198.

PROFILE ON PRODUCTION OF ORANGE AND MANDARIN JUICE AND NECTAR

198-2 TABLE OF CONTENTS

PAGE

I.

SUMMARY

198-3

II.

PRODUCT DESCRIPTION & APPLICATION

198-3

III.

MARKET STUDY AND PLANT CAPACITY A. MARKET STUDY B. PLANT CAPACITY & PRODUCTION PROGRAMME

198-4 198-4 198-6

IV.

MATERIALS AND INPUTS A. RAW & AUXILIARY MATERIALS B. UTILITIES

198-7 198-7 198-8

V.

TECHNOLOGY & ENGINEERING A. TECHNOLOGY B. ENGINEERING

198-9 198-9 198-10

VI.

MANPOWER & TRAINING REQUIREMENT A. MANPOWER REQUIREMENT B. TRAINING REQUIREMENT

198-11 198-11 198-12

VII.

FINANCIAL ANLYSIS A. TOTAL INITIAL INVESTMENT COST B. PRODUCTION COST C. FINANCIAL EVALUATION D. ECONOMIC BENEFITS

198-13 198-13 198-14 198-15 198-16

198-3 I. SUMMARY

This profile envisages the establishment of a plant for the production of orange and mandarin juice with a capacity of 180 tonnes per annum.

The present demand for the proposed product is estimated at 144 tonnes The demand is expected to reach at 259 tonnes by the year 2017.

per annum.

The plant will create employment opportunities for 29 persons.

The total investment requirement is estimated at Birr 6.22 million, out of which Birr 2.5 million is required for plant and machinery.

The project is financially viable with an internal rate of return (IRR) of 17% and a net present value (NPV) of Birr 1.8 million, discounted at 8.5%.

II.

PRODUCT DESCRIPTION AND APPLICATION

Juice and Nectar are important liquid foods. These fruits contain a number of natural materials that contribute to the overall flavor and consistency of the juice and nectar including water, sugars (primarily sucrose, fructose, and glucose), organic acids (primarily citric, malic, and tartaric), and flavor compounds (including various esters, alcohols, ketones, lactones, and hydrocarbons.) that are important to our diet. Besides water and sugar, it is an excellent source of vitamin C (ascorbic acid) and potassium. It is also an important natural source of folic acid (Vitamin B9), which is recommended for women who are pregnant or may become pregnant.

They also refresh our life and play a significant role in social events. The per capita consumption of juice and nectar correlates well with the prosperity of a nation, urbanization, income and feeding culture. Orange and mandarin juice is unfermented juice obtained from mature oranges and mandarin. Nectar is a thick drink made from pureed fruit. True fresh squeezed juice is difficult to market commercially because it requires special processing to preserve it. Orange and mandarin juice is usually marketed in three forms: As a frozen concentrate, which is diluted with water after

198-4 purchase; as a reconstituted liquid, which has been concentrated and then diluted prior to sale; or as a single strength, unconcentrated beverage. The envisaged plant produces the latter two types which are also known as ready to drink juices.

III.

MARKET STUDY AND PLANT CAPACITY

A.

MARKET STUDY

1.

Past Supply and Present Demand

The source of supply for orange and mandarin juice is both domestic production and imports. Upper Awash Agro Industry (Merti processing plant) was the only sole domestic producer of orange juice until recently although some private companies are emerging that process other types of juices. The apparent consummation of fruit juice, comprising domestic production and imports is shown Table 3.1.

Table 3.1 APPARENT CONSUMPTION OF ORANGE JUICE (TONNES)

Year

Domestic Production

Import

Total

1999/00 2000/01 2001/02 2002/03 2003/04 2004/05 Total Source:

9 14 9 62 94

93.0 348.5 35.2 129.4 83.9 82.2 772.2

102.0 362.5 44.2 191.4 83.9 82.2 866.2

1. CSA. Survey of the manufacturing and Electricity Industries, Annual Issues. 2. Customs Authority, External Trade Statistics, Annual Issues.

198-5 Scrutiny of Table 3.1 reveals that the greater share of apparent consumption originates from import. During the past six years covered by the data set (1999/00-2004/05) for instance, the average domestic production was 15.7 tonnes while the average imported amount was 128.7 tonnes. The yearly average total apparent consumption during the same period was 144.4 tonnes, implying that local production constitutes only about 11% of the aggregate supply. It has to be noted that there is no domestic production of orange juice since 2003/04 probably due to shortage of orange fruit at Merti. The current apparent consumption estimated above, i.e. 144.4 tonnes, is however, assumed to represent current effective demand for industrially processed orange and mandarine juice.

2.

Projected Demand

The future demand for agro-industrially processed orange and mandarin juice is mainly a function of urbanization, income, price and change in the consumption habits of the population. As income rises and urbanization grows there is a shift towards more expensive but conveniently packed and available foods. However, the opportunity that such changes present could be exploited only if price of the items is not prohibitive when compared to fresh fruit, and the quality is competitive enough with similar imported products.

Having considered all the above, demand for fruit juice is forecasted to grow at the rate of 6% per annum. The demand projected in this manner ranges from 153.1 tonnes in the year 2008 to 258.6 tonnes by the year 2017 ( see table 3.2).

198-6 Table 3.2 PROJECTED DEMAND FOR ORANGE JUICE (TONNES)

Year 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Projected Demand 153.1 162.2 172.0 182.3 193.2 204.8 217.1 230.2 244.0 258.6

3.

Pricing and distribution

Currently, fruity juices of various types (Orange, Pineapple, Peach, Mango, etc) sell for a price ranging from Birr 8 to Birr 12 per 500 millitre in the retail market. The average price would, thus, be Birr 10. Taking this price as a reference, and allowing margin for wholesalers and retailers, a factory-gate price of Birr 8 is proposed.

A suitable distribution system for fruit juice is one, which relies on wholesaler, who in turn would ensure proper distribution through the existing retail channels (supper markets and grocery shops).

B.

PLANT CAPACITY & PRODUCTION PROGRAMME

1.

Plant Capacity

The envisaged plant will have a capacity of 180 tonnes(150,000lt) or 300,000pcs in 500ml package, annually keeping into consideration the market study and minimum

198-7 economies of scale. It will operate in single shift of 8 hours for a total of 300 days a year (deducting Sundays and public holidays).

Of the total working days, 150 days will be for cold preservation and pre-processing, while extraction bottling and distribution will be carried out in the remaining time.

2.

Production Programme

Production capacity build up is designed in such a way that full production capacity will be attained in the third year. For this reason the plant will operate at 75% of its installed capacity in the first year, and then at 85% in the second year, and reach at full capacity in the 3rd year and then after.

As the plant is new and is equipped with new machinery, production build-up is made to start at reduced capacity and gradually raised to full capacity. The low production level at the initial stage is to develop substantial market outlets for the product. Machinery operators will also get enough time to develop the required skills and experience.

IV.

MATERIALS AND INPUTS

A.

RAW AND AUXILIARY MATERIALS

The principal raw materials for the production of orange and mandarin juice and nectar are orange and mandarin fruits. Preservatives ( Potassium metabisulphite), packing materials like bottles or cans and cases are some of the auxiliary materials demanded by the juice and nectar plant. The quantities and costs of the raw and auxiliary materials are shown in Table 4.1.

198-8 Table 4.1 RAW & AUXILIARY MATERIALS REQUIREMENT AND COST

Sr. No.

Description Qty.

Unit price Birr

Costs, ('000 Birr)

1. 2. 3.

Fruits (tonnes) Bottle (No.) cartoons Grand Total

286 300,000 15,000

2000 1 5

572,000 300,000 75,000 947,000

B.

UTILITIES

The major utilities required for the plant are water and electricity. Water is used for washing the fruits as well as for steam generation. Electric power is used as an energy source for boiler and for driving the motors of the production machinery. Water & Electric consumption is shown in Table 4.2. The total annual cost of utilities is estimated at birr 236,040

Table 4.2

UTILITIES REQUIREMENT AND COST

Sr. No. 1 2

Description

Qty

Unit price

Cost ('000 Birr)

Electricity (kWh) Water (m3)

150,000 30,000 Total

0.4736 5.50

71,040 165,000 236,040

198-9 V. TECHNOLOGY & ENGINEERING

A.

TECHNOLOGY

1.

Production Process

The production of orange juice comprises of fourteen steps or unit operations. The brief explanation of each operation is given below.

Cleaning: This is an operation by which the citrus fruit from which juice is to be extracted are washed in two stages by a rotary brusher.

Warming treatment: A further treatment of the fruit by warm water in a tank in order to facilitate the peeling process.

Peeling: It is the stage where warmed fruit with peels are trimmed manually to remove the peels.

Juice Extraction: Peeled fruits are cut into pieces and pressed in a puler in order to extract juice out of them. Pre-heating: It is a stage where extracted juice is heated at about 90oC for the purpose of making inactivate enzyme and bacteria contained in it, and then is cooled down to about 40oC.

Centrifugalization: Is the process by which pulp contained in the raw juice is separated.

Deaeration: The step where the mixed up air during pulping, finishing and centrifuging is removed.

Seasoning: This is the step at which sweetening is carried out, if there need be.

Sterilization:

Fruit juice, before it is canned or bottled, sterilized at a

temperature from 90o-95oC for 30 seconds and bottled while it is hot. Filling, cooling labeling and boxing: These are all packing operations by

which the product is made ready for delivery.

198-10 2. Source of Technology

The technology of machinery & equipment required by the fruit juice plant can be obtained from Indian company indicated below. Pome juice & products, 11, Bayajapur, post - pimpalkothetal, Satana,Nasik, Mahaashtra, India - 423204 Phone: 91 - 2555 - 242625. B. 1. ENGINEERING Machinery & Equipment

Details of the required machinery & equipment are listed in Table 5.1. The total cost of machineries and equipment to produce 180 tonnes of orange and mandarin juice and nectar is estimated at Birr 2.5 million, out of which Birr 2 million is required in foreign currency. Table 5.1 MACHINERY & EQUIPMENT REQUIREMENT Sr. No. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Description Receiving line & bins Inspection, washing, sizing Rasper Juice Extractors Finishes Pasteurizer Filler and sealer Cooling machine Labeler Centrifuge Evaporator pumps Boiler Conveying unit Laboratory Grand Total Qty. (No) 1 set 1 1 1 1 1 1 1 1 1 2 1 1 set

198-11 2. Land, Building & Civil Works

The total land area requirement of the plant including provision for open space is 1500 m2. Of this, about 700 m2 is built up area. The remaining will be an open space for parking and future expansion. Land value will be Birr 12,000 taking 0.1 Birr /m2 lease value for 80 years land holding and construction cost will be birr 1.61 million considering a construction rate of birr 2,300 per m2. So total cost of land, building & civil work is estimated at Birr 1.622 million.

3.

Proposed Location

The envisage plant can be located in area where transportation cost to deliver the product to market can be minimized and source of material is adequate. So Imdiber town of Cheha woreda is proposed to be the location for the envisaged plant.

VI.

MANPOWER AND TRAINING REQUIREMENT

A.

MANPOWER REQUIREMENT

The total manpower requirement of the envisaged fruit juice plant is 29 persons. The permanent and temporary manpower requirement and corresponding annual labour cost including fringe benefits are given in Table 6.1. The total annual cost of manpower is estimated at birr 226,500

198-12 Table 6.1 MANPOWER REQUIREMENT AND ANNUAL LABOUR COST (BIRR)

Sr. No 1 2 3 4 5 6 7 8 9 10 11 12 Manager Secretary

Description

Req. No. 1 1 1 1 1 1 1 1 1 6 10 4

Monthly Salary 1,800 700 900 500 900 1,300 600 600 800 3,000 3,000 1,000

Annual Salary

21,600 8,400 10,800 6,000 10,800 15,600 7,200 7,200 9,600 36,000 36,000 12,000 181,200 45,300 226,500

Accountant Store keeper Salesman/purchaser Production & Tech. Head Mechanics Electricians Chemist Operators laborers Guards Sub total Benefits(25% of basic salary) Total

29

B.

TRAINING REQUIREMENT

The plant is expected to be operated by competent and experienced production personnel. For this purpose, appropriate training programme has to be designed and conducted for about 15 days.

Training can be carried out during erection and commissioning period.

Accordingly,

skilled operators, supervisors and quality control personnel will be trained, possibly by an expert from technology supplier. The total cost estimate of such training is Birr 20,000.

198-13 VII. FINANCIAL ANALYSIS

The financial analysis of the orange and mandarin juice project is based on the data presented in the previous chapters and the following assumptions:-

Construction period Source of finance

1 year 30 % equity 70 % loan

Tax holidays Bank interest Discount cash flow Accounts receivable Raw material local Work in progress Finished products Cash in hand Accounts payable

3 years 8% 8.5% 30 days 15days 5 days 30 days 5 days 30 days

A.

TOTAL INITIAL INVESTMENT COST

The total investment cost of the project including working capital is estimated at Birr 6.22 million, of which 29 per cent will be required in foreign currency.

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

198-14 Table 7.1 INITIAL INVESTMENT COST

Sr. No. 1 2 3 4 5 6 7 Cost Items Land lease value Building and Civil Work Plant Machinery and Equipment Office Furniture and Equipment Vehicle Pre-production Expenditure* Working Capital Total Investment cost Foreign Share

Total Cost (000 Birr) 960.0 1,610.0 2,500.0 100.0 450.0 414.6 191.7 6,226.3 29

* N.B Pre-production expenditure includes interest during construction (Birr 264.61 thousand) training (Birr 20 thousand) and Birr 130 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 2.18 million (see Table 7.2). The material and utility cost accounts for 54.24 per cent, while repair and maintenance take 4.58 per cent of the production cost.

198-15 Table 7.2 ANNUAL PRODUCTION COST AT FULL CAPACITY ('000 BIRR)

Items Raw Material and Inputs Utilities Maintenance and repair Labour direct Factory overheads Administration Costs Total Operating Costs Depreciation Cost of Finance Total Production Cost

Cost 947.0 236.04 100 108.72 45.3 72.48 1,509.54 460.5 211.1 2,181.14

% 43.42 10.82 4.58 4.98 2.08 3.32 69.21 21.11 9.68 100

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.

198-16

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 Sales Variable Cost

= 35 %

3.

Pay Back Period

The investment cost and income statement projection are used to project the pay-back period. The projects initial investment will be fully recovered within 6 years.

4.

Internal Rate of Return and Net Present Value

Based on the cash flow statement, the calculated IRR of the project is 17 % and the net present value at 8.5% discount rate is Birr 1.8 million.

D.

ECONOMIC BENEFITS

The project can create employment for 29 persons.

In addition to supply of the

domestic needs, the project will generate Birr 1.87 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.