UNIVERSITY OF GONDAR

COLLEGE OF BUSINESS AND ECONOMICS

DEPARTMENT OFMANAGEMENT (MBA) REGULAR
PROJECT MANAGEMENT

INDIVIDUAL ASSIGNMENT ON FESBLITY STUDY

LAME BORA Milk Manufacturing Share Company project on the

Establishment of milk processing plant

By: Betseha kebede

ID No: GUE/ 00075/ 2014

Submitted to: Yihays (PhD )

 1. Executive Summary

This project profile deals with milk products processing plant in Amhara National Regional
State Gander city Administration , at ZobleSub-City. The objective of this report is to
provide information regarding the establishment of processing of milk plante.

Demand projection pointed out that Ethiopia is endowed with a largest livestock population in
the world having a total bovine population of 304 million compared to the world's totalbovine
population of 304 million. It accounts for 14.7% of the cattle population. As per 7thLivestock
Census, 2007 the country has, 129.07 million indigenous cattle.This indigenous cattle are
predominant in different regions of the country, especially through Amhara and Oromia regions.

Most of the milk in the country is produced by small and marginal farmers. Recognizing the
importance of the sector, several key initiatives were taken by the Govt.

In order to meet the rapidly growing demand for milk with a focus to improve milch animal
productivity and increase milk production, the Government has approved National Dairy Plan,
through productivity enhancement, strengthening and expanding village level infrastructure for
milk procurement and provide producers with greater access to markets.

2. Objectives of the Project

Themajor reasonfor this project is extended processing of milk with the following objectives.

1) To maximize the return or divided of the shareholders

2) To enhance and keeping quality of milk
3) To avoid the economic losses to farmers by procuring the milk in time from
them
4) To manufacture various milk products as per market demand
5) To provide quality products at affordable prices to the consumers.
 3. Types of project

The types of milk processing projects that are normally considered for the establishment of
LAME BORA SHERE COMPANY are:

i) Bulk Milk Cooler (BMC) / Milk Chilling plants

This involves collection of milk from villages, chilling the milk to 3-4 degree Celsius and
transporting to the main dairy for further processing and manufacture of products. In
majority of cases these are part of the milk processing facility.

ii). Market Milk Plants / Milk Processing Plants

It involves procurement of milk from the villages, chilling, standardization,

homogenization,pasteurization, packing of market milks of various kinds (whole,
standardised, toned and double toned milk) as well as manufacture of milk products.

Beneficiaries

The beneficiaries may be including:

 Lame Bora share company

 The company's shareholders
 individuals, those consume our products
 Employees under the company

In addition to this, the proposed project possesses wide range of economic and social
benefits such as increasing the level of investment, tax revenue, and employment creation.
 4. Situation Analysis (Feasibility of the project)

The organized dairy sector (both cooperatives and private) is presently handles about 8 present of
total milk production in the country. Thus it indicates, there is a wide scope for processing of
milk and manufacture of milk products for domestic consumption as well as export.

5 .Demand/ Market Analysis

Ethiopia is leading in production of milk.and dairy is one of the major subsidiary food of most of
the farmers. Despite of highest production in the nation there is always a demand supply miss
match for milk and milk products. The demand for milk and milk products is high in urban areas
where milk products are rare.milk products also at its peak during festive occasions like
FASICA, GENA, ROMEDAN etc.

In order to meet the demand during its peak, the milk needs to be converted to various milk
products due to its perishable nature. But there is lack of processing infrastructure in the country.
Therefore, there is good scope for financing milk processing activities in entire country.

Export Performance

Dairy products form one of the fastest growing segments in the livestock production. The major
products exported were Butter & other milk fat, cheese, Whole Milk Powder, Skimmed Milk
Powder, fresh cream, ghee, butter milk etc. This product reached for domestic customers and, to
some extent, for export.

6. Raw Material and Utilities

6.1 Raw Material

The principal raw material is milk. The size of our plant mainly determined by; The extent of
milk procurement area, milch animal population, average milk yield, percentage of animals in
milk, marketed surplus etc.
 6.2 Utilities

I. Power: Normally a three phase electricity supply is required for milk processing plants.
The power requirement depends upon the load to be connected and the necessary approval
from SEB should be obtained for connection. Depending upon the position of power
supply, standby generators may be considered for connecting the essential sections.
II. Water: A milk processing plant requires the water in the ratio of 2:1 (2 litres of water for 1
litter of milk processed) for cleaning of equipments; cold storage and drinking purposes
(source of water supply, quantity available and suitability for the purpose has to be
mentioned). Accordingly, the size of the well is required to be designed and depends on the
quality of water, the water softening plant may be considered.
III. Fuel: The fuel is need for various processing operations. The type of fuel will depend upon
the type of boiler used for steam generation. It is therefore necessary to assess the
requirement of LDO/coal/gas and also ascertain the easy availability before purchase of
boiler.
IV. Compressed Air: It will be required for various pneumatic operations flow control
operations as well as for cleaning purposes. The total requirement of compressed air and
the capacity of the compressors are required to be determined in the future.
V. Vehicles: The vehicles required for procurement and distribution of milk depends on the
quantity of milk to be handled. The number of vehicles required, source of supply, rental
charges etc. need to be furnished. Depending upon the need, the requirement of vehicles
may be considered in the project cost. Generally, insulated vehicles will be required to
transport chilled milk and reefer vans for transport of finished products like ice cream,
cheese, etc.
VI. Other Services: A maintenance workshop is an integral part of milk processing for
carrying out repairs and maintenance of equipment.
 7. Land and Location

By considering essential criteria, The Company decided the location of the project at Gondar city
administration zoble sub-city. Among money reason to select the location the following are the
prominent.

a. Ample space is required for buildings, future expansion, parking of transport vehicles and
for empty cans. About 15,000 square meters of land is required for a milk processing
plant handling about 1,000 litters of milk per day (8 hours). The design and details of the
built up area has decided in consultation with the plant and machinery supplier or with a
professional dairy consultant.
b. The selected site have close to the milk producing area in case of products manufacturing
unit and if liquid milk is the main product it should be close to the consumption centres
(All Gonder city Administration and other sub-city).
c. The selected site have proximity to road, water, electricity and, social infrastructure, etc.
d. Subsoil of the site firm with proper drainage. It is always advisable to conduct soil
investigation for load bearing before setting up dairy processing plant.

Site Development

The central site

where the milk storing, processing, packing, and Distributing should be developed after fulfilling
the following conditions.

o The entire site should be fenced with barbed wire or compound wall is constructed with
gates at suitable places.
o Internal roads should be of tar/bricks depending upon the soil conditions, rainfall and the
number of vehicles moving every day.
o At the Raw Milk Reception area there a provision for unloading cans from different types
of vehicle.
o Proper drainage arrangements should be made to ensure cleanliness.
 8. Technology and Engineering

8.1 Layout and Buildings

The civil works comprise of main processing building, which includes Raw Milk Reception
Dock, Main processing hall, provision for manufacture of other products, cold storage, CIP,
Laboratory, quarters, office, garages, security post etc. The factory building for the milk
reception, quality control, processing, packing and storage of milk products should be as per BIS
specifications. The total covered area depends on the processes involved, products manufactured,
the quantity of milk handled and the equipment chosen product manufacturing. About 4000 sq.ft.
Area of building is required for handling 1,000 litters of milk. The essential sections of a milk
processing plant are given in below.

The milk processing plant shall have the following essential facilities.

i. Raw Milk Reception Dock (RMRD) - consisting of can conveyor, can washer,
weighing balance, dump tank etc.
ii. Processing Hall - cream separator, chiller, homogenizer, pasteuriser and other related
machinery are installed.
iii. Storage area- for milk storage tanks.
iv. Products manufacturing area-depends upon the type of products, quantity of milk
handled and the machinery to be installed.
v. Packing area-for packing of liquid milk and other products.
vi. Cold storage-for keeping the milk and milk products before sending to market.
vii. Quality Control Laboratory-for testing the quality of milk and milk products.
viii. Utilities area-for installing boiler, generator set, water treatment plant, maintenance and
store area for spares.
ix. Waste water treatment plant area-for treating the dairy effluents before releasing to the
fields.
x. Quarters and office area-for all the essential staff.
xi. Vehicle parking area-both for the milk procurement and distribution vehicles.
xii. Input supply area- for providing veterinary service, supply of feed, fodder seeds, etc.
 8.2 Plant and Machinery

Different machinery are required for the processing plant based on the type of milk received and
products proposed. The machinery should be as per the BISspecifications. Our project preferred
to establish Milk Processing plant by taking a design from “National Bank for Agriculture and
Rural Development of India (September 2014)”.

The section- wise equipment required, their specifications and quantity for 1,000litres capacity
milk processing plant are explain in the following table:

S. NO Description Qty

A RECEPTION SECTION.

1 Can Roller Convevor. 3mtrs. 1No.

2 Can Tip Bar. 1No.

3333 3 Electronic Weigh scale S.S.Weigh Bowl 500 L. 1No.

4 S.S.Dump Tank - 1000 Ltrs. 1No.

5 Disc Filter. 1No.

6 Can Drip Saver suitable for 6 cans. 1No.

7 S.S.Can Scrubber.(40 Ltrs.) 1No.

8 S.S.Milk Pump.-1.5 H.P. 1No.

9 Set of Lab Equipments. 1 Set. (including milkoscan / milkotester / Density 1 set

meter / Cryoscope / Emulsion quality analyser / HPLC etc. and the associated
glass ware
B PROCESS SECTION

1 S.S.Balance tank with Float. 100 Ltrs 1No.

2 S.S.Milk Pump 2 H.P. 1No.

3 S.S.Milk Chiller, Cap. 3KLPH.Make GEA 1No.

4 S.S. Flow ControlValve. Manual. 1No.

5 Milk Pasteuriser - 2.5 KLPH. 1No.

6 S.S.Simplex Filter. 1No.

7 S.S. Holding Coil for 16 secs. 1No.

8 Flow Diversion Valve . Manual. 1No.

9 S.S. Remote Control Panel. 1No.

10 lnter connecting S.S. Pipeline & valves. 1 set

11 Cream Separator. Cap 500 Ltrs/ Hr. 1No.

12 Cream tank - 1 KL 1No.

13 Ghee Boiler - 250 Ltrs 1No.

14 Ghee Balance Tank & Pump 1 set

 15 Ghee settling tank - 250 Ltrs 1No.

16 CIP unit 1 set

C STORAGE & PACKING SECTION.

1 H.M.S.T-M,S.Outter 5KL, Single Comp. 1No.

2 H.M.S.T-M.S.Outter 10K1, Double Comp. 1No.

3 S.S.Milk Pump,-1.0 H.P. 1No.

4 Pouch Packing Machine,5000 PPH, 2No.

5 S.S. Overhead Tank cap. 200ltrs.(lnsu) 1No.

6 Inter Connecting SS Pipes and valves 1 set

7 Spare S.S. Pump For Tanker Filling 1No.

8 G.l.Pipeline & controls,Driers for Air 1No.

9 Stabilizer for Packing Machine. 1No.

D REFRIGERATION SECTION. 1 set

E UTILITIES

1 Hot water generator. Cap. 50,000Kcal Hr.wood Fired. 1No.

2 Chimney 3 Mtrs high above. 1No.

3 Makeup WaterTank & Valves. (FRP - 200ltr) 1No.

4 Water Softener Suitable Duty 1No.

5 G.l.Pipeline, valves & water Pump. 1 set

F ELECTRICALS

1 MCCB Panel for above equipments. 1No.

2 All Cables, armoured, flexible & others 1No.

3 Generator 63 KVA 1No.

G ERECTION &'COMMISSIONING 1 job

Table 1, section- wise equipment required, and their specifications & quantity

The total cost of machinery and equipment including freight insurance and bank cost is estimated
to be about Birr 4,700,000. The following are some of the machineries suppliers’ address for the
envisaged project:

Gabbar Engineering Company

 Plot No.1903,
 Phase Ill, F-Road, G.I.D.C. Industrial Estate,
 Vatwa Ahmedabad, Gujarat, India
 Phone: +(91)-(79)-25830971/25891657 Fax: +(91)-(79)-25832000
  Website: http://www.indiamart.com/gabbar-engineering

E.H. Turel& Company

 48, Clare Road Byculla Mumbai, Maharashtra, India

 Tel: 022-24129234, 24132292 f Fax: 022-25004307

8.3 Manufacturing Process

The operations involved in the manufacturing process should be given in the form of a flow
diagram.

8.4 Manpower

While we selected the site, the availability of manpower and, the total requirement of manpower
give much emphasis. Our preliminary study indicates that, for a plant handling 1,000 litres of
milk per day the manpower required is given below:

Sr. Particulars Numbe Salary/Wages Total(Br/year)

No r (Br/month)
1 Plant Manager 1 15000 180000
2 Plant Operator 1 12000 144000
3 Field / Marketing supervisors 2 12000 144000
4 Processing supervisors 1 12000 144000
5 Mechanics 2 11000 132000
6 Driver 1 7000 84000
7 Watchman 2 5000 120000
8 Administrative/ Accounts 2 7000 168000
staff
9 Laboratory staff 2 7500 180000
10 Dairy labour 8 5000 480000
Total 22 93,500 144,000,930,000
 Table 2 the manpower requirements

7. 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 and the country as a whole. It boosts inter sectorial linkage between the
agricultural (livestock) and industrial sector. At the same time, therefore, it helps diversify
the economic activity of the region.

The other major benefits are listed as follows:

A. Profit Generation, The project is found to be financially viable and earns a profit
of Birr 2.5 million yearly. Such result induces the project promoters to reinvest
the profit which, therefore, increases the investment magnitude in the region.
B. Tax Revenue, In the project life under consideration, the region will collect about
Birr 91,640 from corporate tax payment alone (i.e. Excluding income tax, sales tax
and VAT). Such result creates additional fund for the regional government that
will be used in expanding social and other basic services in the region.
C. 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 38 professionals as well as support staff.

8. Environmental Aspects and Pollution Control

The process involved is milk pasteurisation and processing of milk into toned milk and products
such as cream and ghee. The effluent will be in the form of washed water and milk solids apart
from the detergents and sanitizers used in the plant. There are no hazardous effluents generated
from a milk processing plant. However, construction of effluent treatment plant is necessary for
treating the effluents before discharging for proper disposal.
The final effluent should meet the requirements of Pollution Control Board and is necessary to
get clearance from them. The treated water can be utilised for irrigation or creating a biotic zone
where plants can be grown in and around the dairy plant.

9. Financial Analysis

Based on the assumptions on input and output parameters, an Income Expenditure

statement(Cash Flow Statement) prepared is presented at Annexure IV& V. The financial
indicators likeNet Present Worth (NPW), Benefit Cost Ratio (BCR), Internal Rate of Return
(IRR) etc, analysed andsummarizedin the following table :

Sr. Financial Indicators Estimate Norms

No d
1 Net Present Worth (Rs.lakh) 133.33 Should be +ve
2 Benefit Cost Ratio 1.03 >1.0
3 Internal Rate of Return 32.46% >15%
4 Debt Service Coverage Ratio 1.63 >1.50

Table 5, Net Present Worth (NPW), Benefit Cost Ratio (BCR), Internal Rate of Return (IRR)

9.1 Working Capital

Working capital is the most crucial input for viability of our milk processing unit. A provision of
adequate working capital needs to be considered by the financing banks. The project seeks banks
to provide Cash Credit for meeting our day to day expenses. The assessment of working capital
is presented in Annexure X.

9.2 Means of Finance

The project so formulated willsubmit to the potential bank for availing credit facility for
establishment of milk processing plant. The project allows the bank to examine, for its technical
feasibility, financial viability and bankability. We ask the Bank, The loan disbursed in stages for
various components depending upon the progress of the project.

9.3 Margin Money

As per the requirement of the financing banks, We have assumed margin money of 25 per cent
for this project cost. Specifically Birr 1,175,000 from non loan sources.

9.4 Bank Loan

The remaining Birr 3,52500 will be covered by Bank loan.It is compulsory to take bank loan to
gain various subsidiesof government and taxadvantages. The project is ready to accept important
terms and conditions of financing of the Bank.

According to the Ethiopian five years strategic plan, Financing to food processing projects, falls
under priority sector.Such projects can be financed by commercial banks and Development &
construction Banks.

9.5 Grant & Subsidy

There are numbers of incentive from The Government for promotion of food industry. From the
Ethiopian, particularly Amhara regional state, Agro Industry Policy this project subsidized by:

o Investment Land
o Credit and/ or loan opportunity
o Tax, export and other restrictions
o Marketing Infrastructure

9.6 Interest Rate

We have considered an interest rate of up to 14 per cent for working out the project.

9.7 Security

We plan the project to have enough fixed assets to offer as security against bank loan. Both
Primary and Collateral Securityconsidered by the Banks are given here:

o The land and buildings acquired considered as mortgaged to financing banks.

o The plant, machinery and other miscellaneous fixed assets.
 o Any other property or asset of the company or promoters.

9.8 Repayment Period and Discounts

The detailed repayment period will be draw by considering the future net surplus available for
repayment. We projected; the bank loan with interest is repayable within 8 years.

9.10 Depreciation Schedule

From different methods for assessment of depreciation on fixed assets, our project will followed
Written down Value Method (WDV).

10. Approvals and Permissions

The project obtains various approvals and permissions from statutory agencies. The list of
agenciesfor approvals and permissions required are as under:

 Approval of Amhara regional Trade and Industry Berou.

 Registration of Amhara regional Revenue Authority.
 Clearance from Pollution Control Board.
 License from Factory inspector for installation of boiler
 Ethiopian Food and beverage Safety & Standards Act. Authority.