pre-feasibility, parboil rice processing venture in sindh

Pre-Feasibility, Parboil Rice Processing Venture in Sindh

PRE-FEASIBILITY, PARBOIL RICE PROCESSING VENTURE IN SINDH 2010

2

Table of Contents

EXECUTIVE SUMMARY ......................................................................................................................................... 3

1. INTRODUCTION .............................................................................................................................................. 4

2. MARKET ANALYSIS ....................................................................................................................................... 5

2.1. Suitability of Sindh for Parboiled Rice Processing Facility ................................................................. 5

2.1.1. Production of Rice in Sindh .................................................................................................................................. 5

2.2. Export Potential ......................................................................................................................................... 7

2.3. Potential New Markets ............................................................................................................................. 7

2.4. International Scenario ............................................................................................................................... 8

3. THE PROJECT ................................................................................................................................................ 10

3.1. Rice Milling Operation ........................................................................................................................... 10

3.2. Proposed Location................................................................................................................................... 11

3.3. Human Resource ..................................................................................................................................... 11

3.4. Machinery & Equipments ...................................................................................................................... 12

3.4.1. Details of Vehicles .............................................................................................................................................. 12

3.5. Building & Infrastructure ....................................................................................................................... 13

4. THE FINANCIAL ANALYSIS ....................................................................................................................... 14

4.1. Project Economics.................................................................................................................................... 14

4.2. Working Capital ...................................................................................................................................... 14

4.3. Financing Option ..................................................................................................................................... 15

4.4. Project Income Statement ....................................................................................................................... 16

4.5. Project Cash Flow Statement ................................................................................................................. 17

4.6. Project Balance Sheet .............................................................................................................................. 18

ANNEX A ................................................................................................................................................................... 19

ANNEX B ................................................................................................................................................................... 20

IMPORTANT CONTACTS ..................................................................................................................................... 21


3

Executive Summary

Rice is the most important staple food for a large part of the world population. According to FAO

Statistics of 2006, Rice is the grain with the second highest worldwide production, after maize. Its annual

yield worldwide is approximately 535 million tons. Fifty countries produce rice, with China and India

supporting 50% of total production. Southeast Asian countries separately support an annual production

rate of 23 million metric tons of which they export very little.

Pakistan already enjoys huge brand recognition and customer franchise in international rice markets,

both in basmati and non-basmati categories. Sindh produces about 30% of total rice production in

Pakistan and is the main producer of non basmati rice. Non-Basmati varieties of Sindh, namely IRRI-6

and IRRI-9 are in great demand internationally mainly from Africa and Far East Asia. Rice processing

facility in one of the rice producing areas of Sindh with the capability of producing parboil rice is a

perfect recipe for a viable agribusiness venture.

This pre-feasibility study aims at providing critical information on business viability of putting up a

Parboil Rice Processing Plant in Sindh. Among other things, nature of the opportunity; ideal location for

setting up the facility; estimated costs; potential returns; availability of human resource etc. are

presented in an objective manner. The information contained in this paper provides a sound base for

interested investors to build upon it a more detailed and comprehensive Business Plan.


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1. Introduction

Parboiled rice is rice that has been boiled in the husk. Parboiling makes rice easier to process by hand,

improves its nutritional profile, and changes its texture. Polishing rice by hand, that is, removing

the bran layer is easier if the rice has been parboiled. It is, however, somewhat more difficult to process

mechanically. The bran of parboiled rice is somewhat oily, and tends to clog machinery. Most parboiled

rice is milled in the same way as white rice

Parboiling rice drives nutrients, especially thiamine, from the bran into the grain, so that parboiled white

rice is 80% nutritionally similar to brown rice. Because of this, parboiling was adopted by North

American rice growers in the early 20th century.

The starches in parboiled rice become gelatinized, making it harder and glassier than other rice.

Parboiled rice takes more time to cook, and the cooked rice is firmer and less sticky. In North America,

parboiled rice is generally partially or fully precooked by the processor.

Parboiling is a hydrothermal treatment of paddy In other words parboiling means precooking of rice

within the husk. Paddy is first hydrated, then heated to cook the rice and finally dried.

http://en.wikipedia.org/wiki/Rice

http://en.wikipedia.org/wiki/Husk

http://en.wikipedia.org/wiki/Bran

http://en.wikipedia.org/wiki/White_rice

http://en.wikipedia.org/wiki/Nutrients

http://en.wikipedia.org/wiki/Thiamine

http://en.wikipedia.org/wiki/Brown_rice

http://en.wikipedia.org/wiki/Starch


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2. Market Analysis

Rice is the most widely consumed staple food at the global level and is an excellent source of compound

carbohydrates. Pakistan is the 11th largest producer and 4th largest rice exporter. Pakistan produced 6.22

million tons of rice over an area of around 5 million acres. Rice exports remained the second largest

foreign exchange earner for the country after cotton. Sindh province produces about 1.461 million tons

from an area of 0.544 million hectors with an average yield of 2.686 tonnes rice per hector. The main

varieties of rice grown in Sindh are Basmati, Irri6 and Irri9. The fine type variety has different names in

Sindh such as Roosi, GM Basmati, Kernel, Supper, Dubai or Basmati-2000. D-98 Basmati Rice from

Sindh, is also known to the world as ‘Sindhi Basmati’.

2.1. Suitability of Sindh for Parboiled Rice Processing Facility

Nature has blessed Sindh with ideal weather and soil conditions to produce multiple crops in huge

volumes. Sindh is the major producer of non basmati rice in Pakistan and produces 30% of country’s

total rice production. Being the main production base of non-basmati rice Sindh is the most logical

choice for setting up a parboiled rice facility.

2.1.1. Production of Rice in Sindh

Major Rice growing areas in Sindh are Larkana, Shikarpur, Qambar, Shadadkot, Badin, Thatta and

Jacobabad. Like in all other agriculture produce Sindh has a unique advantage of early harvest and hence

the rice processing facilities in Sindh always have the advantage of receiving early crop.

The below charts show area wise rice cultivation and production pattern in Sindh:


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(District wise Sindh Rice Cultivating Area 2006 – 2007)

(District wise Sindh Rice Production Area M.Tons 2006 – 2007)

0.5% 0.1% 0.7% 1.2% 0.8% 0.2% 0.1%

0.0%

19.1%

17.3%

16.1%

7.9%

12.7%

4.6%

10.1%

7.1%

1.5%

Naushero Feroze

Sanghar

Khairpur

Ghotki

Sukkur

Hyderabad

Jamshoro

Nawabshah

Shikarpur

Kamber-Shahdatkot

Larkana

Thatta

Jacobabad

Badin

0.5% 0.1% 0.7% 1.2% 0.8% 0.2%0.1%

0.0%

19.1%

17.3%

16.1%

7.9%

12.7%

4.6%

10.1%

7.1%

1.5%Naushero Feroze

Sanghar

Khairpur

Ghotki

Sukkur

Hyderabad

Jamshoro

Nawabshah

Shikarpur

Kamber-Shahdatkot

Larkana

Thatta

Jacobabad


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The recent exports of rice from Pakistan are almost US $2.0 billion dollars which is around 10% of total

exports of Pakistan. The domestic demand of rice in Pakistan is 2.2 million tonnes which makes 4 million

ton of rice available for exports. Africa is the major rice importer of the world with a total import of 1.4

million tonnes per annum. Irri6 rice of Sindh widely been exported to African countries. Pakistan exports

80 per cent super basmati rice to European Union. The average price of Irri6 is Rs. 32,000 per ton in

Pakistan and export price is US$625 per metric ton. The export price of Parboiled rice is US$ 1,150 per

metric ton.

2.2. Export Potential

After Thailand, Vietnam and USA Pakistan was the 4th largest exporter of rice in the world in 2009. The

total rice export of Pakistan in year 2009 stood 3.2 million tons. In the recent past, Pakistan has been

successfully producing rice substantially in excess to the local demand. This strong production capability

significantly contributed towards Pakistan’s ability to increase its share in the world market. Another

very important world trend supporting Pakistan’s ability to increase its export market share in rice was

the decision of major rice producing countries like India and China to restrict their exports to fulfill their

huge domestic demand.

As rice exports crossed $2 billion mark this year, the sector established itself as the country’s second

largest export earner for the country. Rice export shows a 260 per cent growth in value over the last six

years or an annual growth rate of 25 per cent since 2002-2003.

The global conditions whereby major rice consuming countries are building their rice stocks and the fact

that Pakistan’s main competitors are not actively supplying offer a unique opportunity to Pakistani

exporters to quickly increase their share of the international markets. Rice Export Association of

Pakistan is optimistic that export of the commodity would exceed to $3 billion by 2013.

2.3. Potential New Markets

China, one of the world's biggest rice markets can be exploited by aggressive and intelligent marketing

efforts. Another huge potential market is South Africa where Pakistan has paltry share of only 3 per cent

out of the total market of 10 million tons. Iran is another market for rice which must be thoroughly


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exploited through all available channels. Russia imports 700,000 tonnes rice annually and Pakistani rice

has a lot of potential for rice export to this country.

2.4. International Scenario

Following charts show the major buyers and sellers in the world rice market.


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3. The Project

3.1. Rice Milling Operation

Human beings cannot consume paddy in its raw form. It needs to by suitably processed for obtaining

rice. Rice milling is the process, which helps in removal of hulls and barns from paddy grains to produce

polished rice. Rice forms the basic primary processed product obtained from paddy and this is further

processed for obtaining various secondary and tertiary products.

The Basic Rice Milling Process Consists Of:

Process Definition

1. Pre Cleaning: Removing all impurities and unfilled grains from paddy.

2. De-stoning: Separating small stones from paddy.

3. Parboiling (Optional): Helps in improving the nutritional quality by gelatinization of starch inside the

rice grain. It improves the milling recovery percent during de-shelling and polishing/whitening

operation.

4. Husking: Removing husk from paddy.

5. Husk Aspiration: Separating the husk from brown rice/unhusked paddy.

6. Paddy separation: Separating the unhusked paddy from the brown rice.


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7. Whitening: Removing all or part of the bran layer and germ from brown Rice.

8. Polishing: Improving the appearance of milled rice by removing the remaining bran particles and by

Polishing the exterior of the milled kernel.

9. Length Grading: Separating small and large broken from head rice.

10. Blending: Mixing head rice with predetermined amount of broken, as required by the customer.

11. Weighing and Bagging: Preparing the milled rice for transport to the Customer

PRODUCTION PROCESS

3.2. Proposed Location

Any of the above mentioned rice production centers of Sindh would be ideal for the proposed venture.

The cost of land associated for rice cultivation and production will be at the cost of Rs. 5,000,000/acre.

3.3. Human Resource

Both unskilled and skilled workforce would be required for the proposed venture. Sindh has sufficient

supply of both types of workforce and rice processing is already an established industry and therefore,

finding experienced workforce for any new setup would be very easy.


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Post Hiring before Year-0 (No of months)

No. of personnel

Salary/Month

CEO/Owner 4 1 60,000

Manager 0 1 40,000

Plant Manager/Engineer 4 2 30,000

Telephone Operator - 1 10,000

Accounts Officer 1 1 15,000

Admin Officer - 1 15,000

Contract Labor - 20 8,000

Electrician & Technical Staff

2 2 15,000

Security Staff - 2 10,000

Store Keeper 1 2 10,000

Total 33 213,000

3.4. Machinery & Equipments

Description Amount PKR Parboiling Unit ( 32 T/B) 10,812,500

Husking Unit ( 48 tons per day ) 4,000,000

Polishing Unit (32 tons per day) 5,000,000

Sorting Unit 8,550,000

TOTAL 28,362,500

3.4.1. Details of Vehicles

Motorcycle 1 65,000 65,000

Suzuki Alto 1 750,000 750,000


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3.5. Building & Infrastructure

Description Quantity / Area Sq. Ft.

Cost / Rate Rs. Construction Cost PKR Rs.

Management building 1,000 1,200 1,200,000

Paddy Storage 10,000 500 5,000,000

Parboiled Section 5,000 500 2,500,000

Processing Section 8,000 500 4,000,000

Weighing & Packing 1,000 500 500,000

Rice Storage 5,000 500 2,500,000

Grounds & Free Space 10,000 50 500,000

Total Infrastructure

40,000

16,200,000


4. The Financial Analysis

4.1. Project Economics

Description Amount (PKR Rs.)

Land 5,000,000

Building/Infrastructure 16,200,000

Machinery & equipment 28,362,500

Furniture & Carpeting 320,000

Car & Motorcycle 823,150

Computers, Printer, fax & other items 81,800

Utilities Installations & Pre-operating costs 2,489,548

Legal Expenses 100,000

Total 53,376,998

4.2. Working Capital

Description Amount (PKR Rs.)

Inventory (Machine parts) 53,771

Raw material inventory 11,943,750

Insurance upfront 324,783

Cash in hand 2,000,000

Total Working Capital 14,322,304

Total Investment PKR 67,699,302

Equity Project

Internal Rate of Return (IRR) 73% 55%

Modified Internal Rate of Return (MIRR) 35% 27%

Payback Period (yrs) 1.95 2.25

Net Present Value (NPV) @ 25% & 19% 71,907,494 105,619,298


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4.3. Financing Option

Looking at the current market trends lending of up to 50% could be available on these projects. A list of

financial institutions willing to facilitate such projects in given in Annexure B.

Initial Financing Amount in PKR

Debt 55% 37,755,121

Equity 45% 29,944,181


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4.4. Project Income Statement

INCOME STATEMENT Year 1 Year 2 Year 3 Year 4 Year 5

Revenue 121,586,384 156,408,867 176,984,190 199,226,024 223,249,581

Cost of goods sold (72,398,157) (97,713,514) (110,841,798) (125,147,410) (140,729,912)

Gross Profit 49,188,227 58,695,352 66,142,392 74,078,614 82,519,669

General administration & selling expenses

Administration expense (2,224,800) (2,441,410) (2,679,109) (2,939,951) (3,226,188)

Rental expense -

- -

-

-

Utilities expense (736,000) (809,600) (979,616) (1,303,869) (1,908,994)

Travelling & Comm. expense (phone, fax, etc.)

(280,800) (308,139) (338,140) (371,062) (407,189)

Office vehicles running expense (123,473) (135,820) (149,402) (164,342) (180,776)

Office expenses (stationary, etc.) (43,200) (47,406) (52,022) (57,086) (62,644)

Promotional expense (121,586) (156,409) (176,984) (199,226) (223,250)

Insurance expense (324,783) (288,189) (251,595) (215,001) (178,407)

Professional fees (legal, audit, etc.) (121,586) (156,409) (176,984) (199,226) (223,250)

Depreciation expense (3,851,060) (3,851,060) (3,851,060) (3,851,060) (3,851,060)

Amortization expense (522,518) (522,518) (522,518) (522,518) (522,518)

Property tax expense -

- -

-

-

Miscellaneous expense (2,215,864) (2,714,089) (3,161,342) (3,844,347) (4,944,136)

Subtotal (10,565,670) (11,431,048) (12,338,771) (13,667,687) (15,728,412)

Operating Income 38,622,557 47,264,305 53,803,621 60,410,927 66,791,257

Other income 154,367 873,563 2,284,870 3,962,186 5,912,185

Gain / (loss) on sale of assets -

- -

-

329,260

Earnings Before Interest & Taxes 38,776,924 48,137,868 56,088,492 64,373,113 73,032,702

Interest expense (6,420,045) (5,392,008) (4,175,471) (2,890,099) (1,564,365)

Earnings Before Tax 32,356,880 42,745,860 51,913,021 61,483,014 71,468,337

Tax (6,471,376) (8,549,172) (10,382,604) (12,296,603) (14,293,667)

NET PROFIT/(LOSS) AFTER TAX 25,885,504 34,196,688 41,530,417 49,186,411 57,174,669

Balance brought forward 25,885,504 60,082,192 101,612,608 150,799,020

Total profit available for appropriation 25,885,504 60,082,192 101,612,608 150,799,020 207,973,689

Dividend -

- -

-

-

Balance carried forward 25,885,504 60,082,192 101,612,608 150,799,020 207,973,689


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4.5. Project Cash Flow Statement

CASH FLOW STATEMENT

Year 0 Year 1 Year 2 Year 3 Year 4 Year 5

Operating activities

Net profit - 25,885,504 34,196,688 41,530,417 49,186,411 57,174,669

Add: depreciation expense - 3,851,060 3,851,060 3,851,060 3,851,060 3,851,060

amortization expense - 522,518 522,518 522,518 522,518 522,518

Deferred income tax - 2,836,250 - - - -

Accounts receivable - (9,993,401) (1,431,061) (2,276,622) (1,759,609) (1,901,317)

Finished goods inventory - (17,242,243) (2,370,808) (2,564,784) (2,772,229) (2,994,008)

Equipment inventory (46,089) (25,332) (21,540) (27,404) (34,774) (44,023)

Raw material inventory (7,875,000) (4,328,297) (3,680,403) (4,682,343) (5,941,622) (7,521,899)

Advance insurance premium (324,783) 36,594 36,594 36,594 36,594 (29,691)

Accounts payable - 6,245,242 2,131,384 1,327,468 1,510,356 1,725,746

Other liabilities - - - - - -

Cash provided by operations (8,245,872) 7,787,895 33,234,431 37,716,905 44,598,705 50,783,056

Financing activities

Change in long term debt 36,168,373 (5,613,220) (6,641,257) (7,857,794) (7,365,185) (8,690,918)

Issuance of shares 27,527,539 - - - - -

Cash provided by / (used for) financing activities 63,695,913 (5,613,220) (6,641,257) (7,857,794) (7,365,185) (8,690,918)

Investing activities

Capital expenditure (53,450,041) - - - - (1,325,691)

Acquisitions - - - - - -

Cash (used for) / provided by investing activities (53,450,041) - - - - (1,325,691)

NET CASH 2,000,000 2,174,675 26,593,175 29,859,111 37,233,520 40,766,447

Cash balance brought forward

2,000,000 4,174,675 30,767,850 60,626,961 97,860,481

Cash available for appropriation 2,000,000 4,174,675 30,767,850 60,626,961 97,860,481 138,626,928

Dividend - - - - - -

Cash carried forward 2,000,000 4,174,675 30,767,850 60,626,961 97,860,481 138,626,928


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4.6. Project Balance Sheet

BALANCE SHEET

Year 0 Year 1 Year 2 Year 3 Year 4 Year 5

Assets

Current assets

Cash & Bank 2,000,000 4,174,675 30,767,850 60,626,961 97,860,481 138,626,928

Accounts receivable - 9,993,401 11,424,462 13,701,085 15,460,694 17,362,011

Finished goods inventory - 17,242,243 19,613,052 22,177,835 24,950,065 27,944,072

Equipment spare part inventory 46,089 71,421 92,961 120,364 155,138 199,161

Raw material inventory 7,875,000 12,203,297 15,883,700 20,566,043 26,507,665 34,029,564

Pre-paid insurance 324,783 288,189 251,595 215,001 178,407 208,097

Total Current Assets 10,245,872 43,973,226 78,033,619 117,407,288 165,112,449 218,369,833

Fixed assets

Land 5,000,000 5,000,000 5,000,000 5,000,000 5,000,000 5,000,000

Building/Infrastructure 16,200,000 15,390,000 14,580,000 13,770,000 12,960,000 12,150,000

Machinery & equipment 28,362,500 25,526,250 22,690,000 19,853,750 17,017,500 14,181,250

Furniture & fixtures 320,000 288,000 256,000 224,000 192,000 160,000

Office vehicles 823,150 658,520 493,890 329,260 164,630 1,325,691

Office equipment 81,800 73,620 65,440 57,260 49,080 40,900

Total Fixed Assets 50,787,450 46,936,390 43,085,330 39,234,270 35,383,210 32,857,841

Intangible assets

Pre-operation costs 2,562,591 2,050,073 1,537,555 1,025,036 512,518 -

Legal, licensing, & training costs 100,000 90,000 80,000 70,000 60,000 50,000

Total Intangible Assets 2,662,591 2,140,073 1,617,555 1,095,036 572,518 50,000

TOTAL ASSETS 63,695,913 93,049,689 122,736,504 157,736,595 201,068,177 251,277,675

Liabilities & Shareholders' Equity

Current liabilities

Accounts payable - 6,245,242 8,376,626 9,704,094 11,214,450 12,940,196

Total Current Liabilities - 6,245,242 8,376,626 9,704,094 11,214,450 12,940,196

Other liabilities

Deferred tax - 2,836,250 2,836,250 2,836,250 2,836,250 2,836,250

Long term debt 36,168,373 30,555,153 23,913,897 16,056,103 8,690,918 -

Total Long Term Liabilities 36,168,373 33,391,403 26,750,147 18,892,353 11,527,168 2,836,250

Shareholders' equity

Paid-up capital 27,527,539 27,527,539 27,527,539 27,527,539 27,527,539 27,527,539

Retained earnings - 25,885,504 60,082,192 101,612,608 150,799,020 207,973,689

Total Equity 27,527,539 53,413,043 87,609,731 129,140,148 178,326,559 235,501,229

TOTAL CAPITAL AND LIABILITIES

63,695,913 93,049,689 122,736,504 157,736,595 201,068,177 251,277,675

Note: Total assets value will differ from project cost due to first installment of leases paid at the start of year 0


19

Annex A

Parboiling Unit (32 T/B)

Description Qty Unit Price Total Amount

Cleaning Section

Paddy Cleaner 1 400,000 400,000

Rotto Cleaner 1 100,000 100,000

Thickness grader 2 125,000 250,000

Elevator 275 3,500 962,500

Soaking & Steaming Section 1 5,000,000 5,000,000

Steam Vessel 8

Post-Steam Vessel 8

Soaking Tank 8

Water Tank 1

Paddy Bin 1

Others 1

Water Pump 2

Mesh Conveyor (30' * 1)

Accessories 600,000

Drying Section

Paddy Dryer 1 1,600,000 1,600,000

cooling Tower 1 800,000 800,000

Suction Fan 1 250,000 250,000

Heat Exchanger 1 350,000 350,000

Fitting/Erection Charges 1 500,000 500,000

TOTAL 10,812,500


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Annex B

Name of Financial Institutions

ZTBL Khushali Bank Ltd

Habib Bank Limited Rozgar Microfinance Bank ltd

Bank Al-Falah Limited Tameer Microfinance bank ltd

Askari Bank Limited Kashf Bank Limited

United Bank Limited Muslim Commercial Bank


21

Important Contacts Sindh Board of Investment Government of Sindh 108 – F, PECHS-II Karachi, Pakistan Tel: 021 – 34300971 – 3 Fax: 021 - 34300974 Email: [email protected] Website: http://www.sbi.gos.pk

Rice Export Association of Pakistan (REAP) Zonal Office Office No 707, 7th Floor, Business & Finance Centre, I. I. Chundrigar Road, Karachi, Pakistan Tel: 0092-21-9217321-2 Fax: 0092-21-9217323 Email: [email protected]

Zarai Taraqiati Bank Limited Zonal Chief St.2/3,B-1,Sch-36, Gulistan-e-Jouar, Karachi TEL: 021 34610808 Email :[email protected]

Trade Development Authority of Pakistan (TDAP) 5th Floor, Block "A", Finance & Trade Center, Shahra-e-Faisal, Karachi - Pakistan Tel: (92-21) 9206462 Fax: (92-21) 9206461

PARC PARC-TARC, Old Block 9 & 10, Karachi University Campus, Karachi-75270, Pakistan Tel: 0092 21 99243844 Fax No: 0092 21 99243838

SMEDA 5 TH Floor, Bahria Complex II, M.T. Khan Road, Karachi. Tel: (021) 111-111-456 Fax: (021) 5610572 Email: [email protected]

Sindh Development Fund (SDF) F-46/A, Street No. 4, Park Lane, Block 5, Clifton, Karachi Tel: +92-21-3583 0593 (Land Line) Tel: +92-21-3429 8575 (V-Phone) Fax No.: +92-21-3583 0594 Email:[email protected] URL: www.sindhdf.org.pk

Agribusiness Support Fund Provincial Coordinator Sindh Office, Karachi PH.021-4313851 , 021-4313853 Fax:021-4313852

MINISTRY OF FOOD AND AGRICULTURE & LIVESTOCK B Block, Pak Secretariat, Islamabad , Pakistan Tel : +92-51-9203307, 9210351 Fax : +92-51-9210616 E Mail : [email protected]

mailto:[email protected]

http://www.sbi.gos.pk/

http://www.sindhdf.org.pk/

mailto:[email protected]

pre-feasibility, parboil rice processing venture in sindh

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