BUSINESS PLAN FOR DAIRY AND DAIRY PROCESSING FARM
PURPOSE: FOR FINACIAL LEASE LOAN REQUEST
PROJECT NAME: WALIIN DAIRY AND DAIRY PROCESSING FARM
PROJECT PROMOTER: WALIIN COOPERATIVE
PROJECT LOCATION: SHAGGAR CITY ADMINISTRATION SULULTA
CITY ABBA GADAA PRIMARY OROMIA REGIONAL STATE,
ETHIOPIA
PHONE: 0942117052
OROMIA, ETHIOPIA
MARCH, 2024
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Table of Contents
Contents
Page
I. EXCUTIVE SUMMARY.........................................................................................................i
1. INTRODUCTION AND BACKGROUND............................................................................2
1.1. Introduction.......................................................................................................................2
1.2. The project Background....................................................................................................3
1.2.1. Project Justification...................................................................................................3
2. PRODUCT DESCRIPTION....................................................................................................3
2.1. Objectives..........................................................................................................................3
2.1.1. General Objectives.....................................................................................................4
2.1.2. Specific Objectives....................................................................................................4
2.2. Location and premises required........................................................................................5
2.2.1. Location.........................................................................................................................5
2.2.2. Infrastructure..............................................................................................................6
2.2.3. Economic activity of Area.........................................................................................6
2.2.4. Premises Required.....................................................................................................6
3. MARKET ANALYSIS AND STRATEGIES.........................................................................7
3.1. Market Demand and Supply Aspect.................................................................................7
3.1.1. Overview of Livestock Sector...................................................................................8
3.2. Milk Marketing System..................................................................................................12
4. PRODUCTION AND TECHNOLOGY TO BE USED........................................................16
4.1. Technology......................................................................................................................16
4.2. Production.......................................................................................................................19
5. ORGANIZATION, MANAGEMENT AND MANPOWER................................................23
5.1. Organization and Management.......................................................................................23
6. FINANCIAL REQUIREMENTS AND ANALYSIS...........................................................26
6.1. Assumption.....................................................................................................................26
6.2. Total initial investment cost............................................................................................26
6.2.1. Fixed Investment.....................................................................................................26
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6.3. Operating Expense..........................................................................................................29
6.4. Source of Fund................................................................................................................32
6.5. Depreciation Schedule and Amortization.......................................................................33
6.6. Revenue Projection.........................................................................................................34
6.7. . Income Statement..........................................................................................................35
6.8. Cash flow and Discounted Cash flow.............................................................................36
6.9. Balance Sheet..................................................................................................................38
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I. EXCUTIVE SUMMARY
1. Project type Dairy farm
2. Project Owner Sululta
3. Nationality Ethiopian
4. Project Location Oromia national regional state Agaro Town
5. Premises Required 6 hectare equivalent to (60,000 m2)
6. Total Initial Investment Br.3,000,000 of which 50% equivalent to
Capital Br.3,000,000. financed by the owner
equity and the rest 50% equivalent to birr
5,000,000. financed through bank loan
7. Employment Opportunity 06 persons
8. Benefits for the region Add value to the economy. Source of
country Revenue to the government, Employment
opportunity, Save Foreign currency. Benefit
for the local community. Stimulate the
local economy and technology transfer
1. INTRODUCTION AND BACKGROUND
1.1. Introduction
Ethiopia has the largest livestock population in Africa and the contribution of livestock and
livestock products to the agricultural economy is significant. Recent figures indicate that the
livestock sector contributes about 12-16% of national GDP 30-35% of agricultural GDP, 15% of
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export earnings and 30% of agricultural employment.
Livestock contribute to the livelihoods of 60-70% of the population Smallholder farmers
represent about 85% of the population and are responsible for 98% of the milk production.
Productivity however is relatively low quality feeds are difficult to obtainand support services
are inadequate.
There is an immediate and growing shortage of milk products in all major cities ofEthiopia and
the trends of economic prospects for milk industry perfonnance and development are rather good
both at small holder level and on more commercial level. Rapidly increasing population size with
a growing urban population is resulting in agrowing demand for milk products. Milk
development can lead to income generating activities, increasing incomes, and transfer
technology and create employment opportunities.
The analysis of the support market and milk business services revel that the milk industryis
immature and young, competition barely exist; basic senices are either not existing or
inadequate. In general, it offers wide opportunity for investment in milk and related businesses.
The investment opportunities are immense. The potential is within the graspof investors. It only
needs adapting the technology, capital and human resources to specific market niche and
opportunity excising or to be developed a new Conducive government policies, laws and
regulations as part of the economic liberalization program besides investment incentives are
necessary to smooth the progress of easy entry in to and expand the investment opportunities in
the Ethiopian milk industry. To this effect, withthe objective of promoting smallholder and
commercial milk production and the inflowof foreign capital and technology into the country, the
Ethiopian government provides various packages of fiscal incentives to both foreign and
domestic investors engaged in establishing new enterprises and expansions. In this regard, the
owner of the envisioned plant planned to invest and carried out this pre-project study to check
the market, technical and financial of this project. The result of the Business paln is very sound
and promising for the owner to start the project in this area. That is this opportunity that initiates
the promoter to develop the project.
1.2. The project Background
1.2.1. Project Justification
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Ethiopia is one of the countries whose potential for sustainable economic growth lies onthe
agriculture sector. The sector takes lion’s share of the GDP and foreign exchangeearnings of the
country It also provides a major part of the population food feed andemployment opportunity.
The country has a significant agricultural potential and endowed with vast agriculturall and,
fertile soil and moderate climatic condition suitable for agricultural production specially that
supports milk processing sector. Rapidly increasing population size mainly with a growing urban
population is resulting in a growing demand for milk products.
Milk development can lead to income generating activities, transfer technology, generate foreign
currency and create employment opportunities. Though, the Government aims at stimulating
milk industry (milk marketing) in potential areas milk product processing and marketing are not
developed well with demand on themarket.
Though, the formal market appears to be expanding with the private sector entering the milk
processing. It is believed that though there is immense potential on this sector ourcountry did not
use efficiently. The project is believed to have significant social and economic benefit that
accrues to the society beyond financial returns to the owner of the project. In addition to the
above facts, the following points further explain the rationales for establishment for the
envisioned plant by the owners.High market demand and few plants in this sector. High
population is Favorable and attractive investment incentives packages by the governments. It is
availability of skilled labor force at reasonable price.
2. PRODUCT DESCRIPTION
2.1. Objectives
2.1.1. General Objectives
l To supply quality and enough quantity milk products to themarket at fairprice to meet
the market demand.
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2.1.2. Specific Objectives
l Support development of small and medium business and farmers in rural areas by
distributing modern technologies
l Increase employment opportunity
l Increase workers' income
l Decrease milk products import and begin export by using up-to-date technologies in
milk products industry and generate foreign currency
l Generate revenue to the government in the form of tax and land lease paymentand
others
l To drive fair profit to the owner of the project
l The existing conducive social and investment saturations and increase number of
private contribute to the economic development of the nation ingeneral and the region
in specific with following ways:
C. Viability Ratios
NPV 12,000,000
IRR 50%
PBP 50%
Profitability
Based on the projected profit and loss statement, the project will face loss on the first year and
generate a profit throughout its operation when it starts at full capacity. Annual net profit after
tax will grow from Birr 3,451,095.83 to Birr 10,026,563.04 during the life of the project..
Ratios
In financial analysis financial ratios and efficiency ratios are used as an index or yardstickh for
evaluating the financial position of a firm. It is also an indicator for the strength and weakness of
the firm or a project. Using the year-end balance sheet figures and other relevant data, the most
important ratios such as return on sales which is computed by dividing net income by revenue,
return on assets (operating income divided by assets), return on equity (net profit divided by
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equity) and return on total investment (net profit plus interest divided by total investment) has
been carried out over the period of the project life and all the results are found to be satisfactory.
Break-even Analysis
The break-even analysis establishes a relationship between operation costs and revenues. It
indicates the level at which costs and revenue are in equilibrium. To this end, the break-even
point of the project including cost of finance when it starts to operate at full capacity (year 3) is
estimated by using income statement projection.
¿ Cost
BE=
Salesc Price−Variable Cost
Payback Period
The pay back period, also called pay - off period is defined as the period required nrecovering
the original investment outlay through the accumulated net cash flows earned by the project.
Accordingly, based on the projected cash flow it is estimated that the project’s initial investment
will be fully recovered within 4 years.
(E) Internal Rate of Return
The internal rate of return (IRR) is the annualized effective compounded return rate that can be
earned on the invested capital, i.e., the yield on the investment. Put another way. the internal rate
of return for an investment is the discount rate that makes the net present value of the
investment's income stream total to zero. It is an indicator of the efficiency or quality of an
investment. A project is a good investment proposition if its IRR is greater than the rate of return
that could be earned by alternate investments or putting the money in a bank account
accordingly, the IRR of this porject is computed viable indicating the vaiability of the project.
F) Net Present Value
Net present value (NPV) is defined as the total present (discounted) value of a time series of cash
flows. NPV aggregates cash flows that occur during different periods of time during the life of a
project in to a common measuring unit i.e. present value. It is a standard method for using the
time value of money to appraise long-term projects. NPV is an indicator of how much value an
investment or project adds to the capital invested. In principal a project is accepted if the NPV is
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non-negative. Accordingly, the net present value of the project is found to be is acceptable.
5. Future Development
Every business undertakings be it large or small should have future development plan. It is a
plain fact that business activities are undertook in a dynamic business nature and different
environment. Therefore, the plant will have an expansion phase depending on the condition of
the sector character particularly milk processing plant.
2.2 Location and premises required
2.2.1 location
The town of Sululta is a very suitable place for cattle breeding. That is why we choose the
Shaggar city administration. Besides being suitable for livestock, the area is not densely
populated and livestock fighting is undoubtedly a disease for people. The land and house is 200
barns on an area of 600 square meters for livestock, as well as 100 barns in the feeding area
alone. Prepare it for easy cooking, eating and hygiene. Making it comfortable with roads,
electricity and water.
2.2.2 infrastructure
There are many basic factors for milk production. They are:-
1, livestock (cow) dairy is one of the basic things.
2, food - and animals need food to breed. There is no milk unless the cattle eat it.
3, house - house is the main foundation. Livestock should be bought, food should be bought and
the house should be prepared. So our plan is to build 200 squatter houses on 600m2 of land.
We also have the equipment to eat, the equipment to wean, the people to care for, the clothes for
the workers as a basis.
2.2.3 economic activity of area
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Money is needed for any work done here. As a starting point, land, housing, food and livestock
are the main purchases. The plan was made
land worth Rs 1,500,000
business license and initial budget Rs
1,500,000 livestock
3,000,000 for house construction
500,000, including cost of labor and water, electricity
for food a total of 2,950,000
50,000 for light equipment
This is a general plan and we will break it down and look at it in the finqnce plane section.
2.2.4 premise required
The preferred location for dairy farming is rural areas with preferred climate and easy access to
water, and in summer roads and green grass and closer to feedlot shops are preferred.
3. Market Analysis and Strategy
• Industry Overview: The dairy industry is a major segment in the agricultural sector, providing
essential products such as milk, badu , and butter. The growth of the dairy market is influenced
by changing consumer preferences, health trends, and advances in dairy farming technologies
3.1 Market Demand and supply aspect
• Consumer Trends: There is an increasing demand for dairy products due to rising health
consciousness and the popularity of high-protein diets. Additionally, the demand for plant-based
alternatives is growing, prompting traditional dairy producers to innovate
3.1.1 Overview of the Livestock Sector
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Livestock Sector Overview:
• Economic Importance: The livestock sector plays a vital role in many economies by providing
employment opportunities, generating income for farmers, and contributing to food security.
• Diversity of Livestock: The sector includes various types of livestock such as cattle, sheep,
goats, pigs, and poultry. Each type has different market dynamics and production requirements.
• Technological Advancements: Innovations in breeding techniques, feed efficiency, animal
health management, and waste management are transforming the livestock sector. These
advancements can lead to increased productivity and sustainability.
• Sustainability Concerns: The livestock sector faces scrutiny regarding its environmental
impact. Sustainable practices such as rotational grazing, waste recycling, and improved feed
management are becoming increasingly important.
• Global Trends: The global livestock market is influenced by trade policies, climate change
effects on agriculture, and shifting consumer preferences towards more sustainable practices.
3.2 Milk marketing system
So to create an effective milk marketing system, we use several key measures and strategies to
ensure that our milk products reach consumers efficiently and effectively. We focus on the
following important elements that need to be considered when developing a milk marketing
system.
1. Understanding Our Market
• Market Research We conducted in-depth research to understand consumer preferences, trends
and interests in the dairy market.
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