Erikum Multipurpose Farmer’s

Cooperatives Union

Feed Mill Business Plan

June,2012
 Table of Contents
I. Executive summary.........................................................................................................................4

II. Business Description......................................................................................................................5

History of the union.......................................................................................................................5

Past Performance............................................................................................................................5

Legal Structure......................................................................................................................................5

Current Status of the union...........................................................................................................6

Market performance of the union:................................................................................................6

III. Management..................................................................................................................................7

Key Personnel.................................................................................................................................7

Board of Directors and Advisors..................................................................................................7

IV. Market Analysis..........................................................................................................................8

Customers........................................................................................................................................8

Market Size and Trends.................................................................................................................8

The Competition...........................................................................................................................10

Estimated Market Share and Sales..............................................................................................10

General Trends in Feed Consumption.......................................................................................11

V. Marketing Plan...........................................................................................................................11

Advertising and Promotion Plans..............................................................................................11

Competitive Advantages of the union.......................................................................................12

SWOT Analysis.............................................................................................................................12

VII. Manufacturing Plan..................................................................................................................13

Raw Material Requirement and Suppliers................................................................................13

Input suppliers:.............................................................................................................................13

Marketing strategy:-.....................................................................................................................14

Market Goals and Objectives.......................................................................................................14

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 Overall Marketing Strategy.........................................................................................................15

Pricing Strategy.............................................................................................................................15

Promotion Strategy.......................................................................................................................15

Product Manufacturing Process..................................................................................................16

Process flow diagram of feed manufacturing:-.........................................................................16

Process flow of Urea Block Molasses (UBM).............................................................................16

Packaging.......................................................................................................................................17

MARKETING CHANNELS........................................................................................................18

VIII. Financial Analysis....................................................................................................................18

Capital /Investment Needs.........................................................................................................19

Assumptions:................................................................................................................................19

Project investment and means of financing (fixed costs).....................................................19

Assumptions regarding livestock feed production and product mixes are as follows:.......20

Ingredients needs of the plant are as follows:-..........................................................................21

A. Lactating dairy cow concentrate................................................................................21

B. Fattening cattle concentrate...........................................................................................21

C. Urea Molasses Block (UMB)..........................................................................................22

Raw Material Needs of the Union........................................................................................23

Packaging, promotion and supplies costs.................................................................................25

Cost of production:-......................................................................................................................25

Working capital:............................................................................................................................27

Means of Financing:.....................................................................................................................27

Projected Cash Flow.....................................................................................................................27

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I. Executive summary
The operation area of the Erikum union is well known in its milk and meat production in
terms of quantity and quality. As field assessment data in relation to this revealed, almost
90% of small farmers in the operation area of the union are members of the union engaged in
cattle fattening, at least one cattle per year. Furthermore, the field assessment indicated that
almost all affiliated primary cooperatives of the union, except those who have transport
access are willing to give feed distribution and supply service to their members as soon as
the feed mill starts production.

The business plan development survey revealed that in this zone on average about 99,495
small farmers are engaged in cattle fattening business and each individual farmer on
average supplies 2.4 fattened cattle to the market. According to the survey result, about 80%
of the farmers use grains like grass pea, sorghum and some farmers feed wheat to fatten
their cattle.

The overall objective of the union is producing, distributing and marketing quality
manufactured feed with reasonable price in a sustainable way for customers in its operation
area. Its production goal is to utilize the full capacity of the feed mill in the coming four
years.
The promotional goal is to maintain a level of visibility in order to constantly keep moving
increasing volumes of production and expanding territory of operation.
The management team is an experienced group of professionals who will add value to the
business. One marketing expert will be recruited and will be responsible for the sales,
advertising and expansion of the market. He is also responsible to follow-up the market and
product trends and to maintain excellent customer relationships. Moreover, feed quality
controlling expert with the responsibility of quality assurance of both feed input and
manufactured feed will be recruited
The plant is expected to attain 60% of its capacity in the first year, thereafter will attain 70%
and 90% of its capacity in Year 2 and Year 3 respectively. Operating profit for the first
consecutive three years is projected to be Birr 730,485.8, 914,690 and 1,115,877.

With assumption of one month of 25 work days as a sales turnover time, initial working
capital amounting to ETB 1,181,710 will be required for the project.
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II. Business Description

History of Erikum union

Erikum cooperatives union was organized on the one hand, when the primary
cooperatives around Jigjiga were unable to supply farm inputs like soil fertilizer,
seeds, and chemicals at the right time, the right type, at the right place with
reasonable price. On the other hand, the individual members of these cooperatives at
that time were in problem of getting reasonable market price for their products.
These were among the major reasons that initiated the establishment of Erikum
Farmers’ cooperatives Union, Limited Liability. The union was established in year
1997 with 33 founding primary cooperatives with total membership of 72840
individual members. The operation area of the union covered 10 woredas. Currently
the union has 36 affiliated primary multi-purpose cooperatives with 90850
individual members. The total net capital rose from ETB 659500 to 5517131.85.
The services rendered by the union to its members include: input supply
(Agricultural Inputs like fertilizer,seeds,chemicals…) and grain marketing service.

Past Performance
The general trends of the union’s business in the last three years have shown a
tremendous growth. The output marketing reached to the maximum of 11500 Qt. per
year and input supply increased to fertilizer reached above 220,000 Qt per year.

Legal Structure
Erikum union is classified under Multi-purpose farmers Cooperative where
members get different interrelated services based on the needs of their individual
members. According to the cooperatives law of the country, such type of
cooperatives can strengthen their organization up to the national federation level.
On these legal basis the union is registered in year 1997 as Erikum Cooperatives
Union limited liability, Reg. No. 01/726
As per the by-laws of the union each individual member is committed to have a
minimum share valued at of ETB 20000. In addition, each member has interred into
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agreement with the union to purchase all needed farm inputs and to supply
marketable surplus to its cooperatives.

Vision: To see strong, sustainable, vibrant and self-resilient cooperative movement

in the operation area of the union.

Mission Statement: To enhance the economic, social and cultural status of

members through providing integrated and efficient
service to its members.

Current Status of the union

The union provides different members- driven services of which input supply is the
major ones. The performance in terms of market share for input supply increases
from year to year and the union is the major provider of this service at zone level
where as the grain marketing performance seems to be inconsistent due to
operational and managerial problems.

Market performance of the union:

Service type 2008 2009 2010
Input supply (fertilizer) 56000 106000 165000
(qt)
Grain marketing (qt) 5000 7500 12000

The performance indicated that the union management has developed experience in
input marketing which helps the feed production, distribution and marketing easy
to handle.
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III. Management

Key Personnel

The management team is an experienced group of professionals who add value to

the business. The current general manager is qualified at BA degree level and has
more than six years of practical experience in managing the union business. He will
be continuing as the general manager of the union with the responsibility for the
organization of the union as a whole. An experienced manager will be recruited for
feed mills.
Technically equipped operators, feed input and final product store keeper will be
recruited.
One marketing expert will be recruited to manage within the sales, advertising,
identifying new market opportunities and to maintain excellent customer
relationships. The Marketing expert will report directly to the feed mill manager.
Feed quality control expert with a responsibility of quality assurance (only physical
observations) of both feed input and manufactured feed will be recruited, reporting
directly to the feed mill manager.

Board of Directors and Advisors

The BODs are responsible to monitor and evaluate the execution of the business
plan. In order to make their M&E the general manager has to report regularly to the
board of directors. External advisors from Zonal Department of agriculture, Office of
Cooperative Promotion and technical specialists from the field project office are
required to check the viability and sustainability of the production, distribution and
marketing operation.
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IV. Market Analysis

Customers
The operation area of the union is well known for its milk and meat production in
terms of quantity as well as quality. The field assessment data in relation to this
revealed that almost 90% of small farmers in the operation area of the union are
members of the union who are engaged in cattle fattening at least one cattle per year
each. Further the field assessment indicated that the almost all affiliated primary
cooperatives of the union, except those who do not have transport access are willing
and ready to provide feed supply service to their members as soon as the feed mill
starts production. This interest in animal feed distribution is due to the ever growing
fattening practice of their members and non-members in the surrounding area. More
than 60% of the farmers, specialized in the fattening, in this area used grass pea,
boiled sorghum and local vetch to fatten their cattle. As the result of the data
gathered for business plan development indicated, affiliated multi-purpose
cooperatives in the six woredas are interested to provide the feed supply service to
their members. The majority of primary cooperatives are ready to arrange a separate
store for this particular product. There are cooperatives identified by the union who
are capable to distribute its product to non-member cooperatives. The livestock
cooperatives, particularly Jigjiga and its surroundings, Babile and its surrounding
woredas have the capacity to directly purchase, transport and distribute to their site
on monthly basis.

Market Size and Trends

In the field assessment the current market size of feed consumption is analysed
based on the amount of the unmixed industrial by-product feed consumption of the
area. Accordingly, wheat bran, oil seed cake, molasses and salt are products offered
to the market by private traders and cooperatives. The cooperatives business was
almost constant in the last two years because of poor quality and higher sales price
of the private traders. The private traders have good market in the period from
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October to April when the demand and the consumption will increase. Generally
speaking, the demand for animal feed is increasing every year. The union targeted
the individual end users whose main livelihood depends on dairy and/or fattening
animals in its operation areas and livestock cooperatives, urban and Perry-urban
individuals.

The business plan development survey revealed that there are a large number of
small farmers engaged in cattle fattening and each individual farmer on average
supplies 2.4 fattened cattle to the market. Moreover about 80% of these farmers feed
natural hay, wheat bran and by product of local beer (Attela) mixed with salt. There
is also a culture of feeding their cattle with boiled sorghum and local vetch for the
fattening purpose.

The annual potential demand of commercial feed is estimated at 20909 ton per year
Out of which 8977 ton per year is demanded for fattening purpose. This amount is
demanded mainly from the month of October up to April. The demand for dairy
feed is year round and estimated at 12,012 ton per year. The farmers demand for
Urea Molasses Block (UMB) is at an infant stage it needs awareness creation and
promotional work. However, there are few farmers who have the knowledge about
the benefits of UMB. Currently, the demand for this feed is estimated not more than
5000 blocks per year for the first year and it is estimated that the demand will
increase on average by 5 up to 8% in the coming three years.

There is also high potential demand outside the operation area of the union within
the zone. There is broad range of small scale farmers in remaining districts as well.
The union has to establish a new channel for these areas. The union will expand its
market within and outside the zone establishing new distribution centres or utilizing
the existing non-member cooperatives as distributors through conducting a
feasibility study in the selected potential districts.

The Competition
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The union’s principal competitors are individual unmixed industrial by product feed
retailers at Jigjiga and Babile wcich are very few in number and have significant role
in supplying industrial by-products to cattle fattening and Dairy farmers and they
have created strong bondage with main feed buyers. It could be a challenge for the
union at the early stage of the production to attract these customers. It is expected
that the competition will be in terms of price where the price of unprocessed feed is
lesser than that of the processed one. Hence, the union has to work hard to promote
its product indicating key difference between the processed and unprocessed animal
feed and its effect on the body condition, product yield and health of animals. It is
expected that in the medium and long term, the industrial by-product retailers will
gradually join with the union provided that the union comes up with a winning
market strategy which focuses mainly on the promotion and awareness creation of
its product.

Estimated Market Share and Sales

The key issue to a successful feed processing and distributing business is to

understand the need of customers and to produce standard, quality and balanced
rations. In practice, such rations are entirely new products in the union operation
area. There are no norms or standards applied or enforced by law. Developing a
commercially viable animal feed sub-sector requires an increasing demand from
livestock producers who are capable of monitoring production costs and applying
good business systems and efficient animal husbandry practices in the management
of their production activities. The basic elements of such a program include:
1) Application of basic regulatory measures to control the quality of major feed
ingredients and blended feeds sold in domestic markets;
2) Technical and business development support for feed producers; and
3) Extension and training for livestock producers in improved feeding and on-farm
management practices crucial.

General Trends in Feed Consumption

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There are numbers of driving forces and new emerging trends in feed marketing
which are relevant to the union. The preference of small farmers to generate their
livelihood from beef production and marketing is increasing from time to time. This
can be attributed to low productivity of crop farm, better market price for quality
beef and the increasing demand for fattened animals. Fortunately Erikum union is
operating in areas which are considered as meat and milk belts and will benefit from
these opportunities.

V. Marketing Plan

Behind any business, it is obvious that there is a competition of varying degrees.

The animal feed processing and distributing businesses has the same fate of
competing in price, quality, customer service, and mode of delivery. Customer
service can include things like ability to produce different varieties, a range of
qualities and paying attention to customer-feed options. Since sudden changes in
feed can disrupt their animals' digestion system and health condition, the union
must create a sense of trust in his customers in terms of regular supply, reliable
service and consistent quality.

Advertising and Promotion Plans

Initially the union will advertise and promote its new product by distributing
brochures in the local language/Somali /Amharic and promote by word of mouth
on market days and on religious and other social gatherings with minimal expenses.
The leaders of member primary cooperatives will also be invited to visit the feed
processing unit with brief explanation as to the use and advantages of the processed
feed to their animals.

Types of sales
 By telephone order to its affiliated primary cooperatives.
• Direct retail sale to urban individuals
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 • Provide a transport service where it is needed for customers purchasing
above 100 quintals.
After analysing the situation of the customers the union will introduce
additional sales methods.

Competitive Advantages of the union

The union has the following competitive advantages competitors:-

 Part of the feed input (wheat bran) will be fulfilled from the nearby flour
factory which enables to reduce the cost of transportation.
 The majority of the customers of the union are shareholders/ member
primary cooperatives who fell a sense of ownership of the union and its
business
 Members have the right and access to comment and/or complain about the
quality, price and delivery of product which they cannot get when buying
from individual suppliers.

SWOT Analysis

Strengths Weakness
 Quality is trademark of  Consumers may not recognize quality
cooperatives
 Lack of experience and low attention for
 Main distribution and marketing
channel is through the existing market promotion activities
channel
 Entrepreneurship skill is not well developed
 The union has experience in
distribution and marketing of agr-  Employee’s not experienced and low
inputs.
capacity in business management.
 Existence of qualified, experienced
and energetic management team.

opportunities threats
 High market demand for  Markets performance of primary coops is
manufactured animal feed. dependent on voluntary work.
 Good policy environment.
 Part of the feed input will be  External financial source is limited
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fulfilled from nearby factories.

VII. Manufacturing Plan
The proposed Commercial Feed Mill has a milling capacity of 6 qt/hr in an 8 hr
working day. It is expected to produce 48 qts/8 hr in one shift. To increase the
production, the production time can be raised to two shifts/16 hrs where by the
production can increase to 96 qt/16hr day. The mixing capacity of the mixer is
6qts/hr, 48qts per shift (8hr).

Raw Material Requirement and Suppliers

The main raw materials are wheat bran, oil seed cake, dry brewery grains, molasses
and salt. Almost all ingredients except molasses are available in the nearby vicinity
of the feed mill. Molasses, some vitamins and other ingredients will need to be
transported from other nearby places like Harar and western hararge.

Input suppliers:
In the project area of 18to400 km radius there are a number of agro-processing plants
which are currently producing different by products which can be used for
commercial animal feed ration formulation. Flour factories found in the Jigjiga city
,harar and private flour mill at Dire Dewa town and a small scale oil extracting mill
at Harar which produced on average 5 qts per day are more accessible source of
ingredients. One Brewery (Harar Beer factory- ETHIOPIA Harar), source of dry
product, which is located at 112 kms from Jigjiga supplies with reasonable and
stable price. Currently it produces 60qts dried or 48m3 wet by-products per day.

The factories are interested to enter into agreement to supply the by-product on
contract bases. These factories have indicated their pricing strategy to give price
discount for permanent bulk buyers.

Marketing strategy:-
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Initially, the union will focus on its members as entry point to the feed market.
Through gradual penetration into the market and creation of good-will, the union
will work to expand its market and customer size. As the marketing progresses over
the next five years, added emphasis will be placed on sales product to potential
areas within and outside of the administrative zone. In the long run, the union
intends to distribute its product to other regions.
The market analysis shows a broad range of prospective clients, covering a wide
range of consumers who are generally interested in quality feed products. The
largest of these groups is that of mainstream of the Somali region which is projected
to grow at 10 percent per year.

Market Goals and Objectives

There are no commercial feed mills operating in the southern wollo. Additionally,
there is no adequate production of a nutritionally balanced feed ration marketed for
the livestock and poultry producers in this particular zone. The overall objective of
the union is to produce, distribute and market quality manufactured animal feed
with reasonable price in a sustainable way to customers in its operation areas. Its
goal is to utilize the full capacity of the feed mill in the coming four years.

Overall Marketing Strategy

The union will implement the following Marketing Strategies upon the business
transfer in the following order:

1. Direct marketing: the union will implement direct sales (sell face to face) of
different types of feed to affiliated cooperatives, livestock cooperatives and to
non-member cooperatives in the operation areas. Urban commercial farms
and urban individuals will be served from the union retail shops.
2. Customer Referral: the union will provide customer incentives for direct
referrals, in the form of price discounts particularly for bulk and mid and long
term contractual based buyers.
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 3. Establishing new channels in potential non-operation areas/ districts.

4. High quality product marketing is a key strategy to differentiate to other

existing products.

Through marketing products in these ways, it is projected that Erikum union will

almost double its business within the first 2 years of new ownership.

Pricing Strategy

At the initial stage of the production the sales price is a cost plus approach
considering the price of unmixed by-product feed in the operation area of the union.
After the quality of the product has got recognition by the major customers the price
will be revised with the assumption of keeping the sustainability and growth of the
feed mill unit.

Promotion Strategy

The promotional goal is to maintain a level of visibility in order to constantly keep

moving increasing volumes of product and widening scope of market into an
expanding operation territory. First, union will concentrate on the core woredas of
the union and then move outward in the most potential non-operational areas
within the zone and then outside the zone.

Product Manufacturing Process

The feed preparation process requires:-

a) High accuracy and precision of weighing

b) feed ingredient handling and processing
c) Mixing
d) Packing
e) Labelling
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 Labelling of products of the union will clearly indicate the product type, amount,
date of production and the manufacturer’s name.

Process flow diagram of feed manufacturing:-

Quality Acceptance of
checking feed ingredients

Packing & Mixer Dosage bin ( separate

labelling for each feed
ingredient

Weigh Weigh

Process flow of Urea Block Molasses (UBM)

Packing &
Preparation of
labelling
feed ingredients Mixing Cutting

weigh

Weigh
Drying

Packaging
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 The business plan development survey indicated that the packaging demand
is a combination of different sizes due to the difference in purchasing capacity
and convenience of product handling. Accordingly, the packaging demand in
terms of size analysis indicated that out of the total production offered to the
market, 25%, 50% and 25% with size of 100kg, 50kg and 25kg respectively.
Concerning the packaging material respondents preferred a bag that can also
be used for handling different agricultural products.

MARKETING CHANNELS

Dairy animal feed demand never gets affected with seasons. UMB is used in all class
of livestock throughout the year. Whereas the fattening feed is demanded mainly
during October to April. Hence the proposed business can be started at any time of
the year and it is a year round business. Before the commencement of the proposed
business, it is important that the union must have good knowledge of the production
process and introduce to primary affiliated cooperatives that it is going to start
production and distribution of animal feed. Following are the major target clients of
the Union:
. Dairy farmers
. Cattle fattening farmers
. Sheep and Goat fattening farmers

VIII. Financial Analysis

Commercial feed manufacturing is composed of activities including operating
procedures, ingredient specifications, quality assurance, and preventive
maintenance programs that support animal feed production operations. All these
activities need financial costs. The key to lowering feed production costs is to
understand the whole process from assessing needs of customers to purchasing
inputs, production and distribution of product to end users.
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Capital /Investment Needs

Animal feed manufacturing needs considerable amount of capital, land to build

shade, money to buy manufacturing machinery, bagging equipment, computer
process, mixers, dryers, scales, and vehicles for transporting raw materials and
finished products. Another consideration in this business is the huge inventory
investment. Feed manufacturers usually take advantage of fluctuations in feed
ingredient prices by buying in bulk when prices are low; or by contracting for
supplies months ahead.

Assumptions:

o The cost of land and site development is excluded in the financial

analysis.

o The cost of the building itself is derived from local prices.

o The complete machinery will be purchased from a reputable

institution called Selam Technical and Vocational Center.

o Pre-operative and preliminary project expenses are included,

(plant and machinery inspection, and other similar costs)

o Cost contingencies for the project are assumed at 5% of total project

cost.

Project investment and means of financing (fixed costs)

NO. Particulars Qty Uhit cost Total cost

1 Land and Site Development --- ----

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2 Buildings and Civil Works 1 100,000 160,000

3 Plant and Machinery 1 250,000 275,000

4 Miscellaneous Fixed Assets 15,000 15,000

5 Preliminary and Pre-operative 10,000 10,000

Expenses
6 Total 490,000

7 Provision for Contingencies 5% 24,500

total 484,500.00

Assumptions regarding livestock feed production and product mixes are as follows:

No. Particulars years

1st 2nd 3rd

1 Installed Capacity (qt/Hour) 6 6 6
2 Capacity Utilization (%) 60 70 90
3 Number of Days of Production 280 280 280
4 Operating Hours/Day 8 8 8
5 Feed Produce qt/Year
Lactating/dairy/ 50% 7620 8400 10080
Fattening feed 50% 7620 8400 10080
Urea molasses block 5000 7000 8000
NB: 1 (one) quintal equals to 100 kg, which is equivalent to 20 UMB

Operating data: The plant is expected to attain 60% capacity in its first year, thereby increasing the
capacity to 70%, 90%, for Year 2 Year 3 respectively.

Ingredients needs of the plant are as follows:-

A. Lactating dairy cow concentrate

No. Ingredients % unit cost birrtot cost/qt Remark

1 Maize 20 350.0070.00
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2 Wheat bran 35 200.0070.00

3 Wheat short 25  200.0050.00

4 Noug meal 17 195 .0033.15

5 Salt  1 250.002.50

6 Molasses 2 210.004.20

Total 100 229.85

Remark: currently farmers specialized by the fattening and dairy

production feed their cattle on wheat bran, local brewery by products,
boiled sorghum and local vetch as a concentrate in addition to the straw
and Hay.

B. Concentrates for the Fattening cattle

No. Ingredients % unit costtot

birrcost/qt

1 Wheat shorts 25 240.0060.00

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2 Wheat bran 35 200.0070.00

4 Noug meal 15 195 .0029.25

5 Molasses 5 210.0010.5

6 Dried BG 17 80.0013.60

7 Salt  3 250.007.50

Total 190.85
100

C. Urea Molasses Block (UMB)

No. Ingredients % unit cost birrtot cost/qt remark

1 Molasses 31 210.0096.10

2 Wheat bran 23 200.0046.00

3 Cement 15 300.0045.00

4 Noug cake 15 195.0029.25

5 Lime stone 3 20.000.60

6 Urea 10 500 .0050.00

7 Salt  3 250.007.50

5 Total 100 247.45

NB; Hollota animal feed system is selected for this particular feed type.

Raw Material Needs of the Union

ingredients per-qt in kg Ingredients need in qts.

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No. Type of ingredients dairy fattening UMB Unit cost yr1 yr2 yr3

1 Wheat shorts 25 25 _ 240 7620 8400 10080

2 Wheat bran 35 35 23 200 7319 15949 19120

3. Noug meal 17 15 15 195 7280 8060 9632

4. Molasses 2 5 31 210 5886 6517 7812

5 Cement -- -- 15 300 38 53 60

6 Urea -- -- 10 500 25 35 40

7 Dried BG _ 17 _ 80 1295 1428 1713

8 Salt 1 3 3 250 1084 1200 1439

9 Limestone _ _ 3 20 8 11 12

30555 41653 49908

General and Administrative Expenses

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Human Resource Requirement and salary budget:

No. Particulars monthly costs annual costs

1 Salaries for administrative and 4000 48000.00

support personnel,
3 Communications, ( tele, fax, 500 6000.00
internet, etc)
5 Rent, and others 500 6000.00
sub-total 60000.00

Employee No. of No. shifts Monthly salary Annual salary

employees

Production Manager 1 1 1700.00 20,400.00

Marketing personnel 1 1 1200.00 14,400.00
Mechanic/Electrician 1 1 700.00 8400.00
Store man 2 1 500.00 6000.00
Laborers 6 1 900.00 10,800.00
Guard 3 3 600.00 7200.00
total 67,200.00

Packaging, promotion and supplies costs

No. particulars annual unit costtotal cost
needs birr
(pcs)
1 Packaging materials (Bag)

 100 kg size 3360 10.0033,600.00

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  50kg size 6720 8.0026,880.00

 25 kg size 3360 5.0016,800.00

sub-total 77,280

2 Cost of promotion 3500 3500.00

3 Supplies (electric and 24,000:00

water) 2000.00

Cost of production:-
Employee tot cost lactating fattening UMB
feed feed

Cost of raw material/qt 229.85 290.85 247.45

Packaging material costs 77,280.00 3.97 3.97 3.97

Cost of Production personnel/qt 67,000.00 3.44 3.44 3.44
Cost of Supplies/Electric, water/qt 24,000:00 1.24 1.24 1.24
Cost of General and Admn. Expenses/qt 60,000.00 3.08 3.08 3.08

Total cost of production per qt 241.58 302.58 259.18

The sales price setting strategy has to be based on the frequent market dynamic survey.
Currently there is no a competent product in the area therefore cost plus methods of price
setting is used. Some amount of profit is important to ensure the sustainability of the feed
mill and profit is important to meet the dynamic feed needs of the members. Hence 15%
profit margin is added on the unit cost of production in each type of feed.

Income projection:

Employee sales price/qt yr1 yr2 yr3

(cost +15%
margin)
Sales 5,446,625.8 6,661,172 7,875,774

 Lactating feed 303.29 2,038,108.8 2,547,636 3,057,163

 Fattening feed 244.64 1,643,980 2,054,976 2,465,971

 UMB 294.08 1,764,537 2,058,560 2,352,640

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Cost of sales:

 Raw material 4,508,160 5,517,988 6,511,226

 Labour 10,800 13,219 15,599

 Packaging 77,280 94,591 111,617

 technical prdn salaries 56,400 56,400 56,400

Operating expenditures: 4,652,640 5,682,198 6,694,842

 General and Admin. Expenses 60,000 60,000 60,000

 Promotion 3500 4284 5055

Total Operating Expenses 63,500 64,284 65,055

Operating profit 730,485.8 914,690 1,115,877

 Patronage and dividend 511,340.06 640,283 781,114

payments

Net profit 219,145.74 274,407 334,763

Working capital:
Working capital calculations are based on the availability of raw materials and
storage, as a function of the marketing cycle. With assumption of one month as a
sales turnover time having actual corresponds to 25 work day. Initial working capital
to the amount of ETB 1,181,710 will be required for the project.

Cost items cost remark

First Three Months Salaries 16800.00
Inventories raw material 1,163,160
Misc expenses 750.00
Promotional campaigns, and 1000.00
 Overall advertising costs
1,181,710
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Means of Financing:

Finance assumptions are that the investment costs of the feed mill and its installation
cost will be covered by the donor. The union will contribute all other project start-up
costs, without the balance financed from financial institutions.

Projected Cash Flow

The cash flow projection for the union feed mill shows that provisions for ongoing
expenses are adequate to meet the needs of the union, as the business generates
sufficient cash flow to support operations and future expansions.

Cash flow projections are critical to success. The monthly cash flow is shown in the
illustration, with one bar representing the cash flow per month and the other
representing the monthly balance. The annual cash flow figures are included here
annexed 1.

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Annexed 1.
Cash flow
Name of business: wodera farmers coops input supply and output Marketing union

Months June July Augest Sept. Oct. Nov. Dec. jan Feb Mar Apri May Total
Projected sales 389325 389325 389325 389325 500000 500000 500000 500000 500000 500000 500000 389325 5,446,625.00
Cash on hand 1,181,710 1,181,710
cash recepities :
cash sales 389325 389325 389325 389325 500000 500000 500000 500000 500000 500000 500000 389325 5,446,625.00
tot. Cash
avilable 1,571,035 389325 389,325 389325 500,000 500000 500,000 500000 500,000 500000 500,000 389325 4,264,915
Cash paid out:-
Purcase of RM 375,840 375,840 375,840 375,840 375,840 375,840 375,840 375,840 375,840 375,840 375,840 375,840 4,510,080
Miscellaneous
Fixed Assets 7500 0 0 0 0 0 0 0 0 0 0 7500 15000
Salaries 4700 4700 4700 4700 4700 4700 4700 4700 4700 4700 4700 4700 56,400
laborares 900 900 900 900 900 900 900 900 900 900 900 900 10,800
supplies 2000 2000 2000 2000 2000 2000 2000 2000 2000 2000 2000 24,000
General and
Admn.
Expenses 5000 5000 5000 5000 5000 5000 5000 5000 5000 5000 5000 5000 60,000
Packaging 6000 6000 6000 6000 6754 6754 6755 6755 6755 6754 6754 6000 77,280
promotion 875 0 0 0 875 0 0 0 875 0 0 0 3500
Tot cash paid
out 402,815 394,440 394,440 394,440 394,069 395,194 395,195 395,195 396,070 395,194 395,194 401,940 4,757,060
Cash position 1,168,220 1,163,105 1,157,990 1,152,875 1,258,806 1,363,612 1,468,417 1,573,222 1,677,152 1,781,958 1,886,764 1,874,149 1,382,004