Integrated Dairy Farm & Milk Processing - Final

Table of Contents
I. EXECUTIVE SUMMARY............................................................................................................1
II. BACKGROUND INFORMATION..............................................................................................4
2.1 The Applicant.............................................................................................................................4
2.2 The Project..................................................................................................................................4
2.3 Certificates and Licenses............................................................................................................5
2.4 Brief History of the Promoter/Project.........................................................................................5
2.6 Business Track Record...............................................................................................................6
2.7 Credit History.............................................................................................................................6
2.8 Variation of Loan Requested and Proposed...............................................................................7
III. KEY SUCCESS & RISK FACTORS AND SWOT ANALYSIS................................................8
3.1 Key Success Factor.....................................................................................................................8
3.2 Risk Factors................................................................................................................................9
3.3 Risk Mitigating Measures...........................................................................................................9
3.4 SWOT Analysis........................................................................................................................10
IV. MARKET STUDY........................................................................................................................11
4.1 Domestic Market.......................................................................................................................11
4.2 Marketing Channels..................................................................................................................22
4.3 Price and Price Trend................................................................................................................23
4.4 Strategy of the Promoter ..........................................................................................................24
V. TECHNICAL ASPECT OF THE PROJECT............................................................................26
5.1 Land..........................................................................................................................................26
5.2 Land utilization plan & Forage production...............................................................................26
5.3 Agro-ecological Suitability of the Project................................................................................26
5.4 Land Ownership........................................................................................................................27
5.5 Plant Layout and Civil Work....................................................................................................27
5.6 Machineries and Equipments....................................................................................................28
5.7 Utilities......................................................................................................................................31
5.8 Material Inputs..........................................................................................................................31
5.9 Production Process and Production Capacity...........................................................................32
5.10 Environmental Impact Assessment.........................................................................................33
5.11 Implementation Plan...............................................................................................................33
VI. ORGANIZATION AND MANAGEMENT...............................................................................35
6.1 Organizational Structure...........................................................................................................35
6.2 Project Management.................................................................................................................36
6.3 Manpower Requirement and Training......................................................................................38
VII. FINANCIAL ANALYSIS.............................................................................................................39
7.1 Fund Allocation........................................................................................................................39
7.2 Source of Fund..........................................................................................................................40
7.3 Expected Financial Results.......................................................................................................41
VIII. SOCIO ECONOMIC BENEFIT.................................................................................................43
IX. CONCLUSION AND RECOMMENDATION..........................................................................44
9.1 Conclusion................................................................................................................................44
9.2 Recommendation......................................................................................................................44
9.3 Terms and Conditions...............................................................................................................45
X. ANNEXES.....................................................................................................................................49
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I. EXECUTIVE SUMMARY
Beshir Mohammed Irrigated Forage Production, Dairy Farm & Milk is established in April 19,
2007 E.C. by one individual named Ato Beshir Mohammed Tussa. The project is planned to be
established in Oromia Regional State, West Arsi Zone, and Jidda Garba Hurufa Kebele on 247
hectares of land which is acquired for 30 years with registered capital of Birr 68.8 for the
purpose of commercial dairy farm using forage Production & Milk processing. The project has
fulfilled all the necessary business licenses certificates.
The woreda in which the project located has both asphalt and gravel road which is possible to
say that the project location is accessible to transport raw material and its final product to the
market. In addition to this, the agro ecological zone is also suitable both for animal feed
production and rising of dairy animals.
Accordingly, the team has carefully assessed the key elements of the project that determine the
success rate of the project. First, the team has tried to assess creditworthiness of the promoter
and technical knowledge of the key management staffs of the project. After we assess and
investigate due diligence report and various submitted documents, we found that the promoter is
creditworthy, but the managements are in need of support from other professionals in the area.
In view of the fact that market condition for the proposed products has vital role for the
realization of the objectives of establishment of the proposed project, the team has also tried to
review the current as well as forecasted demand and supply condition and price of the planned
products based on the commodity study. Based on the commodity study of the Bank, we
observed that there is excess demand for the product and the product of the project is planned to
be supplied to domestic market
Technical viability of the project has also been assessed. Based on the submitted pro forma
invoice and technical comment of the Mechanical engineer all machineries and equipments that
are technically viable and required buildings and constructions are included. For smooth &
optimal operation of the project, organizational structure of the project has also been evaluated
and appropriate human resource requirement has been proposed.
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In addition to this, financial viability of the project is unquestionable to determine acceptance or
rejection of the project. As we tried to go through each financial component, the project is also
financially viable & capable to achieve its objective covering all its costs even in adverse
conditions that can possibly affect either project cost or revenue. Before and after tax IRR of the
project is 24% and 20%, respectively. The project’s sensitivity to adverse situations also tested
by reducing revenue and increasing operating cost and investment cost all by 10%. In all
scenarios, IRR is above the cost of capital confirming that the project is financially viable. The
net profit of the project is forecasted to be Birr 1,954,255 in the first year, and grows to a profit
of Birr 9,670,966 during the tenth projected year. The projected cumulative cash flow at the end
of the first and the last project year is computed to be Birr 4,722,526 and Birr 58,898,222
respectively indicating that the venture is liquid throughout the envisaged project years.
Establishment of the project has also various socio-economic benefits for the country. As it is
obviously known, in our country large share of raw milk is not marketable and used for
household consumption due to lack of societal awareness and market access. Thus, establishment
of the project has tremendous value for the nearby farmers and dairy farms since it will create
market for their milk product. Creation of employment opportunities, source of government
revenue in the form of tax, and its GDP contribution are also among the benefits of the project.
After thorough analysis of the project and considering its socio-economic benefits, the assigned
appraisal team, therefore, recommended and approved at its level the total loan amount of
Birr 46,103,608 for the establishment of Ato Beshir Mohammed’s integrated forage farm, dairy
farm & milk processing project to be repaid within eight years. The summary of financial
analysis of the project is depicted below:-
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I. Revised Project Investment Cost
Description Amount Percentage

Total Fixed Investment Costs 51,561,718 84%
Pre-production Capital Expenditure 3,044,053 5%
Working Capital 7,016,957 11%
Total 61,622,728 100%
II. Revised Source of Fund
Description Amount D/E Ratio

Debt -DBE Loan 46,103,608 75%
Equity 15,519,120 25%
Total 61,622,728 100%
III. Expected Financial Results
Description Year 1 Year-10

Sales Revenue 37,023,319 55,498,499
Profit (Loss) 1,954,255 9,670,966
Cumulative Cash Balance 4,722,526 58,898,222
FIRR before Tax = 24%
FIRR after Tax = 20%
IV. Sensitivity Analysis
IRR Before IRR After

Description
Tax Tax
When Revenue decreased By 10% 15% 13%
When Operating Costs increased By 10% 18% 15%
When Investment Costs increased By 10% 21% 18%
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II. BACKGROUND INFORMATION
2.1 The Applicant
 Name of the Applicant: Ato Beshir Mohammed Tussa
 Address:
 Nationality: Ethio-American
 Region: Oromia Regional State
 Zone: West Arsi Zone
 Woreda: Kokosa
 Kebele: 03
 House no:570
 Tel. (Mobile): +251-921-07-25-28/71-92-42
 Marital Status: Single
2.2 The Project

 Name : Beshir Mohammed Irrigated Forage Production, Dairy Farm & Milk
Processing Factory
 Address:
 Region: Oromia Regional State
 Zone: West Arsi Zone
 Woreda: Kokosa
 Kebele: Jidda Garba Hurufa
 Tel. (Mobile): +251-911-71-92-42
 Legal Form of the Business: Sole Proprietorship

 Date of Establishment: 19/08/2007 E.C
 Status of the Project: New
 Type of Project: Agro-Processing
 Project Objective:
- Commercial dairy farm, forage production & Milk processing
- Supply of cross bread dairy cattle & feed to the neighboring farmers
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2.3 Certificates and Licenses
 Investment Certificate
 Licensing Organ: Oromia Regional Government Investment Commision
 Licensing No.:KJO/II/H2780/070042988733
 Date of Issue: 19/08/07E.C
 Principal Registration Certificate
 Licensing Organ: Oromia Regional State Trade and Market Dev’t Bureau
 Licensing No.:OR/02/06101/000000/625/07
 Date of Issue: 20-08-2007E.C
 Business License Certificate (for other business)
 Licensing Organ: Oromia Regional State Trade and Market Dev’t Bureau
 Licensing No.: OR/1121901000000766/07
 Date of Issue:20-08-2007E.C
 Land Holding Certificate
 Licensing Organ: Oromia Bureau of Rural Land & Environmental Protection
 Date of Lease Contract: 12/05/2007 E.C
 Reference No: WLBEN/AL/288/207
 Total Land Area: 247ha
 Lease period: 30 years
 TIN: 0042988733
2.4 Brief History of the Promoter/Project
Beshir Mohammed Irrigated Forage Production, Dairy Farm & Milk processing is established in
April 19, 2007E.C by one individual named Ato Beshir Mohammed Tussa. He has completed
grade eight. According to the capital registered in the trade license, the project has a capital of
Birr 68,800,000. The project is planned to be established in Oromia Regional State, West Arsi
Zone, and Jidda Garba Hurufa Kebele on 247 hectares of land which is acquired for 30 years
based on lease agreement signed between the promoter and Oromia Bureau of Rural Land &
Environmental Protection on 12/05/2007 E.C for the purpose of modern animal feed production,
dairy farm and milk processing.
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The woreda in which the project located is at 360 KMs far from Addis Ababa and 105 KMs from
West Arsi Zone. The road from Addis Ababa to Arsi Kofele town is asphalt road and the
remaining 65 KM is all weather gravel road. Thus, it is possible to say that the project location
accessible for the road to transport raw material to the project site & final product to the market.
Currently, the promoter submitted pro forma to procure 200 pregnant heifers of Holstein Friesian
from Gobe farms at a price of Birr 40,000 per head and in order to materialize its objective, the
promoter approached DBE for partial cost finance.
2.5 Capital Structure

As per the promoter’s investment license issued by Oromia Investment Commission, the
promoter has registered the capital of Birr 68,800,000 for the establishment of irrigated forage
production, dairy farm, and milk processing project.
2.6 Business Track Record

As per the due diligence report, the applicant has been involved in merchandize business few
months ago by borrowing from Oromia International Bank S.C. However, the result of operation
is not obtained and as a result, the appraisal team has no ground to comment on the business
track record.
Based on the due diligence of the Credit Process and submitted documents, the promoter is a
Diaspora who has been living in America for more than fifteen years. Currently he came back to
invest in his home country to support his society and the country’s growing economy.
2.7 Credit History

As per credit information obtained from National Bank of Ethiopia dated on June 1, 2016 with
enquiry ID 382307, the promoter has no credit relation with any financial institutions except that
he is a guarantor for loan borrowed by Mr. Mohammed Tusa from Oromia International Bank
S.C by pledging collateral outside the envisaged project.
Table 2.1: Credit History of the Promoter

Role in Credit Loan Amount Installment Maturity Current Balance Status of the
Account (Birr) Amount date Amount loan
Guarantor 1,300,000 384,663.34 21-10-2016 1,123,181.46 Substandard
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2.8 Variation of Loan Requested and Proposed
Table 2.2: Loan Requested Vs Proposed

Loan
Loan
Sr. Requested Variation
Description Proposed Reason for Variation
No. (Birr)
(Birr)
(Birr)
The item was not included in the investment
items listed by the promoter. However, the
Borehole Drilling &
virtual appraisal team considered its significance
1 Submersible Water - 1,968,583 1,968,583
for the project and added to the investment items
Pump
of the project and assumed that 70% of its cost
shall be financed by the loan.
Based on the Bank's Civil Engineer, the revised
cost of additional building and construction is
Building and 35,000,00 (29,646,095
2 5,353,905 Birr 7,648,435. Among this, Birr 2,294,531
Construction 0 )
(30%) is planned to be financed by the
promoter's equity contribution.
Sprinkler Irrigation Based on the submitted feasibility study, it was
3 - 3,421,250 3,421,250 assumed be fully financed by the promoter's
System
equity contribution. However, the virtual
Tractor and appraisal team assumed that only 70% of their
4 - 1,620,267 1,620,267
Accessories costs shall be financed by the loan.
Milk Processing The proposed value is based on the submitted pro
13,000,00
5 Plant Machineries 13,942,293 942,293 forma invoices and recommendation of the
0
and Equipments Bank's Mechanical Engineer, and the total cost
6 Vehicles 2,000,000 3,456,905 1,456,905 shall be financed by the loan.
7 Generator - 1,365,000 1,365,000 Based on the submitted feasibility study, it was

Office Furniture assumed be financed by the promoter's equity
8 - 314,401 314,401 contribution. However, the virtual appraisal team
and Equipments
Auxiliary assumed that the total cost of the items shall be
9 - 232,000 232,000 financed by the loan.
Equipments
The total electric installation cost is
Electricity
10 500,000 3,412,048 2,912,048 Birr 3,412,048 and the whole cost shall be
Installation
financed by the loan.
Based on the promoter's request, the virtual
11 Dairy Animals 8,000,000 4,000,000 (4,000,000) appraisal team reduced the number of initial
dairy cows from 200 to 100 (Birr 40,000 each).
Based on the submitted feasibility study, it was
assumed to be financed by the promoter's equity
12 Working Capital - 7,016,957 7,016,957 contribution. However, the virtual appraisal team
assumed that the total required permanent
working capital shall be financed by the loan.
58,500,00 (12,396,392
Total 46,103,608
0 )
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III. KEY SUCCESS & RISK FACTORS AND SWOT ANALYSIS
3.1 Key Success Factor
 Macroeconomic Success Factors
 Ethiopia has shown a continuous GDP growth for the last consecutive years, implying a
positive trend of economic growth. In addition, there is stable and conducive business,
political and economic environment.
 Ethiopia is known to have agro ecological conditions which are suitable for the raring
of animals and Dairy development.
 There are incentives to attract domestic and foreign direct investment at the federal and
regional government level such as tax exemption and tax holidays for certain years.
 Availability of infrastructure, utilities and services that highly contribute for success of
such project.
 Sector Specific Success Factors
 Increasing population, income and trend towards consuming more animal products
 Existence of conducive environment conditions for dairy development
 Large diversity and herd of cattle
 Firm Level Success Factors
 Character: - The character of the applicant was measured from 400 points as indicated in
the due diligence assessment report of pre-credit risk measurement. The promoter scored
295 points of the total 400 points allotted for his character. This indicated that promoters
have good commitment towards meeting his obligation.
 Capacity: - Based on Information we have obtained from the submitted credentials and due
diligence report, the recruited project manager is well educated & has an experience of
rural development and agriculture extension and can manage the project with other staff.
 Capital: - As per the submitted Investment and Business License, the registered capital of
the promoter is Birr 68,800,000. In addition to this, based on information obtained from the
due diligence report, the promoter has got excellent rating in terms of raising sufficient
capital required to implement the project.
 Collateral: - the project is one of the priority areas of the bank, so that the project itself
serves as collateral.
 Compliance: - The business is in line with the government rules and regulations and it is
one of priority area project of DBE’s Credit policy and fulfills the bank’s procedures.
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3.2 Risk Factors
 Sudden climatic changes, outbreak of livestock Epidemic diseases
 Low quality of raw milk that emanates from poor milking, handling and transporting
from household farmer to the collection center.
 Perishable of the industry’s products
 Inadequate number of exotic/hybrid cattle and commercial agriculture that are engaged
in production and distribution of raw milk in the country, which could be a reason for
poor supply of raw milk for the industry.
 Inadequate number of animal feed processing industries
 Poor integration with research centers and other concerned body
3.3 Risk Mitigating Measures
As shown above, the risk factors that may happen to the project can be categorized as external
and internal factors. That means there are some factors out of project control like climatic
changes and epidemic diseases that may happen suddenly. Anyhow, the project managers and
other concerned body should focus on internal factors to overcome expected risks by;
 Closely working with concerned local and national veterinary experts, meteorologist and
economists to be informed well concerning trends of each factor before occurrences.
 Training and helping raw milk suppliers how to feed and maintain milk cows, milking,
handling and transporting raw milk with proper quality required to produce quality milk
products to consumers.
 Adopting advanced technology that used to extend the spoilage period of milk products
for long time.
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3.4 SWOT Analysis
Strengths Opportunities
 The promoter has the capacity to raise  Encouraging environment for modern
sufficient required equity capital. dairy farm.
 The Integration of forage production with  Availability of labor that need little
dairy farm will help the project to get training in sector.
consistent animal feed and raw milk  Conducive agro-ecology zone of the
supply. project location
 Since it is located in the society practicing  Increase in milk demand due to
a mixed farming with large grazing land, urbanizations, education, and increase
the project is located at an ideal place for in income and change in life style.
its raw milk supply. 
 The project is also easily accessible to the
target market (i.e. Shashamane & Hawassa)
Weaknesses Threats
 Low level of educational background of  Seasonality of markets for milk
the owner. products due to cultural and religious
 Lack of experience in the sub-sector factors like fasting in Ethiopia.
 Reduction of milk production and its
quality due to occurrence of some
disease
 Absence of regulation which prevents
sales of raw milk.
 Pasteurized milk consumption is not
highly accustomed in local markets.
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IV. MARKET STUDY
4.1 Domestic Market

This part of the study is taken from the commodity study made by the Research Process on
December 2014. Accordingly, we will have a look at the domestic market for the raw cow milk,
dairy products and processed dairy products which include pasteurized milk, butter and cheese.
Before we deeply go in to the demand, its determinants will be looked.
4.1.1 Demand
A. Determinants of Demand for Dairy Products
Demand for dairy products is influenced by population, unemployment rate and personal
disposable income. As number of population increases so does consumption of dairy products.
Unemployment rate is also a key factor affecting the demand for milk and dairy products. As the
unemployment rate declines, consumption of dairy products is expected to increase. When
people are employed, they have the buying power to purchase dairy products for consumption.
The same is true with an increase in personal disposable income. As disposable income of the
consumers increases so does the demand for the dairy products. Especially in Ethiopia, milk is
considered as a luxury product for urban dwellers, which is due to low income base of urbanites.
Socioeconomic and demographic factors like age, family size and composition, and education
also affect consumption. But it is often difficult to find data on that.
In Ethiopia religion is also another factor on determining the demand for dairy products. A
certain portion of the society in the Ethiopia is Orthodox Tewahdo Christians. The religion
requires for its followers to fast a number of days within a year, which in some cases they are
expected to fast for about two months. This makes the demand for the dairy products (especially
raw milk) to be reduced by a significant margin even threatening dairy products producing firms
to bankruptcy.
The inflation process in a given country has also a bearing in reducing the demand for a product
just by reducing the purchasing power of the society. However, current economic condition is
running smoothly and expected to be stabilized.
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B. The daily milk requirement
It is recommended that every human being is needed to consume a certain amount of milk in day.
That is not the case, of course, for Ethiopia where milk consumption is being constrained by
hosts of factors. Studies show that the per capita consumption of milk in the country is not far
from 19 liters much lower than the Sub Saharan African Average, which is about 27 liters.
Noting the world per capita consumption, which is 100 liters, it really needs more to do to
increase the consumption of milk and to change the behavior the population. According to the
data from Ethiopian Health and Nutrition Research Institute, the recommended daily amount of
milk by age ranges between 2 and 3 cups (between 0.5 and 0.6 liters) (see table 4.1).
Table 4.1: Recommended daily amount of milk
Description Age group, years Daily required amount

Children 2-8 2 cups1
Adult 9≥ 3 cups
Source: Ethiopian Health and Nutrition Research Institute
C. Demand forecasting for Raw Milk

Demand forecasting is to be done by taking the major determinants, which include population
growth rate, GDP growth rate, per-capita income, income elasticity of demand and per capita
consumption of the product. According to the Central Statistical Agency (CSA) the growth rate
of the population is 2.63%. For the sake forecasting demand for this commodity, GDP growth
rate of the lower case scenario (11.2%) will be employed. Hence, the growth in per capita
income will be 8.57%. According to the study conducted by the Ethiopian Food Policy Research
Institute, the expenditure elasticity of animal products (which raw milk is the one) is elastic,
1.22. This implies a one percent change in income of the households will bring a 1.22 percentage
change in consumption of animal products. By dividing the amount production of milk in the
country by the number of population in the base year (2011), it is found that the per capita
consumption of milk in Ethiopia is about 38 liters per annum. For the sake of this study 38 liters
is used in estimating demand for the product.
1
1 cup [US] = 0.236 liters
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According to the study conducted by the Indian Council for Research on International Economic
Relations (March 2008), the relationship between determinants of demand and the demand for
the product can be defined by:
Dt= d0*Nt (1+y*e) t

Where;
Dt =the demand of the commodity in year t,
d0=the per capita demand/consumption of the commodity in the base year,
Nt =the projected number of population in year t,
y=the per capita income growth rate, and
e= income elasticity of demand for the commodity.
The demand for the product is forecasted by substituting the variables by the values that are
determined in the proceeding section (a) through (e) (see table 4.2). Accordingly, the demand
for the product will be more than double in the forecasting years (2014-2023).
Table 4.2: Forecasted demand for raw milk

Years Projected Demand Years Projected Demand
2014 4,699,189,192 2021 11,304,514,149
2015 5,327,018,585 2022 12,814,839,860
2016 6,038,728,351 2023 14,526,950,780
2017 6,845,525,226 2024 16,467,751,404
2018 7,760,113,206 2025 18,667,842,992
2019 8,796,893,587 2026 21,161,866,816
2020 9,972,191,736 2027 23,989,092,222
Source: Dairy farm and milk processing commodity study, March 2015, and own projection
D. Estimation of Demand for Processed Dairy Products

Ethiopia has one of the lowest levels of per capita dairy products consumer in the world.
Processed dairy products are majorly consumed in urban areas especially in Addis Ababa and
other big regional towns. But the dairy products are majorly produced and consumed in
traditional ways. The purchase of processed dairy product is categorized by some consumers as it
has low quality, which has loosed its fat content- the content that cherished by the consumers.
Recently, however, the adulteration and loosing quality of milk that is being distributed to the
urban consumers is making the demand for the informal supply of milk to decrease.
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A sizable amount of dairy products are also being imported to the country. The processed dairy
products, which are being imported to the country, are different from the ones that are being
produced in the country. The different between the imported and the domestically produced ones
is not only in quality terms but also by types and uses. This makes the addition of the imported
amount of the products in to the demand-supply estimation illogical and they have to be
considered in a different way.
The exports of the dairy products are also not included on the estimation of demand for the
processed dairy products. The export trend of the product is erratic and small in amount. The
second is the export of the products available in aggregate terms and decreasing in amount in the
period under consideration.
The estimation of demand for the diary products is also made on the same approach as that the
estimation of demand for the raw milk (see the estimation raw milk demand in the proceeding
sections). The supply for the product is growing, which implicitly shows the demand for the
products, too, is growing.
The per capita demand for the products is taken by dividing the amount of production of the
products in the base year (2011) by the number of the population in the base year; and found to
be 0.323 lts, 0.013 Kgs, and 0.0024 Kgs; respectively, for cow milk (pasteurized), butter and
ghee; and cheese.
The projected number of urban population, the per capita income growth rate, and income
elasticity of demand for the commodity are taken to be the same for the all processed dairy
products and the raw milk,
E. Demand Projection for Processed Dairy Products

Demand projection for processed dairy products is made and presented in table 4.3. According
to the table the demand for the processed dairy products is forecasted to grow significantly in all
projection years. That is in conformity with what really happening in the country especially in
the last few years.
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Table 4.3: Forecasted Demand for Cow Milk, Butter & Ghee and Cheese
Cow Milk Butter & Ghee Cheese

Years
(Pasteurized) (Ltr) (Kg) (Kg)
2014 392,757,157 67,997,003 32,829,013
2015 445,230,994 77,081,659 37,215,093
2016 504,715,534 87,380,059 42,187,169
2017 572,147,432 99,054,364 47,823,534
2018 648,588,486 112,288,401 54,212,939
2019 735,242,352 127,290,554 61,455,992
2020 833,473,502 144,297,052 69,666,744
2021 944,828,704 163,575,682 78,974,484
2022 1,071,061,381 185,430,010 89,525,772
2023 1,214,159,219 210,204,159 101,486,753
2024 1,376,370,891 238,287,435 115,045,383
2025 1,560,254,042 270,122,636 130,415,446
2026 1,768,703,982 306,211,020 147,838,950
2027 2,005,002,834 347,120,812 167,590,234
4.1.2. Supply
Theoretically supply is defined as the amount of a product that producers are willing and able to
sell at a given market price. This definition is set to a fairly competitive market. For the purpose
of estimation of market supply, the best approach would be estimating the amount of dairy
products that the producers all over the country brought to the market for sale. This is not an easy
issue. The difficult thing here is, the milk and milk products market in the country is majorly
informal, and it is only the small portion of the produce that comes to the market (far less than
10%). It is also difficult to conceive the ratio at which the producers allocate their production
between the market and other competitive uses.
There are also commercial dairy farmers in the country where their contribution to the yearly
milk production is far less than one percent. In the following section the supply of raw milk
followed by the processed one will be looked at in depth.
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i. Domestic Production
The annual production of milk in the country is very low compared to its potential. But the
production is growing with modest rate of growth. The annual production of raw milk has grown
from 2.3 billion liters in the years 2005 to 3.3 billion in the year 2011, 5% annual growth rate
(See table 4.4). The production of milk in the country has got its peak in the years 2010, where it
has reached about 4 billion liters & declined swiftly in the following year to 3.3 billion liters.
The supply of milk to the country is increasing, 5% annually between the years 2005 and 2011.
Given the agricultural production growth (8%) in the stated period, the performance of the sector
is dismal. The decrease in pasture has also contributed a lot, which is due to the increase crop
production land.
Table 4.4: Production of whole milk

Year Production (Lt.) Remark Year Production (Lt.) Remark
2005 2,321,143,253 2010 4,057,998,244
2006 2,634,118,410 2011 3,329,854,796
2007 2,765,824,331 estimated 2012 3,496,347,536 estimated
2008 2,904,115,547 estimated 2013 3,671,164,913 estimated
2009 2,940,216,526 CAGR 5%
Source: Central Statistical Authority, Report on Livestock and Livestock Characteristics
ii. Raw Milk Utilization at the Household Level

The whole milk produced in the country is not consumed by a household only. As the CSA
report on livestock product utilization at country level shows, the milk produced at the household
level is basically consumed by the household itself (84.1 %). About 6.72% of it is sold by the
household and the rest 8.84% was used for other purposes, like preparation of cheese and butter.
Table 4.5: Raw milk Utilization

House Hold
Years Sales Wages In Kind Others
Consumption
2008 82.9 6.61 0.43 10.06
2009 85.23 6.83 0.29 7.62
2010* 48.48 6.55 0.41 44.57
Average 84.065 6.72 0.36 8.84
*Is not used in calculating the average (the last column) because the data we have in 2010 is very different
form the proceeding years (outlier)
Source: Central Statistical Authority, livestock product utilization
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iii. Estimation of Supply
All milk produced in the country is not supplied to the market as the information presented above
shows. It is assumed that the amount of milk supplied to the market (the whole population of the
country or the consumers) is whole milk produced minus the amount that was for the other
purposes (8.84%) (See table 4.6). The amount of milk supplied is arrived at by multiplying the
share of others by the total production in the country.
Table 4.6: Whole Cow Milk Supply in Ethiopia

Share of Milk used for Net Milk Supply
Production (Lt.)
Year others others (Ltrs)
(a) (b) (c=a* b) (a-c)
2005 2,321,143,253 0.09 208,902,893 2,112,240,360
2006 2,634,118,410 0.09 237,070,657 2,397,047,753
2007 1,336,226,548 0.09 120,260,389 1,215,966,159
2008 1,382,727,231 0.09 124,445,451 1,258,281,780
2009 2,940,216,526 0.09 264,619,487 2,675,597,039
2010 4,057,998,244 0.09 365,219,842 3,692,778,402
2011 3,329,854,796 0.09 299,686,932 3,030,167,864
2012 3,496,347,536 0.09 314,671,278 3,181,676,258
2013 3,671,164,913 0.09 330,404,842 3,340,760,070
Source: Dairy farm and milk processing commodity study, March 2015.
iv. Supply Projection

Given, increasing attention is being given by the government to the sector, it is expected that the
supply of the raw milk will increase to the market, in the very near future. The major assumption
that is going to be made is the supply of raw milk will grow in the future by its historical growth
rate. The Ministry of Agriculture through its Lives Stock Development Directorate has been
working hard to promote the production at the household level, by encouraging the modern ways
of dairy farming. The contribution of the NGOs and the Meat and Diary Development Institute
is also organizing its potential to promote the sector.
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Table 4.7: Whole cow milk supply projection
Market Supply Market Supply
Year Year
Projection (Ltrs) Projection (Ltrs)
2014 3,507,798,074 2021 4,935,824,154
2015 3,683,187,978 2022 5,182,615,362
2016 3,867,347,377 2023 5,441,746,130
2017 4,060,714,746 2024 5,713,833,437
2018 4,263,750,483 2025 5,999,525,108
2019 4,476,938,008 2026 6,299,501,364
2020 4,700,784,908 2027 6,614,476,432
v. Production of Processed Dairy Products
Industrially, raw milk can be processed in to different products. That includes pasteurized milk,
evaporates and condensed milk, skim milk and butter milk, cheese, yogurt, butter, cream, ghee
and whey.
According to the data compiled by CSA (Report on Large and Medium Scale Manufacturing and
Electricity Industries Survey), the country has an experience of processing dairy products. The
report includes the production of pasteurized milk, butter and ghee, and cheese.
The pasteurized milk production increased from 13,507,700 liters in 2005 to 24,356,400 liters in
2010, which has grown by 13 per year, on average. It was also showing a continuous increase
from year to year lest for the year 2007, in which production showed a decline as compared to its
2006 production figure.
Production of industrially processed butter and ghee increased from 394,000 kgs in the year 2005
to 982,000 kgs in 2010, which has grown by 9%, on average. Production is growing throughout
the period expect the year 2007. The production of cheese, on the other hand, is growing during
the period, from 104,000 kgs in the year 2005 to 185,000 kgs in 2010, has grown by 12%.
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Table 4.8: Production of processed dairy products
CAGR
Items 2006 2007 2008 2009 2010
(%)
Cow milk
24,356,40
(pasteurized) 16,210,300 13,461,700 146,291 16,092,700 13
0
(Lt.)
Butter & ghee
588,000 354,000 365,000 611,000 982,000 9
(kg)
Cheese (kg) 122,000 480,000 236,000 270,000 185,000 12
vi. Import of Processed Dairy Products
Ethiopia imports a variety of dairy products which most of them do not have domestic substitute.
The country import more than 18 processed dairy products classified by their HS code. The
major imports include; milk and cream of different formula, butter, yoghurt, cheese and other
types of products.
Some processed dairy products have no domestic substitute; technically there is no domestic
supply of them. But, imported butter and cheese have a domestic substitute. The import of those
products is presented in the table 4.9. The increase in amount of import is positive and far more
than 100%, for both of the products.
Table 4.9: Import of dairy products (Kgs)
Items 2006 2007 2008 2009 2010 CAGR

Cow milk,
16,210,300 13,461,700 146,291 16,092,700 24,356,400 8%
(pasteurized) (Lt.)
Butter and ghee (kg) 617,770 605,940 606,756 605,101 1,439,786 18%
Cheese (kg) 646,060 661,880 661,881 648,853 2,661,126 33%
vii. Supply Projection
In Ethiopia though the sector is not being well supported by a government policy and constrained
to some extent by ever increasing price of animal feed, the processed dairy products industry is
taking the attention of investors that the production of the products is increasing significantly.
That is probably because the startup capital is relatively small and the production process is also
easy to learn and adapt.
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As it is presented in the table 4.10, the production of processed dairy products is increasing with
significant rate. In this commodity study, it is assumed that supply will increase in the future
with the rate that it has been doing in the past.
Table 4.10: Supply Projection

Cow milk, Butter & Ghee Cheese
Years
(Pasteurized) (Lt.) (Kgs) (Kgs)
2014 33,734,225 4,784,212 8,258,468
2015 36,596,128 5,666,366 10,961,198
2016 39,700,827 6,711,179 14,548,444
2017 43,068,918 7,948,643 19,309,679
2018 46,722,747 9,414,281 25,629,112
2019 50,686,555 11,150,166 34,016,691
2020 54,986,640 13,206,128 45,149,254
2021 59,651,531 15,641,186 59,925,144
2022 64,712,175 18,525,240 79,536,704
2023 70,202,149 21,941,080 105,566,494
2024 76,155,291 25,987,015 140,118,407
2025 82,613,260 30,779,021 185,979,162
2026 89,618,864 36,454,672 246,850,142
2027 97,218,544 43,176,914 327,644,194
4.1.3. Demand- Supply Gap
A. Raw Milk
According to the analysis made in the preceding sections, both the demand and supply of raw
cow milk are increasing. The gap between the demand and supply is also increasing (see table
4.11). This is expected given the surge in demand due to the increase in the income of the
population and the increase in the number of the population.
The very high gap that is manifested in the projection years shows that there is severe shortage of
raw milk for processing. This does not deter the entrance of new processing firms to the industry;
most of the raw milk is supplied to the market informally; with low quality (adulteration is
common) and unhealthy supply chain. The formalizing of the supply chain requires intensive
regulation advocacy by the government and other stakeholders and creation of awareness to the
public not to purchase unprocessed milk.
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Table 4.11: Demand- Supply Gap of Raw Milk
Estimated Estimated
Years Gap (Ltrs)
Demand (Ltrs) Supply (Ltrs)
2014 4,699,189,192 3,507,798,074 1,191,391,118
2015 5,327,018,585 3,683,187,978 1,643,830,607
2016 6,038,728,351 3,867,347,377 2,171,380,974
2017 6,845,525,226 4,060,714,746 2,784,810,480
2018 7,760,113,206 4,263,750,483 3,496,362,722
2019 8,796,893,587 4,476,938,008 4,319,955,579
2020 9,972,191,736 4,700,784,908 5,271,406,828
2021 11,304,514,149 4,935,824,154 6,368,689,996
2022 12,814,839,860 5,182,615,362 7,632,224,498
2023 14,526,950,780 5,441,746,130 9,085,204,650
2024 16,467,751,404 5,713,833,437 10,753,917,968
2025 18,667,842,992 5,999,525,108 12,668,317,883
2026 21,161,866,816 6,299,501,364 14,862,365,452
2027 23,989,092,222 6,614,476,432 17,374,615,790
B. Processed Dairy Products

It has argued that the demand for the processed dairy products is increasing, especially in the big
towns and cities of the country. The supply of the products is also increasing due to the increase
in the number of processing firms. The gap between the supply and demand for all the products
is positive. This is in tally with the increase in the importation of dairy products. It also shows
that the people attention towards consumption of processed dairy products is improving. This is
because, impart the expansion of cities is making the supply unprocessed milk difficult and
consumers are moving towards the processed milk products.
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Table 4.12: Demand- Supply Gap, Processed Dairy Products
Pasteurized Milk (Liter) Butter and ghee (kg) Cheese (kg)

Year
DD SS Gap DD SS Gap DD SS Gap
2014 392,757,157 33,734,225 359,022,932 67,997,003 4,784,212 63,212,791 32,829,013 8,258,468 24,570,545
2015 445,230,994 36,596,128 408,634,866 77,081,659 5,666,366 71,415,293 37,215,093 10,961,198 26,253,895
2016 504,715,534 39,700,827 465,014,707 87,380,059 6,711,179 80,668,880 42,187,169 14,548,444 27,638,725
2017 572,147,432 43,068,918 529,078,514 99,054,364 7,948,643 91,105,721 47,823,534 19,309,679 28,513,855
2018 648,588,486 46,722,747 601,865,739 112,288,401 9,414,281 102,874,119 54,212,939 25,629,112 28,583,827
11,150,16
2019 735,242,352 50,686,555 684,555,797 127,290,554 116,140,388 61,455,992 34,016,691 27,439,300
6
13,206,12
2020 833,473,502 54,986,640 778,486,862 144,297,052 131,090,924 69,666,744 45,149,254 24,517,490
8
15,641,18
2021 944,828,704 59,651,531 885,177,174 163,575,682 147,934,497 78,974,484 59,925,144 19,049,340
6
1,071,061,38 18,525,24
2022 64,712,175 1,006,349,206 185,430,010 166,904,770 89,525,772 79,536,704 9,989,068
1 0
1,214,159,21 21,941,08
2023 70,202,149 1,143,957,070 210,204,159 188,263,078 101,486,753 105,566,494 -4,079,741
9 0
1,376,370,89 25,987,01
2024 76,155,291 1,300,215,599 238,287,435 212,300,419 115,045,383 140,118,407 -25,073,024
1 5
1,560,254,04 30,779,02
2025 82,613,260 1,477,640,782 270,122,636 239,343,615 130,415,446 185,979,162 -55,563,716
2 1
1,768,703,98 36,454,67
2026 89,618,864 1,679,085,117 306,211,020 269,756,348 147,838,950 246,850,142 -99,011,192
2 2
2,005,002,83 43,176,91
2027 97,218,544 1,907,784,289 347,120,812 303,943,899 167,590,234 327,644,194 -160,053,960
4 4
Source: - Dairy farm and milk processing commodity study, March 2015, and own projection
4.2. Marketing Channels
Dairy products are channeled to consumers through both formal and informal dairy marketing
systems. The formal marketing system is dominated by the commercial dairy farmers and
processor. It is discussed that firms can operate in three ways: dairy farming, dairy processing,
and dairy farming and processing
In this study, it is argued that it would be difficult for a dairy farmer to enter to the business
without having a processing facility if it is to operate in scientifically acceptable way. The
option is then for a dairy farmer to enter to an agreement with a processor. The actual practice
partially shows the same. The processing plants obtain milk either from their own farms, or
collects from commercial farms or small-scale farms in their vicinity. The collection of milk is
feasible only in maximum of 200kms radius with the processer having cooling tank.
In Ethiopia, the informal market dominates the system and involves direct delivery of fresh milk
to consumers in the immediate neighborhood and individuals in nearby towns. Both commercial
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(urban and peri-urban) and small-scale (rural) farmers channel their product in this root. This is
results in poor quality and adulterated milk. This arrangement supplies low quality milk, which
most consumers have no awareness about, and sets lower price which most consumers more
concerned about. It is also one of the major challenges that face dairy processors who usually
charge a higher price than the informal market.
As the buyer and seller of milk, the dairy processor is a key in creating link in the dairy value
chain. The relationships between the farmer, processor and retailer need a sort of trust and
regulation, which barely exist in Ethiopia. In order to build trust each party needs to know what
is demanded of them and there has to be a transparent flow of information along the value chain;
the processor needs quality raw milk and the retailer needs an adequate supply and the retailer
needs adequate and faire price, the final price from the consumer. The relationships also require
that each party has some level of power in price negotiation and volumes of milk collected
reflected in contracts. Finally, the relationships require that everyone benefit in terms of getting
paid on time with incentives to increase price.
Figure 1: Marketing Channel

Producer/Farmer
(Small and
Commercial Scale
Farmers)
Process Processor
(Add value) /Distributors
Retailer
(E.g. Consumers
Supermarkets)
4.3. Price and Price Trend
There are a range of dairy products- even a firm can produce more than 32 products (Sebeta
Agro Industry in one of them). Data has been collected on the price of dairy products for the year
2012 to 2014. The price of the major dairy products has shown an increment in the period
between 2012 and 2014, just by double digits except yogurt. The highest price increase is for
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pasteurized milk, its price has increased by 21.43% and the lowest is for yogurt, which is has
increased by 4.35%.
Table 4.5: Dairy Products Average Unit Selling Price
Years Change in
Type of the Unit of the
Price (CAGR)
Product Measurement 2013 2014 (%)
Pasteurized milk Lt. 14 17 21.43
Yogurt Kg. 23 24 4.35
Modern Cheese kg 130 152 16.92
Butter Kg. 126 140 11.11
4.4. Strategies of the Promoter
4.4.1. Raw Milk Collection Strategy

As learnt from document submitted by the company, the project uses two sources of raw milk for
processing the envisaged dairy products. The primary source is from within the project. This is
planned to be realized by purchasing 100 pregnant breeding cows. This source is expected to
share about 21% of the total raw milk requirement during the initial year and gradually increases
to 33% of the total raw milk requirement during the tenth project year.
Apart from this, the promoter has planned to collect raw milk from the surrounding farmers.
During our field visit, the virtual appraisal team has confirmed that the project is located in the
society practicing a mixed farming with large grazing land. As a result, the project location is an
ideal place for raw milk supply. However, since there is no organized farmers association for raw
milk collection marketing, the promoter is expected to establish and train farmers association in
cooperation with concerned government office for reliable and consistent supply. This will also
benefits the nearby society by creating market for their raw milk and can generate revenue and
improve their living standard.
In addition to this, the promoter has an intension to freely deliver female calves to the poor
farmers so that they can create partnership with the project for uninterrupted supply of raw milk
by further breeding the calves for milk production.
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4.4.2. Marketing Strategy
The promoter will use diversified and flexible marketing strategy. The first most important
strategy is advertising and promotion. To create awareness of the project’s products, advertising
and promotion play significant role.
The price of a product in the market is also an important factor influencing consumer demand.
Hence, the promoter has planned to competitively price the project’s product by keeping costs
involved in raw material procurement, processing, packaging, storage, marketing and distribution
as low as possible.
The other marketing strategy that will be used by the project is implementing fast and efficient
supply of the quality product to the market. If the customers obtain quality product at a required
quantity and whenever they want, they will be satisfied and their retention will be increased. This
in turn will increase sales and profitability of the project. Furthermore, the promoter will respond
to changes that will occur in the future.
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V. TECHNICAL ASPECT OF THE PROJECT
5.1 Land
The project is located in Oromia Region West Arsi Zone, Koksa Woreda, Jidda & Garba Hurfa
Kebele. It is around 360 Km away from Addis Ababa and 105 KMs away from West Arsi Zone,
Shashamane. From the total distance, 295 Km is asphalt road and the remaining 65 KM is all
weather gravel road. Thus, it is possible to say that the project location accessible for the road to
transport raw material to the project site and its final product to the market.
5.2 Land utilization plan & Forage production
The land utilization of the project comprises the dairy farm, milk processing, hay production and
grazing land an accordingly the promoter planned to produce irrigated Alfalfa and Elephant grass
on 25 hectare land using sprinkler. Alfalfa is high in protein, rich in fiber and high in other
nutrients like nitrogen, phosphorus, potassium, calcium, boron etc. Out of the total 25 ha it is
planned to cultivate on 12.5ha each and with well drained soil and irrigation alfalfa can be
harvested 4 times per year and it is planned to harvest 6tons/ha/year.
The elephant grass has high biomass production and according to the commodity study, the
production is planned to be harvested 20tons/ha/year and can be harvested 3 times per year.
Additionally it requires low water and nutrient inputs. In addition the promoter planned to
purchase concentrate feed and based on the submitted pro forma invoice, the cost is determined.
5.3 Agro-ecological Suitability of the Project
According to the promoter’s feasibility study, the district has a tropical heavy and erosive rainfall
ranges from 800 to 1200mm and the average annual temperature is 15 0C. The rainfall patterns
are short and long rainy season. The duration of rainy season has been occurring from February
to April and for Meher season from June to September. The type of soil of the project is loam
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with a PH of 5.60-6.10 which is suitable for animal feed production. In general, the agro-
ecological zone is suitable for rising of dairy animals.
5.4 Land Ownership
The promoter has got 247 hectares of land through lease agreement & title deed certificate with
reference number, WLBEN/AL/288/207 dated 12-05-2007E.C from Oromia Investment
Commission and Oromia Bureau of Rural Land & Environment Protection respectively.
According to the lease agreement, the land lease payment per m 2 is 0.10 cents land used for
processing and Birr 97.54 per ha for the land used for farming for 30 years.
However, according to Article 6:sub-article 3 of the lease agreement, the lessee has paid Birr
1,678,975 for compensation and land rent by invoice number 284346 on 12/02/2007E.C.
Therefore, any prior payment made by the lessee shall be deducted from the total payment.
5.5 Plant Layout and Civil Work
According to CP’s Civil Engineer Cost estimation, the total estimated value of existing Buildings
and Civil Works which includes compound and site work, fence work, Water reservoir and site
works and residential & office building units with a cost of Birr 5,143,482.
Table 5.1: Existing Building and Construction

Total Value Estimated
Sr. Area/ Before Value After
Description UOM Depreciation Depreciation
No. Volume
(Birr) (Birr)
1 Residential Building M2 179.47 839,009 629,257
2 Office Building M2 117.65 550,027 412,520
3 Generator House M2 27.11 60,509 45,381
4 Staff Residence M2 253.13 971,271 728,453
5 Guard House M2 50.47 112,649 84,487
6 Dairy Cows Barn M2 732.37 714,062 535,546
7 Calving Room M2 99.42 96,930 72,698
8 Septic Tank M3 60.00 84,640 76,176
9 Compound & Site Works 807,860 605,895
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10 Fence Works 2,071,357 1,553,518
11 Water Reservoir 332,564 249,423
12 Consultant Fee - 150,127
Grand Total 6,640,878 5,143,482
In addition to this, the promoter has planned to construct additional building and construction
work which includes; main factory hall along with laboratory & milk store, barn, repair shop &
working shade, lath house, store space and hay shade. Based on the submitted drawings, the
Bank’s Civil and Electrical Engineers has revised cost of additional building and construction
and it is estimated to be Birr 7,648,435. The summary of planned additional building and
construction is depicted as follows:
Table 5.2: Planned Building and Construction
Sr. Area No. of Unit Block Total Block

Description
No. (M2) Blocks Cost (Birr) Cost (Birr)
1 Main Factory Hall 610.04 1 821,123 821,123
2 Barn 1,281.69 1 2,979,724 2,979,724
3 Repair Shop & Working Shade 408.36 1 1,576,182 1,576,182
4 Lath House 253.20 1 889,527 889,527
5 Store Space 225.09 1 845,283 845,283
6 Hay Shade 219.60 1 536,596 536,596
Total 7,648,435 7,648,435
5.6 Machineries and Equipments

5.6.1 Milk Processing Machineries and Equipment
As it is obviously known, selection of machineries and equipments has critical importance on

smooth operation of the project and it has also the capacity to determine the quantity and quality
standard of the product intended to produce. Therefore, it is mandatory to thoroughly identify
whether the appropriate type of plant that meets the consumer requirements selected & all the
necessary machineries & equipments are included. Based on this fact, considering the submitted
pro forma invoice, after appropriateness of all the necessary machineries & equipments
identified, the Bank’s Mechanical engineer has approved milk reception & processing section,
yogurt section, butter section and cheese section, laboratory, services & utilities section,
electrical & electrical cables, cleaning in place with installation & commissioning cost.
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Accordingly, the total estimated cost of milk processing machinery and equipment with
aggregate processing capacity of the project is 10,000 Ltr/per day is Birr 13,942,293. The
summary is depicted as follows:
Table 5.3: Milk Processing Machineries and Equipments

Sr. Total Price
Description
No. (USD)
1 Milk Reception Section 26,417
2 Milk Processing Section 178,191
3 Yoghurt Section 90,595
4 Butter Section 15,978
5 Cheese Section 28,000
6 Laboratory, Services & Utilities Section 165,193
7 Electrical and Electric Cables 23,376
8 Cleaning In Place (CIP) 36,000
Total 563,750
Total Cost After Cost Build-up (Birr) 13,942,293
5.6.2 Farm Machineries and Implements

For smooth operation of the project, all the necessary farm machineries and equipment are
included and their costs are properly determined by DBE’s Mechanical Engineer to check
viability of the project. Accordingly, the promoter has submitted pro forma invoices for
procurement of tractor and its accessories and based on the recommendation of the Bank’s
mechanical engineer, the total cost of farm machinery and implements is estimated to be
Birr 7,202,167. The detail is depicted on the below table.
Table 5.4: Planned Farm Machineries and Implements

Sr. No Description Quantity Total Cost(Birr)
1 Tractor (120HP) 1 1,223,000
2 Disk Harrows 1 169,100
3 Disc Plough 1 146,000
4 Trailer 1 176,567
5 Baler 1 600,000
5 Sprinkler (25 ha) 1 4,887,500
Total 7,202,167
5.6.3 Trucks and Vehicles
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Due to the nature of the project, trucks and vehicles play great role in its effectiveness and
successfulness. The promoter will procure one van body & thermo king equivalent refrigerator
which is to be mounted on one of the planned Isuzu NPR model. This is used for the purpose of
selling the different types of milk & milk products of the project. It is also planned to procure
one Isuzu NPR truck with Van Model, one Toyota Hiace Minibus and Hilux Pick-up Double
Cabin which is going to be procured from local suppliers. Therefore, the Van model Isuzu NPR
vehicle will be used for transportation of different inputs while the Hi-Lux Toyota will be used
for transportation of management staff. Based on the recommendation of the Bank’s Mechanical
Engineer, the total cost of trucks & vehicles are estimated to be Birr 3,276,350 and the detail is
attached in the annex part of this report.
5.6.4 Office Furniture & Equipments
Office furniture and equipments are crucial for smooth operation of the project. Thus, all the
necessary types and number is determined and their costs are included in the total project cost.
The total cost of office furniture and equipment is planned to be Birr 314,401. The details are
presented in the annex part of this report.
5.6.5 Generator
Since milk is highly perishable, in order to minimize risks associated with fluctuation of electric
power standby generator is one of the best solutions. Based on this fact, generator is also
included in the investment item of the project. Based on recommendation of Mechanical
Engineer of the Bank, Generator with 500KVA is proposed with its cost of Birr 1,365,000.
5.6.6 Milking Machinery
Proper milking machinery can manage herds faster while ensuring the quality of the milk, which
allows the promoter to harvest from more cattle than they could with traditional means.
Therefore, it is quite obvious a big dairy farm that harvests manually will normally require at
least a number of employees to function properly. However, with automatic milking machinery,
only a few will be required. Therefore, proper milking machine will reduce the pressure on the
stock, which not only improves the health of the animals, but also ensure a higher quality in the
dairy harvest. Based on this fact and the pro forma submitted, the Mechanical Engineer of the
Bank proposes eight milking machines with a total cost of Birr 232,000 from Wise Team PLC.
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5.7 Utilities
It is obvious that utilities like electric power, water and communication devices like telephone,
internet and fax are among important facilities that are supposed to be fulfilled for smooth
operation of every project. Accordingly, the project site is accessible with all infrastructures like
power, water and communication devices.
Therefore, as per Ethiopian Electric Utility South Region with its letter dated 02/09/2008 E.C
and reference number 477/21/08, the cost for transformer & power installation for supply of 611
KW is estimated to be Birr 3,412,048. Therefore, it is hoped that the project will not face
electricity problem. In order to minimize risks associated with fluctuation of electric power,
standby generator will used.
According to the due diligence report, water is planned to be extracted from borehole which is
already dogged for the purpose of sheep raising development during the Derg regim. The cost for
digging a new and water bore and improvement of the existing one along with the availability of
immense potential of water for the purpose of irrigation and potable is confirmed by Mohammed
Idris general contractor on the hydro geological survey study. Based on the submitted pro forma
invoice, Mechanical Engineer of the Bank revised the cost of borehole drilling and submersible
water pump to Birr 2,812,262.
5.8 Material Inputs
As the name indicates, in milk processing industry the main raw material is raw milk. Additives
in a very low extent and packing material are the other material inputs required in milk
processing industries.
As learnt from document submitted by the company, the project uses two sources of raw milk for
processing the envisaged dairy products. The primary source is from within the project. This is
planned to be realized by purchasing 100 pregnant breeding cows. This source is expected to
share about 21% of the total raw milk requirement during the initial year and gradually increases
to 33% of the total raw milk requirement during the tenth project year.
31 | P a g e
Apart from this, the promoter has planned to collect raw milk from the surrounding farmers.
During our field visit, the virtual appraisal team has confirmed that the project is located in the
society practicing a mixed farming with large grazing land. As a result, the project location is an
ideal place for raw milk supply. However, since there is no organized farmers association for raw
milk collection marketing, the promoter is expected to establish and train farmers association in
cooperation with concerned government office for reliable and consistent supply. This will also
benefits the nearby society by creating market for their raw milk and can generate revenue and
In addition to this, the promoter has an intension to freely deliver female calves to the poor
farmers so that they can create partnership with the project for uninterrupted supply of raw milk
by further breeding the calves for milk production.
The source of supply for additives and packaging material are domestic production. The firm can
purchases the additives by itself without any middle men in the marketing channel from the
market. For packaging material, the promoter presented pro forma invoice from Classic Packing
Crown Packaging and Plastics PLC.
5.9 Production Process and Production Capacity
Transportation of raw milk from farm to processing area is performed by refrigeration track. But
if the farm and processing area is at the same place, the simplest way is by using pumps that are
connected to central refrigeration, and also with a combination of airflow and mechanical pump
to a central storage vat or bulk tank. Overall milk processing includes temporary
preservation(raw milk handling), filtration/clarification of raw milk, separation of all or part of
the milk fat, production of cream and butter, pasteurization, homogenization (if required),
deodorization (if required), further product-specific processing and distribution of final products.
To make a consumable liquid a portion of cream is returned to the skim milk to make low fat
milk (semi-skimmed) for human consumption. Raw milk contains around 4 percent fat on
average. In order to produce non-fat milk or/and standardize pasteurized milk, the cream must
first be separated.
32 | P a g e
The machinery of the project has a capcity of processing 10,000 liters of milk per day.
Production of the plant is assumed to start at 50% and increases by 10% per annum until it
reaches a maximum capacity utilization of 80%.
5.10 Environmental Impact Assessment
Dairy farming have negative impact on water quality and aquatic ecosystems as a result of
runoff containing residual chemicals from fertilizer nutrients, pesticides, veterinary drugs, and
pathogens. The soil and terrestrial ecosystems are altered as a result of land use, cropping
practices, fertilizer and pesticide applications, and manure management. However, Manure, dirty
bedding material, feed rests etc., should be properly handled to minimize the level of pollution.
Wastes from livestock keeping can become a valuable input for growing of staple foods,
vegetables and fruits as crops benefit from nutrients delivered as faces and urine from livestock.
In addition to this, manure, urine and other waste products can be utilized for the production of
biogas. In order to mitigate environmental impact related with the project, the promoter has
undertaken environmental impact assessment and set mitigation mechanism which has been
studied by environmental protection office on April 2014.
Therefore, the promoter should implement all the necessary mitigating mechanisms and adhere
to the conditions set by the respective office in order to minimize impact of implementation of
the project on the Environment and the credit process should follow strictly the implementation
of such direction given by the environmental protection office.
5.11 Implementation Plan
33 | P a g e
2016 2017
September
September
November
November
December
February
January
October
October
August
August
March
Type of Activities
April
June
June
May
July
July
Loan Processing
Installation of electric power
Land development
Borehole drilling and water pump procurement
Building and construction
Procurement of sprinkler irrigation system and Cycle Cycle
tractor and accessories 1 2
Plowing
Harrowing
Seedling and transplanting
Fertilizer applying
Weeding, Spraying of Pesticide and Cultivation
Harvesting
Importing milk processing plant
Procurement of vehicle
Procurement of generator
Procurement of dairy cows
Procurement Compound Animal Feed
Installation and testing of milk processing plant
Procurement of office furniture & equipments
Procurement of milk processing auxiliary
equipments
Recruitment of employees
Procurement of packing materials & other inputs
Commencement of Operation
Table 5.5: Implementation Schedule
34 | P a g e
VI. ORGANIZATION AND MANAGEMENT
6.1 Organizational Structure

The project under consideration is planned to be headed by the General Manager, who is
responsible to control the activities of all staffs and operations of the organization. Under the
General Manager, there will be a Quality control unit and major operations are performed by the
middle level of management that consists of the heads of Production Department, Administration
and Finance Department and Marketing Department. Production Department is further divided
into milk processing, dairy farm, and feed production divisions. Under all management levels
there will be subordinate and assistant workers as deemed necessary.
Hence, summarized organizational structure of the project which has been prepared in line with
the organization structure stated in the commodity study, is shown hereunder:
Figure 6.1: Organizational Structure of the project
GENERAL MANAGER
Project
Manager
Administration & Finance

Production Department Marketing Department Department
Milk Processing & Quality Sales

Control Division Division
Administration Division
Dairy Farm Purchase Finance

Division Division Division
Human Resource
Forage Production Division
Mgt Division
35 | P a g e
6.2 Project Management
The general manager and the owner of the project, Ato Beshire Mohammed Tussa is terminated
his academic background at grade 8th which is far below the standard of research commodity
study as it requires MSC/BA degree with 5 years of work experience. As per the due diligence
report shows, he has four years experience as Business Development Manager at Universal Adult
Day care (Foreign Company). However, this seems somehow controversial. Therefore, even
thought his work experience is expected to help him manage the project with the sense of
ownership, it is recommended that the promoter has to hire other qualified and experienced
managers and professional for the technical supports. The general manager needs strong
assistance from the other department managers.
Regarding other departmental managers, the Project manager is Ato Muhammed Wabe Tussa
who has Degree in Rural Development & Agricultural Extension on March 2012 from Haramaya
University. He has good educational qualification and eleven months of experience in
Government office as supervisor. All together, since dairy farming requires relevant academic
background and experience, the promoter should hire experienced Diploma and/ or Degree
holders of Veterinary and/or Animal science professionals.
Besides, the remaining professional manpower are planned to be recruited on the process of
finalizing the implementation and start-up of the operation. Based on the organizational
structure, planned required number of human resource with their respective remuneration scale is
depicted below.
36 | P a g e
Table 6.1: Manpower plan and with their respective salary
Sr. No of Salary Scale Monthly Annual
Categories of staff
No. Employee (Birr) Salary (Birr) Salary (Birr)
General Manager Office 130,800
I 1.1. General Manager 1 8,500 8,500 102,000
1.2. Senior secretary 1 2,400 2,400 28,800
Production Department 108,000
2.1. Department Head 1 7,200 7,200 86,400
2.2. Secretary 1 1,800 1,800 21,600
2.1. Milk Processing Division 473,280
2.1.1. Division Head 1 6,320 6,320 75,840
2.1.2. Laboratory Technician 2 3,160 6,320 75,840
2.1.3. Machine Operator 8 2,450 19,600 235,200
2.1.4. Milk Collectors 4 1,800 7,200 86,400
2.2. Dairy Farm Division 219,840
2.2.1. Division Head 1 5,520 5,520 66,240
II
2.2.2. Cow Wards Attendants 2 1,000 2,000 24,000
2.2.3. Heifer Ward Attendants 2 1,000 2,000 24,000
2.2.4. Calves Ward Attendants 2 1,000 2,000 24,000
2.2.5. Milkers 8 850 6,800 81,600
2.3. Forage Farm Division 191,760
2.3.1. Division Head 1 5,520 5,520 66,240
2.3.2. Agronomist/ Plant Science 1 3,160 3,160 37,920
2.3.3. Farm Protection Expert 1 2,750 2,750 33,000
2.3.3. Field Supervisor 1 2,750 2,750 33,000
2.3.4. Tractor Drivers 1 1,800 1,800 21,600
Administration & Finance Dep't 296,520
4.1. Department Head 1 4,060 4,060 48,720
4.2. Personnel 1 2,570 2,570 30,840
4.3. Accountant 1 2,000 2,000 24,000
IV 4.4. Cleaner & Messenger 6 750 4,500 54,000
4.5. Guards 2 850 1,700 20,400
4.6. Mechanic 1 2,000 2,000 24,000
4.7. Electrician 1 2,000 2,000 24,000
4.8. Drivers 4 1,470 5,880 70,560
Marketing Department 172,080
5.1. Department Head 1 4,060 4,060 48,720
V
5.2. Sale persons 2 2,570 5,140 61,680
5.3. Purchaser 2 2,570 5,140 61,680
Grand Total 61 1,592,280
37 | P a g e
6.3 Manpower Requirement and Training
Training is a process of enhancing the skills, capabilities, and knowledge of employees for doing
a particular job. It is crucial for organizational development and success. It is fruit full to both
employers and employees of an organization. An employee will become more efficient and
productive if he/she is trained well. As a result, continuous and related training is recommended
as deemed necessary.
Employee remuneration and benefit are also an important factor for employee’s productivity.
Employee remuneration refers to the reward or compensation given to the employees for their
work performances. Similarly, benefits are any perks offered to employees in addition to salary.
The most common benefits are medical, disability and life insurance, retirement benefits and
fringe benefits. Both remuneration and benefits provide basic attraction and motivation to an
employee to perform job efficiently and effectively. These all are considered and included in
project cost. Therefore, the promoter is expected to work hard on their implementation for
success of the project.
38 | P a g e
VII. FINANCIAL ANALYSIS
7.1 Fund Allocation

The total project cost is estimated to Birr 61,622,728. Among these, Birr 7,192,092 is existing
investment which has already been executed by the promoter as well as the remaining
Birr 54,430,636 is the planned investment cost. Out of the total investment cost, Birr 47,561,718
is fixed assets, Birr 4,000,000 is planned for dairy herd, Birr 3,044,053 is pre-production cost
and interest, and the remaining Birr 7,016,957 is planned to be working capital cost of the
project. The detail is depicted on the below table.
Table 7.1 Fund Allocation

Planned
Existing Total
Sr. Investment Percentage
Description Investment Investment
No. Share (%)
(Birr) (Birr)
(Birr)
1 Land Compensation 1,678,975 - 1,678,975
2 Land Development - 353,751 353,751
Borehole Drilling & Submersible
3 - 2,812,262 2,812,262
Water Pump
4 Building and Construction 5,143,482 7,648,435 12,791,917
5 Sprinkler Irrigation System - 4,887,500 4,887,500
6 Tractor and Accessories - 2,314,667 2,314,667
Milk Processing Plant Machineries 77%
7 - 13,942,293 13,942,293
& Equipments
8 Vehicles - 3,456,905 3,456,905
9 Generator - 1,365,000 1,365,000
10 Office Furniture & Equipments - 314,401 314,401
11 Auxiliary Equipments - 232,000 232,000
12 Electricity Installation - 3,412,048 3,412,048
Sub-total 6,822,457 40,739,262 47,561,718
13 Dairy Animals - 4,000,000 4,000,000
6%
Sub-total - 4,000,000 4,000,000
14 Pre-production Cost 369,635 - 369,635
15 Pre-production Interest - 2,674,418 2,674,418 5%
Sub-total 369,635 2,674,418 3,044,053
16 Working Capital - 7,016,957 7,016,957
11%
Sub-total - 7,016,957 7,016,957
Grand Total 7,192,092 54,430,636 61,622,728 100%
Proportion of Existing Vs Plan 12% 88% 100%
39 | P a g e
7.2 Source of Fund
Since the requested loan is meant for new project establishment, the project is expected to
contribute 25% of total project cost which amounted to Birr 15,519,120. Out of which
Birr 7,192,092 is existing investment and Birr 8,327,028 is equity to be raised in cash. The
remaining 75% of the total project cost which amounted to Birr 46,103,608 will be financed by
DBE loan. The detail source of fund is depicted on the table below:
Table 7.2: Source of Fund

Owner's Equity
Contributio Total Equity DBE Loan
Sr. Existing Total Cost
Description n Contribution
No. Investment (Birr)
In Cash (Birr)
(Birr)
(Birr) (Birr)
1 Land Compensation 1,678,975 - 1,678,975 - 1,678,975
2 Land Development - 353,751 353,751 - 353,751
Borehole Drilling &
3 - 843,679 843,679 1,968,583 2,812,262
Submersible Water Pump
4 Building and Construction 5,143,482 2,294,531 7,438,012 5,353,905 12,791,917
5 Sprinkler Irrigation System - 1,466,250 1,466,250 3,421,250 4,887,500
6 Tractor and Accessories - 694,400 694,400 1,620,267 2,314,667
Milk Processing Plant
7 - - - 13,942,293 13,942,293
Machineries & Equipments
8 Vehicles - - - 3,456,905 3,456,905
9 Generator - - - 1,365,000 1,365,000
Office Furniture &
10 - - - 314,401 314,401
Equipments
11 Auxiliary Equipments - - - 232,000 232,000
12 Electricity Installation - - - 3,412,048 3,412,048
Sub-total 6,822,457 5,652,610 12,475,067 35,086,651 47,561,718
13 Dairy Animals - - - 4,000,000 4,000,000
Sub-total - - - 4,000,000 4,000,000
14 Pre-production Cost 369,635 - 369,635 - 369,635
15 Pre-production Interest - 2,674,418 2,674,418 - 2,674,418
Sub-total 369,635 2,674,418 3,044,053 - 3,044,053
16 Working Capital - - - 7,016,957 7,016,957
Sub-total - - - 7,016,957 7,016,957
Total 7,192,092 8,327,028 15,519,120 46,103,608 61,622,728
Percentage D/E Ratio 25% 75% 100%
40 | P a g e
7.3 Expected Financial Results
Here, our objective is to provide information about the financial position, performance and
changes in financial position of the project to make rational economic decision. Hereunder,
we will try to look Profit/loss or income statement forecast, cash flow and balance sheet
projection, financial rate of return and sensitivity of the project for potential variables.
7.3.1 Profit/Loss Forecast
Profit/loss forecast presents the results of project’s operations during a period of time. It
shows income earning from the project and expenses incurred in attaining the income. The
projected profit/loss statement of the project reveals that the project will earn profit of
Birr 1,954,255 during its first year of its operation and earn profit of Birr 9,670,966 during
the 10th year of projection. This indicates that the project could run profitable business
venture and can maintain objective of its establishment at competitive quality and price.
7.3.2 Cash flow forecast
Cash flow projection provides a look at the movement of cash in and out of the project. It is
important in determining whether or not a project has enough cash to pay its bills, handle
expenses and acquire assets. Thus, it is important to give due attention to identify whether
the total inflows of the project have the capacity to cover all cash outflows during its
operational period. Unless, the project will faces liquidity crisis and fail before achieving its
objective of establishment.
Based on this fact, the forecasted cumulative cash balance shows a balance of
Birr 4,722,526 in the first year and will grow up to Birr 58,898,222 at the end of project
period, demonstrating that the project will not face liquidity constraint to finance its
operational costs as well as debt obligation.
7.3.3 Balance Sheet Projection
Balance Sheet Projection is used to provide insight into assets and debts of the project at a
particular point in time. Total assets of the project expected to rise from Birr 61,622,728
during the first operational year to Birr 86,673,371 at the end of 10th project year.
41 | P a g e
7.3.4 Financial Rate of Return
Net Present Value (NPV) Internal Rate of Return (IRR)

Before Tax 39,193,930 24
After Tax 24,401,742 20
7.3.5 Sensitivity Analysis
Under sensitivity analysis we tried to made assessments that compares the expected results
with possible results. The profitability of the project will vary under various circumstances
that could possibly happen. Thus, the project's sensitivity to adverse circumstance is
analyzed from three different scenarios: decrease in sales revenue by 10%; increase in
operating costs by 10% and increase in investment costs by 10%.
i. Decrease on Revenue
Based on financial our findings, when revenue decreases by 10% after tax IRR of the project
reduced from 18 % to 13%. From this, we can say that the project is viable and can achieve
its objective of its establishment even in an adverse circumstance that may happen and
trigger to reduce its revenue by 10%.
ii. Increase on operating Cost
Also, if the operating costs of the project may increase by 10% due to unforeseen
circumstances; other things remain constant, after tax IRR of the project anticipated to
reduce to 15%. This means, still the project has the capacity to cover its costs and make
profit for stakeholders.
iii. Increase on Investment
When investment costs increase by 10%, after tax IRR of the project anticipated to be 18%.
To sum up, the project is more sensitive to the sales performance. As a result, the project
should give more focus on pricing strategy and try to maximize its sales performance as
much as possible. Whatsoever will happen, the project has the capacity to absorb external
shock and attain its objectives of its establishment.
42 | P a g e
VIII. SOCIO ECONOMIC BENEFIT
As our country is among the world fastest growing countries, development and
establishment of such processing industries are very important unquestionably. It is possible
to state enormous reasons. Among, the followings are some of it:
 Increase Foreign Currency Saving: Milk products contribute significant foreign

currency earnings in the past five year by substituting those imported and from
export.
 Create Job Opportunity: The contribution of dairy in other social and economic
aspect as job opportunity creation for a lot of workforces and there by salary/wage
income generation for the employees is also significant. The number of workers
engaged in the sub sector is increasing for the last consecutive years. The project is
expected to create permanent employment opportunity for about 61 skilled, semi-
skilled and unskilled workers.
 Source of Government Income: government get income in the form of personal

income tax from permanent and temporary employee, and profit tax from the
business and in average the government will get Birr 5,908,248.
 GDP Contribution: The dairy sub sector is the major contributor for economic
growth of the nation in Livestock sector.
 Linkage Effects: As it is obviously known, large share of raw milk is not

marketable and used for household consumption due to lack of societal awareness
and market access. As a result establishment of this project will create market for
raw milk produced by the nearby farmers and they can generate revenue and
43 | P a g e
IX. CONCLUSION AND RECOMMENDATION
9.1 Conclusion
Even though Ethiopia holds large potential for dairy development, the country hasn’t been
benefited from the sector to the extent that is expected to be. As a result, the government has
given a due focus to eradicate bottleneck associated with the sector and supporting those
who engaged and motivating to involve in the sector. Along with government strategy, DBE
has also set dairy farm and milk processing projects among the priority area projects so as to
provide financial as well as technical support.
Accordingly, the dairy farm and milk processing project initiated by Beshir Mohammed
Irrigated Forage Production, Dairy Farm & Milk project is one of the aforementioned type
project that will help the current economic growth of the country. The project has various
socio-economic benefits for the owner, for the society, for the government as well as for the
country as the whole. It will be the potential market for the nearby farmers for their raw
milk which otherwise consumed or/and wasted. This increases the income of the farmers
and improves their living standard. The project will also increase productivity as well as
domestic production of the country. Besides, the project will also create employment
opportunity and generate government income through tax.
Also, while we conducted essential analysis and financial projection, we have found that the
project is viable in all aspects of analysis. As a result, the assigned appraisal team suggested
financing this project is creditable.
9.2 Recommendation
Thus, considering all the above findings, the assigned appraisal team found that financing
the proposed project for its implementation is commendable and appropriate. Therefore, the
team has proposed and approved the total loan amount of Birr 46,103,608 at its level with
the following terms and conditions:
44 | P a g e
9.3 Terms and Conditions
9.3.1 Terms
A. Disbursement Condition
 Equity Release Schedule
Amount to Balance in
Equity Expected Months
be Released Commitment To be
Release Purpose of Release (Birr) to be Released
Released to
Plan (2016/17)
(Birr) 8,327,028
Pre-production Interest 2,674,418 DBE To be blocked in
cash following
5,652,610
Sub-total 2,674,418 loan contract
registration
Land development (100% of
353,751 The contractor
land dev't cost)
Borehole Drilling (30% of
843,679 The contractor
borehole drilling cost)
Building and Construction
(30% of planned building and 2,294,531 The contractor
1st construction cost.
Equity Procurement of sprinkler - August
Release irrigation system (30% of the 1,466,250 The supplier
cost for LC opening
Procurement of tractor and
accessories (30% of the cost 694,400 The supplier
for LC opening
Sub-total 5,652,610
Total Equity to be Blocked in Cash 8,327,028
45 | P a g e
 Loan Disbursement Schedule
Balance in
Loan Amount to be Commitment To be Condition for Months to be
Disbursement Purpose of Disbursement Disbursed (Birr) Disbursed to Disbursement Disbursed
Plan (Birr)
46,103,608
Installation of electric power (100% of electric
3,412,048 The EEPCo After signing loan
installation cost)
Borehole Drilling (35% of borehole drilling cost) 984,292 The contractor contractual agreement
1st
39,030,316 and confirmation of Oct-2016
Disbursement Building and Construction (35% of planned
2,676,952 The contractor effective utilization of
building and construction cost.
equity released.
Sub-total 7,073,292
Borehole Drilling (35% of borehole drilling cost) 984,292 The contractor
Building and Construction (35% of planned
2,676,952 The contractor
building and construction cost.
Procurement of sprinkler irrigation system
3,421,250 The supplier
(Remaining 70% for LC settlement
Procurement of farm machineries & equipments After verification of the
nd (Remaining 70% for LC settlement effective utilization of
2
Procurement of milk processing machineries and 25,787,579 previous disbursement Dec-2016
Disbursement
equipments (30% advance payment for LC 4,182,688 The supplier and arrival of imported
opening) items.
Working capital for forage farm
Seed and fertilizer cost 223,523 The supplier
Labor and machine operation cost 133,766 The promoter
Sub-total 13,242,737
Procurement of vehicle (30% advance payment for
LC opening)
Procurement of generator (30% advance payment
409,500 The supplier After verification of the
3d for LC opening)
Procurement of dairy herd- 1st Round 2,000,000 21,782,050 The supplier effective utilization of Feb-2017
Disbursement
Working Capital for procurement of compound previous disbursements.
558,958 The supplier
animal feed
Sub-total 4,005,529
Loan Purpose of Disbursement Amount to be Balance in To be Condition for Months to be
46 | P a g e
Disbursement Disbursed Commitment
Disbursed to Disbursement Disbursed
Plan (Birr) (Birr)
Procurement of milk processing machineries and After verification of the
th equipments (Remaining 70% for LC settlement) effective utilization of
4
10,022,445 previous disbursements Apr-2017
Disbursement Procurement of dairy herd- 2nd Round 2,000,000 The supplier
and arrival of milk
Sub-total 11,759,605 processing plant.
Procurement of vehicle (Remaining 70% for LC
settlement)
Procurement of generator (Remaining 70% for LC
955,500 The supplier
settlement)
Procurement of office furniture & equipments 314,401 The supplier After verification of the
effective utilization of
Procurement of auxiliary equipments 232,000 The supplier previous disbursements
Working Capital- Remaining working capital and arrival of imported
5th items.
For procurement of additives, chemicals and - Jun-2017
Disbursement 662,943 The supplier
packing materials
For procurement of raw milk and overhead
5,193,355 The promoter
costs coverage
After verification of
The Insurance coverage of dairy herd
Dairy herd and fixed assets insurance 244,413
Company and fixed assets
insurance.
Sub-total 10,022,445
Total 46,103,608 -
47 | P a g e
B. Loan Repayment Schedule
i. Principal Repayment
The principal loan is planned to be repaid every-four-months within 8 (eight) years.
Whereby, the first 5 (five) installment shall be equal amount of Birr 1000,000, the next 18
(eighteen) installments shall be equal amount of Birr 2,163,348 and the last 1 (one)
installment shall be Birr 2,163,344.
ii. Interest Payment
- Pre-operating interest payment of 12% per annum on the outstanding loan balance shall
be blocked upfront in cash.
- Operating interest payment of 12% per annum on the outstanding principal loan balance
and to be paid every four months starting from September 30, 2017.
iii. Commitment Charge
Commitment charge of 0.5% shall be charged on unutilized balance of the loan and shall be
paid along with interest payment.
9.3.2. Conditions
i. General Conditions
 Collateral:- First degree mortgage on entire assets of the project
 Insurance: - Purchase proper insurance policy for the entire fixed assets and inventories of the
project with DBE as a co-beneficiary
 Current Account: - The promoter should maintain the current account with DBE.
 Record keeping: - The promoter should maintain proper record keeping system.
 L/C Opening: - The promoter should use DBE’s L/C facility for both import and export.
ii. Specific Conditions
 The promoter should deposit Birr 8,327,028 in block account for full cost coverage of
pre-production interest and partial cost coverage of borehole drilling, building and
construction, procurement sprinkler irrigation system and tractor and accessories.
 The promoter should present all the receipts for verification of the pre-operating costs
amounting of Birr 369,635 considered in the appraisal report as equity contribution.
 Minor cost variations that may occur during implementation should be covered by the
promoter.
48 | P a g e
X. ANNEXES
- Land Development Costs

- Borehole Drilling and Submersible Water Pump
- Building & Construction Costs
- Farm Machineries & Equipments
- Milk processing machineries & equipments
- Cost of vehicle, generator, office furniture & equipment
- Detail of Investment Costs
- Dairy Herd Assumption
- Herd Projection
- Pen Size Determination
- Value of Dairy Animals Projection
- Dairy Cattles Feed Consumption Projection
- Dairy Cattles Water Consumption Projection
- Treatment & Vaccine and Artificial Insemination Cost
- Milk Production Projection & Cost Determination
- Forage Farm Assumptions
- Milk Processing & Overhead Costs Related Assumptions
- Production & Revenue Projection
- Operating Cost Determination
- Working Capital Determination
- Loan Repayment Schedule
- Depreciation Schedule
- Profit/Loss Forecast
- Cash Flow Forecast
- Balance Sheet Forecast
- FIRR Projection
- Others
49 | P a g e

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Table of Contents

Description Amount Percentage

II. Revised Source of Fund

Description Amount D/E Ratio

III. Expected Financial Results

Description Year 1 Year-10

IV. Sensitivity Analysis

IRR Before IRR After

2.2 The Project

 Legal Form of the Business: Sole Proprietorship

2.4 Brief History of the Promoter/Project

2.5 Capital Structure

2.6 Business Track Record

2.7 Credit History

Table 2.1: Credit History of the Promoter

Table 2.2: Loan Requested Vs Proposed

7 Generator - 1,365,000 1,365,000 Based on the submitted feasibility study, it was

3.3 Risk Mitigating Measures

4.1 Domestic Market

Table 4.1: Recommended daily amount of milk

Description Age group, years Daily required amount

C. Demand forecasting for Raw Milk

Dt= d0*Nt (1+y*e) t

Table 4.2: Forecasted demand for raw milk

D. Estimation of Demand for Processed Dairy Products

E. Demand Projection for Processed Dairy Products

Cow Milk Butter & Ghee Cheese

Table 4.4: Production of whole milk

ii. Raw Milk Utilization at the Household Level

Table 4.5: Raw milk Utilization

Table 4.6: Whole Cow Milk Supply in Ethiopia

iv. Supply Projection

v. Production of Processed Dairy Products

vi. Import of Processed Dairy Products

Table 4.9: Import of dairy products (Kgs)

Items 2006 2007 2008 2009 2010 CAGR

vii. Supply Projection

Table 4.10: Supply Projection

4.1.3. Demand- Supply Gap

B. Processed Dairy Products

Pasteurized Milk (Liter) Butter and ghee (kg) Cheese (kg)

4.2. Marketing Channels

Figure 1: Marketing Channel

4.3. Price and Price Trend

4.4. Strategies of the Promoter

4.4.1. Raw Milk Collection Strategy

5.2 Land utilization plan & Forage production

5.3 Agro-ecological Suitability of the Project

5.4 Land Ownership

5.5 Plant Layout and Civil Work

Table 5.1: Existing Building and Construction

Table 5.2: Planned Building and Construction

Sr. Area No. of Unit Block Total Block

5.6 Machineries and Equipments

As it is obviously known, selection of machineries and equipments has critical importance on

Table 5.3: Milk Processing Machineries and Equipments

5.6.2 Farm Machineries and Implements

Table 5.4: Planned Farm Machineries and Implements

5.6.3 Trucks and Vehicles

Dt= d0Nt (1+ye) t