21.
Executive Summary
This project profile deals with the establishment of 10 hector broom corn production farm in Amhara
National Regional State. The following presents the main findings of the study
Demand projection divulges that the domestic demand for broom corn is substantial and is increasing
with time. Accordingly, the planned farm is set to produce 60 ton of broom corn annually. The total
investment cost of the project including working capital is estimated at Birr 1,636,973.85 and creates 42
jobs and Birr 960,710 of household income annually for workers.
The financial result indicates that the project will generate profit beginning from the first year of
operation. Moreover, the project will break even at 48.6% of capacity utilization and it payback fully the
initial investment less working capital in third operation year. The result further show that the calculated
IRR of the project is 27%
In addition to this, the proposed project possesses wide range of economic and social benefits such as
increasing the level of investment, tax revenue, employment creation and import substitution.
Generally, the project is technically feasible, financially and commercially viable as well as socially and
economically acceptable. Hence the project is worth implementing.
22. Product Description and Application
The long fibrous panic of broom corn farm is a type of sorghum that is used for making brooms and
whisk brooms. A ton of broom corn brushes makes 80 to 100 dozen of brooms. Therefore quality broom
corn brush is a pea-green in color and free from discoloration. The fibers should be straight, smooth,
pliable and approximately 50.8 cm long. Brush that is overripe, reddened, bleached, crooked, coarse, or
flat is considered poor quality.
1
Broom corn is one of the sorghum. Unlike other sorghum varieties which are grown for grain, fodder and
making molasses, broom corn is grown only for broom making. It is cultivated like any other ordinary
field crop. It is well adapted and widely grown in areas with 500 to 700 mm rainfalls and temperature
range of 27 0c to 400c; soil PH from 5.0 to 8.5. The best brush is produced on warm and moist weather
and fertile soils. From farming to harvesting crops and preparing it for broom maker require a great deal
of manual labor. Hence the production process of broom corn is labor intensive.
In the light of the crop's natural conditions and production requirement the Amhara region has both
resources in abundance. In fact, it has a comparative advantage in terms of cheap labor availability and
suitable land resources. The region has over 85,000 hectares of land in the lowlands of North Gondar
and West Gojam zones.
6) Market Study, Farm Capacity and Production
Program
3.46 Market Study
3.46.1 Present Demand and Supply
Broom corn brush is used as raw material for broom and whisk broom making industries in the USA and
European Countries. A broom made of broom corn is the best for heavy duty sweeping in warehouses
and roads. In fact, no other fiber equals broom corn for picking dust and sweeping. Because of its unique
quality of the brush, broom corn is highly demanded by the broom industries in developed countries. On
the other hand because its production process is labor intensive, it is becoming very expensive to
produce it in the developed countries. Therefore, the broom industries are looking for cheap supply of
broom corn. In fact, there are some companies in Ethiopian already established and engaged in the
production of broom corn and exporting to the USA.
The average annual demand for broom corn is forecasted following the subsequent scenarios, the short
run niche marketing is ANRS and Addis Ababa off course the farm will engage in export in the long run.
The aggregate population of the two regions is around 25 million. And if we assume 20% of the total
population purchases 0.5 kg per year, average annual demand is estimated to be about 2500 ton. With
5% annual growth rate the ten year projected demand will be as follows.
3.46.2 Projected Demand
Table 28: Projected Demand for Broom Corn
Year Projected Demand for
Broom Corn (in ton)
2016/17 4072
2017/18 4276
2018/19 4490
2019/20 4715
2020/21 4951
2021/22 5199
2022/23 5459
2023/24 5732
2024/25 6019
2025/26 6320
2026/27 6636
2027/28 6968
3.46.3 Pricing and Distribution
The market survey result indicates that the average retail price for broom corn in retailer shop on
average is Birr 44 per kg. Deducting 20% margin for retailer and 10% for wholesaler and by taking the
capacity of the envisioned farm in to account, the selling price of Birr 31 per kg of broom corn has been
estimated for the projection of the revenue of the farm. The available retail and wholesale network shall
be used by the envisaged farm to reach its customer.
3.47 Farm Capacity
Thus, given the modern plant science, expected demand for broom corn presented earlier and the
planned technology, the envisaged farm is set to produce 60 ton of broom corn from 10 ha of land
annually. Indeed this capacity is only hypothetical, as untapped demand and sufficient land for the
production prevailed in the region, an investor can exploit this opportunity to expand its’ farm to the
maximum of its’ capacity in the future.
3.48 Production Program
The program is scheduled based on the consideration that the envisaged farm will produce twice
annually. During the first year of production the farm will produce only 75 percent of the total capacity
and then it grows to 85 in the 2 nd year. The capacity will grow to 100 percent starting from the 3 rd year.
This consideration is developed based on the assumption that market and logistics barriers would take
place for the first two years of production.
24. Raw Materials and Utilities
29.1 Availability and Source of Raw materials
Like any other field crops, broom corn production requires seeds, fertilizers and agro-chemicals as raw
materials or inputs. These inputs are adequately available locally. At initial stage probably, importation
of certified seed from USA, may be necessary.
29.2 Annual Requirement and Cost of Raw Materials
and Utilities
The annual raw material and utility requirement and the associated cost for the envisaged farm is listed
in table 4 here under
Table 29: Material and Utility Requirement
Total Cost
(Birr)
Material and Input Quantity L.C. F.C.
3-4 quintal per 152,677
Seeds hectare
Fertilizers 1000Kg 15,396
Agro-chemicals 50lit. 2,566
Total Material Cost 170,639
Utility
Electricity 1000KWh 550
Water 500m3 1,325
Total Utility Cost 1,875
30 Location and Site
5
The appropriate locations for the envisaged project in view of the availability of input, Suitable weather
condition, infrastructures as well as market for the output are Lowland areas of North Gondar, West
Gojam and Awi zones are suitable for the project.
31 Technology and Engineering
31.1 Production Process
Broom corn can be produced with rain-fed or irrigation system. With irrigation it can be produced twice
on the same field. Land development and seed bed preparation are per requisite before farming. Broom
corn is farmed in rows at 60 cm by 10 cm between rows and farms respectively. Seed rate is 3-4 quintal
per hectare. The crop is cultivated like any other field crops and matures from 75-80 days after farming.
When it is pea-green it should be harvested and for seed production the crop may last up to 100 days.
For fiber or brush production it should be harvested before the seed matures and the fiber becomes
brittle. Brush is cut off just below the crown and piled in batches on wooden table. The brush is spread
on racks in a drying shed. After curing for 2-3 weeks, the dried batches are hauled to a machine called
seed remover with whirling spiked cylinder which knocks of the seed. The seedless brush is compressed
in to bales weighing 40-50kg each. All this must be done carefully to yield good, untangled and straight
fiber for use in broom.
31.2 Machinery and Equipment
The machineries and equipment required for broom corn is basically, irrigation machine and seed
remover machine. While all the relevant farm equipment are used. A total of Birr 615,840
including freight insurance and bank cost is required to cover their cost.
Supplier address
The above mentioned machineries and equipment are available at Addis Ababa market.
31.3 Civil Engineering Cost
Broom corn production will have two inseparable components, i.e. a farm and a processing unit. Even if
the farm size depends on the capacity and interest of the investors, this project is prepared for 10
hectare of land. The processing unit will require about 2000m 2 for curing, drying, cutting and baling. To
establish the two units will require investment of a total Birr 642,013.
32 Human Resource and Training Requirement
32.1 Human Resource
The list of required manpower for the envisaged farm is stated in table 3 below
Table 30: Human Resource Requirement
Position Req. Monthly Salary Total Annual Salary
No. (Birr) (Birr)
Farm Manager 1 8,981 107,772
Production Head 1 7,698 92,376
Administration & Finance 1 7,698 92,376
Accountant 1 2,566 30,792
Sales 1 1,796 21,554
Plant Science Graduate 1 5,645 67,742
Laborers 30 770 277,128
Operator 2 1,796 43,109
7
Store Keeper 2 1,796 43,109
Security 2 1,026 24,634
Total - 800,592
Employment Benefits 20% of Annual Salary 160,114
Grand Total 42 - 960,710
The envisaged farm therefore, creates 42 jobs about Birr 960,710 of household income through
employment annually.
32.2 Training Requirement
Training of key personnel shall be conducted in the first quarter of the first production year. This can be
arranged with the suppliers of the region Agriculture bureau. The training should primarily focuses on
the scientific production techniques and farm management. Birr 89,810 will be allocated as training
expense.
33 Financial Analysis
33.1 Underlying Assumption
The financial analysis of broom corn producing farm is based on the data provided in the preceding
chapters and the following assumptions.
WW. Construction and Finance
8
Construction period 2 year
Source of finance 40% equity and 60% loan
Tax holidays 2 years
Bank interest rate 12%
Discount for cash flow 18%
Value of land Based on lease rate of ANRS
Spare Parts, Repair & Maintenance 3% of fixed investment
XX. Depreciation
Processing House 5%
Machinery and equipment 10%
Office furniture 10%
Pre-production (amortization) 20%
YY. Working Capital (Minimum Days of Coverage)
Raw Material-Local 30
Raw Material-Foreign 120
Farm Supplies in Stock 30
Work in Progress 10
Finished Products 15
Accounts Receivable 30
Cash in Hand 30
9
Accounts Payable 30
10
33.2 Investment
The total investment cost of the project including working capital is estimated at Birr 1,636,934.7as
shown in Table 4 below. The Owner shall contribute 40% of the finance in the form of equity while the
remaining 60% is to be financed by bank loan.
Table 31: Total Initial Investment
Item Cost
Land 25
Building and civil works 513,200
Office equipment 205,280
Vehicles -
Plant machinery & equipment 615,840
Total Fixed Investment 1,334,345
Pre production capital expenditure 66,719
Total Initial Investment 1,401,064.21
Working capital at full capacity 235870.492
Total 1,636,934.70
*Pre-production capital expenditure includes - all expenses for pre-investment
studies, consultancy fee during construction and expenses for company‘s
establishment, project administration expenses, commission expenses,
preproduction marketing and interest expenses during construction.
33.3 Production Costs
The total production cost at full capacity operation is estimated at Birr 1,412,233.89 as detailed in Table
5 below.
11
Table 32: Production Cost
Total Production Cost at Full Capacity
Items Cost
1. Raw materials 170,639
2. Utilities 1,875
3. Wages and Salaries 960,710
4. Spares and Maintenance 40,032
Factory costs 1,173,255.92
5. Depreciation 121,115.84
6. Financial costs 117,862.13
Total Production Cost 1,412,233.89
33.4 Financial evaluation
XCVII. Profitability
According to the projected income statement attached in the annex part the project will generate profit
beginning from the first year of operation. Ratios such as the percentage of net profit to total sales,
return on equity and return on total investment are 8.52%, 23.94% and 17.89% in the first year and are
gradually rising. Furthermore, the income statement and other profitability indicators show that the
project is viable.
XCVIII. Breakeven Analysis
The breakeven point of the project is estimated by using income statement projection.
Accordingly, the project will break even at 48.6% of capacity utilization.
12
XCIX. Payback Period
Investment cost and income statement projection are used in estimating the project payback period.
The projects will payback fully the initial investment less working capital in third year.
I. Simple Rate of Return
For the envisaged farm the simple rate of return equals to 24.5%
CI. Internal Rate of Return and Net Present Value
Based on cash flow statement described in the annex part, the calculated IRR of the project is 27% and
the net present value at 18 % discount is Birr 535,701.64.
CII. Sensitivity Analysis
The envisaged farm is profitable even with considerable cost increment. That is the farm maintains to be
profitable starting from the first year when 10 % cost increment takes place in the sector. This result is
accompanied by same payback period but in the last quarter.
34 Economic and Social Benefit and Justification
The envisaged project possesses wide range of benefits where it promotes the socio-economic goals and
objectives stated in the strategic plan of the Amhara National Regional State. These benefits are listed as
follows
EEEE. Profit Generation
13
The project is found to be financially viable and earns on average a profit of Birr280,667 per year and
Birr 2.8 million within the project life. Such result induces the project promoters to reinvest the profit
which, therefore, increases the investment magnitude in the region.
FFFF. Tax Revenue
In the project life under consideration, the region will collect about Birr 1,064,456.00 from corporate tax
payment alone (i.e. excluding income tax, sales tax and VAT). Such result create additional fund for the
regional government that will be used in expanding social and other basic services in the region
II. Import Substitution and Foreign Exchange Saving
Based on the projected figure we learn that in the project life an estimated amount of US Dollar
1.758,839.00 will be saved as a result of the proposed project. This will create room for the saved hard
currency to be allocated on other vital and strategic sectors
III. Employment and Income Generation
The proposed project is expected to create employment opportunity to several citizens of the region.
That is, it will provide permanent employment to 42 professionals as well as support stuffs.
Consequently the project creates income of Birr 960,710 per year. This would be one of the
commendable accomplishments of the project.
IIII. Pro Environment Project
The proposed production process is environment friendly and has got a significant share with respect to
positive externalities.
JJJJ. Diversification and InterSectoral linkage.
14
The proposed project helps to diversify ANRS’ and Ethiopian economy. It contributes to industrialization
of the ANRS as well as the country as a whole. It also has a potential to strengthen the linkage between
the manufacturing and the trade sub-sectors.
15