Aspiring entrepreneurs may have an idea about the type of fruit or vegetable product that they would like to make. This can come from seeing others successfully producing a food and wanting to copy them or from talking to friends and family members about products that they think they could make. However, an idea for a business is not a sufficient reason to begin production straight away, without having thought clearly about the different aspects involved in actually running the business. Too often, people invest money in a business only to find out later that there is insufficient demand for the product or that it is not the type that customers want to buy. To reduce this risk of failure and losing money, potential producers should go through the different aspects of running their business in discussions with friends and advisers before they commit funds or try to obtain a loan. This process is known as doing a feasibility study and when the results are written down, the document is known as a business plan. Conducting a feasibility study need not be difficult or expensive, but the most important aspects should all be taken into account to ensure that potential problems are addressed. These are summarised in the Feasibility Study Checklist in Appendix III and are described in more detail in other Sections of this book. In this Section, the following questions that can be answered by a feasibility study are addressed:  is there a demand for the produce?  who else is producing similar products?  what is needed to make the product?  what is the cost of producing a product?  what is the likely profit? (Find out the characteristics required of the product and the size and value of the market) (Determine the number and type of competitors) (Find the availability and cost of staff, equipment, services, raw materials, ingredients and packaging) (Calculate the capital costs of getting started and the operating costs of production) (Calculate the difference between the expected income from sales to an estimated share of the market and the costs of production)

Each of these aspects should be looked at in turn. When all the information has been gathered and analysed, it should be possible to make a decision on whether the proposed investment in the business is worthwhile or whether the producer's money could be better spent doing something else. The same considerations should be taken into account when an existing entrepreneur wishes to diversify production or make a new product. It is also important to remember that the business plan is a working document that should be used as a framework to guide the development of a business. To do this it should be regularly updated. However, it often happens that an entrepreneur pays an adviser or consultant to prepare a business plan but then does not understand the contents, or having read it once, puts it away on a shelf never to be seen again. In the following parts of this Section, the above aspects are described in a systematic way, as should be done in a feasibility study, starting with 'The Market'.

2.3.2. Market analysis
Product quality survey Survey of market size and value Market share and competition

Once a potential producer decides that he wishes to start a business, the first thing to do is to find out what is the likely demand for the fruit or vegetable product that he or she wishes to make, by conducting a short market survey. Although there are market research agencies that are able to do this type of work in many developing countries, it is better for producers to do it themselves (if necessary with assistance from partners or advisers) because they will then properly understand their customers' needs and how their business should operate. If an idea is found to be feasible, this knowledge will in turn give them the confidence to go ahead when problems are encountered, knowing that their product is in demand. Although telephone or posted questionnaires are possible, in most developing countries it is better to conduct a market survey by going out into areas where the producer expects to find consumers and asking people for their views. There are two types of information that are needed: 1) information about the product and its quality and 2) information about how much people will buy, how often and for what price. It is important to think in advance about the type of information that is needed and to ask people the same questions each time, so that their answers can be compared and summarised. This should be a short exercise to keep the costs low and in-depth market research is not necessary for most products. A convenient way of doing this is to prepare simple questionnaires such as those shown below, which can be used by entrepreneurs to remind themselves of which questions to ask.

Product quality survey
Consumers are familiar with the types of fruit or vegetable products that are already on sale and surveys on these products are therefore easier than those for a completely new food. Questions can focus on what are the things that consumers like or dislike about existing competitors' products. For example in Figure 29 the questionnaire is used to ask questions about the qualities of chilli sauce. However, if producers wish to make products that are new to an area, they need to have samples for potential consumers to taste and give their opinion on whether they like the product and would be willing to buy it. (When asking people to taste a product, a supply of spoons should be taken so that each person interviewed uses a clean one). Samples can usually be made at home

the risks are higher and it may be more difficult to get a loan for this type of work. Do you like the thickness of the sauce? 4. Is there anything else about the sauce that you buy that you would like to see improved? Write answers Tick in the appropriate place 2 3 4 5 Very Good Average Bad Very good bad Write names of sauce(s) Remember that the customer (the person who buys the food) is not always the same person as the consumer (the one who eats the food). What do you think about the price of the sauce? 8. Do you like the bottle? 6. What do you think about the label? 7. the process of assessing demand takes longer and costs more than for products that are already known. as up to 80% of new products fail. For food producers. Is there anything else that you think is good about the Write answers sauce that you buy at present? 9. . Figure 29. Although initially. 88% of people found the colour of the sauce to be better than average. In addition. other food processors and members of the public. new products have the advantage that there will be no competitors. What do you think about the flavour of the sauce? 5. An example of a questionnaire for a new product is shown in Figure 30. This is particularly important when getting information about the quality of foods that are mostly eaten by children. 'poor' etc. 78% did not like having seeds in the sauce and 60% found the flavour to be good or very good.using domestic equipment so that an investment in production facilities is not needed at the this stage. What do you think about the colour of the sauce you buy? 2. Other information that can be gained by analysing the data includes: . What do you think about the seeds being present in the sauce? 3. as their preferences for colour or sweetness may be different to those of their parents (see also Section 2. In the example below. Which make(s) of sauce do you by most often? 1. The results of such surveys can be analysed by adding together the numbers of people that gave answers such as 'very good'. the answers to questions about chilli sauce (Table 12) show that among other information.8.1).Example of a survey questionnaire on the quality of competitors' chilli sauce 1 Questions 1. customers can also be retailers or other sellers in addition to institutions.

.1. Do you think you would like tomato jam? Answers Yes/No.. Figure 30. . Circule answer List the types Yes/No/Not sure......Sample questionnaire for a new product (tomato jam) Explain to each person you interview that you wish to start a new business making tomato jam and that you have prepared some samples for people to try. if a new product having a similar quality can be sold more cheaply. Is there anything that I can do to improve this jam? Write answers Write answers Tick in the appropriate place 2 3 4 5 Very bad Good Average Bad Survey of market size and value A different set of questions are needed when assessing the size of the market for a particular type of food (the total weight of product that is bought per month or per year) and the value of the market (the amount of money spent on that product each month or year). A sample questionnaire is shown in Figure 31.. .. At the same time it is possible to gather information about the types of people who buy a particular food and where they buy it. What else do you like about this jam? 11... Ask them if they would like to taste the sample and give you their opinion on what it is like..... What do you think about the colour of this tomato jam? 5. a large majority of consumers liked having sauce in a bottle and that they were happy with existing labels...... Do you like having the seeds in the jam? 6... What do you think about the flavour of this jam? 7. What do you think about the label? 10. Do you eat other types of Jam? 2. Circule answer 1 Very good 4.. 2.. Do you like the texture of the jam? 8 What do you think about the jar? 9. This information helps to show a new producer what type of packaging must be used if he/she is to compete effectively with existing manufacturers or imported foods. Which types of jam do you like best? 3. A majority of consumers (52%) were unhappy with the price of the sauce and this indicates that a potential market share exists... Question 1.

it is often helpful to find official statistics about the people who are expected to be the customers for a new product. can be analysed by the entrepreneur to get a good idea of the quality characteristics of the product that consumers prefer. Do you like the thickness of the sauce? 4.The information gathered from potential consumers. However. . this involves making a number of assumptions and it is important to consider the following: 1) are the people interviewed really representative of all potential consumers? 2) were enough people interviewed? 3) were people giving accurate information? Table 12. 50-75 interviews should result in a good idea about the market for a product in a particular area. What do you think about the flavour of the sauce? 5. he or she should ask more people the same questions to check the answers obtained. Similar information is sometimes available from Local Government offices. Do you like the bottle? 6. For example in Table 13. the more accurately does the information reflect the real situation. What do you think about the label? 7. information was collected using a market survey of chutney consumption in a small Asian town and analysed together with data from the Census Office and a previous socioeconomic survey about the size and wealth of the town's population. the total demand for the product and the total value of the market. a balance has to be drawn between the time and cost of interviewing large numbers of people and the accuracy of the data that is obtained. What do you think about the colour of the sauce you buy? 2. . However. tax authorities and Chambers of Commerce. the more people that are interviewed. When analysing data collected about market size and value.Data collected about consumers' opinions of the quality of a product Summary of 50 replies Question 1 Very good 1. although it may not always be up to date. What do you think about the seeds being present in the sauce? 3. What do you think about the price of the sauce? 12 5 10 42 40 10 5 2 3 4 5 Very bad 0 9 1 0 0 0 1 50 50 50 50 50 50 50 Total Good Average Bad 32 6 20 8 10 11 7 5 16 12 0 0 20 12 1 14 7 0 0 9 25 If a producer is unsure about the quality of information that has been given. As a guide. using questionnaires like the ones in Figures 29 to 31. Clearly.

When is the price highest? 12. medium or high income Low/medium/high (Circle in your household? answer) 14. When are the times you buy the least? 6. What is the amount of food in the pack? About the market value: 8. In which age group do you belong? 1-20 21-40 41-60 Male/Female About sales outlets: 15. Packs Write amount in kg Answers . How much do you pay for a pack of the food? 9. How often do you buy this product? 2. What is the price difference for larger or smaller packs? 10. Packs Write answer Write amount in kg or No. Does the price change at different times of the year? 11. Do you buy different amounts at different times of the year? 3. Would you say that you have a low.. When are the times that you buy the most? 4. How much do you buy each time? 7. Where do you usually buy this food: Market stall Local shop Kiosk Supermarket Street hawker Directly from producer Tick answer M/F (Circle answer) Tick answer Write the amount in currency Write differences Yes/No (Circle answer) Write answer Write answer Daily/weekly/monthly (Circle answer) Yes/No (Circle answer) Write answer Write amount in kg or No. When is the price lowest? About the customer: 13.Figure 31. How much do you buy each time? 5.Sample questionnaire about market size and value Questions About the market size: 1.

to calculate the total size and value of the chutney market in this town.Calculation of the size of the market for chutney Type of customer Low income Medium income High income TOTAL Table 14 (b). This has implications for not only the type of packaging that is used but also the types of advertising.9 per kg when sold in 100g amounts from a bulk container into customers' own pots (bought by the majority of those who said they were in low income families). as shown in Tables 14 (a) and (b).45 High income 192 2.2 0.25 7. Table 14 (a). or pre-packed in plastic bags. These people were found to buy the product either from bulk containers into their own pots. .8.Other Write answer Table 13.Potential market for chutney in a small Asian town Type of customer Low income Medium income Number in each Amount of chutney bought Amount of chutney bought category* per month (kg**) each time (kg**) 18.8% of its value. These aspects are described in more detail in Section 2.485 192 Amount of chutney bought per Total demand (kg per month (kg) month) 0.430 5.15 0.2 2.1 per kg when sold in 150g plastic bags (bought mostly by medium income families) and $4.1 5. .8 per kg when sold in 450g glass jars (bought mostly by high income families). .25 * from official census statistics for the town ** average of information given by 70 customers interviewed The cost of chutney in the market was $3. The size and value of the market. calculated in Table 14.430 0.Calculation of the value of the chutney market Number in each category 18.582 432 14. A new business would therefore be likely to focus on low and medium income families as its potential consumers.4 0.372 6. methods of promotion and agreements with retailers that should be considered. This data can be analysed.386 kg . The demand for jars of chutney was limited to high income groups which formed only 3% of the market size and 3.485 1.4 1. indicate that low income and medium income families form the largest part of the chutney market in this town. $4.

8. In other situations.181 per month.751 26. In the example described in Tables 13 and 14 concerning the market for chutney. The estimated share of the market for a new producer can therefore be calculated as follows: Total size of the market = 14. it is likely that once a new business starts production and is seen by others to be successful. to estimate what is the proportion of the total market that a new business could reasonably expect to have. low income groups in Tables 13 and 14). but Table 15 can be used as an initial guide. . In many cases. there were a large number of small producers all making similar products. The lower percentages in Table 15 should therefore be used initially.372 6.619 High income 0.9 4.1) and the planned market share could be based on one of those segments (e.986 7. It is often difficult to estimate a realistic market share and the figure depends on a large number of variables. but these figures should not be assumed to represent the scale of production that could be expected.8 Number of Value of market ($ kg per month) 7. When converted to daily production rates.582 432 28. It should be noted that in the calculations below.882 $63. Section 2.4 describes some of the negative effects on finances of operating a business below planned capacity.Type of customer Low income Medium income TOTAL Amount of chutney bought each time (kg) 0. a more detailed analysis of market segments could be made (Section 2. they too will start up in competition. the scale of production is based on an anticipated share of the total market. the maximum production is therefore 36 kg per day This figure for daily production rate is very important. This represents sales of 719 kg of chutney per month with a potential value of $3. This is known as the market share. It is therefore important from the outset.386 kg per month Estimated share = 5-10%. with the result that production operates at only a small proportion of the planned capacity. assuming 20 working days per month. with 5% selected.1 0.45 Market share and competition Market surveys and the calculation of market size and value are important to find out whether the demand for a product really exists. new entrepreneurs over-estimate the share that they could expect. It is central to all subsequent calculations of production capacity and investment requirements (below) and every care should be taken to ensure that this information is as accurate as possible. Even if no-one else is currently making a product locally.15 Cost per kg of chutney ($) 3.g.1 4.3.

competitors do not just compete with their products. These are all general competitors. where SWOT stands for Strengths. Supposing the consumers choose cold soft drinks that can be drunk straight from the bottle. particularly type and brand competitors. squashes or finally alcoholic drinks. Using the example of someone wishing to make fruit juices. Many new entrepreneurs do not appreciate the importance of finding information about competitors and even if they do. . which are brand competitors. they then have a choice between carbonated (fizzy) soft drinks. they may not know where to find it. who are able to satisfy the consumers' thirst. such as milk. Table 15. Finally. cold soft drinks. 4.). coffee etc. visit trade fairs and talk to other producers and their customers. entrepreneurs can get information about competitors from the following sources: 1. This is conveniently done using a SWOT analysis. there are different juices and different brands of the same type of juice. discuss with retailers the amount of sales of different brands and any seasonality in demand. Opportunities and Threats. look at competitors' advertising and retail displays. manufacturers' association magazines and newspapers for information about the market and the activities of competitors. look in trade journals. on choosing juices. ask the local Employer's Federation or Chamber of Commerce for any information they have on the market for similar products.Estimates of market share for a new food business with different levels of competition . what is getting popular and what is going down? What types of consumers buy particular products and how often? Does the retailer put on any special displays for some suppliers? What do they think about the idea for a new product and do they think they will sell a lot of it? What are their plans for the future? 2. They also compete with the profit margin and level of service that they offer to retailers and with special offers or incentives to customers. The technique involves looking at each aspect of the new business and comparing it to other producers. New entrepreneurs must therefore assess each of these factors when deciding what the competition is and how to deal with it. These are known as type competitors or different kinds of soft drink. juices. 5. they have a choice of hot drinks (tea. What are the trends in consumers' buying.Competitors are very important to the success or failure of a new business and the entrepreneur should recognise that there are different types of competitor. and juices. 3. Weaknesses. Although the appearance and quality of foods are important. In addition to the direct questions to consumers in market surveys described above. get a copy of their price lists. it is helpful to think how the consumers might view the available products: for example when they are thirsty.

8. D = dissimilar products (From Do Your Own Scheme. it sells well because the low price attracts low income consumers and retailers promote it because of the higher margins offered by the company. However.02.5 S = similar products.2. Technical feasibility . 2.5 5 10 15 2.g. of other producers Size of competitors Product range Market share (%) S Many Large D Small S D Large S D 510 Few Small S 1015 D 2030 Large S D One Small S 3050 D 4080 None 00. The analysis in Table 16 indicates that one competitor (A) has a range of good quality products that are packaged and promoted well. The analysis points the way to producing a product without additives and to providing a good service and equivalent margins for retailers. retailers are annoyed when Competitor B fails to deliver on time or in the correct amount and they may have over-stretched their distribution capacity.105 15 100 After finding as much information as possible. the entrepreneur can then start to compare the new business with those of competitors using the SWOT analysis. but they are more expensive and do not meet changing consumer requirements. These are discussed in the Sections below. It also highlights lack of information about process inputs (e.5. They appear to be expanding to new areas. packaging) and production costs. Anon) 0. An example of how it might appear is shown in Table 16. the entrepreneur should be able to answer the following questions:  who is producing similar products?  where are the competitors located?  what is the quality and price of their products?  what can I do to make a new product that is better than those of competitors?  why would customers or consumers want to change to a new product?  what offers or incentives do competitors give to retailers?  what are competitors likely to do if a new product is introduced? The answers to these questions are then used to formulate a marketing strategy. The other competitor has a cheap product that is not well packaged and not promoted.3.3. However.10.No. When it is completed. details of which are described in Section 2.

electricity etc. . good margin to retailers.Example of a SWOT analysis of a new business in relation to competitors My proposed business Competitor A Competitor B Production likely to be sited Good brand image and Product is cheaper than A close to retailers can deliver range of products.) available and affordable?  are trained workers available and are their salaries affordable? Table 16. Products more expensive than B. water. poor label design. The series of questions below is helpful in deciding the technical requirements of the business:  are enough raw materials available of the correct quality when needed for year-round production?  is the cost of the raw materials satisfactory?  is the correct size and type of equipment available for the expected production level and at a reasonable cost?  can it be made by local workshops and are maintenance and repair costs affordable?  is sufficient information and expertise available to ensure that the food is consistently made at the required quality?  are suitable packaging materials available and affordable?  are distribution procedures to retailers or other sellers established?  is a suitable building available and what modifications are needed?  are services (fuel. it is then necessary to assess whether production at this scale is technically feasible. and sells well They offer at short notice.Production planning Weights of raw materials and ingredients Equipment required Packaging Staffing levels Once an entrepreneur has found information about potential consumers. I'm told by Strengths Weaknesses Difficult to find good packaging. . their requirements and the likely share of the market that could be obtained for a new product. Poor quality product.

Cheaper products than May have over-expanded There are few wealthy B. by Fellows. Franco and Rios) Production planning The answers to these questions can be found by first setting down a plan of the production process in a similar way to the process charts described in Section 2. Opportunities Retailers say demand for products without additives is increasing. . The different stages of production planning are described below. In particular. of Minimum . Figure 32. the equipment that is required for each stage and where quality assurance procedures should be used. In the example. (Adapted from: Starting a Small Food Processing Enterprise. 3) the size of equipment required to achieve the planned throughput of product 4) the number of packages that are required each day. distribution network and consumers and price is most failing to make deliveries. which uses chutney as an example). Strong promotion by A. including: 1) the weights of raw materials and ingredients that should be scheduled each day. the number of assumed working days may fall below twenty if there are regular power failures or if production planning (Section 2.1) is inadequate.Uses synthetic colours retailers that supplies are and preservatives. The data that has been found from market surveys is added to the process chart to indicate the scale of production that is required (e. irregular and not always the amount ordered. The chart is also used for planning a number of different aspects of the production process.2. I am not yet sure of production costs. the market information for chutney sales indicated that a minimum production rate of 36 kg per day would be needed to meet the anticipated initial market share. Figure 32.g.5 kg per hour (36/8 kg). I can produce without added colours.Modified process chart showing scale of operation and daily requirements for mango chutney production Processing % Weight of Batch size Processing No. This throughput figure is critically important in all subsequent planning and every effort should be made to ensure that it is as accurate as possible by checking all assumptions carefully. Threats Appears to be expanding deliveries to new areas according to newspaper reports. the average throughput would be 4. important factor. 2) the number of workers and their different jobs. Assuming that production takes place for 8 hours each day for 20 days per month.7. identify any 'bottle-necks' in the process. This plan should indicate how the different stages in a process are linked together.

If each batch takes 20 minutes to boil. there are 2 batches per hour and in 3 hours there are 6 batches of 10 kg each to meet production target of 60 kg of raw materials.5 100 0 27 0 . Two filters and heat sealers. Each worker fills and seals 40 bags per hour = 120 bags per day x 2 workers = 240 bags of 150g net weight = 36 kg per day Calculation of boiling losses: The solids content in the mix of ingredients before boiling is found as follows: Ingredient Mangoes Sugar Vinegar Weight (kg) Solids content (%) Weight of solids (kg) 27 15 4.4 0 27 (kg) time (minutes) workers from Figure 33. Table for 2 people Weight of 36 product * evaporation losses during boiling.6 28.05 27 13. Notes on calculations: Boiling results in weight losses of 34% as water is evaporated and the solids content increases to 70% (see calculation below). Therefore the boiling pan should have 10 kg working capacity (that is a 12-15 litre pan).51 vinegar for batch of 60. 40 36 36 36 180 180 120 2 3 Table for 2 workers Table for 3 workers. 3 knives Peel/destone 0 Boil Fill/seal Cool/label Store 34* 10 0 0 1 2 1 Boiling pan for 10 kg batches.4 28.stage losses mangoes (kg) 0 14 45 60 60 51. Note: recipe described in Figure 13.7 kg. yielding 36 kg of product per day. equipment size (kg/hr) Mangoes Wash Sort Cut Mix 90 120 27 kg sugar + 13.

It is important to weigh each ingredient carefully and make sure that all weights are recorded for each formulation that is tried. Typical losses from other sources in a well-managed production process are shown in Table 18. it is necessary to calculate the amount of losses that can be expected during preparation of fruits and vegetables.7 kg % solids in batch before boiling = (28/60. it is in the interests of the processor to reduce losses as much as possible. These may arise from peeling or de-stoning. Otherwise. a well-managed processing operation. especially for those staff involved in batch preparation. However. the implementation of quality assurance procedures and careful production control. that consumers say they prefer from market research. The processor should experiment with different mixes of ingredients (the 'formulation' or 'recipe') to produce a product that has the colour. Nearly all fruit or vegetable processing results in losses of material. appearance etc.05 28 Total weight after 10% losses 60.7. Therefore 70% still equals 28 kg. using the combination of ingredients that has the lowest cost. After boiling there is no loss of solids (only water is removed) but the solids content has been increased to 70%. the inevitable result is a successful trial product. Once a formulation has been successfully developed.Total 67.7) x 100 = 46% So 28 kg equals 46% of the batch before boiling.7. Skill and flair are needed to achieve this. Therefore the total weight of the batch after boiling = (100/70) x 28 = 40 kg Weights of raw materials and ingredients There are two stages involved in planning the amounts of materials that are needed to produce the required weight of product: first. great care is needed to ensure that it is made in exactly the same way on every occasion.1 and 2.1) help to ensure lower levels of poor quality raw materials and therefore reduce losses. flavour.2. Clearly. it is necessary for an entrepreneur to do trials to calculate the actual amount of wastage experienced with the particular varieties of fruit or vegetable and with the particular process that are being used. it is necessary to calculate the amount of each ingredient that will be needed to formulate a batch of product and secondly. Additionally.5 31. Contracts with reliable suppliers (Section 2. Different types of fruit and vegetables have been found in practice to have different levels of wastage and examples of some of these are given in Table 17. from unsatisfactory fruits and vegetables that are thrown away during sorting.6. but no information is recorded to enable it to be repeated. This requires staff training. from spillage during filling into packs or from food that sticks to equipment and is lost during washing. These aspects are discussed in more detail in Sections 2. having good quality .

4. Using the data from experimental production trials.2). it is necessary to calculate the amount of raw materials and ingredients that are needed to produce the required weight of product each day.44 using the following formula: Other ingredient costs are estimated as follows: sugar $0.4) Using mango chutney as an example.3 per day. Figure 32 shows losses during each stage of the process. the true cost of the fruit is calculated as $0.2 per kg in season.Typical losses during the preparation of selected fruits and vegetables Fruit or vegetable Typical losses during preparation (%) Notes Apples 23 peeled & cored Apricot halves Bananas Cabbages Carrots Cauliflowers Currants Figs Grapes Guava Lemons Mangoes Melons Okra Onions Oranges Passion fruits 12 41 30 4 38 3 2 19 22 40 45 42 12 3 25 58 peel & seeds removed peel & seeds removed peel & seeds removed peeled & destoned peel & seeds removed skins & pips removed seeds & skins removed (bought without leaves) destoned peeled .assurance procedures (Section 2. This data is used to calculate operating costs in Section 2. especially during later stages of a process when the product has a higher added value. or less desirably estimates based on data in Tables 17 and 18. The amount of mangoes that need to be bought to produce the required weight for each day's production can then be calculated. This will also enable the true cost of raw materials to be calculated for use in financial planning (Section 2.3. vinegar $1. Table 17. The result indicates that only 45% of incoming raw materials were actually used in the product (27 kg of the 60 kg bought).7. also reduces wastage.3. If mangoes were bought for $0.6/kg. .25 per litre and total spice costs of $1.

embassies of other countries and trade or manufacturing associations. In some enterprise development programmes. Chambers of Commerce. Information on the types and suppliers of equipment is often difficult to obtain. and from field data collected by the author) Equipment required Using the process chart (Figure 32). The decisions on equipment requirements are also influenced by:  the cost and availability of machinery  the availability of people who are skilled in  maintenance and repair  the availability and cost of spare parts and  the possibilities of local equipment fabrication. university departments. there may be wider social objectives of employment creation which may influence such decisions. In doing this. This information then allows the processor to decide what equipment is required and the size (or 'scale' or 'throughput') that is needed. Table 18. the weight of food that should be processed at each stage is then calculated in kg per hour. food research institutes.Pawpaws Peas Peppers . decisions need to be taken on the relative benefits of employing a larger number of workers or buying machinery to do a particular job.green Pineapples Plantains 38 50 15 14 48 39 peel & seeds removed bought in pods seeds & stalk removed seeds & stalk removed peeled & cored peeled Tomatoes 4 seeds & skin removed (Adapted from data in The Composition of Foods by Paul and Southgate.chilli Peppers . Stages in a Process Washing fruits/vegetables Sorting Peeling Slicing/dicing Typical losses 0-10 5-50* 5-60 5-10 Batch preparation/weighing 2-5 . but catalogues and sometimes databases of equipment manufacturers and importers may be available at offices of national and international development agencies. .Typical Losses During Processing of Fruits and Vegetables.

3) and the relative cost and availability of different types of packaging. it is necessary to state the throughput required in kg per hour and the type of food to be processed. to buy equipment from local suppliers and fabricators because servicing and obtaining spare parts should be faster and easier. Using the process chart. the promotional and marketing requirements (Section 2. moisture etc. as many manufacturers have a range of similar products. Professional advice should be sought from a food technologist or in some countries. In fruit and vegetable processing. It is possible to have all workers doing the same type of activity throughout the day. It is important also to include work such as store management. Selection of packaging materials frequently causes the largest problems for small producers and is often the main cause of delay in getting a business established.5. (described in Section 2. it is possible to break down the production into different stages and then decide the number of people who will be needed for each stage of the process. the following points should be considered: when ordering equipment. whether single or three-phase power is available and the number and types of spares required. Staffing levels Decisions on the numbers and types of workers that are required to operate the proposed business are taken in conjunction with decisions on equipment procurement. crushing. packaging specialists or agents of packaging manufacturers. These include the technical requirements of the product for protection against light.2). However. As a minimum.5. air. The quotations received from equipment suppliers can then be used when calculating financial viability (below).Boiling** Drying** Packaging Machine washing Accidental spillage 5-10 10-20 5-10 5-20 5-10 Rejected packs 2-5 * Unsatisfactory raw materials depend on source and agreements with suppliers ** does not include evaporation losses It is preferable wherever possible. should also be given. Where possible other information such as the model number of a machine. if equipment has to be imported. it is important to specify exactly what is required.8. Packaging Similar considerations apply when ordering packaging materials as there is a very wide range available and there are a number of considerations that should be taken into account by the producer. quality assurance and book-keeping when planning employment levels. and for individual products in Section 2. Assistance from a food technologist working in a local university or food research institute may be required to research and order equipment. each day's work will initially involve preparation of the raw materials and then move through processing to packaging. but it is often more efficient to allocate .

386 5 719 Production required per day @ 20 days' work per month (kg) 36 .Activity chart used to plan job allocations for staff to produce mango chutney This type of chart is useful for assessing the time required to complete each stage of the process and for thinking through the problems that are likely to occur. but in other types of process it may be more convenient or efficient to stagger each person's break at different times. fruit preparation has finished and while one worker (Y) washes down the preparation area. . When production begins. using the example of chutney production.4. In other plans. packages require check-weighing to ensure that they contain the correct weight of product (Sections 2.7. finance management and product distribution/sales. the total number of workers is estimated from the process requirements shown on the process chart (Figure 32).2 and 2. In the example. particularly at a later time when the business expanded. it will require three workers to peel and slice this amount of fruit within two hours (Figure 33). Table 19. In this plan. ingredients and packaging that will be required. As the first batch of product cools sufficiently. Similarly.different jobs to each worker as the day progresses.30 am). Figure 33. in Table 19. the technical part of a feasibility study involves taking information about the expected demand from the market survey and calculating the process throughput required to meet that demand. . It is estimated that two workers will be able to wash and sort 40 kg mangoes within ninety minutes. the level of staffing and the amounts of raw materials. A convenient way of planning this is to draw an Activity Chart. It is calculated that three hours will be needed for two people to fill and seal 240 bags (36 kg).00 am. This is a time-consuming stage as manual filling and sealing have been selected. In summary. it can be used as a basis for training in each job and it should be constantly reviewed to optimise production efficiency. these jobs could be done by trained staff. This time could be reduced if a mechanical filler/sealer was bought. Additionally. all workers have a lunch break at the same time. This can then be used to decide on the type of equipment. In the example of chutney processing.Summary of technical feasibility calculations for mango chutney production Information required Estimated market size (kg/month) Estimated share of market Production required per month to meet market share (kg) Data obtained 14. By 11. the number of people involved with each activity and the sequence of work that individuals will do during the day. These are summarised. one of the three workers (X) can begin preparing the batches of ingredients and boiling the chutney. This shows the type of work that is to be done each hour during the day. Once sliced fruit becomes available (by around 9. the third (Z) labels the previous day's production and packs them into boxes ready for distribution. record keeping. the owner/manager (M) is involved with staff supervision.2). work can begin after lunch on filling and sealing it into 150g plastic bags.

Financial feasibility Start-up costs Operating costs Income and profit Financial planning Preparing a business plan Having completed the study of technical feasibility. the market survey will have supplied information about the sale price that could be achieved for the new product. Additionally. it is likely that money will be required to buy or convert a building and buy equipment to start production.Minimum Process throughput @ 8 hours per day (kg/hr) Weight of mangoes required per day (kg) Losses on arrival due to sorting (%) Amount of losses in the process (%) .4.wastage/spillage .3.3.evaporation losses during boiling (%) Minimum size of equipment required (kg/hr) for washing/sorting peeling/slicing boiling (2 batches of 10 kg per hour) packing (bags per person per hour) Number of people required to operate the process 4. The entrepreneur is therefore in a position to calculate the expected income and expenditure and hence the gross profit that can be achieved.5 60 14 10 45 15 10 34 60 40 10 40 3 plus owner/manager 2.5. The start-up capital is the amount of . Start-up costs When a new fruit and vegetable processing business is started.mixing losses . it is necessary to buy a stock of packaging materials and the initial raw materials and ingredients. Details of suitable buildings are given in Section 2.packing losses . the entrepreneur should then have sufficient information to determine the costs that are likely to be involved in production. Additionally.peeling losses .

The requirement for working capital also continues as the business develops and is discussed further under 'Cashflow' below. . that have to be made before the business begins to generate income from sales of the product.5 Staff training (equivalent to income from 2 weeks' production value)** 1476 The owner's equity is $2.3) Equipment (from Figure 32) Registration of business Business Licence Hygiene inspection and certificate Packaging (minimum order) Initial production promotion Staff salaries for 6 weeks TOTAL * 60 kg mangoes/day @ $0.money that is needed to buy the facilities and equipment.25/litre = $337.3/day = $26/month ** Sales @ $4. 13. to register and licence the business and get the necessary hygiene certificates.2/kg = $240/month. fruit and vegetable processing has relatively high requirements for working capital compared to other types of food processing. Using the example of chutney production.5 litres vinegar/day @ $2.500 and a loan of $1. Operating costs . As described in Section 2. 27 kg sugar/day @ $0.1/kg (Table 14) x 36 kg/day = $1476 for 2 weeks. Spices cost $1. using representative data from the country concerned. the start-up costs are estimated in Table 20.000 is agreed at the same time to take account of a negative cashflow during the first year of operation (see Table 22)).1.5/month. This is because of the seasonal nature of crop production and the need to buy several month's supply of crops during the season and part process them so that production can continue for a larger part of the year. product promotion etc. The start-up capital and initial working capital are calculated to determine whether the entrepreneur's savings (known as the owner's equity) will be sufficient to start the business without a loan.989 is taken to meet the total start-up costs.5 Raw materials & ingredients for 4 weeks' production (from Figure 32)* 927.7. staff training. Table 20. $ 800 350 50 25 50 200 250 360 4488.5.Start-up costs for chutney production Start-up cast Conversion of building (Section 2. (A further option of a second partner's equity of $2.6/kg = $324/month. packaging. Working Capital includes the costs of raw materials.

the loan of $1989 is repaid within the first year with a fixed interest rate of 40% per month. Table 21. accountant's fees) Maintenance of equipment (10% of value) Depreciation of equipment (over 3 years) Business registration fees.842 * Labour is a fix cost if workers are permanently employed as full-time staff. Examples of each are shown in Table 21 again using chutney production as an example.Summary of fixed and variable operating costs for mango chutney Type of Production Costs FIXED COSTS Rent Labour* Loan repayment** Interest charges** Professional fees (e. Income and profit .g. hygiene certificates and other licences Total fixed costs VARIABLE COSTS Raw materials (Table 20) Other ingredients Fuel Power Packaging materials Transport/distribution Labour* Advertising and promotion Total variable costs 2880 8250 800 250 1800 450 1150 15. In this example. The first type are known as fixed costs and the second type are variable costs. permanent labourers are paid $80/month. but it is described as a variable cost if people are only employed when production takes place. .There are two types of operating (or production) costs: those expenses that have to be paid even if no production takes place and those that depend on the amount of food that is produced. ** In this example.580 1200 2880 19898 796 120 35 117 125 7262 Actual costs for Chutney Production per Year ($) Total operating costs per Year 22.

there are distribution costs and perhaps special promotion costs that should also be included. When selecting a price for a product. In the example using mango chutney.1 . does not take account of competitors' prices and to be successful. This however. The price that is charged for the product should therefore allow the producer. two approaches can be taken: first the price can be based on production costs and it is set to ensure that income exceeds the total costs. Figure 34. Income is therefore calculated as follows: Income = Selling price per unit x number of units sold The income clearly depends on both the price of a product and the amount that is sold.From the market survey. Unless the new product is to be sold directly from the production unit or through a sales outlet owned by the producer. the new product should be priced at or below the price of other similar products. In addition. Above this point is the minimum level of production that can enable the enterprise to make a profit (Figure 34). the operation of the business should be above the breakeven Point. When the production costs and income are compared using the second approach. the estimated market size and share enables the expected sales to be calculated. it is also important to remember the profit that will be expected by retailers. including any loan repayments. In many countries this profit is normally 10-25% of the value of each pack.Breakeven Point . The gross profit (or gross loss) is the difference between the expected income and the total operating costs over the first year. the distributors and the retailers to make an adequate profit.7/kg). The second approach is therefore to set the price to compare favourably with existing products and calculate the likely profit at the planned scale of production. the income to the producer is the sale price less 10% for retailer's profits ($4.10% = $3. .

555 per pack .600 bags per year = $ 0. the contribution for variable costs per pack (Table 21) = $ 15.270 The sale price per pack = $ 3.Breakeven point can be calculated as follows:  calculate the contribution for variable costs per pack  subtract the value obtained from the sale price to obtain the 'unit contribution'  calculate the total fixed costs per year  divide the fixed costs by the unit contribution to obtain the annual production rate that will allow the business to break even In the example of chutney production.61 packs per kg = $ 0.7/kg/6.380/57.

2 M A M 1.4 1. is given in Table 22.1 2.7 22. the breakeven point = (25.8 1.5 2.8 1.8 1. A common source of business failure happens when an owner removes cash to pay for a funeral or other family occasions and disrupts the cashflow of the business to a point that it cannot continue trading.2 1. the more difficult it is for a process to be profitable. This leaves a gross profit of $9.600 bags per year).7 J 1.Example of cashflow forecast for chutney manufacture Month Income ($'000) Expenses ($'000) Cumulative Profit/loss ($'000) J 0.7 2.0 1. This is known as a cashflow forecast and an example. If all products are sold. there is a question over the wisdom of proceeding further with the proposed business.8 J A S O N D Total 2. the entrepreneur should carefully examine the data to see if production costs can be reduced. the annual income is calculated to be $31.4 1. Financial planning If the gross profit indicates that the proposed fruit and vegetable processing business is likely to be successful.7/kg x 240 days per year). which is recorded as another business expense. the processor must operate at above 44% of the available capacity in order to make a profit.285 Total fixed costs per year = $ 7262 Breakeven = fixed costs/unit contribution = 7262/0.8 19. which after taxes. Clearly the higher the figure for the break-even point.126 per year.3) 0 .8 1.968 (36 kg per day @ $3. The money belongs to the business and they should take a fixed wage.9 1.2) (1.0 2.6) (1.270 = 0.0 F 0.9 3. Table 22.555-0.48157.5 1.2 + 2.1 2. It should be noted that entrepreneurs should not automatically consider the gross profit as their own income. .285 = 25.2 2.4 0.481 packs per year When expressed as a % of total production capacity (57.8 1.842.8 (0. If not. If the feasibility study shows that the scale of production required to meet the expected market share is below the break-even point.9) (0.600) x 100 = 44. The annual production costs are calculated in Table 21 as $22.7 2. it is then necessary to repeat the calculation of monthly gross profit for one to three years.2% In other words.Unit contribution = sale price . This will then show whether there is sufficient cash available to operate the business without the need for further loans.(variable + labour contributions) = 0.2 1.0 1.4) (0.9 2.6 1. is available to pay the owner a salary and for re-investment and expansion of the business.6) (1. calculated for one year only for chutney manufacture.4 1.

in assessing financial feasibility. Preparing a business plan The advantages of writing down the results of the feasibility study are as follows:  the findings can be set out in a clear and logical way. when the harvest season finishes). production routines were becoming established and as a result. in this case after seven months. it makes the entrepreneur feel more confident about success  it helps the entrepreneur to decide how much money is needed and if properly prepared. The expenditure on supplies of packaging materials and fruit during this time leads to an accumulated negative cashflow of $1. This expenditure and the need to tie up cash in stored packaging can be very damaging to a business cashflow. An example of a monthly profit and loss account is shown in Figure 54. From the data in Table 22 it can be seen that during the initial start-up period during January and February. to calculate the net monthly profit before tax over the first three years. This illustrates one of the benefits of conducting a feasibility study: the losses made over the first few months are planned and can be addressed by taking out a loan or using the owner's equity. it gives the loan agency confidence that their money will be repaid. The entrepreneur should assess the alternatives of paying a higher unit price for small amounts of packaging or suffering a negative cashflow.900 by April. Finally. The second partner's equity of $2000 was taken in May. . so that potential lenders can understand the business and its likely risks/advantages  the document helps the entrepreneur to clarify and focus his/her ideas  it is reference material that can be used to plan long term development of the business  the plan can be regularly consulted and updated as a guide to the business development  mistakes can be made on paper rather than in the operation of the business  when the plan shows that a successful business is possible. A similar forecast is made to show the expected development of the business over three years (not forgetting to take account of the expected actions of competitors).Figures in ( ) indicate a negative cashflow. A particular problem for all small businesses is the need to order packaging materials in bulk because of minimum order sizes. sales were low. if sales are expected to fall for a while or if raw material costs rise temporarily (e. This gives both the owner and any lenders the confidence to know that the business is under control and that the negative cashflow will cease. This should not be done just at the start of a business but also later on. Lenders are more willing to provide a loan if they are confident that the finances of the business are planned and managed. the data is presented as a Profit and Loss Statement.g.

owner's resources that will be used. their qualifications and experience. likely expansion (or contraction) of the market. where they are located. Future plans: objectives of the business and expectations for the next 3-5 years. It is important to include as much detail as possible and if necessary do thorough research first. size of loan required and what it is for. Although there is no fixed way of writing a plan. packaging etc. Finance: amount required for start-up and initial operation. If lenders can understand what is involved in the business. why the business is a good idea. the production process. the number and types of competitors. they are more likely to approve a loan. their strengths and weaknesses and their expected reactions to a new product. . The product: details of the raw materials. the size and value of the market. avoiding jargon and technical language as much as possible. product cost. who is expected to buy it. Basic information: the name and address of the owners. Selling plan: distribution and sales methods.Most lenders have little understanding of fruit and vegetable processing and the entrepreneur should therefore write the business plan in a simple way. expected market share. What is special about the product compared to those of competitors. quality assurance. planned promotion. The market: the potential customers. including profit and loss statement and cashflow forecast for three years. local government and Department of Health (or equivalent) for hygiene inspection and certification. It is also important to look outwards from the business to judge what competitors will do and how the business will develop to become sustainable. the sections that could be included are summarised as follows and in Appendix III: Introduction: to summarise what the product is. equipment and its cost. Business registration: steps that have been taken or are planned to register the business with tax authorities. building to be used and services that are needed. Premises/equipment: where the business will be located. security on the loan. steps taken to meet health and hygiene laws.

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