g

Business Plan of
Agricultural Mechanization Tractor Service
Project
Promoter:Gebisa Bajega

Location:south /west/shwa zone Elu wordea

Apiril 2020

Elu
 Table of Contents
1. INTRODUCTION.......................................................................................................................................... 5
BACKGROUND.....................................................................................................................................................................5
AGRICULTURAL MECHANIZATION AND ITS IMPORTANCE.................................................................................................6
OBJECTIVE OF THE PROJECT...............................................................................................................................................6
2. PROJECT DESCRIPTION AND LOCATION...................................................................................................... 7
LOCATION 7
DESCRIPTION.......................................................................................................................................................................8
CREDIT RELATION................................................................................................................................................................9
LEGAL FORM OF OWNERSHIP.............................................................................................................................................9
MISSION STATEMENT.........................................................................................................................................................9
COMPANY GOALS AND OBJECTIVES...................................................................................................................................9
AMOUNT AND PURPOSE OF THE LEASE FINANCING........................................................................................................10
Purpose of the lease Financing loan.................................................................................................................................10
Amount of the loan...........................................................................................................................................................10
3. MARKET ANALYSIS................................................................................................................................... 10
IMPORTERS/DEALERS.......................................................................................................................................................11
SERVICE PROVIDERS..........................................................................................................................................................11
CURRENT DEMAND AND SUPPLY FOR TRACTOR HIRING SERVICE...................................................................................13
EXISTING NUMBER OF TRACTORS AND ARABLE LAND.....................................................................................................13
SUPPLY AND DEMAND SITUATION...................................................................................................................................15
Supply Situation 15
Demand Situation.............................................................................................................................................................16
Market size & Target Customers......................................................................................................................................17
Competitors’ 17
Quality advantage............................................................................................................................................................18
MARKETING PROMOTION AND STRATEGY.......................................................................................................................18
LIMITATION ON THE ANALYSIS OF DEMAND AND SUPPLY, AND GAP ANALYSIS.............................................................18
4. TECHNICAL STUDY.................................................................................................................................... 19
LOCATION 19
TECHNOLOGY AND ENGINEERING....................................................................................................................................19
Machineries and Equipment.............................................................................................................................................19
Machine Capacity and Service Provision Program...........................................................................................................20
Raw materials and inputs, Fuel and lubrication cost......................................................................................................21
Price of rental Tractor based land tillage per hector........................................................................................................22
Sales and Revenue Plan....................................................................................................................................................23
Action Plan 23
5. ORGANIZATION AND MANAGEMENT....................................................................................................... 24
MAN POWER REQUIREMENT............................................................................................................................................25
TRAINING REQUIREMENT.................................................................................................................................................26
6. FINANCIAL REQUIRMENT......................................................................................................................... 26
BUDGET BREAKDOWNS....................................................................................................................................................27
EXPENSES 27
RAW MATERIALS...............................................................................................................................................................27
WAGE AND SALARY EXPENSE...........................................................................................................................................28
OTHER INITIAL COSTS........................................................................................................................................................28
SUMMARY OF FINANCIAL REQUIREMENT AND SOURCE OF FUND.................................................................................29
FINANCIAL STATEMENT....................................................................................................................................................30
7. CONCLUSION............................................................................................................................................ 32
8. RECOMMENDATION................................................................................................................................. 32

2
 Executive Summary
While agricultural productivity in Elu werda is some how improving,
The main reason for low agricultural productivity in Elu Werda is that the Oromiyas
agricultural system is predominantly subsistence, characterized by the use of traditional
farming implements and practices, among others.
Agriculture, which employs 85% of the population, continues to use hand-tools for land
tillage, crop harvesting, threshing from thousands of years ago. These implements are hand
tools or operated using animal power, which is mainly oxen.
Mechanization plays a key role in enabling the growth of commercial agri- food
systems and increasing the efficiency of post-harvest handling, processing and
marketing operations. Consequently, it determines food availability and accessibility, as
well as food prices paid by urban and rural poor, thus contributing to increased
household food security.
In revealing the advantages of mechanization, FAO 2013 report had showed that there have
been a significant correlation between increased use of agricultural mechanization and
increased productivity. According to this report, Mechanization, along with other farm inputs
such as fertilizers and improved seeds can significantly improve agricultural productivity. It
increases timeliness, efficiency and consistency in field operations.
Timeliness is very critical in land preparation, sowing, crop harvesting and storing, especially
in Ethiopia where there is sequential cropping owing to the receipt of rainfall through two
seasons a year.
By and large, mechanization is needed to alleviate drudgery and to alleviate the load on
women, children and the elderly, all of which equates to an increase in labor productivity.
A study conducted by JICAF in 2013/14 in Sub-Saharan African showed that a tractor can
perform a land tillage faster than a 17 laborers can perform with the aid of draught oxen,
and; a combine harvester operate faster than 34 laborers.
Thus, mechanization shall contribute to save time and labor of the farmers so that farmers
will have ample time to be allocated for other works, which also enables to generate
additional income to the house hold.
These and other advantages of mechanization over utilization of hand tools and draught oxen
are calling to invest on introducing of agricultural mechanization that will be enabling the
small holder farmers to timely prepare land, sowing and harvest their crops as early as
possible to cope up with the erratic rainfall condition.
This feasibility study envisages the viability of rental land tiller tractor service for
smallholder farmers. The rental machineries are particularly proposed to provide hire
machine for small holder farmers, farmers’ cooperatives, unions and private farms.
 1. Introduction
Background
Agriculture remained as the back bone of the Ethiopian economy since long time. Agricultural
products have the lion-share in the export business of the country, and hence it is one of the
major source of hard currency. However, the volume of the exportable agricultural products is
still remained minimal, even if expected before meeting the local demand.
Farm power is mainly dependent on oxen-draft and human muscle operating using traditional
farm implements. Oxen-pulled ‘maresha’ is the dominant farm implement in cereal-based
systems whereas hand-hoe is the main farm implement used in agroforestry systems. The level of
tractor-based agricultural machinery use is relatively better in wheat dominated cropping systems
where harvesting and threshing are done using combiners.
A country where more than 85% of its population involve in agriculture, having a challenge of
food security and shortage of marketable agricultural products and even presence of imported
gaining like wheat might be attributable to less productivity of the land which in turn can result
from various factors including the following :
 Lack of improved seeds that have higher yield for the farmers,
 Dependency on rain fed which limited many of the farmers to only one or two times harvests
per year,
 Lack of Technologies like agricultural Mechanization and Modernization of the agriculture,
o Our farmers still using traditional way of farming system by animals and this
makes the work labour intensive and less productivity,
o There is no technology for sawing their seeds they are still using by hands this
making the work laborious, wastes seeds and fertilizers, give chance of promoting
growth of weeds,
o Manual harvest which results in wastage of more crops during harvesting,
collecting to a thresher center, trashing, winnowing and transporting to the
warehouse,
o Loss from harvesting prior to storage is estimated to be 10 to 20%,
o During storage prior to processing can reach 15%,
 Using of traditional warehousing and storage system which exposes the crop for loss and
more wastage and even damage specially by rodents,
 Lack of output marketing skill and presence of loose market linkage also contribute in
limiting the productivities of the farmers due to the flow of the major benefits from the
agricultural products to the middle men and brokers than to the farmers.
 Besides, absence a scheme that protects the minimum benefit to the farmers leads to sell of
agricultural products at loss whereby the moral of the producers shrinks in the upcoming
seasons.
The Government of Ethiopia has given more attention to agricultural sector for ensuring the
economic development of the country and Oromia regional state also give higher Priority for
poor Oromia community and involve them in Oromia economic revolution to realizing
economic growth of the region.

Agricultural Mechanization and its importance

The main purpose of mechanization is to make more efficient director of power and create
favorable conditions for increasing production and productivity of a system. The importance
of improved and appropriate agri. mechanization technologies can be summarized as follow:
 Timeliness of the operations,
 Precision of the operations,
 Improvement of work environment,
 Enhancement of safety,
 Drudgery of labor is highly reduced,
 Productivity per unit area is increased,
 High economic return,
 Progress and prosperity is inevitable,
 Supporting rural employment and increasing skill diversification,
 Provide entrepreneurship opportunities to increase additional livelihoods

Objective of the Project

The main objective of this project is to provide agricultural Mechanization services to the
framers of the Elu wereda regional states on rental basis and increasing production &
productivity of strategic and high value crop, with considerations for the needs of women, youth
and the environment. Specifically the project aimed at presenting tractors, planters, Combiners,
and other
relevant agricultural mechanization services technologies on a rental basis for individual farmers
and increasing individual farmers income.

2. Project Description and Location

2.1Location
Elu Wereda is located in the S/W/S/of Oromia region .. The region is Administratively sub-
divided into 2 town and 13 kebale
The project is located in Oromia Elu Wereda which is characterized by favorable temperature
and sunshine for crop production, availability of sufficient potential farm lands ,fertile soil,
suitable topography as well as diversified as agro ecology that makes the demand available all
the year round for agricultural mechanization service
This project is proximity to the customer (farmers, Unions, private and MSE's /universities and
TVET graduates ) which is the main factors that influences choice of the project whose going to
be the customer /beneficiary of the project.
The location has a number of advantages like: - easily available skilled and semi–skilled man-
power in the area, proximity to the major farm land, availability of favorable Eco- system for
mechanization.
The project is located around Finfinnee that the project has great advantage compared to other
regions which has low transportation cost and other costs and would be able to access spare
parts, fuel and garage service without big difficulties. The selection of the particular project
should be considered as the convenience to the farmers, MSE enterprises and Coop.Unions.
A. Availability of utility
As different sources (web site, report) indicate that there is availability of utilities like
accessibility of water, electricity and communication device telephone, internet and fax
important for smooth operation of the project.
B. Availability of inputs/raw materials
Since the project is service rendering, no raw material is required
C. Machinery and equipment
As it is obviously known, Selection of machineries and equipments has critical importance since
it has the capacity to determine the quantity and quality standard of the product intended to
produce. Therefore, it is mandatory to thoroughly identify whether the appropriate type of plant
that meets the consumer’s requirements selected and all the necessary machineries and
equipments are included.

Description
Tractor is a self-propelled power unit having wheels or tracks for operating agricultural
implements and machines including trailers.
Most commonly, the word tractor is used to describe the distinctive farm vehicle. The farm
tractor is used for pulling or pushing agricultural machinery or trailers, for plowing, tilling,
harrowing, planting and similar tasks.
The main service provided are land tiller through rental tractor service for small holder farmers
Unions and MSEs. The tractor machine is used to plough land with better quality as compared to
the Oxen power based served by the traditional Maresha by the majority of the small holder
farmers.
The tractor operates with respective accessories known as disk plough and the disk harrow .The
disk plough performs the soil tillage/ Digging of deep into the top soil while the disk harrow will
cut and digest the soil practices in to smaller units and make ready for sowing. The land tiller
tractor service saves labor and time. Thus by implementation of this project, a significant
increase of yield by more than 4 folds could be realized by customers/beneficiaries. Due to
increased customer's satisfaction, the company can increase number of customers and respective
sales that generate additional income. Mechanization ,along with other farm inputs such as
fertilizers, improved seeds and pesticides, can significantly improve agricultural productivity in
Ethiopia as well as in Oromia.
The major crops produced by the smaller holder farmers are mainly wheat, barley, Maize, Teff
etc while various irrigated fruit and vegetables in some parts of Oromia. The competitive edge of
renting of Agricultural machineries and equipment's project to attract more customers than any
other competitors who came from elsewhere in the country with only few exposures to the local
people and culture.
Consequently, the promoter shall be benefited from increased income through getting optimum
profit while the country shall be benefited from competitive advantage of efficient use of
resources and improved food self sufficiency goals and increased export.

Credit Relation
So far the company has no credit relation with any bank or micro finance institutions, this
request of lease financing from Bank is the first in the history of those promoter to pursue and
establish net working to get credit.

Legal form of Ownership

Renting of agricultural machineries and equipments is established by small holder farmers, MSE
and Cooperative unions whose address is located in Oromia region.
The legal ownership right of rental tractor service project firm is entirely found under a sole
proprietor or Partnership of Oromia region farmers, Cooperative unions and MSE.
 .
Amount and Purpose of the lease Financing
Purpose of the lease Financing loan
The lease financing project loan has been requested for purchasing of 1,235 tractor and its
accessories known as disk plough and disk harrow .The machine shall be used to provide rental
land tiller service for small holder farmers, Unions and MSE
Amount of the loan
The total cost of the machinery is estimated 3,240,059,159.00 EB out of which 80% will be
covered from the bank in the form of lease financing while the remaining 20% of the total
project cost is owner's contribution in the form of equity.

3. Market Analysis
Ethiopia does not have agricultural mechanization industry except the single government owned
cooperation .i.e Adama Agricultural machinary industry involved in assembly of tractors. As a
result of this, the availability of agricultural machinaries, particulary, for small holder farmers,
who do not have adquate finance and collateral to buy imported machinaries was, so low . These
organization/farmers, Cooperative unions & MSE on farm machinaries provided through rental
services, even though there are also various problems with regards to rental systems.
Major problems related with agricultural machinary service in Ethiopia/Oromia high cost of
hiring mechanization services, shortage of quality machinary, inadquate maintenance service and
experts, poor quality of spare parts, flactuation in fuel prices, and inadquate knowladge among
smallholder farmers about benefits of mechanization and significantly demand and supply.
To understand the overall technology market system for small scale mechanization technology it
is useful to understand the key players involved in the system. The sub sector analysis
recognized the importance of three major group that have to work together to ensure success.
These are the Importers/dealers, service providers and farmers. Each group has a different
role to play and represent different interests. For sustainable mechanization, the role of each of
these group and their coordination is very important.
Importers/dealers
The private sector has greater role to play in the production, transformation and
commercialization of agricultural product. The agricultural mechanization private sector is
represented by local importer, manufacturer and dealer. Here in Ethiopia we do have around 10
importers/manufactures /dealers that involved in agriculture machinery business. Some of them
are IGT Plc, Kaleb service Plc, METEC, Ries Engineering, Gedeb Engineering, Agricultural
Mechanization Corporation (AMC), Moenco, Hagbes, Ultimate Motors, Liyons ,Amio
Engineering.

Service Providers
Cooperative Unions
There are about 2 tractors in Elu wereda . The Cooperative Unions have a farm mechanization
business giving tractor hire for the members of the Cooperative unions and to any interested
individual farmers.
Farmers
Farmers are not the user of agricultural mechanization technologies. Most farmers own 1-2
hectares, where most own about a hectare. Oxen and hand tools are the main source of power but
all farmers do not have a pair of oxen, in this case, they share and do the work turn by turn.
However they think that walking tractors could have a better chance of diffusing in their kebele
because of lack of power, small land size and light soil of their farm.
Here, tractors are not know very well. As such, awareness should be created and start with
evaluation and demonstrations of the technology to the community. Beside this, operators and
maintenance and repair service training should be handled by upgrading the local skill.

Model farmers
Most of the model farmers predominantly use oxen. Ox is the main source of tilling power.
They all do have little or no experience on using tractors and combiners. Some of the farmers
that used tractor found in their area are linked with the Cooperative unions and private
contractors that provide tractor hire service for the farmers but mostly the service providers are
not willing to give the service to the small number of farmers area due to small number of
clients, small plot of land and topography of the area hinder them not to use tractor services. On
the other hand, tractor and combiners are not known well in other some parts of elu worda west
sh/ zones, it seems like willingness to accept the technology, soil type and topography of the
areas might give a possibility for the commercialization awareness creation and demonstration
and a lot of field days is expected to bring the model farmer into agricultural technology system.
Women farmers
Most of the women group that we had a discussion do have land holding ranges between 0.5 -1.5
hectares but the majority own about 0.75 hectares/household. Land preparation is effected using
manual labor and oxen. The first and subsequent plowing are using labor by hiring farmers for
these services. Women farmers never used tractors because of unavailability, small and
fragmented land size.
Tractors/combiners cultivate/harvest on time since most of them miss the season of planting and
ripe due to the delays in tilling and harvesting as a result of using hoes; reduced labor cost since
they have to use other hired laborers.
The machines till deep into the soil which brings up the fertile soils that otherwise wouldn’t be
attained by using hoe; facilitate easy management and supervision of agricultural activities;
reduces human labor; increase production.
Current demand and supply for Tractor hiring service
Nowadays, agricultural machineries are being used in the rural areas by commercial farmers,
small holder farmers and cooperative unions more frequently than the past. Traditional
oxen based cultivation method is giving away to mechanized farming in some part of elu worda
in 15 kebeles.
Over the last eight years, particularly since 2011G.C, the use of various types of tractors are
shown a definite increased trend. Reasons are many, namely, increased attention of government
for commercial farmers, availability of financial support for investments, farm machinery Lease
financing Opportunity, increase foreign direct investments and export, etc.

To assess the current demand and supply of rental tractors services in EluWereda :-
a) The number of tractors available to provide the rental services and the cost of plowing farm
land in the region was examined.
b) In addition to this, the quantity of arable lands which is suitable for mechanized farming was
taken care of.
c) Opinion of farmers and awareness as how they relate land productivity attained by tractor and
combiner based tillage and harvest system visa-vis the oxen power, was assessed. Based on this,
number of the small holder farmers that needs rental tractor and combiner service at current was
estimated, and the demand to be reached after 5 years, was projected and also included in this
business plan.
Existing Number of Tractors and Arable land
Currently, there are numbers of small and commercial farmers in Oromia region. All farmers
need to use modern technology to plough on time and increase their production per hectares; it
has highly demand and expects to increase 5% - 10% per year. Demand for tractors is deadly
justifiable in the envisaged area.
A. Demand Situation
No Total Cultivate Total that require Total that require
d area (HA) Tractors service by (%) Tractor Service by (HA)
23,257 65 15,117
Source: elu worda Agriculture & Natural Resource office annual report.
Total cultivated land under the above crops-----------------23257
Total Demand for tractor service 65% of the cultivated area 15,117

Existing Number of Tractors

The result of the situation analysis has shown that there is an increasing trend in the number of
tractors and an estimated 2 tractors were in use as of 2017, and a significant increase since 2019
when the number was about 2
During 2020, there are more than 4 four wheeled tractors in the country owned by both private
and public sectors.

Existing Arable land

elu farmers are also diverse; agriculture is dominated by small holder farming. There are about
10 258 households (of which about 60 %, which operate on less than 1 hectare of farm land
while only about 1% of farmers operate on land greater than 4 hectares. (
.

Supply and Demand Situation

Supply Situation
We didn’t get stable data of recent years of tractor in elu worda and, thus,we forced to be based
on those data that was available from 2019 up to 2020. Moreover, these data shows fluctuating
trend.
It was well discussed in the preceding sections that the supply of tractors never fulfilled the
demands of small holder farmers in elu worda Since the demand for rental tractors service is
increasing rapidly due to increased awareness of farmers and the agricultural development
processes.
Supply side Situation
As a Elu worda of Tractors available to provide rental service for small holder farmers during
2019 is 2 tractors,
Supply projections for rental tractor service is assumed to increase based on the targets set in
GTP II growth Trends for Agriculture and GDP Growth Rate, which is 8 % and 11%,
respectively. Thus, it was assumed that the rental tractors supply will be increased on the rate of
10% each year, as depicted in the table here below.
Table: Projections of tractor supply in Elu wereda
Year Projected number Maximum capacity Projected land ploughed
(Supply of rental of land plough per a through rental service per
tractors) tractor per annum (ha) annum (ha)
2020 3 1274 3822

Demand Situation
This demand Situation is base on the facts :That tractor rental service is already in deficit of
supply as a result there will be continues need to satisfy the unachieved demand.
Awareness of farmers will increase on the advantage of mechanized farming so that the
remaining farmers who didn’t utilize mechanization so far will gradually become the
beneficiary. Obviously, this will increase the demands for rental tractors.
Potential agricultural lands will be increasing due to increasing population number and the
related demand through deforestation and changing from other land uses such as from grazing
lands and others . Due to increased arable land, the demand for mechanization will also be
increasing.
Assumptions set to calculate the Demand side projections
The demand for tractor depends on the number of hectors of land and the capacity of the
available tractors.
In Ilu Worada the total arable land 23257 hectors Land owned by Small holder farmers and who
can able to utilize mechanization 15117 hectors
Arable land expansion is assumed to increase by 1% per annum.
Number of times required to plough a given arable land=3 times (Obvious reasons)
Table: Demand Situation for rental tractors

Year Quantity of arable land Each quantity Total hectors Number of Tractors
of small holder farmers of land shall available for required (on the bases
for mechanized farming be tilled 3 rental tractor of 1 tractor ploughs
(ha) times tillage (ha) 1274 ha per annum)
2020 23257 3 15117 7

Source: Ilu Worada Agricultural office Annul Report

The Existing Demand Of Farmers, Union and MSE

SN Description Number of Tractors it’s Number of row
accessory required planters required
1 Farmers demand 1
2 Union/Cooperatives
3 MSE
Ida’ama 1

The Existing Demand of Farmers, Unions & MSE

Market s ize & Target Customers

The market size of this rental tractor mechanization is related with the small holders farmers in
Ilu Worda who uses rental tractor services and the target customers for tractor mechanization
project are smallholder farmers in Kebele

Competitors’

The tractor mechanization project will have a competition from few similar rental tractor service
providers in the nation in general and in the project area, in particular.
However, Farmers, tractor mechanization project will have the following competitive
advantages over worda ;
 Quality advantage
The tractor machines are many of the state of art technology .They are John Deer, Massey
Ferguson ,New Holland & etc tractor which are the most quality that plough deep into the soil
and the most efficient Tractor suitable to plough the heavy clay Verity soil of Ilu worada the
project areas.
Marketing Promotion and Strategy
To reach customers different marketing ways will be used. Among the different marketing
strategies and tools for promotion works include;
Printed and non printed forms of advertising, Electronic etc
Sponsorship of key government activities and public support mechanism;Trade fairs;
Participating on farmers field days

Limitation on the analysis of demand and supply, and gap analysis

1) Data of available tractors are not available explicitly for woredas, rather the data is available
for regional level,
2) Oromia has diverse agro-ecological zone, and thus, different areas have different rainy season.
As a result of this, Many rental tractors who are licensed elsewhere in the region shall flow to
any area where the season allows for land tillage.
3) As a result of this, the team (document preparation team) has faced challenge to depict the
demand and supply of rental tractors for woredas level, particularly, demand and supply of rental
tractors. Thus, we used the national level demand and supply we made for rental tractors.
 4. Technical Study
Location
The project is located in Oromia Region, while it operates in four zones, S/W//shoa Zones Ilu
Worada.

Technology and Engineering

Machineries and Equipment
The importance of the tractor machinery is that it saves labor and time, it cultivates the soil better
than the traditional “Maresha”, the machine can operate for more than 16 hours as compared to
oxen which cannot go beyond 6 hours. Tillage by the traditional “ Maresha” and oxen based
system is one of the backward land preparation system that contributed to low yield, and even
difficult to compare with the Tractor based tillage system.
Thus, by implementation of this project a significant increase of yield by more than 4 folds could
be realized by customers. This will increase customer satisfaction. Due to increased customers
satisfaction, the company can increase number of its customers and respective sales, that enable
to generate additional income. Consequently, the promoter shall be benefited from increased
income through getting optimum profit while the Wereda shall be benefitted from competitive
advantage of efficient use of resources and improved food self-sufficiency goals and export.
Source of Machinery
The machinery will be imported from Europe such as Italy, Holland or Germany. Performa
invoices were collected from MOENCO, Rice Engineering and Ultimate Motors.
 Installation cost
The Tractor machine we import will not require sophisticated installation technique; thus, it is
very easy to install. It will not take much time and labor. It just need connecting of the tractor to
the above discus and adjusts the machine, and then it can start functioning. Thus, no cost is
required as the driver can perform.
Machine Capacity and Service Provision Program

The machine to be imported through the lease financing program of the DBE is the strongest
Farm Tractor machine with all accessories.
At its full capacity operation, the machine operates 16 working hours per day, in 2 shifts, 6
working days per week, 26 working days per month and 300 working days per year. The
machine shall operate at a capacity of 50%, 66.67%,83.34 %,90% and 100% during the first,
second and third years, respectively.
Accordingly, it is assumed that after year 2, resulted from sufficient promotion works, all
customers would be expected to have adequate information about the services provided by the
company through rental services for customers.
Provided that sufficient customers base will be developed till year three, the machine would be
expected to operate at its full capacity, in two shifts of 8 hours each, per day. Thus, the machine
would plow 16 hectors per day, at its full capacity.
Table Machine capacity and service provision program
S.N Description Year 1 Year 2 Year 3-5
Capacity operation 50% 66.67% 83.3 - 100%
Assumption machine 7 hectors (3 times) 8hectors/3times 10 -12 hectors (3
working capacity per day and 182 perday&150wo times) per day and
working days r king days 100 days per annum
Amount of hectors
ploughed per annum (by 1
tractor) 1274 1274 1465 1648
 Raw materials and inputs , Fuel and lu brication cost
The raw materials for tractor machine and mounted equipment are fuel and lubricants, grease,
change of fuel filter, change of different used oils and replacing by new.
Fuel and lubricants are daily consumed as the tractor does a job or travelled. A tractor utilizes 15
liters of fuel oil to plough 1 hectors. Assuming 30 birr per litter, the fuel cost will be 450 birr per
hector. Oil & lubrication is assumed to be 10% of the fuel cost which is 45 birr per hector. Thus,
the total fuel and lubrication cost per hector will be 495 birr.
Change of fuel filter, greasing and overall service is assumed at 630630 birr per annum per
tractor.Thus, the annual cost of fuel, lubrication, service and other related costs are summarized
in the table below.
Table: Costs of Raw materials and inputs
S.N Description Year 1 Year 2 Year 3 - 5
Capacity operation 50% 66.67% 83.3- 100%
Amount of hectors ploughed per annum 1274 1465 1648
Fuel cost per annum (450 birr per hector) 573300 659250 741600
Oil and lubricants(10% of the fuel cost) 57330 65925 74160
Change of fuel filter, greasing and
20000 20000 20000
overall service
Total 650630 745175 835760

Direct Labor Cost

Cost of direct labor is considered under this title of raw materials and inputs. Cost of direct
laborers include the wages and salary of 8 persons ( 1 General Manager, 2 drivers, 2 assistant
drivers, 1 cahier –accountant, Marketing head, and Tractor rental & customer service ). Work
commission is also an important element that characterizes the envisaged machine rental service.
 Table: Cost of direct and indirect labor (wages/salaries).
S. Position of Units of Quant Unit Total cost Total Cost Direct labor INDIRECT
N employees measur ity cost per month per annum LABOR
ement per
month
1 General Manager No 1 10,000 10000 120,000 120,000
2 Tractor Drivers No 1 8,000 8000 96000 96000
3 Assistant drivers No 1 5000 5000 60000 60000
4 Cashier accountant No 1 3000 3000 36000 36000 36,000
5 Marketing officer No 1 3000 3000 36000 36000 36,000
6 Machine rental and
Customer service No 1 2,000 2000 24000 24000 24000
department
Cost of work 0 0
37200 25200
commissioning
TOTAL 0 0 216000

Price of rental Tractor based land t i l lage per hector

The price of tractor tiller depends whether the tillage is first round, second or third round. In
addition to this the price also varies from one wereda to another based on the soil type, its
suitability for mechanization and distance of the wereda from the capital, Finfine due to
implication of the distance of the specific wereda for the fuel cost.
To set price of the rental mechanized tractor tillage, the current prices of tractor tillage in the
project areas of Werdeda were considered. The following current prices per hector for first,
second and third tillage in theWerdea were considered.
 Sales and Revenue Plan
Table: Sales and Revenue Plan
S.N Description Year 1 Year 2 Year 3-5
Capacity operation 50% 66.67% 83.34%-100%
Number of hectors ploughed per annum 1274 1465 1648
Average Prices of tillage per hector 2000 2000 2000
Total Revenue 2,548000 2,93000 3,296000

Action Plan
Description of activities April May Jun July Aug Sept Oct Nov Dec Jan Feb Mar

Business plan prepared

and submitted
Business Plan reviewed
and approved by the
Bank
Machinery Ordering and
Importing
Hiring key man power

Training to man power

on core values, goals and
objectives to be attained
Start Operation
 5. ORGANIZATION AND MANAGEMENT
The success of any business is determined largely by its internal structure and the relationship it
has with relevant institutions and customers. It is well known that businesses with low turnovers
emanated mainly from lack of close and trusting relationships with their customers.
Therefore, the organizational structure of this company is organized in such a way that is suitable
to build strong and close relationship with its customers. Another important organizational issue
of the organization is that jobs are well find, and mandates and responsibilities are clearly stated.
Key organizational issues are also related to the effectiveness of the operations and on how
strong they are supported by its management in achieving its objectives, and how frequently they
are monitored by the management whether operations are efficient in terms of costs and time
management.
Another critical issue which is often overseen when new businesses are established was lack of
training. However, in this envisaged lease financing machinery project motivating and training of
employees were taken care of.
The organizational structure of the envisaged project is designed by including all the necessary
personal under the right division. At the top level of the organizational structure, there will be a
general manager with the responsibility of supervising the overall activity of the firm. Depending
up on the nature of the center and the amount of the work to be performed, there will be auxiliary
unit under the general manager. Employees each unit will be supervised by the unit head that is
accountable for the general manager.

The structure is as follow;

General Manager

External Auditor

Machinery rental & Customer service Marketing

Finance & HR
 As clearly shown in the organizational structure, the rental agricultural mechanization service
project has three departments under the g/manager, this Machine rental and customer service, the
Marketing, and the HR & Financial Administration . Under each Department there are different
sections which are undertaking different activities.

Man power requirement

The total man power requirement for the lease machinery project is 8. This includes Farm
manager, HR and Finance administration officer, Drivers, Mechanic, Foreman and etc as shown
in the table below.
Table: Human resource and salary cost
No Position Quanti Minimum requirement for the post Monthly Annual
ty salary Salary
(Birr)
1 General manager 1
Diploma or above in Marketing,
Business Management, Accounting,
Management, Agribusiness and related
10,000 120,000
disciplines
2 Marketing officer 1 3000 36000
3 Machine rental and Diploma or above in Marketing,
1
Customer service Business Management, Accounting,
Management, Agribusiness and related
2000 24000
department disciplines
4 Tractor Driver 1 5 years experience in combiner operators 8000 96000
5 Assistant tractor 5 years experience in assistant combiner
1
operators
5000 60000
driver
6 Cashier/ Accountant 1 Diploma or above in Public relation,
sociology, business communication and 3,000 36000
related disciplines
SUB TOTAL 6 0
Workers Benefit
37200
(10% of base salary)
Grand Total 409200
Training requirement
On-job training will be provided for all machinery rental staffs particularly on customer handling
and core values and ethics of the company. Orientation and training will also be provided on
organizational ethics, and core value, job description, and duties and responsibility required on
each position. The company shall provide training on its 3 years plan and strategies to all staffs
so that each member will be exposed to know what the company intends to achieve in the short
and long run, thereby every member of the envisaged organization shall have shared vision and
develop synergy towards achieving of common goal.
The company shall study and put in place the level of incentives to be provided for each salary
level. Generally, 30000 birr is planned for different trainings.

6. FINANCIAL REQUIRMENT
The financial resource is a prime resource for undertaking any activities. The financial analysis
of the lease financing machinery is based on the data provided. Hence, the total budget for
implementing this project is estimated at EB 2,455,647. Out of the total budget of the project
30% or 736,694 will be covered by the owner equity, while the rest 70% or EB 1,718,952 will be
covered by financial institutions (DBE, CBE, CBO, OIB). The short -term credit is assumed to
be obtained from the Bank with the current interest rate of
The repayment will be in equal installment over a period of three years. A grace period of one
year is considered for the loan repayment.
Depreciation and Amortization
Machinery and equipment 119,845 10%

Projection of costs and benefits

In making the financial analysis all prices have been assumed to be constant (using current
prevailing prices) throughout the 3-year analysis period, since any changes in prices that may
occur as a result of inflation are assumed to affect both costs and revenues by the same rate.
Budget Breakdowns
Therefore the said amount of finance is needed for undertaking the following.
A. MACHINARY AND EQUIPMENT
The list of required machineries and equipment’s are indicated in table blow. The total cost of
machineries and equipment’s are estimated at EB 2,455,646

Unit Price
S.N Type of Machinery Unit Quantity Total Price(birr)
(birr)
50758(90HP india 1
1 1 1,198,453 1,198,453

1 1 1,198,453 1,198,453
Total

Expenses
In estimating costs of operations, expenses have been categorized into direct costs of operations
and indirect expenses. Direct operating expenses include cost of raw materials such as fuel oil
and lubricants, and direct labor.
Indirect expenses constitute items such as salaries of non-production staff, protective clothing,
marketing, general repairs and maintenance, staff training and administrative expenses.

Raw materials
Table Raw & auxiliary materials requirement
S.N Description of Direct Materials Production Years
Costs
Year 1 Year 2 Year 3-5

1 Fuel cost 573300 659250 741600

2 Oil and lubricants (10% of the fuel cost) 57330 65925 74160

3 Change of fuel filter, greasing and 20000 20000 2000

overall service

Total 650630 745175 835700

Wage and Salary Expense

Human power Requirement, Monthly and Annual Salary

S. Position of Units of Quan Unit Total cost Total Cost Direct INDIRECT
cost per
N employees measur tity per month per annum labor LABOR
month
ement
1 General Manager 1 1 10000 10000 12000 14400
2 Tractor Drivers 1 1 8000 8000 96000 96000
3 Assistant drivers 1 1 5000 5000 60000 60000
4 Cashier accountant 1 1 3000 3000 36000 0 36000
6 Marketing officer 1 1 3000 3000 36000 0 36000
7 Machine rental and 1 1 2000 2000 24000 24000 0
Customer service
department
Cost of work 1 1 3720 3720 0
26400 18000
commissioning
TOTAL 7 7 0 0 0 0 0

Direct labor cost 198,000Birr per annum.

- Annual Salary of Indirect labor I 72000

Other initial costs

S.N Description Annual Cost in br Assumption Used

1 Property Insurance 1924 1% of fixed Investment Cost
2 Uniforms 8000 2*2500 br
3 Telephone, fax and postal 7000 800 per month per tractors
4 Repair and maintenance 40000 2 % of the Fixed Cost
5 Advertisement 1000 1000 per tractors
6 Stationery and other office supplies
2500 200 per month per tractors
7 Electricity 1500
1500 per tractors
8 Water 2000 2000 per tractors
9 Fuel 5000 5000 per tractors
10 Gas Oil and lubricant 2000 10% of fuel cost
11 Miscellaneous Expense 22000 4000 birr per month per tractors
Total 0
Summary of Financial Requirement and Source of fund
SN Description Cost in birr
1 Fixe Investment
1.1 Machinery & equipment 1,198,453
Total Fixe Investment Cost 1,198,453
2 Operating Expense
2.1 Raw Materials 650630
2.2 Salary Expense 290400
2.3 Other Operating Expense 92924
Total Operating Expense 0
Sub total 2,232,407
Contingency (10) 223240
Total Cost 2,455,647

Source of fund

S.N Description % share Amount in birr

1 Promoters' contribution 30% 736,694
2 Bank finance 70% 1,718,952
3 Other borrowing - 0
Total 100% 2,455,647

Loan Repayment Schedule

Interest rate Total Annual Remaining

Year Principal Payment (10 %) Payment Balance
0 0 0 0 1,718,952
1 572,984 189,084 762,068 1,145,968
2 572,984 114,596 687,580 572,984
3 572,984 57,298 630,282 0
4
5
 Depreciation Schedule

SN Depreciation Depreciation
Description Original Value In Birr
rate in % Per year
1 Machines & Equipment 1,198,453 10% 119,845

Sales Revenue
Based on the production capacity of the envisioned machinery indicated in previous the total
revenue of the project is projected as indicated in the table below;

Description of Production Qty (land Qty (No of Unit Price Total Price
Revenue Year ploughed in ha) tractors)
Ploughing 1 1274 1 2000 2,548,000
" 2 1465 1 2000 2,930,000
" 3 1684 1 2000 3,368,000

FINANCIAL STATEMENT
A. Balance Sheet
Asset
Current Asset
Cash 1,257,194
Inventory of Raw Material
Total Current Asset 1,198,453
Fixe Asset
Machinary
Total Fixed Asset 1,198,453
Total Asset 2,455,647
Liability
Account Payable 1,718,952
Owners Equity 736,694
Capital 2,455,647
Total Liability & Owners' Equity

B. Income Loss Statement

The project revenue and production costs are listed and compared to evaluate whether the project
generate profit or loss. Accordingly, the forecasted income statement has shown that the project
is profitable throughout its life.
Table : Income –loss statement of the project

Description Year 1 Year 2 Year 3-5

Sales 2,548,000 2,930,000 3,368,000
Cost of materials 650,630 745,175 835,700
Cost of direct labor 198,000 217,700 251,855
Sub total of direct materials and
848,630 962,875 1,087,621
direct labor cost
Gross profit 1,699,370 1,967,125 2,280,379
Expenses
Salary 290,400 333,960 434,148
other operating expenses 92,924 93,924 95,224
Annual depreciation 11,984 11,984 11,984
Principal repayment
Interest payment 189,084 114,596 57,298
Total indirect expenses 584,392 672,050 772,857
Profit before tax 1,114,978 1,132,224 1,302,057
Tax(30%) 334,493 384,666 442,366
Net Income/loss 780,484 897,556 1,032,189

C. Cash Flow Analysis

The cash flow analysis provides a look at the movement of cash in and out of the project. It is
important to determine whether or not the project has enough cash to pay its bills, handle
expenses and acquire asset.
Table : Projected Cash Flow Statement

Pre-operating
Description cost Year 1 Year 2 Year 3 –Year 5
Owners equity 736,694
Loan principal 1,718,952
Sales 2,548,000 2,930,000 3,368,000
Total Cash In flow 2,455,646 2,548.000 2,930,000 3,368,000
Cash Payment (Cash outflow)
Raw Materials 650,630 745,175 835,700
Salary Expense 290,400 333960 384,054
Other Operating Expense 92,924 93,924 95224
Loan Repayment 572,984 572,984 572,984
Intrest payment 189,084 114,596 57,298
Tax(30%) 0 0 0
TOTAL PAYMENT 2,455,646 1,796,022 1,626,868 1,664,382
NET CASH FLOWS 751,978 864,774 994,490
CUMMULATIVE CASH FLOWS
7.9 Pay-Back Period of the project.
The project will return its investment within a year. Accordingly, the project's initial investment
will be fully recovered at the end of the fifth year.

7. CONCLUSION
Besides offering attractive financial returns to its promoters, the proposed Tractor and its
accessories rental business has positive socio-economic impacts with contribute to the poverty
alleviation efforts of the country and are consistent with the government development strategy.
The project aimed at expanding the agricultural mechanization services to the member farmers,
Coop.Unions and MSE on rental basis. The project provides mechanized services on harvesting
and post harvest service. Project is found technically, economically , legally and socially feasible
with capacity to additional capacity to fetch additional capacities to the member farmers through
generating additional revenue which could be either invested at the Coop union/MSE or paid as
divided to the beholder farmers, Coop. Union and MSE. The project has a capacity of generating
net incomes which can be totaled to be over 3 billion in its first five years of Operation.
In conclusion the project is justified based on the following criteria:- It shows a decent Return on
Investment; It has a healthy cash flow over the plan period; It has a positive role to play in
Ethiopian socio-economic development.

8. Recommendation
Based on the facts from the above analysis, it is concluded to be attractive for the promoter and
the country at large to be commenced. It is therefore recommended that the project should
receive the active support of all stakeholders to ensure its successful implementation and the
project is recommended for implementation.