fodder production trading company.pdf

7/27/2019 fodder production trading company.pdf

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Pre-Feasibility Study

Prime Ministers Small Business Loan Scheme

Fodder Production & Trading Company

Small and Medium Enterprises Development Authority

Government of Pakistan

www.smeda.org.pkHEAD OFFICE

4th Floor, Building No. 03Aiwan-e-Iqbal Complex, Egertern Road Lahore

Tel: (042) 111-111-456, Fax: (042) 5896619, [email protected]

REGIONAL OFFICEPUNJAB

REGIONAL OFFICESINDH

REGIONAL OFFICENWFP

REGIONAL OFFICEBALOCHISTAN

3rd Floor, Building No. 03Aiwan-e-Iqbal Complex,Egertern Road LahoreTel: (042) 111-111-456,

Fax: (042) 5896619,5899756

[email protected]

5TH Floor, BahriaComplex II, M.T. Khan

Road, Karachi.

Tel: (021) 111-111-456Fax: (021) 5610572Helpdesk-

[email protected]

Ground FloorState Life Building

The Mall, Peshawar.

Tel: (091) 9213046-47Fax: (091) [email protected]

Bungalow No. 15-AChaman Housing Scheme

Airport Road, Quetta.

Tel: (081) 831623, 831702Fax: (081) [email protected]

September 2013
http://www.smeda.org.pk/http://www.smeda.org.pk/mailto:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]://www.smeda.org.pk/


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Pre-Feasibility Study Fodder Production & Trading Co.

2

September 2013

Contents

1. DISCLAIMER ......................................................................................................................... 32. PURPOSE OF THE DOCUMENT ......................................................................................... 43. INTRODUCTION OF SMEDA .............................................................................................. 44. INTRODUCTION TO SCHEME ........................................................................................... 55. EXECUTIVE SUMMARY ..................................................................................................... 56. BRIEF DESCRIPTION OF PROJECT ................................................................................... 67. CRITICAL FACTORS ............................................................................................................ 68. INSTALLED AND OPERATIONAL CAPACITIES ............................................................ 69. GEOGRAPHICAL POTENTIAL FOR INVESTMENT ........................................................ 710. POTENTIAL TARGET MARKET ..................................................................................... 711. PROCESS FLOW ................................................................................................................ 712. PROJECT COST SUMMARY ............................................................................................ 8

12.1 Project Economics ..................................................................................................... 812.2

Project Financing .......................................................................................................... 9

12.3 Project Cost ................................................................................................................ 912.4 Space Requirement ................................................................................................... 912.5 Machinery and Equipment...................................................................................... 1012.6 Raw Material Requirements ................................................................................... 1012.7 Human Resource Requirement ............................................................................. 1112.8 Revenue Generation ............................................................................................... 1112.9 Other Costs............................................................................................................... 11

13. CONTACTS - SUPPLIERS .............................................................................................. 1114. ANNEXURES ................................................................................................................... 13

14.1 Income Statement................................................................................................... 1314.2

Balance Sheet ......................................................................................................... 14

14.3 Cash Flow Statement ............................................................................................. 1514.4 Useful Project Management Tips ......................................................................... 1614.5 Useful Links ............................................................................................................. 17

15. KEY ASSUMPTIONS....................................................................................................... 18


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1. DISCLAIMERThis information memorandum is to introduce the subject matter and provide a general

idea and information on the said matter. Although, the material included in this

document is based on data/information gathered from various reliable sources;

however, it is based upon certain assumptions which may differ from case to case. The

information has been provided on as is where is basis without any warranties or

assertions as to the correctness or soundness thereof. Although, due care and diligence

has been taken to compile this document, the contained information may vary due to

any change in any of the concerned factors, and the actual results may differ

substantially from the presented information. SMEDA, its employees or agents do not

assume any liability for any financial or other loss resulting from this memorandum in

consequence of undertaking this activity. The contained information does not preclude

any further professional advice. The prospective user of this memorandum is

encouraged to carry out additional diligence and gather any information which is

necessary for making an informed decision, including taking professional advice from aqualified consultant/technical expert before taking any decision to act upon the

information.

For more information on services offered by SMEDA, please contact our website:

www.smeda.org.pk
http://www.smeda.org.pk/http://www.smeda.org.pk/http://www.smeda.org.pk/


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2. PURPOSE OF THE DOCUMENT

The objective of the pre-feasibility study is primarily to facilitate potential entrepreneurs

in project identification for investment. The project pre-feasibility may form the basis of

an important investment decision and in order to serve this objective, the

document/study covers various aspects of project concept development, start-up,

production, marketing, finance and business management. The document also provides

sectoral information, brief on government policies and international scenario, which

have some bearing on the project itself.

The purpose of this document is to facilitate potential investors in Fodder Production &

Trading by providing them a holistic as well as a micro view of business with the hope

that such information as provided herein will aid the potential investors in crucial

investment decisions.

The need to come up with pre-feasibility reports for undocumented or minimally

documented sectors attains greater imminence as the research that precedes such

reports reveal certain thumbs of rules; best practices developed by existing enterprises

by trial and error, and certain industrial norms that become a guiding source regarding

various aspects of business set-up and its successful management.

Apart from carefully studying the whole document one must consider critical aspects

provided later on, which form basis of any Investment Decision.

3. INTRODUCTION OF SMEDA

The Small and Medium Enterprises Development Authority (SMEDA) was established in

October 1998 with an objective to provide fresh impetus to the economy through

development of Small and Medium Enterprises (SMEs).

With a mission "to assist in employment generation and value addition to the national

income, through development of the SME sector, by helping increase the number, scale

and competitiveness of SMEs" , SMEDA has carried out sectoral research to identify

policy, access to finance, business development services, strategic initiatives and

institutional collaboration and networking initiatives.

Preparation and dissemination of prefeasibility studies in key areas of investment hasbeen a successful hallmark of SME facilitation by SMEDA.

Concurrent to the prefeasibility studies, a broad spectrum of business development

services is also offered to the SMEs by SMEDA. These services include identification of

experts and consultants and delivery of need based capacity building programs of

different types in addition to business guidance through help desk services.


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4. INTRODUCTION TO SCHEME

Prime Ministers Small Business Loans Scheme, for young entrepreneurs, with an

allocated budget of Rs. 5.0 Billion for the year 2013-14, is designed to provide

subsidised financing at 8% mark-up per annum for one hundred thousand (100,000)

beneficiaries, through designated financial institutions, initially through National Bank of

Pakistan (NBP) and First Women Bank Ltd. (FWBL).

Small business loans with tenure up to 7 years, and a debt : equity of 90 : 10 will be

disbursed to SME beneficiaries across Pakistan, covering; Punjab, Sindh, Khyber

Pakhtunkhwah, Balochistan, Gilgit Baltistan, Azad Jammu & Kashmir and Federally

Administered Tribal Areas (FATA).

5. EXECUTIVE SUMMARY

This document is developed to provide the insight of the said business with potential

investment opportunity in fodder production and trading unit to cater the need of the

emerging market.

Fodder business is proposed to be located in rural areas of Sindh, Punjab, KPK and

Baluchistan where water is available in abundant quantity.

Product(s) include Dry Fodder, and Green Fodder

Capacity; Installed capacity 185 Tons / Acre / Crop and initial utilization 90 %

Total Cost Estimates is Rs. 2,218,250 with fixed investment Rs.1,312,000 and working

capital Rs. 906,250

Given the cost assumptions, IRR and payback are 51 % and 3 years respectively.

The most critical considerations or factors for success of the project are

1. Contract Management

2. Applying the correct balance of nutrients


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6. BRIEF DESCRIPTION OF PROJECT

Animals consume green fodder in high quantity as it is backed by water so people dontfind it economical. While Alfalfah is consumed less as the making process rinse the

moisture, but give the same nutrition to the animal. Secondly, the requirement is

persistent across Pakistan and round the year vis--vis the international market is also

open and looking for a new venture to trade.

Technology: This proposed fodder production unit will use new cutting and used

bailer machines for cutting and bailing of forage.

Location: Fodder can be cultivated in any rural area where water is easily available

and land is suitable for optimum fodder yield.

Product: The proposed project will produce Green fodder and Dry Fodder

Target Market: In addition to local markets of urban and mostly rural areas, there is

a huge potential of exports in dry and bailed form.

Employment Generation: The proposed project will provide direct employment

to 06 people. Financial analysis shows the unit shall be profitable from the very first

year of operation

7. CRITICAL FACTORSThe most critical considerations or factors for success of the project are

Contract Management

Availability of water

Applying the correct balance of nutrients

Applying fertilizer at the right time.

8. INSTALLED AND OPERATIONAL CAPACITIES

Production capacity of the proposed fodder production and trading unit would be around

25 to 30 tons/acres per annum on contract farming basis. It has assumed that contract

farming would be done on 20 acres of land, where 90% of fodder will be sold as Dry

Fodder and 10% of total production will be sold as Green Fodder. As moisture contents

are up to 70% therefore total production of dry fodder is calculated at 135 Tonnes /


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anum (30% of green) and Green Fodder at 50 Tonnes / anum. There will be 6 cut per

acre / anum for fodder.

9. GEOGRAPHICAL POTENTIAL FOR INVESTMENT

Pakistan is primarily an agricultural country and majority of population is directly

involved in agriculture business. Therefore, for the proposed project location would not

be critical in terms of availability of labor, utilities or other production requirements.

Fodder business is proposed to be located in rural areas of Sindh, Punjab, KPK and

Baluchistan where water is available in abundant quantity.

10. POTENTIAL TARGET MARKET

The fodder industry is becoming progressively more mechanized. Todays producer isbecoming more efficient by having tractors, cutters and trucks for logistics. Stakeholders

related to this sector agree that providers and sources are not enough to meet annual

requirement of fodder. The livestock is increasing in numbers which might increase the

size of the market in future, but, to be a successful fodder producer and trader, one

requires plenty of experience, energy and a good location. During discussion with

stakeholders it was observed that the existing practice of market is that customers come

to door step and buy in bulk. But there are several sale points available where a huge

amount of fodder is being supplied. These un-served segments comprise of regular and

occasional mandis, farm houses and down-town areas or suburbs where people use

cattle, buffalo and cows.

11. PROCESS FLOW

Mowing

Storage /

Stackin

Swath

Customer(Local/International


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12. PROJECT COST SUMMARY

A detailed financial model has been developed to analyze the commercial viability of[the project] under the Prime Ministers Small Business Loan Scheme. Various cost andrevenue related assumptions along with results of the analysis are outlined in this

section.

The projected Income Statement, Cash Flow Statement and Balance Sheet areattached as appendix.

12.1 Project Economics

All the figures in this financial model have been calculated on contract farming basis on20 Acres of Land with an assumption of 25-30 tonnes fodder production per acre peranum. There will be 6 crop cut per anum and dry fodder is produced by drying 70% ofmoisture contents from green fodder. For the proposed project 90% of revenue will

come from dry fodder therefore average production of Dry fodder will be 135 Tons /Acre / Anum and Green fodder (10% of Total Production) 50 Tons / Acre / Anum will beproduced.

The following table shows internal rates of return and payback period.

Table 1 - Project Economics

Description Details

Internal Rate of Return (IRR) 51%

Payback Period (yrs) 3.0

Net Present Value (NPV) 10,560,251

Returns on the scheme and its profitability are highly dependent on fertility of land, goodagricultural practices and availability of water. In case of fodder production thesefactors are not very efficient, they will not be able to cover the potential demand of livestock and dairy sector and recover payments; hence cost of operating the business willincrease. Similarly, to produce optimum output, using good quality seeds and choosingfertile land will be a better option for this investment.


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12.2Project Financing

Following table provides details of the equity required and variables related to bankloan;

Description Details

Total Equity (10%) Rs.221,825Bank Loan (90%.) Rs.1,996,425

Markup to the Borrower (%age/annum) 8%

Tenure of the Loan (Years) 07

12.3 Project Cost

Following requirements have been identified for operations of the proposed business.

Table 1: Capital Investment for the Project

Capital Investment Amount (Rs.)

Land (Leased / Rental basis)Tools & Equipments 1,030,000

Building / Infrastructure (Office Renovation) 60,000Furniture & fixtures 122,000

Preliminary Expenses 100,000

Total Capital Costs 1,312,000

Initial Working Capital 906,250

Total Project Cost 2,218,250

12.4 Space Requirement

Fodder will be cultivated on 20 Acres of fertile land which can be acquired on contractfarming basis. Trading will be managed from Head office situated in any major city andcan be set up on monthly rental basis. For this project we have assumed the followinglease/rentals rates for cultivation and trading office.

Table 2: Land Requirement

Area Required Area Monthly RentCharges (Rs.)

Yearly Rent(Rs.)

Management/ Trading Office 500 Sq. Ft. 15,000 180,000

Land on Contract Farming 20 Acres 20,000 400,000Total Rent 35,000 580,000


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Total working capital for Land and Office space is calculated to be Rs. 105,000 for 3months.

12.5 Machinery and Equipment

Following table provides list of machinery and equipment required for cultivation offodder.

Table 3: List of Machinery and Equipment

Description QuantityCost

Rs/unitTotalRs.

Cutter 1 700,000 700,000

Bailer 1 300,000 300,000Tractor (On rent as per requirement) 1

Raker (On rent as per requirement) 1

Total 1,000,000

These costs are based on the assumption that a setup will be required for bookkeeping, marketing and trading of Fodder across the country.

Table 4: Office Equipment Costs

Quantity Cost Amount

Computers with UPS 1 35,000 35,000

Computer printer 1 10,000 10,000

Telephones 3 2,000 6,000Fax machines 1 12,000 12,000

UPS & Battery 1 25,000 25,000

Furniture Nos 42,000 34,000

Total 122,000

12.6 Raw Material Requirements

Table 5: Cost of Material (Per Acre)

Unit Rate Rs. / Acre

Seeds (Kg / acre) 10 450 4,500

Fertilizers 1 1,700 1,700

Pesticides Spray 1 1,000 1,000

PP Bags (50 Kg) 185 50, 9,250

Water 1 1,200 1,200

Cost per Unit 17,650


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12.7 Human Resource Requirement

Table 6: Human Resource Requirement

Description Nos. Salary per month Total

Owner 01 25,000 25,000

Supervisor 01 18,000 18,000Machine Operator 01 12,000 12,000

Land Labor 02 10,000 20,000

Marketing executive 01 20,000 20,000Total Staff 06 95,000

The table above provides details of human resource required to run a fodder producingand trading company. Salaries of all employees are estimated to increase at 10%annually.

12.8 Revenue Generation

In this project it is assumed that 20 acres of land will be cultivated to produce six cropsof fodder in a year. Total 810 tons (30% of green) of dry fodder and 300 tons of greenfodder will be produced which will generate an average annual revenue of Rs. 5 million.

ProductUnit (tons/ crop)

SalesPrice

(Rs./Unit)

First YearProduction(6 crops)

First YearSales

Revenue(Rs)

Dry Fodder (30% of Green) 135 5,400 810 4,374,000

Green Fodder 50 2,100 300 630,000

Total Sales Revenue 5,004,000

12.9 Other Costs

An essential cost to be borne by the company is the miscellaneous cost incurred bymanagement staff during their visits to farmers. It is estimated that average Rs. 30,000will be incurred in a month. Similarly, electricity, water and telephone expense isestimated to be about 30,000 per month.

13. CONTACTS - SUPPLIERS

1. NEW CHAUDHRY AGRICULTURAL MECHANICAL ENGINEERSChowk A.T.M. Vehari Road Multan, LahorePhone:+92-61-36527607, +92-61-36529022,+92-61-36526132.Fax# +92-61-34233706


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2. AGROTRACTORS (PVT)LTD

38-AMAINGULBERGLahorePakistan

Phone: +92 42 35871746


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14. ANNEXURES

14.1 Income Statement

Projected Income Statement (Rs.) Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year

Revenue 5,004,000 5,779,620 6,675,461 7,710,158 8,905,232 10,285,543 11,879,802 13,721,171 15,847,953 18Sales on Credit 500,400 577,962 667,546 771,016 890,523 1,028,554 1,187,980 1,372,117 1,584,795 1

Sales on Cash 4,503,600 5,201,658 6,007,915 6,939,142 8,014,709 9,256,989 10,691,822 12,349,054 14,263,158 16

Beginning Inventory - 83,269 91,804 101,214 111,589 123,027 135,637 149,540 164,867

Ending Inventory 83,269 91,804 101,214 111,589 123,027 135,637 149,540 164,867 181,766

Bed Debt Expenses 10,008 11,559 13,351 15,420 17,810 20,571 23,760 27,442 31,696

Net (Adjusted Sales) 4,910,723 5,759,526 6,652,700 7,684,363 8,875,984 10,252,362 11,842,140 13,678,401 15,799,358 18

Cost of Sales 2,998,000 3,304,295 3,641,885 4,013,968 4,424,069 4,876,072 5,374,259 5,923,349 6,528,544 7

Cultivation Cost 2,598,000 2,864,295 3,157,885 3,481,568 3,838,429 4,231,868 4,665,635 5,143,862 5,671,108 6

Cultivation Land Rent 400,000 440,000 484,000 532,400 585,640 644,204 708,624 779,487 857,436

- - - - - - - -

Gross Profit 1,912,723 2,455,231 3,010,815 3,670,394 4,451,914 5,376,289 6,467,881 7,755,052 9,270,814 11

Gross Profit Margin 39% 43% 45% 48% 50% 52% 55% 57% 59%

General Administrative & Selling Expenses

Salaries 1,140,000 1,254,000 1,379,400 1,517,340 1,669,074 1,835,981 2,019,580 2,221,537 2,443,691 2

Office Rent 180,000 198,000 217,800 239,580 263,538 289,892 318,881 350,769 385,846

Amortization of Preliminary Expenses 20,000 20,000 20,000 20,000 20,000 - - - -

Depreciation Expense 121,200 109,080 98,172 88,355 79,519 71,867 64,681 58,213 52,391

Maintenance Expense 10,300 10,300 10,300 10,300 10,300 10,300 10,300 10,300 10,300

Selling & Distribution 147,322 172,786 199,581 230,531 266,280 307,571 355,264 410,352 473,981

Subtotal 1,618,822 1,764,166 1,925,253 2,106,106 2,308,711 2,515,611 2,768,705 3,051,171 3,366,209 3

Operating Income 293,901 691,065 1,085,562 1,564,289 2,143,204 2,860,678 3,699,175 4,703,881 5,904,605 7

Financial Charges 151,702 133,301 113,373 91,791 68,417 43,104 15,690 - -

Earnings Before Taxes 142,199 557,764 972,189 1,472,498 2,074,786 2,817,574 3,683,486 4,703,881 5,904,605 7

Tax - 55,776 68,328 143,375 262,457 426,893 643,371 933,664 1,293,882 1

Net Profit 142,199 501,987 903,861 1,329,123 1,812,329 2,390,680 3,040,114 3,770,217 4,610,724 5

Monthly Profit After Tax 11,850 41,832 75,322 110,760 151,027 199,223 253,343 314,185 384,227

FODDER Production & Trading Business


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14.2 Balance Sheet


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14.3 Cash Flow Statement


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Pre-Feasibility Study Fodder Production & Trading Co.

16

September 2013

14.4 Useful Project Management Tips

Technology

Cutter

Bailer

Tractor (On rent as per requirement)

Raker (On rent as per requirement)

Energy Requirement: Should not be overestimated or installed in excess and

alternate source of energy for critical operations be arranged in advance.

Machinery Suppliers: Should be asked for training and after sales services under

the contract with the machinery suppliers.

Quality Assurance Equipment & Standards: Whatever means requiredproducts quality standards need to be defined on the packaging and a system to

check them instituted, this improves credibility.

Marketing

Product Development & Packaging: Expert's help may be engaged for

product/service and packaging design & development

Ads & P.O.S. Promotion: Business promotion and dissemination through

banners and launch events is highly recommended. Product broachers from good

quality service providers. Sales & Distribution Network: Expert's advise and distribution agreements

are required with.

Price - Bulk Discounts, Cost plus Introductory Discounts: Price should never

be allowed to compromise quality. Price during introductory phase may be lower and

used as promotional tool. Product cost estimates should be carefully documented

before price setting. Government controlled prices shall be displayed.

Human Resources

Owner

Supervisor

Machine Operator

Land Labor

Marketing executive


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Adequacy & Competencies: Skilled and experienced staff should be

considered an investment even to the extent of offering share in business profit.

Performance Based Remuneration: Attempt to manage human resource

cost should be focused through performance measurement and performance based

compensation.

Training & Skill Development: Encouraging training and skill of self &

employees through experts and exposure of best practices is route to success.

Least cost options for Training and Skill Development (T&SD) may be linked with

compensation benefits and awards.

14.5 Useful Links

Prime Ministers Office

www.pmo.gov.pk

Small & Medium Enterprises Development Authority (SMEDA)

www.smeda.org.pk

National Bank of Pakistan (NBP)

www.nbp.com.pk

First Women Bank Limited (FWBL)

www.fwbl.com.pkGovernment of Pakistan

www.pakistan.gov.pk

Ministry of Industries & Production

www.moip.gov.pk

Ministry of Education, Training & Standards in Higher Education

http://moptt.gov.pk

Government of Punjabwww.punjab.gov.pk

Government of Sindh

www.sindh.gov.pk

Government of Khyber Pakhtoonkhwa


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www.khyberpakhtunkhwa.gov.pk

Government of Balochistan

www.balochistan.gov.pk

Government of Gilgit Baltistan

www.gilgitbaltistan.gov.pk

Government of Azad Jammu & Kashmir

www.ajk.gov.pk

Trade Development Authority of Pakistan (TDAP)

www.tdap.gov.pk

Security Commission of Pakistan (SECP)

www.secp.gov.pk

Federation of Pakistan Chambers of Commerce and Industry (FPCCI)

www.fpcci.com.pk

State Bank of Pakistan (SBP)

www.sbp.org.pk

Pakistan Institute of Fashion Design(PIFD)

www.pifd.edu.pk

Pakistan Fashion Design Council (PFDC)

www.pfdc.org

15. KEY ASSUMPTIONS

Description

Debt Equity Ratio 90:10

Interest Rate 8%

Loan Tenure 7 Years

Sales Price Growth Rate 10%

Depreciation Rate 10%

Weighted Average Cost of Capital 9.2%

Prepaid Rent Period 6 Months

Increase in Staff Salaries 10%

Increase in Office expense 10%

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