236.

PROFILE ON PRODUCTION OF MAIZE

(CORN) STARCH
 236-2

TABLE OF CONTENTS

PAGE

I. SUMMARY 236-3

II. PRODUCT DESCRIPTION & APPLICATION 236-3

III. MARKET STUDY AND PLANT CAPACITY 236-4

A. MARKET STUDY 236-4
B. PLANT CAPACITY & PRODUCTION PROGRAMME 236-6

IV. RAW MATERIALS AND INPUTS 236-6

A. RAW & AUXILIARY MATERIALS 236-6
B. UTILITIES 236-7

V. TECHNOLOGY & ENGINEERING 236-8

A. TECHNOLOGY 236-8
B. ENGINEERING 236-9

VI. MANPOWER & TRAINING REQUIREMENT 236-10

A. MANPOWER REQUIREMENT 236-10
B. TRAINING REQUIREMENT 236-11

VII. FINANCIAL ANALYSIS 236-12

A. TOTAL INITIAL INVESTMENT COST 236-12
B. PRODUCTION COST 236-14
C. FINANCIAL EVALUATION 236-14
D. ECONOMIC BENEFITS 236-15
 236-3

I. SUMMARY

This profile envisages the establishment of a plant for the production of maize starch
with a capacity of 300 tones per annum.

The present demand for the proposed product is estimated at 352 tones per annum. The
demand is expected to reach at 913 tones by the year 2017.

The plant will create employment opportunities for 35 persons.

The total investment requirement is estimated at about Birr 13.58 million, out of which
Birr 11.16 million is required for plant and machinery.

The project is financially viable with an internal rate of return (IRR) of 22 % and a net
present value (NPV) of Birr 6.70 million discounted at 8.5%.

II. PRODUCT DESCRIPTION AND APPLICATION

Starch is a source of carbohydrate, which is one of the three essential elements of food. It
widely occurs in agricultural products, mainly in cereals (such as wheat, maize and rice),
and in roots and tubers of potatoes, Sweet potatoes, and Cassava. Maize (Corn) is the
leading source of starch both for food and for its use in industries.

The largest single use of for corn starch is as food, about 25% thus consumed. Industrial
uses account for the remaining 75%. The paper industry utilizes corn starch as a filler and a
sizing material. Textile, Laundry, foundry, air flotation, oil-well drilling, and adhesives use
much starch. Much of it is employed in its natural form, but it is also easily converted to
other forms. Glucose, for example, is one of the varieties which can be prepared from
starch. Dextrin is the other reaction product which can be made from starch and could be
used as adhesive in many industries such as paper printing.
 236-4

III. MARKET STUDY AND PLANT CAPACITY

A. MARKET STUDY

1. Past Supply and Present Demand

The country's requirement of maize /corn starch is mainly met through import. Import of
maize/corn starch in the past ten years is provided in Table 3.1.

Table 3.1
IMPORT OF CORN/MAIZE STARCH

Year Quantity (Ton)

1997 56.3
1998 136.1
1999 90.2
2000 31.3
2001 364.3
2002 73.2
2003 462.8
2004 460.7
2005 177.6
2006 308.2

Source: - Compiled from Customs Authority

Although the imported quantity fluctuates from year to year the general trend is an
increasing one. The data set analyzed in three periods has shown the following results.
During 1997-1999 the yearly average level of import was about 94 tonnes. In the
following three consecutive years i.e. 2000-2002 the annual average has reached to a
level of about 156 tonnes. In the recent four years i.e. 2003-2006 the yearly average
 236-5

has reached to about 352 tonnes. The major reason for the increase is the growth of the
manufacturing sector, mainly the end user industries such as textiles, paper,
pharmaceuticals, cosmetics and confectioneries. The recent four years average is hence
taken as the current effective demand.

2. Demand Projection

The demand for corn/maize starch is mainly influenced by the user industries mentioned
above. Although the imported quantity between 1997 and 2006 has been growing more
than 20% per annum on the average, a conservative growth rate of 10% is applied to
forecast the future demand by taking the current effective demand as a base (see Table
3.2.)

Table 3.2
PROJECTED DEMAND FOR MAIZE/CORN STARCH

Year Quantity (Ton)

2008 387.2
2009 425.9
2010 468.5
2011 515.4
2012 566.9
2013 623.6
2014 685.9
2015 754.5
2016 830.0
2017 913.0
 236-6

3. Pricing and Distribution

The average CIF price (excluding duty and other charges) of maize starch in the year
2006 is Birr 7,000 per ton. Adding other expenses such as duty, transport and other
charges Birr 10,000 per ton is recommended. The product can be sold directly to the
bulk end user industries.

B. PLANT CAPACITY AND PRODUCTION PROGRAM

1. Plant Capacity

The plant is envisaged to produce 500 ton/year, in 300 working days and operating 8 hrs
per day.

2. Production Programme

The production programme is shown in Table 3.3. The production programme is set by
considering just 300 working days per annum.

Table 3.3
PRODUCTION PROGRAMME

Year 1 2 3 4
Capacity utilisation (%) 70 80 90 100

Production programme (tons) 350 400 450 500

 236-7

IV. MATERIALS AND INPUTS

A. RAW MATERIALS

The annual material requirement of the plant is shown in Table 4.1 below.

Table 4.1
ANNUAL RAW MATERIAL REQUIREMENT

Cost in '000 Birr

Item Qty. FC LC TC
1. Maize 585 tons 585 585
2. Packing Materials
(Polypropylene sacks) 5,850 pcs 29.3 29.3
Total Costs 614.3 614.3

B. UTILITIES

Utilities such as oil, water and electricity are required by the plant. The annual
consumption is shown in Table 4.2 below.

Table 4.2
ANNUAL CONSUMPTION OF UTILITIES

Sr. Annual ('000 Birr)

No Utility Unit Consumption F.C L.C Total
1 Furnace Oil m3 40 - 216.4 216.4
2 Water m3 2,250 - 12.4 12.4
3 Electricity KWH 25,000 - 12.4 12.4
Total - 241.2 241.2
 236-8

VI. TECHNOLOGY AND ENGINEERING

A. TECHNOLOGY

1. Production Process

The production process of starch varies depending upon the type of raw material used.
However, the method of starch production starts with crushing or grinding of the raw
material to destroy its tissues. Thus, in this way the starch is obtained from within the
tissues. Hence, the simplified production process is outlined as follows.

• Steeping: The purpose of steeping is to soften the kernels so that subsequent

milling operations and separations can be carried out efficiently. This unit
operation is carried out for about 40 hours.

• Degermination and Separation: In this operation, oil-rich germ is separated

from starch, gluten, hulls and fiber. First, the corn is ground in attrition mills.
This material, leaving the mills, is a mixture of water, starch, gluten, germs and
hulls. It is further fed to mills which grind the material to a very small particle
size. After removing the hulls and fiber particles by passing it on a set of
hydrocyclones, the starch and gluten are allowed to separate using centrifugal
separators.

• Drying: The purified starch milk is dewatered by means of a thickening filter in

order to reach a dry solid content suitable for the following drying. Drying is
operated by dosing the starch into the dryer at controlled temperature
maintained by an air conditioning unit. The dry starch is then separated by the
air stream and stored and packed in 100 kg plastic bags.
 236-9

2. Source of Technology

The technology, machinery and equipment could be secured from an Italian Engineering
and Contracting Company Endeco Spa, Padova, Italy.

B. ENGINEERING

1. Machinery and Equipment

The list of machinery and equipment required by the plant is given in Table 6.1. The total
cost of this machinery and equipment is estimated at about Birr 11,160 thousands out of
which Birr 9,300 thousands will be required in foreign currency.

Table 6.1
LIST OF MACHINERY AND EQUIPMENT

Item Qty. Price ('000 Birr)

LC FC Total
1. Steeping tanks 4 -
2. Mills 2 -
3. Screen bends 2 -
4. Hydrocyclones 2 -
5. Centrifugal Machines 2 -
6. Dryers 2 -
FOB 9,300 9,300
Fright, Insurance, Bank charge, 1,860 1,860
Insurance, Transportation
Total Cost 1,860 9,300 11,160
 236-10

2. Building and Civil Works

The major buildings and civil works include:

- Buildings for production, offices, workshops and warehouses. The total

area required is about 500 m2.

- Total land requirement including sewers, storage, open spaces etc. is

estimated to be 1,000 m2.

Total construction cost is estimated at Birr 1,250,000 for the building and other civil works.
The lease cost for 99 years lease holding of the land is estimated at Birr 79,200.

3. Proposed Location

The proposed location for the plant is Alaba town in Alaba special woreda.

VII. MANPOWER AND TRAINING REQUIREMENT

A. MANPOWER REQUIREMENT

The manpower requirement of the plant and the monthly and annual salary expenditure are
shown in Table 7.1.
 236-11

Table 7.1
REQUIRED MANPOWER

Sr. Manpower Quantity Monthly Annual Cost

No. Salary
1 General Manager 1 3,000 36,000
2 Technical Manager 1 2,500 30,000
3 Personnel 1 1,200 14,400
4 Production Head 1 1,500 18,000
5 Supervisor 1 1,200 14,400
6 Chemist 1 1,000 12,000
7 Skilled operators 5 3,500 42,000
8 Semi-skilled Operators 5 2,000 24,000
9 Maintenance crew 5 3,500 42,000
10 Accountant 2 2,000 24,000
11 Sales Man 2 2,000 24,000
12 Unskilled labour 10 2,000 24,000

Total 35 25,400 304,800

B. TRAINING REQUIREMENT

The technical personnel of the plant should be trained by qualified engineers of the
machinery supplier. The cost of training shall be Birr 50,000.
 236-12

VII. FINANCIAL ANALYSIS

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

Construction period 1 year

Source of finance 30 % equity
70 % loan
Tax holidays 5 years
Bank interest 8%
Discount cash flow 8.5%
Accounts receivable 30 days
Raw material local 30 days
Work in progress 2 days
Finished products 30 days
Cash in hand 5 days
Accounts payable 30 days

A. TOTAL INITIAL INVESTMENT COST

The total investment cost of the project including working capital is estimated at Birr
13.58 million, of which 49 per cent will be required in foreign currency.

The major breakdown of the total initial investment cost is shown in Table 7.1.
 236-13

Table 7.1
INITIAL INVESTMENT COST

Sr. Total Cost

No. Cost Items (‘000 Birr)
1 Land lease value 79.2
2 Building and Civil Work 1,250.00
3 Plant Machinery and Equipment 11,160.00
4 Office Furniture and Equipment 75
5 Vehicle 0
6 Pre-production Expenditure* 884.65
7 Working Capital 132.48
Total Investment cost 13,581.3
Foreign Share 49

* N.B Pre-production expenditure includes interest during construction ( Birr 784.65

thousand ) training (Birr 50 thousand ) and Birr 50 thousand costs of registration,
licensing and formation of the company including legal fees, commissioning expenses,
etc.

B. PRODUCTION COST

The annual production cost at full operation capacity is estimated at Birr 3.25
million (see Table 7.2). The material and utility cost accounts for 26.3 per cent, while
repair and maintenance take 2.46 per cent of the production cost.
 236-14

Table 7.2
ANNUAL PRODUCTION COST AT FULL CAPACITY ('000 BIRR)

Items Cost %
Raw Material and Inputs
614.30 18.89
Utilities
241.2 7.42
Maintenance and repair
80 2.46
Labour direct
182.88 5.62
Factory overheads
76.2 2.34
Administration Costs
121.92 3.75
Total Operating Costs
1,316.50 40.47
Depreciation
1206 37.08
Cost of Finance
730.32 22.45
Total Production Cost 3,252.82 100

C. FINANCIAL EVALUATION

1. Profitability

According to the projected income statement, the project will start generating profit in
the first year of operation. Important ratios such as profit to total sales, net profit to
equity (Return on equity) and net profit plus interest on total investment (return on total
investment) show an increasing trend during the life-time of the project.

The income statement and the other indicators of profitability show that the project is
viable.
 236-15

2. Break-even Analysis

The break-even point of the project including cost of finance when it starts to operate at
full capacity (year 3) is estimated by using income statement projection.

BE = Fixed Cost = 33 %
Sales – Variable Cost

3. Pay Back Period

The investment cost and income statement projection are used to project the pay-back
period. The project’s initial investment will be fully recovered within 4 years.

4. Internal Rate of Return and Net Present Value

Based on the cash flow statement, the calculated IRR of the project is 22 % and the net
present value at 8.5% discount rate is Birr 6.7 million.

D. ECONOMIC BENEFITS

The project can create employment for 35 persons. In addition to supply of the domestic
needs, the project will generate Birr 4.57 million in terms of tax revenue.