101.
PROFILE ON PROCESSING OF MILK
101-2 TABLE OF CONTENTS
PAGE
I.
SUMMARY
101-3
II.
PRODUCT DESCRIPTION & APPLICATION
101-3
III.
MARKET STUDY AND PLANT CAPACITY A. MARKET STUDY B. PLANT CAPACITY & PRODUCTION PROGRAMME
101-4 101-4 101-8
IV.
RAW MATERIALS AND INPUTS A. RAW & AUXILIARY MATERIALS B. UTILITIES
101-9 101-9 101-10
V.
TECHNOLOGY & ENGINEERING A. TECHNOLOGY B. ENGINEERING
101-10 101-10 101-12
VI.
MANPOWER & TRAINING REQUIREMENT A. MANPOWER REQUIREMENT B. TRAINING REQUIREMENT
101-14 101-14 101-15
VII.
FINANCIAL ANALYSIS A. TOTAL INITIAL INVESTMENT COST B. PRODUCTION COST C. FINANCIAL EVALUATION D. ECONOMIC BENEFITS
101-15 101-15 101-16 101-17 101-18
101-3 I. SUMMARY
This profile envisages the establishment of a plant for the processing of milk with a capacity of 80,000 litters of milk, 7,500 kg of butter, 3,000 kg of cheeses and 2,000 litter of yogurt per annum.
The present demand for the proposed product is estimated at 12.5 million litters of milk, 535,200 kg of butter, 669,000 kg of cheeses and 401,400 litter of yogurt per annum. The demand is expected to reach at 30.14 million litters of milk, 1.28 million kg of butter, 1.6 by the year 2022.
million kg of cheeses and 961,978 litter of yogurt
The plant will create employment opportunities for 21 persons.
The total investment requirement is estimated at about Birr 3.26 million, out of which Birr 2.02 million is required for plant and machinery.
The project is financially viable with an internal rate of return (IRR) of present value (NPV) of Birr 1.24 million discounted at 8.5%.
15
% and a net
II.
PRODUCT DESCRIPTION AND APPLICATION
Cow milk is white liquid containing water, fats, protein, sugar and ash. Chemical analysis of cow milk revealed that about 86-88% of it by weight is water. Cow milk processing results a number of products such as processed milk, yogurt, cheese and butter. All these products can be consumed by human beings as part of diet on the daily feeding menu. Cow milk contains 2.4-6.1% lactose. It is a complete food for infants up to 6 months of age; afterwards it acts as supplement to other foods. One point of milk supplies about 320 cal. of which 50% is contributed by fat 20% lactose and 21% by protein. Cow milk is also valuable source of phosphorus, calcium and vitamins. It contains a useful amount of vitamins including vitamin A, thiamin (vitamin B), riboflavin, pyridoxine (vitamin B6), bistin, pentothenic acid and vitamin D etc. The envisaged plant will produce pasteurized milk, butter, cheese and yogurt.
101-4
III.
MARKET STUDY AND PRODUCTION CAPACITY
A.
MARKET STUDY
1.
Past Supply and Present Demand
The products considered as main outputs of milk collection and processing are pasteurized milk, butter, cheese and yoghurt. In SNNP region, traditionally processed milk and milk products are supplied to the market though there is no quantitative data. In the absence of data on domestic production and consumption of milk and milk products, the Revised Report on the 1995/96 Household Income, Consumption and Expenditure Survey is analyzed in estimating the demand for the products. Table 3.1 depicts the average consumption of milk, butter, cheese, and yoghurt by different expenditure groups in urban and rural areas according to the survey finding.
Table 3.1 DOMESTIC CONSUMPTION OF MILK BUTTER, CHEESE AND YOGHURT
Average Annual Consumption Total Annual Consumption Number of Individuals Yoghu Income in the Milk Butter Cheese rt Milk Butter Cheese Yoghurt Group Group (ml) (gram) (gram) (gram) (liter) (kg) (kg) (kg) < 600 17253 255 4400 600 - 999 125904 653 24 40 16 82215 3022 5036 2014 1000-1399 432547 3198 39 75 23 1383285 16869 32441 9949 1400-1999 580104 4938 126 316 76 2864554 73093 183313 44088 2000-2599 4217465 4302 111 205 122 18143534 468139 864580 514531 2600-3399 6498555 6118 166 440 160 39758159 1078760 2859364 1039769 3400-4199 7844772 7746 300 560 252 60765604 2353432 4393072 1976883 4200-5399 10885614 9134 290 469 248 99429198 3156828 5105353 2699632 5400-6599 8007978 12005 394 554 180 96135776 3155143 4436420 1441436 6600-8999 8817091 11705 517 691 396 103204050 4558436 6092610 3491568 9000-12599 5114961 12950 684 833 440 66238745 3498633 4260763 2250583 12600-16199 1765555 10603 638 546 335 18720180 1126424 963993 591461 16200-19999 673706 11160 786 562 1000 7518559 529533 378623 673706 > 20000 972722 12864 1377 532 1245 12513096 1339438 517488 1211039 Total 55954227 526761355 21357750 30093056 15946658 Source: CSA, Revised Report on the 1995/96 Household Income Consumption and Expenditure Survey, 2001.
As can be seen from Table 3.1, the total consumption requirement of households for milk, butter, cheese, and yoghurt is 526761355 liters, 21357750 kg, 30093056 kg, and 15946658 kg per annum, respectively. Given a total population of 55954227 at the time the survey was conducted, the per capita consumption of milk, butter, cheese, and yoghurt is computed to be 9.4 liters, 0.4 kg, 0.5 kg, and 0.3 kg, respectively.
Apparently, the consumption of industrially processed dairy products is limited to urban areas. Until recently the single largest market for these products has been in Addis Ababa, though flourishing regional capitals will increasingly create demand for such products. Assuming the regional market constitutes the viable market for the products, the present demand for milk, butter, cheese, and yoghurt is estimated at 12577200 liters, 535200 kg, 401400 kg, respectively, using the urban population of the region for 2007. 669000 kg, and
2.
Demand Projection
The demand for industrially processed milk and milk products is highly influenced by urban population growth, income, increased household attitude towards processed foods to save time and labour as well as the availability of the product itself. Considering the combined effect of these factors an annual average growth rate of 6% is applied in projecting the demand for the products. The projected demand for the product is shown in Table 3.2.
101-7 Table 3.2 PROJECTED DEMAND FOR MILK AND MILK PRODUCTS
Year
Milk (liter)
Butter (Kg) 535200 567312 601351 637432 675678 716218 759191 804743 853027 904209 958462 1015969 1076928 1141543 1210036 1282638
Cheese (Kg) 669000 709140 751688 796790 844597 895273 948989 1005929 1066284 1130261 1198077 1269962 1346159 1426929 1512545 1603297
Yoghurt (Kg) 401400 425484 451013 478074 506758 537164 569394 603557 639771 678157 718846 761977 807696 856157 907527 961978
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
12577200 13331832 14131742 14979646 15878425 16831131 17840999 18911458 20046146 21248915 22523850 23875281 25307797 26826265 28435841 30141992
3.
Pricing and Distribution
Milk, butter, cheese, and yoghurt are retailed in super markets at Birr 6.50 per liter, Birr 56 per kg, Birr 40 per kg and Birr 11 per liter, respectively. Allowing 30% for retail margin, a price of Birr 5 per liter, Birr 43.10 per kg, Birr 30.77 per kg, and Birr 8.46 per liter, respectively, is recommended for milk, butter, cheese and yoghurt to be produced by the envisaged plant.
Distribution of the products could be undertaken through small retail outlets as well as supermarkets and catering establishments.
101-8
B.
PLANT CAPACITY AND PRODUCTION PROGRAMME
1.
Plant Capacity
Based on the market study, capital requirement and minimum economy of scale, the milk processing plant will have a capacity of 120,000 liters of raw milk per annum and producing 80,000 liters of pasteurized milk, 7,500 kg of butter, 3,000 kg of cheese and 2000 kg of yogurt at full operation capacity. The envisaged plant is expected to operate in double shifts of 8 hours each a day for a total of 300 working days a year.
2.
Production Programme
The annual production programme is formulated based on the proposed plant capacity. Considering the problem of market penetration and skill development of production at the initial stage of the production period, it is planned that the plant will start production at 75% and 85% of its rated capacity in the first and second year of production, respectively. Full production shall be attained in the third year and then after.
As the processing of raw milk facilitates alternative products like butter, cheese and yogurt as well as other milk products, the production programme along with the product mix is shown in Table 3.3.
101-9 Table 3.3 PRODUCTION PROGRAMME
Sr. No 1 2 3 4 5
Description Pasteurized milk Butter Cheese Yogurt Utilization of rated capacity
Unit 2008 Lit Kg Kg Kg % 60,000 5,625 2,250 1,500 75
Production Year 2009 68,000 6,375 2,550 1,701 85 2010-2022 80,000 7,500 3,000 2,000 100
IV.
MATERIALS AND INPUTS
A.
RAW AND AUXILARY MATERIALS
The basic raw material for milk, butter, cheese and yogurt production is raw milk. Other materials such as milk coagulating enzymes and salts are also required in relatively small quantity. In addition to raw materials, auxiliary materials like containers and glycine papers
are required. Except glycine paper and coagulating enzymes, the other major raw materials can be obtained from the local market. The list and costs of the above mentioned materials are
indicated in Table 4.1. The total cost of raw material is estimated at Birr 518,948.90
Table 4.1 RAW AND AUXILIARY MATERIALS REQUIREMENT AND COST
Sr. No. 1. 2. 3. 4.
Description Raw milk Plastic bags (200cc) Glycine paper (40 g) Coagulating enzymes Grand Total
Unit Lit Pcs Kg Kg
Qty FC 120,000 400,000 29.1 915 3401.80 12,810.00 16,211.80
Cost, Birr LC 360,000 140,000 449.60 2,287.5 502,737.10 Total 360,000 140,000 3,851.40 15,097.5 518,948.90
101-10
B.
UTILITIES
The major utilities required by the envisaged project are electric power, water & fuel oil. The annual requirement of utilities and the corresponding cost is indicated in Table 4.2. The total cost of utilities is estimated at Birr 76,357.23.
Table 4.2 ANNUAL REQUIREMENT OF UTILITIES AND COST (BIRR)
No. 1. 2. 3.
Utilities Electric power Water Fuel oil Grand Total
Unit KWh m3 lit
Qty. 9,424 1,629 11,633
Total Cost 4,463.2 8,959.5 62,934.53 76,357.23
V.
TECHNOLOGY AND ENGINEERING
A.
TECHNOLOGY
1.
Process Description
Processing of raw milk mainly involves heat treatment operation usually known as pasteurization and sterilization. These processes are discussed in detail as follows.
A weighed amount of raw milk is pumped to a clarifier by means of the milk pump, where it is removed of microscopic impurities. Clarified milk is next sent to the cooler where it is cooled to about 2-5oC, then pumped to the storage tank. The milk is, then, preheated and pasteurized to a temperature of about 80oC by heat exchange. Further, by the effect of ultra-high temperature sterilizer, the fatty ingredients are homogenized
101-11 in the homogenizer and recycled to the ultra-high temperature sterilizer where it is pasteurized instantly in about 2 seconds at high temperature of 135oC. Finally, cooling is achieved by means of chilled water to lower the temperature to 3oC, after which the milk is stored in the surge tank for filling into suitable containers for various uses. After such a process, a specified quantity of the milk is sold as a pasteurized product while the remaining portion is further processed in the plant for the production of other milk products such as butter and cheese. The details of the production processes are stated as follows.
a)
Butter Production
Whole milk is partially or totally separated to produce standardized whole milk with 3.25% milk fat, low fat milks, 1-2% milk fat, and skim milk. After separation, cream is held in stainless steel tanks and refrigerated at (4-7oC).
The separated cream is pasteurized in order to destroy bacteria. Following pasteurization, rapid cooling is conducted to facilitate the formation of butter by a churning process. By continuous churning, the entering will be pasteurized and tempered cream is agitated vigorously by beater bars. This action causes stripping of the fat globule membrane and aggregation of the fat into chunks. Finally, a continuous ribbon of yellow butter streams from the end of the continuous churn. Butter as a product drops into a hopper, where it is transferred to packing machinery.
b)
Cheese Production
Cheese is made from pasteurized skim milk, and in form of discrete particles classified as small or large curd. A curd forms when the increasing lactic acid of milk during fermentation attains the isoclectric point of casein at pH 4.6. This soft curd additionally contains lactose, salt and water. Latter, the curd matrix is cut and cooked to about 126oF (52oC). Separation of whey from the curd is rapid, and is followed by two or three water washings at warm to chill temperatures. Washing removes whey from residues and acts as a cooking medium. After
drainage of the last wash water, the chilled curd is blended with a viscous, salted cream dressing to give 4.2% fat and 1% salt, and is packaged.
101-12 2. Source of Technology
The address of possible suppliers of the technology and equipment is as given below.
1.
Pharmalab Engineering (1) PVT. LTD. Star Metal Compound, L.B.S Marg. Vikhroli Bombay - 83 (India) Tel. 5782559 (Hunting) Telex 11-71934 - PL IN Fax: 91-22-5785329
2.
Sunita impex Pvt. Ltd. 36A Bentinck street, 1st floor, Kolkata 700069, India, ph: 2248 1986/87, 2243 0102 Fax: 91-33-2248 3664 E-mail: Kolkata: admin@[Link], sutimpex@[Link]
B.
ENGINEERING
1.
Machinery and Equipment
The list of required machinery and equipment is indicated in Table 5.1. The total cost of machinery and equipment is estimated at Birr 2.02 million.
101-13 Table 5.1 REQUIRED MACHINERY AND EQUIPMENT
Sr. No. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. Weighing tank Receiving tank Milk clarifier Milk pump Plate cooler Storage tank Milk pump Pasteurizer Surge tank
Item
Qty
1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1
Filling and packing machine Boiler Chiller Churning equipment Hopper Power facilities Sterilizer
2.
Land, Building and Civil Works
Total land area required is about 1,000 square meters. The cost of land at a lease rate of 0.8 Birr per square meter and for a period of 80 years holding is estimated at Birr 64,000. The built-up area is estimated to be 300 m2 and the cost of buildings and construction at a unit cost of Birr 1,500 per m2 is estimated at Birr 450,000. The total cost of land, building and civil work is estimated at Birr 514,000.
101-14 3. Proposed Location
As indicated in the market study, the major consumers of milk and milk products are the urban population of SNNRP. The major raw material, milk is available in the rural areas of the region. Thus, the plant is proposed to be established in the Awasa town, the center of Awasa zuria woreda. In addition Awasa has an access to infrastructure and utilities like electricity & water.
VI.
MANPOWER AND TRAINING REQUIREMENT
A.
MANPOWER REQUIREMENT
Total number of manpower required is 21 persons. Details of the manpower requirement and the corresponding annual labour cost including fringe benefits are shown in Table 6.1. The total annual cost of man power is estimated at Birr 222,480. Table 6.1 MANPOWER REQUIREMENT AND ANNUAL LABOUR COST Sr. No. 1. 2. 3. 3. 4. 5. 6. 7. 8. 9. 10. 11. No. of Persons 1 1 1 1 1 1 2 3 1 1 4 4 21 Salary, Birr Monthly Annually 2,500 30,000 1,200 14,400 450 5,400 600 7,200 600 7,200 900 10,800 500 6,000 900 10,800 2,200 26,400 1,200 14,400 3,200 38,400 1,200 14,400 15,450 185,400 3,090 37,080 18,540 222,480
Description General Manager Accountant Cashier Secretary Storekeeper Salesperson/Purchaser Cleaner and Messenger Guards Production Head Chemist Operator technicians Assistant Operators Total Benefit (20% of Basic Salary) Grand Total
101-15
B.
TRAINING REQUIREMENT
Six operators and two technicians should be given a short-term on-site training during, commissioning by machinery & equipment supplier and the training cost is estimated at Birr 30,000.
VII.
FINANCIAL ANALYSIS
The financial analysis of the
milk processing 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
5 years 8% 8.5% 30 days 5 days 2 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 3.26 million, of which 36 per cent will be required in foreign currency.
The major breakdown of the total initial investment cost is shown in Table 7.1.
101-16
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) 64.0 450.0 2,020.0 125.0 250.0 250.3 104.0 3,263.2 36%
* N.B Pre-production expenditure includes interest during construction ( Birr 170.25 thousand ) training (Birr 30 thousand ) and Birr 50 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 1.26 million (see Table 7.2). The material and utility cost accounts for 46.96 per cent, while repair and
maintenance take 5.92 per cent of the production cost.
101-17 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 518.95 76.36 75 111.24 37.08 74.16 892.79 256.2 118.78 1,267.77
% 40.93 6.02 5.92 8.77 2.92 5.85 70.42 20.21 9.37 100
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.
101-18
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
47%
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 15 % and the net present value at 8.5% discount rate is Birr 1.24 million.
D.
ECONOMIC BENEFITS
The project can create employment for 21 persons.
In addition to supply of the domestic The
needs, the project will generate Birr 638,630 million in terms of tax revenue.
establishment of such factory will have a foreign exchange saving effect to the country by substituting the current imports.