Project Proposal for Avocado Production,

Processing for Oil Extraction and Marketing

The project is unique as it integrates Mult-Level approach for Avocado Value Chain Development in
Andrecha Wereda of Shecka Zone, SNNPR- encompassing the efficient PRODUCTION (own Farming
and using outgrowers scheme), PROCESSING (avocado oil extraction) and MARKETING (delivering
avocado oil and semi-processed fresh avocados for the local & export markets).

By: Andrecha Agricultural

Activities PLC

Presented to: Sheka Zone

Investment Bureau

September 2021
Project Proposal for Avocado Production, Processing and Marketing Andrecha Wereda, 2021

Contents
0. Executive Summary ......................................................................................................................... 5
1. Background ......................................................................................................................................... 6
1.1. Avocado farming in Ethiopia ..................................................................................................... 6
1.2. Avocado Fruit and Oil Extraction ............................................................................................ 7
2. Company Summary ......................................................................................................................... 8
2.1. Vision ............................................................................................................................................. 8
2.2. Mission .......................................................................................................................................... 8
2.3. Products & Services ................................................................................................................. 9
2.4. Keys to Success ......................................................................................................................... 9
3. Purpose of the Project ..................................................................................................................... 9
4. Socio-economic Benefits .............................................................................................................. 10
5. Market Analysis................................................................................................................................ 10
5.1. Past Supply and Present Demand ........................................................................................ 11
5.2. Demand Consideration ............................................................................................................. 11
5.2.1. Population size and its growth ....................................................................................... 11
5.2.2. Economic growth and rise in disposable Income.................................................... 11
5.2.3. Urbanization Trend ............................................................................................................. 12
5.2.4. Awareness in Nutrition, Health, and Personal care factors ................................ 13
5.3. Apparent consumption method of Determining Demand ............................................ 14
5.3.1. Apparent consumption of Avocado Fruit .................................................................... 14
Table: Production of Avocado Fruit in Ethiopia (2016/17 -2019/20) .............................. 15
Table: Imports of Cosmetic products in Ethiopia .................................................................... 16
5.4. Demand Projection for Cosmetic products ........................................................................ 16
Table: Projected Demand covered by import (Birr) ............................................................... 17
5.5. Supply and Demand Gap for Avocado Oil ......................................................................... 17
5.6. Marketing Strategy ..................................................................................................................... 18
5.7. Sales strategy .............................................................................................................................. 19
6. SWOT Analysis ................................................................................................................................. 19

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7. Organizational Structure .............................................................................................................. 20

8. Technical Study ............................................................................................................................... 21
8.1. Specific Project Area Description .......................................................................................... 21
8.2 Land Size, Building Layout and Estimated Cost ............................................................... 22
8.2.1 Land Plot Area ....................................................................................................................... 22
8.2.2 Built-up Area and Layout .................................................................................................. 22
8.2.3 Estimated Construction Cost ............................................................................................ 23
8.3 Machinery and Equipment ........................................................................................................ 23
Component I: Avocado Farm Plantation Machinery and Equipment ................................ 24
Component II: Avocado Oil Manufacturing plant Machinery and Equipment ............... 25
Table: Oil Extraction Machineries and Equipment ................................................................... 25
8.4 Motor Vehicles ............................................................................................................................... 26
Table: Type, Purpose and Cost of Motor Vehicles and forklift ............................................ 26
8.5 Raw Materials Consumption ..................................................................................................... 27
8.5.1 Avocado Farm ........................................................................................................................ 27
Table: Raw Material Required for the Farm ............................................................................... 27
8.5.2 Avocado Oil Manufacturing Plant .................................................................................... 27
Table: Materials and inputs requirement and cost for oil processing plant .................. 28
Table: Total Costs of sales for the whole project .................................................................... 28
9. Description of Production Processes ........................................................................................ 28
9.1. Agricultural Operation ............................................................................................................... 28
9.1.1. Community Farming (60%) ............................................................................................ 28
9.1.2. Self-production (40%): .................................................................................................... 30
9.2. General Description of Complete Plant ........................................................................... 32
9.2.1. Final Product-Codex Standards ..................................................................................... 35
9.2.2. The market for avocado oil ............................................................................................. 35
10. Production Capacity & Production Programme ................................................................. 36
10.1. Farm Size & Plant Capacity .................................................................................................. 36
Table: Farm Capacity .......................................................................................................................... 36
Table: Oil processing capacity at Full capacity 24hrs/day ................................................... 36

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Project Proposal for Avocado Production, Processing and Marketing Andrecha Wereda, 2021

10.2. Production Programme ........................................................................................................... 36

Table: Farm production programme ............................................................................................. 37
Table: Oil processing production programme ........................................................................... 37
11. Implementation Schedule ......................................................................................................... 37
12. Environmental Impact ............................................................................................................... 38
12.1. Safeguarding the Environment ........................................................................................... 38
12.2. Security and Safety Facilities............................................................................................... 40
13. Financial Analysis ......................................................................................................................... 41
Table: Utilities........................................................................................................................................ 41
Table: Machineries requirement ..................................................................................................... 41
Table: Cost of Building & construction ......................................................................................... 41
Table: Vehicles ...................................................................................................................................... 42
Table: Fixed Assets.............................................................................................................................. 42
Table: Depreciation ............................................................................................................................. 42
Table: Repair and maintenance costs based on the standard rate .................................. 42
Table: Revenue ..................................................................................................................................... 43
Table: personnel plan ......................................................................................................................... 43
Table: Cost of sales (per year) ................................................................................................... 44
Table: operating expenses ............................................................................................................... 44
Table: Annual Operating Costs ....................................................................................................... 45
Table: Working Capital Determination ......................................................................................... 45
Table: Planned Investment for the whole project ................................................................... 45
Table: Sources of finance.................................................................................................................. 45
Table: Loan Repayment Schedule ................................................................................................. 46
14. Financial Evaluation ..................................................................................................................... 48
14.1. Profitability .............................................................................................................................. 48
14.2. Break-Even Analysis ............................................................................................................ 49
14.3. Payback period ...................................................................................................................... 49
14.4. Internal rate of return and net present value ........................................................... 49

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Project Proposal for Avocado Production, Processing and Marketing Andrecha Wereda, 2021

0. Executive Summary
This project proposal is prepared with the objective of starting up a Multi-
Level Agricultural Value Chain Development project for the Efficient
Production, Processing & Marketing of Avocados in Andrecha Wereda of
Sheka Zone, SNNPR. The project is owned and operated by Andrecha
Agricultural Activities PLC, a new Company formed by five local
entrepreneurs.

Phase by phase, the project intends to operate in the three IMPORTANT

areas of avocado value chain development- constituting (1) PRODUCTION
(Own Farming and using Out-Growers Scheme); (2) PROCESSING (Virgin
Avocado Oil Extraction) and (3) MARKETING (delivering Avocado Oil and
Semi-Processed Fresh Avocados for the Export Market). Our market study
suggested that there is a huge demand for the company’s products both
domestically and on the international market.

The total area of land required for the project, when it starts operating at full
capacity, is estimated to reach 1,000 Hectares. However, for this first phase
operation, a plot of 300 Hectares land shall be sufficient, serving Avocado
Farming area, Industrial area, and residential area.

In order to supply the bulk raw material needs of the Company’s Oil
Extraction Plant, which has a capacity of processing 8,640.00 tonnes of
avocados per annum, in this first phase implementation, the project shall
operate a farm with a capacity of 3,600.00 tonnes per annum and uses out
grower scheme to supply the remaining 5,040.00 tonnes per annum.

As such, the first phase operation of the project will NOT ONLY create direct
employment opportunities for 269 persons to be employed in the plantation
and processing facilities, BUT ALSO shall participate about 280 out grower
farm households, from the local communities, on a contract farming
arrangement.

The total investment requirement is estimated at Birr 54,122,061.14, out of

which birr 16,236,618.34 (30%) will be covered by the owner's equity and
the remaining birr 37,885,442.80 (70%) will be financed by bank loan.

The project is financially viable with an internal rate of return (IRR) of

71.13% and a net present value (NPV) of Birr 71.04 million discounted at
10%.

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Project Proposal for Avocado Production, Processing and Marketing Andrecha Wereda, 2021

1. Background
Ethiopia is predominantly an agriculture country. About 40% of the Gross
Domestic Product and 90% of the Crop sector predominates the agricultural
sector. Besides, nearly 86% of the active rural labour force is engaged in
agriculture.

The Fruits & Vegetables sub-sector is important in the rural economy

because of its contribution to the value addition and diversification of income
generation and foreign exchange inflows to the country.

Ethiopia has a fairly well distributed rainfall and moderate temperature that
allows Production of a variety of tropical and sub-tropical fruits and
vegetables. This is complimented by fairly fertile soils which support the
production of very high quality and nutritious vegetables.

Despite relatively early establishment, the avocado industry in Ethiopia is in

its infancy and has not yet utilized the immense potential of this crop. In the
context of increasing the high value production of agricultural commodities,
fruit tree and perennial crops play an important role.

The avocado fruit is a rich source in vital nutrients and oil for cosmetics as
well as culinary purposes. Avocados are primarily grown for the fresh fruit
market, either domestic or export.

1.1. Avocado farming in Ethiopia

The avocado varieties that dominate Ethiopian production (fuerte and hass)
are suitable for avocado oil extraction and processing. This project report
describes the process of establishing an avocado Farm and oil processing
plant in Andrecha Wereda of Sheka Zone, SNNPR.

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Project Proposal for Avocado Production, Processing and Marketing Andrecha Wereda, 2021

Avocado is a fruit from a tree that has a variable growth and development,
reaching a height of 10 to 12 meters in its natural habitat Avocado trees
may grow at different altitudes. Such habitat is classified as subtropical-
tropical. The tree has a ligneous trunk that can reach up to 80 cm to 1 m in
diameter in trees that are 25 to 30 years old (raceme), that can be axillaries
or terminal.

Avocado trees can be seeded or grafted. The seeded trees produce fruit after
approximately 8 years and grafted trees, being the most common
propagation method, produce fruit after only 2 years. Besides the longer
juvenile period, the seeded trees also have a larger risk of losses in yield and
quality. The avocado trees could need irrigation during dry periods but not
during rain seasons.

In general, fruit production is still backward. However, CSA (2013) indicated

Avocado as one of the second potential fruit crop produced in Ethiopia, next
to Bananas.

1.2. Avocado Fruit and Oil Extraction

The avocado fruit has many varieties differing in sizes, forms and
compositions of the fruit.

The fruit is pear-shaped and average weight range from 60g to 700g. The
pulp averages from 60% to 75% according to the cultivar. The oil is
contained in the cells of the fruit pulp. The oil content may also vary widely.
The oil content ranges from 8%-10% depending on the location of the farm
and the fruit ripening stage.

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Project Proposal for Avocado Production, Processing and Marketing Andrecha Wereda, 2021

2. Company Summary

Andrecha Agricultural Activities PLC is formed by the alliance of successful

entrepreneurs operating in complementary business sectors. Founders of the
Company are local Businessmen who have demonstrated their leadership
skills in their respective fields of specialization and who are knowledgeable of
the prevailing business opportunity.

The Company is established in Andrecha Wereda of SNNPR to operate in the

Agricultural Value Chain Development- participating in the production,
processing and marketing of different agricultural products.

2.1. Vision

Becoming a Multi-National Agri-Business Company, specializing in the

production, processing and marketing of different kinds of agricultural
products

2.2. Mission
Our mission is excelling in satisfying our customers’ needs in our core areas
of competence and; add value for our stakeholders and the SOCIETY. The
strategy developed by the company on this purpose includes a series of key
directions meant to ensure world class productivity in innovation, R&D,
increased external collaboration, stronger customer orientation and
operational efficiency with a flexible cost bases.

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2.3. Products & Services

Products planned to be delivered by Andrecha Agricultural Activities PLC,
through multiple phases of this avocado value chain development project,
include:
 Production: Avocado Farming and promoting outgrowers scheme to
produce avocados by small holder farmers,
 Processin: Virgin avocado oil cosmmetic product and
 Marketing: delivering avocado oil and semi-processed fresh avocados
for the export market).

2.4. Keys to Success

The keys to success for Andrecha Agricultural Activities PLC are:

 Ensure maximum operational efficiency by nominating, training and

employing the best talents in farming technologies, engineering,
marketing, business development & management teams;
 Establishing and maintaining working relationships and contractual
agreements with our direct customers and distributers;
 Ensure a world class productivity through innovation and extensive
work on external collaboration & global orientation

3. Purpose of the Project

The primary aim of this report is to present the viability of the proposed
Avocado Farm and oil processing plant establishment. This report primarily
considers the business case for production of Extra Virgin cold pressed avocado
oil in this first phase establishment plan.

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Further in subsequent phases, the plan of this project is to increase the

competitiveness of avocado exports from Ethiopia by investing in Production
and packaging of value added (minimally processed) fresh avocados, packed in
consumer retail packs and exploiting the currently high demand of organic and
fair traded fruit products from Ethiopia.

The project has the following specific objectives:

 To produce high quality avocado fruits using own farm and out-
growers scheme
 To establish an avocado oil processing facility to deliver high quality
cosmetic product for local and international markets
 To supply semi- processed fresh avocados to local and export market

4. Socio-economic Benefits

In addition to making profits for the Company’s shareholders, socio-

economic benefits of the project include:
 Creates additional job opportunities in the region,
 Transfers knowledge to the surrounding farmers
 Generates additional foreign currency to the country and
 Contributes to the development of the region.

5. Market Analysis
This section examines the market prospect focusing on aspects of domestic
demand situations for avocado fruit and cosmetic products & existing local
supply levels, market prospect in light of the demand-supply gap and
potential prominent customers, price analysis, as well as marketing and
promotion strategies.

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5.1. Past Supply and Present Demand

The demand for avocado in the country is mainly met through local
production. The country also exports fresh avocado mainly to Djibouti and
Yemen.

On the other hand, the country imports a variety of cosmetics from abroad.
Nevertheless, the quantity of canned avocado oil imported to the country
could not be known due to problem of data aggregation.

5.2. Demand Consideration

The demand for avocado fruits and personal care products in the country is
mainly influenced by the following factors:

5.2.1. Population size and its growth

With respect to demographics, Ethiopia stands out favorably from the

consumer goods demand perspective. The country’s population size currently
reads about 100 (+) million growing at 2.60% annually, standing 2nd
populous country in Africa and 14th in the world. This connotes a wide
potential market opportunities for consumer goods.

5.2.2. Economic growth and rise in disposable

Income

Consumption of food items and personal care products, being the primary
consumer goods, are highly responsive to income levels, making demand

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extremely elastic for the short run change in income. This makes agricultural
products like fruits and vegetables and personal care products to be
consumed relatively higher in low income countries like Ethiopia.

Ethiopia during the past decade has steadily registered a double-digit GDP
growth rate in real terms of 10.3% on average, which placed the country
among the top performing economies in Africa. This commendable economic
progress is attributed mainly to the policy measures and commitment of the
Government in creating conducive business environment for wider
participation of private investors in areas of top priority that include
investment in commercial farming and agro-processing industry products.

The remarkable economic growth has resulted in notable rise in disposable

income levels. In low income economics like Ethiopia, the demand for
agriculturally produced food items and industrially processed consumer
items is highly elastic to small changes in income, i.e. demand for such
products has sharply increased over the past decade in response to, inter
alia, marked rise in disposable income of the people.

5.2.3. Urbanization Trend

The increasing urbanization and emerging living pattern is evident across the
country. Ethiopia's urban population has, for instance, recently crossed the
l7 million thresholds according to national statistics.

Available survey findings indicate that the collective buying power of

Ethiopia's urban consumers in 2012/l3 amounted to about $6 billion (or Birr
95 billion), a figure set to expand by about Birr 18 billion per year. Further,

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increasing concentration of people in urban centers usually leads to

increased demand for agro-processing products.

5.2.4. Awareness in Nutrition, Health, and Personal

care factors

The nutrition, health, and personal care and treatment awareness of the
general public immensely increased in recent time due mainly to the efforts
underway by the Ministry of Health and other stakeholders. These days,
emerging living patterns together with increasing self-perception concerns
are becoming more evident in Ethiopia.

Hence, as the result of the above factors, i.e trends during the past decade
in growing population size, rapid economic growth and ensuing rise in per
capita income, urbanization rate and changes in life style apparent demand
for personal care products increased markedly, presenting immense
opportunities to the existing local factories as well as new entrants.

Ethiopia has shown strong performance and progress in economic growth,

per capita income and overall human development in recent years with
strong momentum for further growth in the years to come.

It is thus expected that the demand for varieties in food items and personal
care products will continue to grow and this in turn will induce expansion of
the agro-processing industry justifying the establishment of the proposed
farm and processing plant in Andaricha woreda of Sheka zone.

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5.3. Apparent consumption method of Determining

Demand

As discussed in the above section the local demand for personal care
products is driven by various factors inclusive of population size and it
growth rate, economic growth and rise in disposable income, urbanization
trend, awareness and changes in lifestyle. The domestic demand for
personal care is apparently met through local production and imports.

Over the past decade, both local production and imported personal care
products have been markedly increasing to take advantage of the rapidly
growing lucrative market opportunity in the sub-sector.

The recent increase in local production is mainly attributable to

improvements in technology towards improving productivity, awareness of
smallholders about the commercialization of the avocado products, the huge
private investment encouraged by the various incentives put in place by the
government for investors in high value-adding commercial farming and agro-
processing and manufacturing sectors.

5.3.1. Apparent consumption of Avocado Fruit

The domestic demand for avocado fruit is apparently met through local
production minus export of avocado fruits overseas to different countries.
Production and productivity of avocado fruit has been increasing in Ethiopia
by huge amounts over time. The table below shows the land covered by
avocado fruit, total volume of production, productivity and yearly growth
rate of total production of avocado in Ethiopia during the last four years.

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Table: Production of Avocado Fruit in Ethiopia (2016/17 -2019/20)

Year Area(Ha) Production (Qt') Prod.v Growth
2016/17 17,834.58 649,821.04 36.44 -
2017/18 18,021.13 814,317.63 45.19 25.31
2018/19 19,758.75 847,936.48 42.91 4.13
2019/20 20,907.77 1,044,919.23 49.88 23.23
Average 19,130.56 839,248.60 43.61 13.17
Source: CSA, Agricultural Sample Survey.

As revealed in the table above, land covered by avocado plant and volume of
production has steadily increased over the last four years. However, an
increment in production, 13.17% per year on average, is much higher than
the average increase in land cover by avocado fruit.

The trend implies improvements in productivity and awareness about the

importance of avocado fruit has been witnessed in Ethiopia. Generally,
production volume of avocado in Ethiopia has increased from 649.8 tons to
1,044.92 tons.

5.3.2. Apparent Consumption of Cosmetic products

The market for cosmetic products exists and also expanding. The market is
sustainable and some of the relevant raw material inputs are locally
available and handy.

Most of the currently available cosmetic products in the Country are

imported from China. However, current developmental projects in the
industry are focused largely on local production as a substitute to
importation and improving product quality and performance. Finding lower-
cost of producing the product and reducing overall costs is key.

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Large importers dominate all categories in Cosmetic products sales having

benefited from the unrestricted importation. Presently, there are only few
local manufacturers of Cosmetic products in the Country.

The quantity imported during the period 2017 - 2020 is shown in Table
below.

Table: Imports of Cosmetic products in Ethiopia

Year Value (Birr)
2017
2,037,809,713.50
2018
2,310,891,881.10
2019
2,300,882,036.20
2020
3,604,425,094.60
Sources: www.erca.gov.et

During the period under reference (2017 – 2020), import or apparent

consumption of cosmetic products exhibits substantial fluctuations from year
to year. Thus, the average annual supply during the recent four years
(2017--2020) is assumed to approximate the effective demand for the
product in year 2021. Accordingly, the present demand for the product (i.e.,
2021) is estimated at 2,563,502,181.35 Birr per annum in terms of value.

5.4. Demand Projection for Cosmetic products

Considering the growth of population and economic conditions of the

country, it can be realistically assumed that the demand for cosmetic
products will register a rapid growth in the future. However, in order to be
conservative, the demand for cosmetic products is projected to grow at rate
of 5% which is slightly higher than the growth rate of urban population.

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Accordingly, using the estimated present demand for cosmetic products as a

base and applying an annual growth rate of 5%, the projected demand for
the product is shown in the second column of the Table below.

Table: Projected Demand covered by import (Birr)

Years Value (Birr
2021
2,625,480,000.00
2022
2,756,754,000.00
2023
2,894,591,700.00
2024
3,039,321,285.00

5.5. Supply and Demand Gap for Avocado Oil

Assuming that the 20% of the total import value of cosmetic products is
attributable to oil products similar to the avocado oil envisaged by this
project, we can estimate the average value of oil cosmetic products entering
the country in the last four years (2017 – 2020), at 512,700,436.27
Birr/annum.

Our planned Factory on the other hand, in its first year operation, produces
70,690,909.09 Birr per annum. Therefore putting these numbers together, it
is estimated that our Factory can only substitute 13% of the total imported
cosmetic oils in the Country, implying that the Country is ready to absorb
many more Factories like ours.

From our market survey, there are currently only two medium scale
enterprises producing avocado oil products in the Country. Therefore
assuming the capacities of these Factories to be similar to ours, we can
estimate that local production, including ours equals 212,072,727.27 Birr

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(40% of the total import), leaving a demand gap of value 313,023,272.73

birr per annum in the year 2021.

5.6. Marketing Strategy

The Company’s marketing strategy will include the use of targeted print
media advertising and direct selling to hotels, restaurants and wholesalers.

We have positioned ourselves as a differentiated provider of the highest

quality product. The primary goal of our marketing efforts will be to
communicate this to potential customers.

Further, the company's marketing policy embraces a strategy focusing on

high product quality and efficient delivery to customers, placement/
outreach, proper advertising and promotion, and competitive prices for its
end-products.

The physical distribution channel of the personal care products industry in

Ethiopia is very simple and does not involve many intermediaries. For most
of the large and medium retail stores the manufacturers themselves
distribute using medium-sized trucks and vans. In addition, manufacturers
distribute their products to small retailers, kiosks and individual users from
their distribution stores.

The proposed Factory can use a similar distribution approach to its local
customers. Medium trucks shall mainly be used to distribute the products to
relatively remote markets, regional distribution agents and delivery for
shipment to the regional markets.

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Smaller vehicles shall be used to distribute products in the inner cities,

especially within the capital. In addition to direct sales, the company shall
use regional distributors as well as agents, to reduce capital investment
requirements and get access to an already established marketing channel.

5.7. Sales strategy

Our strategy focuses first on directly distributing our products to supermarkets in

major Cities. We will use wholesalers in other cities of Southern and central regions
of the country.

6. SWOT Analysis
The SWOT analysis provides us with an opportunity to examine the internal
strengths and weaknesses that the Company must address. It also allows us to
examine the opportunities presented to our company as well as potential threats.

Strength

 Knowledgeable and friendly team with multi-disciplinary profession

 State-of-the art Manufacturing Technology
 Established partnership with potential customers who are willing to buy our
products
 Well researched business plan and marketing plan

Weakness

 Time and cost factors associated with import of machineries and equipment
to be installed

Opportunities

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 Population growth in Ethiopia is increasing the demand for Cosmetic products

production.
 The popularity of Cosmetic products usage is growing on alarming rates even
in the rural Areas across Southern part of the country as the life style entails
a relatively more use of cosmetic products.
 Availability of Raw materials for production
 Low cost of production as well as plant for production.
 Absence of similar production facilities in Southern Ethiopia
 Very HUGE Government incentives for the manufacturing sector
 Availability of adequate work force in the market to supply our project
 Plenty of room to expand & grow in reasonably short time

Threat

• Emergence of other similar enterprises in our target market areas

• Lacking quality standard for such products, and hence quality
producers may remain unprotected.

7. Organizational Structure

Our team is our greatest ASSET. Having a strong, diverse team that we can trust
and count on is of course a guarantee that our Company will be successful!

The Company has its own Organizational Structure with the general meeting of
shareholders at the apex. The factory has different functionally related
departments. Detailed descriptions are found in the following section.

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Figure: Organizational Structure

Board of Directors/Founders

Top Manager

Operation Supervisor
Marketing &
Finance Supervisor

Admin
Finance

Operators Sales

Labourers Transport

Security Guards

8. Technical Study

8.1. Specific Project Area Description

Though the exact figures of current Avocado productions in the region is not
available, Sheka Zone has significant productions and agro-ecologically
suitable for plantation of Avocado fruit. Considering all these factors the

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farm and the plant will be located in Andaricha woreda, sheka zone of
SNNPR.

Andaricha woreda is located 1,000KMs from the capital of Hawassa, and 800
Kms from Addis Ababa while it is about l00m off the main road.

8.2 Land Size, Building Layout and Estimated Cost

8.2.1 Land Plot Area

The size of land plot for the farm and Factory is 1,000 ha, which will be
obtained via lease agreement from the concerned land bureau of Sheka zone
for ninety years.

The total lease amount is Birr 65,000.00 birr and the company will be
effected an advance payment of Birr 6,500.00. The plot area is sufficient to
accommodate all the operations of the avocado farm and factory including
smooth movement of trucks and vehicles as well as green area.

8.2.2 Built-up Area and Layout

While the biggest size of the leased land will be used for avocado farm
plantation, the built up area of all the building blocks within the factory
compound covers 1,510 m2. The breakdown of the floor area and purpose of
each building is as indicated in the following table.

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Table: Building Layout by Purpose and Floor Area

Floor Area Estimated Cost of
No Building Purpose (m2) Building
Production and packaging
1 rooms 800.00 6,640,000.00
Warehouse for raw
2 materials 250.00 2,075,000.00
Finished goods store and
3 Lab room 400.00 3,320,000.00
4 Office blocks 60.00 498,000.00
5 Total 1,510.00 12,533,000.00

8.2.3 Estimated Construction Cost

The estimated construction cost per square meter for the main building is
taken to be birr 8,300/m2, based on location of factory site, prevailing
market situation and price quotations for major building construction
materials and other inputs, as well as professional expertise of the local
engineers. Thus the total building construction costs for the new Factory
with built-up area covering 1,510m2, is estimated to amount about Birr l2.53
million.

8.3 Machinery and Equipment

Cost of machinery and equipment has been prepared separately to be

implemented in two of the first phase project components, where component
one is about machinery and equipment required for the avocado farm,

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Project Proposal for Avocado Production, Processing and Marketing Andrecha Wereda, 2021

building and office equipment, and component two will be machinery and
equipment required for the avocado oil extraction manufacturing plant.

Component I: Avocado Farm Plantation Machinery

and Equipment

The machinery and equipment required by the farm can be obtained from
Reengineering and Nazareth Tractor Assembly plant, whereas planting raw
materials like fertilizers, chemicals & seedlings, etc. could be obtained from
a number of governmental and non-governmental organizations such as
horticulture development required enterprises.

The machinery and equipment required by the envisaged avocado farm and
processing project are listed in the Table below. The total cost of machinery
and equipment is estimated at Birr 4.4 million.

Table: List of farm & plant machinery and equipment

No. Description Qty. Value, Birr
1 Tractor 110 Hp -125 HP 3
2 Disk plough 1
3 Disk Harrow of set type 1
4 Trailers 1
5 Sprayers 1
6 Generator 2
7,987,500.00
Workshop equipment (
7 1
set)
8 Tools (set) 1
Hand tools / farm
9 1
implements
10 Tanks 2

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Project Proposal for Avocado Production, Processing and Marketing Andrecha Wereda, 2021

11 Conveyor 1
12 Balances 2
13 Seamer 2
14 Dryer 1
15 Washing machine 1
16 Vacuum pump 1
17 Boiler 1
Total Value LS 7,987,500.00

Component II: Avocado Oil Manufacturing plant

Machinery and Equipment

The investment cost-buildup of the required manufacturing and packing

machines and equipment and accessories for the Factory under
consideration is presented in the following summary table.

All of the required investment items are to be procured from abroad at

reasonable and latest price quotations, without comprising quality of the
items. Accordingly, the total investment cost of factory machines, equipment
and accessories is estimated at Birr 14.93 million. The detailed list of the
machines, equipment and accessories for the envisaged factory is annexed
in this report.

Table: Oil Extraction Machineries and Equipment

No. Description Unit Price Unit Qty. Total cost Total Cost
Measurement (USD) (000 Birr)

1 Avocado Oil Set 1

Extraction Line 185,000.00 185,000.00 8,047.50
2 Set 1
Storage Tank & 60,300.00 60,300.00 2,623.05

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Project Proposal for Avocado Production, Processing and Marketing Andrecha Wereda, 2021

Nitrogen Gas
Generator
3 Avocado Oil Filling Set 1
Line 98,000.00 98,000.00 4,263.00
4 Total Cost of Oil Processing Machines 343,300.00 14,933.55

8.4 Motor Vehicles

The types and number of motor vehicles required for the Factory have been
carefully selected by taking in to consideration the specific purposes relevant
for smooth functioning of its daily activities. The motor vehicles proposed to
be purchased include: 2 FSR Isuzu trucks, 2 mini-buses, one pick-up (double
cab 4WD), and automobile. Based on current price quotations, investment
cost of vehicles and forklift is estimated at about Birr 9.31 million. See table
below.

Table: Type, Purpose and Cost of Motor Vehicles and forklift

Type of Vehicle Qty Unit Unit Cost Total
cost
In In BIRR In BIRR
USD
Isuzu Truck, Japan 2 45,000 1,957,500 3,915,000
Minivan, Toyota 2 28,000 1,218,000 2,436,000
Pickup Double Cabin, vigo 1 40,000 1,740,000 1,740,000
2021, Toyota
Automobile, Corolla Toyota 1 22,000 957,000 957,000
Sub-Total 9,048,000
L/C Charge, incl. nbe fee 4.5% 262,080
CIF
Total 6 9,310,080

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Project Proposal for Avocado Production, Processing and Marketing Andrecha Wereda, 2021

8.5 Raw Materials Consumption

8.5.1 Avocado Farm

The main raw materials and inputs required for the avocado farm and
processing plant are fertilizers, chemicals, preservatives, seedlings and
packing materials. Most of the raw materials can be obtained from the local
agents.

Table: Raw Material Required for the Farm

No. Cost (Birr)
Description year1 year2 year3 year4
1 Avocado seed 748,800.00 786,240.00 825,552.00 866,829.60
2 Fertilizers 1,860,000.00 1,953,000.00 2,050,650.00 2,153,182.50
3 Chemicals (lt) 90,000.00 94,500.00 99,225.00 104,186.25
4 Preservatives 120,000.00 126,000.00 132,300.00 138,915.00
5 Crates 840,000.00 882,000.00 926,100.00 972,405.00
6 pesticide in 2,700,000.00 2,835,000.00 2,976,750.00 3,125,587.50
liters
Grand total 6,358,800.00 6,676,740.00 7,010,577.00 7,361,105.85

8.5.2 Avocado Oil Manufacturing Plant

The main raw materials and inputs required for the avocado oil extraction
plant is raw avocado fruit. The planned avocado oil extraction plant is using
its input of raw avocado from its own farm and local outgrowing farmers
while packing materials will be imported from abroad.

The detailed raw materials requirement and cost is shown in the Table
below.

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Project Proposal for Avocado Production, Processing and Marketing Andrecha Wereda, 2021

Table: Materials and inputs requirement and cost for oil processing plant
items year1 year2 year3 year4
package pieces/year 3,534,545.45 4,123,636.36 5,007,272.73 5,890,909.09
package price/piece 6.00 6.60 7.26 7.99
total packaging
costs 21,207,272.73 27,216,000.00 36,352,800.00 47,044,800.00

Table: Total Costs of sales for the whole project

Items year1 year2 year3 year4

cost of sales,
plantation 3,815,280.00 4,673,718.00 5,958,990.45 7,361,105.85
Cost of sales,
out growers 5,490,280.98 6,725,594.20 8,575,132.60 10,592,810.86
cost of sales, oil
processing 12,724,363.64 19,051,200.00 30,899,880.00 47,044,800.00
misc @5% 1,101,496.23 1,522,525.61 2,271,700.15 3,249,935.84
cost of sales
total 23,131,420.84 31,973,037.80 47,705,703.20 68,248,652.54

9. Description of Production Processes

9.1. Agricultural Operation
Agricultural operation is performed in two main ways:

9.1.1. Community Farming (60%)

For the Company to meet the wider market demand, closely working with
smallholders is an alternative way of sourcing raw material supply.
Therefore, the Company has initiated this project to promote a contract

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Project Proposal for Avocado Production, Processing and Marketing Andrecha Wereda, 2021

farming practice among a total of 228 small holder farmers in the local area,
on a Pubic Private Partnership (PPP) arrangement.

Beyond ensuring adequate supply of raw materials to the project, the

proposed Agri-Business PPP will have the potential to help modernize the
agriculture sector and deliver multiple benefits that can contribute towards
sustainable agricultural development that is inclusive of smallholder farmers.

Why Contract Farming?

Production Perspective
 To ensure the “consistent supply of raw materials” to the Industrial
Complex – access to raw material base
Agribusiness Perspective
 To specialize and involve in a sustainable and comprehensive approach
which promotes supply chain and value chain mechanism

Quality Control and Quality Assurance Perspective

 To ensure the better quality of raw material, quality control “from seed
to mill”
 To promote “traceability” and “food safety”
 To deliver “healthier food” to consumers

Rural Development Perspective

 To contract with small holder farmers with pre-determined price and
buy-back guarantee so that the farmers can enjoy “guaranteed
optimal income” and access to working capital
 To support rural agriculture and agribusiness environment

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Project Proposal for Avocado Production, Processing and Marketing Andrecha Wereda, 2021

 To provide small holder farmers with “access to market”, “access to

technology”, “access to Agricultural extensions” , “access to finance”
and “ additional income out of increased yield/ha”
 To promote biodiversity and ecosystem by introducing Good
Agriculture Practices and Integrated Pest Management Practices

9.1.2. Self-production (40%):

The second way for the Company operation is self-production. The Company
also needs big sites as assets. Up until now the company plans to grow
avocado on around 1000 ha of self-production leased government lands.
Land-clearing and cultivation procedures on these lands are operated by
local workers which are employed by the Company.

This kind of operation provides employment possibilities for the residents

and develops the entire area.

a) Land Development
Land development is the first operation of the Production process in avocado
production. It includes land surveying and design, planting site clearing and
cleaning, levelling and irrigation land, access and farm roads construction.

b) Land Preparation
Land preparation activities like ploughing, disking, harrowing and basin
formation follow the land development. Ploughing, disking and harrowing
would be carried out by tractor mounted machineries while basin formation
by casual labours.

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Project Proposal for Avocado Production, Processing and Marketing Andrecha Wereda, 2021

c) Nursery Establishment and Propagation of Seedlings

Nursery establishment is the most important operation and initial stage in
avocado planting material propagation full stop. Appropriate site selection,
fencing clearing and ploughing are among the important activities of nursery
establishment. It is followed by seed bed Preparation . Raising of seedlings,
grafting and handling of seedlings are some of the routine activities which
are expected to be undertaken in the nursery.

d) Pre-Harvest Management
Pre- Harvest management starts with transplanting of sexually or asexually
propagated seedlings of avocado from nursery to the main planting site.
Cultivation for weed control and soil fertility improvement, training and
pruning seedlings, irrigation water application, fertilization and insect pest
and disease control are among the major pre - harvest management in
avocado production.

e) Post - Harvest Management

In avocado production, Post harvest management includes picking, cleaning,
grading, transporting and marketing. Transporting will be handled with
trucks equipped with refrigerator.

f) Avocado Oil Extraction Process

The centrifugation/pressing (Coldpressed extraction) process is the preferred
method of the oil extraction process. The oil and water are separated from
the pulp using a high-speed decanting centrifuge and in the final polishing
centrifuges.

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Project Proposal for Avocado Production, Processing and Marketing Andrecha Wereda, 2021

9.2. General Description of Complete Plant

The selected technology for the envisaged cosmetics products manufacturing

Plant is Chinese origin. It is equipped with the latest set of machine lines,
suitable to the local environs and its quality fits the European standards in
operational performance, durability and availability of backup services. The
production process steps for the end-products of the proposed Factory
involve the following basic flow of operations.

STEP 1 FRUIT SORTING AND WASHING SYSTEM: The sorting and

washing machine is used to pick up and separate different quality avocado
and remove the dust from the surface of the avocados, After washing by the
soft water flow generated by a jet system, the avocados will be gathered by
the belt elevator to depulper. The elevator can wash the fruits a second time
by showering them to work as a water dripping .

STEP 2 AVOCADO DEPULPING SYSTE: The elevator takes then the fruits
into the destoning machine, where pips and skin are separated from the
pulp. Skin separation needs to be calibrated according to the desired quality,
since the proportion of skin into the processed mash may affect the pigment
composition of avocado oil.

STEP 3 FRUIT PULP MALAXING SYSTEM: After crushing, the avocado

mash is pumped into the section equipped with malaxers (kneading
machines). Each kneading machine consists of a stainless steel tank with a
central screw stirring the mash slowly and continuously at a monitored
temperature. Small oil drops released during fruit milling merge into large
drops that can be easily separated by centrifugal extraction. Our experience

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Project Proposal for Avocado Production, Processing and Marketing Andrecha Wereda, 2021

showed that malaxing time should not exceed 90 min(around 1h)and Temp.
should be 40°C-60°C.

STEP 4 OIL-WATER-POMACE SEPARATION SYSTEM: The separation of

oil from solid and liquid phases is done using a decanter centrifuge (one
screw distributor will be used if the line is equipped with only 2 malaxing
tanks.)This device exploits the centripetal acceleration to separate
continuously a mixture of particulate solids and liquids with phases having
different densities.

In this machine, the mash coming from kneading is fed into the machine
together with about 10-20% of hot water (at the same temperature as the
mash) depending on the characteristics of product. The mash inside the
centrifuge is separated into oil, vegetation water and solids (exhausted pulp
and residual skin). The oil phase and the water phase are collected
separately under the decanter. The oil phase is pumped out to a vertical
purifier centrifuge, while the water phase is pumped out to a vertical
centrifuge separator.

STEP 6 AVOCADO OIL PURIFICATION SYSTEM: The CPAO flowing from

the decanter still has a certain amount of water and solids. Vegetation water
from the decanter should still contain a small quantity of residual oil. The
system consists of a disk stack centrifuge for final CPAO purification to
remove residual water and solids.( A second disk stack centrifuge should be
used to recover residual CPAO from the vegetation water flowing from the
decanter.)

STEP 7 VIRGIN AVOCADO OIL STORAGE: The oil from separator will be
pumped into sedimentation tank and stay for some time to remove the

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Project Proposal for Avocado Production, Processing and Marketing Andrecha Wereda, 2021

seldom moisture and impurities. After stay some time, the oil will be
pumped into big stainless steel tank for storage, The tank should be avoid
light and heat, constant temperature and nitrogen filling if necessary.

This process is illustrated in the Figure below Flow-chart of the cold-pressing

mechanical extraction method from Alfa Laval.

Figure: Avocado Oil extraction Process

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Project Proposal for Avocado Production, Processing and Marketing Andrecha Wereda, 2021

9.2.1. Final Product-Codex Standards

The final oil product should adhere to the Codex standards as a minimum as
well as the KEBS standard. These standards are described below;

a) Virgin oils are obtained, without altering the nature of the oil, by
mechanical procedures, e.g. expelling or pressing, and the application of
heat only. They may have been purified by washing with water, settling,
filtering and centrifuging only.

b) Cold pressed oils are obtained, without altering the oil, by mechanical
procedures only, e.g. expelling or pressing, without the application of heat.
They may have been purified by washing with water, settling, filtering and
centrifuging only. c) Nutrition and chemical Standards

9.2.2. The market for avocado oil

About 90 % of the avocado oil produced locally is exported. The main

markets include Europe, the United States and East Asia (Malaysia, Japan,
and South Korea) China and India are the principal producers and suppliers
of avocado oil to the international markets. They account for 40% of the
world supply. The United States, Malaysia and Germany are the major
markets for avocado oil accounting for 24% 8% and 7% respectively.

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Project Proposal for Avocado Production, Processing and Marketing Andrecha Wereda, 2021

10. Production Capacity & Production Programme

10.1. Farm Size & Plant Capacity

The total area to be cultivated under avocado will be 1,000 ha. At full
capacity operation, about 8,640.00 tonnes of fresh fruit will be produced
from the farm annually.

The processing plant will have a processing capacity of processing 8,640.00

tonnes of avocado. The remaining 5,040.00 tonnes of fresh fruit will be
sourced from local farmers.

Table: Farm Capacity

land, ha prod/8months, prod/year, tons farm capacity, tons/year
tons
300 20.00 20.00 6,000.00

Table: Oil processing capacity at Full capacity 24hrs/day

input per input per day input/year, tons output/day @9%CR, output/year,
hour, tons Liters liters
2 48.00 14,400.00 4,320.00 1,296,000.00

10.2. Production Programme

The avocado farm reaches fruition after three years from plantation.
Considering the problem in skill development and market penetration, both
the avocado farm and oil extraction plant starts operation at 60% of the
rated capacity in the first year (on the same year of fruition) and shall

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Project Proposal for Avocado Production, Processing and Marketing Andrecha Wereda, 2021

progressively grow to 75% in the second year, 85% in the third year
reaching full (100%) capacity in the fourth year and thereafter.

At full capacity operation, the processing plant will have 300 working days,
operating in three shifts of 24 hours a day.

Table: Farm production programme

year1 year2 year3 year4
Capacity (%) 0.60 0.70 0.85 1.00
output, 3,600.00 4,200.00 5,100.00 6,000.00
tons/year

Table: Oil processing production programme

year1 year2 year3 year4
capacity (%) 0.60 0.70 0.85 1.00
farm output, tons/year 3,600.00 4,200.00 5,100.00 6,000.00
input reqt for processing 8,640.00 10,080.00 12,240.00 14,400.00
actual output, 000' 777.60 907.20 1,101.60 1,296.00
liters/year
shortage to be filled by out 5,040.00 5,880.00 7,140.00 8,400.00
growers

11. Implementation Schedule

All the implementation activities of the proposed farm and factory will be
accomplished within the next 12 months duration. The main tasks include
recruitment of workers, erection of machinery and equipment, trial-run and
training of technical staff and product promotion and advertisement
activities. The Factory is thus presumed to commence initial investment by
the plantation season of 2021/22.

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Project Proposal for Avocado Production, Processing and Marketing Andrecha Wereda, 2021

The major implementation activities to be executed in the next 12 months

are pinpointed as under:
 Land Acquisition for the planned investment from concerned
government officials
 Factory building construction works
 Bank loan approval process for partial financing of the investment
costs;
 L/c opening, shipment and delivery at site of machinery, equipment,
motor vehicles and forklift required for smooth functioning of the
plant;
 Procurement of raw materials and ingredients for the Avocado farm
production
 Recruitment of the required manpower;
 Planting of Avocado fruits
 Procurement of machineries, raw materials and ingredients for the
Avocado oil production
 Erection, commissioning and training of technical workers
 Product promotion and advertisement activities, and
 Start-up of exporting avocado fruits and avocado oil production

12. Environmental Impact

12.1. Safeguarding the Environment

The Proclamation for establishment of the Ethiopian Environment Authority

has made it mandatory for any investment project (new or expansion)
whether industrial, agricultural, or any such venture to look into the

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Project Proposal for Avocado Production, Processing and Marketing Andrecha Wereda, 2021

environmental impact in the project planning phase, and consider mitigation

measures for any adverse (polluting) effect on the environment.

The environmental impact of the avocado fruit planting and Avocado oil
extraction factory appears innocuous when compared with the other
investment sectors such as tanneries that have more severe effects on the
environment and the ecology and people living in the surrounding areas. The
existing land plot in Andarecha wereda is an area with no trees or vegetation
cover to be removed. The area is already earmarked by the land bureaus
convenient and suitable for farming and manufacturing investment purpose.
Hence, there is no deforestation activity during site clearing works and no
negative impact, on surrounding ecology in this regard.

As regards the solid and liquid discharges from the Factory operations, the
Company's shareholders are well aware from the outset the need for proper
effluent disposal mechanisms. The necessary resource will thus be
committed to mitigate any adverse effects on the environment and also
enrich the eco-system of the surrounding with green area and garden
cultivation on the land plot-

Specifically, the promoters will pay due attention on the following major
aspects regarding the environment effect of the planned project:
 identify the magnitude of effluent discharges from operations of the
Factory, and take plausible mitigation measures of disposal of solid
and liquid wastes;
 To ensure safety and health facilities for all workers are in place; and
 To strictly adhere to the governing regulatory requirements and laws
on environment protection enacted specific to the manufacturing
sector.

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Project Proposal for Avocado Production, Processing and Marketing Andrecha Wereda, 2021

12.2. Security and Safety Facilities

Likewise, it is at the utmost priority for the planned investment to ensure

safety and security for workers of the farm and Factory, improve/ enhance
labor conditions and occupational health. The Company strictly complies with
the country's Labor law and regulations currently in force as regards
occupational health and safety of factory workers.

To summarize this, the proposed project can be said to have some

associated environmental aspects that might cause adverse impacts.
However most of these environmental effects can be reduced to acceptable
levels with implementation of pollution prevention and control techniques.
Therefore, it can be concluded that there will be no severe or irreversible
adverse impacts that will prevent the implementation of the proposed
project.

To have minimal and acceptable residual environmental impacts, it is

recommended that a full EIA Study should be conducted on areas
surrounding the project site. In general, the Consultant perceived that there
are no insurmountable environmental difficulties for the implementation of
the proposed Agri-Business development Project.

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Project Proposal for Avocado Production, Processing and Marketing Andrecha Wereda, 2021

13. Financial Analysis

Table: Utilities

No. Description Total Cost

1 Fuel (lt) 330,000
2 Lubricant (lt) kg 165,000
3 Electricity (kWh) 597,640
4 Water (m3) 400,000
Grand Total 1,492,600

Table: Machineries requirement

No Description Value (Birr)
Farm Machineries and
1 Equipment 7,987,500.00

Avocado Oil Processing Plant

2 15,688,810.00
Installation of electric power &
3 utilities 1,500,000.00
4 Generator 2,300,000.00
Total 27,476,310.00

Table: Cost of Building & construction

Estimated Cost of
No Building Purpose Floor Area (m2) Building (8300)
1 Production and packaging rooms 800.00 6,640,000.00
2 Warehouse for raw materials 250.00 2,075,000.00
Finished goods store and Lab
3 room 400.00 3,320,000.00
4 Office blocks 60.00 498,000.00
5 Total 1,510.00 12,533,000.00

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Project Proposal for Avocado Production, Processing and Marketing Andrecha Wereda, 2021

Table: Vehicles
Type of Vehicle Qty Unit cost Unit Cost Total
In USD In BIRR In BIRR
Isuzu Truck, Japan 2 45,000 1,957,500 3,915,000
Minivan, Toyota 2 28,000 1,218,000 2,436,000
Pickup Double Cabin, vigo 2021, 1 40,000 1,740,000 1,740,000
Toyota
Automobile, Corolla Toyota 1 22,000 957,000 957,000
Sub-Total 9,048,000
L/C Charge, incl. nbe fee 4.5% CIF 262,080

Total 6 9,310,080

Table: Fixed Assets

No. items value (Birr)
1 Machinery and Equipment 27,476,310.00
2 Building & construction 12,533,000.00
3 Vehicles 9,310,080.00
Total 49,319,390.00

Table: Depreciation
Depreciation Original value Annual Dep.
Description rate (Birr) (Birr)
Machineries 0.10 27,476,310.00 2,747,631.00
Buildings 0.10 12,533,000.00 1,253,300.00
Vehicles 0.10 9,310,080.00 931,008.00
Total Fixed Asset 49,319,390.00 4,931,939.00

Table: Repair and maintenance costs based on the standard rate

Repair &
Description Percentage Total investment maintainance
Machineries 0.03 27,476,310.00 824,289.30
Buildings 0.05 12,533,000.00 626,650.00

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 Project Proposal for Avocado Production, Processing and Marketing Andrecha Wereda, 2021

Vehicles 0.10 9,310,080.00 931,008.00

Total Fixed Asset 49,319,390.00 2,381,947.30

Table: Revenue
revenue forecast year1 year2 year3 year4
output liter 777,600.00 907,200.00 1,101,600.00 1,296,000.00
output, ml 777,600,000.00 907,200,000.00 1,101,600,000.00 1,296,000,000.00
bottled in 220ml
pieces 3,534,545.45 4,123,636.36 5,007,272.73 5,890,909.09
price/piece 20.00 22.00 24.20 26.62
revenue 70,690,909.09 90,720,000.00 121,176,000.00 156,816,000.00

Table: personnel plan

S.N Description Qty. Qualification Experience Salary (Birr)
Monthly Annual
I Administrative staffs
1 Manager 1 Economist 3years 10,000.00 120,000.00
2 Executive secretary 3 Secretary 2years 2,000.00 72,000.00
Finance &
3 administration head 3 Accounting 2years 4,000.00 144,000.00
4 Accountant 6 Accounting 2years 1,500.00 108,000.00
High school
5 Cashier 8 Graduate 2years 800.00 76,800.00
High school
6 Clerk 12 Graduate 0 years 700.00 100,800.00
9 Quality control head 9 Food science 2years 1,500.00 162,000.00
12 Commercial head 3 Marketing 3years 1,800.00 64,800.00
Personnel of direct
13 labor 3 Management 2years 1,500.00 54,000.00
14 Store keeper 9 12 graduate 2years 850.00 91,800.00
15 Purchaser 9 Procurement 2years 800.00 86,400.00
High school
16 Salesperson 24 Graduate 2years 800.00 230,400.00

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 Project Proposal for Avocado Production, Processing and Marketing Andrecha Wereda, 2021

19 Laborer 132 - 0years 600.00 950,400.00

20 Janitors 26 - 0years 700.00 218,400.00
25 Grease & oil man 6 TVT Graduate 2years 500.00 36,000.00
Drivers 6 TVT Graduate 0 year 1,000.00 72,000.00
Guard 9 - 0 year 500.00 54,000.00
Total 269 2,641,800.00
Employees benefit
(25% BS) - 660,450.00
Grand Total 3,302,250.00

Table: Cost of sales (per year)

Cost of sales
Description Value (Birr)
Raw material 480,500.00
Packing materials 505,000.00
Total Costs of products 985,500.00
sold

Table: Total Costs of sales for the whole project

Items year1 year2 year3 year4

cost of sales, plantation 3,815,280.00 4,673,718.00 5,958,990.45 7,361,105.85

Cost of sales, out growers 5,490,280.98 6,725,594.20 8,575,132.60 10,592,810.86
cost of sales, oil
processing 12,724,363.64 19,051,200.00 30,899,880.00 47,044,800.00
misc @5% 1,101,496.23 1,522,525.61 2,271,700.15 3,249,935.84
cost of sales total 23,131,420.84 31,973,037.80 47,705,703.20 68,248,652.54

Table: operating expenses

Items Value (Birr)
Distribution Expenses 2,382,355.98
Utilities 1,492,600.00
Maintenance and Repair 2,381,947.30

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Project Proposal for Avocado Production, Processing and Marketing Andrecha Wereda, 2021

Salary Expense 3,302,250.00

Total Operating Costs 9,559,153.28

Table: Annual Operating Costs

S.N Description Year 1 Year 2 Year 3 Year 4
1 Capacity
utilization 0.60 0.70 0.85 1.00
2 Total Operating
Costs 5,735,491.97 6,691,407.30 8,125,280.29 8,369,038.70

Table: Working Capital Determination

Days of Required working
Direct costs coverage capital
cost of sales 60 3,855,236.81
Wage and Salaries 60 550,375.00
Distribution Expenses 60 397,059.33
Total working capital required 4,802,671.14

Table: Planned Investment for the whole project

Description Costs (Birr)
Machineries 27,476,310.00
Buildings 12,533,000.00
Vehicles 9,310,080.00
Total Fixed Asset 49,319,390.00
Total working capital required 4,802,671.14
Total Investment Costs 54,122,061.14

Table: Sources of finance

No. Description Total Costs Amount % Amount %
1 Machineries 27,476,310.00 8,242,893.00 30.00 19,233,417.00 70.00
2 Buildings 12,533,000.00 3,759,900.00 30.00 8,773,100.00 70.00
3 Vehicles 9,310,080.00 2,793,024.00 30.00 6,517,056.00 70.00

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Project Proposal for Avocado Production, Processing and Marketing Andrecha Wereda, 2021

6 Total Basic Costs 49,319,390.00 14,795,817.00 30.00 34,523,573.00 70.00

7 Working Capital 4,802,671.14 1,440,801.34 30.00 3,361,869.80 70.00
Grand Total 54,122,061.14 16,236,618.34 30.00 37,885,442.80 70.00

Table: Loan Repayment Schedule

Year Loan Interest (11.5%) Outstanding
Repayment Balance
0 37,885,443

1 7,577,089 4,356,826 30,308,354

2 7,577,089 3,485,461 22,731,266

3 7,577,089 2,614,096 15,154,177

4 7,577,089 1,742,730 7,577,089

5 7,577,089 871,365 0

Table: Profit and Loss Statement

Description Production Years*
Year 1 Year 2 Year 3 Year 4 Year 5

Sales 70,690,909 90,720,000 121,176,000 156,816,000 172,497,600

Direct cost of sales 23,131,421 31,973,038 47,705,703 68,248,653 71,661,085
Gross Profit 47,559,488 58,746,962 73,470,297 88,567,347 100,836,515
Operational expense 5,735,492 6,691,407 8,125,280 8,369,039 8,620,110
Profit before tax and 41,823,996 52,055,555 65,345,017 80,198,309 92,216,405
interest
Depreciation 4,931,939 4,931,939 4,931,939 4,931,939 4,931,939
EBITDA (Earning before 46,755,935 56,987,494 70,276,956 85,130,248 97,148,344
tax, interest and dep.)
Interest expense 3,485,461 7,577,089 7,577,089 7,577,089 7,577,089
Profit tax (35%) 0 0 20,218,775 25,417,427 29,623,761
Net profit 38,338,536 44,478,466 37,549,153 47,203,793 55,015,556
net profit margin ratio 54 49 31 30 32
Note*: the “Production Years” Raw refer to the first to fifth year of project operation/profit
making, which in this project, will be realized after three years, which is when the seeded
trees start producing fruits.

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 Project Proposal for Avocado Production, Processing and Marketing Andrecha Wereda, 2021

Table: Cash Flow Statement

Production Year
Cash in flow Year 0 Year 1 Year 2 Year 3 Year 4 Year 5
Owners' equity 16,236,618
Existing Bank Loan
Additional Bank
37,885,443
Loan
Net Profit 0 38,338,536 44,478,466 37,549,153 47,203,793 55,015,556
Depreciation 0 4,931,939 4,931,939 4,931,939 4,931,939
Total Cash in
54,122,061 38,338,536 49,410,405 42,481,092 52,135,732 59,947,495
flow
Cash out flow
Replacement 0 0 0 0 0
loan repayment 7,577,089 7,577,089 7,577,089 7,577,089 7,577,089

Capital Expenditure 49,319,390 - - - - -

Working capital 4,802,671 - - - - -

Existing Working
capital
Pre-operating
expenses and 0
interest
Total Cash out
54,122,061 7,577,089 7,577,089 7,577,089 7,577,089 7,577,089
flow
Net Cash Flow 0 30,761,447 41,833,317 34,904,004 44,558,644 52,370,406
Cash balance 35,564,118 77,397,435 112,301,439 156,860,082 209,230,488
Note*: the “Production Years” Raw refer to the first to fifth year of project operation/profit
making, which in this project, will be realized after three years, which is when the seeded
trees start producing fruits.

Table: Balance Sheet Statement

Description Investment Production Year
ASSETS Year 0 Year 1 Year 2 Year 3 Year 4 Year 5
Current Assets
Cash 4,802,671 35,564,118 77,397,435 112,301,439 156,860,082 209,230,488
Other Current 0 0 0 0 0
Assets

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 Project Proposal for Avocado Production, Processing and Marketing Andrecha Wereda, 2021

Total Current 4,802,671 35,564,118 77,397,435 112,301,439 156,860,082 209,230,488

Assets
Fixed Asset
Machineries 27,476,310.00 24,728,679 21,981,048 19,233,417 16,485,786 13,738,155
Buildings 12,533,000.00 11,279,700 10,026,400 8,773,100 7,519,800 6,266,500
Vehicles 9,310,080.00 8,379,072 7,448,064 6,517,056 5,586,048 4,655,040
Total Fixed Asset 49,319,390 49,319,390 44,387,451 39,455,512 34,523,573 29,591,634
Pre-operating Costs 0 0 0 0 0 0
Total Asset 54,122,061 84,883,508 121,784,886 151,756,951 191,383,655 238,822,122
LIABILITIES
Short term liability - - - - - -
Long term liability 37,885,443 30,308,354 22,731,266 15,154,177 7,577,089 0
(Bank Loan)
Sub Total 37,885,443 30,308,354 22,731,266 15,154,177 7,577,089 0
CAPITAL
Owner's Equity 16,236,618 16,236,618 16,236,618 16,236,618 16,236,618 16,236,618
Retained Earnings 0 38,338,536 82,817,002 120,366,155 167,569,948 222,585,504
Earnings 38,338,536 44,478,466 37,549,153 47,203,793 55,015,556
Sub Total 16,236,618 54,575,154 99,053,620 136,602,773 183,806,567 238,822,122
Total Liability & 54,122,061 84,883,508 121,784,886 151,756,951 191,383,655 238,822,122
Capital
Net Worth 16,236,618 54,575,154 99,053,620 136,602,773 183,806,567 238,822,122
Note*: the “Production Years” Raw refer to the first to fifth year of project operation/profit
making, which in this project, will be realized after three years, which is when the seeded
trees start producing fruits.

14. Financial Evaluation

14.1. 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 of the project. Further, the income statement
and other indicators of profitability show that the project is viable.

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Project Proposal for Avocado Production, Processing and Marketing Andrecha Wereda, 2021

14.2. 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.

Fixed Cost
BE = = 44 %
Sales – Variable Cost

14.3. Payback 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 3 years.

14.4. Internal rate of return and net present value

Based on the cash flow statement, the calculated IRR of the project is
71.13% and the net present value at 9% discount rate is Birr 71.043,011.

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