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89. PROFILE ON ALUMINUM WARE

PRODUCTION
(MILK CONTAINER, CREAM CHURNER &
COOKING WARE)
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TABLE OF CONTENTS
PAGE

I. SUMMARY 89-3

II. PRODCUT DESCRIPTION AND APPLICATION 89-3

III. MARKET STUDY AND PLANT CAPACITY 89-4

A. MARKET STUDY 89-4

B. PLANT CAPACITY AND PRODUCTION PROGRAMME 89-7

IV. MATERIALS AND INPUTS 89-8

A. MATERILAS 89-8
B. UTILITIES 89-9

V. TECHNOLOGY AND ENGINEERING 89-9

A. TECHNOLOGY 89-9
B. ENGINEERING 89-10

VI. MANPOWER AND TRAINING REQUIREMENT 89-11

A. MANPOWER REQUIREMENT 89-11

B. TRAINING REQUIREMENT 89-11

VII. FINANCIAL ANALYSIS 89-11

A. TOTAL INITITAL INVESTMENT COST 89-12

B. PRODUCTION COST 89-13
C. FINANCIAL EVALUATION 89-13
D. ECONOMIC BENEFITS 89-14
 89-3

I. SUMMARY

This profile envisages the establishment of a plant for the production of 15,000 Pcs of
milk container, 30,000 Pcs of cream churner and 75,000 Pcs of aluminum cooking ware
per annum.

The present demand for the proposed products is estimated at about 34,750 Pcs, 76,686
Pcs and 17,375 Pcs for cream churner, aluminum cooking ware and milk containers,
respectively. The demand is projected to reach 20,164 Pcs, 40,329 Pcs and 124,913 Pcs
for milk container, cream churner and aluminum cooking ware, respectively.

The plant will create employment opportunities for 37 persons.

The total investment requirement is estimated at Birr 5.04 million, out of which Birr 1.21
million is for plant and machinery.

The project is financially viable with an internal rate of return (IRR) of 27.72% and a net
present value (NPV) of Birr 5.72 million, discounted at 10.5%.

II. PRODUCT DESCRIPTION AND APPLICATION

a) Milk containers

Milk containers are deep round vessel with a wide mouth used for collecting/ distributing
milk from/to various localities. It can be made from stainless steel or aluminum.
Although stainless steel milk containers are strong and durable they are expensive. As a
result, milk containers are economically manufactured from aluminum sheet by pressing
with dies on a press.

b) Cream churner

Churn is a simple equipment in which milk is shaken, beaten or otherwise agitated in

order to make butter. Compared to the household traditional methods this set-up takes
less time and at the same time it boosts butter yield. The equipment is made from
stainless steel vessel and wooden components. The stirring or shaking operations are
either driven manually or automatically using electric power.
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c) Aluminum Cooking Ware

These are varieties of domestic utensils used for cooking food. Products of this type
include different sizes of casseroles, frying pans, various types of bowel shaped
containers and teapots. All these items could be made from high quality materials such as
stainless steel but in order to make them affordable to the majority low-income group of
the society they are made from aluminum. A sheet of aluminum is converted to these
utensils by different shaping and surface treatment processes.

III. MARKET STUDY AND PLANT CAPACITY

A. MARKET STUDY

1. Past Supply and Present Demand

a) Aluminum Milk containers and cream churner

Aluminum milk container and cream churner are not produced in Ethiopia. They are
mostly imported from India. Rather, traditional pottery products made from clay are
extensively used. Pots of various types and sizes are used for containing milk and
beating the milk in the production of butter. Plastic products are also used and are
increasingly replacing pottery products.

However, aluminum milk containers and cream churner have the advantage of durability
and the simplicity of cream churner with respect to time and productivity is much better
than them the traditional pottery products.

The demand for aluminum milk containers and cream churner is directly related to milk
and butter production. Milk and milk products during the period1994/95 - 19997/98 in
Tigray is given in Table 3.1
Table 3.1
MILK AND MILK PRODUCTS IN TIGRAY REGION

Year Milk (litre) Growth Rate % Butter (m) Growth Rate %

1994/95 79,823,528 6.2 2,057,451 4.9
1995/96 84,788,632 7.8 2,958,684 9.2
1996/97 99,448,200 5.8 2,357,077 5.8
1997/98 96,763,798 6.6 2,494,087 6.6

Source: Tigray National Regional Administration Bureau of Planning and Economic

Development Estimates of Regional Income Accounts for Tigray Region
(1994/95-1997/98), Ma, 1999.
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As can be seen from the milk production, the rounded average growth rate was 7%.
Applying this growth rate, the estimated production for the year 2002 will be 126,837,
600 liters milk and 3,269,239 kg butter. Daily consumption of milk and butter will be
347,500 liters milk and 8,957 kg butter.

The potential market for aluminum milk containers and cream churner is currently
covered by either pottery products or plastics. In order to penetrate in this market
aluminum products should be priced reasonably as to compete with cheaper plastic
products. However, there will always be a price gap between the aluminum and plastic
containers.

In the long turn, aluminum products will have a better market share since they are more
durable and fit for transportation. Therefore, the current effective demand for aluminum
containers is estimated to cover 50% of the total milk production i.e.173,750 liter per day.

The most suitable aluminum milk container on average contains 10 liters. Thus the
current effective demand for aluminum milk containers is 17,375 Pcs per annum.

According to the regional estimates 50% of the total milk production is used for butter
production. Therefore, the daily average milk requirement for butter production is
173,750 litres. With an average capacity of five litres of cream churner, the current
effective demand for cream churner is 34,750 liters.

b) Aluminum Cooking Ware

Aluminum cooking ware are household utensils used for cooking and serving meals.
These various domestic utensils are necessarily for every house. Aluminum utensils are
commonly and mostly used because they are suitable as they do not react with the
product and less costly than stainless steel. Aluminum utensils are liked by low income
group due to their brightness and prices. At present these are no manufacturers of
aluminum utensils in Tigray Region. The major domestic supplier of aluminum cooking
ware is Kolfe Household Utensils Factory. Most of the aluminum cooking ware is
imported from India. Import as well as domestic supply data are not distinctly available.

The 1994 population and population and housing census of Ethiopia indicated that there
were 115,429 housing units in Tigray Region. From this total households 3.02% have tap
inside house, 5.33% have tap in compound private, 7.72% have tap in compound shared
and 50.37% have tap out side compound, the total being 66.44% or 76,686 house holds.

The rest 33.56% households use either protected/ unprotected well / spring or river / lake
pond. This group of households is assumed to use more aluminum cooking ware due to
their income level which is believed to be related with their sources of water.
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For the estimation of aluminum cooking ware demand the former group or 66.44% of
households ( 76,686) are considered in this study with an average one item of aluminum
cooking ware.

A conservative current effective demand for aluminum cooking ware is made by taking
the 1994/Housing census household units. Accordingly, the current effective demand for
aluminum cooking ware in Tigray Region is 76,686.

2. Demand Projection

The demand for aluminum milk container and cream churner is directly influenced by the
demand for milk and butter. The demand for milk and butter in turn is dependent an
income and population growth rate. The growth rate of milk and butter production has
been estimated by the bureau at 7 %.

Since aluminum milk container and cream churner are durable with a minimum of three
years life time the future growth in demand is not the same as milk production. This is
because aluminum milk containers and cream churner are not consumable annally.
Rather, the demand will grow based on reaching end-users through increasing market
share which have been covered by other substitutes.

Therefore, the demand for aluminum milk containers will be related with the unexploited
potential market, the growth in milk production and replacement of these products, the
former being the most determining factor.

Thus aluminum containers and cream churner demand is estimated to grow at an annual
average 1.5%. The projected demand is presented in Table 3.2.

Table 3.2.
PROJECTED DEMAND FOR ALUMINUM MILK
CONTAINER AND CREAM CHURNER.

Year Milk Container Cream churner

2003 17,635 35,271
2004 17,900 35,800
2005 18,169 36,337
2006 18,441 36,882
2007 18,719 37,436
2008 18,999 37,997
2009 19,284 38,567
2010 19,572 39,146
2011 19,866 39,733
2012 20,164 40,329
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The demand for aluminum cooking was increases with new household construction,
population growth and living standard improvements. Demand is therefore projected
applying 5% urban-population growth rate. The projected demand is presented in Table
3.3.
Table 3.3.
DEMAND PROJECTION FOR ALUMINUM COOKING WARE

Year Aluminum Cooking Ware

2003 80,520
2004 84,546
2005 88,774
2006 93,212
2007 97,873
2008 102,767
2009 107,905
2010 113,300
2011 118,965
2012 124,913

3. Pricing and Distribution

The proposed price for the envisaged products, based on retail prices at Addis Ababa is
Birr 18, 90 and 100 for aluminum cooking ware, milk container and cream churner,
respectively. Distribution of the products will be through the wholesale merchant
channel.

B. PLANT CAPACITY AND PRODUCTION PROGRAMME

1. Plant Capacity

The market study shows that the current demand for Aluminum Milk Container and
Cream churner in the Tigray Region is 17,375 and 34, 750 PCs, respectively. The size of
both items is assumed to be five liters.

Regarding Aluminum Cooking Wares, the current demand in the Region is 76,686 PCs.

Considering the size of both the present demand and future projections as well as
economics of the production technology the plant capacity is selected to have the
following attainable production volume per annum.

Product Item Yearly Production, PCs

1. Milk Container 15,000

2. Cream churner 30,000
3. Cooking Ware 75,000
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2. Production Programme

Until the machinery operators and technicians develop skill to fully command the
technology Production is assumed to start at 60% of its capacity in the first year. Then
production will rise to 70%, 80% and 90% in the second, third and fourth year of
operation respectively. Full capacity is assumed to reach in the fifth year.

IV. RAW MATERIALS AND INPUTS

A. RAW MATERIALS

Milk containers are aluminum made vessels, with a press fit cover and welded handles.
Their sizes could vary from 5 liters to more than 25 liters capacity. In case of this project
the size is fixed to be uniformly five liters.

Aluminum cooking ware comprises a variety of utensils of different shapes. The main
raw material required in the manufacture of milk containers and aluminum cooking ware
is sheet of aluminum. The sheet itself could be produced from aluminum scrap or ingot
by casting into rectangular billets. However, for economical reasons the installation of
sheet casting process is not recommended. Hence, ready-made aluminum sheet of
different thickness have to be imported.

In case of cream churner, the main component is a stainless steel drum. The supporting
legs are made from wood.

Therefore, for the proposed plant capacity stated above the required raw materials and the
corresponding costs are indicated in Table 4.1.

Table 4.1
RAW MATERIALS REQUIREMENT AND COST

S.N Type Qty Unit LC FC Total cost Birr

(tonnes) cost
1. Aluminum sheet 15 25,000 375,000 375,000
2. Stainless steel sheet 10 75,000 750,000 750,000
3. Wood 75 5,000 375,000 375,000
Total 375,000 1,125,000 1,500,000

Sources of supply of raw materials are indicated below:

i) Alusuisse Group Ltd., Fldeggstrasse 4
P.O. Box 8034, Zurich, Switzerland
ii) Euro steel
P.O. Box 15278
Westmead, pinetown
South Africa
 89-9

Welding electrodes and surface treatment chemicals such as polishing materials, cleaning
agent, paint, and lacquer are required as auxiliary raw materials. Estimates of quantities
and respective costs are shown in Table 4.2.

B. UTILITIES

Electric power and compressed air the most required utilities. The total installed power is
estimated at 120 kW and annual consumption of the same is in the order of 286,800 kWh.
With a power tariff of 0.4736 Birr/kWh the annual power cost is around Birr 127,300.

Table 4.2
AUXILIARY RAW MATERIALS

S.N Type Quantity Unit cost Birr Total cost Birr

(kg)
1. Welding electrodes 100 90/kg 9,000
2. Polishing materials 25 45/kg 1,125
3. Cleaning chemicals 200 30/kg 6,000
4. Paints and lacquers 150 75/kg 11,250
Total 27,375

V. TECHNOLOGY AND ENGINEERING

A. TECHNOLOGY

1. Process Description

For cooking wares and milk containers the manufacturing process is as follows.
Aluminum sheet of required thickness is pressed with power press using suitable dies.
After obtaining the required shapes by deep drawing, beading on a lathe machine is
performed. Finally, handles are fixed either by pressure welding or arc welding and the
item is surface treated by means of mechanical polishing, chemical washing or alumite
coating.

In case of cream churner the process is different, a stainless steel sheet is cut into a pre-
specified size using a double shearing machine. Then, the plate is rolled into cylindrical
shape by a panel machine. Previously prepared side plates, cut into circular shapes with
the necessary openings blanked on a power press, are welded to the cylindrical-body
using arc-welding machine. Finally, the metallic vessel is fitted with centrifugal rotor and
the whole assembly is fixed to a wooden support.
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2. Source of Technology

Most of the machinery and equipment required are standard mechanical shop machines
that could be obtained from several sources in the country.

B. ENGINEERING

1. Machinery and Equipment

The most important machinery and equipment necessary for manufacturing the products
under consideration are given in table 5.4. Some of these (such as cleaning tanks and
vats) could be obtained from local sources such as Mesfin Industrial Engineering Share
Company. The total cost amounts to Birr 1,210,000 of which more than 90% is required
in foreign currency.

Table 5.1
TYPE AND COST OF MACHINERY & EQUIPMENT

Cost in Birr
S.N Type Quantity L.C F.C Total
1. Power press 1 250,000 250,000
2. Spinning lathe 1 180,000 180,000
3. Preheating furnace 1 200,000 200,000
4. Counter spinner & 1 50,000 50,000
hand press
5. Cleaning tanks & vats 1 20,000 20,000
6. Shearing machine 1 250,000 250,000
7. Noting machine 1 20,000 20,000
8. Arc welding machine 2 10,000 10,000
9. Thickness planner 1 50,000 50,000
10. Circular saw 1 25,000 25,000
11. Wood turning lath 1 30,000 30,000
12. Compressor 1 15,000 15,000
Transportation, insurance & 110,000 - 110,000
Bank charge
Total 110,000 1,100,000 1,210,000

2. Land, Building and Civil works

The plant needs about 1000m2 of land out of which 800m2 will be covered area. The land
lease cost at the rate of Birr 2/ m 2 for 70 years is estimated at about Birr 140,000.The
cost of construction including site development and out-door works is in the order of Birr
1.6 million.
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3. Proposed Location

The plant should be located near to market center since the raw materials are all imported
and have less volume to weight ratio as compared to the finished products. In this regard
Mekele would be the best location than the other towns in the region. As a second option
the town of Maichew may be considered for two reasons. First the plant may benefit
technical collaboration from the existing technical college, at the town and second, its
relative nearness to port and to the national market could be additional advantages.

VI. MANPOWER AND TRAINING REQUIREMENT

A. MANPOWER REQUIREMENT

About 37 employees will be needed with annual total salary of Birr 544,800. Some
details are given in Table 6.1.
Table 6.1
Manpower Requirements

Salary, Birr
S.N Description Number Monthly/head Yearly
1. Plant manager 1 2000 24,000
2. Production head 1 1500 18,000
3. Technicians 3 1000 36,000
4. Operators 16 800 153,600
5. Quality controllers 4 1200 72,000
6. Support staff 12 1000 48,000
Sub-Total 37 - 351,600
Employee's Benefit 20% 70,300
Grand Total 421,900

B. TRAINING REQUIREMENT

Training programme for three persons must be arranged in the area of sheet metal
technology in the suppliers' workshop. The associated cost is estimated to be a total of
Birr 200,000.

VII. FINANCIAL ANALYSIS

The financial analysis of the cream churner, aluminum cooking ware and milk containers
project is based on the data presented in the previous chapters and the following
assumptions:-
Construction period 2 years
Source of finance 30 % equity
70 % loan
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Tax holidays 2 years

Bank interest 10.5%
Discounted cashflow 10.5%
Land value Based on estimated land lease cost

Repair and maintenance 5 % of the total plant and machinery

Accounts receivable 30 days
Raw material local 30 days
Raw materials import 90 days
Work in progress 3 days
Finished products 30days
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 about
Birr 5.04 million, out of which 31 per cent is required in foreign currency. The major
breakdown of the total initial investment cost is shown in Table 7.1.

Table 7.1
SUMMARY OF THE INITIAL INVESTMENT COST ('000 BIRR)

Cost Items Foreign Local Total

Currency Currency
1 Land 140.00 140.00
2. Building and Civil Work 1,600.00 1,600.00
3. Plant Machinery and Equipment 1,100.00 110.00 1,210.00
4. Office Furniture and Equipment 75.00 75.00
5. Vehicle 450.00 450.00
6. Pre-production Expenditure* 952.30 952.30
Total Investment cost 1,100.00 3,327.30 4,427.30
7 Working Capital 484.66 132.74 617.40
Grand Total 1,584.66 3,460.04 5,044.70

___________
* Pre-production expenditure include interest during construction (Birr 502.30
thousand), training (Birr 200,000) and cost of registration, licensing and formation of
the company including legal fees, commissioning expenses, ect.
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B. PRODUCTION COST

The annual production cost at full operation capacity is estimated at Birr 2,68million (see
Table 7.2). The material and utility cost accounts for 61 per cent while repair and
maintenance take 2.25 per cent of the production cost.

Table 7.2
ANNUAL PRODUCTION COST ('000 BIRR)

Year
Items 3 4 7 10
Raw Material and Inputs 916.4 1,069.20 1,527.40 1,527.40
Labour direct 182.20 212.50 303.60 303.60
Utilities 76.40 89.10 127.30 127.30
Energy and Power
Spare parts
Maintenance and repair 36.30 42.30 60.50 60.50
Factory overheads 42.20 49.20 70.30 70.30
Administration Overheads 28.80 33.60 48.00 48.00
Total Operating Costs 1,282.30 1,496.00 2,137.10 2,137.10
Depreciation 255.50 255.50 255.50 255.50
Cost of Finance 338,70 331.20 295.10 295.10
Total Production Cost 1,876.50 2,082.70 2,687.70 2,638.70

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 is estimated by using income statement projection.

BE = Fixed Cost = 20 %
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 6 years.

4. Internal Rate of Return and Net Present Value

Based on the cash flow statement, the calculated IRR of the project is 27.72 % and the
net present value at 10.5% discount rate is Birr 5.72 million.

D. ECONOMIC BENEFITS

The project can create employment for 37 persons. In addition to supply of the domestic
needs, the project will generate Birr 6.90 million interms of tax revenue. The
establishment of such factory will have a foreign exchange saving effect to the country by
substituting the current imports.
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APPENDIX 7.A

FINANCIAL ANALYSIS SUPPORTING TABLES

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