Professional Documents
Culture Documents
5 Poultry Farming
5 Poultry Farming
Study
Nekemte Locality of Oromiya Region
By DICT
Submitted to: MoFED/UNDP
October 2010
[ POULTRY FARMING]
Feasibility Study Poultry Farming
Executive Summary
With the support of UNDP, the Government of Ethiopia (GoE) has been implementing a project,
entitled “Local Economic Development” (LED) in 7 municipalities of 4 Big Regions (Oromia,
Amhara, SNNPR and Tigray). These 7 municipalities are as follows: Oromia: Asella and
Nekemte; Amhara: Bahir Dar; SNNPR: Awassa and Sodo; and Tigray: Mekele and Adigrat. The
main objective of the project is to enhance the capacities of Regions and Woredas to promote pro-
poor economic growth and sustainable livelihoods, through investments, employment creation
and targeted economic interventions. The project has 2 main intervention areas to achieve the
objectives, these are: (1) local capacity development for creating enabling environment; and (2)
creating jobs opportunities. The project, which is being implemented since June 2009, has already
made several achievements, such as developing LED strategies of the Regions and localities;
setting up an inclusive microfinance system, providing employment opportunities to over 5,000
unemployed youth and women, providing job-related skills development training to over 3,000
youth, construction of infrastructure (road and sewage system), and others. In line with the GTP
(5 year National Development Plan), the project has been supporting the local governments for
pro-poor growth and economic development at local levels, by creating enabling environment and
promoting jobs creation.
In view of the above background, participatory assessment of the locality’s LED potential was
conducted and a five year LED strategy and viable interventions were developed for harnessing the
potentials. In this regard, six micro viable projects, which are geared towards improving the income
and employability of vulnerable youth and women groups, were identified for the year 2010 based
on results of a pre-feasibility study conducted by the LED team for Nekemte. In fact, Poultry
Farming Project is one of the viable projects that are identified and endorsed by the LED
stakeholders in Nekemte Poultry Farming is setting up to enter the poultry farm business, in which
it initially will focus on production and sales of grower chicken, eggs, hens, and roasters, and that
in the long-term it will involve in the modernized incubation, chicken meat preparation, cultural
doro wot preparation, and others.
Poultry Farming is owned by about fifty (20 males and 30 females) unemployed youths and women
vulnerable groups that will be organized in association so as to pledge their time, labor, and
financial resource so as to create jobs for themselves. These youths and women will operate the
business and that relevant training will be given to the members about production and management
of the poultry farming as well the training of the ways of handling customers, and courses on
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Feasibility Study Poultry Farming
business management like record keeping, and marketing will be provided. It is expected that
Poultry Farming will start its operation in the year 2010/2011.
Poultry Farming will produce and sale quality eggs, grower chickens, hens, and rosters to cafeterias
and restaurants; traders and dwellers of the Nekemte town and will mainly use the doo-to-door
selling, word of mouth, catalogs, broker’s incentives, as well as local newspapers to communicate
with its clients.
The business investment is financially viable with an internal rate of return of 21.0069%, net
present value of birr 123,099.08 discounted at 15%, benefit/cost ratio of 1.150, and payback period
of three years and three months. These financial analysis criterions, all confirms the feasibility of
the business investment and their results indicate a promising investment opportunity. Further, the
farm investment sensitivity analysis, conducted under various conditions, results confirm that the
farm investment is attractive to undertake.
Similarly, if we looked at the forecasted income statement, the Poultry Farming investment will
generate a total sales of birr 775,000 in the year 2010/2011 and birr 1,134,678 in the year 2015,
indicating a more than 45% increase in the sales in the operating period of the farm and ensuring
that the farm start generating profit in the first year of operation. Important ratios such as profit
margin (net profit to total sales), net profit to equity (return on equity), and net profit to total assets
or investment (return on total investment) show an increasing trend during the life-time of the
project. In general, the Forecasted Income Statement and the other indicators of profitability show
that the investment is viable.
As an economic benefit the investment can create employment for 50 Ethiopian in the year
2010/2011 and the job opportunities for our citizens and will increase in the successive years. In
addition to supply of the domestic needs, the investment will generate birr 549,147 in terms of tax
revenue to the government. Lastly, by enhancing the potential to increase productivity and,
managing or minimizing the various costs such as feed costs, labor costs, and others, the business
will implement its investment profitably.
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Contents
Executive Summary………………………………………………………………………………………………………………………2
1. Description of the Business......................................................................................................................5
2. Industry Analysis.....................................................................................................................................9
3. Production Plan......................................................................................................................................11
4. Marketing Strategy.................................................................................................................................12
7. Sensitivity Analysis...............................................................................................................................23
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Meanwhile, Nekemte Town Administration is one of the localities in Oromiya that is endowed with
huge but untapped potentials. Its natural resource base, accessibility to market, better infrastructure
and service, human resource as well as existence of institutions are among the most prominent
potentials for generating growth and creating gainful employment to the residents. Moreover, the
growth and development of Nekemte is believed to stimulate the rapid transformation of
surrounding rural communities. Towns such as Nekemte with large population size need to invest
more on local economic development and human recourse to bring about a rapid economic growth
and realize Millennium Development Goals. The Growth and Transformation Plan (GTP) of the
country can be realized if town like Nekemte strive to improve the levels of the poorest of the poor.
Furthermore, HIV/AIDS, disability and poor support to elders are increasingly threatening the
city’s socio-economic development. Finally, revenue base of the city administration has been
undiversified and inadequate to respond to the needs and priorities of the residents. Albeit positive
developments in the local business enabling environment, the level of private investment and Micro
and Small Enterprises development has been far below expectation. Support provided to Micro and
Small Enterprises has been very limited and women’s involvement in the enterprises has been
marginal. Besides, the number of youth, women, elders and other groups looking for support,
mainly.
The combined effect of these problems has been perpetuating the problems of poverty,
unemployment and weak capacity to finance public expenditures. In addition, the vulnerability
situation is adding to social problems that include crime/deviance, beggary, prostitution etc.
In a nutshell, Nekemte town is not currently in a position to respond to the needs and priorities of
vulnerable groups by relying on its potentials. Among the leading causes is limited access to
finance, business premises, and trainings for skills development. The present undeveloped
partnership and collaboration among Local Economic Development actors is also a bottleneck in
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initiating successful Local Economic Development interventions geared towards creating more jobs
and revenue. This Local Economic Development project of Nekemte is, therefore, developed with
due recognition of the gravity of problems of unemployment, abject poverty and welfare among
vulnerable groups viz., youth, women, elders, the disabled and others in the town.
Poultry Farming is owned by about fifty (20 males and 30 females) unemployed youths and women
vulnerable groups that will be organized in association so as to pledge their time, labor, and
financial resource so as to create jobs for themselves. These youths and women will operate the
business and that relevant training will be given to the members about production and management
of the poultry farming as well the training of the ways of handling customers, and courses on
business management like record keeping, and marketing will be provided. It is expected that
Poultry Farming will start its operation in the year 2010/2011.
The business will operate in Nekemte town, Oromiya Regional State, which is endowed with
different agro-ecological resources. In fact, urban agriculture is a very good potential resource for
the economic development of the town. Poultry farming that significantly absorbs the unskilled
labor force, which is abundant in Nekemte, is a very good income source and employment
generation activity if tapped wisely. The Poultry Farming is an endeavor to create jobs for
vulnerable women groups and youths. The natural resource base, accessibility to market, better
infrastructure and service, human resource as well as existence of institutions are among the most
prominent potentials that justify the initiation of the business project. Moreover, the growth and
development of Nekemte is believed to stimulate the rapid transformation of surrounding rural
communities.
Objectives: The overall objective of the project is to contribute to the reduction of poverty and
unemployment as well as growth generation endeavors in Nekemte. Specifically the project is
intended to improve living standard of 50 youth and women vulnerable groups, create job
opportunity, and to increase the quality and quantity of poultry production and sale of product.
Outputs: The project is expected deliver outputs including increased employment opportunities,
increased purchasing power of target beneficiaries, and increased Production
Input/Activities: Important project inputs include financial support in the form of loan, technical
support. Business plan preparation, providing training to targets, provision of business premises
and political support, establishment of business association, provision of technical and business
information support.
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The project’s impact flow is briefly presented herein below in the diagram that shows the logical
connection of the input/process, outputs, and outcome and impact.
Improved technical capacity (knowledge and skill) to start and run businesses
Stimulated VGs to engage in businesses
Improved production and sale of poultry
Increased purchasing power of beneficiaries
Decreased business failures
Increased emergence new business/investment in food processing
Leading to…
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2. Industry Analysis
The LED potential assessment results uncovered the competitive advantage of Nekemte town and
suggested that urban agriculture (such as poultry farming, dairy processing, horticulture, livestock
fattening, beautification and gardening, Coffee and Honey processing), industry and construction as
the main areas of investment, LED intervention and sustainable development in the locality. (LED
Strategy of Oromiya, 2009 and LED strategy of Nekemte, 2010).
According to Central Statistic Agency, 2007, Nekemte has a total population of above 76,817
(39,167 male 37,650 female). The population of the town is increasing due to rural–urban influx i.e.
people migrate from rural to urban seeking for job opportunity and suitability of the town for work
and living condition. The rise in population has created the scarcity of food items and that the rapid
population growth is potential market for livestock and poultry meat. This implies that there exists
huge market demand for grower chickens and eggs in the city. It also creates employment
opportunities for a number of youth and women. Hence, running the poultry farming business shall
be feasible, lucrative and fast income generating. Like other business, the poultry farming does not
require much capital.
In general, there are few poultry farming businesses in Nekemte town at the current period. Though
the Poultry Farming will gradually involve in the production of quality eggs, grower chickens,
hens, and rosters and will operate in Nekemte town the existing poultry farming businesses in
Nekemte town will have insignificant direct computational effects on the business.
Moreover, by producing quality eggs, grower chickens, hens, and rosters at low costs, satisfying
customers, using the advertizing, and others the Poultry Farming is planning to become strong
competitor and is planning to gain and maintain the market share and become strong competitor.
3. Production Plan
Poultry farming is an important source of food and income in Ethiopia and is one of the most
suitable interventions to improve the livelihood of the poor. The major poultry production system
of the country, contributing to more than 90% of total national output of poultry meat and eggs, is
characterized by production of a small number of low yielding local chickens (30-80
eggs/hen/year), with a flock size of 5-6 per family and offered little or no additional in-puts except
provision of sheltering in the living house during the night (Tadelle 1996; Mebratu 1997).
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Production under this setting is usually targeted for home consumption and there is almost no
attempt to increase the scale to a commercial level.
However, the Poultry Farming is planning to participate in modern poultry production system and
to achieve a better yield by initially focusing on the production of grower chicken, hens, eggs, and
roasters as well as sale and distribution of grower chicken, hens, eggs, and roasters. To achieve the
better yield the Poultry Farming will purchase exotic breeds of chickens and gradually operating on
the upgrading of the genetic potential of the local stock.
In the year 2010/2011, Poultry Farming has a plan to produce and sale 100,000 eggs, 53,500
grower chickens, 1,500 hens, and 1,500 roasters in the year 2010/2011. The costs to produce
chickens, eggs, hens, and roasters are summarized in Table 1 below:
In order to produce grower chicken, eggs, hens, and roasters, the Poultry Farming will purchase
essential raw materials such as poultry feed, hen, grower chickens, litter, and others, which are
summarized in Table 2 below.
Table 2 Raw Material Requirements and Cost for the Year 2010/2011
No Type of Raw Material Unit of Measure Qty Unit Cost Total Costs
1. Poultry Feed Kg 24,530 3 Birr 73,590
2. Purchase of Hen No 860 75 64,500
3. Purchase of Grower Chicken No 145 15 2,175
4. Litter Quintal 110 20 2,200
Total Yearly Raw Material Birr 142,465
4. Marketing Strategy
The Poultry Farming marketing strategies are simple but aim to reach a large amount of people.
Poultry Farming will mainly use the Internet to communicate with its clients, doo-to-door selling,
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word of mouth, catalogs, broker’s incentives, and others. As well, in the future it will also advertise
in the local newspapers including Capital, Reporter, Fortune, and Addis Zemen. In a given year, the
business has a plan to spend up to birr 2,000 on advertising and promotion and it is planning to
spend more in the future.
The Poultry Farming follows a low pricing strategy to attract large numbers of customers and
benefit from the large numbers. In comparison with others, our business price will be low and it
will charge low prices by minimizing its costs to the minimum yet, the business is planning to have
average prices and compete on quality and service in the future.
There is a potential market for grower chicken and eggs in the Nekemte town and that the Poultry
Farming is also targeting different cafeterias and restaurants; traders and dwellers of the Nekemte
town. Poultry Farming will also use best packaging materials as well as clean chicken raising box,
housing and equipment and others.
The farm employees shall ensure that the chicks are kept in a clean, dry and well-ventilated room
and that the chicken houses have proper ventilation as this provides the chicken fresh air and carries
off moisture. The entire building including litter and all equipment should be fumigated and that
adequate feeder space and drinking space are provided. As well, employees follow the recording of
the daily performance data including egg production, mortality and socio economic performance
such as labor requirement, costs incurred and sales on the data sheet provided and strong follow-up
and supervisions regularly.
The employees shall also make sure the availability of adequate feed, the vaccination of chickens,
the availability of adequate veterinary supplies and services and check that all equipment and walls
of the chicken house carefully that they are clean, and washed with disinfectant solution, and dried.
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Regarding the personnel requirement, the business will operate with efficient and effortful
participation of the beneficiaries and hire a total of 50 youths and women vulnerable groups only
from beneficiaries, specifically 5 accountants, 5 cashiers, 5 janitors, 5 storekeepers, 5 guards, and
25 clerical workers. Correspondingly, total labor cost is estimated at birr 180,000 for the year
2010/2011. Table 3 provides the list of manpower required and the estimated monthly as well as
annual labor costs.
Table 3 Manpower Requirement and Labor Cost for the Year 2010/2011
No. Positions Req. No. Monthly Salary Yearly Salary
1. Accountant 5 600 Birr 36,000
2. Cashier 5 350 21,000
3. Janitor 5 250 15,000
4. Store keeper 5 350 21,000
5. Guard 5 200 12,000
6. Clerical Workers 25 250 75,000
Total 50 Birr 180,000
Even though the employment of a manager who run the business profitability, enable the business
pay the loan it borrows, generate more income to the owner, and others is a necessary condition,
his/her employment is not incorporated in the feasibility study. It is the consultant’s strong believe
that the business is managed by one experienced and qualified manager.
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The financial feasibility study that incorporate the capital investment, financing plan, the
Forecasted Income Statement, the Forecasted Balance Sheet, and the Forecasted Cash Flow
Statement are provided in the parts that follow.
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The Poultry Farming generally requires a total of birr 820,000 to meet estimated capital
requirements as well as to cover various costs incurred to start and run the operation. Hence, to
meet estimated capital requirements as well as to cover various costs incurred to start and run the
operation, the business expects to borrow birr 820,000 from financial institutions (such as
microfinance or banks) at the beginning of year 2010/2011, at 10% interest rate that will be
repayable in five years on monthly basis.
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chicken). Similarly, the Sales of Culled Chickens for the year 2012 and successive years
have been computed in a similar manner assuming a 10% annual increase in total sales of
culled chickens.
4. Other Income. The Poultry Farming expects to generate Other Income mainly from sales
of nitrogen from poultry manure and others of birr 30,000 in the year 2010/2011 (sale of
10,000 kilograms of nitrogen from poultry manure at birr 3 per kilogram). As well, the
Other Income for the year 2012 and successive years has been computed in a similar
manner assuming a 10% annual increase in the total other income.
The forecasted costs and expenses for the year 2010/2011 and successive years for the farm are
provided in the parts that follow. Note that, for the purposes of various analyses, the costs and
expenses are treated in the same way.
1. Feed cost. In the year 2010/2011, the business expects to incur a total of birr 75,790 feed
cost incurred to purchase and consume poultry feed, litter, and others. However, the
estimated feed cost of birr 75,790 is for the chickens purchased at the beginning of the
operation, but those chickens that are raised on the farm needs additional feed and that the
farm expects additional feed cost of birr 105,000, resulting in a total feed cost of birr
180,790 in the year 2010/2011. In the year 2012 and successive years the feed cost is
expected to increase by 5% per year for the successive years.
2. Labor cost. In the year 2010/2011, the business estimated to incur a total of birr 180,000
labor cost and that the labor cost is expected to increase by 5% per year for the successive
years.
3. Medicine and veterinary cost. In the year 2010/2011, the business estimated to incur a
total of birr 30,000 medicine and veterinary cost for the purchase of medicine supplies and
veterinary services and that the medicine and veterinary cost is expected to increase by 5%
per year for the successive years.
4. Transportation cost. In the year 2010/2011, the business estimated to incur a total of birr
20,000 transportation cost and that the transportation cost is expected to increase by 5% per
year for the successive years.
5. Repair and maintenance. In the year 2010/2011, the business estimated to incur a total of
birr 2,000 repair and maintenance of farm facilities and that the repair and maintenance is
expected to increase by 5% per year for the successive years.
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6. Utility expense. In the year 2010/2011, the business estimated to incur a total of birr 35,000
utility expenses for the electricity, water, and telephone and that the utility expense is
expected to increase by 5% per year for the successive years.
7. Advertising and promotion. In the year 2010/2011, the business estimated to incur a total
of birr 2,000 advertising and promotion and that the advertising and promotion is expected
to increase by 5% per year for the successive years.
8. Insurance expense. In the year 2010/2011, the business estimated to incur a total of birr
2,000 insurance expenses to insure the business properties and that the insurance expense is
expected to increase by 5% per year for the successive years.
9. Other costs and expenses. Other costs and expenses including the compensation and
severance, stationery and office supply, professional fee, legal fee, consultancy fee, cleaning
and sanitation, revenue stamp, uniform expense, per-diem, license and renewal fee, and
others are assumed to be birr 10,000 in the year 2010/2011 and expected to increase by 5%
in the successive years.
10. Depreciation. The depreciation expense is computed for the year 2010/2011 and coming
years using the deprecation rate of Federal Inland Revenue Authority on the book value of
the assets.
11. Interest expense. From the birr 820,000 bank loan that the business will request, interest
expense of birr 82,000 in the year 2010/2011, birr 73,800 in the year 2012, birr 56,580 in
the year 2013, birr 38,458 in the year 2014, and birr 20,246 in the year 2015.
12. Income taxes. Since we expect no changes in either tax law or tax position, we will use the
same tax rate as last year; that is income taxes of 30%.
The Forecasted Income Statement for the five years (2010/2011 to 2015) depending on the
Forecasted revenue/sales and the costs of sales and expenses provided in the earlier parts are
prepared and presented as follows:
Poultry Farming
Forecasted Income Statement (in birr)
For the Year Ended December 31, 2010/2011-2015
Revenue: 2010/2011 2012 2013 2014 2015
Sale of Eggs 150,000 165,000 181,500 199,650 219,615
Sale of Grower Chickens 535,000 588,500 647,350 712,085 783,294
Sale of Culled Chickens 60,000 66,000 72,600 79,860 87,846
Other Income 30,000 33,000 36,300 39,930 43,923
Total Revenue 775,000 852,500 937,750 1,031,525 1,134,678
Costs and Expenses:
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Hence, using these assumptions, the Forecasted Balance Sheet for the five years (2010/2011 to
2015) are prepared as shown below:
Poultry Farming
Forecasted Balance Sheet
December 31, 2010/2011 – 2015 (in birr)
ASSETS
Current Assets: 2010/2011 2012 2013 2014 2015
Cash on Hand 501,111 513,812 556,098 633,749 752,179
Stock 2,540 2,540 2,540 2,540 2,540
Total Current Assets 503,651 516,352 558,638 636,289 754,719
Fixed Assets:
Buildings 88,000 70,400 56,320 45,056 36,045
Equipment and Machine 126,560 101,248 80,998 64,799 51,839
Generator 36,000 28,800 23,040 18,432 14,746
Refrigerators 19,200 15,360 12,288 9,830 7,864
Total Fixed Assets 269,760 215,808 172,646 138,117 110,494
Total Assets 773,411 732,160 731,284 774,406 865,213
LIABILITIES AND CAPITAL
Liabilities
Accounts Payable 2,772 18,958 31,906 42,265 50,552
Bank Loan 656,000 492,000 328,000 164,000 0
Total Liabilities 658,772 510,958 359,906 206,265 50,552
Capital:
Paid-up-Capital 0 0 0 0 0
Retained Earning 114,639 221,202 371,378 568,141 814,661
Total Capital 114,639 221,202 371,378 568,141 814,661
Total Liabilities and Capital 773,411 732,160 731,284 774,406 865,213
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╬ It is assumed that, the business will construct and acquire buildings at a cost of birr 120,000,
equipment and machine at a cost of birr 163,200, generator at a cost of birr 50,000, and
refrigerator at a cost of birr 24,000 on January 1, 2010/2011.
╬ The business will pay no dividend to the owners in the year 2010/2011, while it will pay
30% of net profit as dividend in the successive years.
The Forecasted Cash Flow Statement for the five years (2010/2011 to 2015) is provided as follows:
Poultry Farming
Forecasted Cash Flow Statement
December 31, 2010/2011 – 2015 (in birr)
Cash Inflows: 2010/2011 2012 2013 2014 2015
Beginning Cash Balance 0 501,111 513,812 556,098 633,749
Sale of Eggs 150,000 165,000 181,500 199,650 219,615
Sale of Grower Chickens 535,000 588,500 647,350 712,085 783,294
Sale of Culled Chickens 60,000 66,000 72,600 79,860 87,846
Other Income 30,000 33,000 36,300 39,930 43,923
Depreciation Tax Shield 20,232 16,186 12,948 10,359 8,287
Borrow from Bank 820,000 - - - -
Total Cash Inflows 1,615,232 1,369,797 1,464,510 1,597,982 1,776,713
Cash Outflows:
Feed cost 180,790 184,406 188,094 191,856 195,693
Labor cost 180,000 183,600 187,272 191,017 194,838
Medicine and veterinary cost 30,000 30,600 31,212 31,836 32,473
Transportation cost 20,000 20,400 20,808 21,224 21,649
Repair and Maintenance 2,000 2,040 2,081 2,122 2,165
Utility Expense 35,000 35,700 36,414 37,142 37,885
Advertising and Promotion 2,000 2,040 2,081 2,122 2,165
Insurance Expense 2,000 2,040 2,081 2,122 2,165
Other Costs and Expense 10,000 10,200 10,404 10,612 10,824
Bank Loan Principal Repayment 164,000 164,000 164,000 164,000 164,000
Bank Loan Interest Repayment 82,000 73,800 56,580 38,458 20,246
Construction of Building 120,000
Acquisition of Equipment and Machine 163,200 - - - -
Acquisition of Generator 50,000 - - - -
Acquisition of Refrigerator 24,000
Profit Tax 49,131 76,117 107,269 140,545 176,086
Dividend Payment - 71,042 100,117 131,175 164,347
Total Cash Outflows 1,114,121 855,985 908,412 964,233 1,024,534
Net Cash Balance 501,111 513,812 556,098 633,749 752,179
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business investment. For the computation of the payback period, net present value, internal rate of
return, and the benefit/cost ratio, the concept of relevant cash flow or incremental cash flow is
determined, which is central to the investment analysis. Note that, relevant or incremental cash
flow for project evaluation consists of any and all changes in the firm’s future cash flows that are a
direct consequence of taking the project. Considering this definition, the relevant cash flow or
incremental cash flow for the purpose of the computation of the payback period, net present value,
internal rate of return, and the benefit/cost ratio is provided in Table 5 below:
Moreover, note that, the business is expected to operate for five years and that the business
assumed a 15% rate of return to evaluate the business investment. Hence, the payback period, net
present value, internal rate of return, and the benefit/cost ratio are calculated using the Forecasted
Cash Flow Statement provided in the prior parts as follows:
1. The payback period was estimated at three years and three months, which is shorter than the
five years that the business will operates, indicating that the business will return its
investments in the shorter period.
2. The net present value at discount factor of 15% was estimated to be a positive value of birr
123,099.08. The birr 123,099.08 net present value is positive; therefore based on the net
present value rule; we should accept the business investment.
3. The internal rate of return reached about 21.0069%. The internal rate of return of 21.0069%
is far greater than the prevailing market rate of return of 15%, again implying that, it is
advisable to undertake the business investment.
4. The benefit/cost ratio at discount factor of 15% was estimated to be 1.150. Since the
benefit/cost ratio of 1.150 is greater than one, we can argue that the business investment is
estimated to provide a positive net return implying that the business investment is attractive
to undertake.
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If we looked at the four criterions: the payback period, net present value, internal rate of return, and
the benefit/cost ratio, all confirms the feasibility of the business investment and the results indicate
a promising investment opportunity, and such business investment could be a great success if well
managed.
Moreover, according to the Forecasted Income Statement, the Poultry Farming investment will start
generating profit in the first year of operation. Important ratios such as profit margin (net profit to
total sales), net profit to equity (return on equity), and net profit to total assets or investment (return
on total investment) show an increasing trend during the life-time of the project. In general, the
Forecasted Income Statement and the other indicators of profitability show that the investment is
viable.
7. Sensitivity Analysis
Risk and uncertainty are the most common features of business activities. These features make it
difficult to know exactly what will be the poultry farming production, its costs, and returns levels,
even in the near future. There are risks and uncertainties about the poultry farming production the
farm is planning to operate due to many factors such as unexpected changes in cost of input, input
availability and quality, national and international economic crisis, climate change risks and climate
variability, electric power blackouts, the level of commitment of the government, political stability
of the country, and others.
There are risks and uncertainties that the chickens may be infected by disease since poultry farm is
very sensitive in terms of disease infection. The risk of diseases has to be tackled by strongly
linking the activity with the veterinary services available in the town. Moreover, the mortality of
chickens in the hay-box for those chickens from day-old to few weeks of age and in the growing
and laying stages, shortages or availability of breeds, veterinary supplies and services, and others
are another form of risks and uncertainty to be considered.
There are risks and uncertainties related to prices due to an unexpected increase in overall supply or
decrease in product quality. Technology changes may represent another form of risk and
uncertainty; such changes could affect costs or returns. All of these risks and uncertainties and
others could affect the business profitability. If the changes in business profit are positive, as a
result of the risks and uncertainties, then there is no need to recalculate the feasibility measures, but
if they are negative, business investment feasibility must be retested, and this is the role of the
sensitivity analysis. Hence, to conduct the sensitivity analysis of the business investment, three
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scenarios are taken into consideration to test business profitability: the increase of total revenue by
7.5% rather than a 10% increase assumed earlier, the increase of all costs and expenses by 3%
rather than a 2% increase assumed earlier, and both occurring together.
Scenario 3. Sales increase by 7.5% and all costs and expenses increase by 3%
The results of the investment feasibility under this assumption are still positive where:
1. The payback period is three years and seven months; therefore based on the payback period;
we should accept the investment.
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2. The net present value is a positive value of birr 26,222.21; therefore based on the net
present value rule; we should accept the investment.
3. The internal rate of return reached about 16.3619%, which is far greater than the prevailing
market rate of return of 15%, again implying that, it is advisable to undertake the
investment.
4. The benefit/cost ratio is 1.032, which is greater than one that indicates that the business
investment is estimated to provide a positive net return and that the investment is attractive
to undertake.
Furthermore, if the Poultry Farming investment takes place, it is expected to result in decrease in
unemployment, increase the purchasing power of target groups, increase the inward investment to
the town, increased contribution of the private sector to the municipal budget and local economy,
and improved business enabling environment (favorable to new investments). In short, the poultry
farm is expected to have a positive impact on the lives of the target group, families of thereof and
on the community at large through improving the food consumption habits of the town residents.
As well, waste disposal from the poultry farm could serve as a good source of fertilizer to the
agricultural sector if adequate linkage is maintained. Also, the business has little or no negative
effect on environment. Finally, the business investment will enhance trust and confidence between
the local authorities and communities. In a nutshell, the project is with far reaching implications to
the success of the country’s/region’s five year GTP by way of meaningfully contributing towards
reducing unemployment and poverty as well as through generating growth at various levels
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and unemployed youth groups also demonstrated its strong linkage to the growth and poverty
reduction goal stipulated in the locality’s LED strategy of. Most importantly, financial and
economic feasibility indicators showed that the project is rewarding and with meaningful
contributions towards stimulating economic growth.
The business investment is financially viable with an internal rate of return of 21.0069%, net
present value of birr 123,099.08 discounted at 15%, benefit/cost ratio of 1.150, and payback period
of three years and three months. These financial analysis criterions, all confirms the feasibility of
the business investment and their results indicate a promising investment opportunity. As an
economic benefit the investment can create employment for 50 Ethiopian in the year 2010/2011
and the job opportunities for our citizens and will increase in the successive years. In addition to
supply of the domestic needs, the investment will generate birr 549,147 in terms of tax revenue to
the government.
Making the most out of the recently active poultry farm business and other factors, Poultry Farming
will achieve the estimated revenue as well as the profit. As well, by enhancing the potential to
increase productivity and, managing or minimizing the various costs such as feed costs, labor costs,
and others, the business will implement its investment profitably. In addition, the business
recognizes the fact that by differentiating its products, it can strongly compete with established
industry players and will be successful if it pursues the proposed investment.
Considering the earlier conclusions and others, the following sets of recommendations should be
taken into considerations:
1. The cost of the business should properly be identified and managed as the excess or
uncontrolled costs result in failing to achieve the proposed investment. Specifically, the feed
costs, labor costs, and others with large amount should be managed and controlled to
achieve the proposed investment.
2. A statistical system for business data used in the feasibility study should be designed and
implemented for monitoring, evaluation, and planning purposes. More attention should be
paid to accurate economic data collection, preparation, and analysis.
3. Integrated, customized, and quality products that will satisfy business’s customers at
competitive prices should be considered and pursued.
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4. Maintaining open communication between Poultry Farming and its customers as well as
employees and other stakeholders in order to ensure the highest level of customer
satisfaction and long lasting reputation within the community.
5. To continue to expand the volume of poultry products and packages, while also increasing
the level of profits for Poultry Farming as well as the owner.
6. Some of the potential threats include the poor quality standard of the major input of
livestock production, feed, supplied by commercial plants, and lack of mandatory quality
control regulations as well as the poor veterinary supplies and services (inadequate
availability, poor quality and delivery mechanisms) should be considered.
7. Although currently consumption of poultry meat and eggs in Ethiopia is very low compared
to other countries, the demand for poultry products is increasing rapidly. There is still huge
potential for marketing products in areas endowed with adequate market infrastructure. The
development of inputs of production, although currently at an infant stage, is expected to
flourish, provided that stakeholders will develop adequate skills and capacities to
modernize, and intensify production to a market scale.
8. Last but not least, the business management must ensure the risk management by taking a
proactive approach to identifying possible risks, weighing up the costs and benefits of
different actions and developing a range of adaptation and responses.
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Annex
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Nekemte has a total population of above 78,000. The rise in population has created the scarcity of food items. This
rapid population growth is potential market for livestock and poultry meet. This implies that there exists huge
market demand for chickens and eggs in the city. It also creates employment opportunities for a number of youth
and women. Running poultry business feasible, lucrative and fast income generating. Like other business, it doesn’t
require much capital. Some 50 youth and women organized in different groups will establish poultry farm in the
city. The municipality is expected to provide them with land.
Poultry production project initially will focus on chicken and hen production, egg production and sales, incubation,
chicken meat preparation, cultural doro wot preparation, sale of hen and distribution. The poultry project is
expected to create employment opportunities for the unemployed youth and women. The potential market for
chicken and eggs are: Different café’s and restaurants; traders and dwellers of the city.
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