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 44-3

A. MARKET STUDY 44-3
B. PLANT CAPACITY & PRODUCTION PROGRAMME 44-6

IV. MATERIALS AND INPUTS 44-7

A. RAW & AUXILIARY MATERIALS 44-7
B. UTILITIES 44-8

V. TECHNOLOGY & ENGINEERING 44-9

A. TECHNOLOGY 44-9
B. ENGINEERING 44-10

VI. MANPOWER & TRAINING REQUIREMENT 44-12

A. MANPOWER REQUIREMENT 44-12
B. TRAINING REQUIREMENT 44-12

VII. FINANCIAL ANALYSIS 44-14

A. TOTAL INITIAL INVESTMENT COST 44-14
B. PRODUCTION COST 44-15
C. FINANCIAL EVALUATION 44-16
D. ECONOMIC BENEFITS 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 Quantity ( Tonnes )

1998 360.2
1999 1,559.2
2000 1,315.4
2001 1,507.5
2002 259.2
2003 36.1
2004 1.010.8
2005 21.6
2006 33.4
Average 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 Unsatisfied Demand (Tonnes)

2007 678
2008 705
2009 733
2010 763
2011 793
2012 825
2013 858
2014 892
2015 928
2016 965
2017 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 1 2 3 and above

Capacity Utilization (%) 75 85 100
Annual Production
a) Edible oil 187.50 212.50 250.00
b) Oil cake 214.0 242.0 285

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. Description Qty Cost (‘000 Birr)

No.
LC FC TC
A. Raw Material
1 Sun flower oil seed (tonnes) 650 1950 - 1950
B. Auxiliary Materials
1 Common salt (kg) 5,820 5.40 - 5.40
2 Bleaching earths (kg) 3,272 5.20 - 5.20
3 Caustic soda (kg) 2,620 15.70 - 15.70
4 Aluminum Sulphate (kg) 454 1.590 - 1.59
5 Trisodium phosphate (kg) 15.6 0.10 0.242 0.342
6 Chlorine (kg) 4.3 0.01 0.04 0.05
7 Barrel-180 kg capacity (pcs) 50 0.12 - 6
8 Jute sacks, 75kg (pcs) 3,000 24.0 - 24
Total 2,008.282 0.30 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. Description Qty Cost (‘000 Birr)

1 Electricity (kWh) 160,000 75.776
2 Water (m3) 5,000 50.00
3 Fuel oil (litre) 10,000 54.10
4 Grease and lubricant (kg) 130 1.95
Total - 181.762

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) Seed cleaning and preparation

b) Oil extraction (Pressing), and
c) 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. Description Qty Cost (‘000 Birr)

No. (No.)
LC FC TC
1 Oil expelling plant 1 200
2 Continuous extracting plant 1 200
3 Refining plant 1 200
4 Screw conveyor 2 100
5 Bucket elevator 1 100
6 Seed scratchier 2 200
7 Husking machine 2 100
8 Material dist rebutting tank 3 100
9 Filter press 2 400
10 Weighing machine 1 100
11 Pump 5 100
12 Laboratory testing sieve 1 20
13 Drying oven 1 100
14 Refract meter 1 20
15 Precision balance 1 20
16 Colorimeter 1 20
17 Laboratory glass ware (set) 1 20
FOB cost - 2,000 - 2,000.00
Inland transport, Bank Charge, - - 100.00 100.00
Customs and Insurance Charges,
Materials handling Costs
CIF Landed Cost 2,000 100.00 2,100.00

2. Land, Building and Civil Works

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. Job Title No. of Salary (Birr)

No. Persons Monthly Annual
A. Administration
1 Plant manager 1 2,000 24,000
2 Secretary 1 700 8,400
3 Finance and administration head 1 1,700 20,400
4 Commercial head 1 1,700 20,400
5 Clerk 1 650 7,800
6 Store keeper 2 900 21,600
7 Purchaser 1 850 10,200
8 Accountant 1 1,200 14,400
9 Accounts clerk 1 650 7,800
10 Cashier 1 900 10,800
11 Personnel 1 1,450 17,400
12 Time keeper 1 450 5,400
13 Driver 2 750 18,000
14 Driver assistant 1 350 4,200
15 Office boy 1 250 3,000
16 Guard 3 250 9,000
Sub-total 20 202,800
B. Production
1 Production and technical head 1 1,800 21,600
2 Production foreman 1 1,500 18,000
3 Operator 6 700 50,400
4 Laboratory (raw material feeder) 2 450 10,800
5 Laborer (cleaner) 1 450 5,400
6 Laborer (packer) 1 450 4,500
7 Bleaching earthe sludge dumper 2 350 8,400
8 Boiler operator 2 350 8,400
9 Workshop foreman 1 1400 16,800
10 Mechanic 1 900 10,800
11 Electrician 1 900 10,800
12 Mechanic helper 1 500 6,000
Sub-Total 20 171,900
Workers benefit (25% BS) - 93,675
Total 40 468,375
 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 1 year

Source of finance 30 % equity
70 % loan
Tax holidays 3 years
Bank interest 8.5 %
Discount cash flow 8.5 %
Accounts receivable 30 days
Raw material local 30 days
Work in progress 2 days
Finished products 30 days
Cash in hand 10 days
Accounts payable 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. Total Cost

No. Cost Items (‘000 Birr)
1 Land lease value 160.0
2 Building and Civil Work 1,000.0
3 Plant Machinery and Equipment 2,100.0
4 Office Furniture and Equipment 125.0
5 Vehicle 450.0
6 Pre-production Expenditure* 565.8
7 Working Capital 246.7
Total Investment cost 4,647.5
Foreign Share 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 Cost %
Raw Material and Inputs 2,008.58 59.04
Utilities 181.76 5.34
Maintenance and repair 150 4.41
Labour direct 266 7.82
Administration Costs 202.8 5.96
Total Operating Costs 2,809.14 82.58
Depreciation 425.3 12.50
Cost of Finance 167.41 4.92
Total Production Cost 3,401.85 100

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 = 15 %
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 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.