Your university logo ………….

Your university………….

School of Postgraduate Studies

Establishing ABC Milk Production Company

Prepared By:

Name ID no
1.

Submitted to: …….your instructor

July, 2023

Addis Ababa, Ethiopia

Contents
Background of the Project .............................................................................................................. 1
1.1 Introduction ...................................................................................................................... 1
1.2 Vision and Mission of the Organization .......................................................................... 2
1.2.1 Vision ........................................................................................................................ 2
1.2.2 Mission...................................................................................................................... 2
1.3 Objective of the Project .................................................................................................... 2
1.4 Brief Description of the Project and Product ................................................................... 3
1.5 Name and Type of Business (the Owners) ............................................................................... 3
1.6 Brief Information on the Owners ......................................................................................... 3
1.7 Specific goals ....................................................................................................................... 4
2 Product of service design ........................................................................................................ 4
2.1 Market Study .................................................................................................................... 4
2.2 Marketing Strategies ........................................................................................................ 5
2.3 Plant Capacity and Production Programmed ................................................................... 6
3 Process design ......................................................................................................................... 7
3.1 Production Process ........................................................................................................... 8
3.2 Location and Environmental Analysis ............................................................................. 8
3.3 Customers ......................................................................................................................... 8
3.4 Competitors ...................................................................................................................... 9
3.5 Suppliers ........................................................................................................................... 9
3.6 Infrastructural Facilities for Raw Material and Utilities .................................................. 9
3.7 Technology ..................................................................................................................... 10
4 Organizational Structure and Human Resources .................................................................. 11
4.1 Main Organizational Structure ....................................................................................... 11
4.2 Job design ....................................................................................................................... 12
5 Business plan ........................................................................................................................ 13
5.1 Capital Cost of Project ................................................................................................... 13
5.2 Financial Analysis .......................................................................................................... 14
5.3 Financial Evaluation ....................................................................................................... 16
6 Implementation Scheduling .................................................................................................. 17
7 Summary ............................................................................................................................... 17
References ..................................................................................................................................... 19
 Background of the Project
1.1 Introduction
This project paper deals with the feasibility study of “Establishment of ABC milk Production
Company would be located around in Dire Dawa city. The company is assumed to be starting its
operation in the near future after fulfilling the necessary requirements from the Ethiopian
Investment Authority. A future milk surplus could be realized through investment in better
genetics, feed and health services, improving both traditional dairy farms and commercial-scale
specialized dairy production units. The government is actively supporting the private sector to
produce milk and is making supporting investments in supply-chain infrastructure, training and
improved breeds, and dray-focused agricultural commercialization. Ethiopia has close proximity
to large regional consumers of milk such as Sudan and Kenya as well as the Middle East
markets. Milk production businesses have become the key industry in Ethiopia as well as all
across the world. Only 5% of the milk produced in Ethiopia is sold in commercial markets. The
Ethiopian government has the view that strengthening competitiveness and promotion of
enterprises remain cornerstones for the growth of the economy and the creation of decent work
opportunities. This means that there will be a great opportunity to jump into commercial dairy
farming and milk processing business. Hence investing in dairy processing in Ethiopia is
profitable activity. Project and milk product currently sold in the Ethiopian market can be
categorized into milk products, such as raw, pasteurized and powder milk butter products such as
fermented and pasteurized butter and other products, such as cottage and other type of cheese,
sour milk and yogurt. Among these products powder milk is not produce in Ethiopia at the
moment, and are usually imported. Pasteurized butter, yogurt and various type of cheese apart
from cottage cheese are both imported and locally produced. Development of successful and
sustainable dairy industry will be realized by strategic interventions of the investors in to all parts
of possible entry points along the milk value chain especially on the innovation of new products.
Accordingly, several entry points to produce new products can be considered as intervention
opportunity in the dairy industry value chain with varied degree of resource requirement and
level of competitions. The country, the Ethiopian government provides various packages of
regulatory fiscal incentives to both foreign and domestic investors engaged in establishing new
enterprises and expansion. Ethiopia’s priority is to supply enough milk and dairy products for its
population though own production Due to the important nutritional value of milk, increasing

Establishing ABC Milk Production Company Page 1

consumption of milk either directly or through fortified foods is often a priority of national
health and nutrition programs. Geographical potential for the investment Ethiopia is ecologically
suitable where there is enough manpower, potential of good market, well fertile soil to produce
animal feed and suitable climatic condition for the production of good quality and quantity
products. Milk production is given priority over other livestock production systems due to
ecological conditions and the population pressure that favor commercial dairy production and
milk processing. Markets backgrounds the volume and price of milk and other dairy product
sales is increasing. For instance, couple with inflation the price of raw milk per liter has
increased from about birr 2 per liter to about birr 15 at produced level with in the last fifteen
years. As a result of this many dairy cooperatives established, some cooperatives collectedly
formed unions for better marketing capability. In the past increases in milk demand have been
mainly driven by population growth, whereas nowadays they are increasingly also fueled by
rising per capita milk consumption in Ethiopia. Current situation of the sector and industry
structure there are thirty-two formal sector dairy processors in Ethiopia and new processing
facilities in various stages of development. This is a great opportunity for the entrants to collect
and process raw milk into different milk products, and supply for domestic and export market.
1.2 Vision and Mission of the Organization

1.2.1 Vision
 To be premium milk production in Ethiopia, by 2030.

1.2.2 Mission
 To build branded milk production business, to improve quality of life by offering
tasty, affordable and highly nutritional products to our consumers while
maximizing the micro production capacity.

1.3 Objective of the Project

 To improve establishing milk production products by implementing new technologies.
 To generate income for the owner of the project by supplying and Products so that it can
fill the demand supply gap existing in the market.
 Contributing in the development of the country by creating employment Opportunity
both skilled and unskilled labours on casual and permanent basis.

Establishing ABC Milk Production Company Page 2

  Contributing to minimize the country’s dependence on food aid and imports, and
Thereby, helping spare the nation sizable foreign currency outflows.
 Partnering with local and foreign technologist and centre of excellence to help Foster
innovations in the sector, so that agro-processing could replace raw agricultural
commodities.
 Upholding the utmost sense of Corporate Social Responsibility so as to help foster socio-
economic harmony, wealth creation and environmental friendly.
 Generating government revenue in form of income tax.

1.4 Brief Description of the Project and Product

milk products currently sold in the Ethiopian market can be categorized into as raw, pasteurized,
and powder milk; butter products, such as fermented and pasteurized butter; and other products,
such as cottage and other type of cheese, sour milk and yogurt. Among these products powder
milk are not produced in Ethiopia at the moment, and are usually imported. Pasteurized
(table/bread) butter, yogurt and various type of cheese (apart from cottage cheese) are both
imported and locally produced. Development of successful and sustainable dairy industry will be
realized by strategic interventions of the investors in to all parts of possible entry points along the
milk value chain especially on the innovation of new products. Accordingly, several entry points
to produce new products can be considered as intervention opportunity in the dairy industry
value chain with varied degree of resource requirement and level of competitions.

1.5 Name and Type of Business (the Owners)

Name : ABC Milk production Private Limited Company
Address : Dire Dawa, Ethiopia
Business Type : Milk production
Form of Project : PLC
Registration : On Process
Business License : On process
Status of the project : New

1.6 Brief Information on the Owners

The Shareholders and their respective shareholding are shown in the following table.
Table 1 Shareholders & their shares

Establishing ABC Milk Production Company Page 3

No Partner name Amount/share birr No. of share Total amount of contribution/birr
1 AAA 2,420 100 242,000
2 BBB 2,420 100 242,000
3 CCC 2,420 100 242,000
4 DDD 2,420 100 242,000
5 EEE 2,420 100 242,000
Total 12,100/share 500 1,210,000

1.7 Specific goals

Short-term goals
 Launch the business in January 2023.
 To creating employment opportunities at the commencement of its operation and
continually increasing the numbers.
Long-term goals
 Make the business economically viable in to two and half years.
 Establish its own Research and Development center around the operation area.
 Increase the depth of the product mix.

2 Product of service design

2.1 Market Study
Almost all over the country of Ethiopia, it involves a vast number of small or medium or large-
sized, subsistence or market-oriented farms. Of the total milk produced in the country only 5% is
marketed as processed fluid milk due to the underdevelopment of the infrastructure in rural
areas. The volume and price of milk and other dairy product sales is increasing. For instance
couple with inflation, the price of raw milk per liter has increased from about Birr 2 per liter to
about Birr 15 at produced level within the last fifteen years. As a result of this many dairy
cooperatives established, some cooperatives collectedly formed unions for better marketing
capability. In the past, increases in milk demand have been mainly driven by population growth,
whereas nowadays they are increasingly also fuelled by rising per capita milk consumption in
Ethiopia. A variety of locally processed as well as imported milk products (fresh milk,
pasteurized milk, UHT milk, cream, cheese, butter, butter-cook, butter-table, Gouda cheese,
cottage cheese, mozzarella cheese, provolone cheese, cream cheese, fermented milk, and natural
and flavored yoghurt) (Yilma et al., 2011).

Establishing ABC Milk Production Company Page 4

There are thirty two formal sector dairy processors in Ethiopia and new processing facilities in
various stages of development. Most processors benefit from urban and per-urban milk supply
systems, and in several cases have invested in their own dairy farms to ensure adequate milk
supply and quality. Value chain actors are already investing in milk production, collection and
processing, and increased demand would likely lead to increased investment. Market opportunity
would lead to value chain deepening and upgrading, more solid horizontal and vertical
relationships with the value chain, and investment in core value chain operations as well as
needed services and inputs. The legal system allows new entrants into business to setup
businesses in different options. Depending on the resources, there are incentives for investors to
start up their business. New businesses required to have certification of competency to get trade
license for certain business. The entry of private firms in the formal milk-market is a significant
development indicating the profitability and potential of private investment in the dairy sector in
Ethiopia and that the policy environment is facilitating such entry.
2.2 Marketing Strategies
The company dealing with community, super market and other agricultural offices for
facilitating the distribution of the products of the project i.e. milk, yoghurt, cheese, butter.
Milk is directly sold to local peoples, hotels and cafes, super markets and shops those need to
distribute them to the community. The p r o d u c t s will be supplied to the local communities
living in Ambo town. Besides there are NGOs who need to enhance the capabilities of the small
holders by facilitating the supply of the good milk cow’s variety to them. Therefore, the
company communicates with them to raise the demand for the product. In order to achieve the
target, the promoter has developed appropriate marketing strategies to generate the sales from the
target market. There are four factors to be considered which are as follows;
Product
The farm will be operated by the skilled man power to ensure that always satisfy its customers
demand. The feedback will be acquired from the customers to adjust the next production.
Pricing
The price of the products depends on the market condition and the company delivers its products
at reasonable price to its customer. The company based on competition based pricing strategy.
Now the prevailing price of milk is between 20-24 Birr per Littre, the company planned to start
selling Milk at birr. 20 birr/ Littre and to increase it by 10% over the next years. Furthermore, the
price of cheese yoghurt and butter is 100Br/kg, 15Br in a bottle, and 280Br/kg respectively.

Establishing ABC Milk Production Company Page 5

Table
Items Price/unit
Milk 20/Littre
Cheese 100/kg
Yoghurt 15
Butter 280/kg
Place/Distribution
The chosen site for the project implementation is Addis Ababa town and the distribution will be
confined in the town for the time being until the capacity is grown to send the product to central
market area of the country Addis Ababa and export the products by processing which is planned
to be undertaken in the second phase of project implementation. Distribution is made through the
super market and at in farm gate of the project as deemed necessary.
Promotion
An impressive promotion is needed to ensure the missions of the company to be achieved. The
promotion will be made by using Posters and public relation by sponsoring bathers and
participating in it. As the need arise home to home selling may follows. Besides, business card
will be distributed to the potential customer.

2.3 Plant Capacity and Production Programmed

Plant Capacity
The milk processing plant to be established will have a capacity of 120,000 liters of pasteurized
milk producing at full operation capacity.
Production programed

As it is stated in market study, currently there is a huge market gap in the processed milk
production. Based on the market study and investment requirement, the envisaged plant is
expected to produce 400 liter milk/day. So the installed plant capacity will produce 120,000 liter
milk assuming a total of 300 days in a year (400/day*300 days = 120,000 liter milk).

Assuming the plat capacity is increased at 50% in the second year, 70% in the third and 90% in
the fourth year considering the time necessary for market penetration and production skill
development. As the processing of raw milk facilitates alternative products like butter and cheese

Establishing ABC Milk Production Company Page 6

as well as other milk products the production programmer are not produce in the next four year.
The processed milk production programmers are shown in Table 2.

Table 2 Production Programmer

Years Capacity utilization (%) Yearly contribution units Total price/birr total
100% capacity
Total unit Cost
Year 1 - 400*300 120,000*4.00 480,000
Year 2 70% 120,000*50% 84,000*4.00 336,000
Year 3 80% 120,000*70% 96,000*4.00 384,000
Year 4 90% 120,000*90% 108,000*4.00 432,000

3 Process design
The major components of milk are water, fat, protein, carbohydrate (lactose), and minerals (ash).
However, there are numerous other highly important micronutrients such as vitamins, essential
amino acids, and trace minerals. Indeed, more than 250 chemical compounds have been
identified in milk.
Milk is the most important raw material for Hoch land: There’s no cheese without milk. And
there’s no milk without cows.
Consumers and customers are increasingly asking critical questions about sustainable milk
production. They are not just concerned with the quality of the milk and dairy products they
consume, but they also want to know under which conditions the animals live that supply the
valuable raw material for our products.
In this potential area of conflict, every milk producer and every dairy company has to find their
way facing the expectations of customers and consumers, the demands of the market and the
essential of safeguarding the future of farms and companies. Sometimes it seems almost
impossible to bring all wishes and ideas under one roof.
Despite all discrepancy, it is important for us at Hoch land to recognize opportunities and to
seize them, together with our milk producers. Find out here which steps we have already gone on
this path: Cream, buttermilk, milk powder, yoghurt, cheese, butter and other dairy products all
start out as raw milk. In Australia, most raw milk collected from cows is pasteurized, meaning it
is heat treated to kill off any unwanted microbes. From there, depending on whether milk stays
as milk or is made into another dairy product it can undergo a range of processing steps to

Establishing ABC Milk Production Company Page 7

become the final dairy product. There is also variation between types of the same dairy product.
For example, a soft cheese undergoes less processing and ageing than a hard, vintage cheese.
Blue cheeses have edible molds added to give them their distinct blue veins and taste. Yoghurts
can vary in process depending on whether or not they are pot set. On dry basis, raw whole milk
contains 29.36% fat, 26.98% protein (22.22% casein, 4.76% whey proteins), 38.1% lactose, and
5.56% ash. The composition of non-fat solids of skim milk is: 52.15% lactose, 38.71% protein
(31.18% casein, 7.53% whey protein), 1.08% fat, and 8.06% ash.
The principal raw material required for the production of pasteurized milk, butter, cheese and
cream is raw milk. In addition, small quantities of coagulation enzymes and salt are also required
for the production process. The raw (whole) cow milk and salt are available locally while the
coagulation enzymes have to be imported. The auxiliary materials required for the envisaged
plant comprise packing materials like plastic bags, glycine paper and carton box. The plastic
bags and carton boxes can be acquired from the local market while the glycine paper has to be
imported.
3.1 Production Process
The milk will be taken directly from the milking collection center to a cooling tank for temporary
storage and processed immediately. After cream separation process, the milk is filtered and
sealed with plastic bags or bottled and distributed to the market. Pasteurized milk would be
packed into 500 milliliter plastic containers, so two plastic containers would be used to package
one liter of pasteurized milk. Cheese and butter would be packed into 250 and 500gram paper
packages. Whole milk is partially or totally separated to produce standardized whole milk with
3% milk fat. After separation, cream is held in stainless steel tanks and refrigerated at (4oC).
3.2 Location and Environmental Analysis
The environmental analysis deals with current prevailing in the environment in which ABC Milk
production PLC will be located in around Dire Dawa city. If our project is implemented in this
area no doubt about the marketability of the product as the situational analysis in the market
planning reveals. The row material availability is no doubt could be obtained without any
significant difficulties.
3.3 Customers
Customers in Dire Dawa city area are not that much loyal to a specific brand in the current
market. Therefore, customers will have a lesser (lowest) switching costs.

Establishing ABC Milk Production Company Page 8

3.4 Competitors
The main competitors of the ABC Milk production PLC’s are Shola, Mama and Mamet milk
production PLCs’. However, those companies are not in a position to satisfy the quantity
demanded by the market in Dire Dawa city.
3.5 Suppliers
ABC Milk production PLC main milk suppliers are those how are cattle feed at a reasonable cost
prevailing in the market consistently as the company requires.
3.6 Infrastructural Facilities for Raw Material and Utilities
Raw Material
The principal raw material is milk. The extent of milk procurement area, milk animal population,
average milk yield, percentage of animals in milk, marketed surplus etc. will determine the size
of the plant. The method of procurement, transportation of milk and input supply to the farmers
is required to be highlighted. The availability of other inputs such as packing materials,
disinfectants and consumables should be ascertained.
Utilities
Power: Normally a three phase electricity supply is required for milk processing plants. The
power requirement depends upon the load to be connected and the necessary approval from SEB
should be obtained for connection. Depending upon the position of power supply, standby
generators may be considered for connecting the essential sections.
Water: A milk processing plant requires the water in the ratio of 2:1 (2 liters of water for 1 liter
of milk processed) for cleaning of equipment’s; cold storage and drinking purposes (source of
water supply, quantity available and suitability for the purpose has to be mentioned).
Accordingly, the size of the well is required to be designed and depends on the quality of water,
the water softening plant may be considered.
Steam: The steam requirement (kg/hr) depends upon the processes involved and the source of
steam may be met by coal/oil/gas fired / electric boiler.
Fuel: The fuel is need for various processing operations. The type of fuel will depend upon the
type of boiler used for steam generation. It is therefore necessary to assess the requirement of
LDO/coal/gas and also ascertain the easy availability before purchase of boiler.
Vehicles: The vehicles required for procurement and distribution of milk depends on the
quantity of milk to be handled. The number of vehicles required, source of supply, rental charges
etc. need to be furnished. Depending upon the need, the requirement of vehicles may be

Establishing ABC Milk Production Company Page 9

considered in the project cost. Generally, insulated vehicles will be required to transport chilled
milk and reefer vans for transport of finished products like ice cream, cheese, etc.
Other Services: A maintenance workshop is an integral part of milk processing for carrying out
repairs and maintenance of equipment.
3.7 Technology
Description

Processing of raw milk mainly involves heat treatment operation usually known as pasteurization
and sterilization. These processes are discussed in detail as follows.

A weighed amount of raw milk is pumped to a clarifier by means of the milk pump, where it is
removed of microscopic impurities. Clarified milk is next sent to the cooler where it is cooled to
about 2-5oC, then pumped to the storage tank.

The milk is, then, preheated and pasteurized to a temperature of about 80oC by heat exchange.
Further, by the effect of ultra-high temperature sterilizer, the fatty ingredients are homogenized
in the homogenizer and recycled to the ultra-high temperature sterilizer where it is pasteurized
instantly in about 2 seconds at high temperature of 135oC.

Finally, cooling is achieved by means of chilled water to lower the temperature to 3oC, after
which the milk is stored in the surge tank for filling into suitable containers for various uses.
After such a process, a specified quantity of the milk is sold as a pasteurized product while the
remaining portion is further processed in the plant for the production of other milk products such
as butter and cheese. The details of the production processes are stated as follows.

Source of Technology

Machinery and equipment for Milk, Butter and Cheese processing plant can be acquire from
domestic market that can be made within a country or outside.

The main Domestic suppliers of machinery and equipment required can be supplied by Ethiopia
Iron industry, small enterprise unions and importers.
Engineering
Machinery and Equipment

Establishing ABC Milk Production Company Page 10

The list of required machinery and equipment is indicated in Table 3. The total cost of machinery
and equipment is estimated at Birr 1,120,000.
Table 3. Required machinery and Equipment

No. Item Qty

1. Weighing tank 1
2. Receiving tank 1
3. Milk clarifier 1
4. Milk pump 1
5. Plate cooler 1
6. Storage tank 1
7. Milk pump 1
8. Pasteurizer 1
9. Surge tank 1
10. Filling and packing machine 1
11. Boiler 1
12. Chiller 1
13. Churning equipment 1
14. Hopper 1
15. Power facilities 1
16. Sterilizer 1
Proposed Location
As indicated in the market study, the major consumers of milk and milk products are the urban
population of Addis Ababa and other neighboring towns. And also the major raw material, milk
is available in the rural areas of Dire Dawa city. Thus, the plant is proposed to be established in
Dire Dawa city.

4 Organizational Structure and Human Resources

4.1 Main Organizational Structure

General Manager

Supply and Research and

Promotion Development
Division Division

Production Marketing Human Finance and

Department department Resource Procurement
Establishing ABC Milk Production Company Department Page 11
Department
 ABC Milk production PLC organizational structure is composed of one General Manager
who is responsible for to make critical decisions in the company such as increasing
production capacity, acquiring a new plant and machinery. The Production Department is
responsible to the production quality and quantities. The Marketing Department is
responsible to distributed the product, price and as the like. The Human Resource
Department is responsible to training, recruitment and preparing rule and directives. The
Finance and Procurement Department is responsible to control financial flow, facilitate
finance and make financial reports. The Research and Development Division is responsible
to conducting researches about related to innovating new type of milk products, market
situation and market competitors. The Supply and Promotion Division is responsible to
finding new Milk product supplier, introducing the existing and new milk products of the
company.
4.2 Job design
Total number of manpower required is 21 persons. Details of the manpower requirement and the
corresponding annual labour cost including fringe benefits are shown in Table 6.1. The total
annual cost of man power is estimated at Birr 138,600.

Table 4 Manpower Requirement and Annual Labor Cost

Sr. No. of Salary, Birr
No. Description Persons Monthly Annually
1. Manager 1 1,500 18,000
2. Accountant 1 1,200 14,400
3. Cashier 1 450 5,400
3. Secretary 1 600 7,200
4. Storekeeper 1 600 7,200
5. Salesperson/Purchaser 1 600 7,200
6. Cleaner and Messenger 2 500 12,000
7. Guards 2 500 12,000
8. Production Head 1 1,200 14,400
9. Chemist 1 900 10,800

Establishing ABC Milk Production Company Page 12

10. Operator technicians 1 1,300 15,600
11. Assistant Operators 1 1200 14,400
Total - 10,500 138,600
5 Business plan
5.1 Capital Cost of Project
Broadly the capital cost includes the cost of land, development of land, fencing, internal roads,
civil works (Plant building, office, quarters etc.), plant and machinery, preliminary and
preoperative expenses, margin money for working capital, etc. The project cost of 1,412,500.
LPD model Component Cost for each
component
1 Land
2 Land and Site Development 155,600
3 Civil Works(building,office) 436,500
4 Plant & Machinery 130,000
5 Misc. Fixed Assets 240,000
6 Vehicles 44,000
7 Preliminary & Pre-Operative Expenses 245,400
8 Contingency @ 5% 101,100
9 Margin For working capital 59,900
Total 1,412,500
Raw and Auxiliary Materials

The basic raw material for milk, butter and cheese production is raw milk. Other materials such
as milk coagulating enzymes and salts are also required in relatively small quantity. In addition
to raw materials, auxiliary materials like containers and glycine papers are required.

Except glycine paper and coagulating enzymes, the other major raw materials can be obtained
from the local market. The list and costs of the above mentioned materials are indicated in Table
5. The total cost of raw material is estimated at Birr 313,015.00

Table 5 Raw and Auxiliary Materials Requirements and Cost

No. Description Qty/birr Cost, Birr
Unit cost/birr Local Cost Total

Establishing ABC Milk Production Company Page 13

1. Raw milk, l liter 120,000*1.5 1.50 180,000 180,000
2. Plastic bags (200cc), pcs. 400,000*0.3 0.3 120,000 120,000
3. Glycine paper (40 g), Kg. 21.8 125.00 408.75 2,725
4. Coagulating enzymes, kg 686*15 15.00 1,543.5 10,290
Total - - 301,952.25 313,015

Utilities
The major utilities required by the envisaged project are electric power, water & fuel oil. The
annual requirement of utilities and the corresponding cost is indicated in Table 4.2. The total cost
of utilities is estimated at Birr 20,711.00
Table 6 Annual Requirements of Utilities and Cost (Birr)
No. Utilities Qty. Unit/price Total Cost
1. Electric power, kWh 7,000 0.156 1,092
2. Water, m3 1,222 2.0 2,444
3. Fuel oil, l liter. 5,725 3.00 17,175
Grand Total - - 20,711.00
5.2 Financial Analysis
Milk collection volume and sales
Particulars Year 1 Year 2 Year 3 Year 4ear 5
Purchase Volume
Milk Purchase 2,723,400 3,270,803 3,650,000 3,650,000 3,650,000
Y
Milk Loss 27,234 32,708 36,500 36,500 36,500
Net milk available 2,696,166 3,238,095 3,613,500 3,613,500 3,613,500
Sales Volume
Pasteurized milk 2,426,549 2,914,286 3,252,150 3,252,150 3,252,150
Butter 10,785 12,952 14,454 14,454 14,454
Cheese 21,569 25,905 28,908 28,908 28,908
Cream 15,099 18,133.33 20,236 20,236 20,236
Sales in Birr
Pasteurized milk 53,384,087 64,114,288 71,547,300 1,547,300 1,547,300
Butter 1,941,240 2,331,429 2,601,720 2,601,720 2,601,720

Cheese 1,509,853 1,813,333 2,023,560 2,023,560 2,023,560

Cream 1,207,882 1,450,667 1,618,848 1,618,848 1,618,848

Establishing ABC Milk Production Company Page 14

 Total Sales 58,043,062 69,709,717 77,791,428 7,791,428 7,791,428
Purchase Cost 40,851,000 49,062,051 54,750,000 4,750,000 54,750,000

Total Initial Investment Cost

The total investment cost of the project including working capital is estimated at Birr 2.2 million.
The major breakdown of the total initial investment cost is shown in Table 7.1.
No. Cost Items Total Cost/birr No. Cost Items
1. Land lease value 4,890.00 1. Land lease value
2. Building and Civil Work 150,000.00 2. Building and Civil Work
3. Plant Machinery and Equipment 1,120,000.00 3. Plant Machinery and Equipment
4. Office Furniture and Equipment 150,000.00 4. Office Furniture and Equipment
Production Cost
The annual production cost at full operation capacity is estimated at Birr 2.343 million (see Table
7). The material and utility cost accounts for 14.35 per cent of production cost.
Table 7Annual Production Cost at Full Capacity ('000 Birr)
Items Cost % Items Cost
Raw Material and Inputs 313,015.00 24.46 Raw Material and Inputs 313,015.00
Utilities 20,711.00 1.62 Utilities 20,711.00
Labor direct 138,600.00 10.83 Labor direct 138,600.00
Loan Amortization
ABC milk production PLC used finance sources from total initial investment of about 45% loan
which means birr 990,000 from commercial bank of Ethiopia at 10% of interest rate and agree to
make equal annual end of year payment over (4) four years.
We calculate: this as follows

PU= R 1  (1  i) 
n

 i 

811250 = R 1  (1  1) 
4

 01 

R = 990,000

3.170

R= 312,302.84

Loan amortization schedule

Establishing ABC Milk Production Company Page 15
End years Loan payment Interest rate (10%) Principal (2-3) End of year balance (4-5)
0 - - - 213,302.84
1 312,302.84 990,000x 10% = 99,000 213,302.84 234,633.12
2 312,302.84 776,697.16x10% = 77,669.72 234,633.12 258,096.44
3 312,302.84 542,064.04 x 10% = 54,206.40 258,096.44 283,967.06
4 312,302.84 193,967.60 x 10% = 19,396.76 283,967.06 0
Sales Forecast
Years Yearly sales price/units
Amount of units Unit price Total price/birr
1st years 120,000 liter Birr 14 1,680,000
2nd years 84,000 liter Birr 14 1,176,000
3rd years 96,000 litter Birr 14 1,344,000
4th years 108,000 litter Birr 14 1,512,000
5.3 Financial Evaluation
Profitability
Based pm the income statement to, the project will generate a profit throughout is operation life-
time. Annual net profit after tax will grow, at the end of the project life the accumulated cash
flow amounts to birr 1,105,077.97. So that the income statement and the other indicators of
profitability show that the project is viable.
Ratios
According to the projected income statement, the project will start generating profit in the second
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.
Net present value (NPV)
Net present value (NPV) is defined as the total present (discounted) value of a time series of cash
flows.
It is a standard method for using the time value of money to appraise long term value an
investment or project dire dawa city to the capital invested. Generally, a project is accepted if the
NPV is positive or on-negative.
Accordingly, the NPV of the project 12% discount rate is found to be 1.5 thousands then, the
project is acceptable.
NPV of the Project
Year Cash flow PV of Br @ 12% Total PV

Establishing ABC Milk Production Company Page 16

0 (2,200,000) 1.00 (2,200,000)
1 463,204.94 0.8929 413,595.69
2 685,410.51 0.7972 546,409.26
3 974,091.01 0.7118 693,357.98
4 1,105,077.97 0.6355 702,277.05
Total PV 6,392,248.50
Initial investment (2,200,000)
NPV 155,639.98
Monitoring and controlling for risk handling
Communication between stockholders, workers and other external parts that play significant role
in the project can be take place for improve quality in supply as well as in acquisition of inputs.
Controlling in each stage of the project helps in assuring the gap in implementation. At the time
of project implementation risk may be arise, therefore monitoring and controlling will minimize
the risks that will hamper the project.

6 Implementation Scheduling
Generally, it takes about 2 to 4 months period for getting the DPR, obtaining loan sanctions,
approval of plans, finalizing the suppliers and construction of various civil structures and
installation of plant and machinery. Hence, during first year of operations, only six months of
milk procurement can be assumed. Proper planning needs to be done so as to take up various
activities without any break. The activity wise schedule of implementation is to be given in the
project. The major activities to be undertaking on this project are building and construction
acquisition of vehicles, purchase of cows, Taking care for cows, marketing and the like.

7 Summary
The general project idea will be economically feasible as it was shown in the previous parts of
the feasibility studies. The technical, market and demand analysis estimated based on our
estimation and current prevailing situations and facts gathered from the people around Dire
Dawa city area suppliers and central statistics agency websites. The requirements of raw
materials in the technical analysis part are inclusive of a certain amount of safety margins in case
there are fluctuations in the market.

Establishing ABC Milk Production Company Page 17

From the above constraints mentioned, however; we are confident that the proposed project is
profitable and will maximize the wealth of the firms, if implemented at the appropriate and right
time. There are qualitative factors, which support this argument. First, Ethiopia is an agro-
economic based leads industrialization country. Second, the experience of existing firms in the
industry shows the profitability of the sector and its yet unexploited opportunities. Third, the
supports from Government in the form of incentive and tax relief is technical supports are
encouraged to start the investment decision as will. Finally, our project contribute job
opportunities and other related advantages to those who are working in our company as a
permanent and wage workers, farmers and increase the GDP of the countries.
The project shall further generate an indirect employment around the farm site and its neighbor
loads. The effect of additional income earned and spent by the beneficiaries would create
corresponding employment in other sectors supplying the goods and services on which the
income is spent. The establishment of this project will result to enhancement of domestic food
security, employment opportunity, contribute to national GDP and also enables technology
transfer.

Establishing ABC Milk Production Company Page 18

 References

 Harvey Maylor, project management, 4th ed., 1992, prentice hall Inc.
 Karpagam M. (1999).Environmental Economics. Sterling publishing private limited, New
Delhi
 Keown, Scott, Martin, and Petty (1996).Basic Financial management, 7th ed, prentice-
Hall, INC
 Prasanna Chandra (2002), project, analysis, financing, implementation, and review, 5th
ed. McGraw-Hill, New Delhi
 R.G. Ghattas and Sandra L, McKee (2010).practical project management, activities and
test items file. Prentice Hall, New Jersey, USA
 UNIDO (1972), Guideline for project evaluation, New York

Establishing ABC Milk Production Company Page 19