104.

PROFILE ON COFFEE ROASTING,

GRINDING AND PACKING
 104-2
TABLE OF CONTENTS

PAGE

I. SUMMARY 104-3

II. PRODUCT DESCRIPTION & APPLICATION 104-3

III. MARKET STUDY AND PLANT CAPACITY 104-4

A. MARKET STUDY 104-4
B. PLANT CAPACITY & PRODUCTION PROGRAMME 104-6

IV. RAW MATERIALS AND INPUTS 104-7

A. RAW & AUXILIARY MATERIALS 104-7
B. UTILITIES 104-9

V. TECHNOLOGY & ENGINEERING 104-10

A. TECHNOLOGY 104-10
B. ENGINEERING 104-12

VI. MANPOWER & TRAINING REQUIREMENT 104-13

A. MANPOWER REQUIREMENT 104-13
B. TRAINING REQUIREMENT 104-14

VII. FINANCIAL ANALYSIS 104-14

A. TOTAL INITIAL INVESTMENT COST 104-14
B. PRODUCTION COST 104-15
C. FINANCIAL EVALUATION 104-16
D. ECONOMIC BENEFITS 104-17
 104-3
I. SUMMARY

This profile envisages the establishment of a plant for the production of roasted and grinded
coffee with a capacity of 100 tonnes per annum.

The present demand for the proposed product is estimated at 135,346 tonnes per annum. The
demand is expected to reach at 414,946 tonnes by the year 2025.

The plant will create employment opportunities for 15 persons.

The total investment requirement is estimated at about Birr 4.24 million, out of which Birr
511,500 is required for plant and machinery.

The project is financially viable with an internal rate of return (IRR) of 19 % and a net
present value (NPV) of Birr 2.25 million discounted at 8.5%.

II. PRODUCT DESCRIPTION AND APPLICATION

Coffee is a common name for any of a genus of trees of the madder family, and also for their
seeds (beans) and for the beverage brewed from them. The Arabicas and Rubastas are the two
major types of commercial coffee. Chemicals extracted from expertly processed and roasted
coffee by hot water classified as non volatile are caffeine, trigonelline, chlorogenic acid,
phenolic acids, amino acids, aldehydes, ketones, esters, amines, and mercaptanes.
Undoubtedly the popularity of this beverage is, at least to some extent, related to their stimulant
effects. Average caffeine contents per cup of brewed coffee is 110 mg. Caffeine is a mild
psychostimulant that has been called the most widely used psychoactive substance on earth.

Several varieties of processed green coffee usually are blended and roasted together to
produce the tastes, aromas and flavors popular with consumers. Ground coffee is consumed by
hotels, bars and cafeterias.
 104-4
III. MARKET STUDY AND PLANT CAPACITY

A. MARKET STUDY

1. Past Supply and Present Demand

The project envisages hulling, cleaning and washing coffee beans for export. A coffee bean
(green coffee) has very high domestic and export demand. Coffee constitutes the most
important export commodity of the country. And the Southern Nations and Nationalities
Region (SNNR) has been one of the major suppliers of coffee for export. Table 3.1 presents
data on the country’s export of coffee during 1993/94 – 2004/05. Despite some fluctuations, a
rising trend is observed in the country’s total coffee export as well as the export share of SNNR
during the period under reference. On the average, total exports and the share of SNNR from
the total export stood at 113918.6 and 62534.87 tons, respectively, during the period. Thus,
exports of coffee from SNNR on the average accounted for about 55% of the country’s total
coffee export during the reference period.

Table 3.1
EXPORT OF COFFEE (TONS)

Year Total Export Share of SNNR

1993/94 69160 42963.6
1994/95 82199 40161.4
1995/96 97579 67757.0
1996/97 123166 57196.7
1997/98 120050 43839.7
1998/99 101232 51017.0
1999/00 116558 68030.0
2000/01 99134 42309.0
2001/02 110347 78893.0
2002/03 126128 82315.0
2003/04 156409 75598.0
2004/05 165061 100338.0
Average 113918.80 62534.87
Source: CSA, Statistical Abstract, 1993-2005.
 104-5
Given the fluctuations in the total exports, the average total export for the period under
reference is considered as the effective export demand for the product for the year 2006. the
average rate of growth of total exports of the product during the reference period is computed
to be 9%. This rate of growth is adopted in estimating the export demand for the product. The
present export demand for the product (i.e. 2007) is thus estimated at 135346.7 tons.

2. Projected Demand

As stated, above, a 9% rate of growth is applied in projecting the total export demand for the
product. Given the substantially significant share of the region in the country’s total coffee
export, the share of the envisaged plant is conservatively estimated at 5% of the projected
export demand. Table 3.2 depicts the projected export demand for coffee and the market share
of the envisaged plant.

Table 3.2
PROJECTED EXPORT DEMAND FOR COFFEE (TONES)

Years Projected Market Share of

Demand the Envisaged Plant
2007 135346.7 6767.3
2008 147527.9 7376.4
2009 160805.4 8040.3
2010 175277.9 8763.9
2011 191052.9 9552.6
2012 208247.7 10412.4
2013 226990.0 11349.5
2014 247419.1 12370.0
2015 269686.8 13484.3
2016 293958.6 14697.9
2017 320414.9 16020.7
2018 349252.2 17462.6
2019 380684.9 19034.2
2020 414946.5 20747.3
 104-6
3. Pricing and Distribution

Based on recent export price of coffee and considering 30% for transportation cost and other
expenses, the factory gate price for the envisaged plant is estimated at Birr 16206/ton.

The product can be directly exported. The plant can also supply its product to exporters.

B. PLANT CAPACITY AND PRODUCTION PROGRAMME

1. Plant Capacity

Based on the market study, the production capacity of the envisaged plant is 100 tonnes of
roasted, ground and packed coffee. This capacity will be attained by working single shift a day
having eight working hours and 300 working days a year.

2. Production Programme

The annual production programme is formulated on the basis of the market forecast and
selected plant capacity. It is assumed that the plant will achieve 70% and 85% capacity
utilization rate in the first and second year, respectively. Full capacity will be reached in the
third year and onwards. The production programme for total roasted, ground and packed coffee
is shown in Table 3.4.
 104-7
Table 3.4
ANNUAL PRODUCTION PROGRAMME

Sr. Production Programme

No Description Year 1 Year 2 Year 3 and
onwards
1. Roasted ground and packed 70 85 100
coffee, tonnes
2. Capacity utilization rate, % 70 85 100

IV. MATERIALS AND INPUTS

A. RAW AND AUXILIARY MATERIALS

The principal raw material required by the plant is clean green coffee. During roasting process
the green coffee beans loose weight due to evaporation of water. The extreme limits of the
weight loss termed as “a loss in the fire” are between 14 and 23% of the initial weight of coffee
beans. Elimination of the silver skin of coffee beans that amounts from 0.2% to 0.4% and the
release of certain volatile elements also occurs during roasting.

Taking the above mentioned weight loss into account, the annual requirement for green coffee
at 100 per cent capacity utilization rate is estimated to be 100 tonnes +(0.22 x 100 tones) = 122
tonnes. To attain the optimum price and taste for the ground coffee, different types of coffee
from different areas will be mixed. Annual cost of green coffee at a rate of Birr 12,000 per ton
will amount to Birr 1,464,000.

The major auxiliary materials required for the production of roasted, ground and packed coffee
comprise packing materials of various type. The packing materials to be used by the plant are
paper bag, corrugated paper box with carton panel, and gumming paper.
 104-8
The proposed package sizes of printed paper bag for packing of roasted and ground coffee are
500 gm, 1,000 gm and 1,500 gm which are planned to constitute 30%, 60% and 10% of
the total roasted and ground coffee, respectively.

The estimated annual requirement for printed paper bag at 100 per cent capacity utilization rate
and the corresponding cost estimates are given in Table 4.1.

Paper bag of required size, quality and desired number of colours can be available from local
private or public paper factories on an order basis.

Table 4.1
ANNUAL PACKING MATERIAL REQUIREMENT AND COST ESTIMATES

Total Paper bag Allowance Total Unit Cost Total Cost

Package Size Roasted Requirement for Require- (Birr) (Birr)
(gm) Ground (pcs) Damage ment
Coffee (kg) (0.3%)
500 30,000 60,000 1800 61,800 1.00 61,800
1000 60,000 60,000 1800 61,800 1.25 77,250
1500 10,000 6,667 200 6,867 1.50 10,300.50
Grand Total 100,000 - - - - 149,350.50

The estimated annual requirement for corrugated paper box and panel at 100 per cent
capacity utilization rate, the optimum corrugated paper box sizes for each package size and
cost estimates are given in Table 4.2.
 104-9

Table 4.2
ANNUAL REQUIREMENT FOR CORRUGATED PAPER BOX AND PANEL AND
THEIR COST ESTIMATES

Package Number of Annual Annual Unit Cost Total Cost

Size of Paper bag Roasted requirement Birr/ Box + Birr/ Box
Paper per box Ground of Panel (Panel)
bag (gm) (pc) Coffee Box + Panel
output (kg)
500 20 30,000 3,090 2.48 7,663.2

1000 15 60,000 4,120 3.81 15,697.2

1,500 10 10,000 687 3.83 2,631.21

Grand 100,000 25,991.61

Total

The estimated annual requirement for gumming paper and respective cost estimates, at 100
per cent capacity utilization rate, is estimated at Birr 5,500.

Gumming paper of desired size and quality is available in rolls at the local market.
The total cost of raw materials and auxiliaries is estimated at Birr 2,620,841.61.

B. UTILITIES

Annual requirement and cost of utilities is indicated in Table 4.2.

 104-10
Table 4.2
UTILITIES REQUIREMENT AND COST

UOM
Sr. Description Qty. Cost (‘000 birr)
No
1 Electricity KWh 12000 5.683
2 Water m3 150 1.5
Total 7.183

V. TECHNOLOGY AND ENGINEERING

A. TECHNOLOGY

1. Production Process

The main processing steps in the manufacture of ground coffee are blending, roasting, grinding
and packing. Green coffee is cleaned of string, lint, dust, hulls and other foreign matter.

Roasting: - Coffee from different varieties or sources are usually blended before or after
roasting in order to achieve good taste coffee as well as low cost production.

Roasting by hot combustion gases in roasting cylinders requires 8-15 min. The bean charge
absorbs heat at a fairly uniform rate and most moisture is removed during the first two-thirds of
this period. As the temperature of the coffee increases rapidly during the last few minutes, the
beans swell and unfold with a noticeable cracking sound, like that of popping corn, indicating a
reaction change from endothermic to exothermic. This stage is known as development of the
roast. The final bean temperature, 200-220ºc, is determined by the blend, variety, flavor
development desire. A water or air quench terminates the roasting reaction. Most, but not all, of
any added water is then evaporated.
 104-11
The bean temperature, correlated to the color of ground coffee measured by a photometric
reflectance instrument, determines the quench end point of a roast. At the final bean
temperature, the firing shuts down automatically, followed by water spraying for a timed period
and finally, discharge of the coffee.

Air must be circulated through the beans to remove excess heat before the finished and
quenched roasted coffee is conveyed to storage beans. Residual foreign matter. Such as stones
and tramp iron, which may have passed through the initial green coffee cleaning operation,
must be removed before grinding. This is accomplished by an air lift adjusted to such a high
velocity that the roasted coffee beans are carried over into bins above the grinders, and heavier
impurities left behind. The coffee beans flow by gravity to mills where they are ground to the
desired particle size.

Grinding: - roasted coffee beans are ground to improve the extraction efficiency in the
preparation of the beverage. Particle size distributions ranging from about 1100µm average
(very coarse) to about 500µm average (very fine) are tailored by the manufacturer to the
various kinds of coffee makers used in house holds, hotels, restaurants and institutions. Coffee
is ground in mills that use multiple steel cutting rolls to produce the most desirable uniform
particle size distribution. After passing through cracking rolls, the broken beans are fed
between two or more rolls, one of which is cut or scored longitudinally, the other,
circumferentially. The paired rolls operate at differential speeds to cut, rather than crush, the
coffee particles. A second pair of more finely scored rolls, installed below the main grinding
rolls and running at higher speeds, is used for finer grinds.

Packaging: - After roasting and grinding, the coffee is conveyed, usually by gravity, to
weighing and filling machines that achieve the proper fill by tapping or vibrating. The ground
coffee is vacuum packed in flexible paper bag and placed in a paperboard carton that helps
shape the bag into a hard brick form during the vacuum process. The carton also protects the
package from physical damage during handling and transportation. This type of package
provides a barrier to moisture and oxygen. The process has no any adverse impact on
environment.
 104-12
2. Source of Technology

The following firm could be a possible supplier of the required machines.

Queens land, New South Wales.
Butany Road, Green Square, NSW.
Australia 2015.
Fax: 6129692-0400.

B. ENGINEERING

1. Machinery and Equipment

The total cost of machinery and equipment is estimated at Birr 511,500, out of which Birr
485,925 will be required in foreign currency. Detailed list of machinery and equipment is
given in Table 5.1.
Table 5.1
LIST OF MACHINERY AND EQUIPMENT REQUIREMENT

Sr. Qty.
No Description (No.)
1. Coffee Roaster 1
2. Coffee Mixer 1
3. Coffee Grinder 6
4. Automatic Packing m/c 2
6. Screw Conveyor 1
7. Goose type Conveyor 1

2. Land, Buildings and Civil Works

The plant requires a total of 1000 m2 area of land out of which 500 m2 is built-up area, which
includes Processing area, raw material stock area, offices etc. Assuming construction rate of
Birr 2500 per m2, the total cost of construction is estimated to be Birr 2.5 million. The total
 104-13
cost, for a period of 80 years with cost of Birr 1 per m2, is estimated at Birr 1,000.00. The total
investment cost for land, building and civil works is estimated at Birr 2,501,000.

3. Proposed Location

According to the resource potential study of the region, the raw material is identified in Mizan
zuria,Yergacheffe, Bonga zuria, Boloso Sore , Melokoza. Based on the availability of raw
material infrastructure, utility and market out let Leha town of Melokoza woreda is selected
and recommended to be the location of the envisaged plant.

VI. MANPOWER AND TRAINING REQUIREMENT

A. MANPOWER REQUIREMENT

The coffee roasting, grinding & packing plant will create job opportunities for 15 persons. The
detailed manpower requirement and the estimated annual labour cost including fringe benefits
are given in Table 6.1. The total cost of manpower including fringe benefit is estimated at Birr
138,240.

Table 6.1
MANPOWER REQUIREMENT AND ANNUAL LABOUR COST

Sr. Description Req. Monthly Annual

No. No. Salary (Birr) Salary (Birr)
1 General Manager 1 1,500 18,000
2 Secretary 1 600 7,200
3 Quality Controller 1 700 8,400
4 Personnel 1 900 10,800
5 Accountant 1 700 8,400
6 Sales man 1 400 4,800
7 Production Supervisor 1 900 10,800
8 Machine Operator and technician 3 1,800 21,600
9 Production Clerk 1 400 4,800
10 Store Keeper 1 500 6,000
11 Purchaser 1 600 7,200
12 Guard 2 600 7,200
Total 15 11,700 115,200
Employees’ Benefit (20% of Salary) 2,340 23,040
Grand Total 14,040 138,240
 104-14
B. TRAINING REQUIREMENT

The quality controller, production supervisor, technician operators should be given on-the-job
training for a duration of two weeks by experts of the supplier of the machinery and equipment.
The estimated training cost is Birr 20,000.

VII. FINANCIAL ANALYSES

The financial analysis of the coffee roasting grinding and packing 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 5 years
Bank interest 8%
Discount cash flow 8.5%
Accounts receivable 30 days
Raw material local 30 days
Work in progress 3 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 4.24
million, of which 29 per cent will be required in foreign currency.

The major breakdown of the total initial investment cost is shown in Table 7.1.
 104-15

Table 7.1
INITIAL INVESTMENT COST

Sr. Total Cost

No. Cost Items (‘000 Birr)
1 Land lease value 80.0
2 Building and Civil Work 2,500.0
3 Plant Machinery and Equipment 511.5
4 Office Furniture and Equipment 75.0
5 Vehicle 250.0
6 Pre-production Expenditure* 299.9
7 Working Capital 526.3
Total Investment cost 4,242.7
Foreign Share 29

* N.B Pre-production expenditure includes interest during construction ( Birr 199.89 thousand ) training (Birr
20 thousand ) and Birr 80 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 3.19 million (see
Table 7.2). The material and utility cost accounts for 77.22 per cent, while repair and
maintenance take 3.52 per cent of the production cost.
 104-16
Table 7.2
ANNUAL PRODUCTION COST AT FULL CAPACITY ('000 BIRR)

Items Cost %
Raw Material and Inputs 2,459.91 76.88
Utilities 10.77 0.34
Maintenance and repair 112.5 3.52
Labour direct 103.68 3.24
Factory overheads 34.56 1.08
Administration Costs 46.08 1.44
Total Operating Costs 2,767.50 86.49
Depreciation 257.65 8.05
Cost of Finance 174.59 5.46
Total Production Cost 3,199.74 100

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.
 104-17
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 = 31 %
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 5 years.

4. Internal Rate of Return and Net Present Value

Based on the cash flow statement, the calculated IRR of the project is 19 % and the net present
value at 8.5% discount rate is Birr 2.25 million.

D. ECONOMIC BENEFITS

The project can create employment for 15 persons. In addition to supply of the domestic
needs, the project will generate Birr 1.34 million in terms of tax revenue.