RIFT VALLEY UNIVERSITY

COLLEGE OF BUSINESS AND ECONOMICS

DEPARTMENT OF ECONOMICS

Project on Bright Future Poultry Production

Development Planning and Project Analysis II

NAME ID

ZEKIYOS SHURAMO .......0093/17

Program: Regular

Submitted to: Meharu Yonas (MCs)

 Rift Valley Univeristy, Hawassa,Sidaama

ABBREVIATIONS & ACRONYMS

ADLI Agricultural Development Led Industrialization

GDP Gross Domestic Production
MoA Ministry of Agriculture
HPAI Highly Pathogenic Avian Influenza
CAADP Comprehensive Africa Agriculture Development Program
NPV Net Present Value
IRR Internal Rate of Return
 LIST OF TABLES

Table Page

1. Demand Projection 4
2. Summary of farm capacity and annual production program 5
3. Human resource requirement of the project 7
4. Initial Investment Cost 9
5. Annual production cost at full capacity 9
6. Annual requirement and cost estimates of farm inputs 10
7. Annual Utilities Requirement and Estimated Cost 10
8. Manpower Cost 11
10.Cash flow of the business 13

ABBREVIATIONS ii
LIST OF TABLES iii
EXECUTIVE SUMMARY v
1. INTRODUCTION 1
1.1. Background 1
1.2. Project’s product description 1
1.3. Policy Frame Work 2
1.4. Project development 3
1.5. Project Objective 3
1.6. Vision 3
1.7. Beneficiaries of the Project 4
2. DEMAND AND MARKET ANALYSIS 4
2.1. Marketing Strategy 5
3. FARM CAPACITY AND PRODUCTION PLAN 5
 3.1. Production Process 5
4. MANAGERIAL ASPECT OF THE PROJECT 7
4.1. Organizational structure 7
5. FINANCIAL ANALYSIS 8
5.1. Total Initial Investment Cost 8
5.2. Operating Cost 9
3.1.1. Farm Inputs Cost 10
3.1.2. Utilities Cost 10
3.1.3. Manpower and Training Cost 11
5.3. Financial Evaluation 11
5.3.2. Ratios 11
5.3.3. Payback Period 12
5.3.4. Internal Rate of Return 12
5.3.5. Net Present Value 12
6. ENVIRONMENTAL CONSIDERATIONS AND ECONOMIC BENEFITS 14
7. REFERENCES 15

EXECUTIVE SUMMARY

Poultry is an emerging and important sector that has been contributing progressively to our
economy from the past decade. Poultry meat and eggs have become the most important sources
of protein in the human diet by using it directly or after passing through food processing
industries. Poultry sector are playing a very vital role in the reduction of poverty, malnutrition
and unemployment problem. This project will be run as sole proprietorship under the name of
Bright Future Poultry Production. The establishment cost amounts to 2,382,380 Birr. The Total
project cost for the poultry project alone shall be Birr 3,238,903.2 for purchase of the chicken
birds, poultry feeds, vaccines and drugs and other poultry accessories as well as for capacity
building, water and electric installation, administrative costs and labor cost for 3 years. The
overall goal of the project is to create self-employment that extends to improve the quality of
lives of community through provision of products of project. Beyond that, Profit is the main
motto of this project .The proposed timeframe is for a project implementation period of 3 years.
The major consumers of the product of the envisaged plant will be hotels, restaurants,
supermarkets, various institutions with food catering services, and households. The major threats
of this chicken production project include disease, predators, market problem, lack of water and
extension together with veterinary services. Environmental considerations are taken in to account
so that the project is environmentally friendly. Chicken rearing requires relatively low
investment in comparison to other livestock. Developing the chicken sector therefore benefits
relatively poor households in the rural areas. The project is financially viable using an internal
rate of return (IRR) which can be inferred from positive net present value, that means internal
rate of return more than the discount rate and a net present value (NPV) of Birr 9.02 million birr,
discounted at 7.7%. Financial ratios also have shown worthwhile of the project.
 1. INTRODUCTION

1.1. Background
Poultry meat and eggs have become the most important sources of protein in the human diet by
using it directly or after passing through food processing industries. Poultry is an important farm
species in almost all countries. It is an important source of animal protein, and can be raised in
situations with limited feed and housing resources. Chickens are ‘waste converters’: they
‘convert’ a scavenged feed resource base into animal protein. They are therefore by far the most
important species for generating income for rural families (Eekeren et al.,2006).

The poultry sector in Ethiopia can be characterized into three major production systems based on
Some selected parameters such as breed, flock size, housing, feed, health, technology, and bio
security. These are village or backyard poultry production system, small scale poultry production
system and commercial poultry production system. Backyard poultry production is characterized
by a low input (scavenging is almost the only source of diet), low input of veterinary services,
minimal level of bio‐security, high off‐take rates and high levels of mortality; in Small‐scale
commercial poultry production, modest flock sizes usually ranging from 50 to 500 exotic breeds
are kept for operating on a more commercial basis. It is characterized by medium level of feed,
water and veterinary service inputs and minimal to low bio‐security. Large‐scale commercial
poultry production is a highly intensive production system that involves, on average, greater or
equal to 10,000 birds kept under indoor conditions with a medium to high bio‐security level. This
system heavily depends on imported exotic breeds that require intensive inputs such as feed,
housing, health, and modern management system (Dawit et al., 2003). So, this project is based
on the third type of production system.

1.2. Project’s product description

In general poultry belong to domesticated birds that serve as a source of eggs or meat and that
include turkeys, ducks, geese, guinea fowls, pigeons, chickens and others. The source of poultry
meat in the country is from the small artesian poultry farms. This project will use both domestic
and exotic breeds of chickens by purchasing it from large commercial farms. At a time, 8000
birds of which 4500 will be exotic breeds that will be purchased for initial investment. Local
breeds are preferred for meat purposes and exotic ones are preferred for laying eggs. The main
product of the project will include broilers, chickens, chicken meat and eggs.

1.3. Policy Frame Work

Ethiopia has a consistent set of policies and strategies for agriculture and rural development that
reflect the importance of the sector in the nation’s development aspirations. The policy
framework is based on the concept of ADLI, which has been the central pillar of Ethiopia’s
development vision since the 1990s. ADLI is an economy and society wide strategy in which
agriculture has a central role. It envisages an economically transformed society within which
agriculture will grow rapidly, but see its relative importance decline in favor of an even more
dynamic industrial and manufacturing sector. The objective of the ADLI is to strengthen the
linkage between agriculture and industry by increasing the productivity of small scale farmers,
expanding large scale private commercial farms, and by reconstructing the manufacturing sector
in such a way that it can use the country’s human and natural resource (Lulit, 2010)
The rural non-farm sector, which provides goods and services for the rural population, also has
an important role to play recognizing that it currently accounts for around a third of GDP.
Demand for such goods and services are expected to expand in line with rising rural incomes,
generating much-needed employment and self-employment opportunities for rural households
(MoA, 2010). The government has demonstrated a very strong commitment to continued
agricultural growth. Between 13 and 17 per cent of government expenditure (equivalent to over
five per cent of GDP) has been channeled towards agriculture (including natural resource
management) in recent years - far more than the average for sub-Saharan African countries and
well in excess of the recommended CAADP minimum of 10 per cent. About 60 per cent of
agricultural investments are funded from the Government budget, 30 per cent from grants, and
10 per cent from concessional loans (ibid).

With the objective of promoting private investment and the inflow of foreign capital and
technology in to the country, the investment code provides incentives to both foreign and
domestic investors engaged in new enterprises and expansions. In this regard there are wide
range of privileges and investment incentives for private investors. A package of incentive
schemes mainly granted in the form of income tax exemption for payment of custom duties
levied on exportable commodities and imported capital goods or raw materials necessary for the
investment activity. Moreover the investment policy of Ethiopia ADLI, with the objectives of
increasing productivity in the agricultural sector encourages those investors in the agricultural
sector.

In sum, ADLI policy of Ethiopia and commitment of investment offices at both national and
regional level to promote and encourage private investment have initiated the project promoter to
invest in poultry production.

1.4. Project development

The project will be established in Adola town of Guji zone. The location is being selected due to
its accessibility to the market particularly due to high demand for exotic birds of chickens. Other
factors for the selection of this town are resource availability, transport facility, human labor,
infrastructure, easy follow up by project owner and friendly environment. Also, the town is not
highly vulnerable to disease outbreak. Moreover, availability of adequate market for project’s
products at local and national level is contributing factors for the project development.

1.5. Project Objective

1. Maximizing production to realize higher profits through reliable market for a project’s
products at a reasonably priced quality product.
2. Integrating the project with other level bulky purchasers to ensure continuous market for
project’s product and keeping well established customer relationship and satisfaction.
3. Employment creation through hiring staff.

1.6. Vision

To become more competent with other large scale producers by establishing project’s long term
loyalty through supply of quality products, preceding customer satisfaction and attracting other
markets to the project’s product.
1.7. Beneficiaries of the Project

Poultry production project will be expected to provide benefit to local communities by providing
employment opportunities and serve the community by providing products at reasonable price.
Also, the project will be expected to become exemplary project as an income generating activity
for those plans to invest in this project. Further, the project benefits the owner through profits.

2. DEMAND AND MARKET ANALYSIS

Poultry products such as egg and poultry meat are the central diets of Ethiopian’s. “Doro Wet”
which is prepared from poultry meat and eggs is one of the favorite dishes of the local population
which is prepared especially during religious festivals and holidays, virtually in every household
in the country. Moreover, eggs as they are easy to prepare and digest, have good test and nutrient
are becoming the favored breakfast items in urban areas. Accordingly, due to the traditional
consumption habit and as the awareness of the population on the nutritional and other advantages
of poultry products increases the market for the products is also expected to expand. Through
inspection and rapid market appraisal, potential buyers of projects product will be hotels and
restaurant, supermarkets, subsistent poultry producers, rural households and local individuals.
The product will also be sold to neighboring district, zonal market, and overseas market. The
following table summarizes projected demand for the product.

Table 1. Demand Projection

Demand segment Projected Demand (No )

Hotels & Restaurants 150
Minimarkets 250
Local small producers 4500
Local dwellers 1000
2.1. Marketing Strategy

Marketing strategy for project’s product will follow a pattern of consumer need. By developing
internal capacity of the project, the owner will supply quality product that are competent at local
and overseas market. This makes the promoter to have high market share in the area. In addition
the price reduction for the first year in order to enter (penetrate) in to the market and attract many
customers will be the other strategy. Moreover, promotional strategies will be there so that
beneficiaries of the product know existence of the product.

3. FARM CAPACITY AND PRODUCTION PLAN

Based on the projected demand shown in the marketing section and considering the economic
scale of production, proposed annual capacity of the poultry farm is 80,000 heads. The
production capacity is determined based on 300 days per year operation of the farm. The farm
will operate at 54% and 75% of its rated capacity in the first and second year respectively. Full
production capacity will be achieved in the third year.

Table 2. Summary of farm capacity and annual production program

Sr. No. Description Year 1 Year 2 Year 3

1 Production (heads) 43,000 60,000 80,000

2 Capacity utilization (%) 54 75 100

3.1. Production Process

Production is undertaken under controlled condition. Chicken production is typically carried out
at so-called complexes. Each complex contains a feed mill, a hatchery, a processing plant, and
chicken farms where the chicks are raised, usually in a 30-40 mi (48.3-64.4 km) radius from the
processing plant. But the envisaged farm starts from the day old chicken from the hatchery and
grows them for about six month and sells them.
The chicks live in large houses which hold as many as 15,000 birds. These grow-out houses are
kept at about 85° F (29.4° C) through heating and ventilation controls. The birds are not caged,
except for egg layers and typically they are provided with approximately 0.8 sq ft per bird. The
floor of the house is covered with a dry bedding material such as wood chips, wheat hulls. The
principal farm inputs required are chicken for breeding, poultry feed, and medicines. Chickens
and poultry feed required by the plant can be acquired locally. The birds are fed a diet of chicken
feed, which is typically 50% corn, 35% soy and wheat, and 15% other ingredients such as
vitamins. When the chickens are old enough for slaughter, they are collected and shipped to the
processing plant.

With Sick chickens, treatment with antibiotics or other medications will be made. These
chickens then go through a withdrawal period before slaughter, to make sure no medication
residue remains in their meat. The chickens are usually watered through nipple drinkers, so that
they don't spill and wet their bedding.
A significant waste produced by chicken farming due large flock size of birds will be collected
and used for fertilizer and other hazardous materials used in production will be properly removed
to so that its adverse impact on environment will be reduced.

The total area of land required for the envisaged project is 600 m 2 out of which 250 m2 will be a
built - up area. Land will be acquired from town administration though leasing. The total human
resource requirement of the envisaged project is 18 persons. Machinery and equipment used in
the project will include solos and tanks for raw and auxiliary materials, metal screen and shaker,
mixer, crusher, bladder , weighing scale, bagging machine, dust collector, product tank, and
boiler (glove).

The main utilities required for the plant are electric power, water and fuel oil. The power
required to run the production machinery and to provide lighting is electric power. Water is
required for general purpose and to supply to the boiler that generates hot water for warming the
molasses. The fuel oil is required to operate the boiler and to supply heat in case where the
power off.
4. MANAGERIAL ASPECT OF THE PROJECT

The Project will be managed by the paid managers who have the capacity to run the proposed
project effectively. They will be responsible to the owner for technical and financial
accountability, will appoint a Project Manager to oversee and lead all aspects of the
implementation of the Project. The managers provide training to its staff so that they gain more
skills and knowledge on how to rear chickens on a large scale. In general they will lead a team of
technical and administrative staff.

Table 3. Human resource requirement of the project

S.N Job title Quantity of persons required

1 General manager 1
2 Secretary 1
3 Financial manager 1
4 Marketing manager 1
5 Guard 3
6 personnel 6
7 Production manager 1
8 Storekeeper 1
9 Electrician 1
10 Mechanic 1
11 Operator 1
Total 18
4.1. Organizational structure

The organization structure of the project looks like as decomposed in figure below. It includes
management committee comprising of chair person, vice chair person and secretary, the first two
are appointed by project staff. Production committee includes two members selected from the
staff. The member will support and promote production by ensuring construction of fowl runs,
brooders, store rooms and procurements of inputs. It will also be involved in keeping all the
production records and maintain accurate records of chicks that have been purchased; mortality
rate, growth rate, breed, and inventory of stock. It will also be responsible for slaughtering of
broilers and proper disposal of bi products according to health requirements. Processing,
marketing and finance committee will comprise of two members each.

Management committee

Production Processing Marketing Finance

committee committee committee committee

5. FINANCIAL ANALYSIS

Financial analysis of envisaged small scale poultry production project is analyzed on the bases
of the following assumptions: Construction will be undertaken for one year, finance for project
emanate from 40% of equity capital and 60% of loan from commercial bank of Ethiopia at a rate
of 9.5%, opportunity cost for owned capital is estimated to be 5% and training and licensing will
cost 25,000 birr.
5.1. Total Initial Investment Cost

The total investment cost of the project including working capital is estimated at nearly
Birr 2.38 million. The major breakdown of the total initial investment cost is shown as follows.

Table 4. Initial Investment Cost

S.N Cost Items Total Cost(Birr)

1 Land lease Value 120,800

2 Building and civil work 800,000
3 Machinery and equipment 900,000
4 Office Furniture 200,000
5 Preproduction Expenditure 25,000
6 Working Capital 120,000
Sub Total 2,165,800
Contingency (10%) 2,165,80
Grand Total 2,382,380
5.2. Operating Cost

The annual production cost at full operation capacity is estimated at Birr 3,238,903.2. The raw
material cost accounts for 34 percent of the production cost. The other major components of the
production cost are loan repayment, depreciation, wage and salaries, transport and other costs,
which account for 37.05%, 7.47%, 10.9% and 3.4% respectively. The remaining 7.18% is the
share of utilities, cost of finance, employee’s benefits, training and miscellaneous expenses.
(Short summery is listed in the below in table 4, but the detailed is indicated in next to this table.

Table 5. Annual production cost at full capacity

Items Cost (ETB)

Raw Materials and Inputs 1,101,500
Utilities 81,037.2
Wages and Salaries 352,800
Employees benefits 77,616
Training 8,000
Transport, other costs 110, 400
Miscellaneous expenses 25, 450
Total Operating costs 1,756,803.2
Depreciation 242,100
Loan repayment 1,200,000
Cost of Finance 40,000
Total production costs 3,238,903.2

5.2.1. Farm Inputs Cost

The principal farm inputs required are chicken for breeding, poultry feed, and medicines.
Chickens and poultry feed required by the plant can be acquired locally. The annual requirement
for farm inputs and the corresponding cost at 100% capacity utilization is given in Table 6. The
total annual cost of farm inputs is estimated at Birr 1.1 million.

Table 6. Annual requirement and cost estimates of farm inputs

.
S.N Description Unit of Qty Unit price Cost (Birr)
Measure

1 Chickens(breed) No 45,000 14 630,000

2 Animal feed Tonnes 200 2,200 440,000
3 Medicines Kg 15 2,100 31,500
Grand total 1,101,500
5.2.2. Utilities Cost

The major utilities required are water for feeding chickens and general purpose, electric Power
for lighting and heating. The total yearly consumption of utilities at 100% capacity Utilization
rate and their estimated costs are given in table below. The total annual cost of Utilities are
estimated at Birr 81,037.2.

Table 7. Annual Utilities Requirement and Estimated Cost

S.N Description Unit of Qty. Cost (Birr)

Measurement
Unit Cost Total Cost

1 Water m3 21,000 3.25 68250

2 Electric Power kWh 27,000 0.4736 12787.2
Grand Total 81,037.2

5.2.3. Manpower and Training Cost

A total of 18 persons will be required for the project. Details of manpower and annual estimated
labor cost are given in Table 8. The total annual manpower cost is estimated at Birr 430,416.
The project will provide training for selected employers in poultry keeping, business, marketing,
and management. The cost of training is estimated at Birr 15,000.

Table 8. Manpower Cost

 S.N Description No of persons Salary (Birr)
Monthly Annual
1 General Manager 1 2,800 33600
2 Secretary 1 1200 14,400
3 Financial Manager 1 2,400 28,800
4 Marketing Manager 1 2,400 28,800
5 Guards 3 1,000 36,000
6 Personnel 6 1,600 115,200
7 Production Manager 1 2,400 28,800
8 Storekeeper 1 1,000 12,000
9 Electrician 1 1,600 19,200
10 Mechanic 1 1,600 19,200
11 Operator 1 1400 16,800
Sub total 352,800
Employees benefit(22% of basic salary) 77,616
Total 430,416

5.3. Determination of interest rate

In case where the project uses only equity capital, bank’s saving rate would be taken as the
opportunity cost of owned capital, and if the project uses only borrowed capital, borrowing rate
would be taken as the cost in financial analysis. But, if the project uses a mixture of the equity
capital and borrowed capital, interest rate used for the analysis is weighted to take account of the
return necessary to attract equity capital on the one hand and the borrowing rate on the other.
Therefore, interest rate used in this analysis is determined as follows.
 Equity Borrowed capital
r= ∗Returnneeded ¿ attract capital + ∗Borrowing rate
Total cap . Total cap .

2248513.28 3372769.92
r= ∗0.05+ ∗0.095
5621283.2 5621283.2

r = 0.077 = 7.7%

5.4. Financial Evaluation

5.4.1. Profitability

Projected income statement shows that, the project will generate a profit throughout its operation
life. Annual net benefit throughout the operation of the project life is projected to 1,900,000,
5,555,500 and 6,060,300 respectively.

5.4.2. Ratios

Financial ratios and efficiency ratios are used for evaluating the financial position (strength) of a
firm. It is also an indicator for the strength and weakness of the firm or a project. The most
important ratios such as return on sales (0.75) which is computed by dividing net income by
revenue, return on assets (1.14) (operating income divided by assets), and return on equity (2.8)
(net profit divided by equity) have showed worthiness of the project.

5.4.3. Payback Period

The payback period, also called pay – off period is defined as the period required for recovering
the original investment outlay through the accumulated net cash flows earned by the project.
Accordingly, based on the projected cash flow it is estimated that the project’s initial investment
will be fully recovered within 2.34 years.

Payback period = 2+1,900,000/5,555,500 = 2.34 years

5.3.4. Internal Rate of Return

The internal rate of return (IRR) is the annualized effective compounded return rate that can be
earned on the invested capital, i.e., the yield on the investment. Put another way, the internal rate
of return for an investment is the discount rate that makes the net present value of the
investment's income stream total to zero. It is an indicator of the efficiency or quality of an
investment. A project is a good investment proposition if its IRR is greater than the rate of return
that could be earned by alternate investments or putting the money in a bank account. Because of
its weakness (being trial and error method), its calculation is somewhat difficult. In this project,
since net present value result have shown that NPV>0, it is inferred that discounted benefits
greater than discounted costs, and internal rate of return greater than discount rate

5.5.5. Net Present Value

Net present value (NPV) is defined as the total present (discounted) value of a time series of cash
flows. NPV aggregates cash flows that occur during different periods of time during the life of a
project in to a common measuring unit i.e. present value. It is a standard method for using the
time value of money to appraise long-term projects. NPV is an indicator of how much value an
investment or project adds to the capital invested. In principal a project is accepted if the NPV is
non-negative. Accordingly, the net present value of the project at 7.7% discount rate is found to
be Birr 9.02 million which is acceptable.

n
NBt
NPV =∑ −I Where
t=1 (1+r )t

NPV = Net present value

NBt = Let cash flow for the year t
r = Cost of capital
n = Life of the project
I =Initial outlay
Table 9 . Cash flow of the project

Years Cost Benefit Net cash flow

(Benefit-cost)
0 (2,382,380) 0 -2,382,380
1 2,620,234.00 4,520,234 1,900,000
2 2,952,250.00 8,507,750 5,555,500
3 3,238,903.2 9,299,203.2 6,060,300
Total 11,133,420

NPV =−2,382,380+(1,900,000)/¿

= 9,022,641.8
 6. ENVIRONMENTAL CONSIDERATIONS AND ECONOMIC BENEFITS

Solid waste generated during poultry production includes waste feed, animal waste, carcasses,
and sediments and sludge from on-site wastewater treatment facilities (which may contain
residual amounts of growth enhancers and antibiotics, among other hazardous constituents).
Other wastes include various kinds of packaging (e.g. for feed and pesticides), used ventilation
filters, unused / spoilt medications, and used cleaning materials. In reaction to this, the project
will design waste management practices that includes collection, transport, storage, treatment,
utilization and disposal of the waste. Also, facilities for converting poultry wastes in to manure
will be constructed. Manure is composted, and can also be stored in stacking sheds, roofed
storage areas, outside and either covered or uncovered, until it is ready for transport to a disposal
site or land application area. Manure is generally used as a fertilizer on agricultural land. From
economic point of view, the project can create employment for 18 persons. The poultry
production project has a backward linkage effect on animal feed processing industries and a
forward linkage effect on food processing industries. There will also be a substantial export
potential.
 7. REFERENCES

Dawit Alemu, Tamirat Degefe, Setotaw Ferede, Serge Nzietcheung, Devesh Roy 2003.
Overview and Background Paper on Ethiopia’s Poultry Sector: Relevance for HPAI
Research in Ethiopia. Africa/Indonesia Region Report No. 1
Lulit Mitik , 2010. Public spending, ADLI, and Alternative scenarios for Ethiopia: A dynamic
CGE Framework Analysis. Addis Ababa, Ethiopia.
Ministry of agriculture and rural development 2010. Ethiopia’s agricultural sector policy and
investment framework (pif) 2010-2020. Draft final report.
N. van Eekeren A. Maas, H.W. Saatkamp, M. Verschuur. 2006. Small-scale chicken
production. Agromisa Foundation and CTA, Wageningen.