PROJECT PROPOSAL IRRIGATION NURSARY, FRUIT AND

VEGETABLES PRODUCTION

PROJECT LOCATION:-OROMIA REGION, WEST SHAWA

ZONE, ILFATA WOREDA
PROMOTER:-HAILU BERHANU GELATO

Ilfata, Ethiopia
OCT, 2023

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 Table of Contents
Executive Summary of the Project.....................................................................................iv
1. Introduction................................................................................................................1
2. Background.................................................................................................................1
2.1. Fruit and vegetable Production in Ethiopia.......................................................................2
2.2. Fruit and vegetable Production and Management practices in Ethiopia...........................3
2.3. Constraints of Fruit and vegetable Production in Ethiopia...............................................3
2.4. Fruit and vegetable Marketing in Ethiopia.......................................................................4
2.5. Spices Sector in Ethiopia..................................................................................................6
2.6. Development and socio-economic objectives...................................................................7
2.7. Income distribution and poverty.......................................................................................7
3. Project Goal, Objectives and Rationales..................................................................8
4. The project Area Description....................................................................................8
4.1. Physical Features...............................................................................................................8
4.2. Economic Base..................................................................................................................9
4.3. Population.......................................................................................................................10
4.4. Vegetation.......................................................................................................................10
4.5. Infrastructure and Institutions.........................................................................................10
5. The Project Out puts, Activities and Inputs..........................................................11
5.1. Project Description..........................................................................................................11
5.2. project objectives............................................................................................................11
5.3. Types of technology Use.................................................................................................11
5.4. Production Capacity........................................................................................................11
5.5. Land Use Plan and Action Plan......................................................................................12
6. Market Prospects......................................................................................................12
6.1. Demands and Main Customers.......................................................................................12
6.2. Competition analysis and Selling Prices.........................................................................12
6.3. Marketing Strategies.......................................................................................................13
7. Organizations and Administration of the project.................................................14
7.1. Business Form.................................................................................................................14
7.2. Organization Structure of the Project..............................................................................14
7.3. Manpower Requirement with Qualification...................................................................14
8. Stakeholders and partners.......................................................................................15
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9. Financial Study.........................................................................................................16
8.1 Financial Requirements...................................................................................................16
8.2. Forecasted Production........................................................................................................20
83 Forecasted Sales Revenues...................................................................................................20
8.4. Depreciation calculations....................................................................................................20
8.5 Loan Repayment Schedule and Interest Expense................................................................20
8.6 Forecasted Income Statement..............................................................................................21
8.7 Forecasted Cash Flow Statement.........................................................................................21
8.8 Forecasted Balance Sheet....................................................................................................21
8.9 Overall Financial Assessment.............................................................................................21
10. Environmental Impact Analysis..............................................................................23
11. Conclusion and Recommendation..........................................................................24
Annex.................................................................................................................................25

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Executive Summary of the Project
1. Project Name Fruits and vegetable Production

2. Project Owner Hailu berhanu gelato

3. Project Type Agriculture
4. Nationality Ethiopian
5. Project Location Oromia Region, West shawa Zone, Ilfata Woreda.
6. Premises Required 2.5 ha
7. Full production At full production Capacity, the project will produce 22,060
Capacity quintals of produce annually

8. Total investment capital 5,000,000

9. Job opportunity Permanent: Skilled 54 and unskilled 8
Temporary: Skilled - and unskilled 2,260
Total: Skilled 54 and Unskilled 2,268
10. Benefit Expected The expected benefit of the project is to produce 22,060 quintals
of production per annual, and thereby create job opportunity for
2,268 individuals and become source of income for the
government
11. Expected beneficiaries  The surrounding community in obtaining job opportunity
 People living in Ilfata and the surrounding community will
obtain social fund and job opportunity
 People living in West shawa zone, in large
 Government and non-government organizations
12. Technology to be used The firm will use environment friendly technology which can be
operated by local people.
13. Market Destination i. Different individuals who are living in Oromia region, Ili
Abba Bora zone and woredas and towns
ii. Finfinne, Jima, Mettu and surrounding community
iii. Some of the produce will be planned to be exported
Abroad
14. Source of finance Out of Br.5,000,000 as capital requirement,30% (Br. 1,500,000)
from own contribution and 70% (Br 3,500,000) from bank@
interest rate of 11.5%

15. Recommendation The project is economically, financially and socially feasible. For
instance, financially, the project’s IRR is 56% which is greater
than discount rate (11.5%) and NPV is equal to Br.
73,862,678

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1. Introduction
Tropical and sub-tropical fruit can make a significant direct contribution to the subsistence of small-
scale farmers by providing locally generate nutritious food that is often available when other
agricultural crops have not yet been harvested. Fruit are a versatile product that, depending on
need, can be consumed within the household or sold. Marketing fresh and processed fruit products
generates income which can act as an economic buffer and seasonal safety net for poor farm
households. Diversification into fruit production can generate employment and enable small-scale
farmers to embark on a range of production, processing and marketing activities to
complement existing income-generating activities (Clarke, et.al, 2011). The fruit and vegetable
(Persea Americana) is a native of Central America and the West Indies.

The tree is evergreen, though heavy leaf fall may occur during profuse blossoming and when the
tree is affected by root rot. The growth habit varies from tall and upright to well-shaped and
spreading. Fruit of the cultivated species vary greatly in size, shape, color, texture and flavor. The
edible part of the fruit-the flesh between the seed and the skin varies in color from cream to
yellowish green. When ripe the flesh should have the consistency of soft butter. The fruit has one
seed. The fruit is unique in that it will not ripen until harvested and may be left on the tree for some
time (depending on variety) after reaching maturity. Fruit and vegetables contain from 5 to 40% oil,
the percentage varying with the variety, growing area and seasonal conditions. Only ripe olives
have higher oil content. The therapeutic value of fruit and vegetable oil is related to its fatty acid
composition. Fruit and vegetables contain many vitamins, particularly the B complex and vitamins
A and E, as well as folic acid and iron. They contain no cholesterol (Agfact H6.1.1 2003). Fruit and
vegetable’s global production has now reached more than 3.8 million metric tons (FAOSTAT,
2010).

2. Background
Ethiopia is agro-ecologically diverse and has a total area of 1.13 million km 2. Many parts of the
country are suitable for growing temperate, sub-tropical or tropical fruits. For instant, substantial
areas in the southern and south-western parts of the country receive sufficient rainfall to support
fruits adapted to the respective climatic conditions. In addition, there are also many rivers and
streams which could be used to grow various fruits. Ethiopia has a potential irrigable area of 3.5

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million ha with net irrigation area of about 1.61 million ha, of which currently only 4.6 % is utilized
(Amer, 2002). Fruits have significant importance with a potential for domestic and export markets
and industrial processing in Ethiopia. The main fruits produced and exported are banana, citrus
fruits, mango, fruit and vegetable, papaya and grape fruits (Zeberga, 2010). According to Mauro
(2006), Ethiopia’s international involvement in horticultural trade and production is growing at rate
of 7 percent per year by creating better opportunity to compete on lucrative export market.

Owing to these realities, with its shortest introduction to Ethiopia, these days the crop is produced
in several countries where Ethiopia stands the 10 th leading producer and 6th most important
consumer in the world (FAOSTAT, 2010). Fruit and vegetable was first introduced to Ethiopia in
1938 by private orchardists in Hirna and Wondo-genet and production gradually spread into the
countryside where the crop was adapted to different agro-ecologies (Edossa, 1997; Woyessa and
Berhanu, 2010; and Zekarias, 2010). Fruit and vegetables are second in total volume of production,
next to banana, in Ethiopia (Joosten, 2007). Annual fruit and vegetable production in Ethiopia is
25,633.16 tons. The crop is now produced by 1,149,074.00 farmers countrywide who collectively
farm more than 8938.24 ha of land (CSA, 2012/13). Absence of improved varieties, fruit and
vegetable and mango production is exclusively based on distribution of mixed materials;
consequently the local seed system has come out as best-bet arena and is now a common route for
seedling dissemination (Ayelech, 2011). According to Mulat (2000) the largest constraints in
Ethiopian agricultural markets are the limited number of traders that have a scarce amount of capital
together with a large number of farmers, which leaves the farmers with a weak bargaining power.
Furthermore, limited information systems, poor transportation, high handling costs and an
underdeveloped sector are other limitations on the market. According to W.Garedew (2010) even
though fruit and vegetable has economically and socially play a significant role its production is
confronted by a number of constraints; - this are Degeneration of fruits, Disease problem and
absence of agronomic practices. According to Susanna and Amanda, 2014 In Ethiopia No value
adding activities of fruit and vegetable take place at the farmer, broker or wholesaler level in the
supply chains and the products are sold unprocessed. The value of the fruits increases when the
products move closer to markets with high demand.

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 BRIEF DESCRIPTION OF PROJECT
Nursery Business will be used to meet the growing need of best varieties of fruit,
Vegetable 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 bare root or balled-and bur
lapped (B&B) material and sold as bare root 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
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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.

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.

PURPOSE OF THE DOCUMENT

The objective of the project proposal is primarily to facilitate potential
entrepreneurs in project identification for investment. The project 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,
and production, marketing, finance and business management.

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

of Nurseries for Fruits and Vegetable development 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
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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.

Justification of the project

Ethiopia has huge investment potentials for agricultural development. Currently, investment in the
agriculture sector is found to be more attractive and profitable in diverse sub-sectors ranging from
food products, industrial raw materials to bio-fuel. The agriculture sector accounts for 47% of the
Gross Domestic Products of the country, provides 85% of employment and 90% of foreign
currency earning.

Moreover, the country has a huge market potential for crop and livestock produced with
comparative advantage to the Middle East, Europe, and Asia. For the past five consecutive years,
the agriculture sector was growing faster with more than 11% average annual growth. In addition to
the contribution to the national growth, the growth has triggered the increase in the domestic market
has for both livestock and food crops.

Looking at the agro-climatic condition i.e. average temperature, rainfall, physic-chemical properties
of the soil and the distribution of the rainfall give an indication that the proposed land is suitable for
cultivation of various crops but especially fruit and vegetables. The physic-chemical properties of
the soil indicated in the information sheet provide further confidence for the success of the project.
Moreover, the planning on the financial part of the project i.e. investment, cash flow, return on
investment, profitability and the cost-benefit ratio will show a positive trend.

The expertise in the marketing of farm-produced in the international market will provide an
additional benefit to improve the financial health of the organization. The statistic indicated in the
financial report will provide us confidence in the project. It justifies the investment and returns on
the investment.

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Support for the project

The financial support i.e., the equity infusion in the form of cash and kind for this project on
investments shall be received from promoters. The company shall receive equity infusion in the
form of cash or kind from any of these mentioned companies hereby for its project. The company
shall take the financial support in the form of project loan from either development bank of Ethiopia
or commercial bank of Ethiopia. In addition to our in-house team, we are also interacting with the
Ethiopian Institute of Agriculture Research to get timely support and valuable advice in this project
based on their experiences.

We are also expecting support from Agricultural office and responsible government officials for
identification of suitable land and facilitation of the documentation and import of farm machinery
and equipment, farm inputs for the success of this project. It appears to be a joint project of Fruit
and vegetable production farm project and Ministry of Agriculture, Government of Ethiopia, as we
need lots of support from the Ministry of Agriculture at various level of implementation of
activities in this project. Without their help and support, it will not be possible to make this project
a success

2.1.Fruit and vegetable Production in Ethiopia

Despite relatively early establishment, the fruit and vegetable industry in Ethiopia is in its infancy
and has not yet utilized the immense potential of this crop. In the context of increasing the high
value production of agricultural commodities, fruit tree and perennial crops play an important role.
This commodity group includes tropical nuts, fruit trees, grapes, bananas, mango, pineapple,
papaya, passion fruits, apples and others. Except table banana, tropical fruit trees like mango, fruit
and vegetable and the like were not well known and considered as diet by most Ethiopians (Yilma,
2009). However, Yilma (2009) indicated that the expansion of state farms in the past
command economy and the prevailing expansion of private investors in different regions of
the country have contributed a lot on the introduction of fruits as business. Fruit and vegetable
is a fruit from a tree that has a variable growth and development, reaching a height of 10 to 12
meters in its natural habitat Fruit and vegetable trees may grow at different altitudes. Such habitat
is classified as subtropical-tropical. The tree has a ligneous trunk that can reach up to 80 cm to 1 m

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in diameter in trees that are 25 to 30 years old (raceme), that can be axillaries or terminal. Fruit and
vegetable trees can be seeded or grafted. The seeded trees produce fruit after approximately 8 years
and grafted trees, being the most common propagation method, produce fruit after only 2 years.
Besides the longer juvenile period the seeded trees also have a larger risk of losses in yield and
quality. The fruit and vegetable trees could need irrigation during dry periods but not during rain
seasons. Root rot is the most common failure in fruit and vegetable production and too much
irrigation is one of the causes of this. According to CSA (2012/2013) the total cultivated area for
Fruit and vegetable in Ethiopia is 8938.24 hectares and production 256331.64 quintals more area
coverage is expected in the south-western and other parts of the country due to more conducive
climatic and edaphic factors.

Table 1 Summary of major fruit crops produced in Ethiopia in 2014/2015 cropping season

Crop Area in Ha Production in Quintal Yield (Qt/Ha)

Fruits 1,972.60 4,793,360.64 77.35
Fruit and 0.24 256,331.6 28.68
vegetable
Bananas 0.012.19 4 3,025,022.32 84.00
Guavas 0.492.32 11,730.03 7.86
Lemons 0.23 55,167.50 73.14
Mangoes 0.64 697,507.30 79.18
Oranges 0.21 357,458.39 119.18
Papayas 0.08 386,943.15 140.60
Pineapples 0.69 * *

2.2. Fruit and vegetable Production and Management practices in Ethiopia

The selection of a suitable site is of the utmost importance Fruit and vegetables are extremely
susceptible to the root rot fungus no fruit and vegetable rootstock is completely resistant to this
disease and Trees of most fruit and vegetable varieties grow quite large if the canopy is not
managed. If sufficient land is available a wider spacing is preferred. Planting distances is a much
debated subject. A higher planting density gives higher returns in the early years of the planting, but
it can also give more canopy management problems in later years. (Dirou, 2003) Most of the time
Ethiopian farmers did not give attention to spacing. Orchards growth are not well spaced, some
orchards are nearer to each other and the others are very far from one orchard to the others,
according to the oldness of the trees age most of the farmers had no knowledge about spacing.
Space plays significant role for all activities, absence of proper spacing create difficulties for
production (Seid and Zeru, 2013). Zekarias (2010) indicated in his research that difference in

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spacing associated with difference in size and expansion nature of varieties used. In relation to this
management practices starting from seed multiplication up to harvesting are done by farmer’s
indigenous practice. According to Orwa et al.(2009) planting distances depend on soil type and
fertility, current technology, and economic factors. In commercial groves, trees are planted from 5-7
m in rows and 7-9 m between rows. Pruning during the first 2 years encourages lateral growth and
multiple framework branching. Ayelech (2011) indicated that Farm Yard Manure principally
transported from homestead to the field mostly during the dry season and spread in the bottom of
each tree in circular form. The chemical inputs entirely evaded neither for fertilization nor for pest
treatment. Thus, its Farm Yard Manure rate of application is minimal to improve soil fertility but
with positive impact on environment, i.e., reduction of soil pollution and water pollution. The same
study indicated that smallholder farmers in the area intercrop Fruit and vegetable with maize, taro,
ginger, chat, cabbage and banana at early stage. Another study conducted by Gilliard and Godfroy
(1995) intercropping of fruit and vegetable with short cycled crops; which is very common in sub-
Saharan Africa and most utilizes the empty space during the first few years.

2.2.1. Input Sources

Agricultural inputs are important elements for production and productivity. As a result the typical
inputs utilized for production of the Fruit and vegetable were seed/seedling, labor, land, and
compost/manure. The major sources of inputs for Fruit and vegetable production in Ethiopia are
farmers by, own endeavors, agricultural offices and markets. In general, the sources of inputs for
Fruit and vegetable production are agricultural development offices, markets, agricultural research
institutes, own stocks, IPMS, and other farmers (Ayelech, 2011). Woreda Agricultural offices, local
planting materials purchased from unknown market sources. The Agricultural research center and
self-production by farmers and sources of fruit and vegetable planting materials Local seed
production is the major source of seedlings for distribution (Berhanu, 2013). in addition, Fruit and
vegetable production is characterized by low inputs with Farm Yard Manure (FYM) the major
amendment made to soil to boost productivity and chemical inputs are not used for fertilization or
pest treatment.

2.3. Constraints of Fruit and vegetable Production in Ethiopia

The fruit sector promises high potential, but yet it is characterized by low yields and income for
farmers. The fruit sector in Ethiopia has high value products as compared to other crops and

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promises high returns on relatively small investments (Timoteos and Tigist, 2012). According to
Bezabih and Hadera ,(2007) horticulture production is based on tradition, which is poorly supported
by scientific recommendations. Although one can associate this constraint to institutional factors, it
is apparent that inadequate farmer skills and knowledge of production and product management
affects the supply. Farmers attempt to select varieties and practice traditional crop management
Farmers’ know-how of product sorting, grading, packing and transporting is traditional, which
severely affects the quality of horticultural products supplied to the market.

According to Birhanu (2013) Constraints hindering the development of fruit and vegetables are
found in all stages of the production chain. At the farmlevel, lack of clean disease-free seedlings
and grafted seedlings has compelled farmers to use inferior and low yielding varieties. Storage
facilities are scarce all along the chain and absence of collective bargaining power has forced
individual farmers to accept unfavorable deals. According to Zekarias (2010) Major productions
constraints are:-Vegetative growth: Most of the farmers reported that their fruit and vegetable trees
show only vegetative growth rather than giving yield at their fruit bearing stage Falling down of
fruits before they are mature, Pest problem There are no improved agronomic practices Longetivity:
Farmers are very much disappointed by the longer time fruit and vegetable takes to bear fruit and
Inadequate extension activities undertaken on fruit and vegetable. W.Garedew,(2010) also indicated
that even though fruit and vegetable has economically and socially play a significant role its
production is confronted by a number of constraints ;- this are Degeneration of fruits ,Disease
problem and absence of good agronomic practices.

2.4. Fruit and vegetable Marketing in Ethiopia

Marketing of agricultural products consists primarily of moving products from production sites to
points of final consumption. In this regard, the market performs exchange functions as well as
physical and facilitating functions. The exchange function involves buying, selling and pricing.
Transportation, product transformation and storage are physical functions, while financing, risk
bearing and marketing information facilitating marketing (Branson and Norvell, 1983). Market
channel is a business structure of interdependent organizations from the point of product origin to
the consumer with the purpose of moving products to their final consumption destination (Kotler
and Armstong, 2003). The analysis of marketing channels is intended to provide a systematic
knowledge of the flow of goods and services from their origin (producer) to their final destination

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(consumer). This knowledge is acquired by studying the participants in the process, i.e. those who
perform physical marketing functions in order to obtain economic benefits (Getachew, 2002). A
marketing chain is used to describe the numerous links that connect all actors and transactions
involved in the movement of agricultural products from the farm to the consumer (Lunndyet al.,
2004). It is the path one good follow from their source of original production to ultimate destination
for final use. Fruits for both fresh and processed have a huge domestic market in Ethiopia which is
by far significant than that of the export volume.

The major export markets for fruits for Ethiopia are the surrounding countries Djibouti, Sudan and
Somalia and the main products exported to these countries is non-graded fresh fruits Whereas,
higher valued fresh produce that includes graded and pre-packed are exported to the United Arab
Emirates, United Kingdom and the Netherlands. about 85% of the fruits are exported to Djibouti
and the second export market destination is the Emirates (EHDA, 2011). In general, the main
products for export were citrus, bananas and mangoes (EHDA, 2011). Fruit and vegetable is
channeled from producers to local collectors, Cafeteria and whole sellers and finally to Addis
Ababa market through these channel middle men buys all fruit and vegetable fruits from the farmers
at a lower price and sells them in the market at higher price (Zekarias, 2010). According to Birhanu
(2013) the fruit and vegetable industry operated under an unregulated environment. Prices were
exclusively determined by traders negotiating with farmers at time of procurement. Over supply of
fruit is the principal reason for price declines which affect farmers.

2.4.1. Marketing Constraints

Marketing constraints are related to prices and demand for the products, market information,
communication, storage and perish ability of the products. According to Mulat (2000) the largest
constraints in Ethiopian agricultural markets are the limited amount of traders that have a scarce
amount of capital together with a large amount of farmers, which leaves the farmers with a weak
bargaining power. The horticulture products in Ethiopia are mainly produced by smallholder farms,
and a small amount of state-owned farms (Emana & Gebremedhin, 2007). Lack of market to absorb
the production; large number of middlemen in the marketing system; absence (weakness) of
marketing institutions safeguarding farmers' interest and rights over their marketable produces (e.g.
cooperatives); lack of coordination among producers to increase their bargaining power; imperfect
pricing system of traders was a major problem to producers. Traders charge low price at peak

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supply periods which is not based on the real demand and supply interaction .this implies, the
middlemen decide on the price of fruit products. Producers cannot negotiate since they may be
denied even a low price and their products could be liable to rotting, since it is perishable, and lack
of semi-processing industries (yimer, 2015). According to Ayelech, (2011) Absence of organized
institution and system group marketing has made traders in a better position to dominate the
pricing. Changing the attitudes of farmers is a crucial factor in improving the marketing
performance of households. According to Zekarias (2010) major constraints for Fruit and vegetable
marketing Low price for product, low bargaining power to influence their due to poor economy and
perish ability nature of the product.

2.4.2. Consumption of Fruit and vegetable in Ethiopia

Consumers are those purchasing the products for consumption Most of the fruits produced in
Ethiopia are consumed locally and are produced by smallholder farmers. After harvest, they are
transported to rural market centers for local consumers or are bought at the farm by neighbors.
Others are transported to bigger market centers where many producers utilize the open-air markets
that are patronized occasionally, once or twice a week. Limited post harvest improvement is done
for locally consumed fruits and vegetables (Habte, 2001). However, Fruits like Banana, Orange,
Lemon, pineapples and fruit and vegetables exported to Europe and Middle East are graded and
packaged appropriately.

Figure 1 Overview of Fruit and vegetable value chain map

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 2.5. Spices Sector in Ethiopia
The Ethiopian varied agro ecology supports growing of a wide variety of crops in general and spice
crops in particular. As a result the country hosts several indigenous common and exotic spice crops,
which are cultivated widely since the time immemorial. Spice crops are produced in various regions
of the country and predominantly by small farmers as a cash crop traded primarily in domestic
markets, but with increasing success also entering foreign markets. The spice sub-sector has an
immense potential for economic development and poverty reduction through creation and
expansion of employment opportunities and distribution of income and foreign exchange earnings.
However despite all the potentials and opportunities of having such a long history and variety of
them with a diversified conducive agro-ecology base, the spice sub-sector potential remained
unexploited. The subsector is still not organized, low in productivity and inefficient. The production
of all the different types of spices, especially the technique employed by smallholders is mainly
based on traditional ancient knowledge that has been inherited and transferred from generations to
generations. Producers seldom use modern technologies such as farming tools and new techniques
and inputs like pesticide, fertilizer and improved seeds. Moreover, the production system is based
on rain-fed agriculture; therefore the supply of spices is unsustainable because of the vulnerability
of the crops to possible droughts. In most cases mixed unplanned cropping is performed and
normally smallholder farmers do not allocate enough land for the production of spices.

2.5.1. Types of spices grown in Ethiopia

In descending order, most grown spices in Ethiopia are:
 Chilli pepper, in Ethiopia usually referred to as “pepper”. The most commonly grown type is
the Marekofana variety, a pungent (50.000+ SHU3) long chilli of dark red appearance. Also
grown is the small Mitmita chili, an even hotter fiery red small pepper.
 Ginger, the local variety is fibrous and more pungent (VO4 = 8%) than Asian ginger (VO =
6%)
 Turmeric, the local variety has a curcumine content of 4%, which is superior to madras (2%),
but lower than allepey (6%). Its colour is in-between of the bright yellow madras (cooked on the
farm) and the allepey variety, which like Ethiopian is uncooked.
 Cumin (black), this is exported to middle east countries as well as to Indonesia
 Korerima is a milder spice native to Ethiopia, where it is found growing in southern rain forests
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 Ethiopian cardamom and coriander
 Sweet Paprika pepper: has been cultivated in the past for supply to the extraction factory. There
is no local market for sweet paprika pepper. But the climate and soil conditions are suitable.
Today some large agricultural operations have started to grow paprika as an intercrop. Africa
juice eg. Intercrops paprika with their main business passion fruit.
 Ethiopian cuisine is known for the berbere spice seasonings, a blend of red chili, ginger,
coriander, salt, cardamom seeds, fenugreek seeds, black pepper, cinnamon, turmeric and garlic.
The paste form is called Berbere Awaze.

2.5.2. Types of spices Trade in Ethiopia

Spice trade is a commercial activity since antiquity and is perhaps among the very few pioneer
commodities traded internationally. The contribution of spice trade in the world civilization is well
recognized and document and Ethiopia was among the beneficiaries. During the ancient Ethiopia
Kingdoms notably Axum, Ethiopia was very much involved in spice trade and spice was perhaps
among the top few pioneer export commodities Ethiopia traded internationally by then.

Despite Ethiopia’s a long history in Spice trade and its conducive agro-ecology which supports the
production of variety of them, the contribution of spice trade remained minimal and low.
Ministry of Trade is charged with the responsibility of creating conducive and enabling policy,
legal and regulatory environment in support of trade particularly that of export trade with the view
to facilitate a more diversified export trade. Given the potential of spice crop for an expanded
export trade, it is definitely among the priority crops that the Ministry considers for the support.
Thus the Ministry of Trade was represented in the Coordinating Committee that coordinated the
Strategy development process and participated actively at different stages of the development
including the stakeholders workshop held mid July 2010

2.6. Development and socio-economic objectives

The development and social objective of the Ethiopia is compressive and consistent. In addition to
the well articulation of these in the current national plan (GTP), it is also reflected in the Policy and
Investment Frame work (PIF) objective of the country which states “to contribute to Ethiopia’s
achievement of middle-income status by 2020”. The Development Objective aims to “sustainably
increase rural incomes and national food security”. This objective involves the concepts of

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producing more, selling more, nurturing the environment, eliminating hunger and protecting the
vulnerable against shocks; all of which are embodied in various national policy instruments, and are
expressed in terms of four main themes, each with its own Strategic Objective summarized as
follows:
Table: Strategic Objective
Thematic Area Strategic Objectives (SOs)
Productivity and To achieve a sustainable increase in agricultural productivity and
Production production.
Rural Commercialization To accelerate agricultural commercialization and agro industrial
development.
Natural Resources To reduce degradation and improve productivity of natural
Management resources.
Disaster Risk Management To achieve universal food security and protect vulnerable
and Food Security households from natural disasters.

Thus, the objective of this investment project proposal is well anchored to, and aligned with the
national socioeconomic development of the country. The detail project rational and objectives are
explained under section three “rationale and Objectives of the project”.

2.7. Income distribution and poverty

As this project is proposed to be implemented in area where there is neither commercial private
farm nor state farms operating so far, and as the local smallholder farmers are mainly characterized
by low input and low output vicious, the successful implementation of the project will contribute
toward equitable income distribution and rural poverty reduction. By creating non-farm job
opportunity at their locality, this project will also reverse the seasonal rural-urban migration, which
has been the norm due to lack of non-farm income generating activities. Given the fact that the
success or failure of any project is usually measured in terms of its final effect on these issues, this
project will meet the priority area where the government needs more investment.

3. Project Goal, Objectives and Rationales

To address the problems identified on section 3 above this investment proposal is calling for
allocation of land for Fruit and vegetable and different spices production, processing recognizes
that:
 The domestic consumption of both fruits and spices has increased significantly in recent
years;
 National fruits and spices production does not meet the rapidly growing demand;

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  Smallholder output is inadequate and most fruits consumption is met by importing;
 There has been a call for our smallholder and investors to concentrate on increasing
production and productivity to meet the growing food and export demands;
 Past production increases depended largely on an expansion of area planted rather than on
increasing average yields per hectare continued to be low by international standards whereas
this project aims at meeting such standards;
 Such project with the aim of enhancing production and productivity of fruits (Fruit and
vegetable), and spices will minimize the current national budget deficit caused as a result of
importing food items on one hand and generate foreign currency by promoting exports of
Fruit and vegetable and spices on the other hands.
 Implementation of this commercial Fruit and vegetable and spices production project is
expected to Mettu, so that the outputs of this project will become the inputs for the
processing factors.
 As Mettu town is expected to be the commercial center of the south western Ethiopia, this
project will have access to lucrative international market. The railroad and airport which is
on the process of implementation will facilitate the transportation of the products safely and
swiftly.

4. The project Area Description

4.1. Physical Features

4.1.1. Location and Accessibility

The license area is located in Oromia Regional State, West shawa Zone, Ilfata Woreda. The total
area of the project is 2.5 ha

Background of the Project Location

As aforementioned on the introductory part the envisioned project is intended to be located

in West shawa zone Ilfata town .Ilfata town is found in oromia regional state at about
98 kms away from Addis Ababa /finfinne city ,in the south east direction .

The study area, Ilfata Wareda is found in West shawa zone of Oromia regional state. The Woreda
is located in the South Eastern part of the zone (Figure 2). It is one of the administrative units

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(among 18 Woredas ) of West shawa zone with an area of about 2,384 square kilometers (account
for 3.4% of the area of the zone), which ranked it as 8th largest Woreda in the zone.
Administratively the Woreda is sub divided into 29 rural and 2 urban administration Kebeles.

According to 2013 CSA’s population projection, total pupation of the woreda by year 2014 is
170,218 (83,500 female and 86,718 male). Among which 141,929(83%) are rural and 28,289(17%)
are urban dwellers.

The administrative center of the Woreda is Ilfata town, which is located at distance of 133 km from
zone capital Robe town and 563 km from country center, Addis Ababa. The Woreda is bordered by
Gololcha and Gasera Woredas in North, Rayitu and Sawena Woredas in East, Dawe Kachen in
South and Goro and Sinana Woredas in West.

Relief and drainage

Topography of the Woreda falls within altitudinal range of 1200-2406m amsl. Relatively, the
Northern and North Western part of the Woreda is characterized with highland mountainous.
Whereas Eastern and South Eastern parts of the Woreda is dominated by lowland. And the southern
part of the Woreda is dominated by undulated value and broken escarpment. The land configuration
of the Woreda is categorized as plain which account about 85%, mountain 3% and rugged and
gorge areas account for about 12 % of the Woreda’s area.
Drainage system of the woreda as whole is falls within single drainage basin, i.e. Genale drainage
basin. Some Perennial and a number of seasonal rivers are found within the woreda. Gololcha,
Dinkit and Tebeke are perennial rivers and there many seasonal rivers among these the majors are
Burka,Ada ,Fo’a and Alkock rivers.
Climate
Ilfata Woreda falls within two agro-climatic zone namely 25% temperate (Woyinadega) and 75%
lowland (kola). Rainfall, temperature, wind, humidity and sunshine are some of climatic elements
which affect socio-economic activity and life condition of the people in a given spatial units. In the
agrarian society, changes in above climatic elements have impact on the agricultural production.
Particularly changes in temperature and precipitation directly affect crop production and can even
alter the distribution of agro-ecological zones.

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Ilfata Woreda receives mean annual rainfall of about 918 mm. The Woreda receive rain in two
seasons such as Belg(Autumn) season (March to May) and Tsedey(spring) season (September
to November). Bega (winter) season (December- February) is the driest season in the area. Unlike
highland part of the country, Kremit (June to August) is dry season with only small rainfall (figure
3).
In the Woreda the highest rainfall amounts recorded in months of April, May and October and the
lowest amount recorded in months of January and February.

4.1.2. Livestock
Like in most peasant smallholder societies in the Oromia region, livestock play a key role in day-to-
day life of the Mettu woreda society. Livestock play a key role in day-to-day life of the society,
especially in the peasant sector. They provide meat & milk, transport, manure, skin & hide &
furnish regular & easily realizable cash income. But in contrast to the size of the livestock
population, physical & value productivity is low.
In this project area oxen are the main source of power for peasant farming and hence a farmer with
no farm oxen is considered as poor. A farmer having a pair of ox is expected to feed himself and his
families provided that he possesses enough farmland. Saving capacity of the society is again the
function of their production capacity, which in turn, is the functions of oxen and farm sizes, both of
which are declining from time to time in this area. Besides, the farm oxen need medical care and
treatment, the cost and availability of which is again the major challenges for the smallholder
farmers. As a result, the average number of farm oxen per household has been decreasing from time
to time thereby leaving the smallholder farmers at very precarious situation.

4.1.3. Land Use Pattern

The land use and land cover of Ilfata district comprises cultivation, patches of disturbed natural
forests and woodlands, Coffee forests, grasslands and settlement areas. The cultivated land is
confined to well drain loamy soils, occurring on upland and hills. The land uses are mainly for
horticulture production and livestock grazing. The major horticultures are maize, sorghum and teff.
According to the data from the district, from the total land area (i.e 68,723 ha), cultivated land area
comprises 30545.035 ha, forest area 13,376.9 ha and grazing land 2,163 ha. (Source: Woreda Rural
Agricultural Office)

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 4.1.4. Industry
Industry is a group of productive enterprises or organizations that produce or supply goods,
services, or sources of income. There is no medium and large-scale industries found in the district
and there is a data problem on small scale manufacturing industries.

4.2. Population
Population size, compositions, its spatial distribution and some other demographic and socio-
economic data are very important for planning, monitoring and evaluation of various development
programs. The total population size of the district is estimated to be 91,039 out of these 50,849 are
males and 40,200 are females. However, as the number of oxen per household are gradually
decreasing owing to the animal diseases and farm sizes is getting smaller and smaller due to
increasing population, there has been a trend of increasing rural to urban migration in search for
alternative non-farm income employment opportunities. Hence, this project is expected to create job
opportunities for these potential migrants at their nearby village and hence alleviate the pushing
factor for migrations.

4.3. Vegetation
About 19.5 percent of Ilfata District and its surrounding areas have been covered with forests both
natural and manmade forests. The lower part of the District is covered with lowland woodlands,
bush and Acacia trees (Acacia abyssinica). The dominant land cover of the project area is bushes.
There are also significant acacia woodlands. The project area is partly flat area and some of its part
is sloppy ranging from 3-5% covered by bushes, scattered acacia species and grazing land.

4.4. Infrastructure and Institutions

The project area is only about 50 km far from the Mettu town. There is also access road from the
district town to the project area. Thus, there will be no transportation problems to and from the
project area. In addition, the area is covered by mobile and fixed line telecommunication facilities
and hence there would be easy communication of the project affairs within the project and with the
external bodies.

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5. The Project Out puts, Activities and Inputs

5.1. Project Description

This project aims at Fruit and Spice production: Fruit and vegetable and different types of spices
production with rain fed system. Accordingly, the total land area covering of 300 hectares was
allocated as: Fruit and vegetable Production (Fruit and vegetable 60 percent; Spices (Pepper 8
percent & Ginger 8 percent) and others 21 percent of the land). Most of these products are high
valued products which fetch high foreign exchanges for the country on one hand and inadequately
supplied even in the domestic market on the other hand. To determine the land use and produce
patterns, we have utilized the expertise of soil scientists, Agronomists and environmentalists and
hence the proposed produces varieties are recommended based on the suggestions of regional and
local agricultural research institutions.

5.2. project objectives

The main objective of this project is:
i. To play a role in filling the gap of Fruit and vegetable and spices shortage encountered the
national and international market,
ii. Increase the production of high valued crops such as fruits (Fruit and vegetable), and
different types of spices by modernizing the faming system.
iii. In addition, the project has such strategic objectives of creation of job opportunities to the
local people;
iv. contributing toward increasing the foreign currency earning potential of the country through
increasing exportable products, and
v. Improving the problem of natural resource management practices through creation of
employment opportunity in the project area (alternative income generation of non-farm
activity for the local people).
vi. Thus, this project will reduce the prevailing environmental degrading practices widely
exercised by the local low-income societies, which include, coal making and selling, use of
animal dung for light and heat, timber production, collecting of fire-woods for commercial
purposes, all of which are commonly exercised by the local community.

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 5.3. Types of technology Use
The project aims at employing technologies which are environmentally friendly and which can be
effectively utilized by locally existing know-how with the exceptions of some machineries and
equipment which should be imported if there is no domestic source of supply. The project aims at
utilizing locally available technologies so as to encourage the backward and forward linkage of the
project and hence contribute towards the realization of Agricultural Development Led
Industrialization (ADLI) strategy of the country.

5.4. Production Capacity

For Fruit and vegetable and spices types proposed, the project aims at producing the maximum
output per hectare as proved to be achievable at the research stations. The project promoter aims at
utilizing the technologies and practices as per the recommendations of the research centers so as to
produce the maximum output per hectare. Accordingly, the projected output per hectare for each
crop will be presented under sub-section 9 (projected output per hectare).

5.5. Land Use Plan and Action Plan

The following table shows the proposed land use and crops for which the land is to be used.
Table 1: Land use plan for 200 hectares
Land
Land allocated to Land Use and Development Plan allocation
(%)

Fruit and
Fruit 55%
vegetable
Grapes 25%

Apple 18%

Total crop land 98%

Construction Plots 0.50%

As the above table shows, the total farm land is allocated to production of demanded Fruit and
vegetable and various high valued spices items such as: Fruit (60 percent of the land to be covered
by Fruit and vegetable); Spices (38 percent of the land to be covered by Pepper, Ginger and
Others). The construction plots are expected to cover only 1 hectare and the remaining land 2

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percent is reserved for forest coverage (at least 2 percent of the allotted land for investment as per
the Oromia Rural Land use and Administration Proclamation No. 130/ 2007, which will be 9
hectares).

6. Market Prospects

6.1. Demands and Main Customers

As socio-economic development of a country proceeds, it is expected that the preference of a
society for goods and services changes. This logic is also true in Ethiopia. We observe that as our
economy improves over time, demand for improved seed and food items in general and preference
for high valued products are increasing. The number of Hotels, Motels, Cafeterias, Restaurants and
Resorts are increasing. In addition, the number of colleges, universities, research centers and other
institutions are being located at the nearby towns. More importantly, as the Mettu town is becoming
considered as the western Ethiopia development corridor being fulfilled with infrastructural
facilities, the project will enjoy lucrative international market. It is also expected that agro-
processing firms which will utilize the outputs of the project as input for their production will
emerge in the Mettu area. Thus, there is no doubt the project will have sufficient domestic and
international markets.

6.2. Competition analysis and Selling Prices

As the demand for the project outputs are expected to keep growing in the face of very limited
potential suppliers, it could be possible even to charge exorbitant price per units of the products to
be produced for the domestic market. However, since the very motive of the project owners is not
just to reap profits at the expense of the consumers, the price for each product will be set at
affordable prices by considering the forces of supply and demand operating during each year of
production. In all cases, we assume prices of each commodity to increase at least by 5 percent each
year and accordingly we have full projections for the selling price per quintal of each product
presented under sub-section 9 (projections of revenues).

6.3. Marketing Strategies

For efficient and effective distributions of the inputs and outputs of the project, we aim at
establishing and maintaining value chains. For this purpose, the following institutions are identified
with which we plan to work.

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 1. For the Supply of project inputs:
 Regional and zonal Agricultural Research Institutes;
 Regional and zonal Seed Enterprises (RSEs),
 Universities and Agricultural Colleges existing in the region, and
 Private organizations.
2. For the distributions of the project outputs:
 Seed supplying enterprises
 Agricultural Colleges existing in the region,
 Civil society organizations (CSOs), including cooperatives and farmer organizations,
 Private organizations, and individuals
 International importers,
 Local Traders

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7. Organizations and Administration of the project

7.1. Business Form

ASRTE SEBESBE Tekle Fruits Production project is supposed to be established as one of the
many branches the Company. Accordingly, its organizational structure is presented below.

7.2. Organization Structure of the Project

Fig.1: Organizational Structure of project ruits Production, project

Note that this organizational structure depicts the overall flows of accountability and reporting
structure of the project staffs.

7.3. Manpower Requirement with Qualification

Manpower is the decisive factor for the successful implementation and operation of any project.
Hence, careful identification of the number and qualification of the manpower requirement of the
project is in order. Accordingly, the following table shows the manpower requirement with
qualifications for the project

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Table 2. Manpower Requirement (with qualifications, number and estimated monthly salaries in
Birr)
Staffs with position No Profession/Qualification Monthly Annual Salary
Require Salary (Birr)
d (Birr)
General Manager 1 MSc Agronomy/Related 7,000 84,000
Farm Manager 1 Bsc in Plant science /Horticulturist 6,000 72,000
Marketing officer 1 BA in Marketing 5,500 66,000
Administration 1 BA in Management 6,000 72,000
Forman 3 Diploma in relevant field 5,000 180,000
Clerk/Accountant 1 Diploma &above in relevant field 4,500 54,000
Time Keeper 3 Diploma &above in relevant field 2,500 90,000
Tractor Operators 2 4th /5th grade license and 10th/12th 5,000 120,000
complete
Farm Guards 4 8th /10th complete 1500 72,000
Store keepers 2 Diploma in relevant field 3,000 72,000
Secretary 1 Diploma in relevant field 2,500 30,000
Cashier 1 Diploma in relevant field 3,500 42,000
Cooks 3 10th /12th complete 1,500 54,000
Cleaners/Janitors 3 10th complete 1,200 43,200
Driver 3 4th /5th grade license and 10th /12th 3,000 108,000
complete
Sub-Total 30 1,159,200.00

Note that the employees’ salary is expected to increase by a minimum of five per
cent each year.

8. Stakeholders and partners

The key stakeholders are the shareholders, the surrounding woreda

communities, Zonal, Woreda, and Kebele level administration Offices, the
Investment Commission, Agriculture offices, and Land Administration and
Environment Bureaus at regional, woreda, and Kebele levels. The private sectors,
research, academia, and civil society constitute another category of stakeholders
who will engage in delivering specific services and benefitting directly or indirectly
from the project.

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9. Financial Study
In this section, both the cash outflow requirements and the projected inflows are projected and
analyzed.
8.1 Financial Requirements
The yearly financial requirements of the project are classified as capital costs, operating costs and
working capital requirements as follows.
8.2 Project Capital Costs
The project capital costs include such costs as construction costs, expenditures on office
equipments, investment in farm equipments, and other costs which are supposed to be capitalized as
cost of the project and are gradually depreciated over the life of the project. Accordingly, the
following are the projected capital costs of the project summarized under different sections.
Construction costs: - these include expenditures related with the constructions of Store, residential
houses with guard room, offices, toilet, and guardian houses, parking areas, cafeteria etc. The
following table shows just the summaries of the construction items and their respective costs.

Table 3. Summaries of the project construction costs (in Birr)

S.N0 Constructions needed unit Block Annual salary (Birr)
1 Residential houses construction (for workers) class 2 250,000.00
2 Office construction class 4 250,000.00
3 cafeteria construction class 2 250,000.00
4 Store and bathing rooms, rest room class 1 450,000.00
5 Shade for tractors and other vehicles class 105,000.00
Total estimated construction costs 1,305,000

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Investment on farm machineries and equipments: - The following table shows the specifications of
the selected machineries from the proforma invoices attached to this report.

Table 4. Summaries cost of the project farm machineries (in Birr)

S.N0 Descriptions of the Items Quantity Unit costs Total costs
1 Tractor 110 Hp -125 HP 1 2,765,577.08 2,765,577
2 Brand New Toyota Hilux Double cab (Full Option) 4WD, 1
2.5L, 2949cc, 4cylinders, 16valve, Diesel Turbo, DOHC 300,000.00 300,000
(Japan origin)
3 Trailer 1 412,548.00 660,000
4 Truck 1 450,000.00 450,000
5 Sorting, packing, and distributing Machine 1
Estimated machineries (in Birr) 4,175,577

Farm tools: - in addition to the above-mentioned farm machineries, the following farm tools are
also identified with their respective current unit prices. However, as these items are diverse in kind
and in significant in terms of cost per unit, the costs are forested based on the current market price
without the need to collect proforma invoices.
Table 5. Farm tools with their respective per unit cost and quantities needed
S.N0 Items Quantity Units cost Total cost
1 Chemical Sprayer 2 1500 3,000
2 Sickles 100 250 25,000
3 Axes 60 100 6,000
4 Tape meter (100 m) 10 650 6,500
5 Wheel borrow 5 3,500 17,500
6 Shovel 10 180 1,800
7 Weighing scale 3 25,000 75,000
8 Washing Machine 2 250,000 500,000
9 Vacuum Pump 1 125,000 125,000
10 Saw 10 160 1,600
11 Cutlass or Machete 3 40,000 120,000
12 Spade hoe 10 900 9,000
13 Local hand hoe 20 70 1,400
14 Spade 30 98 2,940
15 Digging fork 50 400 20,000
16 Trovel 4 500 2,000
= Estimated cost of farm tools (in Birr) 916,740

Office Equipments: - the following table shows the prices of office equipments at the time of
preparing this project proposal.

Table 6. Summaries of the office equipments’ costs (in Birr)

FURNITURE Qty Unit Cost Total cost

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Table and chair (Farm Manger) Set 5 9,500 47,500
Waiting /guest Chair Pcs 10 1,500 15,000
Camp bed and furniture’s Set 8 3,200 25,600
Shelf and Other Drawers Set 3 5,000 15,000
Weighing scale 3 25,000 75,000
Desk top computer with its Accessories 5 15,500 77,500
Fax Machine 1 9,600 9,600
Laptop computer 3 25,500 76,500
Computer tables 3 5,000 15,000
Printer 1 7,600 7,600
Safe box 1 18,000 18,000
Cash register machine 1 8,000 8,000
Calculator /adding machines 2 650 1,300
Sub total 391,600.00

8.1. 2. Project Operating Costs

Here, the operating costs refer to these costs which are not included in the project capital costs and
hence are not subjected to periodical depreciation. These costs include such costs as labor costs;
costs for equipment operations and maintenance such as fuel cost and repair and maintenance costs;
depreciation costs; utilities expenses such as water bills, electricity bills and telephone charges;
employee’s salaries; and others miscellaneous expenses.
Labor costs: - In order to determine the periodical labor cost of the project, first we need to
determine labor required to cultivate a hectare of each crop in each project year. Accordingly, the
following are our procedure to determine the labor requirement of the project:
1. First, we started from our land use and cropping pattern proposd throughout the life of the
project as depicted by table 1 land use plan of 200 hectares specified above.
2. Second, we have determined the labor requirements of each crop per hectare per year by the
types of operations throughout the project life as shown by table 7 (annexed). Labor
requirement is expressed in terms of work-day, which is to mean the time devoted by one
person during one day (usually eight hours).
3. Thrid, we have determine the total labor requirement of each crop per year by multiplying the
labor requirement of per hectares by their corresponding total hectares of land planned to plant
each crop (table one). This is represented by table 7 (annexed).
4. Fourth, we have summed the total labor requirement of each crop in each year so as to
determine the annual total labor requirement of the project.

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 5. Finally, the average wage per day of labor is multiplied by the total labor requirement of the
project for each year. We have taken Birr 81.00 as the average wage per day per worker
applicable to the project location. The average wage per work-day is projected to increase by
minimum of 5 percent each year. This is determined by considering the change in the labor
markete price over the past few years.
Supplies costs: - such costs include costs for technological inputs such as fuel cost for the tractors,
fertilizers, seeds, office supplies and other chemicals. Table 9 (annexed) shows the detailed
calculations of these cost items, the summary of which is Birr 1,396,875 annual supplies cost. As
usual, we expect these cost items to increase by a minimum of 5 per cent per year. This is presented
by table 12 (annexed).

Repair and maintenance costs: - Operating costs for operations and maintenance of machineries
and equipment is taken to be 2 percent of the initial investment costs starting from its second year
after acquisition until end of tenth year, after which the rate would be 10 percent. Accordingly, table
8 (annexed) shows the detailed calculation of this cost item which is summarized to be Birr
391,878 starting from the second year of the project operation to tenth year. This is presented by
table 13 (annexed).

Utilities expenses: - these include such periodical costs as incurrence of liabilities (payments of
cash) for water bills, electricity bills, fuel consumptions and telephone expanses. Although such
types of expenses are changing with the volumes of operations, it is forecasted that a minimum of
Birr 412,500 forecasted for the first year of project operation, which is expected to increase by a
minimum of 5 percent per year. This is presented by table 14 (annexed).

Miscellaneous Expense: - are other operating expense for which it is neither economical nor
convenient to give specific account code and hence should be merged together under
“miscellaneous expense” includes entertainment expense, employee benefits, litigation expense and
others. Similar to the utilities expense, such expenses are estimated to be Birr 1,199,153 for the first
year and expected to increase at least by 5 percent per year. This is presented by table 14 (annexed).

8.1.3 Project Working Capital

Project working capital refers to cash required to be held at hand at the end of each year for some
operating costs to be incurred at the beginning of the next year. These costs are usually determined
as a given percentage of the next year’s increase in the operating cost requirements. Accordingly,
28 | P a g e
the following table shows the projected working capital requirement of the project, determined as
the 80 percent of the increase in the operating costs of the next year. This is presented by table 15
(annexed).
Note that the working capital requirement of the first year is determined to be 80 percent of the
increase in the operating cost requirement of the second year Birr 364,168 (6,380,682- 5,925,473)

which is (Birr 364,168 *0.8=364,168). It is estimated that the remaining 20 Percent increase in each
year’s operating expense will be covered by the cash inflows of the preceding year. The same
approach is followed for the rest years. The non-cash expense is not included in the determinations
of the working capital requirements. This is because such expense has no effect on cash flow
streams for which we need to determine working capital requirement. However, periodical income
tax and interest liabilities need to be considered since such items affect cash flows of an entity.
Nonetheless, they are not reflected in this case since we have not yet estimated such costs by this
time.

8.1.4 Total Financial requirements

Total financial requirement for the project is just the sum of the three cost elements we have
determined above: total capital cost, total operating cost and total working capital costs. The
following table summarizes the total finance requirement of the project together with the possible
sources of finance.

Table 16. Total Financial Requirement of the Project

Items Birr
Project construction costs 805,000.00
Project farm machineries costs 5,000,000
Project farm tools costs 916,740.00
Summaries of the office equipments’ costs 391,600.00
Total Project Capital Cost 5,000,000
Operating Costs 5,925,472.50
Working Capital Cost 364,167.77
Total Financial Requirement at first year 5,000,000
Sources of Finance:
Owner’s Equity Contributions (30 %) 1,500,000
Bank loan at 9.5 % simple interest rate (70%) 3,500,000
Total Financial Requirement at first year (In Birr) 5,000,000

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8.2. Forecasted Production
In order to estimate the per hectare production of each crop, we have utilized opinions of experts in
the field of agronomists. Accordingly, table 17 (annexed) shows the projected output in quintal
from each crop proposed to be cultivated over the first ten years of the project life.

Note that the projections are based on the expert opinions in the field as well as per the
recommendations of east Wollega zone agriculture office, and experienced investors & seed
multipliers enterprises. In essence, if the project is to be implemented and run in accordance with
the recommendations of the experts, these projections are supposed to be achievable. Here, it is
expected that as the project operates for more number of years, there is advantage of getting lessons
from the past years and hence the latter years’ output per year is expected to increase accordingly.

83 Forecasted Sales Revenues

Sales revenues are the functions of projected production and projected selling price per unit of each
crop. Taking the projected production of each crop from the table 17, we now proceed to the
projection of selling price of each crop. Accordingly, the selling price of each quintal of the crop is
expected to increase each year by a minimum of 5 percent. Given the trends of the past five years in
Ethiopia in particular and in the world in general, this projection wouldn’t be far from the reality
under the normal macroeconomic condition. Table 18 (annexed) shows the projected selling price
per quintal of each crop over the next ten years.
In order to determine the forecasted sales revenues, we need to multiply the forecasted selling price
per unit of each crop by their respective projected production of each year. Table 19 (annexed)
shows this procedure.

8.4. Depreciation calculations

In order to determine the periodical depreciation, we adopted the Ethiopian standard of useful
economic life of fixed assets and hence used depreciation rates for each asset category accordingly.
The detail depreciation schedule is presented by Table 20 (annexed). Depending on the difference
in the useful lives of specific assets, the depreciation charge is estimated to be larger at the
beginning of the project life and smaller at the earlier years since some of the assets are expected to
be fully depreciated within the first five years. Accordingly, the periodical depreciation charge is
estimated to be Birr 1,611,688.7 for the first five years and will be reduced to Birr
1,562,938.76 over the next two years (since the farm machineries are supposed to have useful lives
30 | P a g e
of seven years), and finally Birr 35,320.00 for the next subsequent years (since the constructed
assets are supposed to have useful lives of more than 25 years).

8.5 Loan Repayment Schedule and Interest Expense

The periodical interest expense is just the functions of amount of the loan outstanding at the
beginning of each period, the interest rate and the time for which the loan remains unchanged.
Accordingly, the bank loan was estimated to be Birr 3,500,000, at simple interest rate of 9.5 percent
on the unpaid balance of the loan at the beginning of each period. The loan with interest is expected
to be paid with equal installment amount of Birr 3,152,334.75 over ten years starting just at the end
of the second year of operation. Table 21 (annexed) shows the periodical loan repayment and
interest expense.

8.6 Forecasted Income Statement

Forecasted income statement shows just the summary reports of all revenues earned and costs
expired (expense incurred) during each period. Accordingly, Table 22 (annexed) shows the
forecasted income statement of the project over the first ten years of the project life. Note that the
farm project will have substantial net income starting from its first year of operation. It is evident
that that this project is financially viable.

8.7 Forecasted Cash Flow Statement

Unlike the forecasted income statement, the forecasted cash flow statement shows the inflows and
outflows of money to and from the project over a given period of time. In this case, all items
(revenues and expense) which don’t affect cash flow are excluded from the statement. In our case,
depreciation expense is the only expense that doesn’t affect cash flow and hence excluded from the
outflows whereas all revenues are supposed to be either fully collected within the year of sales or
the sale be made on cash basis.

The cash flow statement shows the sources and uses of money over a given period of time.
Accordingly, there are three sections of this report: (1) cash flows of operating activities (O); (2),
cash flows of investing activities (I), and (3) cash flows of financing activities (F). Net cash flow of
the project is the sum of net cash flows from these three sections. Table 23 (annexed) shows the
projected cash flow statement over the first ten years of the project. Note also that this cash flow

31 | P a g e
report shows that the firm’s cumulative cash inflows over the forecast period is very attractive and
deserves financing. This statement also proves that the project is finically viable.

8.8 Forecasted Balance Sheet

Forecasted balance sheet shows the summary report of what the entity owns and what it owes on
the specific date in a time, usually, at the end of the fiscal year. In essence, it reports on total assets,
total liabilities and capital (owner’s equity and creditors’ equity) of the entity on a given date.
Thus, balance sheet contains information regarding the financial viability of the enterprise on a
given date. By comparing change in the elements of the balance sheet over different periods, we can
judge whether or not the enterprise is improving its financial position over the periods.
Accordingly, table 24 (annexed) shows forecasted balance sheet of the enterprise for the first ten
years of the life of the project.

Note that as the projected balance sheet shows that the financial position of the firm remarkably
improves over the period and will be able to full operate by own finance after ten years if the
project is successfully implemented. This also supports that the project has financial viability.

8.9 Overall Financial Assessment

The overall financial performance of the project is appealing as shown by the projected by the
above three financial statements. When evaluated in terms of its profitability, there is steady
increase in after tax net income showing that the project would remarkably contribute towards
wealth maximization of the shareholders. Similarly, the forecasted balance sheet shows
extraordinary attractive financial position of the firm over the same period. In addition, when
viewed in terms of the sources and uses of money (cash flow statements), there is steady increase in
the net cash provided by the project cash receipts after covering the cash payments required to
sustain the project.

Furthermore, the project has the following financial performance measured in different investment
decision criteria. The following table shows the summarized project financial viability test just for
the first ten years of the life of the project. Note that these figures would have been much larger if
we consider the entire life of the project since most of the capital expenditures of the project are
supposed to be committed at the beginning of the years while most net cash inflows are expected

32 | P a g e
during the later life of the project. However, these figures are still indicators of financial
attractiveness of the project. Detail calculation is presented by table 25 (annexed).

Table 26. Project financial viability test

Criteria Results
Present Value of Costs PVC 141,955,410
Present Value of Benefits PVB 215,818,088
Net Present Values NPV 73,862,678
Benefit Cost Ratios BCR 1.52
Net Benefit Cost Ratio NBCR 0.52
Internal Rate of Returns IRR 56%

Net Present Value (NPV): - is the sum of present values of all the cash flow both positive and
negative that are expected to occur over the life of the project. The formal selection criterion for the
NPV measure of project worth is to accept all independent projects with a positive NPV when
discounted at the opportunity cost of capital. In this project case, given the project has positive
value of Birr 73,862,678; it means that the project would contribute Birr 73,862,678 towards the
wealth maximization of the owner’s wealth and hence it is viable.
Benefit Cost Ratio (BCR): - The benefit-cost ratio is defined as the ratio of the discounted values of
benefits to the discounted value of costs. A ratio of at least one is required for acceptability and the
ratio of one indicates that the NPV of zero at a particular discount rate. In our case BCR of Birr
1.52 shows, for every one Birr invested in this project, the return would be 1.52 Birr, which is
highly remarkable figure.
Net Benefit Cost Ratio (NBCR): - this ratio is defined as the ratio of net present value to the
present value of cost. A ratio greater than zero (0) is needed for the project to be financially
acceptable; in our case the ratio of 0.52 is in excess of the hurdle rate required to make the project
financially viable (the project is magnificent in terms of this criteria also).

Internal Rate of Return (IRR): - is the maximum interest that a project could pay for the resources
used if the project is to recover its investment and operating costs and still break even. It measures
opportunity cost of capital tied up in the investment. In this project case, IRR is 56 percent which is
extraordinarily large compared with the minimum cost of capital of 11.5 per cent. Hence, we can
safely conclude that the IRR of the project is extraordinarily high and hence indicates project
viability.

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It should be recalled that the various investment decision criterion we have considered above
involve predicting values for each of the various elements entering into the definition of volume of
output sold, selling price, required investment, labor costs per unit; maintenance costs of machines,
profit, and so forth. However, as these values are based on certain assumptions, they may change in
unfavorable direction thereby making projects less attractive than when it was planned. Thus,
switching value measures the value an element of a project would have to reach as a result of a
change in an unfavorable direction before that project no longer meets the minimum level of
acceptability as indicated by one of the measures of project worth. In this case we ask, by how
much an element would have to change in an unfavorable direction before the project would no
longer meet the minimum level of acceptability as indicated by one of the measures of project
worth. In other words, in sensitivity analysis, we ask how sensitive is the project’s estimated
financial and economic benefits to increase in costs, fall in price and extension of implementation
periods?

In our case, since BCR is 1.52, it means that cost can rise by 52 percent at which the BCR will
become exactly 1.0 and hence the decision will be indifference. However, any rise in cost beyond
52 percent keeping sales revenues constant will lead the BCR to be below 1.0 and hence the
decision will be to reject the project on this ground. But it is unlikely to expect such increase in
operating costs keeping selling prices of these products constant. Thus, the 52 percent margin of
safety is large enough to guarantee for the stability of the above decision criteria. Similarly,

revenues can keep dropping up to = = 1-0.6579= 0.342 which is roughly

equals to 34 percent, keeping the cost elements constant. Any drop in sales by more than 34 percent
may lead the project to rejection region. However, given the past few year trends, the price of these
items has been increasing at increasing rate and hence expected to increase over the next many
years partly due to increasing demand to these outputs and partly due to increasing general trend in
commodity prices. Overall, when evaluated both in terms of cost and revenue, the project has
sufficient margin of safety to guarantee the stability of the determined investment decision criteria
above. Thus, it is can be safely concluded that the project is financially viable.

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10. Environmental Impact Analysis
Consistent with the government’s high priority of encouraging private investment in the agriculture
sector, these integrated projects aim at agricultural production with due care to reduce degradation
and improve productivity of natural resources. Given the fact that these projects intend to utilize
the rain fed cultivation, certainly these reliefs the existing degradation pressure on rural farm land
imposed by the traditional farming system.

More importantly, the projects aim at reversing the environmental degradation trends widely
observable in the area by breaking the nexus between poverty and degradations. In essence, the
projects aim at solving the key problem area by breaking the nexus between rural poverty, natural
resource management and climate change mainly by creating alternative and more lucrative income
source for the local resource poor smallholder farmers, who, otherwise should depend on the natural
resource bases and hence causes the degradations. The project promoters believe:
 environment and natural resource degradation are often a direct cause of rural poverty;
 rural poverty often exacerbates environment and natural resource degradation; and
 Climate change increases the vulnerability of rural people and the ecosystems they depend
on for their livelihoods.
Thus, opening alternative source of income by creating job opportunities within the project can
relieve the current pressure on the rural land in the project area. Besides, the project promoters are
fully aware of the Oromia Rural Land use and Administration Proclamation No. 130/ 2007, which
force any investor to cover at least 2 percent of the allotted land area by indigenous trees.

11. Conclusion and Recommendation

Overall, the projects have the following merits which would justify the need for giving priority in
its finance:

 The strategic objectives of the projects are highly consistent with the national development
objective which calls to “sustainably increase rural incomes and national food security,
which embodies the concepts of producing more, selling more, nurturing the environment,
eliminating hunger and protecting the vulnerable against shocks.

35 | P a g e
  These projects are expected to create job opportunities for these potential migrants at their
nearby village and hence alleviate the pushing factor for migrations.
 The projects aim at utilizing locally available technologies so as to encourage the backward
and forward linkage of the project and hence contribute towards the realization of
Agricultural Development Led Industrialization (ADLI) strategy of the country.
 Finally, the projects will largely contribute towards the national economic development by
contributing to National GDP. GDP contribution originating from the agriculture sector has
more power of poverty reduction than other sectors (a one percent GDP growth rate
originating in agriculture sector has more potential for poverty reduction than two percent
GDP growth rate originating from the service sector).
Recommendation: - considering the viability of the project, as aforementioned, the project is
recommended for implementation.

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 Annex
Table. 7 Labor requirement per Hectares of each crop
Project life in years
Crop and Operation 1 2 3 4 5 6 7 8 9 10 to 25
Fruit Land preparation 20 15 15 15 15 15 15 15 15 15
and
vegetable
Planting 50 50 50 50 50 50 50 50 50 50
Weeding (2X) 40 40 40 40 40 40 40 40 40 40
Chemical application (2X) 15 15 15 15 15 15 15 15 15 15
Harvesting 40 40 40 40 40 40 40 40 40 40
Total 165 160 160 160 160 160 160 160 160 160
Grapes
Land preparation 20 15 15 15 15 15 15 15 15 15
Planting 12 12 12 12 12 12 12 12 12 12
Weeding (2X) 24 10 10 6 6 6 6 6 6 6
Chemical application (4X) 15 15 15 15 15 15 15 15 15 15
Harvesting (2X) 20 20 20 20 20 20 20 20 20 20
Total 91 72 72 68 68 68 68 68 68 68
Apple
Land preparation 20 15 15 15 15 15 15 15 15 15
Planting 15 15 15 15 15 15 15 15 15 15
Weeding (2X) 24 10 10 6 6 6 6 6 6 6
Chemical application (2X) 12 12 12 12 12 12 12 12 12 12
Harvesting 30 30 30 30 30 30 30 30 30 30
Labor per season 101 82 82 78 78 78 78 78 78 78
Labor requirement is expressed in terms of work-day, which is to mean the time devoted by one person during one day (usually eight hours).

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 Table 8. Estimated yearly repair and maintenance expenses Repair and maintenance
Items costs Rate
Store and bathing room 1,950,000.00 0.02 39,000.00
New John Deere 6100D Mfwd Tractor (Mexico Origin) 2,765,577 0.02 55,311.54
Brand New Toyota Hilux Double cab 2,300,000 0.02 46,000.00
Trailer 660,000 0.02 13,200.00
Truck 3,450,000 0.02 69,000.00
Seed Sorting, Packing & distributing 8,000,000 0.02 160,000.00
Chemical Sprayer 3,000.00 0.02 60.00
Sickles 25,000.00 0.02 500.00
Axes 6,000.00 0.02 120.00
Tape meter (100 m) 6,500.00 0.02 130.00
Wheel borrow 17,500.00 0.02 350.00
Shovel 1,800.00 0.02 36.00
Weighing scale 75,000.00 0.02 1,500.00
Saw 1,600.00 0.02 32.00
Cutlass or Machete 120,000.00 0.02 2,400.00
Spade hoe 9,000.00 0.02 180.00
Local hand hoe 1,400.00 0.02 28.00
Spade 2,940.00 0.02 58.80
Digging fork 20,000.00 0.02 400.00
Trovel 2,000.00 0.02 40.00
Laptop Computer 76,500.00 0.02 1,530.00
Printers 7,600.00 0.02 152.00
Shelf 15,000.00 0.02 300.00
Managerial Chairs 47,500.00 0.02 950.00
Guest Chairs 15,000.00 0.02 300.00
Computer tables 15,000.00 0.02 300.00
Total Repair and Maintenance costs 391,878.34

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 Table 9. Total Labor requirement and cost of the project
Years 1 2 3 4 5 6 7 8 9
Fruit and Labor per Ha (table 7) 165 160 160 160 160 160 160 160 160
vegetable
Land area (table 1) 110 110 110 110 110 110 110 110 110
Sub-total labor required 18150 17600 17600 17600 17600 17600 17600 17600 17600
Grape Labor per Ha (table 7) 91 72 72 68 68 68 68 68 68
Land area (table 1)* 50 50 50 50 50 50 50 50 50
Sub-total labor required 4550 3600 3600 3400 3400 3400 3400 3400 3400
Apple Labor per Ha (table 7) 101 82 82 78 78 78 78 78 78
Land area (table 1) 35 35 35 35 35 35 35 35 35
Sub-total labor required 3535 2870 2870 2730 2730 2730 2730 2730 2730
Total Labor required per ha 26235 24070 24070 23730 23730 23730 23730 23730 23730

Table 10. Summaries of labor cost (wage expense)

Years 1 2 3 4 5 6 7 8 9 10
Total Annual Labor 26,235 24,070 24,070 23,730 23,730 23,730 23,730 23,730 23,730 23,730
Labor cost per work-day (Birr) 67 67 70 74 78 81 86 90 94 99
Projected wage Cost per year 1,757,745 1,612,690 1,693,325 1,752,876 1,840,520 1,932,546 2,029,173 2,130,631 2,237,163 2,349,021

Table11. Project Input supplies costs calculated

1. Fruit and vegetable Production (110 Ha)

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 Unit Amount needed Cost (Birr)
Fertilizers: per Ha Total per unit Total
1 DAP kg 100 11000 15 165,000.00
2 UREA kg 150 16500 11 181,500.00
3 Pesticides L 4 440 350 154,000.00
4 Seeds kg 25 2750 18 49,500.00
5 Input transportations kg 10 1100 0.5 550.00
6 Output transportations kg 600 66000 0.5 33,000.00
7 Packing materials Pcs 70 7700 10 77,000.00
Sub-total 660,550.00
2. Grapes & Apple (85 Ha)
Unit Amount needed Cost (Birr)
Fertilizers: Per Ha Total Per unit Total
1 DAP kg 100 8500 15 127,500.00
2 UREA kg 100 8500 12 102,000.00
3 Pesticides L 4 340 350 119,000.00
4 Seeds kg 100 8500 15 127,500.00
5 Input transportations kg 10 850 0.5 425.00
6 Output transportations kg 600 51000 0.5 25,500.00
7 Sacking materials Pcs 16 1360 10 13,600.00
8 Sub-total 515,525.00
Total operating input supplies costs (excluding tractor related costs) 1,176,075.00
Table 11. Tractor related annual operating costs per year
1. Fruit and vegetable (110 Ha)
Requirements Fuel consumption Fuel Price
Descriptions Unit Per Ha Total Per hour Total Per Litter Total
Tractor Operations T/H
1 Ploughing T/H 2 360 20L 2200 20.00 Birr 39600
2 Discing & harrowing T/H 2 360 20L 2200 20.00 Birr 39600
3 Ridging T/H 2 360 20L 2200 20.00 Birr 39600
Sub-total 118,800.00
2. Grapes and Apple (85 Ha)

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 Requirements Fuel consumption Fuel Price
Descriptions Table 14. Miscellaneous
Unit and utilities
Per Ha Total Per hourexpenseTotal
per year Per Litter Total
Years 1
Tractor Operations 2 T/H 3 4 5 6 7 8 9 10
412,500
Utilities Expense 1 Ploughing 433,125 454,781
T/H 477,520
2 226 501,396 20L 526,466 552,789
1700 20.00 Birr 580,42934000609,450 639,923
Other Operating expense 1,199,153
2 Discing 1,259,110 1,322,066
& harrowing T/H 1,388,169
2 226 1,457,577
20L 1,530,4561700 1,606,979
20.00 Birr 1,687,32834000
1,771,694 1,860,279
3 Ridging T/H 2 226 20L 1700 20.00 Birr 34000
Sub-total 102,000.00
Total tractor related supplies cost per year 220,800.00
Total supplies costs 1,396,875
T/H refers to time requirement for a tractor to accomplish each of the
specified activity

Table 12: summaries of supplies costs per year

1 2 3 4 5 6 7 8 9 10
Supplies costs 1,396,875 1,466,719 1,540,055 1,617,057 1,697,910 1,782,806 1,871,946 1,965,543 2,063,821 2,167,012

Table 13. Repair and Maintenance expense per year

1 2 3 4 5 6 7 8 9 10
Repair & maintenance 0 391,878 411,472 432,046 453,648 476,331 500,147 525,154 551,412 578,983

Table 15. Operating and working capital costs needed

Years 1 2 3 4 5 6 7 8 9 10
Employee salaries 1,159,200 1,217,160 1,278,018 1,341,919 1,409,015 1,479,466 1,553,439 1,631,111 1,712,666 1,798,300
Labor cost (table 10) 1,757,745 1,612,690 1,693,325 1,752,876 1,840,520 1,932,546 2,029,173 2,130,631 2,237,163 2,349,021

41 | P a g e
 Repair& maint. (table 13) 0 391,878 411,472 432,046 453,648 476,331 500,147 525,154 551,412 578,983
Utilities costs (table 14) 412,500 433,125 454,781 477,520 501,396 526,466 552,789 580,429 609,450 639,923
Supplies cost (table 12) 1,396,875 1,466,719 1,540,055 1,617,057 1,697,910 1,782,806 1,871,946 1,965,543 2,063,821 2,167,012
Miscellaneous cost (table 14) 1,199,153 1,259,110 1,322,066 1,388,169 1,457,577 1,530,456 1,606,979 1,687,328 1,771,694 1,860,279
Total Operating 5,925,473 6,380,682 6,699,716 7,009,587 7,360,067 7,728,070 8,114,473 8,520,197 8,946,207 9,393,517
Increase in Operating costs 0 455,210 319,034 309,871 350,479 368,003 386,403 405,724 426,010 447,310
Working capital needed 364,168 255,227 247,897 280,383 294,403 309,123 324,579 340,808 357,848 0

Table 17. Forecasted production of each crop over the first 10 years
Crops 1 2 3 4 5 6 7 8 9 10
Fruit and vegetable Land area in Ha 110 110 110 110 110 110 110 110 110 110
Output per Ha (quint) 96 96 96 96 96 96 96 96 96 96
Total Output (quint) 10,560 10,560 10,560 10,560 10,560 10,560 10,560 10,560 10,560 10,560
Grapes Land area in Ha 50 50 50 50 50 50 50 50 50 50
Output per Ha (quint) 25 25 25 25 25 25 25 25 25 25
Total Output (quint) 1250 1250 1250 1250 1250 1250 1250 1250 1250 1250
Apple Land area in Ha 35 35 35 35 35 35 35 35 35 35
Output per Ha (quint) 30 30 30 30 30 30 30 30 30 30
Total Output (quint) 1,050 1,050 1,050 1,050 1,050 1,050 1,050 1,050 1,050 1,050

Table 18. Projected selling price of (at the farm gate price in Birr per quintal)
Crops 1 2 3 4 5 6 7 8 9 10
Fruit and
1200 1,260 1,323 1,389 1,459 1,532 1,608 1,689 1,773 1,862
vegetable
Grapes 4000 4,200 4,410 4,631 4,862 5,105 5,360 5,628 5,910 6,205
Apple 900 945 992 1,042 1,094 1,149 1,206 1,266 1,330 1,396

Table 19 Projected annual Sales revenues from each Crop (at the farm gate price in Birr)
Crops 1 2 3 4 5 6 7 8 9 10
Fruit and Price (Birr) 1200 1,260 1,323 1,389 1,459 1,532 1,608 1,689 1,773 1,862
42 | P a g e
 vegetable
Production (quint) 10,560 10,560 10,560 10,560 10,560 10,560 10,560 10,560 10,560 10,560
Sales (Birr) 12,672,000 13,305,600 13,970,880 14,669,424 15,402,895 16,173,040 16,981,692 17,830,777 18,722,315 19,658,431
Grapes Price (Birr) 4,000 4,200 4,410 4,631 4,862 5,105 5,360 5,628 5,910 6,205
Production (quint) 1250 1250 1250 1250 1250 1250 1250 1250 1250 1250
Sales (Birr) 5,000,000 5,250,000 5,512,500 5,788,125 6,077,531 6,381,408 6,700,478 7,035,502 7,387,277 7,756,641
Apple Price (Birr) 900.0 945.0 992.3 1,041.9 1,094.0 1,148.7 1,206.1 1,266.4 1,329.7 1,396.2
Production (quint) 1,050 1,050 1,050 1,050 1,050 1,050 1,050 1,050 1,050 1,050
Sales (Birr) 945,000 992,250 1,041,863 1,093,956 1,148,653 1,206,086 1,266,390 1,329,710 1,396,195 1,466,005
Total Sales revenues 18,617,000 19,547,850 20,525,243 21,551,505 22,629,080 23,760,534 24,948,561 26,195,989 27,505,788 28,881,077

Table 20. Estimation of annual depreciation expenses Economic Depreciation Depreciation expenses
Life rate
Items costs
Store and bathing room 1,950,000.00 40 0.025 48,750.00
48,750
New John Deere 6100D Mfwd Tractor (Mexico Origin) 2,765,577 7 0.142857 395,082.04 1,611,688.76
Brand New Toyota Hilux Double cab 2,300,000 7 0.142857 328,571.10 1,562,938.76
Trailer 660,000 7 0.142857 94,285.62
Sino Truck model ZZ1257S4641W, 9720cc, HP 371 3,450,000 5 0.1 345,000.00

Sorting, packing, and distributing machine 8,000,000 10 0.05 400,000.00

Chemical Sprayer 3,000.00 5 0.2 600

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 Sickles 25,000.00 5 0.2 5000
Axes 6,000.00 5 0.2 1200
Tape meter (100 m) 6,500.00 5 0.2 1300
Wheel borrow 17,500.00 5 0.2 3500
Shovel 1,800.00 5 0.2 360
Weighing scale 75,000.00 5 0.2 15000 58,348.00
Saw 1,600.00 5 0.2 320
Cutlass or Machete 120,000.00 5 0.2 24000
Spade hoe 9,000.00 5 0.2 1800
Local hand hoe 1,400.00 5 0.2 280 93,668
Spade 2,940.00 5 0.2 588
Digging fork 20,000.00 5 0.2 4000
Trovel 2,000.00 5 0.2 400
Laptop Computer 76,500.00 5 0.2 15300
Printers 7,600.00 5 0.2 1520
Shelf 15,000.00 5 0.2 3000 35,320.00
Managerial Chairs 47,500.00 5 0.2 9500
Guest Chairs 15,000.00 5 0.2 3000
Computer tables 15,000.00 5 0.2 3000
Total yearly depreciation 1,705,356.76

Table 21. Projected periodical loan repayment and interest expense

Years 1 2 3 4 5 6 7 8 9 10
Principal loan outstanding at
3,500,000 18,634,491 16,563,992 14,493,493 12,422,994 10,352,495 8,281,996 6,211,497 4,140,998 2,070,499
beginning
Periodical loan repayments 2,070,499.01 2,070,499 2,070,499 2,070,499 2,070,499 2,070,499 2,070,499 2,070,499 2,070,499 2,070,499
Outstanding Loan at the end 18,634,491.13 16,563,992 14,493,493 12,422,994 10,352,495 8,281,996 6,211,497 4,140,998 2,070,499 0
Periodical interest expense 1,966,974.06 1,770,277 1,573,579 1,376,882 1,180,184 983,487 786,790 590,092 393,395 196,697
Total periodical payment 4,037,473.08 3,840,776 3,644,078 3,447,381 3,250,683 3,053,986 2,857,289 2,660,591 2,463,894 2,267,196

Table 22 Projected Annual Income Statement (all in Birr)

Years 1 2 3 4 5 6 7 8 9 10
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 Total Revenues 18,617,000 19,547,850 20,525,243 21,551,505 22,629,080 23,760,534 24,948,561 26,195,989 27,505,788 28,881,077
Operating Expenses:
Salaries Expense 1,159,200 1,217,160 1,278,018 1,341,919 1,409,015 1,479,466 1,553,439 1,631,111 1,712,666 1,798,300
Wages Expense 1,757,745 1,612,690 1,693,325 1,752,876 1,840,520 1,932,546 2,029,173 2,130,631 2,237,163 2,349,021
Repair & maintenance 0 391,878 411,472 432,046 453,648 476,331 500,147 525,154 551,412 578,983
Utilities Expense 412,500 433,125 454,781 477,520 501,396 526,466 552,789 580,429 609,450 639,923
Supplies Expense 1,396,875 1,466,719 1,540,055 1,617,057 1,697,910 1,782,806 1,871,946 1,965,543 2,063,821 2,167,012
Miscellaneous Expense 1,199,153 1,259,110 1,322,066 1,388,169 1,457,577 1,530,456 1,606,979 1,687,328 1,771,694 1,860,279
Depreciation Expense 1,705,357 1,705,357 1,705,357 1,705,357 1,705,357 1,611,689 1,611,689 48,750 48,750 48,750
Interest Expense 1,966,974 1,770,277 1,573,579 1,376,882 1,180,184 983,487 786,790 590,092 393,395 196,697
Total Operating Expense 9,597,803 9,856,316 9,978,652 10,091,826 10,245,608 10,323,246 10,512,952 9,159,039 9,388,352 9,638,965
Income Before Income Tax 9,019,197 9,691,534 10,546,590 11,459,679 12,383,472 13,437,288 14,435,609 17,036,949 18,117,436 19,242,113
Income Tax (35%) 3,156,719 2,907,460 3,163,977 3,437,904 3,715,042 4,031,186 4,330,683 5,111,085 5,435,231 5,772,634
Net Income 5,862,478 6,784,074 7,382,613 8,021,775 8,668,430 9,406,102 10,104,926 11,925,865 12,682,205 13,469,479
Retained Earnings 5,862,478 12,646,552 20,029,165 28,050,940 36,719,371 46,125,472 56,230,399 68,156,263 80,838,468 94,307,947

Table 23. Projected Annual cash Flow Statement (all in Birr)

Years 1 2 3 4 5 6 7 8 9 10

1. Cash flows of Operating activities:

Cash Inflows:

Collections from Sales 18,617,000 19,547,850 20,525,243 21,551,505 22,629,080 23,760,534 24,948,561 26,195,989 27,505,788 28,881,077

Cash Outflows:

Salaries payment 1,159,200 1,217,160 1,278,018 1,341,919 1,409,015 1,479,466 1,553,439 1,631,111 1,712,666 1,798,300

Wages payment 1,757,745 1,612,690 1,693,325 1,752,876 1,840,520 1,932,546 2,029,173 2,130,631 2,237,163 2,349,021

Repair & maintenance - 391,878.34 411,472.26 432,045.87 453,648.17 476,330.57 500,147.10 525,154.46 551,412.18 578,982.79

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 Utilities Expense 412,500 433,125 454,781 477,520 501,396 526,466 552,789 580,429 609,450 639,923

Supplies Expense 1,396,875 1,466,719 1,540,055 1,617,057 1,697,910 1,782,806 1,871,946 1,965,543 2,063,821 2,167,012

Miscellaneous Expense 1,199,153 1,259,110 1,322,066 1,388,169 1,457,577 1,530,456 1,606,979 1,687,328 1,771,694 1,860,279

Interest payment 1,966,974 1,770,277 1,573,579 1,376,882 1,180,184 983,487 786,790 590,092 393,395 196,697

Income Tax (30%) 3,156,719 2,907,460 3,163,977 3,437,904 3,715,042 4,031,186 4,330,683 5,111,085 5,435,231 5,772,634

Working capital 364,168 255,227 247,897 280,383 294,403 309,123 324,579 340,808 357,848 0

Total cash outflows 11,413,333 11,313,646 11,685,169 12,104,756 12,549,695 13,051,866 13,556,525 14,562,182 15,132,681 15,362,848

Net cash provided by operation 7,203,667 8,234,204 8,840,073 9,446,748 10,079,385 10,708,668 11,392,036 11,633,807 12,373,107 13,518,229

2. Cash flows of investing activities:

Cash inflows:

Cash Outflows:

Project construction costs 4,805,000

Projected farm machine cost 17,175,577

Projected farm tools cost 916,740

Projected office equipments 391,600

Total cash outflows 23,288,917

Net cash used by investing -23,288,917

3. Cash flows of Financing:

cash inflows:

Owners' equity 8,873,567

Bank loans 20,704,990

Total cash inflows 29,578,557

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 Cash outflows:

Repayments of loans 2,070,499 2,070,499 2,070,499 2,070,499 2,070,499 2,070,499 2,070,499 2,070,499 2,070,499 2,070,499

Net cash flows by financing 27,508,058 -2,070,499 -2,070,499 -2,070,499 -2,070,499 -2,070,499 -2,070,499 -2,070,499 -2,070,499 -2,070,499

Total N et cash flows 9,743,433 6,163,705 6,769,574 7,376,249 8,008,886 8,638,169 9,321,537 9,563,308 10,302,608 11,447,730

Cumulative cash flows 9,743,433 15,907,137 22,676,711 30,052,961 38,061,846 46,700,015 56,021,552 65,584,860 75,887,468 87,335,198

Table 24 Projected Balance sheet of the project (in Birr)

Years 1 2 3 4 5 6 7 8 9 10
Assets
Current asset
Cash (cumulated) 9,743,433 15,907,137 22,676,711 30,052,961 38,061,846 46,700,015 56,021,552 65,584,860 75,887,468 87,335,198
working capital (cumulated) 364,168 619,395 867,292 1,147,675 1,442,078 1,751,201 2,075,780 2,416,588 2,774,436 2,774,436
Total current assets 10,107,601 16,526,532 23,544,003 31,200,636 39,503,924 48,451,216 58,097,332 68,001,447 78,661,904 90,109,634
Fixed asset
Project construction costs 4,805,000 4,805,000 4,805,000 4,805,000 4,805,000 4,805,000 4,805,000 4,805,000 4,805,000 4,805,000
Projected accu. depren -48,750 -97,500 -146,250 -195,000 -243,750 -292,500 -341,250 -390,000 -438,750 -487,500
Projected farm machine cost 17,175,577 17,175,577 17,175,577 17,175,577 17,175,577 17,175,577 17,175,577 17,175,577 17,175,577 17,175,577
Projected accu. depren -1,562,939 -3,125,878 -4,688,816 -6,251,755 -7,814,694 -9,377,633 -10,940,571 -12,503,510 -14,066,449 -14,066,449
projected farm tools cost 916,740 916,740 916,740 916,740 916,740 916,740 916,740 916,740 916,740 916,740
Projected accu. depren -93,668 -187,336 -281,004 -374,672 -468,340 -562,008 -655,676 -749,344 -843,012 -936,680
projected office equipments 391,600 391,600 391,600 391,600 391,600 391,600 391,600 391,600 391,600 391,600
Projected accu. depren -35,320 -70,640 -105,960 -141,280 -176,600 -211,920 -247,240 -282,560 -317,880 -353,200
Total fixed assets 21,548,240 19,807,564 18,066,887 16,326,210 14,585,533 12,844,856 11,104,180 9,363,503 7,622,826 7,445,088
Total assets 31,655,841 36,334,096 41,610,890 47,526,846 54,089,458 61,296,072 69,201,511 77,364,950 86,284,730 97,554,722
Liability
Bank Loan 18,634,491 16,563,992 14,493,493 12,422,994 10,352,495 8,281,996 6,211,497 4,140,998 2,070,499 0
Capital
Owners' equity 8,873,567 8,873,567 8,873,567 8,873,567 8,873,567 8,873,567 8,873,567 8,873,567 8,873,567 8,873,567
Retained earning 5,862,478 12,646,552 20,029,165 28,050,940 36,719,371 46,125,472 56,230,399 68,156,263 80,838,468 94,307,947

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 Total capital 14,736,045 21,520,119 28,902,732 36,924,507 45,592,938 54,999,040 65,103,966 77,029,830 89,712,036 103,181,515
Total Liability + Capital 33,370,536 38,084,111 43,396,225 49,347,501 55,945,433 63,281,036 71,315,463 81,170,828 91,782,535 103,181,515

Table 25. Projected Annual cash Flow Statement from Operations (all in Birr)
Years 1 2 3 4 5 6 7 8 9 10
Cash flows of Operating
activities:
Cash Inflows:
Cash collections from
18,617,000 19,547,850 20,525,243 21,551,505 22,629,080 23,760,534 24,948,561 26,195,989 27,505,788 28,881,077
revenues
Cash Outflows:
Salaries payment 1,159,200 1,217,160 1,278,018 1,341,919 1,409,015 1,479,466 1,553,439 1,631,111 1,712,666 1,798,300
Wages payment 1,757,745 1,612,690 1,693,325 1,752,876 1,840,520 1,932,546 2,029,173 2,130,631 2,237,163 2,349,021
Repair & maintenance - 391,878 411,472 432,046 453,648 476,331 500,147 525,154 551,412 578,983
Utilities Expense 412,500 433,125 454,781 477,520 501,396 526,466 552,789 580,429 609,450 639,923
Supplies Expense 1,396,875 1,466,719 1,540,055 1,617,057 1,697,910 1,782,806 1,871,946 1,965,543 2,063,821 2,167,012
Miscellaneous Expense 1,199,153 1,259,110 1,322,066 1,388,169 1,457,577 1,530,456 1,606,979 1,687,328 1,771,694 1,860,279
Interest payment 1,966,974 1,770,277 1,573,579 1,376,882 1,180,184 983,487 786,790 590,092 393,395 196,697
Income Tax (30%) 3,156,719 2,907,460 3,163,977 3,437,904 3,715,042 4,031,186 4,330,683 5,111,085 5,435,231 5,772,634
Working capital 364,168 255,227 247,897 280,383 294,403 309,123 324,579 340,808 357,848 -
Capital cost 23,288,917
Total cash outflows 34,702,250 11,313,646 11,685,169 12,104,756 12,549,695 13,051,866 13,556,525 14,562,182 15,132,681 15,362,848
Net cash provided by
(16,085,250) 8,234,204 8,840,073 9,446,748 10,079,385 10,708,668 11,392,036 11,633,807 12,373,107 13,518,229
operation
PVC 31,983,641 10,427,324 10,769,741 11,156,457 11,566,539 12,029,370 12,494,493 13,421,366 13,947,171 14,159,307
PVB 17,158,525 18,016,452 18,917,274 19,863,138 20,856,295 21,899,110 22,994,065 24,143,768 25,350,957 26,618,505
NPV (14,825,115) 7,589,128 8,147,533 8,706,681 9,289,755 9,869,740 10,499,572 10,722,402 11,403,785 12,459,197
PVC 141,955,409.68
PVB 215,818,087.87
NPV 73,862,678.18

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 BCR 1.52
NBCR 0.52
IRR 56%

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