166.

PROFILE ON SMALL RUMINANT MEAT

PROCESSING
 166-2

TABLE OF CONTENTS

PAGE

I. SUMMARY 166-3

II. PRODUCT DESCRIPTION & APPLICATION 166-3

III. MARKET STUDY AND PLANT CAPACITY 166-3

A. MARKET STUDY 166-3
B. PLANT CAPACITY & PRODUCTION PROGRAMME 166-6

IV. MATERIALS AND INPUTS 166-7

A. RAW & AUXILIARY MATERIALS 166-7
B. UTILITIES 166-8

V. TECHNOLOGY & ENGINEERING 166-8

A. TECHNOLOGY 166-8
B. ENGINEERING 166-9

VI. MANPOWER & TRAINING REQUIREMENT 166-11

A. MANPOWER REQUIREMENT 166-11
B. TRAINING REQUIREMENT 166-12

VII. FINANCIAL ANALYSIS 166-13

A. TOTAL INITIAL INVESTMENT COST 166-13
B. PRODUCTION COST 166-14
C. FINANCIAL EVALUATION 166-15
D. ECONOMIC BENEFITS 166-16
 166-3

I. SUMMARY

This profile envisages the establishment of a plant for the processing of small ruminate
meat with a capacity of 1,000 tonnes per annum.

The present demand for the proposed product is estimated at 9,082 tonnes per annum.
The demand is expected to reach at 44,345 tonnes by the year 2022.

The plant will create employment opportunities for 56 persons.

The total investment requirement is estimated at Birr 30.43 million, out of which Birr 15
million is required for plant and machinery.

The project is financially viable with an internal rate of return (IRR) of 17 % and a net
present value (NPV) of Birr 8.8 million, discounted at 8.5%.

II. PRODUCT DESCRIPTION & APPLICATION

Canned meat is a product prepared from goat, beef, sheep, pig, poultry and other
ingredient used for preserving and giving suitable taste. In this study, only sheep and
goat meat are considered and the products are destined for export market.

III. MARKET STUDY AND PLANT CAPACITY

A. MARKET STUDY

1. Past Supply and Present Demand

The product envisaged here is mainly for export. Total exports of sheep and goat meat
during 1977-2006 is shown in Table 3.1. Apparently, the volume of exports of the
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product fluctuated with a rising trend. Total exports, on the average stood at 3,159.29
tonnes during the period under reference.

Table 3.1
EXPORTS OF SHEEP AND GOAT MEAT (TONNES)

Year Export

1997 1,799.82
1998 2,457.55
1999 1,904.71
2000 1,161.76
2001 833.66
2002 1,111.51
2003 3,594.98
2004 3,702.79
2005 6,300.97
2006 8,725.16
Average 3,159.29

Source: Customs Authority, External Trade Statistics, 1997-2006.

There is a wide export market for sheep and goat meat in the Middle East. As a result, a
remarkable growth is observed in the exports of the product from the country. According
to estimates of experts in the business, the above stated average volume of export of
sheep and goat meat accounts for only 40% of the export demand for the product. The
average rate of growth of exports of the product during the reference period is computed
to be 35%. However, a conservative estimate of a 15% rate of growth is adopted in
estimating the demand for the product. The present demand for the product (i.e. 2007) is
thus estimated at 9082.96 tonnes.
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2. Projected Demand

As stated above, a 40% market share for existing exporters and a 15% rate of growth is
used in projecting the demand for sheep and goat meat. The projected demand for the
product is shown in Table 3.2.

Table 3.2
PROJECTED DEMAND FOR SHEEP AND GOAT MEAT (TONNES)

Projected
Years Demand
2007 5,449.78
2008 6,267.24
2009 7,207.33
2010 8,288.43
2011 9,531.69
2012 10,961.44
2013 12,605.66
2014 14,496.51
2015 16,670.99
2016 19,171.64
2017 22,047.38
2018 25,354.49
2019 29,157.66
2020 33,531.31
2021 38,561.01
2022 44,345.16
 166-6

3. Pricing and Distribution

Based on the FOB price of the external trade statistics 2006 (the latest data available),
and considering 30% for transportation cost and other expenses, the factory gate price for
the envisaged plant is estimated at Birr 33,685 per tonnes.

The product can be directly exported.

B. PLANT CAPACITY AND PRODUCTION PROGRAMME

1. Plant Capacity

According to the market study, the demand of canned meat in the year 2007 will be
5449.78 tonnes, whereas this demand will grow to 44,345.16 tonnes by the year 2022.
Taking only about 16% of the demand of the year 2008, the envisaged plant will have an
annual production capacity of 1,000 tonnes of canned meat will be installed. Production
capacity is based on a schedule of 300 working days per annum and 3 shifts of eight
hours per day.

2. Production Programme

The production programme is indicated in Table 3.3. At the initial stage of production,
the plant requires some years to penetrate the market. Therefore, in the first and second
year of production the capacity utilization rate will be 70% and 85%, respectively. In
third year and thereafter, full capacity production shall be attained.
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Table 3.3
PRODUCTION PROGRAMME

Production Programme
Product 2008 2009 2010
Canned Meat (tonne) 700 850 1000
Capacity utilization rate (%) 70 85 100

IV. MATERIAL AND INPUTS

A. RAW AND AUXILIARY MATERIALS

According to the information obtained from the Administration, the number of sheep and
goat is about 3,190,732 and 2,678,712, heads, respectively. One can safely conclude that
the above resource could be a base for the establishment of sheep and goat processing
plant.

The major raw materials of the envisaged project are meat, cans and common salt. The
annual cost of raw and auxiliary materials is Birr 22,418,000. Table 4.1 indicates the
annual requirement of raw and auxiliary materials at full production capacity.

Table 4.1
RAW AND AUXILIARY MATERIALS REQUIREMENT & COST
( AT FULL CAPACITY)

Sr. Description Unit of Qty Cost

No. Measure (’000 Birr)
1. Sheep & Goat Meat Tonnes 1,600 19,200
2. Empty can ‘000 pcs 2,520 2,520
3. Common Salt Tonnes 144 172.8
4. Packing Material and stickers Lump sum 525
Total 22,418
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B. UTILITIES

The major utilities of the project are electricity, furnace oil and water. Annual
requirement and cost of utilities is indicated in Table 4.2.

Table 4.2
UTILITIES REQUIREMENT AND COST

UOM
Sr. Description Qty. Cost (‘000 birr)
No
1 Electricity KWh 67500 31.97
2 Furnace oil m3 500 2705
3 Water m3 140000 1400
Total 4136.97

V. TECHNOLOGY AND ENGINEERING

A. TECHNOLOGY

1. Production Process

The animals are subject to medical check-up to make sure that they are free from any
disease before they are slaughtered. After slaughtering and before the viscera is
removed, inspection is carried out by veterinary staff. Then the meat is washed to
remove blood and kept in the chilled room. After the meat is thoroughly chilled, it is
then dressed and superficial fat is removed. After trimming and chopping, the bone is
removed and the meat is then cut to uniform size of sliced chunks of about 1.25 cm
thickness. The meat is then soaked into salt water for giving a salty taste and to kill
microorganisms. It is weighed and filled into cans, and seaming process will be carried
 166-9

out. After seaming the cans are fed in to a Jet-Spraying can washer for cleansing with
neutral cleanser. Then, the seamed cans undergo sterilization immediately.

2. Source of Technology

The following Indian company has already specialized on supplying equipment and
machinery for diaries, food industries and breweries.

Kpsar Engineering Works

Tel. 91-11-5440092
Fax. 91-11-5462626
India

B. ENGINEERING

1. Machinery and Equipment

The list of machinery and equipment of meat canning project is indicated in Table 5.1.
The total cost of machinery is estimated at Birr 15 million, of which Birr 10 million is in
required foreign currency.
 166-10

Table 5.1
LIST OF MACHINERY AND EQUIPMENT

Sr. Description Qty.

No.
1. Nobbing and cutting 1
2. Washing tank 4
3. Salt Soaking tank 4
4. Empty can conveyor 2
5. Packing conveyor 1
6. Table for balance 2
7. Tray(Assorted) 400
8. Can assembling table 1
9. Cooking box (steamer) 1
10. Drainer 2
11. Can supplying table 2
12. Rotary Filler 2
13. Vacuum seamer 2
14. Vacuum pump 2
15. Can washer 1
16. Chain hoist with trolley rail 1
17. Clutch door type horizontal retort 5
18. Basket cooler 50
19. Jacketed steam kettle 3
20. Stainless still bank 2
21. Gear pump 1
22. Balance 20
23. Seaming micrometer 2
24. Seaming wire gauge 2
25. Seaming scale 2
26. Seam band saw frame 2
27. Seam band saw 10
28 Vacuum can tester 2
29. Hand can tester 2
30. Saccharin meter 2
31. Inspection bar 2
32. Thermometer 15
33. Clinometers 2
34. Boiler 1
35 Cold room (Refrigerator) 1
 166-11

2. Land, Building and Civil Work

The plant requires a total of 7,500 m2 area of land out of which 3,000 m2 is built-up area
which includes Processing area, raw material stock area, offices etc. Assuming
construction rate of Birr 2,500 per m2, the total cost of construction is estimated to be Birr
7.5 million. The total cost, for a period of 80 years with cost of Birr 1 per m2, is
estimated at Birr 7,500. The total investment cost for land, building and civil works is
estimated at Birr 7,507,500.

3. Proposed Location

According to the resource potential study of the region, the raw material is identified in
Kuraz and Hamer bena woredas. Based on the availability of raw material, infrastructure,
utilities and market outlet Omarata town of Kuraz Woreda is selected and recommended
to be the location of the envisaged plant.

Therefore, because of the above factors Debub- Omo has been chosen as the best location
to establish the envisaged meat-canning project.

VI. MANPOWER AND TRAINING REQUIREMENT

A. MANPOWER REQUIREMENT

The envisaged project requires 56 labour force. The list of manpower and the annual cost
of labour is indicated in Table 6.1.
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Table 6.1
MANPOWER REQUIREMENT AND LABOUR COST

Sr. Description Req. No. Monthly Annual Salary

No. Salary (Birr) (Birr)
1. General Manager 1 3500 42,000
2. Secretary 1 700 8,400
3. Marketing Officer 1 1500 18,000
4. Purchaser 1 1000 12,000
5. Senior Accountant 1 2000 24,000
6. Cashier 1 800 9,600
7. Production Head 1 2000 24,000
8. Quality Control Head 1 1800 21,600
9. Senior Mechanic 1 1400 16,800
10. Mechanic 1 800 9,600
11. Electrician 1 1200 14,400
12 Operators 12 7200 86,400
13 Labourers 28 8400 100,800
14 Drivers 2 1200 14,400
15 Guards 3 900 10,800
Sub-Total 56 34,400 412,800
Benefit (25% Basic Salary) 8,600 103,200
Grand Total 43,000 516,000

B. TRAINING REQUIREMENT

The production head, quality control head and senior mechanic shall be trained by the
experts of the machinery supplier during plant erection at the project site and other
operators shall also be trained by the production head before commissioning the plant.
Therefore, the total training cost is estimated at Birr 25,000.
 166-13

VII. FINANCIAL ANALYSIS

The financial analysis of the small ruminant meat processing project is based on the data
presented in the previous chapters and the following assumptions:-

Construction period 1 year

Source of finance 30 % equity
70 % loan
Tax holidays 5 years
Bank interest 8%
Discount cash flow 8.5%
Accounts receivable 30 days
Raw material local 15 days
Raw material, import 90 days
Work in progress 2 days
Finished products 10 days
Cash in hand 5 days
Accounts payable 30 days

A. TOTAL INITIAL INVESTMENT COST

The total investment cost of the project including working capital is estimated at Birr
30.43 million, of which 53 per cent will be required in foreign currency.

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

Sr. Total Cost

No. Cost Items (‘000 Birr)
1 Land lease value 600.0
2 Building and Civil Work 7,500.0
3 Plant Machinery and Equipment 15,000.0
4 Office Furniture and Equipment 150.0
5 Vehicle 450.0
6 Pre-production Expenditure* 1,606.0
7 Working Capital 5,129.8
Total Investment cost 30,435.8
Foreign Share 53

* N.B Pre-production expenditure includes interest during construction ( Birr 1.45 million ) training
(Birr 25 thousand ) and Birr 125 thousand costs of registration, licensing and formation of the company
including legal fees, commissioning expenses, etc.

B. PRODUCTION COST

The annual production cost at full operation capacity is estimated at Birr 30.49
million (see Table 7.2). The material and utility cost accounts for 87.07 per cent, while
repair and maintenance take 0.90 per cent of the production cost.
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Table 7.2
ANNUAL PRODUCTION COST AT FULL CAPACITY ('000 BIRR)

Items Cost %
Raw Material and Inputs 22,418.00 73.51
Utilities 4136.97 13.57
Maintenance and repair 275 0.90
Labour direct 247.68 0.81
Factory overheads 82.56 0.27
Administration Costs 165.12 0.54
Total Operating Costs 27,325.33 89.60
Depreciation 2010 6.59
Cost of Finance 1161.57 3.81
Total Production Cost 30,496.90 100

C. FINANCIAL EVALUATION

1. Profitability

According to the projected income statement, the project will start generating profit in the
first year of operation. Important ratios such as profit to total sales, net profit to equity
(Return on equity) and net profit plus interest on total investment (return on total
investment) show an increasing trend during the life-time of the project.

The income statement and the other indicators of profitability show that the project is
viable.
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2. Break-even Analysis

The break-even point of the project including cost of finance when it starts to operate at
full capacity ( year 3) is estimated by using income statement projection.

BE = Fixed Cost = 72 %
Sales – Variable Cost

3. Pay Back Period

The investment cost and income statement projection are used to project the pay-back
period. The project’s initial investment will be fully recovered within 6 years.

4. Internal Rate of Return and Net Present Value

Based on the cash flow statement, the calculated IRR of the project is 17 % and the net
present value at 8.5% discount rate is Birr 8.8 million.

D. ECONOMIC BENEFITS

The project can create employment for 56 persons. In addition to supply of the
domestic needs, the project will generate Birr 8.75 million in terms of tax revenue. The
establishment of such factory will have a foreign exchange saving effect to the country by
substituting the current imports.