199. PROFILE ON THE PRODUCTION OF

NIGER SEED OIL

199-2

TABLE OF CONTENTS

PAGE

I. SUMMARY 199-3

II. PRODUCT DESCRIPTION & APPLICATION 199-3

III. MARKET STUDY AND PLANT CAPACITY 199-4

A. MARKET STUDY 199-4

B. PLANT CAPACITY & PRODUCTION PROGRAMME 199-7

IV. MATERIALS AND INPUTS 199-8

A. RAW & AUXILIARY MATERIALS 199-8

B. UTILITIES 199-8

V. TECHNOLOGY & ENGINEERING 199-9

A. TECHNOLOGY 199-9

B. ENGINEERING 199-10

VI. MANPOWER & TRAINING REQUIREMENT 199-12

A. MANPOWER REQUIREMENT 199-12

B. TRAINING REQUIREMENT 199-12

VII. FINANCIAL ANLYSIS 199-13

A. TOTAL INITIAL INVESTMENT COST 199-13

B. PRODUCTION COST 199-14

C. FINANCIAL EVALUATION 199-15

D. ECONOMIC BENEFITS 199-16

199-3

I. SUMMARY

This profile envisages the establishment of a plant for the production of niger seed oil

with a capacity of 240 per annum.

The present demand for the proposed product is estimated at 83,000 tonnes per annum.

The demand is expected to reach 128,995 tonnes by the year 2020.

The plant will create employment opportunities for 38 persons.

The total investment requirement is estimated at Birr 6.06 million, out of which Birr 2.85

million is required for plant and machinery.

The project is financially viable with an internal rate of return (IRR) of 25% and a net

present value (NPV) of Birr 4.16 million, discounted at 8.5%.

II. PRODUCT DESCRIPTION AND APPLICATION

Nigerseed oil has high oleic acid content. It is non drying and has a specific gravity (at

15o c) 0.911. The oil is mainly used for cooking. The by-product of Nigerseed oil

processing is expeller cake which is left from expeller press. Its major use is as animal

feed.

199-4

III. MARKET STUDY AND PLANT CAPACITY

A. MARKET STUDY

1. Past Supply and Present Demand

Niger seed in Ethiopia is widely grown by smallholder farmers on fragmented land

holdings. It is the leading oil crop in production and area coverage in the oil seeds

category.

Niger seed in Ethiopia is cultivated mainly for the production of edible oil and direct

consumption fried and mixed with sunflower seed. The pressed cake from oil extraction

is used for livestock feed especially in and around cities and large fattening and dairy

farms.

The country’s requirement for edible oil has been met through domestic production and

imports. The apparent consumption of edible oil, comprising both domestic production

and import is shown in Table.3.1.

Table 3.1

THE SUPPLYOF EDIBLE OIL (IN TONNES)

Year Domestic % share Import %

share

Total

2000 6,579 8.50 70,789 91.5 77,368

2001 6,637 21.12 24,785 78.9 31,422

2002 8,329 19.59 34,196 80.4 42,525

2003 7,993 26.40 22,283 73.6 30,276

2004 8,027 6.18 121,812 93.8 129,839

2005 6,931 7.79 82,014 92.2 88,945

Average 7,416 15 59,313 85 66,729

Source: CSA, Statistical Abstract and Customs Authority, External Trade Statistics

199-5

During the period 2000-2005, the maximum total supply (apparent consumption) of

edible oil to the local market was 129,839 tonnes (year 2004), while the minimum

30,276 tonnes was registered in year 2003. In the remaining years, apparent consumption

was fluctuating between these two extremes, around a mean figure of 66,729 tonnes.

During the period under consideration, the bulk of the total supply comes from import on

average accounting for 85% of the total supply.

Given the fluctuating nature of the historical apparent consumption, it is assumed that

assumed that the average of the last three years, i.e., about 83,000 tonnes, fairly

approximate the current effective demand for edible oil.

2. Projected Demand

The demand for edible oil is influenced mainly by urbanization (and the consequent

change in taste) and income. Assuming modest growth in income, a growth rate of 3.45%

(i.e., an average of the total and the urban population growth rates) is considered in

projecting the demand for edible oil (see Table 3.2).

199-6

Table 3.2

PROJECTED DEMAND FOR NIGER SEED OIL (TONNES )

Market

Share

Year

Total

Projected

Demand

Existing

Factories

Envisaged

Plant

2008 85,864 7,416 78,448

2009 88,826 7,416 81,410

2010 91,890 7,416 84,474

2011 95,060 7,416 87,644

2012 98,340 7,416 90,924

2013 101,733 7,416 94,317

2014 105,243 7,416 97,827

2015 108,873 7,416 101,457

2016 112,630 7,416 105,214

2017 116,515 7,416 109,099

2018 120,535 7,416 113,119

2019 124,694 7,416 117,278

2020 128,995 7,416 121,579

3. Pricing and Distribution

The current retail price of imported edible oil ranges from Birr 12 to Birr 15 per litre.

And the average retail price for locally produced edible oil is Birr 12 per litre. Allowing

for wholesale and retail margin, the envisaged plant is expected to sale its product at Birr

7 per litrer. The factory gate price for oil cake is Birr 80 per quintal. The product is

currently distributed through wholesale-retail network. The envisaged plant can use the

existing network, which includes department stores, merchandise shops and supermarkets

to distribute its product.

199-7

B. PLANT CAPACITY AND PRODUCTION PREGRAMME

1. Plant Capacity

The annual production capacity of the envisaged plant is 240 tones of Nigerseed oil,

based on 300 working days per annual. The press section and refinery are operated in

Sigel shift and three shifts, respectively.

2. Production Programme

Table 3.3 indicates the production program of the project. At the initial stays of the

production period, the plant requires some years to penetrate the market. Therefore, in the

first and second year of production, the capacity utilization rate will be 70% and 90%

respectively. In the third year and then after, full capacity production can be attained.

Table 3.3

PRODUCTION PROGRAM

Sr. Production Year

No. Description 1 2 3

1 Nigerseed Oil (tonnes) 167 216 240

2 Expeller cake (tonnes) 231 297 330

3 Capacity Utilization Rate (%) 70 90 100

199-8

IV. MATERIAL AND INPUTS

A. RAW AND AUXILIARY MATERIALS

The principal raw materials of the project are nigger seed, conmen salt, caustic soda and

bleaching earth. Usually, vegetable oil is packed in 200 it barrels. Table 4.1 shows the

annual requirement and cost of these materials at full capacity production.

Table 4.1

RAW AND AUXILIARY REQUREMENT & COST MATERIALS

Sr. Cost (1000 Birr)

No. Materials Unit Qty. LC FC Total

1 Niggerseed Tonne 660 2,970 - 2,970

2 Caustic Soda Kg 2400 14.4 - 14.4

3 Bleaching earth Kg 5280 - 10.56 10.56

4 Common salt Kg 5448 4.36 4.36

5 Replacement of Drums

(200 lt) 2%

Pes 20 2.4 - 2.4

Total 2,991.16 10.56 3001.72

B. UTILITIES

Electricity, furnace oil and water are utilities of the proposed project. Table 4.2 indicates

the annual utility requirement and cost at full capacity. Process water shall be supplied by

submersible pumps installed by the project.

199-9

Table 4.2

ANNUAL UTILITIES REQUIREMENT & COST

Sr.

No.

Utility Unit Qty Cost (1000 Birr)

1 Electricity kWh 750.000 355.5

2 Furnace oil Kg 49187 266.1

3 Water m3 17511 8.76*

Total 630.36

* Only water for drinking and preparation of food shall be from municipality water.

V. TECHNOLOGY AND ENGINEERING

A. TECHNOLOGY

1. Process Description

Edible oil processing is broadly classified in two groups: crude and refined oil

production. Impurities of raw nigerseed are separated by vibratory screens, pneumatic

cleaners and magnets. The cleaned oil seed is then Condi timed in a cooker with steam.

The cooked meat is then pressed to produce crude oil which shall be screened and filtered

before entering the refinery unit.

199-10

In the refinery, there exists three major consecutive operations: neutralization, bleaching

and deodorization. In the neutralizer, the free tally acid (FFA) content of crude oil shall

be lowered by adding caustic soda. The colour of oil will be adjusted in the bleacher with

bleaching earth. Finally, the constituents of oil which are responsible for the odour are

removed by the deodorization process. The final refined oil is then packed in barrels (200

its) and then dispatched for sales.

2. Source of Technology

Several machinery suppliers and manufactures can be requested for their offer. The

following company could be one of the candidates.

Henan Times Trading Com. Ltd

Tel. 0086-371-9013776

Fax. 0086-371-3812887

E-mail shang5@371.net

B. ENGINEERING

1. Machinery and Equipment

The list of machinery and equipment is indicated in Table 5.1. The total cost of

machinery is estimated at Birr 2,851,200, of which Birr 2,376,000 is required in foreign

currency.

199-11

Table 5.1

LIST OF MACHINERY & EQUIPMENT

Sr. No.

Description No

1 Libratory Cleaner 1 2 Crusher 1 3 Cooker 1 4 Expeller press 1 5 Settling tank 2 6 Hot water tank 1 7 Alkali Treatment tank 1 8 Filter press 1 9 Holding tank 1 10 Neutralization and Bleaching tank 1 11 Deodorization tank 1 12 Cooling tower 1 13 Submersible pump 1 14 Boiler 1 unit 15 Water Reservoir 1 16 Crude and Refined oil tank 2

2. Land, Building and Civil Works

The total area of the project is 5,000 m2 at which 1200 m2 is a built –up area. The cost of

building is estimated at Birr 1,800.000. The lease value of land is about Birr 400,000 at a

rate of 1 Birr per m2 year for 80 years.

3. Proposed Location

Bonnosha town has been selected at the best location for the envisaged plant, for its

proximity to major raw materials sources.

199-12

VI. MANPOWER AND TRAINING REQUIREMENT

A. MANPOWER REQUIREMENT

The list of manpower and annual labour cost are indicated in Table 6.1. The total cost of

labour is estimated at Birr 441,000.

Table 6.1

MANPOWER REQUIREMENT & LABOUR COST

Sr.

No.

Manpower

Req.

No.

Manthly Salary

(Birr)

Annual Salary

(Birr)

1 General Manager 1 3000 36,000

2 Secretary 1 800 9,600

3 Sales Officer 1 1500 18,000

4 Accountant 1 2000 24,000

5 Production and Technic head 1 2000 24,000

6 Operators 12 8400 108,800

7 Labourers 16 6400 76,800

8 Laboratory Technical 3 4500 13,500

9 Guards 2 800 9,600

Sub-total 38 29,400 352,800

Benefit (25%BS) 7,350 88,200

Total 36,750 441,000

B. TRAINING REQUIREMENT

Training of labour force could be carried out during plant erection and commissioning by

the experts of machinery suppliers. Its cost is estimated at Birr 20,000.

199-13

VII. FINANCIAL ANALYSIS

The financial analysis of the niger seed oil 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 30days

Work in progress 5 days

Finished products 30 days

Cash in hand 5 days

A. TOTAL INITIAL INVESTMENT COST

The total investment cost of the project including working capital is estimated at Birr

6.06 million, of which 19 per cent will be required in foreign currency.

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

199-14

Table 7.1

INITIAL INVESTMENT COST

Sr. Total Cost

No. Cost Items (‘000 Birr)

1 Land lease value 400.0

2 Building and Civil Work 1,800.0

3 Plant Machinery and Equipment 2,851.2

4 Office Furniture and Equipment 75.0

5 Vehicle 450.0

6 Pre-production Expenditure* 339.6

7 Working Capital 594.6

Total Investment cost 6,060.4

Foreign Share 19

* N.B Pre-production expenditure includes interest during construction (Birr 264.61 thousand) training

(Birr 20 thousand) and Birr 55 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 4.76

million (see Table 7.2). The material and utility cost accounts for 76.28 per cent, while

repair and maintenance take 1.68 per cent of the production cost.

199-15

Table 7.2

ANNUAL PRODUCTION COST AT FULL CAPACITY ('000 BIRR)

Items Cost %

Raw Material and Inputs 3,001.72 63.04

Utilities 630.36 13.24

Maintenance and repair 80.0 1.68

Labour direct 211.68 4.45

Factory overheads 88.2 1.85

Administration Costs 141.12 2.96

Total Operating Costs 4,153.08 87.22

Depreciation 397.62 8.35

Cost of Finance 211.1 4.43

Total Production Cost 4,761.80 100

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.

199-16

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 = 30 %

Sales – Variable Cost

3. Pay Back Period

The investment cost and income statement projection are used to project the pay-back

period. The project’s initial investment will be fully recovered within 4 years.

4. Internal Rate of Return and Net Present Value

Based on the cash flow statement, the calculated IRR of the project is 25 % and the net

present value at 8.5% discount rate is Birr 4.16 million.

D. ECONOMIC BENEFITS

The project can create employment for 38 persons. In addition to supply of the domestic

needs, the project will generate Birr 2.84 million in terms of tax revenue. The

establishment of such factory will have a foreign exchange saving effect to the country by

substituting the current imports.