293 .

PROFILE FOR ORGANIC FERTILIZER

PROCESSING PLANT
 293 - 2

TABLE OF CONTENTS

PAGE

I. SUMMARY 293 - 3

II. PRODUCT DESCRIPTION & APPLICATION 293 - 3

III. MARKET STUDY AND PLANT CAPACITY 293 - 4

A. MARKET STUDY 293 - 4
B. PLANT CAPACITY & PRODUCTION PROGRAMME 293 - 7

IV. RAW MATERIALS AND INPUTS 293 - 8

A. RAW & AUXILIARY MATERIALS 293 - 8
B. UTILITIES 293 - 8

V. TECHNOLOGY & ENGINEERING 293 - 9

A. TECHNOLOGY 293 - 9
B. ENGINEERING 293 - 10

VI. MANPOWER & TRAINING REQUIREMENT 293 - 11

A. MANPOWER REQUIREMENT 293 - 11
B. TRAINING REQUIREMENT 293 - 13

VII. FINANCIAL ANLYSIS 293 - 14

A. TOTAL INITIAL INVESTMENT COST 293 - 14
B. PRODUCTION COST 293 - 15
C. FINANCIAL EVALUATION 293 - 16
D. ECONOMIC BENEFITS 293 - 17
 293 - 3

I. SUMMARY

This profile envisages the establishment of a plant for the production of organic fertilizer
with a capacity of 20,000 tonnes per annum.

The present demand for the proposed product is estimated at 17,686 tonnes per annum. The
demand is expected to reach at 61,057 tonnes by the year 2020.

The plant will create employment opportunities for 49 persons.

The total investment requirement is estimated at Birr 6.23 million, out of which Birr 1.57
million is required for plant and machinery.

The project is financially viable with an internal rate of return (IRR) of 23 % and a net
present value (NPV) of Birr 4.72 million ,discounted at 8.5%.

II. PRODUCT DESCRIPTION AND APPLICATION

Organic fertilizer is the end product obtained by converting various organic wastes such as
crop residue, urban wastes, poultry droppings, animal dung, etc., into a usable fertilizer by a
modified aerobic – cum-anaerobic process of composting. Organic fertilizer has advantages
which include: high nutrient content; suitability to a range of crops; fast biodegradability and
safety.

Organic fertilizers are used as supplements to chemical fertilizers, thereby reducing the
import of the chemicals by 30%.
 293 - 4

III. MARKET STUDY AND PLANT CAPACITY

A. MARKET STUDY

1. Past Supply and Present Demand

Agriculture is the dominant economic sector in Ethiopia and it will dominate the economy
for the coming decades. Particularly, the challenge for food security is a top priority of the
economy. The challenge is expressed in terms of growth in agricultural productivity which is
directly related to, among other factors, with improved application and usage of agricultural
inputs like fertilizers.

The Ethiopian Government’s strategy for poverty reduction ( A plan for Accelerated and
Sustained Development to end Poverty, PASDEP) aims to improve crop production and
productivity to make the country food self-sufficient and ensure household food security for
the rapidly growing population, as well as to improve the provision of quality products for
the local agro-industry and for the export market. This will be achieved through increased
crop productivity (intensification) and area expansion. Intensification is to be achieved
through integrated use of agricultural inputs including improved seeds, fertilizer, effective
pest control and better management practices. The main agricultural products that will
receive special focus and follow up in the coming five years include cereals, oil seeds, pulse,
fiber crops, fruits, and vegetable, coffee, tea and spices crops.

According to the plan to improve the soil fertility of food crops, over 8 million quintals of
DAP and Urea are estimated to be required by the end of the plan period. Besides this, by the
end of the planning period approximately 2 million farmers (each producing 2.5 tons) will
prepare compost, which has a capacity to cover about 1 million hectares.

To meet the fertilizer requirements of fruits and vegetables, it is planned to supply 53,658
DAP and urea. Similarly 16,000 tons of inorganic fertilizer (DAP & Urea), and 6,406,000
tons of manure is required for the targeted production increases in coffee, tea and spice crops.
 293 - 5

Overall, by the end of the plan period an estimated 8 million Quintals of chemical fertilizer
and 12 thousand tons of compost will be required to meet the targeted production.

In order to estimate the present demand for fertilizer the actual consumption of the product
during the period 2000 – 2006 was collected and analyzed. The total supply of fertilizer
which comprises only import is shown in Table 3.1.

Table 3.1
IMPORT OF FERTILIZER

Year Quantity Value

2000 155,082 229,003,770
2001 182,739 378,073,522
2002 319,412 566,784,396
2003 121,036 224,332,629
2004 405,605 1,198,460,522
2005 299,497 850,198,025
2006 356,065 1,074,699,736
Average 262,777 645,936,086

Source; External Trade Statistics.

As can be seen from Table 3.1 during the period 2000-2006 import of fertilizer even though
was fluctuating frown year to year shows a general increasing trend registering an average
annual growth rate of 33%.

For estimating the present demand for the product the average import of the last three years
(2004 -2006) is assumed to realistically approximate present demand. Accordingly the
current (2007) effective demand for fertilizer is estimated at 353,722 tonnes conservatively
assuming that organic fertilizers share will be only 5% of the total fertilizer demand the
current demand for organic fertilizer is estimated at 17, 686 tonnes.
 293 - 6

2. Projected Demand

There is always abundant demand for fertilizers for it is used by farmers to improve their
agricultural outputs. Since economic growth in the country is directly related to the
agricultural sector, the sector’s growth in turn is dependent on increased usage of agricultural
inputs like fertilizers. Moreover, the Ethiopian government is committed to improve the
productivity of the agricultural sector. Therefore, in this study a 10% growth rate is
considered for projecting the demand for organic fertilizer. The projected demand for
organic fertilizers is given in Table 3.2.

Table 3. 2
PROJECTED DEMAND(TONNES)

Projected
Year Demand
2008 19,455
2009 21,400
2010 23,540
2011 25,894
2012 28,484
2013 31,332
2014 34,465
2015 37,912
2016 41,703
2017 45,873
2018 50,461
2019 55,507
2020 61,057
 293 - 7

3. Pricing Distribution

A factory get price of Birr 35 per quintal is recommended for the envisaged factory.
Distribution of the product could be handled through agents in highly productive areas. As a
seasonal product providing farmers at the right time is extremely important which needs the
capacity to handle enough stock.

B. PLANT CAPACITY AND PRODUCTION PROGRAMME

1. Plant Capacity

According to market study for organic fertilizer the projected demand for the year 2008 will
be 19,455 tonnes, and this figure is indicated to grow to 37,912 tonnes and 61,057 tonnes in
2015 and 2020, respectively. Organic fertilizer intended to be produced in the region is
highly dependent on the availability of the various ingredients of the raw material, it would
be advisable to start production at small scale level, and gradually carry out an expansion
programme. Based on the demand projection (Table 3.1) indicated above and considering
small scale business start up of the project of annual production of 20,000 tonnes or 200,000
quintals of organic fertilizer be established. The plant will operate double shift 16 hours a
day and 300 days a year.

2. Production Programme

Production is intended to start at 75% of capacity during the initial period due to time
requirement for establishing potential market outlets. Production will then rise to 85% and
100% in the second and third year, respectively. Production build-up programme is shown
in Table 3. 3 below.
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Table 3. 3
PRODUCTION PROGRAMME

Year 1 2 3 and above

Capacity utilization (%) 75 85 100
Production (tonne) 15,000 17,000 20,000

IV. MATERIALS AND INPUT

A. RAW AND AUXILIARY MATERIALS

Raw materials that might be used as possible inputs to produce organic fertilizers are animal
manure, agricultural residues, sewage sludge, composts, slaughter house wastes and
municipality solid waste. It would be advisable to segregate potentially dangerous heavy
metals such as cadmium, lead, zinc and chromium, that might possibly be present in
municipal wastes.

Annual requirement of raw and auxiliary materials at full capacity production of organic
fertilizer is shown in Table 4.1 below.
 293 - 9

Table 4.1
ANNUAL RAW & AUXILIARY MATERIALS REQUIREMENT AND COST (AT
FULL CAPACITY)

No. Description Qty Cost (‘000

Birr)

1 Raw Material (assorted ) (qutls) 225,000 2,250

2 Bags (pcs) 201,000 603
3 Other inputs (LS) LS 25
4 Other costs such as transport LM 750
Total 3,628

In order to maintain continuous production of organic fertilizer, it would be appropriate to

devise raw material collection and supply programme. For this collection and supply points
will have to established both in rural and urban localities.

For collecting and supply of crop residues farmers associations and cooperatives can be
utilized. For urban wastes (municipal wastes) municipalities and private solid waste
collection and disposal enterprises can be potential partners in the networking system.

B. UTILITIES

Electricity, water and furnace oil are utilities required by organic fertilizer plant. Annual
requirement of utilities at full capacity production is shown in Table 4. 2 below.
 293 - 10

Table 4.2
ANNUAL REQUIREMENT OF UTILITIES AND COST AT FULL CAPACITY

S/n description Unit of quantity Unit Total

meas. price(Birr) cost(Birr)
1 Electricity Kwh 150,000 0.4736 71,040
2 Water M3 12,000 5.50 66,000
3 Furnace oil Lt. 220,000 5.41 1,190,200
Total 1,327,240

V. TECHNOLOGY AND ENGINEERING

A. TECHNOLOGY

1. Production Process

The production of organic fertilizers include: collection of organic wastes from various
localities (agricultural fields, gardens, animal farms; etc); composting of these materials to
obtain the desired carbon to nitrogen ratio; size reduction in a ball mill, sterilization of
compost by steam; blending; impregnation of desired microbial culture; pelletization; drying,
and bagging.

2. Source of Technology

The technology required can be obtained from European and Asian countries such as
Germany, China, India, and South Korea. Possible suppliers of machinery and equipment
are:
 293 - 11

a) Chambal Fertilizers and chemicals ltd.

Devika Tower, 2nd Floor
6, Nehru place
New Delhi- 110019- 91-11-6462162
Fax: 91-11-6465218;

b) Machinen Fabrik Gustar Eirich Gmbh & Co. Kg

Post fach 1160, D-74732 Hard heim
Internet: http; 11 WWW.eirich. de
E-mail: eirich@ eirich-de.

B. ENGINEERING

1. Plant Machinery and Equipment

Table 5.1 below shows the details of machinery and equipment required for organic fertilizer
plant.

Table 5 .1
LIST OF MACHINERY AND EQUIPMENT AND COST

No. Description Qty Cost (‘000 Birr)

LC FC TC
1 Trucks (medium size) 2 - 700 700
2 Ball mill 1 - 250 250
3 Boiler (small size) 1 - 250 250
4 Pelletizing equipment 1 - 165 165
5 Auxiliary equipment Reqd - 60 60
FOB price - 1425 1425
CIF price 150 1425 1575
 293 - 12

2. Land, Building and Civil Works

Organic fertilizer processing plant requires land for open storage of raw materials, a shed for
storage of finished product, land for processing plant, for office building and general purpose
buildings. It is proposed that a total land area of 3000 square metres, including land for
future expansion, will be required. At the rate of Birr 1.0 for land lease for a period of 80
years, the total land lease value will be Birr 240,000. The built-up area is estimated to be
1200 m2, and at the rate of Birr 2000 per m2, the expenditure on building will be Birr 2.4
million. Thus, the total investment on land, building and civil work will be Birr 2.64 million.

3. Proposed Location

Location of a plant is determined on the basis of proximity to raw material, nearness to

potential market outlets and the availability of developed infrastructure. Consideration is
also given to fair distribution of industrial projects among the woredas of SNNPRS. In view
of these two woredas, namely Kuraz and Banatsemay are identified. Of these Kuraz woreda
is selected. It is therefore proposed that the organic fertilizer plant be located in Omarata
town.

VII. MANPOWER AND TRAINING REQUIREMENT

A. MANPOWER REQUIREMENT

The processing plant requires direct production workers, and administration staff. Details of
manpower required for the plant, including annual and monthly salary of each worker is
given in Table 7.1 below.
 293 - 13

Table 7.1
MANPOWER REQUIREMENT AND SALARY OF EMPLOYEES

No. Job Title Nos. Monthly Salary Annual Salary

A. Administration
1 Plant manager 1 2,000 24,000
2 Secretary (cashier) 1 700 8,400
3 Personnel 1 1,000 12,000
4 Sales man 1 700 8,400
5 Store man 1 700 8,400
6 Clerk 2 450 10,800
7 Driver 1 550 6,600
8 Messengers 2 300 7,200
9 Cleaners 4 250 12,000
10 Guard 4 250 12,000
Sub total 18 109,800
B. Production
1 Production head 1 1,500 18,000
2 Shift head 2 1,000 24,000
3 Operators 8 600 57,600
4 Laborers 20 250 60,000
Sub total 31 159,600
Workers benefit (25% BS) - 67,350
Total 49 336,750

B. TRAINING REQUIREMENT

No specialized training is required as the process of manufacturing organic fertilizer is

simple that does not require specialized skill.
 293 - 14

VII. FINANCIAL ANALYSIS

The financial analysis of the organic fertilizer project is based on the data presented in the
previous chapters and the following assumptions:-

Construction period 1 year

Source of finance 30 % equity
70 % loan
Tax holidays 3 years
Bank interest 8%
Discount cash flow 8.5%
Accounts receivable 30 days
Raw material local 30days
Raw material, import 90days
Work in progress 5 days
Finished products 30 days
Cash in hand 5 days
Accounts payable 30 days

A. TOTAL INITIAL INVESTMENT COST

The total investment cost of the project including working capital is estimated at Birr 6.23
million, of which 31 per cent will be required in foreign currency.

The major breakdown of the total initial investment cost is shown in Table 7.1.
 293 - 15

Table 7.1
INITIAL INVESTMENT COST

Sr. Total Cost

No. Cost Items (‘000 Birr)
1 Land lease value 240
2 Building and Civil Work 2,400.00
3 Plant Machinery and Equipment 1,575.00
4 Office Furniture and Equipment 100
5 Vehicle 650
6 Pre-production Expenditure* 407.48
7 Working Capital 867.1
Total Investment cost 6,239.6
Foreign Share 31

* N.B Pre-production expenditure includes interest during construction ( Birr 207,480 ) and
Birr 200 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 5.87 million (see
Table 7.2). The material and utility cost accounts for 84.39 per cent, while repair and
maintenance take 2.55 per cent of the production cost.
 293 - 16

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

Items Cost %
Raw Material and Inputs
3,628.00 61.78
Utilities
1327.24 22.60
Maintenance and repair
150 2.55
Labour direct
49.05 0.84
Factory overheads
20.44 0.35
Administration Costs
32.7 0.56
Total Operating Costs
5,207.43 88.68
Depreciation
469.5 8.00
Cost of Finance
195.16 3.32
Total Production Cost 5,872.09 100

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.
 293 - 17

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 = 28 %
Sales – Variable Cost

3. Pay Back Period

The investment cost and income statement projection are used to project the pay-back period.
The project’s initial investment will be fully recovered within 4 years.

4. Internal Rate of Return and Net Present Value

Based on the cash flow statement, the calculated IRR of the project is 23 % and the net
present value at 8.5% discount rate is Birr 4.72 million.

D. ECONOMIC BENEFITS

The project can create employment for 49 persons. In addition to supply of the domestic
needs, the project will generate Birr 2.74 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.