FEASIBILITY STUDY FOR ESTABLISHMENT OF WHEAT AND

MAIZE FLOUR MANUFACTURING FACTORY

PROMOTER:-GADISA KENENISA AND FRIENDS

MANUFACTURING FLOUR PARTNESHIP
LOCATION:-SHEGER CITY, FURI SUB-CITY MUDA FURI
WOREDA

March, 2025
Addis Ababa,
Ethiopia
 WHEAT AND MAIZE FLOUR MILL PROJECT 2025

Contents
FEASIBILITY STUDY FOR ESTABLISHMENT OF WHEAT AND MAIZE FLOUR MANUFACTURING
FACTORY ................................................................................................ Error! Bookmark not defined.
I. EXECUTIVE SUMMARY............................................................................................................... 4
II. BACKGROUND INFORMATION .............................................................................................. 7
2.7.2 Maize Flour Product............................................................................................................ 11
Figure-2: Pro-forma Invoice of Flour Production Machinery ........................................................ 21
The following is detail specification of the machinery selected by owner ....................................... 21
IV. ORGANIZATION AND MANAGEMENT ............................................................................. 37
V. FINANCIAL ANALYSIS ........................................................................................................... 39
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 WHEAT AND MAIZE FLOUR MILL PROJECT 2025

I. EXECUTIVE SUMMARY
The underlying project, (Gadisa Kenenisa and friends manufacturing Flour Factory) is a new
manufacturing firm to be legally established as Proprietorship by Gadisa Kenenisa and friends
manufacturing flour , who founded and has been running his other business line for many years. However,
currently the promoter has inspired to establish multiple business lines, which includes Flour Factory,
Integrated Agro- Processing and Production of several value added Agricultural Commodities for Export as
well as domestic market. With this specific feasibility study document, the ongoing project is intended to
implement Flour Manufacturing Investment having the main focuses on production of Wheat and Maize Flour
along with converting the By-Products to Concentrated Animal Feed products, which is going to be
considered as a second phase for an envisaged flour mill project. The promoter is an Ethiopian Citizen
Business man at the middle age of life, with having a good character and well appreciated personality among
the society.

The deriving objectives of the project are to produce 10,000 tons of wheat and maize grains in to flour
per annum and to make 25% of profit out of the annual operation of the factory. To this end, the company
has inspired for participating actively in the business environment and other development activities in
the country. Currently, the project promoter has finalized researching the market for underlying
products and has concluded it is an attractive investment. Technically, the planned production capacity
of the factory is assumed initially to work in two shifts with capacity utilization rate at 60%, 75%, 90%,
and 100% during 1st, 2nd, 3rd, 4th and 5th-10th years respectively.

Project owner will be asked Lease machines finance Loan services delivery with Birr. 14,000,000 by
purchasing machineries for his flour factory in order to start Business Operation soon. The purpose of
a requesting loan will be utilizing for purchasing of Machineries to flour Product Manufacturing
Factory with total project cost or birr 14,000,000.00million; from this total project cost
2,000,000.million equity of covered by project owner and12,000,000 with long term bank loan from
Bank loan as the following:-

In addition, on the basis of projected annual revenue from sales of the products the Factory will generate
net profit from sales of flour products and will earn an attractive net profit through entire years of
operations that will be ETB 16,600,155; ETB 19,557,107; ETB 22,960,129; ETB 25,263,088; ETB
26,743,001; ETB 28,369,412; ETB 30,029,416; ETB 31,712,703;
ETB 33,406,343; and ETB 35,094,322; During 1st, 2nd, 3rd, 4th; 5th; 6th; 7th; 8th; 9th and 10th years
respectively.
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Furthermore, the projected cash flow of the business shows that the project would generate positive net
cash flows throughout the operation years. The net cash in-flow for considered life span is indicated as
ETB1,190,535; ETB 20,026,596; ETB 23,089,855; ETB 26,648,496; ETB 29,166,530;
ETB 31,122,377; ETB 33,153,511; ETB 35,325,181; ETB 37,646,686; ETB 40,127,814; and ETB
42,778,835; During Year-0; 1st, 2nd, 3rd, 4th ; 5th; 6th; 7th; 8th; 9th and 10th years respectively. The positive
financial performances are manifested in the balance sheet. As can be seen from the projected balance
sheet depicted in Annex, the net worth of the project, which was about ETB 28.5 million upon initial
phase will rise to ETB 98.85 Million at the Tenth year of the project life.

Based on the discounted cash flow statement, the calculated IRR before and after Tax as well as the net
present value (NPV) discounted at 16.5% are all attractive and acceptable. Accordingly, the NPV
discounted at said rate is ETB 23,941,696; whereas, the internal rate of return (IRR) after tax will be
57% respectively. The investment cost and income statement projection are used to project the pay-
back period. Hence, the project's initial investment will be fully recovered within 4 years. On the other
hand, the project can create employment for 31 persons. In addition to supply of the domestic needs,
the project will generate a sum of ETB 145.24 Million in terms of tax revenue during 10 year of its
operational life. The establishment of such factory will have a foreign exchange saving effect to the
country by substituting the current imports.

Finally, during conducting this feasibility study, the rationale behind implementation of the underlying
project has been proposed based on previous trends, future estimates and current scenarios including
policy frame-works. In conclusion, the implementation activities of intended Flour manufacturing with
new production technology for quality product has reliable positive impacts on the overall development
of the country in many aspects. Besides, all assumptions and forecast reveals that the business operation
is liquid and will be capable of discharging its financial liabilities with no difficulty. Thus, it is highly
recommended and worth to finance and work with such profitable investment activities.

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Brief information of the Company

Background Information
1.3.1.1. Promoter Profile
The Applicant
 Name: Gedisa Kenenisa and friends manufacturing flour
 Address:
 Region: Oromia
 City: Sheger city Furi Sub-city Muda Furi Woreda-
 Mobile No: +251-921340265
 The Project
 Name: Flour Factory Project
 Address:
 Region: Oromia
 City: Sheger city Furi Sub-city Muda Furi Woreda
 Mobile(contact person): +251-921340265
 General manager :Mohamed Umer Haro
 Tin No:-00936679682
Legal Documents of the Project
 Legal form of business: Private Limited Company
 Principal /commercial registration
 Licensing organ: Oromia region, Sheger city Furi Sub-city Muda Furi Woreda-
 Date issued: 30/01/2017
 Type of Project: manufacturing
 Project Objective: is to produce flour supplied to local market.
 Size of land holding (m2):2000 m2
 Status of the Project: New

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2.1.1. Brief History of the project and/or the promoter

The promoter, Gedisa Kenenisa and Friends manufacturing flour , was established by in
the Oromia Region, Sheger city Furi Sub-city Muda Furi Woreda town, aimed at producing
flour for the local market.

II. BACKGROUND INFORMATION

2.1 ESTABLISHMENT

2.2 PROJECT DESCRIPTION

The underlying project, (Gadisa Kenenisa and friend manufacturing flour partnership ) is a new
manufacturing firm to be legally established as a internship by share company , who founded and has
been running his other business line (i.e. General Construction Contracting Business) for many years.
However, currently the promoter has inspired to establish multiple business lines, which includes Flour
Factory, Integrated Agro-Processing and Production of several value added Agricultural Commodities
for Export as well as domestic market. With this specific feasibility study document, the ongoing project
is intended to implement Flour Manufacturing Investment having the main focuses on production of
Wheat and Maize Flour along with converting the By-Products to Concentrated Animal Feed products,
which is going to be considered as a second phase for an envisaged flour mill project.

Regarding promoter’s profile, the promoter’s is an Ethiopian Citizen Business man at the middle age of
life, with having a good character and well appreciated personality among the society. Besides, he is
educated and has acquired pertinent working experiences in different business like construction
contracting services delivery in the local market for many years. He has been providing acceptable
business operations with best Ethiopian service delivery manner and capable to properly implement and
manage the newly planned food processing project.

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Project Location

The wheat flour factory is plant is located in Oromia region Sheger city furi Sub-city Muda Furi woreda
is located about 18 Kilometer south West of Finfinne on the Main Road from Finfinne to Woliso . While
selecting location for such food complex factory; availability of raw material, adequate storage and
operation space, water and power supply, market outlet for finished products and availability of labor
are among the major factors to be considered. The town is the host of other labor-intensive factories due
to its preferable attribute and square to different regions and zones.

Benefits of the Project

The major benefits include net returns on investment, supply of quality products to the local market and
income tax to the government. Establishment of the project is creating opportunity for productive and
unemployed portion of the labor force. Indirect benefits accrue to the country as a whole in the form of
generating potential investment capital and saving of foreign currency. Experience of this project may
be extended to the grain market by creating market the agricultural produce.

Project Status

The existing investment is commenced wishing the support of the government to upgrade individual to
investors to different investment opportunities and the contract will be with Oromia Regional
Government aiming to establish wheat flour factory. So far the project owner has invested about Birr 1.2
million on the existing project. Among others, the following are the major investments made within the
project compound.

 Civil Works

 5% of the civil works for the factory have been accomplished

 Machinery

 All required production machineries are not purchased.

 Vehicles, Equipment and Furniture

 Vehicles, equipments and furniture are not purchased.

 Raw Materials

 The major raw materials are wheat and packaging materials. Communication with suppliers is
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underway.

2.3 PROJECT OBJECTIVES

The deriving objectives of the project are to produce 10,000 tons of wheat and maize grains
in to flour per annum and to make 25% of profit out of the annual operation of the factory.
To achieve these objectives the factory will produce products and distribute flour with two
quality grade. The first flour grade will be produced to meet the demand of cake shops and
cafeterias to make different versions of cakes and the second grade of the flour will meet
the demand of bakery operating in the town and in the surrounding areas of the project site.
In addition the project also has the following additional derivative objectives to be realized
during the process:-

 To develop the already secured project land area of 2000 M2 with the establishment of the intended Flour
Milling and Other Food manufacturing plant
 By engaging in the production of above mentioned of standard quality flour, the factory
will play important role in reducing the volume import of these goods from abroad. 
 To provide employment opportunity to the growing labor force of the project area by
employing permanent employees and by creating job opportunities for uncountable
people who will engage in the construction phase of the project and permanent
employment opportunities after starting production too.
 To enhance the promotion of establishing similar factory in the town and in turn
contribute to the government revenue earning by the way of taxation.
 To fully engage in the production of food items (Agro-Processing project) for commercial
purposes with new quality manner.
 To embark on a sustainable plan to achieve a reliable source of products for the local, regional,
national and international market,
To be leader in the supply of quality Flour products, Baby foods and other food items among
similar producers,
To contribute in the food sector development
Producing quality Flour of Wheat, Maize and Maize grains, which are highly demanded in the
industry by using modern production techniques and technology through creation of employment.
To generate sustainable income for the company in order to expand the operation and other
development activities in the country.

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2.4 VISION & STRATEGY

To be ‘one of high quality, reputable and profitable Flour Milling and Food items producer in
Ethiopia’. This will be achieved through becoming a multifaceted company committed in providing
maximum customer satisfaction. To achieve this vision, it has to be resolved upon a set of strategies.
Executing these strategies translates directly into the ability to serve the company’s vision and objectives.
The company’s visions are to be implemented through a team of professionals who have extensive work
experience in the industry.

2.5 COMPANY VALUES AND CULTURE

The following are components of the company’s values and cultures.

The company respects the contributions of every employee as essential for its success.
The company communicates openly and honestly.
Unethical and dishonest practices have no place in the company

The company strongly believes that teams, not individuals are the essential unit of the
organization for achieving high performance and accelerating growth.
The company believes in societal support and community development, hence, all its personnel
will obey to this core value.

2.6 KEY SUCCESSES & THREAT AREAS

2.6.1 Macro level Successes
 Access to credit provision at lower interest rate as compared to the business’s return and
convenient terms and conditions of the loan;
 Attractive investment policy and other packages;
 Continuous increment in household income and associated increase in their expenditure patterns;
 Availability of the required man power with relatively affordable labour cost

2.6.2 Sector Level key Successes

 Availability of the required infrastructure;
 Availability of market for the intended food processing business lines;
 Government incentive and encouragement for Food processing sector.
2.6.3 Firm level Successes Factors
 Strategic business areas of special focuses for industry line of businesses where others are
relatively lesser available;
 Well trained & motivated personnel;
 Long years of pertinent work experience of the owners/promoters;
 Well established business with plenty of good-will as well as social acceptances that the
promoters earned so far.
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 Availability of raw materials relatively with low-cost and nearest locations

2.7 PRODUCTS COMPOSITION AND DESCRIPTION

2.7.1 Wheat Flour Products
Wheat flour is the finely ground endosperm of the wheat kernel. Major Types of flour intended to be
produced on commencement of operations are;
 All-purpose flour is white flour milled from hard wheat’s or a blend of hard and soft wheat. It gives
the best results for many kinds of products, including some yeast breads, quick breads, cakes, cookies,
pastries and noodles. Protein varies from 8 to 11 %.

 Bread flour is white flour that is a blend of hard, high-protein wheat and has greater gluten
strength and protein content than all-purpose flour. Bread flour is milled primarily for
commercial bakers, but is available at most grocery stores. Protein varies from 12 to 14 %.

 Cake flour is fine-textured, silky flour milled from soft wheat with low protein content. It is used
to make cakes, cookies, crackers, quick breads and some types of pastry. Cake flour has a greater
percentage of starch and less protein, which keeps cakes and pastries tender and delicate. Protein
varies from 7 to 9 %.

 Composite flour: Composite flour is a mixture of cereals or legumes or the combination of

both. Cereals in composite flour processing include sorghum, wheat, barley and maize. The
legumes are beans, peas, chick peas and soybeans. In most cases, composite flour is delivered
packed in plastic bags of either 5kg or 10kg. The main nutritional value of composite flour (if it
is a mixture of cereals and legumes), is that it contains both carbohydrates and proteins which is
particularly useful for feeding children.

2.7.2 Maize Flour Product

Maize is first cleaned thoroughly to remove dust, stone and other foreign matters clean Maize is tempered
before grinding by treating with air blower so that the bran is separated from the endosperm. The
tempered Maize is crushed between corrugated rollers (Break rolls). The first break rolls are set
relatively far apart to grind the Maize lightly, while successive break yield finer and finer products.
The first break is separated by sieving or bolting in to very fine particles (flour). Maize Flour is pleasingly
light, uniquely flavored, 100% whole grain flour. Ethiopian households have been using Maize flour in
their baking for ages.

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III. MARKET ANALYSIS

3.1 GENERAL BACKGROUND
Cereal production and marketing are the means of livelihood for millions of households in Ethiopia. It
is the single largest sub-sector within Ethiopia‟s agriculture, far exceeding all others in terms of its share
in rural employment, agricultural land use, calorie intake, and contribution to national income. Therefore,
while the country has experimented with almost all dominant forms of political and economic ideologies,
keeping the cereal subsector stable has influenced the agricultural policy thinking of all three political regimes
over the past half century. The monarchic regime instituted grain market board; the central planning region
renamed it the Agricultural Marketing Corporation (AMC) and expanded its scope to practically take over
the staple food markets and while the current government implemented substantial reforms, it continues to
maintain the necessary policy instruments to intervene in case of emergencies.

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3.2 CEREAL GRAIN PRODUCTION AND CONSUMPTION TREND

Because of its rich natural resource endowment, Ethiopia is a major producer of cereals such as teff,
maize, wheat, sorghum and rice and the largest wheat producer in Sub-Saharan Africa. At national level,
about 1.7 million hectares of land were cultivated on wheat in 2016, with a total production of
4.5 million tonnes (about 16 percent of Ethiopia‟s total grain production). The wheat sub-sector is
strategic for the Government of Ethiopia. Wheat is one of the major staple crops in terms of both
production and consumption. It is a highly marketable commodity and it is consumed heavily in different
forms. Wheat and wheat products make up to 14 percent of the overall calories intake of an average
household e urban consumers and a large controlled (subsidized) market. Rural households
are likely to consume their own production or to purchase wheat grain at the local market. Urban
consumers, on the other hand, buy larger quantities of grain and wheat products such as flour, pasta,
bread and biscuits.
3.3 CURRENT STATUS AND ESTIMATES OF SELECTED CROPS (2018-2022)

The Government of Ethiopia (GOE) has identified key priority intervention areas to increase productivity
of smallholder farms and expand large-scale commercial farms. Under the current administration, the
GOE has renewed its emphasis on developing the agriculture sector and ensuring food security. Among
the top priorities identified by the GOE include small and large-scale irrigation development, financing
agricultural

Table: 1 Area and production estimates of common cereals in Ethiopia (2021/22)

Source: FAS- Ethiopia Agriculture Development Estimate

3.4 NATIONAL ESTIMATES OF SELECTED CROPS FOR (2022/23)
3.4.4 Wheat Crop
3.4.4.1 Production Estimate
Ethiopia Wheat production for 2022/23 is projected at 5.7 million tons, up by 3.26 percent over the
2021/22 production estimate and harvested area is forecast at nearly 2 million hectares and the wheat
yield is estimated at a record 2.85 tons/hectare. This is since the GOE has dedicated more resources to
the production of wheat such as intensive extension support, irrigation development, input supply, and
using partly mechanized farming systems.

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. There are now 1.3

million farmers organized in 30,000 clusters across Ethiopia. Each cluster is planting improved seeds at
the same time, using the same agro-ecologically specific fertilizers, benefiting from the same extension
support, and harvesting their crops with the machinery to minimize post-harvest loss.
3.4.4.2 Consumption Estimate
Post forecasts wheat consumption in MY 2022/23 to reach to 7.38 million MT, a near 2.9 percent
increase over 2021/22. The demand for wheat has surpassed its production, and the country must import
a projected amount of 1.4 million tons of wheat to meet its domestic consumption needs in the 2022/23
marketing year. The projected amount of wheat imports takes into consideration the expansion of
irrigated wheat in the low land and semi-low land part of the country. In 2021/22 wheat consumption is
estimated to be 7.17 million MT.

3.4.5 Maize Crop

3.4.5.1 Production Estimates
FAS- Addis Ababa projected Maize production for MY 2022/23 to be 10.2 million metric tons harvested
from 2.55 million hectares. Maize is critical to smallholder livelihoods in Ethiopia. In addition, Maize
is the staple crop with the greatest production and in 2021/22 it is estimated to be at
9.4 million tons harvested from 2.53 million hectares. -----------------------------------------------------------
.

3.4.5.2 Consumption Estimate

MY 2022/23 Maize consumption is projected at 9.9 million metric tons due to growing demand for
human food and animal feed. MY 2021/22 consumption is estimated at 9.5 million metric tons. Maize is
the most affordable grain for rural communities and poor urban consumers compared to other cereals.
Approximately 85 percent

3.5 THE FLOUR MILLING INDUSTRY

Currently, there are around 300 flour mills in Ethiopia with a total of 3.7 million tons of milling capacity
per year. The flour mills are able to obtain the required wheat from the Ethiopia Grain Trade Enterprise
(EGTE), which controls all commercial wheat imports and makes wheat available to flour mills at a
government subsidized rate (CSA, 2020/21). These wheat imports account for roughly thirty- three
percent of the wheat market. The flour mills get the remainder of the wheat supply from the local

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market.
.

3.6 VALUE CHAIN ECONOMIC ACTORS

Wheat producers under Ethiopian situation include smallholders and a few state owned commercial seed
farms. There are some 4.2 million smallholders, two seed multiplication farms (in Arsi and Bale), and a
few private commercial farms that produce and supply wheat. The major producers and suppliers,
however, are smallholder farmers, accounting for more than 89% of the market share. Smallholder

3.6.1 Assemblers/Local collectors

Assemblers are traders or farmer/part-time traders who collect grain from small rural markets. They play
a crucial role, particularly in collecting and transporting grain from inaccessible or distant markets. Their
number is not documented, but it is estimated that they handle about 78,000 metric tons of wheat
annually, which they sell to consumers directly (40%) or to grain wholesalers (60%). The value adding
activities of collectors include; buying, assembling and selling to rural wholesalers. Sales decision by
assemblers is influenced by the size of the local market demand and the overall wheat and cereal supply
situation.
3.6.2 Grain Wholesalers
Grain wholesalers include; the Ethiopian Grain Trade Enterprise (EGTE), private companies, and the
regional grain merchants in both surplus and deficit areas. Together, these actors handle about 281,982
metric tons or 48.5% of the total wheat supply to the domestic market. In some years, however, when
the domestic supply of cereals decreases, the Government imports substantial quantities and distributes
it to food processors and the public. Under normal market circumstances the sources of the wholesaler
wheat purchase are smallholders that constitute about 64%, rural assemblers 16%, cooperative unions
15% and state and private commercial farms 5%. Currently the most active participants in the domestic
wheat market are the regional merchants who purchase wheat from the surplus growing areas and
distribute to deficit areas and major consumption centers directly or indirectly through brokers.

3.6.3 Grain Processors

It has been discussed wheat as the most important crop utilized as an industrial raw material and input
for food-based factories. Wheat grain millers using wheat as a raw material include factories with large
and medium capacities. The major suppliers of wheat to the mills include grain wholesalers, primary
cooperatives and unions, which supply 60% and 17% of food processors annual wheat purchase. Food
processors normally operate below their capacity. For example, the capacity utilization of flour mills,

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bakeries and manufacturers of pasta and macaroni operate at 36%, 67% and 58% respectively of their
capacity in 2019/20.
3.6.4 Wholesalers for processed flour
Wholesalers of processed wheat, especially wheat flour and spaghetti products, obtain their supplies
from the domestic flour mills and supply the same to retailers and bakeries. They mostly operate in large
towns.
3.6.5 Retailers
Wheat and wheat product retailers include grain retailers and retailers of processed flour, spaghetti and
bakery products. About 53% (CSA, 2020/21) of the wheat is supplied to consumers in the form of flour,
spaghetti and bakery; while the rest is distributed in the form of whole grain which is then further
processed by the consumers. Retailers include small shops, bakeries, kiosks, restaurants, cafes, and
supermarkets.

3.6.6 Consumers
Most consumers buy wheat products from particular outlets and retail shops. The main reason to buy
and consume wheat products depends on market outlet which is convenience to buyers. With regards
marketing other wheat products like; spaghetti and macaroni, survey results indicated that majority of
consumers prefer to buy domestically produced spaghetti and macaroni, because imported spaghetti and
macaroni have 4-6 Birr price higher than domestic one. However expensive it may be imported spaghetti
and macaroni have still a large number of consumers in standard hotels and restaurants around Addis
Ababa. The reason for a growing market demand to the imported wheat products indicated that some
customers want to sacrifice quality for higher prices.

3.7 FLOUR SUPPLY TRENDS

3.7.1 Local Production

The Ethiopian Flour Milling industry comprises a large number of players that can be segmented on the
basis of their production capacity and a type of services they provide. The major partakers of the flour
industry are the flourmills, pasta, macaroni and biscuit factories. Given the industry‟s high fixed cost
requirement, profitability is largely dependent on the company‟s ability to increase volumes of sales.
The shortage of quality wheat in the domestic and international market is making the sector challenging
and it adversely affecting the operations and profitability of flour milling companies in the

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country. According to CSA, 2020/21 report in Ethiopia there are about 600 manufacturer of different
crop flour products of which 57% are held in sole ownership, 30% are PLC and 5% are share companies
as shown in the following figure.

Figure 1: Flour Milling and Product Manufacturers

Co- Others, 2% Public, 1%

operatives,
2%

PLC, 30%

Individual
ownership,
share 57%
company,
5% Partnership,
4%

Source: CSA, 2021

In Ethiopia, flour production breaks down in to three sub groups; wheat flour, other flours and, FAFA
and other flours. From 2016/17 to 2020/21 more than 1.3 million tons of flour has been produced. The
production grew with 27% average growth rate for the last five years. The maximum production is
attained in 2020/21, and on the same year the actual value of production as a percentage of yearly
capacity for all grain mill manufacturers is about 48.4% for public and private manufacturer. The
following table shows the total value of flour production for the period covering (2016/17-2020/21).

3.7.2 Total Supply

During the years 2012/13 – 2020/21, the country consumed an average of 834,711 tons of flours out of
which the local market contributed an average of 94%. The table below presents the total supply of flours
in Ethiopia for the period and the share of local production in the total supply.
Table 4: Total Supply of Flours 2012/13 – 2020/21

Local Total Growth Rate of Share of Local

Year Import
Production Supply Total Supply Production
2012/13 159,968 2,801 162,769 98.28
2013/14 169,325 1,177 170,502 4.8 99.31
2014/15 281,736 18,300 300,036 76.0 93.90
2015/16 365,668 109,280 474,948 58.3 76.99
2016/17 386,340 12,351 398,691 (16.1) 96.90
2017/18 737,654 65,550 803,204 101.5 91.84

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2018/19 1,548,201 26,517 1,574,718 96.1 98.32
2019/20 1,703,021 17,688 1,720,709 9.3 98.97
2020/21 1,873,323 33,499 1,906,822 10.8 98.24
Average 802,804 31,907 834,711 42.6 94.8

3.8 FLOUR DEMAND ANALYSIS

In the process of demand analysis and estimation for the product under consideration, a thorough analysis
of the set of factors that influence the marketing forces are essentially important and necessary. The first
step in the process involves the analysis of the underlying characteristics of the target markets and their
general macroeconomic environmental aspects. Accordingly, the demand for Flours is a derived demand,
which depends directly on the performance of its major end users and other general factors, which
commonly affects the products. The following factors are identified to be determent of the demand
position of the products under consideration. ---------------------------------------

3.9 TARGET MARKET AND STRATEGY

3.9.1 Target Market
The markets for company‟s intended products are derived from the different factors, such as increasing number
of population, increase in household income & life style, number of commercial and service rendering sectors,
hospitality service providers, universities and hospitals as well as establishment of other business organizations
creates a demand. Given the annual production capacity and its proximity to urbanized locality of Dilla and
its neighboring towns and other regional states, thus, the target market for the products under consideration
will be nationwide in the short term and export market in long term strategy.

3.9.2 Marketing Strategies

Market strategies can be defined as the set of controllable, tactical marketing tools that a company blends
to produce as per the response it wants in the target market. Marketing strategy includes, but not limited
to the best possible mix of four variables, namely; the nature of the product, the price of the product, the
channels of distribution which take the product to the consumer from the producer and the promotional
activities. A combination of these four elements affects the ultimate sales success of a product.

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3.9.2.1 Product Quality
Product quality is one of the basic and most important marketing mixes that affect the success of a new
product. Product quality has two dimensions, i.e., level and consistency. Level means the producer must
first choose a quality level that will be acceptable in the target market and in a level that comply with the
quality of competing products. Consistency refers to the consistent delivering of established quality
through strict quality control measures. Therefore, all products by the envisaged plant will have; Good
quality and fulfill the standard criteria set for product commercialization,

3.9.2.2 Pricing Strategy

Pricing a product is an important and critical activity since it is the major factor in determining
revenue. If a lower price is fixed, it will affect the profitability of the company, and if a higher price is
fixed, the product will not be able to stand in market competition and may be forced out of the market.
Therefore, in order to determination of sales price for a product depends on a complex series of factors
such as the marketing costs, delivery techniques, the prevailing competitors‟ price and market
conditions.

In general, price setting is done by selecting one of the two frequently used pricing approaches. The
simplest method is cost-based approach (Cost-plus pricing), which involves adding a standard mark-up
to the cost. On the other hand, competition based approach (going-rate pricing), which bases its price
largely on competitors‟ prices. While conducting market survey in connection with preparing this project
feasibility report, observation findings of product pricing by samples taken from food processing
companies in Addis Ababa city as well as surrounding areas have been considered. Accordingly, the
envisaged flour milling project “ABC Flour Milling” will use Cost-Plus approach which is ideally about
35% profit margin over direct costs of manufacturing each products (CGS).

Channels of Distribution

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The following are the main alternative distribution channels commonly used
by producers to reach consumers.

Direct sale to consumers:

Manufacturer Consumer

Indirect sale through the medium of third party:

Manufacturer Wholesale Retailer Consumer

Manufacturer Agent Wholesaler Retailer Consumer
Manufacturer Retailer Consumer
A combination of both direct and indirect sale.
An ideal distribution system has economic benefits for both the manufacturer and the consumer
and it involves the manufacturer or the intermediaries offering the right product, in the „right
quantities‟ at the „right price‟ at the „right time‟ with the „right appeal‟. Accordingly, ------------
--------------------------

Promotion Strategy
In a competitive market, trade promotion should be made to persuade or to make a product
attractive for end users. Such trade promotional tools include; credit and discount with
the volume of products sold etc. The other promotional strategy is selecting of the media
channel that involves choosing among available advertising media and deciding how they
can be used; given the type of message, target audience and the budget available.
……………………………………..
Technology
It is the number one attention of the owner to select appropriate technology which makes
him stay in the business for long time. In longer running projects which are, to be honest,
most of them long term support and backward compatibility are indeed a topic to take
into account. The owner has selected best technology maize flour producing machinery
that is best in the world market.
PRODUCT TECHNOLOGY AND MACHINERIES
The envisaged company‟s food manufacturing technologies are well-developed and in
standardized process. Although different manufacturing companies have developed their
own production processes, all are the same and based on the extrusion process. The
improvements and developments are based on innovations to reduce production cost,
work-in-progress, labour intensity, and to give the product good performance
characteristics. rate of NBE.

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Figure-2: Pro-forma Invoice of Flour Production Machinery

The following is detail specification of the machinery selected by owner

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4.3 SOURCES OF BASIC RAW MATERIALS AND UTILITIES

4.3.1 Basic Raw Materials For Each Product Line
The principal raw material for flour production is wheat and Maize grain. Flour for baking bread is
produced from hard wheat or a blend of hard and soft wheat, while flour for cakes and biscuits is milled
from soft wheat. Wheat grain can be available from farmers in the wheat growing regions of the country.
These can be easily obtained from local markets. The estimated annual cost

of raw and auxiliary materials is given in the table below.

Table-6: Raw & Auxiliary Materials Requirement & Cost

Item Unit Total Qnt. Unit Cost Total Cost
Wheat Grain Tons 6,500 29,700 193,050,000
Maize Grain Tons 4,250 22,250 94,562,500
Flour sacks (100kg, pcs) KG 2,500 3255 8,137,500
Twins KG 2,000 15.25 30,500
TOTAL 295,780,500

4.3.2 Power Requirements

The Total Power requirement for the project is classified in to two working units. Hence, for the cleaning
section, it needs 31.95KW; whereas, for the main processing units (i.e., the milling section), a total of
94.94KW is required that equates total of 126.89KW for the project. The Flour Mill plant is expected to
secure the proposed power from the local Power grid.

4.4.3 Water Requirements

The Flour mill Plant would require water for cleaning, washing of about 10,000 liters of water on a
continuous basis. The unit has a 3” bore well along with storage tanks above the ground in the supply
network to take care of the make-up water requirement. In addition to the above around 5000 liters of
water is required for human consumption and sanitation.

4.4 PRODUCTION PROCESS

The production process of wheat and Maize flour consists of four major operations:

i. Raw Grain Intake and Pre-cleaning: The major unit operations are dumping, conveying,

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weighing, pre-cleaning and conveying to storage silos or transferring to the working bins of
the cleaning room.
ii. Grain Cleaning and Preparation: The main unit involved operations are weighing,
screening, destoning, impurity separation, ferromagnetic separation, scouring, aspiration,
dampening, tempering and etiolating.
iii. Main Operations (Milling): Major operations involved are weighing, breaking open, scalping,
scratching, detaching, sifting, purifying, milling (grounding), resifting and etiolating.

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iv. Packing and Dispatching: The major operations involved are collection of flour streams and
bran, mixing and aerating, resifting, etiolating, packing, sewing, loading and dispatching. The
process does not release any pollutant to the environment.

Figure-3: Wheat Flour Milling Process Flow Diagram

Figure-4: Maize Flour Milling Process Flow Diagram

4.6 PRODUCTION CAPACITY AND PROGRAM

The company has inspired to become operational for 16 hours of a day by making its working schedule in 2 shifts
and 26 days in a month. The planned production capacity is about 10,000 tons/annum at full utilization rate and
out of which 60% of product will be wheat flour and 40% goes to Maize Flour products. However, production
program has scheduled to start at 60% during the first year of operation and continue to increase by 15% until it
reaches full capacity utilization rate for every product lines as per annual production schedules listed in the table
below.

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4.7 CAPITAL INVESTMENT COSTS

4.7.1 Building and Civil Works
The total plot area secured for the envisaged food processing and production plants is about 17,700 m2,
out of which the total area to be constructed including factory building, office building and warehouses
for storage of raw materials as well as finished products is allocated at 591M2. Thus, the total
construction investment cost at a rate of Birr 10,338/m2 is about ETB 6,109,785, as per engineering
estimates provided by project promoter.

4.7.2 Office Equipment & Furniture

The project will have standard office spaces for employees at Administrative level to meet business
requirement that enables the project to implement successfully. Hence, the financial investment cost
budget related to equipment and furniture is estimated to be ETB 750,000.

4.7.3 Trucks and Vehicles

The company needs trucks and vehicles in connection with production process and performing marketing
activities. Hence, the budget related to Trucks and Vehicle is estimated to be ETB 4,500,000.- for which
pro-forma invoices will be availed on demand.

IV. ORGANIZATION AND MANAGEMENT

5.1 ORGANIZATION

In the proposed organization structure, the G/Manager will oversee the overall performance of the plant
while the day-to-day operation of the plant is led by Operations Manager. There shall be three
departments: Production & Technical, Administration & Finance, and Marketing & Procurement
Departments. All the departments shall have two divisions.

Quality controllers shall be deployed under Production and Technical Department and will report to the
general manager. Profitability and success of any business organization depends on its success in sales. Sales
performance, in turn, depends on good knowledge and experience of the market. Therefore, it is important to
establish and staffing a market research division, whose main activities focuses on market research and
promotion. Thus, the proposed Organizational structure is indicated in Figure 6.1.

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5.2 MANAGEMENT AND MANPOWER NEED

Table –10: Human Resource Requirements and Related Costs.

S.N Title No Pos. Salary Monthly Annual Salary

A. General Manager's Office
1 General Manager 1 25,000 25,000 300,000
2 Legal Advisor 1 12,000 12,000 144,000
3 Auditor (Controller) 1 10,000 10,000 120,000
5 Executive Secretary 1 6,500 6,500 78,000
Sub Total 4 53,500 642,000
B. Production & Technical Department
1 Production & Technical Head 1 15,000 15,000 180,000
3 Production Forman 2 3,000 6,000 72,000
5 Main Machine Operators 4 3,000 12,000 144,000
6 Technicians 1 2,500 2,500 30,000
8 Quality Controller 1 3,500 3,500 42,000
9 Supporting officers 3 1,500 4,500 54,000
Sub Total 12 43,500 522,000
C. Administration & Finance Department
1 Admin & Finance Head 1 15,000 15,000 180,000
2 Accountant/Cashier 2 7,500 15,000 180,000
3 Personnel & GS unit 1 7,500 7,500 90,000
4 personnel Clerk 1 4,500 4,500 54,000
6 Drivers 2 4,000 8,000 96,000
7 Guards 2 2,500 5,000 60,000
Sub Total 9 55,000 660,000
D. Procurement & Marketing Department
1 Marketing Dep‟t Head 1 15,000 15,000 180,000
2 Procurement Officer 1 7,500 7,500 90,000
4 Sales Officers 3 5,500 16,500 198,000
5 Market research expert 1 7,500 7,500 90,000
Sub Total 6 46,500 558,000
Total Salary 31 196,300 2,355,600
Employees Benefit 15% Salary 31 29,445 353,340
Grand Total 31 225,745 2,708,940

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V. FINANCIAL ANALYSIS
6.1 BASIC ASSUMPTIONS

For the investment under review, the project operational life is considered and assumptions are made for
10 years. Hence, the costs and benefits of the project are computed over years in line with the following
tabulated financial assumptions:
Table-11: Assumptions for Financial Analyses
S.No. Description Assumption
1 No of shifts / day 2
2 No of Hrs per shift 8
3 Total Hrs per day 16
4 No of working days per year 312
5 No of hrs per year 4,800
6 Product composition
Wheat Flour 60%
Maize Flour 40%
7 Market Indicator Factors
Average Inflation Rate of last 10-years 27.40%
Average Un-employment Rate 9.80%
Urbanization increase/year 8.20%
Population Growth Rate 3.40%
Construction Sector Growth rate 6.80%
Industrial Sector Growth rate 13.40%
8 Financial Investment Indicators
Accounts Receivable 30% of sales
Accounts Payable 30% of CGP
Corporate Income Tax Rate 35%
Building Premises 5%
Machinery and equipment 20%
Vehicles 20%
Office furniture & equipment 20%
Pre-Operating interest 15%
Repair & Maintenance 5% of dep
Insurance 1% of Cost
Borrowing cost 16.5%/ annual
Term of loan 10 years
Repayment Quarter

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6.2 RESULT OF FINANCIAL ANALYSIS

Projections are made based on above assumptions and all complete set of financial projections are
provided in this section. These projections include profit/loss statement, statement of cash flow and
balance sheets. The projections are prepared on an annual basis. Accordingly, the financial analysis
results are discussed below.
6.2.1 Total Investment Cost
Project owner will be asked Lease machines finance Loan services delivery with Birr. 14,000,000 by
purchasing machineries for his flour factory in order to start Business Operation soon. The purpose of
a requesting loan will be utilizing for purchasing of Machineries to flour Product Manufacturing
Factory with total project cost or birr 14,000,000.00million; from this total project cost
2,000,000.million equity of covered by project owner and12,000,000 with long term bank loan from
Bank loan as the following:-

Table-12: Investment Cost Summary

Equity Require Total

Description
Investment d Investment
Financin
g
2,000,000 ------- 2,000,000
Land, Building and Civil Works
Processing Machinery & Equipment --- 12,000,000 12,000,000
Sub-Total (W/C) -------- 12,000,000 14,000,000
Total Investment Cost 2,000,000 12000,000 14,000,000

Table-13: Working Capital Summary

Description Total Cost
Raw Material & Auxiliaries Cost 937,944
Salary & Benefits 225,745
Utilities 43,963
Fuel, Oil & Lubrications 31,292
Insurance 143,699
Repair & Maintenance 223,337
Other Administration Expenses 122,500
GRAND TOTAL 1,728,480

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6.2.2 Revenue Project

The major source of revenue for the project will be generated through sales of different flour products
through modern marketing techniques. Hence, total annual revenue to be generated after the successful
implementation of the project is estimated to be ETB 144,794,691 during 1 st year of operation by
considering 35% margin over CGS and Starting production by 60% capacity utilization rate and expected
to increase by 15% until reaches full capacity.
6.3 FINANCIAL STRUCTURE &STATEMENTS
6.3.1 Source of Finance

As indicated in the annex part, the investment cost required for envisaged project is assumed to be ETB
14,000,000, which to be financed by equity capital and long-term bank loan. Accordingly, from the stated
total investment cost, about 10% is assumed to be equity contribution that equivalent to ETB 2,000,000.
On the other hand, the remaining 90% will be covered by local bank loan for amount of ETB 12 million
at prevailing interest Rate. Hence, the underlying investment cost structure is an integration of both
internal and external sources as summarized in table below:
Table-14: Investment Financing Structure
Equity Contribution 2,000,000
Bank Financing 12,000,000
TOTAL INVESTMENT 14,000,000

6.3.2 Loan Repayment Schedule

The total amount of bank loan facility of ETB 20.0 million is expected to be secured until end of August,
2022 and this principal value including interest (at an interest rate of 16.5%) will be fully paid back
within ten (10) years‟ time which further assumed to be installed on quarterly basis for equal amount of
ETB 4,117,371. The table below presents Summary of annual Loan repayment schedule.
Table-15:Bank loan Repayment Schedule
Years Principal Payment Interest@ 16.5% Total Payment Outstanding Bal.
0 12,000,000
1 869,351 3,248,020 4,117,371 19,130,648
2 1,021,917 3,095,455 4,117,371 18,108,732
3 1,201,256 2,916,116 4,117,371 16,907,476
4 1,412,068 2,705,304 4,117,371 15,495,408
5 1,659,876 2,647,056 4,117,371 13,835,532
6 1,951,173 2,389,026 4,117,371 11,884,360
7 2,293,590 2,085,713 4,117,371 9,590,770
8 2,696,099 1,729,171 4,117,371 6,894,671
9 3,169,245 1,310,059 4,117,371 3,725,426
10 3,725,426 817,395 4,117,371 -
TOTAL 6,164,468 14,611,950 20,586,857 -

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6.3.3 Profitability

According to projected annual net profit from export sales of agricultural products, the envisaged
business will generate an attractive net profit through entire years of operations that will be ETB
16,600,155; ETB 19,557,107; ETB 22,960,129; ETB 25,263,088; ETB 26,743,001; ETB 28,369,412;
ETB 30,029,416; ETB 31,712,703; ETB 33,406,343; and ETB 35,094,322; During 1st, 2nd, 3rd, 4th; 5th;
6th; 7th; 8th; 9th and 10th years respectively. Detail statement is annexed.

6.3.4 Cash Flow

The projected cash flow of the business shows that the project would generate positive net cash flows
throughout the operation years. The net cash in-flow for considered life span is indicated as
ETB1,190,535; ETB 20,026,596; ETB 23,089,855; ETB 26,648,496; ETB 29,166,530; ETB 31,122,377; ETB
33,153,511; ETB 35,325,181; ETB 37,646,686; ETB 40,127,814; and ETB 42,778,835; During Year-0; 1st, 2nd,
3rd, 4th ; 5th; 6th; 7th; 8th; 9th and 10th years respectively. Detail statement is annexed.

6.3.5 Balance Sheet

The positive financial performances are manifested in the balance sheet. As can be seen from the projected
balance sheet depicted in Annex, the net worth of the project, which was about ETB 28.5 million upon
initial phase will rise to ETB 98.85 Million at the Tenth year of the project life.

6.3.6 Internal Rate of Return and Net Present Value

Based on the discounted cash flow statement, the calculated IRR before and after Tax as well as the net
present value (NPV) discounted at 16.5% are all attractive and acceptable. Accordingly, the NPV
discounted at said rate is ETB 23,941,696 ; whereas, the internal rate of return (IRR) after tax will be
57% respectively.

6.3.7 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 estimated by using income statement projection.
BE = Fixed Cost = 21.6 %
Sales – Variable Cost

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6.3.8 Pay-Back Period

The investment cost and income statement projection are used to project the pay-back period. Hence, the
project's initial investment will be fully recovered within 4 years.

6.3.9 Economic Benefits

The project can create employment for 31 persons. In addition to supply of the domestic needs, the
project will generate a sum of ETB 145.24 Million in terms of tax revenue during 10 year of its
operational life. The establishment of such factory will have a foreign exchange saving effect to the
country by substituting the current imports.

6.4 CONCLUSION AND RECOMMENDATION

During conducting this feasibility study, the rationale behind implementation of the underlying project
has been proposed based on previous trends, future estimates and current scenarios including policy
frame-works. In conclusion, the implementation activities of intended Flour manufacturing with new
production technology for quality product has reliable positive impacts on the overall development of
the country in many aspects. Besides, all assumptions and forecast reveals that the business operation is
liquid and will be capable of discharging its financial liabilities with no difficulty. Thus, it is highly
recommended and worth to finance and work with such profitable investment activities.

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