15.

PROFILE ON RUM, VERMOUTH AND VODKA

15-2
TABLE OF CONTENTS
PAGE
I.

SUMMARY

15-3

II.

PRODUCT DESCRIPTION & APPLICATION

15-3

III.

MARKET STUDY AND PLANT CAPACITY

A. MARKET STUDY
B. PLANT CAPACITY & PRODUCTION PROGRAMME

15-4
15-4
15-8

IV.

MATERIALS AND INPUTS

A. RAW MATERIALS
B. UTILITIES

15-9
15-9
15-10

V.

TECHNOLOGY & ENGINEERING

15-10

A. TECHNOLOGY
B. ENGINEERING

15-10
15-13

VI.

MANPOWER & TRAINING REQUIREMENT

A. MANPOWER REQUIREMENT
B. TRAINING REQUIREMENT

15-16
15-16
15-18

VII.

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

15-18
15-19
15-19
15-20
15-22

15-3
I.

SUMMARY

This profile envisages the establishment of a plant for the production of rum, vermouth
and vodka with a capacity of 150,000 liters per annum.
The major raw materials required are wheat, malt and yeast. Except for yeast all the
other raw materials are locally available.
The present demand for the proposed product is estimated at 108,355 litters per annum.
The demand is expected to reach at 281,045 litters by the year 2018.
The total investment requirement is estimated at Birr 14.29 million, out of which Birr 8
million is required for plant and machinery. The plant will create employment
opportunities for 34 persons.
The project is financially viable with an internal rate of return (IRR) of 19.26 % and a
net present value (NPV) of Birr 7.68 million, discounted at 8.5%.
The project will have a backward linkage with the agriculture sector. The establishment
of such factory will have a foreign exchange saving effect to the country by substituting
the current imports.
II.

PRODUCT DESCRIPTION AND APPLICATION

Alcoholic beverages are divided into three groups: malt liquors, fermented wines and
distilled liquors. Beer requires malted (germinated) grain to make the carbohydrates
fermentable, wines are produced by the action of yeast on the sugar of fruit (commonly
grape fruit), and distilled liquors are fermented liquors which are then distilled to increase
the alcoholic content.

15-4
Rum is alcoholic beverage produced by the distillation of various fermented cane sugar
products. The most common mixtures used in making rum consist of molasses and water
or sugar and water. Another type of rum is made by fermenting a mixture of the scum
formed when the raw juice of the sugarcane is heated with molasses, water, and dunder,
the residue left after the refining of sugar. When distilled, rum is a white or straw-colored
spirit varying in strength from 80 to 150 proofs (40 to 75 percent alcohol). Dark rums are
made by adding a small amount of caramel or by aging in special wooden casks. The
flavor depends upon ethyl butyrate, an organic ester.
Vermouth is aromatized wine consisting of a combination of 4 types of natural
ingredients: wine, botanicals, sugar and alcohol. The selection and balance of the
ingredients are essential for the making of vermouth and impact greatly on the taste of the
final product. There are 3 main types of vermouth Extra Dry, Bianco and Rosso.
Vodka, distilled alcoholic beverage known traditionally as the Russian national drink. It is
distilled usually from a wheat mash and sold in concentrations of 40 percent alcohol, or
80 proofs, and of 50 percent alcohol, or 100 proofs. Vodka is smooth, unaged and
colorless liquor with an extremely mild flavor. Vodka is as clear as water and can be
made from anything that contains starch or sugar.
III.

MARKET STUDY AND PLANT CAPACITY

A.

MARKET STUDY

1.

Past Supply and Present Demand

The source of alcoholic beverages is both from imports and local production. Different
types and brands of alcoholic beverages are produced domestically. The major alcoholic
liquors supplied by domestic producers are Gin and Areki. The other types include Bitter,
Fernit, Cognac and Perno.

15-5
A number of alcoholic liquors are also imported to the country through legal and illegal
means. The major imported alcoholic drinks include Champagne, Wine, Whisky, Spirits,
Gin & Geneva, Rum and Taffia, Vodka and Vermouth. From the above mentioned
alcoholic beverages Rum and Taffia, Vermouth and Vodka are not produced locally and
hence their source of supply is import. Import of these products covering the period
1998-2006 is shown in Table 3.1.
One can observe from the table above that import has generally witnessed a rising trend,
although there was fluctuations in some years probably due to a stock carryover. The
annual average level of import during the period 1998-2000 was about 28,113 liters. This
has increased to an annual average of 94,137 liters during the period 2001-2003, which is
more than three times higher than the previous three years average. The annual average
quantity imported in the last three recent years, i.e., 2004-2006 has shown a slight
increase and reached to 94,642 liters.
From the three types of brands of alcoholic liquors Vodka is the dominant beverage
imported to the country.

Of the total imported quantity of the three items, Vodka

accounts for 90.2% in terms of volume and about 76.7% in terms of value. Vermouth
constitutes the highest share next to vodka and its average share in terms of volume and
value is 6.8% and 23.0%, respectively.
In order to determine the current effective demand the historical import figure is taken as
a base. Accordingly, the recent three years average, i.e., 2004-2006 which is 94,642
litters is taken to reflect the demand for the year 2006. Considering population growth,
income rise and expansion of recreational facilities such as bars and hotels a 7% annual
growth is applied to arrive at the year 2008 demand. Hence, current demand for Rum
and Taffia, Vermouth and Vodka is estimated at 108,355 liters.

15-6

Table 3.1
IMPORT OF RUM & TAFFIA, VERMOUTH AND VODKA (QUTY IN LITRES & VALUE IN BIRR
Rum and Tafia
Quantity
Value

Year
1998
4,020
1,269
1999
407
6,426
2000
58
810
2001
852
1,167
2002
3,470
4,437
2003
1,561
1,322
2004
508
4,412
2005
5,742
16,170
2006
2,656
7,705
Total
19,274
43,718
%share
3.0
0.3
Source :- Ethiopian Customs Authority.

Vermouth
Quantity
Value
9,007
2,517
5,806
6,176
463
12,567
3,878
1,585
2,482
44,481
6.8

280,248
428,678
304,204
274.085
94,011
1,011,059
227,483
550,190
98,850
3,268,808
23.0

Vodka *
Quantity
Value
758
32,391
29,374
95,326
78,307
83,688
124,071
42,019
100,985
586,919
90.2

47,153
714,521
794,749
1,333,450
1,062,012
1,143,810
2,612,290
954,615
2,233,824
10,896,424
76.7

Total
Quantity
13,785
35,315
35,238
102,354
82,240
97,816
128,457
49,346
106,123
650,674
100.0

Value
328,670
1,149,625
1,099,763
1,608,702
1,160,460
2,156,191
2,844,185
1,520,975
2,340,379
14,208,950
100.0

* The unit of measure for the data of Run & Taffia and Vermonth is in liters while for Vodka is in kg. Hence, it is assumed that
a kg of vodka will be equal to one liter.

15-7
2.

Projected Demand

Alcoholic liquors consumption grows mainly due to population growth, income,

urbanization, and the expansion of bars and hotels. During the past nine years, the
growth rate of import was very high which increased from about 28 thousand liters on the
average in the period 1998-2000 to about 100 thousand liters during the period 20042006. Hence, the combined effect of population growth, income rise, urbanization and
expansion of recreational facilities is expected to bring an annual average growth of 10%.
The projected demand based on this assumption is given in Table 3.2.
Table 3.2
PROJECTED DEMAND FOR RUM, & TAFFIA, VERMONTH AND
VODKA
Year
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018

Projected Demand (Lts)

119,190
131,110
144,220
158,642
174,507
191,957
211,153
232,268
255,495
281,045

Based on the historical import data, of the total projected demand the share of Vodka,
Vermouth and Rum & Taffia would be 90%,7% and 3%, respectively.

15-8
3.

Pricing and Distribution

The price of alcoholic liquors generally varies greatly. Similar items differ in price due to
their brand, origin of country and other factors. Hence, based on the general market
assessment the following prices are adopted.

Vodka per liter...............................Birr 87

Vermouth per liter....................... Birr 80

Rum & Taffia per liter................. Birr 93

The products can be either distributed by the producer or agents in the city and other parts
of the country.
B.

PLANT CAPACITY AND PRODUCTION PROGRAMME

1.

Plant Capacity

As shown in the market study, the demand for vodka has 90% share among the other two
alcoholic beverage; Rum and vermouth. Considering the above fact and the three alcoholic
beverages bases on different raw materials, i.e., Vodka on grain; Rum on sugar juice and
Vermouth on wine and as a result the machineries required to process these three products
are different, the envisaged project is proposed to start with Vodka production and in the
future expand to producing the other two liquors. Therefore, the plant is envisaged to
produce 150,000 lt. of Vodka per year assuming two years construction period and three
years full capacity attainment period, in 300 working days and operating 3 shifts of 24 hours
per day. The plant also gets revenue by selling the spent lye for animal feed. The annual
production of this spent grain is estimated at 200 tonnes.
2.

Production Programme

The production programme is shown in Table 3.3. The production programme is set by
considering just 300 working days per annum.

15-9
Table 3.3
PRODUCTION PROGRAMME
Year
Capacity utilisation (%)
Vodka (Lt.)
Spent grain for animal feed

70
105,000
140

3-10

85
127,500
170

100
150,000
200

(tonnes.)
IV.

MATERIALS AND INPUTS

A.

RAW MATERIALS

Grains especially wheat is the basic raw material as a source of carbohydrate for the
fermentation. Wheat is grown in most parts of the country mainly in Oromia, SNNPRS, and
Amhara regional states by state farms and peasants. Malt can be obtained from Assela Malt
Factory while yeast and flavouring will be imported. Bottle and label can be obtained from
Addis Ababa Bottle and Glass S. Co. and from the printing presses operating in the city. The
annual material requirement of the plant is shown in Table 4.1 below. The total annual cost
of raw materials is estimated at Birr 7,250,000.
Table 4.1
ANNUAL REQUIREMENT FOR RAW AND AUXILIARY MATEIRALS AND
THEIR COSTS
Sr.

Description

No.

Qty.
(Tonnes)

Cost, 000 Birr

F.C

L.C

Wheat

600

2
3

Malt
Yeast(including feed)

100
50

850

4
5

Flavorings
Packing material(bottles and labels)
Total
B.
UTILITIES

Lump sum
Lump sum

680
1,530

3,900
800
150
120
750
5,720

Total
3,900
800
1,000
800
750
7,250

15-10
Utilities such as oil, water and electricity are required by the plant. The annual consumption
is shown in Table 4.2 below. The total annual cost of utilities is estimated at Birr 1,121,380.
Table 4.2
ANNUAL CONSUMPTION OF UTILITIES AND COST
Sr.
No.

Annual
Utility

Unit

Consumption

('000 Birr)

Furnace Oil

Lt.

150000

876.0

Water

m3

50,000

162.5

Electricity
Total

kWh

175,000

82.88
1121.38

V.

TECHNOLOGY AND ENGINEERING

A.

TECHNOLOGY

1.

Production Process

Different vodka manufacturers employ several variations to the vodka manufacturing

operation; however the basic vodka manufacturing process is pretty simple and presented as
follows:

Mash preparation

The grain for example in the form of wheat or vegetables is put inside a mash tub. The tub is
very similar to a washing machine. While the tub rotates it breaks down the grains. Ground
malt is added to the compound as it eases the conversion of the starches to sugar.

Keeping the mash sterile

15-11
It is critical to maintain a totally sterile mash. The prevention of bacteria growth is extremely
important in the production of vodka and all other distilled spirits. The sterilization
processes employs 3 stages: The mash is heated until it reaches boiling point, Lactic acid
bacteria are mixed into the mash, and once the chosen acidity levels are reached, the mash is
once again sterilized.

Vodka fermentation

The sterilized mash is then streamed into stainless steel tanks. At this point yeast is added
and the tanks are sealed. The yeast contains enzymes that in the next four days will turn the
sugars in the mash to ethyl alcohol.

Distillation

The ethyl alcohol is injected to a column or pot still (most modern vodka producers use
column stills). The stainless column still is comprised of vaporization chambers stacked on
top of each other. The alcohol is continuously heated up with steam while it cycles up and
down. This cycle continues until the vapors created from the heat are released and
condensed. The alcohol vapors rise to the top vaporization chambers where they
accumulate. The by- products and extracted materials drain into the lower chambers where
they can be discarded.

Liquefying the alcohol gases

At this point the vapors created by the distillation process also called, fine spirits, contain
between 95%-100% alcohol. There is a need to liquefy the alcohol gases in order to make
them drinkable. At this point water is added to dilute the alcohol concentration from 100%
to 40%.

Filtration

15-12
To filter the processed product, many vodka producers use active charcoal to filter the
distilled liquid to get rid of by-products and dangerous substances. Other filtration
methods are available, but active charcoal is still the main process used to filter vodka.

Packing and labeling

The final stage of the production process, is bottling the vodka. Vodka is stored in glass
bottles, as glass does not interact with the beverage. For example, storing vodka in plastic
bottles would cause a chemical reaction that will eventually affect the taste of the beverage.

Environment

The only waste expected in the production of Vodka is spent grain which can be used as
animal feed or fertilizer so the process has no adverse impact on environment.
2.

Source of Technology

The machinery and equipment required for the production of Vodka can be obtained from
the following machinery suppliers:
Dodavatelsko Inenrsk Organizace
DIO Hradec Krlov s.r.o., Hradeck 131, 500 11 Hradec Krlov, CZECH REPUBLIC
Tel: +420 +49 5266280
Fax: +420 +49 5267080
E-mail:mailto:dio@dio.cz

15-13
B.

ENGINEERING

1.

Machinery and Equipment

The list of machinery and equipment required by the plant is given in Table 5.1. The total
cost of these machinery and equipment is estimated at about Birr 8 million out of which Birr
6.4 million will be required in foreign currency. This project is a turnkey project so that the
machineries are considered as set and no breakdown of cost of machinery is necessary.
Table 5.1
LIST OF MACHINERY AND EQUIPMENT
Sr.
No.
1
2
3
4
5
6
7
8
9
10
11
12
13
14
16
17
18
19
20

Description
Grain storage silo
Mashing machine
Sterilizer
Ethyl alcohol storage tank
Fermentation Tank
Yeast culturing machine
Dilution tank
filter
Fractionating column
Rectifying column
Condenser separator
Scrubber
Compressor
Boiler
Heat exchanger
Transfer pump
Water treatment unit
Filling, packing and labelling machine
Miscellaneous tools and Equipments

15-14

2.

Land, Building and Civil Works

The total land requirement is close to 1000 m2. The built up area is estimated at 600 m2
while the remaining part is for open space and for future expansion. 400m2 areas is required
for the production facilities, 125m2 for storage facility and the remaining 75 m 2is used for
office building. Building and civil works cost, assuming a construction rate of Birr 2200 per
m2 is about Birr 1,320,000.
According to the Federal Legislation on the Lease Holding of Urban Land (Proclamation
No 272/2002) in principle, urban land permit by lease is on auction or negotiation basis,
however, the time and condition of applying the proclamation shall be determined by the
concerned regional or city government depending on the level of development.
The legislation has also set the maximum on lease period and the payment of lease
prices. The lease period ranges from 99 years for education, cultural research health,
sport, NGO , religious and residential area to 80 years for industry and 70 years for trade
while the lease payment period ranges from 10 years to 60 years based on the towns
grade and type of investment.
Moreover, advance payment of lease based on the type of investment ranges from 5% to
10%.The lease price is payable after the grace period annually. For those that pay the
entire amount of the lease will receive 0.5% discount from the total lease value and those
that pay in installments will be charged interest based on the prevailing interest rate of
banks. Moreover, based on the type of investment, two to seven years grace period shall
also be provided.
However, the Federal Legislation on the Lease Holding of Urban Land apart from setting
the maximum has conferred on regional and city governments the power to issue
regulations on the exact terms based on the development level of each region.

15-15
In Addis Ababa the Citys Land Administration and Development Authority is directly
responsible in dealing with matters concerning land.

However, regarding

the

manufacturing sector, industrial zone preparation is one of the strategic intervention

measures adopted by the City Administration for the promotion of the sector and all
manufacturing projects are assumed to be located in the developed industrial zones.
Regarding land allocation of industrial zones if the land requirement of the project is
blow 5000 m2 the land lease request is evaluated and decided upon by the Industrial Zone
Development and Coordination Committee of the Citys Investment Authority. However,
if the land request is above 5,000 m 2 the request is evaluated by the Citys Investment
Authority and passed

with recommendation to the Land Development and

Administration Authority for decision, while the lease price is the same for both cases.
The land lease price in the industrial zones varies from one place to the other. For
example, a land was allocated with a lease price of Birr 284 /m2 in Akakai-Kalti and Birr
341/ m2 in Lebu and recently the citys Investment Agency has proposed a lease price of
Birr 346 per m2 for all industrial zones.
Accordingly, in order to estimate the land lease cost of the project profiles it is assumed
that all manufacturing projects will be located in the industrial zones. Therefore, for the
this profile since it is a manufacturing project a land lease rate of Birr 346 per m 2 is
adopted.
On the other hand, some of the investment incentives arranged by the Addis Ababa City
Administration on lease payment for industrial projects are granting longer grace period
and extending the lease payment period. The criterions are creation of job opportunity,
foreign exchange saving, investment capital and land utilization tendency etc.
Accordingly, Table 5.2 shows incentives for lease payment.

15-16
Table 5.2
INCENTIVES FOR LEASE PAYMENT OF INDUSTRIAL PROJECTS
Payment
Scored Point
Above 75%
From 50 - 75%
From 25 - 49%

Grace

Completion

Down

Period
5 Years
5 Years
4 Years

Period
30 Years
28 Years
25 Years

Payment
10%
10%
10%

For the purpose of this project profile the average i.e. five years grace period, 28 years
payment completion period and 10% down payment is used. The period of lease for
industry is 60 years.
Accordingly, the total lease cost, for a period of 60 years with cost of Birr 346 per m 2, is
estimated at Birr 20.76 million of which 10% or Birr 2,076,000 will be paid in advance.
The remaining Birr 18.68 million will be paid in equal installments with in 28 years i.e.
Birr 667,286 annually.
VI.

MANPOWER AND TRAINING REQUIREMENT

A.

MANPOWER REQUIREMENT

The manpower requirement of the plant and the monthly and annual salary expenditure are
shown in Table 6.1. The total manpower required and their annual cost for the production of
150,000lt. Vodka is estimated at 34 and Birr 440,000, respectively.

15-17
Table 6.1
REQUIRED MANPOWER
Sr.
No
1
2
3
4
5
6
7
8
9
10
11

Manpower
General manager
Personnel
Secretary
Accountant
Sales men
Purchaser
Production head
Chemist
Technician Operators
Laborers
General service
Sub-Total
Benefit (25% BS)
Total

Req.

Monthly

No.
1
1
1
1
1
1
1
1
6
12
8
34

Salary (Birr)
4,000
2,500
900
2,500
2,000
2,000
2,500
2000
3,600
4,800
2,800

34

Annual Salary
(Birr)
48,000
30,000
10,800
30,000
24,000
24,000
30,000
24,000
43,200
57,600
33,600
355,200
88,800
444,000

15-18
B.

TRAINING REQUIREMENT

The production head, technician operators, and chemist should be trained by qualified
engineers of the machinery supplier for about one month during erection and
commissioning period. The cost of training shall be Birr 50,000.

VII.

FINANCIAL ANALYSIS

The financial analysis of the rum, vermouth and vodka 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

2 years

Bank interest

8.5%

Discount cash flow

8.5%

Accounts receivable

30 days

Raw material local

30 days

Raw material import

90 days

Work in progress

1 days

Finished products

30 days

Cash in hand

5 days

Accounts payable

30 days

Repair and maintenance

3% of machinery cost

15-19
A.

TOTAL INITIAL INVESTMENT COST

The total investment cost of the project including working capital is estimated at Birr
14.29 million, of which 45 per cent will be required in foreign currency. The major
breakdown of the total initial investment cost is shown in Table 7.1.
Table 7.1
INITIAL INVESTMENT COST ( 000 Birr)
Sr.
No.

Cost Items

Local
Cost

Foreign
Cost

Total
Cost

Land lease value

2,076.00

2,076.00

Building and Civil Work

1,320.00

1,320.00

Plant Machinery and Equipment

1600.00 6,400.00

Office Furniture and Equipment

150.00

150.00

Vehicle

450.00

450.00

Pre-production Expenditure*

887.14

887.14

Working Capital

1,411.08

1,411.08

Total Investment cost

8,000.00

7,894.22 6,400.00 14,294.22

* N.B Pre-production expenditure includes interest during construction ( Birr 737.14

thousand ), training ( Birr 50 thousand)

and Birr 100

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 10.80
million (see Table 7.2). The material cost accounts for 67.10% of the production cost.
The other major components of the production cost are cost of utility, depreciation and
financial cost which account for 10.38%, 9.26% and 5.44% respectively. The remaining
7.81 % is the share of repair and maintenance, direct labour and other administration cost.

15-20

Table 7.2
ANNUAL PRODUCTION COST AT FULL CAPACITY ('000 BIRR)
Items
Raw Material and Inputs
Utilities
Maintenance and repair
Labour direct
Labour overheads
Administration Costs
Land lease cost
Total Operating Costs
Depreciation
Cost of Finance

Cost

7,250.00
1,121.38

67.10
10.38

400.00
213.12

3.70
1.97

88.80
142.08

0.82
1.32

9,215.38
1,001.00

85.29

588.09

5.44

10,804.47

100

9.26

Total Production Cost

C.

FINANCIAL EVALUATION

1.

Profitability

Based on the projected profit and loss statement, the project will generate a profit through
out its operation life. Annual net profit after tax will grow from Birr 899.12 thousand to
Birr 1.60 million during the life of the project. Moreover, at the end of the project life the
accumulated cash flow amounts to Birr 20.16 million.
2.

Ratios

In financial analysis financial ratios and efficiency ratios are used as an index or yardstick
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

15-21
dividing net income by revenue, return on assets ( operating income divided by assets),
return on equity ( net profit divided by 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.
3.

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.
BE =

Fixed Cost

26 %

Sales Variable Cost

4.

Payback Period

The pay back period, also called pay off period is defined as the period required to
recover 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
projects initial investment will be fully recovered within 5 years.
5.

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

15-22
in a bank account. Accordingly, the IRR of this project is computed to be 19.26 %
indicating the viability of the project.
6.

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 non-negative.
Accordingly, the net present value of the project at 8.5% discount rate is found to be
Birr 7.68 million which is acceptable.
D.

ECONOMIC BENEFITS

The project can create employment for 34 persons. In addition to supply of the domestic
needs, the project will generate Birr 4.51 million in terms of tax revenue.

The

establishment of such factory will have a foreign exchange saving and earning effect to
the country by substituting the current imports and exporting to other countries. It has
also a back ward linkage effect with the agricultural sector.