295.

PROFILE ON PROCESSING OF TURMERIC

295 -2 TABLE OF CONTENTS

PAGE

I.

SUMMARY

295 - 3

II.

PRODUCT DESCRIPTION & APPLICATION

295 - 3

III.

MARKET STUDY AND PLANT CAPACITY A. MARKET STUDY B. PLANT CAPACITY & PRODUCTION PROGRAMME

295 - 3 295 - 3 295 - 6

IV.

RAW MATERIALS AND INPUTS A. RAW & AUXILIARY MATERIALS B. UTILITIES

295 - 7 295 - 7 295 - 7

V.

TECHNOLOGY & ENGINEERING A. TECHNOLOGY B. ENGINEERING

295 - 8 295 - 8 295 - 8

VI.

MANPOWER & TRAINING REQUIREMENT A. MANPOWER REQUIREMENT B. TRAINING REQUIREMENT

295 - 9 295 - 9 295 - 9

VII.

FINANCIAL ANLYSIS A. TOTAL INITIAL INVESTMENT COST B. PRODUCTION COST C. FINANCIAL EVALUATION D. ECONOMIC BENEFITS

295 - 10 295 - 11 295 - 12 295 - 13 295 - 13

295 -3

I.

SUMMARY

This profile envisages the establishment of a plant for the processing of turmeric with a capacity of 150 tonnes per annum.

The present demand for the proposed product is estimated at 460 tonnes per annum. The demand is expected to reach at 828 tonnes by the year 2022.

The plant will create employment opportunities for 19 persons.

The total investment requirement is estimated at about Birr 2.86 million, out of which Birr 1.1 million is required for plant and machinery.

The project is financially viable with an internal rate of return (IRR) of 21 % and a net present value (NPV) of Birr 1.41 million discounted at 8.5%.

II.

PRODUCT DESCRIPTION AND APPLICATION

Turmeric is an East Indian perennial herb "Curcuma longa" with a large aromatic deep yellow rhizome. Processed turmeric is the cleaned, boiled, sun-dried, and usually pulveized rhizome of the turmeric plant used as a colouring agent, a condiment (as in pickling and in curry powder), or a stimulant.

III.

MARKET STUDY AND PLANT CAPACITY

A.

MARKET STUDY

1.

Past Supply and Present Demand

The country's requirement for turmeric is essentially met through domestic production. However, data on domestic production of the product is not readily available. Therefore, the

295 -4 Revised Report on the 1995/96 Household Income, Consumption and Expenditure Survey is analyzed in estimating the demand for turmeric. Table 3.1 depicts the average amount of turmeric consumed by different expenditure groups in urban and rural areas according to the survey finding.

Table 3.1 DOMESTIC CONSUMPTION OF TURMERIC

Number of Income Group Individuals in the Group < 600 600 - 999 1000-1399 1400-1999 2000-2599 2600-3399 3400-4199 17,253 125,904 432,547 580,104 4,217,465 649,8555 784,4772

Average Annual

Total Annual

Consumption Consumption (gram) 10 7 18 21 17 25 26 32 41 44 47 68 57 (kg) 1,259 3,028 10,442 88,567 110,475 196,119 283,026 256,255 361,501 225,058 82,981 45,812 55,445 1719,969

4200-5399 1,088 ,5614 5400-6599 6600-8999 9000-12599 12600-16199 16200-19999 > 20000 Total 800,7978 881,7091 511,4961 1,765,555 673,706 972,722 55,954,227

Source: CSA, Revised Report on the 1995/96 Household Income Consumption and Expenditure Survey, 2001.

295 -5 As can be seen from Table 3.1, the total consumption requirement of households for turmeric is 1,719,969 kg per annum. Given a total population of 55,954,227 at the time the survey was conducted, the per capita consumption of turmeric is computed to be 0.03 kg. Assuming the regional market constitutes the viable market for the product, the present demand of households for turmeric is estimated at 460 tons using the total population of the region for 2007.

2.

Projected

Demand

The consumption of processed turmeric is mainly associated with the urban population. Accordingly, a growth rate of 4% that corresponds to the rate of urbanization in the country is considered in projecting the demand for turmeric. The projected demand for the product is shown in Table 3.2. Table 3.2 PROJECTED DEMAND FOR TURMERIC (TONNES)

Year 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Projected Demand 460.00 478.40 497.54 517.44 538.13 559.66 582.05 605.33 629.54 654.72 680.91 708.15 736.47 765.93 796.57 828.43

295 -6 3. Pricing and Distribution

The retail price of turmeric is Birr 25 per kg. Allowing margin for wholesale and retail a price of Birr 20 per kg is recommended for the product of the envisaged plant.

The product can get its market outlet through the existing wholesale and retail network, which includes department stores, merchandise shops and supermarkets.

B.

PLANT CAPACITY AND PRODUCTION PROGRAM

1.

Plant Capacity

The annual production capacity of the project is 150 tonnes of processed turmeric based on 300 working days and single shift ( 8 hours) per day.

2.

Production Program

The production program is indicated in Table 3.2. At the initial stages of production, the project may require some years to penetrate the market. Therefore, in the first and second year of production, the capacity utilization rate will be 70 and 90%, respectively. In the third year and thereafter, full capacity production shall be attained.

Table 1 PRODUCTION PROGRAM

Description

Production Year 1 2 135 90 3-10 150 100

1 2

Clove powder (ton) Capacity utilization rate (%)

105 70

295 -7 IV. RAW MATERIAL AND INPUTS

A.

RAW AND AUXILIARY MATERIALS

The annual raw and auxiliary materials requirement and cost are indicated in Table 4.1.

Table 4.1 RAW AND AUXILIARY MATERIAL REQUIREMENT & COST

S.No 1 2

Material Turmeric Packing material Total

Unit Ton kg 165

Qty

Cost (000 Birr) 3,300 112.5 3,412.5

4500

B.

UTILITY

Water and electricity are the utilities of the project. The annual utility requirement and its cost are shown in Table 3.

Table 3 ANNUAL UTILITY REQUIREMENT & COST

S.No 1 2

Utility Electricity Water Total

Unit kWh M3

Qty 120,000 1,000

Cost (000 Birr) 56.88 10 66.88

295 -8

V.

TECHNOLOGY AND ENGINEERING

A.

TECHNOLOGY

1.

Process Description

Turmeric seeds will first be cleaned and washed manually and then sun dried. Solar drying is the cheapest and popular mode of drying agricultural products.

The dry turmeric seeds operations are carried out.

enters to the milling unit in which milling and pulverization

The power is then sifted and tested according to standard procedures depending on the target market. It is then packed for sales.

2.

Source of Technology

Turmeric processing plant can be acquired from different suppliers. The following company could be requested for the offer.

Food and Biotech Engineers Khwaja, Faridabad, Haryana-121003, India Phone +91-129-2510924

B.

ENGINEERING

1.

Machinery & Equipment

The list of machinery and equipment required for the project is indicated in Table 5.1. The total cost of machinery and equipment is estimated at Birr 1,100,000 of which Birr 916,700 is in foreign currency.

295 -9

Table 5.1 LIST OF MACHINERY & EQUIPMENT

S.No 1 2 3 4 5 6 7

Description Chamber solar drier Vibratory screen Disintegrator Micropulverizer Sifting machine Weighing and packing unit Miscellaneous equipments

Qty 1 1 1 1 1 1 unit like Lump sum

handling bins, storage vessels, Etc.

2.

Land, Building and Civil work

The total land requirement of the project is estimated at 1000 m2 of which the built-up area is 300 m2. Therefore, the cost of building is Birr 450,000. The lease value of land is about Birr 80,000 at a rate of 1 Birr per m2 per annum for 80 years.

3.

Location and Site

Yadeta town is the best location for the proposed project for its proximity to major raw material sources.

VI.

MANPOWER AND TRAINING REQUIREMENT

A.

MANPOWER

Table 6.1 shows the list and cost of manpower. The total annual labour cost is estimated at Birr 201,000.

295 -10

Table 6.1 MANPOWER REQUIREMENT & COST

S.No

Manpower

No.

Monthly Salary (Birr)

Annual Salary (Birr) 36,000 8,400 24,000 24,000 25,200 36,000 7,200 160,800 40,200

1 2 3 4 5 6 7

General manager Secretary Production head Accountant Operator Labourers Guards Sub total Benefit (25% Basic salary) Total

1 1 1 1 3 10 2 19

3,000 700 2,000 2,000 2,100 3,000 600 13,400 3,350

16,750

201,000

B.

TRAINING

On-the-job training shall be carried out by the experts of machinery suppliers and its cost is estimated at Birr 15,000. VII. FINANCIAL ANALYSIS project is based on the data presented in

The financial analysis of the turmeric processing

the previous chapters and the following assumptions:Construction period Source of finance 1 year 30 % equity 70 % loan Tax holidays Bank interest 3 years 8%

295 -11 Discount cash flow Accounts receivable Raw material local Work in progress Finished products Cash in hand Accounts payable A. 8.5% 30 days 30days 2 days 30 days 5 days 30 days

TOTAL INITIAL INVESTMENT COST

The total investment cost of the project including working capital is estimated at Birr 2.86 million, of which 53 per cent will be required in foreign currency. The major breakdown of the total initial investment cost is shown in Table 7.1. Table 7.1 INITIAL INVESTMENT COST Sr. No. 1 2 3 4 5 6 7 Cost Items Land lease value Building and Civil Work Plant Machinery and Equipment Office Furniture and Equipment Vehicle Pre-production Expenditure* Working Capital Total Investment cost Foreign Share Total Cost (000 Birr) 80.0 450.0 1,100.0 100.0 200.0 290.4 644.9 2,865.3 53

* N.B Pre-production expenditure includes interest during construction ( Birr 140.37 thousand ) training (Birr 15 thousand ) and Birr 135 thousand costs of registration, licensing and formation

of the company including legal fees, commissioning expenses, etc.

295 -12 B. PRODUCTION COST

The annual production cost at full operation capacity is estimated at Birr 4.07 million (see Table 7.2). The material and utility cost accounts for 85.45 per cent, while repair and maintenance take 1.84 per cent of the production cost.

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

Items Raw Material and Inputs Utilities Maintenance and repair Labour direct Factory overheads Administration Costs Total Operating Costs Depreciation Cost of Finance Total Production Cost

Cost 3,412.50 66.8 75 96.48 32.16 64.32 3,747.26 212.5 111.98 4,071.74

% 83.81 1.64 1.84 2.37 0.79 1.58 92.03 5.22 2.75 100

C.

FINANCIAL EVALUATION

1.

Profitability

According to the projected income statement, the project will start generating profit in the first year of operation. Important ratios such as profit to total sales, net profit to equity total investment (return on total

(Return on equity) and net profit plus interest on

investment) show an increasing trend during the life-time of the project.

The income statement and the other indicators of profitability show that the project is viable.

295 -13

2.

Break-even Analysis

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

BE =

Fixed Cost Sales Variable Cost

36 %

3.

Pay Back Period

The investment cost and income statement projection are used to project the pay-back period. The projects initial investment will be fully recovered within 5 years.

4.

Internal Rate of Return and Net Present Value

Based on the cash flow statement, the calculated IRR of the project is 21 % and the net present value at 8.5% discount rate is Birr 1.41 million.

D.

ECONOMIC BENEFITS

The project can create employment for 19 persons.

In addition to supply of the domestic

needs, the project will generate Birr 1.12 million in terms of tax revenue. The establishment of such factory will have a foreign exchange saving effect to the country by substituting the current imports.