4.

PROFILE ON
CATTLE FEED MANUFACTURING PLANT
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TABLE OF CONTENTS

PAGE

I. SUMMARY 4 -3

II. PRODUCT DESCRIPTION & APPLICATION 4-3

III. MARKET STUDY AND PLANT CAPACITY 4-3

A. MARKET STUDY 4-3
B. PLANT CAPACITY & PRODUCTION PROGRAMME 4-5

IV. MATERIALS AND INPUTS 4-6

A. RAW & AUXILIARY MATERIALS 4-6
B. UTILITIES 4-7

V. TECHNOLOGY & ENGINEERING 4-7

A. TECHNOLOGY 4-7
B. ENGINEERING 4-8

VI. MANPOWER & TRAINING REQUIREMENT 4 - 10

A. MANPOWER REQUIREMENT 4 - 10
B. TRAINING REQUIREMENT 4 - 11

VII. FINANCIAL ANLYSIS 4 - 11

A. TOTAL INITIAL INVESTMENT COST 4 - 11
B. PRODUCTION COST 4 - 12
C. FINANCIAL EVALUATION 4 - 13
D. ECONOMIC BENEFITS 4 - 14

I. SUMMARY

This profile envisages the establishment of a cattle feed manufacturing plant with a capacity of
15,000 tonnes per annum.

The present demand for the proposed product is estimated at 20,811 tonnes per annum. The
demand is expected to reach at 38,260 by the year 2015.

The plant will create employment opportunities for 37 persons.

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The total investment requirement is estimated at Birr 21.81 million, out of which Birr 16.5
million is required for plant and machinery.

The project is financially viable with an internal rate of return (IRR) of 26 % and a net present
value (NPV) of Birr 13.66 million, discounted at 8.5%.

II. PRODUCT DESCRIPTION AND APPLICATION

Cattle feed is a kind of feed for oxen, cows, sheep, and goat reared for their milk and meat. It
contains protein, minerals and other nutrients which are useful for beef and milk production
and survival of the animals. Cattle feed can be prepared from oil cakes, agro-residues, flour
mill by-products, cereals, molasses, etc.. The major cattle feed consumers are large and small
scale cattle raising and fattening farms.

III. MARKET STUDY AND PLANT CAPACITY

A. MARKET STUDY

1. Past Supply and Present Demand

According to the resource potential assessment study of DDPA, natural grazing land is the
main source of feed in the administration which supply crude proteins and metabolize energy
for maintenance and production requirement of ruminates. However, most of the forage
resources are not consumable as the dry period advanced due to increase in lignin in the cell
wall. As a result livestock reducing their body weight and condition and exposed to
economically important diseases in most part of the year.

Although the amount and quality of feed resources is the determining factor for the condition
and productivity of animals, the use of improved feed is virtually negligible in the
Administration. Hence, the production of livestock products such as milk, meat and other
livestock products has remained very low.
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Currently, there are few animal feed processing plants in the country which are concentrated
around Addis Ababa. According to the Statistical Abstract of 2005 published by Central
Statistical Agency the average annual production of the existing plants in the past three years is
about 5,000 tonnes. Since transporting animal feed to far places is not economical, the
demand estimate is worked out based on the existing livestock population of the
Administration.

According to the resource study of DDPA, there are 51,549 cattle, 85,887 sheep and 73,737
goats. According to the information gathered with respect to animal feed, the recommended
average consumption is 2.7kg/head a day. As per the recommended average consumption, the
total amount of animal feed required for the Administration's livestock population is 208,110
tonnes ( 2.7 kg/head day X 211,117 livestock X 365 day/years).

Considering conditional limiting factor such as product adaptability and awareness and income
of farmers and the like only 10% of the livestock population ( cattle, goat & sheep) are assumed
to be fed with industrially processed animal feed initially. Accordingly, the current demand for
animal feed in the Administration is estimated at 20,811 tones.

2. Projected Demand

The demand for improved animal feed is influenced by the size of the livestock population,
awareness of farmers towards the importance of the product and establishment of modern
commercial livestock farms in the Administration. As these conditions are believed to be
improved in the future, a growth rate of 7% is considered in projecting the demand for animal
feed. Table 3.1 depicts the projected demand of animal feed for DDPA upto the years 2005.
Table 3.1
PROJECTED DEMAND FOR CATTLE FEED IN DDPA

Year Demand (Tonnes)

2006 20811
2007 22268
2008 23826
2009 25484
2010 27279
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2011 29188
2012 31232
2013 33418
2014 35757
2015 38260

The demand for improved animal feed in DDPA will grow from 22,268 in the year 2007 to
27,279 tonnes and 38,260 tonnes by the years 2010 and 2015 respectively.

3. Pricing and Distribution

The price of processed animal feed depends up on the availability and value of raw materials.
In this profile, the ex-factory price of animal feed to be produced by the project under
consideration is estimated to be Birr 1500/tonne.

The plant can either sell its product directly to end users ( for clients around the location of the
plant) or appoint commission agents at strategic locations of the Administration.

B. PLANT CAPACITY AND PRODUCTION PROGRAMME

1. Plant Capacity

In this study, a plant with annual capacity of 15,000 tonnes is envisaged considering the market
study and economies of scale. The plant will operate a single shift of 8 hours a day, and 300
days a year.
2. Production Programme

The plant will start operation at 85% of its rated capacity in the first year. It will then build up
its production capacity to 95% and 100% in the second and third year, respectively.

The low production level at the initial stage is to develop substantial market outlets for the
product. Machinery operators will also get enough time to develop the required skills and
experience.
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IV. MATERIALS AND INPUTS

A. RAW & AUXILARY MATERIALS

The annual requirement for raw materials and their costs are indicated in Table 4.1.
Accordingly, the basic raw materials are: oil cake, molasses, bone meal, bran of cereals, maize,
salt and limestone. The total annual cost of raw material is estimated at Birr 17,960.3 thousand.

Table 4.1
THE ANNUAL REQUIREMENT OF RAW MATERIAL AND THEIR RESPECTIVE COSTS
Sr. Description Qty Unit Total Cost
No. (Tonnes) price ('000 Birr)
1. Oil cake 3,450 600 2,070
2. Bran of cereals 3,705 600 2,223.5
3. Molasses 750 500 375
4. Maize 6,000 2000 12,000
5. Salt 21 1,000 21
6. Limestone (ground) 24 450 10.8
7. Other grains (wheat, barely, etc) 450 2,000 900
8. Meal (bone or flesh or blood) 600 600 360
Grand Total 17,960.3

Note: The cost for packing material (sack) is excluded from the annual cost of raw material
with the assumption that customers will bring their own packing materials or they will pay for
it, if they do not have.

B. UTILITIES

Utilities required by the plant consist of electricity, water and fuel oil. Electricity is required to
run the production machinery and to provide lighting for the plant. Water is required for
general purposes and for supplying to the boiler, where hot water is produced to be supplied to
the molasses tank. Fuel oil is required for boiler. The annual requirement and costs of these
utilities are shown in Table 4.2. The total cost of utilities is estimated at Birr 444,610.

Table 4.2
UTILITIES REQUIREMENT AND COST (AT FULL CAPACITY)
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Sr. Item Annual Unit cost Cost ('000 Birr)

No. Requirement
1 Electricity 450,000 kWh 0.4736 213.210
2 Water 10,000 m3 3.10 31
3 Fuel oil 60,000 lt. 3.34 200.4
Total 444.610

V. TECHNOLOGY AND ENGINEERING

A. TECHNOLOGY

1. Production Process

The major operations involved in the production of animal feed are: raw materials preparation,
primary crushing, assorting and measuring, molasses mixing, fine crushing, pellet making, and
packaging.

Raw and auxiliary materials are first charged into silos and tanks where they are made ready for
further processing. They are then processed by primary crusher. Crushed materials are further
separated by means of a sifter, and then stored in the assorting tanks according to the kind of
raw materials.

In assorting and measuring operation, small amounts of additives are charged into the bins
containing different assortments of raw materials. The raw materials stored in the assorting
tanks are measured in accordance with the desired proportion.

The raw materials are then mixed by means of a mixer. In this process, fatty ingredients are
added to the materials in order to raise the nutritional value of the feed. The feed obtained from
the mixer is blended with molasses.

After the feed is blended with molasses, it is further crushed by means of the second crusher.
Sometimes, second crushing is undesirable and can be avoided.
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Assorted animal feed that is crushed into fine particles is further formed into pellets. The
pellets, which are cylindrical type and size, 6mm in diameter and 2cm in length, are then dried.
The product is next stored in the product tanks, then weighed and packaged in jute bag.

2. Source of Technology

The following company could supply the required machinery and technology.

Sunita impex Pvt. Ltd.

36A Bentinck street, 1st floor, Kolkata 700069,
India, ph: 2248 1986/87, 2243 0102
Fax: 91-33-2248 3664
E-mail: Kolkata: admin@sunitaimpex.com, sutimpex@cal2.vsnl.net.in

B. ENGINEERING

1. Machinery and equipment

Machinery and equipment required by the plant, including the auxiliary equipment are given in
Table 5.1. The total cost of plant machinery and equipment is estimated at Birr 16.5 million, of
which Birr 3 million is required in foreign currency.

Table 5.1
MACHINERY AND EQUIPMENT REQUIRED BY CATTLE
FEED PRODUCING PLANT
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2. Sr. Description Qty. Land,

No.
1 Tank and silos for raw and auxiliary materials 1
2 Metal screen and shaker 1
3 Mixer 1
4 Hammer Mill (crusher) 1
5 Blender 1
6 Weighing scale (5 tons) 1
7 Bagging equipment 1
8 Dust collector 1
9 Product tank 1
10 Pellet producing equipment 1
11 Tanks for oil cakes and molasses 1
12 Boiler 1
13 Other accessories, set 1
Building and Civil Works

The total land area of the plant including the open space is 1,000 m 2. The built-up area
required by the plant is estimated at 600 m2. The total cost of civil works and construction at
the rate of Birr 1200 per m 2 is estimated at Birr 720,000 . The total cost of land lease on the
basis of lease value of Birr 9.78 per m2 for a period of 80 years is estimated at Birr 9,780 . The
total cost of land, building and civil works is estimated at Birr 729,780.
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3. Proposed Location

Based on availability of infrastructure, utilities and market, Dire Dawa town is proposed to be
an ideal location for the envisaged plant.

VI. MANPOWER AND TRAINING REQUIREMENTS

A. MANPOWER REQUIREMENT

The manpower requirement of the plant will be 37 persons, out of which 18 will be engaged in
production activities and the remaining 19 will be involved in administrative activities. Table
6.1 shows the details of manpower requirement of the plant and estimated annual labour cost
including fringe benefits. The total annual cost of manpower is estimated at Birr 273,600.

Table 6.1.
ANNUAL MANPOWER REQUIREMENT AND ESTIMATED
LABOUR COST

Sr. Description No. of Monthly Annual

No. persons Salary, Birr Salary, Birr
1 Plant Manager 1 1,800 21,600
2 Secretary 1 700 8,400
3 Accountant 1 700 8400
4 Personnel Officer 1 900 10,800
5 Salesperson/purchaser 1 900 10,800
6 Cashier 1 500 6,000
7 Clerks 2 1000 12,000
8 General Service officer 1 900 10,800
9 Store keeper 2 1,000 12,000
10 Production supervisor 1 900 10,800
11 maintenance Engineer. 1 900 10,800
12 Technician operators 8 4,000 48,000
13 Laborers 8 2,400 28,800
14 Cleaner 2 300 3,600
15 Driver 2 900 10,800
16 Guard 4 1,200 14,400
Sub-total 37 19,000 228,000
Benefit (20% BS) 45,600
Total cost 273,600
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B. TRAINING REQUIREMENT

On-site short-term training for about two weeks by the machinery supplier is required for the
production supervisor, operators and maintenance engineer on operation and maintenance of
machinery and equipment.. The cost of such training is estimated to be Birr 15,000.

VII. FINANCIAL ANALYSIS

The financial analysis of the cattle feed 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 3years
Bank interest 7.5%
Discount cash flow 8.5%
Accounts receivable 30 days
Raw material local 30days
Work in progress 1 day
Finished products 30 days
Cash in hand 5 days
Accounts payable 30 days

A. TOTAL INITIAL INVESTMENT COST

The total investment cost of the project including working capital is estimated at 21.81 million,
of which 47.93 per cent will be required in foreign currency.

The major breakdown of the total initial investment cost is shown in Table 7.1.
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Table 7.1
INITIAL INVESTMENT COST

Sr. Total Cost

No. Cost Items (‘000 Birr)
1 Land lease value 9.78
2. Building and Civil Work 729.78
3. Plant Machinery and Equipment 16500.00
4. Office Furniture and Equipment 75.0
5. Vehicle 450.0
6. Pre-production Expenditure 616.65
7 Working Capital 3436.43
Total Investment cost 21817.64
Foreign Share 47.93

B. PRODUCTION COST

The annual production cost at full operation capacity of the plant is estimated at Birr 20.19
million (see Table 7.2). The material and utility cost accounts for 91.13 per cent, while repair
and maintenance take 0.87 per cent of the production cost.
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Table 7.2
ANNUAL PRODUCTION COST AT FULL CAPACITY ('000 BIRR)

Items Cost %
Raw Material and Inputs 17960.3 88.93
Utilities 444.61 2.20
Maintenance and repair 175.0 0.87
Labour direct 128.0 0.63
Factory overheads * 45.6 0.23
Administration Costs** 100.0 0.50
Total Operating Costs 18853.51 93.35
Depreciation 817.48 4.05
Cost of Finance 525.49 2.60
Total Production Cost 20196.48 100

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.

* Factory overhead cost includes salaries and wages of supervisors, insurance of factory
workers social costs on salaries of direct labour etc.

** Administrative cost includes salaries and wages, insurance, social costs, materials and
services used by administrative staff etc.

2. Break-even Analysis
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The break-even point of the project including cost of finance when it starts to operate at full
capacity ( year 3) is estimated by using income statement projection.
BE = Fixed Cost = 25%
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 4 years.

4. Internal Rate of Return and Net Present Value

Based on the cash flow statement, the calculated IRR of the project is 26 % and the net
present value at 8.5% discount rate is Birr 13.66 million.

D. ECONOMIC BENEFITS

The project can create employment for 37 persons. In addition to supply of the domestic
needs, the project will generate Birr 716.28 thousand, per annum 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.