44.

PROFILE ON PRODUCTION OF SUNFLOWER OIL

44 -2 TABLE OF CONTENTS

PAGE

I.

SUMMARY

44-3

II.

PRODUCT DESCRIPTION & APPLICATION

44-3

III.

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

44-3 44-3 44-6

IV.

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

44-7 44-7 44-8

V.

TECHNOLOGY & ENGINEERING A. TECHNOLOGY B. ENGINEERING

44-9 44-9 44-10

VI.

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

44-12 44-12 44-12

VII.

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

44-14 44-14 44-15 44-16 44-17

44 -3 I. SUMMARY

This profile envisages the establishment of a plant for the production of sunflower oil with a capacity of 250,000 kg per annum.

The present demand for the proposed product is estimated at 27.5 tonnes per annum. The demand is expected to reach at 1004 tonnes by the year 2017.

The plant will create employment opportunities for 40 persons.

The total investment requirement is estimated at Birr 4.64 million, out of which Birr 2. 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 2.28 million, discounted at 8.5%

II.

PRODUCT DESCRIPTION AND APPLICATION

Sunflower is a plant of the genus "Helianthus" cultivated for its seed. Sunflower oil is pale yellow semi-drying or drying fatty oil expressed from the seeds of the common sunflower and used chiefly in foods, soaps, varnishes, and paints. Sunflower oil is finding wide application both at home and foreign market.

III.

MARKET STUDY AND PLANT CAPACITY

A.

MARKET STUDY

1.

Past Supply and present Demand

Refined sunflower oil is edible and is considered equal in quality to olive oil. Cruder sunflowers oil is used for making soap, candles, varnishes and paints. Sunflower oil is

44 -4 supplied to the Ethiopian market both from domestic production and import. Since the domestic production data does not show by type of oil seeds used, the import statistics obtained from the customs Authority is used to estimate the current unsatisfied demand. In addition, it is believed that the quantity of oil produced in Ethiopia from sunflower seed is negligible since cotton seed oil and rape seed oil are the two dominant in the market.

As per the information obtained from the Customs Authority import of non edible (industrial) sunflower oil is non existent. Hence, all imported sunflower oil is edible. Imported quantity of edible sunflower oil in the past years is presented in Table 3.1.

Table 3.1 IMPORT OF EDIBLE SUNFLOWER OIL

Year 1998 1999 2000 2001 2002 2003 2004 2005 2006 Average

Quantity ( Tonnes ) 360.2 1,559.2 1,315.4 1,507.5 259.2 36.1 1.010.8 21.6 33.4 678.2

Source: - Ethiopian customs Authority. As could be seen from Table 3.1, import of edible sunflower oil fluctuates from year to year without any trend. The import volume of edible sunflower oil during year 1998 was about 360 tonnes. On the other hand, during the period 1999-2001 the yearly average import was around 1460 tonnes which is much higher than the import of year 1998.

44 -5 However, this did not stay long and declined sharply during year 2002 and 2003. During these two years the yearly average level of import has declined to about 148 tonnes. A sharp increase of import has been also observed during 2004 which is about 1,011 tonnes. The lowest level of import registered is during the last two years, i.e., 2005 and 2006. During these two periods, the yearly average import of edible sunflower oil has dropped to a level of 27.5 tonnes.

Due to the absence of a clear trend on the imported quantity, the average of the past nine years is considered to reflect the current unsatisfied demand. Accordingly, current

unsatisfied demand for edible sunflower oil is estimated at 678 tonnes. 2. Projected Demand

The demand for edible oil is directly related with the growth of population, income and price. Considering the three factors, demand is forecasted by taking 4% annual growth rate. The projected unsatisfied demand for edible sunflower oil is presented in Table 3.2. Table 3.2 PROJECTED UNSATISFIED DEMAND FOR EDIBLE SUNFLOWER OIL Year 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Unsatisfied Demand (Tonnes) 678 705 733 763 793 825 858 892 928 965 1,004

44 -6 3. Pricing and Distribution

The price for one litre of edible oil at Addis Ababa for locally produced oil and imported oil ranges from Birr 15 to Birr 20. Taking the marketing cost for distribution in to consideration Birr 16 per litre is recommended for the engaged product.

The product will reach consumers through retail shops who will receive the product from agents of the factory.

B.

PLANT CAPACITY AND PRODUCTION PROGRAMME

1.

Plant Capacity

The market study of sunflower oil indicates that the unsatisfied demand for the year 2007 is 678 tonnes, while this figure would grow to 928 tonnes by the year 2015. The envisaged plant will, therefore, have an annual production capacity of 250 tonnes of sunflower oil. The plant will operate single shift of 8 hours a day and for 300 days a year. Production can be increased by operating the plant double shift 16 hours a day or three shift for 24 hours a day.

2.

Production Programme

The edible oil plant will start operation at a lower production capacity to allow time for market penetration and skill development of production workers. Thus, production will start at 75% of installed capacity during the first year of operation, and then will grow to 85% and 100% of full capacity in the second year, and third year and then after. The details of production programme is shown in Table 3.3.

44 -7 Table 3.3 PRODUCTION PROGRAMME

Year Capacity Utilization (%) Annual Production a) Edible oil b) Oil cake

1 75

2 85

3 and above 100

187.50 214.0

212.50 242.0

250.00 285

IV.

MATERIALS AND INPUTS

A.

RAW AND AUXILIARY MATERIALS

The basic raw material required for the production of edible oil is sunflower seed. This oil seed is grown in various parts of the region including Guraghe, Silti, Hadiya, and North Omo zones, Boreda, Gofa-Zuria and Basketo areas, to mention few.

Apart from oil seed, the edible oil producing plant requires auxiliary materials and chemicals, the raw and auxiliary materials details are given in Table 4.1 below.

44 -8 Table 4.1 RAW AND AUXILIARY MATERIALS REQUIREMENTS AND COST

Sr. No.

Description

Qty

Cost (000 Birr)

LC A. Raw Material 1 Sun flower oil seed (tonnes) B. Auxiliary Materials 1 2 3 4 5 6 7 8 Common salt (kg) Bleaching earths (kg) Caustic soda (kg) Aluminum Sulphate (kg) Trisodium phosphate (kg) Chlorine (kg) Barrel-180 kg capacity (pcs) Jute sacks, 75kg (pcs) Total 5,820 3,272 2,620 454 15.6 4.3 50 3,000 5.40 5.20 15.70 1.590 0.10 0.01 0.12 24.0 2,008.282 650 1950

FC

TC

1950

0.242 0.04 0.30

5.40 5.20 15.70 1.59 0.342 0.05 6 24 2,008.582

B.

UTILITIES

The major inputs required for the edible oil plant are electricity, water and fuel oil. Electricity is used to produce motive power to production equipment, provide power to sockets, lighting systems and other auxiliary equipment. Water is required for steam generation, drinking and general purposes. Fuel oil is required as a source of energy for steam generating equipment. Annual requirement of utilities at full production capacity is shown in Table 4.2.

44 -9

Table 4.2 ANNUAL REQUIREMENT OF UTILITIES AND COST

No. 1 2 3 4 Water (m3)

Description Electricity (kWh)

Qty 160,000 5,000 10,000 130 -

Cost (000 Birr) 75.776 50.00 54.10 1.95 181.762

Fuel oil (litre) Grease and lubricant (kg) Total

V.

TECHNOLOGY AND ENGINEERING

A.

TECHNOLOGY

1.

Production Process

Oil milling is an old technology which was started with very traditional mortar and pestle crushing. This was followed by hydraulic extraction, them screw pressing, and in the 20th century, by chemical extraction.

Mechanical extraction is common in developing countries while solvent extraction is more widely used in developed countries and in countries which are large producers of oil seeds. The oil mill for the anticipated project is to employ mechanical extraction and batch refining. The technological process of producing edible oil from sunflower seeds involves the following operations:-

a) b) c)

Seed cleaning and preparation Oil extraction (Pressing), and Oil refining and packing.

44 -10 Greasy waste matter and other impurities released from the refinery will be collected and should be settled in the collecting concrete pit. Thus, the plant will not emit any pollutant to the environment.

2.

Source of Technology

Manufacturing companies in India, China, Korea, and these in European countries have long years of work experience in supplying edible oil producing equipment and machinery to African countries. Address of supplier in India is given below.

NOVA Engineering P. O. Chittilapilly, Trichur- 680551, Kerela, India Tel. 0091 487 2306170, 2306435 Fax: 91- 487 2308890, Cell. 9447481890, 989 5077644 E-mail: novaengg@rediffmail.com. Website: www.novaind.net

B.

ENGINEERING

1.

Machinery and Equipment

The principal production equipment and machinery required for producing sunflower edible oil are vacuum cleaner, storage silos, screw conveyors, elevators, automatic weighers, intermediate silos, roller mills, screw presses, settling tank, filter press, degumming tank, deodorizing tank, laboratory equipment, etc. The list of machinery and equipment and related costs are given in Table 5.1.

44 -11 Table 5.1 MACHINERY AND EQUIPMENT REQUIREMENT AND COST Sr. No. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 Description Qty (No.) 1 1 1 2 1 2 2 3 2 1 5 1 1 1 1 1 1 LC 200 200 200 100 100 200 100 100 400 100 100 20 100 20 20 20 20 2,000 Cost (000 Birr) FC TC

Oil expelling plant Continuous extracting plant Refining plant Screw conveyor Bucket elevator Seed scratchier Husking machine Material dist rebutting tank Filter press Weighing machine Pump Laboratory testing sieve Drying oven Refract meter Precision balance Colorimeter Laboratory glass ware (set) FOB cost Inland transport, Bank Charge, Customs and Insurance Charges, Materials handling Costs CIF Landed Cost Land, Building and Civil Works

100.00

2,000.00 100.00

2,000

100.00

2,100.00

2.

The envisaged plant requires a total land area of 2,000 square meters, of which 500 square meters will be built-up area for production and administration at a land lease rate of Birr 1.0 per m2 for 80 years, and unit cost (per m2) of building of Birr 2,000, the total cost of land, building and civil works will be Birr 1,160,000.

44 -12 3. Proposed Location

Location of a plant is determined on the basis of proximity to raw materials, availability of infrastructure (power, water, transport, telecommunications), and distance to major market outlets. Potential weredas where sun flower seed is found are Awassa zuria, Bakogazer and Konso special wereda. Among these, Konso special wereda is selected. It is, therefore, suggested that plant be located in Karat.

VI.

MANPOWER AND TRAINING REQUIREMENT

A.

MANPOWER REQUIREMENT

Manpower required for the plant is both for administrative activities and production. The total manpower required is 40 persons. Of this production workers are 20 while the rest are administrative and supervisory staff. Details of manpower requirement and annual cost, including workers benefit is given in Table 6.1.

B.

TRAINING REQUIREMENT

Four production foremen and six operators will be given two weeks on-the-job training by the machinery supplier. The training cost is estimated to be Birr 20,000.

44 -13 Table 6.1 MANPOWER REQUIREMENT OF EDIBLE SUNFLOWER OIL PLANT AND LABOUR COST Sr. No. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 Job Title A. Administration Plant manager Secretary Finance and administration head Commercial head Clerk Store keeper Purchaser Accountant Accounts clerk Cashier Personnel Time keeper Driver Driver assistant Office boy Guard Sub-total B. Production Production and technical head Production foreman Operator Laboratory (raw material feeder) Laborer (cleaner) Laborer (packer) Bleaching earthe sludge dumper Boiler operator Workshop foreman Mechanic Electrician Mechanic helper Sub-Total Workers benefit (25% BS) Total No. of Persons 1 1 1 1 1 2 1 1 1 1 1 1 2 1 1 3 20 1 1 6 2 1 1 2 2 1 1 1 1 20 40 Salary (Birr) Monthly Annual 2,000 700 1,700 1,700 650 900 850 1,200 650 900 1,450 450 750 350 250 250 24,000 8,400 20,400 20,400 7,800 21,600 10,200 14,400 7,800 10,800 17,400 5,400 18,000 4,200 3,000 9,000 202,800 21,600 18,000 50,400 10,800 5,400 4,500 8,400 8,400 16,800 10,800 10,800 6,000 171,900 93,675 468,375

1 2 3 4 5 6 7 8 9 10 11 12

1,800 1,500 700 450 450 450 350 350 1400 900 900 500

44 -14 VII. FINANCIAL ANALYSIS

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

Construction period Source of finance

1 year 30 % equity 70 % loan

Tax holidays Bank interest Discount cash flow Accounts receivable Raw material local Work in progress Finished products Cash in hand Accounts payable

3 years 8.5 % 8.5 % 30 days 30 days 2 days 30 days 10 days 30 days

A.

TOTAL INITIAL INVESTMENT COST

The total investment cost of the project including working capital is estimated at Birr 4.64 million, of which 26 per cent will be required in foreign currency.

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

44 -15 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) 160.0 1,000.0 2,100.0 125.0 450.0 565.8 246.7 4,647.5 26

* N.B Pre-production expenditure includes interest during construction ( Birr 251.80 thousand ) training (Birr 20 thousand ) and Birr 293.99 thousand costs of registration, licensing and formation of the company including legal fees, commissioning expenses, etc.

B.

PRODUCTION COST

The annual production cost at full operation capacity is estimated at Birr 3.40 million (see Table 7.2). The material and utility cost accounts for 64.39 per cent, while repair and maintenance take 4.41 per cent of the production cost.

44 -16 Table 7.2 ANNUAL PRODUCTION COST AT FULL CAPACITY ('000 BIRR)

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

Cost 2,008.58 181.76 150 266 202.8 2,809.14 425.3 167.41 3,401.85

% 59.04 5.34 4.41 7.82 5.96 82.58 12.50 4.92 100

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 (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 and the other indicators of profitability show that the project is viable.

44 -17 2. Break-even Analysis

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

BE =

Fixed Cost Sales Variable Cost

15 %

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 2.28 million.

D.

ECONOMIC BENEFITS

The project can create employment for 40 persons. In addition to supply of the domestic needs, the project will generate Birr 1.32 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.