Animal Feed en

The General Authority for Investment and
GAFI Translation Department

Free Zones
The General Authority for Investment & Free Zones

Economic Performance Sector
A Preliminary Feasibility Study

On Animal Feed Manufacturing
Prepared by
Economic Performance Sector
Central Department of Feasibility Studies
General Department of Economic Feasibility Studies
March 2021
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GAFI Translation Department–Tel. + 2026736900-5. Ext: 2745 – 2748. Fax: 2745. -Mob. 201114650550 Email: m.fayez@gafinet.org.eg
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Contents
I. Project Basic Information .................................................. 3
II. Market Study: ............................................................... 4
III. Technical Study: .......................................................... 5
IV. Financial Study: ........................................................... 8
V. Conclusions and Recommendations .................................... 15
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I. Project Basic Information

Project Animal Feed
Gharbia Governorate, al-Anbutin Village,

Governorate
al-Santa Precinct
Land surface area 700 m2
Available act of disposition Usufruct
Usufrcut fees per annum EGP 50/m2
Project Economic Life
5 years
Expectancy
Targeted prodcuts Animal feed
Expected workforce 60 labourers and administrative staff
Expected Investment Costs EGP 77,835,000
Return on Investment (ROI) 33%
Payback Period 3.2 years
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II. Market Study:

1. Demand Volume:
 Lack of feed resources is a major constraint to the development of livestock
production. Several studies indicate that the feed budget (the relationship
between the food needed for the farm animal and the available feed resources)
in Egypt suffers an annual shortage of 6 million tonnes of natural feed resources.
2. Offer Volume:
 The Egyptian agricultural production increased to be EGP 6,398 constituting
6.11% of the GDP in 2016/2017. Egypt exported agricultural products worth
EGP 56 billion, representing more than 22% of the total exports in 2017, and
provided 5.6 million jobs in the agricultural sector in 2017, representing more
than 25% of the Egyptian workforce.
 Animal feed ingredients being abundant locally make it feasible for the project
to be implemented.
 Availability of raw materials, solvents, machinery and packing materials
demonstrates project's feasibility as well.
3. Market Gap:
 There is demand on the product representing a market gap equal to 189,714
tonnes. This gives interested investors a favourable opportunity to set up this
project.
4. Distribution Outlets:
 Exporting to countries that do not manufacture animal feed.
 Sale to wholesalers and suppliers.
 Livestock and poultry farms.
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III. Technical Study:

1. Project Location: Gharbia Governorate, al-Anbutin Village, al-Santa Precinct.
2. Land: a plot of land consisting of a surface area of 700 m2 to be allocated by way
of usufruct.
3. Buildings: The project includes one building constructed on a surface area of
400 m2. The building consists of one floor and is divided up into two partitions,
the first of which is an administrative partition and the other encompasses a
factory, warehouse, and production halls.
4. Final Product: Animal feed.
5. Labour Required: 25 labourers and administrative staff.
6. Main Raw Materials and Supplies: The basic raw materials required for the
production process include animal feed according to the international standards
as follows:
 Materials that contain more than 18% of fibres such as hay, also known as
rough fodder;
 Green forage plants such as alfalfa and green grass, also known as green
pastures;
 Fermented forage plants such as corn silage, legume silage, lentils, beans and
cowpeas;
 Fruits and mill waste;
 Animal, vegetable and marine protein sources;
 Sources of vitamins and minerals; and
 Antibiotics, colour additives and taste enhancers.
7. Factory Machinery and Equipment:
 Powder mixer;
 Packing machine;
 Digital scale;
 Printer;
 Finished product tank;
 Raw materials placement tank;
 Tables; and
 Compressor.
8. Production Phases (Feed production line machinery):
Feed production starts from the process of grinding the grains, then mixing
them. The mixing process must be done well in order for the grains to be
completely homogeneous.
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8.1 Reception silos: means such storage equipment where raw materials are
kept. The project factory should have a sufficient number of silos in which
all of its production could be stored. The design of the silos varies as well
as the materials of which they are made. Round silos with a conical
bottom are a common type. Silos should be built outside the factory and
close to the place where raw materials can easily be injected and
transported to the reception silos through auger conveyors, belt
conveyors, chain conveyors or pneumatic conveyors. Conveyors can be
described as buckets installed on a circular belt that revolves on two
upper and lower pulley wheels. The wheels should contain holes through
which they can be maintained and repaired.
8.2 Cleaning equipment: means such tools used to separate foreign matter
from feed ingredients. A foreign matter could be, for example, pieces of
metal, stones, straw, threads, wires, hooks, burlap, logs, and any other
material that could cause severe damage to the conveyors, belts, grinding
and mixing equipment, particularly sieves and magnets. Sieves' capacity
and narrowness should be selected based on the size of the grains. Magnets
may be used repeatedly in the places where feed ingredients pass to ensure
that the ingredients are free of any metal parts.
8.3 Milling: means the crushing machinery (such as the hammer mill) whose
sieves capacity ranges from 3 to 5 mm. The milling machine is used to
crush grass grains. The type of the milling machine and its production
capacity varies according to the type of raw materials used. The time
required for grinding varies according to the type of the raw material as
well. For example, barley takes twice as long as corn. Input/output
conveyors are attached to the milling machine.
8.4 Mixing: means such machinery including mixers input/output tanks,
balancers, mixing equipment, conveyors used in preparing animal feed
mixtures. The aim is to obtain homogeneous r. Mixers' types vary.
8.5 Animal Feed Production Systems:
8.5.1 Batch system: means a complete batch of mixtures added to 1-2
tonnes. Premixes are used for this system.
8.5.2 Volumetric system.
8.6 Liquid Addition to Feed Mix
8.7 Steam boiler: There must be a high pressure steam generator in the
factory, especially when adding molasses, oils or greases.
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8.8 Air purifiers: Air purifiers must be put and used inside the facility where
grinding, mixing and carrying animal feed takes place as well as when
opening and closing gates.
9. Production Capacity: 300 tonnes/annum
NB: The data mentioned in the technical study are estimates based on the data provided
by Industrial Development Authority (IDA).
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IV. Financial Study:

Financial feasibility study is considered a tool that helps the investor in making
decisions related to investment. To facilitate making such decisions, all costs related
to investment and production must be clearly and accurately determined, taking into
account that a project profitability depends on the volume and components of the
investment and the production costs.
1. Financial Study Fundamentals and Hypotheses:
 The data used in the study and the expected revenues based on the volume
and the value of sales have been estimated according to results of the market
study.
 Investment spending values and other elements of costs and expenses have
been estimated according to the results of the technical study.
 The annual depreciation premium for buildings and machinery is estimated
according to the results of the technical study, assuming that their sales
value at the end of the period matches their book value.
 It has to be considered that the estimated value of fixed assets mentioned in
this study is related to a specific time period according to the prevailing
circumstances at the time of preparing this study; and that this value may
change if the circumstances change, the report time limit expires, or the
economic environment undergoes changes in general.
 Incorporation and pre-commencement expenditure have been assumed to
have been completely spent during the first year of revenue as per the
Egyptian Accounting Standards.
 The estimated income statements have been prepared on the assumption
that there is no fundamental change in the revenue values and the expected
annual costs during the study period.
 The annual cash flows are estimated using the indirect estimation method
by making the necessary adjustments to the results of the estimated income
statements for the years included in the study.
 It is assumed in this study that all purchases include VAT.
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2. Annual Sales:
The annual sales are estimated assuming that all quantities planned to be
produced have been sold at the average prevailing market price.
# Item Sales/ Ton Sale Price/ Ton Annual Sales Revenue
1 Animal feed 25,000 4,000 100,000,000
Total 25,000 100,000,000
3. Project Investment Costs:

3.1 Buildings, Constructions, Finishes, Infrastructure, and Utilities: The cost of
buildings, constructions, finishes, infrastructure, and utilities is estimated to
be EGP 1,200,000, assuming that each square meter costs EGP 3,000 and
that they will have been completely depreciated after 20 years.
3.2 Machinery and Equipment: the cost of machinery and equipment is
estimated at EGP 3,000,000 assuming that they will have been completely
depreciated after 10 years.
3.3 Legal and Incorporation Fees: They are estimated to cost EGP 500,000
assuming that such amount will be spent during the first year.
3.4 Transportation trucks: They are estimated to cost EGP 500,000 and assumed
to be completely depreciated in five years.
3.5 Cranes, Forklifts…etc.: They are estimated to cost EGP 500,000 and
assumed to be completely depreciated in five years.
4. Running Costs:
Running costs are defined as the costs necessary to complete the operation
process until the production of the final product, passing through the successive
stages of the product. These costs are divided up into fixed costs and variable
costs, as well as direct costs intimately related to the product and indirect costs
that are ancillary to the product such as, the administrative staff payroll. The
running costs are also divided up into several elements, namely (the cost of
materials, the cost of direct and indirect payroll, and other running costs), where
the operating cycle is calculated on one operation per annum. The running costs
are classified as follows:
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4.1 Raw Materials Cost per Annum:

The raw materials required to produce the aforementioned quantities are
estimated to cost EGP 70,000,000.
4.2 Payroll Cost: Wages are estimated to cost 2,000,000 per annum.
4.3 Annual Depreciations:
Years of Appreciation Annual
Item Cost
Depreciation Percentage Depreciation
Buildings, Finishes and
1,200,000 20 5% 60,000
Infrastructure
Machinery and Equipment 3,000,000 10 10% 300,000
Transportation Trucks 500,000 5 20% 100,000
Cranes and Forklifts 500,000 5 20% 100,000
Legal and Incorporation Fees 500,000 1 100% 500,000
Total 5,700,000 1,060,000
4.4 Other costs such as utilities (power, water, gas) are estimated at EGP 100,000.
4.5 Based on the foregoing, the total amount of running costs is as follows:
Item Cost
Buildings, Finishes and Infrastructure 1,200,000
Machinery and Equipment 3,000,000
Transportation Trucks 500,000
Cranes, Forklifts…etc. 500,000
Incorporation Fees 500,000
Usufruct Fees 35,000
Raw Materials 70,000,000

Payroll 2,000,000
Other Running Costs 100,000
Total 77,835,000
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5. Project Financial Statements and Indicators, and Expected Profitability

Ratios:
 Financial statements, financial indicators, and profitability ratios are
among the most important tools used to assess the economic viability of
projects. The assessment is made by calculating the project's net income
and net cash inflows, as well as the net present value of money resulting
from an increase in the inflation rate as per the prevailing interest rate.
 Financial indicators are also used to make a comparison between the
available investment options, to compare between the average return on
investment and the payback period for each project separately.
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5.1 Expected Income Statement for the First Five years of Business Activity
(including an estimated 10% Annual Increase in Revenue and Costs):
Item Year 1 Year 2 Year 3 Year 4 Year 5
Sales Revenue 100,000,000 110,000,000 121,000,000 133,100,000 146,410,000
Sales Cost
Usufruct Cost per Annum 35,000 35,000 35,000 35,000 35,000
Raw Materials 70,000,000 77,000,000 84,700,000 93,170,000 102,487,000
Payroll 2,000,000 2,200,000 2,420,000 2,662,000 2,928,200
Marketing Expenditure - - - - -
Other Running Costs 100,000 110,000 121,000 133,100 146,410
Depreciation 1,060,000 560,000 560,000 560,000 560,000
Total Costs 73,195,000 79,905,000 87,836,000 96,560,100 106,156,610
Profit before Tax (PBT) 26,805,000 30,095,000 33,164,000 36,539,900 40,253,390
22.5% Tax 6,031,125 6,771,375 7,461,900 8,221,478 9,057,013
Profit after Tax (PAT) 20,773,875 23,323,625 25,702,100 28,318,422 31,196,377
5.2 A Projected Cash Flow Statement for the First Five Years of Business
Activity:
Item Year 1 Year 2 Year 3 Year 4 Year 5
Cash Inflows 100,000,000 110,000,000 121,000,000 133,100,000 146,410,000
Cash Outflows
Usufruct 35,000 35,000 35,000 35,000 35,000
Raw Materials 70,000,000 77,000,000 84,700,000 93,170,000 102,487,000
Payroll 2,000,000 2,200,000 2,420,000 2,662,000 2,928,200
Other Running Costs 100,000 110,000 121,000 133,100 146,410
22.5% Tax 6,031,125 6,771,375 7,461,900 8,221,478 9,057,013
Total Cash Outflows 78,166,125 86,116,375 94,737,900 104,221,578 114,653,623

Total Cash Inflows 21,833,875 23,883,625 26,262,100 28,878,422 31,756,377
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5.3 Net Present Value (NPV) of Cash Inflows

The net present value is the difference between the present value of the
net cash inflows entered during the operating years and the present value
of the net cash outflows during the construction period and is illustrated
by the following formula:
𝑃𝑟𝑒𝑠𝑒𝑛𝑡 𝑣𝑎𝑙𝑢𝑒 𝑜𝑓 𝑐𝑎𝑠ℎ 𝑓𝑙𝑜𝑤𝑠 (𝑁𝑃𝑉)
𝑛𝑒𝑡 𝑐𝑎𝑠ℎ 𝑓𝑙𝑜𝑤𝑠 𝑑𝑢𝑟𝑖𝑛𝑔 𝑡ℎ𝑒 𝑦𝑒𝑎𝑟
= 𝛴[ ]
( 1 + 𝑟)𝑖
This is according to the simple interest rate of projects' loans, which is
approximately 10% at the time of preparing this study.
Discount
Year Cash Flow NPV
Factor 10%
Year 1 21,833,875 0.909 19,846,992
Year 2 23,883,625 0.826 19,727,874
Year 3 26,262,100 0.751 19,722,837
Year 4 28,878,422 0.683 19,723,962
Year 5 31,756,377 0.621 19,720,710
Total 132,614,399 98,742,376
5.4 Calculating Average ROI

𝑅𝑎𝑡𝑖𝑜 𝑜𝑓 𝑎𝑣𝑒𝑟𝑎𝑔𝑒 𝑛𝑒𝑡 𝑎𝑐𝑐𝑜𝑢𝑛𝑡𝑖𝑛𝑔 𝑝𝑟𝑜𝑓𝑖𝑡 𝑡𝑜 𝑖𝑛𝑣𝑒𝑠𝑡𝑚𝑒𝑛𝑡 𝑐𝑜𝑠𝑡
𝑎𝑣𝑒𝑟𝑎𝑔𝑒 𝑛𝑒𝑡 𝑎𝑛𝑛𝑢𝑎𝑙 𝑝𝑟𝑜𝑓𝑖𝑡
= %
𝑡𝑜𝑡𝑎𝑙 𝑖𝑛𝑣𝑒𝑠𝑡𝑚𝑒𝑛𝑡 𝑐𝑜𝑠𝑡𝑠
Year Annual Net Profit ROI/ annum
Year 1 20,773,875 27%
Year 2 23,323,625 30%
Year 3 25,702,100 33%
Year 4 28,318,422 36%
Year 5 31,196,377 40%
Investment Costs 77,835,000
Average ROI 33%
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5.5 Payback Period (PBP)

Year 0 1 2 3 4 5
Annual cash
(77,835,000) 21,833,875 23,883,625 26,262,100 28,878,422 31,756,377
inflow
Cumulative
(56,001,125) (32,117,500) (5,855,400) 23,023,022 54,779,399
cash flow
The payback period can be calculated according to the following formula:
+ The absolute value of the last

=Number of years of
negative cumulative cash flow
negative cash flow +
Cash inflow during the following
year
5,855,400
3 +
28,878,422
3 + 0.20
PBP = 3.20
5.6 Financial Study Conclusions:

 The project achieves an NPV of positive cash in the amount of EGP
98,742,376, as per an interest rate of 10%.
 The project achieves 33% ROI.
 The estimated PBP of the project is 3.2 years.
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V. Conclusions and Recommendations

The project is economically viable in light of the following considerations:
 The project can potentially be set up due to the availability of the required
raw materials in Egypt, the easy access to packing materials and machinery,
as well as the current climate encouraging investment in Egypt.
 The project achieves a good ROI estimated at 33%.
 The PBP of the investment costs of the project is estimated at 3.2 years.
Thus setting up the project is economically feasible.
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The General Authority for Investment and

GAFI Translation Department

The General Authority for Investment & Free Zones

A Preliminary Feasibility Study

I. Project Basic Information

Gharbia Governorate, al-Anbutin Village,

II. Market Study:

III. Technical Study:

IV. Financial Study:

1 Animal feed 25,000 4,000 100,000,000

Total 25,000 100,000,000

3. Project Investment Costs:

4.1 Raw Materials Cost per Annum:

Machinery and Equipment 3,000,000

Transportation Trucks 500,000

Cranes, Forklifts…etc. 500,000

Incorporation Fees 500,000

Usufruct Fees 35,000

Raw Materials 70,000,000

5. Project Financial Statements and Indicators, and Expected Profitability

Usufruct Cost per Annum 35,000 35,000 35,000 35,000 35,000

Raw Materials 70,000,000 77,000,000 84,700,000 93,170,000 102,487,000

Payroll 2,000,000 2,200,000 2,420,000 2,662,000 2,928,200

Other Running Costs 100,000 110,000 121,000 133,100 146,410

Depreciation 1,060,000 560,000 560,000 560,000 560,000

Total Costs 73,195,000 79,905,000 87,836,000 96,560,100 106,156,610

Profit before Tax (PBT) 26,805,000 30,095,000 33,164,000 36,539,900 40,253,390

22.5% Tax 6,031,125 6,771,375 7,461,900 8,221,478 9,057,013

Profit after Tax (PAT) 20,773,875 23,323,625 25,702,100 28,318,422 31,196,377

Item Year 1 Year 2 Year 3 Year 4 Year 5

Cash Inflows 100,000,000 110,000,000 121,000,000 133,100,000 146,410,000

Usufruct 35,000 35,000 35,000 35,000 35,000

Raw Materials 70,000,000 77,000,000 84,700,000 93,170,000 102,487,000

Payroll 2,000,000 2,200,000 2,420,000 2,662,000 2,928,200

Other Running Costs 100,000 110,000 121,000 133,100 146,410

22.5% Tax 6,031,125 6,771,375 7,461,900 8,221,478 9,057,013

Total Cash Outflows 78,166,125 86,116,375 94,737,900 104,221,578 114,653,623

5.3 Net Present Value (NPV) of Cash Inflows

5.4 Calculating Average ROI

5.5 Payback Period (PBP)

The payback period can be calculated according to the following formula:

+ The absolute value of the last

5.6 Financial Study Conclusions:

V. Conclusions and Recommendations

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