10. PROFILE ON GROUND NUT OIL

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10.

PROFILE ON GROUND NUT OIL




















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TABLE OF CONTENTS




PAGE




I.

SUMMARY

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II.

PRODUCT DESCRIPTION & APPLICATION

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III.

MARKET STUDY AND PLA
NT CAPACITY

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4


A. MARKET STUDY

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4


B. PLANT CAPACITY
&

PRODUCTION PROGRAMME

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6




IV.

MATERIALS AND INPUTS

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7


A. RAW & AUXILIARY
MATERIALS

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7


B. UTILITIES

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8




V.

TECHNOLOGY & ENGINEE
RING

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8


A. TECHNOLOGY

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8


B. ENGINEERING

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VI.

MANPOWER & TRAINING
REQUIRE
MENT

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A. MANPOWER REQUIRE
MENT

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B. TRAINING REQUIRE
MENT

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VII.

FINANCIAL ANLYSIS

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A. TOTAL INITIAL I
NVESTMENT COST

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B. PRODUCTION COST

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C. FINANCIAL EVALUA
TION

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14


D. ECONOMIC BENEFIT
S

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I.

SUMMARY


This profile envisages the establishment of a plant for the production of ground nut oil with a
capacity of 300 tonnes per annum.


The present demand for the proposed products is estimated at 59,313 tonnes per annum. The
demand is
expected to reach at 109,045 tonnes by the year 2020.


The plant will create employment opportunities for 28 persons.


The total investment requirement is estimated at about Birr 3.8 million, out of which Birr 1.5
million is required for plant and machin
ery.


The project is financially viable with an internal rate of return (IRR) of 15.5% and a net present
value (NPV) of Birr 1.5 million, discounted at 8.5%


II.

PRODUCT DESCRIPTION AND APPLICATION


Ground nut kernel contains 50
-
55% of oil. The oil obtaine
d from the kernel is yellow to
greenish yellow in colour with chief constituents of glycerides of oleic and linoleic acids with
lesser amounts of the glycerides of palmitic, stearic, arachidic, behenic, and lignoceric acid.
The oil is used as a substitute
for olive oil and other edible oils, soaps, vehicle for medicines,
salad and cooking oil, mayonnaise and margarine. The meal is an important component of
feeds for poultry and cattle.


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III.

MARKET STUDY AND PLANT CAPACITY


A.

MARKET STUDY


1.

Past Supp
ly and Present Demand


Ground nut oil as compared with the most common edible oil manufactured from cotton seed
and rapeseed has the advantage of an excellent allrounded no marked flavor yet at same time
being quite luscious. It is perfect for making mayo
nnaise and it is extremely useful oil for
cooking. Ground nut oil is preferred because it has a mild flavor and burns only at a relatively
high temperature.


Even though the supply of edible oil is met through both domestic and imported products the
marke
t is quite dominated by imports. During the period 1999
-
2004 the best supply offered by
domestic manufacturers was 26% of the total supply which was attained in 2002, while the
average for the same period was 11%. Despite availability of raw materials li
ke linseed, nigger
seed, sesame, rapeseed, cotton seed in the country packed edible oil of foreign sources are
flooding the market. (see Table 3.1)


Table 3.1

SUPPLY OF EDIBLE OIL (TONNES)


Year

Domestic

Import

Total

1999

6579

70,789

77,368

2000

6,637

24
,785

31,422

2001

8,329

34,196

42,525

2002

7,993

22,283

30,276

2003

8,027

121,812

129,839

2004

6,931

82,014

88,945

AVERAGE

7,416

59,313

66,729


Source:

Customs Authority CSA, Statistical Abstract.


Table 3.1 reveals that domestic production of edible
oil was fluctuating around a mean figure of
7,416 tonnes. On the other hand, import of edible oil has shown a substantial increase during
the recent two years, i.e, year 2003 and 2004. The import level which was in the range of

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22,283 tonnes and 34,196 t
onnes during the year 2000
-
2002 has increased to 121,812 tonnes
and 82,014 tonnes during 2003 and 2004, respectively.


Total apparent consumption (local and imported) during the past six years ranged from 30,276
tonnes (2002) to 129,839 tonnes (2003). Th
e mean apparent consumption in those years was
66,729 tonnes, and this amount is considered to represent current effective demand. The
current unsatisfied demand which excludes local production (about 7,416 tonnes) would, thus,
be 59,313 tonnes.


2.

Proj
ected Demand


The demand for ground nut oil or edible oil is dependent on population and income. As a
product targeted to a segment of the market ground nut oil will be more dependent on income.
Thus the demand for groundnut is projected based on 7% ann
ual growth rate attained in gross
national product (GNP) in the period 2000
-
2004. The projected demand for ground nut oil is
presented in Table 3.2

Table 3.2

PROJECTED UN SATISFIED DEMAND FOR EDIBLE OIL (TONNES)


Year

Projected
Demand

2006

59,313

2007

63,465

2008

67,907

2009

72,661

2010

77,747

2011

83,189

2012

89,013

2013

95,244

2014

101,910

2015

109,045


Unsatisfied demand for edible oil will increase from 59,313 tonnes from year 2006 to 77,747
tonnes and 109,045 tonnes by the year 2010 and 2
015. The envisaged project could target a
market share that ranges from 2
-
5% from the unsatisfied demand.




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3.

Pricing and Distribution


The price for one liter locally manufactured edible oil in Addis Ababa is Birr 12, while
imported brands are sold a
t Birr 14.50. Taking into account mark
-
ups by distributors and
retailers the factory
-
gate price recommended for the new project is Birr 10/litre.


Edible oil distribution is becoming easy due to the tight and attractive packaging materials,
which are goo
d protections improving the confidence of consumers. Moreover, one of the
distinguishing factors in the market between local and imported products is packaging. Most
local products are still retailed in bottles reducing radically the demand for this prod
ucts what
ever is the quality of them.


Imported products on the other hand have standard attractive packaging. The envisaged project
will pack the product with a standard packaging for the successful establishment of its brand in
the market at the same t
ime enjoying a premium price due to this extremely important factor in
the edible oil market.


B.

PLNAT CAPACITY AND PRODUCTION PROGRAMME


1.

Plant Capacity


The annual processing capacity of the envisaged plant is 300,000 kg (327,869 lt.)of edible oil,
ba
sed on 300 working days and a single shift of 8 hours per day. The capacity can be increased
by increasing the number of working hours per day.


2.

Production Programme


At the initial stage of the production period, the plant would require some years to
penetrate
into the market and develop production skill. Therefore, in the first, second and third year of
production, the capacity utilization rate will be 70%, 85% and 95%, respectively. In the fourth
year and thereafter, full capacity (100%) production

shall be attained. Table 3.3 shows the
production programme of the project.


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Table 3.3

PRODUCTION PROGRAMME (TONNES)


Sr.

No.

Product

Production year

2007

2008

2009

2010
-
2016

1.

Edible oil

210

255

285

300

2.

Expeller Cake*

210

255

285

300

3.

Capa
city Utilization (%)

70

85

95

100


IV.

MATERIALS AND INPUTS


A.

RAW AND AUXILARY MATERIALS


The principal raw material required for the production of ground nut oil are ground nut seeds
which are produced locally in the Administration. The seed contains 4
4.5
-
50% oil, 50
-
55%
meal. The raw material, refining chemicals and packing materials requirement of the envisaged
plant is indicated in Table 4.1. The total annual cost of raw and auxiliary materials is estimated
to be Birr 3 thousand.

Table 4.1

RAW AND
AUXILIARY MATERIALS REQUIREMENT AND COST

(AT FULL CAPACITY)


Sr.

No.

Raw & Auxiliary
Materials

Unit of
Measure

Qty.

Cost (‘000 Birr)

FC

LC

Total

1.

Shelled ground nut

Tonnes

600

-

2400

2400

2.

Caustic Soda

Kg

1,428

-

9.996

9.996

3.

Bleaching earth

Kg

7143

-

12.857

12.857

5.

**Barrel (200 lt.)

Pcs

55

-

11

11

Grand Total





2433.853


* The plant generates income by the sale of the expeller cake for animal feed. By taking the price of
Birr 600 per ton of expeller cake, the envisaged plant gets Bi
rr 180,000 annually.



**T
he drum number is calculated by assuming that the drum is recyclable and 10% loss annually.



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B.

UTILITIES


The major utilities of the envisaged project are electricity, furnace oil and water. The annual
consumption and cost
of utilities is indicated in Table 4.2. The total annual cost of utilities is
estimated at Birr 217,740.

Table 4.2

UTILITIES REQUIREMENT AND COST


Sr.

No.

Utility

Unit of

Measure

Qty.

Unit
price

Cost

(‘000 Birr)

1.

Electricity

kWh

150,000

0.4736

71,040

2.

Furnace oil


lt.

30,000

3.34

100,200

3.

Water

m
3

15,000

3.10

46,500



Total




217,740



V.

TECHNOLOGY AND ENGINEERING


A.

TECHNOLOGY


1.

Production Process


Edible oil technology can be grouped into two: mechanical pressing and solvent ex
traction.
Sometimes the latter complements the former. For oilseeds with high oil content such as
ground nut, first mechanical pressing will be applied and over 85% of the oil will be extracted.
The remaining oil in the expeller cake will then be extrac
ted with solvent. For some other
oilseed with low oil content, solvent extraction is generally considered as the best alternative.
However, the initial investment cost of solvent extraction is much higher than mechanical
pressing. In addition, solvent e
xtraction is more appropriate for large scale processing than
small scale edible oil plants. Therefore, in this study the mechanical pressing technology has
been selected.



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Ground nut oil production process, based on mechanical pressing technology, can be

group in
three stage: seed preparation, pressing and crude oil refining.


The seed requires to undergo a thorough cleaning process to remove sand, stalk, plant debris
and any other foreign matters by rotary or table sieve. Usually, the screening process
is
assisted by air aspiration unit. After cleaning, the seeds have to be prepared for efficient oil
recovery by pressing. The stages involved are size reduction of the seeds by breaking them and
then conditioning the seeds by adjusting their moisture con
tent and temperature, while keeping
the seeds hot (say 90
-
95ºc) for a period of 30
-
60 minute. Then the prepared seed shall be
conveyed to the screw pressing machine where it is pressed by the action of worm and outer
shell. The crude oil so obtained from
the pressing will be first clarified in a settling tank and
then shall be pumped through the filter press.


The filtered crude ground nut oil will be pumped to the refinery where it shall pass through
three stages of refining: neutralization, bleaching and

deodorization.


To reduce the level of free fatty acid (FFA) in the oil, caustic soda will be mixed with the crude
oil. The neutralized oil may have trace of soap which is a by
-
product of the neutralization
process. Therefore, the oil will be washed wit
h water. It will then be pumped to the bleacher in
which it will be mixed with bleaching earth to improve the color of oil by the process called
adsorption. The bleached oil, after being filtered, will be pumped to the deodorizer to avoid
substances which

are responsible for the odor of edible oil. In some very small plant the three
stages of refining crude oil shall be executed in a single vessel.


2.

Source of Technology


The machinery and equipment can be obtained from the following company.

Nova Engin
eering

P.O.chittilapilly, Trichur
-

680551, kerala, India

Telephone: 00
-
91
-
487
-
2306170, 2306435

Fax: 91
-
487
-
2308890, cell: 9447481890, 9895077644

e
-
mail:
novaengg@rediffmail.com

web site: www.novaind.net


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B.

ENGI
NEERING


1.

Machinery and Equipment


The list of machinery and equipment of the project is indicated in Table 5.1. The total cost of
machinery and equipment is estimated at Birr1.5 million, out of which Birr 1.275 million is
required in foreign currency.


Table 5.1

LIST OF MACHINERY AND EQUIPMENT


Sr.
No.

Description

Qty.

1.

Seed cleaning unit

1

2.

Dust blower

1

3.

Cyclones

1

4.

Hammer Mill

1

5.

Screw conveyor

3

6.

Bucket elevator

2

7.

Roller crusher

1

8.

Screw press

1

9.

Filter press

1

10.

Holding tank

3

11.

Pumps

5

12.

Neutralizer

1

13.

Bleacher

1

14.

Vacuum pump

1

15.

Condenser

1

16.

Deodorizer

1

17.

Water treatment

Set

18.

Boiler

Set


2.

Land, Building and Civil works


The total land requirement of the project is about 1,500m
2
, out of which the built
-
up area is
700m
2
. Therefore, the cost of building is estimated at Birr 1.05 million assuming construction
cost rate of Birr 1,500 per square meter. The lease value of land
, at the rate of 9.78 Birr / m
2

for 80 years, is about Birr 14,670 thousand. The total cost of land, civil works and building is
estimated at Birr 1,064,670.


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3.

Proposed Location And Site


For its proximity to potential market, raw material and access to

infrastructures, Dire Dawa
town has been chosen as the best location of the envisaged project.


VI.

MANPOWER AND TRAINING REQUIREMENT


A.

MANPOWER REQUIREMENT


The envisaged project requires 28 work force. The list of manpower for the envisaged project
i
s indicated in Table 6.1. The annual cost of labour including fringe benefits is estimated at
Birr 230,400.

Table 6.1

MANPOWER REQUIREMENT AND ANNUAL LABOUR COST


Sr.

No.

Description

Req.
No.

Monthly
Salary (Birr)

Annual Salary
(Birr)

1.

General Manager

1

1500

18,000

2.

Secretary

1

600

7,200

4.

Purchaser/sales man

1

900

10,800

6


Accountant

1

1200

14,400

7.

Cashier

1

500

6,000

10

Chemist

1

900


10,800

11.

Electrician

1

600

7,200

13.

Mechanic

1

600

7,200

14

Production supervisor

1

900

1
0,800

15.

Operators

6

3,600

43,200

16.

Laborers

8

2,400

28,800

17

Store keeper

1

500

6,000

18.

Driver

1

900

10,800

19.

Guards

3

900

10,800


Sub
-
Total

28

16,000

192,000


Benefits (20% BS)



38,400


Grand Total



230,400


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B.

TRAINING REQUIREMENT


T
echnical staffs, for example, the production supervisor, chemist, maintenance personnels and
operators shall be trained for about two weeks by the experts of machinery supplier during
plant erection and commissioning. The total cost of training is estimat
ed to be Birr 20,000.


VII.


FINANCIAL ANALYSIS


The financial analysis of the ground nut oil manufacturing project is based on the data
presented in the previous chapters and the following assumptions:
-



Construction period



1 years

Source of finance



30 % equity






70 % loan

Tax holidays





3 years

Bank interest





7.5 %

Discount cash flow



8.5%

Accounts receivable



30 days

Raw material local



30days

Raw material, import



90days

Work in progress



2 days

Finished products



30 days

Cash in han
d




5 days

Accounts payable



30 days


A.

TOTAL INITIAL INVESTMENT COST


The total investment cost of the project including working capital is estimated at 3.8 million, of
which 33 per cent will be required in foreign currency.


The major breakdown of th
e total initial investment cost is shown in Table 7.1.


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Table 7.1

INITIAL INVESTMENT COST
















B.

PRODUCTION COST


The annual production cost at full operation capac
ity of the plant is estimated at Birr 3.25
million (see Table 7.2). The material and utility cost accounts for 71.12 per cent while repair
and maintenance take 3.8 per cent of the production cost.



* N.B Pre
-
production expenditure includes interest du
ring construction (Birr204.3
thousand ) training (Birr 20 thousand ) and Birr 75 thousand costs of registration,
licensing and formation of the company including legal fees, commissioning expenses,
etc.




Sr.

No
.


Cost Items

Total Cost

(‘000 Birr
)

1.

Land lease value

14.67

2.

Building and Civil Work

1050.0

3.

Plant Machinery and Equipment

1500.0

4.

Office Furnitur
e and Equipment

125.0

5.

Vehicle

675.0

6.

Pre
-
production Expenditure*

299.31

7.

Working Capital

188.78


Total Investment cost

3852.76


Foreign Share

33


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Table 7.2

ANNUAL PRODUCTION COST AT FULL CAPACI
TY ('000 BIRR)


Items

Cost

%

Raw Material and Inputs

2433.85

65.5

Utilities

217.74

6.7

Maintenance and repair

125.0

3.8

Labour direct

98.0

3.0

Factory overheads *

38.4

1.2

Administration Costs**

94.0

2.9

Total Operating Costs

2707.0

83.1

Depreciation

369.7

11.4

Cost of Finance

179.3

5.5

Total Production Cost

3256

100


C.

FINANCIAL EVALUATION


1.

Profitability


According to the projected income statement, the project will start generating profit in the
second year of operation
. Important ratios such as profit to total sales, net profit to equity
(Return on equity) and net profit plus interest on total investment (return on total investment)
show an increasing trend during the life
-
time of the project.


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



* Factory overhead cost includes salaries and wages of supervisors, insurance of factory
workers social costs on salaries of direct labour etc.



** Administrative cost include
s salaries and wages, insurance, social costs, materials and
services used by administrative staff etc
.



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2.

Break
-
even Analysis


The break
-
even point of the project including cost of finance when it starts to operate at full
capacity (year 4 ) is estimat
ed by using income statement projection.





BE =


Fixed Cost

= 46.9 %






Sales


Variable Cost




3.

Pay
-
Back Period


The investment cost and income statement projection are used to project the pay
-
back period.
The project's initial investment will

be fully recovered within 4 years.


4.

Internal Rate of Return and Net Present Value


Based on the cash flow statement, the calculated IRR of the project is 15.5 % and the net
present value at 8% discount rate is Birr 1.5 million.


D.

ECONOMIC BENEFI
TS


The project can create employment for 28 persons. In addition to supply of the domestic
needs, the project will generate Birr 0.2 million in terms of tax revenue. The establishment of
such factory will have a foreign exchange saving effect to the co
untry by substituting the
current imports.