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Project Proposal for Dairy Farming and Milk Processing

Submitted by Zinabu Beka Ture

Company Address: SNNPRegional State Gurage Zone, Sodo Woreda, Buee Town
Administration Mobile: +251 912246936

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Company Address: SNNPRegional State Gurage Zone, Sodo Woreda, Buee
Municipality/TownMobile: +251-926-276767

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Table of contents
Acronyms ………………………………………………………………………………………i

Table of contents ......................................................................................................................i


List of Table
……………………………………………………………………………………………..iv
1. Executive Summary.............................................................................................................1

2. INTRODUCTION...................................................................................................................3
2.1. Company Profile.........................................................................................................................3
2.2. Economic Background and Potential in Relation to the Proposed Investment.............................4
2.3. Features of the Agriculture Sector...............................................................................................5
2.4. Beneficiaries................................................................................................................................6
2.5. Past and present intervention.......................................................................................................6
2.6. Justification of the project: why it is proposed?...........................................................................8
2.7. Support for the Project.................................................................................................................8
2.8. Goal and objective.......................................................................................................................9
3. STUDY OF THE PROJECT SITE....................................................................................11
3.1. Descriptions of the area.............................................................................................................11
3.2. Reason for selection of investment............................................................................................10
3.3. Land ownership.........................................................................................................................11
3.4. Physical and natural condition of project site............................................................................11
3.5 P roduction Description and Application.........................................................................................12
3.6 Infrastructures...................................................................................Error! Bookmark not defined.
4. SOCIO-ECONOMIC STUDY..............................................................................................17
4.1. Socio-economic benefit for the society......................................................................................17
4.2. Poverty Alleviation.....................................................................Error! Bookmark not defined.
4.3. Economic Benefit for the Community.......................................................................................17
4.4. Economic Benefit for the Country.............................................................................................18
5. Livestock Production Profil Related to the Project.......................................................................19
6. ENVIRONMENTAL IMPACT ASSESSMENT................Error! Bookmark not defined.

7. MARKET STUDY.................................................................................................................23
7.1. General over-view.....................................................................................................................23

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7.2 Past Supply and Present Demand of Sheep and Goats.....................................................................23
7.3 Past Supply and Present Demand of Cattle Fattening......................Error! Bookmark not defined.
7.3.1 Demand Projection........................................................Error! Bookmark not defined.
7.3.2 Pricing and Distribution................................................................................................ 29
7.3.3 EXPORT MARKET PRICE OF MEAT AND LIVE WEIGHT...........Error! Bookmark not
defined.
7.4 Milk Marketing................................................................................Error! Bookmark not defined.
8. FINANCIAL BUDGET OF THE INVESTEMENT.........................................................31
8.1. Total Investment Cost.................................................................Error! Bookmark not defined.
8.2. Operating cost.............................................................................Error! Bookmark not defined.
8.3. Contingencies.............................................................................Error! Bookmark not defined.
8.4. Project Status..............................................................................Error! Bookmark not defined.
8.5. Source of fund............................................................................Error! Bookmark not defined.
9. Financial and Economic Analysis................................Error! Bookmark not defined.
9.1. Price for input and out put..........................................................Error! Bookmark not defined.
9.2. Credit and Borrowing System.....................................................Error! Bookmark not defined.
9.3. Tax and Subsidy Policy..............................................................Error! Bookmark not defined.
9.4. Financial depreciation.................................................................Error! Bookmark not defined.
9.5. Financial and Economic Analysis...............................................Error! Bookmark not defined.
9.5.1. The financial condition & assumptions.......................................Error! Bookmark not defined.
9.5.2. Cash flow statement and net income statement...........................Error! Bookmark not defined.
9.5.3. Cash-generating Capacity...........................................................Error! Bookmark not defined.
9.5.4. Discount cash flow and discount rate.........................................Error! Bookmark not defined.
9.6. Cost Benefit Analysis.................................................................Error! Bookmark not defined.
9.6.1. Net Present Value (NPV)............................................................Error! Bookmark not defined.
9.6.2. ‘Benefit : Cost’ Ratio (BCR).......................................................Error! Bookmark not defined.
9.6.3. Internal Rate of Return (IRR).....................................................Error! Bookmark not defined.
9.6.4. Non-discounted measure of project worth..................................Error! Bookmark not defined.
9.7. Sensitivity analysis.....................................................................Error! Bookmark not defined.
10. PLAN OF OPERATION.............................................................Error! Bookmark not defined.
11. ORGANIZATIONAL STRUCTURE AND MANAGEMENT.......Error! Bookmark not defined.
12. PROJECT MONITORING AND EVALUATION.........................Error! Bookmark not defined.
13.

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Annexes………………………………………………………………………………….Error
! Bookmark not defined.

List of Annex

Annex 1: Estimation of the building shead & house & site development for fattening and
milking animals (ETB).............................................................Error! Bookmark not defined.

Annex 2 ; Estimation of cost of office equipment………………………….34


Annex 3: Estimation cost of milking and other milk product extraction
equipment(ETB) ………………………………………………………………………Error!
Bookmark not defined.
Annex 4: Estimation the cost of Salary and Wage........................Error! Bookmark not defined.

Annex 5: Feeding requirement & estimation of cost of in milking cow(ETB).Error! Bookmark


not defined.

Annex 7 : Estimation of cost of veterinary aid and insurance for milking animals (ETB)
…………………………………………………………………………………….Error!
Bookmark not defined.
Annex 8: Total Operating costs (Birr)............................................Error! Bookmark not defined.
Annex 9: Annual Statement of Costs and benefits (Birr)...............Error! Bookmark not defined.
Annex 10: Cash Flow Table for Net Present Value Calculation (on Equity)Error! Bookmark not
defined.
Annex 11: NPV & IRR on Total Investment.................................Error! Bookmark not defined.
Annex 12: Projected Net Income Statement of the Project..........Error! Bookmark not defined.

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List of Tables
Table 1: Anticipated production per cattle, sheep and goats and cow of each planned production with and
without project..............................................................................................Error! Bookmark not defined.
Table 2: Export of meat and live animals(in metric ton)................................Error! Bookmark not defined.
Table 3: The annual beef consuption in the country level.............................Error! Bookmark not defined.
Table 4: Deomestic and Exporta Demand Projection of beef in tons...........Error! Bookmark not defined.
Table 5: Local Market Price of Meat.........................................................Error! Bookmark not defined.
Table 6: Export Market Price Of meat and Live Weight.............................Error! Bookmark not defined.
Table 7: Summary of Investment Costs for project (in Birr)..........................Error! Bookmark not defined.
Table 8: Summary of Operating Costs for project (in Birr)............................Error! Bookmark not defined.
Table 9: Project Investment cost by Source of Fund (in Birr).......................Error! Bookmark not defined.
Table 10: Depreciation Schedule (Birr).........................................................Error! Bookmark not defined.
Table 11: Determination of Revenue...........................................................Error! Bookmark not defined.

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1. EXECUTIVE SUMMARY
1.1. Project Title: Zinabu Beka Ture Dairy farm and Milk Processing Project
1.2. Promoter’s Profile
The anticipated Dairy Farming and Milk Processing Project” is initiated and owned by Mr.
Zinabu Beka Ture. Mr. Zinabu was engaged with various businesses. During his engagement in
different business, the desire to get involved in social entrepreneurship aroused in him. He is in a
position that significantly increases the chance of success. He is well known and respected by
member of the community. Zinabu also has several influential and informative contacts that will
support him in this business venture. In addition, he has experience in receiving loans and has
been successful in repayment.

1.3. Location of the Project


The proposed project can be setup in Southern Nation, Nationalities and people Regional State
(SNNPRS) Gurage Zone in Buee Town Administration.

1.4. Project Goal and Purpose


The overall goal of the project is to contribute towards the economic development of Ethiopia
through using the existing investment opportunities in the Country and taking advantage of the
expressed policy incentives that emphasize on greater commercialization of agriculture and
enhancing private sector development.

The main objective of the said project is to produce milk and milk processing products for local
markets and to maximize profit so as to sustain the project.
In line with this the following are specific objects of the project.
 To introduce modern dairying and milk processing technologies to the surrounding locality.
 To create job opportunity for skilled and unskilled local citizens.
 To create market linkages with small holder farmers in the town and its surroundings etc

1.5. Estimated Cost of the Project


At the beginning of the production year the project will have the following costs
 Capital 6,832,930.00
 Working Capital 1,227,887.06
 Total cost 8,060,817.06

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1.6. Project Component
 Total production area: 5,000.00 Square meter
 Types of investment Diary Farming and milk processing

 Estimated production ;

Raw milk available for


Year production in
k/g
1st 320,281.25
2nd 296,693.75
3rd 273,106.25
4th 386,326.25
5th 447,653.75
6th 518,416.25
7th 617,483.75
8th 801,466.25

1.7. Expected Beneficiaries:


 Permanent employee: 30
 Temporary employee: 20

1.8 Socio-Economic benefit

2. The project will create additional means of employment for both skilled, semi skilled and
casual laborers in the area.
3. Aside from the increase in income of the owner, the project would activate the economy
especially in the continuous production of milk and milk products. It will also encourage
entrepreneurs in the country to engage in milk processing and milk production.
4. The expected increase income of the permanent and temporary employees’ beneficiaries
would eventually contribute to good health and nutrition in the family and allow them to
access better education for their children, improve sanitation and provide for the necessities
in the household.

1.9 Duration of the project: 10 years

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2. INTRODUCTION

2.1Company Profile
2.1.1 Name Mr. Zinabu Beka Ture
2.1.2 Nationality: Ethiopian
2.1.3 Owner(s): Mr. Zinabu Beka
2,1.4 Type of business: Dairy Farming and Milk Processing
2.1.5 Full Address : Address: SNNPRS, Gurage Zone, in Buee Town. Admin.
Pobox:
Mobile: 09 12 24 69 36
E-mail:
2.1.6 Project Name: Zinabu Beka Dairy Farming and MILK Processing Project
2.1.7 Status of the Project: New
2.1.8 Proposed Site: Buee town Adminstration , Gurage Zone
2.1.9 Specific location: Within the town areas surrounding Buee Town Administration
2.1.10 Size of proposed land: 5,000 square meter
2.1.11 Total estimated Investment 8,060,817.06 Birr
2.1.12 Legal Form of organiz. Sole proprietorship
2.1.13 Registering Agency: Gurge Zone Investment Office

2.1.14 the Promoters


This project is intended for privately owned intensive Dairy Farming and milk processing Agro-
Industry, ideally located Gurage Zone Sodo Wereda in Buee Town Administration. The anticipated
Dairy Farming and Milk Processing Project” is initiated and owned by Mr. Zinabu Beka Ture.
Previously, he was engaged with various businesses. He also possesses the commercial banking
experience. During his engagement in different business, the desire to get involved in social
entrepreneurship aroused in him. Mr. Zinabu Beka is social responsible and also active member of
Ekube since today.

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2.2 Economic Background and Potential in Relation to the Proposed Investment

Livestock production is an integral part of Ethiopian's agriculture sector and plays a vital role in
national economy. At present, livestock is contributing about 49.1% to the agricultural sector and 11.4
per cent to the GDP. Role of livestock in rural economy may be assessed by the fact that 30 to 35
million of the total rural population is engaged in livestock farming, having 2 to 3 cattle and 5 to 6
sheep/goats per family deriving 30 to 40 per cent of income from it. Most farmers (about 75%) have
small land holdings on which most of the livestock population is concentrated. Dairy farm also
creates different opportunity which includes; livestock genetic resources and production system,
access services and land inputs, agricultural extension services and technologies, income generation
and employment opportunities.
The future prospects of dairying seems to be bright because the challenges so far indicated and the
government is attempting them to address through polices and strategies. Thus, dairy farmers are on
the way to getting accesses to services and inputs that could help promote dairy production and
productivity. This mainly include feed and feeding, breeding services, credit extension, training
veterinary services and appropriate marketing system that address costumers demand. Since dairying
is labor intensive, it promotes the motto of government policy in creating employment opportunities
at house hold level. This improves employment, income and nutrition values of the family of the
producers and the other demanders/consumers. The dairy industry would address and serve as one of
the major instrument of the governments’ policy in achieving food security. This in turn promotes
dairy production due to the attention of given by the government. The development of infrastructure
like, transportation would help change the traditional thinking of fresh milk not for sale other than
exclusively intended for human consumption among the rural population. On the other side when the
rural farmers expose themselves to the market, their income will increase and be in position to buy
non-market food types in exchange and there by improve their living standard. Since the country is an
agrarian economy, dairying is much expected to be one of the major targets of the prospective agro-
processing industries in the country.
The dairy industry is highly significant and it plays a great role in creating rural employment in
highlands and pastoral/agro-pastoral areas (livestock Cooperative Agreement, 2010). Livestock
provides an enormous service in the Ethiopian household economy by providing food, input for crop
production and soil fertility management, cash income as well as in promoting savings, fuel, social
functions, and employments. With this wide array of functions, livestock can be considered as a
vehicle for improving food security and better livelihood of the rural population.

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The huge and diverse cattle population, varied and favorable agro-ecology for dairying, increasing
demand for dairy products in urban and peri-urban areas, longstanding culture of dairy products
consumption, and favorable policies are indicators of the importance and potential of dairying in the
country . The policy and strategies of the federal and regional governments encourage investors to
fully participate in owning all large and medium scale business in the agriculture sector. The
strategies focus on selected high-potential areas and modern agricultural technologies to be
prioritized export livestock products like cattle, sheep and goat fattening and dairy products. The
Ministry of Agriculture and Rural Development has also identified agricultural investment areas and
prioritized investment areas for the focused interventions.

Ethiopia is ecologically suitable where there is enough manpower, potential of good market, well
fertile soil to produce animal feed and suitable climatic condition for the production of good quality
and quantity products. Milk production is given priority over other livestock production systems due
to ecological conditions (rainfall, temperature, and soil types are conducive to forage production) and
the population pressure that favor commercial dairy production and milk processing.

In view of this background, Zinabu Beka Ture has been interested to invest on the dairy farming and
milk processing in Buee Town Adminstration, Gurage Zone.

2.3 Features of the Agriculture Sector

The agricultural sector greatly influences economic performance in Ethiopia Approximately


95 per cent of agricultural GDP and 85 per cent of employment, and 90 per cent of exports. Cereals
dominate Ethiopian agriculture, accounting for about 70 per cent of agricultural GDP. Over the past
decade, cereal production has more than doubled to nearly 15 million tones, as a result of horizontal
expansion and increased yields.

The agricultural sector has performed strongly over most of the last decade, but there is still
substantial potential to improve productivity and production. Since 1996/97 the average growth rate
of the agricultural GDP has been about 10 per cent per annum, and since 2004-05 the sector has been
reported to have expanded at around 13 per cent per annum. On the other hand, the share of
agriculture in GDP declined from 53 per cent to 43 per cent between 1995/96 and 2008/09, reflecting
strong growth in other sectors of the economy. The contribution of livestock and livestock products to the
agricultural economy is significant, accounting for 40% excluding the value of draft power, fuel, manure and
transportation. They are a source of income, which can be used by rural populations to purchase basic needs
and agricultural inputs. Livestock comes second to coffee in foreign exchange earnings. Its contribution can
equally well be expressed at household level by its role in enhancing income, food security and social status. A
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country endowed with such enormous livestock resources and climatic situations conducive to livestock
production should not be allowed to continue importation of dairy products and other livestock products. Self-
sufficiency in cattle, sheep and goat meat and dairy products should be encouraged to optimize the use of
available resources to fill the gap between demand and supply. To bridge this gap, it is necessary to design
appropriate and sustainable Milk Production [Dairy farming] development strategies based on 'felt' needs of the
public sectors.

The Government, with strong support from development partners, has made different strategic interventions to
enhance the delivery of improved production technologies and support services thereto. Over the past several
years, the Ethiopian Government has demonstrated strong commitment to agriculture and rural development
through allocations of more than 10 per cent of the total budget. Despite these achievements, however, the
Government recognizes much remains to be done in the agriculture sector to realize the vision to become a
middle income country (defined as GDP/capita of USD 1,000) by 2020.

2.4 Beneficiaries
The project can create permanent employment for 30 persons. The establishment of such factory will
have a foreign exchange saving effect to the country by substituting the current imports. The
project will create forward linkage with the agro industry sub sector and contribute to the
mitigation of the adverse environmental impact created by the project. The project will also
generate income for the Government in terms of payroll tax.

2.5 Past and present intervention


Ethiopia has the largest livestock population in Africa estimated at about 90 million tropical livestock
units. The major production systems are: Settled Mixed Crop–Livestock System. and Pastoral and
agro-pastoral production systems. There are other production systems that are not currently practiced
widely but have a future are: Ranching and Urban and peri-urban (landless) Meat and Milk dairy
farming system. Ethiopia’s livestock resources consist of 53.9 million cattle, 24 million goats, 25
million sheep, 1 million camels, 1 million horses. Mules and 6 million donkey (CSA 2015).

Production is estimated at 97,000 ton of beef, 510,000 ton (510 million liters) of cow milk, 41,000 of
sheep meat, 16,000 ton of goat meat, and limited amounts from various other animals. Per capita
meat and milk consumption is estimated at just 6 kg per capita and 19.16 k/g per capita respectively,
which is below the FAO minimum per capita requirements of 50 kg and 200 litter of meat and milk,
respectively. It is expected that rural consumption is lower than urban, reflecting different levels of
income. Livestock husbandry is becoming increasingly common and it has been argued that livestock
is increasingly replacing other crops production as a major asset and source of income for rural
livelihoods.
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The livestock plays an indispensable role in the traditional agriculture and largely subsistence
economy, the sub-sector contributes about 15.3% of the total agricultural sector (CSA, 2015). The
sector is undergoing a massive transformation fuelled by high demand for meat and milk and milk
product, which is likely to double in the past years and near future, the major forces behind this, is the
combination of population growth, urbanization and income growth.

In the recent past, there is a greater emphasis on sustainable beef production through private sectors
cattle, sheep and goats beef fattening and milk production which has its focus on the long-term health
of the environment while maintaining the economic viability of the farm and addressing consumers’
concern about beef and milk they eat.

However, milk production is very low and is estimated at about 1.2 million tons per annum,
increasing at a rate of 1.2% for milk produced from indigenous stock and 3.5% for milk produced
from improved stock Conversely, the human population of Ethiopia is estimated at about more than
90 million, increasing at a rate of 3% per annum ; values projected for the year . To this effect the per
caput consumption of milk is 19 kg/year; this value is lower than African and world per capita
averages, which are 27 kg/year and 100 kg/year respectively. Accordingly, about 495 thousand tones
and 5 million tons of milk are required annually to feed the Ethiopian population as per the African
and world averages, respectively. This indicates the probability of a wide gap between the current
supply of and the demand for milk in Ethiopia.

Today the government support the private sectors by the continuing the development of agro-
industrial estates in urban areas and small towns, and to provide the necessary locations for large and
medium-scale livestock industrial development.

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2.6 Justification of the project: why it is proposed?
There are a number of reasons that led Zinabu Beka to opt for this specific project, Dairy Farming
and Milk Processing Project Firstly, a country endowed with such enormous livestock resources and
climatic situations conducive to livestock production. Secondly, the Country is among the first
producers of livestock in the Africa and has a well-established linkage to the major global markets,

 Increasing population, urbanization and income and trend towards consuming more animal
products

 Ethiopia has opted to raise milk production through genetics, feed and health interventions to
improve traditional family cow dairy production and expand and improve specialized dairy
production units over the GTP II period (2015-2020);

 Dairy farmers in urban, per-urban and rural dairy production system demonstrated strong
interest to expand dairying as one of the means of income generating activity. This is a great
opportunity for the entrants to collect and process raw milk into different milk products, and
supply for domestic and export markets.

 There is political stability, conducive investment climate, government policy reforms, and
market orientation that is favorable for dairy investment.

The future of the dairy sector in Ethiopia is more positive especially taking the domestic market
growth, potential and production enhancement initiative in the country is also another important
factor to initiate the project. .

This helped Mr. Zinabu Beka to choose Dairy Farming and Milk Processing, which have a vast
market in the region and the country as whole.

2.7 Support for the Project


There are some supportive roles expected from public and non-governmental organizations that are
supporting to ensuring smooth and effective implementation as well as long-run sustainability of the
anticipated project.

Zonal and Woreda agriculture/livestock offices: organizations like Woreda livestock and fishery
offices, Buee Town Administration agriculture sector provide veterinary and other extension services.
The service includes, (i) treatment, vaccination and laboratory services; (ii) AI services; (iii) facilitate
forage seed and feed market linkage, equipment supply for producers; (v) provide training services

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for producers; (vi) provide advice and support for producers in their dealing with other sector office
like environmental protection Office, Health Office, trade and industry Office .

National Artificial Insemination Centre: the center established to collect and distribute improved
breeds and to provide training for AI service providers. It supply Siemens for AI service providers
either private or government.

Non-Governmental Organizations; NGOs are engaged in direct provision and facilitating the service
development. Training related to dairy production, marketing and dairy products processing.

Financial Institutes; Financial services for dairy is a critical issue to expand its business and to run day to
day operation with enough working capital.

Generally, the above mentioned actors have a great roll towards facilitating effective and smooth
implementation of the project. Furthermore, worda’s Agriculture and Animal office will give
technical advice on dairy and milk processing technologies and control the quality of milk processed.

2.8 Goal and objective


2.8.1 Overall goal
The overall goal of the project is to contribute towards the economic development of Ethiopia
through using the existing investment opportunities in the Country and taking advantage of the
expressed policy incentives that emphasize on greater commercialization of agriculture and
enhancing private sector development.

2.8.2 Main and Specific Objective


Main objective
The main objective of this project is to produce milk and milk processing products for local markets
and to maximize profit so as to sustain the project.
In line with this the following are specific objects of the project.
 To introduce modern dairying and milk processing technologies to the surrounding locality.
 To create job opportunity for skilled and unskilled local citizens.
 To create market linkages with small holder farmers in the town and its surroundings
 Reduce the environmental impact of our operation by devising methods such as supplying of
animals waste for farming and use of Bio-fuel;

2.9 Reason for selection of investment


 The reasons for selection of the investment include:

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 Availability of suitable topography for milk production with good combinations of, climate
and market that allow optimal production of these farming;

 No requirements for infrastructure development because of the topography and visible


prospects of on-going development initiatives in the area including power supply,
telecommunication and other basic infrastructures available;

 Accessibility of the area by all-weather roads and ease of making choices between marketing
options;

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3 STUDY OF THE PROJECT SITE
3.1 Descriptions of the Area
The area identified for implementing the anticipated project is located in Buee Town Administration
of Gurage zone, SNNPR State. Part of the Gurage Zone, Buee Adminstration is bordered on the south
north, east and west by the Sodo Werda. The administrative center of Sodo werda is Buee. The
project area is 110 km long and is located north of Addis Ababa, connecting Hosana –Wolita- Arba
minch with very good road connection to Addis Ababa. The area also has high potential for roughage
production, access to feed from nearby feed factories (Milke Cooperatie and others) and factory by-
products are also widely available. Artificial insemination (AI) services are functioning well. Market
potential is high because of access to nearby places like Addis Ababa.
According to Sodo Wereda Finance and Economy Office, Buee Town Adminstration has an estimated
total population of 25,409, of whom 12,786 are men and 12,623 women.

3.2 Land Holding


Urban land permit by lease is on negotiation base. The Recommended size of Dairy farm,
approximately 5,000m2 of land is required with future expansion and other requirements the total
cost of land, at the rate of Birr 87 per m2 for 70 years of land holding is estimated at Birr 435,000.
The details Land Use Plan is Annexed.

3.3 Physical and Natural condition of Project Site


3.3.1 Topographic Features
The topographic features of the proposed project area are characterized by slightly to gently sloping
terrain. The topography of the project area generally indicates availability of favorable opportunity
for low cost installation of infrastructures and site development requirements.

3.3.2 Climate
The agro- climatic zone of Buee Town Administration is categorized as weyna dega. The annual
rainfall varies from 900-1,200 mm and the annual average minimum and maximum temperature
varies from 15 to 26 degree centigrade.

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4.0 Product Description and Application

4.1 Project Description

Milk is a traditional constituent of the Ethiopian diet, especially areas where the livelihood is based
on cattle production. Liquid milk handled traditionally has a very limited shelf-life. In modern dairy
production exotic cross breeds or pure breed castles are used and the milk is processed to have longer
shelf-life.
The project will start a breeding arrangement with 50 heads of exotic cross breeds pregnant heifers.
These heifers would give birth in two to three months’ time and production of milk will be started
nearly of the first year. The dairy farm will have milk processing and packing facilities. The project
will also collect milk from small holder farmers around the town to supply the processing plant.
Finally, the product will be distributed by establishing own distributing stores in major towns or by
using commissioned agents.

4.2 Products of the project


Taking the existing opportunity in to account, the project intends to offer major dairy products
including: Raw & pasteurized milk, Butter and Cheese (Ayib). Thus, the main course of activity is
focuses on milk production and processing involving a range of value addition on the main product.

4.3 Production Process

After the fresh milk is received it is filtered and pumped into the dump tank ; it is then chilled with help of
a chiller so that the growth of bacteria is minimized .One percent of the fat content is separated and
chilled in a cold store. Then, the cream in either churned to butter or sold as it is depending on the
availability of local market. After the end of cream separation process, the milk will then undergo
different value added products like milk, Butter and cheese. Milk products undergo pasteurization
process; the pasteurized milk is filled in the cooling tanks for delivery to urban milk distribution centers.
Pasteurized milk would be packed into 500 mille liter plastic containers, so two plastic containers
would be used to package one liter of pasteurized milk and distributed to the market. Cheese and
butter would be packed into 250 and 500gram paper packages. After separation, cream is held in
stainless steel tanks and refrigerated at (4oC).

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4.4 Production Capacity
The dairy farm will have 50 milking cows, which are exotic breeds, with better milk production
capacity. The farm size will increase to approximately 272 animals within 10 years. Average yield per
cow is estimated to be 17 liters per day and the cows will give milk for at least ten months. Overall
daily total production is about 850 liters per day. In addition, so as to supply more milk for
processing, daily 250 liters of milk will also be collected from surrounding farmer. Overall annual
raw milk production is about 346,250 liters in the first year of production. The farm milk production
will increase with the growth in herd size in subsequent years.

4.5 Plant Capacity


Processing raw milk produces a number of products such as, pasteurized milk, cream, yoghurt,
cheese and butter, and investment could be on pasteurizing plants with a capacity of processing
10,000 liters per day. The processing plant will start production at 75% of its installed capacity initial
year, thereby increasing the capacity by 5% until it reaches 95% in the fifth year.

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5. Technical Study

5.1 Location and Plant layout

The proposed project can be setup in Southern Nation, Nationalities and people Regional State
Gurage Zone in Buee Town Administration. The total area required for the project is about 5,000.00
m2. The landscape of the intended project site is quite ideal for erection of the plant building &
construction and for some other activities such as transporting of inputs & outputs. Generally, the
project site is suitable for dairy farming due to its perishable nature of the product.

5.2 Land Use


Dairy Farm has extensive facility requirements. The basic dairy facility requirements are a milking
parlor, open area, feed storage, waste storage, Calves and heifer development facilities.
Cows spend most of their time in the pasture or in free. Feed storage facilities are another
requirement for dairy operations because of the large amount of feed fed to each cow. Upright silos
and pit silos hold corn silage or haylage. Most dairies also have grain and bulk bins that hold
prepared feeds or supplements. Most dairies also require waste storage facilities because of the
amount of production that takes place in confinement in barns, which generates a lot of manure
finally; dairy farms usually raise their own replacement females. Producers usually raise heifers in
hutches where each is kept individually until weaning. After weaning, they are moved to group pens
to be raised. Tool/machinery shed on the farm for storage, Office etc. The details Land Use Plan is
annexed

5.3 Design of the Dairy Farm


The design of most recently established dairy farm and milk processing plant have many similarities
in common Development of housing and feedlot facilities requires integration of space, shelter, feed,
water, waste management and handling facilities . These requirements will be adapted to natural
features of the site and organized for efficient operation. The feedlot design must be simple and pen
layout should be rectangular pens should be arranged using double row arrangement. A double row
arrangement requires feedlot construction on both sides of the feed alley. The major investment items
designed to establish the project are the following;

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5.3.1 Building and Constructions
The major civil works to be built as part and parcel of the dairy farm include; Dairy barn or shed,
calves room, water and feeding troughs ,Isolation pen , water system and latrine .Other building and
construction facilities needed at the site are- fence including gates, Guard room and Office.

5.3.2 Milk Process Plant

The processing plant have receiving facilities, storage for raw milk, pasteurizing, cleaning equipment and
coolers for finished products, as well as office space. Many products may also have additional equipment
in common. To the extent that common equipment can be shared and not duplicated in separate plants, the
overhead cost can be reduced. This efficiency is in addition to the fact that multi-line plants gain
efficiencies from more even seasonal use of milk and facilities. Investment could be on pasteurizing plants
with a capacity of processing 10,000 liters per day

5.4 Sources of Investment Inputs

The construction activity will be carried out by local Contractors. Construction materials such as
sand, Gravel, masonry, Cement, and corrugated sheets are easily available in Buee town. Different
machineries required for the milk processing activity are mostly imported items and are to be
supplied by local dealers. Milking cows will be purchased from a reliable supplier from Deberzite,
Hawassa &Zeway .Wage laborers are abundantly found in the town. Skilled and semi skilled
manpower is not a constraint.

5.5 Availability of Raw Materials and Auxiliary materials

The principal raw material required for the production of pasteurized milk, butter, cheese and cream
is raw milk. Raw milk is available from the project dairy farm and also acquired from surrounding
farmer. The auxiliary materials required for the envisaged plant comprise packing materials like
plastic bags, paper and carton box. The plastic bags and carton boxes can be acquired from the local
market.

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5.6 Availability of utilities, Infrastructures and Other service

Road; The project area can be accessed by all-weather roads up to Buee Town Administration The
area is connected all sides with all-weather roads, so the project can transport inputs and output
easily.

Electric Power; Buee Town Administration of the project area has access to hydroelectric power.
Currently, the government has setup additional power station at Buee Town Administration. This
power station will help us to reduce the cost of operation with better efficiencies and will ensure
uninterrupted availability of power.

Water Resources; by now, access to safe drinking water is not a problem in the project area. A
recent major success of the Buee Town Administration is its agreement with Airsh aid. Under the
agreement, Airsh Aid will generating underground water and install water pipe line all over the town
to alleviate the future problem.

Telecommunication ; According to the data collected from the Bureau of Finance and Economy, the
town administration and all PAs in the project area have access to different telephone services, such
as, mobile telephone service, and wireless.

Educational Services; Buee Town Administration has good access to educational services especially
from kinder Garden to high school and TVT College.

Financial Institutions; There are government and private banks in the project area and surrounding.
Hence, the project can get bank services nearby.

Health Services; the project area can access hospital service nearby Hospitals and Health center
which is 300 meter far from project area

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6. SOCIO-ECONOMIC STUDY
6.1 Socio-Economic Benefit for the Society
The socio-economic impact of the project is expected to be positive, as the operational area is devoid
of major any potential displacement/ eviction or conflicts. The positive impacts are more pronounced
in view of the development of an abandoned and uninhabited rural area, bringing large employment
opportunities to the surrounding peoples.

 As the project requires labour for undertaking its operational activities, a number of people
will have the opportunity of being employed in the project. In this regard, the project will
create new employment post for about 30 individuals on permanent basis and for up to more
than 20 casual labourers. Since the project use own dairy production and rely on milk
collected from surrounding farmers, the farmers would have a guaranteed buyer from which,
they could get consistent and better financial gains as far as they could engage in such
business.

 Important social aspect of the project is that it would increase supply of milk and related
products which consumptions is beneficial in many ways and helps in battling various
diseases
 The expected increase in income of the permanent & temporary employees would eventually
contribute to good health & nutrition in the family and allow them to access better education
for their children, improve sanitation and provide for the necessities in the household.

6.2 Economic Benefit for the Community


The creation of substantial direct and indirect employment opportunities with potential for out-
growers will have impact for increasing incomes and skill of the rural community. There will also be
good opportunities for out-growers linkages with the surrounding farmers and the use of the project’s
facilities, knowledge and experience, thereby increasing the economic activities of the inhabitants of
the area. Promotion and transfer of new agricultural technology that could be adaptable to the
surrounding farming community and improve their skills through training and sharing of the project
experiences will also be another benefit for the community.

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6.3 Economic Benefit for the Country
This Proposed project will have significant economic benefits, both to the national economy of the
country at large, and the region in particular in which the project is to be established.

The specific direct benefits will include;

 Development of uninhabited part of the country and exploitation of hitherto abandoned


physical resources of the particular area through the establishment of modern livestock
agriculture.
 Aside from the increase in income of the owner, the project would activate the economy
especially in the continuous production and supply of processed milk & milk products. Being
efficient in terms of business returns and thus considered as a role model, we hope, this
project will also encourage other entrepreneurs in the country to engage in milk processing
industry.
 Supply of agricultural commodities to the national and export markets, thereby enlarging the
domestic basket of food items and contributing to the foreign exchange balance of the
country, both through generation of foreign exchange and import substitution.
 Provision of physical and social infrastructure, thereby creating conducive and suitable
environment for regional development.
 Substantial increase regional government revenue, through direct & indirect taxation.

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7 Livestock Production Profile Related to the Project

This investment project is intending to production of milk and milk products. This farm project will
entirely apply a modern farming system. Different species of livestock have been reared in all of the
production systems of Ethiopia by pastoralists, agro pastoralists, and crop/livestock farmers. Based
on climate, land holdings and integration with crop as criterion, dairy production systems are
classified into three main systems :( 1) rural, (2) peri-urban and urban and (3) commercial dairy
systems.
Rural milk production: Majority of livestock keepers rely on rural dairy system which is part of the
subsistence farming system that contribute up to 98% of the total milk production of in Ethiopia and
includes pastoralists, agro-pastoralists, and mixed crop–livestock producers
The system is not commercial based and most of the milk produced in this system is left for home
consumption (Ahmed et al., 2003). In the highlands of Ethiopia, small scale farmers keep mostly
zebu cattle which have lower milk produce on ranging from 400 to 600 lit for a two hundred day lacta
on period (2 – 3 lit/day/head) and well suited to the existing environment(Land O'Lakes, Inc.2010).
Livestock are subjected to graze on communal pastures although a considerable amount of fodder
production for both on-farm use and sale is increasing using bulls as common for breeding purposes
except near to national artificial insemination center. In these areas, milk is processed on farm using
traditional technologies to produce products like butter, ghee, ayib and sour milk, which can be sold.
The bulk of butter and ayib in the highlands is channeled through the informal market. Farmers,
mainly women, take the products on a weekly or monthly basis to market places or sell at the farm
gate to brokers who take the commodities to local or, more distant markets where there is a demand.
In pastoral areas, diet is based on fresh/sour milk and leftover milk is poorly utilized. The herd size
per household is large and hence there is a. greater surplus of milk/person than in the highlands.
Market access in this production system is a critical factor. Subsequently, due to crossbreeding
program has been underway in the country the government is delivering semen for AI services at
subsidized cost for milk production increment.
During the past two decades, to offset the shortfall in milk production, the import dependency of
Ethiopia for milk and milk products has increased. A country endowed with such enormous livestock
resources and climatic situations conducive to livestock production should not be allowed to continue
importation of dairy products. Self-sufficiency in dairy products should be encouraged to optimize
the use of available resources to minimize between demand and supply. Considering this effect the
dairy has intended in production of milk to fill the gap.

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Peri-urban milk production: Peri urban milk production has been performed in areas where the
population becomes high and the agricultural land is scares due to urbanization around major cities
like Addis Ababa and other regional becoming prominent in the highlands among mixed crop-
livestock farmers. Dairy farmers and cooperatives involved in milk production in the peri-urban and
urban areas are selling milk to consumer in the nearby town and city. Dairy Producers in this
production system have a better understanding of dairy management and processing facilities. Urban
dairy farming is a highly specialized dairy farming owned by state or businessmen and is mainly
concentrated in major cities of the country. Pure exotic and cross bred cows have been used in this
produce on system comprising 40,000 pure exotic and crossbred cows in urban and peri urban areas
of the country. In Addis Ababa alone, there are about 5200 dairy farms with some 58,500 cattle
(almost 50 percent crossbred).
Commercial Milk Production: Dairy Producers would rely almost exclusively on AI for good
semen and keep breeding records with paying for the more expensive imported genetics and breeding
supplies. In around Addis Ababa there are an estimated 5,000 dairy producers with pure and cross-
bred cows producing 34 million lit per year.
There are about 35 active dairy processors in the country. The processors collect raw milk from dairy
farms, private milk collectors, cooperatives and unions. As described above, the raw milk is collected
at the collection center and transported to the processing plant. It is processed into pasteurized milk,
cheese, butter and yogurt. The companies are supplying different combination of dairy products that
includes, Pasteurized milk (full cream), Pasteurized milk (skim), Raw milk (full cream), Cream,
Table butter, Cooking butter, Ayib (local cheese), and Flavored yoghurt. There is no Ethiopian
company processing milk powder, although some processors are planning to invest in such facilities.
Recently Anchor, New Zealand’s leading milk brand has begun producing fortified milk drink in
Ethiopia with quick gain of market share. Even though few are operating with their full capacity most
are functioning under capacity, on average the companies are working 18-43% on average for the
different products. The main factors for the under capacity operation are lack of collection facilities
(chillier, vehicles, refrigerator), machinery spare part access, capital, power, low demand in fasting
months, productivity versus profitability from producers and processors side, lack of experience in
the market as new entrants and lack of quality raw milk.

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The processed dairy products are distributed to retail shops, supermarkets, schools, hospitals,
restaurants, cafes and hotels located in major urban centers. The main market destination is Addis
Ababa market for most of their processed products with share of 50-65%. Adama /Nazret,
Bishoftu/Debre Zeit, and Ziway are the other main destinations for processing companies in Addis
Ababa and its surrounding. In other big towns like Hawassa and Bahir Dar there are processing
companies supplying to their towns.
Pasteurized milk and other milk products pass mainly through supermarkets and retail shops channel.
Restaurants and distributors are the next important outlets for the processed products. For Ayib (local
Cheese) and butter customers that come to the processing companies, factory gate or others own
shops are the important outlets.
Because of this reason her livestock production is not enough to meet the domestic consumption
requirement. The total supply of livestock products fall short of the overall demand.

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8. Environmental Consideration

8.1 Environmental Impact Assessments

This project is designed to cultivate and promote the production of quality milk by maintaining the
existing environmental system. It also intends to protect the environment from the possible risks. The
project will have no negative environmental impact in the areas as shown under:

Run-off control:
The feedlot and processing facilities will be constructed so as to meet existing environmental
compliance if any. Construction of effluent treatment plant is necessary in case of multiproduct large
size plants for treating the effluents before discharging for proper disposal. The milk processing
plants has to be hygienically designed and easily cleaned to prevent contamination of products by
insects, birds, rodents or microorganisms.
The dairy products plant does not have any pollutant emitted from the production process, except the
washing water, which has to be connected to appropriate sewerage line to get rid of. Thus, the
envisaged project is environment friendly. A grass/forage filter composed of elephant grass will be
planted in area of 1 times the feedlot area to take care of the effluents as such type of grass plants
could be used to filter liquid wastes.
Animal waste/Manure management:
During the 2nd half of the first year of the project, biogas digester with a volume of 100 m 3 will be
constructed so that, all manure wastes from the barns will be used to produce biogas fuel for the
project consumption. So as to doso, during construction of the barns, floor slope will be made
appropriate for gravity flow of liquid manure to the digester, and in addition, the remaining manure,
which could not flow as liquid, will be daily collected and dumped in the digester so as to keep the
barns clean as well as to alleviate the environmental problems associated with manure wastes.

Air Pollution:

dust and odor problems will be minimized by proper site selection. Prevailing winds and habitable
structures will be considered to avoid air pollution problems

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9. Market Study
9.1 General over-view

The future of the dairy sector in Ethiopia is more positive with different driving factors, which
includes positive economic outlook and life style changes. Ethiopia has an estimated population
of approximately 99.4 million in 2016, up from 2015's estimate of 98.9 million, the second-
most populous country of Africa after Nigeria (CSA, 2013). National real GDP growth
averaged 10.1% per annum during the period of GTP I and real GDP growth during the last 12
years averaged 10.8 percent per annum. The economy expected to remain robust from 2016 to
2019 at 7.6% as per IMF projection and above 11% as per GTP II. In line with the economic
growth, the emerging middle class consumer segments are willing to embrace new products
and services that include agricultural products. With the increase in income, it is expected that
consumption pattern shifts to high value food items that demands encouraging supply of
livestock products.

In addition to the purchasing power increase, urbanization, population growth and consumer
awareness will increase the demand for quality, volume, graded and standardized products and
traceability of sources. Life style changes call for more of fresh and finished ready to eat
products with appropriate packaging and labelling. As per research findings of Land O’ Lakes
in 2010 showed that the top 10% earners in Addis Ababa consumed about 38% of milk, while
the lowest income group, approximately 61% of the population consumed only 23%. The high
milk price for pasteurized milk in supermarkets, considered high to afford for middle and low-
income consumers. The growing demand for milk and milk products offers a good opportunity
for producers (and other actors in the dairy chain) in high-potential, peri-urban areas to enhance
their livelihoods through increased production. Ethiopia exported an amount less than 300,000
USD per annum during the last five years. Majority of the export destined to Somalia and
traditional spiced butter export for Ethiopian community and other consumers to USA and
other countries. With the expansion of the sector the volume exported to Somalia can be
increased and to other destinations like Sudan, South Sudan and Djibouti can be expanded.

9.1.1 Production and Supply

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From the 2015/16 CSA survey estimate of 57.83 million total cattle, the female cattle constitute about
55.38 percent (CSA, 2016). When classified with purpose it is estimated that there are 6.74
million dairy cows and 11.34 million milking cows. The total volume of milk produced in
Ethiopia increased over the last 15 years from less than 1 billion litres to 3.06 billion litres in
2015/16. The dairy sector contribution to the national Gross Domestic is expected to increase in
the years to come too. The overall country milk production expected to surpass existing milk
demand as per GTP II period (2015–2020) projection with about 2501 million litres that is 47%
above (LMP, 2015). As per the plan the surplus of milk could then be substituted for imported
milk products and used domestically for new or additional industrial uses (e.g. in the baking
industry), or exported as milk powder to raise foreign exchange earnings.

The milk is produced by 11.34 million milking cows are kept within five different dairy farming
systems: (i) Urban and peri-urban systems that is the emerging smallholder dairy farming; (ii)
Specialized commercial intensive dairy farming; (iii) Mixed crop livestock system, the
traditional highland mixed farming; (iv) Pastoral livestock Farming, (v) Agro-pastoral system,
that is the lowland mixed livestock farming. The rural dairy system, which includes the last
three groups, contributes 98% of total production, while the first two groups contribute only 2%
of the total national milk production but main sources for big cities milk consumption.

9.1.2 Demand for and Consumption of Milk

Although, the contribution of cow milk is dominant, milk from camels and goats are also consumed
in Ethiopia, especially in pastoral and agro-pastoral systems of production. In Ethiopia there is long
standing and strong culture of consumption\ of dairy products. In addition to row milk, milk products,
such as butter, cottage cheese, fermented milk (yogurt) and whey are also commonly consumed

9.1.3 SUPPLY AND DEMAND ASSESSMENT

9.1.3.1 Present supply and demand


There is inadequate supply of milk and milk products to urban consumers. The bulk of the increased
demand for milk is in urban areas, particularly for processed, i.e. pasteurized milk and milk-products.
There is also unstable supply of milk and milk products to urban consumers due to inefficient
delivery system and inadequate market outlet for milk and milk products from rural areas. The
contribution of imports of milk and milk-products to total consumption of milk has been rising over
the past several years, due to lack of quality milk production.

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9.1.4 Projected Demand
Demand for standard dairy products from the modern sector is met by domestic production and
through imports. The demand for milk depends on many factors including consumer preference,
consumer’s income, population size, price of the product, price of substitutes and other factors. In
general, increasing population growth (as in the following Table) and rising real income are expected
to expand the demand for milk and milk products. Therefore, increase in population growth and
consumer income in the future is expected to increase the consumption of milk products.
Table 1 Projected Demand
Year Population in 000 Milk production, In Milk available Demand for Gap between
projected milk
Based on current million liters based on for consumption milk, in million
available for
growth rat current growth rat (68 %) of the liters based on consumption and
demand base on
(2.27% ) (4.15% ) produce)in FAO
FAO,s
Million liters recommendation recommendation in
million liters
(62.5 k/g )
2011 82,102 3,061 2,081 5,131 3,050
2012 84,335 3,186 2,166 3,271 3,105
2013 86,629 3,317 2,256 5,414 3,158
2014 88,985 3,453 2,348 5,562 3,214
2015 91,406 3,594 2,444 5,713 3,269
2016 93,892 3,742 2,545 5,868 3,323
2017 96,446 3,895 2,649 6,028 3,379
2018 99,069 4,055 2,757 6,192 3,435
2019 101,764 4,221 2,870 6,360 3,490
2020 104,532 4,394 2,988 6,533 3,545
Source: Yilma et al., 2011
The annual demand in Ethiopia for dairy products is increasing. This is as a result of the current high
population and future growth trends, a growing number of urban centers and urbanized lifestyles, and
finally steadies economic growth rates registered by the country and visible increased income levels
of the general population. In Ethiopia, the demand for milk products is increasing while supply is
lagging. As a result, imports have surged in recent years, which consist primarily of processed milk,
including cheese and milk powder.

9.2 Market Segments


There are a number of marketing methods which are used in the marketing of milk and milk products.
The main target customers for our dairy products include but not limited to:
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 Small kiosks: - these kiosks are already experienced at selling raw milk and milk projects like
yogurt, ice cream, butter, and cheese to the general public. These kiosks do not require
sophisticated packaging and have good product handling skills.
 Individual consumers, Hotels, Guest houses, and Restaurants: these are to be used to provide a
meaningful linkage.
 Direct General Markets: milk products will be brought to the general markets where to be sold
to the general public.
 Dealers: independent operators who buy and sell packed milk and milk products. The dealing is
usually done at the shop level.
 Order buyers: Acts as agents for distribution of dairy products and other processed milk.

Moreover, this project aims to sell the products for those main consumers mentioned above, who
could be found within the specific project location as well as the surrounding regions, including:

 Main towns within SNNP Regional State:- Buee (the specific project location), Butajira,
Werabea, Hosana, Durame, Welkitea, Shone, Alaba, Welayita Sodo, Arba Minch, Hawassa.

 Main towns with in Oromiya Regional State:- Shashemene, Ziway, Meki, Mojo, Nazret,
Debre-Zeyt,Alem-Gena and Dukem. and

 Addis Ababa and the surrounding Urban and Peri-Urban areas.

9.3 Competitiveness on the market and competitors


Since agricultural market is a proxy for competitive market, the expected market for the products of
the project will get high competition from local farmers, local private farms, and private farms
engaged in similar activities in South and Oromiya regions

In Ethiopia, Milk and milk products are channeled to consumers through both formal and informal
marketing systems. Recently, however, private businesses have begun collecting, processing,
packing, and distributing milk and other dairy products. Still, the proportion of total production being
marketed through the formal markets remains small. Formal milk markets are particularly limited to
peri-urban areas and to Addis Ababa. The informal market involves direct delivery of fresh milk by
producers to consumer in the immediate neighborhood and sale to collectors or traders nearby towns.
In the informal market, milk may pass from producers to consumers directly or it may pass through
two or more market agents. The informal system is characterized by no licensing requirement to
operate, low cost of operations, high producer price compared to formal market and no regulation of
operations. The informal (traditional) market has remained dominant in Ethiopia.

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The traditional processing and trade of dairy products dominate the Ethiopian dairy marketing sector.
Since the dairy products from these informal processing and marketing sectors are not pasteurized
and appropriately packed, they could not stay fresh for considerable time durations. For this reason,
the dairy products from such sectors could not give practical solution for the marketing challenges
associated with seasonality in demand for milk and milk products which is identified, as one of the
major problems by 10.5% of the rural and 75% of the urban dairy producers, respectively. However,
for this marketing challenge created due to seasonality in demand for milk and milk products, modern
business projects involved in dairy farming, processing, and marketing, which could use modern
processing technologies (like the those technologies to be used in this business project) to extend the
shelf-life of dairy products so as to remedy the problem. With this limited number of modern dairy
farming projects in Ethiopia, this project intended to fill the huge gap between demand and supply by
contributing its share in alleviating the insufficient milk supply to the urban milk demand through
producing better quality of milk and milk processing products for the market.

9.4 Competitive Strategy


Marketing functions or services include many phases such as collecting higher quality milk from
supplier, processing, & managing them to attain the required product types with standard qualities,
transporting to potential markets, and distributing them to customers, such as Super markets, hotels,
individual consumers, and restaurants. In economic terms, the utility or time, place and form will be
added so that acceptable products will be offered to the ultimate consumer at the required time.
9.5 Product Pricing and Distribution Strategy
The main objective of the project is producing milk and milk processing products to maximize profit
and make the project sustainable. To achieve this objective, consideration of production and other
costs that determine profitability is necessary. In addition, the profit from such kind of dairy business
is attained by minimizing production costs which account nearly half of the total cost of products.
Any attempt to improve production and increase its efficiency, therefore, needs to focus on better
utilization of available resources. The planned project will rely on using locally available materials
and agro-processing byproducts to feed cows including molasses, concentrate made from maize,
bean, wheat, barley. Feedlots will also have to be devised as mechanisms to source feeds by-passing
middlemen and other profiteers who charge high prices for these feeds relative to the lower products
prices. Through using these resources the cost of production will be lower than other commercial
dairy and milk processing farms in the country. In addition, the project will adjust the price of
products supplied to the consumers based on market situations.

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. Distribution of the products could be undertaken through small retail outlets as well as large
wholesalers and catering establishments. The product can be distributed by establishing own
distributing stores in towns or the products will be delivered directly to the customers to avoid
unnecessary price increment which will affect the purchasing power of customers..

9.6 Promotion
To promote its products, the project will use different promotion means such as hand bills and posters
and radio & TV advert air times. In addition, seasonal promotions will be done especially for
religious holidays, on which such promotions will be based on particular types of products prepared
for each occasion.

10.0 Production and Sales Plan


10.1 Production Plan

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For processing facility, The financial projection assume the total raw milk available for value
addition will be divided into pasteurized milk and cheese production ,Of the total production, 80
percent will be pasteurized milk and 20 percent will be cheese. During milk processing, cream is left
over. In order to use the cream, butter will be produced. It is assumed that 75 percent of cream will
be processed to butter.

The actual raw milk production will therefore begin at 346,250 litters (320,281.25k/g) in the first year
of production and the milk production will increase with the growth in herd size in subsequent years.
The production plan of milk, cream, butter and cheese for the project years will be depicted in the
following table.
Table 2 Production Plan of Pasteurized milk ,Cheese , Cream & Butter

Year Raw milk OUTPUT


available for
production pasteurized cheese in butter in k/g Cream in
in k/g milk in k/g k/g k/g
1st 320,281.25 256,225.00 64,056.25 3783.30 1261.10
2nd 296,693.75 237,355.00 59,338.75 3504.70 1168.23
3rd 273,106.25 218,485.00 54,621.25 3226.00 1075.43
4th 386,326.25 309,061.00 77,265.25 4563.45 1521.20
5th 447,653.75 358,123.00 89,530.75 5287.91 1762.64
6th 518,416.25 414,733.00 103,683.25 6123.75 2041.25
7th 617,483.75 493,987.00 123,496.75 7294.00 2431.37
8th 801,466.25 641,173.00 160,293.25 9467.25 3155.75
9th 1,046,776.25 837,421.00 209,355.25 12365.00 4121.73
10th 1,367,566.25 1,094,053.00 273,513.25 16154.25 5384.75

10.2 Production Cost

The production cost includes; feeds, veterinary, salary &wage, water electric power, purchase of raw
milk, dairy supplies etc. Annual production cost requirement with the corresponding estimated cost is
annexed.

10.3 Sales Plan

The major source of revenue for the farm would be the sale of milk or products made from milk. As
would be expected, processing milk into finished products will add value to each kilo-gram of milk
29
produced. In addition of the sale of milk and milk products, the other source of revenue for the farm
would be the sale of culled cows, bull calves and heifers not kept as a milk replacer.
In this study, it assumed that the price of each cull cows, bull calves & heifers is Birr 24,000, 3,000 &
25,000 respectively.
Revenue could be generated by selling 80% of the milk as fluid milk, 20% of the milk processed into
cheese and the left over cream is processed into butter. The diversification of products would help
buffer the enterprise from volatility in the product markets. Prices can vary depending on the market
outlet that a producer is selling through.
When selling through a retail outlet, a producer will receive a wholesale price .When selling directly
to consumers; the producer receives a retail price. In this study it assumed a wholesale price, that the
price of pasteurized milk, cheese, butter &cream per k/g is Birr 26, 60, 200 & 350 respectively.
The financial projection assumes that total raw milk available for value addition will be divided into
milk and cheese production. Therefore, the total raw milk available for value addition, 80 percent will
be pasteurized milk and 20 percent will be cheese. During milk processing, cream is left over. In
order to use the cream, butter will be produced.

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11. ORGANIZATIONAL AND MANAGEMENT

11.1 Structure of Project management and Personnel

The highest executive body of the project management organ is Zinabu Beka Ture Dairy Farming
and Milk Processing which is privately owned. The Owner controls and supervises the overall
activity of the project at times while the operation and management of the farm will be entrusted
to qualified and well experienced manger. All staff members of the project are accountable to the
General manger who is assigned by the investor to manage the overall activities of the farm. He
also serves as a cosignatory with the owner of the project.

Under the General Manager three section will be organized, Farm manager, Marketing Manager
and Finance and Administration Manager. The responsibility bounded to the farm site would be
delegated to the farm manager who will direct different animal husbandry practices at the farm
e.g. feeding, watering, and milking and care of animals etc. Under the farm manager, farm
supervisor, barn workers, milk processor, Laboratory analyst & Barn workers will be organized.
Under Finance and Administration manager Accountants, store keepers, drivers and office
workers will be organized. Under marketing expert, sales mane, shop keeper will be organized,
Marketing Finance and Human resource sections. Each worker is responsible to their respective
job descriptions provided by the respective section head. The store keeper will be responsible to
systematically record and keep the input and outputs of the project respective working areas.

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11.2 Organization Structure
. The project will have its own organizational set up (structure) to run the production, finance
& Administration and Marketing of the farm. The organizational chart, shall serve as a
fundamental guide to the reporting responsibilities of the senior officers and the work force. The
proposed organizational structure for startup of the project is as shown below.
Zinabu Beka Dairy Farm and Milk Processing Organization Structure

11.3 Manpower Requirement and Cost


The farm will engage a team of professional, highly qualified and experienced management
personnel. Initially the farm will employ a total of 30 full time staff including a General Manager
with qualifications in Business with experience. Staff employed in the technical team will be

32
responsible for cattle induction, dispatch, storage and handling of feeds, and general maintenance
activities within the feedlot, including pen cleaning, feeding and animal health.
The Marketing team will be responsible for coordinating, and recording daily farm transactions,
marketing and advertising of the farm products. Other responsibilities will include managing the
logistics of the facility to ensure timely delivery to clients as well as maintaining an adequate supply
of production on hand. Accounting team Establish an appropriate accounting system and procedures.
They will also perform regular internal audits to ensure that the company's accounting procedures are
implemented correctly. As the flock size increases, in the fifth year the organization will hire 6
additional labors for milking, feeding and manure removal
. Manpower requirement for the farm & the corresponding labor costs are shown in below
Table 3 Manpower Requirement and Labor Costs

No Description Required Monthly Annual salary


number salary (Birr)
(Birr)
1 General manager 1 6,500.00 78,000.00
2 Farm Manager 1 4,000.00 48,000.00
3 Marketing Manager 1 4,000.00 48,,000.00
4 Finance & Administration Manager 1 4000.00 48,000.00
5 Laboratory analyst 1 3,000.00 36,000.00

6 Farm supervisor1 1 3,000.00 36,000.00

7 Vet 1 3,000.00 36,000.00


8 Accountant 2 3,500.00 84,000.00
9 Milk processing plant workers 4 2,000.00 96,000.00
10 Barn workers 10 1,200.00 144,000.00
11 Marketing and sales man 2 2,500.00 60,000.00
12 Driver 1 2,400.00 28,800.00
12 Guards 2 1,200.00 28,800.00
13 Store Keeper 2 1,800.00 21,600.00
SUB- total 30 745,200.00

Employees benefit (11%) 81,972.00


Grand Total 827,172.00

11.4 Training Requirement

In each year a five days training will be provided for the managers, farm supervisor, Laboratory
analyst and other four workers of the farm at the site of the project by the machinery supplier and
senior animal production expert. Total cost of training will be Birr 20,250 per year.

33
12. PLANS OF OPERATION AND IMPLEMENTATION

12.1 Plan of Operation

The major investment required to establish the project include civil works, purchase of cows, feeds
,different machinery and equipment ,vehicles and purchase of milk from surrounding farmers.

12.1.1 Building and Civil works

The civil works that this dairy farm and milk processing plant include are primarily the relays of
structure for milk production and processing activity indicated above. The engineers estimate for
these items and for other construction facilities needed at the site are valued at Birr 3,200,000.00

12.1.2 Milk Processing Equipment

According to the Performa invoices submitted from local suppliers, the aggregate cost of the
machinery and equipment is summed up to Birr 700,000.00 and other milk equipment is estimated to
be Br. 232,188.00. The list and cost of Machinery and equipment required for dairy farm and milk
processing is annexed.

12.1.3 Vehicles

The farm would utilize a Isuzu (milk tankers installed) as a farm vehicle. According to the Performa
invoices submitted from local suppliers, the aggregate cost of the vehicles is summed up to Birr
800,000.00
12.1.4 Office Furniture and Equipment
According to the Performa invoices submitted from local suppliers, the aggregate cost of the office
furniture & equipment is summed up to Birr 98,000.00
12.1.5 Milking Cows

Initial herd sizes of 50 cows, which are cross breeds, with better milk production are considered.
A total cost of the cows is Birr 1,750,000.00. The farm will not need to purchase any cows.
.The flock would be “bred up” by increasing the percentage of dairy blood in the cow flock over
time.
12.1.6 Raw milk

34
The dairy farm will purchase 250 liters of raw milk per day from surrounding farmers at a price of 15
per litter to supply the plant. A total of birr 1,368,750.00 will required for the year of production. The
cost of purchasing milk from surrounding farmers is taken for initial investment and it will revolve.

12.1.7 Feed

. Dairy animals will be fed 5 kilogram of concentrate along with 10 kilogram of roughage per head
per day. These feed ingredients when mixed according to feed formula will provide adequate energy
according to energy and protein requirements of animal in production. The total cost of feed for the
first production year estimated to be Br. 1,241,949.00. The list and cost of feed required for dairy
farm is annexed.

12.1.8 Vaccination & Medicine

Vaccination & medicine is required to prevent any disease outbreak in the animal herd.
Each new animal will be vaccinated before entering the farm .The vaccines and medicine are
obtained from the Government institutes on payment. It will cost Br. 300.00 per cow for a total cost
of Br. 15,000.00 for the first production year.
12.1.9 Artificial Insemination (AI)s
The Farm will also obtain Artificial Insemination (AI)s on payment according to prescribed schedule
from the government institutes , the charges will be Br 50.00 per cow for a total cost of .Br. 2,500.00
for the first production year
12.1.10 Laboratory & Cleaning supplies
Since the dairy farm is processing daily, the facility will need to be cleaned after each processing and
the milk should be tested. The purchase will be on yearly base, the cost of laboratory and cleaning
supplies per year is estimated to be 3,500 .00 and 2,500 .00 birr respectively.

12.1.11 Utilities
Annual requirements of water and electricity of the dairy farm is estimated to be 91,250 and 12,000
birr respectively. Total cost of utilities for the first year of production is estimated Birr 103,250.00
.The list and cost of utilities required for dairy farm is annexed.

35
12.1.12. Plastic package
Packaging material is estimated at Br 5 per k/g of milk product produced A total of birr
432,812.00will required for a three months of production year .The cost of purchasing packaging
material is taken for initial investment and it will revolve
12.1.13 Pre-Operating cost
The pre-operating activities of the business were for the preparation of bid document, building design
& bill of quantity, license & permit. The total cost of pre- operating cost is Br. 26,000.00. The details
annexed

12.2 Implementation Plan

The Project required 5,000 m2 of land in Buee town Administration, which is an ideal place for
serving the purpose. The required amount of loan is expected to be obtained in short period of time;
the implementation of the project would not take more than Seven months. The enterprise will start
commercial production As of July, 2019 Action plane of the activities of the project is presented
below.
Table 4 ; Implementation Schedule

No. Activity Time Table


1 Finalized design Jan, 2019
1 Bank loan requisition Jan. 2019
2 Contractual agreement with local contractor Feb – April 2019
Construction of buildings and shed
Arrangements of supply of water pipeline, telephone and
electric power line installation
3 Recruitment of personnel &Training for employees March, 2019
3 Purchase of animals feed & dairy supplies April , 2019
4 Purchasing of dairy animals & vehicles May 2019
Purchase of office equipment
5 Purchasing of milk processing plant from local dealer May-June 2019
&Erecting of milk processing plant
6 Trial production June 2019
7 Promotion June, 2019 and on wards
8 Obtained business license July 2015and on wards
Start to selling the product for customers

36
13. FINANCIAL BUDGET OF THE INVESTEMENT

13.1 Investment Cost


Investment costs of a project are categorized as fixed and working capital. Fixed investment costs are
costs incurred for construction of fixed assets and/or to acquire asset that are fixed in nature. Working
capitals are to supply inputs required to produce the proposed product items in the production year
and pre operational. The overall investment cost includes fixed cost, pre- operating cost & working
capital estimated at Birr 8, 060,817.06 for details see below

Table 5 INITIAL INVESTMENT COST


No Description Description Grand Total in ETB
1 Land
1 Building & Civil Works 3,200,000.00
3 Milk Processing Plant 700,000.00
4 Refrigerated Vehicle 800,000.00
5 Milking Equipment 238,680.00
6 Office Furniture and Equipment 98,000.00
7 Dairy Heifers 1,750,000.00
8 Pre-Production Expenses* 46,250.00
Total Investment Cost 6,832,930.00
9 Working Capital 1,227,887.06
Total Investment cost 8,060,817.06

13.2 Source of Finance


The total investment cost of the project Birr 8,060,817.06 will be financed from two sources: equity
of the owner and a loan from Development Bank of Ethiopia. By this, about 70% of the project cost
(5,642,572.00 Birr) will be financed from the Bank, while the remaining balance (2,418,245.06 Birr)
will be from owner’s equity.

13.3 Project Duration


The life time of the project will be 10 years. The project might be extended above the given period
depending on the profitability of the first 10 year by following the investment rule of the region.

14. Financial Analysis


Profit maximization is the overriding factor in most management decisions. Thus, an economic
profitability analysis is necessary to determine whether investing in a dairy and milk processing plan

37
will result in profit in the long run. Considering the implementation of the project as planned, the
project will remain profitable right from the beginning., the net profit at initial will be Birr 909,610
which is projected to increase to about Birr 2,047,104 at the end of the sixth year (with all loan
repayment amounts deducted from the net cash inflows). The cash generating capacity of the project
for each period is found to be significant
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) will show an increasing trend during the life
time of the project. The projected financial statement shows that the project will remain profitable
throughout its life. The details are annexed

15 PROJECT MONITORING AND EVALUATION


Monitoring of the project will be carried out as a continuous process to provide qualitative and
quantitative information & data on the management and technical aspects. The monitoring system
will not only focus on providing data on inputs, outputs and effects but also considers the processes
involved in project implementation. The information so generated in the process will be used to
improve management through guiding management decisions to ensure effective implementation of
the project. The monitoring tool will be monthly report; business report will be done a regular
manner. As a result monthly reports on the progress business implementation will be prepared from
bottom to top level of management, and a follow up activities according to the schedule.
Zenabu Beka Dairy Farming and Milk Processing will conduct evaluation of the project at the end of
each phase of the project implementation. The project management shall establish indicators for
monitoring and evaluation to verify the success of the investment.
The result of the evaluation should be incorporate in to the next project planning and lessons learned
from experience.

16. CONCLUSIONS
The future prospect of dairying in Ethiopia is bright since the entry of private firms in the dairy
production and processing businesses will have a significant development indicating the profitability.
Investing in milk processing plant for long-life milk production in Ethiopia is a promising

38
opportunity for dairy-related investors. Investing on dairy processing in Ethiopia is a profitable
business since financially viable with having a high internal rate of return. The dairy processing
investments could increase capacity in dairy products into a range of markets including export to
Somalia and other destinations like Sudan, South Sudan and Djibouti are the possible options.
 The financial results show that the project is profitable, although there will be some dependence
on bank for long term loans.
 The proposed Dairy and milk processing project is a viable and could target the identified niche
market in the short term and the regional export market in the long term.
 The strength of the proposed project lies on its strategy aimed at exploiting the interaction
between value addition technologies and opportunities offered by different market players.
 Emphasis on consumer preference to complement the value addition activates is another unique
feature of the project.
 Product quality will be enhanced by introducing other attributes preferred by consumers including
packaging, product and branding
It is therefore concluded that the proposed project is financially viable. The demand for quality
milk production and processing industry is strong and growing, a situation that will ensure
adequate milk production levels and sufficient return to investment.

17. Key assumptions


The financial analysis of the project where based on the data presented in the previous chapters and
the following assumptions:-

39
17.1 Production Related Assumptions
Two alternative production systems of milk processing and dairy are considered in the project. Under
operating costs, the primary component is working capital cost which has been estimated separately
for the milk processing and dairy units. There are no feed mills that produce concentrate dairy and so
the project have to source all ingredients/ crop by- products/ to supplement production unit

The project will initiate with 50 pregnant cows in single production year. Over the years the size of
the project will increase gradually reaching the limit of 272 cows in production year. Dairy animals
will be fed 3 kilogram of concentrate along with 7 kilogram of roughage per head per day. The cost of
concentrate and roughage feed per kilogram is estimated to be 5 and 3 birr respectively.

17.2 Cost Related Assumption


Cost Assumptions Price ETB
Purchase price of pregnant heifers 35,000.00 Birr per Head
Purchase price of milk from local farmers 15.00 Birr per Liter
Revenue estimates are derived mainly from sales of Pasteurized milk

Expected sales Price ETB


Production of milk/ days/head 17 liters/day
Total Number of cows* 50
Number of considered Days in a year 300 Days
Milk selling price per liter amt 26.00 Birr
*Purchasing expense for Dairy animals is kept under fixed costs.
The total cost of land, at the rate of Birr 87 per meter squire, and for 70 years of land holding is
estimated at birr 435,000.00
I. Building and Civil works
Construction period 7 months
All buildings and construction costs needed for the project are taken from engineers’ estimation
reports or bill of quantities.

II. Equipment, office furniture and equipment and vehicle.


The cost of equipment’s and furniture’s was considered based on Performa invoices submitted by the
owner from concerned suppliers.

Depreciation Rates
Building infrastructure 5% straight line
Machinery and Equipment 10%
Vehicle 20%
Other furniture and other equipment’s 10%
Amortization
Pre-operating cost 10%

40
Land lease hold amortized over the lease period of 70 years.
The investor will contribute 30% of his own capital as equity and secure a term bank loan (70% of
the total capital payable in 5 years) to finance the project
A grace period of two year will be allowed before loan repayment starts.
 Interest rate: 10% per annum on declining balance and due on quartly basis.

18 Annexes

Annexed 1 projection of Cost of Production 1- 10 Yr.

Cost 1st Yr. 2nd Yr. 3rd Yr. 4th Yr. 5th Yr. 6Yr 7 Yr. 8Yr 9Yr 10 Yr.

Feed 1,241,949 1,299,217 1,178,219 1,772,147 2,900,648 2,538,319 3,261,895 4,359,100 5,823,648 7,748,572

Raw milk 1,368,750 1,368,750 1,368,750 1,368,750 1,368,750 1,368,750 1,368,750 1,368,750 1,368,750 1,368,750

Vat &Medicine 15,000 24,000 23,400 33,000 38,700 47,100 62,400 82,000 110,400 147,300

41
Artif & Inseminate 2,500 4,000 3,900 5,500 6,450 7,850 10,400 13,800 18,400 24,550

Water & elec. 103,250 158,000 154,350 212,750 247,425 298,525 391,600 515,700 683,600 908,075

Plastic package 1,601,406 1,483,468 1,365,531 1,931,637 2,238,268 2,592,081 3,087,418 4,007,331 5,233,881 6,837,831

Labor 459,540 482,517 506,642 531,974 630,572 662,100 695,205 729,965 766,463 804,786

Training expense 20,250 20,250 20,250 20,250 20,250 20,250 20,250 20,250 20,250 20,250

Lab.supplies 3,500 3,570 3,641 3,714 3,788 3,864 3,941 4,019 4,099 4,181

Cleaning supplies 2,500 2,550 2,601 2,653 2,706 2,760 2,815 2,871 2,928 2,986
10,830,03
Operating expenses 4,544,895 4,572,572 4,353,534 5,608,625 7,183,807 7,267,849 8,630,924
6
13758669 17593531

Promotion 80,000 247,192 227,540 321,870 372,965 430,667 509,194 657,966 872,128 1,136,365

Repairs& maintain 147,277 154,640 162,372 170,490 179,014 187,964 197,362 207,230 217,591 228,470

Insurance 15,000 16,500 18,150 19,965 21961 24,157 26,572 29,229 32,151 35,366

Fuel & oil 180,000 207,000 238,050 273,757 314,820 362,043 416,349 478,801 550,621 633,214

Rental expense 26,460 26,460 26,460 26,460 26,460 26,460 26,460 26,460 26,460 26,460

Miscell. supplies 15,000 15,300 15,606 15,918 16,236 16,561 16,892 17,229 17,573 17,924
15,572,82 15,857,30 23,350,73 29,507,61
Production Cost 9,827,277 10,085,986 9,668,996 12,319,460
0 0
18,728,427
7 2
37,538,611

Depreciation exp. 273,668 273,668 273,668 273,668 273,668 273,668 273,668 273,668 273,668 273,668

Interest expense 536,044 428,835 321,627 214,418 107,209

Amortize for pre. ope 4,625 4,625 4,625 4,625 4,625 4,625 4,625 4,625 4,625 4,625
Amortize for land lease 6,214 6,214 6,214 6,214 6,214 6,214 6,214 6,214 6,214 6,214

Gen .admi & selling ex 820,551 713,342 606,134 498,925 391,716 284,507 284,507 284,507 284,507 284,507

15,964,53 16,141,80 23,635,24 29,792,11


Total production cost 10,647,828 10,799,328 10,275,130 12,818,385 19,012,934 37,823,118
6 7 4 9

Annexed 2 The Sales Plan of pasteurized milk, Cheese, butter & cream
2nd Yr. 3rd Yr. 4th Yr. 5th Yr. 6Yr 7 Yr. 8Yr 9Yr 10 Yr.
Items 1st Yr.

Past. Milk 6,661,850 6,171,230 5,680,610 8,035,586 9,311,198 10,783,058 12,843,662 16,670,498 21,772,946 28,445,378

Cheese 3,843,375 3,560,325 3,277,275 4,635,915 5,371,845 6,220,995 7,409,805 9,617,595 12,561,315 16,410,795

butter 756,660 700,940 645,200 912,690 1,057,582 1,224,750 1,458,800 1,893,450 2,473,000 3,230,850

cream 441,385 408,881 376,401 532,420 616,924 714,438 850,980 1,104,513 1,442,606 1,884,663

Sub total 11,703,270 10,841,376 9,979,486 14,116,611 16,357,549 18,943,241 22,563,247 29,286,056 38,249,867 49,971,686

42
Sale of bull
69,000 63,000 75,000 87,000 108,000 123,300 159,000 207,000 270,000 372,000
calves

Sale heifers 175,000 175,000 200,000 275,000 125,000 --- -- -- -- --

Sub total 244,000 238,000 275,000 362,362 233,000 123,000 159,000 207,000 270,000 372,000

Total revenue 11,947,270 11,079,376 10,254,486 14,478,973 16,590,549 19,066,241 22,722,247 29,493,056 38,519,867 50,343,686

Annexed 3 Projection Income Statement

Yr1 Yr2 Yr 3 Yr4 Yr5 Yr6 Yr7 Yr8 yr9 Yr10


11,947,27
11,079,376 10,254,486 14,478,973 16,590,549 19,066,241 22,722,247 29,493,056 38,519,867 50,343,686
Revenue 0
Production
9,827,277 10,085,986 9,668,996 12,319,460 15,572,820 15,857,300 18,728,427 23,350,737 29,507,612 37,538,611
cost
G/Profit 2,119,993 993,390 585,490 2,159,513 1,017,729 3,208,941 3,993,820 6,142,319 9,012,255 12,805,075
Depr. exp. 273,668 273,668 273,668 273,668 273,668 273,668 273,668 273,668 273,668 273,668
Inte.expen 536,044 428,835 321,627 214,418 107,209
Amortize 4,625 4,625 4,625 4,625 4,625 4,625 4,625 4,625 4,625 4,625
Amortize for land
6,214 6,214 6,214 6,214 6,214 6,214 6,214 6,214 6,214 6,214
lease
Admi. Exp 820,551 713,342 406,134 498,925 391,716 284,507 284,507 284,507 284,507 284,507
ncome before
1,299,442 280,048 179,356 1,660,588 626,013 2,924,434 3,709,313 5,857,812 8,727,748 12,520,568
tax
Pro.Taxe30% 389,832 84,014 53,806 498,176 18,780 877,330 1,112,793 1,757,343 2,618,324 3,756,170
Net Income 909,610 196,034 125,550 1,162,412 607,233 2,047,104 2,596,520 4,100,469 6,109,424 8,764,389

Annexed 4 Projected Cash Flow Statement

Opening Cash Balance 8,060,817.06


Year 1 2 3 4 5
INCOME
New Proposal Cash Sales 11,947,270 11,079,376 10,254,486 14,478,973 16,590,549

TOTAL INCOME 11,947,270 11,079,376 10,254,486 14,478,973 16,590,549

EXPENDITURE
Cost of New Sales 9,827,277 10,085,986 9,668,996 12,319,460 15,572,820
Set-up costs 6,786,680
Finance costs 536,044 428,835 321,627 214,418 107,209
Amortization-Pre- op.Ex 4,625 4,625 4,625 4,625 4,625

43
Amortization- land lease 6,214 6,214 6,214 6,214 6,214
Loan Repayments 1,128,514.40 1,128,514.40 1,128,514.40 1,128,514.40 1,128,514.40
Tax 389,832 84,014 53,806 498,176 18,780
TOTAL EXPENDITURE 18,679,186 11,738,188 11,183,782 14,171,407 16,838,162

Net Cash Flow -6,731,916 -658,812 -929,296 307,566 -247,613


Cumulative Cash Flow 1,328,901.06 670,089.06 -259,206.94 48,359.06 -199,253.94

Annexed 5. Plan of Land Use


The total area required for Dairy Farm and Milk Processing is about 5 000 m2.
Building area of 1,660 m2 for shad, housing area of 1,540 m2 is required and for open area 1,800 m2
required.
Structure unit Size
Main Dairy / Cows /Barn m2 600.00
m2
Young Heifers Facility 360.00
m2
Calf Hutches 360.00
milk extraction & processing house m2 260.00
m2
Milk Room 300.00
m2
Shed 300.00
non- legume hay shad/ feed store / m2 400.00
chopped straw shad m2 400.00
tool/machinery shed m2 100.00
Office m2 100.00
m2
Open Area 1,800.00
m2
Gurde Room 20.00
m2
Total 5,000.00

Annex 6: Estimation Cost of Milking Equipment (ETB)

Description unit U/ cost Total

20,000.
2 00 40,000.00
Water Tank (10,000 Lts)
78,680
standby power supply 1 .00 78,680.00

3 40,000.00 120,000.00
Refrigeration for finished product
Cow Spray Unit 3 500.00 1,500.00
44
Total
238,680.00
Annexed 7 Cost of milk processing Equipment
It produces more than one dairy product. Dairy processing equipment costs per liter of milk decrease
quickly as the size of a farm increases. A milk process plant that can process 10,000 liter of milk per
day was estimated to cost Br.700, 000.00 million based on the Performa invoices submitted from
local suppliers.

No Description Qty Unit price (Birr) Total cost

Milk process Equipment Lump sum 700,000.00


1 Tank insulated 1
2 External reservoir 1
3 Parallel filters (set) 1
4 Regulator 1
5 Compact plate pasteurizer 1
6 Butter mold 4
7 Butter churm for curning 1
8 Spiral air compressor 1
9 Water refrigerator 1
10 Centrifugal pump 1
11 Connecting pipes, valves, 1
etc
12 Laboratory equipment 1
13 Balance instrument 1
14 Automatic filter –sealer 1
for plastic bags

Annexed 8 Vehicles

The vehicles required for the project to transport raw milk from farms to plant and processed milk for
distribution from plant to selling points. The cost of vehicles was considered based on Performa
invoices submitted by the owner from concerned suppliers

Cost / Unit
Vehicles type Nn Total Cost
(Br)

Isuzu(milk tankers installed) 1 800,000.00 800,000.00

Sum 800,000.00

45
Annex 9: Estimation the Cost of Office Equipment & Furniture’s
Description Unit Quantity Unit Cost Total cost

Table pcs 10 2,000.00 20,000.00

Chair pcs 18 1,500.00 27,000.00

Cup board pcs 5 800.00 4,000.00

Shelf pcs 5 2,500.00 12,500.00

Cash box pcs 1 3,500.00 3,500.00

Calculator pcs 5 200.00 1,000.00

Computer with printer pcs 3 10,000.00 30,000.00

Total 98,000.00

Annexed 10 The Estimated Cost of each Pre- Operating Item & Cost.

No Description Total in ETB


1 Project document preparation fee 5,000.00
2 Building design and bill of quantity 10,000.00
3 Investment licensing fee 1,000.00
4 Construction permit fee and other related services 10,000.00
5 Trailing Cost 20,250.00
Sub- Total 46,250.00

Annexed 11 The Estimated Cost Working Capital Per Month

46
No Description Total in ETB
1 Purchase of Milk from farmers ONE MONTH 112,500.00
2 Animal Feed ONE MONTH 102,078.00
2 Water ONE MONTH 7,500.00
3 Electric city ONE MONTH 986.00
4 Vaccinations and medicine ONE MONTH 1,232.80
5 Plastic packaging 5birr per kg ONE MONTH 142,294.52
6 Laboratory supplies ONE MONTH 1,232.80
7 Fuel & oil ONE MONTH 14,795.00
8 Cleaning supplies ONE MONTH 205.00
9 Promotion expense ONE MONTH 6,575.34
10 Over heads ONE MONTH 1,232.80

11 Salary & Benefits ONE MONTH 827,172.00

12 Insurance ONE MONTH 1,232.80

13 Tele 400.00

14 Per-diem 7,000.00

15 Stationary 450.00

16 Miscellaneous 1,000.00
Total Working Capital for one Month 1,227,887.06

Annexed 12 Loan repayment schedule


Interest Repaid Remain
Year Remark
(10%) principal balance
0 5,642,572.00
1 536,044.34 1,128,514.40 4,514,057.60
2 428,835.47 1,128,514.40 3,385,543.20
3 321,626.60 1,128,514.40 2,257,028.80
4 214,417.74 1,128,514.40 1,128,514.40
5 107,208.87 1,128,514.40 0.00

1,608,133.02 5,642,572.00

The investor will contribute 30% of his own capital as equity and secure a term bank loan 70% to
finance the project Interest rate: 10% per annum on declining balance and due on annual basis.

47
Annex 13:Annual Feeding requirement & estimation of feeding cost for cattle(ETB)

daily
req. Feed cost per year (00000)

cription Pric/kg in kg yr1 yr2 yr3 ye4 yr5 yr6 yr7 yr8 yr9 10

of cows 50 45 40 64 77 92 113 152 204 272

centrate 6 5 5.475 4.9275 4.38 7.008 8.4315 10.074 12.3735 16.644 22.338 29.784

ges 3 10 5.475 4.9275 4.38 7.008 8.4315 10.074 12.3735 16.644 22.338 29.784

- total 10.95 9.855 8.76 14.016 16.863 20.148 24.747 33.288 44.676 59.568

calve younger
n 1yr 22 20 25 29 34 41 54 70 94 125

centrate 6 1.8 0.86724 0.78840 0.98550 1.14318 1.34028 1.61622 2.12868 2.7594 3.70548 4.92750

ges 3 2.5 0.60225 0.554750 0.68437 0.79387 0.93075 1.12237 1.47825 1.91625 2.57325 3.21187

total 1.46949 1.57680 1.66987 1.93705 2.27103 2.73859 3.60693 4.67565 6.27873 8.13937

ers older
n 1 yr. --------- 15 13 17 18 24 41 54 70 94

centrate 6 2.5 ---- 0.82125 0.71175 0.93075 0.98550 1.31400 2.24475 2.95650 3.83250 5.14650

ges 3 4.5 ---- 0.73912 0.64057 0.83767 0.88695 1.18260 2.02027 2.66085 3.44925 4.63185

-total --- 7.28175 9.77835


1.56037 1.35232 1.76842 1.87245 2.49660 4.26502 5.61735
l cost 12.41949 12.99217 11.78219 17.72147 21.00648 25.38319 32.61895 43.59100 58.23648 77.48572

48
Annexed 14. Fixed Assets depreciation
The depreciation schedule shows the annual amount of depreciation for all project assets, the total of
which is deducted from the net Profit. The straight line method is employed to calculate depreciations
of the project assets. Depreciation schedule of the project is shown in the table below.

Annexed 14: Depreciation Schedule (Birr)


Description Cost Yr 1 Yr 2 Yr 3 Yr 4 Yr 5 Yr 6 Yr 7 Yr8

Building 3,200.000.00 160,000 160,000 160,000 160,000 160,000 160,000 160,000 160,0

Milk process equip. 700,000.00 70,000 70,000 70,000 70,000 70,000 70,000 70,000 70,00

Office Equipment &fu 98,000.00 9,800 9,800 9,800 9,800 9,800 9,800 9,800 9,800

Vehicles 800,000.00 80,000 80,000 80,000 80,000 80,000 80,000 80,000 80,00

Milking equipment 238,680.00 23,868 23,868 23,868 23,868 23,868 23,868 23,868 23,86

depreciation cost 5,036,680.00 273,668 273,668 273,668 273,668 273,668 273,668 273,668 273,6

Annexed 15 Amortization

Land lease holding amortized over the lease period 70 years and Pre operational Expenses amortize
10% straight line
Description Cost Yr 1 Yr 2 Yr 3 Yr 4 Yr 5 Yr 6 Yr 7 Y

Land Lease Holding 435,000.00 6,214.28 6,214.28 6,214.28 6,214.28 6,214.28 6,214.28 6,214.28 6,

Pre operational Expense 46,250.00 4,625.00 4,625.00 4,625.00 4,625.00 4,625.00 4,625.00 4,625.00 2,

Total 481,250.00 10,839.28 10,839.28 10,839.28 10,839.28 10,839.28 10,839.28 10,839.28 8,

49
50