COMMUNITY BASED LIVELIHOODS RECOVERY PROGRAM (CBLRP) FOR EARTHQUAKE AFFECTED AREAS OF AZAD JAMMU AND KASHMIR AND

NWFP

CBLRP-UNIDO

INVESTMENT OPPORTUNITY PROFILE FOR DAIRY FARM IN NWFP

SEPTEMBER 2007
SUBMITTED TO AYESHA KHAN CHIEF TECHNICAL ADVISOR Community Based Livelihood Recovery Program (CBLRP) United National industrial Development Organization (UNIDO)

BY Sardar Shahid Farid Chartered Accountant

Disclaimer All material included in this document is based on data/information gathered from various sources and certain assumption. Due care and diligence has been taken to compile this document. The document may contain human, mechanical error or non accuracy of the information at the source. No liability for error, or omission or unintentional misrepresentation will be accepted. We reserve the right to make correction and changes wherever desired in this document or its subsequent versions.

1.

PROJECT EXECUTIVE SUMMARY

1.1

PROJECT BRIEF Dairy production is an all-inclusive activity, related to animal care, reproduction, feeding, and management. It is defined as all those aspects and activities relating to raising of dairy animals during their various phases of life to get wholesome milk. The proposed project is to be in the vicinity of Manshera. Livestock production is an integral part of Pakistan's agriculture sector and plays a vital role in the national economy. At present, livestock contributes about 49.1% to the agricultural sector and 11.4 per cent to the GDP. Its net foreign exchange earnings in 2003-04 were 53 billion, which is about 11 percent of the overall export earnings of the country. The role of livestock in the rural economy may be assessed by the fact that 30 to 35 million of the total rural population is engaged in livestock farming, having 2 to 3 cattle/buffalo and 5 to 6 sheep/goats per family deriving 30 to 40 per cent of income from it The main product of the dairy farm will be milk which will be sold on daily basis, the production of milk will be 156,300 Liters, and the annual sales will touch Rs 4 million with 50 adult animals. The initial total investment is of Rs 5,128,691. The Project can be completed in 03 months time. The best quality animals are readily available in the Mansehra region and can be transported to the project easily. The market is readily accessible. Eight persons will be employed at the farm, while more jobs will be created indirectly with the farm.

1.2

FINANCIAL SUMMARY Sales Gross Profit Margin Net Profit Margin before tax Internal Rate of Return Rs 4 Million per annum 36% 12% 51%

Foreign collaboration sought

Joint Venture Loan Market access Sub contracting Buy back arrangement Equipment purchase Feasibility study Other Specify 25 October 2007

Management expertise Technical expertise Marketing expertise Technology transfer Joint R&D Other :Project description

Studies Available

Date:

2.

PROJECT RATIONALE Dairy farming is an agro-based project, which comprises of two aspects: dairy production and dairy technology. Dairy production is an all-inclusive activity, related to dairy animal care, reproduction, feeding, and management and is defined as all those aspects and activities relating to raising of dairy animals during their various phases of life to get wholesome milk. Dairy technology relates to all aspects of processing milk to convert it into various products. This conversion of milk into product is practicable only if it is economically viable. Dairy animals, mainly buffaloes and cows are purchased from the animal markets or breeders located in peri urban areas of cities like , Islamabad, Lahore, Okara, Sahiwal, Sheikhupura, Bahawalpur, Multan, Sargodha and Faisalabad. Dairy animals are fed on protein sources (concentrate) along with plenty of green fodder. Animals are milked twice a day i.e. morning and evening. The milk is sold at the farm or may be directly sold in the urban market. The milk price varies according to its quality and the season. Buffalo milk is sold at Rs 24-26 per liter at the farm gate and Rs 20-22 in the urban market. Cow milk is sold at Rs 21-23 per liter at the farm and Rs. 28-30 in the urban markets. The demand and supply both have shown increasing trend over the last decade. The demand for good quality milk is high. The table below shows this trend. Population of livestock (million) Species 2002-03 Cattle 23.3 Buffalo 24.8 Sheep 24.6 Goats 52.8 Production of Livestock Products Product Milk (million tones) 27.031 Beef (000, tones) 1034 Mutton (000, tones) 683

2003-04 23.8 25.5 24.7 54.7

27.811 1060 702

Dairy farming is considered the backbone and mainstay of economy. It provides raw material for food & leather industry. The produce is a major source of food, i.e. milk and meant. The byproducts of dairy farming such as farmyard manure (FYM) are not only environment friendly but also provide valuable earnings. Sizeable foreign exchanges earnings are also possible through export of its various products. The project is largely labour intensive thereby providing ample opportunities for human resource employment. In the rural North of Pakistan this sector is unorganized and unaware of basic farm management practices. Although dairy farming can be rewarding in several ways the management of a dairy farm is a highly challenging job. 3. MARKET OPPORTUNITY Pakistan is the fifth largest milk producer in the world. Milk production in year 2003-04 was about 27.81 million tons. Raw milk is used for drinking and tea making purpose. In rural areas, milk is used to make desi ghee (clarified butter) , yogurt, whey (lasi) and butter. Rural as well as the urban households are the major consumers of milk.

Existing livestock population in NWFP is 18.3 million. The provincial economy is primarily agrarian with a limited industrial base. General studies and surveys indicate that this project can obtain a good market response and healthy earnings. The overall market value of livestock in Pakistan in 2003-04 is as follows

The daily milk intake of Manshera and surrounding areas is0.020 million liters respectively. The demand for milk increases during summers as the consumption of whey (lassi) rises due to hot weather. Ghee is obtained by heating the milk to evaporate water and removing the curd. Liquid butter oil with 93% fat content and a much smaller volume results. It is easy to store and resists spoilage even at tropical temperatures. The ghee from buffalo milk is white and that from cow milk yellow. Dahi or curd (similar to yogurt) is another popular product. If not refrigerated it must be consumed within 24 hours. Khoya is a popular sweet. It is prepared by condensing the milk to about 20% fat. Sugar and some spices are added in order to obtain desirable flavors. It is a high value product however it also has a relatively short shelf life. Milk processing companies use milk as a raw material to formulate different types of milk i.e. pasteurized milk, UHT treated milk, condensed milk, skim milk & milk powder, etc. Different value added products like yogurt, ice cream, butter and cheese are also prepared from the raw milk. The processed milk quality and market share has increased considerably over the last five years and provides numerous opportunities to the dairy farm investor to benefit from it.

4.

BUSINESS PLAN The good quality lactating adult animals will be purchased; their milk giving ability will be optimized by giving them quality feed and taking proper care. The profitability of the project will be maximized by selling both to the end consumers as well as to the wholesalers. 4.1 PRODUCT SALES The product for sales are given for ready reference as well the expected sales at full capacity is also worked out in the table below. Milk/Cow/Day Milk/Buffalo/Day Wet Cows as % Total no. of Cows Wet Buffalos as % Total no. of Buffalos No. of Days in Year Sale Price of developed progeny Cow 14 Ltrs 10 Ltrs 80% 70% 365 Days 60,000 Rs.
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Buffalo Female calf (cow) older then one year Female calf (buffalo) older then one year Sale Price/Culled cow Sale Price/Culled Buffalo Sale Price/Low yielder cow Sale Price/Low yielder buffalo Sale Price/Male calf Sales at 100% are Rs 4 Million.

70,000 Rs. 20,000 20,000 30,000 Rs. 30,000 16,000 Rs. 20,000 4,000-5,000 Rs

Animal cows buffaloes

Non lactative 5.00 3.00

lactative 30.00 12.00

Liter of Sale Production milk per price of milk animal per annual Qt of per per days day milk liter 285 305 14 10 119,700 26.00 36,600 22.00 156,300

Amount 3,112,200 805,200 3,917,400

Sale male calves

17.00 Total

4,859

82,600 4,000,000

4.2 RAW MATERIALS The main material required at farm are cattle feed, Dry & Green roughage, water and medicines. The cost of feed are detailed below. Daily Feed Requirements Animal Daily Requirement (kg) Cow Green Fodder Dry Roughage Concentrate Total Buffalo
8

Cost/kg 0.10 2.00 10.00 45.78

Amount 4.00 10.00 31.78

40.00 5.00 3.18

Green Fodder Dry Concentrate Total

50 5 3.18

0.10 2.00 10.00 46.78

5.00 10.00 31.78

4.3

PRODUCTION PROCESS

Dairy animals, mainly buffaloes and cows are purchased from the animal markets or breeders located in peri urban areas of cities like , Islamabad, Lahore, Okara, Sahiwal, Sheikhupura, Bahawalpur, Multan, Sargodha and Faisalabad. Dairy animals are fed on protein sources (concentrate) along with plenty of green fodder. Animals are milked twice a day i.e. morning and evening. The milk is sold at the farm or may be directly sold in the urban market. The milk price varies according to its quality and the season. Buffalo milk is sold at Rs 20-22 in the urban market. Cow milk is sold at Rs. 18-20 in the urban markets. 4.4 DISTRIBUTION CHANNELS

It is suggested that milk will be sold on farm door through contractors, gawalas or people around that area or may be pasteurized at farm by the farmer and then deliver it to the near by city. Following are some of the target clients for a dairy farmer. 1. Local people 2. Gawalas 3. Milk collection companies 4. Contractors 4.5 HUMAN RESOUCE REQUIRMENT

One farm manager and seven workers are required at the farm, their salaries are given below Description No. Salary/month/Person Annual Salary (Rs) Farm 1 10,000 120,000 Manager Workers 7 3,000 252,000 Total 8 372,000 Labor Cost

5.

PROJECT FINANCIALS

5.1 OPERATIONAL DATA The dairy farm will house 50 animals in the first year, however if expansion is required the total number will be increased to 100 animals from own production in later years. 5.2 FIXED COST The initial investment in terms of capital cost is Rs 4,355,011 and includes the items detailed below.
ASSEST Total Cost (Rs)

Building/Infrastructure Machinery & equipment Animal Cost

Total Capital Cost

956,161 191,850 3,207,000 4,355,011

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5.3 WORKING CAPITAL The investment in the initial working capital is of Rs 292,680 Raw material inventory Upfront land lease rental Cash Working Capital Requirement 5.4 OVERHEAD COSTS In the first year following overhead cost are estimated. Admin and Selling Salaries Misc Expenses Land lease Rent Expenses Office expenses Professional fees (legal, consultants, etc.) 372,000 43,000 540,000 7,440 14,180 976,620 72,680 140,000 80,000 292,680