1st Draft

PRE-FESIBILITY STUDY ON FATTENING OF BUFFALO/CATTLE CALVES

Animal Nutrition Program (ASI) NARC

PAKISTAN AGRICULTURE RESEARCH COUNCIL ISLAMABAD

MINISTRY OF NATIONAL FOOD SECURITY AND RESEARCH

Government of Pakistan

www.parc.gov.pk

January 2014
Contents
1- DISCLAIMER...................................................................................................................................1
2- PURPOSE OF DOCUMENT..............................................................................................................1
3- Introduction to scheme.................................................................................................................1
4- EXECUTIVE SUMMARY...................................................................................................................1
5- BRIEF DESCRIPTION OF PROJECT AND PRODUCT...........................................................................2
6- CRITICAL FACTORS.........................................................................................................................2
7- INSTALLED AND OPERATIONAL CAPACITY FOR FATTENING of CALVES.........................................3
8- GEOGRAPHICAL POTENTIAL FOR INVESTMENT.............................................................................3
9- POTENTIAL TARGET MARKETS.......................................................................................................3
10- PRODUCTION PROCESS FLOW...................................................................................................3
11- PROJECT COST AND BENEFIT SUMMARY...................................................................................3
12- PROJECT ECONOMICS................................................................................................................3
10.1 Project Cost............................................................................................................................4
10.2 Space Requirement................................................................................................................4
10.4 Machinery and Equipment........................................................................................................4
10.5 Furniture and Fixture.................................................................................................................5
10.6 Operational and Maintenance cost...........................................................................................5
10.7 Human Resource Requirement..................................................................................................5
10.8 Project Financing...................................................................................................................5
10.9 Revenue Generation..............................................................................................................6
13- KEY ASSUMPTION......................................................................................................................6
14- ANNEXURE.................................................................................................................................7
1- DISCLAIMER
This information memorandum is to introduce the subject matter and provide a general idea
and information on the subject. Although, the material included in this document is based
on data / information generated from experiments and field testing by a team of relevant
scientists; however, it is based upon certain assumptions which may differ from case to
case. The contained information may vary due to any change in any of the concerned
factors, and the actual results may differ accordingly from the presented information. The
PARC and its employees do not assume any liability for any financial or other loss resulting
from this memorandum in consequence of undertaking this activity. The prospective user of
this memorandum is encouraged to contact qualified consultant/technical expert, especially
designated focal person(s) of this enterprise for reaching to an informed decision.

2- PURPOSE OF DOCUMENT
The purpose of this document is to facilitate potential investors in by providing them with a
general understanding of the business, with the intention of supporting potential investors
in crucial investment decisions. The project pre-feasibility may form the basis of an
important investment decision and in order to serve this objective, the document/study
covers various aspects of project concept development, start-up, production, finance, and
business management. The need to come up with pre-feasibility reports for undocumented
or minimally documented sectors attains greater imminence as the research that precedes
such reports reveal certain thumb rules; best practices developed by existing enterprises by
trial and error, certain industrial norms and well established research findings that become
a guiding source regarding various aspects of business set-up and it’s successful
management. Apart from carefully studying the whole document, one must consider critical
aspects provided later on, which form the basis of investment decisions.

3- Introduction to scheme
Prime Minister’s Youth Business Loan Program, for young entrepreneurs, with an allocated
budget of Rs. 5.0 Billion for the year 2013-14, is designed to provide subsidized financing at
8% mark-up per annum for one hundred thousand (100,000) beneficiaries, through
designated financial institutions, initially through National Bank of Pakistan (NBP) and First
Women Bank Ltd. (FWBL). Loans from Rs. 0.1 million to Rs. 2.0 million with tenure up to 8
years inclusive of 1 year grace period, and a debt: equity of 90: 10 will be disbursed to SME
beneficiaries across the Pakistan, covering; Punjab, Sindh, Khyber Pakhtunkhwa,
Balochistan, Gilgit-Baltistan, Azad Jammu & Kashmir and Federally Administered Tribal
Areas (FATA).

4- EXECUTIVE SUMMARY
Beef from young male calves (12-18 months old) of buffalo and cattle is one of major source
of proteins of high biological values and foreign exchange through production of milk, meat
and hides. However quality of beef due to their stunted growth rate and poor carcass yield
is not satisfactory. Farmers prefer to feed to female calves for replacement of herd. Male
calves become neglected due to malnutrition, emaciation and diseases leading to low
weight at marketing age and less carcass yield when slaughter. Growth rate and quality of
beef and economic return from calves can be improved by fattening. Domestic and
international literature has revealed a growth rate of 700 to 900 g/day when calves are
fattened with a variety of protein supplements along with appropriate health cover and
management.
Such fattening trials can be successfully carried in rural as well as urban areas of Sindh,
Punjab, Balochistan, Khyber Pakhtunkhwa, Gilgit-Balitistan, AJ&K and FATA. Such a project
can be easily completed by conducting series of trials, each on 25 calves (12-18 months old)
for a period of 120 days. Fattened calves can be sold as live or as carcass or cut pieces in any
part of the country. A loan of Rs 1.059 offers a good opportunity for an economic
investment not only for the production of quality beef but also jobs for our talented youth.
Given the cost assumptions, Net Present Value (NPV), Internal Rate of Return (IRR), and
payback period are Rs.3,308,171, 29% and, 4.63 years, respectively.

5- BRIEF DESCRIPTION OF PROJECT AND PRODUCT

Following key parameters must be addressed as per pre-feasibility study:
• Techniques: Calves of respective breeds of buffalo and cattle in rural areas on all over the
country can be subjected to such fattening trials under semi-intensive system. However
protein supplements (of different degradability) for fattening and green fodders harvested
at bloom stage can vary according to climatic conditions and cropping pattern.
• Location: The business can be initiated in rural and urban areas having access to
marketing throughout the country.

• Product: At the moment most of beef is coming from slaughtering of spent animals which
is and low quality compared with that from young calves. Fattening of young calves with
quality supplements will yield of high grade. Production and use of quality will not only
improve our own health but also socioeconomic conditions with foreign exchange earned
through export of surplus.
• Target Market: In addition to major cities, such as Quetta, Karachi, Lahore and Islamabad,
there is an enormous export potential for Middle Eastern countries.
• Employment Generation: The proposed project will provide direct employment to two
individuals. Financial analysis shows the profitability of proposed business within first year
of its operation.

6- CRITICAL FACTORS
The commercial viability of the proposed project depends on the following factors:

• Selection of calves of local breeds of buffalo and cattle, balanced feeding, proper housing,
management, appropriate health cover, well defined marketing and dedicated supervisory
staff will play very important role in exploitation of genetic potential local breed and will
ensure the success of the project.
• Farm may be positioned near to market so that supply of inputs and disposal of final
products could be managed easily.
• It should have enough elevation, so it can be drained easily during the off season.
• Calves should preferably represent local breed and disease free with a desirable body
conditions.
• Farm is required to maintain the complete record of inputs and out puts (Calves, fodder
production or purchase, Feed intake, body weight, morbidity, mortality, sale of animals
and manure) and infrastructure like buildings, equipments and fuel for successful
marketing and traceability.
• Farm should have strong market linkages for effective disposal of produce.

7- INSTALLED AND OPERATIONAL CAPACITY FOR FATTENING of CALVES

This pre-feasibility suggests that quality beef can be produced by using local genetic
materials feed resources under scientific management in a well defined marketing manner.

8- GEOGRAPHICAL POTENTIAL FOR INVESTMENT

Semi-arid and irrigated areas are more suitable for this investment as regard availability of
inputs and marketing of final products.

9- POTENTIAL TARGET MARKETS

The marketing of beef follows the traditional distribution channel, through middlemen or
wholesalers at farm who identifies potential buyers and negotiate price, or directly to
retailer in urban markets. The time spent in transportation, from farm to the retail shop,
varies from area to area. Over the years, collection and transportation of fish has improved
with the use of loader vehicles. However, greater the distance between farm and consumer,
more complicated will be the marketing or distribution system, due to the perishable nature
of the product. The key factors in marketing are availability of current market information,
quality of beef produced and supply & demand which will determine the selling price.

10- PRODUCTION PROCESS FLOW

Although both species are polyestrous but cattle will be more useful in ensuring flow of
production process due to higher fertility rate. However intellectual planning will play an
important role in arrangement, use of inputs and their disposal.

11- PROJECT COST AND BENEFIT SUMMARY

A detailed financial model has been developed to analyze the commercial viability of calf
fattening under the Prime Minister’s Small Business Loan Scheme. Various cost and revenue
related assumptions, along with results of the analysis, are outlined in this section.

12- PROJECT ECONOMICS

All figures in the financial model have been calculated 30 animals. The following table shows
internal rates of return and payback period.
 Table 1. Project Economics

Description Details
Net Present Value (NPV) 3,380,171
Internal Rate of Return (IRR) 29%
Payback Period (years)

Factors that influence the profitability of calve fattening are farm management, quality of
inputs, environmental factors and market situation.

10.1 Project Cost

Following requirements have been identified for operations of the proposed business.

Table 2. Total Project Cost

Capital Investment Amount (rupees)
Capital Cost (one time investment) 736,636
Initial operational cost 1,077,847
Total 1,814,483

10.2 Space Requirement

Table 3. Space requirement and its cost
Space Requirement (Sq. ft.) Cost Rs./ Quantity Area Total Cost
Unit (Nos.) (Sq. ft.) (Rs.)
Veterinary dispensary and 500 1 100 75,000
office
Feed store 600 1 70 42,000
Shed 400 3 sheds 625 250,000
Loading area including 105 1 loading 1000 105,000
manager and water tank area
Miscellaneous facilities (cattle 1 cattle 60,000
Crush) Crush
Total: 532,000

10.4 Machinery and Equipment

Table 4. List of Machinery & Equipments and its cost
Description Quantity Unit Price Total
(Nos.) (Rs.) (Rs.)
Weighing scale 01 25,000 25,000
Chopper and other equipments 01 30000 30,000
Veterinary Kit 01 20,000 20,000
Misc Machinery - 15000 15000
Total: 90,000
10.5 Furniture and Fixture

Following table provides list of Furniture and Fixture required for fattening calves.

Table 5. List of Furniture & Fixture and its cost

Description Quantity Unit Price Total

(Nos) (Rs.)
Furniture and Fixture Lump sump 50000 50,000

Total: 50,000

10.6 Operational and Maintenance cost

Following table provides list of Consumable Requirement for fattening calves.

Table 6. Operational & Maintenance cost

Description Quantity Unit Price Total

(Nos.) (Rs.) (Rs.)
Cost of purchase of animals (125kg body weight) 25 23750 593,750
Cost of feeding of animals @ Rs. 116/day - - 348,000
(including fodder/silage and concentrate)
Cost of Medicines - - 1,250
Electricity - - 7,500
Diesel Charges - - 6,000
Total: 956,500
* Local livestock market.

10.7 Human Resource Requirement

The table below provides details of human resource required to manage basic calves
fattening. The staff salaries are estimated according to the market trends. However, these
requirements and pay scales may vary area to area.

Table 7. Human Resource Requirement its cost

Description No. of Employees Salary/person/ month Total salary per year

Laborers 2 10000 240,000

10.8 Project Financing

Following table provides details of the equity required and variables related to bank loan;
Table 8. Project financing
Description Details
Total Equity (10%) Rs. 180500
Bank loan Rs. 1624500
Mark up to borrower (per annum) 8%
Tenure of Loan (Years) 8
Grace Period (years) 1

10.9 Revenue Generation

Final product of the trial is 25 fattened calves ready for sale in market that will generate
revenue. Trial will be repeated at least thrice a year with sufficient generation of funds.

Table 9. Revenue of the Project

Product Unit Survival Average First Time Sales Price First Time
@100% Weight of Production (Rs./Unit) Revenue (Rs)
calf (Kg)
Fattene 25 215 kg 215/kg 1,,155,625
d calves body
weight
Farm 16500
yard
manure
Total Sales Revenue: 1,172,125

13- KEY ASSUMPTION

Particulars Assumption
Sales Price Growth Rate 5% per year
Increase in cost of raw material 10% per year
Increase in utilities 10% per year
Debt/Equity Ratio 90:10
Plant Building 5%
Machinery and equipment 10%
Office furniture & fixture 10%
Loan Period 8 years
Grace Period 1 year
Loan installments Monthly
Financial charges (interest rate) 8%
14- ANNEXURE
Statement Summaries SMEDA
Income Statement
Rs. in actuals
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10

Revenue 3,456,283 4,127,946 4,811,474 5,172,334 5,560,259 5,977,279 6,425,574 6,907,493 7,425,555 7,982,471
Cost of Goods Sold
Feed & Vaccination Cost 1,043,559 1,217,527 1,386,252 1,455,583 1,528,366 1,604,776 1,684,992 1,769,205 1,857,706 1,950,614
Cost of Calves 1,774,125 2,069,813 2,356,594 2,474,423 2,598,145 2,728,052 2,864,454 3,007,677 3,158,061 3,315,964
Direct Labor 240,000 264,000 290,400 319,440 351,384 386,522 425,175 467,692 514,461 565,907
Repair & Maintenance 14,740 17,220 19,625 20,606 21,636 22,718 23,854 25,046 26,299 27,614
Utilities 35,376 43,296 51,691 56,860 62,546 68,801 75,681 83,249 91,574 100,732
Total Cost of Sales 3,212,800 3,722,106 4,220,324 4,448,463 4,689,705 4,944,878 5,214,866 5,500,616 5,803,234 6,123,720
Gross Profit 243,483 405,841 591,150 723,871 870,554 1,032,400 1,210,709 1,406,877 1,622,320 1,858,751

General administration & selling expenses

Travelling & Comm. expense (phone, fax, etc.) 6,000 6,300 6,615 6,946 7,293 7,658 8,041 8,443 8,865 9,308
Depreciation expense 67,200 67,200 67,200 67,200 67,200 67,200 67,200 67,200 67,200 67,200
Amortization expense 12,927 12,927 12,927 12,927 12,927 - - - - -
Subtotal 98,127 99,027 99,972 100,964 102,006 90,173 91,322 92,528 93,794 95,124
Operating Income 145,355 306,814 491,178 622,907 768,548 942,227 1,119,387 1,314,349 1,528,526 1,763,627

Other income - - - - - - - - - -
Gain / (loss) on sale of assets - - - - - - - - - -
Earnings Before Interest & Taxes 145,355 306,814 491,178 622,907 768,548 942,227 1,119,387 1,314,349 1,528,526 1,763,627

Interest expense 135,541 124,089 109,038 92,737 75,083 55,964 35,258 12,834 - -
Earnings Before Tax 9,814 182,725 382,140 530,170 693,464 886,263 1,084,129 1,301,515 1,528,526 1,763,627

Tax - - - 13,017 29,346 55,439 85,119 117,727 153,205 200,225

NET PROFIT/(LOSS) AFTER TAX 9,814 182,725 382,140 517,153 664,118 830,824 999,010 1,183,788 1,375,321 1,563,402
Statement Summaries PARC
Balance Sheet
Rs. in actuals
Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10

Assets
Current assets
Cash & Bank 133,705 175,125 59,215 207,994 463,490 849,661 1,380,063 2,069,391 2,933,513 4,295,034 8,761,392
Equipment spare part inventory 4,913 6,027 7,212 7,951 8,766 9,665 10,655 11,748 12,952 14,279 -
Raw material inventory 939,228 1,150,569 1,375,496 1,516,491 1,671,933 1,843,303 2,032,231 2,240,518 2,470,191 2,723,397 -
Total Current Assets 1,077,847 1,331,720 1,441,923 1,732,436 2,144,190 2,702,628 3,422,950 4,321,657 5,416,656 7,032,711 8,761,392

Fixed assets
Land - - - - - - - - - - -
Building/Infrastructure 532,000 478,800 425,600 372,400 319,200 266,000 212,800 159,600 106,400 53,200 -
Machinery & equipment 90,000 81,000 72,000 63,000 54,000 45,000 36,000 27,000 18,000 9,000 -
Furniture & fixtures 50,000 45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 -
Total Fixed Assets 672,000 604,800 537,600 470,400 403,200 336,000 268,800 201,600 134,400 67,200 -

Intangible assets
Pre-operation costs 64,636 51,708 38,781 25,854 12,927 - - - - - -
Total Intangible Assets 64,636 51,708 38,781 25,854 12,927 - - - - - -
TOTAL ASSETS 1,814,482 1,988,229 2,018,304 2,228,690 2,560,317 3,038,628 3,691,750 4,523,257 5,551,056 7,099,911 8,761,392

Liabilities & Shareholders' Equity

Current liabilities
Accounts payable - 163,932 192,627 217,270 231,424 246,621 262,949 280,503 299,387 319,715 217,570
Total Current Liabilities - 163,932 192,627 217,270 231,424 246,621 262,949 280,503 299,387 319,715 217,570

Other liabilities
Long term debt 1,633,034 1,633,034 1,451,689 1,255,293 1,042,596 812,245 562,776 292,600 - - -
Total Long Term Liabilities 1,633,034 1,633,034 1,451,689 1,255,293 1,055,613 854,609 660,578 475,522 300,649 453,854 654,079

Shareholders' equity
Paid-up capital 181,448 181,448 181,448 181,448 181,448 181,448 181,448 181,448 181,448 181,448 181,448
Retained earnings - 9,814 192,539 574,679 1,091,832 1,755,950 2,586,774 3,585,784 4,769,572 6,144,893 7,708,295
Total Equity 181,448 191,263 373,987 756,127 1,273,280 1,937,398 2,768,222 3,767,232 4,951,020 6,326,341 7,889,743
TOTAL CAPITAL AND LIABILITIES 1,814,482 1,988,229 2,018,304 2,228,690 2,560,317 3,038,628 3,691,750 4,523,257 5,551,056 7,099,911 8,761,392
Note: Total assets value will differ from project cost due to first installment of leases paid at the start of year 0
Statement Summaries PARC
Cash Flow Statement
Rs. in actuals
Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10

Operating activities
Net profit - 9,814 182,725 382,140 517,153 664,118 830,824 999,010 1,183,788 1,375,321 1,563,402
Add: depreciation expense - 67,200 67,200 67,200 67,200 67,200 67,200 67,200 67,200 67,200 67,200
amortization expense - 12,927 12,927 12,927 12,927 12,927 - - - - -
Deferred income tax - - - - 13,017 29,346 55,439 85,119 117,727 153,205 200,225
Accounts receivable - - - - - - - - - - -
Finished good inventory - - - - - - - - - - -
Equipment inventory (4,913) (1,114) (1,185) (739) (815) (899) (991) (1,092) (1,204) (1,328) 14,279
Raw material inventory (939,228) (211,341) (224,927) (140,995) (155,442) (171,369) (188,928) (208,287) (229,673) (253,206) 2,723,397
Accounts payable - 163,932 28,695 24,643 14,153 15,197 16,328 17,553 18,884 20,329 (102,146)
Other liabilities - - - - - - - - - - -
Cash provided by operations (944,141) 41,419 65,435 345,175 468,194 616,521 779,872 959,503 1,156,722 1,361,521 4,466,357

Financing activities
Change in long term debt 1,633,034 - (181,345) (196,396) (212,697) (230,351) (249,470) (270,176) (292,600) - -
Issuance of shares 181,448 - - - - - - - - - -
Purchase of (treasury) shares - - - - - - - - - - -
Cash provided by / (used for) financing1,814,482
activities - (181,345) (196,396) (212,697) (230,351) (249,470) (270,176) (292,600) - -

Investing activities
Capital expenditure (736,636) - - - - - - - - - -
Acquisitions - - - - - - - - - - -
Cash (used for) / provided by investing activities
(736,636) - - - - - - - - - -

NET CASH 133,705 41,419 (115,910) 148,779 255,497 386,170 530,403 689,328 864,122 1,361,521 4,466,357

Cash balance brought forward 133,705 175,125 59,215 207,994 463,490 849,661 1,380,063 2,069,391 2,933,513 4,295,034
Cash available for appropriation 133,705 175,125 59,215 207,994 463,490 849,661 1,380,063 2,069,391 2,933,513 4,295,034 8,761,392
Dividend - - - - - - - - - - -
Cash carried forward 133,705 175,125 59,215 207,994 463,490 849,661 1,380,063 2,069,391 2,933,513 4,295,034 8,761,392