OROMIA INVESTMENT BUREAU

BUSSINES PLAN FOR COFFEE, SESAME AND HARICOT BEAN

PRODUCTION IN LALISTU LOPHI PEASANT ASSOCIATION OF
WEST WOLLEGA ZONE

Project owner: Habtamu Ragaa Feisa

Address
Habtamu Regaa Gen/Impex
Tel: 0911220397
E-mail: [email protected]
Finfinne/Addis Ababa
HTU

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AUGUST 2000
FINFINNE

Table of Contents

pages

1. Background ....................................................................................................................6
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1.1 Introduction ............................................................................................................... 6

1.3 Methodology ............................................................................................................. 7
2. Project Area ...................................................................................................................8
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2.1 Project Location, Climate and Physical Features ..................................................... 8

2.2 Topography and Agro-ecology ................................................................................. 9
2.3 Rainfall...................................................................................................................... 9
2.4 Vegetation ............................................................................................................... 10
2.5 Road net works ...................................................................................................... 10
3. Technical Feasibility ..................................................................................................11
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4.Cropping Pattern and Land Allocation ..................................................................11

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5. Project Components ..................................................................................................12

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5.1 Maintenance of of Roads, Office and Residential Buildings.................................. 12

5.2 Nursery Establishment ............................................................................................ 12
5.3
Coffee Planting ................................................................................................. 13
6. Project Man Power and Management....................................................................14
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7.Crop Yield and Productivity ......................................................................................15

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8. Project Labor, Material and Office Requirement... Error! Bookmark not defined.
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8.1 Labour Requirements ...............................................Error! Bookmark not defined.

8.2
Materials Requirements .................................................................................... 16
8.2.1
Seed Requirement ..................................................................................... 16
8.2.3
Farm Machine and Vehicle ........................................................................... 17
8.3
Office and Store ................................................................................................ 17
9. Socio-Economic Benefits .........................................................................................17
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10. Financial Study and Analysis................................................................................18

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10.1 Project Costs ..................................................................................................... 18

10.3 Project Life............................................................................................................ 19
10.4 Source of Finance ................................................................................................. 19
10.5 Revenue................................................................................................................ 20
10.6 Income Tax ........................................................................................................... 20
10.7 Financial Analysis Results .................................................................................... 20
10.7.1
Cash Flow ................................................................................................. 21
10.7.2 Profitability .................................................................................................... 21
11. Project Schedule/Activity Components ............................................................22
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12. Annexes ......................................................................................................................23

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Annex Table 1. Project cash flow ..............................................................................25

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Annex Table 2. Coffee, sesame and haricot bean project profit & loss
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statement for the year ending July 30 ......................................................................26

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Annex Table 3. Detailed investment costs ..............................................................26

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Annex Table 4. Detail operating costs ......................................................................27

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Annex Table 5. Depreciation for building, equipment and vehicle ..................29

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EXECUTIVE SUMMARY

The investor is planning to invest on the production of exportable crops, which

include coffee, sesame and haricot bean. These crops are currently the major
export crops in Ethiopia and the project is inline with government interest and
policy which focuses on market oriented agricultural production. It is also inline
with agricultural strategy of the government of Oromia and contributes to the
recent undertakings of the region on agricultural development corridors plan.

Coffee, sesame and haricot bean are an important export cash crops in
Ethiopia's economy that contributes for more than 60% of the foreign exchange
earning. Coffee alone provides direct and indirect employment for over 25% of
the country's population. In recent years oil crops particularly sesame as well as
haricot beans are becoming an important exportable crops in the Ethiopian
economy. Cognizant of this fact, the Ethiopian Government is providing
significant support as stated in the economic policy to initiate private investors to
take part in the production, processing and marketing of these valuable crops.

This project proposal is prepared to undertake production of coffee, sesame and

haricot beans in Begi woreda of West Wollegaa Zone, in Lalistu Lophii PA in a
specific locality called Fuddaa. The major objective of the project is to produce
high quality export crops under proper scientific management on a total land
area of 200 hectares.

West Wellegga zone in general and the project area in particular is an ideal
geographic area for coffee, sesame and haricot bean production. The natural and
social factors at the project site have demonstrated the technical feasibility of the
project. The quality of coffee in that vicinity falls under Limu Coffee category,
which is highly demanded for its flavor and aroma on international market.

The total cost of the proposed project is estimated at Birr 1.45 million out of
which birr 1.1 million

is investment capital

while the rest birr 0.34million is

4

working capital. Regarding the source of fund almost all of the total investment
cost shall be covered by the contribution of the promoter.

The project will start to generate profit on the seconded year and the total net
cash inflow during the project period is highly positive. The discounted Cash flow
shows that the project is viable with a Net Present Value (NPV) of Birr
374,260.00 discounted at 8.5 per cent, and the Internal Rate of Return is very
28.2 which indicates that the project is financially feasible and highly lucrative.

Furthermore, the intended project would increase the country's' foreign exchange
earnings, provide employment opportunities, transfer improved skill to the
surrounding and also generate additional income to the government. Therefore,
the project is technically, economically and financially feasible and acceptable.

1. Background

1.1 Introduction
Currently Agriculture dominates Ethiopian Economy. The sector contributes to
economic growth through providing employment for large proportion of the
population. It provides export products, food and industrial raw materials and aids
industrial expansion by providing market for domestically produced goods.

In the agricultural sector high value crops, especially coffee, sesame and haricot
bean have a great impact in providing export market. The available indicators
reveal that coffee accounts for more than 50% of the foreign exchange earning of
the country. The crop generates the largest tax share from foreign trade and
about a quarter of the country's population also directly or indirectly depends on
coffee for their livelihood.

The total area under coffee production in Ethiopia is estimated to be about

500,000 hectares with a total annual production of more than 200,000 tons.
Ninety-five percent of the total annual coffee production comes from the peasant
sector while the balance is covered by large scale farms. The average national
productivity of coffee in Ethiopia is very low compared to the productivity of other
coffee producing countries. This is mainly attributed to backward production
techniques employed by smallholder farmers. The current low productivity of
coffee as well as other crops has to be changed through improved agricultural
production techniques so that the country could benefit from the sector. This
could be done through creating appropriate linkage between smallholder farmers
and private commercial farmers.

The Economic policy promulgated by the Federal Government of Ethiopia has

brought about a great opportunity to private investors in all sectors of the
economy and continually abolishing obstacles hindering investment. .

The expansion of modern coffee farms by private investors is believed to boost

coffee production and productivity. This would highly benefit the economy as the
crop has long remained to be the single largest crop contributing over half of the
country's foreign currency earning.

The promoter of this project Capt. Habtamu Regaa is one of the beneficiaries of
the new economic policy who has been initiated to invest in exportable crops that
the government has given utmost consideration in the development strategy of
the country.

The Investor, besides planning to invest in the area of the agricultural sector, has
also previously played a significant role in the area of Import Export Trade Sector
and has already maintained a great deal of experiences in dealing with and
smoothly managing the various problems arising among Agriculture, Industry and
Trade.
1.2 Project Objectives
Objective of the project is production of high value crops, which include coffee,
sesame and haricot bean for the export market following the major government
policy frame work which gives emphasis to market oriented production. In line
with this the following are specific objectives of the project:

To develop 60 hectares of land with modern coffee plantation,

To develop 130 hectares of land with modern sesame and haricot

plants

To generate attractive return to the investor and also contribute to the

foreign exchange earning of the country and,

To introduce modern coffee, sesame and haricot bean production and

management techniques to the surrounding locality

1.3 Methodology

Methodologies adopted in undertaking the study include document reviewing

regarding the production technologies and adapting the cultural practice of the
three crops. Coffee production packages utilized by medium to large commercial
coffee farms were also reviewed to understand the current status of coffee
production techniques. Visit has been made to the site together with the investor
and field level data were collected through observations of the site, discussions
were carried out with the community in the surrounding area and agricultural
experts and officials of the woreda were also consulted

The cultural practice experiences and improved management practices for

modern production techniques was considered in the planning of activities, cost
estimates of operations, production yields, etc for the individual operations of the
project. The organizational structure, the staffing plan and the overall manpower
requirement were also estimated based on the data collected.

2. Project Area
2.1 Project Location, Climate and Physical Features
The project site is located in Begi Woreda in West Wollega Zone of the Oromia
Regional State in a Peasant Association called Lalistuu Lophii and the specific
locality is Fuddaa. It is adjacent to a wide marshy basin known in West Wellega
as Caffee Yaa-balloo.

The site diverts 27 kms from the main Begi - Gidami road. Begi town is about
250 kms and 700kms from the zonal capital Gimbi and Finfinne, respectively.
The total area of the project is 200 hectares which is entirely located in Lalistuu
Lophii PA.

The proposed investment area is new. It is dominantly covered with open shrub
lands. The area is free from settlement and any sort of agricultural activities
including livestock and grazing land. The site can therefore be used for coffee
and sesame cultivation without any complication that could result from land use
8

arrangements.

2.2 Topography and Agro-ecology

Agro-ecologically the area is characterized by sub tropical low land type of

climate. The altitude of the area is ranging from 1,400 to 1,600 meters above sea
level within the range of ecology recommended in Ethiopia for the targeted crops.
In Ethiopia coffee grows at various altitudes, ranging from 550-2,750m above sea
level. Coffee arabica is ideally produced in the altitudes ranging from 1,300 1,800 masl indicating that the area selected is very much suitable for coffee
production. Sesame is grown from seas level to 1500m while haricot bean can
grow in altitudes ranging from 900masl to 2000masl.

With regard to topography the locality of the site falls within a slightly to
moderately gently slopping plain with suitable topography for coffee, sesame and
haricot bean production. The land is well drained and not exposed to flooding
hazards. Ragged land and steep slopes account for less than 10%.

The soil of the project locality is fertile with a high nutrient-holding capacity for
clay minerals indicating that it is friable, and loamy, with a good depth for
cultivation of coffee, which relatively requires deeper soils compared to haricot
bean and sesame. The topsoil is dominantly dark-brown or brownish in color, and
fertility is maintained by organic recycling through litter fall from the numerous
perennial plants in the project site.

2.3 Rainfall
Rainfall of the site is mono-modal type, which begins usually in mid April and
continues up to mid September and is uniformly distributed in most years and is
favorable for the production of most crops including coffee, haricot bean and
sesame. The annual rainfall is well over 1,450mm and fairly distributed in the
9

year. The climatic condition of the locality is pleasant for coffee and oil crops
(sesame). Annual rainfall in the coffee-growing regions of the country varies from
1,400-2,500mm.

Coffee arabica grows best in the cool, shady environment of the forests of the
Ethiopian highlands. The ideal temperature for coffee arabica is considered 1525c. This temperature prevails in most of the country's coffee-growing areas and
Begi woreda is not exceptional. Haricot beans are a warm season crop; the
optimum temperature for their growth is about 24oc.

Growth and fruiting of

sesame plants are favored at 20oc.

2.4 Vegetation
The vegetation cover of Begi woreda is a sub-humid tropical forest type. Among
the main tree types in the area are Patria ferruginous (Kararo), Cordia, abysinica
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(Wanza), Croton machrostachys (Bisana) and Albizzia schimperiana (Sesa).

The area is predominantly covered with dense forest and most of the tree
species in the area like Wanza and , Bisana are suitable for coffee shade and
will selectively remain on the farm to serve this purpose.

In addition to the

natural trees already existing on the farmland, a more suitable shade of acacia
trees shall be artificially planted and intensified in the area. This practice at the
same time would help to maintain the ecology of the locality as well as the fertility
status of the soil.

2.5 Road net works

Begi woreda has a good conditioned gravel road in two directions. New road is
also under construction from Nejo town to Begi, which is a short cut to Ghimbi
the capital city of the zone. The new road creates the seconed option for access
to transportation from the project site to the main asphalt highway, which is a
very good opportunity for the project.

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3. Technical Feasibility

The West Wellega zone in general and the project area in particular are the most
ideal places for coffee, oil crops and beans as well as other crops production.
The average annual temperature of 24oc and sufficient annual rainfall with fair
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distribution over months and short dry period created favorable condition for the
selected crops. Furthermore, altitude of about 1,400 m above sea level, the type
and quality of soil, suitability of the slope for drainage, the availability of suitable
shade trees and the permanent rivers crossing the area justifies the suitability of
the area for coffee, sesame and haricot bean growing.

On the other hand, concerned government line offices have long ago demarcated
the area as one of the places where private investors could invest and participate
in the development endeavors already underway in the country. Agreement has
also obtained from concerned bodies at various levels to implement the intended
project.

Coffee is the main crop growing in the vicinity and the people in the area have
good experience in handling and managing the crop. This would facilitate the
possibility of getting experienced human labour for the operation of the farm.
There are sufficient social services in the nearest small town called Gunfi.

4.Cropping Pattern and Land Allocation

The total land to be developed by the project is 200 hectares with an effective
plantation area of 190 hectares while the remaining 10 hectares will be used for
infrastructure development such as offices, residence, farm road and store.
Coffee plantation will be established on 60 hectares of land while sesame and
haricot bean will be grown on the remaining 130 hectares on crop rotation base
as shown on table 1 below.

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Table 1. Land development plan for Coffee, Sesame and Haricot bean plantation in
hectare
Sn

Crop type

1
Coffee
2
Sesame
3
Haricot bean
Total area

Years
1
30
100
0
130

2
60
100
30
190

3
60
30
100
190

4
60
100
30
190

5. Project Components
5.1 Maintenance of Roads, Office and Residential Buildings
The project infrastructure and land development commences as soon as the
legality process is completed. At the initial stage of the project that is during year
zero of project implementation maintenance of 15kms of feeder road,
construction of 3 small bridges and 6km farm road will be carried out and the
total cost is estimated at 138, 000 birr.

The project will construct 100m2 office, 200m2 staff residence, 60m2 laborers
residence, and one cafeteria and two stores with a total cost of birr 244997 as
shown in Annex Table .3.

5.2 Nursery Establishment

The farm shall establish its own nursery for production of coffee seedlings at the
beginning of year one. The nursery will have a capacity of producing 144,000
seedlings on an estimated half hectare of land. The nursery will be established
in central position of the project area and there is a permanent source of water
which could irrigate the seedlings throughout the dry season.

The seeds to be sown shall be high yielding CBD resistant varieties to be

purchased from coffee research center in the Zone. Land preparation and seed
sowing has to be carried

out ten months before plantation. Under warmer

climates and good management coffee seedlings could be ready for planting
within 7 to 9 months. All the required nursery tools and materials like watering
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cane, etc. shall be supplied on time.

The seedling will be raised on beds

prepared from a mixture of sand and forest soil.

Each seedling will be

supplemented by an average of 3 gm of DAP at its later growth period for an

optimal growth.

The nursery and initial land development activities will only last two years while
other routine management of the farm continues over the project period. Most of
the farm activities will be done manually as it is relatively cheap and would also
create an employment opportunity for the area. The total labor requirement of
the operational activities like weeding, hoeing, pruning, fertilizing, harvesting shall
progressively grow and become approximately constant after the forth year.
Table 2. Nursery establishment cost
No

1
2
3
4
5
6

5.3

Descriptions
Labor
Site clearing uprooting &
leveling
Bed preparation and
mulching
Forest
soil
mixture
preparation
Shade
materials
preparation
Water and weeding
Fertilizing and spraying
Total

Unit

Qty
Year 1 Year 2

Total cost (Br.)

Year 1
Year 2

Md

70

420

Md

100

100

600

600

Md

100

100

600

600

Md

1,330

1,330

7,980

7,980

Md
Md

600
30
-

600
30
-

3,600
180
13,380

3,600
180
12,960

Coffee Planting

Selective land clearing and uprooting will be the major task in land preparation.
Following the land preparation, the field will be staked and holes will be dug with
appropriate spacing. The hole will be left open for one to two months for proper
aeration and then refilled with top soil.

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Based on improved coffee production recommendation package for western

zone and the experience of the surrounding, coffee seedlings will be planted at
the onset of rain between the months of April and early June. The planted coffee
area will be slashed in July and hoed in September. There is no indication of
perennial grass problem that entails the use of herbicides.

Under good management coffee plant could flower two years after planting.
However, harvesting is recommended three years after plating to avoid early
dying of young bearing plants. It is expected that project coffee yield ranges from
6-10 q/ha. In this production system, recommended seedlings are used, and
proper spacing, manuring, weeding, shade-regulation and pruning are practiced..

6. Project Man Power and Management

The project shall have nine permanent employees with different responsibilities.
The investor controls and supervises the over all activity of the project at times
while the operation and management of the farm will be entrusted to qualified
and well experienced manager. All staff members of the project are accountable
to the manager who is assigned by the investor to manage the overall activities
of the project.

A junior accountant will be responsible to keep all the financial transactions of the
project, control cash and stock movements of the farm and prepare up to-date
financial reports.

He also serves as a cosignatory with the manager of the

project. The secretary cashier will handle all the payments and minor purchases
and does the secretarial works including keeping various files of the project. The
two foremen will be responsible for the routine operation and management of the
farm under close supervision and control of the farm manager. The storekeeper
will be responsible to systematically record and keep the input and outputs of the
project.

Skilled manpowers shall be recruited from Begi while the casual laborers could
be hired from Fuddaa, Falaxaa and Gunfi localities including the adjacent PAs.
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Coffee is expected to start giving production during the fourth year while sesame
and haricot bean are annual crops and production begins starting first year of the
project. The harvest for coffee will be made at an appropriate time.

Proper

announcement will be made in time prior to the commencement of harvesting to

hire adequate number of casual laborers. Although there is an intention to
establish coffee pulpier and oil extraction plant at a later stage after conducting a
feasibility study, the current study is done with the assumption of preparing
coffee in dry processing method and production of sesame and haricot bean for
central market.

7.Crop Yield and Productivity

At any location, crop production and yield is impacted by a combination of

different factors. Among the factors soil type, the environmental situation
especially the night temperature, hour of day light and the number of cloudy days
have a significant effect on yields of coffee, sesame and haricot bean production.
The yield is assumed to have an increasing trend through the implementation
plan of the project assuming that it reaches possible optimum yield of ten quintals
per hectare for coffee by the end of the project physical implementation
considering the inherent characteristics of coffee while yield of haricot bean and
sesame will be maximized by practicing modern production techniques as shown
in Table 3..

8. Project Labor, Material and Office Requirement

8.1 Labour Requirements

Labor requirements for the envisaged farm has been formulated in accordance
with crop growing periods considering the successive farm operations from land
preparation to harvesting. Labor requirements of the farm vary depending on the

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Table 3 .Estimates of crop yield by years of development period

Description
Coffee area in ha
Sesame area in ha
Haricot bean area
Productivity coffee q/ha
Productivity sesame q/ha
Productivity of haricot
bean in q
total production sesame
in q
total production of coffee
in q
total production h. bean
in q

1
30
30
30
0
5
10

2
60
65
65
0
7
16

3
60
65
65
0
7
16

Years
4
60
65
65
4
7
16

5
60
65
65
6
7
16

20-Jun
60
65
65
10
7
16

150

455

455

455

455

455

240

360

600

300

1040

1040

1040

1040

1040

type of activities prevailing in a particular time of the growing season and the
maximum number of labor required for each operation. The daily wage varies
according to the types of operations which is in the range of 5-10 birr/day.

8.2

Materials Requirements

8.2.1 Seed Requirement

Available information on seeding rate indicates that seeding rate for haricot bean
is on average 70kg/ha, 8kg/ha for sesame and 1.8kg per hectare for coffee.
Accordingly the cost for seed purchase is 50 birr/kg (coffee), 10birr/kg for haricot
bean and fifteen birr per kg for sesame. Improved seeds of sesame and haricot
bean will be purchased from Ethiopian Seed Enterprise (ESI) while coffee berry
disease resistant varieties of coffee seeds will be purchased from Haru Coffee
Research Center.
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8.2.2 Fuel Requirements

Fuel requirements for machineries is determined by the total working hours

required to perform different operational activities and the consumption on fuels
based on the actual selling price of fuel at Begi town.

8.2.3 Farm Machine and Vehicle

The requirement of vehicles and motorcycles are considered with the optimum
norm of the existing practice. During the project time one tractor, and one motor
cycles are envisaged.

8.3

Office and Store

The construction of office, residence and store buildings are to be made. These
buildings are to be constructed on sites identified for construction purpose as
mud barracks. The construction estimate at year 0 is Birr 224,750.

9. Socio-Economic Benefits

Coffee, sesame and haricot bean are of vital economic importance to the nation.
Coffee is the biggest source of foreign exchange earning that can enable the
country import capital and consumable goods. It is also an important source of
employment. Sesame and haricot bean are also becoming high value exportable
crops and the country has significant potential to benefit from these crops. The
establishment of the plantations is meant to increase the country's foreign
exchange earnings by producing quality products.

The proposed project is expected to offer an employment opportunity to a

minimum of 110 persons (9 permanent and the rest temporary).

The

employment of casual laborers during pick seasons could be as many as 300.

The project is expected to transfer improved crop management skills to the
17

surrounding farmers through the demonstration effect of the plantation and partly
through the employment opportunity to be generated. The improvement of
access rural road would also be beneficial to the community in various forms.
The project furthermore has the intention of distributing high quality Coffee Berry
Disease resistant coffee seeds and high productivity quality sesame and haricot
bean to the neighborhood farmers to improve the productivity of the sub sector
and thereby income of the farmers.

The Federal as well as the Regional governments would also receive substantial
amount of revenue in the form of different taxes including profit tax. The land
rent is also another income to the region.

10. Financial Study and Analysis

10.1

Project Costs

As shown in Table 4 below, the total project investment cost is 1, 111, 275 birrr
of which the major share 45.17 percent is for purchase of farm machinery,
vehicle and equipment. The table also indicates that of the total operating
expenses wage accounts for the largest proportion.

The total fixed investment cost of the proposed project is estimated at birr
1111275. This investment cost spreads over two while the substantial part will
be committed at the time of project commencement. Of the total investment cost
Birr 138,000 is planned to be used for access and farm road construction, birr
147,000 for land development (plantation) including nursery establishment, birr
224,997 for various buildings and other structures (office, residence, store, drying
floor, bore hole, etc.) and birr 507,000 is allotted for farm machinery including
office facilities and equipment. Regarding the source of fund, the total required
investment cost, birr 1.5mn shall be covered from own contribution

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Table 4. Financial investment and project cost summary

Annual distribution
Total
No

Description

Road maintenance
Land development

Building

Year 0
128,500

Year l
9,500

Year 2

Year 3

138,000

0
0

147000

147,000

224,750

20,247

244,997

502,000

5,000

0
0

507,000

8,000

8,000

69,900

110,160

99,120

0
155,520

Year 4

Year 5

Farm machinery and vehicle

5
7

Office equipment
Wage

155520

590,220

Agricultural inputs

24,050

47,150

82,450

40,600

40600

234,850

Fuel and lubricant

63,965

64,215

64,215

64,215

64215

320,825

10

Repair & maintenance

10,280

10280

18780

10280

10280

59,900

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Vehicle insurance

7,800

7800

7800

7800

7800

39,000

12

Travel and peridiem

10,000

10000

10000

10000

12000

52,000

13

Stationery

5,000

5000

5000

5000

5200

25,200

14

Land rent

11,850

11,850

11,850

11,850

11840

59,240

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Salary

46,725

46,725

46,725

46,725

233,625

S. totla

1,010,250

284,317

313,180

345,940

351,990

46725
354,180

2,659,857

101,025

28431.7
312,749

31318
344,498

34594
380,534

35199
387,189

35418
389,598

2,925,843

Contingency
Total

1,111,275

10.3 Project Life

The complete implementation of the project is going to take three years (from
year 0 to year two) and full capacity operation will be gradually attained in the
third year. Therefore the project will involve both production and investment
during the first two years. Zero year of the implementation is considered to be the
construction phase. Production phase will cover 20 years starting from the first
year.

10.4 Source of Finance

The investment requirement of the project is assumed to be financed by the
project owner (promoter) .

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265,986

10.5 Revenue
The major crops to be cultivated by the project are coffee, sesame and haricot
bean. As could be observed from table 5 below the project will generate sales
revenue of about birr 858, 000 in the first year of project implementation and
reaches to 1,546,000 at the end on annual base.

Table 5. project revenue in birr over project years

Years

Description
1

20-Jun

0
546000

0
546000

192000
546000

288000
546000

480000
546000

520000

520000

520000

520000

520000

330000 1066000 1066000 1258000 1354000

1546000

Selling of
Coffee 800birr/q
0
Sesame 1200 birr/q 180000
Haricot bean 500 150000
birr/q
Total revenue

10.6 Income Tax

According to the Investment Incentives Council of Ministers Regulations
No.7/1996, the project is entitled to the following incentives:

Income tax exemption for 5 years

Losses carry forward for 5 years, and

Exemptions from payment of custom duty on machineries and

equipments.

For the rest of projects life, a 30% tax rate is applied on the taxable income.

10.7 Financial Analysis Results

20

The financial analysis of this project is carried out based on the results of the
investment and operational costs discussed in previous sections as well as the
assumptions mentioned earlier.

Based on the assumptions and the financial costs and benefits discussed in
previous sections of this report, the financial analysis results are as discussed
below.

10.7.1 Cash Flow

As could be observed from the cash flow table attached in Annex Table 2 the
project will generate positive cash flow through out its life excluding the initial
year.-68659 which will immediately raised up to 569040 in the next year. By the
end of the project life, cumulative cash flow will be about birr 701,026.

The discounted Cash flow shows that the project is viable with a net present
value (NPV) of Birr 374,260.00 discounted at 8.5 per cent, with 28.2 Internal Rate
of Return indicating that the project is very lucrative and profitable.

10.7.2 Profitability
As it could be seen from the annexed financial projections the project is
financially feasible (Annex Table 1 and 2). Based on the projected profit and loss
statement, the project will generate a profit through out its operation life. Annual
profit, net of tax, fluctuates between Birr 518,698 in the next year to Birr 612,577
at the end of the project. The profit and loss statement of the project shows that
the proposed project shall start generating net profit starting year two. This is to
say that the project shall start earning net profit just from its onset. The
cumulative cash balance is also expected to be highly positive for the years
under consideration. By the end of the project period the farm shall generate a
net profit of over 10 million birr (undiscounted).

21

11. Project Schedule/Activity Components

SN
1

Activity
Finalizing the necessary formalities and

Period
August 2008

securing the land

2

Acquiring investment certificate

August/2008,

Recruitment of personnel

September/ 2008,

Office and residence construction

October/2008

Access road improvement

November/2008,

Land preparation for nursery establishment

January/2009,

Land clearing for planting

April/2008,

Nursery management,

June/2009,+

Planting field preparation, pitting, refilling

June/2009

10

Planting of seedlings

July/2009

11

Plowing

Jan-March 2009

12

Sowing and weed management

April to August 2009

13

Harvesting and post harvest activities

Nove. to January
2009

22

12. Annexes

23

Annex Table 1. Project cash flow

Project year
Description
Inflow
gross value of production

10

330000

1066000

1066000

1258000

1354000

1546000

1546000

1546000

1546000

1546000

330000

1066000

1066000

1258000

1354000

1546000

1546000

1546000

1546000

1546000

58,253

111,747

140,000

Incremental residual value

Total inflow
Outflows
Investment

275,352

347,633

389,389

394669

404969

406900

407965

408000

408560

409670

incremental operating exp.

72,281

41,756

5,280

10,300

1,931

1,065

35

560

1,110

-3,997

incremental working capital

65,053

37,580

4,752

9,270

1,738

959

32

504

999

-3,597

377,400

406,200

463,800

463,800

463,800

463,800

463,800

Total out flow

398,658

496,960

534,141

781,339

812,907

871,659

871,797

872,304

873,359

869,873

Net Cash

(68658)

569,040

531,859

476,661

541,093

674,342

674,204

673,696

672,641

676,127

11

12

13

14

15

16

17

18

19

20

1546000

1546000

1546000

1546000

1546000

1546000

1546000

1546000

1546000

15460
00

1546000

1546000

1546000

1546000

1546000

1546000

1546000

1546000

1546000

405673

405673

405673

405673

405673

405673

405673

405673

405673

operating expenditure

Tax

Description
Inflow
gross
value
of
production
incremental
residual
value
Total inflow

24499
1570
499

Investment
Operating expenditure
incremental
exp.

operating

40567
3
0

incremental
capital

working

Tax

463,800

463,800

463,800

463,800

463,800

463,800

463,800

463,800

463,800

Total out flow

869,473

869,473

869,473

869,473

869,473

869,473

869,473

869,473

869,473

Net Cash

676,527

676,527

676,527

676,527

676,527

676,527

676,527

676,527

676,527

463,80
0
869,47
3
701,02
6

Annex Table 2. Coffee, sesame and haricot bean project profit & loss
statement for the year ending July 30

Project year
Description
Sales revenue

1
330000

Operating exp

275,352

347,633

389,389

394669

404969

406900

407965

408000

408560

409670

63,950

63,950

63,950

63,950

63,950

63,950

63,950

63,950

63,950

63,950

-9302

654,417

612,661

799,381

885,081

1,075,150

1,074,085

1,074,050

1,073,490

1,072,380

Depreciation
Profit before interest
and tax
Tax
Net Profit

2
1066000

3
1066000

4
1258000

5
1354000

6
1546000

7
1546000

8
1546000

9
1546000

10
1546000

377400

406200

463800

463800

463800

463800

463800

(9302)

654,417

612,661

421,981

478,881

611,350

610,285

610,250

609,690

608,580

Project year
Description
Sales revenue

11
1546000

12
1546000

13
1546000

14
1546000

15
1546000

16
1546000

17
1546000

18
1546000

19
1546000

20
1546000

Operating exp

405673

405673

405673

405673

405673

405673

405673

405673

405673

405673

Depreciation

63,950

63,950

63,950

63,950

63,950

63,950

63,950

63,950

63,950

63,950

1,076,377

1,076,377

1,076,377

1,076,377

1,076,377

1,076,377

1,076,377

1,076,377

1,076,377

1,076,377

Profit
before
interest and tax
Tax
Net Profit

463800

463800

463800

463800

463800

463800

463800

463800

463800

463800

612,577

612,577

612,577

612,577

612,577

612,577

612,577

612,577

612,577

612,577

Annex Table 3. Detailed investment costs

Total
No
1

2
3

Description
Road construction
-Access
road
improvement
- Bridges
-Farm road
Sub Total
Land development
Building & structures
Office 1
-staff residence (2)
Office 2
- Laborers residence
(2)
- Cafeteria
- Hand dug well
- Main store
- Material store
- Drying floor
- Fence (office & Store)
Sub total

Unit

Qty.

Annual distribution

cost

Initial

Km

15

100,000

100,000

No
Km

3
6

19,000
19,000
138,000

19,000
9,500
128,500

147,000

147000-

Year 1

Year 2

9,500
9,500
0

M2
M2
M2
M2

40
100
60
200

12,958
32,396
19438
40496

12,958
32,396
19438
20247

20,247

M2
M2
M2
M2
M2
M
-

40
120
40
40
100
500
-

16,198
24,298
8,099
8,099
2,025
80,992
244,999

16,198
24,298
8,099
8,099
2,025
80,992
224,750

20,247

26

- Generator with line

-Water pump
- Sprayers
-Farm tools
5

Sub totl
Office equipment
-Chairs
- Desks
- Shelves
- Filing cabinets

No
No
No
Ls

1
1
10
Ls

No
No
No
No
No

10
4
2
2
1

Sub total

43,000
50,000
4,000
10,000
507,000

43,000
50,000
4,000
5,000
502,000

5,000
5,000

800
1,600
400
1,200
4,000
8,000

800
1,600
400
1,200
4,000
8,000

897,999

863,250

111,747

70000

Total investment cost

N.B.
All Farm Machineries and equipment, except farm tools, are to be
imported. The foreign purchase cost is thus estimated at birr
497,000.00

Annex Table 4. Detail operating costs in birr

No
1

Description
Plantation
Management
- coffee weeding
and hoeing
- coffee capping
and pruning
- Crop guarding
- coffee picking
and transporting
Sesame 1st
weeding
Sesame 2nd
weeding
Sesame harvesting
Sesame threshing,
packing and
storing
Haricot bean
weeding
Haricot bean
harvesting
Haricot bean
threshing, packing

Unit

Year l

Annual distribution
Year 2
Year 3

Year 4

Mds/ha

1,500

3,000

3,000

3,000

Mds/ha

1,000

2,000

2,000

Mds/ha
Mds/ha

150
0

300
0

300
0

300
3,000

MD/ha

800

800

240

800

,,

800

800

240

800

,,
,,

1200
200

1200
200

360
60

1200
1200

,,

240

800

240

,,

360

1200

360

,,

60

200

60

60
27

4,710

8,100

8,260

12,960

9,420

16,200

16,520

25,920

56,520

97,200

99,120

155,520

13,380

12,960

0.55
2750
8

0.55
2750
8

0
0
2.4

0
0
8

12000
0

12000
21

3600
70

12000
21

0
5
5000

21000
5
5000

70000
0
0

21000
0
0

10
800

10
800

10
800

10
800

700
3500
24,800

1120
5600
50,000

1610
8,050
90,500

1360
6,800
47,400

26,000
17,250
9,200
5,700
58,150

26000
17500
9200
5700
58,400

26000
17500
9200
5700
58,400

26000
17500
9200
5700
58,400

5,815

5815

5815

5815

10,280

10280

10280

10280

7,800

7800

7800

7800

8500

10,000

10000

10000

10000

Total man days

Wage cost (Sub total)
2
3

nursery cost inbirr

(wage labor)
Materials
coffee seed
Q
birr
sesame
seed Q
8kg/ha
birr
haricot bean seed Q
70kg/ha
birr
fertilizer
qt/ha
fertilizer cost in birr
birr
Chemical in lt
lt
chemical cost in
birr
Sacks
No
sacks cost
birr

Total plantation operation

cost
4
Annual supplies
Fuel
Tractor
Generator
Water pump
Motor cycle
Sub total of fuel
5
- Oil & lubricant
(10% of fuel cost)
Repair
&
maintenance (2%
of machinery cost)
Vehicle insurance
(2% of vehicle cost)
Maintenance
of
building (2% of
building cost)
Travel
and
peridiem

28

Miscellaneous
Total
Land rent-Annual
expense
Salary & benefits
Project manager
Junior accountant
Secretary cashier
Forman
Store keeper
Guard
Sub total
Provident
&
others
(10%
salary)
Total
Total (1-4)

2,000
38,895
11,850

2000
38,895
11,850

2000
47,395
11,850

2000
38,895
11,850

0
10,200
6,000
4,800
9,600
3,600
7,200
53,250
5,325

0
10,200
6,000
4,800
9,600
3,600
7,200
53,250
5,325

0
10,200
6,000
4,800
9,600
3,600
7,200
53,250
5,325

0
10,200
6,000
4,800
9,600
3,600
7,200
53,250
5,325

58,575 58,575
250,320 316,030
25,032 31,603

58,575
353,990
35,399

58,575
358,790
35,879

275,352 347,633

389,389

394,669

Contingency (10%)

Total operating expense

Annex Table 5. Depreciation for building, equipment and vehicle

No

Item

Building
Tractor
and
Farm
machinery,
Equipments
Office
equipment

2
3

Total

Purchase/construction year

Annual depreciation

100,000
400000

100,000
107000

45,000
-

Years
of
service
20
10

10,000

10

1,000

1,000

1,000

510000

207000

45,000

63950

63950

63950

Year 1

Year 2

Year 3

12250
50700

12250
50700

12250
50700

Year 420
208,250
86190
0

29

17,00
0
1,087,15
0