GIRMA TAMENE

CEREALS, PULSES AND OIL CROPS PRODUCTION

INVESTMENT PROPOSAL

PROJECT promoter: GIRMA TAMENE GARADO

PROJECT LOCATION: OROMIA REGION, EAST WOLLEGA ZONE, GOBU SAYO WOREDA, Adere Tikisa kebele

Contact person: GIRMA TAMENE

(+251-911-26-75-77/911054497)
Consultant: sileshi angerasa econ, business and investment development consultancy service
Address: Mobile: 0911896145/0966109246
Consultant Name & Signature:

Nekemte, Ethiopia

FEBRUARY, 2022

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 TABLE OF CONTENTS
EXECUTIVE SUMMARY OF THE PROJECT .............................................................. iv
1. INTRODUCTION ............................................................................................1
2. BACKGROUND ..............................................................................................2
2.1. Stakes in Agricultural Production ........................................................................ 3
2.2. The Agriculture Sector .............................................................................................. 3
2.3. Development and socio-economic objectives .................................................... 4
2.4. Income distribution and poverty ........................................................................... 5
3. NAME OF PROMOTERS, CONTACT PERSON, LEGAL FORM OF BUSINESS .....5
4. NEED (PROBLEM STATEMENT) PROBLEM JUSTIFICATION ...........................5
5. PROJECT GOAL, OBJECTIVES AND RATIONALES .........................................6
6. THE PROJECT AREA DESCRIPTION ..............................................................7
6.1. Physical Features ....................................................................................................... 7
6.2. Economic Base ............................................................................................................ 7
6.3. Population ..................................................................................................................... 9
6.4. Vegetation ..................................................................................................................... 9
6.5. Infrastructure and Institutions.............................................................................. 9
7. THE PROJECT OUT PUTS, ACTIVITIES AND INPUTS ................................... 10
7.1. Project Description ................................................................................................... 10
7.2. Project Objectives ..................................................................................................... 10
7.3. Types Of Technology Use ....................................................................................... 10
7.4. Production Capacity ................................................................................................ 10
7.5. Land Use Plan and Action Plan ........................................................................... 11
8. MARKET PROSPECTS ................................................................................. 11
8.1. Demands and Main Customers ........................................................................... 11
8.2. Competition analysis and Selling Prices ........................................................... 12
8.3. Marketing Strategies ............................................................................................... 12
9. ORGANIZATIONS AND ADMINISTRATION OF THE PROJECT ....................... 13
9.1. Business Form .......................................................................................................... 13
9.2. Organization Structure of the Project ................................................................ 13
9.3. Manpower Requirement with Qualification ..................................................... 13

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10. STAKEHOLDERS AND PARTNERS ............................................................... 14
11. FINANCIAL STUDY ...................................................................................... 14
11.1. Financial Requirements ......................................................................................... 14
11.2. Project Capital Costs ............................................................................................... 14
11.3. Forecasted Production ............................................................................................ 18
11.4. Forecasted Sales Revenues ................................................................................... 18
11.5. Depreciation Calculations ..................................................................................... 19
11.6. Loan Repayment Schedule and Interest Expense ......................................... 19
11.7. Forecasted Income Statement .............................................................................. 19
11.8. Forecasted Cash Flow Statement........................................................................ 19
11.9. Forecasted Balance Sheet...................................................................................... 20
11.10. Overall Financial Assessment ....................................................................... 20
13. PHASE OUT AND SUSTAINABILITY STRATEGY ........................................... 22
14. ACTION PLAN AND BUDGET BREAK DOWN ................................................. 23
15. RISKS AND ASSUMPTIONS.......................................................................... 23
16. ENVIRONMENTAL IMPACT ANALYSIS ......................................................... 25
17. CONCLUSION AND RECOMMENDATION ...................................................... 26
ANNEX .............................................................................................................. 27

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EXECUTIVE SUMMARY OF THE PROJECT
1. Project Name Cereals, Pulses and Oilseed Crop Production Project
2. Project Owner Girma Tamene Garado
3. Project Type Agriculture
4. Project Promoter The promoter of the project is the owners themselves
(the investors) and those of who are benefiting from the
project.
5. Nationality Ethiopian
6. Project Location Oromia Region, East Wollega Zone, Gobu Sayo
Woreda, Adere Tiksa kebele
7. Premises Required 100 ha
8. Full production At full production Capacity, the project will produce
Capacity 4,525 quintals of produce annually
9. Total investment capital 8,215,011.50 (ETB)
10. Job opportunity Permanent: Skilled 16 and unskilled 5
Temporary: Skilled - and unskilled 637
Total: Skilled 16 and Unskilled 642 (Aggregate =658)
11. Benefit Expected The expected benefit of the project is to produce 4,525
quintals of production per annual, and thereby create
job opportunity for 658 individuals and become source
of income for the government
12. Expected  The surrounding community in obtaining job
beneficiaries opportunity
 People living in Gobu Sayo woreda, Adere Tiksa
Kebele and the surrounding community will
obtain social fund and job opportunity
 People living in East Wollega zone, in large
 Government and non-government organizations
13. Technology to be The firm will use environment friendly technology
used which can be operated by local people.
14. Market Destination i. Different individuals who are living in Oromia
region, east Wollega zone and woredas and towns
ii. Finfinne, Adama and surrounding community
iii. Some of the produce will be planned to be exported
abroad
15. Source of finance Out of Br. 8,215,011.50 as capital requirement, 30% (Br.
2,464,503.45) from own contribution and 70% 5,750,508.05 )
from bank@ interest rate of 11.5%

16. Recommendation The project is economically, financially and socially feasible.

For instance, financially, the project’s IRR is 138 % which is
greater than discount rate (11.5%) and NPV is equal to Br.
32,505,196.00

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1. INTRODUCTION

Ethiopia’s Agricultural Sector Policy and Investment Framework (PIF) is a sectoral

national policy applicable for the period of 2010-2020. Its main objective is to
sustainably increase rural incomes and national food security producing more,
selling more, nurturing the environment, eliminating hunger and protecting the
vulnerable against shocks. Four main themes, each with its own strategic objective,
are identified within the above overall objective. These are: 1. achieve a sustainable
increase in agricultural productivity and production; 2. accelerate agricultural
commercialization and agro industrial development; 3. reduce degradation and
improve productivity of natural resources; and 4. achieve universal food security
and protect vulnerable households from natural disasters. As to the thematic area
of disaster risk management and food security strategic objective 4 aims at reducing
the number of chronically food insecure households, reducing imports of food aid,
improving the effectiveness of targeted social safety net programme for vulnerable
groups, reducing the prevalence of child malnutrition, and improving the
effectiveness of the disaster risk management system.

Under the thematic area of productivity and production strategic objective 1 entails
the following outcomes: increase the production of food, cash crops and livestock;
increase agricultural productivity; reduce qualitative and quantitative post-harvest
losses; scale-up proven best agricultural practices; increase the use of agricultural
inputs and improved agricultural practices; and reduce dependence on commercial
imports of staple food products. Under the thematic area of rural commercialization
in strategic objective 2, the following outcomes are expected: increase in private
agribusiness investment; increase in smallholder household cash incomes; increase
in the proportion of agricultural production marketed (versus subsistence
utilization); increase in the diversification into higher value products; improvement
of farmer access to agricultural inputs and productive assets; increase in farmer
access to rural financial services; increase in agricultural export earnings; increase
in households’ participation in farmer organizations; strengthening of farm income
growth through improved infrastructure and market access; and reduction of rural
unemployment.

As with the thematic area of natural resource management strategic objective 3

aims at increasing areas under irrigation; improving water conservation and water
use efficiency; reducing arable, rangeland and forest degradation; maintaining
agricultural biodiversity; improving soil health in key agricultural landscapes;
improving security of private sector access to land resources; and strengthening
farmers’ ability to respond to climate change challenges.

In addition, following the issuance of PIF and GTP, there has been a call for shifting
from low value land extensive production to high value and land intensive form of
agriculture is made. Accordingly, this crop production project is proposed by
visionary emerging domestic investor Girma Tamene. It is against this background
that this project study is being undertaken to assess the profitability of the project
so as to provide the investor and Oromia Investment and Industry Bureau with a
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tool to use in determining the feasibility of enterprises and monitoring its
performance. In making this project feasibility study, the consultant team has
devoted a great deal of time in searching and collecting information on specific
aspects of the project.

The information was collected by reviewing both print and electronic documents
from research publications (library and on-line reprints and databases).

2. BACKGROUND

Agriculture is the mainstay of the Ethiopian economy, contributing 41.4% of the

country’s gross domestic product (GDP), 83.9% of the total exports, and 80% of all
employment in the country (Matousa, Todob, & Mojoc, 2013). Put in perspective,
Ethiopia’s key agricultural sector has grown at an annual rate of about 10% over
the past decade; much faster than population growth. Other important sectors are
service and industrial sectors contributing 43% and 15.6% respectively (The World
Fact book, 2016). On agriculture expenditure related metric, Ethiopia has dedicated
an annual investment of about 14.7% of all government spending to the agriculture
sector since 2003. Ethiopia is among the few African countries that have
consistently met both the African Union’s Comprehensive Africa Agricultural
Development Program (CAADP) targets of 10% increase in public investment in
agriculture by the year 2008 and boosting agricultural production growth by 6% at
least by 2015.

Although agriculture is one of Ethiopia’s most promising resources, the sector has
been slowed down by periodic drought, high levels of taxation and poor
infrastructure that often make it hard and expensive to get goods to market. Also,
overgrazing, deforestation and high population density has led to massive soil
degradation leading to low productivity. The above problems have made it hard for
the country to feed itself; best exemplified by the dramatic 1984-85 famine. Since
then, the country has experienced similar occurrences that expose a sizeable
population to humanitarian needs. As things stand, over 3 million Ethiopians need
food and other humanitarian assistance annually (SIDA, 2015). However, a critical
look at the sector shows a high potential for self-sufficiency in grains and also for
the development export especially for livestock, vegetables, fruits and grains.
Further, many other economic activities depend on agriculture. These include
processing, marketing and export of agricultural products among others.

Although the government’s priority attention is still on increasing the productivity

and production by the smallholder farmers, recognizing the high prevalence of rural
poverty and the large productivity gap, due recognition is now given to the private
commercial firms in the agriculture sector. This is reflected in the Policy and
Investment Frame work (PIF) objective of the country which states “to contribute to
Ethiopia’s achievement of middle-income status by 2020”. The Development
Objective aims to “sustainably increase rural incomes and national food security,
which embodies the concepts of producing more, selling more, nurturing the
environment, eliminating hunger and protecting the vulnerable against shocks.
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Investments are also directed towards expanding the extension system, irrigation
development, and rural commercialization and agro-processing. The government is
complementing its efforts in food-insecure areas with an increased commitment to
raise national food production by investing in areas with high agricultural potential,
including efforts to attract private agricultural investment in areas with under-
utilized land and water resources.

2.1. Stakes in Agricultural Production

For Ethiopia to achieve middle-income status by 2025 and make substantial
inroads against food insecurity, concerted and strategic investment and strategic
choices in the agricultural sector are vital. Concentrations of food insecurity and
malnutrition are endemic in rural areas, with a population of six to seven million
chronically food insecure, and up to 13 million seasonally food insecure. Over 90
percent of agricultural output is driven by smallholder farmers. Without expanding
cultivated land, and given forecast population growth, the average land holding size
in highland areas will be reduced to 0.7 hectares by 2020, placing further pressure
on rural incomes and food security.

Agriculture contributes substantially to the overall Ethiopian economy. On a

nominal GDP of USD 25.6 billion, 43 percent was driven by the agricultural sector.
Crop production accounts for 29 percent, with livestock at 12 percent, followed by
the forestry sector with 4 percent. The sector contributed USD 1.4 billion to export
earnings. The sector also drives aggregate employment figures. Estimates show 83
percent of the population relies on agriculture for their livelihoods (with many more
dependent on agriculture related cottage industries such as textiles: crops and
forestry account for 60 percent of overall export value, livestock for 28 percent, and
remaining exports, a combination nonagricultural industry, primarily extractives
and industrial production.

The role of gender in the Ethiopian agricultural system is also critical: in post-
harvest activities for cereals, women contribute as much as 70 percent of on-farm
labor; in marketing, particularly in cereals, participation of women is as high as 60
percent of labor market share. While MoARD strategies do identify the role of
women in the agricultural value chain, the gap is in the implementation of these
strategies. PASDEP II has already identified targets for the participation of women
in cooperatives and unions (>30 percent), as well as the number of women targeted
by public extension in male-headed and female-headed households, 50 percent and
100 percent, respectively. Given the stakes of women in production systems,
specific strategies that target increasing the opportunity of women to participate in
income generation and decision-making, and the disaggregation of data sets to
capture the participation of women are critical.

2.2. The Agriculture Sector

In spite of disproportionately high employment in the sector (fairly above 84 percent
of the rural population) and high poverty reduction power of the sector, the
contribution of the agriculture to GDP of the nation has been declining. Such
declining role of the sector is explained mainly by the small sizes (land holding
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share of 83 percent by smallholders farming setup less than 2 hectares and the
average size of the small farms is 1.25 hectare) characterized by low utilization of
agricultural inputs, dependence on inconsistent, uneven & unpredictable rains,
poor irrigation system, low technology, little access to know-how (risk management,
technology, skill, etc), limited capital, fragmented plots hampering economic scale
production and productivity, that is vulnerable to natural and man-made changes.

About a third of rural household’s farm less than 0.5 hectares which, under rain fed
agriculture at current yield levels, cannot produce enough food to meet their
requirements. Most agricultural production is used to meet household consumption
needs and, for a very large number of households, there is a prolonged hunger
season during the pre-harvest period. This period is also characterized by rising in
food item prices. When there are surpluses, smallholder farmers are often
constrained by lack of access to markets, and hence sale their outputs at very
depressed prices.

Owing to these characteristics of smallholder farmers and the related constraints,

crop production couldn’t keep in pace with the growing demand for such outputs
for food and as input for industrial sector for industrial sector. As a result, Ethiopia
has been net importer of cereals and fruit products despite of decades unreserved
government effort to increase the productivity and production of the smallholder
agriculture sector. Hence, food security remains a critical issue for many
households, and for the country as a whole. Moreover, expansion of the cropped
area to more marginal lands has led to severe land degradation in some areas. To
fill such growing gap between the supply of crop products and demand for such
items, the government has declared its commitment to increase the national food
production by directing investment in areas with high agricultural potential,
including efforts to attract private agricultural investment in areas with under-
utilized land and water resources.

2.3. Development and socio-economic objectives

The development and social objective of the Ethiopia is compressive and consistent.
In addition to the well articulation of these in the current national plan (GTP), it is
also reflected in the Policy and Investment Frame work (PIF) objective of the country
which states “to contribute to Ethiopia’s achievement of middle-income status by
2020”. The Development Objective aims to “sustainably increase rural incomes and
national food security”. This objective involves the concepts of producing more,
selling more, nurturing the environment, eliminating hunger and protecting the
vulnerable against shocks; all of which are embodied in various national policy
instruments, and are expressed in terms of four main themes, each with its own
Strategic Objective summarized as follows:

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Table: Strategic Objective
Thematic Area Strategic Objectives (SOs)
Productivity and To achieve a sustainable increase in agricultural productivity
Production and production.
Rural Commercialization To accelerate agricultural commercialization and agro
industrial development.
Natural Resources Management To reduce degradation and improve productivity of natural
resources.
Disaster Risk Management and To achieve universal food security and protect vulnerable
Food Security households from natural disasters.

Thus, the objective of this investment project proposal is well anchored to, and
aligned with the national socioeconomic development of the country. The detail
project rational and objectives are explained under section three “rationale and
Objectives of the project”.

2.4. Income distribution and poverty

As this project is proposed to be implemented in area where there is neither
commercial private farm nor state farms operating so far, and as the local
smallholder farmers are mainly characterized by low input and low output vicious,
the successful implementation of the project will contribute toward equitable
income distribution and rural poverty reduction. By creating non-farm job
opportunity at their locality, this project will also reverse the seasonal rural-urban
migration, which has been the norm due to lack of non-farm income generating
activities. Given the fact that the success or failure of any project is usually
measured in terms of its final effect on these issues, this project will meet the
priority area where the government needs more investment.
3. NAME OF PROMOTERS, CONTACT PERSON, LEGAL FORM OF BUSINESS
 Name of the project: Cereals, Pulses and Oilseed Crop Production Project
 Owner: Girma Tamene Garado
 Contact Person: Mr. Girma Tamene
 Legal form of business: Sole proprietorship

4. NEED (PROBLEM STATEMENT) PROBLEM JUSTIFICATION

Agriculture plays a critical role in the entire life of a given economy. Agriculture is
the backbone of the economic system of a given country. In addition to providing
food and raw material, agriculture also provides employment opportunities to very
large percentage of the population.
Hence, the key constraints to agricultural productivity in Ethiopia include low
availability of improved or hybrid seed, lack of seed multiplication capacity, low
profitability and efficiency of fertilizer use due to the lack of complimentary
improved practices and seed, and lack of irrigation and water constraints.
Indeed, at the close of the century of greatest agricultural expansion, the dilemma
of the farmer had become a major problem. Several basic factors were involved-soil
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exhaustion, the vagaries of nature, overproduction of staple crops, decline in self-
sufficiency, and lack of adequate legislative protection and aid. Some of the
environmental issues that are related to agriculture are climate change,
deforestation, dead zones, genetic engineering, irrigation problems, pollutants, soil
degradation, and waste.

Ethiopian agriculture has been suffering from various external and internal
problems. It has been stagnant due to poor performance as a result of factors such
as low resource utilization; low-tech farming techniques (e.g., wooden plough by
oxen and sickles); over-reliance on fertilizers and underutilized techniques for soil
and water conservation; inappropriate agrarian policy; inappropriate land tenure
policy; ecological degradation of potential arable lands; and increases in the
unemployment rate due to increases in the population

Agriculture progresses technologically as farmers adopt innovations. The extent to

which farmers adopt available innovations and the speed by which they do so
determine the impact of innovations in terms of productivity growth. It is a common
phenomenon that farmers like any other kind of entrepreneurs do not adopt
innovations simultaneously as they appear on the market. Diffusion typically takes
a number of years, seldom reaches a level of 100% of the potential adopter’s
population and mostly follows some sort of S-shaped curve in time. Apparently,
some farmers choose to be innovators (first users), while others prefer to be early
adopters, late adopters or non-adopters. Therefore, the project tries to address the
aforementioned problems through by accomplishing the following objectives

5. PROJECT GOAL, OBJECTIVES AND RATIONALES

To address the problems identified on section 3 above this investment proposal is
calling for allocation of land for crop production, pulses and oil seeds production
recognizes that:
 The domestic consumption of both cereals and pulse seeds has increased
significantly in recent years;
 National cereals and pulse production does not meet the rapidly growing
demand;
 Smallholder output is inadequate and most oilseeds consumption is met by
importing;
 There has been a call for our smallholder and investors to concentrate on
increasing production and productivity to meet the growing food demands;
 Past production increases depended largely on an expansion of area planted
rather than on increasing average yields per hectare continued to be low by
international standards whereas this project aims at meeting such standards;
 Such project with the aim of enhancing production and productivity of seeds,
pulses and oilseed crops will minimize the current national budget deficit caused
as a result of importing food items on one hand and generate foreign currency by
promoting exports of oil seeds on the other hands.
 Implementation of this commercial seed and crop production project is
expected to motivate other investors to supplement it by investing in agro-

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 processing factors around Nekemte so that the outputs of this project will
become the inputs for the processing factors.
 As Nekemte town is expected to be the commercial center of the western
Ethiopia, this project will have access to lucrative international market. The
railroad and airport which is on the process of implementation will facilitate
the transportation of the products safely and swiftly.

6. THE PROJECT AREA DESCRIPTION

6.1. Physical Features

6.1.1. Location and Accessibility

Gobbu Sayyo is the district found in East Wollega zone. It is located at about 65
kilometers to the east of zonal town, Nekemte town, possessing a total area of
383.80 km2. This district is contiguous with Bakko Tibe district of West Shewa
Zone in the east, Gudeyya Bila district in the north, Boneyya Boshe district in the
south and Sibu Sire district in the west. It is divided in to 8 farmers associations
and one urban center having the capital town named Anno.

6.1.2. Drainage and Climate

Rivers and streams are also found in this district. Some of the rivers found in the
district are Gibe River, Meki and Dokonu. As it is common for most districts of the
zone, Gobbu Sayyo is characterized by undulating land structures.

Climate, the long-term effect of the sun's radiation on the rotating earth's varied
surface and atmosphere. It can be understood most easily in terms of annual or
seasonal averages of temperature and precipitation. Most part of the land has an
elevation above 1500 meters and characterized by sub-tropical climatic condition
with a mean annual temperature between 130c and 270c and mean annual rainfall
of 770 mm to 1,657 mm.
6.1.3. Soils
Clay loam and loam soil is exceedingly dominating the district, which has a good
quality of agricultural potentialities. The coverage of Clay loam soil in hectares is
27,002 and of this hectare 14,889.4 hectares is suitability for agriculture. Loam soil
also covers 6,750.6 hectares and it is totally suitable for agriculture.
6.2. Economic Base
6.2.1. Crop Production
The crop cultivation activity was conducted during meher season only. In Gobbu
Sayyo district, there is no state farm and large-scale private farms. Agricultural
inputs are believed to be the most important factor to attain food self-sufficiency.
Without chemical fertilizer, high yield is not expected & feeding a family of large size
would be impossible. During last two years the farmers used fertilizers as DAP and
Urea, improved seeds of maize and wheat and others distributed for them in order
to improve productivity.
Farmers of the district used the two methods of soil fertility. Traditional methods of
maintaining soil fertility used are organic and green manure and mulching whereas
modern methods of maintaining soil fertility in the district are using adding
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chemical fertilizers, use compost and crop rotation. Shifting cultivation,
intercropping and counter ploughing are among traditional methods of soil
conservation and soil band, cut off drain, grass stig and water way are modern
methods of soil conservation exist in the district.

6.2.2. Livestock
Livestock play a key role in day-to-day life of the society, especially in the peasant
sector. They provide meat & milk, transport, manure, skin & hide & furnish regular
& easily realizable cash income. But in contrast to the size of the livestock
population, physical & value productivity are low. The following table indicates the
size of livestock in the district.

In this project area oxen are the main source of power for peasant farming and
hence a farmer with no farm oxen is considered as poor. A farmer having a pair of
ox is expected to feed himself and his families provided that he possesses enough
farmland. Saving capacity of the society is again the function of their production
capacity, which in turn, is the functions of oxen and farm sizes, both of which are
declining from time to time in this area. Besides, the farm oxen need medical care
and treatment, the cost and availability of which is again the major challenges for
the smallholder farmers. As a result, the average number of farm oxen per
household has been decreasing from time to time thereby leaving the smallholder
farmers at very precarious situation.

6.2.3. Land Use Pattern

The term land use refers to the ways that people use land and the natural resources
it provides. It is the best allocation of land for its best alternative uses. Land use
potential is necessary to select the land characteristics needed for any production.
Some of the major factors that determine the potentiality of the land are
temperature, length of growing period, moisture availability, flood hazard,
degradation hazard, toxicity, rooting condition and workability.
Out of the total land of the district the proximate areal coverage of land used for
crop cultivation is 21640 hectares of which 21,096 hectares of land is used for
annual crop cultivation and 544 hectares of land is used for perennial crop
production.
Arable land is a land that is ideal and economical for the cultivation of crops. Arable
land is an area with more than 90 days of dependable growing period, soil depth of
more than 25cm and surface stoniness of less than 50 to 90 %. Arable is pertaining
to tillable land that is suitable for tillage and crop production. The area of arable
land used in the district is unknown because of lack of data in the district. Out of
the total land of the district an area of land 6,907 hectare is pasture or grazing land
and 1,444 hectares is degraded or barren land.
The Natural forest of the district covers the total area of 1,381 hectares of land.
Manmade type of forest is planted to solve the problem of environmental problem
such as soil erosion, desertification, deforestation, and etc. With the aim of
satisfying one of the millennium development goals of United Nations the
inhabitants of the district were participated on the planting and protecting the

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trees. Out of the total land of the district about 366 hectares is covered with
manmade forest.

6.2.4. Input Supply and Product Markets

According to the information obtained from the East Wollega Zone Finance and
Economic Development office, currently farmer’s multi-purpose cooperatives are
providing agricultural inputs and facilitate market for their production and
irrigation cooperative facilitates market for their production and provides different
inputs. More importantly, Bako agricultural research Centre, Ethiopia Seed
enterprise and Oromia seed enterprise are potential sources of the modern input
supplies.

6.2.5. Industry
Industry is a group of productive enterprises or organizations that produce or
supply goods, services, or sources of income. There were 11 registered small-scale
industries in Gobbu Sayyo district by the year 2002 E.C with capital of 564,675
birr.

6.3. Population
Population size, compositions, its spatial distribution and some other demographic
and socio-economic data are very important for planning, monitoring and
evaluation of various development programs. As shown in table below the counted
population of Gobbu Sayyo district based on population and housing census
conducted in 2007 G.C is 43,581 and 45,690 in 2001 E.C and 2002 E.C
respectively. By the year 2002 E.C from 45,690 total populations of the district
22,388 (48.99%) were males whereas about 23,302 (51.01%) were females. During
this year about 87.97% of the total populations were rural population, which are
directly engaged their life with even the back bone of the country called agriculture.
The crude population density of the district in the year 2002 E.C was 119 persons
per. km2.

6.4. Vegetation
Gobbu Sayyo district has a better vegetation cover than the other neighboring
districts. There are different patches of forests along the riverside. There was a
forest area assumed to be under forest on some areas having a total area of about
1,381 hectares, but not demarcated as assumed. However, there is a very serious
deforestation especially along the river and its surrounding where there had been a
jangle forest before a decade.

6.5. Infrastructure and Institutions

The project area is only about 90 km far from the Nekemte town. There is also
access road from the district town to the project area. Thus, there will be no
transportation problems to and from the project area. In addition, the area is
covered by mobile and fixed line telecommunication facilities and hence there would
be easy communication of the project affairs within the project and with the
external bodies.

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7. THE PROJECT OUT PUTS, ACTIVITIES AND INPUTS

7.1. Project Description

This project aims at mixed cultivation: crop production with rain fed system.
Accordingly, the total land area covering of 100 hectares was allocated as: cereals
(maize 63 percent; pulses (soybeans 10 percent & oil seeds sesame & groundnuts
25 percent of the land). Most of these crops are high valued products which fetch
high foreign exchanges for the country on one hand and inadequately supplied even
in the domestic market on the other hand. To determine the land use and crop
patterns, we have utilized the expertise of soil scientists, Agronomists and
environmentalists and hence the proposed crop varieties are recommended based
on the suggestions of regional and local agricultural research institutions.

7.2. Project Objectives

The main objective of this project is:
i. To fill the gap of food shortage encountered the farming community,
ii. Increase the production of high valued crops such as soybean, groundnuts by
modernizing the faming system.
iii. In addition, the project has such strategic objectives of creation of job
opportunities to the local people;
iv. contributing toward increasing the foreign currency earning potential of the
country through increasing exportable products, and
v. Improving the problem of natural resource management practices through
creation of employment opportunity in the project area (alternative income
generation of non-farm activity for the local people).
vi. Thus, this project will reduce the prevailing environmental degrading
practices widely exercised by the local low-income societies, which include,
coal making and selling, use of animal dung for light and heat, timber
production, collecting of fire-woods for commercial purposes, all of which are
commonly exercised by the local community.

7.3. Types Of Technology Use

The project aims at employing technologies which are environmentally friendly and
which can be effectively utilized by locally existing know-how with the exceptions of
some machineries and equipment which should be imported if there is no domestic
source of supply. The project aims at utilizing locally available technologies so as to
encourage the backward and forward linkage of the project and hence contribute
towards the realization of Agricultural Development Led Industrialization (ADLI)
strategy of the country.

7.4. Production Capacity

For each crop types proposed, the project aims at producing the maximum output
per hectare as proved to be achievable at the research stations. The project
promoter aims at utilizing the technologies and practices as per the

10 | P a g e
recommendations of the research centers so as to produce the maximum output per
hectare. Accordingly, the projected output per hectare for each crop will be
presented under sub-section 9 (projected output per hectare).

7.5. Land Use Plan and Action Plan

The following table shows the proposed land use and crops for which the land is to
be used.
Land allocated to Land Use and Development Plan
Land allocation
Rained production system
(%)
Crop type Crop name 1 2 3 4 5 6 7 8 9 10 to 25
Seed multiplication Maize 62.5 62.5 62.5 62.5 62.5 62.5 62.5 62.5 62.5 62.5 63%
Pulses Soya Beans 10 10 10 10 10 10 10 10 10 10 10%
Groundnuts 10 10 10 10 10 10 10 10 10 10 10%
Oil Seed
Sesame 15 15 15 15 15 15 15 15 15 15 15%
Total crop land 97.5 97.5 97.5 97.5 97.5 97.5 97.5 97.5 97.5 97.5 98%
Construction Plots 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.50%
Total Farm Area 98 98 98 98 98 98 98 98 98 98 98%
Forest Area 2 2 2 2 2 2 2 2 2 2 2%
Total Investment area 100 100 100 100 100 100 100 100 100 100 100%

As the above table shows, the total farm land is allocated to production of
demanded crop production and various high valued items such as: Cereal (63
percent of the land to be covered by maize); Pulses crop production (10 percent of
the land to be covered by Soybean); Oilseed’s production (25 percent of the land to
be covered by groundnuts. The construction plots are expected to cover only 0.5
hectare and the remaining land 2 percent is reserved for forest coverage (at least 2
percent of the allotted land for investment as per the Oromia Rural Land use and
Administration Proclamation No. 130/ 2007, which will be 9 hectares).

8. MARKET PROSPECTS

8.1. Demands and Main Customers

As socio-economic development of a country proceeds, it is expected that the
preference of a society for goods and services changes. This logic is also true in
Ethiopia. We observe that as our economy improves over time, demand for improved
seed and food items in general and preference for high valued products are
increasing. The number of Hotels, Motels, Cafeterias, Restaurants and Resorts are
increasing. In addition, the number of colleges, universities, research centers and
other institutions are being located at the nearby towns. More importantly, as the
Nekemte town is becoming considered as the western Ethiopia development corridor
being fulfilled with infrastructural facilities, the project will enjoy lucrative
international market. It is also expected that agro-processing firms which will
utilize the outputs of the project as input for their production will emerge in the

11 | P a g e
Nekemte area. Thus, there is no doubt the project will have sufficient domestic and
international markets.

8.2. Competition analysis and Selling Prices

As the demand for the project outputs are expected to keep growing in the face of
very limited potential suppliers, it could be possible even to charge exorbitant price
per units of the products to be produced for the domestic market. However, since
the very motive of the project owners is not just to reap profits at the expense of the
consumers, the price for each product will be set at affordable prices by considering
the forces of supply and demand operating during each year of production. In all
cases, we assume prices of each commodity to increase at least by 5 percent each
year and accordingly we have full projections for the selling price per quintal of each
product presented under sub-section 9 (projections of revenues).

8.3. Marketing Strategies

For efficient and effective distributions of the inputs and outputs of the project, we
aim at establishing and maintaining value chains. For this purpose, the following
institutions are identified with which we plan to work.

1. For the Supply of project inputs:

 Regional and zonal Agricultural Research Institutes;
 Regional and zonal Seed Enterprises (RSEs),
 Universities and Agricultural Colleges existing in the region, and
 Private organizations.
2. For the distributions of the project outputs:
 Seed multiplication enterprises
 Agricultural Colleges existing in the region,
 Civil society organizations (CSOs), including cooperatives and farmer
organizations,
 Private organizations, and individuals

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9. ORGANIZATIONS AND ADMINISTRATION OF THE PROJECT

9.1. Business Form

Girma Tamene Cereals, Pulses and Oil seed Production investment project is
supposed to be established as one of the many branches the Company. Accordingly,
its organizational structure is presented below.

9.2. Organization Structure of the Project

Fig.1: Organizational Structure of Girma Tamene Cereals, Pulses and Oil seed
Production investment project

Note that this organizational structure depicts the overall flows of accountability
and reporting structure of the project staffs.

9.3. Manpower Requirement with Qualification

Manpower is the decisive factor for the successful implementation and operation of
any project. Hence, careful identification of the number and qualification of the
manpower requirement of the project is in order. Accordingly, the following table
shows the manpower requirement with qualifications for the project:
Table 2. Manpower Requirement (with qualifications, number and estimated monthly salaries in Birr)
Staffs with position No Required Profession/Qualification Monthly Salary Annual Salary (Birr)
Farm Manager 1 Bsc in Plant science 6,500 78,000
Agronomist 1 Bsc in Agronomy 6,000 72,000
Forman 2 Diploma in relevant field 4,500 108,000
Clerk/Accountant 1 Diploma &above in relevant field 4,500 54,000
Time Keeper 2 Diploma &above in relevant field 2,500 60,000
Tractor Operators 2 4th /5th grade license and 10th/12th complete 3,000 72,000
Farm Guards 3 8th /10th complete 1500 54,000
Store keepers 1 Diploma in relevant field 2,500 30,000
Secretary 1 Diploma in relevant field 2,500 30,000
Cashier 1 Diploma in relevant field 2,000 24,000
Cooks 2 10th /12th complete 1,500 36,000
Cleaners/Janitors 1 10th complete 1,200 14,400
Driver 3 4th /5th grade license and 10th /12th complete 3,000 108,000
Sub-Total 21 740,400.00

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Note that the employees’ salary is expected to increase by a minimum of five per
cent each year.

10. STAKEHOLDERS AND PARTNERS

The key stakeholders are the shareholders, the surrounding woreda communities,
Zonal, Woreda, and Kebele level administration Offices, the Investment
Commission, Agriculture offices, and Land Administration and Environment, Forest
and Climate change Bureaus at regional, woreda, and Kebele levels. The private
sectors, research, academia, and civil society constitute another category of
stakeholders who will engage in delivering specific services and benefitting directly
or indirectly from the project.

11. FINANCIAL STUDY

In this section, both the cash outflow requirements and the projected inflows are
projected and analyzed.

11.1. Financial Requirements

The yearly financial requirements of the project are classified as capital costs,
operating costs and working capital requirements as follows.

11.2. Project Capital Costs

The project capital costs include such costs as construction costs, expenditures on
office equipment’s, investment in farm equipment’s, and other costs which are
supposed to be capitalized as cost of the project and are gradually depreciated over
the life of the project. Accordingly, the following are the projected capital costs of
the project summarized under different sections.

Construction costs: - these include expenditures related with the constructions of

Store, residential houses with guard room, offices, toilet, and guardian houses,
parking areas, cafeteria etc. The following table shows just the summaries of the
construction items and their respective costs.

Table 3. Summaries of the project construction costs (in Birr)

S.N Constructions needed unit Quantity Total Budget
(Birr)
1 Residential houses construction (for workers) N0 1 245,000.00
2 Office & cafeteria construction N0 1 180,000.00
3 Store and bathing rooms N0 1 210,000.00
4 Store and bathing rooms, rest room class 1 202,000.00
5 Shade for tractors and other vehicles class 1 25,000.00
Total estimated construction costs 862,000.00

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Investment on farm machineries and equipment’s: - The following table shows
the specifications of the selected machineries from the proforma invoices attached
to this report.
Table 4. Summaries cost of the project farm machineries (in Birr)

S.N Descriptions of the Items quantity Unit costs Total costs

1 New John Deere 6100D Mfwd Tractor (Mexico Origin) 1 1,000,577 1,000,577
2 Mounted Four Disc Plough (Make: Nardi, Model: QD 70/E) 1 325,000 325,000
3 Mounted Tandem Disc Harrow (Make: Nardi, Model: 28 HOP 56) 2 285,725 571,450
4 Brand New Toyota Hilux Double cab (Full Option) 4WD, 2.5L, 1 1,100,000 1,100,000
2949cc, 4cylinders, 16valve, Diesel Turbo, DOHC (Japan origin)
5 Truck 1 1,420,000 1,420,000
Estimated machineries (in Birr) 4,417,027.00

Farm tools: - in addition to the above-mentioned farm machineries, the following

farm tools are also identified with their respective current unit prices. However, as
these items are diverse in kind and in significant in terms of cost per unit, the costs
are forested based on the current market price without the need to collect proforma
invoices.
Table 5. Farm tools with their respective per unit cost and quantities needed
S.N0 Items Quantity Units cost Total cost
1 Chemical Sprayer 30 450 13,500
2 Sickles 80 60 4,800
3 Axes 17 100 1,700
4 Tape meter (100 m) 4 450 1,800
5 Wheel borrow 5 3,500 17,500
6 Shovel 8 180 1,440
7 Weighing scale 3 25,000 75,000
8 Thresher 1 40,000 40,000
9 Saw 5 60 300
10 Cutlass or Machete 1 40,000 40,000
11 Spade hoe 5 900 4,500
12 Local hand hoe 12 70 840
13 Spade 10 98 980
14 Digging fork 15 400 6,000
15 Trovel 4 500 2,000
= Estimated cost of farm tools (in Birr) 210,360

Office Equipment’s: - the following table shows the prices of office equipment’s at
the time of preparing this project proposal.

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 Table 6. Summaries of the office equipments’ costs (in Birr)
FURNITURE Qty Unit Cost Total cost
Table and chair (Farm Manger) Set 2 8,200 16,400
Waiting /guest Chair Pcs 2 750 1,500
Camp bed and furniture’s Set 2 3200 6,400
Shelf and Other Drawers Set 1 5,000 5,000
Weighing scale 1 35,000 35,000
Desk top computer with its 1 15,000 15,000
Accessories
Fax Machine 1 7,600 7,600
Laptop computer 1 15,500 15,500
Computer tables 2 5,000 10,000
Printer 1 7,600 7,600
Safe box 1 11,000 11,000
Cash register machine 1 8,000 8,000
Calculator /adding machines 2 450 900
Sub total 139,900.00

11.2.1. Project Operating Costs

Here, the operating costs refer to these costs which are not included in the project
capital costs and hence are not subjected to periodical depreciation. These costs
include such costs as labor costs; costs for equipment operations and maintenance
such as fuel cost and repair and maintenance costs; depreciation costs; utilities
expenses such as water bills, electricity bills and telephone charges; employee’s
salaries; and others miscellaneous expenses.
Labor costs: - In order to determine the periodical labor cost of the project, first we
need to determine labor required to cultivate a hectare of each crop in each project
year. Accordingly, the following are our procedure to determine the labor
requirement of the project:
1. First, we started from our land use and cropping pattern proposd throughout
the life of the project as depicted by table 1 land use plan of 100 hectares
specified above.
2. Second, we have determined the labor requirements of each crop per hectare
per year by the types of operations throughout the project life as shown by table
7 (annexed). Labor requirement is expressed in terms of work-day, which is to
mean the time devoted by one person during one day (usually eight hours).
3. Thrid, we have determine the total labor requirement of each crop per year by
multiplying the labor requirement of per hectares by their corresponding total
hectares of land planned to plant each crop (table one). This is represented by
table 7 (annexed).
4. Fourth, we have summed the total labor requirement of each crop in each year
so as to determine the annual total labor requirement of the project.
5. Finally, the average wage per day of labor is multiplied by the total labor
requirement of the project for each year. We have taken Birr 120.00 as the
average wage per day per worker applicable to the project location. The average
16 | P a g e
 wage per work-day is projected to increase by minimum of 5 percent each
year. This is determined by considering the change in the labor markete price
over the past few years.
Supplies costs: - such costs include costs for technological inputs such as fuel cost
for the tractors, fertilizers, seeds, office supplies and other chemicals. Table 9
(annexed) shows the detailed calculations of these cost items, the summary of
which is Birr 837,953.00 annual supplies cost. As usual, we expect these cost items
to increase by a minimum of 5 per cent per year. This is presented by table 12
(annexed).

Repair and maintenance costs: - Operating costs for operations and maintenance
of machineries and equipment is taken to be 2 percent of the initial investment
costs starting from its second year after acquisition until end of tenth year, after
which the rate would be 10 percent. Accordingly, table 8 (annexed) shows the
detailed calculation of this cost item which is summarized to be Birr 97,868.00
starting from the second year of the project operation to tenth year. This is
presented by table 13 (annexed).
Utilities expenses: - these include such periodical costs as incurrence of liabilities
(payments of cash) for water bills, electricity bills, fuel consumptions and telephone
expanses. Although such types of expenses are changing with the volumes of
operations, it is forecasted that a minimum of Birr 201,250.00 forecasted for the first
year of project operation, which is expected to increase by a minimum of 5 percent
per year. This is presented by table 14 (annexed).

Miscellaneous Expense: - are other operating expense for which it is neither

economical nor convenient to give specific account code and hence should be
merged together under “miscellaneous expense” includes entertainment expense,
employee benefits, litigation expense and others. Similar to the utilities expense,
such expenses are estimated to be Birr 364,576.00 for the first year and expected to
increase at least by 5 percent per year. This is presented by table 14 (annexed).

11.2.2. Project Working Capital

Project working capital refers to cash required to be held at hand at the end of each
year for some operating costs to be incurred at the beginning of the next year. These
costs are usually determined as a given percentage of the next year’s increase in the
operating cost requirements. Accordingly, the following table shows the projected
working capital requirement of the project, determined as the 80 percent of the
increase in the operating costs of the next year. This is presented by table 15
(annexed).
Note that the working capital requirement of the first year is determined to be 80
percent of the increase in the operating cost requirement of the second year Birr
205,077.00 (2,667,755- 2,462,679) which is (Birr 205,077*0.8= 164,061). It is estimated
that the remaining 20 Percent increase in each year’s operating expense will be
covered by the cash inflows of the preceding year. The same approach is followed for
the rest years. The non-cash expense is not included in the determinations of the
working capital requirements. This is because such expense has no effect on cash
17 | P a g e
flow streams for which we need to determine working capital requirement. However,
periodical income tax and interest liabilities need to be considered since such items
affect cash flows of an entity. Nonetheless, they are not reflected in this case since
we have not yet estimated such costs by this time.

11.2.3. Total Financial requirements

Total financial requirement for the project is just the sum of the three cost elements
we have determined above: total capital cost, total operating cost and total working
capital costs. The following table summarizes the total finance requirement of the
project together with the possible sources of finance.

Table 16. Total Financial Requirement of the Project

Items Birr
Project construction costs 862,000.00
Project farm machineries costs 4,417,027.00
Project farm tools costs 210,360.00
Summaries of the office equipment’s’ costs 139,900.00
Total Project Capital Cost 5,629,287
Operating Costs 2,462,679
Working Capital Cost 164,061
Total Financial Requirement at first year (In Birr) 8,256,027
Sources of Finance:
Owner’s Equity Contributions (30 %) 2,476,808.05
Bank loan at 11.5 % simple interest rate (70%) 5,779,218.78
Total Financial Requirement at first year (In Birr) 8,256,026.83

11.3. Forecasted Production

In order to estimate the per hectare production of each crop, we have utilized
opinions of experts in the field of agronomists. Accordingly, table 17 (annexed)
shows the projected output in quintal from each crop proposed to be cultivated over
the first ten years of the project life.

Note that the projections are based on the expert opinions in the field as well as per
the recommendations of East Wallaga zone agriculture office, and experienced
investors & seed multipliers enterprises. In essence, if the project is to be
implemented and run-in accordance with the recommendations of the experts,
these projections are supposed to be achievable. Here, it is expected that as the
project operates for a greater number of years, there is advantage of getting lessons
from the past years and hence the latter years’ output per year is expected to
increase accordingly.

11.4. Forecasted Sales Revenues

Sales revenues are the functions of projected production and projected selling price
per unit of each crop. Taking the projected production of each crop from the table
17, we now proceed to the projection of selling price of each crop. Accordingly, the
18 | P a g e
selling price of each quintal of the crop is expected to increase each year by a
minimum of 5 percent. Given the trends of the past five years in Ethiopia in
particular and in the world in general, this projection wouldn’t be far from the
reality under the normal macroeconomic condition. Table 18 (annexed) shows the
projected selling price per quintal of each crop over the next ten years.
In order to determine the forecasted sales revenues, we need to multiply the
forecasted selling price per unit of each crop by their respective projected
production of each year. Table 19 (annexed) shows this procedure.

11.5. Depreciation Calculations

In order to determine the periodical depreciation, we adopted the Ethiopian
standard of useful economic life of fixed assets and hence used depreciation rates
for each asset category accordingly. The detail depreciation schedule is presented
by Table 20 (annexed). Depending on the difference in the useful lives of specific
assets, the depreciation charge is estimated to be larger at the beginning of the
project life and smaller at the earlier years since some of the assets are expected to
be fully depreciated within the first five years. Accordingly, the periodical
depreciation charge is estimated to be Birr 433,396 for the first five years and will be
reduced to Birr 428,146.00 over the next two years (since the farm machineries are
supposed to have useful lives of seven years), and finally Birr 11,200.00 for the next
subsequent years (since the constructed assets are supposed to have useful lives of
more than 25 years).

11.6. Loan Repayment Schedule and Interest Expense

The periodical interest expense is just the functions of amount of the loan
outstanding at the beginning of each period, the interest rate and the time for which
the loan remains unchanged. Accordingly, the bank loan was estimated to be Birr
5,779,219, at simple interest rate of 11.5 percent on the unpaid balance of the loan
at the beginning of each period. The loan with interest is expected to be paid with
equal installment amount of Birr 848,100.36 over ten years starting just at the end
of the second year of operation. Table 21 (annexed) shows the periodical loan
repayment and interest expense.

11.7. Forecasted Income Statement

Forecasted income statement shows just the summary reports of all revenues
earned and costs expired (expense incurred) during each period. Accordingly, Table
22 (annexed) shows the forecasted income statement of the project over the first ten
years of the project life. Note that the farm project will have substantial net income
starting from its first year of operation. It is evident that that this project is
financially viable.

11.8. Forecasted Cash Flow Statement

Unlike the forecasted income statement, the forecasted cash flow statement shows
the inflows and outflows of money to and from the project over a given period of
time. In this case, all items (revenues and expense) which don’t affect cash flow are
excluded from the statement. In our case, depreciation expense is the only expense

19 | P a g e
that doesn’t affect cash flow and hence excluded from the outflows whereas all
revenues are supposed to be either fully collected within the year of sales or the sale
be made on cash basis.

The cash flow statement shows the sources and uses of money over a given period
of time. Accordingly, there are three sections of this report: (1) cash flows of
operating activities (O); (2), cash flows of investing activities (I), and (3) cash flows of
financing activities (F). Net cash flow of the project is the sum of net cash flows from
these three sections. Table 23 (annexed) shows the projected cash flow statement
over the first ten years of the project. Note also that this cash flow report shows that
the firm’s cumulative cash inflows over the forecast period is very attractive and
deserves financing. This statement also proves that the project is finically viable.

11.9. Forecasted Balance Sheet

Forecasted balance sheet shows the summary report of what the entity owns and
what it owes on the specific date in a time, usually, at the end of the fiscal year. In
essence, it reports on total assets, total liabilities and capital (owner’s equity and
creditors’ equity) of the entity on a given date. Thus, balance sheet contains
information regarding the financial viability of the enterprise on a given date. By
comparing change in the elements of the balance sheet over different periods, we
can judge whether or not the enterprise is improving its financial position over the
periods. Accordingly, table 24 (annexed) shows forecasted balance sheet of the
enterprise for the first ten years of the life of the project.

Note that as the projected balance sheet shows that the financial position of the
firm remarkably improves over the period and will be able to full operate by own
finance after ten years if the project is successfully implemented. This also supports
that the project has financial viability.

11.10. Overall Financial Assessment

The overall financial performance of the project is appealing as shown by the
projected by the above three financial statements. When evaluated in terms of its
profitability, there is steady increase in after tax net income showing that the
project would remarkably contribute towards wealth maximization of the
shareholders. Similarly, the forecasted balance sheet shows extraordinary attractive
financial position of the firm over the same period. In addition, when viewed in
terms of the sources and uses of money (cash flow statements), there is steady
increase in the net cash provided by the project cash receipts after covering the
cash payments required to sustain the project.
Furthermore, the project has the following financial performance measured in
different investment decision criteria. The following table shows the summarized
project financial viability test just for the first ten years of the life of the project.
Note that these figures would have been much larger if we consider the entire life of
the project since most of the capital expenditures of the project are supposed to be
committed at the beginning of the years while most net cash inflows are expected
during the later life of the project. However, these figures are still indicators of
20 | P a g e
financial attractiveness of the project. Detail calculation is presented by table 25
(annexed).
Table 26. Project financial viability test
Criteria Results
Present Value of Costs PVC 53,118,708
Present Value of Benefits PVB 85,552,854
Net Present Values NPV 32,434,147
Benefit Cost Ratios BCR 1.61
Net Benefit Cost Ratio NBCR 0.61
Internal Rate of Returns IRR 138%

Net Present Value (NPV): - is the sum of present values of all the cash flow both
positive and negative that are expected to occur over the life of the project. The
formal selection criterion for the NPV measure of project worth is to accept all
independent projects with a positive NPV when discounted at the opportunity cost
of capital. In this project case, given the project has positive value of Birr 32,434,147;
it means that the project would contribute 32,434,147.00 towards the wealth
maximization of the owner’s wealth and hence it is viable.
Benefit Cost Ratio (BCR): - The benefit-cost ratio is defined as the ratio of the
discounted values of benefits to the discounted value of costs. A ratio of at least one
is required for acceptability and the ratio of one indicates that the NPV of zero at a
particular discount rate. In our case BCR of Birr 1.61 shows, for every one Birr
invested in this project, the return would be 1.61 Birr, which is highly remarkable
figure.
Net Benefit Cost Ratio (NBCR): - this ratio is defined as the ratio of net present
value to the present value of cost. A ratio greater than zero (0) is needed for the
project to be financially acceptable; in our case the ratio of 0.61 is in excess of the
hurdle rate required to make the project financially viable (the project is magnificent
in terms of this criteria also).
Internal Rate of Return (IRR): - is the maximum interest that a project could pay
for the resources used if the project is to recover its investment and operating costs
and still break even. It measures opportunity cost of capital tied up in the
investment. In this project case, IRR is 135 percent which is extraordinarily large
compared with the minimum cost of capital of 11.5 per cent. Hence, we can safely
conclude that the IRR of the project is extraordinarily high and hence indicates
project viability.

It should be recalled that the various investment decision criterion we have

considered above involve predicting values for each of the various elements entering
into the definition of volume of output sold, selling price, required investment, labor
costs per unit; maintenance costs of machines, profit, and so forth. However, as
these values are based on certain assumptions, they may change in unfavorable
direction thereby making projects less attractive than when it was planned. Thus,
switching value measures the value an element of a project would have to reach as
a result of a change in an unfavorable direction before that project no longer meets
the minimum level of acceptability as indicated by one of the measures of project
21 | P a g e
worth. In this case we ask, by how much an element would have to change in an
unfavorable direction before the project would no longer meet the minimum level of
acceptability as indicated by one of the measures of project worth. In other words,
in sensitivity analysis, we ask how sensitive is the project’s estimated financial and
economic benefits to increase in costs, fall in price and extension of implementation
periods?
In our case, since BCR is 1.80, it means that cost can rise by 80 percent at which
the BCR will become exactly 1.0 and hence the decision will be indifference.
However, any rise in cost beyond 80 percent keeping sales revenues constant will
lead the BCR to be below 1.0 and hence the decision will be to reject the project on
this ground. But it is unlikely to expect such increase in operating costs keeping
selling prices of these products’ constant. Thus, the 38 percent margin of safety is
large enough to guarantee for the stability of the above decision criteria. Similarly,
revenues can keep dropping up to = = 1-0.621= 0.379 which is
roughly equals to 38 percent, keeping the cost elements constant. Any drop in sales
by more than 38 percent may lead the project to rejection region. However, given
the past few year trends, the price of these items has been increasing at increasing
rate and hence expected to increase over the next many years partly due to
increasing demand to these outputs and partly due to increasing general trend in
commodity prices. Overall, when evaluated both in terms of cost and revenue, the
project has sufficient margin of safety to guarantee the stability of the determined
investment decision criteria above. Thus, it is can be safely concluded that the
project is financially viable.

12. MONITORING AND EVALUATION

Monitoring of the project will be continuous and ongoing by the project promotor.
Monitoring and Evaluation of the project will be handled by the promoter on daily
basis. Girma Tamene will develop a guideline for monitoring and evaluation. The
amount of input (Financial, material and manpower) will be evaluated through a
technical team that will be established containing members of Girma Tamene,
zonal, Woreda and Kebele administrative organs and community members.
Moreover, during the final year of Project implementation the M&E data collected
over the Project implementation period will be used as part of a thorough
assessment of Project achievements. The Project is scaling up the development of
efficient and sustainable village organizations in region including the field testing of
innovative technology and associated capacity building of supporting institutions.
The experiences so derived will be scaled up/replicated in other parts of the region.
This also involves major potential for scaling up and synergies in relation to
subsequent investment programme

13. PHASE OUT AND SUSTAINABILITY STRATEGY

Concerning the Sustainability of the invested Project, the promoter is mainly
decided to make the project sustainable that the concerned government bodies will
take-over it after this project is phase out. Till then Girma Tamene will firmly and
closely handle the project. The project aims to achieve a sustainable increase in

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agricultural productivity and production. This will be achieved through scaling up
of technologies which are appropriate, affordable and profitable to promoter, and
can be sustained without ongoing support in the long-run.

To ensure the sustainability of the project sustainability will be integrated in the

projects right from the beginning, Key stakeholders will be involved: Another major
step to ensure sustainability is the involvement and participation of key
stakeholders in program development. In general, the exit strategy of the
investment project will be based on the lease agreement of the project.

14. ACTION PLAN AND BUDGET BREAK DOWN

Action plans help know what needs to be done to complete a task, project, initiative
or strategy. An action plan generally includes steps, milestones, and measures of
progress, as well as responsibilities, specific assignments, and a time line. Action
plans are an important part of strategic planning. The following table indicates
activities to be undertaken in the first year of the project. While the budget needed
is indicated on section 8.1.4 above

Table: Operational Plan of the Project

S/N Cropping Activities Work schedule (%) Year: 2022/23
2022/23
MAR APR MAY JUN JUL AUG SEP OCT NOV DEC JAN FEB

1 Secure the project site 50% 50%

2 Camp construction 60% 40%

3 Site clearing 30% 70%

4 Manpower employment 35% 40% 25%

5 Bank loan processing 20% 80%

6 Surveying and land development 50% 50%

7 Machinery procurement 50% 50%

8 Plouging 30% 20% 30% 20%

9 Seeding and plantation 40% 60%

10 Weeding and cultivation 60% 40%

11 Harvesting ** ** **

12 Marketing ** **

15. RISKS AND ASSUMPTIONS

Successful agricultural development initiatives associated with poverty reduction
have seldom included large-scale land-based investment. Feed the Future focuses
on smallholder-led agricultural growth as the principal engine of poverty reduction
and food security. Investment in agriculture of all sizes, however, can be
constructive and is encouraged by the Ethiopian Government, but investments
must take into account specific country contexts and circumstances and respect
the rights of local populations.

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Large-scale land-based investment in agriculture, if approached in an equitable and
sustainable way, can hold unique benefits that complement smallholder
agriculture: it can bring new technologies, crops and/or market opportunities to a
region, and, through associated out-grower or contract farming schemes, to
smallholder farmers within the region. The result can be a mutually beneficial
model where large investments create new opportunities for adjacent communities
and farmers. Nevertheless, this model has come under heavy criticism for failing to
recognize smallholder property rights, thereby potentially harming the people it
aims to help. Consequently, there is all the more need to improve land governance
and focus on assisting all investors to better understand the needs and tools for
responsible land-based agricultural investment.

Successful commercial investment in agriculture is dependent upon access to clear

and uncontested land rights. In environments where land rights are undocumented
or poorly protected, medium to large commercial investments in agriculture could
lead to displacement, loss of livelihoods and more limited access to land for the
local population, in particular indigenous and nomadic communities.

These negative outcomes not only undermine the Ethiopian Government’s

development and poverty reduction objectives among the populations it aims to
serve but also significantly increase reputational risk for the Ethiopian Government,
its development partners and the private sector. Conflicts over land rights can also
significantly augment the financial risks for companies investing in commercial
agriculture due to delays or disruptions in operations.

The five general risks in the project are as follows:

1. Production risks stem from the uncertain natural growth processes of crops and
livestock, with typical sources of these risks related to weather and climate
(temperature and precipitation) and pests and diseases. Other yield-limiting or
yield-reducing factors are also production risks such as excessive heavy metals
in soils or soil salinity.
2. Market risks largely focus on uncertainty with prices, costs, and market access.
Sources of volatility in agricultural commodity prices include weather shocks
and their effects on yields, Other sources of market risk include international
trade, liberalization, and protectionism as they can increase or decrease market
access across multiple spatial scales. Farmers’ decision making evolves in a
context in which multiple risks occur simultaneously, such as weather
variability and price spikes or reduced market access.
3. Institutional risks relate to unpredictable changes in the policies and regulations
that effect agriculture, with these changes generated by formal or informal
institutions. Government, a formal institution, may create risks through
unpredictable changes in policies and regulations, factors over which farmers
have limited control. Sources of institutional risk can also derive from informal
institutions such as unpredictable changes in the actions of informal trading
partners, rural producer organizations, or changes in social norms that all affect
agriculture.
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4. Personal risks are specific to an individual and relate to problems with human
health or personal relationships that affect the farm. Some sources of personal
risk include injuries from farm machinery, the death or illness of family
members from diseases, negative human health effects from pesticide use, and
disease transmission between livestock and humans.
5. Financial risk refers to the risks associated with how the farm is financed and is
defined as the additional variability of the promoter’s operating cash flow due to
the fixed financial obligations inherent in the use of credit. Some sources of
financial risk include changes in interest rates or credit availability, or changes
in credit conditions.

Key invested Project implementation assumptions are that the country’s economy
maintains its stability and that consistency is established between the stated
government policies and agricultural reforms supporting private sector
development, and the agriculture sector vis-à-vis the actual implementation of
investment policies and reforms.

16. ENVIRONMENTAL IMPACT ANALYSIS

Consistent with the government’s high priority of encouraging private investment in
the agriculture sector, these integrated projects aim at agricultural production with
due care to reduce degradation and improve productivity of natural resources.
Given the fact that these projects intend to utilize the rain fed cultivation, certainly
these reliefs the existing degradation pressure on rural farm land imposed by the
traditional farming system.

More importantly, the projects aim at reversing the environmental degradation

trends widely observable in the area by breaking the nexus between poverty and
degradations. In essence, the projects aim at solving the key problem area by
breaking the nexus between rural poverty, natural resource management and
climate change mainly by creating alternative and more lucrative income source for
the local resource poor smallholder farmers, who, otherwise should depend on the
natural resource bases and hence causes the degradations. The project promoters
believe:
 environment and natural resource degradation are often a direct cause of
rural poverty;
 rural poverty often exacerbates environment and natural resource
degradation; and
 Climate change increases the vulnerability of rural people and the ecosystems
they depend on for their livelihoods.
Thus, opening alternative source of income by creating job opportunities within the
project can relieve the current pressure on the rural land in the project area.
Besides, the project promoters are fully aware of the Oromia Rural Land use and
Administration Proclamation No. 130/ 2007, which force any investor to cover at
least 2 percent of the allotted land area by indigenous trees.

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17. CONCLUSION AND RECOMMENDATION
Overall, the projects have the following merits which would justify the need for
giving priority in its finance:

 The strategic objectives of the projects are highly consistent with the national
development objective which calls to “sustainably increase rural incomes and
national food security, which embodies the concepts of producing more, selling
more, nurturing the environment, eliminating hunger and protecting the
vulnerable against shocks.
 These projects are expected to create job opportunities for these potential
migrants at their nearby village and hence alleviate the pushing factor for
migrations.
 The projects aim at utilizing locally available technologies so as to encourage the
backward and forward linkage of the project and hence contribute towards the
realization of Agricultural Development Led Industrialization (ADLI) strategy of
the country.
 Finally, the projects will largely contribute towards the national economic
development by contributing to National GDP. GDP contribution originating from
the agriculture sector has more power of poverty reduction than other sectors (a
one percent GDP growth rate originating in agriculture sector has more potential
for poverty reduction than two percent GDP growth rate originating from the
service sector).
Recommendation: - considering the viability of the project, as aforementioned,
the project is recommended for implementation.

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 ANNEX
Table. 7 Labor requirement per Hectares of
each crop
Project life in years
Crop and Operation 1 2 3 4 5 6 7 8 9 10 to 25
Maize (Seed) Land preparation 7 7 7 7 7 7 7 7 7 7
Planting 5 5 5 5 5 5 5 5 5 5
Weeding (2X) 7 7 7 7 7 7 7 7 7 7
Chemical application (2X) 5 5 5 5 5 5 5 5 5 5
Harvesting 5 5 5 5 5 5 5 5 5 5
Threshing 5 5 5 5 5 5 5 5 5 5
Total 34 34 34 34 34 34 34 34 34 34
Soya Beans
Land preparation 4 4 4 4 4 4 4 4 4 4
Planting 5 5 5 5 5 5 5 5 5 5
Weeding (2X) 4 4 4 4 4 4 4 4 4 4
Chemical application (4X) 3 3 3 3 3 3 3 3 3 3
Harvesting (2X) 7 7 7 7 7 7 7 7 7 7
threshing 5 5 5 5 5 5 5 5 5 5
Total 28 28 28 28 28 28 28 28 28 28
Groundnuts
Land preparation 4 4 4 4 4 4 4 4 4 4
Planting 5 5 5 5 5 5 5 5 5 5
Weeding (2X) 5 5 5 5 5 5 5 5 5 5
Chemical application (2X) 3 3 3 3 3 3 3 3 3 3
Harvesting 8 8 8 8 8 8 8 8 8 8
threshing 5 5 5 5 5 5 5 5 5 5
Labor per season 30 30 30 30 30 30 30 30 30 30
Sesame
Land preparation 5 5 5 5 5 5 5 5 5 5
Planting 8 8 8 8 8 8 8 8 8 8
Weeding (2X) 6 6 6 6 6 6 6 6 6 6
Harvesting (2X) 7 7 7 7 7 7 7 7 7 7
threshing 6 6 6 6 6 6 6 6 6 6
Total 32 32 32 32 32 32 32 32 32 32
Labor requirement is expressed in terms of work-day, which is to mean the time devoted by one person during one day (usually eight hours).

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 Table 8. Estimated yearly repair and maintenance expenses Repair and maintenance
Items costs Rate
1 Store and bathing room 210,000.00 0.02 4,200.00
2 New John Deere 6100D Mfwd Tractor (Mexico Origin) 1,000,577 0.02 20,011.54
3 Mounted Four Disc Plough (Make: Nardi, Model: QD 70/E) 325,000 0.02 6,500.00
4 Mounted Tandem Disc Harrow (Make: Nardi, Model: 28 HOP 56) 571,450 0.02 11,429.00
5 Brand New Toyota Hilux Double cab 1,100,000 0.02 22,000.00
6 Trailer 1,420,000 0.02 28,400.00
7 Chemical Sprayer 13,500.00 0.02 270.00
8 Sickles 4,800.00 0.02 96.00
9 Axes 1,700.00 0.02 34.00
10 Tape meter (100 m) 1,800.00 0.02 36.00
11 Wheel borrow 17,500.00 0.02 350.00
12 Shovel 1,440.00 0.02 28.80
13 Weighing scale 75,000.00 0.02 1,500.00
14 Thresher 40,000.00 0.02 800.00
15 Saw 300.00 0.02 6.00
16 Cutlass or Machete 40,000.00 0.02 800.00
17 Spade hoe 4,500.00 0.02 90.00
18 Local hand hoe 840.00 0.02 16.80
19 Spade 980.00 0.02 19.60
20 Digging fork 6,000.00 0.02 120.00
21 Trovel 2,000.00 0.02 40.00
22 Laptop Computer 15,500.00 0.02 310.00
23 Printers 7,600.00 0.02 152.00
24 Shelf 5,000.00 0.02 100.00
25 Managerial Chairs 16,400.00 0.02 328.00
26 Guest Chairs 1,500.00 0.02 30.00
27 Computer tables 10,000.00 0.02 200.00
Total Repair and Maintenance costs 97,867.74

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 Table 9. Total Labor requirement and cost of the project
Years 1 2 3 4 5 6 7 8 9 10
Maize Labor per Ha (table 7) 34 34 34 34 34 34 34 34 34 34
Land area (table 1) 62.5 62.5 62.5 62.5 62.5 62.5 62.5 62.5 62.5 62.5
Sub-total labor required 2125 2125 2125 2125 2125 2125 2125 2125 2125 2125
Soybean Labor per Ha (table 7) 28 28 28 28 28 28 28 28 28 28
Land area (table 1)* 10 10 10 10 10 10 10 10 10 10
Sub-total labor required 280 280 280 280 280 280 280 280 280 280
Groundnuts Labor per Ha (table 7) 30 30 30 30 30 30 30 30 30 30
Land area (table 1) 10 10 10 10 10 10 10 10 10 10
Sub-total labor required 300 300 300 300 300 300 300 300 300 300
Sesame Labor per Ha (table 7) 32 32 32 32 32 32 32 32 32 32
Land area (table 1)* 15 15 15 15 15 15 15 15 15 15
Sub-total labor required 480 480 480 480 480 480 480 480 480 480
Total Labor required per ha 3185 3,185 3,185 3,185 3,185 3,185 3,185 3,185 3,185 3185

Table 10. Summaries of labor cost (wage expense)

Years 1 2 3 4 5 6 7 8 9 10
Total Annual Labor 3,185 3,185 3,185 3,185 3,185 3,185 3,185 3,185 3,185 3,135
Labor cost per work-day (Birr) 100 100 105 110 116 122 128 134 141 148
Projected wage Cost per year 318,500 318,500 334,425 351,146 368,704 387,139 406,496 426,820 448,161 463,182

Table 12: summaries of supplies costs per year

1 2 3 4 5 6 7 8 9 10
Supplies costs 837,953 879,850 923,843 970,035 1,018,537 1,069,463 1,122,936 1,179,083 1,238,037 1,299,939

Table 13. Repair and Maintenance expense per year

1 2 3 4 5 6 7 8 9 10
Repair & maintenance 0 97,868 102,761 107,899 113,294 118,959 124,907 131,152 137,710 144,595

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 Table 14. Miscellaneous and utilities expense per year
years 1 2 3 4 5 6 7 8 9 10
Utilities Expense 201,250 211,313 221,878 232,972 244,621 256,852 269,694 283,179 297,338 312,205
Other Operating expense 364,576 382,805 401,945 422,042 443,144 465,302 488,567 512,995 538,645 565,577

Table 15. Operating and working capital costs needed

Years 1 2 3 4 5 6 7 8 9 10
Employee salaries 740,400 777,420 816,291 857,106 899,961 944,959 992,207 1,041,817 1,093,908 1,148,603
Labor cost (table 10) 318,500 318,500 334,425 351,146 368,704 387,139 406,496 426,820 448,161 463,182
Repair& maint. (table 13) 0 97,868 102,761 107,899 113,294 118,959 124,907 131,152 137,710 144,595
Utilities costs (table 14) 201,250 211,313 221,878 232,972 244,621 256,852 269,694 283,179 297,338 312,205
Supplies cost (table 12) 837,953 879,850 923,843 970,035 1,018,537 1,069,463 1,122,936 1,179,083 1,238,037 1,299,939
Miscellaneous cost (table 14) 364,576 382,805 401,945 422,042 443,144 465,302 488,567 512,995 538,645 565,577
Total Operating 2,462,679 2,667,755 2,801,143 2,941,200 3,088,260 3,242,673 3,404,807 3,575,047 3,753,799 3,934,102
Increase in Operating costs 0 205,077 133,388 140,057 147,060 154,413 162,134 170,240 178,752 180,303
Working capital needed 164,061 106,710 84,034 88,236 92,648 97,280 102,144 107,251 108,182 0

Table 17. Forecasted production of each crop over the first 10 years
Crops 1 2 3 4 5 6 7 8 9 10
Maize Land area in Ha 62.5 62.5 62.5 62.5 62.5 62.5 62.5 62.5 62.5 62.5
Output per Ha (quint) 60 60 60 60 60 60 60 60 60 60
Total Output (quint) 3,750 3,750 3,750 3,750 3,750 3,750 3,750 3,750 3,750 3,750
Soybean Land area in Ha 10 10 10 10 10 10 10 10 10 10
Output per Ha (quint) 30 30 30 30 30 30 30 30 30 30
Total Output (quint) 300 300 300 300 300 300 300 300 300 300
Groundnuts Land area in Ha 10 10 10 10 10 10 10 10 10 10
Output per Ha (quint) 25 25 25 25 25 25 25 25 25 25
Total Output (quint) 250 250 250 250 250 250 250 250 250 250
Sesame Land area in Ha 15 15 15 15 15 15 15 15 15 15
Output per Ha (quint) 15 15 15 15 15 15 15 15 15 15
Total Output (quint) 225 225 225 225 225 225 225 225 225 225
4,525 4,525 4,525 4,525 4,525 4,525 4,525 4,525 4,525 4,525
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 Table 18. Projected selling price of (at the farm gate price in Birr per quintal)
Crops 1 2 3 4 5 6 7 8 9 10
Maize 1500 1,575.00 1,653.75 1,736.44 1,823.26 1,914.42 2,010.14 2,110.65 2,216.18 2,326.99
Soya beans 2100 2205 2315.25 2431.01 2552.56 2680.19 2814.20 2954.91 3102.66 3257.79
Groundnuts 1800 1890.00 1984.50 2083.73 2187.91 2297.31 2412.17 2532.78 2659.42 2792.39
Sesame 3000 3150.00 3307.50 3472.88 3646.52 3828.84 4020.29 4221.30 4432.37 4653.98

Table 19 Projected annual Sales revenues from each Crop (at the farm gate price in Birr)
Crops 1 2 3 4 5 6 7 8 9 10
Maize seed Price (Birr) 1500 1575 1653.75 1736.4375 1,823.26 1,914.42 2,010.14 2,110.65 2,216.18 2,326.99
Production (quint) 3,750 3,750 3,750 3,750 3,750 3,750 3,750 3,750 3,750 3,750
Sales (Birr) 5,625,000 5,906,250 6,201,563 6,511,641 6,837,223 7,179,084 7,538,038 7,914,940 8,310,687 8,726,221
Soyabean Price (Birr) 2,100 2,205 2,315 2,431 2,553 2,680 2,814 2,955 3,103 3,258
Production (quint) 300 300 300 300 300 300 300 300 300 300
Sales (Birr) 630,000 661,500 694,575 729,304 765,769 804,057 844,260 886,473 930,797 977,337
Groundnuts Price (Birr) 1,800.00 1,890.00 1,984.50 2,083.73 2,187.91 2,297.31 2,412.17 2,532.78 2,659.42 2,792.39
Production (quint) 250 250 250 250 250 250 250 250 250 250
Sales (Birr) 450,000 472,500 496,125 520,931 546,978 574,327 603,043 633,195 664,855 698,098
Sesame Price (Birr) 3,000 3,150 3,308 3,473 3,647 3,829 4,020 4,221 4,432 4,654
Production (quint) 225 225 225 225 225 225 225 225 225 225
Sales (Birr) 675,000 708,750 744,188 781,397 820,467 861,490 904,565 949,793 997,282 1,047,147
Total Sales revenues 7,380,000 7,749,000 8,136,450 8,543,273 8,970,436 9,418,958 9,889,906 10,384,401 10,903,621 11,448,802

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 Table 21. Projected periodical loan repayment and interest expense
Years 1 2 3 4 5 6 7 8 9 10
Principal loan outstanding at beginning 5,750,508 5,175,457 4,600,406 4,025,356 3,450,305 2,875,254 2,300,203 1,725,152 1,150,102 575,051
Periodical loan repayments 575,051 575,051 575,051 575,051 575,051 575,051 575,051 575,051 575,051 575,051
Outstanding Loan at the end 5,175,457 4,600,406 4,025,356 3,450,305 2,875,254 2,300,203 1,725,152 1,150,102 575,051 0
Periodical interest expense 488,793 439,914 391,035 342,155 293,276 244,397 195,517 146,638 97,759 48,879
Total periodical payment 1,063,844 1,014,965 966,085 917,206 868,327 819,447 770,568 721,689 672,809 623,930

Table 22 Projected Annual Income Statement (all in Birr)

Years 1 2 3 4 5 6 7 8 9 10
Total Revenues 7,380,000 7,749,000 8,136,450 8,543,273 8,970,436 9,418,958 9,889,906 10,384,401 10,903,621 11,448,802
Operating Expenses:
Salaries Expense 740,400 777,420 816,291 857,106 899,961 944,959 992,207 1,041,817 1,093,908 1,148,603
Wages Expense 318,500 318,500 334,425 351,146 368,704 387,139 406,496 426,820 448,161 463,182
Repair & maintenance 0 97,868 102,761 107,899 113,294 118,959 124,907 131,152 137,710 144,595
Utilities Expense 201,250 211,313 221,878 232,972 244,621 256,852 269,694 283,179 297,338 312,205
Supplies Expense 837,953 879,850 923,843 970,035 1,018,537 1,069,463 1,122,936 1,179,083 1,238,037 1,299,939
Miscellaneous Expense 364,576 382,805 401,945 422,042 443,144 465,302 488,567 512,995 538,645 565,577

Depreciation Expense 486,668 486,668 486,668 486,668 486,668 433,396 433,396 5,250 5,250 5,250
Interest Expense 488,793 439,914 391,035 342,155 293,276 244,397 195,517 146,638 97,759 48,879
Total Operating Expense 3,438,140 3,594,337 3,678,846 3,770,024 3,868,204 3,920,466 4,033,720 3,726,935 3,856,808 3,988,231
Income Before Income Tax 3,941,860 4,154,663 4,457,604 4,773,249 5,102,232 5,498,492 5,856,186 6,657,466 7,046,813 7,460,571
Income Tax (30%) 1,182,558 1,246,399 1,337,281 1,431,975 1,530,670 1,649,548 1,756,856 1,997,240 2,114,044 2,238,171
Net Income 2,759,302 2,908,264 3,120,323 3,341,274 3,571,562 3,848,944 4,099,330 4,660,226 4,932,769 5,222,400
Retained Earnings 2,759,302 5,667,566 8,787,889 12,129,163 15,700,725 19,549,670 23,649,000 28,309,226 33,241,995 38,464,395

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 Table 23. Projected Annual cash Flow Statement (all in Birr)
Years 1 2 3 4 5 6 7 8 9 10
1. Cash flows of Operating activities:
Cash Inflows:
Collections from Sales 7,380,000 7,749,000 8,136,450 8,543,273 8,970,436 9,418,958 9,889,906 10,384,401 10,903,621 11,448,802
Cash Outflows:
Salaries payment 740,400 777,420 816,291 857,106 899,961 944,959 992,207 1,041,817 1,093,908 1,148,603
Wages payment 318,500 318,500 334,425 351,146 368,704 387,139 406,496 426,820 448,161 463,182
Repair & maintenance - 97,867.74 102,761.13 107,899.18 113,294.14 118,958.85 124,906.79 131,152.13 137,709.74 144,595.23
Utilities Expense 201,250 211,313 221,878 232,972 244,621 256,852 269,694 283,179 297,338 312,205
Supplies Expense 837,953 879,850 923,843 970,035 1,018,537 1,069,463 1,122,936 1,179,083 1,238,037 1,299,939
Miscellaneous Expense 364,576 382,805 401,945 422,042 443,144 465,302 488,567 512,995 538,645 565,577
Interest payment 488,793 439,914 391,035 342,155 293,276 244,397 195,517 146,638 97,759 48,879
Income Tax (30%) 1,182,558 1,246,399 1,337,281 1,431,975 1,530,670 1,649,548 1,756,856 1,997,240 2,114,044 2,238,171
Working capital 123,046 80,033 84,034 88,236 92,648 97,280 102,144 107,251 108,182 0
Total cash outflows 4,257,076 4,434,100 4,613,493 4,803,566 5,004,853 5,233,897 5,459,324 5,826,176 6,073,784 6,221,153
Net cash provided by operation 3,122,924 3,314,900 3,522,957 3,739,707 3,965,583 4,185,060 4,430,582 4,558,225 4,829,838 5,227,650
2. Cash flows of investing activities:
Cash inflows:
Cash Outflows:
Project construction costs 862,000
Projected farm machine cost 4,417,027
Projected farm tools cost 210,360
Projected office equipments 139,900
Total cash outflows 5,629,287
Net cash used by investing -5,629,287
3. Cash flows of Financing:
cash inflows:
Owners' equity 2,464,503
Bank loans 5,750,508
Total cash inflows 8,215,011
Cash outflows:
Repayments of loans 575,051 575,051 575,051 575,051 575,051 575,051 575,051 575,051 575,051 575,051
Net cash flows by financing 7,639,961 -575,051 -575,051 -575,051 -575,051 -575,051 -575,051 -575,051 -575,051 -575,051
Total N et cash flows 4,915,497 2,739,849 2,947,906 3,164,656 3,390,532 3,610,010 3,855,531 3,983,174 4,254,787 4,652,599
Cumulative cash flows 4,915,497 7,655,345 10,603,251 13,767,907 17,158,439 20,768,449 24,623,980 28,607,154 32,861,941 37,514,540

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 Table 24 Projected Balance sheet of the project (in Birr)
Years 1 2 3 4 5 6 7 8 9 10
Assets
Current asset
Cash (cumulated) 4,915,497 7,655,345 10,603,251 13,767,907 17,158,439 20,768,449 24,623,980 28,607,154 32,861,941 37,514,540
working capital (cumulated) 123,046 203,079 287,113 375,349 467,997 565,277 667,421 774,673 882,854 882,854
Total current assets 5,038,543 7,858,424 10,890,364 14,143,256 17,626,436 21,333,726 25,291,401 29,381,827 33,744,795 38,397,394
Fixed asset
Project construction costs 862,000 862,000 862,000 862,000 862,000 862,000 862,000 862,000 862,000 862,000
Projected accu. depren -5,250 -10,500 -15,750 -21,000 -26,250 -31,500 -36,750 -42,000 -47,250 -52,500
Projected farm machine cost 4,417,027 4,417,027 4,417,027 4,417,027 4,417,027 4,417,027 4,417,027 4,417,027 4,417,027 4,417,027
Projected accu. depren -428,146 -856,293 -1,284,439 -1,712,585 -2,140,731 -2,568,878 -2,997,024 -3,425,170 -3,853,317 -3,853,317
projected farm tools cost 210,360 210,360 210,360 210,360 210,360 210,360 210,360 210,360 210,360 210,360
Projected accu. depren -42,072 -84,144 -126,216 -168,288 -210,360 -252,432 -294,504 -336,576 -378,648 -420,720
projected office equipment’s 139,900 139,900 139,900 139,900 139,900 139,900 139,900 139,900 139,900 139,900
Projected accu. depren -11,200 -22,400 -33,600 -44,800 -56,000 -67,200 -78,400 -89,600 -100,800 -112,000
Total fixed assets 5,142,619 4,655,950 4,169,282 3,682,614 3,195,946 2,709,277 2,222,609 1,735,941 1,249,272 1,190,750
Total assets 10,181,161 12,514,374 15,059,647 17,825,870 20,822,381 24,043,003 27,514,010 31,117,767 34,994,067 39,588,144
Liability
Bank Loan 5,175,457 4,600,406 4,025,356 3,450,305 2,875,254 2,300,203 1,725,152 1,150,102 575,051 0
Capital
Owners' equity 2,464,503 2,464,503 2,464,503 2,464,503 2,464,503 2,464,503 2,464,503 2,464,503 2,464,503 2,464,503
Retained earning 2,759,302 5,667,566 8,787,889 12,129,163 15,700,725 19,549,670 23,649,000 28,309,226 33,241,995 38,464,395
Total capital 5,223,805 8,132,069 11,252,392 14,593,667 18,165,229 22,014,173 26,113,503 30,773,729 35,706,499 40,928,898
Total Liability + Capital 10,399,263 12,732,476 15,277,748 18,043,971 21,040,483 24,314,376 27,838,656 31,923,831 36,281,549 40,928,898

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 Table 25. Projected Annual cash Flow Statement from Operations(all in Birr)
years 1 2 3 4 5 6 7 8 9 10
Cash flows of Operating activities:
Cash Inflows:
Cash collections from revenues 7,380,000 7,749,000 8,136,450 8,543,273 8,970,436 9,418,958 9,889,906 10,384,401 10,903,621 11,448,802
Cash Outflows:
Salaries payment 740,400 777,420 816,291 857,106 899,961 944,959 992,207 1,041,817 1,093,908 1,148,603
Wages payment 318,500 318,500 334,425 351,146 368,704 387,139 406,496 426,820 448,161 463,182
Repair & maintenance - 97,868 102,761 107,899 113,294 118,959 124,907 131,152 137,710 144,595
Utilities Expense 201,250 211,313 221,878 232,972 244,621 256,852 269,694 283,179 297,338 312,205
Supplies Expense 837,953 879,850 923,843 970,035 1,018,537 1,069,463 1,122,936 1,179,083 1,238,037 1,299,939
Miscellaneous Expense 364,576 382,805 401,945 422,042 443,144 465,302 488,567 512,995 538,645 565,577
Interest payment 488,793 439,914 391,035 342,155 293,276 244,397 195,517 146,638 97,759 48,879
Income Tax (30%) 1,182,558 1,246,399 1,337,281 1,431,975 1,530,670 1,649,548 1,756,856 1,997,240 2,114,044 2,238,171
Working capital 123,046 80,033 84,034 88,236 92,648 97,280 102,144 107,251 108,182 -
Capital cost 5,629,287
Total cash outflows 9,886,363 4,434,100 4,613,493 4,803,566 5,004,853 5,233,897 5,459,324 5,826,176 6,073,784 6,221,153
Net cash provided by operation (2,506,363) 3,314,900 3,522,957 3,739,707 3,965,583 4,185,060 4,430,582 4,558,225 4,829,838 5,227,650
PVC 9,111,855 4,086,729 4,252,067 4,427,250 4,612,768 4,823,869 5,031,635 5,369,748 5,597,957 5,733,781
PVB 6,801,843 7,141,935 7,499,032 7,873,984 8,267,683 8,681,067 9,115,121 9,570,877 10,049,420 10,551,891
NPV (2,310,012) 3,055,207 3,246,965 3,446,734 3,654,915 3,857,199 4,083,486 4,201,129 4,451,463 4,818,110
PVC 53,047,658.43
PVB 85,552,854.30
NPV 32,505,195.87
BCR 1.61
NBCR 0.61
IRR 138%

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