KECH

EMA
POULT
RY
PRODU
CTION

1
 Project Proposal

October, 2013

“It was my dream to build an Ethiopia where foreigners would come not to report on drought and poverty,
but to invest in our country…this is proof that the struggle was not in vain.” Melese Zenawi

Executive Summery

This profile envisages the establishment of a farm for the rearing of poultry with raising capacity
of 1500 heads of poultry in the year 2013/2014. Kechema Poultry production is located in
Adama town at Bole sub city where the climatic and environmental situation suitable for poultry
production. Poultry meat and eggs have become the most important sources of protein in the
human diet by using it directly or after passing through food processing industries. The
production center is established in the area of 200 meter Kare of land from which 60meter kare is
the actual house of poultry to be established.

The major inputs and auxiliary raw materials required are day old chickens, twelve weeks
chickens, commercial formula feed, and high quality vaccines which have to be available in
commercial market.

The present unsatisfied demand for poultry product in Adama and Addis Ababa is estimated at
250 tons of meat and 2100 tons of eggs and 7,750 tones meat and 5,410 tones eggs respectively.
The demand is expected to reach at 10, 845 tones and 12, 238 tones for eggs and poultry meat
respectively by the year 2020.

The source of finance will be 20% from self-investing where as 80% from Micro enterprise. The
project is financially viable with an internal rate of return (IRR) of 5.6 % and a net present value
(NPV) of birr eight hundred thousand, discounted at 8.5 %. The poultry farm has a backward
linkage effect on animal feed processing industries and a forward linkage effect on food
processing industries and consumers.

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 Table of Contents
1. INTRODUCTION...................................................................................................................................2
2. FARM DESCRIPTION AND APPLICATION..............................................................................................5
3. Objective of the Project:......................................................................................................................6
4. Vision...................................................................................................................................................6
5. MARKET STUDY and situational analysis..............................................................................................6
6. PROJECTED DEMAND...........................................................................................................................8
7. Pricing and Distribution.......................................................................................................................9
8. FARM INPUTS AND UTILTIES..............................................................................................................10
9. Production Process............................................................................................................................11
10. Equipment........................................................................................................................................12
11. Land, Building and Civil Works.........................................................................................................12
12. MANPOWER REQUIREMENT............................................................................................................12
13. FINANCIAL ANALYSIS.......................................................................................................................13
14. Financial Statements.......................................................................................................................15
15. FINANCIAL EVALUATION..................................................................................................................18
1. Profitability........................................................................................................................................18
2. Ratios.................................................................................................................................................18
3. Break-even Analysis...........................................................................................................................19
4. Payback Period..................................................................................................................................19
5. Internal Rate of Return......................................................................................................................19
6. Net Present Value..............................................................................................................................20
7. ECONOMIC BENEFITS.........................................................................................................................20

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 1. INTRODUCTION
Poultry is an important farm species in almost all countries. It is an important source of animal
protein, and can be raised in situations with limited feed and housing resources. Chickens are
‘waste-converters’: they ‘convert’ a scavenged feed resource base into animal protein. They are
therefore by far the most important species for generating income for business community.

Poultry farming is widely practiced in Africa almost every farmstead keeps some poultry mainly
for consumption and cash sales. Religions and cultural considerations are also amongst the
reasons for keeping chickens by resource poor farmers in Africa.

In Ethiopia, the agricultural sector is a corner stone of the economic and social life of the people.
The sector employs 80-85 percent of the population and contributes 40 percent to the total GDP.
Livestock production, as one component of agriculture, covers 40 percent of agricultural output
and it also plays an important role in the national economy as it contributes 13-16 percent of the
total GDP. The diverse agro ecology and agronomic practice prevailing in the country together
with the huge population of livestock in general and poultry in particular, could be a promising
attribute to boost up the sector and increase its contribution to the total agricultural output as well
as to improve the living standards of the poor livestock keepers. Poultry production, as one
segment of livestock production, has a peculiar privilege to contribute to the sector. This is
mainly due to their small size and fast reproduction compared to most other livestock and its well
fitness with the concept of small-scale agricultural development. Moreover, it goes eco-friendly
and does not compete for scarce land resources.

In addition to this, households in Ethiopia keep birds for household consumption, sale and
reproduction purposes including other social and cultural roles. The chicken population of

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Ethiopia is estimated to be about 65 million heads. Despite the high number, their contribution to
farm households and national income is relatively very low.

According to the Central Statistical Authority (2004-2005) about 98% of the total national
poultry population consists of indigenous chickens which are low in production capacity and the
remaining 2% consists of the introduced exotic breeds of chickens. The indigenous poultry
rearing is not providing valuable and significant contribution for household income and country
at large.

Beside to these, there has been a gradual decline in the Ethiopian poultry population. According
to the Central Statistical Authority (2004-2005), the Ethiopian poultry population was estimated
at 85 and 31 million in 1954 and in 2005 respectively. The Sub-Sector Review (1984) estimated
the average number of chickens per household at 6.5 in 1984 whereas the average number of
chickens per household is estimated at 4.1 in 2003 (CACC, 2003). These figures show that the
country’s poultry population has declined by 64% over the last 50 years, while the average
number of chickens per household has declined by 37% over the last 20 years. However; the
demand for poultry products increases annually at 2 to 3%.

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The four major Regional States in terms of land area and human population (Oromiya, Amhara,
SNNP, and Tigray) collectively account for about 96% of the total national poultry population.
Chicken rearing is not common in the lowlands of Ethiopia i.e. Somali, Gambella, Afar and
Benishangul-Gumze Regional States, which collectively own 3.24% of the total national chicken
population.

Oromiya region has about 34.4% of the total national chicken population and contributes 36% of
the total annual national egg and poultry meat production. The region’s rural areas constitute
about 97.1% of the total regional chicken population while the urban areas constitute 2.9%. The
Regional State is divided into 12 Administrative Zones of which North, East and West Shewa
Zones together account for more than 25% of the total regional chicken population, followed by
East and West Welega Zones, contributing about 18% of the region’s chicken population. Arsi
and Jimma Zones each account for about 12% of the total regional chicken population.

Almost all the available commercial poultry farms of the country are located in Oromiya region
specifically in and in the vicinity of Debre Zeit (Table 2).

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The medium to large-scale commercial production system is highly intensive production system
involves an average of 5000- 10,000 birds kept under indoor conditions with a medium to high
bio-security level. This system heavily depends on imported exotic breeds that require intensive
inputs such as feed, housing, health, and modern management systems.

The level of poultry production and distribution of egg, chicken and meat of hen are not
sufficient enough to accommodate the current demand of both the urban and rural community.
People are more demanded for protein’s food items both in quality and quantity. According to
CSA report that Ethiopia population consumption demand for poultry is increase at the rate of
2% to 3% annum.

Therefore; Kechema poultry production firm will try to solve the above problems through
providing eggs for urban residence and businesses community and rural community, chicken for
rural smallholders’ poultry production households and processed and packed meat to consumers
as much as possible. The firm is established by well-educated experts in the area and detail
investigation has been taken place.

2. FARM DESCRIPTION AND APPLICATION

KECHEMA poultry production center will be established in Oromia regional State, East shoa
Zone, Adama Town, in Bole Sub city, Kebele four. The climatic condition and environmental
situation are conducive for rearing of poultry. The firm is established in 200meter square land in
which 64 meter square is covered by poultry house. The firm has three phases, the first phase
will be implementing by rearing egg production, the second will be on chicken production for
households making an agreement with responsible bodies and the third will be further processing
poultry products as consumers need. The first phase will be implemented from November, 2013
to January, 2015 on 1500 chicken from certified farms, the second phase will be from January
2015 to January 2016 by taking day old chicken from certified farm and managed to grow ten to
twelve weeks, and the third phase will be from January 2016 to January 2017 through processing
birds meat and other byproduct following market survey and the need of the customers.

Concerning the supply of Chicken for the firm during the implementation of the first phase of the
project, a day old chicken will purchased from certified farms or from recognized Debreziet
poultry production institutions. The project will be pursue its first phase using delivery of 1500

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vaccinated a day old chicken. One advantage of a day chicken is easily adapted to
environmental condition and hardening off the situation. In other word, day old chicken is
cheaper and easy to move from point of production of site to host area.

The farm will operate at 70% and 85% of its rated capacity in the first and second year. Full
production capacity will be achieved in the third year and then after.

ANNUAL PRODUCTION PROGRAMME

Sr. Description
Year 1 Year 2 Year 3-10
No
1 Production 150,000 180,000.00 216,000.00
(heads).
2 Capacity 70% 85% 100%
utilization (%)

3. Objective of the Project:

The main object of the project proposal is to serve residence of Adama and its surrounding in
providing quality, adequate and sustainable poultry products as much and possible and create
job opportunity for unemployment.

4. Vision
To be one of the distinguishing poultry production in Ethiopia and further more in east Africa in
Egg production, Chicken breeding and Meat production

5. MARKET STUDY and situational analysis

It is well known that poultry production has not only economic value but also social and cultural
value too. Most of our country people use poultry products for the purpose of taking eggs and
poultry meat as their usual diet. For our country particularly use poultry meat in the form of

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“Doro Wet” which is prepared from poultry meat and eggs is one of the favorite dishes of the
population which is prepared especially during religious festivals and holiday. Moreover, eggs
as they are easy to prepare and digest, have good test and nutritional value are becoming the
favored breakfast items in urban areas like Adama and Addis Ababa. Accordingly, due to the
traditional consumption habit and as the awareness of the population on the nutritional and other
advantages of poultry products increases the market for the products is also expected to expand.

Most of the chickens and egg that are supplied to capital cities (Adama & Addis Ababa) are from
Adama and its surroundings. However, the demand and supply for the poultry products are not
matching each other for the last years. There is high shortage of poultry products for urban
residences. For example, the supply for eggs and chicken which have been supplying to Addis
Ababa Market was estimated to be 56 million and 2.1 million according to Livestock Marketing
Authority in 2004. But the demand was fivefold.

According to the unpublished data of the City Administration’s (Addis Ababa) Urban
Agriculture Department (2005), the per capita consumption in Addis Ababa was about 2.28 kg of
eggs and 2.5 kg of poultry meat. Accordingly, considering the total population size of Addis
Ababa in 2008 the total consumption of the products is given in Table 3

Table 3

TOTAL EGG AND POULTRY MEAT CONSUMPTION OF ADDIS ABABA (2008)

Egg consumption per person Kg 2.8

Population size Head 3,400,000
Total consumption Kg 9,520,000
Poultry meat consumption per person Kg 2.5
Population size Head 3,400,000
Total Consumption Kg 8,500,000
The total current consumption of egg and poultry meat in Addis Ababa is 9,520 tones for egg and
8,500 tones for poultry meat. It is estimated that the poultry population in the Addis Ababa is
about 350,000 where most of the chicken are raised on small scale level in the backyards. The
poultry population is insignificant as compared to the national poultry population, which is

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estimated at about 63 million. The existing chicken’s population in the City is estimated to
produce about 2,342 tons of egg and 705 tons of poultry meat. The present unsatisfied demand
for poultry meat and eggs in Addis Ababa is estimated at 7,750 tones and 5,410 tones,
respectively.

6. PROJECTED DEMAND
It is well known there is mismatch between supply of poultry products and its demands. There is
high level of population growth for consumption of protein diets. Both Urban and rural part of
the country is on growing in consumption level and living standards which demands for better
life. Accordingly, the rapidly increasing population of the city will augment the demand for
poultry products such as egg and poultry meat. With increasing income or purchasing power,
people demand more diversified food products like poultry products. Therefore, the level of
poultry products consumption has a strong association with the growth of income. One of the
indicators that measure the economic performance of a country and the well-being of the
population is GDP. During the period 1995-2005 real GDP growth averaged 5.8% a year, export
grew by about 5% a year, annual inflation averaged about 4% and in year 2005 investment had
risen to 16% of GDP. The positive performance of the Ethiopian economy is expected to
continue in the future. As a result, the market for poultry products may also be expected to
increase as economic expansion lead to a raise in the income level of the population.
Accordingly, the demand for the products is estimated to grow on average at 2.5% per annum
which is equivalent to the population growth.

PROJECTED DEMAND ( IN TONNES)

Year Eggs Poultry Meat

2008 5,567 7,975

2009 5,728 8,206

2010 5,894 8,444

2011 6,065 8,689

2012 6,241 8,941

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2013 6,422 9,200

2014 6,609 9,467

2015 6,800 9,741

2016 6,997 10,024

2017 7,200 10,315

2018 7,409 10,614

2019 7,624 10,922

2020 7,845 11,238

The Adama city population, according to the 1994 and 2007 census was 127,842 and 220,212
respectively. The 2011 population sample survey for Adama revealed that the Population of
Adama was 260,600. There is an increase of 0.7 thousand or 50 % increase over a decade period.
The annual increase over the period 1994-2007 is 50 %. It is similar to Addis Ababa city
administration.

The population grows at an average annual growth rate of 2.9%. The city population is estimated
to reach 300,643 in year 2015. Accordingly, the rapidly increasing population of the city will
augment the demand for poultry products such as egg and poultry meat. Therefore, the data
shows there is high demand for poultry meat and egg in capital cities.

7. Pricing and Distribution

The envisaged farm, as a new entrant into the market, has to penetrate the market and create
awareness and product loyalty first. Therefore, the objective of the pricing policy is be to gain a
foot hold in the market, get a sizable market share and attempt to sustain a reasonable
profitability, which at the initial stage, could only be achieved through charging of lower prices
that could influence users of the product. Accordingly, by taking the price of live chicken (three
months) in to consideration 110 per head or two birr per eggs is proposed for the envisaged plant.

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The product can be sold directly to loyal customer who directly distribute to Adama and Addis
Ababa Markets. There will be strong market networking with loyal customers. In addition to this
there will be direct sale for individual buyers existing outlets such as consumers, super markets,
small scale farmers and specialized food items department stores can be used.

8. FARM INPUTS AND UTILTIES

A. FARM INPUTS

The principal farm inputs required are chicken for breeding, poultry feed, and medicines.
Chickens and poultry feed required by the plant can be acquired locally. The annual requirement
for farm inputs and the corresponding cost at 100% capacity utilization is given in Table 4.1. The
total annual cost of farm inputs is estimated at Birr 1,103,200.

Table 4

ANNUAL REQUIREMENT AND COST ESTIMATES OF FARM INPUTS

Sr.No. Description Unit of

Measure Qty. Unit price Cost (‘000 Birr)

1. Chickens (breed), day old No. 1500 22 33

2. Animal feed Tones 5 10,000 50

3. Medicines Kg 5 2000 10

Grand Total - - 93,000.00

B. UTILITIES

The major utilities required are: water for feeding chickens and general purpose, electric power
for lighting and heating. The total yearly consumption of utilities at 100% capacity utilization

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rate and their estimated costs are given in Table 4. The total annual cost of utilities is estimated
at Birr 29,950.

Table 4

ANNUAL UTILITIES REQUIREMENT AND ESTIMATED COST

Sr. Cost Birr

No. Description Unit of

Measurement Qty. Unit Cost Total Cost

1. Water m3 1000 6.0 6000

2. Electric power kWh 1000 0.50 500

Grand Total 6500.00

9. Production Process
The chicks live in the houses which hold as many as 1,500 birds. These grow out houses are kept
at about 85° F (29.4° C) through heating and ventilation controls. The birds are not caged, and
typically they are provided with approximately 0.8 sq ft per bird. The floor of the house is
covered with a dry bedding material such as wood chips, rice hulls, or peanut shells. The birds
are fed a diet of chicken feed, which is typically 70% corn, 20% soy, and 10% other ingredients
such as vitamins and minerals. When the chickens are old enough for slaughter, they are
collected and shipped to the processing plant.

Sick chickens are treated with antibiotics or other medications. These chickens then go through a
withdrawal period before slaughter, to make sure no medication residue remains in their meat.
The chickens are usually watered through nipple drinkers, so that they don't spill and wet their
bedding. A significant waste produced in chicken farming is the feces of the birds. Because the
flocks are so large, with 5,600 chickens per batch typical for a broiler growing-out farm, the
amount of feces is enormous. So these feces has to be collected and used for sale, fertilizer or bio
gas generation for own energy source. By doing, the environmental effect will be controlled.

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10. Equipment
The list of required plant machinery and equipment is given in Table 5. The cost of equipment is
estimated at Birr 4400

Table 5

EQUIPMENT REQUIREMENT FOR POULTRY REARING

PLANT WITH ESTIMATED COSTS

Sr. No Cost ( Birr)

Description Qty. No unit cost . Total

1. Drinking system 20 120 2400

2. Feeding system (set) 20 100 2000

Grand Total 4400.00

11. Land, Building and Civil Works

The total area of land required for the plant is about 200 square meters. The total built up area
will be 60 square meters and the estimated cost of building, at the rate of Birr 200 per m2, will
amount to Birr 12,000.

12. MANPOWER REQUIREMENT

The total manpower required will be four persons. A detail of manpower and annual estimated
labor cost is given in Table 6. The total annual manpower cost is estimated at Birr 57, 6000.

Table 6

MANPOWER REQUIREMENT AND ESTIMATED LABOUR COST

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Sr. Salary, Birr

No. Description No. of Persons Monthly Annual

1. Manager 1 1,500 18,000

3. Veterinary technician (diploma level) 1 1,500 18,000

4. Laborer 1 900 10,800

7. Sales/Purchase man 1 900 10,800

Sub-Total 4 57,600

13. FINANCIAL ANALYSIS

The financial analysis of the poultry rearing and processing project is based on the data presented
in the previous chapters and the following assumptions:-

Construction period………………………………………………………. One month

Source of finance ……………………………………………………….. 20 % equity

………………………………………………………….80 % loan

Tax holidays ………………………………………………………………..3 years

Micro finance interest……………………………………………………….8.5%

Discount cash flow ………………………………………………………..8.5%

Accounts receivable………………………………………………………. 30 days

Raw material local …………………………………………………………30 days

Work in progress …………………………………………………………..90 days

Finished products …………………………………………………………3 days

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Cash in hand ………………………………………………………………5 days

Accounts payable …………………………………………………………30 days

Repair and maintenance ………………………………………………5% of machinery cost

A. TOTAL INITIAL INVESTMENT COST

The total investment cost of the project including working capital is estimated at Birr

964,000. The major breakdown of the total initial investment cost is shown in Table 7.

Table 7

INITIAL INVESTMENT COS

Sr.

No. Cost Items Local Cost Foreign Cost Total Cost

1 Land lease value free - 0

2. Building and Civil Work 12,000 - 12,000.00

5. Pre-production Expenditure * 8000 - 8000.00

6. Working Capital 130,000 130,000

Total Investment cost 150,000.00

* N.B Pre-production expenditure includes training, registration, licensing and formation of the company
including legal fees, commissioning expenses, etc.

B. PRODUCTION COST

The annual production cost at full operation capacity is estimated at Birr 1,250,100 (see Table
7.2). The raw material cost accounts for 88.25 per cent of the production cost. The other major
components of the production cost are depreciation, utilities and maintenance which account for

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 8.02 %, 2.39% and 1.24 % respectively. The remaining 0.1% is the share of other administration
cost.

Table 7.2

ANNUAL PRODUCTION COST AT FULL CAPACITY

Items Cost

Raw Material and Inputs 120,000.00

Utilities 6500.00

Maintenance and repair 2000.00

Administration Costs 1000.00

Total Operating Costs 127,000.00

14. Financial Statements

projected poultry production
Income statement
For the three years
Revenue: Year 1 Year 2 Year 3

Sales 432,000 720,000 800,000

Expenses:

Raw material 93,000.00 102,300.00 112,530.00

Utility 6500.00 7475.00 8596.00

Repair & maintenance 2000.00 2200.00 2400.00

Depreciation expense 1500.00 1500.00 1500.00

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Interest expense 12,750.00 12,750.00 12,750.00

Total operating cost 115,750.00 126,225.00 137, 776.00

Gross profit 316, 250.00 593,775 662,224.00

Administration cost 1,000.00 1,000.00 1,000.00

Salary expense 57,600.00 63,360.00 69,696.00

Other expenses 10,000.00 11,000.00 12,000.00

Total Administration cost 68,600.00 75,460.00 82, 696.00

Net Income 247, 650.00 518, 315.00 579, 528.00

projected poultry production

Cash flow
For the three years
Year 1 Year 2 Year 3

Cash inflow from Investment

Self-Investment 50,000.00

Borrowing 150,000.00
Total cash inflow from investment 200,000.00

Cash inflow from Operation 300,000.00 330,000.00 363, 000.00

Total cash inflow from investment & operation 500,000.00 550,000.00  605,000.00

Cash out flow for Investment 200,000.00 150,000.00

Cash out flow for operation 100,000.00 110,000.00

Payment of loan 35,000.00

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Dividend 150,000.00

total cash out flow 300,000 445,000.00

200,000.00 105,000.00

projected poultry production

Balance sheet
For the three years

Year 1 Year 2 Year 3

Current Asset

Cash in bank 297,650.00 523, 315.00 584, 528.00

Cash on hand 40,600.00 40,600.00 40,600.00
  Account receivable 80,000.00 120,000.00 150,000
supplies 5000.00 10,000.00 15,000.00
 Fixed asset
Building 20,000.00 18,000.00 16,200.00
  Utilities 4400.00 3960.00 3564.00
Total Asset 447,650.00 715,875.00 809, 892.00
Liabilities and owner Equity

  Account Payable 150,000.00 150,000.00 100,000

Owner Equity 297, 650.00 565, 875.00 709,892.00
 Total Liability and Owner Equity 447,650.00  715,875.00  809,892.00

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15. FINANCIAL EVALUATION
1. Profitability
Based on the projected profit and loss statement, the project will generate a profit throughout its
operation life. Annual net profit after tax will grow from Birr 247, 650.00 to Birr 518, 315.00
during the three years of the project. Moreover, at the end of three year project life the
accumulated cash flow amounts to Birr 605,000.00

2. Ratios
In financial analysis financial ratios and efficiency ratios are used as an index or yardstick for
evaluating the financial position of a firm. It is also an indicator for the strength and weakness of
the firm or a project. Using the year-end balance sheet figures and other relevant data, the most
important ratios such as return on sales which is computed by dividing net income by revenue,
return on assets (operating income divided by assets), return on equity (net profit divided by
equity) and return on total investment (net profit plus interest divided by total investment) has
been carried out over the period of the project life and all the results are found to be satisfactory.

Therefore;

Return on sale= 247, 650.00 /447,650.00=0.55

Return on equity= net profit/equity= 247,650.00/297, 650.00=0.83

Return on investment=net profit/investment= 247, 650.00/257,000=0.93.

3. Break-even Analysis
The break-even analysis establishes a relationship between operation costs and revenues. It
indicates the level at which costs and revenue are in equilibrium. To this end, the break-even
point of the project including cost of finance when it starts to operate at full capacity (year 3) is
estimated by using income statement projection.

BE = Fixed Cost = 30 %

Sales – Variable Cost

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4. Payback Period
The payback period, also called pay off period is defined as the period required recovering the
original investment outlay through the accumulated net cash flows earned by the project.
Accordingly, based on the projected cash flow it is estimated that the project’s initial investment
will be fully recovered within three years.

5. Internal Rate of Return

The internal rate of return (IRR) is the annualized effective compounded return rate that can be
earned on the invested capital, i.e., the yield on the investment. Put another way, the internal rate
of return for an investment is the discount rate that makes the net present value of the
investment's income stream total to zero. It is an indicator of the efficiency or quality of an
investment. A project is a good investment proposition if its IRR is greater than the rate of return
that could be earned by alternate investments or putting the money in a bank account.
Accordingly, the IRR of this project is computed to be 5.6 % indicating the viability of the
project.

6. Net Present Value

Net present value (NPV) is defined as the total present (discounted) value of a time series of cash
flows. NPV aggregates cash flows that occur during different periods of time during the life of a
project in to a common measuring unit i.e. present value. It is a standard method for using the
time value of money to appraise long-term projects. NPV is an indicator of how much value an
investment or project adds to the capital invested. In principal a project is accepted if the NPV is
non-negative. Accordingly, the net present value of the project at 8.5% discount rate is found to
be Birr eight hundred thousand which is acceptable.

7. ECONOMIC BENEFITS
The project can create employment for 4 persons. In addition to supply of the domestic needs,
the project will generate Birr thirty thousand each month after three years of project
implementation in terms of tax revenue. The poultry farm has a backward linkage effect on
animal feed processing industries and a forward linkage effect on food processing industries.
There will be substantial export potential at the second and third phase of the project. There will
be revision of the project business project proposal and strategy after three years.

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