183.

PROFILE ON PRODUCTION OF CARAWAY

OIL
 183-2

TABLE OF CONTENTS

PAGE

I. SUMMARY 183-3

II. PRODUCT DESCRIPTION & APPLICATION 183-3

III. MARKET STUDY AND PLANT CAPACITY 183-4

A. MARKET STUDY 183-4
B. PLANT CAPACITY & PRODUCTION PROGRAMME 183-6

IV. MATERIALS AND INPUTS 183-7

A. RAW & AUXILIARY MATERIALS 183-7
B. UTILITIES 183-7

V. TECHNOLOGY & ENGINEERING 183-8

A. TECHNOLOGY 183-8
B. ENGINEERING 183-9

VI. MANPOWER & TRAINING REQUIREMENT 183-10

A. MANPOWER REQUIREMENT 183-10
B. TRAINING REQUIREMENT 183-11

VII. FINANCIAL ANLYSIS 183-11

A. TOTAL INITIAL INVESTMENT COST 183-11
B. PRODUCTION COST 183-12
C. FINANCIAL EVALUATION 183-13
D. ECONOMIC BENEFITS 183-14
 183-3

I. SUMMARY

This profile envisages the establishment of a plant for the production of caraway oil with a
capacity of 90 tonnes per annum.

The present demand for the proposed product is estimated at 264.42 tonnes per annum. The
demand is expected to reach at 2,151 tonnes by the year 2020.

The plant will create employment opportunities for 20 persons.

The total investment requirement is estimated at Birr 6.88 million, out of which Birr 4.3
million is required for plant and machinery.

The project is financially viable with an internal rate of return (IRR) of 15 % and a net
present value (NPV) of Birr 1.38 million discounted at 8.5%.

II. PRODUCT DESCRIPTION AND APPLICATION

The characteristic agreeable aroma and sweet but slightly sharp taste of caraway seed is due to
the presence of caraway oil (3-8%) of which corvine is the chief kenotic constituent (50-
60%). Besides carvone, caraway oil contains significant amounts of d.limonene.

Caraway seed oil is chiefly employed today for flavoring sausages, meat, canned goods,
perfumes, mouth wash preparation and liqueurs. In some countries, such as India, the oil is
used for flavoring soaps as it seems to have antibacterial properties.
 183-4

III. MARKET STUDY AND PLANT CAPACITY

A. MARKET STUDY

1. Past Supply and Present Demand

Caraway oil is an essential oil obtained from seeds and used in pharmaceuticals, perfumery
and as a flavouring agent in foods and liquors. The country’s demand for essential oils, which
are mainly used in the preparation of liquors, non-alcoholic beverages, food, pharmaceuticals
and perfumery, is met through import. In estimating the demand for caraway oil, a
conservative estimate of 40% of the total imports of essential oil is considered. Table 3.1
presents the amount of imported caraway oil (i.e. 40% of total imports of essential oil) during
1997-2006. Imports of the product exhibit a rising trend. On the average, 229.93 tonnes of
the product is imported during the period under reference.

Table 3.1
IMPORTS OF CARAWAY OIL (TONNES)

Years Imports
1997 150.96
1998 165.68
1999 43.63
2000 149.50
2001 212.51
2002 229.00
2003 251.19
2004 288.76
2005 369.09
2006 439.02
Average 229.93
 183-5

Assuming supply was driven by demand, the average annual supply for the period under
reference, which constitutes only imports, is considered as the effective demand for the
product for the year 2006. The average rate of growth of imports of the product during the
reference period is computed to be 33.3%. However, a conservative estimate of 15% rate of
growth is adopted in estimating the demand for the product. The present demand for the
product (i.e. 2007) is, thus, estimated at 264.42 tonnes.

2. Projected Demand

As stated above, a 15% rate of growth is used in projecting the demand for caraway oil. The
projected demand for the product is shown in Table 3.2.

Table 3.2
PROJECTED DEMAND FOR CARAWAY OIL (TONNES)

Year Projected Demand

2007 264.42
2008 304.08
2009 349.70
2010 402.15
2011 462.47
2012 531.81
2013 611.62
2014 703.36
2015 808.87
2016 930.20
2017 1,069.73
2018 1,230.19
2019 1,414.71
2020 1,626.92
2021 1,870.96
2022 2,151.60
 183-6

3. Pricing and Distribution

Based on the CIF price of the external trade statistics for 2006 (the latest data available), and
allowing 30% for import duty and other clearing expense, the factory gate price for the
envisaged plant is estimated at Birr 95,700 per ton.

The envisaged plant can supply its product directly to users. The plant can also appoint
agents at selected locations.

B. PLANT CAPACITY AND PRODUCTION PREGRAMME

1. Plant Capacity

The annual production capacity of the envisaged plant is 90 tones of caraway oil, based on
300 working days and three shift per day.

2. Production Programme

Table 3.3 shows the production program of the proposed project. The project requires some
years to penetrate the market, especially at the initial stage of the production phase. Therefore,
in the first and second year of production, the capacity utilization rate will be 70% and 90%,
respectively. In the third year and then after, full capacity production shall be attained.

Table 3.3
PRODUCTION PROGRAMME

Sr. Production Year

No. Description 1 2 3-10
1 Caraway oil (tonnes) 63 81 90
2 Capacity Utilization Rate (%) 70 90 100
 183-7

IV. MATERIAL AND INPUTS

A. RAW AND AUXILIARY MATERIALS

Caraway seed and tin-plated drums are raw and auxiliary materials of the project. The annual
requirement and cost these materials is indicated in Table 4.1.

Table 4.1
ANNUAL RAW AND MATERIALS REQUIREMENT
AND COST (AT FULL CAPACITY)

Sr. Description Qty. Cost (1000 Birr)

No.
1 Caraway seed (ton) 1,800 5400
2 Tin-plated Drum (pcs 200 lt capacity) 450 54
Total 5,454

B. UTILITIES

Utilities required by the project comprise of electricity, fuel oil and water. Table 4.2 below
shows the annual utility requirement along with its cost.

Table 4.2
UTILITIES REQUIREMENT AND COST

Utility Unit Qty Cost (1000 Birr)

1 Electricity kWh 250,00 118.5
2 Furnace oil lt 220,000 1,190.2
3 Water m3 5000 50
Total 1358.7
 183-8

V. TECHNOLOGY AND ENGINEERING

A. TECHNOLOGY

1. Production Process

Caraway seed shall first be milled and then distilled immediately, to prevent loss of oil by
evaporation. Steam distillation is the appropriate method of distillation for essential oils
produced from seeds.

The steam produced in a baler is introduced in to a vessel which contains the seed and water.
The powdered seed is located on the grid placed at a certain distance above the level of the
water which tills the bottom of the vessel. The water is vaporizing indirectly, by steam
flowing in a pipe coil submerged by the water. The water vapor plus the distilled oil coming
from the evaporator vessel is recovered in a separate mater cooled condenser. This mixture
flowing out of the condenser is separated in Florentine flask.

The distilled water should be redistilled to recover all the dissolved oil extracted from
caraway seed by distillation this process is called conurbation.

Finally, the clove oil is packed and dispatched for sales.

2. Source of Technology

The technology of caraway oil processing can be acquired from different machinery
manufacturers and suppliers of steam distillation plant. The following company could be on
of the candidates.

Servotex Enginers
Ghodbunder Road, Opp.NT Strips, Mumbay, India
Phone: +(91)-22-28454982
Fax: +(91)-22-28455615
 183-9

B. ENGINEERING

1. Machinery and Equipment

The list of machinery and equipment required for the production of caraway oil is indicated in
Table 5.1. The cost of machinery and equipment including engineering and know-how is
estimated at Birr 4,300,000 of which Birr 3,583,000 is requiredin foreign currency.

Table 5.1
LIST OF MACHINERY & EQUIPMENT

Sr. Description Qty.

No. (No.)
1 Grinding Unit 1
2 Evaporator 8
3 Condenser (Water cooled) 2
4 Pumps 3
5 Coiling tower 1
6 Submersible pump 1
7 Florentine Flask 2
8 Boiler System 1

2. Land, Building and Civil Works

The total land requirement of the project is estimated at 2000m2 of which the built-up area is
500 m2. The cost of building is estimated at Birr 750,000. The lease value of land is about Birr
160,000 at a rate of 1 Birr per m2 per annum for 80 years.
 183-10

3. Proposed Location

Gucha town is selected to be the best location of the envisaged plant for its proximity to raw
material sources.

VI. MANPOWER AND TRAINING REQUIREMENT

A. MANPOWER REQUIREMENT

The project requires 20 work force. Table 6.1 shows the list and cost of manpower. The total
annual cost of labour is estimated at Birr 247,500.

Table 6.1
MANPOWER REQUIREMENT & LABOUR COST

Sr. Req. Monthly Salary Annual Salary

No. Manpower No (Birr) (Birr)
1 General Manager 1 3,000 36,000
2 Production & Technic Head 1 2,000 2400
3 Accountant 1 2,000 2400
4 Operators 9 6,300 75,600
5 Labourers 6 2,400 28,800
6 Guards 2 800 9600
Sub-total 20 16,500 198,000
Benefit (25%BS) 4,125 49,500
Total 20,625 247,500
 183-11

B. TRAINING REQUIREMENT

On-the – Job training is carried out during plant erection and commissioning by the experts of
machinery suppliers. The cost of training is estimated at Birr 20,000

VII. FINANCIAL ANALYSIS

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

Construction period 1 year

Source of finance 30 % equity
70 % loan
Tax holidays 3 years
Bank interest 8%
Discount cash flow 8.5%
Accounts receivable 30 days
Raw material local 30days
Work in progress 2 days
Finished products 30 days
Cash in hand 5 days
Accounts payable 30 days

A. TOTAL INITIAL INVESTMENT COST

The total investment cost of the project including working capital is estimated at Birr 6.88
million, of which 39 per cent will be required in foreign currency.

The major breakdown of the total initial investment cost is shown in Table 7.1.
 183-12

Table 7.1
INITIAL INVESTMENT COST

Sr. Total Cost

No. Cost Items (‘000 Birr)
1 Land lease value 160.0
2 Building and Civil Work 500.0
3 Plant Machinery and Equipment 4,300.0
4 Office Furniture and Equipment 100.0
5 Vehicle 200.0
6 Pre-production Expenditure* 290.4
7 Working Capital 1,335.6
Total Investment cost 6,886.0
Foreign Share 39

* N.B Pre-production expenditure includes interest during construction ( Birr 140.37 thousand ) training
(Birr 20 thousand ) and Birr 130 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 7.78 million (see
Table 7.2). The material and utility cost accounts for 87.54 per cent, while repair and
maintenance take 0.96 per cent of the production cost.
 183-13

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

Items Cost %
Raw Material and Inputs 5454 70.08
Utilities 1358.7 17.46
Maintenance and repair 75 0.96
Labour direct 118.8 1.53
Factory overheads 49.5 0.64
Administration Costs 79.2 1.02
Total Operating Costs 7135.20 91.69
Depreciation 535 6.87
Cost of Finance 111.98 1.44
Total Production Cost 7782.18 100

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.
 183-14

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 = 60 %
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 6 years.

4. Internal Rate of Return and Net Present Value

Based on the cash flow statement, the calculated IRR of the project is 15 % and the net
present value at 8.5% discount rate is Birr 1.38 million.

D. ECONOMIC BENEFITS

The project can create employment for 20 persons. In addition to supply of the domestic
needs, the project will generate Birr 1.96 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.