Pre-Feasibility Study

GREENHOUSE FARM (Export of Fresh Cut Roses)

Small and Medium Enterprises Development Authority

Government of Pakistan
www.smeda.org.pk
HEAD OFFICE 6th Floor LDA Plaza Egerton Road, Lahore Tel (042)111 111 456, Fax: 36304926-7 helpdesk@smeda.org.pk

REGIONAL OFFICE PUNJAB 8th Floor LDA Plaza, Egerton Road, Lahore. Tel: (042) 111 111 456, Fax: (042) 36370474 helpdesk.punjab@smeda.org.pk

REGIONAL OFFICE SINDH 5TH Floor, Bahria Complex II, M.T. Khan Road, Karachi. Tel: (021) 111-111-456 Fax: (021) 5610572 helpdesk.sindh@smeda.org.pk

REGIONAL OFFICE KHYBER PAKTUNKHWA Ground Floor State Life Building The Mall, Peshawar. Tel: (091)111 111 456, 9213046-7 Fax: (091) 286908 helpdesk.NWFP@smeda.org.pk

REGIONAL OFFICE BALOCHISTAN Bungalow No. 15-A Chamn Housing Scheme Airport Road, Quetta. Tel: (081) 2831623, 2831702 Fax: (081) 2831922 helpdesk.balochistan@smeda.org.pk

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Greenhouse Farm (Export of Fresh Cut Roses)

DISCLAIMER
The purpose and scope of this information memorandum is to introduce the subject matter and provide a general idea and information on the said area. All the material included in this document is based on data/information gathered from various sources and is based on certain assumptions. Although, due care and diligence has been taken to compile this document, the contained information may vary due to any change in any of the concerned factors, and the actual results may differ substantially from the presented information. SMEDA does not assume any liability for any financial or other loss resulting from this memorandum in consequence of undertaking this activity. Therefore, the content of this memorandum should not be relied upon for making any decision, investment or otherwise. The prospective user of this memorandum is encouraged to carry out his/her own due diligence and gather any information he/she considers necessary for making an informed decision. The content of the information memorandum does not bind SMEDA in any legal or other form.

DOCUMENT CONTROL
Document No. Revision Prepared by Approved by Revision Date Issued by PREF-49 3 SMEDA Punjab Provisional Chief Punjab April, 2011 Library Officer

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EXECUTIVE SUMMARY

Pakistan is primarily an agri-based economy, there exists a huge potential of cut flowers cultivation for exports, especially when local growers have already accumulated many years of experience in cut flowers cultivation. The only requirement now is of putting up a proper glasshouse with efficient management and we are ready to take our share of growing international cut flower trade. Pakistan has one of the most fertile agriculture lands, where excellent quality flowers can be produced, it is only producing low quality cut flowers that are sold locally and a small number is exported to Middle East The world trade of cut flowers runs into billions of dollars. Netherlands serves as the center of cut flower trade. Millions of flowers are traded through the auction houses in Netherlands. Major suppliers of fresh cut flowers to these auctions are Kenya, Columbia, Zimbabwe, Ecuador, Israel, Iran and India. Besides these four major suppliers, there are many other exporting countries as well. Pakistan is also exporting Cut Flowers but majority of the industry is unorganized. Therefore, there is great potential for anyone who put up a greenhouse for growing fresh cut roses. This is the only way to get into export market on sustainable basis. A Greenhouse Farm needs a capital investment estimated at Rs. 14.634 million for construction and purchasing machinery & equipment. In addition to this, a sum of Rs. 0.913 million is required as working capital. The total project cost is estimated at Rs. 15.547 million. Projected IRR, NPV and Payback of the proposed project are 21%, Rs. 1.721 Million and 4.16 years respectively. This pre-feasibility is being prepared by SMEDA and is intended to provide general information on the opportunity for an investor in the floricultural sector to establish a fresh cut rose flower farm equipped with a glasshouse. This would allow the project to export flowers to European markets, thereby, adding value and maximizing profits.

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INTRODUCTION TO SMEDA

The Small and Medium Enterprises Development Authority (SMEDA) was established with the objective to provide fresh impetus to the economy through the launch of an aggressive SME support program. Since its inception in October 1998, SMEDA had adopted a sectoral SME development approach. A few priority sectors were selected on the criterion of SME presence. In depth research was conducted and comprehensive development plans were formulated after identification of impediments and retardants. The allencompassing sectoral development strategy involved recommending changes in the regulatory environment by taking into consideration other important aspects including finance, marketing, technology and human resource development. SMEDA has so far successfully formulated strategies for industries such as horticulture, including export of fruits and vegetables, marble and granite, gems and jewellery, marine fisheries, leather and footwear, textiles, surgical instruments, transport, dairy etc. Whereas the task of SME development at a broader scale still requires more coverage and enhanced reach in terms of SMEDAs areas of operation. Along with the sectoral focus a broad spectrum of business development services is also offered to the SMEs by SMEDA. These services include identification of viable business opportunities for potential SME investors. In order to facilitate these investors, SMEDA provides business guidance through its help desk services as well as development of project specific documents. These documents consist of information required to make well-researched investment decisions. Pre-feasibility studies and business plan development are some of the services provided to enhance the capacity of individual SMEs to exploit viable business opportunities in a better way. This document is in the continuation of this effort to enable potential investors to make well-informed investment decisions.

PURPOSE OF THE DOCUMENT

The objective of this proposed Pre-feasibility is primarily to facilitate potential entrepreneurs with the investment information and provide an overview about the "Export of Fresh Cut Roses Business". The project pre-feasibility may form the basis of an important investment decision and in order to serve this objective, the document/study covers various aspects of project concept development, start-up, and marketing, finance and business management. The document also provides sectoral information and international scenario, which have some bearing on the project itself. The purpose of this document is to facilitate potential investors of the Fresh Cut Roses business by providing them a macro and micro view of the business with the hope that the information provided herein will aid the potential investors in crucial investment decisions.

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This particular Pre-feasibility is regarding setting up a "Green House Farm (Export of Fresh Cut Roses)". This report is based on the information obtained from industry sources as well as discussions with businessmen. For financial model, since the forecast/projections related to the future periods, actual results are likely to differ because of the events and circumstances that dont occur as frequently as expected.

4
4.1

PROJECT INTRODUCTION
Project Brief

The world trade of cut flowers runs into billions of dollars. Netherlands serves as the center of cut flower Millions of flowers are traded through the auction houses in Netherlands. Major suppliers of fresh cut flowers to these auctions are Kenya, Columbia, Zimbabwe, Ecuador, Israel, Iran and India. Pakistan has no significant share in the international trade of fresh cut flowers. Although, Floriculture could not get established up to the mark in spite of availability of all natural conditions in the country. A large number of fresh cut flowers are wasted due to mishandling and other related problems. This pre-feasibility is being prepared by SMEDA and is intended to provide general information on the opportunity for an investor in the floricultural sector to establish a fresh cut rose flower farm equipped with a glasshouse. This would allow the project to export flowers to European markets, thereby, adding value and maximizing profits. 4.2 Opportunity Rationale

Production of high quality cut fresh flowers, especially roses, requires proper greenhouses where environment is controlled. This controlled environment gives the producer control over what kind of flowers he/she wants to produce and under what conditions. Another important aspect of using a greenhouse is that high quality flowers can be produced all year round, irrespective of the weather that exists outside. As Pakistan is primarily an agri-based economy, there exists a huge potential of cut flowers cultivation for exports, especially when local growers have already accumulated many years of experience in cut flowers cultivation. The only requirement now is of putting up a proper glasshouse and ready to take the share of growing international cut flower trade. Based on this scenario, it is high time to put up a glasshouse for growing and exporting fresh cut roses.

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4.3

Crucial Factors and Steps in Decision Making for Investment

Strengths Pakistan has got favorable climate conditions which are very helpful for raising cut flower. Cut flower crops also give premium prices almost round the year and there is no need to wait for a long time as in the case of other routine crops. Net profit against the investment is much higher from these compared with other conventional crops. The products are in high demand all over the world. Availability of cheap labor for growing cut flower. Weaknesses Floriculture in the country is in emergent stage. There are lack of resources and skilled persons to develop the industry up to international standards. The marketing issue are the limited airfreight space; lack of proper cold chain; lack of regional and international cooperation; patenting, royalties, the WTO laws; and inadequate transport facilities. Opportunities In Pakistan, most of the flowers are produced in winter when Europe sinks in the snow and most of traditional functions are held during that period. The available natural resources can be exploited commercially. Marketing of cut flowers is unorganized. In most cities, with large market potential, flowers are brought to wholesales markets, which mostly operate in open yards. The government should invest in setting up auction centres, as well as organize floral shops with better storage facilities to prolong life of cut flowers. There is considerable need for research on different cut flowers. In addition to developing varieties which give higher yield, the research should also seek to develop varieties which produce flowers and are more appealing to the domestic as well as international consumers. Threats Flowers are perishable products with a limited life span. Even if they are treated with life enhancing solution, their life is limited. If they are not sold in time they loose appeal and have to be dumped, resulting in economic loss. Poor image of sources (Logistics problem, lack of professionalism, inexperienced commercial attitude) The production issues which hampers growth of this industry are lack of required seed, flowers, germplasm and tissue culture facilities; lack of technological assistance; shortage of capital investment; shortage of trained manpower; poor post-harvest management; and lack of pest and disease control. Increasing airfreight rates.

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4.4

Basic Characteristics of a Greenhouse

The basic function of a glasshouse is to protect the plants from severe climatic conditions and provide favorable environment that is required for optimal production of the crop. But this alone does not sum up the characteristics and the benefits of a glasshouse. Following are a few of the benefits of a glasshouse: Production in a glasshouse increases yield by threefold when compared with conventional farming. Production in a glasshouse improves the quality of the produce by at least 50%. The output is disease free and conforms to the international hygiene standards. Production in a glasshouse reduces the harvesting period by half. Minimizing the command area optimizes land mass utilization. Any crop can be produced at anytime, irrespective of the conditions prevailing outside the glasshouse, by simulating/creating the required environmental conditions 4.5 Viable Economic Size

Taking into account the amount of investment required for putting up a proper glasshouse where all factors including, temperature, humidity, pest control, CO2 levels in air, etc. are controlled, it is suggested that the farm should be started on one acre land. 18,000 rose plants will be planted in the farm that is to be covered by the glasshouse. Besides the one acre that would be used as the cultivation field, approximately another four kanal area would be used for constructing a packaging shed, a storeroom and an office. 4.6 Project Cost

A Greenhouse Farm needs a capital investment estimated at Rs. 14.634 million for construction and purchasing machinery & equipment. In addition to this, a sum of Rs. 0.913 million is required as working capital. The total project cost is estimated at Rs. 15.547 million.

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PROCESS FLOW CHART

5.1

Picking of Flowers

It is an important process as it plays vital role for determining the price of flowers. Following steps should be followed Picking should always be done early in the morning. After picking wash the flowers in clean water. Flowers should be treated with life enhancing solutions to increase their life. Dry flowers with natural air after the use of preservatives. Inspect each flower for its quality then pack in wooden / cardboard boxes. Ready for delivery / distribution.

CURRENT INDUSTRY STRUCTURE

Pattoki serves as the center for floricultural activity in Pakistan. Though Kasur and Sheikhupura districts have also developed some expertise in this field, yet Pattoki still serves as the hub market for all floricultural trade. Patto mandi is the major forum for buying and selling of fresh cut flowers, especially roses. From Pattoki, flowers are distributed to all parts of the country including Karachi, Peshawar, Lahore, and Islamabad. Overall, this sector is still in infancy, still going through birth pains. This is not a good sign considering the years this sector has been around. The major reason for this slow development process has been the lack of interest on part of progressive farmers to enter this field. The credit goes to small and poor farmers who have kept on going without much technical and/or financial support over the years. Whatever pre-harvest and post-harvest handling techniques are being used is the direct result of their personal ingenuity, however primitive they may be.

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There are only few major players in this industry. Majority of the industry is unorganized. Therefore, there is great potential for anyone who put up a greenhouse for growing fresh cut roses. This is the only way to get into export market on sustainable basis. Total exports fall around US $40 billion all over the world and Netherlands, Japan, and United States of America (USA) account for nearly half of the world flower trade, whereas Indian flower exports stand at Rs 6 billion (GUV 2009)1. Pakistans total flower export is Rs 35 million (PHDEB)2 and it could earn billions of rupees through exports of flowers if the cultivation of flowers is promoted in the country.

6.1 Import and Export of Flowers by Pakistan3:

Table 6-1: Export of Flowers Trade Flow Export Export Export Export Trade Value $286,769 $217,776 $720,984 $358,986 Net Weight (kg) 200,926 138,974 338,286 242,941 Trade Quantity 200,926 138,974 338,286 242,941

Period 2006 2007 2008 2009

Reporter Partner Pakistan Pakistan Pakistan Pakistan World World World World

Table 6-2: Imports of Flowers Trade Flow Import Import Import Import Trade Value $61,895 $189,960 $216,376 $250,290 Net Weight (kg) 31,762 140,988 300,617 775,235 Trade Quantity 31,762 140,988 300,617 775,235

Period 2006 2007 2008 2009

Reporter Partner Pakistan Pakistan Pakistan Pakistan World World World World

1 2

Global Urban Vision 2009 Pakistan Horticulture Development and Export Board 3 UN Comtrade 8

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MARKETING

Many different types of people buy fresh cut roses for different purposes. Consumption patterns of buyers living in different parts of the world are varied. But these consumption patterns can be grouped based on common features. The purpose of purchasing flowers is mostly to give them away as gift. About 40 to 50 percent are used for this purpose. 20 to 30 percent flowers are bought for special occasions and about 20 to 25 percent are used for decoration. Roses are used to convey a message of love and are therefore, the most widely used flower in the world. It has sort of become a necessity for conveying the message of love on any occasion and in any situation. The proposed project has two different markets for the two different categories of fresh cut roses. The first market is Europe and USA for 'A' category flower. Middle East and Far East constitutes market for 'B' category flower. About 20% production would constitute 'C' category flowers, which will be sold in local market at the nearest 'Mandi'. In the export markets, there are three channels through which the product is sold, either at an auction house, directly to a wholesaler or directly to retail stores. It is advisable to start the proposed project with selling directly to wholesalers, both in Europe and Middle East markets, and then move to auction house option with the passage of time when capacity is increased. Auction house facility is not currently available in Asia, but India is starting its own auction houses for flowers and would lead the way in Asia very soon. Selling initially to wholesalers will help the proposed project to acquire the requirements and standards in Europe. With the passage of time when production is up to the required standards on regular basis, auction house option can be used. There will be three different market segments to be targeted by this project. The bifurcation of target market is based on two factors i.e. quality demanded and quantity demanded. The major demand for fresh cut roses is in Europe and USA. Therefore, the target market for 'A' quality produce is Europe and USA. Similarly for 'B' quality produce it is Far East and Middle East. And finally for 'C' quality produce, the target market is local market in Pakistan. The demand pattern also exists on the same lines. Mode of sale for export consignments would be on 45 days L/C or 45 days D/A basis. This is the general norm, which is followed around the world. It is only during periods of high demand that more favorable payment terms can be negotiated. As far as local sale is concerned, it would be both on cash as well as 15 days credit. The produce that would be sold in 'Mandi' would be against Cash. Direct sale to retailers and commercial exporters would entail 15 days credit at the maximum.

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Exportable cut flowers

It is interesting to know the Pakistan exports cut flowers, not only to the Gulf States but even to Europe. The exporting of cut flowers from Pakistan is still very much in its infancy as the necessary infrastructure, such as cold-storage, is not yet fully in place but it is still encouraging that this is now being looked at seriously. For the exports of cut flowers, Pakistan is updating technology but it still needs to look at alternatives to the countrys-old growing and exporting methods. Reshipment checking is a vital part of ensuring rotting perishable items sent abroad. Therefore Pakistan needs a cool chain which would ensure flowers/plants to be kept in suitable environment from the moment they leave the fields to when they reach the shelves. The development of the cool chain system would not only increase shelf life of the horticulture products but would also reduce exploitation of growers in the hands of the buyers due to their perishable nature. The cool chain system covering the whole country could save about the 40% production that is wasted due to absence of proper cold storage facilities and improper handling. It is necessary that TDAP (Trade Development Authority of Pakistan) and PHDEB should evolve a plan of action to boost production and exports. Although a cut flower farm is a profitable and attractive venture and there is an opportunity to get maximum profit by making the product value added for supplies to as flower baskets, bouquet, and bunch for direct export. The prospects are bright for the export value to double in a very short time. And if quality standards are maintained, the exporter will be able to command a premium price for these products. 8.1 Export constraints:

Pakistans export of floriculture product is not encouraging. The low performance is attributed to many constrained like: Non availability of air space in major airlines, since most of the airlines operators prefers heavy consignment. Exporters for infrastructural problem like bad interior road, inadequate refrigerated transport and storage facilities. Lack of professional backup of delivery and supporting companies, which resort in to high cost of technology. Tedious phyto-sanitry certification and an unorganized domestic market.

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9
9.1

Export/Distribution Channels
Figure: Export Channels of Cut Flower
Grower/ Producer

Auction House

Wholesalers/ Importer

Other Retailers (Garden Centers)

Traditional florists

Franchised florists

Supermarkets

9.2

Auctions

Auctions are an attractive option in that they are able to sell, as long as the quality is of the correct standard. Flowers are sold at the market price with secure payment, they are sold relatively quickly, and there are no quality disputes. However, auctions tend to work with larger producers of the mass-produced greenhouse varieties. 9.3 Via an import wholesaler

A producer can also sell directly to wholesalers instead of going through the auctions and/or agents. Import wholesalers often function as export wholesalers or wholesalers on the domestic market, and are able to advise and assist producers on all manner of technical and product know-how, from quality, presentation and assortment to transportation and handling matters. Wholesalers tend to conduct business at an arms length basis and without long-term contracts, trying to source the particular products they require. Thus big savings are to be made, both in time and money, by going directly to a wholesaler. But there are also potential problems, such as quality claims, volatile demand and payment issues. Overall the wholesaler function is becoming more important and more concentrated, with many wholesale companies becoming multinational and sending their purchases to all important world flower auctions. Added to this is the increasing role of e-commerce, where sales can be made online.

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9.4

Directly to a retail chain

More and more retail chains, including supermarkets, and garden centres purchase flowers directly from growers, bypassing the auctions, agents and wholesalers altogether. This obviously requires them to co-ordinate transportation and other logistics, and set up supply chains from the growers to the various domestic markets where their stores are located.

10 Export Procedure.
10.1 Sales Contract There should be a sales contract between the seller (Exporter) and the buyer (Importer).The seller (exporter) should prepare a pro-forma Invoice and send it to the buyer. The pro-forma invoice is an invitation to the buyer to place a firm order and it often requires the importer to make his import arrangements. In the pro-forma invoice following details should be mentioned. Product description Quality Price Terms of Payment (L/C,D/P,D/A etc.) Terms of Delivery (FOB, CFR, CIF etc.) Packing & Marking Details 10.2 Terms of Payment The terms of payment agreed between the exporter and importer depends on how well the exporter knows the importer, risk involved in the transaction, and the volume of business, Methods of payment for foreign trade are: Advance Payment Letters of Credit (L/C) Documentary Collection 1. Document against payment (D/P) 11. Document against acceptance (D/A) Open Accounts Consignment account 10.3 Sending Trade Samples The foreign buyer may ask for samples of products before a trade transaction takes place. In such a case the exporter will send samples of his products to the foreign buyer, and the samples are usually sent by air mail to avoid undue delay. Packaging

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Packaging is an important aspect contributing to the positioning of a product in the market. Packaging must protect the product on it way from the exporter to the ultimate consumer. The exporter should ensure that: The packages are properly packed to resist rough handling in the transportation by sea/air The packaging has been done according to the buyer's requirements as specified in the trade contract The shipping marks and the port of destination is marked on all packages. The packages are loaded in such a way to facilitate inspection by customs officials 10.4 Cargo Space Reservation

10.4.1 Sea Cargo Shipping space should be reserved well ahead of the date of shipment. Therefore the exporter should meet the shipping agent to get reserved shipping spaces. For this purpose exporter should submit duly completed shipping notes. 10.4.2 Air Cargo For air cargo, the exporter would have to check with the "Air Line Agent" officers servicing the country concerned. The exporter should submit a document called "Shippers letter of Instruction". Finally this document will be used to issue the Airway Bill (AWB)

11 FARM INPUTS
11.1 Land Requirement A one-acre plot would be required for growing flowers. This one-acre would be covered by glasshouse for production of fresh cut roses under a controlled environment. Besides this one-acre plot, another area (about four kanal) would be required for establishing a packaging room, a storeroom and an office block. Although land is available on lease, but considering the amount of investment required for setting up a glasshouse it is better to own your own land. Land prices vary between 600,000 rupees and 800,000 rupees per acre according to the location of the land. As this project is an export-oriented project, the farm should be located close to a city with an international airport. For this pre-feasibility study, we estimate the cost of 1 acre land to be 800,000 rupees.

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Table 11-1 Land Cost Description Green house Farm Packaging & storage shed Office block Total Cost 11.2 Building Building is required for housing the office block, packaging area, and storeroom. The office block would consist of two rooms and a reception. Table 11-2 Construction Cost Description Area Const. cost (in Rs) 350 850 Total cost (in Rs) 6,125,000 850,000 6,975,000 Area 1 Acre 17,500 Sq ft. 1,000 Sq ft Total cost (in Rs) 800,000 321,395 18,365 1,139,760

Packaging and Storage Shed Building (sq. ft.) 17,500 Office Block Building (sq. ft.) 1,000 Total Infrastructure 11.3 Rose Plants

A total of 18,000 rose plants would be planted in one acre. This would include three different varieties. As red color rose has the highest demand around the world, 50% of the plants would be Cardinal Rose. Pink Perfume and Perfect Moment would be the other two varieties with 25% plants each. Rose plants will be taken from local nurseries. 11.4 Greenhouse This is the most important input of this project. There are two options in this respect. First is to install an imported pre-fabricated glasshouse. Although, this is the best option, but the cost involved is so high that it puts the project beyond the reach of most of the potentially interested investors in Pakistan. Therefore, a second option is presented in this report. This second option is to fabricate the glasshouse in Pakistan using as many local components as possible. Although, it would not be as accurate an apparatus as the imported one, yet it will conform to international quality standards and would give the required quality in production. Major components of a glasshouse are: GI (Galvanized Iron) Pipes (grouting with PCC) - Load bearing columns Truss (mild steel) Re-enforcement Cage - 3mm Steel Strip Fiber Glass
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Cooling Pads Propellers/Extruders Water Storage Tank Water Circulation Pipes Water Pump Cooling Tower Ammonia Chilling units CO2 generators There are three basic types of a greenhouse. These are: 1) Lean-to 2) Detached 3) Ridge and furrow (gutter connected) In this report, it is recommended to use a glass house of length =54-6, width=22 & Height=15. It is selected because of its easy mechanics to build and operate. Table 11-3 Size of Glass Description P/F of Size Of Glass House Length =54-6 Width =22 Height=15 Tube well (2HP, 3.5 dia) Cost of Civil Works Generator Set (5 KVA) Total 11.5 Spray Machines Spray machine is required for the spraying of pesticides on rose plants inside the glasshouse. One such machine is sufficient for a one-acre farm. Good quality spray machine costs around 30,000 rupees. 11.6 Farm Fixtures and Tools Basic tools would include equipment for pruning, cutting, cleaning, and thorn removing. Besides these, certain other tools and fixtures would be required like plastic water tubs for washing the flowers, fans for drying them, tables for spreading the flowers for drying, and some testing and measuring instruments. All these fixtures and tools would be purchased locally and their total cost should not exceed Rs. 150,000. Pesticide, Weedicide, & Anti-termite Sprays Three different kinds of sprays are required to keep plants inside the glasshouse healthy and in prime condition. Pesticide sprays are important to save the flower plants from any attack from pests. Different kinds of pesticides are sprayed for
15

Qty 1

Total Cost (Rs.) 2,575,000 2,575,000 Rate

1 1

100,000

100,000 280,000 65,000 65,000 3,020,000

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different pests. On an average, one spray costs 900 rupees and four sprays are required every month. Total cost of pesticide sprays is 3,600 rupees per month. Weedicide spray is important to stop the growth of unwanted shrubs and plants. These unwanted shrubs and plants hamper the normal growth of rose plants by unduly consuming the energy of the soil. On average, one spray of Weedicide costs 950 rupees/spray and at least two sprays are required every month. Third important spray is the anti-termite spray. This is required to keep the plants free from termite attacks as termite attack can kill a plant in a few weeks time. Table 11-4 Pesticide, Weedicide, & Anti-termite Sprays Glass house Pesticide requirement per Year Weedicide requirement per spray Termite spray requirement per spray Total 11.8 Fertilizers Fertilizers are important to keep the soil nourishment up to the required level. Proper nourishment ensures healthy and strong plants. Four kinds of fertilizers are used in this project. Flower plants require DAP, potash, and ammonium nitrate fertilizers for proper yield. Sometimes one or two bags of urea are also required. 4 bags of DAP are required every quarter at Rs 3,025/bag. 3 bags of potash are required every quarter at Rs 700/bag, and 4 bags of ammonium nitrate are required every quarter at Rs 700/bag.But for this feasibility we are using the combination of NPK4 which cost 900/bag and 2 bags per month per acre are required. Table 11-5 Fertilizers Required Material NPK Per Bag Cost 900 Total Bags Required 24 Amount (Rs.) 21,600 One Spray Cost 900 950 900 Total Spray per Year 48 24 12 Total cost (Rs.) 43,200 22,800 10,800 76,800

11.9 Human Resource Requirements Project manager will be responsible for all the activities of the farm, whereas, the field manager will be responsible for the management of the glasshouse only. Table 11-6 Human Resource Employees Farm Manager
4

No 1

Per month salary 30,000

Total Salary (Rs.) 360,000

NPK is a combination of Nitrogen, Potassium and phosphors

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Marketing & Export Manager Export officer Supervisor Skilled field workers Accounts Officer Helpers (packaging) Driver Electrician Security Guards Total 11.10 Vehicles

1 1 1 2 1 2 1 1 2 13

50,000 25,000 15,000 7,000 15,000 7,500 7,000 10,000 8,000 197,000

600,000 300,000 180,000 168,000 180,000 180,000 84,000 120,000 192,000 2,364,000

An air-conditioned Toyota Hiace van would be required for transportation of packed flowers from the farm to the airport. Besides this, the van will also be used for other chores. A second hand Toyota Hiace would cost approximately 1.24 million rupees, including registration and insurance. One, second-hand small tractor will also be bought for the project. It would cost approximately 300,000 rupees.

12 OUTPUT
The production of rose flowers has seasonal variation. The purpose of putting up a greenhouse, with controlled environment, is to obtain constant production over the period of 12 months. This is important because otherwise with seasonal production it is not possible to access European markets, the prime target market of this project. The total number of plants in this project is 18,000. These 18,000 plants are of three different varieties. Each variety has different output. On average, yield of one plant is approximately 30 flowers for the first year and 45 flowers from second year and on wards. Therefore, total number of rose stems available for sale is 540,000 for the first year. Out of these, approximately 50% would be 'A' quality stems that will be exported to Europe. 30% of the output will be 'B' quality that will be exported to Middle East or Far East markets. Remaining output would be sold in local market. Capacity utilization is assumed to be 80% for the first year and 90% from second year onwards. In European market, two different prices prevail. One is if flowers are sold at the auction house and the other is if sold directly to any wholesaler. Selling directly to wholesalers fetches better price. This is so because at the auction house, the quantity sold is very large and the buyers have to pay commission to the auction house. Selling directly to the wholesaler helps him save all that cost and some of the benefit is passed to the supplier. This project envisages selling directly to the wholesaler. In the Middle Eastern market, auction house option is not available and therefore wholesalers are the only buyers. On average the European buyers give approximately Rs. 20-22 per stem. In Middle Eastern market, average export price is around Rs. 15. While in Pakistan, a major

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seasonal variation has been noticed in flower prices. Approximately 4% would be deducted from the export price of 'A' quality and 'B' quality flower stems. This deducted amount would be the freight cost.

13 REGULATIONS
There are no specific government regulations that affect this project negatively. Rather the government is encouraging export oriented projects and is trying to facilitate this process as much as possible. As this proposed project would be the first of its kind in Pakistan, it will lead the way in getting even more favorable government regulations, specifically related to this type of business.

14 KEY SUCCESS FACTORS

There are a few factors, which would make this project a successful business venture. They are: Growing demand of fresh cut roses in international market. First proper greenhouse equipped fresh cut rose farm in Pakistan. Ample experience of cut flower cultivation in Pakistan. The countries presently supplying cut flowers to international markets are moving to high tech industry, which is leaving a gap in supply demand situation. Easy access to European and Middle Eastern markets due to regular air flights to these destinations from Pakistan.

15 THREATS
As it is for any project, this project would also face certain threats. A serious threat is the destruction of cultivated flowers due to a number of reasons like pest attack, unforeseen change in temperature, and any mechanical or structural problem in the greenhouse. Another threat is fall in international demand and consequent fall in price. Although this is a distant threat yet, it cannot be ignored.

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16 FINANCIAL ANALYSIS
16.1 Project Economies
Capital Investment Land Building/Infrastructure Furniture & fixtures Machinary & Equipment Office vehicles Office equipment Pre-operating costs Total Capital Costs Working Capital Equipment spare part inventory Raw material inventory Land Tillage Cash Total Working Capital Total Investment Initial Financing Debt Equity Rs. in actuals 1,139,760 6,975,000 398,500 3,344,000 1,545,000 122,500 1,109,177 14,633,937 Rs. in actuals 8,292 155,165 750,000 913,456 15,547,394 Rs. in actuals 7,773,697 7,773,697 Equity 29% 4,149,778 3.96 Project 21% 1,721,013 4.16

50% 50%

IRR Net Present Value (Rs.) Payback Period (yrs)

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16.2 Income statement

Calculations
Income Statement
Year 1 5,745,600 43,200 44,400 21,600 45,965 888,000 9,950 1,800,000 2,853,115 2,892,485 1,476,000 120,000 213,408 172,368 114,912 77,250 40,000 57,456 57,456 889,750 181,835 40,000 3,440,435 (547,950) (547,950) 1,179,451 1,179,451 (1,727,401) (1,727,401) Year 2 10,180,485 45,360 46,620 22,680 78,341 905,760 10,050 1,890,000 2,998,811 7,181,674 1,309,680 126,000 378,132 305,415 203,610 84,975 44,000 101,805 101,805 889,750 181,835 40,000 3,767,007 3,414,668 3,414,668 991,153 991,153 2,423,515 605,879 1,817,636 Year 3 11,283,371 47,628 48,951 23,814 84,347 923,875 10,250 1,984,500 3,123,366 8,160,005 1,335,874 132,300 419,097 338,501 225,667 93,473 48,400 112,834 112,834 889,750 181,835 40,000 3,930,564 4,229,441 4,229,441 770,871 770,871 3,458,570 864,642 2,593,927 Year 4 11,847,539 50,009 51,399 25,005 86,034 942,353 10,455 2,083,725 3,248,980 8,598,559 1,362,591 138,915 440,051 355,426 236,951 102,820 53,240 118,475 118,475 889,750 181,835 40,000 4,038,531 4,560,029 4,560,029 513,172 513,172 4,046,857 1,011,714 3,035,143 Year 5 12,439,916 52,510 53,968 26,255 87,755 961,200 10,665 2,187,911 3,380,264 9,059,652 1,389,843 145,861 462,054 373,197 248,798 113,102 58,564 124,399 124,399 889,750 181,835 40,000 4,151,803 4,907,849 4,907,849 211,701 211,701 4,696,149 1,174,037 3,522,111 Year 6 7,333,003 55,135 56,667 27,568 50,251 980,424 10,878 344,596 241,217 2,297,307 4,064,043 3,268,960 1,417,640 153,154 272,369 219,990 146,660 124,412 64,420 73,330 73,330 889,750 3,435,055 (166,094) (166,094) (166,094) (166,094) Year 7 12,993,165 57,892 59,500 28,946 86,495 1,000,032 11,095 2,412,172 3,656,133 9,337,032 1,445,993 160,811 482,603 389,795 259,863 136,853 70,862 129,932 129,932 889,750 4,096,394 5,240,638 5,240,638 5,240,638 1,310,159 3,930,478 Year 8 14,400,758 60,787 62,475 30,393 93,126 1,020,033 11,317 2,532,781 3,810,913 10,589,845 1,474,912 168,852 534,885 432,023 288,015 150,538 77,949 144,008 144,008 889,750 4,304,940 6,284,906 6,284,906 6,284,906 1,571,226 4,713,679

Revenue Cost of sales Cost of goods sold 1 (pesticides) Cost of goods sold 2 (vedicides) Cost of goods sold 3 (fertilizer) Cost of goods sold 4 (packaging) Operation costs 1 (direct labor) Operating cost 2 (machinary maintanance) Cost of goods sold 5 (plants from nursery) Land Tillage Operating cost 6 (electricity) Total cost of sales Gross Profit General administration & selling expenses Administration expense Electricity expense Freight Charges for Export Flowers Travelling expense Communications expense (phone, fax, mail, internet, etc.) Office vehicles running expense Office expenses (stationary, entertainment, janitorial services, etc.) Promotional expense Professional fees (legal, audit, consultants, etc.) Depreciation expense Amortization of pre-operating costs Amortization of legal, licensing, and training costs Subtotal Operating Income Earnings Before Interest & Taxes Interest on short term debt Interest expense on long term debt (Debt facility : Bank 1) Subtotal Earnings Before Tax Tax NET PROFIT/(LOSS) AFTER TAX

Yea 15,120,

63, 65, 31, 94, 1,040, 11,

2,659, 3,967, 11,153,

1,504, 177, 561, 453, 302, 165, 85, 151, 151, 889,

4,442, 6,710, 6,710,

6,710, 1,677, 5,032,

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16.3

Projected Balance Sheet

Calculations
Balance Sheet
Year 0 Assets Current assets Cash & Bank Accounts receivable Equipment spare part inventory Raw material inventory Total Current Assets Fixed assets Land Building/Infrastructure Machinary & Equipment Furniture & fixtures Office vehicles Office equipment Total Fixed Assets Intangible assets Pre-operation costs Legal, licensing, & training costs Total Intangible Assets TOTAL ASSETS Liabilities & Shareholders' Equity Current liabilities Accounts payable Total Current Liabilities Deferred tax Long term debt (Debt facility : Bank 1) Long term debt (Debt facility : Bank 2) Total Long Term Liabilities Shareholders' equity Paid-up capital Retained earnings Total Equity TOTAL CAPITAL AND LIABILITIES 750,000 8,292 155,165 913,456 1,139,760 6,975,000 3,344,000 398,500 1,545,000 122,500 13,524,760 909,177 200,000 1,109,177 15,547,394 17,705 708,362 8,793 196,861 931,721 1,139,760 6,626,250 3,009,600 358,650 1,390,500 110,250 12,635,010 727,342 160,000 887,342 14,454,073 1,968,039 981,745 9,418 213,012 3,172,214 1,139,760 6,277,500 2,675,200 318,800 1,236,000 98,000 11,745,260 545,506 120,000 665,506 15,582,980 4,667,609 1,323,114 10,086 225,450 6,226,260 1,139,760 5,928,750 2,340,800 278,950 1,081,500 85,750 10,855,510 363,671 80,000 443,671 17,525,441 7,935,419 1,425,878 10,802 238,664 9,610,763 1,139,760 5,580,000 2,006,400 239,100 927,000 73,500 9,965,760 181,835 40,000 221,835 19,798,358 11,623,257 1,497,172 11,569 209,357 13,341,355 1,139,760 5,231,250 1,672,000 199,250 772,500 61,250 9,076,010 22,417,365 12,572,479 1,218,879 12,391 262,208 14,065,957 1,139,760 4,882,500 1,337,600 159,400 618,000 49,000 8,186,260 22,252,217 18,649,311 1,252,983 13,271 283,475 20,199,039 1,139,760 4,533,750 1,003,200 119,550 463,500 36,750 7,296,510 27,495,549 24,233,567 1,688,667 14,213 300,328 26,236,774 1,139,760 4,185,000 668,800 79,700 309,000 24,500 6,406,760 32,643,534 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8

Year 9

30,386,436 1,819,822 15,222 318,246 32,539,725

1,139,760 3,836,250 334,400 39,850 154,500 12,250 5,517,010

38,056,735

7,773,697 7,773,697 7,773,697 7,773,697 15,547,394

15,237 15,237 6,665,139 6,665,139 7,773,697 7,773,697 14,454,073

17,485 17,485 605,879 5,368,283 5,974,162 7,773,697 1,817,636 9,591,333 15,582,980

18,515 18,515 1,470,521 3,851,145 5,321,666 7,773,697 4,411,563 12,185,260 17,525,441

19,412 19,412 2,482,235 2,076,308 4,558,543 7,773,697 7,446,706 15,220,403 19,798,358

18,579 18,579 3,656,272 3,656,272 7,773,697 10,968,817 18,742,514 22,417,365

19,525 19,525 3,656,272 3,656,272 7,773,697 10,802,723 18,576,420 22,252,217

22,219 22,219 4,966,432 4,966,432 7,773,697 14,733,201 22,506,898 27,495,549

23,533 23,533 5,399,424 5,399,424 7,773,697 19,446,880 27,220,577 32,643,534

24,713 24,713 5,778,799 5,778,799

7,773,697 24,479,527 32,253,224 38,056,735

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16.4 Projected Cash Flow Statement

Calculations
Cash Flow Statement
Year 0 Operating activities Net profit Add: depreciation expense amortization of pre-operating costs amortization of training costs Deferred income tax Accounts receivable Equipment inventory Raw material inventory Accounts payable Cash provided by operations Financing activities Debt facility : Bank 1 - principal repayment Additions to Debt facility : Bank 1 Issuance of shares Cash provided by / (used for) financing activities Investing activities Capital expenditure Cash (used for) / provided by investing activities NET CASH Year 1 (1,727,401) 889,750 181,835 40,000 (708,362) (502) (41,696) 15,237 (1,351,138) Year 2 1,817,636 889,750 181,835 40,000 605,879 (273,383) (624) (16,151) 2,248 3,247,190 Year 3 2,593,927 889,750 181,835 40,000 864,642 (341,369) (669) (12,439) 1,029 4,216,708 Year 4 3,035,143 889,750 181,835 40,000 1,011,714 (102,764) (716) (13,213) 898 5,042,647 Year 5 3,522,111 889,750 181,835 40,000 1,174,037 (71,294) (767) 29,306 (834) 5,764,146 Year 6 (166,094) 889,750 278,293 (821) (52,851) 946 949,222 Year 7 3,930,478 889,750 1,310,159 (34,104) (880) (21,266) 2,695 6,076,832 Year 8 4,713,679 889,750 432,992 (435,684) (942) (16,853) 1,314 5,584,256

Year 9

(8,292) (155,165) (163,456)

5,032,647 889,750 379,375 (131,155 (1,009 (17,918 1,179 6,152,869

7,773,697 7,773,697 15,547,394 (14,633,937) (14,633,937) 750,000

(1,108,558) (1,108,558) (2,459,696)

(1,296,856) (1,296,856) 1,950,334

(1,517,138) (1,517,138) 2,699,570

(1,774,837) (1,774,837) 3,267,810

(2,076,308) (2,076,308) 3,687,838

949,222

6,076,832

5,584,256

6,152,869

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17 Key Assumptions
Table 17-1: Production Assumptions Description Production capacity (1st Year) Sale price growth rate (Flowers & Petals) Production capacity utilization Production capacity utilization growth rate Maximum capacity utilization Mortality rate Production (A grade) Production (B grade) Production (C grade) Table 17-2: Sale Price Assumption Description Sale price for export (A grade) Sale price for export (B grade) Sale Price for local market (C grade) Table 17-3: Economy Related Assumption Description Cost of goods sold growth rate Traveling expense Communication expense Office vehicles running expense Promotional expense Professional fees (legal, audit, consultants, etc.) % 3.0% 3.0% % of administration expense 2.0% % of administration expense 3.0% % of vehicles cost 1.0% % of revenue 1.0% % of revenue Price in Rs/Flower 20.00 15.00 5.00 Total Plants 18,000 Prod./Plant 30 5% 80% 10% 95% Amount / Other 540,000

5% 50% 30% 20%

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Table 17-4: Depreciation Assumption Depreciation Method Building depreciation rate Machinery & Equipment depreciation rate Office Equipment and Vehicle depreciation rate Furniture & Fixtures depreciation rate Straight Line Method 5% 10% 10% 10%

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18 ANNEXURE
Table 18-1: Raw Material & Machinery Supplier Raw Material Suppliers University of Agriculture, Faisalabad The Institute of Horticulture Sciences Faisalabad Tel: 041-9201085 Web: http://www.uaf.edu.pk Machinery Suppliers Saleem Enterprises (Contractor, General Order Supplier, Agricultural Green house, Glass House, Screen house) P-39, Scheme # 212, Part II, Dijkot Road, Faisalabad, Pakistan Tel: 041-2640142, 2416442 Fax: 041-2634042 Mobile: 0301-8666542 (Saleem Abbas) Email: saleementerprises42@gmail.com DADEX (ZarKaasht) 71, Commercial Area, Gulistan Colony, Faisalabad. Tel: (92-41) 8861981, 8787944 Fax: (92-41) 8787944 Email: faisalabad@dadex.com.pk Rehman Corporation 45-P Ravi Garden Satyina Road, Faisalabad, Pakistan Tel: 41-8777527 Cell: 03216677827 Fax: 041-8777327 Email: hitec_consultant@hotmail.com Web: www.rehmancorp.webs.com

Muhammad Siddiq & Sons P-167, New Grain Market, Dijkot Road Faisalabad, Pakistan Tel: 041-2612232, 2634943 Fax: 041-2614175 Mobile: 0301-8656840 (Usman Azhar)

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Table 18-2: Consultants Consultant Dr. Rana Aslam Khan Project Director, The Institute of Horticulture Sciences University of Agriculture Faisalabad, Pakistan Tel: 041-9201085 Mr. Saleem Abbas P-39, Scheme # 212, Part II, Dijkot Road, Faisalabad, Pakistan Tel: 041-2640142, 2416442 Fax: 041-2634042 Mobile: 0301-8666542 (Saleem Abbas) Email: saleementerprises42@gmail.com

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