OROMIA INVESTMENT BUREAU

BUSSINES PLAN FOR COFFEE, SESAME AND HARICOT BEAN

PRODUCTION IN LALISTU LOPHI PEASANT ASSOCIATION OF

WEST WOLLEGA ZONE

AUGUST 2000

FINFINNE

Project owner: Habtamu Ragaa Feisa

Address Habtamu Regaa Gen/Impex Tel: 0911220397 E-mail: HTUfeisah@ethionet.etUTH

Finfinne/Addis Ababa

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Table of Contents pages TU1. BackgroundUT....................................................................................................................6

TU1.1 IntroductionUT............................................................................................................... 6 TU1.3 MethodologyUT ............................................................................................................. 7

TU2. Project AreaUT ...................................................................................................................8

TU2.1 Project Location, Climate and Physical FeaturesUT ..................................................... 8 TU2.2 Topography and Agro-ecologyUT ................................................................................. 9 TU2.3 RainfallUT...................................................................................................................... 9 TU2.4 VegetationUT ............................................................................................................... 10 TU2.5 Road net worksUT ...................................................................................................... 10

TU3. Technical FeasibilityUT ..................................................................................................11

TU4.Cropping Pattern and Land Allocation UT ..................................................................11

TU5. Project ComponentsUT ..................................................................................................12

TU5.1 Maintenance of of Roads, Office and Residential BuildingsUT.................................. 12 TU5.2 Nursery Establishment UT ............................................................................................ 12 TU5.3UT TUCoffee PlantingUT ................................................................................................. 13

TU6. Project Man Power and ManagementUT....................................................................14

TU7.Crop Yield and ProductivityUT......................................................................................15

TU8. Project Labor, Material and Office Requirement UT...Error! Bookmark not defined.

TU8.1 Labour RequirementsUT...............................................Error! Bookmark not defined. TU8.2UT TUMaterials RequirementsUT .................................................................................... 16

TU8.2.1UT TUSeed Requirement UT ..................................................................................... 16 TU8.2.3UT TUFarm Machine and VehicleUT ........................................................................... 17 TU8.3UT TUOffice and StoreUT ................................................................................................ 17

TU9. Socio-Economic BenefitsUT .........................................................................................17

TU10. Financial Study and AnalysisUT................................................................................18

TU10.1UT TUProject CostsUT ..................................................................................................... 18 TU10.3 Project Life UT............................................................................................................ 19 TU10.4 Source of Finance UT ................................................................................................. 19 TU10.5 Revenue UT................................................................................................................ 20 TU10.6 Income TaxUT ........................................................................................................... 20 TU10.7 Financial Analysis ResultsUT .................................................................................... 20

TU10.7.1UT TUCash FlowUT ................................................................................................. 21 TU10.7.2 ProfitabilityUT .................................................................................................... 21

TU11. Project Schedule/Activity ComponentsUT ............................................................22

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TU12. AnnexesUT ......................................................................................................................23

TUAnnex Table 1. Project cash flowUT ..............................................................................25

TUAnnex Table 2. Coffee, sesame and haricot bean project profit & loss statement for the year ending July 30UT......................................................................26

TUAnnex Table 3. Detailed investment costsUT..............................................................26

TUAnnex Table 4. Detail operating costsUT ......................................................................27

TUAnnex Table 5. Depreciation for building, equipment and vehicleUT ..................29

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EXECUTIVE SUMMARY

The investor is planning to invest on the production of exportable crops, which

include coffee, sesame and haricot bean. These crops are currently the major

export crops in Ethiopia and the project is inline with government interest and

policy which focuses on market oriented agricultural production. It is also inline

with agricultural strategy of the government of Oromia and contributes to the

recent undertakings of the region on agricultural development corridors plan.

Coffee, sesame and haricot bean are an important export cash crops in

Ethiopia's economy that contributes for more than 60% of the foreign exchange

earning. Coffee alone provides direct and indirect employment for over 25% of

the country's population. In recent years oil crops particularly sesame as well as

haricot beans are becoming an important exportable crops in the Ethiopian

economy. Cognizant of this fact, the Ethiopian Government is providing

significant support as stated in the economic policy to initiate private investors to

take part in the production, processing and marketing of these valuable crops.

This project proposal is prepared to undertake production of coffee, sesame and

haricot beans in Begi woreda of West Wollegaa Zone, in Lalistu Lophii PA in a

specific locality called Fuddaa. The major objective of the project is to produce

high quality export crops under proper scientific management on a total land

area of 200 hectares.

West Wellegga zone in general and the project area in particular is an ideal

geographic area for coffee, sesame and haricot bean production. The natural and

social factors at the project site have demonstrated the technical feasibility of the

project. The quality of coffee in that vicinity falls under Limu Coffee category,

which is highly demanded for its flavor and aroma on international market.

The total cost of the proposed project is estimated at Birr 1.45 million out of

which birr 1.1 million is investment capital while the rest birr 0.34million is

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working capital. Regarding the source of fund almost all of the total investment

cost shall be covered by the contribution of the promoter.

The project will start to generate profit on the seconded year and the total net

cash inflow during the project period is highly positive. The discounted Cash flow

shows that the project is viable with a Net Present Value (NPV) of Birr

374,260.00 discounted at 8.5 per cent, and the Internal Rate of Return is very

28.2 which indicates that the project is financially feasible and highly lucrative.

Furthermore, the intended project would increase the country's' foreign exchange

earnings, provide employment opportunities, transfer improved skill to the

surrounding and also generate additional income to the government. Therefore,

the project is technically, economically and financially feasible and acceptable.

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1. Background

1.1 Introduction Currently Agriculture dominates Ethiopian Economy. The sector contributes to

economic growth through providing employment for large proportion of the

population. It provides export products, food and industrial raw materials and aids

industrial expansion by providing market for domestically produced goods.

In the agricultural sector high value crops, especially coffee, sesame and haricot

bean have a great impact in providing export market. The available indicators

reveal that coffee accounts for more than 50% of the foreign exchange earning of

the country. The crop generates the largest tax share from foreign trade and

about a quarter of the country's population also directly or indirectly depends on

coffee for their livelihood.

The total area under coffee production in Ethiopia is estimated to be about

500,000 hectares with a total annual production of more than 200,000 tons.

Ninety-five percent of the total annual coffee production comes from the peasant

sector while the balance is covered by large scale farms. The average national

productivity of coffee in Ethiopia is very low compared to the productivity of other

coffee producing countries. This is mainly attributed to backward production

techniques employed by smallholder farmers. The current low productivity of

coffee as well as other crops has to be changed through improved agricultural

production techniques so that the country could benefit from the sector. This

could be done through creating appropriate linkage between smallholder farmers

and private commercial farmers.

The Economic policy promulgated by the Federal Government of Ethiopia has

brought about a great opportunity to private investors in all sectors of the

economy and continually abolishing obstacles hindering investment. .

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The expansion of modern coffee farms by private investors is believed to boost

coffee production and productivity. This would highly benefit the economy as the

crop has long remained to be the single largest crop contributing over half of the

country's foreign currency earning.

The promoter of this project Capt. Habtamu Regaa is one of the beneficiaries of

the new economic policy who has been initiated to invest in exportable crops that

the government has given utmost consideration in the development strategy of

the country.

The Investor, besides planning to invest in the area of the agricultural sector, has

also previously played a significant role in the area of Import Export Trade Sector

and has already maintained a great deal of experiences in dealing with and

smoothly managing the various problems arising among Agriculture, Industry and

Trade.

1.2 Project Objectives Objective of the project is production of high value crops, which include coffee,

sesame and haricot bean for the export market following the major government

policy frame work which gives emphasis to market oriented production. In line

with this the following are specific objectives of the project:

To develop 60 hectares of land with modern coffee plantation,

To develop 130 hectares of land with modern sesame and haricot

plants

To generate attractive return to the investor and also contribute to the

foreign exchange earning of the country and,

To introduce modern coffee, sesame and haricot bean production and

management techniques to the surrounding locality

1.3 Methodology

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Methodologies adopted in undertaking the study include document reviewing

regarding the production technologies and adapting the cultural practice of the

three crops. Coffee production packages utilized by medium to large commercial

coffee farms were also reviewed to understand the current status of coffee

production techniques. Visit has been made to the site together with the investor

and field level data were collected through observations of the site, discussions

were carried out with the community in the surrounding area and agricultural

experts and officials of the woreda were also consulted

The cultural practice experiences and improved management practices for

modern production techniques was considered in the planning of activities, cost

estimates of operations, production yields, etc for the individual operations of the

project. The organizational structure, the staffing plan and the overall manpower

requirement were also estimated based on the data collected.

2. Project Area

2.1 Project Location, Climate and Physical Features

The project site is located in Begi Woreda in West Wollega Zone of the Oromia

Regional State in a Peasant Association called Lalistuu Lophii and the specific

locality is Fuddaa. It is adjacent to a wide marshy basin known in West Wellega

as Caffee Yaa-balloo.

The site diverts 27 kms from the main Begi - Gidami road. Begi town is about

250 kms and 700kms from the zonal capital Gimbi and Finfinne, respectively.

The total area of the project is 200 hectares which is entirely located in Lalistuu

Lophii PA.

The proposed investment area is new. It is dominantly covered with open shrub

lands. The area is free from settlement and any sort of agricultural activities

including livestock and grazing land. The site can therefore be used for coffee

and sesame cultivation without any complication that could result from land use

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arrangements.

2.2 Topography and Agro-ecology

Agro-ecologically the area is characterized by sub tropical low land type of

climate. The altitude of the area is ranging from 1,400 to 1,600 meters above sea

level within the range of ecology recommended in Ethiopia for the targeted crops.

In Ethiopia coffee grows at various altitudes, ranging from 550-2,750m above sea

level. Coffee arabica is ideally produced in the altitudes ranging from 1,300 -

1,800 masl indicating that the area selected is very much suitable for coffee

production. Sesame is grown from seas level to 1500m while haricot bean can

grow in altitudes ranging from 900masl to 2000masl.

With regard to topography the locality of the site falls within a slightly to

moderately gently slopping plain with suitable topography for coffee, sesame and

haricot bean production. The land is well drained and not exposed to flooding

hazards. Ragged land and steep slopes account for less than 10%.

The soil of the project locality is fertile with a high nutrient-holding capacity for

clay minerals indicating that it is friable, and loamy, with a good depth for

cultivation of coffee, which relatively requires deeper soils compared to haricot

bean and sesame. The topsoil is dominantly dark-brown or brownish in color, and

fertility is maintained by organic recycling through litter fall from the numerous

perennial plants in the project site.

2.3 Rainfall Rainfall of the site is mono-modal type, which begins usually in mid April and

continues up to mid September and is uniformly distributed in most years and is

favorable for the production of most crops including coffee, haricot bean and

sesame. The annual rainfall is well over 1,450mm and fairly distributed in the

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year. The climatic condition of the locality is pleasant for coffee and oil crops

(sesame). Annual rainfall in the coffee-growing regions of the country varies from

1,400-2,500mm.

Coffee arabica grows best in the cool, shady environment of the forests of the

Ethiopian highlands. The ideal temperature for coffee arabica is considered 15-

25ºc. This temperature prevails in most of the country's coffee-growing areas and

Begi woreda is not exceptional. Haricot beans are a warm season crop; the

optimum temperature for their growth is about 24oc. Growth and fruiting of

sesame plants are favored at 20oc.

2.4 Vegetation The vegetation cover of Begi woreda is a sub-humid tropical forest type. Among

the main tree types in the area are Patria ferruginous (Kararo), UCordia, abysinicaU

(Wanza), Croton machrostachys (Bisana) and Albizzia schimperiana (Sesa).

The area is predominantly covered with dense forest and most of the tree

species in the area like Wanza and , Bisana are suitable for coffee shade and

will selectively remain on the farm to serve this purpose. In addition to the

natural trees already existing on the farmland, a more suitable shade of acacia

trees shall be artificially planted and intensified in the area. This practice at the

same time would help to maintain the ecology of the locality as well as the fertility

status of the soil.

2.5 Road net works

Begi woreda has a good conditioned gravel road in two directions. New road is

also under construction from Nejo town to Begi, which is a short cut to Ghimbi

the capital city of the zone. The new road creates the seconed option for access

to transportation from the project site to the main asphalt highway, which is a

very good opportunity for the project.

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3. Technical Feasibility

The West Wellega zone in general and the project area in particular are the most

ideal places for coffee, oil crops and beans as well as other crops production.

The average annual temperature of 24 P

oPc and sufficient annual rainfall with fair

distribution over months and short dry period created favorable condition for the

selected crops. Furthermore, altitude of about 1,400 m above sea level, the type

and quality of soil, suitability of the slope for drainage, the availability of suitable

shade trees and the permanent rivers crossing the area justifies the suitability of

the area for coffee, sesame and haricot bean growing.

On the other hand, concerned government line offices have long ago demarcated

the area as one of the places where private investors could invest and participate

in the development endeavors already underway in the country. Agreement has

also obtained from concerned bodies at various levels to implement the intended

project.

Coffee is the main crop growing in the vicinity and the people in the area have

good experience in handling and managing the crop. This would facilitate the

possibility of getting experienced human labour for the operation of the farm.

There are sufficient social services in the nearest small town called Gunfi.

4.Cropping Pattern and Land Allocation

The total land to be developed by the project is 200 hectares with an effective

plantation area of 190 hectares while the remaining 10 hectares will be used for

infrastructure development such as offices, residence, farm road and store.

Coffee plantation will be established on 60 hectares of land while sesame and

haricot bean will be grown on the remaining 130 hectares on crop rotation base

as shown on table 1 below.

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Table 1. Land development plan for Coffee, Sesame and Haricot bean plantation in hectare

Years Sn Crop type 1 2 3 4

1 Coffee 30 60 60 60 2 Sesame 100 100 30 100 3 Haricot bean 0 30 100 30 Total area 130 190 190 190 5. Project Components

5.1 Maintenance of Roads, Office and Residential Buildings The project infrastructure and land development commences as soon as the

legality process is completed. At the initial stage of the project that is during year

zero of project implementation maintenance of 15kms of feeder road,

construction of 3 small bridges and 6km farm road will be carried out and the

total cost is estimated at 138, 000 birr.

The project will construct 100m2 office, 200m2 staff residence, 60m2 laborers

residence, and one cafeteria and two stores with a total cost of birr 244997 as

shown in Annex Table .3.

5.2 Nursery Establishment The farm shall establish its own nursery for production of coffee seedlings at the

beginning of year one. The nursery will have a capacity of producing 144,000

seedlings on an estimated half hectare of land. The nursery will be established

in central position of the project area and there is a permanent source of water

which could irrigate the seedlings throughout the dry season.

The seeds to be sown shall be high yielding CBD resistant varieties to be

purchased from coffee research center in the Zone. Land preparation and seed

sowing has to be carried out ten months before plantation. Under warmer

climates and good management coffee seedlings could be ready for planting

within 7 to 9 months. All the required nursery tools and materials like watering

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cane, etc. shall be supplied on time. The seedling will be raised on beds

prepared from a mixture of sand and forest soil. Each seedling will be

supplemented by an average of 3 gm of DAP at its later growth period for an

optimal growth.

The nursery and initial land development activities will only last two years while

other routine management of the farm continues over the project period. Most of

the farm activities will be done manually as it is relatively cheap and would also

create an employment opportunity for the area. The total labor requirement of

the operational activities like weeding, hoeing, pruning, fertilizing, harvesting shall

progressively grow and become approximately constant after the forth year.

Table 2. Nursery establishment cost

Qty Total cost (Br.) No Descriptions Unit Year 1 Year 2 Year 1 Year 2

Labor

1 Site clearing uprooting & leveling

Md 70 - 420 0

2 Bed preparation and mulching

Md 100 100 600 600

3 Forest soil mixture preparation

Md 100 100 600 600

4 Shade materials preparation

Md 1,330 1,330 7,980 7,980

5 Water and weeding Md 600 600 3,600 3,6006 Fertilizing and spraying Md 30 30 180 180

Total - - 13,380 12,960

5.3 Coffee Planting Selective land clearing and uprooting will be the major task in land preparation.

Following the land preparation, the field will be staked and holes will be dug with

appropriate spacing. The hole will be left open for one to two months for proper

aeration and then refilled with top soil.

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Based on improved coffee production recommendation package for western

zone and the experience of the surrounding, coffee seedlings will be planted at

the onset of rain between the months of April and early June. The planted coffee

area will be slashed in July and hoed in September. There is no indication of

perennial grass problem that entails the use of herbicides.

Under good management coffee plant could flower two years after planting.

However, harvesting is recommended three years after plating to avoid early

dying of young bearing plants. It is expected that project coffee yield ranges from

6-10 q/ha. In this production system, recommended seedlings are used, and

proper spacing, manuring, weeding, shade-regulation and pruning are practiced..

6. Project Man Power and Management

The project shall have nine permanent employees with different responsibilities.

The investor controls and supervises the over all activity of the project at times

while the operation and management of the farm will be entrusted to qualified

and well experienced manager. All staff members of the project are accountable

to the manager who is assigned by the investor to manage the overall activities

of the project.

A junior accountant will be responsible to keep all the financial transactions of the

project, control cash and stock movements of the farm and prepare up to-date

financial reports. He also serves as a cosignatory with the manager of the

project. The secretary cashier will handle all the payments and minor purchases

and does the secretarial works including keeping various files of the project. The

two foremen will be responsible for the routine operation and management of the

farm under close supervision and control of the farm manager. The storekeeper

will be responsible to systematically record and keep the input and outputs of the

project.

Skilled manpowers shall be recruited from Begi while the casual laborers could

be hired from Fuddaa, Falaxaa and Gunfi localities including the adjacent PAs.

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Coffee is expected to start giving production during the fourth year while sesame

and haricot bean are annual crops and production begins starting first year of the

project. The harvest for coffee will be made at an appropriate time. Proper

announcement will be made in time prior to the commencement of harvesting to

hire adequate number of casual laborers. Although there is an intention to

establish coffee pulpier and oil extraction plant at a later stage after conducting a

feasibility study, the current study is done with the assumption of preparing

coffee in dry processing method and production of sesame and haricot bean for

central market.

7.Crop Yield and Productivity

At any location, crop production and yield is impacted by a combination of

different factors. Among the factors soil type, the environmental situation

especially the night temperature, hour of day light and the number of cloudy days

have a significant effect on yields of coffee, sesame and haricot bean production.

The yield is assumed to have an increasing trend through the implementation

plan of the project assuming that it reaches possible optimum yield of ten quintals

per hectare for coffee by the end of the project physical implementation

considering the inherent characteristics of coffee while yield of haricot bean and

sesame will be maximized by practicing modern production techniques as shown

in Table 3..

8. Project Labor, Material and Office Requirement

8.1 Labour Requirements

Labor requirements for the envisaged farm has been formulated in accordance

with crop growing periods considering the successive farm operations from land

preparation to harvesting. Labor requirements of the farm vary depending on the

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Table 3 .Estimates of crop yield by years of development period Years Description

1 2 3 4 5 20-Jun Coffee area in ha 30 60 60 60 60 60 Sesame area in ha 30 65 65 65 65 65 Haricot bean area 30 65 65 65 65 65 Productivity coffee q/ha 0 0 0 4 6 10 Productivity sesame q/ha 5 7 7 7 7 7 Productivity of haricot bean in q

10 16 16 16 16 16

total production sesame in q

150 455 455 455 455 455

total production of coffee in q

0 0 0 240 360 600

total production h. bean in q

300 1040 1040 1040 1040 1040

type of activities prevailing in a particular time of the growing season and the

maximum number of labor required for each operation. The daily wage varies

according to the types of operations which is in the range of 5-10 birr/day.

8.2 Materials Requirements

8.2.1 Seed Requirement

Available information on seeding rate indicates that seeding rate for haricot bean

is on average 70kg/ha, 8kg/ha for sesame and 1.8kg per hectare for coffee.

Accordingly the cost for seed purchase is 50 birr/kg (coffee), 10birr/kg for haricot

bean and fifteen birr per kg for sesame. Improved seeds of sesame and haricot

bean will be purchased from Ethiopian Seed Enterprise (ESI) while coffee berry

disease resistant varieties of coffee seeds will be purchased from Haru Coffee

Research Center.

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8.2.2 Fuel Requirements

Fuel requirements for machineries is determined by the total working hours

required to perform different operational activities and the consumption on fuels

based on the actual selling price of fuel at Begi town.

8.2.3 Farm Machine and Vehicle

The requirement of vehicles and motorcycles are considered with the optimum

norm of the existing practice. During the project time one tractor, and one motor

cycles are envisaged.

8.3 Office and Store The construction of office, residence and store buildings are to be made. These

buildings are to be constructed on sites identified for construction purpose as

mud barracks. The construction estimate at year 0 is Birr 224,750.

9. Socio-Economic Benefits

Coffee, sesame and haricot bean are of vital economic importance to the nation.

Coffee is the biggest source of foreign exchange earning that can enable the

country import capital and consumable goods. It is also an important source of

employment. Sesame and haricot bean are also becoming high value exportable

crops and the country has significant potential to benefit from these crops. The

establishment of the plantations is meant to increase the country's foreign

exchange earnings by producing quality products.

The proposed project is expected to offer an employment opportunity to a

minimum of 110 persons (9 permanent and the rest temporary). The

employment of casual laborers during pick seasons could be as many as 300.

The project is expected to transfer improved crop management skills to the

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surrounding farmers through the demonstration effect of the plantation and partly

through the employment opportunity to be generated. The improvement of

access rural road would also be beneficial to the community in various forms.

The project furthermore has the intention of distributing high quality Coffee Berry

Disease resistant coffee seeds and high productivity quality sesame and haricot

bean to the neighborhood farmers to improve the productivity of the sub sector

and thereby income of the farmers.

The Federal as well as the Regional governments would also receive substantial

amount of revenue in the form of different taxes including profit tax. The land

rent is also another income to the region.

10. Financial Study and Analysis

10.1 Project Costs As shown in Table 4 below, the total project investment cost is 1, 111, 275 birrr

of which the major share 45.17 percent is for purchase of farm machinery,

vehicle and equipment. The table also indicates that of the total operating

expenses wage accounts for the largest proportion.

The total fixed investment cost of the proposed project is estimated at birr

1111275. This investment cost spreads over two while the substantial part will

be committed at the time of project commencement. Of the total investment cost

Birr 138,000 is planned to be used for access and farm road construction, birr

147,000 for land development (plantation) including nursery establishment, birr

224,997 for various buildings and other structures (office, residence, store, drying

floor, bore hole, etc.) and birr 507,000 is allotted for farm machinery including

office facilities and equipment. Regarding the source of fund, the total required

investment cost, birr 1.5mn shall be covered from own contribution

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Table 4. Financial investment and project cost summary

Annual distribution Total

No Description Year 0 Year l Year 2 Year 3 Year 4 Year 5 1 Road maintenance 128,500 9,500 0 0 0 0 138,000

2 Land development 147000 0 0 0 0 0 147,000 3 Building 224,750 20,247 0 0 0 0 244,997

4 Farm machinery and vehicle

502,000 5,000 0 0

0 0 507,000 5 Office equipment 8,000 0 0 0 0 0 8,000 7 Wage 0 69,900 110,160 99,120 155,520 155520 590,220 8 Agricultural inputs 0 24,050 47,150 82,450 40,600 40600 234,850 9 Fuel and lubricant 0 63,965 64,215 64,215 64,215 64215 320,825

10 Repair & maintenance 0 10,280 10280 18780 10280 10280 59,900 11 Vehicle insurance 0 7,800 7800 7800 7800 7800 39,000 12 Travel and peridiem 0 10,000 10000 10000 10000 12000 52,000 13 Stationery 0 5,000 5000 5000 5000 5200 25,200 14 Land rent 0 11,850 11,850 11,850 11,850 11840 59,240 15 Salary 0 46,725 46,725 46,725 46,725 46725 233,625 S. totla 1,010,250 284,317 313,180 345,940 351,990 354,180 2,659,857 Contingency 101,025 28431.7 31318 34594 35199 35418 265,986

Total 1,111,275 312,749 344,498 380,534 387,189 389,598 2,925,843

10.3 Project Life

The complete implementation of the project is going to take three years (from

year 0 to year two) and full capacity operation will be gradually attained in the

third year. Therefore the project will involve both production and investment

during the first two years. Zero year of the implementation is considered to be the

construction phase. Production phase will cover 20 years starting from the first

year.

10.4 Source of Finance The investment requirement of the project is assumed to be financed by the

project owner (promoter) .

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10.5 Revenue

The major crops to be cultivated by the project are coffee, sesame and haricot

bean. As could be observed from table 5 below the project will generate sales

revenue of about birr 858, 000 in the first year of project implementation and

reaches to 1,546,000 at the end on annual base.

Table 5. project revenue in birr over project years

Years Description 1 2 3 4 5 20-Jun

Selling of Coffee 800birr/q 0 0 0 192000 288000 480000 Sesame 1200 birr/q 180000 546000 546000 546000 546000 546000

Haricot bean 500 birr/q

150000 520000 520000 520000 520000 520000

Total revenue 330000 1066000 1066000 1258000 1354000 1546000

10.6 Income Tax

According to the Investment Incentives Council of Ministers Regulations

No.7/1996, the project is entitled to the following incentives:

• Income tax exemption for 5 years

• Losses carry forward for 5 years, and

• Exemptions from payment of custom duty on machineries and

equipments.

For the rest of project’s life, a 30% tax rate is applied on the taxable income.

10.7 Financial Analysis Results

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The financial analysis of this project is carried out based on the results of the

investment and operational costs discussed in previous sections as well as the

assumptions mentioned earlier.

Based on the assumptions and the financial costs and benefits discussed in

previous sections of this report, the financial analysis results are as discussed

below.

10.7.1 Cash Flow As could be observed from the cash flow table attached in Annex Table 2 the

project will generate positive cash flow through out its life excluding the initial

year.-68659 which will immediately raised up to 569040 in the next year. By the

end of the project life, cumulative cash flow will be about birr 701,026.

The discounted Cash flow shows that the project is viable with a net present

value (NPV) of Birr 374,260.00 discounted at 8.5 per cent, with 28.2 Internal Rate

of Return indicating that the project is very lucrative and profitable.

10.7.2 Profitability As it could be seen from the annexed financial projections the project is

financially feasible (Annex Table 1 and 2). Based on the projected profit and loss

statement, the project will generate a profit through out its operation life. Annual

profit, net of tax, fluctuates between Birr 518,698 in the next year to Birr 612,577

at the end of the project. The profit and loss statement of the project shows that

the proposed project shall start generating net profit starting year two. This is to

say that the project shall start earning net profit just from its onset. The

cumulative cash balance is also expected to be highly positive for the years

under consideration. By the end of the project period the farm shall generate a

net profit of over 10 million birr (undiscounted).

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11. Project Schedule/Activity Components

SN Activity Period

1 Finalizing the necessary formalities and

securing the land

August 2008

2 Acquiring investment certificate August/2008,

3 Recruitment of personnel September/ 2008,

4 Office and residence construction October/2008

5 Access road improvement November/2008,

6 Land preparation for nursery establishment January/2009,

7 Land clearing for planting April/2008,

8 Nursery management, June/2009,+

9 Planting field preparation, pitting, refilling June/2009

10 Planting of seedlings July/2009

11 Plowing Jan-March 2009

12 Sowing and weed management April to August 2009

13 Harvesting and post harvest activities Nove. to January

2009

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12. Annexes

Annex Table 1. Project cash flow

Project year Description 1 2 3 4 5 6 7 8 9 10

Inflow gross value of production 330000 1066000 1066000 1258000 1354000 1546000 1546000 1546000 1546000 1546000

Incremental residual value

Total inflow 330000 1066000 1066000 1258000 1354000 1546000 1546000 1546000 1546000 1546000

Outflows

Investment 58,253 111,747 140,000 0 0 0 0 0 0 0

operating expenditure 275,352 347,633 389,389 394669 404969 406900 407965 408000 408560 409670

incremental operating exp. 72,281 41,756 5,280 10,300 1,931 1,065 35 560 1,110 -3,997

incremental working capital 65,053 37,580 4,752 9,270 1,738 959 32 504 999 -3,597

Tax 0 0 0 377,400 406,200 463,800 463,800 463,800 463,800 463,800

Total out flow 398,658 496,960 534,141 781,339 812,907 871,659 871,797 872,304 873,359 869,873

Net Cash (68658) 569,040 531,859 476,661 541,093 674,342 674,204 673,696 672,641 676,127

Description 11 12 13 14 15 16 17 18 19 20

Inflow gross value of production

1546000 1546000 1546000 1546000 1546000 1546000 1546000 1546000 1546000 1546000

incremental residual value 24499 Total inflow 1546000 1546000 1546000 1546000 1546000 1546000 1546000 1546000 1546000 1570

499 Investment Operating expenditure 405673 405673 405673 405673 405673 405673 405673 405673 405673 40567

3 incremental operating exp.

0 0 0 0 0 0 0 0 0 0

incremental working capital

0 0 0 0 0 0 0 0 0 0

Tax 463,800 463,800 463,800 463,800 463,800 463,800 463,800 463,800 463,800 463,800

Total out flow 869,473 869,473 869,473 869,473 869,473 869,473 869,473 869,473 869,473 869,473

Net Cash 676,527 676,527 676,527 676,527 676,527 676,527 676,527 676,527 676,527 701,026

26

Annex Table 2. Coffee, sesame and haricot bean project profit & loss statement for the year ending July 30

Project year

Description 1 2 3 4 5 6 7 8 9 10 Sales revenue 330000 1066000 1066000 1258000 1354000 1546000 1546000 1546000 1546000 1546000

Operating exp 275,352 347,633 389,389 394669 404969 406900 407965 408000 408560 409670

Depreciation 63,950 63,950 63,950 63,950 63,950 63,950 63,950 63,950 63,950 63,950

Profit before interest and tax

-9302 654,417 612,661 799,381 885,081 1,075,150 1,074,085 1,074,050 1,073,490 1,072,380

Tax 0 0 0 377400 406200 463800 463800 463800 463800 463800

Net Profit (9302) 654,417 612,661 421,981 478,881 611,350 610,285 610,250 609,690 608,580

Project year

Description 11 12 13 14 15 16 17 18 19 20 Sales revenue 1546000 1546000 1546000 1546000 1546000 1546000 1546000 1546000 1546000 1546000

Operating exp 405673 405673 405673 405673 405673 405673 405673 405673 405673 405673

Depreciation 63,950 63,950 63,950 63,950 63,950 63,950 63,950 63,950 63,950 63,950

Profit before interest and tax

1,076,377 1,076,377 1,076,377 1,076,377 1,076,377 1,076,377 1,076,377 1,076,377 1,076,377 1,076,377

Tax 463800 463800 463800 463800 463800 463800 463800 463800 463800 463800

Net Profit 612,577 612,577 612,577 612,577 612,577 612,577 612,577 612,577 612,577 612,577

Annex Table 3. Detailed investment costs

Total Annual distribution No Description Unit Qty. cost Initial Year 1 Year 2 1 Road construction -Access road

improvement Km 15 100,000 100,000

- Bridges No 3 19,000 19,000 -Farm road Km 6 19,000 9,500 9,500

Sub Total 138,000 128,500 9,500 2 Land development 147,000 147000- 0 3 Building & structures Office 1 M2 40 12,958 12,958 -staff residence (2) M2 100 32,396 32,396 Office 2 M2 60 19438 19438 - Laborers’ residence

(2) M2 200 40496 20247 20,247

- Cafeteria M2 40 16,198 16,198 - Hand dug well M2 120 24,298 24,298 - Main store M2 40 8,099 8,099 - Material store M2 40 8,099 8,099 - Drying floor M2 100 2,025 2,025 - Fence (office & Store) M 500 80,992 80,992

Sub total - - 244,999 224,750 20,247 0

27

- Generator with line No 1 43,000 43,000 -Water pump No 1 50,000 50,000 - Sprayers No 10 4,000 4,000 -Farm tools Ls Ls 10,000 5,000 5,000

Sub totl 507,000 502,000 5,000 05 Office equipment No 10 800 800 -Chairs No 4 1,600 1,600 - Desks No 2 400 400 - Shelves No 2 1,200 1,200 - Filing cabinets No 1 4,000 4,000

Sub total 8,000 8,000 0 0

Total investment cost

897,999 863,250 111,747 70000

N.B.

All Farm Machineries and equipment, except farm tools, are to be imported. The foreign purchase cost is thus estimated at birr 497,000.00

Annex Table 4. Detail operating costs in birr

Annual distribution

No Description Unit Year l Year 2 Year 3 Year 4 1 Plantation

Management

- coffee weeding and hoeing

Mds/ha 1,500 3,000 3,000 3,000

- coffee capping and pruning

Mds/ha 0 1,000 2,000 2,000

- Crop guarding Mds/ha 150 300 300 300 - coffee picking

and transporting Mds/ha 0 0 0 3,000

Sesame 1st weeding

MD/ha 800 800 240 800

Sesame 2nd weeding

,, 800 800 240 800

Sesame harvesting ,, 1200 1200 360 1200 Sesame threshing,

packing and storing

,, 200 200 60 1200

Haricot bean weeding

,, 0 240 800 240

Haricot bean harvesting

,, 0 360 1200 360

Haricot bean threshing, packing

,, 60 200 60 60

28

4,710 8,100 8,260 12,960

Total man days 9,420 16,200 16,520 25,920

Wage cost (Sub total) 56,520 97,200 99,120 155,520

2 nursery cost inbirr

(wage labor) 13,380 12,960 0 0

3 Materials coffee seed Q 0.55 0.55 0 0 birr 2750 2750 0 0 sesame seed

8kg/ha Q 8 8 2.4 8

birr 12000 12000 3600 12000 haricot bean seed

70kg/ha Q 0 21 70 21

birr 0 21000 70000 21000 fertilizer qt/ha 5 5 0 0 fertilizer cost in

birr birr 5000 5000 0 0

Chemical in lt lt 10 10 10 10 chemical cost in

birr 800 800 800 800

Sacks No 700 1120 1610 1360 sacks cost birr 3500 5600 8,050 6,800

Total plantation operation cost

24,800 50,000 90,500 47,400

4 Annual supplies Fuel Tractor 26,000 26000 26000 26000 Generator 17,250 17500 17500 17500 Water pump 9,200 9200 9200 9200 Motor cycle 5,700 5700 5700 5700

Sub total of fuel 58,150 58,400 58,400 58,400

5 - Oil & lubricant (10% of fuel cost)

5,815 5815 5815 5815

Repair & maintenance (2% of machinery cost)

10,280 10280 10280 10280

Vehicle insurance (2% of vehicle cost)

7,800 7800 7800 7800

Maintenance of building (2% of building cost)

0 0 8500 0

Travel and peridiem

10,000 10000 10000 10000

29

Miscellaneous 2,000 2000 2000 2000 Total 38,895 38,895 47,395 38,895 Land rent-Annual

expense 11,850 11,850 11,850 11,850

Salary & benefits 0 0 0 0 Project manager 10,200 10,200 10,200 10,200 Junior accountant 6,000 6,000 6,000 6,000 Secretary cashier 4,800 4,800 4,800 4,800 Forman 9,600 9,600 9,600 9,600 Store keeper 3,600 3,600 3,600 3,600

Guard 7,200 7,200 7,200 7,200Sub total 53,250 53,250 53,250 53,250

Provident & others (10% salary)

5,325 5,325 5,325 5,325

Total 58,575 58,575 58,575 58,575Total (1-4) 250,320 316,030 353,990 358,790

Contingency (10%) 25,032 31,603 35,399 35,879

Total operating expense

275,352 347,633 389,389 394,669

Annex Table 5. Depreciation for building, equipment and vehicle

.

Purchase/construction year Annual depreciation No Item 0 1 2

Years of

service Year 1 Year 2 Year 3 Year 4-20

1 Building 100,000 100,000 45,000 20 12250 12250 12250 208,250

2

Tractor and Farm machinery, Equipments

400000 107000 - 10 50700 50700 50700 861900

3 Office equipment

10,000 - - 10 1,000 1,000 1,000 17,000

Total 510000 207000 45,000 - 63950 63950 63950 1,087,150