THE PROJECT

4. BRIEF DESCRIPTION OF PROJECT & PRODUCT

The proposed dairy farm will be established on owned land with purpose built shed constructed
on the available land. The farm will begin operation with 10 cows initially and after six month of
operation 5 cows will be added and towards the end of the first year the number of cows will be
increased by 5 making a total of 20 cows available at the end of the first year. The initial capacity
utilization of milk production for sales revenue is 95% by year 10 from 100 cows. Female calves
will be raised on milk replacer for first three months of age. Upon weaning at 4th month of age,
calves will be offered Total Mixed Ration (TMR) for the rest of their productive life. Breeding of
animals will be planned through ‘Artificial Insemination’ method. Female calves will be given
special attention and raised as ‘Heifers’ whereas male calves are to be sold in the market around
the age of one month. The milk will be primarily sold to bulk buyers at the rate of Birr 30 per
liter with 10% annual growth rate in selling price. The subject business will be set-up at the
proposed location which ensures easy availability of feed, water and other related services. The
development of urban or peri-urban modern commercial dairy farms is a relatively new concept
in dairy production. Surrounding cities like Adama, Melkasa, Sodere etc. are major markets of
milk as dairy farms established around these cities fulfill their daily milk demand. There is a
year-round market of milk, however, the demand decreases in period of fasting seasons and
increases during off-school seasons, hence making the demand a relatively even projection on a
year to year basis.

4.1 Objectives & Benefits of the Project

The followings are the objectives of the project

-Generate income from sale of milk and milk products, and live animals to support family livelihood.

-To have profitable alternative employment option for children and promote micro dairy farming among
fellow farmers and rural youths.

-To generate Bio-gas and have sustainable supply of energy for cooking such that firewood collection
from forest is no longer necessary.

-To promote organic farming among fellow farmers around the area.
-The farm will serve as a model micro dairy farm for farmers of the surrounding areas. It will create the
scope of having a Milk Producers Group in the area which is inevitable to market fresh milk and milk
products to the nearby big cities like Adama.

-The plentiful manure produced shall improve the productivity of other crops and enable to practice
organic farming.

The followings are the beneficiaries of the project

 investors- by getting attractive profit

 Surrounding people – by getting employment opportunity.
 The community – by getting quality product at fair price.
 The government- By getting revenue from payment of tax and land rent.

4.1 Dairy Farm Production Process

Selection of dairy cattle breed such as Holstein Friesian with proven pedigree and high genetic
worth from elite/ superior and renowned sires will be implemented. Holstein cows are
recognized by their distinctive color markings and outstanding milk production, having large
body stature with typical color patterns of black & white or red & white. Holstein heifers can be
bred at around 15 months of age as they gain 65% of their adult body weight (approx. 550 kgs
live body weight). Gestation period of the animal is nine months with normal productive life of
4-5 years.

The pedigree and genetic worth of cows must be considered on top priority, i.e. proper pedigree
paper and documentation containing all identifications and registrations of dairy cows must be
performed. Pedigree is a document showing an animal’s lineage, a record of their ancestry; a
typical Holstein pedigree shows three generations - the animal itself, its sire and dam, along with
their sires and dams. It may also list genetic and performance records for each animal, when
applicable.

The pedigree is very important as it can be useful to breeders in providing information about the
cow’s ancestors and thereby helping to predict how well that animal may perform later in life
e.g. how much milk might be produced or how they will look in their body stature and
conformation etc., based on the performance of their ancestors. Aside from providing owners and
breeders with detailed information about their animals, it also serve as a verified source of
ancestry, performance and genetic information when selling animals, giving the buyer trusted
documentation ensuring that information presented on the animal is accurate.

The following are the key components that will be administered carefully during the initial phase
and subsequently in all phases of the production process to attain maximum efficiency and hence
maximum output.
Selection of animals with excellent body condition and health: average daily milk production
of 20 litres or above for cows in first lactation, essentially with no disease history.

Housing: Good housing leads to good management practices and ultimately optimum
production. Generally, housing should be;

I. Pre-engineered building

II. Tunnel-type, ventilated, comfortable and dry with hygienic environment

III. Designed with the probability of future expansion when required

The housing should facilitate;

Easy drainage and removal of dung, urine and waste material

Apparent (or feels like) temperature not exceeding 27 °C

Minimum sun exposure: axis of length to be east to west

Availability of feed and water round the clock

Feeding: The lactating Holstein cows are fed 1 kg of Dry Matter (DM) feed per 1.75 litres of
milk produced. The ration allows nutritionally balanced feed in 24 hours. It includes dry matter
with 60% concentrate and 40% roughages containing 16% Crude Protein (CP) and energy to
increase animal productivity.

Watering: Supply of clean drinking water in clean troughs i.e. 50 to 80 litres of water
consumption per adult animal per day, round the clock, maintains milk production capacity of
the animal.

Breeding: Efficient and timely Artificial Insemination (AI) of good genetic worth is a key to
success in good breeding programs of herd.

Calving: Pregnant animals should be given special attention in third trimester of pregnancy and
should be separated in pregnancy pens. Veterinary assistance should be sought out in case of
emergency. Calf care and heifer management is very important in maintaining dairy farm
production. The owners o this project will raise female calves as future breeding heifers which
will replace culled dairy animals. The first generation (F1) will be capable of breeding at age of
14 months; hence producing milk at about 23-24 months of age.

Lactation Period: lactation period is the period during which animals yield milk after calving.
The animals producing milk are called ‘Wet Animals’. Generally standard lactation period is
taken as 305+ 5 days. This feasibility study has taken 50-65% of the total number of animals as
wet cows. The calving interval (interval between two calving) in Holstein cows is 12-14 months.
The average daily milk yield of a cow is 20 litres.
Health: Hygienic and clean milking three times a day (morning/afternoon/ evening) lowers
chances of mastitis as udder health and hygiene is most important in dairy animals.

Milk Storage: Proper storage of milk should be done preferably at temperature of 4-8 degree
centigrade.

Disease management: Vaccination & medicine is required to prevent any disease outbreak in
the dairy herd. Each animal will be vaccinated before entering the farm. Procurement of vaccines
from reliable sources should be sought. Following is a tentative vaccination schedule;

Record keeping: The animals should be ear-tagged with information of animal such as breed,
age, date of birth/ purchase, number of lactations, vaccination etc. The records for daily milk
yields, weight, Artificial Inseminations (AI), calving, vaccination and medication etc. are also
important.

Culling: Good productive animals should be selected and uneconomical animals should be
culled. Low yielding culled animals may be sold in the regular livestock market. On an average,
cows are productive for 7 to 8 years. The culling rate of 15% per annum in the total herd is
desirable for a successful dairy farm.

Visit by health providers: Regular technical assistance from dairy and livestock professionals
will be conducted monthly and as per the need.

Returns on the proposed business and its profitability are highly dependent on the efficiency of
above mentioned factors. In case if the dairy farm is not able to attain its target milk production
or implement effective husbandry practices, it will not be able to cover the potential market and
recover payments; hence, cost of operating the business will increase.

4.2 Planned Production Capacity and Programme

In the proposed study, initially, 20 cows are recommended to obtain optimum milk production at
the end of the first year of the project time schedule. It is assumed that on average, 60-65 % of
total animals present at farm would be in lactation on farm. The female calves born at farm will
be added to the milking herd through heifer management; hence total number of animals to be
100, among which, 60-65 animals will be in lactation in 10th year of project. The male calves
will be sold in open market. Average milk production of a cow during one lactation period is
estimated to be 4200 litres. The dairy farm will have the capacity to generate revenues at total
sellable milk produced at farm i.e. 42000 litres in its first year of operation.

The annual mortality rate is assumed to be 7% for newborn calves, 3% for heifers and 2% for
adult cows. The project will operate at 95% of its installed capacity from the first year of
operations.
4.3 Rationale of the Project

Livestock production is an integral part of Ethiopia's agriculture sector and plays a vital role in
national economy. At present, livestock is contributing about 29.1% to the agricultural sector and
2.6 per cent to the GDP. The role of livestock in rural economy may be assessed by the fact that
80 to 85 million of the total rural population is engaged in livestock farming, having 2 to 3 cattle
and 5 to 6 sheep/goats per family deriving almost 50 per cent of income from it.

Dairy farming is an agro-based project, which comprises of two aspects: dairy production and
dairy technology. Dairy production is an all-inclusive activity, related to dairy animal care,
reproduction, feeding, management and is defined as all those aspects and activities relating to
raising of dairy animals during their various phases of life to get wholesome milk. Dairy
technology relates to all aspects of processing milk to convert it into various products. This
conversion of milk into product is practicable only if it is economically viable.

Dairy animals are purchased from the animal markets or breeders located in peri urban areas of
cities like Adama, Melkasa, Sodere and Modjo. Dairy animals are fed on protein sources
(concentrate) along with plenty of green fodder. Animals are milked twice a day i.e. morning and
evening. The milk is sold at the farm or may be directly sold in the urban market. The milk price
does not vary at all in the project proposed area as the demand is still high through the year. Cow
milk is sold at Birr 28 per liter at the farm gate and Birr 30 in the urban market.

The other fundamental reasons that underline for entering into the dairy farm are

 The availability of land

 Proximity to potential market

 Unsatisfied domestic demand

Moreover, taking in to account the financial capability of the owners of the project, availability
of bank loans and already developed and easily accessible infrastructure in the area are some of
the key factors that initiate the owners of the project to implement and execute the operation of
the project. Last but not least ,the availability of abundant and cheap labor market in the
surrounding area and the accessibility of organic feed resources in conjunction to the above
mentioned factors will make the project more feasible and the make the implementation more
successful and hence the operation more easy without major limitations or hindrances.

4.4 Market Entry Timing

There is always unsatisfied demand the vicinity area of the project implementation site.The
demand of milk is always high through out the year, except during the orthodox Christian
fasting seasons. However the demand of milk is at its peak during the off-school season and
during the holy Ramadan month. Hence one can deduce from the above information, demand of
milk is always there among the entire population. So the proposed business can be started at any
time of the year. At the commencement of the proposed business, it is important to have good
knowledge of the production and have contacts with the livestock breeders and farmers. The
ability to work with people and animals, and efficient use of resources are important aspects in
modern and commercial dairy farming.

4.5 Proposed Business Legal Status

The proposed legal structure of the business entity is on partnership bases, that is, a Private
Limited Company will be formed by the stake holders of the project.

4.6 Proposed Capacity

The farm will begin operation with 10 cows initially and after six month of operation, 5 cows
will be added and towards the end of the first year the number of cows will be increased by 5
making a total of 20 cows available at the end of the first year.
The farm size will increase to 100 animals within 10 years.

A cow, on average, yields 20liters of milk a day over a lactation period of 285 days.

4.7 Project Investment

1.7. Funding

The project proposal is developed for seeking financial support from banks available either around the
project site or around the nearby big cities..

The project is an 8 year project. In 8 years the loan amount along with interest at 10% shall be
liquidated.

It is proposed to repay the loan on fixed straight line mode and pay annually, until the loan is fully
liquidated.

By nature dairy enterprise is front end capital intensive requiring high initial capital investment. The
turnover period is long as it has long gestation period and the risk of disease outbreak is high.

This project is affirmed to be viable only with bank support lending credit at 4% which otherwise not
viable if it has to seek loan at commercial interest rates more than 10%.

The total cost of the project is Birr.2, 822,502, out of which capital cost of the project is Birr.
2,384,491 for purchasing the animals and constructing the building and the rest is used to meet
the working capital requirement.

Table 4 Project Costs

Account Head Total Cost (Birr)

Building/Infrastructure 478,191

Machinery & equipment 137,300

Animal Cost 1,697,000

 4
Pre-operating costs 72,000

Total Capital Cost 2,384,491

Raw material inventory 38,011

Upfront land lease rental 320,000

Working Capital Requirement 438,011

Total Investment 2,822,502

The proposed feasibility is based on the assumption of 50% debt and 50% equity. However
this composition of debt and equity can be changed as per the requirement of the investors
at the final stage.

Table 4-4 Project Financing

Debt 50% 1, 411, 251

Equity 50% 1, 411, 251

Total project Investment 2,822,502

Table 4-5 Project Economics

Viability Equity Project

 IRR (%) 29 25

NPV @20% 919,771 2,569,983

Pay Back Period (year) 8.39 8.23

4.8 Geographical Potential For Investment

Commericial dairy farming is a viable business proposition for peri-urban areas, such as the
proposed project site. There is higher demand for milk in peri-urban areas around the major
cities like Adama, Melkasa and Sodere. Hence the project at hand offers good investment
opportunities for the investors. The peri-urban areas around the above mentioned cities with
abundant water and availability of fooder make a better choice of dairy farming with the
already existing access to livestock related marketing and veterinary services.

4.9 Key Success Factors/Practical Tips for Success

Commercial dairy farmers depend on land, labor and animals as the major resources. The
thrust in modern dairy farming is on the increased use of capital and management. Successful
dairy farming harnesses all available resources into productive and profitable unit. Dairy
farming is highly complex as it includes breeding, management, feeding, housing, disease
control and hygienic production of milk on farm. The judicial use of means and resources to
achieve clearly defined goals is the key success factor in modern dairy farming i.e. the art of
maximization and optimal utilization of resources and means for maximizing productivity
and profits.
The low yielder animals are uneconomical to keep, hence these should be culled. The over
all genetic improvement of all the dairy animals is necessary for improved milk production.
It involves milking records at equal intervals, selection of bull from high producing
mothers, progeny testing of breeding bull and then making extensive use of these bulls by
well-organized Artificial Insemination (AI) program.

Feeding dairy animals on nutritious and high yielding hybrid varieties of forages can be
adopted. The surplus forage should be preserved as silage or hay.

Other farm management practices include feeding for growth, lactation, pregnancy or
maintenance, hygienic milk production, comfortable and ventilated barns, spraying/
wallowing of animals in summer, timely detection of heated, mating, with selected bull or
AI service. If animals are bred within the 60-90 days of calving provided with clean
surroundings, drinking water and feed according to the requirements, the over all
performance of herd can be improved.

Timely vaccination against Rinderpest, Black Quarter, Foot and Mouth Disease,
Brucellosis along with the prevention of mastitis and parasitic control will also improve the
over all performance of dairy herd.

Hygienic milk production depends upon healthy animals, clean surroundings, clean hands of
milkman and clean utensils.
 4.11 Critical Factors in Decision Making Process for the Investement

A. SWOT ANALYSIS OF DAIRY INDUSTRY

SWOT Analysis is nothing but analysis of a project on the basis of its Strength, Weakness,
Opportunity and Threat (SWOT).

Importance and Uses of SWOT

SWOT analysis is used to identify and categories significant internal factors (i.e. strengths
and weaknesses) and external factors (i.e. opportunities and threats) faced by the project. It
provides information that is helpful in matching the projects' resources and capabilities to
the competitive environment in which it operates and is therefore an important
contribution to the strategic planning process. It should not be viewed as a static method
with emphasis solely on its output, but should be used as a dynamic part of the
management and business development process.

SWOT analysis involves the collection and portrayal of information about internal and
external factors that have, or may have, an impact on the evolution of an organisation or
business. It generally provides a list of an organisation's Strengths and Weaknesses as
indicated by an analysis of its resources and capabilities, plus a list of the Threats and
Opportunities identified by an analysis of its environment. Strategic logic requires that the
future pattern of actions to be taken should match strengths with opportunities ward off
threats and seek to overcome weaknesses.

Representatives from the stakeholders should be involved, as they would bring in the
analysis their own particular perspectives. At least one expert in SWOT analysis should
take part or moderate the process.

The following is the SWOT analysis chart of the project at hand.

SWOT ANALYSIS

Strength Weakness

v Financial support from bank. v High initial capital investment

v Availability of land, labour, fodder, crop v Long production/ turnover period

residues and water
v Short shelf life of milk
v High demand and good price for milk and
v Moderate distance from city to project site
milk products
v Require large area of land
v Good level of entrepreneurial skills

Opportunities Threats

v Strong Government policy support v Diseases outbreaks

v High demand and ready market v High price of cows

v Good scope for product diversification v Deficiency of molasses

v Expansion of enterprise creating jobs at v Replacement stock not readily available and
home. the cost is high.

v Socially acceptable enterprise

Keeping in view the above considerations, dairy enterprise require high level of animal
husbandry and management skills.

B. PEST Analysis

PEST Analysis is nothing but analysis of a project based on the current prevailing Political,
Economical, Social and Technical (PEST) trends.

The following is the PEST analysis chart of the project at hand.

Parameters Implication for your organization/business

Political

National Policies Improve Rural livelihood and well being

Poverty Reduction

Job Creation

Import substitution of Dairy Products

Economic

Demand High

Supply Low

Market Prices Good

Market trend Increasing.

Capital investment Requires high initial capital investment cost.

Social

Social stigma Socially just as it does not involve

slaughtering

Technological
 Technology Available

Equipments Available

Entrepreneurial skill Adequate

Dairy enterprise is capital intensive. It is expensive to start and it takes long turn over time to
generate income and pay back the loan for establishment.

Dairy enterprise deals with live animals vulnerable to disease outbreak and the risk of animals
being succumbed to diseases is high. Because it requires land for fodder production, the scope of
expansion is limited. Also the marketable products; the milk and milk products are highly
perishable and have short shelf life.

However, with the strong government policy support, high level of entrepreneurial skills and
commitment of the entrepreneurs shall take care of all the weakness and threats of this dairy farm
project.

Chapter 5 Market Prospects

POTENTIAL TARGET CUSTOMERS / MARKETS

5.1 MAJOR PLAYERS

Dairy farming is not an organized sector in Ethiopia. More than 90% of farming is done on
subsistence level. There are very few progressive farmers, which are running the business of
dairy farming in a professional manner. Milk processing was started in late 1970s, which is still
facing challenges due to competition with the unprocessed milk. The processed milk has
captured only 2% of the total milk market. Processed milk is not the consumer's preference due
to high price differential. There are 14 milk-processing plants in the country, which were
installed starting in mid 1990s to promote usage of processed milk. Most of these milk plants
are closed due to lack of professional management, inadequate milk supply and poor marketing
campaign of the processed milk.

The following are the major players in the region in which the project is going to be
implemented.

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This feasibility study suggests that milk will be sold at the farm gate directly to the consumers or
to individuals who live in high-demand areas like in Adama city or to milk contractors. It can
also be sold directly to milk centers in the urban market or may be pasteurized at farm and
delivered to the nearest city, however it involves extra investment which is not included in this
feasibility study. Milk contractors collect milk from the project site and deliver it to the
consumer’s doorstep. Milk collection networks of different processing companies also collect
milk directly from the farm and transport it to the processing facilities.

Big cities in and around the vicinity of the project site are considered to be the major markets for
the sale of milk. Following are some of the target clients for the project

• Domestic consumers
• Milk contractors and suppliers

• Milk collection and processing companies

• Dairy products manufacturing companies

The cost of production per litre of raw milk should be lower than its sale price so that the project
owners find it economical. Shortage of milk supply is clearly visible in the Adama city. Yogurt,
cottage cheese (AYIBE) and butter are another popular products. These are high value products
however with relatively short shelf life.

Milk processing companies use milk as a raw material to formulate different types of milk i.e.
pasteurized milk, treated milk, condensed milk, skim milk & milk powder, etc. Different value
added products like ghee, yogurt, ice cream, butter and cheese are also prepared from raw milk.
Processed milk market has increased its share in quality conscious consumers. Processed milk
has achieved 4% share in Ethiopia milk market during the last two decades. Milk supply is
increasing at the rate of 4% annually, however demand is increasing at 15% annually.

5.2 MARKET PROSPECTS OF THE PROJECT SERVICE

As it has been described earlier, the surrounding areas of the project are potentially rich in their
resources, which will strengthen the future prospects of such projects. If we look at the general
conditions like the population growth, the increasing transaction of money in the banks, the
promising peace and stability of the area and encouraging private investment policy which has
given broad ways for privately owned project establishments etc, all these positive prospects are
indicators for the reliability of the market futures of the project under discussion.

Hence, in addition to the existing low supply capacity of dairy products of the area the above
mentioned indicators would clearly confirm that the envisaged project will face no market
problem in the future.

CHAPTER 6 ORGANIZATIONAL MANAGEMENT

 6. ORGANIZATION AND MANAGEMENT

The project organizational structure will be designed taking in to account the nature and operational

period of the dairy farm project. For the successful and smooth operation of the project, organizational

management plays a key and an important role and needs due consideration. Proper organizational

management helps a firm, to execute its objectives properly. The project’s organizational structure is

planned to be designed in such a way that there will be clear duties and responsibilities among the

employees to be hired from the market. The overall activity of the project will be administrated by one of

the owners of the project who has many years experience in similar activities. Skilled and semi-skilled

employees will be hired from the local market to support and assist the manager.

Altogether, the envisaged project has planned to employee 31 workers on permanent basis.

The required manpower, position and salary (monthly & annual) are shown in the table below.

Table 1 Manpower Requirement of the project

Salary

No Description Quantity Monthly Annual Salary

salary

1 General Manager 1 3500 42,000

2 Production Manager 1 3000 36,000

3 Quality/Design manager 1 3000 36,000

4 Secretary 1 800 9600

5 Office girl 1 300 3600

6 Design & quality Technical 1 2500 30000

7 Design & Quality Assistant 1 800 9,600

8 Marketing Department head 1 3000 36000

9 Export sales manager 1 1500 18000

10 Sales person 2 800 19200

11 Transit officer 1 1500 18000

12 Mechanic 2 1000 24000

13 Products (out put) packers 5 300 18000

14 Store keepers 2 500 12000

15 Accountant 1 1500 18000

16 Production workers 10 500 60,000

17 Cleaners 10 200 24000

18 Guards (watchmen) 6 200 14000

19 Drivers 3 500 18000

20 Other workers 30 200 72000

Total 81 518,400

From the table above , the designed manpower requirement of the project is 81 permant

employees and the majority of the manpower requirements are skilled and unskilled labours.

the unskilled labour is available from the project area with reasonable wage. The skilled

manpower will be hired from the labour market.