104. PROFILE ON COFFEE ROASTING,

GRINDING AND PACKING

104-2

TABLE OF CONTENTS

PAGE

I. SUMMARY 104-3

II. PRODUCT DESCRIPTION & APPLICATION 104-3

III. MARKET STUDY AND PLANT CAPACITY 104-4

A. MARKET STUDY 104-4

B. PLANT CAPACITY & PRODUCTION PROGRAMME 104-6

IV. RAW MATERIALS AND INPUTS 104-7

A. RAW & AUXILIARY MATERIALS 104-7

B. UTILITIES 104-9

V. TECHNOLOGY & ENGINEERING 104-10

A. TECHNOLOGY 104-10

B. ENGINEERING 104-12

VI. MANPOWER & TRAINING REQUIREMENT 104-13

A. MANPOWER REQUIREMENT 104-13

B. TRAINING REQUIREMENT 104-14

VII. FINANCIAL ANALYSIS 104-14

A. TOTAL INITIAL INVESTMENT COST 104-14

B. PRODUCTION COST 104-15

C. FINANCIAL EVALUATION 104-16

D. ECONOMIC BENEFITS 104-17

104-3

I. SUMMARY

This profile envisages the establishment of a plant for the production of roasted and grinded

coffee with a capacity of 100 tonnes per annum.

The present demand for the proposed product is estimated at 135,346 tonnes per annum. The

demand is expected to reach at 414,946 tonnes by the year 2025.

The plant will create employment opportunities for 15 persons.

The total investment requirement is estimated at about Birr 4.24 million, out of which Birr

511,500 is required for plant and machinery.

The project is financially viable with an internal rate of return (IRR) of 19 % and a net

present value (NPV) of Birr 2.25 million discounted at 8.5%.

II. PRODUCT DESCRIPTION AND APPLICATION

Coffee is a common name for any of a genus of trees of the madder family, and also for their

seeds (beans) and for the beverage brewed from them. The Arabicas and Rubastas are the two

major types of commercial coffee. Chemicals extracted from expertly processed and roasted

coffee by hot water classified as non volatile are caffeine, trigonelline, chlorogenic acid,

phenolic acids, amino acids, aldehydes, ketones, esters, amines, and mercaptanes.

Undoubtedly the popularity of this beverage is, at least to some extent, related to their stimulant

effects. Average caffeine contents per cup of brewed coffee is 110 mg. Caffeine is a mild

psychostimulant that has been called the most widely used psychoactive substance on earth.

Several varieties of processed green coffee usually are blended and roasted together to

produce the tastes, aromas and flavors popular with consumers. Ground coffee is consumed by

hotels, bars and cafeterias.

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III. MARKET STUDY AND PLANT CAPACITY

A. MARKET STUDY

1. Past Supply and Present Demand

The project envisages hulling, cleaning and washing coffee beans for export. A coffee bean

(green coffee) has very high domestic and export demand. Coffee constitutes the most

important export commodity of the country. And the Southern Nations and Nationalities

Region (SNNR) has been one of the major suppliers of coffee for export. Table 3.1 presents

data on the country’s export of coffee during 1993/94 – 2004/05. Despite some fluctuations, a

rising trend is observed in the country’s total coffee export as well as the export share of SNNR

during the period under reference. On the average, total exports and the share of SNNR from

the total export stood at 113918.6 and 62534.87 tons, respectively, during the period. Thus,

exports of coffee from SNNR on the average accounted for about 55% of the country’s total

coffee export during the reference period.

Table 3.1

EXPORT OF COFFEE (TONS)

Year Total Export Share of SNNR 1993/94 69160 42963.6 1994/95 82199 40161.4 1995/96 97579 67757.0 1996/97 123166 57196.7 1997/98 120050 43839.7 1998/99 101232 51017.0 1999/00 116558 68030.0 2000/01 99134 42309.0 2001/02 110347 78893.0 2002/03 126128 82315.0 2003/04 156409 75598.0 2004/05 165061 100338.0 Average 113918.80 62534.87

Source: CSA, Statistical Abstract, 1993-2005.

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Given the fluctuations in the total exports, the average total export for the period under

reference is considered as the effective export demand for the product for the year 2006. the

average rate of growth of total exports of the product during the reference period is computed

to be 9%. This rate of growth is adopted in estimating the export demand for the product. The

present export demand for the product (i.e. 2007) is thus estimated at 135346.7 tons.

2. Projected Demand

As stated, above, a 9% rate of growth is applied in projecting the total export demand for the

product. Given the substantially significant share of the region in the country’s total coffee

export, the share of the envisaged plant is conservatively estimated at 5% of the projected

export demand. Table 3.2 depicts the projected export demand for coffee and the market share

of the envisaged plant.

Table 3.2

PROJECTED EXPORT DEMAND FOR COFFEE (TONES)

Years Projected Demand

Market Share of the Envisaged Plant

2007 135346.7 6767.3

2008 147527.9 7376.4

2009 160805.4 8040.3

2010 175277.9 8763.9

2011 191052.9 9552.6

2012 208247.7 10412.4

2013 226990.0 11349.5

2014 247419.1 12370.0

2015 269686.8 13484.3

2016 293958.6 14697.9

2017 320414.9 16020.7

2018 349252.2 17462.6

2019 380684.9 19034.2

2020 414946.5 20747.3

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3. Pricing and Distribution

Based on recent export price of coffee and considering 30% for transportation cost and other

expenses, the factory gate price for the envisaged plant is estimated at Birr 16206/ton.

The product can be directly exported. The plant can also supply its product to exporters.

B. PLANT CAPACITY AND PRODUCTION PROGRAMME

1. Plant Capacity

Based on the market study, the production capacity of the envisaged plant is 100 tonnes of

roasted, ground and packed coffee. This capacity will be attained by working single shift a day

having eight working hours and 300 working days a year.

2. Production Programme

The annual production programme is formulated on the basis of the market forecast and

selected plant capacity. It is assumed that the plant will achieve 70% and 85% capacity

utilization rate in the first and second year, respectively. Full capacity will be reached in the

third year and onwards. The production programme for total roasted, ground and packed coffee

is shown in Table 3.4.

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Table 3.4

ANNUAL PRODUCTION PROGRAMME

Production Programme Sr.

No

Description Year 1 Year 2 Year 3 and

onwards

1. Roasted ground and packed

coffee, tonnes

70 85 100

2. Capacity utilization rate, % 70 85 100

IV. MATERIALS AND INPUTS

A. RAW AND AUXILIARY MATERIALS

The principal raw material required by the plant is clean green coffee. During roasting process

the green coffee beans loose weight due to evaporation of water. The extreme limits of the

weight loss termed as “a loss in the fire” are between 14 and 23% of the initial weight of coffee

beans. Elimination of the silver skin of coffee beans that amounts from 0.2% to 0.4% and the

release of certain volatile elements also occurs during roasting.

Taking the above mentioned weight loss into account, the annual requirement for green coffee

at 100 per cent capacity utilization rate is estimated to be 100 tonnes +(0.22 x 100 tones) = 122

tonnes. To attain the optimum price and taste for the ground coffee, different types of coffee

from different areas will be mixed. Annual cost of green coffee at a rate of Birr 12,000 per ton

will amount to Birr 1,464,000.

The major auxiliary materials required for the production of roasted, ground and packed coffee

comprise packing materials of various type. The packing materials to be used by the plant are

paper bag, corrugated paper box with carton panel, and gumming paper.

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The proposed package sizes of printed paper bag for packing of roasted and ground coffee are

500 gm, 1,000 gm and 1,500 gm which are planned to constitute 30%, 60% and 10% of

the total roasted and ground coffee, respectively.

The estimated annual requirement for printed paper bag at 100 per cent capacity utilization rate

and the corresponding cost estimates are given in Table 4.1.

Paper bag of required size, quality and desired number of colours can be available from local

private or public paper factories on an order basis.

Table 4.1

ANNUAL PACKING MATERIAL REQUIREMENT AND COST ESTIMATES

Package Size

(gm)

Total

Roasted

Ground

Coffee (kg)

Paper bag

Requirement

(pcs)

Allowance

for

Damage

(0.3%)

Total

Require-

ment

Unit Cost

(Birr)

Total Cost

(Birr)

500 30,000 60,000 1800 61,800 1.00 61,800

1000 60,000 60,000 1800 61,800 1.25 77,250

1500 10,000 6,667 200 6,867 1.50 10,300.50

Grand Total 100,000 - - - - 149,350.50

The estimated annual requirement for corrugated paper box and panel at 100 per cent

capacity utilization rate, the optimum corrugated paper box sizes for each package size and

cost estimates are given in Table 4.2.

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Table 4.2

ANNUAL REQUIREMENT FOR CORRUGATED PAPER BOX AND PANEL AND

THEIR COST ESTIMATES

Total Cost

Birr/ Box

(Panel)

Package

Size of

Paper

bag (gm)

Number of

Paper bag

per box

(pc)

Annual

Roasted

Ground

Coffee

output (kg)

Annual

requirement

of

Box + Panel

Unit Cost

Birr/ Box +

Panel

500 20 30,000 3,090 2.48

7,663.2

1000 15 60,000 4,120 3.81

15,697.2

1,500 10 10,000 687 3.83

2,631.21

Grand

Total

100,000 25,991.61

The estimated annual requirement for gumming paper and respective cost estimates, at 100

per cent capacity utilization rate, is estimated at Birr 5,500.

Gumming paper of desired size and quality is available in rolls at the local market.

The total cost of raw materials and auxiliaries is estimated at Birr 2,620,841.61.

B. UTILITIES

Annual requirement and cost of utilities is indicated in Table 4.2.

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Table 4.2

UTILITIES REQUIREMENT AND COST

Sr.

No

Description

UOM

Qty.

Cost (‘000 birr)

1 Electricity KWh 12000 5.683

2 Water m3 150 1.5

Total 7.183

V. TECHNOLOGY AND ENGINEERING

A. TECHNOLOGY

1. Production Process

The main processing steps in the manufacture of ground coffee are blending, roasting, grinding

and packing. Green coffee is cleaned of string, lint, dust, hulls and other foreign matter.

Roasting: - Coffee from different varieties or sources are usually blended before or after

roasting in order to achieve good taste coffee as well as low cost production.

Roasting by hot combustion gases in roasting cylinders requires 8-15 min. The bean charge

absorbs heat at a fairly uniform rate and most moisture is removed during the first two-thirds of

this period. As the temperature of the coffee increases rapidly during the last few minutes, the

beans swell and unfold with a noticeable cracking sound, like that of popping corn, indicating a

reaction change from endothermic to exothermic. This stage is known as development of the

roast. The final bean temperature, 200-220ºc, is determined by the blend, variety, flavor

development desire. A water or air quench terminates the roasting reaction. Most, but not all, of

any added water is then evaporated.

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The bean temperature, correlated to the color of ground coffee measured by a photometric

reflectance instrument, determines the quench end point of a roast. At the final bean

temperature, the firing shuts down automatically, followed by water spraying for a timed period

and finally, discharge of the coffee.

Air must be circulated through the beans to remove excess heat before the finished and

quenched roasted coffee is conveyed to storage beans. Residual foreign matter. Such as stones

and tramp iron, which may have passed through the initial green coffee cleaning operation,

must be removed before grinding. This is accomplished by an air lift adjusted to such a high

velocity that the roasted coffee beans are carried over into bins above the grinders, and heavier

impurities left behind. The coffee beans flow by gravity to mills where they are ground to the

desired particle size.

Grinding: - roasted coffee beans are ground to improve the extraction efficiency in the

preparation of the beverage. Particle size distributions ranging from about 1100µm average

(very coarse) to about 500µm average (very fine) are tailored by the manufacturer to the

various kinds of coffee makers used in house holds, hotels, restaurants and institutions. Coffee

is ground in mills that use multiple steel cutting rolls to produce the most desirable uniform

particle size distribution. After passing through cracking rolls, the broken beans are fed

between two or more rolls, one of which is cut or scored longitudinally, the other,

circumferentially. The paired rolls operate at differential speeds to cut, rather than crush, the

coffee particles. A second pair of more finely scored rolls, installed below the main grinding

rolls and running at higher speeds, is used for finer grinds.

Packaging: - After roasting and grinding, the coffee is conveyed, usually by gravity, to

weighing and filling machines that achieve the proper fill by tapping or vibrating. The ground

coffee is vacuum packed in flexible paper bag and placed in a paperboard carton that helps

shape the bag into a hard brick form during the vacuum process. The carton also protects the

package from physical damage during handling and transportation. This type of package

provides a barrier to moisture and oxygen. The process has no any adverse impact on

environment.

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2. Source of Technology

The following firm could be a possible supplier of the required machines.

Queens land, New South Wales.

Butany Road, Green Square, NSW.

Australia 2015.

Fax: 6129692-0400.

B. ENGINEERING

1. Machinery and Equipment

The total cost of machinery and equipment is estimated at Birr 511,500, out of which Birr

485,925 will be required in foreign currency. Detailed list of machinery and equipment is

given in Table 5.1.

Table 5.1

LIST OF MACHINERY AND EQUIPMENT REQUIREMENT

Sr. Qty.

No Description (No.)

1. Coffee Roaster 1

2. Coffee Mixer 1

3. Coffee Grinder 6

4. Automatic Packing m/c 2

6. Screw Conveyor 1

7. Goose type Conveyor 1

2. Land, Buildings and Civil Works

The plant requires a total of 1000 m2 area of land out of which 500 m2 is built-up area, which

includes Processing area, raw material stock area, offices etc. Assuming construction rate of

Birr 2500 per m2, the total cost of construction is estimated to be Birr 2.5 million. The total

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cost, for a period of 80 years with cost of Birr 1 per m2, is estimated at Birr 1,000.00. The total

investment cost for land, building and civil works is estimated at Birr 2,501,000.

3. Proposed Location

According to the resource potential study of the region, the raw material is identified in Mizan

zuria,Yergacheffe, Bonga zuria, Boloso Sore , Melokoza. Based on the availability of raw

material infrastructure, utility and market out let Leha town of Melokoza woreda is selected

and recommended to be the location of the envisaged plant.

VI. MANPOWER AND TRAINING REQUIREMENT

A. MANPOWER REQUIREMENT

The coffee roasting, grinding & packing plant will create job opportunities for 15 persons. The

detailed manpower requirement and the estimated annual labour cost including fringe benefits

are given in Table 6.1. The total cost of manpower including fringe benefit is estimated at Birr

138,240.

Table 6.1

MANPOWER REQUIREMENT AND ANNUAL LABOUR COST

Sr. No.

Description Req. No.

Monthly Salary (Birr)

Annual Salary (Birr)

1 General Manager 1 1,500 18,0002 Secretary 1 600 7,2003 Quality Controller 1 700 8,4004 Personnel 1 900 10,8005 Accountant 1 700 8,4006 Sales man 1 400 4,8007 Production Supervisor 1 900 10,8008 Machine Operator and technician 3 1,800 21,6009 Production Clerk 1 400 4,80010 Store Keeper 1 500 6,00011 Purchaser 1 600 7,20012 Guard 2 600 7,200 Total 15 11,700 115,200 Employees’ Benefit (20% of Salary) 2,340 23,040 Grand Total 14,040 138,240

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B. TRAINING REQUIREMENT

The quality controller, production supervisor, technician operators should be given on-the-job

training for a duration of two weeks by experts of the supplier of the machinery and equipment.

The estimated training cost is Birr 20,000.

VII. FINANCIAL ANALYSES

The financial analysis of the coffee roasting grinding and packing 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 3 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 4.24

million, of which 29 per cent will be required in foreign currency.

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

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Table 7.1

INITIAL INVESTMENT COST

Sr. Total Cost

No. Cost Items (‘000 Birr)

1 Land lease value 80.0

2 Building and Civil Work 2,500.0

3 Plant Machinery and Equipment 511.5

4 Office Furniture and Equipment 75.0

5 Vehicle 250.0

6 Pre-production Expenditure* 299.9

7 Working Capital 526.3

Total Investment cost 4,242.7

Foreign Share 29

* N.B Pre-production expenditure includes interest during construction ( Birr 199.89 thousand ) training (Birr

20 thousand ) and Birr 80 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 3.19 million (see

Table 7.2). The material and utility cost accounts for 77.22 per cent, while repair and

maintenance take 3.52 per cent of the production cost.

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Table 7.2

ANNUAL PRODUCTION COST AT FULL CAPACITY ('000 BIRR)

Items Cost %

Raw Material and Inputs 2,459.91 76.88

Utilities 10.77 0.34

Maintenance and repair 112.5 3.52

Labour direct 103.68 3.24

Factory overheads 34.56 1.08

Administration Costs 46.08 1.44

Total Operating Costs 2,767.50 86.49

Depreciation 257.65 8.05

Cost of Finance 174.59 5.46

Total Production Cost 3,199.74 100

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.

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2. Break-even Analysis

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

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

BE = Fixed Cost = 31 %

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 5 years.

4. Internal Rate of Return and Net Present Value

Based on the cash flow statement, the calculated IRR of the project is 19 % and the net present

value at 8.5% discount rate is Birr 2.25 million.

D. ECONOMIC BENEFITS

The project can create employment for 15 persons. In addition to supply of the domestic

needs, the project will generate Birr 1.34 million in terms of tax revenue.