I.

SUMMARY SHEET
1.1. Process Owner: Ato Getachew Mengistu (Central Region Manager)

1.2. Appraisal Team: I

1.3. Team Leader: W/ro Genet Yirgu (Principal Appraisal Officer)

1.4. Name of the Applicant: Zifo Agritech PLC

1.5. Objective of the Project: To engage in the development of coffee plantation project to produce
coffee using improved seeds & modern production technology, process and export high
quality coffee beans thus making a profitable business venture.
1.6. Purpose of the Loan requested: To cover the partial cost of f/Asset inv & W/Capital
1.7. Status of the Project: New

1.8. Marketing Strategy of the Project:

The company intends to export the clean coffee beans to the international markets directly. There is
a good demand for high quality green coffee in the USA, Japan and other important coffee markets.
The company has created a web site and started promoting its product. It is also possible that the
clean coffee beans can be exported on auction market through ECX (Ethiopian commodity
exchange).
1.9. Appropriateness of the project Building & construction and Technology of machineries:

The buildings & civil structure documents, the proforma invoices of machineries & equipments are
evaluated & verified for their appropriateness of the technology & relevance to the project by the
bank’s civil and mechanical engineers.
1.10. Management Capacity and Availability of key skilled labor

The company’s General Manager, Mr. Roy Pudhiyathanda has a Msc degree in Botany and 19 years
of relevant experience in the same line of business and this will enabled him fit to run the company
under consideration. The company has also planned to hire other qualified technical staffs since
Coffee production activities need experience and qualification of the management. Agronomist are
recommended to work on the system to improve coffee productivity through applying good and
modernized agricultural practice integrated with research thus the company must recruit an agronomist
farm Manager. So based on the experience gained from the different positions on the same line of
business of the general manager with the would be recruited technical & functional departments with
qualified personnel will enabled the company to run the production and marketing process.

1
 1.11 The Project’s Initial Investment
Description Amount Percentage
Total Initial Fixed Investment Costs 15,262,833 94.96 %
Pre-prodn capital expenditure & pre prod interest 382,856 2.38 %
Working Capital 426,781 2.66 %
Total 16,072,470 100%

1.12 Source of Finance

Description Amount D/E Ratio
Debt -DBE Loan 10,198,858 63%
Equity 5,873,612 37%
Total 16,072,470 100%

1.13 Expected Financial Results

Description Project Years
1 2 3 4 5 6 7 8 9 10
Gross Sales
2412000
Revenue - - 3375000 10800000 17688000 20100000 24120000 24120000 24120000
0

Profit (Loss)
7,039,46
2,829,304) (4,349,331) (2,695,995) (191,978) 2,439,969 4,019,029 6,673,587 6,795,545 6,917,503
1
Cumulative
(767,1 (2,285,26 (2,351,7 (1,569,877 1,523,9 5,594,78 11,749,10 24,551,43 33,14
Cash Balance 42) 0) 11) ) 20 9 4 18,101,485 2 8,660

FIRR before 22 %
Tax
FIRR after 18 %
Tax

1.14 Sensitivity

Description IRR Before Tax IRR After Tax

When Revenue decreased By 10% 18% 14%
When Operating Costs increased By 10% 19% 16%

1.15 Risk Class

Based on the risk matrix information in the due diligence report of the Branch, the Company is rated
to fall at a very low risk class. However, since it is an agricultural project, which is complex in nature
involving various manual operations, & bound with natural conditions, it can be considered as a risky
project. The risk can be mitigated with the good attention of the management.

Page 2
II. BACKGROUND INFORMATION

2.1 The Applicant / The project Promoter

Name: Zifo Agritech PLC
Address: Company Office
Region: Addis Ababa Sub-city (Zone): Bole …Woreda (Kebele) : 02
House No.: Friendship building, Room No: 701/1
Telephone (Office.): 0116-18 95 29
Cell phone No.:- +251 920 56 95 09 and/or +251 911 50 72 77
Fax: -… E-mail: - senthil@zifoagricom
Nationality: company registered in Ethiopia
2.2 Legal form of ownership of the business:- Private limited company
Date Establishment:- 08/05/2004E.C./17/01/2012G.C.
2.3 Certificates & Business Licenses
2.3.1 Investment Certificate/ Licenses
Investment License Number:- EIA-IP/021168/04
Date Investment license Issued;- 08/05/2004 E.C. Or 17/01/2012 G.C
Licensing Agency:- Ethiopian Investment Agency
2.3.2 Trade License/principal Trade Registration Certificate
Trade License No/ Principal registration No: EIA-PC 01/3365/10
Trade Registration Date/Date Principal trade registration certificate Issued: 01/02/2003 E.C
Licensing Agency : Ministry of Trade and Industry
2.3.3 Tax Identification Number (TIN) : 0016167460
Tax payer Registration Certificate No;

2.4 The project

Name – Zifo Agritech PLC ‘s Coffee plantation project
Project Address
Region –Oromiya, Zone – Western Hararghe, Woreda:- Boke,
Kebele: Arba Peasant Association,
Distance :- The project site is located at 70 Kms from Chiro DBE Branch office, 270 Kms
from Dire dawa branch office & 396 Kms from Addis Ababa.

Status of the Project – New – to be established

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 Project Sector Category: Agriculture – plantation crops production
Type of Project: Coffee plantation
Project Objective: The primary objective of the project is to engage in the development of modern
coffee plantation to produce cherry coffee & process to clean coffee beans for export market.
Project’s land holding;- Total area:- 300 Ha
Right of Occupancy of the project Land: - The promoter has acquired the land on lease basis
from Oromiya Regional State, Western Hararghe, Zone, Rural Investment and Land
Administration
Lease period: 35 years
Lease amount or rent fee: The land lease payment per hectare per year is birr 82.83. The total land

lease payment for 300 ha for 35 years amounts to birr 869,715. The down payment, 10% of the total,

amounts to birr 86,971.5 is paid & the remaining amount shall be paid with an annual equal

installments of birr 22,364 over 35 years.

Type of project:- Coffee plantation using improved production technology

Project Objective:- To successfully develop a coffee plantation using improved production

technology and export high quality coffee beans thus making a profitable business venture

2.5 Brief History of the Project Promoter, the Applicant - Zifo Agritech PLC
Zifo Agritech PLC was established as per the Commercial code of Ethiopia in 2004 E.C (2011 G.C) by three
Indian nationals namely Mr. Senthil Kumaran Thangavelu, Mr. Gopal Venkataramanan and Mr.
Bouvanesvarane Sadagobane with a general objective of participating on Agriculture sector and with a
particular objective of participating on developing coffee plantation using the latest cultivation technology
and related with the objective of the Company with a paid up capital of Birr 4,000,000.-
After establishment, Zifo Agritech PLC made decision to involve in developing coffee plantation using the
latest cultivation technology. For its achievement, the Company has selected to locate the project in Oromia
Regional State, Western Hararghe Zone, Boke Woreda, Arba Kebele Peasant Association since coffee has
been grown in this location for many years and the farmers have been harvesting high quality specialty
coffee. The coffee grown in this region is known as “Moka” and has been fetching premium price in the

world market. Accordingly, the company has rented 300ha of land from Western Hararghe Zone
Administration Office on a lease basis for a period of 35 years. The company leased the land in Arba

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Kebele Peasant Association, at 70 Kms from Chiro town, obtained the certificates & licenses from the
relevant government offices required for establishment of the project or the business as per the
commercial code of Ethiopia.
2.6 Capital structure of the project Promoter – Zifo Agritech PLC
As indicated in the minutes of the shareholders meeting dated on November 20,2012, Mr. Bouvanesvarane
Sandagobane joined the company buying shares & the capital was raised from birr 2,000,000 to birr
4,000,000.The details of the company’s capital structure is presented in the table as follows:-
Capital Structure of Zifo Agritech PLC
Sr. No. Name of shareholder No. of Value of a Total paid-up share
Shares single share Capital (Birr)
(par value) Cash Kind

1 Mr. Senthil Kumaran Thangavelu 400 1,000 400,000 -

2 Mr. Gopal Venkataramanan 400 1,000 400,000 -

3 Mr. BouvanesvaraneSandagobane 3,200 1,000 3,200,000 -

Total 4,000 - 4,000,000 -

Capital Adequacy: - The required equity capital contribution to the project is birr 5,873,612 (37%) of
the total project cost. The company’s registered capital of birr 4,000,000 is less by birr 1,873,612.- & not
adequate. Hence, the company’s capital should be raised to fulfill the requirement.

2.7 Credit relationship of the project promoter/the applicant/ with financial Institutions
The NBE’s credit report with Enquiry No. 75588, report generation dated on April 22, 2013, in the credit
report summary table, shows zero balance by the applicant Zifo Agritech PLC, indicating that there is no
record of credit relation with any financial institutions.
As per NBE’s commercial Credit report
Lender Loan Date Exp. Amount Loan Balance as on …….. NBE’s Collateral
Sr. Bank type approve date Approve Undue(outstanding) Arrears (Birr) loan (Guarant
No d d (Birr) (Birr) classifica ee)
PRI INT PRI INT tion

Nil - - - - - - - - - -

2.8 The loan

Page 5
 2.8.1 Loan Requested:- Birr 12,000,000.-,
2.8.2 Loan Proposed: - Birr 10,198,858
Purpose of Loan Amount (Birr)
A. Fixed Asset Investment
1 Land Development cost 827,978
2 Coffee plantation establishment cost 842,439
3 for the purchase of Submersible water pump 336,064
4 for the construction of water reservoir 1,006,250
5 for Importation of Drip irrigation system eqpts 5,080,968
6 for the purchase of Tractor 870,000
7 Wheel trailor for tractor 151,915
8 for the purchase of Generator 300,000
9 purchase of Vehicle, Toyota pickup double cabin 388,800
10 for the purchase of Farm tools 132,400
11 for the purchase of office Equipments 29,294
12 for the purchase of office furniture 34,500
Sub-total F/Asset 10,000,608
B. Working Capital
Direct cost - young coffee maintenance 198,250
Total 10,198,858

2.8.3 Variation Between requested & proposed loan amount:-

The proposed loan is less by birr 1,801,142 than the requested amount

2.8.4 Reason for Variation:- Shown in the table below

Sr Description Requested Proposed Cost variation of Reason for Variation

no Amount amount (birr) the proposed than
(birr) the requested
amount (birr)
1 Fixed Asset - 10,000,608 - Loan based on DBE civil
Investment eng cost revision, BOQ
& on the selected
proforma Invoice
2 Working Capital - 198,250 - Loan based on
estimation of direct &
indirect costs for W/cap
determination
2.1 Total 12,000,000 10,198,858 -1,801,142

III. KEY SUCCESS & RISK FACTORS AND RISK MITIGATING MECHANISMS

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3.1 Key Success Factors (KSF)

3.1.1 Macro level success Factors

3.1.1.1 Favorable investment environment

The government gives due attention to the agricultural sector through its policies and
Strategies such as provision of low cost of lease land, low bank interest rate and low
taxation rate. These provisions initiate investors to invest their capital & create
favorable business environment.
There are vast suitable coffee areas for coffee production; this gives Considerable
opportunities for new private investment in the production of coffee.
The government gives attention through the relevant organs to reduce and suppress
major coffee diseases that affect the productivity of the crop by importing chemicals.
There is an attractive investment and agricultural & industrial policy of the government
 There is Access to land & low cost of rural land available for leasing and efficient investment
service
 There is Secured peace and stability throughout the country
 Govt. provides access to credit at lower interest rate as incentive
 Conducive and stable macro- economic environment
 Govt. provision of different incentives like tax holidays, low Bank interest rates, adequate grace
period, favorable remittance policy etc.
 A continuously increasing GDP Growth which highlights a positive trend of economic growth.
 Progressive improvement in infrastructure mainly transportation, that supports the production
of agricultural output to avail for the market in the preferable quality and quantity.
 Provision of skilled, educated and specialized manpower from Universities, Technical and
Vocational Colleges and institutes.
 Existence of trained and cheap manpower and sufficient availability of daily laborers in the
country.
3.1.1.2 Favorable Climatic Condition
 Suitable agro-ecological conditions, in which Ethiopia is endowed with agro-climatic conditions
that are suitable for the production of temperate, tropical and sub-tropical crops among which
coffee is one.
3.1.1.3 Enhancement of Research and Development

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  The target of research and development is either to advance new technologies or adapt the
existing technologies to its most suitability to the producers and customers.
3.1.1.4 High Demand of Ethiopian Coffee in Domestic & Foreign Market
 The demand for coffee is very high in both domestic & foreign market since Ethiopia is
recognized as the historic birth place and the origin of coffee Arabica, Ethiopia has immense
potential to offer the world market a wide variety of flavors of organically produced washed, and
sun dried coffee. Today coffee consumers worldwide are appreciating the value of organic
coffee’s natural aroma and flavors which have the greatest demand in both domestic and foreign
market. With the right policy environment and investment in the coffee sector, the prospect of
coffee export by Ethiopia is increasing through the great effort of the private sector.

3.1.1.5 Investor Friendly Policies in the Agricultural Sector

The core policy of the Government of Ethiopia, ADLI (Agricultural Development Led Industrialization)
is based on the sector where the country has comparative advantage. According to the strategy,
agricultural sector is not only the sector where the country’s comparative advantage is the greatest, but
also it is engines of growth to incorporate a parallel and co-ordinate development of agriculture and
industry.

The production and processing of coffee crops is being placed by the government in the list of high
priority areas and various incentives have been provided for investors investing in this sub-sector. To
improve coffee productivity various research institute like Jimma Agricultural Research Center have
been established. The institutions are playing a great role in identifying the most production coffee
cultivars that are productive and disease resistant. Moreover, the current emphasis is on the development
of infrastructure and public service in the remote rural areas.

3.1.2 Sector level success Factors

3.1.2.1 Support institutions:- Availability of support institutions for sector development. Ethiopian
Agricultural Research Institute (EARO) works on the sector & also on coffee development projects &
has identified the high yielding & disease resistant varieties through research. Agricultural Research
Institute provides developed and adapted variety of seeds.

3.1.2.2 Farm Labor availability at manageable cost

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In Ethiopia, farm labor is cheap that can be engaged in various agricultural sectors. Different
Government and nongovernmental institution and universities have been training students on agricultural
and other related disciplines which fill the gap on trained man power requirement. Availability of skilled
& un-skilled labor at manageable cost as well as the presence of professionals in the sector in order to
manage the farm is a factor since professional farm management is the key success factor to increase the
farm productivity.

3.1.2.3 The farming sector in the country has a potential to engage investors by availing arable land
in coffee production in various respects.

3.1.2.4 Availability of suitable improved varieties for each ecological zone.

3.1.2.5 Exportability of the product with the support of well known, developed & sustainable
market arrangement such as ECX (Ethiopian commodity exchange).

3.1.3 Firm level success Factors

3.1.3.1 Character of the Applicant:-
The Company is formed by two Indian nationals with 68 % and 33% share in terms of cash and kind to
operate on development of coffee plantation using improved production technology and export high
quality coffee beans. The company is newly established on 08/05/2004 E.C, neither the company nor the
share holders individually had no truck record in credit with any other domestic banks to rate its credit
worthiness. But as the risk measurement matrix of the due diligence report shows that the character of
the applicant is rated 17 on a 20 rating scale. The Applicant is a legal person which is new to borrowing.

3.1.3.2 Capacity (Competence) of the Applicant:-

The company’s General Manager Mr. Roy Pudhiyathanda has a BSc as well as 19 years of relevant
experience in the same line of business and these will enabled him to fit to run the company under
consideration. Moreover, the company has a plan to hire other qualified technical staffs since Coffee
production activities need experience and qualification of the management especially agronomist are
recommended to do on the system to improve coffee productivity through applying good and modernized
agricultural practice integrated with research. Thus the company must recruit an agronomist farm
Manager. So based on the experience gained from the different positions on the same line of business of
the general manager can run the project at its best performance with the support of the would be recruited
an agronomist farm manager & other technical & qualified personnel.

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3.1.3.3 Capital:- The total capital of the Company is Birr 4,000,000.- The owner’s equity contribution
requirement on the project amounts to Birr 5,873,612 in cash to be deposited in blocked account. The
promoter’s registered capital is not adequate to cover his equity contribution requirement to the project.
Therefore, the company needs to raise its equity capital in order to realize this project.

3.1.3.4 Collateral for the Loan: This project is favored with the government policy incentive of holding the
fixed asset on the project as collateral for loans granted to government priority area of investment &
projects.
The total project cost is birr 16,072,470 while the fixed asset investment cost, excluding the pre-
operating & w/capital costs amounts to birr 15,262,833
This amount can be held as first degree collateral by DBE which accounts to149.6 % of
the loan amount. (15,262,833 / 10,198,858 x 100 = 149.6 %)

3.1.3.4 Compliance:- All permits and licenses required for the project have been submitted. The Kind of
business itself also adhere the Government’s laws and regulations. Even in particular case with the
bank’s financing policy; the project is one of the priority areas. Thus, it is possible to say that the
project complies with all national and local laws and regulations as well as the bank’s policies and
procedures.
3.1.3.6 The location of the project site is a firm level success factor. The selected project site or locality is well
known for its suitability for growing of coffee plantation for many years and the farmers have been
harvesting high quality specialty coffee.

3.2 Key risk factors (KRF)

3.2.1 Macro level risk (General risk):
The risk that might be created at macro level regarding government policies is generally
low, since there are several policies and incentives to favor the sector. However, risks that
arise due to
3.2.1.1 Change in climatic condition e.g. drought, snow, wind, erosion and so on will affect

projects which are even supplemented by irrigation.

3.2.1.2 Volatility of coffee price in international market & Lack of Better Price for Ethiopian
Organic Coffee
3.2.1.3 Price escalation of machineries, inputs and spare parts: - In recent years the price of
investment machineries, recurrent inputs and spare parts is consistently increasing. This,
will probably threat establishment as well as operation of the project.

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3.2.2 Sector level Risk Factors
3.2.2.1 Prevalence of disease and pest infestation on coffee plantation

3.2.2.2 Inadequate Infrastructure:- Transpiration facilities in the project area especially at times
of harvesting and processing for large number of labour required is one of the problems.
3.2.2.3 In recent years, the turnover of daily laborer is to be a serious problem in the agricultural
practice. In absence of labor, the major operation of the farm will not be done in
accordance to the scheduled time. This cause for loses of yields during harvesting and
post harvesting time.
3.2.2.4 Lack of Skilled Man Power: - Especially the existence of Agronomist and related
discipline with agricultural knowledge is critical for coffee growing farm in relation to
raising productivity. It may be difficult to easily get professionals working in rural areas
where basic facilities cannot be fulfilled.
3.2.3 Firm Level Risk Factors
3.2.3.1 There is no business firm that operates without any of risk. All the businesses are truly rounded by
various types of risk even if their reacting mechanisms differ from one to the other. Since the company is
new for the international market, it will face market problem during the early age of establishment which
is obvious for the new entrant.
3.2.3.2 The company will also face high competition from both existing local and foreign coffee
exporters to the international market.
3.2.3.3 The actual paid-up capital of the company is very low as compared to the planned total cost
of the project. Therefore the company should raise its paid up capital at least to expected
equity contribution level.

3.3 Risk mitigating Mechanisms for risk factors indicated

3.3.1 Mitigate the risk associated with coffee berry disease, the project will use chemicals to
control the disease & will hire professional farm manager and will co-work with the
agricultural offices for technical support at the project surrounding

3.3.2 To tackle the lack of well co-ordinate marketing system at the sector, the project shall develop
viable marketing strategy by its own directly or through ECX
Establish market relationship with local agents
Implementing dynamic and appropriate marketing strategy in order to dominate its
Competitors and penetrate the market.

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 3.3.3 Using Intensive promotion and advertisement through different media to create brand
awareness.
3.3.4 Conduct operation as per calendar of production to coincide the market high demand.
3.3.5 Preparing contingence plan for risk management
Every business and organization can experience unfavorable incidents that can prevent it from
continuing its normal operation. One of the first contingence planning task to be undertaken is to
prepare a comprehensive list of the potentially serious incident that could affect the normal operation of
the business, a major risk management technique to mitigate the undesirable effects.
3.3.6 Strengthen the connection with research and development to compact both pests and coffee
disease
3.3.7 Gradually decrease dependence on rain fed agriculture through developing & efficient utilization of the
existing irrigation system to mitigate the effect of climatic change.
3.3.8 Enrich soil through manuring and other techniques to compact soil exhaustion that possible reduce
productivity of coffee.
3.3.9 Planning in advance of labor requirement and mobilizing from all concerns avoids the risk of
labor shortage too pick red cherries when they are ready
3.3.10 Volatility of the global coffee market price is a major risk. This can be managed through
producing and exporting specialty coffee. Besides effective international marketing and
promoting is an important risk management tool together with quality control
3.3.13 Raise paid-up capital of the company.

3.4 Analyzing the Business Environment using the SWOT Model

Strength: (Internal Environment)

- The company’s owner General Manager, Mr. Roy Pudhiyathanda has a BSc as well as 19 years of
relevant experience in the same line of business and these will enabled him to fit to run the
company under consideration. Moreover, the company has a plan to hire other qualified technical
staff. Possession of virgin land & fertility of the land of the project area can be a strength point.
Weakness (Internal Environment)
Since the project is new establishment, there may be challenges arising from different angles
of operational & managerial activities.

Opportunity (External environment)

Demand for coffee in domestic and foreign market. High international demand for Ethiopian coffee.
Ethiopian coffee to be seeking for its organic nature and distinctive aroma. Thus, the high demand

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leaves Ethiopia with a great opportunity for international market. High foreign consumer preference of
Ethiopian coffee. Growing demand of Arabica coffee in international market by it good nature of flavor and
aroma and test.
Provision of credit facilities from lending institutions at lower interest rates
 Good government policies and incentives to the agricultural sector
 The increase of disposable income of the people, population growth and
urbanization results in an increasing demand for consumption of coffee.
. Stable political environment, peace and security for both domestic and foreign investor.
. Good government policy towards coffee plantation, processing and marketing.
. Increase in population and consumer demand.
. Favorable climatic condition almost all the year round.
. Favorable access to the export market.
.High foreign consumer preference of Ethiopian coffee.
.Increasing demand for organic products with less environmental impact
Threats ( External Environment)
The prevalence of disease is the main threat to the viability of the project.
. Natural calamity that result in less productivity
. Unhealthy Competition of Exporters at auction
. Rain-fad nature of Ethiopian coffee production system
. World coffee price fluctuation of. The price of coffee in Ethiopia determined by
the world demand and supply of coffee so there may be a fluctuation of price, Infrastructure
inadequacy like road to transport product to market.
. Relatively weak competitive position of developing country suppliers and less response of
developed country for developing country.
. Fluctuating prices and production volume of coffee production.
. Intense competition with existing and new coffee producing countries
. High Standards of Quality (SPS requirement)

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IV. MARKET STUDY
4.1 Global Coffee Market over View
4.1.1 Global Coffee Production

Coffee has tremendous importance for the economies of many developing nations. It is the second most
traded commodity after petroleum. The Unite States Foreign Agriculture Service Office of Global
Market Analysis, reported that global coffee production in 2009/10 end of June was an estimated 127.44
million bags (60Kg/bag), of which 78.67 million bags (62 %) is Arabica coffee while the remaining
48.75 million bags (38%) is Robusta coffee. Of the total produced Coffee about 91.73 million bags are
exported to the global market. Some 20 million people in over 70 countries now work directly in the
Production of coffee.
The United Nations Food and Agriculture Organization (FAO) have calculated that over 11 million
hectares of land around the globe are dedicated to coffee Production. The largest producer and exporter
countries are Brazil, followed by Vietnam Colombia, Indonesia, and Mexico. The coffee exports of
India, Uganda, Ethiopia and Ivory Coast are also significant see the following Figure 5.1.
Arabica and Robusta are the two principal species of coffee harvested today. Some 70% of the world’s
production is the higher-quality Arabica coffee. Roughly 80% of all Arabica Coffee comes from Latin
America, while a similar percentage of all Robusta is grown in Africa and Asia.
Table5.1:- World Coffee Producing By Country for the last Five Years (1000 Bags*)

Year Average
Country Annual
2005/06 2006/07 2007/08 2008/09 2009/10 production
Brazil 36,100 46,700 39,100 51,450 43,500 43,370
Vietnam 16,335 19,500 18,000 18,000 18,350 18,037
Colombia 11,953 12,164 12,515 8,664 12,200 11,499
Indonesia 9,450 8,050 7,300 8,200 7,600 8,120
India 4,617 4,800 4,665 4,375 4,900 4,671
Mexico 4,000 4,200 4,500 4,450 4,500 4,330
Ethiopia 4,000 4,650 4,200 3,700 4,300 4,170
Guatemala 3,605 4,050 3,980 3,700 3,800 3,827
Honduras 3,204 3,500 3,833 3,544 4,000 3,616
Peru 2,420 4,550 3,950 4,025 3,900 3,769
Other Total 21,267 21,401 20,137 19,922 20,393 20,624
Source: - United States Foreign Agricultural Service office of Global Analysis

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 4.1.2 Global Coffee Consumption

The United States is currently the world's largest market for coffee. Annual consumption per capita is
just over 4.2 kg compared with 5 kg on average in Europe. Consumption in Europe varies from around
12 kg per capita per year in the Nordic countries (Finland, Denmark, Iceland, Norway and Sweden) to
around 3 kg in the United Kingdom and most of Eastern Europe. The annual consumption of over 5.81
kg per capita in Brazil is exceptionally high among the over 70 coffee-producing countries. See the
world coffee consumption by person and by Country in the following table (5.2) and table 5.3.
Table 5.2: World coffee per capital Consumption by Person (in 2010 Based on 2008 Data)
Per Capital Per Capital Per Capital
consumption consumption consumption
of Coffee of Coffee of Coffee
Country (Kg) Country (Kg) Country (Kg)
Finland 12.6 Lithuania 4.1 El Salvador 1.9
Norway 9.9 Slovakia 4 Jordan 1.9
Iceland 9 Czech 4 South 1.8
Denmark 8.7 Brunei 4 Colombia 1.8
Netherlands 8.4 Honduras 3.9 Russia 1.7
Sweden 8.2 Costa Rica 3.8 Venezuela 1.6
Switzerland 7.9 Israel 3.8 Saudi Arabia 1.6
Belgium 6.8 New Zealand 3.7 Kuwait 1.6
Luxembourg 6.8 Serbia &Monten 3.5 Albania 1.6
Aruba 6.8 Ireland 3.5 Ukraine 1.4
Canada 6.5 Algeria 3.5 Madagascar 1.4
Germany 6.4 Latvia 3.4 Laos 1.4
Austria 6.1 Gibraltar 3.4 Armenia 1.4
Bosnia & erzego 6.2 Japan 3.3 Guatemala 1.3
Italy 5.9 Bermuda 3.3 Ethiopia 1.3
Slovenia 5.8 Netherlands 3.2 Georgia 1.3
Brazil 5.81 Hungary 3.1 Panama 1.2
Greece 5.5 Australia 3 Mexico 1.2
France 5.4 Bulgaria 2.9 Cuba 1.2
Croatia 5.1 United Kingdom 2.8 Cape Verde 1.2
Cyprus 4.9 Poland 2.4 Hong Kong 1.1
Lebanon 4.8 Romania 2.3 Tunisia 1.1
Spain 4.5 Malta 2.3 Gambia 1.1
Dominican Republic
Estonia 4.5 2.3 Cote d’voire 1
Portugal 4.3 Qatar 2.2 Argentina 1
United States 4.2 Haiti 2.1 Solomon Island 1
Macedonia 4.2 Nicaragua 2 Oman 1

Source: International Coffee Organization, ICO; P&A International Marketing, Brazil; and
ITC/UN's Coffee Guide, www.thecoffeeguide.org.

 Coffee is roasted and soluble coffee based on green coffee beans (Arabica and Robusta).

Page 15
  1 kg of roasted coffee requires 1.19 kg of green coffee beans.
 These data reflect average consumption for 2006 and 2007 (2005 & 2006 in a few cases)
 Territories with populations below 0.5 million are not listed here although several of them have a
high consumption per capita.
 The Rest of the world registered per capital consumption of coffee less than 1 kg
 The Rest of the world registered per capital consumption of coffee less than 1 kg per year.
Table 5.3: Top Ten Coffee and Coffee Product Consumers by Country (2010)

Amount of Coffee consumed

Sr. No Country
(Kilogram/person)
1 USA 21.7
2 Brazil 17.5
3 Germany 9.5
4 Japan 7.1
5 Italy 5.9
6 France 5.2
7 Russian Federation 3.7
8 Spain 3.5
9 Indonesia 3.3
10 Canada 3.2
Source: International Coffee organization (ICO)

4.1.3 Coffee Importer

Importers purchase green coffee almost exclusively from established exporters and large estate owners in
producing countries; in some cases, mostly in the specialty coffee segment, importers buy directly from
small farmer cooperatives. In the United States, most green coffee is supplied to the industry by
importers, although some medium and large roasters also import a portion of their supplies directly.
According to the Specialty Coffee Association of America (SCAA), there are roughly 100 coffee
importers in the United States today. Half of these importers began operations in the past 10 years,
reflecting the rapid growth of the specialty industry as a whole. These importers supply green coffee for
more than 1,200 roasters around the country, the majority of which are micro roasters (roasting
500bags/year or less). Many importers specialize by geographic region and product quality. Similarly,
most roasters are regionally focused, while others specialize in certain types of coffee (e.g., countries of
origin, flavored coffees, organic, etc.).Importers provide a crucial service to their customers who do not
have the financial resources to source quality green coffee directly from around the world. Most roasters
are small and do not have sufficient financing to buy entire container-loads (250 bags, 132 pounds per
bag) of coffee directly from source. Rather, they tend to make small, frequent purchases (5-10bags/week)
of a variety of different country coffees from their importer. Importers bring in container loads and hold
inventory, selling gradually through numerous small orders. Since many roasters rely on these services,
importers wield a great deal of influence over the types of green coffee that are sold in the US. Some

Page 16
have characterized the importers as occupying a “lookout” position in the industry, being knowledgeable
futures traders and having first-hand information of diverse coffee-growing areas as well as continuous
feedback of market trends from all their roaster clients. For this reason, roasters often look to the
importers as a source of information, advice and leadership. In general, importers play a dual role by
providing green coffee origins that are specifically requested by roasters, while at the same time actively
influencing the source selection decisions of roasters through marketing and sales efforts.
4.2 Coffee Production and Market in Ethiopia
Both the domestic and the world coffee market has changed dramatically in the last two decades.
Changes in the international policy environment, new arrangements in supply and demand, technological
changes and/or the asymmetrical character of power in the ‘coffee value chain’, have increasingly
narrowed the opportunities for vulnerable economies to secure the benefits from coffee trade needed for
economic development and poverty reduction.
4.2.1 Coffee Production in Ethiopia
Being the center of origin and diversification of coffee, Coffee Arabica, Ethiopia possesses diverse
genetic resources of the crop. This is partly due to the diversity of traditional coffee production systems
employed by the Ethiopian farmers for over 2000 years. Coffee production systems in Ethiopia can be
grouped into four broad categories as: forest coffee, semi-forest coffee, garden coffee and plantations
coffee. The first three are traditional production systems by small-scale subsistent farmers. The three
traditional systems, that is., forest (Bale, West Wollega, Bench Maji, Keficho-Shekicho, Metu and
Jimma Zone), semi-forest (South and South-Western) and garden (Southern & Eastern parts Sidamo,
Godeo, South and North Omo, East and West Harage, Wollega and Gurage Zones) coffee production
systems account for 5-6%, 20%, and 68-69% of the total coffee production in Ethiopia respectively,
summing up to 95% of the national produce the remaining percentage produced by plantation. A large
diversity of coffee germplasm is maintained in farm gene pools in Ethiopia. Around 130 coffee landraces
are cultivated by farmers, of which 55 are from coffee growing regions east of the Great Rift Valley
while 75 are from the western part. Through the Ethiopian National Coffee Collection Program, more
than 600 coffee types were collected and documented. More than 4500 accessions of coffee collected
from the main coffee growing regions in Ethiopia are held in the Chochie field gene bank. The
maintenance of coffee genetic diversity in the traditional production systems is affected by several socio-

economic problems like increased population, price fluctuation, and other competitive cash crops.
The fate of coffee genetic resources conservation in such traditional systems depends on a mechanism
which guarantees production under economically feasible conditions. A possibility is also to investigate

Page 17
how yield of traditionally used landraces can be improved. Conservation measures and mechanisms to
sustain ably manage the systems are recommended. See the national coffee production of Ethiopia in the
following table 5.4.
Table 5.4 the National Green Coffee Bean (Washed & Unwashed) Production of Ethiopia

Year Amount Produced(Tons) Remark

1999/00 166,080 ICO
2001/02 225,360 ICO
2002/03 221,580 ICO
2003/04 232,440 ICO
2004/05 274,080 ICO
2005/06 240,180 ICO
2006/07 279,000 USAS
2007/08 343,980 USAS
2008/09 222,000 USAS
2009/10 258000 USAS
Average Percentage growth 4.36

Source: - International Coffee Organization (ICO) and United States Foreign Agricultural Service office
of Global Analysis (USAS)

According to the international coffee organization and United States Foreign Agricultural Service office
of Global Analysis report the national green coffee production of Ethiopia growth on an average of
3.66% for the last 30 years. While the national production of green coffee production growth on the
average of 4.36 with some fluctuation for up and down due to the cyclical production nature of the Crop
for the last five years.
4.2.2 Green Coffee Bean Export in Ethiopia
Ethiopia is probably the first and oldest exporter of coffee in the world (International coffee organization
(ICO) 2002). In 2005 it was the sixth largest coffee producer after Brazil, Vietnam, Colombia, Indonesia
and India, and the seventh largest exporter worldwide. It is the largest coffee producer and exporter in
Africa. Exports in 2005 were 2.43 million bags, a share of 2.82 per cent of world trade in coffee beans
(International Coffee Organization (ICO) statistical database).Ethiopia exporter her coffee to about 40
countries, the bulk of current Ethiopian exports go to Japan, Germany and Saudi Arabia. There is a high
degree of dependence on these three markets, which absorbed the largest volume of the coffee Ethiopia
exported to world market. Moreover, exports to Japan, Germany and Saudi Arabia have risen in the last
20 years, while exports to the USA have declined (Federal Democratic Republic of Ethiopia annual
report 2006). The vast majority of coffee is exported in green bean form for roasting in consuming
countries. Although the total share of its coffee exports in world trade is small, Ethiopia plays an

Page 18
important role in the ‘global value chain’ because of the fine quality of its coffees (Daviron and Ponte
2005). Historically coffee accounted for over 50 percent of Ethiopia’s total export revenues. While this
proportion has decline significantly in recent years with a revival in the prices of major Ethiopian exports
in the international market, total coffee export earnings registered substantial growth in 2003/4 and
2004/5 due to increased export volumes. Coffee has also long been an important source of tax revenue to
the government (Love 2002). Agri systems (2001) estimate the number of coffee farmers at 1.3 million.
With an assumed family size of six to seven people, the numbers of Ethiopians associated with coffee
growing can be as large as 7–8 million. Moreover, coffee is labor intensive during harvesting and
processing, and provides an important source of income from casual labor for many poor rural people.
Adding those employed in transporting coffee and auxiliary activities, estimates that 15 million people
are dependent on coffee for at least a significant part of their livelihoods. See coffee export volume of
Ethiopia in the following table 5.5.

Table 5.5:- Coffee Export from Ethiopia (Both Unwashed and Washed Green Arabica Coffee)

Year (G.C) Quantity tons

2001/02 116,354
2002/03 136,614
2003/04 142,423
2004/05 157,197
2005/06 156,417
2006/07 176,390
2007/08 132,000
2008/09 96,000
2009/10 126,000
Average Percentage Growth-
Export 2.89
Source: Ministry of Agriculture and Rural Development Investment Directorate of Ethiopia and United States Foreign
Agricultural Service office of Global Analysis

The average percentage growth of export green coffee of Ethiopia is one of the indicated and area
affected by the Global economic crises starting from 2006, which affect the Export Volume of green
coffee bean of Ethiopia in particular and the Global coffee market at large.

Page 19
 4.2.3 Demand for Green Coffee bean in Ethiopia (Domestic Demand)
Ethiopia is not only the icon of coffee, but it thrives on coffee and people drink coffee regularly in every
part of the country. Coffee is closely associated with the Ethiopian culture. Most people in the country
start their day by taking a cup or two of coffee in the morning. Coffee ceremony, Ethiopia, along with
Brazil is one of the only producing countries with a strong coffee drinking culture. Coffee is not usually
consumed for nutritional benefits. However, many recent studies suggest coffee may have beneficial
health effects, independent of the energy boost offered by caffeine. For example, coffee and caffeine
consumption have been linked to a lower risk of Parkinson’s disease and lower rates of Type 2 diabetes,
gallstone development, and liver cirrhosis. Also, coffee is high in antioxidants. A large proportion of
coffee consumption in Ethiopia occurs on farm, which makes levels of consumption difficult to assess.
According to International coffee Organization (ICO) the per capital consumption of Ethiopia is 1.3 Kg
per person per years (for 1kg of Rousted coffee 1.19kg of green coffee bean is required. See Table 5.3).
This is around 40 % of national coffee Production.
4.2.3.1 Demand Projection ( Domestic consumption)
The current population of Ethiopia according to 2007 population and housing census report is estimated
as 79,835,354 (2.6% annual growth .Central Statistical Authority ).The per capital consumption of coffee
for Ethiopia is 1.3Kg /year (1kg rousted coffee 1.19 kg green coffee bean required). Green coffee beans
consumed by the industry are not considered in this part because, per capital consumption per person was
considered that is end user of the crop. Based on this, the national coffee demand was calculated for the
next 5 years as shown in the following table 5.6.
Table 5.6:- National (Domestic) Demand Projection for green Coffee beans

Years Population of Domestic Coffee Demand

Ethiopia Projection (tons)
2010/11 79,835,354 123,505
2011/12 81,911,074 126,716
2012/13 84,040,761 130,011

2013/14 86,225,821 133,391

2014/15 88,467,693 136,860
Source: Bank’s Research team Calculation

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 Table 5.7: Export Growth of Green Coffee Bean of Ethiopia projection

Year Annual Growth Of green Coffee Bean for Export(Tons)

2010/11 129,641
2011/12 133,388
2012/13 137,243
2013/14 141,209
2014/15 145,290
Source: Bank’s Research team Calculation

This volume shows only the share of Ethiopian coffee in the world market exported but not the capacity,
which is increased more than this volume per annum because of several reasons of Ethiopian coffee
characteristics. The only question frequently asked by the importer is the standard and way for
agricultural practices. Ethiopian coffee Arabica by nature have good variety and test.

4.2.4 Supply of Green Coffee Bean in Ethiopia

Ethiopia produces only Arabica coffee cover 80 percent of which is natural( sun dried). An accurate
estimate of production is difficult because a large proportion of the harvest is gathered from semi forest
and individual farmers plot and a large part of the crop is consumed locally in addition to the week farm
documentation in the country. There is also a difficulty to know the accurate amount of coffee
production in the country being different source indicates different amount of coffee production in the
same indicated years. A production growth rate of green coffee bean according to international coffee
organization and United States Foreign Agricultural Service office of Global Analysis average annual
production increase by 4.36 percent every year for the last 10 years this is keep for the future because of
Ethiopia create new market partnership out of united State like Saudi Arabia, Japan, Denmark, China
(Main land) and South Africa are countries show strong interest to import Ethiopian green Bean coffee.

4.2.4.1 Supply projection of green Coffee Bean in Ethiopia

Based on the past date obtained from different source the supply of green coffee bean is projected in the
following table 5.8.

Page 21
Table5.8:- Projection of the National Green Coffee Bean Production

National Production of green Bean

Year Coffee(Tons)
20091/10 Base year 258,000
2010/11 269,249
2011/12 280,988
2012/13 293,239
2013/14 306,024
2014/15 319,367
2015/16 333,291
2016/17 347,823
2017/18 362,988
2018/19 378,814
2019/20 395,331
Source: Bank’s Research team Calculation

4.2.5 Demand - Supply Gap Analysis

Table 5.13:- Demand- Supply Gap of green Coffee Bean for Domestic Demand (Tons)

Green Coffee Demand Supply of Demand-Supply

Year Domestic Export Green Gap
Demand Growth Coffee Bean (D= (A+B-C))
(A) (B) (C )
2010/11 123,505 140,490 269,249
5,995
2011/12 126,716 156,646 280,988
14,113
2012/13 130,011 174,661 293,239
23,684
2013/14 133,391 194,747 306,024
34,899
2014/15 136,860 217,143 319,367
47,979
2015/16 140,418 242,114 333,291
63,165
2016/17 144,069 269,957 347,823
80,735
2017/18 147,815 301,002 362,988
100,994
2018/19 151,658 335,617 378,814
124,287
2019/20 155,601 374,213 395,331
151,000

As shown in the above table 5.13, the demand-supply gap analysis indicates that demand of green coffee
bean exceeds that of supplies. The export demand is promising with the countries those are currently
have strong interest on Ethiopian green coffee bean in the world market like Japan , South Africa, Saudi
Arabia , Scandinavian Countries, Russian Federation, Algeria, Ukraine, Korea, Republic, Australia

Page 22
Serbia and China. In Addition to this the existing demand of Ethiopian green coffee bean show strong
interest to increase the current volume of Green bean Coffee of Ethiopia this is supported by give a
right to set standard and certificate by Ethiopian Commodity Exchange Authority Starting from June
2010 by itself which is good opportunity fro both Ethiopian Exporter and Producer . This is done before
June 2010 by American institute of Coffee at New York global Market.

Ethiopian Coffee Market Channel

Ethiopia’s annual coffee production is approximately 250,000 metric tons (MT) in year 2008/09, almost
half of which is consumed domestically, often in the culturally rich traditional coffee ceremony. Ethiopia
Ranks seventh in the world and first in Africa. Most coffee is produced by smallholder farmers with 1-2
hectares of land, earning less than a dollar per day. With prices of approximately $1.20 to $1.50 per
pound for washed coffee, the specialty market is an avenue for Ethiopian farmers to significantly
increase their incomes and improve the quality of their lives. Increasing farmer incomes through the
development of smallholder cooperatives linked to markets is the primary objective of Agricultural
Cooperative in Ethiopia (ACE). Since its inception in 1999, the project has transformed over 775
primary cooperatives in the Oromia, Amhara, Tigray and Southern Nations regions from largely
dysfunctional organizations into open, private, democratic associations supplying inputs and marketing
services to their more than 750,000 members. Of the total farmers assisted by ACE, close to 180,000 are
small-scale coffee producers, members of 154 cooperatives federated into four coffee unions: Sidama
(only Coffee produced Region in the Sidama ) , Yegacheffe, Oromia and Kafa.
The present domestic coffee marketing chain from farm gate to export, Marketing participants are
numerous including smallholder coffee farmers or state farms, primary collectors, suppliers processors,
service cooperatives, unions, exporters and various government institutions.
Many participants are required to have specific licenses for their respective functions; for examples
- Collectors have to sell to Suppliers, - Suppliers deliver their coffee to the auction but are not
permitted to export it, and - Exporters are only permitted to buy coffee from the auction centers.
However, since 2001, unions and to a lesser extent private investors have been granted permission to by-
pass coffee auctions, opening the way for direct export sales. On arrival in the Addis Ababa, Dire Dawa
or Jimma Auction centers, all beans are taken to the auction compound where their provenance and
quality is tested on a sample bases by the Coffee and Tea Quality Control and Liquoring unit. Grading
standards are set according to the number of defects and the type of processing.

Page 23
The Main export grades are grade 2 for washed coffee and grade 4 and 5 for unwashed coffee. For
example washed coffee suppliers are usually dominated by Sidamo 2, Limu 2 or Yirgacheffe 2, while the
most common unwashed coffee are Jimma 5, Sidamo 4 or Harar 5. At the auctions, there is an emphases
on keeping consignments from different region separate in order to maintain the distractive flavor of the
different regions. Moreover, compared to most other producing countries that have grading and
classification system by bean size, Ethiopia follows a systems of cup taste profile according to regional
flavors. See figure (5.2).

4.2.5 Market and Marketing Arrangement of Green Coffee Bean

Market and Marketing arrangement of Green Coffee Bean can be classified into
(1) Domestic and (2) Foreign.
The marketing arrangement of current domestic Green coffee bean market can be in two ways one
directly from the producer to the consumer and the second way is after it passes through quality test,
the coffee that does not pass to foreign market, shall enter to domestic market. For foreign market it
passes through quality test after fulfilling the standards and shall go to auction center at Addis Ababa,
Dire Dawa and Jimma auction center which is conducted by Ethiopian Commodity Exchange
Authority. The authority secured both the producer and buyer based on world coffee market. There
are unions that directly export to world market without passing through the auction center.

4.2.6 The setting of Coffee prices

Coffee prices are set according to the New York "C" Contract market. The price of coffee fluctuates
wildly in this speculative economy, generally hovering around $1 per pound. Most coffee is traded by
speculators in New York - they trade approximately 8-10 times the amount of actual coffee produced
each year. The single most influential factor in world coffee prices is the weather in Brazil. Droughts and
frosts portend shortages of coffee and the price increases. Specialty coffee is often imported at a
negotiated price over the C market, which is considered a 'quality premium'. Most of those premiums
never reach the coffee farmer, but rather stay in the hands of the exporter. This creates a disincentive for
farmers to increase their quality, as they do not receive the direct benefits of increased investment in
producing better coffee.

Page 24
 4.3 Global Product Quality Standards of Green Coffee Bean
No mandatory, international quality standards exist. However, members of the International Coffee
Organization (ICO) are requested to conform to the following for green coffee: Fewer than 86 (C.
Arabica) or 150 (C. canephor) defect equivalents per 300 g sample and moisture content between 8–
12.5%. Since not all coffee defects affect quality the same way, each defect type is given a weighted
number value. In all coffee standards, the defect equivalent is the number of total defect points within a
given amount of coffee (ICO Resolution 420). Most countries exporting green coffee establish criteria
based on some or all of the following: number of defects, moisture content, bean size, and bean shape.
Starting from June 20, 2010 Ethiopia got right to set standard for specialty coffee certification to local
specialty coffee exporter from American Coffee quality institute. Previously this institute was the only
entity to give the certificate for specialty coffee export.

4.4 Price of Green Coffee Bean

Coffee prices exhibited high inter year variations from season to season. These variations are a combined
effect of the factors reflecting domestic supply and the periodic trends of the global coffee demand and
supply situations. Also the variation can be seen between different varieties and grades of the coffee also.
Some varieties like the Yergacheffe and Sidama command considerable premium in the International
markets. According to the National Bank of Ethiopia annual report of year 2007/08 the average price of
green coffee bean is depicted in the following table 5.14.

Table 5.14:- Annual average Price of Green Coffee Bean of Ethiopia (In USD per Kg)
Year
Commodity 2005/06 2006/07 2007/08
Coffee 2.4 2.4 3.1
Source: - National Bank of Ethiopia 2007/08 annual report

Page 25
V. TECHNICAL STUDY

5.1 Project Location

The coffee plantation project is located in Oromia Regional State, western Hararghe Zone, Boke woreda,
in Arba Peasant association. Boke woreda is located south west of Asebe teferi (Chiro) town about. The
project is located at a distance of 70 kms from Chiro, 270 km from Dire Dawa town and 396 Kms from
A. Ababa.
Boke woreda consists of 24 peasant associations which Arba P.A is one where the project is located &
one urban kebele named Boke tiko.
The project has a location advantage as western hararghe is very ideal for the development of open
grown coffee. The locality receives rainfall for about seven to eight months in a year as well as the micro
& macro climatic conditions are suitable for coffee plantation.
Boke woreda is known for its coffee production. It used to supply the coffee exporters with a large
quantity of coffee for export. Hence, there was hot economic activity and trade in the area.
Coffee has been grown in Boke area for many years and the farmers have been harvesting high quality
coffee known as “Moka”, which has been fetching premium price in the world market.
5.2 Project Land holding & Utilization
A total land size of 300 Hectares is secured by Zifo Agritech PLC, owner of the project, from Oromiya
Regional State, Western Hararghe, Zone, Rural Investment and Land Administration for the purpose of
establishing Coffee plantation & processing project. The land is owned on a lease basis, with a lease
value of birr 869,715 which extends for 35 years, from year 2004 E.C to 2039 E.C, (2012 to 2047 G.C)
on a lease payment rate of birr 82.83 per Ha.
The company has paid a down payment of birr 86,972.- which is 10% of the total lease amount and the
remaining birr 782,743 shall be paid every year over 35 years on equal installments of Birr 22,364. The
project will have building & constructions with a planned built up area of 757 m2 .
The project land will be used for coffee plantation & processing.
5.3 Physical and Natural Condition of the Project Area
Agro- Ecological Condition for Producing Coffee Plant, Ecological factors (climate and soil) have a
major effect on coffee production because the coffee trees cannot fully grow if required ecological
conditions are not met.
5.3.1 Topography, features/ pattern of the Land :- In Boke woreda, 77 % of the land is plain, 18 %,

valleys and gorges and 5 % of the land constitutes mountainous & hilly areas.

Page 26
5.3.2 Altitude of the Area (above Sea Level ):-

Coffee grows at a wide range of altitudes. Altitudes should be considered along with other climatic
factors and in relation to the distance from the equator and nearness to the sea.

In Ethiopia, coffee grows at various altitudes, ranging from 550-2,750mts above sea level. However, the
bulk of coffee Arabica is produced in the eastern, southern and western parts of the country, which have
altitudes ranging from 1,300 - 1,800M.

Boke Woreda where the project area lies has an altitude ranging between 954mts - 1920 mts above sea
level ranging from low to high altitude. The project area in Arba peasant association has an altitude of
1760masl. This altitude is suitable for growing of coffee plantation.
5.3.3 Climatic Zones : -
Boke woreda falls under two climatic zones. These are woina dega & Kola. The woina dega climatic
zone covers 51 % of the area & the Kola climatic zone covers 49 % of the land
The project area has a warm climate during the dry season between the months of September to May.
5.3.4 Temperature :- the annual temperature of the project area is between 180c & 330c (degrees
centigrade). Agro ecological data is attached with the feasibility study submitted by the applicant– from
National meteorological services agency.
Coffee Arabica grows best in the cool, shady environment of the forests of the Ethiopian highlands. The
ideal temperature for coffee Arabica is considered 15-25ºc. This temperature prevails in the project area
& the surrounding coffee-growing areas. Ecological factors, climate & soil suitability for the production
of coffee can be summarized as follows;
Table 2.2.: Summary of Ecological factors (Climatic Condition & soils) for coffee
Climatic Condition Range of suitability
Unit Highly Suitable Moderately Marginally
Suitable Suitable
Altitude Meter 1300-1800
0
Temperature C 22-25 18-22, 25-28 15-18 , 28-32

Rainfall Mm 1300&above 1100-1300 900-1100

Length of growing period days 240-300 210-240 180-210
Main relative humidity wet % 50-70 70-90 80-90
month.
Main relative humidity dry % 50-40 40-30 30-20
month
SoilDepthReaction Cm 150 100-100
pH 5.3-6.5 4.5-5.2

Source: 1989 MCDT Coffee Area Specialization

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 5.3.5 Rain fall :- the mean annual rainfall of Boke woreda ranges between 880mm – 1200mm
The area receives scattered rainfall for about 7 to 8 months in a year ( a total of about 1,200 mm/
Year). The small rainy season occurs between the months of February to march. The
main (big) rainy season occurs between June to September. Rainfall data is annexed with the feasibility
study.
Annual rainfall in the coffee-growing regions of the country varies from 1,500-2,500mm. Where
precipitation is less, as in the eastern part of the country, which has only 1,000 mm per annum on
average, it is supplemented with irrigation. It is not only the total rainfall which is important for good
production but also its eight-month distribution. Rainfall distribution in the southern and eastern parts of
the country is bimodal distribution( with 2 peaks representing two statistical values that occur with equal
frequency) and in the western part is monomodal (having only one mode, peak). This distribution pattern
enables the country to harvest coffee at different times of the year, ensuring a supply of fresh beans all
year round
5.3.6 Soil: -
The type and texture of soils is sandy clay loom soil, this soil types is favorable for the production of
coffee plantation. - Soil test data is Annexed with the feasibility study.
The soils in the southern and western parts of the coffee-growing regions of Ethiopia are of volcanic
origin, with a high nutrient-holding capacity for clay minerals. The Mesozoic layer, made up of
sandstone and calcium carbonate, is found in the eastern part of the coffee-growing region. All the
coffee-growing regions have fertile, friable, loamy soils, with a depth of at least 1.5m. The topsoil is
dominantly dark-brown or brownish in color, with a PH ranging mostly from 5-6.8 (water extract). One
outstanding characteristic of the soil is that its fertility is maintained by organic recycling, i.e., through
litter fall, pruning and root residue from the perennial, coffee and shade trees. Coffee farmers, who are
the major producers, use organic fertilizers to supplement the natural fertility of the soil.
5.3.7 Vegetation:- Vegetation around the project Area includes Coffee trees, local & indigeneous trees,
shrubs & Bushes.
5.3.8 Disease & Pest Prevalence & control:-
(a) There is CBD, coffee berry disease. These can be tackled by planting CBD resistant varieties & also
using chemical sprays fungicides available on market such as Roba, Daconilk, or Deflotin chemical
treatments.

Common Nursery Diseases and Insects include Damping-Off (collar rot) it causes seeds rot and
disintegrated. The cultural control measure is Preparing of raised seed beds with well dried and sieved
Page 28
jungle soil, compost and sand, Providing of proper drainage system around the seedbed and avoiding of
excessive watering to the seedbeds,

The chemical method of disease control is removing and destroying of the affected seedlings followed by
spraying of bavistin 0.05% (carbendazim 50 WP)-1g/liter or folfaf (captafol 80 WP) o.3% 3.75g/liter if
the disease is noticed if the problem is getting worse. The seedlings can be sprayed with a 0.5% copper
solution (copper oxychloride) to prevent further spread of the disease to the healthy seedlings. Five gm
of the fungicide could be sufficient to cover 1000 seedlings. The application is repeated 3-4 times at
weekly interval until the level of incidence slows down.

(b) Leaf-Eating Pests such as Grass Hopper, Crickets, Wire Worms Hoppers affects coffee plants.

Such a group of insect pests commonly attack coffee seedling by eating leaves. Cricket attack seedling at
night. This insect must be Control by spraying either metacid 50 EC 1 ml/lt of water or ekalur 25 EC
2ml/lt of water manual sprayer (hand sprayer).

5.4 Accessibility of the project Land to Water sources for irrigation & other uses:-
The leased 300 ha of land has no access to a nearby river water source. Water is required for Irrigation,
drinking, hygiene and sanitation. The project requires high amount of water for the plantation & other
uses. The project’s main source of water supply include :-
1. Rain water during the rainy season is the major source & the rain water catchment during the rainy
season, stored in the reservoir & ponds for use during the dry season. It will be supplemented by
borehole from underground in case of shortage of rain & during the dry season of the year.
2. Ground Water: - Borehole -Drilling of deep water well, water will also be sourced from
underground. It is planned to drill a dug water well (bore hole) to be used for irrigation and other
uses. The area needs to have adequate ground water supply in order to rely on it as the project’s
supplementary water supply during the dry season.
Availability of Ground water resource in the area:-
As indicated in the letter from western Haraghe water, mines & enrgy office, it is stated that the
availability of ground water in Arba peasant association is approved by the office based on the ground
water resource potential assessment executed & reported by Beruh consulting engineering & hydro –
Geologist Plc. Hence, the availability of ground water to dig out bore-hole of this resource & to be used
as the project’s water supply is ascertained by the concerned government body. The borehole water
quality shall be tested after drilling.

Page 29
Submersible water pump:- diesel engine which has a head ranging 82mts to 95mts with a capacity of
discharging 90 mt3/hr to 100 mt3 / hr of water shall be installed near the borehole.
Water Reservoir construction:- the water shall be pumped out from the borehole by the diesel engine
submersible water pump and stored in the two reservoirs to be constructed.
5.5 Project Design and Engineering
5.5.1 Building and Civil Works
The projects building & construction include Store, Guard House, Pump Station & Generator House,
Supervisor's Residence, Office, Guest house & Manager's Residence Workshop, tractor shade & Garage.
The revised Estimate for Bldg. & Construction
Area (m2) Existing(Executed Planned Total cost of
No Description value) Birr constRevised Bldg &
Estim (Birr ) Construe (birr)
10.3m x 10.20m= -
1 Store
105.06m2 335,093.34 335,093.34
2 Guard House 3.4m x 3.4m= 11.56m2 - 95,930.83 95,930.83
3 Pump Station & Generator House 10m x 5m= 50m2 - 224,628.57 224,628.57
16.7m x -
4 Supervisor's Residence
10.3m=172.01m2 595,287.71 595,287.71
Office, Guest house & Manager's 20.2m x -
5
Residence 8.2m=165.64m2 707,022.42 707,022.42
10.2m x -
6 Workshop, tractor shade, Garage
5.25m=53.55m2 193,715.08 193,715.08
7 Total 757.82 2,151,678 2,151,678

5.5.2 Plantation Farm Design

The coffee plants shall be placed using standard spacing between plans and between rows in order to
allow proper farm operation.
5.5.3 Machinery and Equipment
The project requires various types of farm machinery and equipments. After evaluation of the submitted
pro forma invoices, the following farm equipments are selected by the Bank’s mechanical engineer. The
appropriate type and quantities of the necessary machinery and equipments are selected accordingly and
are depicted below with their respective values.
Sr.No. Description Quantity Unit Cost Total Cost
1 Irrigation Eqpt - Drip Irrignsystem 1 (Birr)
5080968 (Birr)
5080968
2 Tractor 1 870000 870000
3 Disc Plough 1 115478 115478
4 Farm Tools 1 132400 132400
5 Wheel Trailor 1 151915 151915
6 Generator 1 300000 300000
7 Weighing Scales 1 42550 42550
8 Submersible water pump:- 1 336064 336064

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5.6 Vehicle
Toyota Hilux pickup double cabin will be purchased to be used for transportation purpose.

5.7 Office furniture & Equipments

Office Equipments:- Such as computer, printer & Fax machines will be acquired for the project. The
electric power source for these is the generator.
Office Furniture: - will be acquired for the office at the project site
5.8 Farm structure and Land Development
Since the project site is virgin land, Coffee plantation area needs to be developed. Land development
operation is the main activity & also included in the project’s investment cost.
Land development involves LD heavy duty machines hiring cost, fuel cost for hired machine, tractor operation
fuel & lubricant cost and LD labor operation cost.
5.9 The type of Coffee Species
In Ethiopia, a well known coffee species is coffee Arabica. The agro- ecological requirement to grow
this plant matches with the project area. The type of coffee varieties to be planted is coffee Arabica
which can be sourced from Jimma & other research stations.
5.10 Nursery Establishment & coffee plantation main field preparation
5.10.1 Selection of Nursery Site
The coffee nursery shall be situated in strategic site that enables seedling distribution. The topography of
the project area is mainly flat to gentle slopes & will suit to the criteria of nursery site selection.
5.10.2 Establishment of Nursery for raising of coffee seedlings

The coffee nursery shall be established using polythene tubes method, or seedlings shall be raised in a
poly bag filled with well-prepared mixture nursery soil. This method has advantages such as the root
system is not disturbed or exposed during planting to the field, Seedling establish quickly without any
set-back or planting shock, the seedlings can be kept for longer period of time in the planting field in
case of adverse conditions until weather conditions are favorable.

The spread of soil borne diseases & other pests is prevented since fresh potting mixture is prepared, the
planting operation is easier and quicker.

5.10.3 Seed Sowing and Subsequent Activities - Nursery operation

Coffee seeds with high germination power shall be used. The sowing dates suggested for medium
altitude (1400-1749 masl) is between the months of august to September.

The Sown seed can take six months to reach transplanting size, depending up on mainly the local
temperature & the altitude. i.e Seedlings take over six months from time of sowing until the seedlings

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reach transplanting size. The correct time to sow shall be calculated according to local conditions by
calculating back from the expected transplanting date.

5.10.4 Transplanting of the Seedlings to the main plantation Field

When seedlings reach transplanting size, transplanting operation of the seedlings in the plantation field
takes place. The coffee seedlings shall be transplanted to the main field according to the standard spacing
between plants & raws. Planting out in the field should be done on cloudy days, in June through to
August during the wet season.

5.10.5 Maintenance of Seedlings in the Main plantation field

Following the transplanting of seedlings in the plantation field, all the required cultural practices,
cultivation, weeding, fertilizer & chemical application shall be conducted in the main field. Coffee gives
first production in three years time in low land area and in four year time in high land area of cultivation.
The harvesting season also extends from September to December in low land area and October to
January in high land area.

Table 5.1: Coffee Plantation Activities and Season (Coffee Production operational Calendar)

Activities Season
Seed Germination November –December
Seedling maintenance January -June
Seedling Transplanting June-august
Harvesting September-January - in Low land area
>> Mid October - January in high land area

5.10.6 Coffee Plantation Establishment Operation & cost:-

Coffee Nursery Establishment: involves costs for labor & material inputs

Coffee Nursery Maintenance cost:- involves costs for Nursery labor

Coffee Seedling transplanting to the main plantation Field:- involves costs for farm labor

5.11 Coffee plantation Land size, farm structure and Land Development

The project’s coffee planting operation shall be carried out in three phases. The first phase of planting
operation is on 100 ha of land with the following 2 nd & 3rd years, each 100 ha. Since the project site is
virgin land which has not been cultivated before and requires development, cost for land development is

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included in the project based on the parameters indicated on the commodity study for land development
cost. It is estimated to be Birr 16,560 /ha as shown in the cost breakdown.
The land Plowing Operation & the seedling bed preparation for the main plantation field shall be done
using own tractor.
Coffee is a perennial tree crop. Clean coffee beans are used as a source of propagation material. coffee
seeds can be seeded or sowed in the nursery in plastic bags & shall be transplanted from nursery to the
main field.
5.12 Irrigation System for coffee plantation
For the production of high yields it is necessary to maintain the trees in strong vegetative growth for the
ten months from flowering until six to eight weeks before the flowering for the next season’s crop.
During this period growth and development of vegetative coffee tree is determined mainly by soil
moisture. To keep this condition and to avoid off-season flowering due to untimely dry season, the soil
moisture must be kept fairly enough by irrigation. However, it is not a means of overcoming poor basic
cultures. To be used economically it must be part of good cultural techniques.
There are different systems of irrigation in coffee plantation in large scale production. These are:

a. Gravity Irrigation

Gravity irrigation consists of allowing water to flow through a field from a higher to lower level. The
water can be at a higher ground naturally or pumped up to a reservoir. Water can be flooded or channeled
in furrow. The most common irrigation systems used for coffee plant is to allow the water that comes in
channel to overflow separate or group of basins.

b. Solid-Set Sprinklers

These systems are full coverage systems that apply water to the entire plant and floor. They are well
suited to applications where frost protection in needed.

c. Trickle/drip Irrigation

This type of irrigation most often delivered using a tube that runs the length of the row. With larger
crops, individual emitters (water delivery devices) located at intervals along the tube are often employed
to avoid watering between plants. Trickle systems are more efficient than sprinkler systems because
water is applied directly to the soil, so less water is lost to evaporation. Under typical operating
conditions, trickle systems are about 95% efficient, while sprinkler systems are only about 70% efficient.
Water application efficiency is an important factor when considering irrigation systems, and probably

Page 33
will become more important as access to water becomes more limited. These systems are quite easy to
automate and are often controlled by a timer.

Advantage of Using Trickle/drip Irrigation include, more efficient water usage than sprinkler
systems, Adaptability for fertigation, reduced disease problems because leaves are not wetted, Low
energy requirements because of the low pump pressures required, Low labor requirements and high
degree of automation

The Disadvantage of Using Trickle/drip Irrigation include, This system has blocked emitters, broken
lines and broken connectors caused by machinery operations or freezes, Trickle and drip systems are not
suitable for forest protection, investment and running cost of this system can be high depending on the
amount and quality of dripper line required, the number and types of emitters used, type of water source
and distance from field, power supply used for pumps, level of automation, method of installation, and
labor costs to operate the system.

5.13 Irrigation System for the project – Drip line Irrigation system

The type of irrigation system to be used is the trickle or drip line irrigation in which the water is supplied
to the plants by a plastic water pipe that runs from the source in reservoir & made on the ground near the
roots of the plants & dripping the water on the ground closer to the roots of the plants. This system
makes use of efficient water utilization as discussed above.
5.14 Coffee cropping pattern, plantation area coverage & production plan

Sr. Description Project Years

no 1 2 3 4 5 6 7 8 9 10
1 Planned Coffee Plantation 100 100 - - - - - -
establishment Area (Ha) 68 -

2 Cumulative area covered by coffee 100 200 268 268 268 268 26 268
plantation (Ha) 268 268
8
Coffee red cherry Harvesting
3
Plan - Area (Ha)
Coffee harvest from trees planted 10
3.1 - - 100 100 100 100 100 100 100
in Yr 1 (Ha) 0
Coffee harvest from trees planted 10
3.2 - - - 100 100 100 100 100 100
in Yr 2 (Ha) 0
Coffee harvest from trees planted
3.3 - - - - 68 68 68 68 68 68
in Yr 3 (Ha)
Total Red cherry Harvesting 26
- - 100 200 268 268 268 268 268
Area (Ha) 8

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5.15 Coffee Harvesting and Processing

5.15.1 Coffee Harvesting

Coffee trees begin flowering on the third year after planting. Optimum yield is anticipated on the fourth
year & onwards. Coffee is harvested or picked by hand and involves intensive labor operation during the
picking season between the months of September to January.

5.15.2 Processing of Coffee cherry

Processing is a major activity in coffee production and it is the most critical activity from a quality point
of view. Coffee processing involves a series of stages, each of which has a distinct purpose.

The objectives for each stage should be understood for proper control. Good cherries from the farm may
be spoilt if processing conditions are not properly managed. There are basically two methods of coffee
processing which differ in complexity and quality of the resultant raw coffee and the liquor. These are;
the wet method and the dry method. The wet method gives better quality coffee than the dry method and
it is the one predominantly followed in processing of Arabica coffee. The volume of expected yield
should be assessed & estimated during flowering time.
(A) Wet Method of Coffee Processing
It involves a series of steps, which start from harvesting to curing. The main wet processing activities
include, Selective Picking of mature and fully ripe Cherry, Cherry Sorting to remove the immature,
diseased; pest’s infested and dry berries as well as leaves, pieces of stone, twigs, food grains and other
foreign matter, Pulping which is the mechanical removal of the red outer skin form the cherry to have
parchment coffee, Pre-grading where freshly pulped parchment is graded on the basis of weight and size
by an oscillating sieve and water at constant flow in an Aagard pre-grader machine. Pre-grading sorts out
unpulped berries and skins and directs them to a re-passer pulpier. It also separates parchment in three
categories of quality; parchment 1; parchment 2 and lights. As parchment 1 is conveyed to fermentation
tanks, the other two classes are further processed separately by a re-passer with due care. Then follows
fermentation, Soaking under Water, Final Washing and Grading.

(B) The Dry Method of Coffee Processing

The crop in various stages of ripeness is picked at the same or in different time. The cherry is then dried
from moisture content of about 55 % to 12%. In the course of drying, coffee should not be exposed to
wet conditions to avoid molding and rotting, which adversely affects coffee quality. Before hulling,

Page 35
thorough drying should be ensured in order to avoid musty flavor development. The coffee can be
spread, dried on raised tables or concrete floor, where the ground is bare.

Dry Coffee processing machine is a Hulling machine (Hullery)

In this study, it is considered that the type of processing to be used is the dry processing method, using
rented hullery service from the surrounding area until the project decides to invest on the wet or dry
processing machinery & equipment at the end of the 3rd year, when the plantation matures, flowering of
the coffee trees begin and gradually growing of flowers to green coffee beans & reaches production of
coffee cherry fully. However, this study considers costs of dry processing service in the financial
appraisal.
5.16 Availability of Utilities

5.16.1 Electric power:- is produced by diesel electric generator, offices, residential quarters, shall obtain
electric power from this source. The electric power is required to provide lighting for the farm. There is
no hydro electric power supply to the project in the near future.
5.16.2 Communication devices:- like telephone, internet and fax are among important facilities that are
supposed to be fulfilled for smooth operation of every project.
5.16.3 Fuel oil :- is required to operate a diesel generator for use of producing electricity and also fuel
is needed for vehicles.
5.17 Availability of Infrastructure

Transportation & communication: - There is about 173 Kms of dry season road which joins the rural
parts of boke.
Telecomunication Services:- Boke tiko, the town of boke, boke gudo will nearly get a satellite
telecommunication service.
Postal service :- There is postal service in the town of Boke tiko
Hydro electric power :- the capital town of Boke woreda, Boke tiko, & a village named hirzi are
supplied with hydro electric power.
5.18 Main Actors and Institution:- Ministry of Agriculture and Rural Development (MoARD) (Federal
Level, MoARD at regional, zonal and woreda levels, Ethiopian Institute of Agricultural Research
(EIAR)/ Jimma Research Centre (JRC), Ministry of Finance and Economic Development (MOfed),
Ethiopian commodity exchange(ECX), Cooperative Union, Ethiopian Investment Agency,
Ethiopian Coffee Exporters Association (ECEA) –private organization, Banks.

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5.19 Environmental Impact Assessment

5.19.1 The company has conducted an environmental assessment report. the study has been presented to
the west Hararghe rural land & environmental protection office for evaluation & approval. The office, in
its letter indicated that it has evaluated the environmental impact assessment report and has approved the
implementation of the Zifo agritech plc’s coffee plantation project on the basis of some required pre-
conditions:-
5.19.2 Impact of the coffee plantation Project to the Environment - Positive Impact

The coffee plantation is an environment friendly project. The project will not have wastes that will polute
the environment.
The plantation will help control soil erosion due to rain fall water run-off during the rainy season. The
roots of the plants, can hold the soil. The plantation will absorb carbondioxide & release oxygen to the
environment. The plantation keeps the eco-system, the soil ,the climate, rain fall intact & prevents dry
ness & desertification.
The by- product coffee pulp has a value as a raw material for the preparation of organic fertilizer

5.19.3 Impact of the Environment to the coffee plantation Project

There is no significant problem that the environment in the project area will bring to the project
operation. The climate is favorable for the growth plantation crops. There is no emission or fume in
the project surrounding area that affects the production of coffee plantation.

Page 37
 5.20. ZIFO AGRITECH PLC's Coffee plantation & processing project
Project Implementation Schedule
2013 2014 Yr 3
Sr.
Description Ap Ma Ju Ju Au Se O N De Ja Fe M Ap M J Ju Au Se O N De J Fe M Ap M J
No
r. y n. ly g p ct o c. n. b. ar. r. ay u ly g p ct o c. a b. a r. a u
1 Loan procng, Ln agreement signing
2 Equity blocking & release
3 Borehole Drilling
4 Building & construction
5 Land devt. Cost-Yr 1 (Phase I)
6 Land devt. Cost-Yr 2 (Phase II)
7 Land devt. Cost-Yr 3 (Phase III)
6 1st Disbursement
Constructn of water reservoir
Land devt. Cost-Yr 1 (Phase I)
LC opening for importation of
Submersible water pump30%
Lc opening Irrign Eqpt-DripIrrigsys
Purchase of tractor & implfarm tls
Purchase of Generator
6 2nd Disbursement
6.1 70% pamt importation of pump
6.2 70 % Eqpt-Drip Irrigsystem Yr 1,
6.3 Purchase of Vehicle, office eqpt&
6.4 Nurseryestb,mainte,sedlgtransplant,
Nurseryestb,mainte,sedlgtransplant,Devtcost
Nurseryestb,mainte,sedlgtransplant,Devtcost
7 Arrival of drip system & pump
4 3rd Disbursement
Dircostmaint,young coffee aborYr1
5 Recruitment of manpower

38
Page 39
 VI. ORGANIZATION, MANAGEMENT & MANPOWER REQUIREMENT

6.1 Organization and Management

The typical organizational structure of a coffee farm is composed of the General Manager at the top with
other mangers for the farm, Administration, finance, marketing& marketing that are accountable to the
general manager. There are also sections for the different categories of farm management.
One of the key factors for success of a project is good organizational set-up and management structure.
The organizational set up of the project at hand should be designed to have a functional structure which
establishes effective management system and enhances upward, downward, horizontal and lateral
communications and tasks in the line of order. The typical organizational structure for coffee farm is shown
below.

Typical Organizational Structure of a Coffee Plantation Farm

Manager

Farm Finance Marketing Operational Plan and

& Logistics Administrati &Technical programm
production departme on
dep. dep. ing

General Budget and

accountant cost control Huller section Pulpery section
section

General
Clinics Security Store Service
Unit
farm

Transport Mill House

Source: coffee plantation development enterprise

40
The organizational set up of Zifo agritech plc’s coffee plantation project shall be composed of the owner
general manager Mr. Roy Pudhiyathanda at the top with the farm manager, Administration, finance that
are accountable to the general manager. There are also supervisors & Forman for the farm & irrigation
operation.
The project should be designed to have a functional structure which establishes effective management
system and enhances upward, downward, horizontal and lateral communications and tasks in the line of
order.
Project Management

Coffee production needs a great care and management staring from site selection up to marketing. Coffee
is the major exportable agricultural product. Particularly, in coffee plantation practices, the qualification
and experiences of the management is very important. The management has to be well educated and
experienced in terms of its ability to choose the type of seed of coffee with the right variety; optimum
production area in terms of climatic conditions, soil type, and agronomic practice; especially general
manager and farm manager are recommended to be with agricultural background.

General Manager:-
The company’s General Manager Mr. Roy Pudhiyathanda has a BSc degree in agriculture as well as 19
years of relevant experience in the same line of business and these will enabled him to fit to the position &
to run the company under consideration. Moreover, the company has a plan to hire other qualified technical
staff since Coffee production activities need experience and qualification of the management especially
agronomist are recommended to do on the system to improve coffee productivity through applying good and
modernized agricultural practice integrated with research. Thus the company shall recruit an agronomist
farm Manager. So based on the experience gained from the different positions on the same line of business
of the general manager can run the project at its best performance with the support of the would be
recruited an agronomist farm manager & other technical & qualified personnel.

6.2 Manpower Requirement

6.2.1. Skilled Man Power

Coffee plantation is said to be the most labor intensive agricultural crops. The nursery and plantation
operations like land clearing, tree felling, uprooting, trash removal, disposal, parceling harvesting, sorting
activities need large amount of labor. The pruning workers, mechanical and technical workers which apply

Page 41
on the machine, seedling preparation workers, sprayers (chemicals and fertilizer) quality inspectors, pest
assessors and the like are expected to be skilled in their respective profession.

The remoteness of the project location and unfavorable weather condition as well as the lack of necessary
infrastructure are the main cause for skilled man power not to be interested to work in such areas.

The project requires skilled & unskilled labour. Labour can easily be made available from the surrounding
towns. Man power is an essential factor in the coffee production business. Coffee production is a labor
intensive operation. Unskilled daily labor workers will be employed in the nursery operation & shall be
provided with training to facilitate operational activity of the farm to avoid mismanagement & mishandling.
The required man power with different disciplines and casual laborers are available and will be hired by the
project from the project area & the nearby towns. Skilled and unskilled workers are needed to manage the
operation of the farm.
The total manpower requirement planned for the project is shown in the table shown below:-

Table 6.1: Man Power Requirement Plan of the Project

Sr. No of Salary/mth Total Salary /Year

Description
no Personnel (birr) sala/mth (br) (Birr)
1 General manager 1 4,500 4,500 54,000
2 Agronomist 1 2500 2,500 30,000
3 Personnel & Assist Manager 1 2,300 2,300 27,600
4 Accountant 1 1,700 1,700 20,400
5 Farm manager 1 2,400 2,400 28,800
6 Farm Supervisors 2 2,000 2,000 48,000
7 Irrigation forman 1 1,250 1,250 15,000
8 Electrician – Generator operator 1 1,100 1,100 13,200
9 Plumber 1 1,000 1,000 12,000
10 Machinist 1 1,200 1,200 14,400
11 Cashier 1 1,100 1,100 13,200
12 Store keeper 1 850 850 10,200
13 Driver 1 1,000 1,000 12,000
14 Guards 2 500 500 12,000
Total 16 - 25,900 310,800

VII. FINANCIAL STUDY

7.1 Project Investment Cost (Investment Outlay)
ZIFO AGRITECH PLC's Coffee plantation & processing project

Page 42
Table 7.1 Total project Initial Investment Outlay by Existing & planned, Foreign & local Cost component

Existing/ Total Percntg

Planned Foreign Local
Sr. Executed Investm share of
Description Investment Component Component
no Investme
cost (Birr)
cost Exi + the total
(Birr) (Birr)
nt (Birr) Plan (birr) Inv (%)
I. F/Ass Investment
1.1 Land Lease payment - 86,972 86,972 - 86,972
1.2 Land devt cost - 1,655,956 1,655,956 - 1,655,956
Coffee Plantation
1.3 - 842,439 842,439 - 842,439
Establishment (Devt)
1.4 Bldg & construction - 2,151,678 2,151,678 - 2,151,678
Borehole (Drilling of deep
1.5 water well)
- 2,080,120 2,080,120 - 2,080,120

1.6 Submersible w.pump - 336,064 336,064 332,159 3,905

1.7 Water Reservoir const - 1,006,250 1,006,250 - 1,006,250
Irrigation Eqpt - Drip
1.8 - 5,080,968 5,080,968 31.61% 4,845,738
Irrigation system 235,230
1.9 Tractor - 870,000 870,000 - 870000
1.10 Disc Plough - 115478 115478 - 115478
1.11 Wheel Trailor - 151915 151915 - 151915
1.12 Generator - 300,000 300,000 - 300,000
Toyota Hilux pickup
1.13 - 388,800 388,800 - 388,800
double cabin
1.14 Farm Tools - 132400 132400 - 132,400
1.15 Office Eqpts - 29,294 29,294 - 29,294
1.16 Office Furniture - 34500 34500 - 34500
Sub-total F/Asset - 15,262,833 15,262,833 94.96% 5,177,897 10,084,936
II. Working Capital - 426781 426781 2.66% - 426781

III. Pre-Prodn Cost - 156,896 156,896 0.98% -

156,896
IV. Pre-Prodn interest - 225,960 225,960 1.41% -
225,960
Total ( I+II+III+IV ) - 16,072,470 16,072,470 100% 5,177,897 10,894,573
Percent Share of
- - 100% - 32 % 68 %
Foreign & Local (%)

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 ZIFO AGRITECH PLC's Coffee plantation & processing project
7.2 Total financial Requirement, project Investment cost & Sources of finance (Fund Allocation)
Existin Source of Finance (Fund Allocation)
gInv/ Owner's Equity contruib (birr)
Sr. DBE
No
Description AssetV Planned Investment Cost (Birr) Loan
Existin Owner'E Total Equitytob
alue(bi g sset qty cash qtyExiAs eblocked Owners Equity contribution
(birr)
rr Value contr set&cash Yr 1
Yr 0 Yr 1 Yr 2 Yr 3 Yr 0 Yr 0 Yr 0 Yr 0 Yr 1 Yr 2 Yr 3
I. Fixed Asset Inv
1.1 Land Lease downpaymt - 86,972 - - - - 86,972 - 86,972 - - - -
1.2 Land devt. Cost-Yr 0 - Yr - 1,655,956 1,655,956 1,655,956 - 827,978 - 827,978 827,978 827,978 1,655,956 1,655,956 -
1.3 Coffe Plantn Establishment - 842,439 842,439 842439 - 842,439 - - - - 842,439 842439 -
1.4 Bldg & construction - 2,151,678 - - - - - 2,151,678 2,151,678 2,151,678 - - -
1.5 Borehole Drilling water well - 2080120 - - - - - 2,080,120 2,080,120 2,080,120 - - -
1.6 Submersible water pump - 336064 - - - 336064 - - - - - - -
1.7 Water Reservoir constr - 1,006,250 - - - 1,006,250 - - - - - - -
1.8 Irrign Eqpt-Drip Irrigsystem - 5080968 5080968 5080968 - 5080968 - - - - 5080968 5080968 -
1.9 Tractor - 870000 - - - 870000 - - - - - -
1.10 Disc Plough - 115478 - - - - - 115478 115478 115478 - - -
1.11 Wheel Trailor - 151915 - - - 151915 - - - - - - -
1.12 Generator - 300000 - - - 300000 - - - - - - -
1.13 Weighing Scales - Year 3 - - - 42550 - - - - - - 42,550 -
1.14 Toyota pickup - 388,800 - - - 388800 - - - - - - -
1.15 Farm Tools - 132400 - - - 132400 - - - - - - -
1.16 Office Eqpts - 29294 - - - 29294 - - - - - - -
1.17 Office Furniture - 34,500 - - - 34500 - - - - - - -
Sub-total F/Asset (I) - 15,262,833 7,579,363 7,621,913 0 10,000,608 86,972 5,175,254 5,262,225 5,175,254 7,579,363 7,621,913 -
II. W/Capital Reqmt - -
Maintenance of young coffee
2.1 plantation ( 1 - 3 Years ) - 198,250
319,000 424,817 - 198,250 - - - - 319,000 424,817 -

2.3 Indir cost coffee plantn - 228,531 307861 451,469 - - - 228531 228531 228,531 307,861 451,469 -

Sub-total Wcapital (II) - 426,781 626,861 876,287 - 198250 - 228,531 228,531 228,531 626,861 876,287 -
III. Pre-production Cost - 156,896 - - - - 156,896 - 156,896 - - - -
Sub-total I+II+III - 15,846,510 8,206,224 8,498,200 - 10,198,858 243,868 5,403,785 5,647,652 5,403,785 8,206,224 8,498,200 -
IV. Pre-prod Int till final disb - 225,960 - - - - - 225,960 225,960 225,960 - - -

Pre-prodn Int till 1st repay - 866,903 866,903 866,903 - - - - - 866,903 866,903 866,903

Total I+II+III+IV 16,072,470 9,073,127 9,365,103 866,903 10,198,858 243868 5629745 5,873,612 5,629,754 9,073,127 9,365,103 866,903

Debt : Equity (%)Yr1Invs - 100% - - - 63% - - 37% - - - -

44
Page 45
7.3 Financial Results
7.3.1 Profitability - Profit / Loss forecast
The projected profit and loss statement forecasted for 10 years shows that the first 3 years there is no
production & hence the project runs in losses. The projection shows positive net profits of Birr 2,439,969, in the
5th, project year & grows to birr 7,039,461 in the 10th projection period.

7.3.2 Liquidity – Cash Flow Forecast

The cash flow projection shows negative cash balances in the first to 4th project years and positive cash
balances beginning from the 5th year onwards with an increasing cash flow to finance its operational cost at
the same time meeting its debt obligation.

7.3.3 Capital growth - Balance sheet Projection

The Balance sheet projection shows the project’s assets, its liabilities & Capital at a particular point in time.
The total asset of the project is expected to rise from Birr 22,316,294 during the first operational year to birr
42,220,212 at the end of the tenth project year.
The company will invest its capital during the initial year & also in the 1 st, 2nd & 3rd investment period of the
project for the successive land development & plantation establishment investment costs. The successive
capital invested shall grow to birr 42,220,212 at the 10 th project year, with an increase of annual retained
earnings in the 8th to 10th year.
7.4 Project Worth- The NPV & FIRR
7.4.1 The Net Present Value (NPV)
Net Present Value (NPV) before Tax at 8.5 % interest rate ;- Birr 22,378,695
Net Present Value (NPV) after Tax at 8.5 % interest rate;- Birr 15,336,902
The net present value is the difference between the sum of discounted future cash flow, year 1 to 10 and the
amount of the initial investment at year o. The NPV’s computed at the prevailing 8.5 % interest rate results
positive large cash amount indicating that the project is viable.
7.4.2 The Financial Internal rate of return (FIRR)
The financial internal Rate of Return before and after tax, computed based on 10 years projection period is
FIRR before Tax;- 22 % and
FIRR after Tax;- 18 %
The rate is above the cost of debt of 8.5% implying, that the project’s ability to cover what is invested during
its life span after paying its cost of debt & making return to stakeholders. Therefore the project is viable &
hence bankable.
7.5 Sensitivity Test Analysis
The project's sensitivity to adverse circumstance is viewed & analyzed from two different scenarios: by
decreasing its sales revenue by 10 % and increasing its operating cost by 10%.

7.5.1 Sensitivity test Scenario I :– Increase in operating cost by 10 %

When operating cost increases by 10%, the result indicates that FIRR after tax decreases from 18 % to 16 %
It can be concluded that, the project can cover its costs, make profit for stakeholders & will remain viable
even if unforeseen costs would occur that should be incurred more than estimated.
7.5.1 Sensitivity test Scenario II :– Decrease in Revenue by 10 %
When revenue decreases by 10%, the result indicates that FIRR after tax decreases from 18 % to 14 % .
It can be concluded that, the project will remain viable even if an adverse marketing problem would occur
that forces to reduce the selling price & hence reduce the revenue. It also shows that the project is more
sensitive and affected by decline in sales revenue when compared with the increase in operating costs and
indicates caution to be taken in selling the products.

46
8 Socio-Economic Impact Assessment of Coffee Plantation project (Socio Economic
Benefits & costs)
8.2.1. Positive impact on Social & Economy

The establishment of the coffee plantation farm has many socio-economic benefits which include, among
others:-
 Creation of Employment Opportunity:
The project is expected to create new employment for about 16 skilled & semi-skilled in the initial project
year and more of these & large number of man days in the subsequent investment years & projected
operational years.
Coffee production is one of the labor intensive agricultural production activities, it provides employment
opportunity for the citizens; especially during harvesting (during the peak operational month) and processing
at wet or dry processing stations, it provides employment opportunity for many rural households.

Coffee is major Source for the Countries Foreign Currency

Coffee is the major agricultural export crop providing currently 35% of Ethiopian foreign exchange
earnings, The foreign currency earning of coffee can be explain as follows;
Table 7.1 coffee Export in Ethiopia (Both Unwashed and Washed Green Arabica Coffee)
2001/02 116,354
2002/03 136,614
2003/04 142,423
2004/05 157,197
2005/06 156,417
2006/07 176,390
2007/08 132,000
2008/09 *96,000
2009/10 126,000
Average Percentage 11.5%
Growth
* The figure is exceptionally less and not accounted in calculating the average growth rate.

The foreign earning from this sub sector shows improvement in the years 2001/02 to 2007/08, and then
declines in year 2008/09 and this shows increase in the year 2009/2010 This indicates that the export amount
of the country has been increasing in this sector and also a great consideration should be given to the sector
because coffee is the major source for the country’s Foreign Currency.
Contribution to GDP:
The establishment of the coffee plantation farm will contribute to the GDP by increasing the country’s
gross production and enhance income of the workers employed and other stake holders. Ethiopia’s

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economic performance is largely determined by what happens in the agricultural sectors. Since
agriculture employs more than 85% of population and accounts for nearly half of GDP, coffee production
contributes to the highest GDP of the country.
 The data for the GDP is organized in aggregate form with other commodities like tea. How ever
coffee has the great share from all.
 GVP (Gross value Added) of coffee production and related crops at current basic prices (mil USD)
Table 7.2.GDP Contribution
Years 2002/03 2003/04 2004/05 2005/06 2006/07
Coffee and related crops 1584281 1591833 3124095 4485047 6344519
production
Total Agricultural GDP 18,105,566 22,599,696 26,991,46 31,060,861 34,598,742
0
Percentage of coffee from 8 7 10 14 18
the total GDP
 GVP (Gross value Added) of coffee production and related crops at current basic prices (millions
USD)
 As the table -shows the contribution of coffee crops to the GDP is growing that the real GVP of the
coffee crops of the year 2006/2007 was greater than that of the year 2002/03 by 225% .
 Linkage Effect:
There is a high interdependence of foreward & backward activities of the project This project has
forward and backward linkage effects, as it has forward linkage with improved production activities &
earnings of foreign currency, which increases the country’s forex holding and on the backward side
the production & processing of coffee creates employment to the poor rural house hold and semi urban
dwellers. The establishment of coffee plantation will enable the sector to expand to different works of
operations. Coffee plantation is backward linked with seed propagators of different varieties and
suppliers of inputs. And also it has a foreward linkage with other sector like utilization of the coffee
bi-product for fertilizer making. This creates mutual benefits in the sectors.
 Technology and knowhow transfer: The plantation farm & processing practice can transfer new
technology and know-how, especially in the project area for local small holder farmer producer besides
its vital role in the growing of the economy.
 Generate revenue to the Government :
The project when it starts operation & begin production will generate substantial revenue to the
promoter & in turn to the government in the form of taxes.
Create Good Social Value

Coffee plays a vital role in both cultural and socio-economic life of Ethiopia. This shows coffee is not only
serving as a pillar to the national economy, but also as a factor to strengthen the social system in the
community.

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 IX. CONCLUSION AND RECOMMENDATION

9.1 Conclusion
Zifo Agritech Plc. had applied for a loan of Birr 12,000,000 to finance its new coffee plantation project to be
established in Oromia Regional State western Hararghe Zone, Boke, Woreda, Arba Peasant Association.
The Promoter’s business objective is to engage in the production of coffee for export market. The project
operation will start by developing land, establish coffee plantation, and produce coffee beans & processing for
clean coffee for export. Moreover, coffee produced & shall be sold at local market for local consumers.
In order to establish the project and achieve its objective, the promoter has approached DBE for partial finance
which is in excess of its equity. A loan of Birr 10,198,858 is proposed to be financed by the bank to be used
for partial covering of the fixed asset investment cost & the working capital requirement after assessing the
viability of the project.
The total investment cost is estimated to Birr 16,072,470 out of which Birr 15,262,833 is on fixed Asset, Birr
426,781on working capital, Birr 156,896 is on pre-Prodn costs and Birr 225,960 on pre-production interest. The
project’s success & risk factors are identified & the risk mitigating factors are proposed. As shown in the fund
allocation table, out of the total financial requirement (investment cost) of Birr 16,072,470, Birr 5,873,612 (37%)
is the owner’s equity contribution and Birr 10,198,858 (63%) is planned to be financed by DBE term loan.
The projected financial statements & analysis indicates that the project will run in losses during the period
before coffee begins to give production up to the 3rd project years when successive land development and
coffee plantation establishment to be undertaken. The project will be profitable after the coffee plantation
begins bearing coffee cherries.

9.2 Recommendation

9.2.1 Proposed Loan amount & Purpose

With the available documents on hand, the due diligence assessment report and based on the financial analysis

conducted, the project is found to be viable. Based on this, the appraisal team has proposed a total loan amount

of Birr 10,198,858 to be used for partial cost coverage of the fixed asset investment cost and for working

capital as per the following terms & conditions.

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9.2.1.1 Terms and conditions
9.2.1.1.1 Terms
Equity Release & Loan disbursement schedule

ZIFO AGRITECH PLC's Coffee plantation & processing project

Equity Release Schedule

Equity con tribution (birr) Amount of Blocked

Equity, cash Equity to
Sr. Equity Utilization
On On contrib to be Equity release period be
No (purpose ) Total Equity
Existing planned blocked released
Contribution (birr) to
Investment Investment

Land Lease down

1 86,972 - 86,972 - - -
payment
Aftersigning of
theloanagreement,before
2
2 Borehole drilling - 2080120 2,080,120 the 1st -
,080,120
loandisbursement

After signing of the loan

Building &
3
construction
- 2,151,678 2,151,678 2,151,678 agreement , before the the client
1st loan disbursement

Land devt. Cost- Along with the 1st

4
Yr 1 (Phase I)
- 827,978 827,978 827,978
disbursement

Along with the 2st

5 Disc Plough - 115,478 115,478 115,478
disbursement

W/ cap Indir cost for

Along with the 2st
coffee plantation Yr - 228,531 228,531 228,531
disbursement
1

3 Pre- prodn Cost 156896 - 156896 - - -

For payment of
the pre- On the due date of
4 - 225,960 225960 225,960 DBE
production Interest
interest (birr)

Total 243,868 5,288,307 5,873,612 5,629,745 - -

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 ZIFO AGRITECH PLC's Coffee plantation & processing project
Loan Disbursement Schedule (Plan)

Conditions
Balance in To be
Sr. Disburseme Amount to be Period of for
Purpose commitment disbirsed
no nt Plan disbursed (birr) disbursement Disburseme
(birr) to
nt
Total Loan Amount 10,198,858
9, to the
Land devt. Cost-Yr 1 (Phase I) 827,977 31/8/2013 After
370,880 promoter
signing of
Importation of Submersible the loan
9, to the
pump, 30% of cost L/C 100,819 31/8/2013 agreement
270,061 supplier
opening & fully
First
1 disbursem Importation of Drip irrig Eqpt 7, To DBE utilization
ent
1,524,290 31/8/2013
30% of cost L/C opening 745,771 LC,openin of the
7, to the equity
Generator 300,000 31/8/2013 contribn for
445,771 supplier
building &
50 % of Water Reservoir 6, to the
503,125 31/8/2013 constructn
construction cost 942,646 promoter
Sub- tot 3,256,212 - 6,942,646
Second
Importation of Submersible 6, to the
2 disbursem 235,244 30/9/2013
ent pump, 70% of cost 707,401 supplier
To DBE After
Importation of Drip irrig Eqpt 3, verification
3,556,677 30/9/2013 LC
70% of cost 150,723 of the
settlement
50 % of Water Reservoir to the Utilization
503,125.00 30/9/2013 2,647,598 of the first
construction cost supplier
disburseme
Nurseryestb,mainte,sedlgtransplant,D to the
evtcostYr1 (Phase I) 842,439.38 30/9/2013 1,805,159 nt
supplier
to the
Purchase of Tractor 870,000.00 30/9/2013
935,159 supplier
to the
Purchase of Wheel Trailor 151,915 30/9/2013 783,244
supplier
to the
Purchase of Farm Tools 132,400 30/9/2013 650,844 supplier/pr
omoter
Sub-totl 6,291,802 - 650,844
3rd
to the
3 disbursem Purchase of Vehicle 388,800 31/12/2013 262,044
supplier After
ent
verification
W/ on the
to the
capitalDircostmaintence,youn 198,250 31/12/2013 63,794 proper
client
g coffee Labor Yr1 utilization of
to the the 2nd
Purchase of Office Eqpt 29,294 31/12/2013 34,500 disbursemen
client
to the t
Purchase of Office Furniture 34,500 31/12/2013 (0)
client
650,844
Sub-tot - -

51
 10,198,858
Total - -

10.1.1 Principal loan Repayment Schedule

The principal loan shall be repaid every year, starting on, Dec, 30,2017 & ending on Dec,30,2021,
whereby repayment will be made in 6 annual installments.
Interest Rates and Other Charges
Interest Payment:

8.5% p.a. on the outstanding loan balance to be paid every 6 months on july & january.
- Pre- prodn Interest shall be paid by the promoter on the due date.
Commitment Charge Payment:
Calculated @ 0.5% per annum on the balance in commitment

9.2.1.1.2 Conditions
1) Collateral: First degree mortgage on all fixed assets of the project.
2) Insurance: Purchase of insurance policy for the entire fixed assets of the project with DBE as a
co-beneficiary.
3) Current Account: The promoter should open current account with DBE.
4) Record Keeping: The Company should maintain proper record keeping system.
5) L/C Opening: The Company should open letter of credit (L/C) in DBE both for import and
export.
6) Equity Capital: The Company should raise its capital to the required level & deposit its equity
contribution of Birr 5,629,745 in block account for partial cost coverage of building &
construction, and pre-operating interest.
7) Any cost escalation should be covered by the promoter.

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 X. ANNEXES
- Proforma Selection Table & Cost Build-up of items to be imported
- Details of Investment Cost Estimate
- Assumptions & Breakdowns
- Breakdown of Land development cost (Capital cost)
- Breakdown of coffee plantation Establishment (devt) cost (Capital cost)
- Breakdown of Direct Production cost
- Breakdown of Indirect Production cost
- Production cost Projection
- Working capital Determination Projection
- Estimated Yield (production) & selling Prices
- Estimated production & Revenue Projection
- Investment Depreciation amortization Schedule
- Repayment Schedule
- Financial statements & Balance sheet projections
- Profit/Loss statements
- Cash Flow Projection
- Balance sheet projection
- Project Worth – FIRR
- Sensitivity Test Analysis
List of Documents utilized to prepare the appraisal report

1. Commodity study
2. Feasibility study or business plan submitted by the Applicant (promoter)
3. Legal documents submitted by the applicant ( promoter)
4. Due diligence Assessment Report prepared by the branch credit process
5. Evaluation report on the Proforma invoices submitted by the promoter for the planned supply of
machinery & equipment prepared by the mechanical engineer of the Bank.
6. Revised civil cost estimate, for the planned bldg & construction prepared by the civil engineer of the
bank based on the submitted blue print constrn design, Bill of quantity (BOQ) & take off sheet.
7. Other relevant documents

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