Final Niger Seed Edible Oil Semi Refinery Plant B.P.W

Olika Urgessa Business& Investment Consultancy Service, 0911002870; Email: Olikaurgessa @gmail.
Com
NIGER SEED EDIBLE OIL SEMI REFINERY PLANT

BUSINESS PLAN
HARAGU FARMERS COOPERATIVE UNION
Pg-0
HARAGU FARMERS COOPERATIVE UNION NIGER SEED EDIBLE OIL SEMI REFINERY PLANT BUSINESS PLAN [2016 ]
1. EXECUTIVE SUMMARY
Niger seed edible oil semi refinery business plan is prepared to introduce the subject matter and
provide the general idea and information on the proposed project. All the materials included in
this document are based on data/information gathered from various sources and certain
assumptions. The Purpose of Business plan development is primarily to assist the union in project
identification for further investment with the aim to establish and run modern and high level
Niger seed edible oil semi refinery plant that would be competitive in the domestic market and
capable of satisfying customer needs and priorities by producing quality edible oil and Niger seed
cake as byproduct. The business plan covers various aspects of the project startup costs,
production, marketing, finance and organizational structure of the union to manage the semi
refinery project. The study also shows the viability of edible oil and Niger seed cake producing
and marketing business proposed by Haragu Farmers’ cooperative union on the one hand and
present bankable document to Commercial Bank of Ethiopia and cooperative bank of Oromia to
finance the investment. The document was finalized based up on comments given by CBE and
CBO validation workshop participants and other experts from cooperative promotion office, trade
and market development office, Investment offices and experts of the union and board members.
Haragu Farmers’ cooperative union highly need the support of development partners in making
its dream practical by establishing Niger seed semi refinery plant and involved edible oil
MAY, 2016
] Prepared by Olika Urgessa Business and Investment Consultancy service
1
HARAGU FARMERS COOPERATIVE UNION NIGER SEED EDIBLE OIL SEMI REFINERY PLANT BUSINESS PLAN
production industry where the financial institutions are expected to finance the investment
financed considering how the investment maximize the wealth of small holder farmers (owners,
users and Controllers of the organization ) by adding value to members produces.
To establish Niger seed semi refinery plant the union need Investment cost of 26,395,512 Birr in
which the majority of this fund can be obtained from commercial Bank of Ethiopia and
Cooperative Bank of Oromia since the union has strong relationship with the financial institution
and developed good history of loan repayment practices. Starting from 2004 E.C the union has
received more than thirty million Birr for output marketing and other investments from CBO and
CBE repaid on time and recognized by the banks for its commitment. The Bank representatives
were expressed their interest of financing the investment during validation workshop after the
draft business plan was presented to workshop participants to evaluate the document. The
Financial institutions are expected to finance 69 % of the investment 18,095,512 ETB and the
union contribute 31% of the investment 8,300,000 ETB from its own equity. By investing
26,395,512 ETB the union will maximize the wealth of the organization by 6,014,570 ETB and
create job opportunity to 59 staffs and expected to benefit 62,500 households at the end of year
five.
The consultant has recognized the comments given by workshop participants and Willem & Habtamu
Mekonnen (Business Development specialists) who gave me valuable comment on reshaping the
business to fit with banks requirement and easily understood by the users of the Business plan and
encourage you to read the detail of the business plan and support the achievement of the union
objective.
2
Contents
1. EXECUTIVE SUMMARY 1
1. INTRODUCTION 1
1.1. Back ground of the Union.............................................................................................................1
1.2. VISION, MISSION AND OBJECTIVES OF THE UNION.......................................................................3
The specific objectives of the Union.........................................................................................................3
1.3. Ownership and governance of the FCU.........................................................................................4
1.4. General purpose of the business plan.........................................................................................5
The importance of the business plan to Niger seed edible oil semi refinery project.................................5
1.5. Oil Seeds Sector in Ethiopia...........................................................................................................7
1.6. Overview of H/Guduru Wollega Zone Niger Crop.......................................................................10
1.7. Food processing sector in Ethiopia..............................................................................................11
1.8. Edible oil industry........................................................................................................................13
1.8.1. Import trend of palm oil 13

1.8.2. Palm Oil Distribution status in Horo Guduru Wollega zone 15
2. DEMAND ANALYSIS 16
2.1. Demand at national level............................................................................................................16
2.2. Edible oil demand in Horo Guduru Wollega zone.......................................................................17
2.3. Type of product produced...........................................................................................................17
3. SWOT Analysis 18
3.1. Strengths.....................................................................................................................................18
3.2. Weaknesses................................................................................................................................19
3.3. Opportunities..............................................................................................................................19
3.4. Threats........................................................................................................................................20
3.5. Actions in line with the SWOT analysis result.............................................................................20
4. PEST ANALYSIS 22
4.1. Political environment..................................................................................................................22
4.2. Economic environment...............................................................................................................22
4.3. Social environment.....................................................................................................................23
3
4.4. Infrastructure and technological environment...........................................................................23
5. Market Structure and Analysis 24

5.1. General Overview of Niger seed production and Edible oil Marketing.....................................24
5.2. Target Market and Customer Base..............................................................................................24
5.3. Market Size and Potential...........................................................................................................25
5.4. Competitors Analysis...................................................................................................................25
5.5. Marketing Strategies (4Ps)..........................................................................................................26
5.6. Products, Volumes, Packaging and Qualities...............................................................................26
5.7. Promotion Strategies..................................................................................................................27
6. TECHNICAL STUDY31
6.1. Production capacity and Utilization............................................................................................31
6.2. Input sourcing and procurement................................................................................................32
6.3. Manpower Recruitment..............................................................................................................33
6.4. Implementation Schedule...........................................................................................................33
7. Organization and Personnel 34

7.1. Organizational Structure.............................................................................................................34
7.2. Management and personnel.......................................................................................................34
8. TECHNOLOGY & ENGINEERING 35

8.1. Construction and civil works............................................................................................................35
8.2. Production Machineries & Equipment.............................................................................................36
8.3. Source of Technology.......................................................................................................................37
9. FINANCIAL ANALYSIS 37
9.1. Investment Outlay and Financing Scheme 37

9.2. Initial investment cost of the project 38
9.3. . Working Capital Requirement 39
9.4. Investment on office Equipment & Furniture 39
9.5. Pre-Operating Expenses..............................................................................................................39
9.6. Depreciation Expenses................................................................................................................40
4
9.7. Promotion Expense.....................................................................................................................40

9.8. Interest Expense.........................................................................................................................41
9.9. Working capital loan repayment schedule of the project...........................................................42
9.10. Summary of Loan repayment schedule...................................................................................42
9.11. Production Costs forecast.......................................................................................................44
9.12. Revenue Estimation................................................................................................................46
9.13. Cash Flow Forecast..................................................................................................................46
9.14. Projected Cash Flow for Discounting.......................................................................................48
9.15. Viability of Niger seed Edible oil semi-refinery project...........................................................48
9.16. Break Even Analysis.................................................................................................................50
5
1. INTRODUCTION
1.1. Back ground of the Union

Haragu Farmers’ Cooperative Union is located in Kombolcha town Horo Guduru Wollega zone of Oromia
regional state 66 km from zonal town Shambu and 275 kilometers to west from Addis Ababa city. The union
was established on June 2001 and legally registered on June 26, 2001. Initially the union was founded in
Guduru by ten multipurpose primary cooperatives mainly engaged on grain marketing and input distribution
with 6784 male and 412 Female members and to date increased to 57 multipurpose primary cooperatives of
which have total membership of 38,564 in which 9022 of them were female members.
HARAGU farmers’ cooperative was found with initial capital of 120,000 capital and currently the capital of
the union is grown to 3,950,855.80 ETB as per the audit report of the union dated January 2013.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 living standard of members by creating better market opportunity
for farmers produces and supplying agricultural input and better technology the can increase production and
productivity.
Haragu Farmers’ cooperative union, as economic enterprise and as self-help organizations, play significant role
in uplifting socio-economic conditions of their members and their local communities. The Government of
Ethiopia has identified the cooperative form of business organizations as instrumental to socio-economic
development and has paved the way for better cooperative development in the country by creating the legal
basis and expansion of human resource development at higher institution levels.
Cooperatives have played a considerable role in improving smallholders’ access to inputs, services, information
markets and access to new technology (farm machineries). For farmers to individually use modern large scale
inputs require organizing in cooperative society .Therefore, Haragu farmers Union, is there to solve members
problems in facilitating better price for members produce by negotiating with potential buyers as practiced in
the pat history of the union and currently planning to establish Niger seed oil Semi refinery plant that can
process quality edible oil from Niger seed locally produced by the members and community in the operational
area of the union. Because of the conducive investment policy our country designed, the practical cooperative
business model exercised with successful achievements & the potential of the customers in the area make the
business plan prepared sound full in the eyes of financial service providers.
The document is prepared to show the profitability of Niger seed Edible oil production and marketing in
operational area of the union and submit loan application to commercial bank of Ethiopia and cooperative
bank of Oromia who have shown interest for the Business plan content presented on validation work shop
conducted in Kombolcha town. Appreciating loan repayment history of Haragu Farmers’ cooperative union
1
encouraged the union to apply for financial need the investment requires with valuable comment on increasing
the number of loan repayment from five to seven and the frequency of loan repayment will be semi- annual
bases. The consultant accepted the recommendations given by the bank experts and presented the documents to
the union to be used for loan application for the investment planned.
The demand for edible oil is consistently moving up due to consistent increase consumption which in turn
caused by the increased population as well as increased in disposable income in developing countries. An
Increasing interest in and attention to the oil seeds value chain by the Ethiopian Government offers an
opportunity for the sector to grow. Edible oil and oil seeds value chain has a major role in the Ethiopian
Economy with links to Agriculture, agro industry, trade (import and export) and is inter linked to service
economy. In terms of Edible oil Ethiopia is highly dependent on foreign sources either from aid or import. Palm
oil dominated the import of markets (winands, etl al, 2007). Edible oil supply from Ethiopian factories is less
than 20% of the total consumption of the country. The import quantity of palm oil increases from time to time.
In 2005 the amount consumed 20,846 MT. It increases and the amount imported reached 350,000 MT in 2015.
The total Annual expenditure and value of edible oil consumption is estimated to be 11 Billion Birr and 394
million Kg respectively. The industry has shown steady growth of 17% over the period of 2008 to 2012. Three
fourth of the current edible oil demand is satisfied by imported oil and growth trend in imports 21% compared
to 10% for domestic Edible oil. Despite the steady growth the current per capita consumption (4.2 kg)/year
remains far than the global average 23.5kg per year. The lower per capita oil consumption added to the rapid
economic growth and population increase (9.7% and 2.3% per year respectively), shows that the industry has
favorable outlook for the demand growth. Currently palm oil, Niger seed, cotton, groundnut, and linseed oils
are the most consumable oils with estimated respective share of 70%, 16%, 14%, and 9%. Palm, soya bean, and
sun flower oils are the major imported oils.
In the process of supplying Edible oil to consumers the Government has become the direct player in the edible
oil market since 2010. It controls the entire supply chain for the palm oil (from import to end consumer). Palm
oil accounts for more than 60% of the national market. The major potential buyers of palm oil are low income
consumers both in urban and rural area. The price of palm oil is kept minimal partly because of bulk in nature
of the production and partly due to the control mechanism. The distribution of palm oil to consumers have
major role in stabilizing the prices of edible oil. The supply of palm oil is characterized by high degree of
irregularity and inconsistency which creates increase of edible oil prices.
The other actors in the edible oil value chain are processors that produce refined and packed edible oil extracted
from Niger seed and other locally available oil seeds. The primary target of these processors are middle income
consumers’ usually urban buyers who have health and hygiene conscious and want to avoid palm oil and crude
oil but not able to afford buying expensive and imported edible oils. The processors have market share of 15%
2
in Ethiopia. To realize its objective of setting up Niger seed semi refinery plant Haragu farmers’ cooperative
union will produce Niger seed semi refined edible oil where both the urban and rural community will be
accessed the product at affordable price in the center of the farmers producing Niger seed, the principal raw
material for the envisaged plant. Edible oil supply from Ethiopian factories is less than 20% of the total
consumption of the country. Haragu Farmers’ cooperative union is planning to invest on Niger seed Semi
refinery plant having daily processing capacity of 250 Quintal and annual production of more than two million
liters of Niger seed Edible oil and more than forty seven thousand Quintals of Niger seed cake.
To establish the processing plant the union needs to invest 26,395,512 ETB for initial investment and increase
the wealth of the organization by 6,360,564.77 Birr.
1.2. VISION, MISSION AND OBJECTIVES OF THE UNION

Vision: Its vision is to see enhanced economic capacity of members through supplying agricultural inputs,
technologies and basic consumer goods, facilitating market access for their produce and value addition of
products targeting high end local and export markets.
Mission: Its mission is to supply farmers in the area with improved agricultural inputs and technologies at a
better price with aim to increase production and productivity, disseminating market information to farmers to
ensure fair and better prices for their products, facilitating linkage between the farming community and the
market, and engaging in social-economic development activities for the benefit of the farming community.
Objectives of the Union:
As clearly set on the articles of cooperative proclamation No-147/98 & on the by-laws of this specific
organization, the main objective is to meet member economic & social needs &wants in general. The primary
objectives of Haragu Farmers’ cooperative union are:-
 Strengthening the bargaining power of primary cooperatives
 Introducing new technology to farmers
 To invest on Agro processing industry
 To benefit from economies of scale
 To provide cooperative education and training
 To provide other services to members
The specific objectives of the Union
 To increase members' income through facilitating access to market that fetch better prices.
 To work in ensuring quality based marketing system for members.
 To supply agricultural inputs and basic consumer goods for members at fair prices and good quality.
 To engage in value addition activities such as processing of Niger seed edible oil with the aim to increase
members' income.
3
 To facilitate capacity building education and training for members and primary cooperatives with respect to
maintaining quality in production, marketing and business management.
 To provide tractor and Sheller service to Members in the operational area of the union
1.3. Ownership and governance of the FCU

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. Haragu Farmers’ cooperative union management has 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 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.
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
representative 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 5000 ETB .The number of
4
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 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.
1.4. General purpose of the business plan

The Business plan is prepared to explain how the union will achieve its planned activity of Niger seed Edible
oil production and marketing business and its objectives in coherent, consistent and cohesive manner. The
business plan prepared identified the market, its growth prospectus, the target customers and the main
competitors. It is prepared on credible set of assumptions and identify the assumption to which the success of
Niger seed Edible oil production and marketing business is more sensitive. It also clearly stated the risks
associated with the business and the possible actions to be taken to mitigate the risks .As Blue print for the
Niger seed oil production and marketing business the document describes what makes the business different
from its competitors :the union source of competitive advantage and how it will achieve success in the process.
The business plan also describe the experience and the truck record of the management team in their past
performance and clearly show the financial demand of the union to establish Semi refinery plant and produce
demanded edible oil with better quality and free of Adulteration.
The importance of the business plan to Niger seed edible oil semi refinery project
This business plan is conducted to assess the viability of a Niger seed oil Semi refinery plant business proposed
by Haragu Farmers’ Cooperative Union on the one hand and present bankable document to financial institution
and concerned governmental and non-governmental entities for financing or endorsement of the envisaged
project on the other. In other words, the plan among others attempts to identify and address concerns that matter
to the promoters of the project, potential lenders, project collaborators and other interested stakeholders.
Specifically, the plan tries to indicate the planned strategies with respective implementation schedule for
acquisition/establishment of project land and other physical resources, licensing, financing and commercial
operations. In addition the Business plan also goes on spotting the key people to work with partners, also ways
5
of establishing business relationship with members of the union the owner of the Business, customers, suppliers
or distributers and creation of an operational template for the successful management of the proposed business.
Up to now, Haragu has been engaged in trading of raw Niger seed purchased from its member farmers apart
from other products and services it offers.
Market forces can have greater opportunities for adding value to farm commodities like Niger seed because of
increased consumer demands regarding health, nutrition, and convenience as well as technological advances
that enable producers and processors to produce what consumers desire instead of delivering raw farm
commodities to conventional markets. Thus, an organization owned by quality and highly demanded raw Niger
seed producers’ members base like Haragu, will have a comparative advantage by investing one Niger seed
Semi Refinery plant adding value to their products by moving up the food chain closer to the final user.
It is well understood that value-added product development provides better prospects to stimulate economic
growth in the rural sector by enhancing farm productivity and income by providing job opportunity in the
planned edible oil production and marketing businesses and with other value chains working with the project. In
line with this, the union interested in exploiting this opportunity by engaging in the processing industry which
involve modern production technology, hygiene environment, standardized processed product and professional
staff that would create a difference.
The specific objectives of the project are:

 To construct and operate a successful Niger seed oil semi Refinery plant in Horo Guduru Wollega zone,
Kombolcha Town.
 To produce and market high quality Niger seed Edible oil that is superior to similar products and
competitively priced.
 To incentivize local farmers in the project area especially members to grow Niger seed by creating contract
farming agreement and economically value adding benefits for these farmers involved in Niger seed
production.
 To produce and market Niger seed cake which is by-products obtained in processing period mostly used
as supplement to animal livestock feed and used as one of the major inputs to produce concentrate feed for
dairy cows and Beef animals for which the demand is highly increasing.
Furthermore, this value adding venture is initiated to accomplish the following long-term goals:
 Provide a reputable product that will successfully compete in the Niger seed edible oil industry and
satisfy customer needs and expectations by providing quality product free of adulteration.
 Generate profit for a value added Niger seed product i.e. Niger seed edible oil and Niger seed cake (by
product) versus relatively lower profit than selling raw Niger seed basically during harvesting time.
6
 Increase net income of the Haragu Farmers’ cooperative union by fulfilling the target production and
sales volume over the planned project time frame and provide a long term return on investment.
 Effectively work on better work relationship building that will provide the opportunity to secure
sustainably viable demand for Niger seed Edible oil and the byproducts to be produced.
1.5. Oil Seeds Sector in Ethiopia

The oil seed sector shows strong growth in Ethiopia as domestic and world market demands are expected to
continue increase. The sector contributes to the overall growth and development of the country. It supports the
lively hoods of small holder farmers and business involved in trade transporting, oil refineries as source of
employment and Income generation (UNIDO, 2009).
Oil seeds are the third most important commodity in terms of production and export in Ethiopia. According to
the data of (2009/10 to 2014/5) Central Statistical Agency of Ethiopia (CSA), on average oil crops are
cultivated on about 0.75 million hectares, with average production of 6,371,432.05 quintals per year. Out of
these, Niger seed crop shares 34% of land and 27.7% oil crop production in the country.
Niger crop in Ethiopia is widely grown by smallholder farmers on fragmented land holdings. It is the leading
oil crop in production and area coverage in the oil seeds category. Niger Crop is cultivated mainly for the
production of edible oil and direct consumption fried and mixed with sunflower seed. The pressed cake from oil
extraction is used for livestock feed especially in and around cities and large fattening and dairy farms.
Over four years (2011/12 to 2014/15) data of the Central Statistical Agency of Ethiopia Regional base analysis
showed that Oromia Regional National State is the largest producing (62.7%) followed by Amhara National
Regional state(32.3%). Likewise, in terms of land cover, Oromia stands first followed by Amhara. In contrary,
similar source indicated that, high yield per hectare is recorded for Tigray Regional National state standing on
average at 12-quintal per hectare and seven quintals for Oromia. These variations might be due to use of inputs
(chemical fertilizers) and to some extent agro ecological suitability. Geographically, North western part and to
some extent central west Shoa are the country’s major potential areas for Niger crop production.
Niger crop stands first and accounts for 36% of all oil crop production and 11% export share next to sesame
which accounts for 79% of oil seed export (MoT, 2013) of Ethiopia.
7
Percent Area, Production and Yield of Niger seed for Private Peasant Holdings (2004-2007EC)
Niger Crop Production Oromia
In the region, Niger crop is produced mainly in nine zones (Horo Guduru Wollega, E/Wollega, W/Wollega,
W/Showa, Jimma, I/A/Bora, N/Showa, S/W/Showa and Kellem Wollega, in order of high potential to low
potential production. Taking five years (2003-2007EC) CSA data, on average, Oromia grows Niger seed on
18,912ha and produces 121,550 quintals per year. Among them, Horo Guduru Wollega Zone is the highest
potential Niger crop producer with 31.6% share of the regional total production while Kellem Wollega zone is
the least producer (0.1%). The proportion of land and production is moving side by side regardless of other
climate related events that can hamper the yield of the specific area Niger seed.
Area, production of Niger crop by Zones in Oromia (source CSA 2003-2007EC)
8
9
The trend analysis for 2003-2007EC of Niger crop production area coverage showed declining trends whiles
the production trend showed an increasing trend. This could be due to better agronomic measures and
extension work advisory services and improved input supply from government side.
1.6. Overview of H/Guduru Wollega Zone Niger Crop

According to the zonal Agricultural development office, 13% of the total production will be used for in house
consumption including seed and 87% Niger seed will be supplied to local market for local Niger seed oil
producers and exporters. In the year 2014/5, the zonal agricultural office predicted the yield to be 292,803
quintal which is already growing well on 36,367ha. From the total estimated production, Haragu Farmers’
cooperative union has planned to collect 76,000 quintals of Niger seed for the processing purpose if this
business concept is realized as planned.
Production of Edible Oil Seeds in the H/Guduru Wollega Zone
i
Oilseeds Crop type Number of
Area in hectare Production quintal n Yield(Qt/ ha)
holders
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
Rape seed 49,820.00 3,017.86 54,599.11 18.09
Source CSA data 2013/14

Niger Seed Land Cover and Production Data of Horo Guduru Wollega Zone
Yield hectare per Supplied local The remaining

Year E.C. Land used Production to market 13%
87%
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
2001/02 32,796 205,096 6.3 178433.52 26,662
Source Horo Guduru Wollega zone Agricultural Development office August 2015
The main oil seed crops grown in the operational area of Haragu Farmers’ cooperative union are sesame,
Niger seed, and linseed .In Ethiopia oil crops account 20% of export earnings, second to coffee. The Ethiopian
oil seeds are known for their flavor nutrition value and organic production. Horo Guduru Wollega zone where
Haragu farmers’ cooperative union planning to establish Niger seed semi refinery plant is very well known for
its quality Niger seed production and used as main source of for producers.
1.7. Food processing sector in Ethiopia

The food processing sector of Ethiopia is the largest manufacturing industry in the country. According to a
country study report by WUR (2013), the food processing industry accounted for 39% of the gross value of
production (GVP) in large and medium size manufacturing in 2009/10. The industry achieved a total GVP of
16.220 billion Birr (900 million USD).
The study also shows that sugar, bakery and grain milling were the largest food industry sectors that together
contributed about half (47%) of the total GVP. Flour (wheat), sugar, and biscuit were the largest processing
subsectors, excluding drinks.
Food processing is not only the largest but also one that offers top opportunities for investment. In fact,
Ethiopia has huge potential for the further development of emerging food processing industry sectors such as
cereals, pulses, oilseeds, fruits and vegetables, spices, coffee, tea, livestock and meat, poultry, and dairy. In
addition, there are prospects for chain development and value addition in new sectors such as commercial
intensive scale aquaculture and potato where processing is still non-existent.
This article outlines the key reasons for investment in food processing, business opportunities, and other basic
guides for agribusinesses. It is intended to help particularly new investors who wish to enter the sector.
Key Reasons for Investment in food processing
 Huge natural resource potential
Ethiopia has vast land and huge natural resource base for developing new areas and improving existing ones.
The country has suitable growing conditions for production of a range of food and beverage crops. Cereals,
pulses, oilseeds, spices, fruits and vegetables are grown in diverse agro ecological zones across the country.
Ethiopia is the leading producer in Africa of many agricultural products such as sesame and livestock. That
indicates a huge potential for the development of food products of crop and animal sources.
 Increasing domestic demand
Ethiopia is one of the most populous countries in Africa. A population of about 96 million offers huge market
for processed food products. Studies also show an increasing consumer demand for such food products as
meat, edible oil, biscuit, pasta, fruit juices, edible vegetables, and many more.
 Export market potential
Ethiopia has a long history and experience in exporting food products. The total export volume in 2011, for
instance, was 992 kilotons (WUR 2013). As a result, there is an increasing interest and international
recognition for Ethiopian products such as oilseeds, spices, coffee, pulses, and tea. These products, however,
are in most cases exported raw to a range of destinations such as EU, the Middle East, USA and Asia. Food
processing and value addition opens much wider room for investment in emerging and new sectors.
 Potential for import substitution
Despite its resource potential, Ethiopia paradoxically imports several food products, both in ‘real trade’ and
food aid. In 2011, for instance, the total volume of food products imported into Ethiopia was 1,945 kilotons.
The top three products in volume (kilotons) were wheat and meslin (1078), cane/beat sugar (246) and palm oil
(23) (WUR 2013.). According to the study, processed food is hardly imported. It amounted to as meat, edible
oil, biscuit, pasta, fruit juices, edible vegetables, and many more.
 Export market potential
Ethiopia has a long history and experience in exporting food products. The total export volume in 2011, for
instance, was 992 kilotons (WUR 2013). As a result, there is an increasing interest and international
recognition for Ethiopian products such as oilseeds, spices, coffee, pulses, and tea. These products, however,
are in most cases exported raw to a range of destinations such as EU, the Middle East, USA and Asia. Food
processing and value addition opens much wider room for investment in emerging and new sectors.
The current import trend and growing consumer interest implies opportunities for investment in food products
that have potential role for import substitution and improvement of the trade balance. An oilseeds business
opportunity study ((Wijnands et al. 2011), for instance, identifies such opportunities in soybean edible oilseed
production, crushing and processing. That demonstrates the potential of the country to tackle its dependence on
imported palm oil and soybean oil for supplying 80% the domestic edible oil consumption despite the potential
of the country to be self-sufficient.
A significant amount of soybean blended food is also imported to Ethiopia (Wijnands et al. 2011). Increased
domestic edible oil and soybean blended food can substitute these products and improve the trade balance,
implying opportunities and economic benefits for investment in soybean production and processing of the
imported products locally.
1.8. Edible oil industry

The current annual value of domestic edible oil is estimated to be 3.6 billion (USD 227 million).Although
Ethiopia is main producer and exporter of oil seeds the country imports about three fourth of its domestic
edible oil (ECRA,2010). The demand for edible oil is consistently moving up due to consistent increase
consumption which in turn caused by the increased population as well as increased in disposable income in
developing countries. Oil crops are the third major crops grown namely Linseed, Niger seed, soya bean, Cotton
seed, sesame, ground nut and rape seed are important types of oil seeds grown in Ethiopia. An Increasing
interest in and attention to the oil seeds value chain by the Ethiopian Government offers an opportunity for the
sector to grow. Edible oil and oil seeds value chain has a major role in the Ethiopian Economy with links to
Agriculture, agro industry, trade (import and export) and is inter linked to service economy. In terms of Edible
oil Ethiopia is highly dependent on foreign sources either from aid or import. Palm oil dominated the import of
markets (winands, etl al, 2007). Edible oil supply from Ethiopian factories is less than 20% of the total
consumption of the country.
1.8.1. Import trend of palm oil

The import quantity of palm oil increases from time to time. In 2005 the amount consumed 20,846 MT . It
increases and the amount imported reached 350,000 MT in 2015. The average yearly increase of
imports shows that the demand of the country is not still satisfied. The total Palm oil imported to the
country for the past ten years is as follows:
Units of growth
Market year Imports measure rate
2006 65 1000 MT 41.30%
2007 130 1000 MT 100%
2008 192 1000 MT 47.69%

2009 205 1000 MT 6.77%
2010 238 1000 MT 16.10%
2011 259 1000 MT 8.82%
2012 319 1000 MT 23.17%
2013 330 1000 MT 3.45%
2014 340 1000 MT 3.03%
2015 350 1000 MT 2.94%
Source: United states Department of Agriculture

1.8.2. Palm Oil Distribution status in Horo Guduru Wollega zone
Months Supplied In litters
July 250,000
August 250,000
September 0
October 149,481
November 0
December 149,457
January 149,481
February 137,304
March 149,457
April 149,481
May 149,481
June 149,482
1,683,624
Source Horo Guduru Wollega zone trade and market development office
2. DEMAND ANALYSIS
2.1. Demand at national level

The total Annual expenditure and value of edible oil consumption is estimated to be 11 Billion Birr and 394
million Kg respectively. The industry has shown steady growth of 17% over the period of 2008 to 2012. Three
fourth of the current edible oil demand is satisfied by imported oil and growth trend in imports 21% compared
to 10% for domestic Edible oil. Despite the steady growth the current per capita consumption (4.2 kg)/year
remains far than the global average 23.5kg per year. The lower per capita oil consumption added to the rapid
economic growth and population increase (9.7% and 2.3% per year respectively), shows that the industry has
favorable outlook for the demand growth. Currently palm oil, Niger seed, cotton, groundnut, and linseed oils
are the most consumable oils with estimated respective share of 70%, 16%, 14%, and 9%. Palm, soya bean,
and sun flower oils are the major imported oils.
Projected demand of Niger seed oil in tones
Market Share
Total projected
Years Demand Existing factory Envisaged plant
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
The oil millers are small enterprises that crude oil to potential buyers in the operational area of the business.
These are traditionally family run business that use simple technology and account for about 15% of market
share in Ethiopia.
In the process of supplying Edible oil to consumers the Government has become the direct player in the edible
oil market since 2010. It controls the entire supply chain for the palm oil (from import to end consumer). Palm
oil accounts for more than 60% of the national market. The major potential buyers of palm oil are low income
consumers both in urban and rural area. The price of palm oil is kept minimal partly because of bulk in nature
of the production and partly due to the control mechanism. The distribution of palm oil to consumers have
major role in stabilizing the prices of edible oil. The supply of palm oil is characterized by high degree of
irregularity and inconsistency which creates increase of edible oil prices.
The other actors in the edible oil value chain are processors that produce refined and packed edible oil
extracted from Niger seed and other locally available oil seeds. The primary target of these processors are
middle income consumers’ usually urban buyers who have health and hygiene conscious and want to avoid
palm oil and crude oil but not able to afford buying expensive and imported edible oils. The processors have
market share of 15% in Ethiopia. To realize its objective of setting up Niger seed semi refinery plant Haragu
farmers’ cooperative union will produce Niger seed semi refined edible oil where both the urban and rural
community will be accessed the product at affordable price in the center of the farmers producing Niger seed,
the principal raw material for the envisaged plant.
2.2. Edible oil demand in Horo Guduru Wollega zone

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 3 litter. 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 1,683,624 litter. 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 2,020,348.80
litters. Provided the planned facility is established and operated, the union will cover 2,024,983
litters/3,261,679.20 litters (62% of uncovered demand) & 38% of the total demand (5,282,028litters).
2.3. Type of product produced

For the envisaged well-equipped and staffed Niger seed oil processing plant, Niger seed is the primary product
offering for produced in a continual processing system, in addition to the by-product, Niger seed cake
(Fagullo). Initially, the union will start producing both the Niger seed edible oil and Niger seed cake based on
the requirements of the target customers who are considered to be committed to purchasing. The most
important attributes that come with the union Niger seed Edible oil and the cake are quality of the product and
serviceability. Along with consistent ensuring of product quality and competiveness, any potential quality
problems with the product will also be handled in a timely and appropriate manner. Besides, the factory will
strive to get the required quality accreditations timely in relation to its production process and outputs.
Customers
The target market segment is a scattered and wide range of local household market that are looking for high
quality Niger seed edible oil. The identified markets are mainly confined in Horo Guduru Wollega Zone which
will be reached in near future through systemic market strategy. There are also other potential market with in
adjacent zones nearer to the operational area of the union. The union also distributes its products in Addis
Ababa and different parts of Ethiopia. The potential users of the product are farmers living in the operational
area addressed through primary cooperatives and urban and semi urban consumers through whole sellers and
retailers and distribution centers of the refinery project
Product description
With the realization of the envisaged Niger seed semi refinery project, Haragu proposes to produce Niger
seed products comprising the main product, Niger seed Edible oil and the byproduct Niger seed cake to
satisfy the needs of consumers in the area. As detailed later in the market study, consumption and demand for
the main products planned for manufacturing by the union, Niger seed oil, is increasing due to growth in
population and increase in per capita consumption owing to various factors. The required main raw material is
basically Niger seed, which is one of the major cereal crops grown in Ethiopia, is available in plenty from
farmers near by the project area.
The union has planned to achieve its planned factory production and sales volume by processing quality raw
Niger seed purchased from member farmers and selling Niger seed edible oil and Niger seed cake to the target
local market.
Product Mix
Depending on the theoretical extraction rate and quality level of the planned semi refinery
plant , the proposed main outputs of the project will be two types of Niger seed edible oil
70% and the remaining portion, 30 %, is normally the byproduct of the project, Niger seed
cake , which is locally sold as animal feed. Better value addition or differentiation will be
done to the project’s Niger seed edible oil through quality processing & standardized
packaging.
3. SWOT Analysis
The Consulting Firm has undertaken the following detailed SWOT analysis for the union with respect to those
internal and external settings, competitive environmental aspects, impacting mainly its planned agro-
processing business, positively or adversely.
3.1. Strengths
 Access to raw material: Provision of adequate and quality Niger seed from producer farmers through
member primary cooperatives joined the union and from sister cooperative union operating in the adjacent
woreda and experienced in collection of Niger seed from its members. Because of the proximity
transportation cost will be minimized to the union which will also have logistic advantage
 Value adding venture: The project has a value adding effect through provision of quality semi refined
Niger seed oil and enhanced economic benefits for the union and member farmers.
 Committed management and staff: Strong commitment and initiation of almost all the union’s members,
executives and other staff towards achieving the union’s goals and objectives including realization of the
planned Niger seed semi refinery plant.
 Organizational capacity & own facilities: Presence own modern warehouses, seed cleaning equipment’s
& transport facilities.
 Better business exposure and relationships: The union and its primary cooperatives have reach
experience & familiarity in Niger seed production & marketing; and maintained good strategic
relationships with different stakeholders and collaborators in the past years.
 Prospective for easy Niger seed edible oil market access: beside the project’s market plan, the union
has good potential in strengthening its planned edible oil market outreach by working closely with its
member primary cooperatives, consumer cooperatives and other nearby farmers’ unions.
 Better production technology, resources and effective strategies: the union will employ latest and
efficient Niger seed semi refined edible oil production technology, resources, effective operational and
marketing plans and qualified employees for the planned business.
3.2. Weaknesses
 Lack of Niger seed Edible oil production and marketing exposure
 Limited equity financing capacity and high working capital requirement: financial capacity of the
union and its coops will inhibit timely realization of the relatively capital-intensive Semi refinery plant and
working capital required to run the business.
 Lack of members awareness on maintaining the quality of Niger seed
3.3. Opportunities
 Conducive economic environment: there exists favorable and stable economic environment for business
in the country apart from government’s attention/support to farmers’ cooperative and food processing
 Social acceptability: Good social acceptability of Niger semi seed refinery plant locally available in the
operational areas of the union and the community has been using the Products
 Access to finance: Because of the experience the union developed with financial institutions on
investment and working capital loans and on time repayment history, the union will raise money from
banks for Niger seed semi refinery plant.
 Product demand and affordability: There is high demand for Niger seed edible oil with wide range of
target market. Thus, there is promising market expansion opportunities within Horo Guduru Wollega zone,
potential market area (West shoa zone and East Wollega zone) and then to Addis Ababa & other parts of
the country.
 Favorable change in consumption pattern: there is an increasing demand to Niger seed Edible oil
because health related issues
 Better infrastructural services: Availability and further enhancement in basic infrastructural
facilities/utilities in/around the project area and the target market
3.4. Threats
 Competition: Competition from existing Niger seed refinery plants found in the operational area of the
union and outside the project area especially in the first years of operation.
 Unavailability of skilled manpower: Absence of adequate skilled and experienced technical
professionals for the envisaged Niger seed semi refinery plant.
 Seasonality of Niger seed production and supply: the main refinery input, Niger seed, is produced once
in a year.
 Instability of the market price and tight price competition for Niger seed: The price of Niger seed is
instable and increasing from year to year. The higher the price of Niger seed has negative effect on the
selling the product at fair affordable price.
3.5. Actions in line with the SWOT analysis result

Once the above environmental aspects are spotted for the union’s businesses, they are expected to be
incorporated into the union’s future marketing and other operational activities , the result of which along with
other tools are then to be used in achieving the union’s planned refinery project. Haragu Farmers’ cooperative
union needs to consider the following courses of actions that help to solve identified challenges or internal
drawbacks in the analysis.
 Experience sharing with Niger seed edible oil semi refinery plant owners both cooperatives and
privately owned refineries in outside operational area of the union and facilitate capacity building
training to board members of the union and project’s staff.
 Timely raising of the required project outlay from the union, member coops and banks
 Competing with existing Niger seed semi refinery owners requires proper implementation of the
planned operational and marketing strategies to achieve the planned Niger seed edible oil production
and marketing Business. This is tackled through different tactics that cover from supporting and
empowering member coops in many ways (starting from provision of production related technical and
financial support to competitive and timely Niger seed price offering) in the input side to maintaining
quality competitiveness and apt delivery that go in line with customers’ need and tastes on the output
side.
 Establishing an attractive remuneration and benefit packages to technical refinery plant personnel is
one way of maintaining such staff apart from the successive training of other staff on such technical
aspects.
 The union will establish efficient stock procurement and management system, which will assist to
have adequate and timely stock of factory raw material and hedge against the risk of possible Niger
seed price rise and possible production interruption due to lack of raw material.
 Members at all level need to be clearly and timely communicated about this new business idea
including potential menaces and drawbacks to pool their commitment and support towards
overwhelming or lessening jointly those spotted threats or weaknesses and progress towards
successful realization of the project.
 Competing with similar refinery plants that have experience requires long term marketing strategy.
This again calls for maintaining reasonable price and quality competitiveness apart from clearly
understanding customers’ need and tastes and taking the necessary measures accordingly.
 Members’ at all level need to be clearly and timely communicated about the business plan and
potential threats and weaknesses to reinforce their commitment and bye in through overcoming or
mitigating jointly those identified threats or weaknesses.
 Further strengthening the existing good networking and communication with the concerned
governmental administration bureaus (woreda, district and zonal) to timely secure the required project
land and assure the importance of the project and other planned strategic moves of the union.
4. PEST ANALYSIS
4.1. Political environment

The Governments second Growth and Transformation plan (GTP II) emphasis the importance of Agriculture in
the country’s overall growth and development. Hence the government strongly promotes Agro processing
industries like Edible oil processing plants. The Government is also encouraging cooperative unions to enter in
to investment to add value to farmers produce so that the farmers will get better benefit. In addition to
increasing the income of small holder farmers the cooperatives will play an important role in facilitating better
price for farmers produce, create employment opportunity to the community. Due to conducive political
environment the cooperatives in the country has been growing at an increasing rate operating according to
internationally accepted cooperative principles in genera and cooperative proclamation 147/98,amendment
proclamation 402/2004, Cooperative regulation 106/2004 and procedures developed for the development of
cooperatives.
Currently cooperative promotion agency is the one that provide technical support to the cooperatives having its
structures to the woreda level. Besides government there are Nongovernmental organization supporting Haragu
Farmers’ cooperative union to make the union join the edible oil industry. Among many NGOs working with
the union SNV is highly supporting the union through its C4C program. There are opportunities for the
refining industry since the government is enforcing edible oil quality standard which creates better market
opportunity for processors known for their quality product and free of adulteration.
4.2. Economic environment

In recent years, Ethiopia has been one of the fastest growing economies in Africa. The Ethiopian economy has
shifted to a higher growth trajectory since 2003/2004 and continued to grow rapidly for the eight consecutive
years, registering in 2010/11 a real GDP growth rate of 11.4%. Industrial wise, during the period 2003/04-
2010/11, the average growth rates in the value added agricultural, industrial and service sectors were 10.2%,
10.8% and 12.8%, respectively.
Ethiopia has the vision of becoming a middle income country in the coming one and half decades after
implementing three successive five-year development plans. The main development objective is to enhance
growth. The current five-year plan (2010/11-2014/15), the Growth and Transformation Plan (GTP), is geared
towards fostering broad-based development in a sustainable manner to achieve the Millennium Development
Goals (MDGs). Over the five years period already underway, the current GTP envisions a major leap, not only
in terms of economic structure and income levels, but also in the level of social indicators.
In Ethiopia, Agriculture, mainly smallholdings, employs 80% of the labor force and accounts for 47% of the
GDP and 80% of exports. The Ethiopian Government agricultural strategy, as part of the GTP, directs
intensification of marketable farm products by small and large farmers. And the government focuses on better-
functioning agricultural markets for both inputs and outputs, and institutions, including improved value chains,
information flows, quality and standards support; and it is committed to cooperative-led agricultural
commercialization to strengthen the position of farmers in the market. In this respect, wheat is one of the
priority strategic crops identified by the Government of Ethiopia (GOE) for solving the food security
challenges in the country and it is also among the target crops in many donor development plans. In addition,
the government supports and gives priority to value adding agro-processing activities at farm or in the
production catchment, both as traditional small industry and modern large scale levels. Thus, Raya is one
beneficiary of the strategy and such investment promotion.
4.3. Social environment

According to the projection of 2014/15 Population and Housing Census by CSA, the zone hosting the union,
Horo Guduru Wollega zone had total population of 691,871 (345,506 male and 346,365). While the woreda,
Guduru hosted a total estimated population of 118,069 in 2014/15 CSA data. Niger seed has become a very
important crop in recent decades throughout the country, with steadily rising people consumption patterns and
generating better income for producer farmers. Recently the demand for Niger seed edible oil is increasing due
to its quality and availability where the processing plants are owned by the union planning to serve its
members. The increasing number of population, the demand for edible oil will be increased and considered as
an opportunity for the union.
4.4. Infrastructure and technological environment

Horo Guduru Wollega zone where the Niger seed semi refinery plant established has many year round roads
and the main road linking the Guduru Woreda to West shoa is under construction for Asphalt. With regards to
communication services, the zone has telephone (including mobile) and Internet services that helps for
provision of communication service for a number of people in the zone. Specifically, the planned project town,
Guduru, is better off in terms of accessibility to basic infrastructures including Asphalt road linking the woreda
to Finacha’a sugar factory one of the potential site to establish Niger seed edible oil distribution center, access
roads linking the Woreda to west shoa zone, Finacha’a town, and zonal town Shambu. With communication
facilities and utilities, all of which are believed to be very vital for smooth operation of the planned investment.
In addition, the woreda has accessed with electricity and the potential of getting required power for the
refinery plant is high. With all this possible infrastructures the union will work for the realization of the project
and satisfy customers’ needs and preferences.
5. Market Structure and Analysis
5.1. General Overview of Niger seed production and Edible oil Marketing
Edible oil and oil crops are among the widely used traded commodities in the world. Production and export of
oil seeds are however dominated by a group of producing countries. The United States, china, Brazil, India,
Argentina, and Canada are among the world largest producers which accounts for about 70% of the total global
oil seeds out (Hoffmand, 1999).
The demand for edible oil is consistently moving up due to consistent increase consumption which in turn
caused by the increased population as well as increased in disposable income in developing countries. Ethiopia
consist of different climatic zones and a range of altitudes from below sea level to up to pore than 4500 meters
above sea level. This enable the country to grow wide range of oil seeds in which it has long tradition. Oil
crops are the third major crops with an estimated total cropped area of 740,000 hectares of land involving more
than three million small holder farmers. Linseed, Niger seed, soya bean, Cotton seed, sesame, ground nut and
rape seed are important types of oil seeds grown in Ethiopia (Haile Giorgis, 2011). An Increasing interest in
and attention to the oil seeds value chain by the Ethiopian Government offers an opportunity for the sector to
grow. Edible oil and oil seeds value chain has a major role in the Ethiopian Economy with links to Agriculture,
agro industry, trade (import and export) and is inter linked to service economy. In terms of Edible oil Ethiopia
is highly dependent on foreign sources either from aid or import. Palm oil dominated the import of markets
(winands, etl al,2007). Edible oil supply from Ethiopian factories is less than 20% of the total consumption of
the country. The Domestic edible oil production is characterized by backward technology, where most of the
millers are operating at the village level without refining. The capacity of existing millers are limited withy
low hygiene standards.
5.2. Target Market and Customer Base

The demand for Niger seed Edible oil and Niger seed cake planned for manufacturing by the union, is steadily
rising due to growth in population and shortage of feed for the cake. The demand for Edible oil has been
increasing due to 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. With rising demand, the local edible oil supply has not been sufficient to meet the respective demand
for Niger seed Edible oil and the cake highly demanded to be used for animal fixed by dairy and feed lot
operators and Concentrate feed processing plant owners.
The target market for the project encompasses every individual or business consumer of Niger seed edible oil
and the primary targets are households in the nearby districts of Horo Guduru Wollega Zone that require
quality edible oil and Niger cake free of Adulteration. Haragu has then set to expand its market share by
successively reaching other target market of the zone and the region. The key for this target market outreach is
generation of product brand loyalty via competitive pricing and consistent quality.
5.3. Market Size and Potential

There are few Niger seed edible oil extracting small scale operators in the operational area of the union and
have limited capacity to full fill the demand of the area. This is mainly due to limited production capacity and
under capacity utilization which in turn is due to limited financial capital to purchase raw materials at time of
harvest.
From the forgoing analysis, the growth in population and shift in positive consumption trend, a stable demand
base is provided for Haragu’s products and anticipated to continue to grow in the future. At this point, the
union is assuming an ample Niger seed edible oil and Niger seed cake market availability and same is expected
to grow in the future. Thus, with the existing sufficient and rising demand versus limited supply on the target
local market for processed edible oil products, people are expected to have demand for quality Niger seed
edible oil products of the union which is organic where the raw materials will be collected directly from
producer farmers and the final products will be sold to farmers and potential market. With the planned
production capacity and adequate Niger seed supply source from its members, on average Haragu farmers’
cooperative 2,124,000 Litters of Edible oil per annum and 49,560 Quintals of Niger seed Cake per annum. In
the first year of project operation, the union planned to utilize 90% of its potential i.e. marketing 2,024,983.80
litters of Edible oil and 47,249 Quintals of Niger seed cake which is expected to enhance in subsequent years
with better industrial and marketing exposure.
5.4. Competitors Analysis

Compared to other zones, Horo Guduru Wollega zone has currently the few number of Niger seed edible oil
producer with small capacity and found are found in zonal town and operational area of the union.
Accordingly, these local Niger seed oil extractors are expected to be the main competitors of the envisaged
project in addition to those producing their products at Finfinne and sell their products through traders in the
operational area of the union. 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 afford the union opportunity to capture potential customers at affordable and acceptable price.
Competitive Advantage
Competitive advantages for Haragu as compared to existing and potential competitors:
 Proximity and better access to quality and highly demanded Niger seed semi refinery raw materials
 Better production technology and operational system are planned to be put in place, which will ensure superior
product quality and delivery. Quality products 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
5.5. Marketing Strategies (4Ps)

Haragu Farmers’ cooperative union and its members have acquired good experience in Niger seed production
and marketing. 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 production and marketing Business to be able to reach the planned
demand levels that will provide a positive rate of return, an 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 processing plant 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, edible oil
distributers/retailers and food processers is among the central attainment of this plan. All of the planned
marketing strategies (4Ps) outlined in achieving the production and sales level over the intended project’s time
frame are discussed below:
5.6. Products, Volumes, Packaging and Qualities

For this project, Niger seed edible oil and Niger seed cake are the primary products offered to the potential
market as well as a small amount of other types of by products will be produced. According to data collected
from Niger seed oil producers in the operational area of the union one Quintal of Niger seed will provide 30
litters of Niger seed edible even the quantity differs based up on the specific production area of the raw
material. In addition from one quintal of Niger seed 0.68 Quintal of Niger seed cake will be collected. The
income generated from the byproduct Niger seed cake takes the major share in making the project profitable
and sustainable. Because of zero (minimal) marketing and production cost the income generated from sales of
Niger seed cake helps the union to reduce the selling price of Niger seed edible oil to make the product
affordable the potential consumers.
The most important attributes that come with Haragu’s planned Niger seed edible oil are quality of the product
and serviceability. Unlike other Edible oil processors, the union will retain responsibility for quality of the
product and provide any service necessary to make the best use of the Niger seed oil and provide the ability for
the end user to produce the highest quality and most consistent product possible through the primary
cooperatives who, own, use and control the cooperative union and potential distributors.
Packing and labeling, which is often done to meet the respective buyer’s capacity and requirement, shall entice
the buyer in a way that the product has been produced with the acceptable quality standards. Normally, the
Niger seed Edible oil will be suitably packed and sold in 1, 2, 3 and 5 litters having the logo of the union.
With regards to quality control and standards, Haragu will employ an on-site lab and testing facility under its
Quality Control Section that will provide the ability to test the Niger seed Edible oil coming off the product
line for quality. In this regard, the union 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 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.
5.7. Promotion Strategies

So as to promote the intended Niger seed Edible oil production and marketing business, Haragu has planned to
deploy different promotional strategies, which are vital in achieving the planned market share and financial
result. These strategies, discussed below, embrace personal selling, web presence, organizing annual events,
attending trade fairs, sponsoring events, sending samples, advertising via mass Medias and others.
Personal selling: A large percentage of the project’s target customers is planned to be reached through word of
mouth marketing and personal selling using marketing/sales representatives. And these representatives have to
be close tied to the industry to help market the union’s edible oil so that Haragu is felt by almost all customers
as entirely responsible for all aspects of marketing up to the customer purchase.
Web presence: Haragu will have a well- designed website which will be searchable by the general public,
present customers and potential new customers. As some of the target urban customers or distributors are
becoming increasingly affluent with electronic web-based media, so a website and e-mail is expected to prove
to be an efficient promotional tool. And the marketing Division will thus be required to update the website and
also develop an electronic database of current and potential customers to allow for email marketing campaigns.
Annual events: At the end of the annual audit, Haragu has set to periodically conduct annual events by
inviting different stakeholders including coop representatives, model farmers, major customers, distributors,
concerned government bodies and others.
Trade fairs and sponsoring events: The union will also attend national trade fairs and sponsor events or
public programs when deem necessary.
Sample: the factory will prepare representative Niger seed Edible oil samples and send to interested entities
including customers, distributors, food processors and others.
Media advertising: advertising via public channels include the use of mass communication, such as print ads,
radio and TV.
Other promotional tools include maintaining strong networking with different stakeholders and distribution of
brochure and flyers. Here, the general manager and all personnel of the Marketing and Sales Department will
primarily be accountable for proper discharging of the different promotional strategies enumerated above.
Places
Haragu has planned to deploy a mix of different distribution mechanisms covering from direct sell from the
refinery plant to personal selling to the final consumer using own sales outlets, transport trucks and via
distributors/retailers. In addition to opening own sales outlets at different market areas, Haragu will also
negotiate distribution arrangements with local retailers or distributers of edible oil. For Niger seed cake, the
project has set to sell to the dairy and feedlot operators and concentrate feed processors or through local
distributors/retailers. As a domestic producer, Haragu will enjoy lower transportation and delivery cost
advantages over other competing edible oil especially for those edible oil sales in the nearby target market.
Pricing Strategies
Normally the price of Niger seed Edible oil is closely correlated with the prices of inputs used to produce the
product and the income generated from byproducts. The higher the prices of inputs the higher the production
cost, but the more income generated from the byproduct Niger seed cake it is the decision of the union
management to reduce the selling price of Niger seed edible competitive in market, affordable to the potential
users basically the farmers marginalized to use Niger seed edible oil because of the its high cost. Haragu
Farmers’ cooperative union is business and service oriented organization will make its farmers to use Niger
seed Edible oil and taste the end product of the Niger seed produced in their farm land. By making the price
affordable the union will create linkage with farmer producers so that the processing plant will enough raw
material and the farmers will be benefited from the better price offered by market during output marketing, get
additional income from the primary cooperative in form of dividend and get Niger seed edible oil at affordable
price. The Project’s pricing strategy normally considers the prevailing average Niger seed Edible prices in the
envisaged market area beside the extra value for added product quality and serviceability offered. On the other
hand, some discounts might be included to those customers who will buy a substantially larger amount than the
average amount bought by other customers, as well as customers who are willing to sign a long term contract
for use of the Niger seed Edible oil, securing demand for the business.
Another important Business the union will go through in the Future and recommended by the consultant is that
providing extracting service the members of the union who are capable enough to deliver their own Niger seed
for their own consumption similar to milling service provided by service providers for teff and other types of
crops.
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 semi-refinery and
opens distribution centers in zonal tows like Shambu, 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.
Consumer Preferences & Anticipated Market Area
Price has of course a key influence on trade flow throughout the chain. However, specific taste of Niger
has another important factor for consumer market. This applies to crude and semi-refined Niger oil. The
table below provides the overview of assessment results.
Consumer category Buying criteria as suggested
Taste Suitability for cooking Quality

Households High High High
Restaurants Moderate Moderate Moderate
Traders Moderate Moderate Low
Processors/millers Moderate moderate High
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.
Raw Material Supply & Its Price Trend
Marketing and distribution of oil seeds are mainly done by small and medium scale traders with poor
marketing facilities, especially for collection, storage and transportation, which cause high post-harvest losses.
The marketing chain is long, with many intermediaries adding little value to the final product, with high
transaction costs being incurred. Poor access to financial services, poor vertical and horizontal collaboration
within as well as external to the chain, all is negatively impacted on the industry. 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 with 1,200 to
1,400ETB 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 Woreda 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.
Niger seed unit purchase price of the union
Periods By traders
Year Early period Late period Highest price in year

2015/16 1,750 1800 2100
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 1,750 Birr per quintal in year 2015/6 production season. Unfortunately,
the price of Niger seed was increased unexpectedly and reached ETB 2, 300 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 ETB 1,800
per quintal and stopped buying beyond 1800 since the production cost per unit goes up and the customers are
reserved to buy the product. It is not recommended for the union to buy Niger seed above 1800 per quintal
including transportation as long as the price of the same product will be 78 ETB and less.
The purchasing price trend showed that purchasing price is lower at the early harvesting period due to high
produce supply and high cash demand by the farmers. Cash is also a major challenge that might trigger the
purchasing capacity of the union as well. In contrary it is also an excellent opportunity to collect the inputs at
good price which will normalize the oil price at the same time by facilitating loan access to primary
cooperatives.
Advancing loan to primary cooperatives and collection of the raw material in early period is sought to be an
excellent strategy for the farmers as well as the union. This will take down the cost of operation and
subsequently reduce the sales price of their anticipated end products.
Basically Niger seed 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 as a region. Also Niger seed is
produced in the zone at high potential and mainly used for the production of edible oil and the pressed cake
which 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.
Cognizant of the production potential in the zone and shortage of edible oil as whole, the union has sought to
cap the potential market in the value addition process of Niger seed oil and curb the turbulent market situation
of the seed by installing edible oil semi-refinery plant. 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 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 semi-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 crops 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. Because of the demand for the product is
increasing from time to time and last year price was higher than the price of previous years at the initial year of
the project the price one quintal of Niger seed including transportation estimated to be 1800 ETB. The union
has to buy the raw materials on time to avoid unnecessary costs. The consultant encourage the union to buy the
raw materials at the harvesting time through primary cooperatives, the more lower the price of Niger seed the
less the price of Edible oil price to the consumers.
6. TECHNICAL STUDY
The technical or operational strategies for the envisaged agro-processing project include project land
acquisition, licensing, establishment and acquisition of the required physical resources including production
technologies, raw materials, utilities, logistics, manpower recruitment and other resources needed to fulfill the
intended investment project and achieve the planned production and sales volume set over the planned periods
of business operation. Each of this technical or operational issue including the respective implementation
schedule is discussed here below.
Project identity and location
The project is envisaged to be located in Oromia Regional State, Horo Guduru Wollega Zone, Guduru District,
and Kombolcha Town, which also hosts the union’s existing business premise. The site, which covers a total of
3000 m2 area, is expected to be obtained from Kombolcha Municipality Office free of lease payment in line
with the application already lodged on by the union. The project site is mainly selected for its proximity to
source of refinery raw materials, the market centers and also availability of the required utilities and
infrastructures, which makes the area more ideal for such undertaking
6.1. Production capacity and Utilization

As per supplier’s specification, the planned Niger seed edible oil production line has got a daily theoretical
intake capacity of 250 Quintal of Niger seed .Assuming 300 working days per annum, giving allowance for
lead time including for weekends, holidays, repair & maintenance and other possible production interruption
and 24 working hours per day. In the first year operation the semi refinery plant will use 76,530 quintal of
Niger seed and 2,024,983.80 litters of Niger seed edible oil will be produced. Thus, assuming the project will
utilize 90% of its theoretical capacity initially during the first year with 2% annual capacity enhancement rate
until it reaches 1000% and also 2% input impurity level assumed, the project’s input requirement and Edible
oil production plan for the first five years of operation will be as follow:
Description Year 1 Year 2 Year 3 Year 4 Year 5

Raw material Volume (In quintals) 76,530 76,530 76,530 76,530 76,530
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 max. capacity in Quintal 74,999.40 74,999.40 74,999.40 74,999.40 74,999.40
Capacity Utilization rate 90% 92% 94% 96% 100%
Raw Niger seed requirement per utilization rate 67,499.46 68,999.45 70,499.44 71,999.42 74,999.40
Average Niger seed Edible oil extracted from cleaned raw
Niger seed (in lit.) 30.00 30.00 30.00 30.00 30.00
Niger seed Edible oil production volume in Litters per
year 2,024,983.8 2,069,983.4 2,114,983.0 2,159,982.7 2,249,982.0
0 4 8 2 0
Average Niger cake production per quintal (pure) in 100kg 0.7 0.7 0.7 0.7 0.7
Total Niger cake production per annum 47,249.62 48,299.61 49,349.61 50,399.60 52,499.58
Other by product sales
by product in quintal 0.02 674.99 689.99 704.99 719.99 749.99
Unit price per quintal 12.00 12.00 12.00 12.00 12.00
Sales of other by products 8,099.94 8,279.93 8,459.93 8,639.93 8,999.93
6.2. Input sourcing and procurement

The principal raw material for production of Niger seed edible oil is raw Niger seed, which is principally
planned to be obtained or purchased from nearby farmers who are members of founding cooperatives. In
quantifying the maximum potential Niger seed supply from the local area, it is estimated a total of about
76,530 Quintal of Niger seed could be collected from operational areas of the union and other woreda well
known for their quality Niger seed production. Niger seed requirements for the project are scheduled to be
collected through purchasing committees at the level of primary cooperatives. To facilitate transport of raw
Niger seed and other required factory inputs the union use its own trucks to transport the inputs from primary
cooperatives to the production site.
The other materials needed in the production of edible oil are packing bottles (PET) will be purchased from
Addis Ababa suppliers like roha pack. The other additional input needed will be labeling that to be ordered by
the union having logo expressing the edible oil business of the union. Yet, the project will be better of if it
enters into timely contractual agreement with local producers or suppliers of these factory inputs for timely
supply and cost efficiency.
Utilities
As far as basic infrastructure facilities is concerned, the selected project locality has pipe water supply, access
road, communications and developed transportation service which are expected to enhance the business
activities in and around the project area. Thus, the project can make use of these available infrastructures for its
smooth operation and; it needs to timely arrange allocation of electric power dedicated to the Niger seed semi
refinery plant and also water for to be used by the processing plant.
Logistics
With regards to the required logistics, the union, as mentioned above, apart from the existing transport truck
and during peak times the union will also lease transport services from third party through timely contractual
agreements, to enable timely collection of planned purchases from the input market areas and subsequent
marketing of outputs.
6.3. Manpower Recruitment

The other operational issue encompasses timely recruitment and training of the required manpower, both in
quantity and quality, which is vital for successful implementation and running of the planned investment
project. This will further be enhanced in due course through provision of the required trainings and capacity
building and also adoption of competitive remuneration packages. For the project to fully operate the union
will recruit 59 staffs to Niger seed semi refinery plant so that the processing plant will work 300 days in a year.
6.4. Implementation Schedule

The actual implementation of the semi refinery processing project is planned to begin mid of 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 Niger seed
refinery plant machineries and equipment, office equipment and furniture, recruitment and training of
employees and production commissioning. Other activities such as securing infrastructural facilities or utilities
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. Commercial operation is expected to
commence in a year time i.e. early of 2017 G.C.
Ser. Quarters in 201 6G.C

Description of Project Items
No. 1 2 3 4
1 Preparation of Business Plan
2 Acquiring of land for the semi refinery plant
International Bid for the procurement of semi
3
refinery plant
Purchase/Import of machineries, equipment,
4
Vehicle and Furniture
5 Construction And Civil Works
6 Recruitment & training of manpower

7 Installation and commissioning
8 Official Inauguration
7. Organization and Personnel
7.1. Organizational Structure
To enable the Edible oil semi refinery project realize its set objectives and goals the union needs to establish
the organizational structure shown below (See Chart below) to be filled with qualified and experienced
management team and technical and support staff consisting Plant Manager ,operational staff and supporting
staffs. 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.
General Assembly
Control Committee
Committee members of the union General Manager of the union Committee members of the union
Manager of Niger seed semi

refinery plant (1)
Niger seed semi refinery plant

staffs (58)
7.2. Management and personnel
The Board of the union will make major decision on the activities of the and recruit Manager who will take
the responsibility of overall management of the Niger seed edible oil semi refinery plant by designing proper
and timely product sourcing, processing and marketing strategies and ensuring implementation of the
envisaged project.
MANPOWER REQUIREMENT AND ANNUAL LABOUR COST

Working
SN Description Req. No. Monthly Annual Salary (Birr)
Months
Salary (Birr)
1 Plant Manager 1 12,000 12 144,000

2 production and technic manager 1 10,000 12 120,000
3 Production controller 3 5,000 12 180,000
4 Personnel 1 3,200 12 38,400
5 Office secretary 1 2,000 12 24,000
6 Electrician 3 5,000 12 180,000
7 Mechanic 3 5,000 12 180,000
8 Production operators 18 3,000 12 648,000
9 Accountant 1 3,000 12 36,000
10 Cashier 1 2000 12 24,000
11 Shift leader 3 2,000 12 72,000
12 sales man 3 2,500 12 90,000
13 Laborers 6 1,500 12 108,000
14 Store keeper 3 4,000 12 144,000
15 Time keeper 3 3000 12 108,000
16 Cleaner 4 1000 12 48,000
17 Guards 4 800 12 38,400
Sub-Total of basic salary 59 2,182,800.00
Benefits (20% BS) 436,560
Grand Total 2,619,360
Thus, the project will employ a total of 59 persons including advisory the management team, skilled technical
& support staffs and daily operators or laborers. As shown above, the total annual salaries and wages for the
first year of project operation are estimated to be Birr 2,619,360 ETB
8. TECHNOLOGY & ENGINEERING
8.1. 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 and cost 1,550,000 ETB. 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:
Construction and civil works

SN Description Amount in Birr
1 Factory Building 600,000.00
2 Store Building 1: Raw materials & pre-processing 300,000.00
3 Store Building 2: finished goods 300,000.00
4 Office Building 200,000.00
5 Guard/Janitor/wash rooms 150,000.00
Total 1,550,000.00
*Includes electric and water works
8.2. Production Machineries & Equipment

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 11,630,300.00 ETB 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 commissioning is estimated to be
12,095,512.00 ETB. The machinery, which is of Turkey origin, is planned to be procured from suppliers.
Furthermore, different production equipment including transformer and Generator with the total
initial investment can be 13,095,512.00 ETB.
Niger Seed oil Extraction and semi refinery plant Investment on production machineries and equipment
Cost Amount
SN Description of the plant components
(in USD) (in Birr)
Semi- refinery including installation an commissioning costs 545,000.00 11,630,300.00
Seed Oil Processing Plant manufacture, installation and commissioning
175,000.00 3,734,500.00
1
2 Crude Oil Semi-Processing Plants manufacture, installation and commissioning 180,000.00 3,841,200.00
3 plastic bottle filling, packing and labeling unit manufacture, installation and commissioning 190,000.00 4,054,600.00
Sub-Total 1 545,000.00 11,630,300.00
Add: Shipping & insurance costs 232,606.00
Freight and import related charges 232,606.00
Sub-Total 2 465,212.00
Total cost of machinery & Accessories 12,095,512.00

Related Equipment
Transformer 500,000.00
Generator 500,000.00
Sub-Total 3 1,000,000.00
Total 13,095,512.00
8.3. Source of Technology

Several machinery suppliers and manufactures can be requested for their offer. The consulting firm has
collected valuable data on the cost of the machinery required to produce 250 quintal of Niger seed per
day and oil semi-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 pretreatment and oil
extraction plant with capacity of 250 quintal per day (25 Ton) is 101,229 USD and the price of Niger seed
oil semi-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.
In preparing the Business plan, the price of machineries offered by the china and Turkey suppliers were
considered. The purchase price of semi-refinery plant from China Company is less expensive than that of
Turkey Company. Based up on information collected from oil extraction and semi-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 Semi-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.
9. 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 financial plan and require that the
union obtains the needed financing at the proposed level.
9.1. 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 26,395,512 ETB out of which Birr 15,545,512 ETB is fixed investment while 10,000,000 ETB is
working capital and the rest 850,000 ETB is pre-operating expenses.
The finance needed to establish the proposed Edible oil factory has been analyzed by own equity
contribution and bank financing scenario at 31:69 respective share. Accordingly, out of the total
investment cost 26,395,512 ETB (1000%) of the total investment 18,095,512 ETB (69%) 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 8,300,000
ETB (31%) 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.
9.2. 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 31:69 respective financing proportion.
9.3. . Working Capital Requirement
In order to successfully accomplish the planned Edible production and marketing business, a total fund
26,395,512 Birr required where 15,545,512 ETB for capital investment,850,000 for pre investment and
10,000,000 Birr for working capital. The union will cover 31% of the finance needed and contact
financial institution for 69 % of the total amount needed for the investment. The union will allocate
3,3000,000 Birr for fixed capital and 5,000, for working capital needs adequate initial amount of working
capital of 10,000,000 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 5,000,000 working capital and 13,095,512 Birr for
investment capital. 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.
9.4. 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.
9.5. 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 semi-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.
Pre-operating Expenses
SN Descriptions Amount in Birr

1 Project management & license fees 150,000
2 Consultancy fees 500,000
3 Business Travel 100,000
4 Contingency for other outlays or costs 100,000
Total 850,000
Pg-39
9.6. 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.
Depreciation Schedule
Depreciation and Amortization Schedule

Rate per Value of fixed Annual
Description
annum Asset Depreciation
Construction & Civil Works 5% 1,550,000 77,500
Machineries & Equipment 20% 13,095,512 2,619,102
Office Furniture & Equipment 20% 200,000 40,000
Computer & Accessories 25% 200,000 50,000
Pre-operating Expenses 10% 850,000 85,000
Total 15,895,512 2,871,602
9.7. 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:
Estimated budget of promotion/advertising for the first five years
Promotion Type Year 1 Year 2 Year 3 Year 4 Year 5
Flyers 37,000 30,000 25,000 20,000 15,000
Networking activities 5,000 5,000 5,000 5,000 5,000

Total 42,000 35,000 30,000 25,000 20,000
All other operating expenses are determined according to the above underlying assumptions.
Pg-40
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:
9.8. Interest Expense
Capital investment quarterly Loan repayment schedule of Union for a loan of 13,095,512 ETB -Capital Investment @15% per annum
Quarterly
SN period Beginning principal Balance Payment Quarterly Interest Amount To principal Balance @ end of quarter
1 1st 13,095,512.00 ($942,380.51) 491081.70 ($451,298.81) $12,644,213.19
2 2nd $12,644,213.19 ($942,380.51) 474157.99 ($468,222.51) $12,175,990.68
3 3rd $12,175,990.68 ($942,380.51) 456599.65 ($485,780.86) $11,690,209.82
4 4th $11,690,209.82 ($942,380.51) 438382.87 ($503,997.64) $11,186,212.18
5 5th $11,186,212.18 ($942,380.51) 419482.96 ($522,897.55) $10,663,314.62
6 6th $10,663,314.62 ($942,380.51) 399874.30 ($542,506.21) $10,120,808.41
7 7th $10,120,808.41 ($942,380.51) 379530.32 ($562,850.19) $9,557,958.22
8 8th $9,557,958.22 ($942,380.51) 358423.43 ($583,957.08) $8,974,001.14
9 9th $8,974,001.14 ($942,380.51) 336525.04 ($605,855.47) $8,368,145.68
10 10th $8,368,145.68 ($942,380.51) 313805.46 ($628,575.05) $7,739,570.63
11 11th $7,739,570.63 ($942,380.51) 290233.90 ($652,146.61) $7,087,424.02
12 12th $7,087,424.02 ($942,380.51) 265778.40 ($676,602.11) $6,410,821.91
13 13th $6,410,821.91 ($942,380.51) 240405.82 ($701,974.69) $5,708,847.23
14 14th $5,708,847.23 ($942,380.51) 214081.77 ($728,298.74) $4,980,548.49
15 15th $4,980,548.49 ($942,380.51) 186770.57 ($755,609.94) $4,224,938.55
16 16th $4,224,938.55 ($942,380.51) 158435.20 ($783,945.31) $3,440,993.23
17 17th $3,440,993.23 ($942,380.51) 129037.25 ($813,343.26) $2,627,649.97
18 18th $2,627,649.97 ($942,380.51) 98536.87 ($843,843.64) $1,783,806.33
19 19th $1,783,806.33 ($942,380.51) 66892.74 ($875,487.77) $908,318.56
20 20th $908,318.56 ($942,380.51) 34061.95 ($908,318.56) ($0.00)
Total 5,752,098.18 -13095512.00
Pg-41
9.9. Working capital loan repayment schedule of the project
Amount of loan 5,000,000

Interest rate 10.5%
Number of years 2 Interest payment on yearly bases
Monthly payment ETB 701,058.32
Loan repayment schedule of Working capital loan @rate of 10.5% per annum
Principal paid Balance
Quarterly Principal amount Quarterly off=Quarterly remaining @
S payment @ beginning of payment Interest on payment - end of the
N period quarter amount loan Interest quarter
5,000,000.0 131,25
1 1st 0 ($701,058.32) 0.00 ($569,808.32) $4,430,191.68
116292.531
nd
2 2 4430191.68 ($701,058.32) 5 ($584,765.79) $3,845,425.88
100942.429
3 3rd 3845425.88 ($701,058.32) 5 ($600,115.89) $3,245,309.99
85189.3872
4 4th 3245309.99 ($701,058.32) 5 ($615,868.94) $2,629,441.05 433,674.35
69022.8276
5 5th 2629441.05 ($701,058.32) 7 ($632,035.50) $1,997,405.56
6 6th 1997405.56 ($701,058.32) 52431.8959 ($648,626.43) $1,348,779.13
35405.4521
7 7th 1348779.13 ($701,058.32) 8 ($665,652.87) $683,126.26
8 8th 683126.26 ($701,058.32) 17932.0643 ($683,126.26) ($0.00) 174792.2401
608,46 (5,0
Total 6.59 00,000.00) 608,466.59
9.10. Summary of Loan repayment schedule

Yearly Interest payment Yearly Principal payment
Working
Working capital
Fixed capital Capital Total Fixed principal principal Total principal
433,67
1,860,222.21 Q1 4.35 2,293,896.56 2,619,102.40 2,500,000 5,119,102
1,557,311.00 Q2 174792.2401 1,732,103.24 2,619,102.40 2,500,000 5,119,102
1,206,342.81 Q3 1,206,342.81 2,619,102.40 2,619,102
799,693.36 Q4 799,693.36 2,619,102.40 2,619,102
328,528.80 Q5 328,528.80 2,619,102.40 2,619,102
608,46
5,752,098.18 6.59 6,360,564.77 13,095,512.00 5,000,000 18,095,512
The investment loan for the project is assumed to be repayable at equal quarterly 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 quarterly installments as of commencement of semi-refinery plant operation. Annual
interest rates of 15% and 10.5% are assumed to be incurred on the then would be granted investment and
working capital loans respectively. For the total loans received the union will be charged 608,466.59 ETB
for working capital loan 5,752,098.18 to fixed capital loan and the total amount of interest charged for
loan amount will became 6,360,564.77 ETB in form of interest. The union will pay the loan on Quarterly
bases and the declining balance method is used to calculate the interest of the loan to be received from
Banks.
Pg-42
9.11. Production Costs forecast
SUMMARY OF PRODUCTION COSTS

SN Materials Year1 Year 2 year 3 year 4 year 5
1 Raw Niger seed
Requirement in Quintal 67,499 68,999 70,499 71,999 74,999
Purchase price including transportation cost 1,800 1836 1927.8 2024.19 2125.3995
Subtotal 135,908,812.7
Cost 1 121,499,028.00 126,682,986.53 2 145,740,514.07 159,403,687.26
2 Packing material
2,114,983.0
Edible oil produces in litters
2,024,983.80 2,069,983.44 8 2,159,982.72 2,249,982.00
Packing Bottles (PET) 3.50 Birr/lit and

labeling 2Birr/lit. 1 lit.
5.50 5.78 6.06 6.37 6.69
Sub -total 12,824,728.6
cost 2 11,137,410.90 11,954,154.37 5 13,752,474.98 15,041,769.51
3 Electric cost and fuel
2,114,983.0
Edible oil produced in lit.
2,024,983.80 2,069,983.44 8 2,159,982.72 2,249,982.00
Cost per lit. 3.50 3.57 3.93 4.32 4.75
8,305,538.5
Sub- total cost 3
7,087,443.30 7,389,840.88 6 9,330,477.36 10,691,171.97
4 Water cost 15,000 16500 18150 19965 21961.5
5 Cost of lubricants 62,000 68200 75020 82522 90774.2
6 Maintenance and repair cost 70,000 75600 81648 88179.84 95234.2272
2,887,844.4
Salary and benefits
2,619,360 2,750,328.00 0 3,032,236.62 3,183,848.45
promotion expense 42000.00 35000.00 30000.00 25000.00 20000.00
Telephone cost 20,000 21000 22050 23152.5 24310.125
Business travel 150,000 165,000 181,500 199,650 219,615
Depreciation 2,871,602 2,871,602 2,871,602 2,871,602 2,871,602
Interest 2,293,897 1,732,103 1,206,343 799,693 328,529
Pg-43
Uniform for Employees 50,000 55000 60500 66550 73205
422,99
Transportation cost (0.2 centers per litter)
404,997 413,997 7 431,997 449,996
21,149.8
Wastage cost per lit.
20,249.84 20,699.83 3 21,599.83 22,499.82
Total Cost (Edible oil and Niger cake 164,917,883.9
production) 148,342,987.76 154,252,011.94 8 176,485,614.49 192,538,204.67
Cost share of Niger seed Edible oil 80% 80% 80% 80% 80%
131,934,307.1
Cost allocated to edible oil
118,674,390.21 123,401,609.55 8 141,188,491.59 154,030,563.73
2,114,983.0
Edible oil produced in litters
2,024,983.80 2,069,983.44 8 2,159,982.72 2,249,982.00
62.3
Production cost per Litter
58.61 59.61 8 65.37 68.46
Cost share of Niger cake 20% 20% 20% 20% 20%
32,983,576.8
Cost allocated to Niger seed cake
29,668,597.55 30,850,402.39 0 35,297,122.90 38,507,640.93
49,349.6
Niger seed cake produced in Quintal
47,249.62 48,299.61 1 50,399.60 52,499.58
668.3
Production cost per quintal of Niger seed cake
627.91 638.73 7 700.35 733.48
157,039,079.9
Total variable cost 139,723,882.20 146,026,981.77 3 168,823,466.40 185,136,628.74
Variable cost allocated for Niger seed edible
oil 80% 80% 80% 80% 80%
125,631,263.9
Variable cost for Edible oil in Birr 111,779,105.76 116,821,585.42 4 135,058,773.12 148,109,302.99
59.4
Variable cost per unit of Niger seed edible oil 55.20 56.44 0 62.53 65.83
Variable cost for Niger seed cake
Variable cost allocated % 20% 20% 20% 20% 20%
31,407,815.9
Total variable cost of cake in Birr 27,944,776.44 29,205,396.35 9 33,764,693.28 37,027,325.75
636.4
Variable cost per quintal of Cake 591.43 604.67 4 669.94 705.29
7,878,804.0
Total Fixed cost 8,619,105.56 8,225,030.17 5 7,662,148.09 7,401,575.93
Allocated for Edible oil 5 60% 60% 60% 60% 60%
4,727,282.4
Fixed cost for edible oil 5,171,463.34 4,935,018.10 3 4,597,288.85 4,440,945.56
Fixed cost for cake 40% 40% 40% 40% 40%
3,151,521.6
Fixed cost for cake in Birr 3,447,642.22 3,290,012.07 2 3,064,859.24 2,960,630.37
Pg-44
9.12. 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, were 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. Currently one liter of Niger seed edible oil has been
processed and sold to potential user up to 75 Birr per litter. The analysis shows that there is difference of
11.40 per litter which gives flexibility to the union in case the price of raw materials increased to some
extent. Other things being constant the price raw Niger seed will be tolerated up to 2000 Birr per quintal
with the current market situation of Niger seed. To make the price affordable to potential buyers the raw
materials should be purchased ahead of time during harvesting period where the union and farmers will
be benefited. The other option is to make contractual farming agreement among the producers and the
union where the union arrange credit facility for producers during production and collect the output based
up on agreement made. 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:
Estimated Revenues of the project within five years’ period:
Yearly Edible oil production in litters Year 1 Year 2 Year 3 Year 4 Year 5
2,024,98 2,069,98 2,114, 2,159,9 2,249,9
Niger seed edible oil production in litters
3.8 3.4 983.1 82.7 82.0
Unit sales price
63.6 64.6 67.4 70.4 73.5
128,799,30 133,751,5 142,509,2 151,988,40 165,280,4
Total Revenue from Edible oil
9.2 26.8 22.6 5.2 73.7
118,674,39 123,401,6 131,934,3 141,188,4 154,030,5
Niger seed Edible oil cost of production
0.2 09.6 07.2 91.6 63.7
10,124,9 10,349,9 10,574,9 10,799,9 11,249,
Income from Niger seed oil operation
19.0 17.2 15.4 13.6 910.0
47,2 48,2 49,3 50,3 52,
Total production in quintal
49.6 99.6 49.6 99.6 499.6
6
Production cost per unit
27.9 638.7 668.4 700.3 733.5
29,668,59 30,850,40 32,983,57 35,297,1 38,507,6
Total cost of production
7.6 2.4 6.8 22.9 40.9
7
Unit sales prices in quintal
00.0 735.0 762.0 790.0 850.0
33,074,73 35,500,2 37,604,3 39,815,6 44,624,6
Revenue from Niger seed cake
5.4 16.0 99.2 81.5 43.0
3,406,13 4,649,8 4,620,82 4,518,55 6,117,
Income from Niger seed cake sales
7.8 13.6 2.4 8.6 002.1
Income from operation of Niger seed (Edible 13,531,0 14,999,7 15,195,7 15,318,4 17,366,
oil and cake) 56.8 30.8 37.8 72.2 912.1
9.13. 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 8,411,954.45 and it is expected to reach Birr 17,417,329.24
at the end of year 5. The net cash flow is also positive throughout the project life. Therefore, it can be
Pg-45
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.
Pg-46
Five year Cash flow forecast
HARAGU FARMERS COOPERATIVE UNION NIGER SEED EDIBLE OIL EXTRACTION AND SEMI-REFINERY PLANT ESTABLISHEMENT PROJECT
Description Year 0 year 1 year 2 year 3 year 4 year 5
1.Cash flow
Union contribution 8,300,000.00
Loan inflow 18,095,512.00
Net income 0.00 13,531,056.85 14,999,730.81 15,195,737.77 15,318,472.17 17,366,912.07
Total cash inflow 26,395,512.00 13,531,056.85 14,999,730.81 15,195,737.77 15,318,472.17 17,366,912.07
2. Cash out flow
Fixed investment 15,545,512.00

Pre - production
expense 850,000.00
Initial working
capital 10,000,000.00
Principal payment 0.00 5,119,102.40 5,119,102.40 2,619,102.40 2,619,102.40 2,619,102.40
Total cash out flow 26,395,512.00 5,119,102.40 5,119,102.40 2,619,102.40 2,619,102.40 2,619,102.40
Net cash flow 0.00 8,411,954.45 9,880,628.41 12,576,635.37 12,699,369.77 14,747,809.67

Opening cash
Balance 0.00 4,660,989.52 2,722,527.06 2,836,024.93 2,669,519.57
Cumulative cash
Balance 8,411,954.45 14,541,617.93 15,299,162.43 15,535,394.70 17,417,329.24
9.14. Projected Cash Flow for Discounting

Net present value of Niger seed Edible oil extraction and refinery plant
Yearly Cash flows Present value Discounting rate 21%
0 -26,395,512.00 (26,395,512.00)
1 8,411,954.45 6,952,028.47
2 9,880,628.41 6,748,602.15
3 12,576,635.37 7,099,182.79
4 12,699,369.77 5,924,349.72
5 14,747,809.67 5,685,919.05 32,410,082.19
Net present value 6,014,570.19 6,014,570.19
IRR 30.1153358%
9.15. Viability of Niger seed Edible oil semi-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
Niger seed edible oil semi refinery plant Business plan: Haragu Farmers’ Cooperative Union. 2016
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 (21%). This rate often called the discount rate, opportunity cost rate, or cost of capital-refers to
the
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.
a. Net Present Value (NPR) and IRR

The discount cash flow statement shows that the project will accrue a Net Present Value of Birr
32,410,082.19 at the end of the 5th year and its Internal Rate of Return calculated to be 30.1153358%
where the decision criteria are invest whenever the NPV is above zero and the IRR is above the base rate
which 21%. The resulting IRR of 30.1153358% 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 26,395,512 ETB today the union will get return promise of a cash flow in the future that worth
32,410,082.19 today. This Edible oil semi-refinery project will increase the wealth of Haragu Farmers
‘cooperative union by 6,014,570.19 as the result of the decision made for the investment.
b. 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.
48
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.
c. 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.
Year Cash flow Discounted Cash flow Cumulative balance discounted cash flow
1 8,411,954 6,895,045 6,895,045

2 9,880,628 6,638,423 13,533,467
3 12,576,635 6,926,040 20,459,507
4 12,699,370 5,732,484 26,191,991
5 14,747,810 5,456,679 31,648,670
According to the study Niger seed extraction and semi-refinery project will pay back the initial
investment cost at the beginning of the fifth year as shown on the table above.
d. 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.
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 birr figure for a project), the profitability index is a relative
measure (i.e. it gives as the figure as a ratio).
32,410,082.19/26,395,512=1.227
So in this study, the PI = For invested we get back 0.227 ETB and this profit is from the Niger seed Semi
refinery plant establishment.
49
9.16. Break Even Analysis

Haragu Niger seed edible oil breakeven quantity on yearly basis
Break even analysis

N
o Description year 1 year 2 year3 year 4 year 5
63.6 64.6 67.3 70.3 73.4
1 Selling price per unit (A) 1 1 8 7 6
55.2 56.4 59.4 62.5 65.8
2 Variable cost per unit(B) 0 4 0 3 3
8.4 8.1 7.9 7.8 7.6
3 Contribution Margin per unit(C=A-B) 1 8 8 4 3
5,171,463.3 4,935,018.1 4,727,282.4 4,597,288.8 4,440,945.5
4 Total Fixed costs ( D) 4 0 3 5 6
Break- even point of each commodity in 615,276.4 603,392.8 592,377.4 586,549.3 581,908.3
5 Litters(E=D/C) 0 6 7 4 5
39,134,720.5 38,988,097.6 39,914,859.2 41,272,875.7 42,746,158.4
6 Breakeven sales in Birr(F=E*A) 3 2 9 5 5
Haragu Niger seed Edible oil income statement at breakeven point
Year 1 Year 2 Year 3 Year 4 Year 5
Break even sales in Litters
615,276.40 603,392.86 592,377.47 586,549.34 581,908.35

Description
Selling price per unit 63.61 64.61 67.38 70.37 73.46
Total Sales 39,134,720.53 38,988,097.62 39,914,859.29 41,272,875.75 42,746,158.45
Less total Variable Cost
Variable cost per unit 55.20 56.44 59.40 62.53 65.83
Total Variable cost 33,963,257.19 34,053,079.52 35,187,576.85 36,675,586.90 38,305,212.90
Contribution margin per unit 8.41 8.18 7.98 7.84 7.63
Total Contribution margin 5,171,463.34 4,935,018.10 4,727,282.43 4,597,288.85 4,440,945.56
Less Fixed cost
Total Fixed cost 5,171,463.34 4,935,018.10 4,727,282.43 4,597,288.85 4,440,945.56
Income at breakeven point 0.00 0.00 0.00 0.00 0.00
Haragu Niger seed Edible oil income at full capacity
50
Year1 Year 2 Year 3 year 4 year 5
Planned capacity sales in litters
2,024,983.80 2,069,983.44 2,114,983.08 2,159,982.72 2,249,982.00
Description
Total Sales 128,799,309.21 133,751,526.75 142,509,222.58 151,988,405.19 165,280,473.73
Less Fixed cost
Total Fixed cost 5,171,463.34 4,935,018.10 4,727,282.43 4,597,288.85 4,440,945.56
Net income 11,848,740.11 11,994,923.23 12,150,676.21 12,332,343.22 12,730,225.19
Haragu Niger seed edible oil semi refinery plant Niger seed cake Breakeven quantity (Five year)
Break even analysis
No Description year 1 year 2 year3 year 4 year 5
1 Selling price per unit (A) 700.00 735.00 762.00 790.00 850.00
2 Variable cost per unit(B) 591.43 604.67 636.44 669.94 705.29
3 Contribution Margin per unit(C=A-B) 108.57 130.33 125.57 120.06 144.71
4 Total Fixed costs ( D) 3,447,642.22 3,290,012.07 3,151,521.62 3,064,859.24 2,960,630.37
Break -even point of Niger seed cake

5 (E=D/C) 31,754.60 25,243.98 25,098.73 25,527.68 20,458.78
6 Breakeven sales in Birr(F=E*A) 22,228,219.60 18,554,326.52 19,125,229.76 20,166,864.52 17,389,963.98
Haragu Niger seed Edible oil semi refinery plant Niger seed cake Income at BEP
Description Year 1 Year 2 Year 3 Year 4 Year 5
51
Break even sales in Quintals

31,754.6 25,243.9 25,098.7 25,527.6 20,458.7
0 8 3 8 8
700.0 735.0 762.0 790.0 850.0

Selling price per unit 0 0 0 0 0
22,228,219. 18,554,326. 19,125,229.7 20,166,864.5 17,389,963.9
Total Sales 60 52 6 2 8

591.4 604.6 636.4 669.9 705.2
Variable cost per unit 3 7 4 4 9
18,780,577. 15,264,314. 15,973,708.1 17,102,005.2 14,429,333.6
Total Variable cost 38 45 4 8 1
108.5 130.3 125.5 120.0 144.7
Contribution margin per unit 7 3 7 6 1
3,447,642. 3,290,012. 3,151,521.6 3,064,859.2 2,960,630.3
Total Contribution margin 22 07 2 4 7
Less Fixed cost

3,447,642. 3,290,012. 3,151,521.6 3,064,859.2 2,960,630.3
Total Fixed cost 22 07 2 4 7
Income at breakeven
point 0.00 0.00 0.00 0.00 0.00
Haragu Niger seed oil semi refinery plant Income from Niger seed cake Income at full capacity sales
Year1 Year 2 Year 3 year 4 year 5
Planned capacity sales in Quintal
47,249.62 48,299.61 49,349.61 50,399.60 52,499.58
Description
Total Sales 33,074,735.40 35,500,216.00 37,604,399.16 39,815,681.47 44,624,643.00
Less Fixed cost
Total Fixed cost 3,447,642.22 3,290,012.07 3,151,521.62 3,064,859.24 2,960,630.37
Net income 1,682,316.74 3,004,807.57 3,045,061.56 2,986,128.96 4,636,686.88
Recommendation
52
The Consultant highly recommend the investment to be undertaken by Haragu Farmers’ cooperative
union to improve the income of members and address the objective of accessing quality products (Niger
seed edible oil and Niger seed cake where the demand for products is increasing from time to time. It is
true the price of Niger seed edible oil is increasing in the past five years and the price of Niger seed edible
oil is increasing with increasing demand. The second opportunity to Haragu Farmers’ cooperative union
to provide milling service to Niger seed producers so that the can pay milling service per litter where the
demand expected to be high. The risk of price instability with related to raw materials can be mitigated by
either early purchase of inputs or providing processing service to producers.
Balance sheet of the Union in the past five years
1993-1995 1996-1997 2001-2003 E.

1998.E.c 1999E.C 2000 2003-2005 E.c
E.c E. c c 2006 E.C
Total
318,077.34 535,474.47 1,463,690.76 18,240,191.55 25,334,665.72 23,934,240.12 29,352,340.71 66,986,624.45
Asset
Liability 134,807.93 131,846.24 946,293.53 17,586,235.93 24,150,638.07 22,389,147.09 25,401,484.91 57,972,293.25
Capital 183,269.41 403,628.23 517,397.23 653,955.62 1,184,027.65 1,545,093.03 3,950,855.80 9,014,331.20
Loan repayment History of HARAGU FCU
53
Year Loan received Purpose of Loan Bank Balance Due
2008 E.C 6,918,520 output purchase CBE 6,918,520
CBO
2007 E.C 10,112,480.00 output purchase +CBE 1,900,00.00 (CBO)
CBO
2006 E.C 10,027,900 output purchase +CBE 0.00
2005 E.C 3,000,000.00 output purchase CBO 0.00
2004 E.C 1,500,000.00 output purchase CBO 0.00
54

Final Niger Seed Edible Oil Semi Refinery Plant B.P.W

Uploaded by

Copyright:

Available Formats

You might also like

Final Niger Seed Edible Oil Semi Refinery Plant B.P.W

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Final Niger Seed Edible Oil Semi Refinery Plant B.P.W

Uploaded by

Copyright:

Available Formats

Olika Urgessa Business& Investment Consultancy Service, 0911002870; Email: Olikaurgessa @gmail.

NIGER SEED EDIBLE OIL SEMI REFINERY PLANT

] Prepared by Olika Urgessa Business and Investment Consultancy service

users and Controllers of the organization ) by adding value to members produces.

1.8.1. Import trend of palm oil 13

4.4. Infrastructure and technological environment...........................................................................23

5. Market Structure and Analysis 24

7. Organization and Personnel 34

8. TECHNOLOGY & ENGINEERING 35

9.1. Investment Outlay and Financing Scheme 37

9.7. Promotion Expense.....................................................................................................................40

1.1. Back ground of the Union

1.2. VISION, MISSION AND OBJECTIVES OF THE UNION

The specific objectives of the Union

1.3. Ownership and governance of the FCU

1.4. General purpose of the business plan

The specific objectives of the project are:

1.5. Oil Seeds Sector in Ethiopia

Niger Crop Production Oromia

Area, production of Niger crop by Zones in Oromia (source CSA 2003-2007EC)

1.6. Overview of H/Guduru Wollega Zone Niger Crop

Production of Edible Oil Seeds in the H/Guduru Wollega Zone

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

Rape seed 49,820.00 3,017.86 54,599.11 18.09

Source CSA data 2013/14

Yield hectare per Supplied local The remaining

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

2001/02 32,796 205,096 6.3 178433.52 26,662

1.7. Food processing sector in Ethiopia

Key Reasons for Investment in food processing

 Huge natural resource potential

 Increasing domestic demand

 Export market potential

 Potential for import substitution

 Export market potential

1.8. Edible oil industry

1.8.1. Import trend of palm oil

2008 192 1000 MT 47.69%

Source: United states Department of Agriculture

1.8.2. Palm Oil Distribution status in Horo Guduru Wollega zone

Months Supplied In litters

2.1. Demand at national level

Projected demand of Niger seed oil in tones

2.2. Edible oil demand in Horo Guduru Wollega zone

2.3. Type of product produced

3.5. Actions in line with the SWOT analysis result

4.1. Political environment

4.2. Economic environment

4.3. Social environment

4.4. Infrastructure and technological environment

5. Market Structure and Analysis

5.2. Target Market and Customer Base