Emu farming

Date: 1st September 2010

Final Project

In partial fulfilment of the requirements of the course

“Project Management" of MBA (Full Time)

Submitted To:-

Prof. H.K. Shrivastav

Submitted By:-

Tanesh Gagnani

Roll No. 081121

Introduction......................................................................................................................................2

Emu..............................................................................................................................................2

What is Emu Farming..................................................................................................................3

Why Emu Farming......................................................................................................................3

Scale proposed for Start-up.........................................................................................................3

Resources Required.........................................................................................................................3

Cost of Building and interiors......................................................................................................7

Rationale........................................................................................................................................10

Why I am choosing Emu Farming.............................................................................................10

Industry outlook.........................................................................................................................10

Establishing....................................................................................................................................11

Operational Process.......................................................................................................................12

Cash Flow Projections and Break-Even Analysis Money is not raised through loan...................14

Only Eggs are sold.....................................................................................................................14

Eggs and meat both are sold......................................................................................................16

Cash Flow Projections and Break-Even Analysis Money is raised through loan and further refinanced by NABARD................................................................................................................18

Only Eggs are sold.....................................................................................................................18

Eggs and Meat are sold..............................................................................................................20

Risks..............................................................................................................................................21

Risk Assessment........................................................................................................................21

Exit Strategy..................................................................................................................................22

Introduction

Emu

The Emu, Dromaius novaehollandiae, is the largest bird native to Australia and the

only extant member of the genus Dromaius. It is also the second-largest extant bird in the world

by height, after its ratite relative, the ostrich. The soft-feathered, brown, flightless birds reach up

to 2 metres (6.6 ft) in height. It can survive in almost any climate; it has very strong immune

system which means it requires very little care.

Emus are birds of very docile and calm nature and live in flocks with a flock size ranging

between 16 to 20 Emus. In captivity it is prescribed that each bird should have a minimum area

of 400 to 500 sq Ft. Emus breed mostly in monogamous pairs with 1 male for 1 female. In some

rare cases the ratio may go up-to 1 male for 2 females. Emus live for about 45-50 years.

What is Emu Farming

Emu farming is a branch of poultry in which Emus are domesticated and farmed; much like

farming of chickens. Only differentiating factor in my opinion is though chickens are farmed for

direct consumption i.e. for their meat and eggs which are consumed and their consumption is

very common whereas Emu derivatives have mostly medicinal value and their meat is not very

popular, Possibly because it is not easily available.

Why Emu Farming

The main reason for considering Emu Farming is

1. Low start-up capital

2. Very high Return on Investment

3. Low risk

Scale proposed for Start-up

For start-up I would suggest a of farm with 160 birds. These 160 birds can be divided into 8

flocks which would require a total area of 2 acre or 87120 sq Ft (approx).

Resources Required

Emu farming does not require huge amount of resources, resources here have been separated into

two broad categories i.e. capital expenditures and working capital.

1. Capital Expenditures: It is the money spent on purchasing/acquiring fixed assets

a. Land: Here land is the most significant of all costs, although land required for

Emu farming is of very low quality i.e. flat baron land on which nothing grows

and on which water must not stay i.e. rain water should flow away from it. Also

there is no concern over the location of farm since Emus can survive almost any

temperature range (0°C to 52°C) only constraint is it must not be in region of

heavy rainfall or mountains/ hilly regions).

i. Cost: Absolutely baron lands can be acquired anywhere in Rajasthan,

Gujarat, western Madhya Pradesh (this is in the order of my personal

preference) will cost anywhere between Rs.1.5Lakh to Rs.1.7Lakh per

acre. We are estimating cost of land to be Rs.1.7Lakhs. The location will

be either in outskirts of a city or in a village; whichever is available.

ii. Procurement: It will be procured on the basis of my convenience

meaning how accessible it is and lowest cost land which fulfils the criteria

required will be procured.

all individual sections are of almost square shape and each of edge 101 ft

Roa

d

Flock 1 (Open area) Flock 2 (Open area) Flock 3 (Open area) Flock 4 (Open area)

211 ft total

Flock 1 (Shade) Flock 2 (Shade) Flock 3 (Shade) Flock 4 (Shade)

Internal RoadFlock 5 (Shade) Flock 6 (Shade) Flock 7 (Shade) Flock 8 (Shade)

Flock 5 (Open area) Flock 6 (Open area) Flock 7 (Open area) Flock 8 (Open area)

422 ft total

Floor plan of Emu Farm (Building is not shown)

b. Land Improvement: land will be divided into 8, each of which will house one

flock of Emus.

i. Fencing: A 6’ high and 1870 ft long meshed fencing would be required to

fence entire farm. Fence’s purchase and installation cost I am estimating to

be Rs. 100000.

ii. Shelter (Shade): Emu will need shelter to protect them from rain. I will

be installing a shade made of thick cloth and plastic which is flexible.

Shade here will be 10 feet wide and spread across the length of farm. Total

material required will be about 8500 sq ft. Here again purchase and

installation cost I am assuming to be Rs. 100000.

Land ImprovementObject Cost dimensions

Fencing 100000 6' high and total length 1860 ftShade 100000 total area 1840 sq ft

c. Emu Chicks: I will be purchasing a total of 160 Emu chicks which are currently

sold in the market at Rs. 1200 per chick. They can be bought from nearest Emu

farm. Total expenditure on procurement of Emu chicks will be Rs.192000 only.

Particulars Cost ParticularsEmu Chicks 192000 160 Emu chicks @ 1200/chick

d. Building and interiors: Building space can be divided into two categories

i. Office Space: Office space required will be very less but for my own

convenience I would like it to be of dimensions 12’x12’.

ii. Personal Space: There will be times when I will be staying there for days

or weeks at a time so I will need my own kitchen, bedroom, bathroom and

toilet. The building material and interiors will be procured at prevailing

market rates.

Cost of Building and interiors

Object Cost dimensions Details

Office

Construction 72000 12'x12' Rs. 500 per sq-ft

Interiors 20000

fan, office table, 4 chair, stationary,

computer needs will be fulfilled by my own

laptop

Total 92000

Personal

Bedroom


Interiors

Bed 15000 Normal market price

TV + Tata sky 15000 Normal market price

cooler + ceiling

fan8000 Normal market price

Total 38000

Kitchen


Interiors

Stove 5000 Normal market price

utensils 2000 Normal market price

refrigerator 8000 Normal market price

total 71000

Room for

caretakers


Interiors 6000 10'x10' fan, bed, 3 plastic chairs

total 78000

toilet and

bathroomConstruction 44800 8'x8' Rs. 700 per sq-ft

Grand total 323800 676 sq ft

e. Incubators (optional depending upon the scale): For now I am not going to

install incubators but if I expand at a later stage (at least 5 years from now) we

will install incubators.

f. Training: To better understand Emu I will undergo a 5 day training following

Emu Farm organizers they will also provide me with technical information in the

form of books, CDs, etc. During training I will also gain firsthand experience.

i. Sree Sakthi Farms, 486, G.V. Residency, Sowripalayam, Coimbatore -

641 028. Telephone: 0422- 2577989/2590924 Mobile:

09363127989/098658-97989 / 098658-96969, E-mail:

[email protected]

2. Working Capital

a. Emu Feed: These Birds are Omnivorous and eat leaves, vegetables, fruits,

insects, worms. At farm mineral mixture and shell/ stone grit can be fed to them

along with sprouted desi Chana and Methi during layer season. During summer

season chopped vegetables like cabbage, carrot, beetroot, etc can be fed. They can

also be fed ‘Modified Poultry Feed’. With feed on an average costing Rs 12 a kg,

feed costs per mature emu is Rs 3,000 per year. Total expenditure on feed for 150

birds will be Rs 450000 per year.

Feed Cost2011 2012 2013 onwards

Feed Cost yearly (per Bird) 2500 3500 4000Feed Cost yearly (total) 400000 525000 600000salaries expense 210000 220000 230000

b. Vet costs: Chlorinated water is to be given and deforming is needed to be done

twice a year. No regular doctor check-up is required.

c. Caretakers: 3 care takers will be hired and their training will be done at locally

either by me or at other Emu farm. Salaries will be paid to them depending upon

region. My estimate is I would be paying them Rs 5000 per month, upon

including bonuses their total salaries would come out to be Rs 70000 per year per

person. Total expenditure on salaries will be Rs 210000 per year. Further details

are available in future cash-flow projections.

Rationale

Why I am choosing Emu Farming

Once the farm is setup it does not require complete attention all the time and if I get placement at

a non metro or preferably a small city then I will be able to operate an Emu farm while working

elsewhere also. The birds are low maintenance having a long life during which period they

contribute more than 27 lakhs in eggs alone. Being hardy animals they are not prone to many

diseases and have a low mortality rate.

The business apart from having a very high return on investment will also give me the flexibility

to pursue my career as a professional which will help me gain necessary exposure to run a

business if the venture turns out to be expandable.

Industry outlook

Emu farming started very late in India in 1996 with just 1 farm and now there are an estimated

over 1000 emu farms. Emu farming has picked up at a low rate in India even though it is a very

low risk and highly profitable business. There is an excellent opportunity in this business

therefore with a intent to encourage Emu farming NABARD has started a scheme to refinance

loans for Emu business at 5% interest rate.

Establishing

Find adequate site for Emu Farm

Prepare detailed report

Get Loan

Get the loan refinanced from NABARD

Procure Land and at the same time contact Emu chick suppliers

Start construct building and Prepare land: Fencing, Hardning, Shelter for Emu

Attend Training

Hire caretakers and train them

Procure Emu chicks

Operational Process

A single Emu bird lays 20 to 40 eggs in a year and hatching takes anywhere between 43-50 days.

Emu takes about 12 months to grow to full size and 18 months to reach reproduction maturity

age.

Farm may sell

1. Eggs: Rs. 1000 per egg.

2. Chick new born: Rs. 1200 per chick.

3. Emu Meat: Rs. 400-700 per Kg depending upon region.

4. Emu Fat: Rs. 1700 per Litre

5. Emu hide: Rs. 1000 per mature Emu

6. Bones, feathers, empty shells, un-hatched shells, nails, and beaks are sold depending

upon demand, prices are tough to estimate.

Farm’s decision on how many Emus to slaughter Emu, how many chicks and eggs to sell will

depend upon the number of Emus in the farm compared to maximum capacity also the mortality

Sell Emu or Emu products




Emu chicks are hatched

Regular care is done

They grow and Breed

They lay more Eggs

rate of Emus, percentage of eggs hatching. The obvious idea kept in mind for these decisions will

be to maximize profitability.

Cash Flow Projections and Break-Even Analysis Money is not raised through

loan

Only Eggs are sold

Cash Flow If Only Emu Eggs are Sold without loan

2011 2012 2013 2014 2015

Capital Expenditure

Building 395800 0 0 0 0

Land Improvement 200000 0 0 0 0

purchase of Emu

Chick 192000 0 0 0 0

Working Capital Investment Caretaker Salaries 210000 220000 230000 230000 230000

Feed 400000 525000 600000 600000 600000

Maintenance 0 0 2000 5000 5000

Misc Expense 100000 70000 50000 50000 50000

Revenue Net Sales 0

112500

0

187500

0

187500

0

187500

0

Tax Agriculture income is Tax Free

PAT -1497800 310000 993000 990000 990000

Net Cash Flow -1497800

-

1187800 -194800 795200

328300

0

Break-Even is achieved in 4th year of operations.

Here I have taken an assumption that I will not slaughter the bird. I will only sell its eggs.

Cost of building, land improvement and caretaker salaries have already been discussed in

resources required.

Feed here I have taken an assumption that when birds are young will eat less and hence

the feed cost will be less. It has not been taken very low because Emus grow very fast.

I am assuming there will be no maintenance in 1st and 2nd year of operation since

everything will be new but maintenance will be incurred 3rd year onwards.

Miscellaneous expense will be highest in 1st year of operation since business will be new

and since there will be a lot of learning from 2nd year onwards I will be able to avoid a lot

of miscellaneous expense but at 50000 it will stabilize, hence the figure Rs 100000 in 1 st

year, Rs70000 in 2nd, Rs 50000 in 3rd and 4th year.

No eggs will be produced in 1st year hence no sales.

160 Emus purchased 10 will not survive till 2nd year.

During 2nd year eggs are only produced at an average rate of about 15 eggs per Emu (pair)

and since each egg is sold for Rs 1000 the total is Rs 1125000.

From 3rd year onwards eggs will be produced at an average rate of about 25 eggs per Emu

(pair) and since each egg is sold for Rs 1000 the total is Rs 1875000.

As already written agriculture income is tax free, this will be a huge advantage.

Eggs and meat both are sold

Eggs and Meat both are sold Without Loan

2011 2012 2013 2014 2015

Capital

Expenditure

Building 395800 0 0 0 0

Land Improvement 200000 0 0 0 0

purchase of Emu Chick 192000 0 0 0 0

Working

Capital

Investment

Caretaker Salaries 280000 293000 293000 293000 293000

Feed 400000 525000 600000 600000 600000

Maintenance 0 0 2000 5000 5000

Misc Expense 100000 70000 50000 50000 50000

Sales

Meat 0 750000 750000 750000 750000

Eggs 0 975000 975000 975000 975000

Fat 0 225000 225000 225000 225000

Hide 0 75000 75000 75000 75000

Everything Else 0 112500 112500 112500 112500

Total Sales 0

213750

0

213750

0

213750

0

213750

0

Tax Agriculture income is Tax Free

PAT

-

1567800

124950

0

119250

0

118950

0

118950

0

Net Cash Flow

-

1567800 -318300 874200

206370

0

325320

0

Here break-even is achieved in 3rd year of operations.

Here I have assumed that I will from second year onwards I will slaughter only half the

birds.

The only additional expense here is hiring of a butcher, I have estimated his salary to be

Rs 5000 per month, upon including bonuses his cost to farm will be Rs 70000 per year

for 1st year and Rs 73000 from second year onwards.

Fat derived from every bird will average out to be of Rs. 3000.

Meat selling price I have taken a conservative estimate of Rs 500 per Kg and assuming

each bird will provide 20Kg of meat.

Hide is sold for Rs. 1000 per bird.

Everything else bones, feathers, empty shells, un-hatched shells, nails, and beaks I have

assumed will be sold for Rs 1500 per bird which is a conservative estimate.

Of every 15 eggs produced 13 will be sold and 2 will be hatched to replace slaughtered

birds.

Cash Flow Projections and Break-Even Analysis Money is raised through

loan and further refinanced by NABARD

Only Eggs are sold

Loan Details

Particulars%

approvedTotal

Amount Approved amount Interest Rate

Loan approved by cooperative bank 80% 2972800 2378240 12%Loan approved for

Refinancing by NABARD 60% 2378240 1426994 5%

Cost of DebtParticulars Interest rate Weight

Cooperative bank 12.00% 0.4NABARD 5.00% 0.6

Cost of Debt 7.80% 1

Annual Loan Payments Rs. 3,06,799.57

Particulars 2011 2012 2013 2014 2015 2016 2017

Capital Expenditure

Building 395800 0 0 0 0 0 0Land Improvement 200000 0 0 0 0 0 0purchase of Emu Chick 192000 0 0 0 0 0 0

Working Capital

Investment

Caretaker Salaries 210000 220000 230000 230000 230000 230000 230000Feed 400000 525000 600000 600000 600000 600000 600000Maintenance 0 0 2000 5000 5000 8000 8000Misc Expense 100000 70000 50000 50000 50000 50000 50000

Revenue Net Sales 0112500

0187500

0187500

0 1875000 1875000 1875000Tax Agriculture income is Tax Free

LoanLoan Issued

1426944 0 0 0 0 0 0

Loan Repayment 0-

3,06,800 -3,06,800-

3,06,800-

3,06,800-

3,06,800-

3,06,800

Profits and Cash Flow

PAT-

1497800 310000 993000 990000 990000 987000 987000

Cash Flow -70856 3,2006,86,20

06,83,20

0 6,83,200 6,80,200 6,80,200

Net Cash Flow -70856 -67655.6618544.

9130174

519,84,94

626,65,14

633,45,34

7 Here loan is taken for 7 years from a cooperative bank. In case of Emu farms prevailing

market rate for loans is 12%. It is estimated (conservative) that I will be able to get loan on 80% of the net capital

expenditure and working capital needs. It is estimated (conservative) that I will be able to get 60% of the loan refinanced through

NABARD. Rest of the estimates and explanations are same as in section ‘only eggs are sold section

of Cash Flow Projections and Break-Even Analysis Money is not raised through loan’.

Eggs and Meat are sold

Eggs and Meat both are sold without Loan2011 2012 2013 2014 2015 2016 2017

Capital Expenditure

Building 395800 0 0 0 0 0 0Land Improvement 200000 0 0 0 0 0 0purchase of Emu Chick 192000 0 0 0 0 0 0

Working Capital

Investment

Caretaker Salaries 280000 293000 293000 293000 293000 293000 293000Feed 400000 525000 600000 600000 600000 600000 600000Maintaince 0 0 2000 5000 5000 8000 8000Misc Expense 100000 70000 50000 50000 50000 50000 50000

Sales

Meat 0 750000 750000 750000 750000 750000 750000Eggs 0 975000 975000 975000 975000 975000 975000Fat 0 225000 225000 225000 225000 225000 225000Hide 0 75000 75000 75000 75000 75000 75000Everything Else 0 112500 112500 112500 112500 112500 112500

RevenueTotal Sales 0 2137500 2137500 2137500 2137500 2137500 2137500Tax Agriculture income is Tax Free

LoanLoan Issued 1426944 0 0 0 0 0 0Loan Repayment 0 -3,06,800 -3,06,800 -3,06,800 -3,06,800 -3,06,800 -3,06,800

Profits and Cash Flow

PAT -1567800 1249500 1192500 1189500 1189500 1186500 1186500Cash Flow -140856 9,42,700 8,85,700 8,82,700 8,82,700 8,79,700 8,79,700Net Cash Flow -140856 801844 1687544 2570245 3452945 4332646 5212346

Here loan is taken for 7 years from a cooperative bank. In case of Emu farms prevailing market rate for loans is 12%.

It is estimated (conservative) that I will be able to get loan on 80% of the net capital expenditure and working capital needs.

It is estimated (conservative) that I will be able to get 60% of the loan refinanced through NABARD.

Rest of the estimates and explanations are same as in section ‘eggs and meat are sold section of Cash Flow Projections and Break-Even Analysis Money is not raised through loan’.

Here it can be clearly seen that taking a loan and getting refinanced and raising the bird for meat and eggs both is the most profitable option. I am going to implement that option.

Risks Budget overshoot: The cost estimates given for constructing building may overshoot.

o Since I will investing most of the money by raising loan and considering the

very high ROI and knowing my own capacity I will be able to bear some extra cost.

Contractors leaving: Contractors contracted for construction of building and land improvement may ask for more money or may leave the job unfinished.

o In this case project will be delayed

Emus may die of disease: This is a very high risk which can kill the entire project.o This is highly unlikely since Emus have very strong immune system.

Caretakers may Quit: It’s a low skill job so new caretakers can be hired and trained within a week.

o New caretakers will be hired and trained on the job by me.

I may fail as a Manager: I may not have the heart to make money out of slaughter of Emus.

o If this happens then nothing can be done besides selling off the business.

Risk Assessment

Risk Event Likelihood

Impact

Detection Difficulty

When Risk Value

Budget overshoot

4 3 2 implementation 24

Contractors leaving

3 3 3 implementation 27

Emus may die of disease

1 5 3 Start 15

Caretakers may Quit

2 3 4 anytime 24

I may fail as a Manager

2 5 2 Post-implementation

20

There is actually very little risk involved with this and this is one of the biggest reasons of me being attracted towards this business.

Exit StrategyI will sell off the entire business piece by piece. All of the money invested will be recovered and more by this method if it happens after 2 years of procurement of Emu chicks. if not then I will somehow sustain the business for 2 years and then quit.

Each pair of breeding Emus are sold for anywhere between Rs.40000 to Rs. 45000. Therefore total money recovered by selling Emus will be 33.75Lacs upon taking conservative estimate of Rs 40000 per pair.

I will still make profit. All I have to do is keep the birds alive.

Emu farming

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