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171.

PROFILE ON PRODUCTION OF GINGER OIL

171-2 TABLE OF CONTENTS

PAGE

I.

SUMMARY

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II.

PRODUCT DESCRIPTION & APPLICATION

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III.

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

171-4 171-4 171-6

IV.

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

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V.

TECHNOLOGY & ENGINEERING A. TECHNOLOGY B. ENGINEERING

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VI.

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

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VII.

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

171-11 171-11 171-12 171-13 171-14

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I.

SUMMARY

This profile envisages the establishment of a plant for the production of ginger oil with a capacity of 45 tonnes per annum.

The present demand for the proposed product is estimated at 517.68 tonnes per annum. The demand is expected to reach at 4,212 tonnes by the year 2022.

The plant will create employment opportunities for 18 persons.

The total investment requirement is estimated at Birr 4.93 million, out of which Birr 2.2 million is required for plant and machinery.

The project is financially viable with an internal rate of return (IRR) of 15 % and a net present value (NPV) of Birr 1.18 million discounted at 8.5%.

II.

PRODUCT DESCRIPTION AND APPLICATION

Fresh ginger oil is a light green or yellow mobile liquid, possessing a characteristic aromatic odour of the spice. It is produced by steam distillation from the dried rhizome of zingiber official Rose.

The main constituents of the oil are sesquiterpenes and it lacks pungency.

Ginger oil is used primarily as a flavor in bakery goods, cakes, ginger snaps, and spice snaps, as well as in soft drinks of the ginger-oil type and in condiment mixtures.

171-4 III. MARKET STUDY AND PLANT CAPACITY

A.

MARKET STUDY

1.

Past Supply and Present Demand

Ginger oil is an essential oil widely used in the preparation of bottled, carbonated nonalcoholic beverage. It is also used in other food preparations and in pharmaceuticals. The countrys demand for essential oils is met through import. In estimating the demand for ginger oil, imports of essential oils particularly used in manufacturing food and nonalcoholic beverage during 1997-2006 are considered. Imports of the product exhibit a rising trend. On the average, 450.16 tonnes of the product are imported during the period under reference.

Table 3.1 IMPORTS OF ESSENTIAL OIL USED IN MANUFACTURING NON-ALCOHOLIC BEVERAGES

Year 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Average

Imports (tonnes) 207.65 227.44 37.66 279.07 353.60 478.13 521.44 616.09 817.82 962.68 450.16

Source: Customs Authority, External Trade Statistics, 1997-2006.

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Assuming supply was driven by demand, the average annual supply for the period under reference, which constitutes only imports, is considered as the effective demand for the product for the year 2006. The average rate of growth of imports of the product during the reference period is computed to be 65%. However, a conservative estimate of 15% rate of growth is adopted in estimating the demand for the product. The present demand for the product (i.e. 2007) is, thus, estimated at 517.68 tonnes.

2.

Projected Demand

As states above, a 15% rate of growth is used in projecting the demand for ginger oil. The projected demand for the product is shown in Table 3.2. Table 3.2 PROJECTED DEMAND FOR GINGER OIL (TONNES) Year 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Projected Demand 517.68 595.33 684.63 787.33 905.43 1,041.24 1,197.43 1,377.04 1,583.59 1,821.13 2,094.30 2,408.45 2,769.72 3,185.18 3,662.95 4,212.39

171-6 3. Pricing and Distribution

Based on the CIF price of the external trade statistics for 2006 (the latest data available) and allowing 40% for import duty and other clearing expenses, the factory gate price for the envisaged plant is estimated at Birr 195,689 per tonne.

The envisaged plant can supply its product directly to end-users. The plant can also appoint agents at solected locations.

B.

PLANT CAPACITY AND PRODUCTION PROGRAMME

1.

Plant Capacity

The annual production capacity of the proposed project is 45 tonnes of ginger essential oil, based on 300 working days and three shift per day.

2.

Production Programme

The production program is indicated in Table 3.3. At the initial stage of the production period, the plant requires some years to penetrate into the market. Therefore, in the first and second year of production, the capacity utilization rate will be 75% and 90%, respectively. In the third year and then after, full capacity production shall be attained.

Table 3.3 PRODUCTION PROGRAMME

Sr. No. 1 2

Product 1 Ginger oil (tonnes) Capacity utilization rate (%)

Production Year 2 40.5 90 3-10 45 100

33.75 75

171-7 IV. MATERIAL AND INPUTS

A.

RAW AND AUXILIARY MATERIALS

Dry ginger is the principale raw material and its annual requirement is 2000 tonne. Aluminium or tin-platted drums (200 lt capacity) are used for packing giner oil. Sometimes internally lacquered steel drums are also used. Table 4.1 shows the annual raw and auxiliary materials requirement and cost. Table 4.1 ANNUAL RAW AND AUXILIARY MATERIAL REQUIREMENT AND COST (AT FULL CAPACITY) Sr. No. 1 2 Dry ginger Tin-platted drums Total Tonnes pcs 2,000 225 Materials Unit Qty Cost (000 Birr) 6,000 27 6,027

B.

UTILITIES

Utility of the proposed project are electricity, fuel oil and water. The annual utility requirement and its cost is indicated in Table 4.2. Table 4.2 UTILITIES REQUIREMENT AND COST Sr. No. 1 2 3 Utility Electricity Furnace fuel Water Total Unit kWh Lts m
3

Qty 150,000 270,000 5,000

Cost (000 Birr) 71.1 1,460.7 50 1581.8

171-8 V. TECHNOLOGY AND ENGINEERING

A.

TECHNOLOGY

1.

Process Description

Dry ginger shall first be milled by grinder to the required mesh size. Steam distillation is the preferred method for all essential oils produced in large quantities. The steam,

produced in a boiler is introduced into an evaporation vessel which contains the ginger powder & water. The ginger powder is located on a grid placed at a certain distance above the level of the water which fills the bottom of the vessel. The water is vaporized indirectly, by steam flowing in a pipe coil submerged by the water. The water vapour, plus the distilled oil coming from the evaporator vessel is recovered in a separate water cooled condenser.

This mixture flowing out of the condenser is separated by decantation in a Florentine flask. The essential oil is collected at the top and distilled water leaves the flask at the bottom of the flask. As water still contains some soluble parts of the oil, it is sent back to the evaporator vessel to recover the soluble components by means of second distillation.

2.

Source of Technology

The technology required by the ginger oil manufacturing plant can be obtained from the following supplier.

Food and Biotech Engineers Khwaja, Faridabad Haryana-121003, India Phone +91-129-2510924 Website: http://www.dairyfoodtech.com.

171-9 B. ENGINEERING

1.

Machinery & Equipment

The list of machinery and equipment is indicated in Table 5.1.

The total cost of

machinery and equipment is estimated at Birr 2.2 million of which Birr 1.83 million is required in foreign currency.

Table 5.1 LIST OF MACHINERY & EQUIPMENT

Sr. No. 1 2 3 4 5 6 7 8 2.

Description

Qty

Evaporator Vessels Condenser (water cooled) Florentine flask (ss) Cooling tower Pump Grinder Boiler Submersible pump

4 2 2 1 set 2 1 1 set 1 set

Land, Building and Civil Work

The total land required by the project is about 1500 m2 of which 350 m2 is a built-up area. The cost of building is estimated at Birr 525,000. The lease value of land is calculated to be Birr 120,000 at a rate of 1 Birr/m2/year for 80 years.

3.

Proposed Location

Amaya town is the best location of the envisaged project because of its proximity to raw material resources.

171-10 VI. MANPOWER AND TRAINING REQUIREMENT

A.

MANPOWER REQUIREMENT

The envisaged project requires 18 work force. The list of manpower and the annual labor cost is indicated in Table 6.1. The total annual labor cost is estimated at Birr 219,000.

Table 6.1 MANPOWER REQUIREMENT AND LABOR COST

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

Manpower

Req. No.

Monthly Salary (Birr) 3,000 700 2,000 2,000 1,000 2,800 1,600 900 600 14,600 3,650 18,250

Annual Salary (Birr) 36,000 8,400 24,000 24,000 12,000 33,600 19,200 10,800 7,200 175,200 43,800 219,000

General manager Secretary Production head Accountant Purchaser Operators Ass. Operators Labourers Guards Sub-total Benefits (25% of BS) Total

1 1 1 1 1 4 4 3 2 18

B.

TRAINING REQUIREMENT

On-the-job training of manpower will take place by the experts of machinery supplier during plant erection and commissioning. 20,000. The cost of training is estimated at Birr

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VII.

FINANCIAL ANALYSIS

The financial analysis of the

ginger oil project is based on the data presented in the

previous chapters and the following assumptions:-

Construction period Source of finance

1 year 30 % equity 70 % loan

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

3 years 8% 8.5% 30 days 30 days 1 days 30 days 5 days 30 days

A.

TOTAL INITIAL INVESTMENT COST

The total investment cost of the project including working capital is estimated at Birr 4.93 million, of which 39 per cent will be required in foreign currency.

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

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Table 7.1 INITIAL INVESTMENT COST

Sr. No. 1 2 3 4 5 6 7 Cost Items Land lease value Building and Civil Work Plant Machinery and Equipment Office Furniture and Equipment Vehicle Pre-production Expenditure* Working Capital Total Investment cost Foreign Share

Total Cost (000 Birr) 120.0 525.0 2,200.0 100.0 200.0 290.4 1,495.3 4,930.7 39

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

140.37

thousand )

training (Birr 20 thousand ) and Birr 130 thousand costs of registration, licensing and formation of the company including legal fees, commissioning expenses, etc.

B.

PRODUCTION COST

The annual production cost at full operation capacity is estimated at Birr 8.38 million (see Table 7.2). The material and utility cost accounts for 90.77 per cent, while repair and maintenance take 1.49 per cent of the production cost.

171-13 Table 7.2 ANNUAL PRODUCTION COST AT FULL CAPACITY ('000 BIRR)

Items Raw Material and Inputs Utilities Maintenance and repair Labour direct Factory overheads Administration Costs Total Operating Costs Depreciation Cost of Finance Total Production Cost

Cost 6,027.00 1581.8 125 105.12 35.04 70.08 7,944.04 326.25 111.98 8,382.27

% 71.90 18.87 1.49 1.25 0.42 0.84 94.77 3.89 1.34 100

C.

FINANCIAL EVALUATION

1.

Profitability

According to the projected income statement, the project will start generating profit in the first year of operation. Important ratios such as profit to total sales, net profit to equity (Return on equity) and net profit plus interest on total investment (return on total investment) show an increasing trend during the life-time of the project.

The income statement and the other indicators of profitability show that the project is viable.

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2.

Break-even Analysis

The break-even point of the project including cost of finance when it starts to operate at full capacity ( year 3) is estimated by using income statement projection.

BE =

Fixed Cost Sales Variable Cost

40 %

3.

Pay Back Period

The investment cost and income statement projection are used to project the pay-back period. The projects initial investment will be fully recovered within 6 years.

4.

Internal Rate of Return and Net Present Value

Based on the cash flow statement, the calculated IRR of the project is 15 % and the net present value at 8.5% discount rate is Birr 1.18 million.

D.

ECONOMIC BENEFITS

The project can create employment for

18 persons.

In addition to supply of the

domestic needs, the project will generate Birr 1.52 million in terms of tax revenue. The establishment of such factory will have a foreign exchange saving effect to the country by substituting the current imports.