Niger Seed Oil Production

August
Haragu FCU Niger seed oil Extraction and Refinery plant Feasibility Study Report
2015
By
Fikadu Getachew Consultancy Service
Contributors:
1. Fikadu Getachew (M.Sc.)
2. Olika Urgessa (MBA)
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Acknowledgment
I’m sincerely grateful to Haragu FCU management members, Manager of the FCU, all
employees who have significantly contributed to this study. In addition, I would like to
extend my appreciation to Horo Guduru Wollega Zone Cooperative promotion agency,
Agricultural development office, Trade and market development office, and small scale
Niger seed edible oil processors in shambu, Finca’a and kombolcha towns.
My appreciation also goes to Obbo Olika Urgessa for which without his relentless effort
would not have been realized this study. Olika has been very much committed to stay away
from his home to assess and collect relevant datum from different sectors, critically analyzed
and submitted the draft report within time frame agreed.
I hope that the information presented in this study report will be helpful for Haragu FCU, to
capitalize on the oil seed potential in the zone, the region as well as the country and become
highly competitive company in the edible oil market industry. Beware that, the study report
doesn’t ensure, the company’s success and competitiveness unless supported by committed
management and up-to date information and continued consultancy support to overcome
vibrant market situation.
Fikadu Getachew
(Director, Fikadu Getachew Consultancy Service)
August, 2015
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Fikadu Getachew Consultancy Service, 0911881749
Contents
1. SUMMARY......................................................................................................................1
2. INTRODUCTION.............................................................................................................1
2.1The Project Beneficiaries.................................................................................................6
2.2 Project Capacity and Rational of the Investment............................................................6
3. PRODUCT DESCRIPTION AND ITS’ USE...................................................................8
3.1 Over View of World Oilseed and Edible Oil..................................................................8
3.2 Overview of Oilseeds and Edible oil of Ethiopia............................................................9
3.3 Edible oil Value chain...................................................................................................13
4. MARKET STUDY AND PLANT CAPACITY..............................................................15
4.1. Market Study................................................................................................................15
4.1.1 Past Supply and Present Demand...........................................................................15
4.1.2 Projected Edible Oil Demand.................................................................................16
4.1.3 Raw Material & Product Pricing............................................................................16
4.1.4 Proposed area of product distribution.....................................................................17
4.1.5 Customers...............................................................................................................17
4.1.6 Raw Material..........................................................................................................18
4.1.7 Niger seed Production.............................................................................................19
4.1.8 Supply and Demand of Edible Oil Analysis...........................................................21
4.1.9 Pricing and Distribution..........................................................................................23
4.2. Market Prospects of The proposed Product..................................................................23
4.3. Competitors Analysis...................................................................................................24
4.4. Competitive Advantage................................................................................................25
4.5. Marketing Strategies (4Ps)...........................................................................................25
5. MANPOWER & TRAINING REQUIREMENT...............................................................27
6. TECHNOLOGY & ENGINEERING.................................................................................29
6.1. Construction and civil works........................................................................................29
6.2. Source of Technology..................................................................................................29
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6.3. Production Capacity of the Niger seed extraction and refinery Plant..........................35
7. FINANCIAL ANALYSIS..................................................................................................36
7.1. Investment Outlay and Financing Scheme...................................................................37
7.2. Initial investment cost of the project............................................................................37
7.3. Working capital requirement........................................................................................39
7.4. Investment on office Equipment & Furniture..............................................................39
7.5. Pre-Operating Expenses...............................................................................................39
7.6. Viability of Niger seed Edible oil refinery project.......................................................51
Formula:..............................................................................................................................54
Tables and Figures

Table 1: Estimate of Area, Production & Yield of Oil Crops for (2012/3-2014/5) (2006-
7EC), Meher Season. Source: (CSA, 2015)..............................................................................1
Table 2 Physical Characteristics of Oil.....................................................................................1
Table 3 Fatty acid composition of Niger seed oil.....................................................................1
Table 4 the Supply of Edible Oil (in Tonnes)...........................................................................1
Table 5. Projected Demand for Niger Seed Oil (Tonnes)........................................................1
Table 6 Production of Edible Oil Seeds in the Zone (CSA data for 2013/14)..........................1
Table 7: Niger Seed Land Used and Production Data of Horro Guduru Wollega Zone...........1
Table 8: Niger seed unit purchase price of the union...............................................................1
Table 9: Palm Oil Distribution status in Horro Guduro Wollega zone in year 2006/07 E.C....1
Table 10: Distribution Prices at sample districts......................................................................1
Table 11: Price of Niger seed Edible oil in operational area of the union................................1
Table 12 Project’s Implementation Schedule...........................................................................1
Table 13: Manpower Requirement...........................................................................................1
Table 14: List and estimated area of construction works of the project...................................1
Table 15: Investment on Production Machineries and Equipment...........................................1
Table 16: Production capacity and utilization of the project for the first five year..................1
Table 17: Assumptions Used In the Development of the Feasibility Analysis.........................1
Table 18: Initial investment cost...............................................................................................1
Table 19: Pre-operating cost.....................................................................................................1
Table 20: Depreciation Schedule..............................................................................................1
Table 21: Estimated budget of promotion/advertising for the first five years..........................1
Table 22 Interest Expense.........................................................................................................1
Table 23: Working capital loan repayment schedule of the project..........................................1
Table 24: Summary of Production Costs..................................................................................1
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Table 25: Estimated Revenues of the project within five years’ period...................................1
Table 26: Projected Income statement......................................................................................1
Table 27: Five year Cash flow forecast....................................................................................1
Table 28: Projected Cash Flow for Discounting.......................................................................1
ACRONYMS
FDI: Foreign Direct Investment
EIA: Ethiopia Investment Agency
QSAE: Quality and standard Authority of Ethiopia
MoH: Ministry of Healthy
MOTI: Ministry of trade and Industry
FCU: Farmers cooperative union
Some unit conversion factors:

Average daily adult cooking oil intake=20gm/0.02litter
Local oil production in Ethiopia only meets 20% of the consumption
1tonne of oil = 1,086.96litter assuming the oil density 0.92gm/cm3
=1,075.27litter assuming 0.93gm/m3
=1098.9litter assuming 0.93gm/m3
1000kg/m3 = 1gm/cm3
Edible oil density varies from 0.91-0.93gm/m3 at temperature range of 15-25 0C
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1. SUMMARY
This feasibility assessment report envisages the establishment of a plant for the production of
Niger seed oil with a capacity of 250qtl per day and analyzing Niger seed oil value chains
with specific geographic area of Horo Guduru Wellega Zone and Oromia at large.
The present demand for the proposed product is estimated at 4,859.47(5,282,028

liters)tonnes per annum while the current supply is about 1,548.93tonnes(1,683,624litters).
Hence, the gap is about 3,310.53(3,598,404litters) tonnes. The demand is expected to reach
128,995(140,211,956litter) tonnes by the year 2020.The plant will create an employment
opportunities for 93 persons. It has been planned to make gradual increment in production
over year and will end up with the potential production of 2,249,982-litters of oil per year.
The total investment requirement is estimated at Birr 20.443million, out of which 11.96
million Birr is allocated for fixed investment capital, 0.507 million Birr allocated for pre
investment costs and 8 million for working capital. From the total fixed investment capital
9.316 million is required for plant and machinery and 2.62 million Birr is allocated for land
lease, building and civil works, office furniture, computers and accessories. The operational
cost is estimated at 111 million Birr on the first year of operation and covered from Bank
loan, equity of the union
The project is financially viable with an internal rate of return (IRR) of 47.68% and a net
present value (NPV) of Birr 14.448 million, discounted at 22%.
In general, the financial results indicate that the project under study is financially viable.
Therefore, this result will encourage the union and its member coops to invest and same will
also assurance financing institutions for timely loan servicing if they opt to accommodate the
required project financing. By investing 20,443,000 ETB today the union will get return
promise of a cash flow in the future that worth 34,831,332.63 today . The project has
discounted payback period of three years and profitability index of 1.70.
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This Edible oil refinery project will increase the wealth of Haragu Farmers ‘ cooperative
union by 14,448,332.63 as the result of the decision made for the investment.
In addition to this the project will supply 2,024,983 litters of Niger seed oil to 56,250
households having total membership of 281,250 on annual bases. From the project 38,285
farmers are expected to benefit from the union by selling their raw Niger seed to the union.
Dairy and feed lot operators are among the beneficiaries of the project. At the end the
members of the cooperatives will be the most important and receive the befit of the project in
the form of divided in which individual suppliers of the raw Niger seed and users of the
Edible oil are addressed. The project also create 93 opportunity to the local community and
attract the potential partners to support the implementation of the project.
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2. INTRODUCTION
The purpose of feasibility study is to introduce the subject matter and provide the general
idea and information on the proposed project. All the material included in this document is
based on data /information gathered from various sources and is based on certain
assumption. Although, due care and diligence has been taken to analyze and compile this
document, the contained information may vary due to any change in any of the concerned
factors and the actual results may differ substantially from the presented information. The
consultant does not assume any liability for any financial loss resulting from failure to
implement the proposed project as per the schedule. The prospective user of this document is
encouraged to carry out additional diligence and gather any information necessary for
making an informed decision.
The objective of this feasibility study is primarily to facilitate Haragu Farmers’ cooperative
union in the project identification for further investment with the aim to establish and run a
modern Niger seed edible oil extraction and refinery plant that would be competitive in the
domestic market and capable of satisfying customers demand and priorities. The project
feasibility study may inform an important investment decision by the union. The feasibility
study covers various aspect of project concept development. Start up, production, marketing,
finance, and Business management. This particular feasibility study is refers to “Niger seed
Edible oil extraction and Refinery Plant development project”.
Critical Factors and Steps for Decision Making on the Investment:

Before making any investment decision, it is advisable to evaluate the associated risk factors
by taking into consideration certain key elements. For starting Niger seed oil extracting
project, critical factors that should be considered before the launching of the project are
described as follows.
According to the feasibility study conducted by the consulting firm the union will produce
2,2024,983 litters of Niger seed oil on average on yearly bases which will benefit 56,250
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households having five members. Each house hold will need 36 liters of edible oil per year.
The number of customers for the products that the union is going to produce will determine
the financial success of the project. From the house hold the union will address 39% (56,250)
of the house hold on yearly bases. The Consulting firm has analyzed the performance of
existing competing four Niger seed edible oil processors in the operational area of the union.
Looking at the size of investment and potential Niger seed edible oil refinery plant ,the
feasibility is conducted in Horro Guduru wollega zone in which 146,000 households are
found to cover the proposed production of Niger seed oil.
The selection of right location and distribution center where the product will be demanded is
an important factor to increase sales and to capture the desired targeted population. The area
where the proposed project is to be erected (Guduru district) is having large size of potential
target market segments for the product. So in the view of this, there might be no market
problem so long as the union is producing standard and quality Niger seed edible oil and
manage to sell at affordable price. The Union also has potential markets at Ambo, Addis
Ababa and Nekemte towns.
Organizational Back Ground and Project Profile;

Haragu multipurpose Farmers’ cooperative union is one of the cooperative unions
established under proclamation 147/1998 cooperatives in Oromia region. The union was
established in 2001 and legally registered on 26, June 2001, making its official address at
Kombolcha town which is 275 km away from the capital city, Finfinnee to the west and 67
km from zonal town Shambu. The union is founded in Guduru by ten multipurpose primary
cooperatives mainly engaged on grain marketing and input distribution with 6,784-male and
412-female members and to date increased to 41 multipurpose primary cooperatives having a
total membership of 30,413 farmers (22,202 male and 8,211 female). The number of primary
cooperatives joining this union has been increasing from time to time. Haragu farmers’
cooperative is founded with initial capital of 120,000Birr and currently the capital of the
union is grown to 9,014,331.20 ETB as per the audit report of the union (15/05/2005 to
24/12/2006 E.C). The union is formed with the objective of solving economic and social
problems of the members by coordinating the resources already available and improve the
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living standard of members by creating better market opportunity for farmers produces and
supplying agricultural input and better technology that can increase production and
productivity and value adding on farmers produces through establishment of processing plant
similar to the proposed project the union is going to undertake decision based on the
feasibility of Edible oil refinery project.
The union is operating in four districts namely Abay chomen, Ababo Guduru, Guduru and
Jima Rare. In the operational area of the union major crops like maize, sesame, noug, wheat
and teff are produced by small holder farmers .Starting from the date of establishment the
union is highly supporting member primary cooperatives on the supply of Agricultural input
and marketing of output.
Ownership of the Union;

Without administrative boundary restriction, membership is open to all eligible multipurpose
primary cooperatives in the area. The ownership and governance of the union is based on
internationally accepted cooperative principles in general and proclamation 147/98 in
particular declared for organization and promotion of all types of cooperatives in Ethiopia.
The union is fully owned and governed by members. The bylaws are the cardinal guiding
written document for effective and efficient operation of the union. The most essential one is
the people; Members, as the owner-users; Board of Directors, as the policymaking body;
Hired Management, as the supervisor; and Employees, as the work force. Each has specific
roles and responsibilities in the overall operation of a cooperative. Cooperative management
should be regarded as a team consisting of four elements-members (owners), board of
directors (elected), the manager (hired), and other responsible employees (paid). Each part of
the team has its own distinctive duties and responsibilities for performing management
functions in Haragu Farmers’ cooperative Union. This allows them definite, reserved rights
in the ownership and control of the business. These important rights give them the privilege
of taking an active part in the management of the business. Successful management of a
cooperative, therefore, is based on intelligent and active cooperation of the members with the
board and with the manager/employees, each group shouldering its own responsibilities to
the best of its ability.
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All member primary cooperatives are duly represented in general assembly: the Board chair-
man, secretary, treasurer, and chair- man of the control committee of each member
cooperative, with additional two representatives for each member primary cooperative. The
management committee of the union composed of 13 permanent members of whom 7 of
them are Board members and 3 control committee members and 3 credit committee. With
this representation the general assembly is composed of member from each member primary
cooperative, the general assembly of the union has 68 from whom the union board members
are elected. The board of the union is accountable to the general assembly and whose
members and manner of election to be determined in the by-laws of the union. The term of
office of the board members shall be three years. Members of the board shall not be elected
for more than two consecutive terms. They may be dismissed at any time by the general
assembly. When members of the board leave their office for whatever reasons, they have the
obligation to submit for inspection the activities they performed during their term of office.
The union also has 3 control committee members which are accountable to the general
assembly and the term of office of members of the committee shall be three years. No
members of the control committee shall be elected for more than two consecutive terms.
They may, while in term of office, be dismissed by the general assembly. Membership fee is
Birr 500 payable in cash. The value of one share is 5,000-ETB .The number of share that
member and potential member purchase is based on the bylaws of the union and to get the
service of the union at least purchase of one share is expected. The maximum share capital
that a cooperative buy is limited to 10% of the total subscribed capital.
The bylaws of cooperative union clearly define the duties and responsibilities of general
representatives, board members, control committee, treasurer, and the general manager. The
board members are enlightened with long years of experience, with formal educational back
ground of grade 7-12. The general manager BA degree in Public Administration &
development management and long years of experience in cooperative business
management, has been serving the union since date of establishment. The senior accountant
has BA degree in accounting. The union has employed qualified staff to make its activities
well performed as planned so that the objectives of the organization can be met The union
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has staff graduated in cooperative business Management and organization field and planning
department which highly contribute for the success of the organization. As part of incentive
system 2% of the net profit is board members and employees to encourage them for further
performance. The remaining 98% (equivalent to 100) is allocated for different purposes: 30%
for reserve, 55% for dividend, 5% for social service and 10% for expansion of business.
Cooperative Principles;
o Co-operatives are voluntary organizations open to all persons able to use their
services and willing to accept the responsibilities of membership without gender,
social, racial, political or religious discrimination.
o Co-operatives are democratic organizations controlled by their members who actively
participate in setting their policies and making decisions. Every member has equal
voting rights and accordingly one member shall have one vote.
o Cooperatives members shall receive dividends from profit according to their shares
and contribution after deducting and setting aside an amount necessary for reserve
and social services.
o Co-operatives are autonomous self- help organizations controlled by their members.
If they enter into agreement with other organizations, including governments or raise
capital from external sources, they shall do so on terms that ensure democratic control
by their members and maintain their autonomy.
o Co-operatives provide education and training for their members, elected
representatives, managers and employees so as to enable them to contribute
effectively to the development of their societies. They inform the general public,
particularly the youth about the nature and benefit of societies.
o Co-operatives serve their members most effectively and strengthen cooperative
movement by working together through local, national, regional and international
structures.
o Co-operatives work for the sustainable development of their communities through
policies approved by their members.
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2.1The Project Beneficiaries

The direct beneficiaries of the project are members of the multipurpose primary cooperatives
and the potential members that engaged in production activities in the operational areas of
the union. The members have the right to get dividends from the net profit of the project’s
income and the potential members will also get the same privilege as soon as they become
members of the affiliated cooperatives. The total beneficiaries of the project are members of
Haragu Farmers’ cooperative union and potential member of primary cooperatives. The
member families are assumed as indirect beneficiaries of the investment planed and the
projects that the union is running. Once the project is launched the Niger seed producers will
be accessed with better market for their raw Niger seed and the consumers will get quality
Niger seed edible oil at near distance. The union also supplies quality edible oil free of
adulteration and organic product to the potential consumers. The project will benefit
56,250(average production per year 2,024,983 divided by litters required at least by one
house hold per year 36) households by supplying quality Niger seed oil and 38,285 farmers
assuming that for the total Niger seed required for the project 76,570 will be collected from
farmers one farmer will supply two quintal.
2.2 Project Capacity and Rational of the Investment

The proposed project presents an investment opportunity in setting up Niger seed Edible oil
Refinery plant. The major products of the proposed project are Niger seed edible oil and
Niger seed cake. The production unit also needs complete and requires heavy investment.
Both products (edible oil and Niger seed cake) are well known to the local communities
though on limited bases due to limited supply.
Among different projects the union is running, output marketing is one of the major activities
where the union has managed to purchase 1,250quintals in 2012/3, 877-quintals in 2013/4
and 198 quintal in 2014/5 and sold to potential buyers for the past three years. The raw
material has been produced by the farmers in the operational area of the union and purchased
through primary cooperatives from member producers. Normally, market forces can have
greater opportunities for adding value to farm commodities like Niger seed edible oil because
of increased consumer demands on the subject of health, nutrition, and convenience as well
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as technological advances that enable producers and processors to produce what consumer’s
desire instead of delivering raw farm commodities to conventional markets.
Thus, the proposed business with quality Niger seed producers’ members base will have a
comparative advantage if involved in adding value to their products by moving up the food
chain closer to the final purchase by consumers i.e. by producing Niger seed edible oil which
have high demand and preference of members of the union and people in the operational area
of the union. In line with this, Haragu FCU has envisioned in exploiting this opportunity by
establishing Niger seed edible oil refinery which involve modern production technology,
hygiene environment, standardized processed product and professional staff that would
create a difference.
The project is labor intensive and the proposed refinery plant will work 24 hours a day in
three shifts having 300 working days in a year. The union will expected to get power
regularly and use generators in case there will be power off. These determine the factory
timing for production. The Niger seed extraction equipment and refinery plant with
production capacity of 7,500 litters (6.9tonnes) of edible oil per day and 170 Quintal of Niger
cake. Specifically, the main objectives/aims of the subject project as incorporated in this
feasibility study are:
 To construct and operate successful Niger seed edible oil refinery in Horro Guduru
Wollega zone, kombolcha Town.
 To produce and market high quality domestic Niger seed Edible oil that is superior to
similar products and competitively priced.
 To incentivize Niger seed improved variety growing farmers in the project area by
the linkage created between the union and primary cooperatives & producer farmers
based on agreement started in year 2015, so that the union will get quality Niger seed.
 To produce and market by-products like Niger seed cake as an attractive animal feed
used for dairy production and animal fattening by the farmers and concentrate feed
processors as major ingredient.
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Furthermore, this value adding venture is initiated to accomplish the following long-term
goals:
 Provide alternative markets and greater market access for member producers of Niger
seed by ensuring a fair share of added value in edible oil which usually used at every
house hold level including the farmer that produce the raw material.
 Provide a reputable product that will successfully compete in the Edible oil refinery
industry and satisfy customer needs and expectations.
 Increase net income of the promoters by fulfilling the target production and sales
volume over the planned project time frame and provide a long term return on
investment sufficiently larger than what is expected for alternative investments.
 Establish a customer base through emphasis on customer service and relationship

building that will provide an opportunity to secure sustainably viable demand for
Niger seed edible oil production.
3. PRODUCT DESCRIPTION AND ITS’ USE
3.1 Over View of World Oilseed and Edible Oil

Oilseeds, such as soybean, cottonseed, rapeseed (canola), sunflower seed and peanut, are the
largest sources of vegetable oils in the World. The three main edible oils in the World market
which represent about 75% of the total production are palm, soybean and rapeseed (Rosillo-
Calle and Pelkmans, 2009). This shows that the global edible oil supply is dependent on a
rather limited number of oilseed crops. Therefore there is an obvious need for diversification
of oilseeds since relying on a fewer oilseed crops may have its own challenges in many ways
including crop failure, exploitation of diverse agro-ecology, climate change, and search for
better quality oil such as health oils (Biodiversity International, 2011). Diversification of
oilseeds can also be important from point of view of non-food uses of vegetable oil. It is
possible to overcome the competition from the non-food use of vegetable oil by exploiting
alternative non-edible oilseeds as raw material.
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It is known that non-food competition starts from the land and other resources for cultivation
such as services for selected seed, fertilizers, crop protection chemicals, and logistics.
Therefore regarding vegetable oil consumption, the share of food and non-food use and the
changing trend should be clearly understood. From this point of view the trend in the
increase of production of oilseeds can be seen as two dimensional.
The first dimension is directed towards satisfying the demand of the growing
population/increasing per capita consumption. The second is the trend to use the vegetable
oil for non-food application in general and biodiesel in particular. The use of bio-fuel could
be from either environmental concern or tendency to minimize the dependence on mineral
fuel or both. And based on these two dimensions, in China and India consumption growth
occurs primarily in food use while in the EU and the US bio-diesel industry represents a
significant source of demand (Rosillo-Calle and Pelkmans, 2009). In general by 2020,
biodiesel is expected to increase to 15% of the total consumption as compared to 10% in
2008-10 and particularly the share of biodiesel will reach 50% in the EU (OECD-FAO,
2011).
3.2 Overview of Oilseeds and Edible oil of Ethiopia

The five major cereals in Ethiopia (teff (Eragrotis tef), wheat, maize, sorghum and barley)
occupy almost three-quarters of total area cultivated, and represent almost 70 percent of total
value added in recent years. Teff is a staple cereal crop which is native to Ethiopia to make
‘injera’, Ethiopian pan cake like food. Moreover, cereal acreage is still increasing, though not
as fast as area planted to other crops such as sesame, coffee, chat, vegetables and pulses
(Taffesse et al., 2011). The production and % share shows this situation (Table1). Not only
the production of oilseed is quite limited but also the trend shows little improvement or
steady growth over the past five years (Fig.1).
Oil seeds added 6.81 % (about 855,750.22 hectares) of the grain crop area and 2.81% (about
7,600,993.24 quintals) of the production to the national grain total. Neug, sesame and linseed
covered 2.01% (about 252,584.38 hectares), 3.35% (about 420,490.98 hectares) and 0.66%
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(about 82,323.86 hectares) of the grain crop area and 0.83% (about 2,244,625.07 quintals),
1.07% (about 2,887,700.79 quintals) and 0.31% (about 831,305.05 quintals) of the grain
production, respectively(CSA, 2015).
"The oilseeds value chain makes an important contribution to the Ethiopian economy,
accounting for more than twenty percent of the total foreign exchange earnings of the
country. It supports the livelihoods of many Ethiopians, particularly small farmers, traders,
transporters, and oil millers. The enhanced competitiveness of the value chain hinges on
improved efficiency and effective vertical and horizontal integration of different functions,
including improved farm practices, input supply, processing, and marketing” UNIDO, FAO,
ILO (2011).
Figure 1 Oil seed production and area coverage trends over the past 5-years
The relative economic importance of each type of oilseed of Ethiopia differs. Therefore area
of production, total annual product, and yield must be taken into account for prioritization of
research or any other attention to the oilseeds. In this regard it can be seen that safflower,
linseed, and Niger seed have shown decrease from the highest to the lowest per cent
reduction respectively (Table 2). Positive change in area of production increased only for
sesame increasing order from 2013/14 to 2014/15.
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In Ethiopia, sesame is a priority export crop for government and policy support appears to be
the major reason. Groundnut is gaining increasing customer acceptance as a crop with
diverse application in food and as a relatively new crop. Groundnut together with safflower
is suitable for oil pressing by small scale oil millers in Ethiopia and hence their increasing
area of cultivation. Safflower production volume, however, could not similarly increase as
compared to sesame and groundnut because of high decline in yield. Linseed showed
maximum decrease in area as well as yield which resulted in maximum decrease in
production. This shows that little attention is given to linseed by both government and
consumers except that its consumption is more important during fasting period of Ethiopian
Orthodox Church and its oil in Oromiya state of Ethiopia. Therefore linseed is priority oil
crop by small millers of Oromiya state. Although decrease in the area of cultivation as well
as yield of nigerseed contributed to its decreased production it is far better than linseed and is
even better than safflower due to serious yield problem with safflower. Therefore nigerseed
is given relatively better attention and priority especially for small scale edible oil millers.
Increasing question on the use of palm oil by the consumer has created favorable condition
for nigerseed oil.
Table 1: Estimate of Area, Production & Yield of Oil Crops for (2012/3-2014/5) (2006-
7EC), Meher Season. Source: (CSA, 2015)
Area in Hectares Production in Quintals Yield (quintals/hectare)
2013/14 2014/15 % % 2013/14 2014/15 %
Crop 2013/14 2014/15
(2006EC (2007EC chang chang (2006E (2007EC chan
(2006EC) (2007EC)
) ) e e C) ) ge
Oil 815,76 855,7 4.9 7,112,59 7,600,993 6
- - -
Seeds 1.07 50.23 0 2.38 .24 .87
285,303. 252,584. 2,202,111. 2,244,625. 15.1
Neug -11.47 1.93 7.72 8.89
47 38 90 07 3
95,582.7 82,323.8 879,459.0 831,305.0
Linseed -13.87 -5.48 9.20 10.10 9.75
9 6 8 5
Ground 79,582.7 64,643.2 1,120,887. 1,037,062. 13.9
-18.77 -7.48 14.08 16.04
nuts 9 7 24 38 0
sunflow 11,526.2 - 55.2
5,625.25 -51.20 83,470.97 63,250.64 7.24 11.24
er 7 24.22 7
299,724. 420,490. 2,202,160. 2,887,700. -
Sesame 40.29 31.13 7.35 6.87
41 98 53 79 6.53
Rapesee 44,041.3 30,082.4 624,502.6 537,049.3 - 25.9
-31.69 14.18 17.85
d 4 9 6 1 14.00 0
Pg-13
Ethiopian Niger Seed is popular for its light flavor and oil content. Niger seed oil is obtained
from the seeds of Niger plant, which belongs to the Asteraceae family and of
the Guizotia genus. The botanical name of the plant is Guizotia abyssinica. The Niger plant
is an erect, stout, branched annual herb, grown for its edible seeds and oil. Cultivation for the
plant originated in the Ethiopian highlands, and has since spread from Malawi to India1
Nug-another reference name is the cooking oil of choice in Ethiopia, it is used to sauté
legumes, vegetables, or it is sprinkled over cereals. Niger seed oil has high oleic acid content.
It is none drying and has a specific gravity (at 15o c) 0.911. The oil is mainly used for
cooking. The by-product of Niger seed oil processing is expeller cake which is left from
expeller press. Its major use is as animal feed
Niger seed is a minor oil seed crop cultivated in Ethiopia, India, Germany, West
Indies, Brazil, Mexico, China, Nepal, and Myanmar. Requiring moderate rainfall between
1000–1250 mm annually, it needs moist soil to grow properly. Niger should be grown in
light black soils or brownish loam with sufficient depth but it can be also be grown on well
drained heavy soils or rocky laterite soils. It can grow in semi-shade or without shade. The
yield of seeds will average 300–400 kg/hectare under favorable conditions but can produce
up to 600 kg/hectare. It gives a dependable yield even under unfavorable climatic conditions 2
Niger seed yields about 30-35% of its weight in oil which is clear, slow-drying, and edible.
Niger seed oil is polyunsaturated semi-drying oil. It has pale yellow or orange color with a
nutty taste and sweet odor. Raw oil has low acidity and can be used directly for cooking.
Normally it has a poor shelf life and will become rancid when stored for a long period. Its
fatty acid composition is similar to sunflower oil and has high content of linoleic acid. It is
used substitute for olive oil and can be mixed with linseed oil. The presence of linoleic acid
varies from 45.0-65.0% depending on harvested soil conditions and seed variety. The
physical character of oil and its fatty acids composition is furnished following tables. 3
1
Nigerseed: Specialty Grain Opportunity for Midwestern US
2
SEA Hand Book-2009 by Solvent Extractors' Association Of India
3
Purdue University - Guizotia abyssinica
Pg-14
Table 2 Physical Characteristics of Oil

Characteristic Range
Refractive Index400C 1.4655 - 1.4673
Saponification Value 187 – 195
Iodine Value 112 - 129.0
Unsaponifiable Matter 0.5 - 1.0%
Moisture 0.5 - 0.75%
Bellier Turbidity Temperature 24.5 - 27.8 °C
F.F.A 0.2 - 2.0%
Table 3 Fatty acid composition of Niger seed oil

Fatty Acid Percentage
Myristic acid (C14:0) 1.7%-3.4%
Palmitic acid (C16:0) 5.8%-13.0%
Stearic acid (C18:0) 5.0%-7.5%
Oleic acid(C18:1) 13.4%-39.3%
Linoleic acid(C18:2) 45.5%-65.8%
With the realization of the envisaged Niger seed Edible oil project, Haragu proposes to
produce Edible oil from Niger seed products comprising the main product, Edible oil and
the byproduct, Niger seed cake mainly to cater the needs of consumers in the regional
market. As detailed later in the market study, consumption and demand for the main products
planned for manufacturing by the union, Niger seed Edible oil is steadily rising due to
growth in population, increase in per capita consumption owing to various factors such as
rise in disposable income, increasing value of time, increasing demand for improved quality
standard and hygiene of the products.
3.3 Edible oil Value chain

The value chain is a concept which can be simply described as the entire range of activities
required to bring a product from the initial input-supply stage, through various phases of
production, to its final market destination. The production stages entail a combination of
physical transformation and the participation of various producers and services, and the chain
includes the product’s disposal after use. As opposed to the traditional exclusive focus on
Pg-15
production, the concept stresses the importance of value addition at each stage, thereby
treating production as just one of several value-adding components of the chain.
The macroeconomic landscape, policies, laws, regulations, standards and institutional

elements such as research and innovation, human resource development and other support
services form the environment in which all activities take place and therefore are also
important actors and activities in the value chain. Figure 1 below illustrates these
relationships within a generic value chain
Smallholder farmers of Horo-Guduru Wollega Zone grow Niger seed as a cash crop. The
oilseed products pass through the different phases of production, processing, marketing, and
final use by consumers. The actual map of the input-output structure of the oilseeds value
chain originated from the zone is presented in figure (below). It was not possible to produce
results on what proportion of oilseeds are channeled from one market node to another (for
example, what proportion of farmers sell to regional trader, service cooperatives, etc.) due to
two main reasons. First, it was not possible for the researcher to go and ask every market
participant about the proportion he/she sells to the different market nodes due to time and
space limitations. Second, it was not possible to produce the result from secondary source
because the available secondary sources are presented as a package for grain products as a
whole. However, oilseeds have a different market nature than other grains. Therefore, it may
be misleading to directly use from the available secondary sources. A description of the
different participants of the market chain and the input output structure is presented as
follows.
Exact and consistent information about the trade flow and market share is difficult to obtain.
According to some information from local traders and consumers the principal buyers are
local oil millers. Information gathered from interviewed millers indicates that roughly 85%
directly sell to consumers. However, a number of interviewed experts assume that for some
millers, the main sells channels are to traders. Particularly, informal millers are believed to
sell all their oils directly to traders. No noug miller reported a supplier-buyer relationship
with processors.
Pg-16
Figure 2 Current Niger seed Value chain
Supporting services
Finance (Finance Institutes), Technology, information, Advice (Business Consultant), Research
Traders
Farm Brok Millers
Brok
Far Tra
ders Informal
mers Millers Consum
er
Farm Brok (Domestic/
Foreign)
Processers
Farm Brok (Inc.
Regulatory Environment
Policy (MOTI), Standards (MoH), FDI Policy (MoEF, EIA)
Figure 2: Improved Niger seed value chain

Supporting services
Finance (Finance Institutes), Technology, information, Advice (Business Consultant), Research
FCU
 Proces
sing
 Out Consum
Far 10C Marketi er
mers oops (Domestic/F
oreign)
 Whole sale &

Retails
Regulatory Environment
Policy (MOTI), Standards (MoH), FDI Policy (MoEF, EIA )
Pg-17
4. MARKET STUDY AND PLANT CAPACITY
4.1. Market Study

Marketing and branding of Niger seed edible oil will play a key role in the mobilization of
targeted number of customers. Before launching of the project, it is recommended that a
research for understanding the dynamics of the targeted market should also be carried out, to
design the products as well as the promotional study. The basic principle of marketing is to
sell the right product, at the right price and promote it in the right place to the right people.
The job of the marketer is to control those 4ps. However, there are other socio economic
factors, which also affect the production, selling and consumption of Niger seed edible oil.
The success of marketing is often determined by the extent to which various socio economic
factors are considered. Market research is useful tool for assessing the attitudes and behavior
of the potential customers.
4.1.1 Past Supply and Present Demand
Ideally, domestic demand is taken at the difference between total supply and total sales
minus exports, re-exports, and stock at the end of the year. This, however, is a difficult
exercise in a situation where food aid pervades, as is the case here. Consequently,
two approaches have been used in the determination of the demand for edible oil in Ethiopia.
One is household income, consumption and expenditure on edible oil based on the latest
CSA Household Income, Consumption and Expenditure Survey. The other is a primary
research in the form of a sample survey of wholesale and retail trade in selected major towns.
Based on the analysis of income and expenditure presented above, current demand for edible
oil in urban Ethiopia, projected at 11.7 million according to The 1994 Population and
Housing Census of Ethiopia, would compute to 56.2 million liters or some 56,000 tons. At an
annual consumption of 700grammes of edible oil per person [Table 5] current demand in
rural Ethiopia [with a projected population of 61.4 million] would be an estimated 43,000
tons per annum, mainly in the form of unrefined oil.
Added together, current annual demand for edible oil in the country as a whole would be an
estimated 99,000, say 100,000 tons. This is certainly paradoxical when one considers the
tremendous excess capacity inflicting the domestic edible oil industry
Table 4 the Supply of Edible Oil (in Tonnes)

Year Domestic % share Import % share Total
2000 6,579 8.50 70,789 91.5 77,368
2001 6,637 21.12 24,785 78.9 31,422
2002 8,329 19.59 34,196 80.4 42,525
2003 7,993 26.40 22,283 73.6 30,276
2004 8,027 6.18 121,812 93.8 129,839
2005 6,931 7.79 82,014 92.2 88,945
Average 7,416 15 59,313 85 66,729
Pg-18
Source: CSA, Statistical Abstract and Customs Authority, External Trade Statistics
During the period 2000-2005, the maximum total supply (apparent consumption) of edible
oil to the local market was 129,839 tonnes (Year, 2004), while the minimum 30,276 tones
was registered in year 2003. In the remaining years, apparent consumption was fluctuating
between these two extremes, around a mean figure of 66,729tones. During the period under
consideration, the bulk of the total supply comes from import on average accounting for 85%
of the total supply.
Given the fluctuating nature of the historical apparent consumption, it is assumed that the
average of the last three years, i.e., about 83,000 tones, fairly approximate the current
effective demand for edible oil.
4.1.2 Projected Edible Oil Demand

The demand for edible oil is influenced mainly by urbanization (and the consequent change
in taste) and income. Assuming modest growth in income, a growth rate of 3.45% (i.e., an
average of the total and the urban population growth rates) is considered in projecting the
demand for edible oil (see Table 2).
Table 5. Projected Demand for Niger Seed Oil (Tonnes)

Year Total Projected Market Share
Demand Existing Factories Envisaged Plant
2008 85,864 7,416 78,448
2009 88,826 7,416 81,410
2010 91,890 7,416 84,474
2011 95,060 7,416 87,644
2012 98,340 7,416 90,924
2013 101,733 7,416 94,317
2014 105,243 7,416 97,827
2015 108,873 7,416 101,457
2016 112,630 7,416 105,214
2017 116,515 7,416 109,099
2018 120,535 7,416 113,119
2019 124,694 7,416 117,278
2020 128,995 7,416 121,579 4
4
Source: Profile on the production of Niger seed oil
Pg-19
Supply and Demand of Edible Oil Analysis

Local oil production in Ethiopia, only meets 20% of the consumption, which reached
285,210tn in 2011/12, according to a study conducted by the Ethiopian Pulses, Oilseeds &
Spices Exporters Association.
This is despite the fact that oilseeds are a large part of the country’s crop production and the
third largest export commodity for the country, having earned it 323.8 million dollars in
2010/11.
Such a gap has led Ethiopia to rely on imports, of mostly palm-oil, for its edible oil
consumption. These imports were supplied by the private sector until January 2011, when
prices skyrocketed leading the government to successively introduce a price cap, and later, in
May, take over the import of palm-oil altogether, distributing it at a subsidized price for
consumers.
For a year, starting from May 2011, the government imported 16,000tn of palm-oil, on a
monthly basis, from three suppliers found in Indonesia and Malaysia. It increased this by
9,000tn from May 2012, taking its total imports up to 300,000tn annually. With this all
efforts, the subsidized imported palm oil and under questions for its quality is in short
supply.
Likewise, the supply for Edible oils in Horo Guduru Wollega zone doesn’t match the
demand. The total amount of imported palm oil distributed in 2014/5 alone depicts the
shortage of edible oil in the locality (Table-7):
Table 6: Palm Oil Distribution status in Horro Guduro Wollega zone in year 2006/07 E.C.
Months Supplied In litters

July 250,000
August 250,000
September 0
October 149,481
Pg-20
November 0
December 149,457
January 149,481
February 137,304
March 149,457
April 149,481
May 149,481
June 149,482
1683624
The data obtained from zonal office also showed that, the total population of the zone alone
reached 748,738(male 388,926, Female 359,815) and 146,723 households who daily need
edible oil for cooking. Taking account the average family size of 5 and standard cocking oil
intake of a person per month which is 0.6 litters, then the average family demand of edible
oil per month will be 3litter. This will make the total amount of edible oil required in the
zone 5,282,028 liters on yearly bases. The palm oil provided through different community
based association as of 2014/5 of the zonal data is 1,683,624litters (Table-10). If we add the
20% estimated share of locally provided oil by local millers (336,724.8 litters), the total
edible oil supply will be 2,020,348.80litters. It is this amount of import that government
hopes to substitute locally, by facilitating the construction of a refinery plant and is also an
opportunity for Haragu FCU.
Table 7: Distribution Prices at sample districts

Litters At shambu town Amuru district Hababo Guduru
3 lit. 74.41 ETB 75.48 ETB 75.79 ETB
5 lit. 120.13ETB 121.85 ETB 122.43 ETB
20 lit. 451.31 ETB 458.22 ETB 460.52 ETB
25 lit. 548.99 ETB 557.67 ETB 560.50 ETB
Based on the estimated demand presented above, there is gap between demand and supply
which is at about 3,261,679.20 liters of edible oil. Though 4-small scale oil processors are
operating in the zone(1 in Horo district, 2- in A/Chomen town and 1 in Guduru district), they
have very much limited production capacity due to the high cost of Niger seed from time to
time and are under challenge to exist in free market economy.
4.1.4 Proposed area of product distribution

Haragu Farmers’ cooperative union is planning to distribute its products mainly to Horo
Guduru Wollega zone, West shoa zones, and East Wollega Zones including Addis Ababa
towns through consumers’ cooperative unions. Kombolcha town is the ideal project location
where the union will setup refinery and opens distribution centers in zonal tows like Shambu,
Pg-21
Ambo and Nekemte. The union needs to determine where the product will be sold and
method of distribution including transportation and storage. For a fierce competition and
proper positioning in the market, the union should open outlets and distribution centers in
place where the product of the union is easily accessed like Fincha sugar factory and where
the people can access and decide to buy the product for its premium quality. The union will
have high market share so long as the factory is producing and distributing testy and quality
Edible oil at competitive price.
4.1.5 Customers
The target market segment is a scattered in a wide range of rural areas and towns that are
looking for high quality Niger seed Edible oil free of adulteration. Besides, other potential
buyers of the product are local Hotels, restaurants and consumer cooperatives to distribute to
their members. In addition to these main markets, there are also other potential market areas
in the nearby zones of the union operational areas and towns with in the short range.
In addition to the edible oil, the union will produce Niger seed cake which will be sold to
dairy farm and Fattening project operators. As an alternative market opportunity , the union
will provide Extraction and refining service to individual farmers by charging the service
fee which give better opportunity to farmers to get quality Niger seed edible oil from its own
products. The idea is created to Haragu farmers’ cooperative union because of the high
increase of Niger seed price from time to time. To achieve its objective of facilitating better
access to its members for quality edible oil, the union will also need to use this alternative so
that the farmers will get unique service which was not tried by the private sector and other
type of cooperatives in Niger seed refining history in the area. All refineries purchase raw
Niger seed and sell the edible oil after refining. The possibility of buying Niger seed Edible
oil is so less to farmers due to the price un-affordability. Looking in to the practical problem
of the farmers who are prefect in producing raw Niger seed but getting challenges in getting
Niger seed edible oil, Haragu Farmers institution will facilitate an alternative of proving
refining service to the farmers at reasonable service charge.
Pg-22
4.1.6 Raw Material And product pricing
Niger seed produced in Horro Guduru Wollega zone is mainly supplied to the local market
(87%) while the remaining is consumed at farm house hold level (3%) and saved for seed
(10%). The Most important destinations for Niger seed in Horro Guduru Wollega zone are
Amuru, Jardega Jarte, Horro, A/Chomen, Jima Geneti, Jima Rare, Guduru and H/Guduru
districts. As result of price per quintal of Niger seed is increasing in the past production years
the farmers are encouraged to produce more in the future. Three important factors seem to
have a positive prospect for Niger seed. These are; 1) Yield increasing technologies
(improved seed varieties), which has started 2014/5 and distributed to farmers & grown on
26.5 hectare of land Haragu Farmers’ cooperative uinon. 2) The importance of Niger seed as
rotation crop is widely promoted and practiced by farmers 3).Market pull impact of future
factory and value chain intervention.
The required main raw material is basically Niger seed, which is among the major oil crops
grown in Horro Guduru Wollega zone, and available from farmers engaged in crop
production in nine districts of the zone. Similar to other parts of Ethiopia, Niger seed is
widely grown by small holder farmers on fragmented land holdings. It is the leading oil crop
in production and coverage in the oil seeds category. In the zone, Niger seed is cultivated
mainly for the production of edible oil and the pressed cake from oil extraction is used for
livestock feed specially in urban and semi urban areas for fattening and dairy farms. It is also
used as an input for concentrate feed processing sector. The demand for Niger seed oil is
becoming popular and demanded because of its health benefits even though the products
address the medium and higher income consumers because of the price of raw Niger seed is
gradual increase.
The basic reason of conducting this feasibility study is to address the shortage of edible oil
for the highly Niger seed producing farmers and medium level consumers. Also it helps to
cup the potential market in the value addition process of niger seed and curb the turbulent
market situation of the seed The Niger seed crop has the focus of the union due to its
favorable growth conditions in the area. Most farmers even do not use fertilizers, because the
Pg-23
crop grows well without any additional chemical fertilizer inputs. Most farmers grow this
crop for marketing purpose. After collecting from primary cooperatives; the union clean the
Niger seed and sell out to national market at good price. Currently, it is sold locally to
traders or to small processors. Cognizant of all the challenges and opportunities, the union is
ambition to invest in Niger seed edible oil refinery in order to add value to the produce and
provide quality cooking oil to members of the union and potential customers at reasonable
prices. Through, purchasing & refining of the raw materials, packing and labeling the
products to brandies and sell. Alternatively, providing refining service to producer farmers
by charging optimum service charge is an additional income and innovative business idea.
The union will collect Niger seed via its member’s cooperatives both from members and non-
member farmers. To effect the timely collection of the Niger seed, money will be advanced
to the cooperatives in October so that they can use the peak purchasing window. Purchasing
mostly takes place between December to March when the price is low and farmers have high
cash demand.
4.1.7 Niger seed Production trend of H/G/Wollega Zone
Administrative Map of Horo Guduru wollega Zone
Pg-24
37°0'0"E
10°20'0"N
Horo Guduru Zone 10°20'0"N
Amhara National
AMURU Regional State
Obora
_^
AliboJARTE JARDGA Legend

Benishangul-Gumuz _^
National Regional State _^ Town
Hababo Guduru Boundary
Regional
Zonal
Abay Chomen
District
Dedu
Horo
_^ West Shewa ROAD_TYPE
Zone Gravel secondary
Tulu Wayu
Abe Dengoro _^ Shambu
Dry Weather Road
Shambu Town_^ _^
Fincha'a Rural Road
Lake Fincha'a Kombolcha Lakes

_^
GUDRU
Hareto
East Wellega Zone

_^
Jima Geneti
West Shewa Zone
®
Scale:- 1:550,000
Jima Rare
_^ Wayu
9°10'0"N 5 2.5 0 5 10 15 20 25 30 35 Km
9°10'0"N
37°0'0"E
According to the zonal Agricultural development office, Niger seed is already sown in
2014/5 on 36,367 hectares of land and 292,803 quintal of yield will be expected to be
collected in the harvesting season if 13% of the total production 38,064 quintal will be used
for consumption purpose 87% which is 254,739 quintal of Niger seed will be supplied to
local market for local oil seed producers and exporters undertake purchasing through their
agent. From the total estimated production Haragu Farmers’ cooperative union is going to
collect on average more than 76,000 quintal of Niger seed for the processing purpose.
Table 8 Production of Edible Oil Seeds in the Zone (CSA data for 2013/14)
Horo Guduru Wollega Zone
Oilseeds Crop type Number of Area in Production in yield
holders hectare quintal (qt / ha)
96,018.00 68,578.91 551,695.68
Niger seed 61,932.00 52,213.68 359,492.60 6.89
Linseed 4,379.00 503.4 2,353.35 4.67
Groundnuts 10,081.00 * * *
Safflower 2,342.00 218.37 * *
Pg-25
Sesame 13,072.00 * * *
Rape seed 49,820.00 3,017.86 54,599.11 18.09
Table 9: Niger Seed Land Used and Production Data of Horro Guduru Wollega Zone
The
Year Land Productio yield per Supplied to local
remaining
E.C. used n hectare market 87%
13%
2006/07 32,677 238,693 7.3 207662.91 31,030
2005/06 33,994 241,614 7.1 210204.18 31,410
2004/05 36,296 157,535 4.3 137055.45 20,480
2003/04 28,836 277,458 9.6 241388.46 36,070
2002/03 26,789 197,261 7.4 171617.07 25,644
2001/200
2 32,796 205,096 6.3 178433.52 26,662
Source Horro Guduru Wollega zone Agricultural Development office August 2015
The purchase price of Niger seed has been increasing for the past three years and the price of
2014/15 harvesting season was very high when compared to the previous unit purchase price.
At harvesting time, the price was started 1,200 to 1,400 per quintal based up on the quality of
the commodity and the area where it is produced. The price of Niger seed for Amuru and
Jardega Jarte is higher than other districts because of its quality and higher oil extractability.
The purchasing price of the union for the past three years is presented below.
Table 10: Niger seed unit purchase price of the union

Periods By traders
Year Early period Late period Highest price in year
2014/5 1,200 1,400 1,600
2013/4 1,000 1,050 1,450
2012/3 950 980 1,200
Due to high demand for export, the price of Niger seed for the next year is expected to
increase and the union average purchasing price is going to be 1,300 Birr per quintal in year
2007/08 production season. Unfortunately the price of Niger seed was increased
unexpectedly and reached 2300 per quintal at the beginning of August 2015 and most of the
local Niger seed Edible oil producers in the zone were stopped producing oil due to high
price at time of assessment. Some of the edible oil processors purchased Niger seed up to
Pg-26
1800 ETB per quintal and stopped buying beyond 1800 since the production cost per unit
goes up and the customers are reserved to buy the product. The price of Niger seed per
quintal is lower at time of harvesting where the union is planning to undertake purchase of
the raw material through its member primary cooperatives by facilitating loan access to
primary cooperatives. The price of the Niger seed is one of the challenges that the union will
face unless it design strategy of delivering loan to primary cooperatives in the form of
advance and collect the raw material in early period just at the beginning of harvesting time
where the unit cost of production is comparatively lower. In past years the union is focusing
on facilitating better market to the producer farmer to achieve its objective and working hard
until the producers are starting to be compensated by the local market .If the local market is
provided better price.
4.1.9 Pricing and Distribution

The current retail price of Niger seed edible oil produced locally ranges from 65 to 78 per
litter and the average retail price for imported edible oil distributed through government 25
ETB at shambu town and it goes to higher at traders shop 3 liters of palm oil goes up to 150
ETB. When the supply is sufficient enough, the price of Edible oil became stable but when
there is scarcity of supply the price goes higher than the usual price and sometimes artificial
price rise will happen. At Fincha town the price of Niger seed oil as follows:
Table 11: Price of Niger seed Edible oil in operational area of the union
Package Price per unit
1 lit. 78
2lit. 156
3 lit. 234
5 lit. 390
The factory gate price for Niger seed cake is Birr 50 per quintal. The product of Hargu
farmers’ cooperative union is planned to be distributed through primary cooperative and
consumers cooperatives operating in Horro Guduru Wollega Zone. The envisaged processing
plant can use the existing network, which includes establishment of sales centers, sister
cooperative unions, Hotels and supermarkets to distribute its product. The union is planning
to start selling its products at price of 65Birr per litter which is the lowest compared to the
local competitors supplying the product at 78 Birr Per litter in Finch’a town.
The major factors that determine the price of the edible oil product are:
Pg-27
 The cost of raw materials (the Niger seed)
 Positioning of the product i.e. accessibility to potential markets
 Cost of competitive products(imported palm oil)
 Cost of substitutes
 Cost of refining the product (operational Costs)
 Condition of the Economy; increasing population and life standard improvement will
bring better market opportunities
4.2. Market Prospects of The proposed Product

4.2.1. Target Market and Customer Base
Consumption and demand for the main products planned for manufacturing by the union,
Niger seed oil is steadily rising due to growth in population, increase in per capita
consumption owing to various factors such as rise in disposable income, increasing value of
time, increasing demand for improved quality standard and hygiene of the products. Thus,
there is high consumer preference for Niger seed edible oil over the imported palm oil. With
rising demand, the local Niger-seed edible oil supply has not been sufficient to meet the
respective demand in the project locality as well.
The target market for the project encompasses individual households, business entities like
Hotels and others in the region. However, the primary targets are households in the nearby
districts of Horro Guduru Wollega Zone that require quality Edible oil. Haragu has then set
to expand gradually its market share by successively reaching other target market of the
zone. The key for this target market outreach is generation of product brand loyalty via
competitive pricing and consistent quality.
4.2.2. Market Size and Potential

The number of existing processing machines in the zone in general and the project area in
particular is not at parity to meet the respective growing demand. This is mainly due to
Pg-28
limited production capacity and under capacity utilization which in turn is due to limited
Niger seed supply due to low production and exporting of raw Niger seed for Bird feed. In
other words, the refining industry has not yet been developed to any sizeable extent in the
zone and as such it is not capable enough to meet the demand of the growing population.
From the forgoing analysis, the growth in population and shift in positive consumption trend,
a stable demand base is provided for Niger seed Edible oil and anticipated to continue to
grow in the future. At this point, Haragu is assuming an ample Niger seed Edible oil market
availability and same is expected to grow in the future. Thus, with the existing sufficient and
rising demand visa vis limited supply on the target local market for processed Niger seed
products, people are expected to have demand for quality Niger seed edible oil products.
With the planned factory production capacity and adequate Niger seed supply source from its
members, Haragu has a maximum capacity of producing and marketing above 2,250,000
liters of edible oil per annum. In the first year of project operation, Haragu planned to utilize
80% of its potential i.e. marketing 1,799,985-litters of Niger seed Edible oil, which is
expected to enhance in subsequent years with better industrial and marketing exposure.
4.3. Competitors Analysis

In Horro Guduru Wollega, there are four of edible oil processing machines with relatively
small capacity, many of which are found at shambu town, Fincha town and kombolcha town
in which all of them have production capacity of 20-quintal per day. Accordingly, these
local private processes on zone are expected to be the main competitors of the envisaged
project in addition to the other potential entrants.
In this respect, Haragu with better input supply advantage and intended production
technology and operations seek to competitively share part of the Edible oil market by
maintaining the highest quality product and delivery service. Eventually, providing a high
quality product and excellent service will offer the union an opportunity to capture the higher
price and sustain the price premium. The following is an overview of the wheat flour milling
venture as viewed through a Porter's Five Forces analysis for Raya including the associated
potential menaces.
Pg-29
Bargaining Power of Suppliers: The bargaining power of suppliers can many times have an
effect on the probability of success and profitability of a venture. The primary input that has
to be sourced for the production of edible oil is raw Niger seed, which will be supplied by
member producers around the production facility. The Niger seed could also be sourced from
other non-member suppliers. For the most part, the bargaining power of Niger seed suppliers
is low because Niger seed can be easily attained from many local producers in the project
area. The only other market option with producers of Niger seed is the possibility of local
traders or processers which could potentially drive up the premium for Niger seed and entice
them to deliver there. Other inputs for edible oil production include packing material and
utilities such as water and electricity
4.4. Competitive Advantage

For this specific project, as stated earlier in different parts of the study, below are the key
competitive advantages for Haragu as compared to existing and potential competitors;
Proximity and better access to quality and highly demanded factory raw materials ,this will
give the union logistic advantage as well. Better production technology and operational
system of turkey origin is planned to be put in place, which will ensure superior product
quality and delivery. Quality Niger seed Edible oil production through very careful
monitoring of production process and minimum wastage is one of the planned key strategies
for the success of the project apart from the other operational and marketing strategies set
out. Committed management & personnel base and well established organizational facilities
that will upkeep the project under consideration.
Playing imperative role in creating better market and return to the rural sector through value-
added product development that will enhance farm productivity.
4.5. Marketing Strategies (4Ps)

Haragu and its members have acquired good experience in Niger seed marketing through
primary cooperatives. Now, it has envisaged involving in value adding agro processing
sector to cater the Niger seed edible oil need of a wide range of market groups in the region
through steady market outreach move. Thus, Haragu, as new entrant in Edible oil business,
to be able to reach the planned demand levels that will provide a positive rate of return, an
Pg-30
effective marketing strategy, which incorporates high product quality, differentiation,

serviceability, and consistency, needs to be utilized. The main marketing plan for this project
involves timely factory input selection and procurement, quality production and assurance,
distinctive packing product and delivery. Maintaining or strengthening strategic relationship
with main actors involved in the marketing process including member farmers or coops,
local households, hotels , Niger seed edible oil distributers/retailers and food processers is
among the central attainment of this project . All of the marketing strategies (4Ps) outlined in
achieving the production and sales level over the intended project’s time frame are discussed
below:
Products, Volumes, Packaging and Qualities
For this project, Niger seed Edible oil is the primary product offering, as well as certain
amount of animal feed by-product or Niger seed cake. The most important attributes that
come with Haragu’s planned refinery is quality of the product and serviceability. Unlike
other Niger seed oil processors, Haragu will retain responsibility for quality of the product
free of adulteration and provide any service necessary to make the best use of the Edible oil
and provide the ability for the end user to produce the highest quality and most consistent
product.
Packing and labeling; this is often done to meet the respective buyer’s capacity and
requirement and will attract the buyer in a way that the product has been produced with the
acceptable quality standards. Normally, the Niger seed refinery of the project will be suitably
packed and sold in 0.5, 1, 2, 3 and 5 litters varying mix. This could be changed overtime
based on customer need assessment.
With regards to quality control and standards: Haragu will employ testing facility under its
Quality Control Section that will provide the ability to test the Niger seed oil coming off the
product line for quality. The testing also provides the ability to prepare small batches of end
product to monitor how the edible will perform for customers. In this regard, Haragu will
give acceptable product assurance to its Niger seed edible oil customers by preparing a
product guarantee that is written on the label and accepting liability for any substandard
Pg-31
products. Besides, Haragu will strive to get product standards or certification system related
to its factory input i.e. raw Niger seed and outputs including manufacturing hygienic
conditions and packaging and labeling requirements applicable to food processing industries.
5. MANPOWER & TRAINING REQUIREMENT
b. Organizational structure
Notwithstanding its anticipated viability under normal context, the growth and profitability
of Edible oil production business like that of the project among others depends upon the
experience and competence of the personnel base it employs. It also depends on workability
of its organizational structure. Accordingly, so as to enable the subject project realize its set
objectives and goals and further nurture and develop its reputation, the union needs to
establish the organizational structure to be filled with qualified and experienced management
team and technical and support staff. In this regard, the union will make use of the service of
a competent consulting firm that will guide or work with the union’s board members during
project implementation to enable successful project realization and commercial operation
including recruitment of the required manpower.
c. Manpower Requirement
The envisaged project requires 93-work forces. The list of manpower for the envisaged
project is indicated below. The annual cost of labour including wage, fringe benefit is
estimated at Birr 3,628,800 for the three shift planed operation.
Table 12: Manpower Requirement

SN Description Req. Monthly # Annual Total
No. salary(ETB) shift Salary (Birr) staff
1 Plant Manager 1 1,500 3 54,000 3
2 Secretary 1 1000 3 36,000 3
3 Purchaser 1 1,200 3 43,200 3
4 Production and 1 1,500 3 54,000 3
5 Personnel 1 1,200 3 43,200 3
technical head
6 Sales man 1 1,200 3 43,200 3
Pg-32
6 Accountant 1 1,200 3 43,200 3

7 Cashier 1 1000 3 36,000 3
8 Chemist 1 1,500 3 54,000 3
9 Electrician 2 1,200 3 86,400 6
10 Mechanic 1 1,500 3 54,000 3
11 Production supervisor 3 4,500 3 486,000 9
12 Operators 3 4,500 3 486,000 9
13 Laborers 3 3,600 3 388,800 9
14 Store keeper 3 3,600 3 388,800 9
15 Time keeper 3 3000 3 324,000 9
16 Guards 4 2,800 3 403,200 12
Sub-Total 93 3,024,000 93
Benefits (20% BS) 604,800
Grand Total 93 3,628,800
Thus, the project employ will be composed of management team, skilled technical & support
staffs and daily operators or laborers.
6. TECHNOLOGY & ENGINEERING
6.1. Construction and civil works

Upon securing the required investment premise and finalization of other formalities
including licensing, the union will commence construction works of modern processing plant
building including foundation for store facilities, office building and other required facilities
all of which are to be erected on a total plot of 3,000 m2 area. Besides, these construction and
civil works are to be carried out by an experienced and qualified contractor that will be
assigned through union’s formal auction and proper screening. List and area coverage of the
different construction works of the project are shown below:
Table 13: List and estimated area of construction works of the project
S Type of Construction Works or Area in square
1 Refinery Establishment 1,000
2 Store Building 1: Raw materials & processes 1,000
3 Store Building 2: finished goods 500
4 Office Building 300
5 Guard/Janitor/wash rooms 200
Total 3,000
*Includes electric and water works
Pg-33
Implementation Schedule
The actual implementation of the Niger seed Edible oil project is planned to begin early in
2016 G.C immediately after securing the requested project land. The main implementation
aspects of the project includes undertaking the construction of building and civil works,
procurement, import and erection of refining machineries and equipment, procurement of
office equipment and furniture, recruitment and training of employees and production
commissioning. Other activities such as securing infrastructural facilities or utilities, system
development and procurement of raw materials and other supplies will also be duly
performed in due time to ensure that everything is in place by the time the plant is ready for
operation. As per the set plan, the project will be implemented or executed as of the outset of
the year i.e. 2016 G.C immediately after securing the required project land. And commercial
operation is expected to commence in a year time i.e. latest early 2017 G.C.
The detail of the execution schedule for each major project item is shown below:
Table 14 Project’s Implementation Schedule

SN Description of Project Items Quarters in 2016 G.C
1 2 3 4
1 Construction & Civil Works
2 Purchase/Import of machineries,
equipment, and Furniture
3 Recruitment & training of manpower
4 Installation and commissioning
5 Official Inauguration
6.2. Source of Technology
Several machinery suppliers and manufactures can be requested for their offer. Fikadu
Getachew consulting firm has collected valuable data on the cost of the machinery required
to produce 250 quintal of Niger seed per day and oil refinery plant with capacity of 80
quintal per day. According to recent data collected from Henan Huatai Cereals and oil
machinery CO.,Ltd the price of Niger seed pre-treatment and oil extraction plant with
capacity of 250 quintal per day (25 Ton) is 101,229 USD and the price of Niger seed oil
Pg-34
refinery plant with capacity of 80 quintal per day (8 Ton) is 118,771 USD. The Consulting
firm used the information collected from the firm to estimate the cost of machineries and
equipment with the current market price. The list of machineries were collected from these
company at a total FOB price of USD 220,000 excluding freight, import related charges, cost
of erection and supervision. The following company could be one of the candidates:
OPTION-1: CHAIN BASED SOURCES AND ITS DETAIL COMPONENTS (company

Address)
Henan Huatai Cereals and Oil Machinery Co.,Ltd
Mobile: 0086-15136215937, Tel: 0086-371-56708752
Niger seed pre- treatment& extraction workshop equipment list from China Company
Pg-35
Figure 3: List of Machinery & Equipment for Pre-Processing Treatment

SN Equipment name Quantity Single Total
power(KW) power(KW)
1 Bucket elevator 1 1.5 1.5
2 Vibration cleaning 1 0.75 0.75
3 screen
Specific gravity 1 0.75 0.75
4 Magnetic separator 1 0 0
6 Flaking mill 1 11 11
8 Steam cooker 1 15 15
10 Screw conveyer 1 2.2 2.2
11 Screw oil press 4 15 60
12 Oil flowing slot 1 0 0
13 Oil clarifying tank 1 0 0
14 Filter pump 1 1.5 1.5
15 Air compressor 1 5.5 5.5
16 Vibration filter 1 0 0
17 Gear pump 1 2.2 2.2
18 Underground oil tank 1 0 0
19 Cyclone dust remover 1 0.55 0.55
20 Blower 1 5.5 5.5
Sub-total 23 110.95
21 Installation material Valve, pipeline, instrument
22 Power distribution Copper wire cable
control
Figure 4 List of Machinery & Equipment Refinery

SN Equipment Name Qty(set) Single Total Remark
power(KW) power(KW)
1 Oil refining tank 2 3.3/4 8
2 Bleaching tank 1 4 4
3 Soap stock tank 1 4 4
4 Hot water tank 1 0 0
Pg-36
SN Equipment Name Qty(set) Single Total Remark

power(KW) power(KW)
5 Lye tank 1 0 0
6 Phosphoric acid tank 1 0 0
7 Dirty oil tank 1 0 0
8 Gear pump 2 2.2 4.4
9 Gear pump 1 2.2 2.2
10 Gear pump 1 2.2 2.2
11 Oil distribution tank 1 0 0
12 Clay tank 1 0 0
13 Air-cooled hot oil pump 2 5.5 11
14 Decolorizing oil tank 1 0 0
15 Vibration filter 1 0 0
16 Separator 1 0 0
17 Air compressor 1 5.5 5.5
18 Deodorization tank 1 0 0
19 Heating steam super heater 1 0 0
20 Separator 1 0 0
21 Steam header 1 0 0
22 Three-level vacuum pump unit 1 7.5 7.5
23 Water jet pump 1 0 0
24 Water pump 1 7.5 7.5
25 Condenser 1 0 0
26 Bag filter 2 0 0
27 Lye preparing tank 1 0 0
28 Thermal oil furnace 1 7.5 7.5 Coal fried
29 Steam generator 1 0 0
Sub-total 63.8
30 Installation material Valve, pipeline, instrument
31 Power distribution control Copper wire
cable
Pg-37
Engineering design scope:
1). Craft flow chart;

2). Equipment layout drawing;
3). Equipment base drawing;
4). Reserved hole & embedded parts drawing and civil engineering condition drawing;
5). Embedded pipeline layout drawing;
6). Embedded pipeline of power circuit drawing;
7). Power electricity layout drawing;
8). Electricity distribution cabinet and operation table schema;
9). Plant layout drawing.
OPTION-2 Turkey based
Figure 5: components of the technology to be purchased as per the company provision

1 25 TPD SEED OIL
PROCESSING PLANT
manufacture,
installation and
commissioning
2 25 TPD OIL
PROCESSING
PLANTS SEEDS
Extraction manufacture,
installation and
commissioning
3 4 tons / hour of steam

production plant
manufacture,
installation and
commissioning
Pg-38
Turkey Based Supplier: Address
Telephone: +905332601649; E-mail: nevzatbora@stargaz.com.tr
In conducting the feasibility study, the price of machineries offered by the two suppliers was
considered. The purchase price of refinery plant from China Company is less expensive than
that of Turkey Company. Based up on information collected from oil extraction and refinery
owners the equipment’s from Turkey Company are required in terms of quality and
durability and the interest of Haragu Farmers’ cooperative union is towards that of turkey
origin even though the purchase will be determined after international bid for the suppliers of
the Refinery plant and equipment’s. The consulting firm has used the costs offered by the
Turkey Company STARGAZ is used for evaluating the viability of the project.
The list of machine Explained above are from china Company and the consulting firm use
that of Turkey supplier for financial analysis based up on the preference of the Union.
The project has set to procure full set of refining Machinery and Equipment for Niger seed
Edible oil processing plant in line of production at a total of 7,920,000ETB excluding
freight(FOB), import related charges, cost of erection and supervision. The total cost of the
Niger seed Edible oil processing plant including import related charges, costs of erection and
Pg-39
commissioning is estimated to be 8,316,000-ETB. The machinery, which is of Turkey origin,

is planned to be procured from suppliers. Furthermore, different production equipment
including transformer with total estimated cost of Birr 9,316,000ETB are also required for
the subject project.
After several communications, the Turkey Company is interested to supply oil extraction and
refinery plant 396,000 USD. Thus, the total cost of the Niger seed edible oil refinery
including all import related charges and cost of erection and commissioning is estimated to
be Birr 6,160,000 ETB. Included under this category are electric transformer and other
required equipment worth Birr 1000,000 ETB which will thus bring the total estimated costs
of all the items under this investment sort to 7,160,000 ETB taking into account the
available duty free privilege on acquisition of similar capital goods. The details of costs
related to refinery plant presented as follows:
Table 15: Investment on Production Machineries and Equipment

Value Value
SN Description
in USD in Birr
1 Refinery machineries
2 Refinery including parts & accessories 396,000.00 7,920,000.00
3 Add: Shipping & insurance costs 158,400.00
Freight and import related charges 158,400.00
Installation & commissioning 79,200.00
Sub-Total 8,316,000.00
Related Equipment
Transformer 500,000.00
Other equipment 500,000.00
Sub-Total 1,000,000.00
Total 9,316,000.00
Office Equipment and Furniture
Pg-40
In addition to the above investment items, the project will also purchase different kinds of
office equipment and furniture anticipated to cost Birr 400,000 including office computers
and accessories. Production process, capacity & utilization
6.3. Production Capacity of the Niger seed extraction and refinery Plant
With the objective of extracting 250 quintal of Niger seed per day and refining capacity of
80 quintal of crude oil, the plant will start operating at 80 % of its potential in the first year
and reach 100% utilization capacity at the end of year 5. The union will produce 1,799,985
liters of edible oil and 30, 000 quintals of Niger seed cake in the first year of production and
reach total production of 2,500,000 liters of edible oil and 37,500 quintal of Niger seed cake
at year five of the project. The detail of production capacity is as follows:
Table 16: Production capacity and utilization of the project for the first five year
Description Year 1 Year 2 Year 3 Year 4 Year 5
Raw material Volume (In
76,530 76,530 76,530 76,530 76,530
quintals)
Impurity level for raw Niger
seed in % 2% 2% 2% 2% 2%
Impurity level for raw Niger
seed in Quintals 1530.6 1530.6 1530.6 1530.6 1530.6
Pure Raw material volume at
74,999.4 74,999.4 74,999.4 7 74,999.4
max. capacity in Quintal
0 0 0 4,999.40 0
Capacity Utilization rate 80% 85% 90% 95% 100%
Raw Niger seed requirement
59,999.5 63,749.4 67,499.4 71,249.4 74,999.4
per utilization rate
2 9 6 3 0
Average Niger seed Edible oil
extracted from pure 100 kg
(after cleaning) 30.00 30.00 30.00 30.00 30.00
Niger seed Edible oil 1,9 2,0 2,1 2,2
production volume in Litters 1,799,98 12,484.7 24,983.8 37,482.9 49,982.0
as per utilization rate 5.60 0 0 0 0
Average Niger cake production
per quintal (pure) in 100kg 0.5 0.5 0.5 0.5 0.5
Total Niger cake production
29,999.7 31,874.7 33,749.7 35,624.7 37,499.7
as per utilization rate
6 5 3 2 0
Other By byproduct sales
by product in quintal 0.02 749.99 749.99 749.99 749.99 749.99
Pg-41
Working eight-hours-shifts/day
Description Year 1 Year 2 Year 3 Year 4 Year 5 3
Refinery capacity per
Unit price per quintalday (quintals) 9.00 9.00 9.00 9.00 250
9.00
Days operational/year 300
Sales of other by products 6,749.95 6,749.95 6,749.95 6,749.95 6,749.95
Production capacity utilization in the first year 80%
Production capacity utilization growth rate 5%
Maximum production capacity utilization 100%
Raw Niger seed impurity content 2%
Wage growth rate 5%
Electricity & water price growth rate 10%
Cost of fuel & lubricant growth rate 10%
Revenues Related Assumptions
Selling price per litters in year 1: Edible oil 63
Selling price per quintal in year 1:Niger seed cake 400
Project's time frame considered in years 5
Project debt component 70%
Project equity component 30%
Bank interest rate: Investment loan 15%
Bank interest rate: Working capital 10.5 %
Loan period including grace period (months): Investment 72
Loan period (months): Working capital 24
Loan repayment mode/frequency per year: Investment loan 12
Loan repayment mode/frequency per year: Working capital 12
Grace period (months): Investment loan 12
Cost of capital for cash flow 22%
Purchase cost including transport/quintal: Raw Niger seed 1300
Niger seed purchase price growth rate 10%
7. FINANCIAL ANALYSIS
The financial analysis for the union’s Niger seed Edible oil Factory investment project and
its future commercial operations relies on the information or data presented in the foregoing
chapters and the following major assumptions. These assumptions essentially define the f
financial plan and require that the union obtains the needed financing at the proposed level.
Table 17: Assumptions Used In the Development of the Feasibility Analysis put it above
table?
Pg-42
7.1. Investment Outlay and Financing Scheme

Major financial outlay or investment items required for the realization of the Edible oil
factory project include Construction & Civil Works, Production Machineries and Equipment,
Office Furniture & Equipment, Pre-Operating Expenses and Working Capital. The total
planned investment cost is estimated to be 20,443,000.00 ETB out of which Birr
11,936,000.00 ETB is fixed investment while 8,000,000.00 ETB is working capital and the
rest 507,000 ETB is pre-operating expenses. Each of this investment items including the
planned source of financing is discussed below.
The finance needed to establish the proposed Edible oil factory has been analyzed by own
equity contribution and bank financing scenario at 30:70 respective share. Accordingly, out
of the total investment cost 20,443,000.00 ETB (70%) of the total investment
14,316,000.00ETB is assumed to be obtained by way of bank loan from one of the interested
local financing banks, with whom the union has already maintained excellent banking ties
while the balance 6,127,000.00ETB (30%) is assumed to be covered from own source to be
pooled out partly from the union’s existing business and partly from expected additional
members’ contribution.
7.2. Initial investment cost of the project

As stated in the technical part, the union has scheduled to undertake the above investments
over a period of one year by setting realization priorities to items incorporated in each
investment component. Leverage wise, the union, as mentioned initially, has proposed to
deploy two financing sources i.e. own and external financial leverages or bank financing at
30:70 respective financing proportion. Accordingly, the summaries of the planned
investment outlays and financing arrangements are presented in the following table.
Pg-43
Table 18: Initial investment cost

Foreign Fixed Pre Working
SN Cost Items Local Cost Total Cost
Cost Bank FCU capital Investment capital
Land lease 500,000. 500,000.0
1 500,000.00 0 500,000.00
value 00 0
Building
1,720,000.0 1,720,000.0
2 and Civil 0 720,000. 1,720,000.
0 0
Work 1,000,000 00 00
Plant
Machinery 1,000,000.0 9,316,000.0
3 8,316,000
and 0 0 9,316,000. 9,316,000.
Equipment 00 0.00 00
Office
Furniture
4 200,000.00 0 200,000.00
and 200,000. 200,000.0
Equipment 00 0
Computer
5 and 200,000.00 0 200,000.00 200,000. 200,000.0
accessories 00 0
Pre-
production
8 507,000.00 0 507,000.00
Expenditure 507,000. 11,936,00 8,000,000.0
* 00 0.00 507,000.00 0
Total Fixed 4,127,000.0 8,316,000. 12,443,000. 10,316,00 2,127,00
9
cost 0 00 00 0.00 0.00
10 12,443,000.00
Working 8,000,000. 8,000,000.0 4,000,00
11
Capital 00 0 4,000,000 0.00
8,000,000
Pg-44
Total
Investment
cost 20,443,000.00
14,316,00 6,127,00 20,443,00

0.00 0.00 0.00
Bank loan for fixed investment 15% 70% 30%
For Working capital
10.5%
Pg-45
7.3. Working capital requirement
In order to successfully accomplish the planned Edible production and marketing business,
the company needs adequate initial amount of working capital of 8,000,000 Birr and collect
raw Niger seed from primary cooperatives in the form of credit seed. The union will apply to
Bank for a loan of 4,000,000 working capital and 10,316,000 Birr for investment capita. The
remaining amount will be covered from equity of the union from already existing fund and
by selling additional shares to member and potential members. The capital proposed and the
option of using credit purchase system designed will help the union to cover its stocking
and processing of Niger seed , other needed supplies and also pay out its fuel & lubricants,
promotion, selling, repair & maintenance, insurance and salaries/wages bills.
Thus, the estimated financial outlays for stocking and processing of Niger seed and also
keeping minimum balance of one months’ consumption of lubricants, employee expenses
and other operating costs is needed to be readily available in advance at the start of the first
year of project operation.
7.4. Investment on office Equipment & Furniture

Under this category, value of various types of office equipment and furniture planned to be
purchased are included. It also encompasses computers and accessories needed to be
acquired for the new project. These investments are estimated to worth ETB 400,000 in total.
7.5. Pre-Operating Expenses

These are capitalized expenses, project management and license related fees, consultancy
fees and foreign travel costs in relation to procurement of the refinery plant and related
equipment before the realization of plant operation. These costs are analyzed to be covered
from own source mainly during project implementation.
Table 19:Pre-operating cost

No. Descriptions Amount In
1 Project management & license fees Birr 150,000
2 Consultancy fees 157,000
3 Business Travel (foreign) 100,000
4 Contingency for other outlays or costs 100,000
Total 507,000
Depreciation expenses
Depreciation for all fixed assets of the project is calculated using straight-line method. As per
the existing practice, the depreciation rates applicable on different investment items, as stated
in the financial assumptions above, and respective periodic depreciation amount are
exhibited as follow.
Table 20: Depreciation Schedule

Rate per Value of fixed Annual
Description
annum Asset Depreciation
Construction & Civil 5% 1,720,000 86,000
Machineries
Works & 20% 9,316,000 1,863,200
Office
EquipmentFurniture & 20% 200,000 40,000
Equipment
Computer & Accessories 25% 200,000 50,000
Pre-operating Expenses 10% 507,000 50,700
Total 11,943,000 2,089,900
Promotion Expense
Promotional and Advertising Expenses are assessed to be Birr 29,000 for the 1 st year with
annual cumulative declining rate in subsequent years of project operation. Accordingly,
details of projected promotional expenditure are indicated hereunder:
Table 21: Estimated budget of promotion/advertising for the first five years
Promotion Type Year 1 Year 2 Year 3 Year 4 Year 5
Flyers and Brochures 24,000 22,000 20,000 18,000 15,000
Networking activities 5,000 5,000 5,000 5,000 5,000
Total 29,000 27,000 25,000 23,000 20,000
All other operating expenses are determined according to the above underlying assumptions.
Pg-47
Thus, the summary of the project’s estimated annual outlays for different operating expenses
over the first five years of project operations is presented in the following table:
Table 22 Interest Expense

Capital monthly Loan repayment schedule of Union for a loan of 10,316,000 ETB -
Capital Investment @15%
Beginning
Perio principal Monthly Amount To Balance
# d Balance Payment Interest principal Remaining
10,316,000.0 ($245,416. $10,199,533.0
1 1st 0 92) 128950 ($116,466.92) 8
$10,199,533. ($245,416. $10,081,610.3
2 2nd 08 92) 127494.1635 ($117,922.76) 3
$10,081,610. ($245,416.
3 3rd 33 92) 126020.1291 ($119,396.79) $9,962,213.54
$9,962,213.5 ($245,416.
4 4th 4 92) 124527.6692 ($120,889.25) $9,841,324.29
$9,841,324.2 ($245,416.
5 5th 9 92) 123016.5536 ($122,400.37) $9,718,923.92
$9,718,923.9 ($245,416.
6 6th 2 92) 121486.549 ($123,930.37) $9,594,993.55
$9,594,993.5 ($245,416.
7 7th 5 92) 119937.4194 ($125,479.50) $9,469,514.05
$9,469,514.0 ($245,416.
8 8th 5 92) 118368.9257 ($127,047.99) $9,342,466.06
$9,342,466.0 ($245,416.
9 9th 6 92) 116780.8257 ($128,636.09) $9,213,829.97
$9,213,829.9 ($245,416.
10 10th 7 92) 115172.8746 ($130,244.04) $9,083,585.92
$9,083,585.9 ($245,416.
11 11th 2 92) 113544.824 ($131,872.09) $8,951,713.83
$8,951,713.8 ($245,416.
12 12th 3 92) 111896.4228 ($133,520.50) $8,818,193.33
$8,818,193.3 ($245,416.
13 13th 3 92) 110227.4166 ($135,189.50) $8,683,003.83
$8,683,003.8 ($245,416.
14 14th 3 92) 108537.5479 ($136,879.37) $8,546,124.46
15 15th $8,546,124.4 ($245,416. 106826.5557 ($138,590.36) $8,407,534.10
Pg-48
Beginning
6 92)
$8,407,534.1 ($245,416.
16 16th 0 92) 105094.1762 ($140,322.74) $8,267,211.35
$8,267,211.3 ($245,416.
17 17th 5 92) 103340.1419 ($142,076.78) $8,125,134.58
$8,125,134.5 ($245,416.
18 18th 8 92) 101564.1822 ($143,852.74) $7,981,281.84
$7,981,281.8 ($245,416.
19 19th 4 92) 99766.02299 ($145,650.90) $7,835,630.94
$7,835,630.9 ($245,416.
20 20th 4 92) 97945.38679 ($147,471.53) $7,688,159.41
$7,688,159.4 ($245,416.
21 21st 1 92) 96101.99264 ($149,314.93) $7,538,844.49
$7,538,844.4 ($245,416.
22 22nd 9 92) 94235.55607 ($151,181.36) $7,387,663.12
$7,387,663.1 ($245,416.
23 23rd 2 92) 92345.78903 ($153,071.13) $7,234,591.99
$7,234,591.9 ($245,416.
24 24th 9 92) 90432.39991 ($154,984.52) $7,079,607.47
$7,079,607.4 ($245,416.
25 25th 7 92) 88495.09343 ($156,921.83) $6,922,685.65
$6,922,685.6 ($245,416.
26 26th 5 92) 86533.57061 ($158,883.35) $6,763,802.30
$6,763,802.3 ($245,416.
27 27th 0 92) 84547.52876 ($160,869.39) $6,602,932.91
$6,602,932.9 ($245,416.
28 28th 1 92) 82536.66138 ($162,880.26) $6,440,052.65
$6,440,052.6 ($245,416.
29 29th 5 92) 80500.65817 ($164,916.26) $6,275,136.39
$6,275,136.3 ($245,416.
30 30th 9 92) 78439.20491 ($166,977.71) $6,108,158.68
$6,108,158.6 ($245,416.
31 31st 8 92) 76351.98348 ($169,064.94) $5,939,093.74
$5,939,093.7 ($245,416.
32 32nd 4 92) 74238.67179 ($171,178.25) $5,767,915.50
$5,767,915.5 ($245,416.
33 33rd 0 92) 72098.94371 ($173,317.98) $5,594,597.52
$5,594,597.5 ($245,416.
34 34th 2 92) 69932.46902 ($175,484.45) $5,419,113.07
Pg-49
Beginning
$5,419,113.0 ($245,416.
35 35th 7 92) 67738.9134 ($177,678.01) $5,241,435.07
$5,241,435.0 ($245,416.
36 36th 7 92) 65517.93833 ($179,898.98) $5,061,536.09
$5,061,536.0 ($245,416.
37 37th 9 92) 63269.20107 ($182,147.72) $4,879,388.37
$4,879,388.3 ($245,416.
38 38th 7 92) 60992.3546 ($184,424.56) $4,694,963.80
$4,694,963.8 ($245,416.
39 39th 0 92) 58687.04755 ($186,729.87) $4,508,233.93
$4,508,233.9 ($245,416.
40 40th 3 92) 56352.92416 ($189,063.99) $4,319,169.94
$4,319,169.9 ($245,416.
41 41st 4 92) 53989.62423 ($191,427.29) $4,127,742.64
$4,127,742.6 ($245,416.
42 42nd 4 92) 51596.78304 ($193,820.14) $3,933,922.51
$3,933,922.5 ($245,416.
43 43rd 1 92) 49174.03135 ($196,242.89) $3,737,679.62
$3,737,679.6 ($245,416.
44 44th 2 92) 46720.99526 ($198,695.92) $3,538,983.70
$3,538,983.7 ($245,416.
45 45th 0 92) 44237.29621 ($201,179.62) $3,337,804.07
$3,337,804.0 ($245,416.
46 46th 7 92) 41722.55093 ($203,694.37) $3,134,109.71
$3,134,109.7 ($245,416.
47 47th 1 92) 39176.37133 ($206,240.55) $2,927,869.16
$2,927,869.1 ($245,416.
48 48th 6 92) 36598.36449 ($208,818.55) $2,719,050.60
$2,719,050.6 ($245,416.
49 49th 0 92) 33988.13256 ($211,428.79) $2,507,621.82
$2,507,621.8 ($245,416.
50 50th 2 92) 31345.27273 ($214,071.65) $2,293,550.17
$2,293,550.1 ($245,416.
51 51st 7 92) 28669.37716 ($216,747.54) $2,076,802.63
$2,076,802.6 ($245,416.
52 52nd 3 92) 25960.03289 ($219,456.89) $1,857,345.75
$1,857,345.7 ($245,416.
53 53rd 5 92) 23216.82181 ($222,200.10) $1,635,145.65
54 54th $1,635,145.6 ($245,416. 20439.3206 ($224,977.60) $1,410,168.05
Pg-50
Beginning
5 92)
$1,410,168.0 ($245,416.
55 55th 5 92) 17627.10062 ($227,789.82) $1,182,378.23
$1,182,378.2 ($245,416.
56 56th 3 92) 14779.7279 ($230,637.19) $951,741.04
($245,416.
57 57th $951,741.04 92) 11896.76301 ($233,520.16) $718,220.89
($245,416.
58 58th $718,220.89 92) 8977.761064 ($236,439.16) $481,781.73
($245,416.
59 59th $481,781.73 92) 6022.271593 ($239,394.65) $242,387.08
($245,416.
60 60th $242,387.08 92) 3029.838503 ($242,387.08) ($0.00)
5
Table 23: Working capital loan repayment schedule of the project

Loan repayment schedule of Working capital loan @rate of 10.5%
Beginning
principal Monthly Amount to Balance
# Period Balance Payment interest principal remaining
($185,504.17 ($150,504.17 $3,849,495.8
1 1st 4000000 ) 35,000 ) 3
($185,504.17 ($151,821.08 $3,697,674.7
2 2nd 3849495.83 ) 33683.08854 ) 6
($185,504.17 ($153,149.51 $3,544,525.2
3 3rd 3697674.76 ) 32354.65411 ) 4
($185,504.17 ($154,489.57 $3,390,035.6
4 4th 3544525.24 ) 31014.59588 ) 7
($185,504.17 ($155,841.35 $3,234,194.3
5 5th 3390035.67 ) 29662.81213 ) 2
($185,504.17 ($157,204.97 $3,076,989.3
6 6th 3234194.32 ) 28299.20028 ) 5
($185,504.17 ($158,580.51 $2,918,408.8
7 7th 3076989.35 ) 26923.65683 ) 4
($185,504.17 ($159,968.09 $2,758,440.7
8 8th 2918408.84 ) 25536.07737 ) 5
5
Note the dollar sign($) is meant a default figure, the unity is ETB
Pg-51
Loan repayment schedule of Working capital loan @rate of 10.5%

Beginning
principal Monthly Amount to Balance
# Period Balance Payment interest principal remaining
($185,504.17 ($161,367.81 $2,597,072.9
9 9th 2758440.75 ) 24136.35659 ) 4
($185,504.17 ($162,779.78 $2,434,293.1
10 10th 2597072.94 ) 22724.38825 ) 6
($185,504.17 ($164,204.10 $2,270,089.0
11 11th 2434293.16 ) 21300.06519 ) 6
($185,504.17 ($165,640.89 $2,104,448.1
12 12th 2270089.06 ) 19863.2793 ) 8
($185,504.17 ($167,090.25 $1,937,357.9
13 13th 2104448.18 ) 18413.92154 ) 3
($185,504.17 ($168,552.28 $1,768,805.6
14 14th 1937357.93 ) 16951.88189 ) 5
($185,504.17 ($170,027.12 $1,598,778.5
15 15th 1768805.65 ) 15477.0494 ) 3
($185,504.17 ($171,514.85 $1,427,263.6
16 16th 1598778.53 ) 13989.31213 ) 7
($185,504.17 ($173,015.61 $1,254,248.0
17 17th 1427263.67 ) 12488.55715 ) 7
($185,504.17 ($174,529.50 $1,079,718.5
18 18th 1254248.07 ) 10974.67057 ) 7
($185,504.17 ($176,056.63
19 19th 1079718.57 ) 9447.53748 ) $903,661.94
($185,504.17 ($177,597.12
20 20th 903661.94 ) 7907.041975 ) $726,064.82
($185,504.17 ($179,151.10
21 21st 726064.82 ) 6353.067135 ) $546,913.72
($185,504.17 ($180,718.67
22 22nd 546913.72 ) 4785.495015 ) $366,195.04
($185,504.17 ($182,299.96
23 23rd 366195.04 ) 3204.206639 ) $183,895.08
($185,504.17 ($183,895.08
24 24th 183895.08 ) 1609.08199 ) $0.00
The investment loan for the project is assumed to be repayable at equal monthly installment
within six years including grace period of twelve months while the working capital loan is to
be repaid within two years’ time at equal Monthly installments as of commencement of
refinery plant operation. Annual interest rates of 15% and 10.5% are assumed to be incurred
Pg-52
on the would be granted investment and working capital loans respectively. For the total
loans received the union will be charged 5,711,591.26 ETB in form of interest. The union
will pay the loan on monthly bases and the declining balance method is used to calculate the
interest of the loan to be received from Banks.
Pg-53
Table 24: Summary of Production Costs
Materials Year1 Year 2 year 3 year 4 year 5

Raw Niger seed
Requirement in quintal 76,530 76,530 76,530 76,530 76,530
Purchase price including
transportation cost 1,300 1430 1515.8 1606.748 1,703.15288
99,489,000.0 109,437,900.0 116,004,174.0 122,964,424.4 130,342,289.9
Subtotal Cost 1
0 0 0 4 1
Packing material
1,799,985.6 1,912,484.7 2,024,983.8
Edible oil produces in litters
0 0 0 2,137,482.90 2,249,982.00
1,799,985.6 1,912,484.7 2,024,983.8 2,137,482.9 2,249,982.0
Bottles Required amount in 1 lit.
0 0 0 0 0
Cost per lit. 1.25 1.38 1.51 1.66 1.83
2,249,982.0 2,629,666.4 3,062,788.0 3,556,237.1 4,117,748.3
Sub total cost 2
0 6 0 7 1
Electric cost
1,799,985.6 1,912,484.7 2,024,983.8 2,137,482.9 2,249,982.0
Edible oil produced in lit.
0 0 0 0 0
Cost per lit. 0.70 0.77 0.85 0.93 1.02
1,259,989.9 1,472,613.2 1,715,161.2 1,991,492.8 2,305,939.0
Sub total cost 3
2 2 8 2 5
Water cost 12,000 13200 14520 15972 17569.2
Cost of lubricants 50,000 55000 60500 66550 73205
Maintenance and repair cost 60,000 64800 69984 75582.72 81629.3376
3,810,240.0 4,000,752.0 4,200,789.6 4,410,829.0
Salary and benefits
3,628,800 0 0 0 8
Materials Year1 Year 2 year 3 year 4 year 5

promotion expense 29,000 27,000 25,000 23,000 20,000
Telephone cost 20,000 22000 24200 26620 29282
Business travel 150,000 165,000 181,500 199,650 219,615
Depreciation 2,089,900 2,089,900 2,089,900 2,089,900 2,089,900
Interest 1,334,461 1,334,461 1,014,223 1,014,223 1,014,223
Uniform for Employees 50,000 55000 60500 66550 73205
Transportation cost per lit. 1,349,989.20 1,434,363.53 1,518,737.85 1,603,112.18 1,687,486.50
Wastage cost per lit. 17,999.86 19,124.85 20,249.84 21,374.83 22,499.82
Grand Total 111,791,121.74 122,630,268.82 129,862,190.20 137,915,479.00 146,505,421.44
9,315,926.8 10,219,189.0 10,821,849.1 11,492,956.5 12,208,785.1
On monthly bases
1 7 8 8 2
Yearly Edible oil production in
1,799,985.60 1,912,484.70 2,024,983.80 2,137,482.90 2,249,982.00
litters
Production cost per unit 62 64 64 65 65
Pg-55
Revenue Estimation
As per plant production capacity and planned utilization level, sales plan and the foregoing
underlying assumptions, the revenues expected to be realized from the envisaged Niger seed
Extraction and refining and marketing business, are estimated considering product prices
determined as follow.
Given the predicted market and planned sales volume, the selling prices for Edible oil and
Niger cake over the planned time horizon is determined based on the prevailing average
local selling price plus margin for expected annual price rise as per the average annual
percentage change in local prices of Niger seed edible Oil during the preceding years’ period.
Similar consideration is also made to fix the price of Niger cake used for local animal feed
market. Accordingly, the expected revenues for Niger seed Edible oil and Niger cake
planned to be produced and sold over the envisaged project time horizon is determined here
below:
Table 25: Estimated Revenues of the project within five years’ period
Production Volume (In litters) Year 1 Year 2 Year 3 Year 4 Year 5
Niger seed edible oil production in litters 1,799,986 1,912,485 2,024,984 2,137,483 2,249,982
Unit sales price 63 64 64 65 66
Sub total revenue from Edible oil 113,399,093 122,399,021 129,598,963 138,936,389 148,498,812
Niger cake production volume in quintal 30,000 31,875 33,750 35,625 37,500
unit sales price of Niger cake 400 408 441 476 514
Total revenue from Niger cake 11,999,904 13,004,896 14,871,481 16,953,488 19,273,439
sales from other by products 6,750 6,750 6,750 6,750 6,750
Grand Total sales 125,405,747 135,410,667 144,477,194 155,896,627 167,779,001
Table 26: Projected Income statement

Niger seed edible oil production
1,799,986 1,912,485 2,024,984 2,137,483 2,249,982
in litters
Unit sales price 63 64 64 65 66
Sub total revenue from Edible
113,399,093 122,399,021 129,598,963 138,936,389 148,498,812
oil
Niger cake production volume in
30,000 31,875 33,750 35,625 37,500
quintal
unit sales price of Niger cake 400 408 441 476 514
Total revenue from Niger cake 11,999,904 13,004,896 14,871,481 16,953,488 19,273,439
sales from other by products 6,750 6,750 6,750 6,750 6,750
Grand Total sales 125,405,747 135,410,667 144,477,194 155,896,627 167,779,001
Cost Of production

Niger seed purchase cost 99,489,000.0 109,437,900.0 116,004,174.0 122,964,42 130,342
(including transportation) 0 0 0 4.44 ,289.91
2,249,982.0 2,629,666.4 3,062,788.0
Packing Material cost
0 6 0 3,556,237.17 4,117,748.31
Electric Cost 1,259,989.92 1,472,613.22 1,715,161.28 1,991,492.82 2,305,939.05
Water cost 12,000 13,200 14,520 15,972 17,569
Cost of lubricants 50,000 55,000 60,500 66,550 73,205
Maintenance and repair cost 60,000 64,800 69,984 75,583 81,629
Salary and benefits 3,628,800 3,810,240 4,000,752 4,200,790 4,410,829
promotion expense 29,000 27,000 25,000 23,000 20,000
Telephone cost 20,000 22,000 24,200 26,620 29,282
Business travel 150,000 165,000 181,500 199,650 219,615
Depreciation 2,089,900 2,089,900 2,089,900 2,089,900 2,089,900
Interest 1,334,461 1,334,461 1,014,223 1,014,223 1,014,223
Uniform for Employees 50,000 55,000 60,500 66,550 73,205
Transportation cost per lit. 1,349,989 1,434,364 1,518,738 1,603,112 1,687,487
Wastage cost per lit. 18,000 19,125 20,250 21,375 22,500
Grand Total 111,791,122 122,630,269 129,862,190 137,915,479 146,505,421
Gross Income 13,614,625 12,780,398 14,615,004 17,981,148 21,273,580
On monthly bases 9,315,927 10,219,189 10,821,849 11,492,957 12,208,785
Yearly Edible oil production in
litters 1,799,986 1,912,485 2,024,984 2,137,483 2,249,982
Production cost per unit 62 64 64 65 65
Pg-58
Cash Flow Forecast
The projected cash flow statement indicates that, at the end of initial year of operation, the
annual net cumulative cash flow balance would be Birr 9,551,425 and it is expected to
reach Birr 21,879,899.48 at the end of year 5 or Birr 71.85 million in present value terms.
The net cash flow is also positive throughout the project life. Therefore, it can be concluded
that the project will not face any cash shortage throughout its projection horizon and hence it
would be able to service its project loan and other debts properly.
Table 27: Five year Cash flow forecast
Description Pre-start year 1 year 2 year 3 year 4 year 5
1.Cash flow
6,127,000.0
Union contribution 0
14,316,000.
Loan inflow 00
12,780,397.
Net income 0.00 13,614,625.00 88 14,615,003.97 17,981,147.82 21,273,579.91
20,443,000. 12,780,397.
Total cash inflow 00 13,614,625.00 88 14,615,003.97 17,981,147.82 21,273,579.91
2. Cash out flow
11,936,000.
Fixed investment 00
Pre-production expense 507,000.00
8,000,000.0
Initial working capital 0
4,063,200 4,063,200 2,063,200 2,063,200 2,063,20
Principal payment 0.00 .00 .00 .00 .00 0.00
20,443,000. 4,063,200.0
Total cash out flow 00 4,063,200.00 0 2,063,200.00 2,063,200.00 2,063,200.00
Cash flow 8,717,197.8
surplus(Deficit) 0.00 9,551,425.00 8 12,551,803.97 15,917,947.82 19,210,379.91
4,660,989.5
Opening cash Balance 0.00 2 2,722,527.06 2,836,024.93 2,669,519.57
Cumulative cash 13,378,187.
Balance 9,551,425.00 40 15,274,331.03 18,753,972.75 21,879,899.48
Table 28: Projected Cash Flow for Discounting
Net present value of Niger seed Edible oil extraction and refinery plant
22
Yearly Cash flows Present value Discounting rate %
0 -20,443,000.00 (20,443,000.00)
1 9,551,425.00 7,829,036.89
2 8,717,197.88 5,856,757.51
3 12,551,803.97 6,912,364.90
4 15,917,947.82 7,185,347.13
5 19,210,379.91 7,107,826.21
NPV 14,448,332.63
IRR 47.6803487%
7.6. Viability of Niger seed Edible oil refinery project

To evaluate the project the consultant preferred to use the discounted cash flow techniques.
The Discounted cash flow analysis includes Net present value (NPV), internal rate of return
(IRR), discounted payback period and profitability index and the non- discounted cash flow
analysis includes payback period (PP) and accounting rate of return not used for analysis of
this project. For evaluation of this project viability the consulting firm is interested to use the
discounted cash flow analysis. The NPV technique discounts all future project cash flows to
the present day to see whether there is a net profit or loss to the firm from investing in the
project. If the NPV is positive, then the project will increase the wealth of the Haragu
Farmers’ cooperative Union .If NPV is zero, then the project will return only the required
rate of return and will not increase the wealth of the union. If the NPV is negative then the
project will decrease the value of the firm and should be avoided.
The NPV of the project is calculated by subtracting the present values of cash outflows from
the present value of cash inflows. The difference between cash inflows and outflows is net
cash flow. Therefore, alternatively expressed, the NPV is calculated by discounting the
projects net cash flows at required rate of return (22%). This rate often called the discount
rate, opportunity cost rate, or cost of capital-refers to the minimum return that must be earned
on a project in order to leave the firm’s market value unchanged.
We have made several assumptions in formulating in using this NPV model:

 The amounts of the initial cash outflow and all future cash flows are estimated
 The Required rate of return is constant and 22% for this project assuming the risk free
rate, opportunity cost of investing in other projects, the loan repayment rate of the
union and inflation cost.
 The Initial capital outlay occurs at the beginning year 1 of the project
 All operating cash flows occur at year end
 Cash out flows from the firm are treated as negative ,cash inflows treated as positive
 There is no constraints on the supply of capital or on other resources
 The union will accept positive NPV projects
The NPV model is the decision technique which links the goal of the firm to the calculated
output. The calculated NPV is the actual Birr amount by which the firm’s current wealth
will increase if the project is undertaken. Its calculation accounts for the time value of money
at the required rate of return and uses this as data input, rather than as a decision output.
Net Present Value (NPR) and IRR
The discount cash flow statement shows that the project will accrue a Net Present Value of
Birr 14,448,332.63 at the end of the 5th year and its Internal Rate of Return calculated to be
47.68% where the decision criteria are invest whenever the NPV is above zero and the IRR is
above the base rate which 22%. The resulting IRR of 47.68 % justifies the financial viability
of the project.
In general, the financial results indicate that the project under study is financially viable.
Therefore, this result will encourage the union and its member coops to invest and same will
also assurance financing institutions for timely loan servicing if they opt to accommodate the
required project financing. By investing 20,443,000 ETB today the union will get return
promise of a cash flow in the future that worth 34,831,332.63 today .This Edible oil refinery
Pg-62
project will increase the wealth of Haragu Farmers ‘ cooperative union by 14,448,332.63 as
the result of the decision made for the investment.
Internal Rate of Return
The IRR is the rate of discount which returns NPV zero. The IRR can thus be defined as the
highest rate at which the highest cash flows can be discounted making the project’s NPV
equal to zero. Since IRR is rate of return, the decision rule for the project acceptance is:
accept the project if it’s IRR is higher than the required rate of return.
The internal rate of return (IRR) on a project is the rate of return at which the projects NPV
equals zero. At this point, a project's cash flows are equal to the project's costs. Similar to
how management must establish a maximum payback period, management must also set
what is known as a "hurdle rate", the minimum rate of return a company will accept for a
project.
When a project is reviewed with a hurdle rate in mind, the greater the IRR is above the
hurdle rate, the greater the NPV, and conversely, the further the IRR is below the hurdle rate,
the lower the NPV.
For a project to be accepted, the IRR must be greater than or equal to the hurdle rate. If a
company is deciding between two projects, the project with the highest IRR is the project to
be accepted.
Discounted Pay-Back Period

The discounted payback period formula is used to calculate the length of time to recoup an
investment based on the investment's discounted cash flows. By discounting each individual
cash flow, the discounted payback period formula takes into consideration the time value of
money. The discounted payback period formula is used in capital budgeting to compare a
project or projects against the cost of the investment. The simple payback period formula can
be used as a quick measurement; however discounting each cash flow can provide a more
accurate picture of the investment.
Pg-63
Year Cash flow Discounted Cash Cumulative balance discounted cash

flow flow
1 9,551,425 7,829,037 7,829,037
2 8,717,198 5,856,758 13,685,794
3 12,551,804 6,912,365 20,598,159
4 15,917,948 7,185,347 27,783,506
5 19,210,380 7,107,826 34,891,333
According to the feasibility study Niger seed extraction and refinery project will pay Back
the initial investment cost almost at the end of 3rd year.
Profitability Index
Profitability index is an investment appraisal technique calculated by dividing the present

value of future cash flows of a project by the initial investment required for the project.
Formula:
Profitability Index
Present Value of Future Cash Flows
=
Initial Investment Required
Profitability index is actually a modification of the net present value method. While present
value is an absolute measure (i.e. it gives as the total dollar figure for a project), the
profitability index is a relative measure (i.e. it gives as the figure as a ratio).
Decision Rule
Accept a project if the profitability index is greater than 1, stay indifferent if the profitability
index is zero and don't accept a project if the profitability index is below 1.
Profitability index is sometimes called benefit-cost ratio too and is useful in capital rationing
since it helps in ranking projects based on its return.
Profitability Index
Pg-64
Profitability equals Sum of present divided by Total

Index cash flows Investment
PI = 34,891,333 divided by 20,443,000 1.7067619
1.70676185
Profitability Index 6
So in our study, the PI =1.70 for every Birr borrowed and invested we get back 1.7 ETB and
this profit is above and beyond our cost of capital.
Sensitivity Analysis
Sensitivity analysis enables managers to assess how responsive the NPV is to changes in the
variable which are used to calculate it. The next Figure illustrates that the NPV calculation is
dependent on several independent variables, all of which are uncertain. The approach
requires that the NPV is calculated under alternative assumptions to determine how sensitive
the business is to changing conditions.
The application of sensitivity analysis can indicate these variables may change before the
investment results in a negative NPV .In other words sensitivity analysis indicate why a
project might fail .Management should review any critical variables to assess whether or not
there is a strong possibility of events occurring which will lead to negative
NPV .Management should also pay particular attention to controlling those variables to
which NPV is particularly sensitive ,once the decision has been taken to accept the
investment .
Sensitivity of NPV to Changes in the Independent Variables
Pg-65
Selling
Price
Estimated
Variable
Selling
Costs
Voulme
NPV
Estimated
Intial
Life of the
Outlay
Project
Cost of
Capital
Sensitivity Analysis is illustrated based on the cash flow presented below:

Description Year 0 Year 1 Year 2 Year 3 Year 4 Year 5
1.Cash flow
Union 6,127,
contribution 000.0
14,316,
Loan inflow 000.0
13,614,6 12,780, 14,615,0 17,98 21,273
Net income - 25.0 397.9 04.0 1,147.8 ,579.9
Total cash 20,443,00 13,614,62 12,780,39 14,615,00 17,981,1 21,273,5
inflow 0.0 5.0 7.9 4.0 47.8 79.9
2. Cash out flow
Fixed investment 11,936,00
Pre-production 507,
expense 000.0
Initial working 8,000,
capital 000.0
Principal 4,063, 4,063, 2,063,2 2,06 2,063
payment - 200.0 200.0 00.0 3,200.0 ,200.0
Total cash out 20,443, 4,063, 4,063, 2,063,2 2,06 2,063
flow 000.0 200.0 200.0 00.0 3,200.0 ,200.0
Cash flow 9,551, 8,717, 12,551,8 15,91 19,210
surplus(Deficit) - 425.0 197.9 04.0 7,947.8 ,379.9
Pg-66
Description Year 0 Year 1 Year 2 Year 3 Year 4 Year 5

Opening cash 4,660, 2,722,5 2,83 2,669
Balance - 989.5 27.1 6,024.9 ,519.6
Cumulative 9,551, 13,378, 15,274,3 18,75 21,879
cash Balance 425.0 187.4 31.0 3,972.8 ,899.5
The cost of capital is 22%and the net present value is 14,448,332.63 ETB.
Some of the variables referred in the cash flow to which sensitivity analysis can be applied
are as follows:
Sales volume: The net cash flow will have to fail to 7,138,916.049 (20,443,000/2.8636
discount factor ) for the NPV to be zero, because it will be zero when the present value of the
future cash flows is equal to the investment cost of 20,443,000. As the cash flows are equal
each year, the cumulative discount factor attached as annex can be used. The discount factor
for 22% and year 5 is 2.8636. If the discount factor is divided into the required present value
of 20,443,000, we get an annual cash flow of 7,138,916.049. Given that the most likely net
cash flows are 13,189,750.92 the net cash flow may decline by 6,050,834.87 each year
before the NPV become zero. The total sales revenue may therefore decline by
30,254,174.34 assuming that net cash flow is 20% of sales. At the average selling price of
64.4 per unit. This will represent 30,253,994/64.40 which is equal to 469,782lit of edible
oil .Alternatively we may state that the sales volume may decline 469,782/2024, 983 equal to
0.2329 or 23.19%on annual bases within five years before the NPV become Negative.
Selling Price
When sales volume is 2,024,984 per annum total annual sales revenue can fall approximately
124,356,847(2,024,964*64.40=130,407,681.60 minus 6,050,834), before the NPV becomes
negative (Note that it is assumed that total variable costs and units sold will remain
unchanged).This represent selling price unit 61.41=6,050/2,024,984 or reduction of 2.99 per
unit which is 4.6% reduction in the selling price.
Variable Cost
Pg-67
The total annual variable cost increase by 6,050,834 or 2.99 per unit before NPV becomes
zero
Initial Out Lay
The initial outlay can rise by the NPV before the investment breaks even. The initial outlay
may therefore increase by 14,448,332/20,443,000=0.71 or 71%
Cost of Capital
We calculate the internal rate of return for the project, which is 22% consequently the cost of
capital increase by 47%before the NPV becomes negative.
Sensitivity analysis takes various forms. In our case for the selected variable we focused on
the extent to which each could change for NPV to become zero. Another form of sensitivity
analysis is to examine, the impact of NPV of a specified percentage fall by 10%.
Pg-68

Niger Seed Oil Production

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Niger Seed Oil Production

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August

Tables and Figures

Some unit conversion factors:

The present demand for the proposed product is estimated at 4,859.47(5,282,028

Critical Factors and Steps for Decision Making on the Investment:

Organizational Back Ground and Project Profile;

Ownership of the Union;

2.1The Project Beneficiaries

2.2 Project Capacity and Rational of the Investment

 Establish a customer base through emphasis on customer service and relationship

3. PRODUCT DESCRIPTION AND ITS’ USE

3.1 Over View of World Oilseed and Edible Oil

3.2 Overview of Oilseeds and Edible oil of Ethiopia

Table 2 Physical Characteristics of Oil

Table 3 Fatty acid composition of Niger seed oil

3.3 Edible oil Value chain

The macroeconomic landscape, policies, laws, regulations, standards and institutional

Figure 2 Current Niger seed Value chain

Figure 2: Improved Niger seed value chain

 Whole sale &

4. MARKET STUDY AND PLANT CAPACITY

4.1. Market Study

Table 4 the Supply of Edible Oil (in Tonnes)

4.1.2 Projected Edible Oil Demand

Table 5. Projected Demand for Niger Seed Oil (Tonnes)

Supply and Demand of Edible Oil Analysis

Months Supplied In litters

Table 7: Distribution Prices at sample districts

4.1.4 Proposed area of product distribution

4.1.6 Raw Material And product pricing

4.1.7 Niger seed Production trend of H/G/Wollega Zone

Administrative Map of Horo Guduru wollega Zone

AliboJARTE JARDGA Legend

Lake Fincha'a Kombolcha Lakes

East Wellega Zone

Table 10: Niger seed unit purchase price of the union

4.1.9 Pricing and Distribution

 The cost of raw materials (the Niger seed)

 Positioning of the product i.e. accessibility to potential markets

 Cost of competitive products(imported palm oil)

 Cost of refining the product (operational Costs)

4.2. Market Prospects of The proposed Product

4.2.2. Market Size and Potential

4.3. Competitors Analysis

4.4. Competitive Advantage

4.5. Marketing Strategies (4Ps)

effective marketing strategy, which incorporates high product quality, differentiation,

Products, Volumes, Packaging and Qualities

5. MANPOWER & TRAINING REQUIREMENT

Table 12: Manpower Requirement

6 Accountant 1 1,200 3 43,200 3

6. TECHNOLOGY & ENGINEERING

6.1. Construction and civil works

Table 14 Project’s Implementation Schedule

6.2. Source of Technology

OPTION-1: CHAIN BASED SOURCES AND ITS DETAIL COMPONENTS (company

Henan Huatai Cereals and Oil Machinery Co.,Ltd

Mobile: 0086-15136215937, Tel: 0086-371-56708752

Figure 3: List of Machinery & Equipment for Pre-Processing Treatment

Figure 4 List of Machinery & Equipment Refinery

SN Equipment Name Qty(set) Single Total Remark

Engineering design scope:

1). Craft flow chart;