Pre-Feasibility Study

FRUIT AND FOREST PLANT NURSERIES

PAKISTAN AGRICULTURE RESEARCH COUNCIL ISLAMABADMINISTRY OF NATIONAL FOOD SECURITY AND RESEARCH

Government of Pakistanwww.parc.gov.pk

January 2014

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1st Draft

Contents1 DISCLAIMER.........................................................................................................................................4

2 PURPOSE OF THE DOCUMENT.............................................................................................................4

3 INTRODUCTION TO SCHEME................................................................................................................5

4 EXECUTIVE SUMMARY.........................................................................................................................5

5 BRIEF DESCRIPTION OF PROJECT.........................................................................................................6

5.1 Tools & equipments.....................................................................................................................7

5.2 Technical Feasibility.....................................................................................................................7

5.3 Green Shed..................................................................................................................................7

5.4 Propagation.................................................................................................................................8

5.5 Irrigation......................................................................................................................................8

5.6 Cultivation....................................................................................................................................8

5.7 Environmental Aspects..............................................................................................................10

5.8 Project Benefits..........................................................................................................................10

5.9 Location.....................................................................................................................................10

5.10 Market Analysis.........................................................................................................................11

5.11 Risk analysis...............................................................................................................................11

6 CRITICAL FACTORS.............................................................................................................................12

7 INSTALLED AND OPERATIONAL CAPACITIES......................................................................................12

8 PRODUCTION PROCESS FLOW...........................................................................................................12

9 PROJECT COST SUMMARY.................................................................................................................12

9.1 PROJECT ECONOMICS................................................................................................................13

9.2 PROJECT FINANCING..................................................................................................................13

9.3 PROJECT COST............................................................................................................................13

9.4 RAW MATERIAL REQUIREMENTS...............................................................................................14

9.5 HUMAN RESOURCE REQUIREMENT...........................................................................................14

9.6 REVENUE GENERATION.............................................................................................................14

9.7 WORKING CAPITAL REQUIREMENTS..........................................................................................14

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LIST OF TABLES

Table 1 Project Economics........................................................................................................................13Table 2 Project Financing..........................................................................................................................13Table 3 Capital Investment for the Project................................................................................................13Table 4 Cost of Material............................................................................................................................14Table 5 Human Resource Requirement.....................................................................................................14Table 6 Project Economics per year..........................................................................................................15Table 7 Working Capital Requirement......................................................................................................15Table 8 Key Assumption...........................................................................................................................15Table 9 FINANCIAL STATEMENT in PKR...........................................................................................17

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1 DISCLAIMER This information memorandum is to introduce the subject matter and provide a general idea and

information on the said subject. Although, the material included in this document is based on

data/information gathered from various reliable sources; however, it is based upon certain assumptions

which may differ from case to case. The information has been provided on an ‘as is where is’ basis

without any warranties or assertions as to the correctness or soundness thereof. Although, due care and

diligence has been taken to compile this document, the contained information may vary due to any

change in any of the concerned factors, and the actual results may differ substantially from the

presented information. SMEDA, its employees or agents do not assume any liability for any financial or

other loss resulting from this memorandum in consequence of undertaking this activity. The contained

information does not preclude any further professional advice. The prospective user of this

memorandum is encouraged to carry out additional diligence and gather any information which is

necessary for making an informed decision; including taking professional advice from a qualified

consultant / technical expert before taking any decision to act upon the information.

2 PURPOSE OF THE DOCUMENT The objective of the pre-feasibility study is primarily to facilitate potential entrepreneurs in project

identification for investment. The project pre-feasibility may form the basis of an important investment

decision and in order to serve this objective, the document/study covers various aspects of project

concept development, start-up, production, marketing, finance and business management.

The purpose of this document is to facilitate potential investors in Establishment of Nurseries for Fruits

and Forest Plants by providing them a holistic as well as a micro view of the business with the hope that

such information as provided herein will help the potential investors in crucial investment decisions. The

need to come up with pre-feasibility reports for undocumented or minimally documented sectors

attains greater imminence as the research that precedes such reports reveal certain thumbs of rules;

best practices developed by existing enterprises by trial and error, and certain industrial norms that

become a guiding source regarding various aspects of business set-up and it’s successful management.

Apart from carefully studying the whole document one must consider critical aspects provided later on,

which form basis of any Investment Decision.

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3 INTRODUCTION TO SCHEME ‘Prime Minister’s Youth Business Loan’ program , for young entrepreneurs, with an allocated budget of

Rs. 5.0 Billion for the year 2013-14, is designed to provide subsidised financing at 8% mark-up per

annum for one hundred thousand (100,000) beneficiaries, through designated financial institutions,

initially by the National Bank of Pakistan (NBP) and the First Women Bank Ltd. (FWBL).

Small business loans upto 2 million with tenure up to 8 years, inclusive of a 1 year grace-period and a

debt : equity of 90: 10 will be disbursed to SME beneficiaries across Pakistan, covering; Punjab, Sindh,

Khyber Pakhtunkhwah, Balochistan, Gilgit Baltistan, Azad Jammu & Kashmir and Federally Administered

Tribal Areas (FATA).

4 EXECUTIVE SUMMARY The project of Nurseries Business will include the production and supply of new and best available fruit

varieties along with Forest collection. The proposed business will start at an area of 8 kanal (160 Marla)

that can further be increased with the expansion of the business during later years.

It is proposed to be located at areas where climate, soil, temperature are favorable along with better

distribution network to the major markets and potential consumers. Patoki in Punjab is the major hub

for nursery business in the country for all varieties and plants. For small scale level the nurseries can be

managed at every part of the country to meet the local requirements in different localities. In urban

areas mostly ornamental and fruit plants are demanded, whereas, in rural areas the utilization of fruit,

forest and vegetable is according to the farmer’s interest. The proposed project will provide direct

employment to 05 fulltime people along with required workforce during time to time as per

requirements and keeping in view the seasonal working.

Product(s) include Fruit, Forest, Ornamental Plants and vegetable nurseries.

1. Area Required approximately 8 kanal

2. Total Cost Estimate is Rs. 2.27 million with fixed investment Rs. 1.2 million and working

capital of approx Rs. 1 million

Given the cost assumptions IRR and payback are 76% and 3.5 years respectively the most critical

considerations or factors for success of the project are;

1. Strong networking with other nursery growers2. Best varieties of nursery plants

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5 BRIEF DESCRIPTION OF PROJECT Nursery Business will be used to meet the growing need of best varieties of fruit, forest ornamental plants and vegetable seedlings. The nursery industry is a very wonderful and exciting business. The production of plants for profit has the potential of providing many personal and financial rewards. However, as with many other farming enterprises that appear to be very simple on the surface, the nursery business is very complex and requires a great deal of knowledge and skill not only in production, but also in labor management and marketing.

The nursery industry is very diverse. It is a business, and like any other business, the probability of success depends on imagination, determination, planning, and good management of the five major resources.

Nursery producers utilize one or more of the following production systems: field, container,

and pot-in-pot.

I. Field production involves planting of seeds and cutting directly in the ground and then

harvesting them either as bareroot or balled-and burlapped (B&B) material and sold as

bareroot material or transplanted and sold in containers.

II. Container production entails growing plants in containers filled with soilless growing

media and placed in established production areas on the ground or on benches inside a

greenhouse or similar protective structure.

III. Products will be grafted plants of tropical subtropical and deciduous fruit plants

It is best to concentrate on only one aspect of production (propagation, container, field, Pot-N- Pot) when first getting into the business consider buying liners until the business is running smoothly and only then consider producing some of your own liners, if thought to be advantageous. However, one could start a liner nursery and concentrate on that aspect of the business and sell liners rather than landscape size plants. Marketing is an extremely important part of the nursery business and should be given equal status and attention to production. Marketing efforts should begin as soon as the commitment has been made to start a nursery business. Producers should begin to attend nursery meetings, trade shows, retail and landscape contractor meetings, during the first year of production, if not before. Proximity to other nurseries can be an advantage. Through cooperative buying, marketing, shipping, and sharing of technology and equipment, costs can be reduced. A common practice among nurseries that are close is to pool plants to make up shortfalls in numbers, sizes or species to fill orders.

There are three major areas in which nursery producers compete: price, quality and service (delivery). It is very difficult to compete with larger nurseries on production costs. Therefore, new competition must strive to produce higher quality plants and provide better service.

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Another area in which smaller nurseries can compete is by doing something a little different in marketing or in inventory. Smaller nurseries can fill a niche market by producing specialty nursery crops. These are crops that are not in large enough demand to warrant high volume production or plants that require special skills and handling.

5.1 Tools & equipments Simple tools & equipments are required to carry out the activity.

Pickaxe: for breaking up hard and stony ground.

Hoe: for loosening the soil.

Shovel: for moving earth, sieving soil, and mixing soil.

Rake: for breaking up and levelling the soil.

Sieve (chan’ni): for sifting soil for the seedbeds and potting

Funnel: for filling pots with soil mixture.

Scoop: for filling and compacting soil in pots.

Watering can: for watering seedlings.

Wheelbarrow: for transporting potting soil, filled pots, tools, seedlings, etc.

Pruners: for pruning the roots that grow out of the pots.

Germination tray: for germinating small quantities of seed.

Pointed sticks: for weeding seedbeds and potted stock.

Tools for pricking: for lifting germinated seedlings into pots

Water pipe: for irrigation

5.2 Technical Feasibility Technical feasibility takes into account whether the required technology is available or not and whether the required resources are available in terms of manpower and equipment.

A successful nursery producer needs knowledge of plants, soils, fertilizers, pesticides, irrigation, Tools, pruning, harvesting methods, overwintering techniques, packing practices, etc. It is not just casting seed to the wind and watching the trees and profits grow.

5.3 Green ShedA green shed is usually an outdoor open structure with primary purpose of providing shade. It is used to modify the environment from protecting from hot, reducing the intensity of sunlight through lowering temperature and maintaining the humidity. It is also used for protection against the cold during winter

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season by covering it with a plastic sheet. Therefore the location of this green shed should be selected accordingly. Factors such as amount of sunlight, nearby buildings and tree, and the direction of wind should be consider at the time of construction of green shed facility. The size of green shed depends upon the requirements. No specific width and length matter. The height of the green shed will depend upon the length and width. Structure of the green shed can be made with wood (bamboo etc), Metal (steel, Iron and Aluminium) and PVC and G.I Pipes. The most common structures in Pakistan are made with steel pipes of with G.I pipes or a mix of G.I and Iron.

Low, medium and high tunnel are used in nursery business. Low tunnels (approx 1meter high) are used, while medium sized (approx 2 meter) and high tunnel (approx 3meter) are used mainly for propagation and storage of plants and protection from heat and frost.

5.4 Propagation The shed will be used to propagate seedlings. Seedlings also will be grown in seedling bags in the shade covered area and the open nursery.

Propagation of fruit tree crops, hard woods and forestry species will involve field investigations to identify and select good sources of plant seeds for collection and propagation in seedling bags in the open nursery. Propagation of fruit tree crops also will involve grafting techniques to produce seedlings with desired qualities. Planting media will include commercial potting mixes for vegetable seedlings and suckers.

5.5 Irrigation The open nursery will be irrigated by a ground sprinkler system while the shade covered area will be irrigated by elevated sprinklers attached overhead to the shade structure. A misting propagator will be installed in the screen house. The irrigation system will be gravity-fed at a pressure of approximately 40 psi from a spring at 200 feet above the site.

5.6 Cultivation The green shed will provide an environment which is free from insects and other vectors. Weed control in the shade house and open nursery will be affected by use of polypropylene ground cover plastic.

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Fertilizer will be applied through mixing in the medium. Insecticides will be applied according to manufacturers’ specifications and the growing conditions.

Plants typically will be ready for sale at the appropriate age and height for transplanting depending on the specific crop, and will be sold either as rooted plugs or in seedling bags. .

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5.7 Environmental Aspects The environmental aspects of the plant nursery will be of priority importance in the development of the project. All steps will be taken to ensure that the land clearing and construction work takes place in

5.8 Project Benefits The benefits of the proposed plant nursery will include the following:

1. Introduction of improved varieties of selected plants with higher yield, resistance to disease and lower mortality rates

2. Reduced time and resources spent by farmers in self-propagation of planting material 3. Establishment of efficient and modern plant propagation centre 4. Availability of high-quality planting material on consistent and predictable basis allowing

farmers to plan production

5.9 LocationThe proposed business can be done in all over the country where fruits, forest are grown. However, the location should be selected on the basis of nursery size and keeping in view the minimum risks associated with infrastructure development to production level and from production level to marketing and distribution mechanism. Site selection and layout are very important in the early stages of the planning process. Your choices will directly affect your success in growing and selling plants. When purchasing/ leasing on rent, you should come prepared with questions. Prioritize your list of requirements based on what site characteristics are the most difficult and costly to repair after you have purchased the land. Do not purchase land or take on lease, blindly because that will lead to greater cost, reduced plant quality, increased product losses, and reduced profit. For small level business in which some plants are procured from outside and some are grown at own capacity. The location should be near the main highways, city area and already existing nursery market.

Location of your nursery may be predetermined based on availability of property or for personal reasons. Alternatively, you may be free to choose a location that best suits your needs and goals. In either case, your location choice will directly affect your decisions on marketing, employee hiring, and future expansion.

In selecting a location you should consider proximity to other nurseries, to major cities, and to highways. Other factors to consider include availability of transportation facilities, distance to market, competition, availability of reliable labor (full-time, part-time, and seasonal), and availability of inexpensive land for future expansion. (You should know that locating near other nurseries may be mutually beneficial for small operators by providing markets for specialty items, sharing transportation services, and increasing the frequency of buyer visits.) Yet another consideration in choosing a location is the present and future regulatory status of the area (e.g., zoning, taxation, labor relations, environmental issues, and product inspections).

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5.10 Market Analysis Orchard growers, small, medium and large scale farmers along with huge local markets in Karachi, Lahore and Islamabad for ornamental plants are the targeted markets for the nursery business. Nursery owner must analyze and organize his or her own marketing channels, develop a sales program, prepare the product for distribution, extend credit, and make collections. There are many resources available through bookstores and libraries which provide tips on marketing and business management techniques. Five possible approaches to defining your market and customers are:

1. Define the types of customers within your target market (average salary, average number per household) based on census and local Chamber of Commerce data;

2. Determine customer preferences for products and services through questionnaires and by investigating the local competition;

3. Use local and national industry association data and commercial publications to determine market trends;

4. Anticipate future preferences on the types and number of plants to grow; and5. Promote plants which you or other colleagues consider outstanding

5.11 Risk analysis Compared to many agricultural crops, greenhouse or nursery crops offer the opportunity to produce a fair amount of income on small acreage. With this income potential, however, come sizable risks. Risk results from the inability to predict the future accurately. Sources of risks that may affect the grower’s income are production, marketing, financial, legal, environmental, and human resource risks.

Production risk concerns variation in output arising from many uncontrollable events such as weather (wind, rain, hail, etc.) insects and pests, technical challenges, diseases, input quality and availability. Fire, theft, and other casualties are also sources of production risk.

Marketing risk concerns price risk and the availability of markets. Price risk is related to the variability of the price of commodities or the price of inputs, and to unanticipated forces that lead to dramatic changes in retail and wholesale prices.

Financial risk has three basic components: interest rate risk, liquidity, and solvency. Interest rate risk concerns the cost of short-term, intermediate, and long-term debts. Liquidity concerns the ability of a business to pay its cash obligations in a timely fashion.

Legal and environmental risk results from changes in policies and regulations that affect greenhouse and nursery business. For example, changes in government rules regarding the use of pesticides, tax, trade, environmental, or credit policy may alter the cost of production.

Human resources risks may result from events associated with greenhouse operators and their families, professional consultants, and employees (e.g., theft, accidents, death, divorce, injury, seasonal labor needs, or poor health of key personnel).

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6 CRITICAL FACTORS Individuals considering entering the nursery business need to carefully consider the following factors:

1. Networking with other growers and farmers from all over the country would be necessary to

meet any excess requirement or shortfall

2. Consistent quality of plants with complete knowledge of plant variety

3. Availability of skilled manpower

7 INSTALLED AND OPERATIONAL CAPACITIES For this project it is assumed that the production will start from the very first year for the products like pots, plants grown through cuttings, varieties along with purchases from other whole salers and propagators.

8 PRODUCTION PROCESS FLOW

Basis Infrastructure

Plant and Variety Selection

Development and Growth

Distribution

Fruit Plants Nursery Plants Forest Plants Nursery Plants

9 PROJECT COST SUMMARY A detailed financial model has been developed to analyze the commercial viability of Nursery Project

under the ‘Prime Minister’s Youth Business Loan’ program. Various cost and revenue related

assumptions along with results of the analysis are outlined in this section.

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9.1 PROJECT ECONOMICS All the figures in this financial model have been calculated for Nursery Production annual production of

around 20,000 Plants.

The following table shows internal rate of return and payback period.

Returns on the scheme and its profitability are highly dependent on quality of plants and selection of

varieties, suitable location, good farming practices and availability of trained staff. The project will not

be able to cover the potential demand of consumers and recover payments, if these factors are not

efficiently managed and will also lead to increased operating cost.

Table 1 Project Economics

Description DetailsNet Present Value (NPV) Rs. 3,128,750Benefits Cost Ratio (BCR) 1.81Internal Rate of Return (IRR) 40%Payback Period (years) 3.41

9.2 PROJECT FINANCING Following table provides details of the equity required and variables related to bank loan;

Table 2 Project FinancingDescription Details

Total Equity (10%) Rs. 244,970Bank loan (90%) Rs.1,982,030Mark up to borrower (per annum) 8%Tenure of Loan (Years) 8%Grace Period (years) 1

9.3 PROJECT COST Following requirements have been identified for operations of the proposed business.

Table 3 Capital Investment for the ProjectRequired Capital Amount2 Green houses 3000 SFT each 500,000Water Storage Tank 10,000Pots 45,000Equipments 20,000Water Bore 125,000Peter Pump 100,000Office and Equipments 150,000Misc. Expenses 30,000Total Capital Cost 980,000

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9.4 RAW MATERIAL REQUIREMENTSTable 4 Cost of Material

Item Unit Qty Rate (Rs) Amount

Land (Leased / Rental basis) 50,000 50000Plants No 20000 20 400,000Manure Trolley 15 2000 30,000Special Soil Trolley 5 2000 10,000Polythene Bags/Trays/Pots No 100,000Total 590,000

9.5 HUMAN RESOURCE REQUIREMENTTable 5 Human Resource Requirement

Description Nos. Salary/employee/month

Expert 1 25,000Skilled Labour 2 20,000Total per month 35,000Total per year 420,000

9.6 REVENUE GENERATION Sale of fruit and forest plant will mostly be during mid January to end of March and in august during

monsoon period in some parts of the country. Vegetable nursery plants will be sold during rabi and

kharif period while ornamental plants can continue throughout the year.

9.7 WORKING CAPITAL REQUIREMENTSIt is estimated that an additional amount of approximately Rs. 298,662 will be required as cash in hand

to meet the initial working capital requirements during operations. The requirement is based on the

utilities, salaries, raw material inventories and miscellaneous expense for at least three months. The

following table gives the break up.

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Table 6 Project Economics per year

Products UnitSales Price (Rs./Unit)

Amount (Rs)

Fruit Plants (4 kanal) 15,000 50 750,000Forest plants (4 kanal)1.       Saplings 80,000 15 1,200,0002.       Cuttings 20,000 2 40,000Total Sale in second year with full capacity 1,990,000

995,000

Table 7 Working Capital Requirement

Items MonthsMonthly Charges (Rs.)

Utilities 6 12,000Salaries 6 210,000

Miscellaneous Expense 6 15,000Total 237,000

Table 8 Key AssumptionParticulars Assumption

Sales Price Growth Rate 4% per yearIncrease in cost of raw material 5% per yearIncrease in utilities 5% per yearDebt/Equity Ratio 90:10Loan Period 8 yearsGrace Period 1 yearLoan Installments MonthlyFinancial charges (interest rate) 8%

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Lay out plan for 8 kanal Land Area

50,000 polythene bags per kanal

3000 Medium Pots Per kanal

Fruit plants

1500-2000 average large Pots per kanal

Larger Plants

Propagation Area

Raw material and Store Room

I Kanal = 20 X 273= 5460 Sq.ft

Two Green Gouses

One green house can accommodate 3000 plants

Office and Front Sitting area

Display Display

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Water Storage

Table 9 FINANCIAL STATEMENT in PKR

YearCapital Cost

Infrastructure Oper. and Maint.

Plants & Raw Material

Human Resource

Total Cost

Gross Benefit

Cash flow Interest

Income after Interest Payment PV Cost

PV Benefit

0 1217000 590000 420000 2227000 0-

2227000

1 0 590000 420000 1010000 1990000 980000 131076 848924 1010000 1990000

2 25000 619500 441000 1085500 1990000 904500 306447 598053 1005093 1842593

3 26250 650475 463050 1139775 2069600 929825 306447 623378 977173 1774348

4 27563 682999 486203 1196764 2152384 955620 306447 649173 950030 1708632

5 28941 717149 510513 1256602 2238479 981877 306447 675430 923640 1645349

6 30388 753006 536038 1319432 2328019 1008587 306447 702140 897983 1584410

7 31907 790656 562840 1385404 2421139 1035736 306447 729289 873039 1525728

8 33502 830189 590982 1454674 2517985 1063311 306447 756864 848788 1469220

Technical Resource Persons

Dr. Khalid Mahmood Qureshi 051-8443751 0300-5241628 kmq_2008@hotmail.co.uk

Dr. Hafeez-ur-Rahman 051-8443760 0301-5462535 askhafeez594@yahoo.co.uk

Dr. Imtiaz Ahmad Qamar 051-8443668 0303-5091922 iaqamar@gmail.com

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