ETHIOPIAN MEAT & DAIRY INDUSTRY

DEVELOPMENT INSTITUTE

FEASIBILITY STUDY FOR THE ESTABLISHMENT OF MILK

PROCESSING PLANT WITH CAPACITY OF 10,000 LIT/DAY

June, 2017
Bishoftu -Ethiopia
 TABLE OF CONTENTS
Page
1. EXECUTIVE SUMMARY................................................................................................................... 1
3. BRIEF DESCRIPTION OF THE PROJECT AND PRODUCT .......................................................... 2
4. CRITICAL FACTORS ......................................................................................................................... 3
5. GEOGRAPHICAL POTENTIAL FOR THE INVESTMENT ............................................................. 3
6. MARKET BACKGROUND................................................................................................................. 3
7. CURRENT SITUATION OF THE SECTOR AND INDUSTRY STRUCTURE ............................... 4
8. OPPORTUNITY RATIONALE ........................................................................................................... 4
9. CHALLENGES IN MILK PROCESSING SECTOR .......................................................................... 5
10. SUPPLY AND DEMAND ASSESSMENT ..................................................................................... 6
10.1. Present supply and demand .......................................................................................... 6
10.2. Projected demand ......................................................................................................... 6
11. PRICING........................................................................................................................................... 7
12. PLANT CAPACITY ......................................................................................................................... 8
13. RAW MATERIALS AND INPUTS ................................................................................................. 8
14. PRODUCTION PROCESS............................................................................................................... 8
15. ENVIRONMENTAL IMPACT ........................................................................................................ 8
16. PROJECT COST SUMMARY ......................................................................................................... 9
16.1. Project economics ......................................................................................................... 9
16.2. Project financing ........................................................................................................... 9
16.3. Project cost/capital Investment ..................................................................................... 9
16.4. Machinery and equipment, Land; Buildings, and civil works .................................... 10
16.5. Manpower required and labour cost ........................................................................... 10
16.6. Financial assumptions................................................................................................. 11
16.7. Financial analysis ....................................................................................................... 12
17. CONCLUSIONS............................................................................................................................. 16
18. RECOMMENDATIONS ................................................................................................................ 16
19. REFERENCES ............................................................................................................................... 16
 1. EXECUTIVE SUMMARY
The Ethiopian Government has projected to increase the national milk production, a surplus of 2501
million liters over projected domestic consumption requirements in the year 2020. A 93% increase in
national cattle milk production over the GTP II period (from 4132 in 2015 to 7967 liters in 2020) is an
opportunity for the already existed to expand their milk processing and the new entrants to be involved in
the dairy businesses.

The growing population, urbanization and huge public expenditure created job and market opportunity for
development of the dairy sector. The legal system also allows new entrants into business to setup dairy
farming and milk processing to produce different types of milk products.

This dairy sector investment opportunity brief highlights for the establishment of a dairy processing
facility to produce milk products that have an extended shelf life. The processing capacity of the facility is
assumed to be 10,000 liters per day of raw milk into four product categories; pasteurized milk, cheese,
butter, and cream. Total land area required is 5000 square meters out of which 500 square meters are built
– up area. The construction cost of buildings and civil works at a rate of Birr 6000 per m2 is estimated.

The total investment requirement is estimated at approximately Birr 11,441,572. The plant will create
employment opportunities for 30 individuals and provide steady and secure income for dairy producers
(out-growers). The project is financially viable. The project NPV & BCR shows that its acceptability and
Profitability.Thus, investing on dairy processing in Ethiopia is a profitable business for the investors.

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 2. INTRODUCTION
Ethiopia is reported to be endowed with the largest livestock population in Africa. Ethiopia has also the
largest number of milking cows in Africa, with 56.71 million cattle of which over 11.46 % are dairy
cows. Due to the very important role that the dairy sector plays in the economy of the country,
formulation of development plan regarding the sector is indispensable. Dairy has been identified as a
priority area for the Government, which aims to increase Ethiopian milk production. In line with, the
Government has projected to increase the national cow milk production, as a result of the proposed
interventions, during the GTP II; period (2015–2020) is 93%, a surplus of 2501 million liters over
projected domestic consumption requirements. This surplus of milk can then be substituted for imported
milk products and used domestically for new or additional industrial uses, or exported as milk powder or
UHT to raise foreign exchange earnings.

A future milk surplus could be realized through investment in better genetics, feed and health services,
improving both traditional dairy farms and commercial-scale specialized dairy production units. The
Government is actively supporting the private sector to produce UHT milk and is making supporting
investments in supply-chain infrastructure, training, and improved breeds, and dairy-focused Agricultural
Commercialization Clusters (ACCs). Ethiopia has close proximity to large regional consumers of milk
such as Sudan and Kenya, as well as to the Middle East markets.

Milk production and processing business have become the key industry in Ethiopia as well as all across
the world. Only 5% of the milk produced in Ethiopia is sold in commercial markets. The Ethiopian
Government has the view that strengthening competitiveness and promotion of enterprises remain
cornerstones for the growth of the economy and the creation of decent work opportunities. This means
that there will be a great opportunity to jump into commercial dairy farming and milk processing
business. Hence, investing in dairy processing in Ethiopia is a profitable activity.

3. BRIEF DESCRIPTION OF THE PROJECT AND PRODUCT

Dairy products currently sold in the Ethiopian market can be categorized into milk products, such as raw,
pasteurized, UHT and powder milk; butter products, such as fermented and pasteurized butter; and other
products, such as cottage and other type of cheese, sour milk and yogurt. Among these products powder
milk are not produced in Ethiopia at the moment, and are usually imported. Pasteurized (table/bread)
butter, yogurt and various type of cheese (apart from cottage cheese) are both imported and locally
produced.

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Development of successful and sustainable dairy industry will be realized by strategic interventions of the
investors in to all parts of possible entry points along the milk value chain especially on the innovation of
new products. Accordingly, several entry points to produce new products can be considered as
intervention opportunity in the dairy industry value chain with varied degree of resource requirement and
level of competitions.

4. CRITICAL FACTORS
 National cattle milk production has been identified as a priority area for the Government, which
aims to increase Ethiopian milk production in the GTP II period (2015-2020), from 4132 in 2015
to 7967 million liters in 2020.
 Quite a lot of incentive and support are available from the government at all level to ease the
entry of investors into the dairy industry.
 Due to the important nutritional value of milk, increasing consumption of milk either directly or
through fortified foods is often a priority of national health and nutrition programs.
 Ethiopia’s priority is to supply enough milk and dairy products for its population though own
production
 With the objective of promoting commercial dairy production and the inflow of foreign capital
and technology into the country, the Ethiopian government provides various packages of
regulatory fiscal incentives to both foreign and domestic investors engaged in establishing new
enterprises and expansions.

5. GEOGRAPHICAL POTENTIAL FOR THE INVESTMENT

Ethiopia is ecologically suitable where there is enough manpower, potential of good market, well fertile
soil to produce animal feed and suitable climatic condition for the production of good quality and quantity
products. Milk production is given priority over other livestock production systems due to ecological
conditions (rainfall, temperature, and soil types are conducive to forage production) and the population
pressure that favor commercial dairy production and milk processing.

6. MARKET BACKGROUND
Dairying is practiced almost all over Ethiopia involving a vast number of small or medium or large-sized,
subsistence or market-oriented farms. Of the total milk produced in the country only 5% is marketed as
processed fluid milk due to the underdevelopment of the infrastructure in rural areas.

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The volume and price of milk and other dairy product sales is increasing. For instance couple with
inflation, the price of raw milk per litre has increased from about Birr 2 per litre to about Birr 15 at
produced level within the last fifteen years. As a result of this many dairy cooperatives established, some
cooperatives collectedly formed unions for better marketing capability. In the past, increases in milk
demand have been mainly driven by population growth, whereas nowadays they are increasingly also
fuelled by rising per capita milk consumption in Ethiopia.
A variety of locally processed as well as imported milk products (fresh milk, pasteurized milk, UHT milk,
cream, cheese, butter, butter-cook, butter-table, Gouda cheese, cottage cheese, mozzarella cheese,
provolone cheese, cream cheese, fermented milk, and natural and flavored yoghurt) (Yilma et al., 2011).

7. CURRENT SITUATION OF THE SECTOR AND INDUSTRY STRUCTURE

There are thirty two formal sector dairy processors in Ethiopia and new processing facilities in various
stages of development. Most processors benefit from urban and peri-urban milk supply systems, and in
several cases have invested in their own dairy farms to ensure adequate milk supply and quality. Value
chain actors are already investing in milk production, collection and processing, and increased demand
would likely lead to increased investment. Market opportunity would lead to value chain deepening and
upgrading, more solid horizontal and vertical relationships with the value chain, and investment in core
value chain operations as well as needed services and inputs.

The legal system allows new entrants into business to setup businesses in different options. Depending on
the resources, there are incentives for investors to start up their business. New businesses required to have
certification of competency to get trade license for certain business. The entry of private firms in the
formal milk-market is a significant development indicating the profitability and potential of private
investment in the dairy sector in Ethiopia and that the policy environment is facilitating such entry.

8. OPPORTUNITY RATIONALE
 Increasing population, urbanization and income and trend towards consuming more animal
products
 Ethiopia has opted to raise milk production through genetics, feed and health interventions to
improve traditional family cow dairy production and expand and improve specialized dairy
production units over the GTP II period (2015-2020);
These interventions will result:

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  A 93% increase in national cattle milk production over the GTP II period (from 4132 in 2015 to
7967 liters in 2020); and the production of a surplus of 2501 million liters of cow milk over
projected domestic consumption requirements by 2020.
 The production can substitute for imported milk products and be used domestically for new or
additional industrial purposes or exported as milk powder or UHT to raise foreign exchange
earnings and stimulate production.
 The promotion on milk consumption by non-government organizations, initiatives by national
level projects, demand for dairy products increased significantly. Presence of good government
policy is an opportunity, which helps dairy industry to improve its position in the milk value
chain.
 Dairy farmers in urban, per-urban and rural dairy production system demonstrated strong interest
to expand dairying as one of the means of income generating activity. This is a great opportunity
for the entrants to collect and process raw milk into different milk products, and supply for
domestic and export markets.
 The future prospect of dairying is bright and much expected to be one of the major targets of the
prospective agro-processing industries in the country.
 Possibilities/capacities for improvement are available.
 New product development to increase customer selection.
 Distribution into multiple market channels to reach more consumers.

 There is political stability, conducive investment climate, government policy reforms, and market
orientation that is favorable for dairy investment.

9. CHALLENGES IN MILK PROCESSING SECTOR

 Only 5% of the raw milk is sold in commercial market. Lack of cooling facilities, inadequate
means of transport, and poor communication add to the difficulties of collecting and preserving
locally produced milk. These lead to surplus milk to be processed at the home into local cheese or
butter
 Unhygienic production and transport conditions and use of plastic containers (not easy to clean).
 The monitoring and control of milk and dairy regarding quality remains limited.
 Adulteration may be done by adding water, starch, sugar, etc. to compensate for density in raw
milk collection chain. These adulterants could act as contamination sources.

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  Processors do not differentiate in payment to farmers for quality milk (fat content, hygienic
quality, etc), mainly because there is no differentiated market for high quality milk products. The
same price is paid for poor quality milk and high quality milk subject to good handling practices.
 Informal milk marketing (milk hawkers/traders), it limits raw milk traceability and lack of milk
marketing policy.

10. SUPPLY AND DEMAND ASSESSMENT

10.1. Present supply and demand
There is inadequate supply of milk and milk products to urban consumers. The bulk of the increased
demand for milk is in urban areas, particularly for processed, i.e. pasteurized milk and milk-products.
There is also unstable supply of milk and milk products to urban consumers due to inefficient delivery
system and inadequate market outlet for milk and milk products from rural areas.The contribution of
imports of milk and milk-products to total consumption of milk has been rising over the past several
years, due to lack of quality milk production.

10.2. Projected demand

Demand for standard dairy products from the modern sector is met by domestic production and through
imports. The demand for milk depends on many factors including consumer preference, consumer’s
income, population size, price of the product, price of substitutes and other factors. In general, increasing
population growth (as in the following Table) and rising real income are expected to expand the demand
for milk and milk products. Therefore, increase in population growth and consumer income in the future
is expected to increase the consumption of milk products.

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Source: Yilma et al., 2011

The annual demand in Ethiopia for dairy products is increasing. This is as a result of the current high
population and future growth trends, a growing number of urban centers and urbanized lifestyles, and
finally steadies economic growth rates registered by the country and visible increased income levels of
the general population. In Ethiopia, the demand for milk products is increasing while supply is lagging.
As a result, imports have surged in recent years, which consist primarily of processed milk, including
cheese and milk powder.

11. PRICING
The current factory- gate price of pasteurized milk in Addis Ababa is 22Birr/liter. The price of processed
butter and cottage cheese is 180Birr/kg and 60Birr/kg, respectively. Distribution of the products could be
undertaken through small retail outlets as well as large wholesalers and catering establishments. The
product can be distributed by establishing own distributing stores in towns or the products will be
delivered directly to the customers to avoid unnecessary price increment which will affect the purchasing
power of customers.

The price of a product in the market is an important factor influencing consumer demand. Hence to be
marketable, a dairy product must be competitively priced. This implies that the costs involved in raw
material procurement, processing, packaging, storage, marketing and distribution must be kept as low as
possible.

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12. PLANT CAPACITY
Processing raw milk produces a number of products such as, pasteurized milk, cream, yoghurt, cheese and
butter, and investment could be on pasteurizing plants with a capacity of processing 10,000 litres per day.
The processing plant will start production at 75% of its installed capacity, which will grow to 90% in the
second year. Full capacity production will be attained in the third year and onwards.

13. RAW MATERIALS AND INPUTS

The principal raw material required for the production of pasteurized milk, butter, cheese and cream is
raw milk. In addition, small quantities of coagulation enzymes and salt are also required for the
production process. The raw (whole) cow milk and salt are available locally while the coagulation
enzymes have to be imported. The auxiliary materials required for the envisaged plant comprise packing
materials like plastic bags, glycine paper and carton box. The plastic bags and carton boxes can be
acquired from the local market while the glycine paper has to be imported.

14. PRODUCTION PROCESS

The milk will be taken directly from the milking collection centre to a cooling tank for temporary storage
and processed immediately. After cream separation process, the milk is filtered and sealed with plastic
bags or bottled and distributed to the market. Pasteurized milk would be packed into 500 milliliter plastic
containers, so two plastic containers would be used to package one liter of pasteurized milk. Cheese and
butter would be packed into 250 and 500gram paper packages. Whole milk is partially or totally separated
to produce standardized whole milk with 3% milk fat. After separation, cream is held in stainless steel
tanks and refrigerated at (4oC).

15. ENVIRONMENTAL IMPACT

Construction of effluent treatment plant is necessary in case of multiproduct large size plants for treating
the effluents before discharging for proper disposal. The milk processing plants has to be hygienically
designed and easily cleaned to prevent contamination of products by insects, birds, rodents or micro-
organisms. The dairy products plant does not have any pollutant emitted from the production process,
except the washing water, which has to be connected to appropriate sewerage line to get rid of. Thus, the
envisaged project is environment friendly.

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16. PROJECT COST SUMMARY
16.1. Project economics
Total land area required is 5000 m2 out of which 500 m2 are built – up area. The construction cost of
buildings and civil works at a rate of Birr 6000 per m2 is estimated.
The total investment requirement is estimated at approximately Birr 11,441,572. The plant will create
employment opportunities for 30 individuals and provide steady and secure income for dairy producers
(out-growers).

16.2. Project financing

Investment Own capital (25%) Loan (75%)

Total Physical Asset Investment 6,375,000 1,593,750 4,781,250
Working Capital 5,056,572 1,264,143 3,792,429
Pre-operational Expenses 10,000 10,000 -
Total 11,441,572 2,867,893 8,573,679

16.3. Project cost/capital Investment

Working Capital Requirement Annual Requirement in Requirement

no of days in Birr
Purchase of Raw Milk 40,851,000 15 1,678,808
Packaging material 7,496,976 90 1,848,569
Salaries 1,620,000 180 798,904
Benefits 243,000 180 119,836
Promotion and Advertisement 21,000 365 21,000
Rent 144,000 90 35,507
Car Running Expense 922,500 90 227,466
Interest Expense 743,637 90 183,363
Other Expenses (Utilities) 580,431 90 143,120
Total 5,056,572

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16.4. Machinery and equipment, Land; Buildings, and civil works

Investment
Total
Equipment Own (25%) Bank (75%)
Investment
Testing Equipment 10,000 2,500 7,500
Cream Separator 20,000 5,000 15,000
Homogenizer 100,000 25,000 75,000
Cooling Tank 100,000 25,000 75,000
Churner 25,000 6,250 18,750
Cheese Making Equipment 50,000 12,500 37,500
Milk Cans 20,000 5,000 15,000
Cold chain truck 1,500,000 375,000 1,125,000
Office furniture and equipment 50,000 12,500 37,500
Pickup 1,000,000 250,000 750,000
Deep Freezer 100,000 25,000 75,000
Pasteurizer 200,000 50,000 150,000
Packing machine 200,000 50,000 150,000
Total Equipment cost 3,375,000 843,750 2,531,250
Buildings and construction 3,000,000 750,000 2,250,000
Total Physical Asset Investment 6,375,000 1,593,750 4,781,250

Depreciation
Particulars Year 1 Year 2 Year 3 Year 4 Year 5
Beginning Book Value equipment 3,375,000 2,700,000 2,160,000 1,728,000 1,382,400
Depreciation for equipment 675,000 540,000 432,000 86400 69120
Beginning Book Value for building 3,000,000 2,850,000 2,707,500 2,166,000 1,732,800
Depreciation for building 150,000 142,500 135,375 108,300 86,640

Total Depreciation 825,000 682,500 567,375 453,900 363,120

16.5. Manpower required and labour cost

Total Monthly Annual

Position Quantity Salary
Salary Salary
Manager 1 15,000 15,000 180,000
Supervisor/Technologist 3 8,000 24,000 288,000
Collector and Accountants 3 6,000 18,000 216,000
Processing Operators 6 5,000 30,000 360,000
Helpers 12 3,000 36,000 432,000
Driver 2 3,000 6,000 72,000
Security Guard 3 2,000 6,000 72,000
Total 30 135,000 1,620,000

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16.6. Financial assumptions
The projected annual milk yield in GTP-II period (2015-2020) for the year 2017/18 from improved family
dairy and specialized dairy system will be 739 and 863 million liters, respectively. Accordingly, the
contribution of both systems, improved family dairy and specialized dairy system, may reaches to a total
of 1,602 for the year 2017/18. The envisaged dairy processing unit assumed to be a purchasing share of
the business about 0.17% (raw milk contributed only from improved family dairy and specialized dairy
system, regardless of other dairy system contribution).

Milk production potential

Annual milk production of improved family dairy and Specialized 1,602,000,000
dairy system Liter
Purchasing share of the business 0.17%
2,723,400
Total Milk Collection
Liter
Daily milk collection capacity 7461 Liter

Marketing Capacity
Year 1, 2018 75%
Year 2, 2019 90%
Year 3 ,2020 100%
Projected annual dairy production growth 20%
Average Market Share growth 0.1%
Milk Wastage – leaks 1%

Output (Product) Mix

Pasteurized milk 90%
Butter 0.40%
Cheese 0.80%
Cream 0.56%

Purchasing and Selling Price of milk and milk products

22 Birr per liter
Pasteurized milk
milk
Butter 180 Birr per kg
Cheese 70 Birr per kg
Cream 80 Birr per kg
15 Birr per liter
Raw Milk Purchase Price
milk
3 Birr per liter/kg
Packaging material purchase
produced

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Employee Salary & Benefit & Rent
Annual increment 10%
Employee Benefit 15%
Rent - storage 2000 Birr per month
Rent - Collection center 10,000 Birr per month
Vehicle Running and Depreciation Expenses
Fuel and Lubricant per day 2500 Birr per day
Annual Vehicle Maintenance 10,000 Birr per annum
Vehicle operation days 365 days
Depreciation Rate for equipment 20%
Depreciation Rate Buildings 5%
Other expenses (utilities) 1%

16.7. Financial analysis

Milk collection volume and sales
Particulars Year 1 Year 2 Year 3 Year 4 Year 5
Purchase Volume
Milk Purchase 2,723,400 3,270,803 3,650,000 3,650,000 3,650,000

Milk Loss 27,234 32,708 36,500 36,500 36,500

Net milk available 2,696,166 3,238,095 3,613,500 3,613,500 3,613,500

Sales Volume
Pasteurized milk 2,426,549 2,914,286 3,252,150 3,252,150 3,252,150

Butter 10,785 12,952 14,454 14,454 14,454

Cheese 21,569 25,905 28,908 28,908 28,908

Cream 15,099 18,133.33 20,236 20,236 20,236
Sales in Birr
Pasteurized milk 53,384,087 64,114,288 71,547,300 1,547,300 1,547,300
Butter 1,941,240 2,331,429 2,601,720 2,601,720 2,601,720

Cheese 1,509,853 1,813,333 2,023,560 2,023,560 2,023,560

Cream 1,207,882 1,450,667 1,618,848 1,618,848 1,618,848

Total Sales 58,043,062 69,709,717 77,791,428 7,791,428 7,791,428

Purchase Cost 40,851,000 49,062,051 54,750,000 4,750,000 54,750,000

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Projection of Income Statement

Particulars Year 1 Year 2 Year 3 Year 4 Year 5

Sales 58,043,062 69,709,717 77,791,428 77,791,428 77,791,428

Costs and Expenses
Purchase of Raw Milk 40,851,000 49,062,051 54,750,000 54,750,000 54,750,000
Gross profit 17,192,062 20,647,666 23,041,428 23,041,428 23,041,428
Packaging material 7,496,976 9,003,868 10,813,645 10,813,645 10,813,645
Salaries 1,620,000 1,782,000 1,960,200 1,960,200 1,960,200
Benefits(Incentives) 243,000 267,300 294,030 294,030 294,030
Depreciation 825,000 682,500 567,375 567,375 567,375
Promotion and 21,000 21,000 21,000 21,000
21,000
Advertisement
Lease/rent 144,000 144,000 144,000 144,000 144,000

Car running expense 922,500 922,500 922,500 922,500 922,500

Interest Expense 1,028,841.48 823,073.18 617,304.89 411,536.59 205,768.30
Other Expenses (Utilities) 580,431 697,097 777,914 777,914 777,914

Total Costs and Expenses 12,881,748 14,343,338 16,117,969 15,912,201 15,706,432

Net Income 4,310,314 6,304,328 6,923,459 7,129,227 7,334,996

Provision for Tax 431,031.40 630,432.80 692,345.90 712,922.70 733,499.60
Net Income After Tax 3,879,282.60 5,673,895.2 6,231,113.1 6,416,304.3 6,601,496.4

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Project Cash flow Statement
Particulars Year 0 Year 1 Year 2 Year 3 Year 4 Year 5
Cash in flow
Own equity 2,867,893
Loan received 8,573,679
Cash sales 58,043,062 69,709,717 77,791,428 77,791,428 77,791,428
Total Cash inflow 11,441,572 58,043,062 69,709,717 77,791,428 77,791,428 77,791,428
Cash outflow
Investment expense 6,385,000
Purchase of raw milk 40,851,000 49,062,051 54,750,000 54,750,000 54,750,000
Packaging material 7,496,976 9,003,868 10,813,645 10,813,645 10,813,645
Salary 1,620,000 1,782,000 1,960,200 1,960,200 1,960,200
Depreciation 825,000 682,500 567,375 567,375 567,375
Overhead cost 1,910,931 2,051,897 2,159,444 2,159,444 2,159,444
Interest expense 1,028,841.48 823,073.18 617,304.89 411,536.59 205,768.30
Loan repayment 1,714,735.80 1,714,735.80 1,714,735.80 1,714,735.80 1,714,735.80
Total Cash outflow 6,385,000 55,447,484 65,120,125 72,582,705 72,376,936 72,171,168
Net cash flow 5,056,572 2,595,578 4,589,592 5,208,723 5,414,492 5,056,572
Beginning cash balance 5,056,572 7,652,150 12,241,742 17,450,465 22,864,957
Ending Cash Balance 7,652,150 12,241,742 17,450,465 22,864,957 27,921,529

16.8. Measure of project worthiness

Net Present Value (NPV) and Benefit ratio (BCR) computation at 12% discount rate
Year Investment Gross Cost Discount Present Gross Discou Present
(oper+prod.cost) factor Value(birr) Benefit(birr) nt Value(birr)
factor
0 6,385,000 6,385,000 1.000 6,385,000
1 12,881,748 0.893 11503400.96 17,192,062 0.893 15,352,511
2 14,343,338 0.797 11431640.39 20,647,666 0.797 16,456,190
3 16,117,969 0.712 11475993.93 23,041,428 0.712 16,405,497
4 15,912,201 0.636 10120159.84 23,041,428 0.636 14,654,348
5 15,706,432 0.567 8905546.944 23,041,428 0.567 13,064,490
Total 6,385,000 74,961,688 0.734 53,436,742.06 106,964,012 0.734 75,933,036

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Net Present Value (NPV)
NPV = Present value of gross benefit - Present value of gross cost
= 75,933,036.00 - 53,436,742.06
= 22,496,293.94
The net present value is greater than zero. There for this milk processing project is accepted and
viable. So its implementation will provide good benefit for the investor.

Benefit- Cost Ratio (BCR)

BCR = Present Value of gross benefit
Present Value of gross cost
= 75,933,036.00
53,436,742.06

= 1.42
The ratio is greater than one. This means that the project owner will recover the investment , it is
profitable.

Loan Repayment Schedule

Year Principal Installment Interest Total Payment

Outstanding due payable at 12%
1 8,573,679.00 1,714,735.80 1,028,841.48 2,743,577.28
2 6,858,943.20 1,714,735.80 823,073.184 2,537,808.98
3 5,144,207.40 1,714,735.80 617,304.888 2,332,040.69
4 3,429,471.60 1,714,735.80 411,536.592 2,126,272.39

5 1,714,735.80 1,714,735.80 205,768.296 1,920,504.10

Total 0 8,857,893 3,086,524.44 11,660,203.44

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17. CONCLUSIONS

The future prospect of dairying in Ethiopia is bright since the entry of private firms in the dairy
production and processing businesses will have a significant development indicating the profitability.
Investing in milk processing plant for long-life milk production in Ethiopia is a promising opportunity for
dairy-related investors. Investing on dairy processing in Ethiopia is a profitable business since financially
viable with having a high internal rate of return. The dairy processing investments could increase capacity
in dairy products into a range of markets including export.

18. RECOMMENDATIONS

 Ethiopia has the untapped dairy resource potential and market i.e., its population, the market is
tremendous and overwhelming in the years ahead. Thus, investing on dairy processing in Ethiopia is a
profitable business.
 Private investment in the dairy sector has an opportunity of high volumes raw milk as raw material,
available in central highland regions.
 Dairy industry currently lacks some categories of products in terms of variety, quality and quantity in
Ethiopia. The processors can seek ways to increase capacity, and invest aggressively in product
development.
 Dairy producers and processors already have the passion to reinvest in their operations and develop
new, innovative products for the neighbouring countries and to the rest of the world at large to enjoy.

19. REFERENCES

Shapiro, B.I., Gebru, G., Desta, S., Negassa, A., Nigussie, K., Aboset, G. and Mechal, H. 2015: Ethiopia
livestock master plan. ILRI Project Report Nairobi, Kenya: International Livestock Research
Institute (ILRI).

SNV, 2008: Dairy Investment Opportunities in Ethiopia. By TAM Consult, Netherlands Development
Organization (SNV), Addis Ababa, Ethiopia. pp 59:

Yilma, Z., G.B., Emannuelle and S., Ameha. 2011: A Review of the Ethiopian Dairy Sector. Ed. Rudolf
Fombad, Food and Agriculture Organization of the United Nations, Sub Regional Office for
Eastern Africa (FAO/SFE), Addis Ababa, Ethiopia, pp 81.

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