192. PROFILE ON PRODUCTION OF JAM

AND MARMALADE

192-2

TABLE OF CONTENTS

PAGE

I. SUMMARY 192-3

II. PRODUCT DESCRIPTION & APPLICATION 192-3

III. MARKET STUDY AND PLANT CAPACITY 192-4

A. MARKET STUDY 192-4

B. PLANT CAPACITY & PRODUCTION PROGRAMME 192-6

IV. MATERIALS AND INPUTS 192-6

A. RAW MATERIALS 192-6

B. UTILITIES 192-7

V. TECHNOLOGY & ENGINEERING 192-8

A. TECHNOLOGY 192-8

B. ENGINEERING 192-9

VI. MANPOWER & TRAINING REQUIREMENT 192-11

A. MANPOWER REQUIREMENT 192-11

B. TRAINING REQUIREMENT 192-11

VII. FINANCIAL ANLYSIS 192-12

A. TOTAL INITIAL INVESTMENT COST 192-12

B. PRODUCTION COST 192-13

C. FINANCIAL EVALUATION 192-14

D. ECONOMIC BENEFITS 192-15

192-3

I. SUMMARY

This profile envisages the establishment of a plant for the production of jam and

marmalade with a capacity of 1,500 tonnes per annum.

The present demand for the proposed product is estimated at 14,798 tonnes per

annum. The demand is expected to reach 20,141 tonnes by the year 2020.

The plant will create employment opportunities for 36 persons.

The total investment requirement is estimated at Birr 16.19 million, out of which Birr

6.8 million is required for plant and machinery.

The project is financially viable with an internal rate of return (IRR) of 15 % and a net

present value (NPV) of Birr 5 million, discounted at 8.5%.

II. PRODUCT DESCRIPTION AND APPLICATION

Jam is a product made by boiling fruit and sugar to a thick consistency with out

preserving the shape of the fruit while marmalade is a soft clear translucent jelly

holding a suspension pieces or slices of fruit and fruit rind. Jam and marmalade are

bread dressings served alone or together with margarine or fresh butter. The major

consumers are pastries, households, hotels, schools and military camps.

192-4

III. MARKET STUDY AND PLANT CAPACITY

A. MARKET STUDY

1. Past Supply and Present Demand

The supply of Jam and marmalade is both domestic production and import. Upper

Awash Agro Industry (Merti Processing Plant) is the sole domestic producer of Jam

and marmalade in the country. The apparent consumption of jam and marmalade,

comprising domestic production and import, is shown in Table 3.1.

Table 3.1

CONSUMPTION OF JAM AND MARMALADE (TONNES)

Year Domestic Production Import Total

2002/03 164 75.2 239.2

2003/04 108 167.1 275.1

2004/05 108 262.9 370.9

Source:- Customs Authority for import and Central Statistical Agency for

domestic production

Table 3.1 reveals that the greater share of apparent consumption of jam and

marmalade originates from import. During the past three years (2002/3-2004/5) the

total consumption was 885 tonnes of which 505 tonnes or 57% is from import and the

reaming 380 tonnes or 43% is from domestic production. The other worth mentioning

point is that consumption of jam & marmalade in the past three years refereed above

has grown by a bout 55%. The consumption level which was 239.2 tonnes in the year

2002/03 has increased to 275 tonnes and 370.9 tonnes in the year 2003/04 and

2004/05, respectively.

In order to estimate the current demand, the consumption level of year 2004/05 has

been taken as a base. Secondly, the annual growth rate in the past three years has

been considered and found to be 24%. Since this figure is somewhat higher, only a

12% growth is assumed for the year 2005/06 and 2006/07. Then by taking 370.9

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tonnes as a base and applying a 12% annual growth rate the current demand is

estimated at 465.3 tonnes.

2. Projected Demand

A glance at Table 3.1 reveals that consumption of jam and marmalade has exhibited

very high growth rate in the past three years i.e, 2003/4 – 2005/6. The future demand

for agro-industrially processed foods such as jam and marmalade is mainly a function

of urbanization, income, price and change in the consumption habits of the

population. As income rises and urbanization grows, there is a shift towards more

expensive but conveniently packed and available foods.

Having considered all the above factors, demand for jam and marmalade is forecasted

to grow at a rat of 10% per annum, which is less than half of the past growth rate

mentioned earlier. The projected unsatisfied demand in this manner rages from

403.8 tonnes by the year 2008 to 641.4 tonnes and 1098.9 tonnes by the year 2012

and 2017, respectively (see Table 3.2).

Table 3.2

PROJECTED DEMAND FOR JAM & MARMALADE (TONNES)

Year Total Demand Domestic Production

Unsatisfied Demand

2008 511.8 108 403.8 2009 563.0 108 455.0 2010 619.3 108 511.3 2011 681.2 108 573.2 2012 749.4 108 641.4 2013 824.3 108 716.3 2014 906.7 108 798.7 2015 997.4 108 889.4 2016 1,097.2 108 989.2 2017 1,206.9 108 1,098.9

192-6

3. Pricing and Distribution

As per the data obtained from CSA, average producers price is Birr 10,624.60 per

tonne. This price is adopted for sales revenue projection.

A Suitable distribution system for jam and marmalade is one, which relies on

wholesalers, who in turn ensure proper distribution through the existing retail

channels {super markets and grocery shops}.

B. PLANT CAPACITY AND PRODUCTION PROGRAMME

1. Plant Capacity

The market study reveals that the demand for jam and marmalade in the year 2008

will be 403.g tonnes and will reaches 1,099 grow to by the year 2017. Considering the

market study and minimum economics of scale, and assuming the plant will reache

full scale after three years, the envisaged plant will have a production capacity of 500

tonnes per annum, working in single shift of 8 hours a day and 270 days a year. The

plant can increase its operation into two or three shifts per day.

2. Production Programme

The plant will start operation at 80% and 90% of the installed capacity in the first and

second years, respectively due to the problems in market penetration and skill

development. The plant will operate at full capacity at the third year and then after.

IV. MATERIALS AND INPUTS

A. RAW MATERIALS

The major raw materials are fruits (orange, mandarin, lemon etc), sugar & citric acid.

All the raw materials are locally available, except citric acid which need to be

imported. Orange, mandarin and lemon will be supplied by the commercial plantation

in the region in addition to the supply by out growers. Sugar will be bought locally

from the existing factories in the country. Moreover, in the medium to long-term it is

192-7

envisaged that a sugar plant will be established in the region. Based on the following

recipe to be used as a guideline the composition of the fruit in jam and marmalade to

can vary accordingly; test of the consumers concerning the consistency, the sweetness

and acidity, the raw materials requirement and the corresponding cost is depicted in

Table 4.1. The total annual cost of raw materials is estimated at Birr 3,759,100.

Guideline Recipe to get 68% Brix at finished product

Fruit - 11 kg at 10% TSS

Sugar - 9 kg

Citric Acid - 55 g

Table 4.1

ANNUAL REQUIREMENT OF RAW MATERIALS AND COST

Cost (Birr ‘000)

Sr.

No.

Description Quantity L.C F.C T.C

1 Fruits (Mandarin, Orange,

Lemon)

750 tonnes 1,500 - 1,500

2 Sugar 225 tonnes 1,350 - 1,350

3 Citric Acid 1,400 kg - 33.60 33.60

4 Empty Can 500,000 pcs 750 - 750

5 Packing carton 25,050 125.50 - 125.50

Grand Total 3,725.50 33.60 3,759.1

B. UTILITIES

The utilities required by the envisaged plant are electricity, furnace oil and water. The

annual requirement and their cost is shown in Table 4.2. The total cost of utilities is

estimated at Birr 788,468.80.

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Table 4.2

UTILITIES REQUIREMENT AND COST

Sr.

No.

Description Quantity Unit Cost Total Cost

(in Birr)

1 Electricity 58,000 kwh 0.4738 kWh 27,468.8

2 Furnace oil 100,000lt 5.41/lt. 541,000

3 Water 40,000 m3 5.5/m3 220,000

Grand Total 788,468.80

V. TECHNOLOGY AND ENGINEERING

A. TECHNOLOGY

1. Production Process

Even though there are different productions process applicable in the preparation of

fruit and basic recipe from fruit to fruit. The general processing steps for the

production of jam and marmalade is presented as follows.

a) Fresh fruit after sorting on control belt and washed in a washing machine

is brought to continuous boiling equipment, then is brought to pulper and

to storage tank,

b) Weighing the required amount of pulp and boiling with water, when

necessary,

c) Add the pectin

- to the batch while stirring very vigorously, and

- Pectin which has previously been mixed with 5 times its weight in

sugar taken from the recipe.

d) Boil for about 2 minute to assure a complete dissolution,

e) Add the sugar while keeping the batch boiling,

f) Boil down quickly to desired brix

g) Add the acid (usually citric acid) and remove the forth.

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h) Fill hot into (the previously cleaned) container and seam it.

i) Invert the containers for three minutes to pasteurize the cover and label it.

2. Source & Technology

The machinery and equipment required for the manufacture of jam and marmalade

can be obtained from the following suppliers;-

1. yuncos a ce dillo del condado

Nave 21, Pol. Ind. Yuncos

Yuncos 45210, castilla – La Macha

Spain

2. BCH limited

Spring place

Mill fold, whit worth

Rochdale, Lancs OL128 DN

United Kingdom

Phone: 44 1706 852122

Fax: 44 1706 85 3010

B. ENGINEERING

1. Machinery and Equipment

The major machinery and equipment required by the envisaged plant are conveyor,

washing machine, pulpier, scalar, boiling kettle, tinning and labeling machine. The

total cost of plant machinery and equipment cost is estimated at Birr 7.0 million, of

which Birr 5.6 million is required in foreign currency. The list of machinery and

equipment is given in Table 5.1.

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Table 5.1

MACHINERY AND EQUIPMENT

Sr. No.

Description Qty.

1 Washing and Sorting equipment 1 2 Pulp crusher 1 3 Screen 1 4 Pulp storage tank 2 5 Pasteurize 1 6 Boiling kettle 1 7 Filling and labeling machine 1 8 Seamier 1 9 Steam generator 1 10 Desecrator 1 11 Laboratory equipments (refraction meter, oven,

thermometer, pH meter and analytic balances) 1

2. Land, Building and Civil Works

The total area required by the plant is estimated to be 1,000 m2, out of which 600 m2

is built-up area. Hygiene requirements should be integrated in the construction of

buildings. Total construction cost estimate at a rate of Birr 2,300 per m2 is Birr

1,380,000. Land lease value at a rate of Birr 0.1 per m2 and 80 years of holding is

estimated at Birr 8,000. Total land lease cost is assumed to be paid in advance. The

total cost for land, building and civil work is estimated at Birr 1,388,000.

3. Proposed Location

The envisaged plant is preferable to be located near the major raw material (citrus

fruits) supply base in order to avoid the bulk transportation of these raw materials.

So, the plant is proposed to be located at Wancha town, Daramallo woreda.

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VI. MANPOWER AND TRAINING REQUIREMENT

A. MANPOWER REQUIREMENT

The plant requires 36 workers out of which, 18 workers are for administrative unit

and 18 are for production unit. The total amount of labour cost including employee

benefit is estimated at Birr 351,000 as shown in Table 6.1.

B. TRAINING REQUIREMENT

Supervisors, operators and technical personnel need training on the production,

maintenance and operation of machinery and quality control by the expert of the

machinery supplier for one month period during erection and commissioning. The

total cost of training is estimated at Birr 30,000.

Table 6.1

MANPOWER REQUIREMENT AND LABOUR COST

Sr. No.

Description

Req. No.

Monthly Salary (Birr)

Annual Salary (Birr)

1 Plant Manager 1 2,000 24,0002 Secretary 1 800 9,6003 Administrative and Finance Manager 1 1,500 18,0004 Personnel Officer 1 1,200 14,4005 General Service Head 1 1,200 14,4006 Accountant 2 900 21,6007 Sales man 1 900 10,8008 Store man 2 600 14,4009 Clerks 2 450 10,80010 Driver 2 300 7,20011 Guard 4 250 12,00012 Production & Tech. Man. 1 1,800 21,60013 Supervisor/chemist 1 1,000 12,00014 General mechanic 1 600 7,20015 Electrician 1 600 7,20016 Operators 8 600 57,60017 Laborers 6 250 18,000 Sub – Total 36 280,800 Employees benefit (25% of basic salary) 70,200 Grand Total 36 351,000

192-12

VII. FINANCIAL ANALYSIS

The financial analysis of the jam and marmalade project is based on the data

presented in the previous chapters and the following assumptions:-

Construction period 1 year

Source of finance 30 % equity

70 % loan

Tax holidays 3 years

Bank interest 8%

Discount cash flow 8.5%

Accounts receivable 30 days

Raw material local 30days

Raw material, import 90days

Work in progress 2 days

Finished products 30 days

Cash in hand 5 days

Accounts payable 30 days

A. TOTAL INITIAL INVESTMENT COST

The total investment cost of the project including working capital is estimated at Birr

16.19 million, of which 31 per cent will be required in foreign currency.

The major breakdown of the total initial investment cost is shown in Table 7.1.

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Table 7.1

INITIAL INVESTMENT COST

Sr. Total Cost

No. Cost Items (‘000 Birr)

1 Land lease value 140.0

2 Building and Civil Work 6,250.0

3 Plant Machinery and Equipment 6,800.0

4 Office Furniture and Equipment 75.0

5 Vehicle 450.0

6 Pre-production Expenditure* 950.3

7 Working Capital 1,530.1

Total Investment cost 16,195.4

Foreign Share 31

* N.B Pre-production expenditure includes interest during construction ( Birr 790.30 thousand )

training (Birr 10 thousand ) and Birr 140 thousand costs of registration, licensing and formation of

the company including legal fees, commissioning expenses, etc.

B. PRODUCTION COST

The annual production cost at full operation capacity is estimated at Birr 10.41

million (see Table 7.2). The material and utility cost accounts for 80.70 per cent,

while repair and maintenance take 0.72 per cent of the production cost.

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Table 7.2

ANNUAL PRODUCTION COST AT FULL CAPACITY ('000 BIRR)

Items Cost %

Raw Material and Inputs 7,858.30 75.49

Utilities 543 5.22

Maintenance and repair 75 0.72

Labour direct 118.37 1.14

Factory overheads 0 0.00

Administration Costs 78.91 0.76

Total Operating Costs 8,673.58 83.32

Depreciation 1129 10.85

Cost of Finance 607.63 5.84

Total Production Cost 10,410.21 100

C. FINANCIAL EVALUATION

1. Profitability

According to the projected income statement, the project will start generating profit in

the first year of operation. Important ratios such as profit to total sales, net profit to

equity (Return on equity) and net profit plus interest on total investment (return on

total investment) show an increasing trend during the life-time of the project.

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2. Break-even Analysis

The break-even point of the project including cost of finance when it starts to operate

at full capacity ( year 3) is estimated by using income statement projection.

BE = Fixed Cost = 15 %

Sales – Variable Cost

3. Pay Back Period

The investment cost and income statement projection are used to project the pay-back

period. The project’s initial investment will be fully recovered within 6 years.

4. Internal Rate of Return and Net Present Value

Based on the cash flow statement, the calculated IRR of the project is 15 % and the

net present value at 8.5% discount rate is Birr 5 million.

D. ECONOMIC BENEFITS

The project can create employment for 36 persons. In addition to supply of the

domestic needs, the project will generate Birr 4.57 million in terms of tax revenue.

The establishment of such factory will have a foreign exchange saving effect to the

country by substituting the current imports.