Sample Business Plan

This business plan is based on members creativity and discussion. It’s Business Company of
Diary Farm Product named "YK plc".

DIARY FARM

Prepared By:YK plc.

Ethiopia
Oromia Region
PO BOX, 202000
Tel: (+251)-920-417-1903
Fax: (+251)-922-910-1100
E-Mail: diaryfarmyk@gmail.com
 Executive Summary
YK plc, is a producer of quality dairy products in a way that is more sustainable, and more cost
effective than our competitors. We will be able to supply our customer with milk and butter
which is cheaper than competitors. The company is located near the capital city of Ethiopia, in
the Oromia region, and it is intended to provide full technological cycle of production. The
reason behind this choice is that the location will serve as a center for distribution to all towns
around the country.

Our unique selling point of producing more quality product will be the driving force behind
generating interest and sales from consumers. Costs will be minimized by maintaining only a
short supply chain from YK plc, the producer, through to consumer. We will rely on only a
medium sized labour force to further reduce costs.

Our target customers are Retail, Cafeterias and Hotels, wholesales, institutions and food
businesses. Our team’s skills cover all aspects of creating and managing the production project:
organizing, financing, auditing, marketing, promoting business, solving technical and
organizational problems. The capacity of the plant is 200 tons of milk, about 6 tons of butter and
45 reared cows/heifers per year; the full capacity is intended to be reached by the beginning of
third operational year. To reach these goals, we need 3,600,000 birr investment payable up-front,
so as to invest it in procuring the farm inputs, processing equipments and machineries. Having
considered these contributions, as the financial analysis of the plan, the pay-back period will be
four years and two months. The total NPV of the plant is 10,368,490 Birr (by addition of all
PVs, including the initials investment outlay) with NPVR (PI) of 2.88.
 CHAPTER ONE
INTRODUCTION

Ethiopia is one of the Sub-Saharan Africa’s developing countries with a large potential in
livestock, being 1st among African countries and 9th in the world. From the 2015/16 CSA survey
estimate of 57.83 million total cattle, the female cattle constitute about 55.38 percent (CSA,
2016). When classified with purpose it is estimated that there are 6.74 million dairy cows and
11.34 million milking cows. The total volume of milk produced in Ethiopia increased over the
last 15 years from less than 1 billion liters to 3.06 billion liters in 2015/16. The dairy sector
contribution to the national Gross Domestic is expected to increase in the years to come too .
Dairying is one of the livestock production systems practiced in almost all over the world
including Ethiopia, involving a vast number of small, medium, or large sized, subsistence or
market-oriented farms. Based on climate, land holding and integrated with crop production; dairy
production can be; pastoralism, highland smallholder, urban and peri-urban and intensive dairy
farming system are recognized in Ethiopia. There are over six distinguishable, indigenous cattle
types in Ethiopia mainly Arsi, Barca, Boran, Fogera, Horro and Ogaden are evolved as a source
of natural selection. Despite the huge number of cattle and their economic importance, the
productivity is low due to the challenges of disease, nutrition, poor management and health
problem, lack of infrastructure and lack of veterinary service provision. Challenges and problems
for dairying vary from one production system to another and/or from one location to another.
These challenges can be technical like, health problems, reproductive problems, institutional like
inadequate extension and training services, policy and socio-economic challenges like
environmental problems and marketing linkage problems. Dairy farm developments also have
different opportunities such as, the presence of high livestock genetic resources and different
production systems, availability of access services and land inputs, high income generation and
employment opportunities, the presence of service providers, the presence of indigenous
knowledge. In line with dairy farm development prospects, getting accesses to services and
inputs that could help promote dairy production and productivity is high; as it promotes the
motto of government policy in creating employment opportunities at house hold level. The
provision of credit facilities and insurance for dairy farms should be encouraged and promoted.
Dairying constitutes an important part of the Ethiopian smallholder dairy sector, a careful
planning of dairy policy is required for the generation of appropriate and demand driven
technologies in order to attain sustainable dairy farm development.
1.1. Back ground
Dairying is one of the livestock productions practiced almost all over the world including
Ethiopia, involving a vast number of small, medium, or large-sized, subsistence or market-
oriented farms. Dairy farm also creates different opportunity which includes; livestock genetic
resources and production system, access services and land inputs, agricultural extension services
and technologies, income generation and employment opportunities. Dairy production system is
a biological efficient system that converts large quantities of roughage, the most abundant feed in
the tropics, milk the most nutritious food to man. Dairy production is a critical issue in Ethiopia,
a livestock-based society where livestock and its products are more important sources of food
and income and dairying has not been fully exploited and promoted. The greatest potential for
few technologies in dairying is expected in the highlands of Ethiopia and other Sub-Saharan
Africa and Asian countries, due to low disease pressure and good agro-climatic conditions for
the cultivation of feeds. In Ethiopia, Urban and peri-urban dairy farming are emerging as an
important component of the milk production system. It is based on cross breed dairy stock,
mainly Friesian x Zebu and purchased conserved feeds and it is contributing immensely towards
filling in the large demand –supply gap for milk and milk production urban center, where
consumption of milk and milk product is remarkably high.
About 93% of the total milk production in Ethiopia is produced by the smallholder dairy farmers
living in the villages and exercising, in most instances, traditional dairying. This sector also
produces 90% of the overall agriculture output in the country. The highland smallholder milk
production is found in the central parts of Ethiopia where dairying is nearly always parts of the
subsistence, smallholder mixed crop and livestock farming. It becomes important source of
house hold income in Ethiopia. However, the sector is agonized by several problems like poor
quality and quantity of feed resource, lack of appropriate feeding system, poor production and
reproduction traits, low productive and reproductive performance and economic and technical
problems.
1.2. Business idea
The project is going to produce milk and butter in order to supply it to the consumers or retail
sellers. In addition to this, supply of reared hybrid cows of exotic blood which can give more
products. This product i.e. milk, is a liquid secreted by the mammary glands of mammals to
nourish their young. The milk of domesticated animals to a great extent cows is the major food
source for humans of all ages, although milk from sheep, goats, water buffalos and camels are
also consumed in different parts of the world. Milk is essentially an emulsion of fat and protein
along with dissolves sugar, minerals including calcium and phosphorus and vitamins (vit B
complex).

Commercial cows’ milk is commonly rich in vitamins A and D and fat content of milk in cows
varies with breeds and it is usually higher in low milking cows and low in a higher milking cows.
Milk can be consumed in a different form like cream, butter, cheese, yoghurt. It is the only food
that contains all the nutrients that human beings require living healthy and due to this it is
classified as “Perfect Food”.

Features and unique selling proposition that boost competitiveness and sustainability
 Improve business resilience
 Improve animal lifetime productivity
 Increase forage production and utilisation
 Improve whole farm feed efficiency
 Protect the image of dairy farming
1.3. Goals and Objectives
Vision statement:

 The vision is to make a safe and quality platform of milk and butter to create a healthy
nation and to satisfy the demand of the market.

Mission statement

 The mission is to be the most successful milk and butter providing company in the
Ethiopia at delivering the best customer experience in markets we serve. In doing so, the
product we will provide will meet customer expectation of highest quality; leading
technology; competitive pricing; individual and company accountability; best-in-class
service and support; flexible customization capability; superior corporate citizenship;
financial stability. We seek to produce healthy financial rewards for investors as we
provide opportunities for growth and enrichment to our employees. We also maintain a
 friendly, fair, and creative work environment, which respects diversity, new ideas, and
hard work.

Short-term goals:

 To offer quality products at a competitively lower price to capture market share.

 To fill some part of demand for milk consumption gap in Addis Ababa.
 To persuade the target customers regarding the benefits of consuming pasteurized milk
that will bring familiarity among customers.
 To supply better reared cows of better hybrid that can give more products for substitution
of domestic cows.

Long-term goals:

 To expand its operation beyond Addis Ababa in the year 2020 and further goes for towns
nearest to Addis Ababa.
 To set up new industrial unit for powder milk production in Ethiopia by the year 2022.
 To ensure sustainable healthy of the nation by creating newer utility of quality milk.

Objectives

Family milk (YK) has identified the following objectives to pursue in the upcoming years:

 Become a major player in the milk suppliers industry.

 To attain 20% growth rate by the year 2019.
 To attain net profit margin of 25% in year 2021.
 To achieve high free cash flow by the year 2020 to setup another service provider plant
by the year 2022.
 1.4. Company Summary

1.4.1. Company History

YK plc is a quality milk and butter provider dedicated to develop better services for benefit of a
whole society. We bring innovative technologies and unlimited supply of milk without damaging
and polluting environment.
The company is the brainchild of a group of university students primarily from the University of
AAiT. The team has spent, in total, hundreds of man hours in the plan and the development of
the product and the method of production to get it how it is in its current form. The
team has developed a fully functional method to provide milk for potential customers.

1.4.2. Company Ownership

YK plc is a dairy farm with limited liability, which depend on 70% bank loan and 30% owners
contribution. The start-up costs associated with legal expenses, maintaining office and facilities,
salaries, etc. are to be financed by direct owners’ investment. This dairy farm will be owned by a
group of four members, each holding equal shares.

1.5. Description of Products/Services

YK plc will offer the supply of high quality milk to customers in Addis Ababa City. This farm
will be based on-site near to the capital city Addis Ababa, where there is a major milk
supply and demand gap that set of more potential for market to minimize the transport costs
associated with getting milk from the farm site to a position where it can be transported to our
customers.

Our distinctive unique selling point of providing a good quality milk from well treated and
healthy animals and pasteurized milk will be sufficient enough to secure YK plc survival in a
competitive market.

1.6. Management

1.6.1 Management summary

The YK plc’s management philosophy is based on responsibility, mutual respect and

entrepreneurial creativity. This means that we’ll create a work environment, where employees
feel responsibility for the overall farm’s performance and will be awarded accordingly.
Although, better than projected results could be compensated with bonus payments, the most
general way of extra remuneration is planned to be a centralized and free milk service for the
workers.

1.6.2. Organizational structure

The team includes 32 employees, under two managers, acting as partner executive directors. No
important decisions can be made in one person; at least two of share holders and executive
managers should approve them. Our main management divisions are total dairy business
operation and sales, animals’ healthy, human recourses etc.

1.6.3. Management team requirements

We believe we have an excellent team for covering the main points of the business plan, the
dairy milking farm. At present, we can improve mostly in the area of technical capabilities to
manage the overall activities.

The current members of the management group are Miss Kidist, Mr.Ysacor Mengistu, Mr.
Kebede Alemu, and Miss Yeayinebebe Feleke. All members are responsible and accountable for
discussing and analyzing business condition of YK Company; especially on procurements of
farm inputs and facilities, sales and profit plan, customer relations, risk analysis, etc.
 CHAPER TWO

MARKET STUDY AND FARM CAPACITY

2.1. Market study

2.1.1. Past Supply and Present Demand

Ethiopia's Livestock population is among the largest in Africa. However, despite large cattle
population, the diary industry in Ethiopia is not yet developed. According to International
Livestock Research Institute’s “Dairy Development in Ethiopia” 2007, milk production system
in Ethiopia can be broadly categorized into urban, peri-urban and rural milk production systems,
based on location. Both the urban and peri-urban systems are located near or in proximity of
Addis Ababa and regional towns and take the advantage of the urban markets.

The urban milk system consists of 7,167 small, medium and large dairy farms producing about
35 million liters of milk annually. Of the total urban milk production, 73 % is sold, 10% is left
for household consumption, 9.4 % goes to calves and 7.6 % is processed into butter and ayib
(cheese). In terms of marketing, 71% of the producers sell milk directly to consumers. The peri-
urban milk system includes smallholder and commercial dairy farmers in the proximity of Addis
Ababa and other regional towns. This sector controls most of the country’s improved dairy stock.
The rural dairy system is part of the subsistence farming system and includes pastoralists, agro-
pastoralist, and mixed crop-livestock producers mainly in the highland areas. The system is non-
market oriented and most of the milk produced in this system is retained for home consumption.

Regarding Addis Ababa during the year 2008 a total of 94,415 tonnes of milk is supplied to the
city of which cross-bred and locals contribute about 71 percent of the total and the remaining 29
per cent is supplied by Dairy Development Enterprise (DDE), Mama Agro-Industry, Genesis,
Lemma and milk collectors from the Regional State of Oromia (Table 2.1).
 Table 2.1, Annual milk supply by source in Addis Ababa

Sr. Source Of Milk Supply ( Ton) Total Supply %

(hectolitres)
No.

1 Urban and periurban cattle 55,655 71

2 Dairy Development Enterprise 5,000 6

3 Sebeta Agro- Industry 9,760 14

4 Others (Genesis, Lemma) 3,000 3

5 Milk collectors and suppliers (from Oromia ) 5,000 6

Total 78,415 100

Source: - Urban Agricultural Department 2008.

As of 2008, the population of Addis Ababa is estimated at about 4.5 million. This shows that per
capita consumption of milk is about 23.38 liters/ year which is much less than the world per
capita average of about 100 liters/ annum.

Considering the city’s population size in 2008 which is 4.5 million and a per capita consumption
of 23.38 liters/ year the demand for milk in 2008 is estimated at 90,000 hectoliters. Therefore,
the present supply demand gap is estimated at 11,585 hectoliters.

2.1.2. 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 and rising real income are expected to expand the
demand for milk and milk products. Population in Ethiopia is estimated to grow at 2.9% per year
while the urban population increases at a rate of 4.4 %. Therefore, increase in population growth
and consumer income in the future is expected to increase milk consumption.

In Ethiopia, the demand for milk products is increasing while supply is lagging. Constrained by
cows’ nutrition, genetics and health, producers are not able to keep up with demand. As a result,
imports have surged in recent years, which consist primarily of processed milk, including cheese
and milk powder (81% of imports).

A growth rate of 5% is, hence, assumed to be reasonable to execute demand projection for milk
in Addis Ababa and the result is shown in Table 2.2.
Table 2.2, Demand projection for milk (hectoliters)
Year Projected Existing Demand
Demand Supply Supply Gap

2009 94,500 78,415 16,085

2010 99,225 78,415 20,810

2011 104,186 78,415 25,771

2012 109,395 78,415 30,980

2013 114,864 78,415 36,449

2014 120,607 78,415 42,192

2015 126,637 78,415 48,222

2016 132,968 78,415 54,553

2017 139,616 78,415 61,201

2018 146,596 78,415 68,181

2019 153,925 78,415 75,510

2020 161,621 78,415 83,206

2.1.3. Pricing and Distribution

The price of pasteurized milk by some enterprises varies between 22 to 24 birr per liter. For the
envisaged dairy farm, the price of birr 20 per liter is planned. The butter costs vary from 200 to
250 birr per kg while this enterprise will sell to 180 birr/kg.
2.1.4. Marketing

Marketing is an ongoing process, rather than something that is done when a business first.

The marketing process is summarized in Fig.2.1

Identify customer group(s)

Learn what they want and what you can make Keep
Improving

Make the better product to meet their needs, better

than competitors do

Tell customers about it

Fig.2.1 The marketing process

2.1.5. Customer Segment

One of the first activities when planning dairy farm business is to decide who will be the target
customers. A Market segment is a term that describes an identifiable group of customers. The
different types of market segments for milk can be described in five main groups 1, Retail
(supermarket). 2, Food service businesses (Cafeteria, hotels and restaurants.) 3, Wholesale.

4, Institutions (schools, hospitals). 5, Home to home customers/Village societies.

2.1.6. Marketing mix

When information about who are the main customers, where they are located and how they buy
their oil is added to information about the quality and price that consumers expect, the result is
known as the marketing mix. This is often described as the ‘4Ps’ - Product, Place, Price and
Promotion. Examples of components in a marketing mix are described in table.

Table 2.3 Examples of factors to take into account in marketing mix.

Product Place
Better quality Longer opening hours
Better appearance Better decoration
More attractive packaging Cleaner environment
Clearer labels Popular location
More nutritious Delivery service
Available in required amounts Fast and friendly service
Ease of supply

Promotion Price
Advertising Lower prices
Competitions and shows Discounts for higher quantities
Articles in newspapers Special offers
Special promotions Credit facilities
In-shop displays

Marketing involves putting in place systems that will make consumers believe that they are
buying something special that meets their needs. It also means supplying the right amount of
product at an acceptable price at a place and time when they want to buy it. The development of
a marketing strategy is not a single exercise that is done when a business starts. It should be
continually monitored, to see if planned sales are taking place and the expected customers are
actually buying the product. The strategy should be constantly reviewed to improve it or even to
change it completely.

2.1.7. Market strategy

It takes a lot of time and effort to develop and maintain a marketing campaign that resonates with
your intended audience. As a strategic thinker, however, the development of a marketing
campaign takes even more consideration. After all, we are always searching for ways to gain the
oh-so important competitive.

The following are marketing strategies that will definitely spark our enterprise.

1. Partner with allies.

Marketing partnerships have a number of benefits to push a marketing campaign. For starters,
when you collaborate with someone else, you tend to deliver better content. On top of that,
marketing partnerships are cheaper to create, see success more quickly, and expose our product
to a new audience.

2. Embrace user generated content.

Spending hours with a customer by print, radio, and television. We can achieve this by having
customers share personal stories, by exchange ideas, and by giving them the tools to make an ad
for ours.

3. Collaborate with influencers.

Another way to gain a new audience and extend product awareness is by collaborating with the
top influencers in Addis Ababa. For example, collaborating with different football teams,
schools, kindergarten, etc., by allowing these influencers to share inspirational content.

4. Help customers solve a problem.

"We’re in business because we provide solutions." Some of the ways you can help customers
solve a problem is by creating how-to-content; offering exclusives that make their lives easier;
listening/responding to them; or creating apps/tools.

5. Let customers interact.

No matter the product or service we are offering, our customers are to interact with our
enterprise, or at least other customers. For example, creating an online tool that allowed
discussions in the enterprise product.

6. Experiment with new channels and platforms.

Do not hesitate to try out new channels and platforms to promote our brand.

7. Get employees involved.

Employees be our biggest champions and brand advocates.

8. We don't forget about existing customers.

We know it is important to obtain new customers if we want our business to grow. But don't
forget about the customers we already have. This could include making customers feel like they
are part of an exclusive club, giving them something extra, and making them feel like VIPs.

9. Use big data to target customers.

We can get in touch with consumers before they search for our products or services.

10. Tell a cross-media story.

Storytelling is one of the most effective methods in marketing.

2.1.8. Packaging and brand image

The following information is the minimum required on milk and butter labels in company:

• Name of the product.

• Name and postal address of the producer (to allow consumers to return the product to the
manufacturer in case of problems).

• Net volume or mass in the pack.

• A ‘best-before’ or ‘sell-by’ date (Note: ‘Best-before’ date means that the milk is safe to
consume after this date but may have changes to its flavor. ‘Sell-by’ date is an instruction to
retailers to take the product off the shelves after this date)
 CHAPTER 3

3. FARM CAPACITY AND PRODUCTION PROGRAMME

3.1. Farm Capacity

The project will start with 30 calf heifers or cows and at its full capacity will reach 50 in the third
year and thereafter. Each cow is expected to produce 4,575 liters per lactation (305 days). At full
capacity, the total milk production is expected to be 228,750 liters per lactation period.

3.1.2. Production Programme

Production will commence at 60%, and then will grow to 80% and 100% in the second year and
third year and then after, respectively. Cows/heifers cows could be supplied by dairy farms in
and around the city. The project commences with 30 dairy cows and in the second and third year
10 cows per year will be purchased and through natural increase (the calves from the first cows
will calf in 24 months) the project will hold 50 cows at full capacity starting from forth year and
thereafter. This capacity is proposed on the basis of a single 8-hour shift per day and 305 (based
on lactation period of a cow) working days per annum. Milking is done twice a day (morning and
afternoon).

Table 3.1, Production program

Year Cows Pasteurized Milk Processed Butter Capacity utilization

(No) (Quantity/Liters) (kg) (%)
1 30 100,000 7,450 60
2 40 150,000 6,600 80
3-10 50 200,000 5,750 100

3.2. Farm inputs and utilities

3.2.1. Farm inputs

All farm inputs needed for the project could be purchased from local sources in Addis Ababa and
its surrounding areas. The required farm inputs are briefly discussed below.

Hay and Concentrate (Feed)

Hay can be purchased from farmers around Sululta, Sebeta, Sendefa and Akaki.

Concentrate is a type of feed which is indispensable for specialized dairy farms to get attractive
yield from cows. This concentrate will be purchased from known feed processing plants in
Addis Ababa and its surroundings.

The total cost of hay and concentrate when the farm operates at full capacity will be Birr
365,000.

Medicament

Regarding medicament the project will allocate Birr 150, Birr 80 and Birr 50 per a cow, a heifer
and a calf respectively per month. All animal drugs are available in drug shops in Addis Ababa.
Annual cost of medicament during full capacity operation is estimated at Birr 120,000.

Cows /heifers

Cows are expected to be purchased from dairy farms in and around the city. The project
commences with 30 dairy cows and in the second year 10 cows/year will be purchased and
through natural increase the project will hold 50 cows at full capacity staring from the third year
and continue with this capacity thereafter. The purchasing price of one cow will be Birr 35,000.

A summary of farm input requirement as per the farm production programme is shown in the
next table.

Table 3.2, Total farm inputs requirement costs for the first three years

Descriptions 1 2 3
Feed 219,000 292,000 365,000
Medicament 36,000 48,000 60,000
Ear tag 300 200 250
Cows 1,050,000 350,000 Reared heifers/cows
Total 1,305,000 690,200 425,250
 3.3. Utilities

The utilities required by the dairy farm are water and electricity and annual requirement is
estimated as follows; but, electricity for light and office work can be achieved from bio-gas
plant.

The annual requirement unit price and total cost of utilities is shown in Table 3.3.

Table 3.3, Cost of utilities

No. Description Unit Qty Unit Cost Total Cost

(Birr) (Birr)

1 Electricity kWh 146,000 0.6 87,600

2 Water M3 1000 4.25 4,250

Total 91,850

3.4. Technology and Engineering

3.4.1. Production process
In dairy farm, procurement of heifers with 75 per cent of exotic blood from reliable source is the
initial production process. Generally, after procurement of heifers, the dairy farm will have the
following process. Heifers feeding with different feeds and treating against diseases and
parasites, isolating of diseased heifers, milking, processing of milk and marketing are the main
activities of the production process. Feeding includes supplying of roughages and concentrates,
while treatment is protection of heifers against contagious diseases and internal and external
parasites. After milking, the whole milk will be taken from the milking parlor with pipe line to a
cooling tank for temporarily storage and the separation of one per cent fat will be immediately
carried out and stored in cold store. A weighed amount of raw milk is pumped to a clarifier by
means of the milk pump, where it is removed of microscopic impurities, by preheating and
pasteurizing to a temperature of about 72 oC for 15 minutes. Finally, cooling is achieved by
means of chilled water to lower the temperature to 3 oC. This rapid cooling is conducted to
facilitate the formation of butter by a churning process. By continuous churning, the entering
cream will be pasteurized giving tempered cream, which is further agitated vigorously by beater
bars. This action causes stripping of the fat globule membrane and aggregation of the fat into
chunks. Finally, a continuous ribbon of yellow butter streams from the end of the continuous
churn and butter as a product drops into a hopper, where it is transferred to packing machinery .
Portion of the pasteurized milk is stored in the surge tank for filling into suitable containers and
then sealed with plastic bags or bottled and distributed to market.
The disposal of dung and urine are one of the major problem associated with dairying since it is
the breeding place for most flies which can transmit disease. Thus it is advisable to use
technologies that can help mitigate the problems. With this regard composting the manure and
use it for vegetable production could be one option to mitigate the environmental pollution
problem. In addition, the use of bio digesters to produce biogas could also be one of the solutions
to minimize the risk and optimize the contribution of the dairy farm in generating additional
income.

3.4.2. Source of Technology

The required machinery and equipment can be supplied by Ries Engineering operating in Addis
Ababa.
3.4.3. Machinery and Equipment

The machinery and equipment required for the envisaged dairy farm are listed in Table 3.4. The
total cost is estimated at Birr 2.53 million, out of which Birr 1.72 million is required in foreign
currency.
Table 3.4, Machineries and Equipments requirement and cost

Sr. Description Qty. Unit Price Total Costs in ‘000 Birr

No. (No.) (Birr)

LC FC Total

1 Tractor 110-125 HP 1 250,000 250 250

2 Trailer 2 90,000 180 - 180

3 Deeping Vat 1 20,000 20 - 20

4 Water tank (20m3) 1 40,000 40 - 40

 5 Tools (set) - - 20 - 20

6 Workshop equipments - - 60 - 60

7 Veterinary equipments - - 10 50 60
(set)

8 Bore hall/ water well 1 100,000 100 - 100

9 Milk processing equip.ts - - 85 450 535

10 Insulated tank 1 75,000 75 - 75

11 External reservoir 1 60,000 60 - 60

12 Parallel filters (set) - - 40 - 40

13 Regulator 1 20,000 - 20 20

14 Compact plate pasteurizer 4 45,000 - 180 180

15 Butter churn 2 12,000 - 24 24

16 Centrifugal pump 2 50,000 - 100 100

17 Connecting pipes - - 10 - 10

18 Milking can 24 600 - 14.4 14.4

19 Plastic pails 35 20 0.7 - 0.7

Grand Total 950.7 838.4 1,789.1

3.5. Land, Building and Civil Works

Total site area for the envisaged plan is 600 square meters. Total built-up of the project is 400
square meters. 160m2 will be used for animals’ barn, 80 m 2 for production facility, 80m2 for
product store and 60m2 will be used for office building. Total cost of building at the rate of Birr
1,500 per square meter is estimated to be Birr 600,000.

According to the Federal Legislation on the Lease Holding of Urban Land (Proclamation No
272/2002) in principle, urban land permit by lease is on auction or negotiation basis, however,
the time and condition of applying the proclamation shall be determined by the concerned
regional or city government depending on the level of development.

Since the project under consideration is an urban agriculture project. Accordingly, the initial land
lease rate in considering the nature of the project, the expansion zones of the city are
recommended as the best locations. Hence, the highest land lease rates in the expansion zones of
the city which is Birr 245.7/ m2 is adopted.

The Federal Legislation on the Lease Holding of Urban Land legislation has also set the
maximum on lease period and the payment of lease prices.

Moreover, advance payment of lease based on the type of investment ranges from 5% to 10%.
For those that pay the entire amount of the lease will receive 0.5% discount from the total lease
value and those that pay in installments will be charged interest based on the prevailing interest
rate of banks. Moreover, based on the type of investment, two to seven years grace period shall
also be provided. The lease price is payable after the grace period annually. Therefore, for the
purpose of this project profile since the project is urban agriculture, 15 years lease period, 10
years lease payment completion period, 10% down payment and two years grace period is used.

Accordingly, the land lease cost of the project, at rate of Birr 245.7 per m2 for 15 years of
holding is estimated at Birr 2.21 million. Assuming 10% of the total cost (Birr 221,130) will be
paid in advance as down payment and the remaining Birr 1.99 million will be paid in equal
installments within 10 years, the annual lease payment is estimated at Birr 199,017.

3.6. Manpower

No special training is required except on job orientation

The manpower required by the farm and associated cost are shown in Table 3.5.

Table 3.5, Manpower requirement and salaries

No. Position No. of Workers Monthly Annual Salary (Birr)

 Salary(Birr)

1 Cleaners 4 72,000
1,500

2 Cattle keepers and Feeders 4 1,500 72,000

3 Milkers 5 1,500 90,000

4 Store keeper 1 1,500 18,000

5 Guards 2 1,500 36,000

6 Animals healthy supervisor 1 6,500 78,000

7 AI Technician 1 6,500 78,000

8 Cow barn designer 1 6,500 78,000

9 Laboratory staff 2 4,500 108,000

10 Production and technical 1 6,500 78,000

manager
11 Machine Operators 2 4,500 108,000

12 Finance and administration 1 6,500 78,000

manager
13 Farm imput purchasers 2 2,500 60,000

14 Bio-gas technician 1 3,200 38,400

15 Driver (3rd grade license) 3 3,200 115,000

16 Secretary 1 2,800 33,600

Total 32 1,501,000
 CHAPTER FOUR
4. FINANCIAL ANALYSIS
The financial analysis of the dairy farm project is based on the data presented in the previous
chapters and the following assumptions:-

Construction period 1 year

Source of finance 30 % equity and 70 % loan

Tax holidays 3 years

Bank interest 12%

Discount cash flow 11%

Accounts receivable 30 days

Raw material local 30 days

Work in progress 1 day

Finished products 1 day

Cash in hand 5 days

Accounts payable 30 days

Repair and maintenance 5% of machinery cost

Factory overhead, administrative, sales and distribution costs are estimated at 25% of sales.

Production capacity is proposed on the basis of a single 8-hours shift per day and 305 (based on
lactation period of a cow) working days per annum.

Considered pre-production expenditure includes costs of registration, licensing and formation of

the company including legal fees, commissioning expenses, etc.
 4.1. Projected cash flow of Diary farm enterprise PLC

Table 4.2. Projected cash flow of Diary farm enterprise PLC (000’ birr)
Year 0 1 2 3 4 5 6 7 8 9 10
Capital 60 80 100 100 100 100 100 100 100 100
utilization
Cash in 3,341 4,188 5,635 6,145 6,385 6,385 6,385 6,385 6,385 6,385
flow
Revenue 3,341 4,188 5,635 6,145 6,385 6,385 6,385 6,385 6,385 6,385

Salvage - - - - - - - - - - 360
vaue
Cash out 3,053.1 3,278.8 3,872.7 3,872.7 3,872.7 3,872.7 3,872.7 3,872.7 3,872.7 3,872.7
flow
Investment 3600 - - - - - - - - - -

Farm input 555 640 924.017 924.017 924.017 924.017 924.017 924.017 924.017 924.017
and others
Utilities 150.85 165.85 200 200 200 200 200 200 200 200

Factory 835.25 1,047 1,408.75 1,536.25 1,596.25 1,596.25 1,596.2 1,596.2 1,596.25 1,596.2
overhead 5 5 5
Depreciatio 360 360 360 360 360 360 360 360 360 360
n and
Amortizatio
n
Capital 720 720 720 720 720
charges

Interest 432 346 260 172 86

Gross
profit 2,872.3
287.9 909.2 1,762.2 2,272.3 2,512.3 2,512.3 2,512.3 2,512.3 2,512.3
I-II

4.2. Payback period calculation

The pay- back period, also called pay – off period is defined as the period required for 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 approximately 4 years.
Year 0 1 2 3 4

Cumulative cash flow -3,600 -3,312.1 -2,402.9 -640.9 1,871.6

Yearly cash flow 287.9 909.2 1,762.2 2,512.3

640.9
Payback period =3 years+ = 4.2 years or 4 years and 2 months and 16 days
2512.3

4.3. Profitability

Year 0 1 2 3 4 5 6 7 8 9 10

Cash flow -3600 287.9 909.2 1762.2 2272.3 2512.3 2512.3 2512.3 2512.3 2512.3 2872.3

DF(r=12) 1 0.893 0.797 0.711 0.635 0.567 0.506 0.452 0.403 0.360 0.322

i) PV -3600 257.09 742.6 1252.9 1442.9 1424.5 1271.2 1135.6 1012.5 904.4 924.8

1
DF= n where n: years and r: 12% (Source CBE)
(1+r )

PV=Cash flow * DF

ii) NPV = 10,368,490 Birr (by addition of all PVs, including the initials investment outlay)

NPV 10,368,490
iii) NPVR (PI) = = = 2.88
NPVI 3,600,000

Since the net present value is positive and the net present value ratio is greater than 1 the project
is acceptable and viable for implementation.

CONCLUSION
This business plan outlines Diary farm. The main aim of this plan is to solve the great scarcity of
milk demand in Addis Ababa and to increase milk and milk product consumption of the society.
On the other hand, the plan will increases customer expectation of highest quality milk free of
zoonotic diseases; leading technology; competitive pricing; and financial stability.

One of the first activities when planning milk and butter processing business is to decide who
will be the target customers. Having these into consideration our target customers are Retail,
cafeterias, hotels, wholesales, institutions and food businesses.

From the financial analysis of the plan the pay-back period will be four years and two months.
The total NPV of the plant is 10,368,490 Birr (by addition of all PVs, including the initials
investment outlay) with NPVR (PI) of 2.88. Since the net present value is positive and the net
present value ratio is greater than 1 the project is acceptable and viable for implementation.

References
1. Ahmed, M, M. Jabbar, and S. Ehui 2000. Household level economic and nutritional
impacts of market-oriented dairy production in the Ethiopian Highlands. Food
and Nutrition Bulletin. 21 (4) 460-65.
2. Azage T. and A. Gebrewold 2008. Prospects for peri-urban dairy development in
Ethiopia. Ethiopian Society of Animal Production Proceedings. Addis Ababa, Ethiopia
3. Felleke, G. and G. Geda. 2001. The Ethiopian dairy development policy: a draft policy
document. Addis Ababa, Ethiopia: Ministry of Agriculture/ AFRDRD/AFRDT
Food and Agriculture Organization/SSFF.
3. Holloway, G., C. Nicholson, C. Delgado, S. Staal and S. Ehui (2000) How to make a milk
market: A case study from the Ethiopian Highlands. Socio- economic and Policy
Research Working Paper 28. Addis Ababa, Ethiopia: International Livestock
Research Institute (ILRI).
4. Ethiopian Urban Agricultural Department, 2008.