the year 2008 will be 65,445
tones, whereas this demand will grow to 384,611 tones by the year 2020. Taking only about 50% of
the demand of the year 2008, the envisaged plant will have an annual capacity of processing 41,000
tones pure wheat and produce 31,160 tones of wheat flour and 9,840 tones of bran. The plant will
operate 3 shifts of 24 hours a day, and for 300 days a year.
Based on the outcome of market study of biscuit and considering the minimum economic scale of
production, the envisaged plant will have production capacity of 1,500 tons of hard biscuits per annum.
This capacity is proposed on the basis of a single shift of 8 hours per day and 300 working days per
annum.
It is recommended to install bread plant with a capacity of 72 tones per year considering 300 working
days. Each bread would be of 400 gms and 600 breads could be made every day.

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B. PRODUCTION PROGRAM
Assuming that enough time during the initial period will be required by the envisaged plant for market
penetration and technical skills development, the plant will start production at 75% of its rated capacity
which will grow to 85% in the second year. Full capacity production will be achieved in the third year
and then after. The annual production program is shown in Table 3.6.

Table 3.6 ANNUAL BISCUIT PRODUCTION PROGRAM AT FULL CAPACITY OPERATION

Sr.No. Production Year

Description Unit of Measure

3rd & Onwards
1st 2nd

1,125 1,275
1 Biscuit Ton 1,500

2 %
Capacity utilization rate 75 85 100

The Flourmill plant will start operation at 75% of its installed capacity during the first year, and will
increase production to 85% in the second year, and then to 100% in the third year and then after. The
proposed production program is given in Table 3.7.

Table 3.7 ANNUAL FLOUR PRODUCTION PROGRAM AT FULL CAPACITY OPERATION

Y ear 1 2 3-10

Capacity utilization (%) 75 85 100

Production Flour 23,370 26,486 31,160

(tones)
Bran 7,380 8,364 9,840

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4. MATERIALS AND INPUTS

4.1 RAW AND AUXILIARY MATERIALS

The principal raw material for flour production is wheat grain. Flour for baking bread is produced from
hard wheat or a blend of hard and soft wheat, while flour for cakes and biscuits is milled from soft
wheat. Wheat can be available in different part of the region. The impurity rate for local wheat should
not exceed 8%.
Auxiliary materials required are pp. bags of different size for packing flour and sewing thread. These
can be easily obtained from local markets. The estimated annual cost of raw and auxiliary materials is
given in Table 4.1 below. The total annual cost of raw materials is estimated at Birr 115,513,000.

Table 4.1 RAW & AUXILIARY MATERIALS REQUIREMENT & COST

Sr. No. Description Unit of Measures Qty. Cost (‘000 Birr)

1 Wheat Tones 44,280 115,128
2 PP bag (50kg Pcs 42,000 93.660
3 PP bag (10kg) Pcs 150,000 177.000
4 PP bag (5kg) Pcs 120,000 99.600
5 Sewing thread Kg 1200 15.000
Total 115,513.00

Note: the plant will generate Birr 10,332.00 annually from the sale of bran as animal feed

Various types of biscuits do exist depending on the ingredients used and manufacturing process
employed. The envisaged plant will produce hard biscuit. The raw materials required for production
of hard biscuit comprise wheat flour, sugar, shortenings, salt, Sal volatile, sweet jelly, glucose, and
starch. The major raw materials like wheat flour and sugar can be obtained locally from flourmills and
sugar factories while the remaining raw materials will be imported. Annual requirement for raw
materials at full production capacity of the envisaged biscuit plant and the estimated costs are given in
Table 4.2.

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Table 4.2 ANNUAL RAW & AUXILIARY MATERIALS REQUIREMENT FOR BISCUIT
PRODUCTION AND ESTIMATED COST
Sr. Description Unit of Req. Unit Cost, ('000 Birr)
No. Measure Qty. Price, F.C. L.C. Total
Birr/Unit

1 Flour Ton 1,188. 9,000.00 1,0692.00 10692.00

0
2 Sugar Ton 247.5 14,000.00 3,465.00 3465.00
3 Shortening Ton 67.5 35,000.00 1,890.00 472.50 2362.50

4 Salt Ton 8.1 2,500.00 20.25 20.25

5 Sal volatile Ton 11.1 7,851.00 69.71 17.42 87.14
(ammonium
carbonate)

6 Sweet jelly Ton 21.6 52,500.00 907.20 226.80 1134.00

7 Glucose Ton 13.5 17,500.00 189.00 47.25 236.25

8 Starch Ton 32.4 10,500.00 340.20 340.20
Total 3,055.91 15,281.42 18,337.34

The major raw material required is flour for the production of bread. Ideally, the unit has a long-term
supply arrangement with an established flourmill in the compound to ensure adequate and timely
supply. Other items like yeast, sugar, ghee, milk powder, salt, edible color and flavors shall be
available from nearby trading centers. Since their requirement will not be substantial, supplies can be
easily tied up.

4.2 UTILITIES

The major utilities required by the plant are electricity, water and lubricants. The estimated annual
requirement at full production capacity of the plant and the corresponding cost are given in Table 4.3.
The total annual cost of utilities is estimated as Birr 391,100.

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Table 4.3 ANNUAL UTILITIES REQUIREMENT& ESTIMATED COST

Sr. No. Description Unit of Measure Qty. Unit price (Birr)

Cost ('000 Birr)
1. Electricity KWh 750,000 0.4736 355,200
2. Water m3 5,000 5.5 27,500
3. Oil and lubricants Kg 150 56.00 8,400
Total 391,100

5. TECHNOLOGY AND ENGINEERING

5.1 TECHNOLOGY

A. PRODUCTION PROCESS OF WHEAT FLOUR

The production process of wheat flour consists of four major operations: -
• Wheat Intake and Pre-Cleaning,
• Wheat Cleaning and preparation,
• Milling, and
• Packing and Dispatching.
Wheat Intake and Pre-cleaning: - The major unit operations are dumping, conveying, weighing, pre-
cleaning and conveying to storage silos or transferring to the working bins of the cleaning room.
Wheat Cleaning and Preparation: - The main unit operations involved are weighing, screening,
destoning, impurity separation, ferromagnetic separation, scouring, aspiration, dampening, tempering
and entoleting.
Milling: - Major operations involved are weighing, breaking open, scalping, scratching, detaching,
sifting, purifying, milling (grounding), resifting and entoleting.
Packing and Dispatching: - The major operations involved are collection of flour streams and bran,
mixing and aerating, resifting, entoleting, packing, sewing, loading and dispatching. The process does
not release any pollutant to the environment.

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 FOOD PROCCESSING PLANT PROJECT PROPOSAL

B. PRODUCTION PROCESS OF BISCUIT

The production process of biscuit involves unit operations like raw materials preparation, dough
mixing, laminating, cutting/molding, baking, cooling, stacking and packing.
All materials except flour are preparatory mixed in a certain cream mixer. Materials used at this stage
are sugar, shortenings, salt, millet jelly, glucose, starch etc. Materials pre- mixed in the previous stage
are put into the mixing machine with flow and undergone fermentation. Then laminator to make the
dough sheet rolls the dough and it is automatically punched in a molded design by a cutting machine.
Biscuit is then baked on a steel belt (or wire mesh belt) running in the oven for some minutes. The
speed of the belt can be adjusted according to the kind of biscuit produced. After baking, biscuits are
cooled on a cooling conveyor, which is connected with the oven. Biscuits are stacked and then packed.

C. PRODUCTION PROCESS OF BREAD

The production process of bread consists of six major operations: -
• Sifting of flour
• Preparation of suspension
• Preparation of dough by kneading all the ingredients
• Fermentation of dough
• Baking
• Cooling and packing

D. SOURCE OF TECHNOLOGY
The technology of flour milling, biscuit & bread manufacturing is available in countries like India,
China or Europe. One supplier of machinery and equipment for the production of wheat flour is stated
as follows:
1. Jiashengeg Grain Machinery Company No.8 jingim Road, Kaifeng, Henan, China (main land)
Telephone: 86-378-2850850 Fax: 86-378-2850850 Mobile phone: 008613937853263
2. ETA ENGINEERING SERVICES
Address: 412-TI AKASH RATH, B/H PARISEEMA, C.G. ROAD, AHMEDABAD 380006,
GUJARAT, INDIA Phone: 91-79-26564613/26566149 Mobile: +919824099013
Fax: 91-79-26566149

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 FOOD PROCCESSING PLANT PROJECT PROPOSAL

5.2 ENGINEERING

A. MACHINERY AND EQUIPMENT

Machinery and equipment required by the envisaged flourmill plant is given in Table 5.1. The total
cost of machineries and equipment processing 41,000 tones of pure wheat annually to produce 31,160
tones of flour is estimated at Birr 20 million, out of which Birr 16 million is required in foreign
currency.

Table 5.1 MACHINERY AND EQUIPMENT REQUIREMENT (FLOUR)

Sr. No. Description Qty. (No.)

1. Screw conveyor for wheat 5
2. Separator 2
3. Weigher 5
4. Qieur cylinder for wheat 1
5. Scourer 2
6. Bucket elevator for wheat 6
7. Roller mill 16
8. Plan sifter 3
9. Purifier 2
10. Bran finisher 4
11. Flour cyclone with airlock 16
12. Flour filter 2
13. Detacher 10
14. Pneumatic Conveyor 2
15. Screw conveyor for flour and bran 4
16. Bucket elevator for flour 2
17. Pneumatic duct, set 1

The major plant machinery and equipment required for the envisaged biscuit plant comprise mixers,
laminator, cutting machine, molding machine, baking oven, conveyors, etc. The plant machinery and
equipment required is around Birr 12 million. See Table 5.2.

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Table 5.2 MACHINERY AND EQUIPMENT REQUIREMENT AND ESTIMATED COSTS

(BISCUIT)
No. Description Unit of Req. Cost, ('000 Birr)
Measure Qty. F.C. L.C. Total

1 Cream mixer Set 1 761.60 190.40 952.00

2 Dough mixing machine Set 1 856.80 214.20 1,071.00

3 Laminator Set 1 761.60 190.40 952.00

4 Cutting machine Set 1 761.60 190.40 952.00
5 Rotary molding Set 1 856.80 214.20 1,071.00
machine

6 Steel belt oven Set 1 1,142.40 285.60 1,428.00

7 Cooling conveyor Set 1 666.40 166.60 833.00

8 3-step cooling conveyor Set 1 856.80 214.20 1,071.00

9 Stacking machine Set 1 856.80 214.20 1,071.00

10 Wire cut attachment Set 1 666.40 166.60 833.00

11 Oil spray machine Set 1 666.40 166.60 833.00
12 Revolving salt duster Set 1 666.40 166.60 833.00
TOTAL 9,520.000 2,380.000 11,900,000

Table 5.3 MACHINERY AND EQUIPMENT REQUIREMENT (BREAD)

Item Qty.
Dough Kneader 1
Flour Sifter 1
Hand-dividers 4
Oven 1
Baby Boiler 1
Molds and Dies --
Weighing Scale 1

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 FOOD PROCCESSING PLANT PROJECT PROPOSAL

Mixing Vessels 4
Misc. Equipment’s --

B. LAND, BUILDING AND CIVIL WORKS

The total area of land required for the plant is estimated to be 20,500 square meters, out of which the
plant building and service building will cover about 10,500 square meters. The production buildings
shall be built out of hollow block walls, corrugated iron sheets roofing and cement screed floor. The
total cost of buildings is estimated at Birr 26,250,000 assuming a construction rate of Birr 2500 per m2
for the type of building mentioned above.
The cost of land, at lease rate of Birr 0.10 per m2 and holding period of 80 years, will be Birr 120,000.
According to the Federal Legislation on the Lease Holding of Urban Land (Proclamation No 721/2004)
in principle, urban land permit by lease is on auction or negotiation basis, however, the time and
condition of applying the proclamation shall be determined by the concerned regional or city
government depending on the level of development.
The legislation has also set the maximum on lease period and the payment of lease prices. The lease
period ranges from 99 years for education, cultural research health, sport, NGO, religious and
residential area to 80 years for industry and 70 years for trade while the lease payment period ranges
from 10 years to 60 years based on the towns grade and type of investment.
Moreover, advance payment of lease based on the type of investment ranges from 5% to 10%. The
lease price is payable after the grace period annually. For those that pay the entire amount of the lease
will receive 0.5% discount from the total lease value and those that pay in installments will be charged
interest based on the prevailing interest rate of banks. Moreover, based on the type of investment, two
to seven year’s grace period shall also be provided.
However, the Federal Legislation on the Lease Holding of Urban Land apart from setting the maximum
has conferred on regional and city governments the power to issue regulations on the exact terms based
on the development level of each region.
Regarding land allocation of industrial zones if the land requirement of the project is below 5000 m2
the land lease request is evaluated and decided upon by the Industrial Zone Development and
Coordination Committee of the City’s Investment Authority. However, if the land request is above
5,000 m2 the request is evaluated by the City’s Investment Authority and passed with recommendation
to the Land Development and Administration Authority for decision, while the lease price is the same
for both cases.

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C. PROPOSED LOCATION
Proximity to market and availability of raw material are the factors that are considered to determine
the location of the envisaged plant. Addis Abeba is the most appropriate location for establishing the
flour production, biscuit & bread plant.

6. MANPOWER AND TRAINING REQUIREMENT

6.1 MANPOWER REQUIREMENT

The flour, biscuit & bread production plant requires both production and administrative manpower.
The total manpower required is 114 persons. A detail of manpower requirement and estimated annual
salary expenditure including fringe benefits is given on Table 6.1.

Table 6.1 MANPOWER REQUIREMENT AND ANNUAL SALARY EXPENDITURE

Req. Salary (Birr)
Sr.
Description No.
No. Monthly Annual

1. General Manager 1 2500 30000

2. Executive secretary 1 900 10800
3. Quality control head 3 1500 54000
4. Chemist 8 1200 115200
5. Production & technical head 3 2000 72000
6. Commercial head 1 1800 21600
7. Finance & administration head 1 1800 21600
8. Personnel 1 1100 12300
9. Store keeper 15 850 153000
10. Purchaser 5 800 48000
11. Salesperson 5 800 48000
12. Accountant 3 850 30600
13. Cashier 5 800 48000

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 FOOD PROCCESSING PLANT PROJECT PROPOSAL

14. Clerk 1 700 11400

15. Production shift leader 6 950 68400
16. Operator 10 800 96000
17. Laborers 22 400 105600
18. Janitors 5 700 42000
19. Mechanic 3 950 34200
20. Electrician 3 950 34200
21. Grease & oil man 2 400 9600
22. Driver 6 550 39600
23. Guard 4 500 24000
Sub-total 114 - 1,130,100
Employees benefit (25% BS) - - 282,525
Grand Total 114 - 1,412,625

6.2 TRAINING REQUIREMENT

The production supervisor, operators and quality controllers (chemists) should be given three weeks
on-the-job training by machinery supplier personnel on the technological process, machine operation
and quality management. The cost of training is estimated to be Birr 40,000.

7. FINANCIAL ANALYSIS

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

Construction period 1-year

Source of finance 30 % equity
70 % loan
Tax holidays 5 years
Bank interest 8%
Discount cash flow 8.5%

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 FOOD PROCCESSING PLANT PROJECT PROPOSAL

Accounts receivable 30 days

Raw material local 30 days
Work in progress 5 days
Finished products 30 days
Cash in hand 5 days
Accounts payable 30 days

7.1 TOTAL INITIAL INVESTMENT COST

The total investment cost of the project is estimated at ETH Birr 60.65 million, of which 31 per cent
will be required in foreign currency.
The major breakdown of the total initial investment cost is shown in Table 7.1.

Table 7.1 INITIAL INVESTMENT COST

Sr. No. Cost Items Total Cost (‘000 Birr)

1 Land lease value 120.0

2 Building and Civil Work 26,250.0
3 Plant Machinery and Equipment 31,900.0
4 Office Furniture and Equipment 100.0
5 Vehicle 675.0
6 Pre-production Expenditure* 1,597.9
TOTAL INVESTMENT COST 60,642.9
Foreign Share 31

N.B Pre-production expenditure includes interest during construction (Birr 1.46 million)
training (Birr 40 thousand) and Birr 100 thousand costs of registration, licensing and
formation of the company including legal fees, commissioning expenses, etc.

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 FOOD PROCCESSING PLANT PROJECT PROPOSAL

7.2 PRODUCTION COST

A. PRODUCTION COST OF WHEAT FLOUR

The annual production cost at full operation capacity is estimated at Birr 120.95 million (see Table
7.2). The material and utility cost accounts for 95.83 per cent, while repair and maintenance take 0.12
per cent of the production cost.

Table 7.2 ANNUAL PRODUCTION COST AT FULL CAPACITY ('000 BIRR)

Items Cost %
Raw Material and Inputs 115,513.00 95.50
Utilities 391.1 0.32
Maintenance and repair 150 0.12
Labor direct 280.65 0.23
Factory overheads 140.33 0.12
Administration Costs 420.98 0.35
Total Operating Costs 116,896.06 96.65
Depreciation 2407 1.99
Cost of Finance 1650.33 1.36
Total Production Cost 120,953.39 100

B. PRODUCTION COST OF BISCUIT

The annual production cost at full operation capacity is estimated at Birr 27.02 million. The cost of
raw material account for 70.09% of the production cost. The other major components of the production
cost are depreciation and financial cost, which account for 11.93% and 7.54% respectively. The
remaining 10.44% is the share of labor, utility, repair and maintenance, labor overhead and
administration cost. For detail production cost see Table 7.3.

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 FOOD PROCCESSING PLANT PROJECT PROPOSAL

Table 7.3 ANNUAL PRODUCTION COST AT FULL CAPACITY (year three)

Items Cost (in 000 Birr) %

Raw Material and Inputs 18,937 70.09
Utilities 391.1 2.48
Maintenance and repair 595 2.20
Labor direct 255 0.94

Labor overheads 51 0.19

Administration Costs 500 1.85

Cost of marketing and distribution 750 2.78
Total Operating Costs 21,758 80.54
Depreciation 3,223 11.93
Cost of Finance 2,036 7.54
Total Production Cost 27,017 100.00

7.3 FINANCIAL EVALUATION

A. PROFITABILITY
According to the projected income statement, the project will start generating profit in the first year of
operation. Important ratios such as profit to total sales, net profit to equity (Return on equity) and net
profit plus interest on total investment (return on total investment) show an increasing trend during the
lifetime of the project.
The income statement and the other indicators of profitability show that the project is viable.

B. BREAK-EVEN ANALYSIS
The break-even point of the project including cost of finance when it starts to operate at full capacity
(year 3) is estimated by using income statement projection.

BE = Fixed Cost = 30%

Sales – Variable Cost

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 FOOD PROCCESSING PLANT PROJECT PROPOSAL

C. PAY BACK PERIOD

The investment cost and income statement projection are used to project the payback period. The
project’s initial investment will be fully recovered within 6 years.

D. INTERNAL RATE OF RETURN AND NET PRESENT VALUE

The internal rate of return (IRR) is the annualized effective compounded return rate that can be earned
on the invested capital, i.e., the yield on the investment. Put another way, the internal rate of return for
an investment is the discount rate that makes the net present value of the investment's income stream
total to zero. It is an indicator of the efficiency or quality of an investment. A project is a good
investment proposition if its IRR is greater than the rate of return that could be earned by alternate
investments or putting the money in a bank account. Accordingly, the IRR of this project is computed
to be 29.55% indicating the viability of the project.

7.4 ECONOMIC BENEFITS

The project can create employment for 114 persons. In addition to supply of the domestic needs, the
project will generate Birr 18.38 million in terms of tax revenue. The establishment of such factory will
have a foreign exchange saving effect to the country by substituting the current imports.

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 FOOD PROCCESSING PLANT PROJECT PROPOSAL

8. ENVIRONMENTAL IMPACT OF THE PROJECT

The EIA of the project activities was determined by identifying the environmental aspects and then
undertaking an environmental risk assessment to determine the significant environmental aspects. The
environmental impact assessment has included all phases of the project namely construction phase and
operational phase.
The building has both positive and negative impact
Positive impact of the project
The positive impact of the project is: -
➢ Generation of employment opportunity
➢ Source income for the government through business income tax
➢ Income generation for the promoter
➢ Being exemplary for other investors who want to engage in the same business line.
Negative impact of the project
The project has the following negative impacts:
1. Noise and Dust emission during Construction
There are some noises during the construction due to the construction operation and the company will
use construct the construction during the daytime. Again there is the emission of dust, which will be
mitigated by sprinkling water on the service.

2. Problem on workers on construction

During construction there are some problems that will materialize on workers. These are: damage on
operation by using machines, construction materials and others. To mitigate such impact the company
will provide safety insurance and safety equipment’s.

3. Swages during operation

During operation there are some wastes emitting from the mixed-use building. These are wastes from
the latrine and will be mitigated by using modern waste treatment technology.
4. Air quality
Air quality impairment during the operation of the plant may be associated with generators, boilers
and de-husking operations; destining; raw material unloading; polishing; pre-cleaning; vibratory
screening etc.

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5. Noise
The envisaged heavy traffic of vehicles off-loading and loading raw materials and finished products;
generators; boilers and other machinery will increase noise levels within and in the vicinity of the
plant. Other sources of noise include, destining; vibratory screen for sorting; fans; de-husking;
polishing; blowing, paddy cleaning; packaging etc.

Mitigation measures on negative impact of the project

The project will take the following mitigation measures:
➢ Implementation of dust suppression technique such as application of water or non-toxic
chemicals to minimize dust from vehicular movement.
➢ Minimization of dust from open area sources by using water suppression, bag house etc.
➢ Appropriate management of emissions from mobile sources.
➢ Monitor noise level monthly throughout the construction periods.
➢ Hearing protectors shall be given to staff members.

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