112.

PROFILE ON PRODUCTION OF TOMATO PASTE AND JUICE

112-2 TABLE OF CONTENTS

PAGE

I.

SUMMARY

112-3

II.

PRODUCT DESCRIPTION & APPLICATION

112-3

III.

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

112-4 112-4 112-6

IV.

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

112-6 112-6 112-7

V.

TECHNOLOGY & ENGINEERING A. TECHNOLOGY B. ENGINEERING

112-8 112-8 112-9

VI.

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

112-10 112-10 112-11

VII.

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

112-11 112-11 112-12 112-13 112-14

112-3 I. SUMMARY

This profile envisages the establishment of a plant for the production of juice with a capacity of 2,490 tonnes per annum.

tomato paste and

The present demand for the proposed product is estimated at 2,369 tonnes for tomato paste and 11.14 tonnes for tomato juice per annum. The demand is expected to reach at 3675 tonnes for tomato paste and 17.3 tonnes for tomato juice by the year 2016.

The plant will create employment opportunities for 51 persons.

The total investment requirement is estimated at about Birr 18.11 million, out of which Birr 9.85 million is required for plant and machinery.

The project is financially viable with an internal rate of return (IRR) of 13 present value (NPV) of Birr 3.78 million discounted at 8.5%.

% and a net

II.

PRODUCT DESCRIPTION & APPLICATION

Tomato paste and juice are processed products of fresh tomato usually consumed in households, restaurants and institutions.

Concentrated tomato juice, without seeds and skins and containing not less than 25 percent of solids is known as tomatoes paste. If the juice (pulp) is further concentrated so as to contain 33% or more of tomato solids, it is called concentrated tomato paste.

112-4 III. MARKET STUDY AND PLANT CAPACITY

A.

MARKET STUDY

1.

Past supply and present demand

Processed and conned tomato paste and tomato juice are consumed by urban households, hotels, restaurants, hospitals and the like. These products are supplied both from domestic production and imports. The sole domestic producer of tomato paste and juice is Merti Agro Processing Industry under upper Awash Agro Industry Enterprise. For the purpose of determining the current demand for the products data on domestic production of tomato paste and import of tomato juice is presented in Table 3.1.

Table 3.1 DOMESTIC PRODUCTION OF TOMATO PASTE AND IMPORT OF TOMATO JUICE (TON)

Year

Domestic production of tomato paste)

Import tomato juice

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

2,424 1,730 555 2,878 1,846 1,846

15.5 10.0 6.1 16.8 8.3 5.3

Source:- CSA, statistical Abstract of Ethiopia Customs Authority, Annual External Trade statistic.

Domestic production of tomato paste as well as the imported quantity of tomato juice in the past six years has been highly erratic. Domestic production of tomato paste has shown a decline trend between 1999/00 -2001/02. The production level which was 2,424 tons in the year 1999/00 has declined to 1730 tons and 555 tons by the year 2000/01 and 2001/02. Again

112-5 a sharp increase has been registered during 2002/03 which amount 2,878 tons. But during the next consecutive years production has dropped to 1846 tons. In the absence of a trend in the data set for tomato paste the recent three years average production is taken as a base to determine the current demand. Accordingly the average of the three years (2002/03-2004/05) has been found 2,190 tons. Assuming demand to grow parallel with urban population growth current (2007) demand for tomato paste is estimated at 2,369 tons.

Similarly, the three years average level of import of tomato juice was found to be about 10.3 tons. Applying a 4% annual growth rate current (2007) demand for tomato juice is estimated at 11.14 tons.

2.

Demand projection

Demand for tomato paste and juice is mainly a function of urbanization, income and change in the consumption habit of the population. Urban population growth in Ethiopia is about 4% while GDP has been growing by more than 7% per annum for the last few years. As income rises and urbanization grows there is a shift towards more expensive but conveniently packed foods. Considering these situation demand for tomato paste and tomato juice is forecasted to grow by 5% per annum. The total forecasted and unsatisfied demand is given in Table 3.1.

Table 3.2 FORECASTED DEMAND FOR TOMATO PASTE AND JUICE Total Demand For Tomato Paste Year 2008 2009 2010 2011 2012 2013 2014 2015 2016 2487 2612 2742 2879 3023 3175 3333 3500 3675 Existing Local Production of Tomato Paste 1846 1846 1846 1846 1846 1846 1846 1846 1846 Unsatisfied Demand of Tomato Paste 641 760 896 1,033 1,177 1,329 1,487 1,654 1,829 Unsatisfied Demand of Tomato Juice 11.7 12.3 13.0 13.5 14.2 15.0 15.7 16.5 17.3

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3.

Pricing and distribution

Based on the average producers price obtained from CSA the following factory gate prices are recommended. Tomato paste = Birr 12,298 per ton Tomato juice = Birr 10,000 per ton

Experienced wholesalers in food stuffs can be appointed to distribute the products.

1.

Plant Capacity

The capacity of the proposed project is 2500 tonnes ( 2490 tones tomato sauce and 10 tonnes tomato juce per annum, based on 300 working days and single shift 8 hours per day. Increasing the number of shift per day can increase this capacity.

2.

Production Programme

At the initial stage of production, the plant may require some years to penetrate into the local and export market such as Djibouti. Therefore, in the first and second year of production, the capacity utilization rate will be 70% and 85%, respectively. From the third year onwards, full capacity production shall be attained.

IV.

MATERIAL AND INPUTS

A.

RAW & AUXILIARY MATERIALS

The manufacture of tomato paste and sauce can be undertaken when two basic conditions are met: the availability of a large and stable supply of fresh quality tomato, and the availability of a vast supply of water. Since the quality of the paste that is produced will be determined largely by the quality of the tomato used as raw material, great importance is attached to tomato cultivation itself.

112-7

Auxiliary materials required by the processing plant are salt, sugar, vinegar, spices, and other ingredients. The raw and auxiliary materials requirement of the envisaged project is indicated in Table 4.1.

Table 4.1 RAW & AUXILIARY MATERIALS REQUIREMENT AND COSTS

Sr. No 1. 2. 3. 4. 5. 6. 7.

Raw Material Fresh Tomato Sugar Vinegar Spices Glass bottles Cans Cartons Total

Unit of Measures Tones Kg Kg Kg 000 pcs 000 pcs 000 pcs Qty 16,500 189 77.5 21.9 1,875 5,625 312.5

Cost (000 Birr) 16,500 0.95 1.1 3.86 2,344 7,031 453 26,333.91

There are various recipes employed to produce tomato sauce and paste. The recipe applied for sauce shows a considerable variation from the recipe used to produce paste/ketchup. For paste spices are added to vinegar and cook at about 850C, covered in a dried kettle for about 2-3 hours. Onion, garlic and paprika are then added directly to the ketchup.

B.

UTILITIES

Electricity, fuel oil and water are the principal utilities of the project. The annual utility requirement and cost are indicated in Table 4.2.

112-8 Table 4.2 UTILITIES REQUIREMENT AND COSTS

Sr. No. 1. 2. 3.

Description Electricity Fuel oil Water Total

Unit of Measure KWh Litre M3

Qty. 92400 120000 28000

Cost (000 (Birr) 43.766 400.8 86.8 531.366

V.

TECHNOLOGY AND ENGINEERING

A.

TECHNOLOGY

1.

Production Process

The fresh tomato transported to the plant will be cleaned by washing in water. To accomplish this task, a special washing technique has been developed that allows for the preservation of the fresh, natural qualities of ripened tomato.

Washed tomato is crushed into tomato pulp (Juice), which is strained and filtered. This is followed by preheating and concentration to about one-third of its original volume by means of a continuous concentrator, for which a boiler plant is used. Since the concentration would be achieved in a very short time, a special technical know-how shall be employed.

Instantaneous concentration is necessary since; otherwise, heating the tomato pulp would cause oxidation giving it a dark- reddish disagreeable color, as opposed to the color of natural tomato. Concentrated tomato pulp (juice) is homogenized and salt, sugar, spices, vinegar & other ingredients are added in the seasoning room to give it the flavor associated with tomato sauce & tomato paste. The products are then filled into bottles and cans. This is followed by packing.

112-9 B. ENGINEERING

1.

Machinery and Equipment

The list of machinery and equipment is indicated in Table 5.1. The total cost of machinery is estimated at Birr 9,856,770, of which Birr 8,353,195 is required in foreign currency.

Table 5.1 LIST OF MACHINERY AND EQUIPMENT

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

Machinery

Qty

Tomato Charging Machine Tomato Washing & Sorting Machine Continuous concentrator Filter Homogenizer Seasoning Mixer Bottling Machine Cooler Labeler Packing Machine Water Treatment unit Boiler

1 set 1 1 1 1 1 1 1 1 1 1 set 1

2.

Land, Building and Civil Works

The total land requirement of the project is 3,000 m2, out of which 830 m2 is a built-up area, which can accommodate production hall, finished product and raw material, stores, boiler house, offices and social facilities. The lease value of land at a rate of Birr 0.10 per m2 and for 60 years is estimated to be Birr 18,000, and the cost of building and civil works at a rate of 1800 birr per m2 is Birr 1,494,000.

112-10

3.

Proposed Location

The location of the envisaged project can be in Bench woreda at Aman town.

VI.

MANPOWER AND TRAINING REQUIREMENT

A.

MANPOWER REQUIREMENT

The list of manpower and the annual labor costs are indicated in Table 6.1. The envisaged project requires a total of 51 work force.

Table 6.1 MANPOWER REQUIREMENT AND LABOUR COST

Sr. No 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13.

Description General Manager Secretary Accountant Accounting clerk Production Head Technical Department Head Quality Control Head Operators Laborers Mechanic Electrician Driver Guards Sub-Total Workers Benefit =25% of Basic Salary Total Cost

Req. No. 1 1 1 1 1 1 1 15 20 2 2 2 3 51

Monthly Salary (Birr) 3500 750 2500 600 2500 2500 2500 9000 6000 1600 1600 1200 900 35150 8787.5 43937.5

Annual Salary (Birr) 42000 9000 30000 7200 30000 30000 30000 108000 72000 19200 19200 14400 10800 421800 105450 527250

112-11 B. TRAINING REQUIREMENT

Training of operators shall be carried out during erection and commissioning by the experts of machinery supplier. The cost training is estimated to be Birr 25,000.

VII.

FINANCIAL ANALYSIS

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

Construction period Source of finance

1 year 30 % equity 70 % loan

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

years 8% 8.5% 30 days 30 days 90 days 5 days 30 days 5 days 30 days

A.

TOTAL INITIAL INVESTMENT COST

The total investment cost of the project including working capital is estimated at Birr 18.11 million, of which 31 per cent will be required in foreign currency.

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

112-12

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) 18.0 1,494.0 9,856.7 100.0 250.0 788.4 5,610.9 18,118.0 31%

* N.B Pre-production expenditure includes interest during construction ( Birr 638.38

thousand ) training

(Birr 25 thousand ) and Birr 125 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 29.23 million (see Table 7.2). The material and utility cost accounts for 91.91 per cent, while repair and

maintenance take 0.51 per cent of the production cost.

112-13 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 26,333.91 531.37 150 253.08 84.36 168.72 27,521.44 1151.27 557.58 29,230.29

% 90.09 1.82 0.51 0.87 0.29 0.58 94.15 3.94 1.91 100

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.

112-14

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

55 %

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 7 years.

4.

Internal Rate of Return and Net Present Value

Based on the cash flow statement, the calculated IRR of the project is 13 % and the net present value at 8.5% discount rate is Birr 3.78 million.

D.

ECONOMIC BENEFITS

The project can create employment for 51 persons.

In addition to supply of the domestic

needs, the project will generate Birr 3.58 million in terms of tax revenue. The establishment of such factory will have a foreign exchange saving effect to the country by substituting the current imports.