LUCHE AND KORE MICRO AND SMALL ENTERPRISE (IMX)

IRRIGATED CEREALS, PULSES AND OIL CROPS PRODUCTION

INVESTMENT PROPOSAL

PROJECT promoter: LUCHE AND KORE MICRO AND SMALL

ENTERPRISE
PROJECT LOCATION: OROMIA REGION, EAST WOLLEGA ZONE, Wama Hagalo WOREDA, miessa
kebele

Contact person: LUCHE

(+251-917-09-74-26)
Consulting Firm: sileshi angerasa econ, business and investment development consultancy service
Address: Mobile: 0911896145/0966109246
Consultant Name & Signature:

Nekemte, Ethiopia
MARCH, 2023

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 Table of Contents
EXECUTIVE SUMMARY OF THE PROJECT...........................................................................iv
1. INTRODUCTION.................................................................................................................1
2. BACKGROUND....................................................................................................................2
2.1. Stakes in Agricultural Production.....................................................................................2
2.2. The Agriculture Sector......................................................................................................3
2.3. Development and socio-economic objectives...................................................................4
2.4. Income distribution and poverty.......................................................................................4
3. NAME OF PROMOTERS, CONTACT PERSON, LEGAL FORM OF BUSINESS....4
4. NEED (PROBLEM STATEMENT) PROBLEM JUSTIFICATION...............................5
5. PROJECT GOAL, OBJECTIVES AND RATIONALES.................................................5
6. THE PROJECT AREA DESCRIPTION............................................................................6
6.1. Physical Features...............................................................................................................6
6.2. Economic Base..................................................................................................................6
6.3. Population.........................................................................................................................8
6.4. Vegetation.........................................................................................................................8
6.5. Infrastructure and Institutions...........................................................................................8
7. THE PROJECT OUT PUTS, ACTIVITIES AND INPUTS.............................................9
7.1. Project Description............................................................................................................9
7.2. project objectives..............................................................................................................9
7.3. Types Of Technology Use................................................................................................9
7.4. Production Capacity........................................................................................................10
7.5. Land Use Plan and Action Plan......................................................................................10
8. MARKET PROSPECTS.....................................................................................................10
8.1. Demands and Main Customers.......................................................................................10
8.2. Competition analysis and Selling Prices.........................................................................11
8.3. Marketing Strategies.......................................................................................................11
9. ORGANIZATIONS AND ADMINISTRATION OF THE PROJECT..........................11
9.1. Business Form.................................................................................................................11
9.2. Organization Structure of the Project..............................................................................11
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 9.3. Manpower Requirement with Qualification...................................................................12
10. STAKEHOLDERS AND PARTNERS..............................................................................13
11. FINANCIAL STUDY..........................................................................................................13
11.1. Financial Requirements...................................................................................................13
11.2. Project Capital Costs.......................................................................................................13
11.3. Forecasted Production.....................................................................................................17
11.4. Forecasted Sales Revenues.............................................................................................17
11.5. 8.4. Depreciation Calculations........................................................................................18
11.6. Loan Repayment Schedule and Interest Expense...........................................................18
11.7. Forecasted Income Statement.........................................................................................18
11.8. Forecasted Cash Flow Statement....................................................................................18
11.9. Forecasted Balance Sheet................................................................................................18
11.10. Overall Financial Assessment.........................................................................................19
13. PHASE OUT AND SUSTAINABILITY STRATEGY....................................................21
14. ACTION PLAN AND BUDGET BREAK DOWN...........................................................21
15. RISKS AND ASSUMPTIONS............................................................................................22
16. ENVIRONMENTAL IMPACT ANALYSIS....................................................................23
17. CONCLUSION AND RECOMMENDATION.................................................................24
Annex.............................................................................................................................................25

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Executive Summary of the Project
1. Project Name
2. Project Owner
3. Project Type
4. Project Promoter
5. Nationality
6. Project Location
7. Premises Required
8. Full production Capacity
9. Total investment capital
10. Job opportunity
11. Benefit Expected
12. Expected beneficiaries
13. Technology to be used
14. Market Destination
15. Source of finance
16. Recommendation
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Irrigated Cereals, Pulses and Oilseed crop production project
Luche and Kore Micro and Small Enterprise
Agriculture
The promoter of the project is the owners themselves (the
investors) and those of who are benefiting from the project.
Ethiopian
Oromia Region, East Wollega Zone, Wama Hagalo Woreda,
Miessa kebele
48.44 ha
At full production Capacity, the project will produce 2,795
quintals of produce annually
8,678,787.76 (ETB)
Permanent: Skilled 13 and unskilled 4
Temporary: Skilled - and unskilled 436
Total: Skilled 13 and Unskilled 440 (Aggregate =453)
The expected benefit of the project is to produce 5,163 quintals of
production per annual, and thereby create job opportunity for 795
individuals and become source of income for the government
 The surrounding community in obtaining job opportunity
 People living in Wama Hagalo woreda, Miessa Kebele and
the surrounding community will obtain social fund and job
opportunity
 People living in East Wollega zone, in large
 Government and non-government organizations
The firm will use environment friendly technology which can be
operated by local people.
i. Different individuals who are living in Oromia region, east
Wollega zone and woredas and towns
ii. Finfinne, Adama and surrounding community
iii. Some of the produce will be planned to be exported
abroad
Out of Br. 8,678,787.76 as capital requirement, 20% ( 1,735,757.55
) from own contribution and 80% (6,943,030.20 ) from bank@
interest rate of 11.5%
The project is economically, financially and socially feasible. For
instance, financially, the project’s IRR is 109% which is greater
than discount rate (11.5%) and NPV is equal to Br. 35,909,958.00
1. INTRODUCTION

Ethiopia’s Agricultural Sector Policy and Investment Framework (PIF) is a sectoral national policy
applicable for the period of 2010-2020. Its main objective is to sustainably increase rural incomes
and national food security producing more, selling more, nurturing the environment, eliminating
hunger and protecting the vulnerable against shocks. Four main themes, each with its own strategic
objective, are identified within the above overall objective. These are: 1. achieve a sustainable
increase in agricultural productivity and production; 2. accelerate agricultural commercialization
and agro industrial development; 3. reduce degradation and improve productivity of natural
resources; and 4. achieve universal food security and protect vulnerable households from natural
disasters. As to the thematic area of disaster risk management and food security strategic objective
4 aims at reducing the number of chronically food insecure households, reducing imports of food
aid, improving the effectiveness of targeted social safety net programme for vulnerable groups,
reducing the prevalence of child malnutrition, and improving the effectiveness of the disaster risk
management system.

Under the thematic area of productivity and production strategic objective 1 entails the following
outcomes: increase the production of food, cash crops and livestock; increase agricultural
productivity; reduce qualitative and quantitative post-harvest losses; scale-up proven best
agricultural practices; increase the use of agricultural inputs and improved agricultural practices;
and reduce dependence on commercial imports of staple food products. Under the thematic area of
rural commercialization in strategic objective 2, the following outcomes are expected: increase in
private agribusiness investment; increase in smallholder household cash incomes; increase in the
proportion of agricultural production marketed (versus subsistence utilization); increase in the
diversification into higher value products; improvement of farmer access to agricultural inputs and
productive assets; increase in farmer access to rural financial services; increase in agricultural
export earnings; increase in households’ participation in farmer organizations; strengthening of
farm income growth through improved infrastructure and market access; and reduction of rural
unemployment.

As with the thematic area of natural resource management strategic objective 3 aims at increasing
areas under irrigation; improving water conservation and water use efficiency; reducing arable,
rangeland and forest degradation; maintaining agricultural biodiversity; improving soil health in
key agricultural landscapes; improving security of private sector access to land resources; and
strengthening farmers’ ability to respond to climate change challenges.

In addition, following the issuance of PIF and GTP, there has been a call for shifting from low
value land extensive production to high value and land intensive form of agriculture is made.
Accordingly, this crop production project is proposed by visionary emerging domestic investor
Luche and Kore Micro and Small Enterprise. It is against this background that this project study is
being undertaken to assess the profitability of the project so as to provide the investor and Oromia
Investment Commission with a tool to use in determining the feasibility of enterprises and
monitoring its performance. In making this project feasibility study, the consultant team has
devoted a great deal of time in searching and collecting information on specific aspects of the
project. The information was collected by reviewing both print and electronic documents from
research publications (library and on-line reprints and databases).

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2. BACKGROUND

Agriculture is the mainstay of the Ethiopian economy, contributing 41.4% of the country’s gross
domestic product (GDP), 83.9% of the total exports, and 80% of all employment in the
country (Matousa, Todob, & Mojoc, 2013). Put in perspective, Ethiopia’s key agricultural sector
has grown at an annual rate of about 10% over the past decade; much faster than population growth.
Other important sectors are service and industrial sectors contributing 43% and 15.6%
respectively (The World Fact book, 2016). On agriculture expenditure related metric, Ethiopia has
dedicated an annual investment of about 14.7% of all government spending to the agriculture sector
since 2003. Ethiopia is among the few African countries that have consistently met both the African
Union’s Comprehensive Africa Agricultural Development Program (CAADP) targets of 10%
increase in public investment in agriculture by the year 2008 and boosting agricultural production
growth by 6% at least by 2015.

Although agriculture is one of Ethiopia’s most promising resources, the sector has been slowed
down by periodic drought, high levels of taxation and poor infrastructure that often make it hard
and expensive to get goods to market. Also, overgrazing, deforestation and high population density
has led to massive soil degradation leading to low productivity. The above problems have made it
hard for the country to feed itself; best exemplified by the dramatic 1984-85 famine. Since then, the
country has experienced similar occurrences that expose a sizeable population to humanitarian
needs. As things stand, over 3 million Ethiopians need food and other humanitarian assistance
annually (SIDA, 2015). However, a critical look at the sector shows a high potential for self-
sufficiency in grains and also for the development export especially for livestock, vegetables, fruits
and grains. Further, many other economic activities depend on agriculture. These include
processing, marketing and export of agricultural products among others.

Although the government’s priority attention is still on increasing the productivity and production
by the smallholder farmers, recognizing the high prevalence of rural poverty and the large
productivity gap, due recognition is now given to the private commercial firms in the agriculture
sector. This is reflected in the Policy and Investment Frame work (PIF) objective of the country
which states “to contribute to Ethiopia’s achievement of middle-income status by 2020”. The
Development Objective aims to “sustainably increase rural incomes and national food security,
which embodies the concepts of producing more, selling more, nurturing the environment,
eliminating hunger and protecting the vulnerable against shocks. Investments are also directed
towards expanding the extension system, irrigation development, and rural commercialization and
agro-processing. The government is complementing its efforts in food-insecure areas with an
increased commitment to raise national food production by investing in areas with high agricultural
potential, including efforts to attract private agricultural investment in areas with under-utilized land
and water resources.

2.1. Stakes in Agricultural Production

For Ethiopia to achieve middle-income status by 2025 and make substantial inroads against food
insecurity, concerted and strategic investment and strategic choices in the agricultural sector are
vital. Concentrations of food insecurity and malnutrition are endemic in rural areas, with a
population of six to seven million chronically food insecure, and up to 13 million seasonally food
insecure. Over 90 percent of agricultural output is driven by smallholder farmers. Without
expanding cultivated land, and given forecast population growth, the average land holding size in

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highland areas will be reduced to 0.7 hectares by 2020, placing further pressure on rural incomes
and food security.
Agriculture contributes substantially to the overall Ethiopian economy. On a nominal GDP of USD
25.6 billion, 43 percent was driven by the agricultural sector. Crop production accounts for 29
percent, with livestock at 12 percent, followed by the forestry sector with 4 percent. The sector
contributed USD 1.4 billion to export earnings. The sector also drives aggregate employment
figures. Estimates show 83 percent of the population relies on agriculture for their livelihoods (with
many more dependent on agriculture related cottage industries such as textiles: crops and forestry
account for 60 percent of overall export value, livestock for 28 percent, and remaining exports, a
combination nonagricultural industry, primarily extractives and industrial production.
The role of gender in the Ethiopian agricultural system is also critical: in post-harvest activities for
cereals, women contribute as much as 70 percent of on-farm labor; in marketing, particularly in
cereals, participation of women is as high as 60 percent of labor market share. While MoARD
strategies do identify the role of women in the agricultural value chain, the gap is in the
implementation of these strategies. PASDEP II has already identified targets for the participation of
women in cooperatives and unions (>30 percent), as well as the number of women targeted by
public extension in male-headed and female-headed households, 50 percent and 100 percent,
respectively. Given the stakes of women in production systems, specific strategies that target
increasing the opportunity of women to participate in income generation and decision-making, and
the disaggregation of data sets to capture the participation of women are critical.

2.2. The Agriculture Sector

In spite of disproportionately high employment in the sector (fairly above 84 percent of the rural
population) and high poverty reduction power of the sector, the contribution of the agriculture to
GDP of the nation has been declining. Such declining role of the sector is explained mainly by the
small sizes (land holding share of 83 percent by smallholders farming setup less than 2 hectares and
the average size of the small farms is 1.25 hectare) characterized by low utilization of agricultural
inputs, dependence on inconsistent, uneven & unpredictable rains, poor irrigation system, low
technology, little access to know-how (risk management, technology, skill, etc), limited capital,
fragmented plots hampering economic scale production and productivity, that is vulnerable to
natural and man-made changes.

About a third of rural household’s farm less than 0.5 hectares which, under rain fed agriculture at
current yield levels, cannot produce enough food to meet their requirements. Most agricultural
production is used to meet household consumption needs and, for a very large number of
households, there is a prolonged hunger season during the pre-harvest period. This period is also
characterized by rising in food item prices. When there are surpluses, smallholder farmers are
often constrained by lack of access to markets, and hence sale their outputs at very depressed prices.

Owing to these characteristics of smallholder farmers and the related constraints, crop production
couldn’t keep in pace with the growing demand for such outputs for food and as input for industrial
sector for industrial sector. As a result, Ethiopia has been net importer of cereals and fruit products
despite of decades unreserved government effort to increase the productivity and production of the
smallholder agriculture sector. Hence, food security remains a critical issue for many households,
and for the country as a whole. Moreover, expansion of the cropped area to more marginal lands has
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led to severe land degradation in some areas. To fill such growing gap between the supply of crop
products and demand for such items, the government has declared its commitment to increase the
national food production by directing investment in areas with high agricultural potential, including
efforts to attract private agricultural investment in areas with under-utilized land and water
resources.

2.3. Development and socio-economic objectives

The development and social objective of the Ethiopia is compressive and consistent. In addition to
the well articulation of these in the current national plan (GTP), it is also reflected in the Policy and
Investment Frame work (PIF) objective of the country which states “to contribute to Ethiopia’s
achievement of middle-income status by 2020”. The Development Objective aims to “sustainably
increase rural incomes and national food security”. This objective involves the concepts of
producing more, selling more, nurturing the environment, eliminating hunger and protecting the
vulnerable against shocks; all of which are embodied in various national policy instruments, and are
expressed in terms of four main themes, each with its own Strategic Objective summarized as
follows:
Table: Strategic Objective
Thematic Area Strategic Objectives (SOs)
Productivity and To achieve a sustainable increase in agricultural productivity
Production and production.
Rural Commercialization To accelerate agricultural commercialization and agro
industrial development.
Natural Resources Management To reduce degradation and improve productivity of natural
resources.
Disaster Risk Management and To achieve universal food security and protect vulnerable
Food Security households from natural disasters.

Thus, the objective of this investment project proposal is well anchored to, and aligned with the
national socioeconomic development of the country. The detail project rational and objectives are
explained under section three “rationale and Objectives of the project”.

2.4. Income distribution and poverty

As this project is proposed to be implemented in area where there is neither commercial private
farm nor state farms operating so far, and as the local smallholder farmers are mainly characterized
by low input and low output vicious, the successful implementation of the project will contribute
toward equitable income distribution and rural poverty reduction. By creating non-farm job
opportunity at their locality, this project will also reverse the seasonal rural-urban migration, which
has been the norm due to lack of non-farm income generating activities. Given the fact that the
success or failure of any project is usually measured in terms of its final effect on these issues, this
project will meet the priority area where the government needs more investment.
3. NAME OF PROMOTERS, CONTACT PERSON, LEGAL FORM OF BUSINESS
 Name of the project: irrigated Cereals, Pulses and Oilseed Crop Production Project
 Owner: Luche and Kore Micro and Small Enterprise
 Contact Person: Mr. Luche
 Legal form of business: Micro and Small Enterprise

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4. NEED (PROBLEM STATEMENT) PROBLEM JUSTIFICATION
Agriculture plays a critical role in the entire life of a given economy. Agriculture is the backbone of
the economic system of a given country. In addition to providing food and raw material, agriculture
also provides employment opportunities to very large percentage of the population.
Hence, the key constraints to agricultural productivity in Ethiopia include low availability of
improved or hybrid seed, lack of seed multiplication capacity, low profitability and efficiency of
fertilizer use due to the lack of complimentary improved practices and seed, and lack of irrigation
and water constraints.
Indeed, at the close of the century of greatest agricultural expansion, the dilemma of the farmer had
become a major problem. Several basic factors were involved-soil exhaustion, the vagaries of
nature, overproduction of staple crops, decline in self-sufficiency, and lack of adequate legislative
protection and aid. Some of the environmental issues that are related to agriculture are climate
change, deforestation, dead zones, genetic engineering, irrigation problems, pollutants, soil
degradation, and waste.

Ethiopian agriculture has been suffering from various external and internal problems. It has been
stagnant due to poor performance as a result of factors such as low resource utilization; low-tech
farming techniques (e.g., wooden plough by oxen and sickles); over-reliance on fertilizers and
underutilized techniques for soil and water conservation; inappropriate agrarian policy;
inappropriate land tenure policy; ecological degradation of potential arable lands; and increases in
the unemployment rate due to increases in the population

Agriculture progresses technologically as farmers adopt innovations. The extent to which farmers
adopt available innovations and the speed by which they do so determine the impact of innovations
in terms of productivity growth. It is a common phenomenon that farmers like any other kind of
entrepreneurs do not adopt innovations simultaneously as they appear on the market. Diffusion
typically takes a number of years, seldom reaches a level of 100% of the potential adopter’s
population and mostly follows some sort of S-shaped curve in time. Apparently, some farmers
choose to be innovators (first users), while others prefer to be early adopters, late adopters or non-
adopters. Therefore, the project tries to address the aforementioned problems through by
accomplishing the following objectives

5. PROJECT GOAL, OBJECTIVES AND RATIONALES

To address the problems identified on section 3 above this investment proposal is calling for
allocation of land for Seed Multiplication, pulses and oil seeds production recognizes that:
 The domestic consumption of both cereals and pulse seeds has increased significantly in
recent years;
 National cereals and pulse production does not meet the rapidly growing demand;
 Smallholder output is inadequate and most oilseeds consumption is met by importing;
 There has been a call for our smallholder and investors to concentrate on increasing
production and productivity to meet the growing food demands;
 Past production increases depended largely on an expansion of area planted rather than on
increasing average yields per hectare continued to be low by international standards whereas
this project aims at meeting such standards;
 Such project with the aim of enhancing production and productivity of seeds, pulses and
oilseed crops will minimize the current national budget deficit caused as a result of

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 importing food items on one hand and generate foreign currency by promoting exports of oil
seeds on the other hands.
 Implementation of this commercial seed and crop production project is expected to motivate
other investors to supplement it by investing in agro-processing factors around Nekemte so
that the outputs of this project will become the inputs for the processing factors.
 As Nekemte town is expected to be the commercial center of the western Ethiopia, this
project will have access to lucrative international market. The railroad and airport which is
on the process of implementation will facilitate the transportation of the products safely and
swiftly.

6. THE PROJECT AREA DESCRIPTION

6.1. Physical Features
6.1.1. Location and Accessibility
Wama Hagalo is the district found in East Wollega Zone. It is located at about 98 km from
Nekemte possessing a total area of 564.10km2 or 56410 hekt. The district is contiguous bounded
with Jima S/Siree in the North, Jima Zone in the South, B/Boshee in the East and W/Tuqa in the
West. It is divided into having 9 farmers associations and 1 urban center.

6.1.2. Drainage and Climate

This district is endowed with numerous rivers used for drinking and irrigation. Some of the rivers
found in the district are Wama River, Tora River and Urgesa River. And also streams (ponds)
found in the district are Sadeka, Dalle and Facha. As it is common for most districts of the zone,
Wama Hagalo is characterized by undulating land structures. The mean annual temperature is
between 18 and 270c between 2001 E.C and 2002 E.C while the mean annual rainfall is between
1500 and 2200mm from 2001 E.C to 2002 E.C.

6.1.3. Soils
The district has five types of soils namely sandy (which covers about 9,506.65 hectare of the
districts total land and suitable for agriculture), Clay loam (which covers about 12,302.72 hectare of
the district’s total land and suitable for agriculture), clay (which covers about 4,473.71hectare of the
district’s total land and less suitable for agriculture), loam (which covers about 29,638.38hectare of
the district’s total land and good suitable for agriculture).
6.2. Economic Base
6.2.1. Crop Production
In Wama Hagalo district, there is no state farm and large scale private farms. Agricultural inputs are
believed to be the most important factor to attain food self-sufficiency. Without chemical fertilizer,
high yield is not expected & feeding a family of large size would be impossible. During last two
years the farmers used fertilizers as DAP and UREA, improved seed and pesticide as liquid
distributed for them in order to improve productivity.
Farmers of the district used the two methods of soil fertility. Traditional methods of maintaining
soil fertility used are plantation and crop rotation whereas modern methods of maintaining soil
fertility in the district are using inter cropping, plantation and jelly treatment. Alley cropping is one
of traditional methods of soil conservation and strip cropping and alley cropping are modern
methods of soil conservation exist in the district.
Agricultural calendar of the district differ according to the weather condition of the districts’ in the
zone. Land preparation is in the month of February to July and harvesting is between September
and January. The Belg season is not suitable for production in this district.

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Oxen are the main source of power for peasant farming & farmer with no farm oxen is considered
as poor. A farmer having a pair of ox can feed himself & his family if he/she possesses enough
farmland. Saving capacity depends on what they produce & amount they obtain. To produce large
amount of crop, farmers should possess fertile land, farm oxen, improved seed, fertilizer, credit
facility & know how or technical service regarding recent agricultural technologies. Besides; the
farm oxen needs medical care & uninterrupted follow up not to be attacked by a serious animal
diseases.
6.2.2. Livestock
Livestock play a key role in day-to-day life of the society, especially in the peasant sector. They
provide meat & milk, transport, manure, skin & hide & furnish regular & easily realizable cash
income. But in contrast to the size of the livestock population, physical & value productivity are
low. The following table indicates the size of livestock in the district.
In this project area oxen are the main source of power for peasant farming and hence a farmer with
no farm oxen is considered as poor. A farmer having a pair of ox is expected to feed himself and his
families provided that he possesses enough farmland. Saving capacity of the society is again the
function of their production capacity, which in turn, is the functions of oxen and farm sizes, both of
which are declining from time to time in this area. Besides, the farm oxen need medical care and
treatment, the cost and availability of which is again the major challenges for the smallholder
farmers. As a result, the average number of farm oxen per household has been decreasing from time
to time thereby leaving the smallholder farmers at very precarious situation.
6.2.3. Land Use Pattern
The term land use refers to the ways that people use land and the natural resources it provides. It is
the best allocation of land for its best alternative uses. Land use potential is necessary to select the
land characteristics needed for any production. Some of the major factors that determine the
potentiality of the land are temperature, length of growing period, moisture availability, flood
hazard, degradation hazard, toxicity, rooting condition and workability.
Out of the total land of the district the proximate areal coverage of land used for crop cultivation is
29960.44 hectares of which is used for annual crop cultivation and is used for perennial crop
production.
Arable land is a land that is ideal and economical for the cultivation of crops. Arable land is an area
with more than 90 days of dependable growing period, soil depth of more than 25cm and surface
stoniness of less than 50 to 90 %. Arable is pertaining to tillable land that is suitable for tillage and
crop production. The area of arable land used in the district is estimated to 38184.78 hectares of
land which is the total land coverage of the district.
The Natural forest of the district covers the total area of 3664.14 hectares of land. This forest area
accounts for about 6.5 % of the total area of the district. Manmade type of forest is planted to solve
the problem of environmental problem such as soil erosion, desertification, deforestation, and etc.
With the aim of satisfying one of the millennium development goals of United Nations the
inhabitants of the district were participated on the planting and protecting the trees. Out of the total
land of the district about 10.4% hectare is covered with woodland forest.

6.2.4. Input Supply and Product Markets

According to the information obtained from the East Wollega Zone Finance and Economic
Development office, currently farmer’s multi-purpose cooperatives are providing agricultural inputs
and facilitate market for their production and irrigation cooperative facilitates market for their
production and provides different inputs. More importantly, Bako agricultural research Centre,

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Ethiopia Seed enterprise and Oromia seed enterprise are potential sources of the modern input
supplies.

6.2.5. Industry
Industry is a group of productive enterprises or organizations that produce or supply goods,
services, or sources of income. There are no medium and large-scale industries found in the district
and there is a data problem on small scale manufacturing industries.

6.3. Population
Population size, compositions, its spatial distribution and some other demographic and socio-
economic data are very important for planning, monitoring and evaluation of various development
programs. As shown in table below the counted population of Wama Hagalo district based on
population and housing census conducted in 2007 G.C is 51,780 and 53,146in 2001 E.C and 2002
E.C respectively. By the year 2002 E.C from 53,146 total populations of the district 26,042 (49.1%)
were males whereas about 27,104 (50.9%) were females, this indicates that the sex ratio is almost
one to one. During this year about 93.6% of the total populations were rural population, which are
directly engaged their life with even the back bone of the country called agriculture. The crude
population density of the district in the year 2002 E.C was 94.2persons per. km2.
6.4. Vegetation
Information obtained from the district agricultural office reveals that in the district deforestation is
practiced for the expansion of farm land as the result there are only few patches of Forests covers
about 3664.14 hectare land and located in farmers association as B/Wayu and M/Kombo and
Woodland covers about 5839.58 hectare land and located in farmers association as B/Wayyu,
M/Kombo and Awangiro.
6.5. Infrastructure and Institutions
The project area is only about 80 km far from the Nekemte town. There is also access road from
the district town to the project area. Thus, there will be no transportation problems to and from the
project area. In addition, the area is covered by mobile and fixed line telecommunication facilities
and hence there would be easy communication of the project affairs within the project and with the
external bodies.

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7. THE PROJECT OUT PUTS, ACTIVITIES AND INPUTS

7.1. Project Description

This project aims at mixed cultivation: crop production with irrigation system. Accordingly, the
total land area covering of 48.44 hectares was allocated as: cereals (maize 57 percent; pulses
(soybeans 30 percent & groundnuts 10 percent of the land). Most of these crops are high valued
products which fetch high foreign exchanges for the country on one hand and inadequately supplied
even in the domestic market on the other hand. To determine the land use and crop patterns, we
have utilized the expertise of soil scientists, Agronomists and environmentalists and hence the
proposed crop varieties are recommended based on the suggestions of regional and local
agricultural research institutions.

7.2. Project Objectives

The main objective of this project is:
i. To fill the gap of seed shortage encountered the farming community,
ii. Increase the production of high valued crops such as soybean, groundnuts and sesame by
modernizing the faming system.
iii. In addition, the project has such strategic objectives of creation of job opportunities to the
local people;
iv. contributing toward increasing the foreign currency earning potential of the country through
increasing exportable products, and
v. Improving the problem of natural resource management practices through creation of
employment opportunity in the project area (alternative income generation of non-farm
activity for the local people).
vi. Thus, this project will reduce the prevailing environmental degrading practices widely
exercised by the local low-income societies, which include, coal making and selling, use of
animal dung for light and heat, timber production, collecting of fire-woods for commercial
purposes, all of which are commonly exercised by the local community.

7.3. Types Of Technology Use

The project aims at employing technologies which are environmentally friendly and which can be
effectively utilized by locally existing know-how with the exceptions of some machineries and
equipment which should be imported if there is no domestic source of supply. The project aims at
utilizing locally available technologies so as to encourage the backward and forward linkage of the
project and hence contribute towards the realization of Agricultural Development Led
Industrialization (ADLI) strategy of the country.
The site is bounded by perennial rivers like Gibe and many more seasonal springs. Precipitation is
adequate in the western parts of the country. Hence, crop cultivation under irrigation system could
guarantee the production system. Nonetheless, the possibility to raise productivity of the envisaged
crops could be managed using surface irrigation. There are excessive water banks in the area. The
water could be diverted to the farm field using structures such as simple diversion weir, major and
minor canal construction, by erecting reservoir which could be fixed to accessories at specific
location in the farm.
Construction of basic irrigation structures will be carried out to guide water from main source to the
farm field. Accordingly, a diversion weir construction having headwork will be built to divert
water from the river bank to administer the amount of water to be discharged to the field.
Consequently, main canal construction to channel water to the farm site will be implemented.

9|Page
Complementary to civil work will be construction of inter farm water ways to irrigate crops
adequately. It is assumed also the project will use gravity irrigation devices to minimize top soil
erosion and to directly deliver water to irrigate the crops. For this purpose, barrel with plastic pipe
will be procured and facility erecting will be managed by technical personnel having skill in
operating the devices.

7.4. Production Capacity

For each crop types proposed, the project aims at producing the maximum output per hectare as
proved to be achievable at the research stations. The project promoter aims at utilizing the
technologies and practices as per the recommendations of the research centers so as to produce the
maximum output per hectare. Accordingly, the projected output per hectare for each crop will be
presented under sub-section 9 (projected output per hectare).

7.5. Land Use Plan and Action Plan

The following table shows the proposed land use and crops for which the land is to be used.
Table 1: Land use plan for 48.44 hectares
Land allocated to Land Use and Development Plan Land
allocation
Irrigation production system
(%)
Crop type Crop name 1 2 3 4 5 6 7 8 9 10 to 25
Seed multiplication Maize 27.44 27.44 27.44 27.44 27.44 27.44 27.44 27.44 27.44 27.44 57%
Pulses Soya Beans 14.5 14.5 14.5 14.5 14.5 14.5 14.5 14.5 14.5 14.5 30%
Oil Seed Groundnuts 5 5 5 5 5 5 5 5 5 5 10%
0%
Total crop land 46.94 46.94 46.94 46.94 46.94 46.94 46.94 46.94 46.94 46.94 97%
Construction Plots 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 1.03%
Total Farm Area 47.44 47.44 47.44 47.44 47.44 47.44 47.44 47.44 47.44 47.44 98%
Forest Area 1 1 1 1 1 1 1 1 1 1 2%
Total Investment area 48.44 48.44 48.44 48.44 48.44 48.44 48.44 48.44 48.44 48.44 100%

As the above table shows, the total farm land is allocated to production of demanded crop
production and various high valued items such as: Cereal (57 percent of the land to be covered by
maize); Pulses crop production (30 percent of the land to be covered by Soybean); Oilseed’s
production (10 percent of the land to be covered by sesame. The construction plots are expected to
cover only 0.5 hectare and the remaining land 2 percent is reserved for forest coverage (at least 2
percent of the allotted land for investment as per the Oromia Rural Land use and Administration
Proclamation No. 130/ 2007, which will be 9 hectares).

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8. MARKET PROSPECTS

8.1. Demands and Main Customers

As socio-economic development of a country proceeds, it is expected that the preference of a
society for goods and services changes. This logic is also true in Ethiopia. We observe that as our
economy improves over time, demand for improved seed and food items in general and preference
for high valued products are increasing. The number of Hotels, Motels, Cafeterias, Restaurants and
Resorts are increasing. In addition, the number of colleges, universities, research centers and other
institutions are being located at the nearby towns. More importantly, as the Nekemte town is
becoming considered as the western Ethiopia development corridor being fulfilled with
infrastructural facilities, the project will enjoy lucrative international market. It is also expected
that agro-processing firms which will utilize the outputs of the project as input for their production
will emerge in the Nekemte area. Thus, there is no doubt the project will have sufficient domestic
and international markets.

8.2. Competition analysis and Selling Prices

As the demand for the project outputs are expected to keep growing in the face of very limited
potential suppliers, it could be possible even to charge exorbitant price per units of the products to
be produced for the domestic market. However, since the very motive of the project owners is not
just to reap profits at the expense of the consumers, the price for each product will be set at
affordable prices by considering the forces of supply and demand operating during each year of
production. In all cases, we assume prices of each commodity to increase at least by 5 percent each
year and accordingly we have full projections for the selling price per quintal of each product
presented under sub-section 9 (projections of revenues).

8.3. Marketing Strategies

For efficient and effective distributions of the inputs and outputs of the project, we aim at
establishing and maintaining value chains. For this purpose, the following institutions are identified
with which we plan to work.

1. For the Supply of project inputs:

 Regional and zonal Agricultural Research Institutes;
 Regional and zonal Seed Enterprises (RSEs),
 Universities and Agricultural Colleges existing in the region, and
 Private organizations.
2. For the distributions of the project outputs:
 Seed multiplication enterprises
 Agricultural Colleges existing in the region,
 Civil society organizations (CSOs), including cooperatives and farmer organizations,
 Private organizations, and individuals

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9. ORGANIZATIONS AND ADMINISTRATION OF THE PROJECT

9.1. Business Form

Luche and Kore Micro and Small Enterprise irrigated Cereals, Pulses and Oil seed Production
investment project is supposed to be established as one of the many branches the Company.
Accordingly, its organizational structure is presented below.

9.2. Organization Structure of the Project

Fig.1: Organizational Structure of Luche and Kore Micro and Small Enterprise irrigated Cereals,
Pulses and Oil seed Production investment project

Note that this organizational structure depicts the overall flows of accountability and reporting
structure of the project staffs.

9.3. Manpower Requirement with Qualification

Manpower is the decisive factor for the successful implementation and operation of any project.
Hence, careful identification of the number and qualification of the manpower requirement of the
project is in order. Accordingly, the following table shows the manpower requirement with
qualifications for the project:
Table 2. Manpower Requirement (with qualifications, number and estimated monthly salaries in Birr)
Staffs with position No Required Profession/Qualification Monthly Salary Annual
amount ( Birr) Salary (Birr)
Farm Manager 1 Bsc in Plant science 6,500 78,000
Agronomist 1 Bsc in Agronomy 5,500 66,000
Forman 1 Diploma in relevant field 4,000 48,000
Clerk/Accountant 1 Diploma &above in relevant field 4,500 54,000
Time Keeper 2 Diploma &above in relevant field 2,500 60,000
Tractor 1 4th /5th grade license and 10th/12th complete 3,000 36,000
Operators
Farm Guards 3 8th /10th complete 1500 54,000
Store keepers 1 Diploma in relevant field 2,500 30,000
Secretary 1 Diploma in relevant field 2,500 30,000
Cashier 1 Diploma in relevant field 2,000 24,000
Cooks 1 10th /12th complete 1,500 18,000
Cleaners/Janitors 1 10th complete 1,200 14,400
Driver 2 4th /5th grade license and 10th /12th complete 3,000 72,000

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Sub-Total 17     584,400.00
Note that the employees’ salary is expected to increase by a minimum of five per cent each year.

10. STAKEHOLDERS AND PARTNERS

The key stakeholders are the shareholders, the surrounding woreda communities, Zonal, Woreda,
and Kebele level administration Offices, the Investment Commission, Agriculture offices, and Land
Administration and Environment, Forest and Climate change Bureaus at regional, woreda, and
Kebele levels. The private sectors, research, academia, and civil society constitute another category
of stakeholders who will engage in delivering specific services and benefitting directly or indirectly
from the project.

11. FINANCIAL STUDY

In this section, both the cash outflow requirements and the projected inflows are projected and
analyzed.

11.1. Financial Requirements

The yearly financial requirements of the project are classified as capital costs, operating costs and
working capital requirements as follows.

11.2. Project Capital Costs

The project capital costs include such costs as construction costs, expenditures on office
equipments, investment in farm equipments, and other costs which are supposed to be capitalized as
cost of the project and are gradually depreciated over the life of the project. Accordingly, the
following are the projected capital costs of the project summarized under different sections.

Construction costs: - these include expenditures related with the constructions of Diversion weir
construction /head work), Main canal construction, Secondary & tertiary canal construction Store,
residential houses with guard room, offices, toilet, and guardian houses, parking areas, cafeteria etc.
The following table shows just the summaries of the construction items and their respective costs.

Table 3. Summaries of the project construction costs (in Birr)

S. N Constructions needed unit Block Annual salary (Birr)
1 Diversion weir construction /head work) m 590,513.83
2 Main canal construction m 474,094.37
3 Secondary & tertiary canal construction m 138,339.92
4 Equipment and accessories 62,032.94
5 Residential houses construction (for workers) class 1 83,333.33
6 Office construction class 1 55,000.00
7 cafeteria construction class 1 70,000.00
8 Store and bathing rooms, rest room class 1 75,000.00
9 Shade for tractors and other vehicles class 10,000.00
Total estimated construction costs 1,558,314.39

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Investment on farm machineries and equipments: - The following table shows the specifications
of the selected machineries from the proforma invoices attached to this report.
Table 4. Summaries cost of the project farm machineries (in Birr)
S.N0 Descriptions of the Items quantity Unit Total costs
costs
1 New John Deere 6100D Mfwd Tractor (Mexico Origin) 1 1,065,577 1,065,577
2 Mounted Four Disc Plough (Make: Nardi, Model: QD 70/E) 1 320,000 320,000
3 Mounted Tandem Disc Harrow (Make: Nardi, Model: 28 HOP 56) 1 285,725 285,725
4 Brand New Toyota Hilux Double cab (Full Option) 4WD, 1 1,300,000 1,300,000
2.5L, 2949cc, 4cylinders, 16valve, Diesel Turbo, DOHC
(Japan origin)
5 Isuzu_FSR 1 1,500,000 1,500,000
7 Generator 1 450,000 450,000
Estimated machineries (in Birr) 4,921,302.08

Farm tools: - in addition to the above-mentioned farm machineries, the following farm tools are
also identified with their respective current unit prices. However, as these items are diverse in kind
and in significant in terms of cost per unit, the costs are forested based on the current market price
without the need to collect proforma invoices.
Table 5. Farm tools with their respective per unit cost and quantities needed
S.N0 Items Quantity Units cost Total cost
1 Chemical Sprayer 15 450 6,750
2 Sickles 30 60 1,800
3 Axes 5 100 500
4 Tape meter (100 m) 4 450 1,800
5 Wheel borrow 5 3,500 17,500
6 Shovel 4 180 720
7 Weighing scale 3 25,000 75,000
8 Thresher 1 40,000 40,000
9 Saw 5 60 300
10 Cutlass or Machete 1 40,000 40,000
11 Spade hoe 5 900 4,500
12 Local hand hoe 6 70 420
13 Spade 5 98 490
14 Digging fork 8 400 3,200
15 Trovel 4 500 2,000
= Estimated cost of farm tools (in Birr) 194,980

Office Equipment: - the following table shows the prices of office equipments at the time of
preparing this project proposal.
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 Table 6. Summaries of the office equipments’ costs (in Birr)
FURNITURE Qty Unit Cost Total cost
Table and chair (Farm Manger) Set 2 8,500 17,000
Waiting /guest Chair Pcs 2 750 1,500
Camp bed and furniture’s Set 2 3200 6,400
Shelf and Other Drawers Set 1 5,000 5,000
Weighing scale 1 25,000 25,000
Desk top computer with its Accessories 1 15,000 15,000
Fax Machine 1 7,600 7,600
Laptop computer 1 15,500 15,500
Computer tables 2 5,000 10,000
Printer 1 7,600 7,600
Cash register machine 1 8,000 8,000
Calculator /adding machines 1 450 450
Sub total     119,050.00

11.2.1. Project Operating Costs

Here, the operating costs refer to these costs which are not included in the project capital costs and
hence are not subjected to periodical depreciation. These costs include such costs as labor costs;
costs for equipment operations and maintenance such as fuel cost and repair and maintenance costs;
depreciation costs; utilities expenses such as water bills, electricity bills and telephone charges;
employee’s salaries; and others miscellaneous expenses.
Labor costs: - In order to determine the periodical labor cost of the project, first we need to
determine labor required to cultivate a hectare of each crop in each project year. Accordingly, the
following are our procedure to determine the labor requirement of the project:
1. First, we started from our land use and cropping pattern proposd throughout the life of the
project as depicted by table 1 land use plan of 50 hectares specified above.
2. Second, we have determined the labor requirements of each crop per hectare per year by the
types of operations throughout the project life as shown by table 7 (annexed). Labor
requirement is expressed in terms of work-day, which is to mean the time devoted by one
person during one day (usually eight hours).
3. Thrid, we have determine the total labor requirement of each crop per year by multiplying the
labor requirement of per hectares by their corresponding total hectares of land planned to plant
each crop (table one). This is represented by table 7 (annexed).
4. Fourth, we have summed the total labor requirement of each crop in each year so as to
determine the annual total labor requirement of the project.
5. Finally, the average wage per day of labor is multiplied by the total labor requirement of the
project for each year. We have taken Birr 81.00 as the average wage per day per worker
applicable to the project location. The average wage per work-day is projected to increase by
minimum of 5 percent each year. This is determined by considering the change in the labor
markete price over the past few years.
Supplies costs: - such costs include costs for technological inputs such as fuel cost for the tractors,
fertilizers, seeds, office supplies and other chemicals. Table 9 (annexed) shows the detailed
calculations of these cost items, the summary of which is Birr 870,789.00 annual supplies cost. As
usual, we expect these cost items to increase by a minimum of 5 per cent per year. This is presented
by table 12 (annexed).
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Repair and maintenance costs: - Operating costs for operations and maintenance of machineries
and equipment is taken to be 2 percent of the initial investment costs starting from its second year
after acquisition until end of tenth year, after which the rate would be 10 percent. Accordingly, table
8 (annexed) shows the detailed calculation of this cost item which is summarized to be Birr
95,958.00 starting from the second year of the project operation to tenth year. This is presented by
table 13 (annexed).
Utilities expenses: - these include such periodical costs as incurrence of liabilities (payments of
cash) for water bills, electricity bills, fuel consumptions and telephone expanses. Although such
types of expenses are changing with the volumes of operations, it is forecasted that a minimum of
Birr 55,625.00 forecasted for the first year of project operation, which is expected to increase by a
minimum of 5 percent per year. This is presented by table 14 (annexed).
Miscellaneous Expense: - are other operating expense for which it is neither economical nor
convenient to give specific account code and hence should be merged together under
“miscellaneous expense” includes entertainment expense, employee benefits, litigation expense and
others. Similar to the utilities expense, such expenses are estimated to be Birr 137,288.00 for the first
year and expected to increase at least by 5 percent per year. This is presented by table 14 (annexed).

11.2.2. Project Working Capital

Project working capital refers to cash required to be held at hand at the end of each year for some
operating costs to be incurred at the beginning of the next year. These costs are usually determined
as a given percentage of the next year’s increase in the operating cost requirements. Accordingly,
the following table shows the projected working capital requirement of the project, determined as
the 80 percent of the increase in the operating costs of the next year. This is presented by table 15
(annexed).
Note that the working capital requirement of the first year is determined to be 80 percent of the
increase in the operating cost requirement of the second year Birr 178,363.00 ( 1,920,814 -
1,742,451) which is (Birr 178,363.00 *0.8= 142,690). It is estimated that the remaining 20 Percent
increase in each year’s operating expense will be covered by the cash inflows of the preceding year.
The same approach is followed for the rest years. The non-cash expense is not included in the
determinations of the working capital requirements. This is because such expense has no effect on
cash flow streams for which we need to determine working capital requirement. However,
periodical income tax and interest liabilities need to be considered since such items affect cash
flows of an entity. Nonetheless, they are not reflected in this case since we have not yet estimated
such costs by this time.

11.2.3. Total Financial requirements

Total financial requirement for the project is just the sum of the three cost elements we have
determined above: total capital cost, total operating cost and total working capital costs. The
following table summarizes the total finance requirement of the project together with the possible
sources of finance.

Table 16. Total Financial Requirement of the Project

Items Birr

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 Project construction costs 1,558,314.39
Project farm machineries costs 4,921,302.08
Project farm tools costs 194,980.00
Summaries of the office equipment’ costs 119,050.00
Total Project Capital Cost 6,793,646.47
Operating Costs 1,742,451.10
Working Capital Cost 142,690.18
Total Financial Requirement at first year (In Birr) 8,678,787.76
Sources of Finance:  
Owner’s Equity Contributions (20 %) 1,735,757.55
Bank loan at 11.5% simple interest rate (80%) 6,943,030.20
Total Financial Requirement at first year (In Birr) 8,678,787.76

11.3. Forecasted Production

In order to estimate the per hectare production of each crop, we have utilized opinions of experts in
the field of agronomists. Accordingly, table 17 (annexed) shows the projected output in quintal
from each crop proposed to be cultivated over the first ten years of the project life.

Note that the projections are based on the expert opinions in the field as well as per the
recommendations of east Wollega zone agriculture office, and experienced investors & seed
multipliers enterprises. In essence, if the project is to be implemented and run-in accordance with
the recommendations of the experts, these projections are supposed to be achievable. Here, it is
expected that as the project operates for a greater number of years, there is advantage of getting
lessons from the past years and hence the latter years’ output per year is expected to increase
accordingly.

11.4. Forecasted Sales Revenues

Sales revenues are the functions of projected production and projected selling price per unit of each
crop. Taking the projected production of each crop from the table 17, we now proceed to the
projection of selling price of each crop. Accordingly, the selling price of each quintal of the crop is
expected to increase each year by a minimum of 5 percent. Given the trends of the past five years in
Ethiopia in particular and in the world in general, this projection wouldn’t be far from the reality
under the normal macroeconomic condition. Table 18 (annexed) shows the projected selling price
per quintal of each crop over the next ten years.
In order to determine the forecasted sales revenues, we need to multiply the forecasted selling price
per unit of each crop by their respective projected production of each year. Table 19 (annexed)
shows this procedure.

11.5. 8.4. Depreciation Calculations

In order to determine the periodical depreciation, we adopted the Ethiopian standard of useful
economic life of fixed assets and hence used depreciation rates for each asset category accordingly.
The detail depreciation schedule is presented by Table 20 (annexed). Depending on the difference
in the useful lives of specific assets, the depreciation charge is estimated to be larger at the
beginning of the project life and smaller at the earlier years since some of the assets are expected to
be fully depreciated within the first five years. Accordingly, the periodical depreciation charge is
17 | P a g e
estimated to be Birr 626,626 for the first five years and will be reduced to Birr 426,436 over the next
two years (since the farm machineries are supposed to have useful lives of seven years), and finally
Birr 11,320 for the next subsequent years (since the constructed assets are supposed to have useful
lives of more than 25 years).

11.6. Loan Repayment Schedule and Interest Expense

The periodical interest expense is just the functions of amount of the loan outstanding at the
beginning of each period, the interest rate and the time for which the loan remains unchanged.
Accordingly, the bank loan was estimated to be Birr 5,702,086.96, at simple interest rate of 11.5
percent on the unpaid balance of the loan at the beginning of each period. The loan with interest is
expected to be paid with equal installment amount of Birr 930,865.70 over ten years starting just at
the end of the second year of operation. Table 21 (annexed) shows the periodical loan repayment
and interest expense.

11.7. Forecasted Income Statement

Forecasted income statement shows just the summary reports of all revenues earned and costs
expired (expense incurred) during each period. Accordingly, Table 22 (annexed) shows the
forecasted income statement of the project over the first ten years of the project life. Note that the
farm project will have substantial net income starting from its first year of operation. It is evident
that that this project is financially viable.

11.8. Forecasted Cash Flow Statement

Unlike the forecasted income statement, the forecasted cash flow statement shows the inflows and
outflows of money to and from the project over a given period of time. In this case, all items
(revenues and expense) which don’t affect cash flow are excluded from the statement. In our case,
depreciation expense is the only expense that doesn’t affect cash flow and hence excluded from the
outflows whereas all revenues are supposed to be either fully collected within the year of sales or
the sale be made on cash basis.

The cash flow statement shows the sources and uses of money over a given period of time.
Accordingly, there are three sections of this report: (1) cash flows of operating activities (O); (2),
cash flows of investing activities (I), and (3) cash flows of financing activities (F). Net cash flow of
the project is the sum of net cash flows from these three sections. Table 23 (annexed) shows the
projected cash flow statement over the first ten years of the project. Note also that this cash flow
report shows that the firm’s cumulative cash inflows over the forecast period is very attractive and
deserves financing. This statement also proves that the project is finically viable.

11.9. Forecasted Balance Sheet

Forecasted balance sheet shows the summary report of what the entity owns and what it owes on
the specific date in a time, usually, at the end of the fiscal year. In essence, it reports on total assets,
total liabilities and capital (owner’s equity and creditors’ equity) of the entity on a given date.
Thus, balance sheet contains information regarding the financial viability of the enterprise on a
given date. By comparing change in the elements of the balance sheet over different periods, we can
judge whether or not the enterprise is improving its financial position over the periods.
Accordingly, table 24 (annexed) shows forecasted balance sheet of the enterprise for the first ten
years of the life of the project.

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Note that as the projected balance sheet shows that the financial position of the firm remarkably
improves over the period and will be able to full operate by own finance after ten years if the
project is successfully implemented. This also supports that the project has financial viability.

11.10. Overall Financial Assessment

The overall financial performance of the project is appealing as shown by the projected by the
above three financial statements. When evaluated in terms of its profitability, there is steady
increase in after tax net income showing that the project would remarkably contribute towards
wealth maximization of the shareholders. Similarly, the forecasted balance sheet shows
extraordinary attractive financial position of the firm over the same period. In addition, when
viewed in terms of the sources and uses of money (cash flow statements), there is steady increase in
the net cash provided by the project cash receipts after covering the cash payments required to
sustain the project.
Furthermore, the project has the following financial performance measured in different investment
decision criteria. The following table shows the summarized project financial viability test just for
the first ten years of the life of the project. Note that these figures would have been much larger if
we consider the entire life of the project since most of the capital expenditures of the project are
supposed to be committed at the beginning of the years while most net cash inflows are expected
during the later life of the project. However, these figures are still indicators of financial
attractiveness of the project. Detail calculation is presented by table 25 (annexed).
Table 26. Project financial viability test
Criteria Results

Present Value of Costs PVC 49,361,893

Present Value of Benefits PVB 85,271,851
Net Present Values NPV 35,909,958
Benefit Cost Ratios BCR 1.73
Net Benefit Cost Ratio NBCR 0.73
Internal Rate of Returns IRR 109%

Net Present Value (NPV): - is the sum of present values of all the cash flow both positive and
negative that are expected to occur over the life of the project. The formal selection criterion for the
NPV measure of project worth is to accept all independent projects with a positive NPV when
discounted at the opportunity cost of capital. In this project case, given the project has positive
value of Birr 35,909,958; it means that the project would contribute Birr 35,909,958.00 towards the
wealth maximization of the owner’s wealth and hence it is viable.

Benefit Cost Ratio (BCR): - The benefit-cost ratio is defined as the ratio of the discounted values of
benefits to the discounted value of costs. A ratio of at least one is required for acceptability and the
ratio of one indicates that the NPV of zero at a particular discount rate. In our case BCR of Birr
1.73 shows, for every one Birr invested in this project, the return would be 1.73 Birr, which is
highly remarkable figure.
Net Benefit Cost Ratio (NBCR): - this ratio is defined as the ratio of net present value to the
present value of cost. A ratio greater than zero (0) is needed for the project to be financially
acceptable; in our case the ratio of 0.73 is in excess of the hurdle rate required to make the project
financially viable (the project is magnificent in terms of this criteria also).

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Internal Rate of Return (IRR): - is the maximum interest that a project could pay for the resources
used if the project is to recover its investment and operating costs and still break even. It measures
opportunity cost of capital tied up in the investment. In this project case, IRR is 109 percent which
is extraordinarily large compared with the minimum cost of capital of 11.5 per cent. Hence, we can
safely conclude that the IRR of the project is extraordinarily high and hence indicates project
viability.
It should be recalled that the various investment decision criterion we have considered above
involve predicting values for each of the various elements entering into the definition of volume of
output sold, selling price, required investment, labor costs per unit; maintenance costs of machines,
profit, and so forth. However, as these values are based on certain assumptions, they may change in
unfavorable direction thereby making projects less attractive than when it was planned. Thus,
switching value measures the value an element of a project would have to reach as a result of a
change in an unfavorable direction before that project no longer meets the minimum level of
acceptability as indicated by one of the measures of project worth. In this case we ask, by how
much an element would have to change in an unfavorable direction before the project would no
longer meet the minimum level of acceptability as indicated by one of the measures of project
worth. In other words, in sensitivity analysis, we ask how sensitive is the project’s estimated
financial and economic benefits to increase in costs, fall in price and extension of implementation
periods?
In our case, since BCR is 1.73, it means that cost can rise by 73 percent at which the BCR will
become exactly 1.0 and hence the decision will be indifference. However, any rise in cost beyond
73 percent keeping sales revenues constant will lead the BCR to be below 1.0 and hence the
decision will be to reject the project on this ground. But it is unlikely to expect such increase in
operating costs keeping selling prices of these products’ constant. Thus, the 73 percent margin of
safety is large enough to guarantee for the stability of the above decision criteria. Similarly,

revenues can keep dropping up to = = 1-0.59= 0.42 which is roughly

equals to 42 percent, keeping the cost elements constant. Any drop in sales by more than 42 percent
may lead the project to rejection region. However, given the past few year trends, the price of these
items has been increasing at increasing rate and hence expected to increase over the next many
years partly due to increasing demand to these outputs and partly due to increasing general trend in
commodity prices. Overall, when evaluated both in terms of cost and revenue, the project has
sufficient margin of safety to guarantee the stability of the determined investment decision criteria
above. Thus, it is can be safely concluded that the project is financially viable.

12. MONITORING AND EVALUATION

Monitoring of the project will be continuous and ongoing by the project promotor. Monitoring and
Evaluation of the project will be handled by the promoter on daily basis. Luche and Kore Micro and
Small Enterprise will develop a guideline for monitoring and evaluation. The amount of input
(Financial, material and manpower) will be evaluated through a technical team that will be
established containing members of Luche and Kore Micro and Small Enterprise, zonal, Woreda and
Kebele administrative organs and community members.

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Moreover, during the final year of Project implementation the M&E data collected over the Project
implementation period will be used as part of a thorough assessment of Project achievements. The
Project is scaling up the development of efficient and sustainable village organizations in region
including the field testing of innovative technology and associated capacity building of supporting
institutions. The experiences so derived will be scaled up/replicated in other parts of the region.
This also involves major potential for scaling up and synergies in relation to subsequent investment
programme

13. PHASE OUT AND SUSTAINABILITY STRATEGY

Concerning the Sustainability of the invested Project, the promoter is mainly decided to make the
project sustainable that the concerned government bodies will take-over it after this project is phase
out. Till then Luche and Kore Micro and Small Enterprise will firmly and closely handle the
project. The project aims to achieve a sustainable increase in agricultural productivity and
production. This will be achieved through scaling up of technologies which are appropriate,
affordable and profitable to promoter, and can be sustained without ongoing support in the long-
run.

To ensure the sustainability of the project sustainability will be integrated in the projects right from
the beginning, Key stakeholders will be involved: Another major step to ensure sustainability is the
involvement and participation of key stakeholders in program development. In general, the exit
strategy of the investment project will be based on the lease agreement of the project which is

14. ACTION PLAN AND BUDGET BREAK DOWN

Action plans help know what needs to be done to complete a task, project, initiative or strategy. An
action plan generally includes steps, milestones, and measures of progress, as well as
responsibilities, specific assignments, and a time line. Action plans are an important part of
strategic planning. The following table indicates activities to be undertaken in the first year of the
project. While the budget needed is indicated on section 8.1.4 above
Table: Operational Plan of the Project
S/ Cropping Activities Work schedule (%) Year: 2021
N 2021/22
MAR APR MAY JUN JUL AUG SEP OCT NOV DEC JAN FEB

1 Secure the project site 50% 50%

2 Camp construction 60% 40%
3 Site clearing 30% 70%
4 Manpower employment 35% 40% 25%
5 Bank loan processing 20% 80%
6 Surveying and land 50% 50%
development
7 Machinery procurement 50% 50%
8 Plouging 30% 20% 30% 20%
9 Seeding and plantation 40% 60%
10 Weeding and cultivation 60% 40%
11 Harvesting ** ** **
12 Marketing ** **

21 | P a g e
15. RISKS AND ASSUMPTIONS

Successful agricultural development initiatives associated with poverty reduction have seldom
included large-scale land-based investment. Feed the Future focuses on smallholder-led agricultural
growth as the principal engine of poverty reduction and food security. Investment in agriculture of
all sizes, however, can be constructive and is encouraged by the Ethiopian Government, but
investments must take into account specific country contexts and circumstances and respect the
rights of local populations.

Large-scale land-based investment in agriculture, if approached in an equitable and sustainable

way, can hold unique benefits that complement smallholder agriculture: it can bring new
technologies, crops and/or market opportunities to a region, and, through associated out-grower or
contract farming schemes, to smallholder farmers within the region. The result can be a mutually
beneficial model where large investments create new opportunities for adjacent communities and
farmers. Nevertheless, this model has come under heavy criticism for failing to recognize
smallholder property rights, thereby potentially harming the people it aims to help. Consequently,
there is all the more need to improve land governance and focus on assisting all investors to better
understand the needs and tools for responsible land-based agricultural investment.

Successful commercial investment in agriculture is dependent upon access to clear and uncontested
land rights. In environments where land rights are undocumented or poorly protected, medium to
large commercial investments in agriculture could lead to displacement, loss of livelihoods and
more limited access to land for the local population, in particular indigenous and nomadic
communities.

These negative outcomes not only undermine the Ethiopian Government’s development and
poverty reduction objectives among the populations it aims to serve but also significantly increase
reputational risk for the Ethiopian Government, its development partners and the private sector.
Conflicts over land rights can also significantly augment the financial risks for companies investing
in commercial agriculture due to delays or disruptions in operations.

The five general risks in the project are as follows:

1. Production risks stem from the uncertain natural growth processes of crops and livestock, with
typical sources of these risks related to weather and climate (temperature and precipitation) and
pests and diseases. Other yield-limiting or yield-reducing factors are also production risks such
as excessive heavy metals in soils or soil salinity.
2. Market risks largely focus on uncertainty with prices, costs, and market access. Sources of
volatility in agricultural commodity prices include weather shocks and their effects on yields,
Other sources of market risk include international trade, liberalization, and protectionism as
they can increase or decrease market access across multiple spatial scales. Farmers’ decision
making evolves in a context in which multiple risks occur simultaneously, such as weather
variability and price spikes or reduced market access.

3. Institutional risks relate to unpredictable changes in the policies and regulations that effect
agriculture, with these changes generated by formal or informal institutions. Government, a
formal institution, may create risks through unpredictable changes in policies and regulations,

22 | P a g e
 factors over which farmers have limited control. Sources of institutional risk can also derive
from informal institutions such as unpredictable changes in the actions of informal trading
partners, rural producer organizations, or changes in social norms that all affect agriculture.

4. Personal risks are specific to an individual and relate to problems with human health or personal
relationships that affect the farm. Some sources of personal risk include injuries from farm
machinery, the death or illness of family members from diseases, negative human health effects
from pesticide use, and disease transmission between livestock and humans.

5. Financial risk refers to the risks associated with how the farm is financed and is defined as the
additional variability of the promoter’s operating cash flow due to the fixed financial
obligations inherent in the use of credit. Some sources of financial risk include changes in
interest rates or credit availability, or changes in credit conditions.

Key invested Project implementation assumptions are that the country’s economy maintains its
stability and that consistency is established between the stated government policies and agricultural
reforms supporting private sector development, and the agriculture sector vis-à-vis the actual
implementation of investment policies and reforms.

16. ENVIRONMENTAL IMPACT ANALYSIS

Consistent with the government’s high priority of encouraging private investment in the agriculture
sector, these integrated projects aim at agricultural production with due care to reduce degradation
and improve productivity of natural resources. Given the fact that these projects intend to utilize
the rain fed cultivation, certainly these reliefs the existing degradation pressure on rural farm land
imposed by the traditional farming system.

More importantly, the projects aim at reversing the environmental degradation trends widely
observable in the area by breaking the nexus between poverty and degradations. In essence, the
projects aim at solving the key problem area by breaking the nexus between rural poverty, natural
resource management and climate change mainly by creating alternative and more lucrative income
source for the local resource poor smallholder farmers, who, otherwise should depend on the natural
resource bases and hence causes the degradations. The project promoters believe:
 environment and natural resource degradation is often a direct cause of rural poverty;
 rural poverty often exacerbates environment and natural resource degradation; and
 Climate change increases the vulnerability of rural people and the ecosystems they depend
on for their livelihoods.
Thus, opening alternative source of income by creating job opportunities within the project can
relieve the current pressure on the rural land in the project area. Besides, the project promoters are
fully aware of the Oromia Rural Land use and Administration Proclamation No. 130/ 2007, which
force any investor to cover at least 2 percent of the allotted land area by indigenous trees.

23 | P a g e
17. CONCLUSION AND RECOMMENDATION
Overall, the projects have the following merits which would justify the need for giving priority in
its finance:
 The strategic objectives of the projects are highly consistent with the national development
objective which calls to “sustainably increase rural incomes and national food security,
which embodies the concepts of producing more, selling more, nurturing the environment,
eliminating hunger and protecting the vulnerable against shocks.
 These projects are expected to create job opportunities for these potential migrants at their
nearby village and hence alleviate the pushing factor for migrations.
 The projects aim at utilizing locally available technologies so as to encourage the backward
and forward linkage of the project and hence contribute towards the realization of
Agricultural Development Led Industrialization (ADLI) strategy of the country.
 Finally, the projects will largely contribute towards the national economic development by
contributing to National GDP. GDP contribution originating from the agriculture sector has
more power of poverty reduction than other sectors (a one percent GDP growth rate
originating in agriculture sector has more potential for poverty reduction than two percent
GDP growth rate originating from the service sector).
Recommendation: - considering the viability of the project, as aforementioned, the project is
recommended for implementation.

24 | P a g e
 Annex
  Table. 7 Labor requirement per Hectares of each crop                  
    Project life in years                  
Crop and Operation 1 2 3 4 5 6 7 8 9 10 to 25
Maize (Seed) Land preparation 5 5 5 5 5 5 5 5 5 5
Planting 5 5 5 5 5 5 5 5 5 5
  Weeding (2X) 5 5 5 5 5 5 5 5 5 5
Chemical application (2X) 5 5 5 5 5 5 5 5 5 5
  Harvesting 5 5 5 5 5 5 5 5 5 5
Threshing 5 5 5 5 5 5 5 5 5 5
  Total 30 30 30 30 30 30 30 30 30 30
Soya Beans
  Land preparation 5 5 5 5 5 5 5 5 5 5
Planting 5 5 5 5 5 5 5 5 5 5
  Weeding (2X) 5 5 5 5 5 5 5 5 5 5
Chemical application (4X) 5 5 5 5 5 5 5 5 5 5
  Harvesting (2X) 5 5 5 5 5 5 5 5 5 5
  Threshing 5 5 5 5 5 5 5 5 5 5
Total 30 30 30 30 30 30 30 30 30 30
Groundnuts                      
Land preparation 5 5 5 5 5 5 5 5 5 5
  Planting 5 5 5 5 5 5 5 5 5 5
Weeding (2X) 5 5 5 5 5 5 5 5 5 5
  Chemical application (2X) 5 5 5 5 5 5 5 5 5 5
Harvesting 5 5 5 5 5 5 5 5 5 5
  Threshing 5 5 5 5 5 5 5 5 5 5
Labor per season 30 30 30 30 30 30 30 30 30 30
Labor requirement is expressed in terms of work-day, which is to mean the time devoted by one person during one day (usually eight hours).            

25 | P a g e
   Table 8. Estimated yearly repair and maintenance expenses Repair and maintenance
  Items costs Rate  
1 Store and bathing room 75,000.00 0.02 1,500.00
2 New John Deere 6100D Mfwd Tractor (Mexico Origin) 1,065,577 0.02 21,311.54
3 Mounted Four Disc Plough (Make: Nardi, Model: QD 70/E) 320,000 0.02 6,400.00
4 Mounted Tandem Disc Harrow (Make: Nardi, Model: 28 HOP 56) 285,725 0.02 5,714.50
6 Brand New Toyota Hilux Double cab 1,300,000 0.02 26,000.00
8 Truck 1,500,000 0.02 30,000.00
10 Chemical Sprayer 6,750.00 0.02 135.00
11 Sickles 1,800.00 0.02 36.00
12 Axes 500.00 0.02 10.00
13 Tape meter (100 m) 1,800.00 0.02 36.00
14 Wheel borrow 17,500.00 0.02 350.00
15 Shovel 720.00 0.02 14.40
16 Weighing scale 75,000.00 0.02 1,500.00
17 Thresher 40,000.00 0.02 800.00
18 Saw 300.00 0.02 6.00
19 Cutlass or Machete 40,000.00 0.02 800.00
20 Spade hoe 4,500.00 0.02 90.00
21 Local hand hoe 420.00 0.02 8.40
22 Spade 490.00 0.02 9.80
23 Digging fork 3,200.00 0.02 64.00
24 Trovel 2,000.00 0.02 40.00
25 Laptop Computer 15,500.00 0.02 310.00
26 Printers 7,600.00 0.02 152.00
27 Shelf 5,000.00 0.02 100.00
28 Managerial Chairs 17,000.00 0.02 340.00
29 Guest Chairs 1,500.00 0.02 30.00
30 Computer tables 10,000.00 0.02 200.00
  Total Repair and Maintenance costs   95,957.64

  Table 9. Total Labor requirement and cost of the project              

26 | P a g e
   Years 1 2 3 4 5 6 7 8 9 10
Maize seed Labor per Ha (table 7) 30 30 30 30 30 30 30 30 30 30
  Land area (table 1) 28.5 28.5 28.5 28.5 28.5 28.5 28.5 28.5 28.5 28.5
  Sub-total labor required 855 855 855 855 855 855 855 855 855 855
Soybean Labor per Ha (table 7) 30 30 30 30 30 30 30 30 30 30
  Land area (table 1) 15 15 15 15 15 15 15 15 15 15
  Sub-total labor required 450 450 450 450 450 450 450 450 450 450
Groundnuts Labor per Ha (table 7) 30 30 30 30 30 30 30 30 30 30
  Land area (table 1) 5 5 5 5 5 5 5 5 5 5
  Sub-total labor required 150 150 150 150 150 150 150 150 150 150
  Total Labor required per ha 1455 1455 1455 1455 1455 1455 1455 1455 1455 1455

  Table 10. Summaries of labor cost (wage expense)

Years 1 2 3 4 5 6 7 8 9 10
Total Annual Labor 1,408 1,408 1,408 1,408 1,408 1,408 1,408 1,408 1,408 1,408

Labor cost per work-day (Birr) 67 67 70 74 78 81 86 90 94 99

Projected wage Cost per year 94,349 94,349 99,067 104,020 109,221 114,682 120,416 126,437 132,759 139,397

27 | P a g e
 Table11. Project Input supplies costs calculated

28 | P a g e
 1. Maize -Seed (27.44 Ha)
Unit Amount needed Cost (Birr)
Fertilizers: per Ha Total per unit Total
1 DAP kg 100 2744 45 123,480.00
2 UREA kg 150 4116 42 172,872.00
3 Pesticides L 4 109.76 650 71,344.00
4 Seeds kg 25 686 18 12,348.00
5 Input transportations kg 10 274.4 0.5 137.20
6 Out put transportations kg 600 16464 0.5 8,232.00
7 Sacking materials Pcs 70 1920.8 10 19,208.00
Sub-total 407,621.20
2. Soya Beans (14.5 Ha)
Unit Amount needed Cost (Birr)
Fertilizers: Per Ha Total Per unit Total
1 DAP kg 100 1450 45 65,250.00
2 UREA kg 100 1450 42 60,900.00
3 Pesticides L 4 58 650 37,700.00
4 Seeds kg 100 1450 18 26,100.00
5 Input transportations kg 10 145 0.5 72.50
6 Output transportations kg 600 8700 0.5 4,350.00
7 Sacking materials Pcs 16 232 10 2,320.00
8 Sub-total 196,692.50
3.Groundnuts(5 Ha)
Unit Amount needed Cost (Birr)
Fertilizers: per Ha Total per unit Total
1 DAP kg 100 500 45 22,500.00
2 UREA kg 100 500 42 21,000.00
3 Pesticides L 4 20 650 13,000.00
4 Seeds kg 25 125 18 2,250.00
5 Input transportations kg 10 50 0.5 25.00
6 Out put transportations kg 600 3000 0.5 1,500.00
7 Sacking materials Pcs 50 250 10 2,500.00
Sub-total 62,775.00

29 | P a g e
 Total operating input supplies costs (excluding tractor related costs) 667,088.70

Table 11. Tractor related annual operating costs per year

1. Maize seed(27.44 Ha)
Requirements Fuel consumption Fuel Price
Descriptions Unit Per Ha Total Per hour Total Per Litter Total
Tractor Operations T/H
1 Ploughing T/H 2 110 20L 570 70.00 Birr 39,900.0
2 Discing & harrowing T/H 2 110 20L 570 70.00 Birr 39,900.0
3 Ridging T/H 2 110 20L 570 70.00 Birr 39,900.0
Sub-total 119,700.00
2. Soya Beans (14.5 Ha)
Requirements Fuel consumption Fuel Price
Descriptions Unit Per Ha Total Per hour Total Per Litter Total
Tractor Operations T/H
1 Ploughing T/H 2 20 20L 300 70.00 Birr 21000
2 Discing & harrowing T/H 2 20 20L 300 70.00 Birr 21000
3 Ridging T/H 2 20 20L 300 70.00 Birr 21000
Sub-total 63,000.00
3.Groundnuts (5 Ha)
Requirements Fuel consumption Fuel Price
Descriptions Unit Per Ha Total Per hour Total Per Litter Total
Tractor Operations T/H
1 Ploughing T/H 2 20 20L 100 70.00 Birr 7000
2 Discing & harrowing T/H 2 20 20L 100 70.00 Birr 7000
3 Ridging T/H 2 20 20L 100 70.00 Birr 7000
Sub-total 21,000.00
Total tractor related supplies cost per year 203,700.00
Total supplies costs 870,789
T/H refers to time requirement for a tractor to accomplish each of the specified
activity

30 | P a g e
31 | P a g e
 Table 12: summaries of supplies costs per year
  1 2 3 4 5 6 7 8 9 10
Supplies costs 870,789 914,328 960,045 1,008,047 1,058,449 1,111,372 1,166,940 1,225,287 1,286,552 1,350,879

Table 13. Repair and Maintenance expense per year    

1 2 3 4 5 6 7 8 9 10
Repair & 0 116, 122,4 128,5 135,0 141,7
maintenance 95,958 100,75 105,793 111,083 637 69 92 22 73
6
Table 14. Miscellaneous and utilities expense per year
years 1 2 3 4 5 6 7 8 9 10
Utilities Expense 55,625 58,406 61,327 64,393 67,613 70,993 74,543 78,270 82,183 86,293
Other Operating 137,288 144,152 151,360 158,928 166,874 175,218 183,979 193,178 202,837 212,979
expense

Table 15. Operating and working capital costs needed

Years 1 2 3 4 5 6 7 8 9 10
Employee salaries 584,400 613,620 644,301 676,516 710,342 745,859 783,152 822,309 863,425 906,596

Labor cost (table 10) 94,349 94,349 99,067 104,020 109,221 114,682 120,416 126,437 132,759 139,397

Repair& maint. (table 13) 0 95,958 100,756 105,793 111,083 116,637 122,469 128,592 135,022 141,773

Utilities costs (table 14) 55,625 58,406 61,327 64,393 67,613 70,993 74,543 78,270 82,183 86,293

Supplies cost (table 12) 870,789 914,328 960,045 1,008,047 1,058,449 1,111,372 1,166,940 1,225,287 1,286,552 1,350,879

Miscellaneous cost (table 14) 137,288 144,152 151,360 158,928 166,874 175,218 183,979 193,178 202,837 212,979

Total Operating 1,742,451 1,920,814 2,016,855 2,117,697 2,223,582 2,334,761 2,451,499 2,574,074 2,702,778 2,837,917

Increase in Operating costs 0 178,363 96,041 100,843 105,885 111,179 116,738 122,575 128,704 135,139

Working capital needed 142,690 76,833 80,674 84,708 88,943 93,390 98,060 102,963 108,111 0

32 | P a g e
   Table 17. Forecasted production of each crop over the first 10 years        
Crops   1 2 3 4 5 6 7 8 9 10
Maize Land area in Ha 27.44 27.44 27.44 27.44 27.44 27.44 27.44 27.44 27.44 27.44
  Output per Ha (quint) 70 70 70 70 70 70 70 70 70 70
Total Output (quint) 1,921 1,921 1,921 1,921 1,921 1,921 1,921 1,921 1,921 1,921
Soybean Land area in Ha 14.5 14.5 14.5 14.5 14.5 14.5 14.5 14.5 14.5 14.5
Output per Ha (quint) 40 40 40 40 40 40 40 40 40 40
  Total Output (quint) 580 580 580 580 580 580 580 580 580 580
Groundnuts Land area in Ha 5 5 5 5 5 5 5 5 5 5
  Output per Ha (quint) 40 40 40 40 40 40 40 40 40 40
Total Output (quint) 200 200 200 200 200 200 200 200 200 200
2,701 2,701 2,701 2,701 2,701 2,701 2,701 2,701 2,701 2,701

Table 18. Projected selling price of (at the farm gate price in Birr per quintal)
Crops 1 2 3 4 5 6 7 8 9 10
Maize 2200 2,310 2,426 2,547 2,674 2,808 2,948 3,096 3,250 3,413
Soya beans 3500 3,675 3,859 4,052 4,254 4,467 4,690 4,925 5,171 5,430
Groundnuts 5500 5,775 6,064 6,367 6,685 7,020 7,371 7,739 8,126 8,532

Table 19 Projected annual Sales revenues from each Crop (at the farm gate price in Birr)
Crops 1 2 3 4 5 6 7 8 9 10
Maize seed Price (Birr) 2200 2,310 2,426 2,547 2,674 2,808 2,948 3,096 3,250 3,413
Production (quint) 1,921 1,921 1,921 1,921 1,921 1,921 1,921 1,921 1,921 1,921
Sales (Birr) 4,225,760 4,437,048 4,658,900 4,891,845 5,136,438 5,393,260 5,662,923 5,946,069 6,243,372 6,555,541
Soyabean Price (Birr) 3,500 3,675 3,859 4,052 4,254 4,467 4,690 4,925 5,171 5,430
Production (quint) 580 580 580 580 580 580 580 580 580 580
Sales (Birr) 2,030,000 2,131,500 2,238,075 2,349,979 2,467,478 2,590,852 2,720,394 2,856,414 2,999,235 3,149,196
Groundnuts Price (Birr) 5,500.0 5,775.0 6,063.8 6,366.9 6,685.3 7,019.5 7,370.5 7,739.1 8,126.0 8,532.3
Production (quint) 200 200 200 200 200 200 200 200 200 200
Sales (Birr) 1,100,000 1,155,000 1,212,750 1,273,388 1,337,057 1,403,910 1,474,105 1,547,810 1,625,201 1,706,461

33 | P a g e
 Total Sales revenues 7,355,760 7,723,548 8,109,725 8,515,212 8,940,972 9,388,021 9,857,422 10,350,293 10,867,808 11,411,198

Table 20. Estimation of annual depreciation expenses

Economic Life Depreciation rate Depreciation expenses
Items costs

Store and bathing room 75,000.00 40 0.025 1,875.00 1,875

New John Deere 6100D Mfwd Tractor (Mexico Origin) 1,065,577 7 0.142857 152,225.14 426,346.30
Mounted Four Disc Plough (Make: Nardi, Model: QD 70/E) 320,000 7 0.142857 45,714.24
Mounted Tandem Disc Harrow (Make: Nardi, Model: 28 HOP 56) 285,725 7 0.142857 40,817.82 424,471
Brand New Toyota Hilux Double cab 1,300,000 7 0.142857 185,714.10

Sino_Truck model ZZ1257S4641W, 9720cc, HP 371 1,500,000 5 0.1 150,000.00

Chemical Sprayer 6,750.00 5 0.2 1350

Sickles 1,800.00 5 0.2 360
Axes 500.00 5 0.2 100
Tape meter (100 m) 1,800.00 5 0.2 360
Wheel borrow 17,500.00 5 0.2 3500
Shovel 720.00 5 0.2 144
Weighing scale 75,000.00 5 0.2 15000 188,996.00
Thresher 40,000.00 5 0.2 8000
Saw 300.00 5 0.2 60
Cutlass or Machete 40,000.00 5 0.2 8000
Spade hoe 4,500.00 5 0.2 900
Local hand hoe 420.00 5 0.2 84 200,316
Spade 490.00 5 0.2 98
Digging fork 3,200.00 5 0.2 640
Trovel 2,000.00 5 0.2 400
Laptop Computer 15,500.00 5 0.2 3100
Printers 7,600.00 5 0.2 1520
Shelf 5,000.00 5 0.2 1000 11,320.00
Managerial Chairs 17,000.00 5 0.2 3400
Guest Chairs 1,500.00 5 0.2 300
Computer tables 10,000.00 5 0.2 2000
Total yearly depreciation 626,662.30

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 Table 21. Projected periodical loan repayment and interest expense
Years 1 2 3 4 5 6 7 8 9 10
Principal loan outstanding at 6,943,030.20 6,248,727 5,554,424 4,860,121 4,165,818 3,471,515 2,777,212 2,082,909 1,388,606 694,303
beginning
Periodical loan repayments 694,303.02 694,303 694,303 694,303 694,303 694,303 694,303 694,303 694,303 694,303
Outstanding Loan at the end 6,248,727.18 5,554,424 4,860,121 4,165,818 3,471,515 2,777,212 2,082,909 1,388,606 694,303 0
Periodical interest expense 798,448.47 718,603.63 638,758.78 558,913.93 479,069.08 399,224.24 319,379.39 239,534.54 159,689.69 79,844.85
Total periodical payment 1,492,751.49 1,412,907 1,333,062 1,253,217 1,173,372 1,093,527 1,013,682 933,838 853,993 774,148

Table 22 Projected Annual Income Statement (all in Birr)

Years 1 2 3 4 5 6 7 8 9 10
Total Revenues 7,355,760 7,723,548 8,109,725 8,515,212 8,940,972 9,388,021 9,857,422 10,350,293 10,867,808 11,411,198
Operating Expenses:
Salaries Expense 584,400 613,620 644,301 676,516 710,342 745,859 783,152 822,309 863,425 906,596
Wages Expense 94,349 94,349 99,067 104,020 109,221 114,682 120,416 126,437 132,759 139,397
Repair & maintenance 0 95,958 100,756 105,793 111,083 116,637 122,469 128,592 135,022 141,773
Utilities Expense 55,625 58,406 61,327 64,393 67,613 70,993 74,543 78,270 82,183 86,293
Supplies Expense 870,789 914,328 960,045 1,008,047 1,058,449 1,111,372 1,166,940 1,225,287 1,286,552 1,350,879
Miscellaneous Expense 137,288 144,152 151,360 158,928 166,874 175,218 183,979 193,178 202,837 212,979
Depreciation Expense 626,662 626,662 626,662 626,662 626,662 426,346 426,346 1,875 1,875 1,875
Interest Expense 798,448 718,604 638,759 558,914 479,069 399,224 319,379 239,535 159,690 79,845
Total Operating Expense 3,167,562 3,266,080 3,282,276 3,303,273 3,329,313 3,160,332 3,197,225 2,815,484 2,864,343 2,919,637
Income Before Income Tax 4,188,198 4,457,468 4,827,450 5,211,938 5,611,659 6,227,689 6,660,197 7,534,809 8,003,465 8,491,561
Income Tax (35%) 1,465,869 1,337,240 1,448,235 1,563,581 1,683,498 1,868,307 1,998,059 2,260,443 2,401,040 2,547,468
Net Income 2,722,329 3,120,228 3,379,215 3,648,357 3,928,161 4,359,382 4,662,138 5,274,366 5,602,426 5,944,093
Retained Earnings 2,722,329 5,842,557 9,221,771 12,870,128 16,798,289 21,157,672 25,819,810 31,094,176 36,696,601 42,640,694

35 | P a g e
 Table 23. Projected Annual cash Flow Statement (all in Birr)
Years 1 2 3 4 5 6 7 8 9 10
1. Cash flows of Operating activities:
Cash Inflows:
Collections from Sales 7,355,760 7,723,548 8,109,725 8,515,212 8,940,972 9,388,021 9,857,422 10,350,293 10,867,808 11,411,198
Cash Outflows:
Salaries payment 584,400
Table 24 613,620
Projected Balance sheet of644,301 676,516
the project (in Birr) 710,342 745,859 783,152 822,309 863,425 906,596
Wages payment 94,349 94,349 99,067 104,020 109,221 114,682 120,416 126,437 132,759 139,397
Years 1 2 3 4 5 6 7 8 9 10
Assets Repair & maintenance - 95,957.64 100,755.52 105,793.30 111,082.96 116,637.11 122,468.97 128,592.42 135,022.04 141,773.14
Current assetUtilities Expense 55,625 58,406 61,327 64,393 67,613 70,993 74,543 78,270 82,183 86,293
Supplies Expense
Cash (cumulated) 5,620,002 870,789
8,595,757 914,328
11,826,657 960,045
15,322,6651,008,047 1,058,449
19,094,242 1,111,372
23,092,277 1,166,94031,867,374
27,388,399 1,225,287 36,669,260
1,286,552 41,920,925
1,350,879
Miscellaneous
working capital (cumulated) Expense 142,690 137,288
219,523 144,152
300,197 151,360
384,905 158,928
473,848 166,874
567,239175,218 183,979
665,299 193,178
768,261 202,837
876,373 212,979
876,373
Interest payment
Total current assets 5,762,693 798,448
8,815,280 718,604
12,126,854 638,759
15,707,570 558,914
19,568,090479,069 399,224
23,659,516 319,37932,635,636
28,053,697 239,535 37,545,633
159,690 42,797,298
79,845
Fixed asset Income Tax (30%) 1,465,869 1,337,240 1,448,235 1,563,581 1,683,498 1,868,307 1,998,059 2,260,443 2,401,040 2,547,468
Project construction costs
Working capital 1,558,314 1,558,314
142,690 1,558,314
76,833 1,558,314 84,708
80,674 1,558,314 88,9431,558,31493,3901,558,314
98,060 1,558,314
102,963 1,558,314
108,111 1,558,314
0
Projected accu. depren
Total cash outflows -1,875 -3,750
4,149,459 -5,625 -7,500
4,053,490 4,184,522 -9,375
4,324,901 -11,250
4,475,092 4,695,683-13,125
4,866,998 -15,000
5,177,015 -16,875
5,371,618 -18,750
5,465,230
Projected
Netfarm machineby
cash provided cost 4,921,302 3,206,301
operation 4,921,302 4,921,302 3,925,203
3,670,058 4,921,302 4,190,311
4,921,3024,465,880
4,921,302 4,921,302
4,692,338 4,990,4244,921,302
5,173,278 4,921,302
5,496,189 4,921,302
5,945,968
Projected accu. 2.depren -424,471
Cash flows of investing -848,943
activities: -1,273,414 -1,697,885 -2,122,357 -2,546,828 -2,971,299 -3,395,770 -3,820,242 -3,820,242
prjected farm tools
Cash cost
inflows: 194,980 194,980 194,980 194,980 194,980 194,980 194,980 194,980 194,980 194,980
Projected accu.Cash
depren
Outflows: -188,996 -377,992 -566,988 -755,984 -944,980 -1,133,976 -1,322,972 -1,511,968 -1,700,964 -1,889,960
projected Project
office equipments
construction costs 119,050 1,558,314 119,050 119,050 119,050 119,050 119,050 119,050 119,050 119,050 119,050
ProjectedProjected
accu. depren
farm machine cost -11,320 4,921,302 -22,640 -33,960 -45,280 -56,600 -67,920 -79,240 -90,560 -101,880 -113,200
Total fixed assets 6,166,984 5,540,322 4,913,660 4,286,997 3,660,335 3,033,673 2,407,010 1,780,348 1,153,686 951,495
Projected farm tools cost 194,980
Total assets 11,929,677 14,355,602 17,040,513 19,994,567 23,228,425 26,693,189 30,460,707 34,415,984 38,699,319 43,748,793
Projected office equipments 119,050
Liability
Total cash outflows 6,793,646
Bank Loan 6,248,727 5,554,424 4,860,121 4,165,818 3,471,515 2,777,212 2,082,909 1,388,606 694,303 0
Net cash used by investing -6,793,646
Capital
3. Cash flows of Financing:
Owners' equity 1,735,758 1,735,758 1,735,758 1,735,758 1,735,758 1,735,758 1,735,758 1,735,758 1,735,758 1,735,758
cash inflows:
Retained earning 2,722,329 5,842,557 9,221,771 12,870,128 16,798,289 21,157,672 25,819,810 31,094,176 36,696,601 42,640,694
Total capital Owners' equity 4,458,086 1,735,758
7,578,314 10,957,529 14,605,886 18,534,047 22,893,429 27,555,567 32,829,934 38,432,359 44,376,452
Total LiabilityBank loans
+ Capital 10,706,814 6,943,030
13,132,738 15,817,650 18,771,704 22,005,562 25,670,641 29,638,476 34,218,540 39,126,662 44,376,452
Total cash inflows 8,678,788
36 | P a g e Cash outflows:
Repayments of loans 694,303 694,303 694,303 694,303 694,303 694,303 694,303 694,303 694,303 694,303
Net cash flows by financing 7,984,485 -694,303 -694,303 -694,303 -694,303 -694,303 -694,303 -694,303 -694,303 -694,303
Total N et cash flows 5,620,002 2,975,754 3,230,900 3,496,008 3,771,577 3,998,035 4,296,121 4,478,975 4,801,886 5,251,665
Cumulative cash flows 5,620,002 8,595,757 11,826,657 15,322,665 19,094,242 23,092,277 27,388,399 31,867,374 36,669,260 41,920,925
 Table 25. Projected Annual cash Flow Statement from Operations(all in Birr)
years 1 2 3 4 5 6 7 8 9 10
Cash flows of Operating activities:
Cash Inflows:
Cash collections from revenues 7,355,760 7,723,548 8,109,725 8,515,212 8,940,972 9,388,021 9,857,422 10,350,293 10,867,808 11,411,198
Cash Outflows:
Salaries payment 584,400 613,620 644,301 676,516 710,342 745,859 783,152 822,309 863,425 906,596
Wages payment 94,349 94,349 99,067 104,020 109,221 114,682 120,416 126,437 132,759 139,397
Repair & maintenance - 95,958 100,756 105,793 111,083 116,637 122,469 128,592 135,022 141,773
Utilities Expense 55,625 58,406 61,327 64,393 67,613 70,993 74,543 78,270 82,183 86,293
Supplies Expense 870,789 914,328 960,045 1,008,047 1,058,449 1,111,372 1,166,940 1,225,287 1,286,552 1,350,879
Miscellaneous Expense 137,288 144,152 151,360 158,928 166,874 175,218 183,979 193,178 202,837 212,979
Interest payment 798,448 718,604 638,759 558,914 479,069 399,224 319,379 239,535 159,690 79,845
Income Tax (30%) 1,465,869 1,337,240 1,448,235 1,563,581 1,683,498 1,868,307 1,998,059 2,260,443 2,401,040 2,547,468
Working capital 142,690 76,833 80,674 84,708 88,943 93,390 98,060 102,963 108,111 -
Capital cost 6,793,646
Total cash outflows 10,943,106 4,053,490 4,184,522 4,324,901 4,475,092 4,695,683 4,866,998 5,177,015 5,371,618 5,465,230
Net cash provided by operation (3,587,346) 3,670,058 3,925,203 4,190,311 4,465,880 4,692,338 4,990,424 5,173,278 5,496,189 5,945,968
PVC 10,085,812 3,735,936 3,856,703 3,986,083 4,124,509 4,327,818 4,485,712 4,771,442 4,950,800 5,037,078
PVB 6,779,502 7,118,477 7,474,401 7,848,121 8,240,527 8,652,554 9,085,181 9,539,441 10,016,413 10,517,233
NPV (3,306,309) 3,382,541 3,617,699 3,862,038 4,116,019 4,324,736 4,599,469 4,767,999 5,065,612 5,480,155
PVC 49,361,893.38
PVB 85,271,851.43
NPV 35,909,958.04
BCR 1.73
NBCR 0.73
IRR 109%

37 | P a g e