FEREKOT FLOUR MILL

FACTORY P.L.C

FEASIBILITY STUDY FOR

WHEAT AND MAIZE AND MAIZE
FLOUR MILLER PROJECT
SUBMISSIONS TO THE
REQUIRMENTS OF
LEASE FINANCNG SCHEME

2015GC
 TABELE OF CONTENTS
1. EXECUTIVE SUMMARY ……………………………………………………………..5
2. BACKGROUND INFORMATION……………………………………………………..6
2.1. The applicant ………………………………………………………………………..6
1.1.1. Name: Ferekot flour mill factory plc…………………………………………6
2.2. The project…………………………………………………………………………...7
2.3. Brief profile of the company and the promoter……………………………………...8
3. SWOT ANALYSIS IN FLOUR MILLING BUSINESS IN ETHIOPIA……………….8
3.1. Strength ……………………………………………………………………………..8
3.2. Opportunities ………………………………………………………………………..9
3.3. Weakness…………………………………………………………………………….9
3.4. Threats……………………………………………………………………………….9
4. MARKETING STUDY………………………………………………………………...10
4.1. Product description…………………………………………………………………11
4.2. Past supply and present demand …………………………………………………...12
4.3. Pricing and distribution……………………………………………………………..12
5. TECHNICAL STUDY………………………………………………………………….13
5.1. Plant capacity………………………………………………………………………13
5.2. Production program……………………………………………………………..13
5.3. Materials and inputs ………………………………………………………………..13
5.2.1. Raw and auxiliary materials …………………………………………………….13
5.2.2. UTILITIES……………………………………………………………………...15
5.4. Production process …………………………………………....…………………….15
5.4.1. Wheat and Maize flour mills –dry type………………………………………16
5.4.2. Wheat and Maize flour mills- wet type…………….…………………………….17
5.4.3. Wheat and Maize roasting (processing)……………… ……………………....17
5.4.4. Source of technology…………………………………………………………..19
5.5. Machinery and equipment……………………………………………………………20
5.6. Land, buildings and civil works ……………………………………………………...20
5.7. Location of the proposed project…………………………………………………...20
6. ORGANIZATION AND MANAGEMENT …………………………………………21
 6.1. Manpower requirement …………………………………………………………..21
6.2. Training requirement……………………………………………………………..22
6.3. Proposed organization ……………………………………………………………23
7. SOCIAL AND ENVIRONMENTAL IMACTS……………………………………..23
8. FINANCIAL ANALYSIS……………………………………………………………24
8.1. Major assumptions………………………………………………………………..24
8.2. Annual cost of the lease capital 9interest)&lease payments……………………...24
8.3. Summary of operating costs………………………………………………………24
8.4. Analysis of the project worthiness…………………………………………….......25
8.5. Projections to the financial statements with the project…………………………...25
8.3.1. Total investment cost and financing sources……………………………….26
9. CONSULTANT’S CONCLUSION AND RECOMMENDATION……………26
10. ANNEX………………………………………………………………………..27
Annex 10.1. Revenue estimations……………………………………………….27
Annex 10.2. Costing assumptions……………………………………………....27
Annex 10.3. Working capital estimations ……………………………………...29
Annex 10.4. Annual operating costs (Br)……………………………………….29
Annex 10.5. Computation of depreciation of fixed assets………………………31
Annex 10.6. Financial statement projections …………………………………...31
Annex 10.7. Lease service payment schedules …………………………………..…………….31
LIST OF TABLES
Table 1 apparent consumption of Wheat and Maize and maize flour……………………………………..11
Table 2 projected demand for Wheat and Maize flour (tons)………………………………………… ……….12
Table 3 production program…..……………………………………………………………………………………………….13
Table 4 raw auxiliary materials requirement &cost in (<000Br)……………………………………………..15
Table 5 annual utilities requirement &estimated cost …………………………………………………………….15
Table 6 machinery and equipment requirements ……………………………………………………………………20
Table 7 manpower requirement and annual salary expenditure………………………………………………22
Table 8 computations to the cost of lease (interest)@11.5%and principal……………………………24
Table 9 annual production cost in year 1………………………………………………………………………………….24
Table 10 total investment cost (in ETB)…………………………………………………………………………………..26
Table 11 assumptions in revenue computations………………………………………………………………………27
Table 12 insurance…………………………………………………………………………………………………………………..27
Table 13 repair and maintenance ……………………………………………………………………………………..…….27
Table 14 other costs ……………………………………………………………………………………………………………….28
Table 16 determination of working capital (Br)…………………………………………………………………….…29
Table 17 depreciation and amortization (Br)……………………………………………………………………………31
Table 18 profit/loss statement (Br)………………………………………………………………………………………….32
Table 19 cash flow statement(Br)…………………………………………………………………………………………….33
Table 20 balance sheet…………………………………………………………………………………………………………….34
Table 21 lease repayment schedule ……………………………………………………………………………………….36
LIST OF FIGURES
Figure 1 Wheat and Maize milling process work flows …………………………..………………………………19
Figure 2 consultant’s license and registration………………………………………….……………………………..37
 1. EXCUTIVE SUMMARY
The proposed Wheat and Maize flour mill project hereunder is a business expansion that mainly
targets for the production of Wheat and Maize flour which has high market demand for bakery,
other domestic consumptions and commercial purposes. That is, the products and by- products
could be used in many applications in house hold baking, confectionery production, feed, etc which
may assist the project’s curativeness. The project has the target of increasing Wheat and Maize flour
from existing 7200 ton per annum (i.e.., about 75% increment in production capacity) with the 10
Days auspices of addressing the existing operation business. Thus, replacing the existing machinery
equipment facility with new, modern and efficient one is an indispensible solution to run a profitable
business through lease financing capital investment options.
The present demand for the proposed product in SNNPRS is currently estimated to 450,000 ton of
wheat and 250,000 ton of maize. The demand is expected to reach at 850,000 tons by 2020 EC. The
plant is expected to create employment opportunities to about 45 for maize and 60 wheat workers
from the locals, directly along the project operations while more than 120 people along the grain to
both flour market value chain activities.
The proposed expansion project’s total investment cost is estimated to birr 65,168,512.25 among
which the planned capital lease amount of the machinery and equipment cost is estimated to Birr
34,973,698 (Inclusive of the freight, insurance and installation costs) and working capital
requirements of 30,194,814.25 Br which is one month’s requirements of the initial year’s total direct
costs of production.
The major financial viability indicators show that the project is within the acceptable limits of
feasibility for the subsequent appraisal decisions to the proposed capital investment implementations.
That is, the project can run profitably with attractive returns to investment for the investor or creditor
banks too, and can operate smoothly for at least within the lease- term policy period (7 years) and
may extend beyond until the end of the project’s technical life-cycle period (10 years) without any
risks in liquidation, loss or any adverse event.
Position reviews to the following financial results would portray important information on the
project’s viability:
A. Major assumptions in the financial analysis
 Lease term of the project is assumed 7 years (not more than 70% of the machinery and
equipment life).
 Cost of lease service or capital financing (interest) is considered @11.5% which
compounds at the end of the month beginning from May,2017
 Total value of the lease amount is estimated to 34,815,760BIRR
 Cost summary to the total project’s investments
Costs Existing Planned Total
1. Land lease value 150,000 0 150,000
2.Building and civil work 8,000,000 0 8,000,000
3.Plant machinery & dep’t 12,000,000 34815760 46815760
(For both wheat milling & maize milling
plant)
4.Feight charges/C.I.F 0 70,438 70,438
5. Installation and training 0 89,500 89,500
6.Working capital 631.13 30,194,814.25 45,292,221.38
7.Pre-production expenses 350,000 0 350,000
Total 350000 65,170,512.25 100,767,919.3
8

B. Summary of the financial analysis result

 NPV before income tax: 34,294,318

 NPV after income tax: 20,224,173
 IRR before income tax: 78%
 IRR after income tax: 53%
 2. BACK GROUND INFORMATION
2.1. The applicant
2.1.1 Name: Frecot flour mill factory plc
2.1.2 Address: Region-SNNPRS
2.1.3 Zone: Gedeo
2.1.4 City: Dilla
2.1.5 Woreda /sub city: Sesa
2.1.6 Kebele: Odaya
2.1.7 House No: New
2.1.8 Tel.mobile:0911208528
2.2. Tel. Office: None
2.3. The project
2.3.1. Name: Ferekot flour factory Wheat and Maize flour milling plant expansion project
2.3.2. Address: Region SNNPRS Zone: Gedeo. City: Dilla Woreda/sub city: Sesa
Kebele; Odaya
2.3.3. Type of project: flour milling
2.3.4. Legal form of business: PLC
2.3.5. Status of the project: New
2.3.6. Investment certificate’s ደ/ኢ 3591/2000
2.3.7. Date of issuance:6/12/2006E.C
2.3.8. Trade license no: ደክ/02/01/30311/520/2003
2.3.9. Trade licensing agency: SSNPRS trade and industry bureau
2.3.10. Date of first issuance:10/01/2003E.C
2.3.11. Date of modification: 13/05/2006E.C
2.3.12. Substitution date: 111/4/2014 E.C
2.3.13. Registration no: ደክ/02/01/30311/520/2003
2.3.14. Registered capital: 1,000,000.41Br
2.3.15. TIN: 0005721592
2.3.16. VAT: 3101030005
2.3.17. Current outstanding loans with other banks and MFI: NO

2.4 Brief profile of the company and the promoter

According to the information of the promoter, the aforementioned flour business company was
established in 1998E.C by the promoter, Ferekot Plc as a private company. Prior to this, the promoter
had been working with modern milling business in a medium scale level with the grinding business to
households’ grain and crop products speculation trade. Though, the aforementioned flour factory has
two grinding plants with the design capacity of processing 62 and 100 tons per day for Wheat and
Maize assuming 200 annual working days) per annum, respectively, the Wheat and Maize flour mill
machine is old and inefficient. Furthermore, there is a complimentary business taking place under the
aforementioned flour company with the production of bakery products that it is grain marketing value
chain insertions along the successive continuum value additions which may help to exploit the
competitive advantages of interactions of operations.
The flour company opted with the proposed project expansion is currently managed by Ato Ebirahim
Shafi and would continue to ought to be with the project operations in future.
He is a spectacular and keen businessman aged at 38, with excellent leadership qualities within the
framework of team working environment. The presumed incumbent manager’s family profile
revealed that he is married. Ato Ebirahim Shafi biographical histories in business careers will tell that
he has cumulated experiences with the life-long knowledge in managing business for more than 15
years in being engaged in varies business-line activities like, flour mail and café processing and
wholesaling, business etc. His educational profile is a complete of 12th grade school’s class level.
3. SWOT ANALYSIS IN FLOUR MILLING BUSINESS IN ETHIOPIA
3.1. Strength
 High team spirit of the workers in the company
 Rich experiences and technical knowledge of the company on the area the products
 Increased business portfolio through the engagements to two complementary process
products of flour and bakery products in which the output of the latter in being serving as the
main input of the latter
 The company already has well established a good will to its existing products along the
market value chain to maize and hence significantly partaken the market share of the
proposed product
 Good connections with the local authorities

3.2. Opportunities
  Full raw material supply security, i.e., reliable availability of agricultural products with
supply continuity mainly from the SNNPRS and the surrounding of the project area, dilla
city with required quality, quantity and viable cost
 Increasing population number in urban and rural parts of the country and region triggering
more and more demand for food products in association with the inelastic nature of the
goods to prices ensuring the continued demand
 The ensuring economic growth of the country to obviously trickle to disposable income of
households which in turn stimulates both urban and/or rural consumer’s taste and preference
towards modern processed food products packages, with its all advantages to high
nutritional values, quality standards, convenient health effects, etc.
 Availability of skilled and easily trainable manpower at fair rate in the labor market
 Increasing demand for Wheat and Maize flour from the food (bakery)processing industry,
bran for animal feed, direct consumer households demand
 Efficient machine and equipment technological advancement in the global
3.3. Weakness
 relatively, lower experiences of the company in bakery business
 challenges from the existing competent companies in creating sever entry barriers of the
market for the proposed flour mill products
3.4. threats
 Risks in agricultural crop product to high prices to Wheat and Maize
 Reduced consumer spending n a worsening economic climate
4. MARKETING STUDY
4.1. Product description
Wheat and Maize is one of the most important foods in a balanced diet. In general people starting at
the age of 14 should consume approximately 6-7 ounces of grains per day half of which should come
from whole grains. Wheat and Maize flour is the most important ingredient in home baking and is the
frame work for almost every commercially baked product. Of the grains available for the production
of flour, Wheat and Maize is unique. It is the only cereal grain with sufficient gluten content to make
a typical loaf of bread without being mixed with other grains. For example, for one to make rye bread
a certain amount of Wheat and Maize flour is usually present in the end product. Breads can be made
without Wheat and Maize flour but they are rather rare because the bread will not rise as high and
therefore will be very dense. All-purpose flour is a product of the ground endosperm of hard Wheat
and Maize or a combination of hard and soft Wheat and Maize kernel. Bread flour is usually enriched
and although similar to all purpose flour, it has greater gluten strength and is generally used for yeast
breads. It includes coarsely ground bran and germ as well as endosperm in the mix. The presence of
bran reduces the gluten percentage in the flour mix therefore whole Wheat and Maize breads are often
heavier than breads made from white flour whole Wheat and Maize flour is rich in B-vitamin E and
protein and contains more trace minerals and dietary fiber than white flour since whole Wheat and
Maize flour contains so many minerals, it does not have to be enriched as white flour does. Generally,
flour is a food item, which is finely ground meal of cereals such as Wheat and Maize, maize sorghum,
rice, etc. obtained by milling and blending various streams of different quality. It mainly contains
endosperm and certain quantity of bran. Wheat and Maize flour on average contains from 14%to
16.5% moisture. Based on its baking quality and other quality indices such as gluten quality and
content, color, moisture content, granular size of particles and others, flour is divided in two different
grades.
The basic application of flour is for bread making, cakes and biscuits, and porridge at hose hold level.
Semolina, a product obtained by milling extra hard (durum) Wheat and Maize, is also used in pasta
and macaroni making. Te by- product bran is used as animal feed preparation
4.2. Past supply and present demand
In Ethiopia, the rural population used to consume flour made from cereals by traditional means at
home. Grain malls, however, are expanding deep in to rural areas reducing labor and time
forewomen, replacing home-made flour consumption of industrially processed flour, however, is still
insignificant in rural Ethiopia.
Urban dwellers, on the other hand, consume more and more flour produced by flour mills thus
shifting to manufactured flour. Urban house-holds also consume food items like bread, biscuits and
cakes prepared at home or in bakeries and pastries from industrially processed flour.
The demand for Wheat and Maize flour is met through both local production and imports. The
apparent consumption of flour, comprising both domestic production and import is shown in table 1.
This shows that both domestic production and import of Wheat and Maize flour are characterized by
a fluctuating trend which is, however, erratic. The peak level of local production,195,437 tons, was
registered in year 2000, and imports, 122,365 tons, in 2003 E.C. given the nature of the historical
apparent consumption, it is reasonable to assume that the average of the last three years, i.e., about
223,794 tons, as the current effective demand for flour.
Table 1 apparent consumption of Wheat and Maize flour
Year/EC3 Domestic production Import Total
1995 115,968 1,523 117,491
1996 121,160 588 121,748
1997 140,499 186 140,685
1998 105,157 7,300 112,457
1999 167,526 10,686 178,212
2000 195,437 23,059 218,496
2001 165,345 60,995 226,340
2002 142,541 13,757 156,298
2003 136,669 122,365 259,034
2004 155,692 19,662 175,354
2005 148,786 801 149,587
2006 164797 51126 215924
2007 168100 55694 223794
2008 171403 60262 231665
Source: 1. CSA survey report of manufacturing & electricity industries Annual issues.
2. Customs authority, external trade statistics, annual issues.
3 the consultant’s own estimation, for 2005-2008, based on the trend to 1995-2005
1. Projected demand
The demand for Wheat and Maize flour is mainly determined by the growth rate of population and
the per capita consumption of flour. Increased application of Wheat and Maize flour for industrially
processing of food products such as pasta and macaroni would also have great bearing of future flour
demand. In view of the likely change in these determining variables, an10%annual growth in demand
is considered to be reasonable rate to project future demand (see table2)

Table 2 projected demand for Wheat and Maize flour (Tons)

Year/EC Projected demand Existing capacity Un satisfied demand
2009 254831 168100 86731
 2010 280314 168100 112214
2011 308346 168100 140246
2012 339180 168100 171080
2013 373098 168100 204998
2014 410408 168100 242308
2015 451449 168100 283349
2016 496594 168100 328494
2017 546253 168100 378153
2018 600878 168100 432778
2019 660966 168100 492866
2020 727063 168100 558963

4.3. Pricing and distribution

The current average price of Wheat and Maize flour at dila, hawassa, etc towns is Birr 6500 per
quintal. For this project, an ex-factory price of birr 5000 per quintal is proposed.
Flour is an industrial as well as a consumer product, bakeries and pastries could be supplied directly
at factory gate or through intermediaries. Households could be supplied through retailers as well as
with distribution centers to be established by the new project itself.
5. TECHNICAL STUDY
5.1. Plant capacity
According to the market study, the unsatisfied demand of Wheat and Maize flour in the year 2008
will be 63,565 tons, whereas this demand will grow to 558,963 tons by the year 2020.
Taking only about 50% of the demand of the year 2008, the envisaged plant will have an annual
capacity of processing 120,000 up to 160,000 tons pure Wheat and Maize produce 300,000 up to
400,000 tons for consecutive year. Wheat producers of bran 1,600-8,000 tons and Maize produce of
bran 6,000 tons. The plant will operate one shifts of 8 hours a day, and for 200 days per years.
5.2. Production program
The plant will start operation at 75% of its installed capacity during the first year, and will increase
production to 85% in the second year, and then to 100% in the third year and then after.

The proposed production program is given in Table 3.

Year 1 2 3-10
 Capacity utilization (%) 75 85 100
Production Wheat (tons) Flour 120000 136000 160000
bran 1600 2040 8000
Production maize (tons) Flour 300000 340000 400000
bran 3000 5100 6000

5.3. Materials and inputs

5.2.1. Raw and Auxiliary materials
A. national Wheat and Maize grain production supply
The principal raw material for flour production is Wheat and Maize grain. Flour for baking bread is
produced from hard Wheat and Maize or a blend of hard and soft Wheat and Maize, flour for cakes
and biscuits is milled from soft Wheat and Maize. Wheat and Maize can be available in different part
of the region. The impurity rate for local Wheat and Maize should not exceed 8%.Generally, the
derived demand for Wheat and Maize flour is Wheat and Maize grain used as the major raw material.
In this regard, Ethiopia is the leading Wheat and Maize producer in sub-saharan Africa. In 2012,
Wheat and Maize production totaled 3.4 million tons (FAOSTAT), representing more than half of
that produced in sub-saharan Africa and about 13.8 percent in all of Africa. Most of the Wheat and
Maize grown in Ethiopia is bread Wheat and Maize, followed by durum Wheat and Maize, which is
ten grown mixed with bread Wheat and Maize. CSA data indicates that Wheat and Maize is among
the most important crops in Ethiopia, ranking fourth in total cereal production (17.5 percent during
2005-2012) next to maize, sorghum and teff. It is grown as a staple food in the highlands at altitudes
ranging from 1500 to 300 meters above sea level. Nearly all Wheat and Maize in the country is
produced under rain- fed conditions, predominantly by small farmers have a share of about 92 percent
of the area allocated for Wheat and Maize (USDA, 2013), with the remainder cultivated by a few
government – owned, large-scale (state) farms and commercial farms that also produce Wheat and
Maize. Despite the recent expansion, Ethiopia falls short of being self- sufficient in Wheat and Maize
production, and continually remains a net importer. Wheat and Maize production, in terms of volume
and area, increased over the period 2005-2012. The production of 3.4 million tons in 2012, a record
output, made Ethiopia the leading producer of Wheat and Maize in sub- Saharan Africa and third on
the continent, next to Egypt and morocco. The importance of Wheat and Maize in production, trade
and consumption stimulates a national interest for it. Wheat and Maize’s share in total crop
production is about 17.5 percent and its area share is nearly 17 percent.
SNNPRS’s Wheat and Maize grain production
In the SNNPR; agriculture is the backbone of the regional economy; contributing for about 73% of
the regional GDP and more than 90% of the total employment (BOFED, 2005). Out of the total land
size of the region 112,343.19 square kilometer, about 785,386.5 hectares of land had been used for
the production of cereals and the estimated production was 11,172.4 million quintals. The land
allocated in the region for the production of Wheat and Maize in the year 2007 was 118,815 hectares.
Moreover, the regional production of Wheat and Maize in the year 2007 was 1974.6 million quintals
(CSA, 2007). Wheat and Maize, sorghum, finger millet and barley are the leading cereals crops
grown in the SNNPR. Based on the report of (BOARD, 2007), hadiya, guraghe, kembata tembaro ,
siltie zones and halaba special wored are the major cereal producing areas in the region. Although the
region has ample production potential and market access, it has never reaped the opportunity as it
would supposed to exploit.
B. Auxiliary raw material
Auxiliary materials required are PP (poly-propylene) bags of different size for packing flour and
sewing thread. These can be easily obtained from local markets. The estimated annual cost of raw and
auxiliary materials is given in table 4 below.
The total annual cost of raw materials is estimated at Birr 473,494,015
Table 4 raw &auxiliary materials requirement& cost in (‘000Br).
S.N description unit Qty. Unit cost T. cost Total per month
1 Wheat Tons 23250 4500 104625000 8718750
2 Maize Tons 66,666 3800 253330800 21110900
3 PP bag(50kg Pcs 208,089 10 2,080,890 173407.5
4 Sewing thread Reel 1,387 210 291,325 24277.08
Total 0 30027334.58
Note: the plant will generate Birr 26,950,000 annually from the sale of bran as animal feed
5.2.2. UTILITIES
The major utilities required by the plant are electricity, water and lubricants. The estimated annual
requirement at full production capacity of the plant and the corresponding cost are given in Table 5.
The total annual cost of utilities is estimated as Birr 391,100.

Table 5 annual utilities requirement & estimated cost

SN Description Unit Qty. Unit price(Birr) Cost (‘00Birr)
 1. Electricity kWh 750,000 0.4736 355,200
2. Water M3 5,000 5.5 27,500
3. oil and lubricants kg 150 56.00 8,400
391,100

5.4. Production process

There are two of Wheat and Maize flour milling process,(I)Dry type and (ii) Wet type. Both types of
processes are discussed below:
5.4.1. Wheat and Maize flour mills-Dry type
The Wheat and Maize flour making process comprises of two sections, cleaning section and milling
section.
A) Cleaning section:
Wheat and Maize is thoroughly cleaned to remove all impurities including the dust adhered to the
surface of the Wheat and Maize grains. To remove the impurities a few of cleaning stages are
employed, such as pre-cleaning, cleaning first stage, second stage etc.
Small pieces of sticks, stones, sand, straw etc., are removed by scouring. The scourer removes
outer husks, crease dirt and any smaller impurities with an intense scouring action. It is also
passed through magnetic separator for the separation of iron particles. Aspiration system is used
as a cleaning means as air currents act as a vacuum to remove dust and lighter impurities.
Destined is used to remove heavier particles like stone. After completion of cleaning, Wheat and
Maize is conditioned by dampening. The conditioned Wheat and Maize is stored in a silo for 24
hours and then is sent to milling section.
B) Milling section:
Milling of Wheat and Maize is carried out predominantly by roller flour mills. The roller milling
system comprises of break rolls and reduction rolls. The break rolls and reduction rolls are
differentiated through the variation in their surface conditions. The surface of the reduction roll is
smooth where as surface of the break roll is corrugated. In the break rolls, the bran is cracked and the
kernel is opened. After each break, the mixture of free bran, free endosperm, free germ and
endosperm still adhering to the bran is passed through the next break roll while the middle sized
endosperm called middling are sent to the reduction rolls and are used for grinding of free millings in
to proper flour size. After each reduction of endosperm (middling’s) the flour is sifted away from the
bigger size middling’s and the remaining middling’s are passed again through reduction rolls. The
broken particles of Wheat and Maize are introduced into box-like sifter machines, where they are
shaken through a series of bolting cloths or screens to separate the larger from the smaller particles.
Inside the sifter, there are a number of frames, each covered with either a nylon or stainless steel
screen, with square shape openings, reducing in size in subsequent stages of screening. Up to six
different sizes of particles may come from a single sifter, including some flour with each sifting.
Larger particles are shaken off from the top, or “scalped”, leaving the finer flour to sift to the bottom.
The “scaled” fractions are sent to other roll mills and particles of endosperm are graded by size and
carried to separate purifiers. In a purifier, a controlled flow of air lifts off bran particles while at the
same time a bolting cloth separates and grades coarser fractions by size and quality. Four or five
additional “break” rolls, each with successively finer corrugations and each followed by a shifter, are
usually used to rework the coarse stocks from the sifters and reduce the Wheat and Maize particles to
granular “middling” that are as free from bran as possible. Germ particles are flattened by later
passage through the smooth reduction rolls and can be easily separated. The reduction rolls reduce the
purified, granular middling (called farina) to flour. The process is repeated over and over again, from
sifters to purifiers to reducing rolls, until the maximum amount of flour is separated, close to 75
percent of the initial Wheat and Maize weight. The process flow diagram of a typical Wheat and
Maize mill is given in figure.1.
5.4.2. Wheat and Maize flour mills- wet type
Typically, the wet type flour mills comprise of a cleaning section, washing section and milling
section. The process in the cleaning and milling sections are similar to that of Dry type flour mills as
discussed above. In the washing section, the cleaned Wheat and Maize is washed with water and
subsequently dampened prior to milling.
5.4.3. Wheat and Maize roasting (processing)
The raw Wheat and Maize bags are cut open& fed to bucket elevator (B/E). THE B/E lifts the
material & delivers to a rotary type-cleaning screen. The cleaned Wheat and Maize is stored in a
separate room. This cleaned Wheat and Maize is retrieved as per requirement and fed to the roaster
through a bucket elevator chute arrangement. The roaster is a cylindrical steel vessel with tapering
ends on both sides and it is enclosed inside a refractory brick lined enclosure. The Wheat and Maize
along with some quantity of sand is kept rotation inside the roaster and Wheat and Maize gets roasted
by the time it reaches the other end. The roasted Wheat and Maize is discharged from the roaster and
is lifted by a bucket elevator and sent to separate storage room. The combustion gas from the roaster
enclosure is separately collected and discharged to atmosphere through a stack.
The typical process flow of Wheat and Maize processing is given in figure 1
Figure 1 Wheat and Maize milling process work flows
Typical wheat
Dry wheat & Maize Dry wheat & Maize
Processing Maize milling
milling milling

Wheat and Maize (in bags) Wheat and Maize (in bags) Wheat and Maize
Unloading (hopper) Unloading
Unloading

Cleaning (reel M/C) Cleaning Unloading

Storage
Cleaning (V.S.I) Bucket

Detuning
Cleaning
Storage (silo)

Spinning Intermediate storage

Cleaning

Bucket
De-stoning Washing

Scouring-I Storage (sub) Storage

Packing & dispatch

Dampening Cleaning

Storage (bin)
Storage

Spinning
Scouting -II

Storage (bin)
Aspiration

Grinding (rollers)
Magnetic separation

plansitter
Storate (bin)
purfier

Grinding (rollers) Packing & dispatch

plansfter

Purifier

Packing
 5.4.4.

Source of technology
The technology of flour milling is available in countries like India, china or Europe. One supplier of
machinery and equipment for the production of Wheat and Maize flour is stated as follows:
HEBEI PINGLE FLOUR MACHINERY GROUP CO, LTD.
Address: xipingle town, zhengding country, Shijiazhuang, hebei, china
Tel:86-311-88268111
Fax: 86-311-88268777
5.5. Machinery and equipment
Machinery and equipment required by the envisaged plant is given in table 6A. The total cost of
machineries and equipment processing 62 tons of pure Wheat.
Table 6.A Machinery and equipment requirements for Wheat
SN Description Unit Qty Unit cost Currant one Total
(USD) USD in Birr
1. 1. set of 6FTFS-62B Wheat FLOUR No. 1 207,110 56 11598160
MILL PLANT WITH ROLLERS
PARTS
2 1Set Of Two Years Spare Part Lump sum 1 3,600 56 201600
3 1Set of Master checker Lump sum 1 4,000 56 224000
4 1Set of fluting machine Lump sum 1 10,000 56 560000
Total 224,710 56 12583760
Machinery and equipment required by the envisaged plant is given in table 6A-B. The total cost of
machineries and equipment processing 100 tons of pure Maize produce In 24 hour.

Table 6.B Machinery and equipment requirements for Maize

SN Description Unit Qty Unit cost Currant one Total
(USD) USD in Birr

1 1. set of 100T PNEUMATIC MAIZE No. 1 372,200 56 20843200

MILL PLANT WITH ROLLERS PARTS
2 1Set Of Two Years Spare Part Lump sum 1 7,800 56 436800
3 1Set of TRUCK SCALE 100Tr Lump sum 1 17,000 56 952000
Total 397,000 56 22232000

5.6. Land, building and civic works

The total area of land required by the plant is estimated to be 1,500 square meters, the land lease cost
at a lease rate of Birr 0.2 per m2 and for 30 years of land holding is estimated at birr 15,000. The total
land lease cost is assumed to be paid in advance. The total built-up area will be 1000 square meters.
From the current years, 2008 EC balance sheet statement of the factory shows that the net asset value
of the buildings and civil works is 8,000,000 Br. The factory shows that the net asset value of the
buildings and civic works is 8,000,000 Br. Therefore the total cost of land lease and construction of
buildings and civil works is estimated at Birr 915,000.
5.7. Location of the proposed project
When the cereal market Flour producers sale their products at less remunerative price resulting with
disincentives for grower’s increased production. Likewise, in the Wheat and Maize market similar
situations exists lacking of price incentives and processing to utilize the surplus Wheat and Maize are
the major distressing factors for Wheat and Maize sale in Ethiopia. Thus, Wheat and Maize
processing units in SNNPRS and specifically in Dilla town would be a solution for prices gluts. These
occur due to the fact that processing units create better market for Wheat and Maize by producing
more value added commercial products. Wheat and Maize processing industry is basically resources
based industry. Therefore, establishing Wheat and Maize processing plant near the availability of
Wheat and Maize will have several benefits.
Provision of all important raw materials requirements for a milling flour plant’s operation is
detrimental to pursue effective production program and schedule. Thus, major the required raw
materials and other supplementing inputs are obtainable in the nearby grain market supplier in
different lots as required, i.e., from assembling and wholesaling trader store’s in Dilla towns, and
retail shops. Hence, the principal raw material required by the envisaged plant is Wheat and Maize.
The location where the proposed milling project found is very appropriate since it is close to areas of
high concentration of direct consumer customers and also close to the source of raw materials. The
milling factory also has already established supplying its flour to customers like wholesalers or
institutions of the nearby areas. Those who have a local retail market may benefit from being close to
their customers. In this regard, the project location is best to located in Dilla city where electricity,
water, access road, IT facilities with other infrastructure and facilities are well developed. Where
lighting is needed, florescent tubes use less electricity than bulbs, but care is needed when using
fluorescent lights above mills, de hullers and other equipment that has moving or rotation parts. This
is because they can make machinery appear stationary at certain speeds, causing a hazard to
operators. Water is used in milers for sanitation, drinking and for washing equipment. An adequate
supply of potable (safe for drinking) water should be available from taps near the processing room.
6. ORGANIZATION AND MANAGEMENT
6.1. Manpower requirement
The flour production plant requires both production and administrative manpower. The total
manpower required is 45 persons. A detail of manpower requirement and estimated annual salary
expenditure including fringe benefits is given on Error! Reference source not found...
Table 7 manpower requirement and annual salary expenditure
Positions Qty Monthly salary Annual salary
Direct labor
Plant manager 1 6000 72,000
Executive secretary 1 2000 24,000
Skilled labor 4 4,000 192,000
Unskilled labor 6 1500 108,000
Miller 1 2000 24,000
Electrician 1 2700 32,400
Cleaning workers 4 850 40,800
Subtotal I 18 19050 493,200
Indirect labor
Admin and finance 1 3000 36,000
Sales man 1 3500 42,000
Accountant 1 2000 24,000
Cashier 1 1500 18,000
Store keeper 1 1500 18,000
Personnel 1 1600 19,200
Guard 3 1000 36,000
Subtotal II 9 11100 193,200
Total (I+II) 27 30150 686,400
Employees benefits (15% of subtotal ) 102,960
Total 45 32,800 789,360

6.2. Training requirement

The production supervisor, operators and quality controllers (chemists) should be given three weeks
on- the-job training by machinery supplier personnel on the technological process, machine operation
and quality management. The cost of training is estimated to be Birr 40,000.
6.3. Proposed organization diagram

Factory
manager
 Production Administration &
Supervisor Finance head

Operators Electrician Personal Accountant

General services
Cashier Store man

7. SOCIAL AND ENVIRONMENTAL IMPACTS

There envisaged plant does not have any pollutant emission to the environment. Most of the milling
flour by- products are not only bio degradable in nature but also have various alternative uses that
waste disposal ad effluent by products would not be an environmental threat. However, the hygienic
nature food processing requires high photon- sanitary control system in the production operation area
and keeping products from external contaminants need stringent quality controls to protect the public
health and individual’s wellbeing. The other minor nuisance to the nearby human settlement areas
could be mentioned with the high sound and dust emissions from the machinery operations in which
to the latter case to may not exceed the standard measures of 50db and particulates air pollution to the
latter case. To mitigate the effects of these social and environmental pollutants, appropriate measures
adequate will be taken adequately with plastering production shade walls with sound absorbing
materials and planting vegetations in the factory’s compound and the surroundings. Thus the
proposed project has no any significant negative impacts expected such that it is socially friendly and
environmentally sustainability.
Rather, the project will have external benefits with employing 90 jobless locals in to work and raising
corporal taxes for the government at an average of 6,565,099 Br per annum.
8. FINANCIAL ANALYSIS
8.1. Major assumptions
The financial analysis being purported to come up with measures of the project viability indicators,
the following assumptions were undertaken:
 The project life is assumed to be 5 years based on the estimations on the effective service life of
the machinery and equipment facilities.
 Wage and salary of staff is assumed to increase 5% of the preceding years
 Straight line method of depreciation is employed for costing yearly services of all fixed asset
item.
 The costs of project capital financing or the interest rate is assumed to be 9%.
8.2. Annual cost of the lease capital( interest) & lease payments
The lease capital financing agreement and its subsequent procurement processes is expected to would
have been concluded within 2 months since march 1,2017 and hence the first monthly lease payment
with its commensurate interest charges effected in May 31,2017, the annual lease term schedule is
shown below,table8.
description Year0 Year 1 Year 2 Year3 Year 4 Year 5 Year 6 Year 7
Lease 34815760
amount
Lease 4973680 4973680 4973680 4973680 4973680 4973680 4973680
payment
Outstandin 29842080 24868400 1989472 14921040 9947360 4973680 0
g balance 0
Interest 4003812.4 3431839.2 2859866 2287892.8 1715919.6 1143946.4 571973.2
11.5
Total 8977492.4 8405519.2 7833546 7261572.8 6689599.6 6117626.4 5545653.2
payment

Table 8 computations to the cost of lease (interest)@11.5% and principal

8.3. Summary of operating costs

Table 9 annual production cost in Year 1
Direct production cost
Items Per year Per month
Raw material and inputs 0 30027334.58
Utilities in production 391,100 32591.67
Labor direct 393600 32,800
 s/total 784700 32800
II. indirect production cost
Insurance 89,500 7458.33
R&M
Labor overheads 39360 3280
Other cost 1185696.79 98808
S/total 1225056.79 102088
Total operating cost 1226244 102936.25

8.4. Analysis of the project worthiness

To arrive at the plausible appraisal decision upon the proposed project investment, the consultant has
critically examined about the capacity of the project in generating future financial returns over its life
cycle in view of meeting the project appraisal criteria for both the lending and borrowing parties
under their financial limit of concern.
 NPV: after tax 20,224,173 ETB and before tax 34,294,318ETB
 IRR: after tax 53% and 78 before tax
Accordingly, the project under study has resulted with viable NPV and IRR results.
8.5. Projections to the financial statements with the project
Financial statement of any business organization portrays lofty management information about the
ongoing organizational change, efficiency, strategic planning, set objectives and orientations and etc.
hence, the main financial statement projections are made as follow:
 Profit-loss statement: increases in Net profit from 7,949,238 Br in Y1 to 32,620,416 Br Y5.

8.6 Total investment cost and financing sources

The total project cost is estimated to be 85,581,012.25 Br of which 34,815,760 (38%) is for hire
purchase of plant machinery and equipment, and other costs of 35,597,407.13 (25%) is covered with
the owner’s equity.
Table 10 total investment cost (in ETB)
Costs Existing Planned Total Percent
1. land lease value 150,000 0 150,000 3570.71
2.building and civil work 8,000,000 0 8,000,000 95923.65
3.plant machinery & dep’t 12,000,000 34815760 46815760 1843
4.feight charges/C.I.F 0 70,438 70,438 1876
 5. installation and training 0 89,500 89,500 2858.94
6.working capital 631.13 631.13 102936.25 467986.17
7.pre-production expenses 350,000 0 350,000 5923.65
Total 350000 50073105.13 3675.25 579982.11
Debt: equity 41.59 58.51 100

9. CONSULTANT’S CONCLUSION AND RECOMMENDATION

With the hitherto analysis and result discussions, the aforementioned business expansion capital
investment project can be said viable enough in financial terms since the respective parameter results
are falling within the acceptance range of project’s evaluation criteria. With this study It was
evidenced that there are other extra benefits to potentially could be reaped with the implementation of
the project. In addition to the financial returns expected that the project could realize. These generally
will include: possibility in employing the local idle resources in to utilization i.e., human, economic
and market induced benefits. Thus, the credit worthiness of the project is attractive for financing
institutions and a return to investment is high for the investor to implement the project.
10. ANNEX
Annex 10.1. Revenue estimations
Table 11 assumptions in revenue computations

Items Unit Qty Prices Revenue

Wheat and Ton 19762.5 6500 128456250
Maize Ton 66,666 4800 319996800
Bran Ton 7700 3500 26950000
total 475403050
Annex 10.2. Costing assumptions
Table 12 insurance

Properties to be insured Value (Birr) Insurance Rate (%) Insurance

cost
Computer 400,000 0.0075 3000
Machinery &equipment –fire& Lightening 7,011,066 0.0075 52591
Total 55591
Table 13 Repair and maintenance
Description Value(Br) R&M Rate R and M cost (In Birr)
Building and c construction 400,000 0.03 400
Machinery& equipment 3,537,152 0.05 1,176857.6
Total 400

Table14 other costs

description Annual costs (InBr0
Lease 3000
Travel & per diem (10% of management heads’ salary) 82800
Fringe benefit (5% of salary and wage) 102,960
Uniform & protective(Br 1000/person/yr for 19 person) 39456
Telephone, postage, internet 49,764
Cleaning expense(0.5% of indirect cost) 99,528
Administrative expenses (0.8%of Ind. cost) 9,953
Office suppliers (3 of indirect production cost) 29,858
Utility expenses (5% of indirect cost) 49,764
Marketing expenses 99,528
Audit and legal fee 9,953
Miscellaneous expense (5% of the above 49764
Total 626328

Annex 10.3. Working capital estimations

Table 15 determination of working capital (Br)
description 0 1 2 3 4 5
1. Direct costs
Raw material and 0 378344415.75 389154256.2 395640160.47 403567376.8 414377217.25
inputs
Utilities 391,100 391,100 391,100 391,100 391,100 391,100
Machinery & 188428.8 188428.8 188428.8 188428.8 188428.8 188428.8
equipment R&M
Labor direct 41,100 41,100 43,155 45,313 47,578 49,957
Sub-total 41100 41100 43155 45313 47578 49957
2. Indirect costs -
Sub-total - - - - - -
Total 82200 82200 86310 90626 95156 99914
Increase in working 18016400.75 10811899.45 6488058.5 7929481.1 10812219.45
capital
Existing working
capital
Proposed permanent 30079053.65
working capital
requirement
Annex 10.4. Annual operating costs (Br)
description 0 1 2 3 4 5
Direct costs
Raw material and inputs - 1 378344415.75 389154256.2 395640160.47 403567376.8
Utilities 391,100 391,100 391,100 391,100 391,100
Machinery & equipment R&M - 188428.8 188428.8 188428.8 188428.8 188428.8

Labor direct - 41,100 41,100 43,155 45,313 47,578

Sub-total - 41100 41100 43155 45313 47578
Indirect costs -
Insurance - 117,738 117,738 117,738 117,738 117,738
R&M 141,544 148,621 156,052 163,855 172,048
Fuel & lubricants - - - - - -
Lease payment - 7,000 7,000 7,000 7,000 7,000
Salary and wage - 193,200 202,860 213,003 223,653 234,836
Travel &per diem - 82,800 86,940 91,287 95,851 100,644
Uniform &protective - 39,456 41,429 43,500 45,675 47,959
Office supplies - 29,858 30,754 31,677 32,627 33,606
Telephone, postage & internet - 49,764 50,262 50,764 51,272 51,785
Audit and legal fee - 9,953 10,052 10,153 10,254 10,357
Administrative expense - 9,953 9,953 9,953 9,953 9,953
Utility expenses - 49,764 52,252 54,865 57,608 60,489
Cleaning expense - 99,528 99,528 99,528 99,528 99,528

Description 0 1 2 3 4 5
Miscellaneous - 49,764 50,759 51,775 52,810 53,866
 expense
Office repair - 12,000 12,000 12,000 12,000 12,000
&maintenance
Fringe benefits - 103,960 108,108 1113,513 119,189 125,149
Sub- total - 995,283 1,028,257 1,062,809 1,099,015 1,136,957
Total 3,009,985 1161008 378344415.75 389154256.2 395640160.47 403567376.8
Increase in 2322016 379543541.75 391394356.2 396923178.47 404895353.8
working
capital
Existing 631.13
working
capital
Annex 10.5. Computation of depreciation of fixed assets
Table 16 depreciation and amortization (Br)
Items Original Original Depreciatio Project years
cost cost% n annually 1 2 3 4 5
Depreciation
Machinery & 6963152 20% 6963152 6963152 13926304 20889456 27852608 34815760
equipments
Building and civil work 0 10% 0 0 0 0 0 0
Tools 400000 5% 20000 380000 360000 340000 320000 300000
Subtotal 2990881.54 279088.1 2711793. 2432705. 2153617. 1874529 1595441
5 3
Annex 10.6. Financial statement projections
Table 17 profit/loss statement (Br)
Description 1 2 3 4 5
Net Revenue 1 933 933.25 934.5 935
Less: operating cost 2 378344415.75 389154256.2 395640160.47 403567376.8
Gross profit 115078035 144598939.25 -389153049.95 -395638971.97 -403565399.8
Less: deprecation 6963152 13926304 20889456 27852608 34815760

description 1 2 3 4 5
Profit before interest& 115078035 144598939.25 -389153049.95 -395638971.97 -403565399.8
tax
Less: interest 13233974.03 16628878.01 -44752600.74 -45498481.78 -46410020.98
Profit before tax 101844060.98 127970061.24 122549572.05 125285278.14 1621.72
Less: profit tax (30%) 30553218.29 38391018.37 36764871.61 37585583.44 36743102.6
Net profit 71290842.68 89579042.87 85784700.43 87699694.7 85733906.07

Table 18 cash flow statement (Br)

Description 0 1 2 3 4 5
 cash inflows
Owners equity 0
Loan 50073105.13
Net profit 71290842.68 89579042.87 85784700.43 87699694.7 85733906.07

Depreciation 6963152 6963152 6963152 6963152 6963152

Total cash 50073105.13 64327690.68 82615890.87 78821548.43 80736542.7 78770754.07
inflows

Table19 balance sheet

description 0 1 2 3 4 5
A.ASSETS
Current assets
Cash -
inventory 0
Total c. assets 0
Fixed assets
Building 8,000,000
description 0 1 2 3 4 5
Machinery and 6963152 6963152 6963152 6963152 6963152 6963152
equipment
Cash register - - - - -
Tools - - - - - -
Office - - - - -
equipment and
furniture
Total fixed 2,990,882 2,711,793 2,432,705 2,153,617 1,874,529 1,595,441
assets
Intangible asset
ROU - - - - -
Pre-production 50,000 45,000 40,000 35,000 30,000 25,000
cost
Total intangible 50,000 45,000 40,000 35,000 30,000 25,000
assets
Total assets 15,283,399 20,520,653 25,933,735 32,114,268 38,668,481 45,617,831
B.LIABILITY
ROU 50073105.13 5758407.09 5758407.09 5758407.09 5758407.09 5758407.09
Total liability 50073105.13 5758407.09 5758407.09 5758407.09 5758407.09 5758407.09
C.CAPITAL
Owner’s equity 115529609.26 14,287,292 18,768,565 24,575,419 30,741,995 45,124,763
Retained earning 5,904,649 6,672,101 7,045,781 7,433,418 -
Total capital 231059218.52 20,191,941 25,440,667 31,621,200 38,175,413 45,124,763
Total lab & 462118437.04 20,520,653 25,933,735 32,114,268 38,668,481 45,617,831
 capital

Annex 10.7. Lease service payment schedules

Table 20 lease repayment schedule
description 0 1st year 2nd year 3rd year 4th year 5th year 6th year 7th year
1. total value 34815760 30327013.8 25838267.6 21349521.4 16860775.2 12372029 7883282.8 3394536.6
of the lease
2. principal 4973680 4973680 4973680 4973680 4973680 4973680 4973680 4973680
repayment
Interest 4003812.4 3487606.59 2971400.77 2455194.96 1938989.15 1422783.34 8950775.22 390371.71
11.5%
 jan 8977492.4 705107.22 705107.22 705107.22 705107.22 705107.22 705107.22 705107.22
 feb 705107.22 705107.22 705107.22 705107.22 705107.22 705107.22 705107.22
 mar 705107.22 705107.22 705107.22 705107.22 705107.22 705107.22 705107.22
 apr 705107.22 705107.22 705107.22 705107.22 705107.22 705107.22 705107.22
 may 705107.22 705107.22 705107.22 705107.22 705107.22 705107.22 705107.22
 jun 705107.22 705107.22 705107.22 705107.22 705107.22 705107.22 705107.22
 jul- 705107.22 705107.22 705107.22 705107.22 705107.22 705107.22 705107.22
 aug 705107.22 705107.22 705107.22 705107.22 705107.22 705107.22 705107.22
 sep- 705107.22 705107.22 705107.22 705107.22 705107.22 705107.22 705107.22
 oct- 705107.22 705107.22 705107.22 705107.22 705107.22 705107.22 705107.22
 nov- 705107.22 705107.22 705107.22 705107.22 705107.22 705107.22 705107.22
 dec- 705107.22 705107.22 705107.22 705107.22 705107.22 705107.22 705107.22
Total 8977492.4 8977492.4 8977492.4 8977492.4 8977492.4 8977492.4 8977492.4
3. outstanding 25353333 20379653 15405973 10432293 5458613 484933
balance
-4488747